David Kirkpatrick

August 9, 2010

SEC knocking at the door? Cooperate

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 11:18 am

Well, unless you’re certain you’ll be found innocent of any charges the SEC is bringing to bear. If you’re eventually going to get nailed, cooperating will garner a lower penalty.

From the link:

A new study finds that it may pay — at least in dollar terms — to help the SEC by sharing results of internal investigations and keeping the public informed when something has gone awry. Rebecca Files, an accounting professor at the University of Texas at Dallas, claims that while cooperating with the SEC increases a company’s likelihood of getting sanctioned, being both cooperative and forthcoming in information shared with investors can result in lower penalties. “It’s just like going to the cops and turning yourself in,” she says. “You’ll still have to pay some cost for your actions, but the penalty will be significantly reduced.”

Files based her findings on a study of 1,249 restatements made between 1997 and 2005, 10% of which resulted in a sanction against the company or its managers. She drew her conclusions on how forthcoming companies were about their problems in press releases and 8-Ks, as well as how quickly they came forward after a problematic reporting period. Since the SEC’s dealings with these companies occur behind closed doors, she could not know how fully cooperative they were in any investigation.

July 13, 2010

House passes Dodd-Frank Wall Street Reform and Consumer Protection Act

Some employment related details on the legislation that’s now been sent to the Senate for a vote in the week or so:

  • Corporate governance: The legislation gives shareholders a say on pay and proxy access, ensures the independence of compensation committees, and requires companies to set clawback policies to take back executive compensation based on inaccurate financial statements, seen as important steps in helping shift management’s focus from short-term profits to long-term growth and stability.
  • Hedging rules: The SEC is directed to adopt rules requiring a company to disclose whether any employee or director is permitted to purchase financial instruments designed to hedge the market value of equity securities granted to the employee or director as part of his or her compensation.
  • Executive compensation disclosure: The SEC is required to amend Item 402 of Regulation S-K to mandate disclosure of the median of the annual total compensation of all employees, except the CEO; the annual total compensation of the CEO; and the ratio of the two.

Update 7/16/10 — the bill passed the Senate with a 60-39 vote.

February 25, 2010

New SEC rule is a short-selling speed bump

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:44 pm

I stridently opposed restrictions on short-selling last April, but added this caveat:

I agree some regulation [ … kills me to write that] in the financial and public sector needs to come to pass, but this accomplishes nothing aside from cheap public relations. If the markets are so weak selling short is capable of breaking them, maybe they should be broken.

Not too sure this move by the SEC is the answer, but it does seem measured and could well fall under the “some financial regulation is necessary” rubric I created in the previous blog post. I don’t like the idea the SEC is stifling the open market, but given the amount of pure jacking around the market has endured over the last two years, curbing “spiraling sales sprees” is probably not that bad an idea. It’s tough to remain a market purist in the face of market failure and the reality of ongoing market tinkering.

From the second link:

Federal regulators on Wednesday imposed new curbs on the practice of short-selling, hoping to prevent spiraling sales sprees in a stock that can stoke market turmoil.

The Securities and Exchange Commission, divided along party lines, voted 3-2 at a public meeting to adopt new rules.

The rules put in a so-called “circuit breaker” for stock prices, restricting for the rest of a trading session and the next one any short-selling of a stock that has dropped 10 percent or more.

Short-sellers bet against a stock, in a practice that is legal and widely used on Wall Street. They borrow a company’s shares, sell them and then buy them when the stock falls and return them to the lender — pocketing the difference in price.

The SEC move followed months of wrestling with the controversial issue. The SEC asked for public comment last April on several alternative approaches to restraining short-selling, and a bipartisan group of senators have been pushing the agency to act or face legislation.

The agency got more than 4,300 comments on the issue.

November 7, 2009

SEC football officials are either on the take …

Filed under: Sports — Tags: , , , , — David Kirkpatrick @ 7:04 pm

… very high or just incompetent. The new conference rule fining coaches who complain about the officiating is crazy. The zebras make NBA officials look good and that’s saying something.

And this post is coming from someone who thinks college football is an almost impossible-to-watch game played by kids who’ll never make it in the NFL aside from the few hundred that end up on NFL rosters each new season.

The SEC ought to be very very embarrassed by its officiating, particularly the replay booth work.

So conference executives which is it — bribery, drug use or lack of ability?

April 28, 2009

One bit of Madoff fallout?

A Securities and Exchange Commission with bared teeth and an ax to grind.

From the link:

In the annals of Ponzi schemes, Shawn Merriman is small potatoes. But when the Securities and Exchange Commission announced April 8 that it had charged Merriman of Aurora, Colo. with fraudulently obtaining $17 million to $20 million, the agency’s new director of enforcement, Robert Khuzami, seized on the news. “We pursue Ponzi schemes with a great sense of urgency,” he said, “and bring cases swiftly and successfully to protect investors.”

During the first three months of 2009, the SEC has brought over two-dozen emergency enforcement actions to “halt an ongoing fraud,” added Khuzami. Nine of the cases announced by the agency this year were related to Ponzi schemes; over the same period in 2008, there were none. Observers haven’t had to look far for the reason for the sudden interest.


February 14, 2009

Halliburton settles bribery charge

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 12:14 pm

KBR, back when it was still part of Halliburton, bribed Nigerian officials during the construction of a natural gas plant. Halliburton recently settled with the U.S. government in the case to the tune of almost $560M. It still faces charged in the EU and Africa.

Here’s an EnerMax post of mine from this week on the settlement:

Oil and gas services company, Halliburton, settled charges that one of its divisions engaged in bribing Nigerian officials. The settlement came to a $559 million payout to the Justice Department and the SEC. This figure is the largest paid by any U.S. company facing bribery charges.

The charges stemmed from the construction of a gas plant in Nigeria. The investigation began back in 2003 and the matter is still being pursued in Europe and Nigeria so Halliburton still faces potential additional fines and possible sanctions.

From the Wall Street Journal:

The U.S. government’s case received a boost in September when former Halliburton executive Albert J. “Jack” Stanley agreed to plead guilty to orchestrating $180 million in bribes to senior Nigerian officials. Mr. Cheney promoted Mr. Stanley to run KBR in 1998.The charges against Mr. Stanley relate to work done by former Halliburton unit Kellogg, Brown & Root, which was spun off in 2007 into a separate company, KBR Inc. Halliburton agreed to pay penalties stemming from the case even after KBR was independent.

It is unclear whether the proposed settlement will affect KBR’s ability to land future government contracts. A KBR spokeswoman said it would discuss the impact of the proposed settlement in February, when it files its earnings.

News of the large settlement comes on the heels of Halliburton reporting a 43 percent drop in fourth-quarter earnings. The settlement includes a payment of $382 million on behalf of KBR to the U.S. Justice Department and $177 million to the Securities and Exchange Commission.

The charges against KBR originated during the construction of a large liquefied natural gas plant near Port Harcourt on the Nigerian Coast. This project began in 1996 and ran through the mid-2000s. The gas plant was the largest industrial investment ever made in Africa at that time.

The previous U.S. record for a bribery investigation also involved the oil and gas industry. Oil-services firm Baker Hughes was fined $44 million in 2007 for improper payments in Kazakhstan.

January 30, 2009

Wall Street ought to burn …

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 1:01 pm

… for this. Given the circumstances, this level of bonusing is inexcusable and if the bailout, SEC and Fed have any teeth at all, this should be punished. I’m a capitalist, and when my business is on rough waters I simply don’t make as much money. I certainly don’t get “bonuses” for failure.

The Wall Street bailout was one of the final shameless and shameful acts of the Bush 43 administration.

From the link:

By almost any measure, 2008 was a complete disaster for Wall Street — except, that is, when the bonuses arrived.

Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year.


That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.

While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.

Some bankers took home millions last year even as their employers lost billions.

January 20, 2009

Missing hedge fund manager

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 6:38 pm

I have a feeling this type of story, and reports of suicide, will continue for a while as rotten apples drop of the financial world’s trees.

From the link:

The F.B.I. and securities regulators have joined the investigation of Arthur Nadel, a Florida hedge fund manager who disappeared four days ago, leaving clients concerned that they might have lost as much as $350 million.

The Federal Bureau of Investigation and the Securities and Exchange Commission are helping on the case, police Lt. Stanley Beishline of Sarasota, Fla., said in a telephone interview.


One of Mr. Nadel’s business partners, Neil Moody, said Mr. Nadel had spoken to his wife, Peg, since he was reported missing. Mr. Nadel, 76, is president of Scoop Management in Sarasota, which oversees funds that include Valhalla Investment Partners. Mr. Moody holds no position in Scoop Management and was a partner with Mr. Nadel only on the Vahalla fund and two Viking funds.

Scoop’s claim to have managed as much as $350 million ”may be high because performance results were exaggerated,” Mr. Moody said in an interview. Mr. Moody said he did not know anything was wrong until Mr. Nadel was reported missing.

Mr. Nadel was last seen by his wife at 8:45 a.m. on Wednesday when he left for work, said Lt. Chuck Lesaltato of the Sarasota County sheriff’s office.

January 6, 2009

SEC is about to get it from Congress

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 2:09 pm

Can’t say it’s undeserved. This year has been an abject failure of the meager regulatory role the SEC has been asked to perform over recent years. There wasn’t much to regulate, and what little was expected either didn’t happen, or was so incompetent it might have not been there at all.

Probably the incompetence was more damaging than no regulation because it gave all these illegal activities the veneer of legitimacy. I think the current crop of SEC officials, starting with Christopher Cox, should be held liable for some measure of the economic pain facing the US right now.

From the link:

Lawmakers on Monday raised a number of regulatory reform ideas for the Securities and Exchange Commission in light of the agency’s failure to identify an alleged $50 billion Ponzi scheme operated by New York investor Bernard Madoff.

“The inability of the SEC to identify failure at the Madoff funds for almost a decade has exacerbated cynicism among investors and delayed recovery [of the financial industry],” said Rep. Gary Ackerman, D-New York.

Madoff, who was arrested in December and charged with securities fraud, oversaw a fund that managed capital for investors of varying income, hedge funds, banks and institutions including foundations, pension funds and charities.

In response to Madoff’s arrest, a number of lawmakers on the House Financial Services Committee said they want to examine whether legislation should be drafted that reforms the way the SEC inspects investment fund managers, how fund accounting firms are regulated and whether agency commissioners should be prohibited from immediately taking jobs in the financial services industry when they finish their stint at the commission.

Others sought more resources for the SEC’s enforcement bureau and raised concerns about the expertise levels of agency fund oversight officials.

December 22, 2008

SEC falling down on the job

Of course this comes as no surprise. During his two terms, Bush 43 has actively undermined government at every turn. I enjoy small govenment as much as any libertarian could, but I also value competence (at the very least) for the government we must have.

Heckuva job there, Georgie.

From the link:

Before his downfall in an alleged fraud that may end up costing investors $50 billion, Wall Street money manager Bernard L. Madoff circulated a promotional message extolling his service to clients.

“Customers know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing and high ethical standards that has always been the firm’s hallmark,” Madoff proclaimed in a brochure designed to drum up more business.

The brochure called attention to the high-tech trading side of his business that was supposedly honestly run and legitimate, but it also offers a glimpse of why the Securities and Exchange Commission was unable to stop Madoff in his tracks despite repeated warnings.

As financial markets have grown increasingly complicated _ which was the case with this part of Madoff’s operation _ the SEC has struggled to keep up with the changes.

The circumstance of this relatively tiny bureaucracy _ 3,567 employees including clerical workers _ is that of an agency overwhelmed.

December 19, 2008

Obama names three financial regulators

Getting the entire economic/finance team in place is a must-do for Obama. He’s walking into a mess of  a situation.

From the link:

President-elect Barack Obama on Thursday named three veteran regulators to round out his economic team and vowed to revamp regulatory rules to prevent a repeat of the financial and economic debacles the country is suffering through.

His announcement came as he lays the groundwork for a giant economic stimulus package, possibly $850 billion over two years, aimed at reviving the flagging economy. It would rival drastic government actions taken to fight the Great Depression in the 1930s.

Obama blamed regulators for the financial debacle, saying they “dropped the ball.” Regulators, he said, “have been asleep at the switch.”

American people, watching their investments tank, are frustrated that “there’s not a lot of adult supervision out there,” Obama added.

At a Chicago news conference, Obama named Mary Schapiro to chair the Securities and Exchange Commission, Gary Gensler to head the Commodity Futures Trading Commission and Daniel Tarullo to fill an empty Federal Reserve seat. All three will need to be confirmed by the Senate next year.

SEC to require online interactive filings

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 11:31 am

The commission voted in use of XBRL for company filings to be fully implemented in 2014. This move will be a boon for investors in terms of getting public company much more quickly and hopefully in a somewhat less arcane manner.

I’ve done quite a bit of business reporting and had to dig through many, many quarterlies and other various filings. Right now it’s something of an art form to pull the information or number you really want out of those things.

From the link:

Financial disclosures by public companies and mutual funds will be provided in an online interactive format in the next few years under rules adopted Wednesday by federal regulators.

The changes will make it easier for investors to analyze financial data from companies, and the risk and return information provided by mutual funds in prospectuses, Securities and Exchange Commission officials said.

The SEC voted 4-1 in a public meeting to require companies and mutual funds to begin using the so-called XBRL, or extensible business reporting language, in their regulatory filings under a phased-in schedule for companies culminating in 2014. The deadline is Jan. 1, 2011, for mutual funds.

Commissioner Luis Aguilar voted against adopting the rules. He objected to the limitation of legal liability afforded to companies for some types of mistakes in tagging their information.

At a time of market turmoil and shaken investor confidence, Aguilar said before the vote, “We shouldn’t put investors at risk of relying on inaccurate information.”

Many companies already have voluntarily filed their financial data with XBRL data-tagging. Rather than treating financial information as a block of text _ as in a standard Internet page or a printed document _ XBRL language provides a unique identifying tag for each individual item of data, such as company net profit.

That enables users to extract specific information more easily from SEC filings, run calculations and aggregate data as desired. Company revenue, for example, can be tracked over several years without having to open up and review multiple filings.

The XBRL system gets information to investors faster and more reliably, and saves the companies money, the SEC said.

December 18, 2008

A theory on the financial crisis — a science fiction parable

Filed under: Arts, Business, et.al. — Tags: , , , , , — David Kirkpatrick @ 2:22 pm

I’ve been blogging on the current financial crisis since January 31, 2008, just a few weeks after I started this blog. In a way I’ve been a sideline observer as this process has heated up and become more public.

The Fed has been pretty busy behind the scenes for a while now (at least around two years) attempting to avoid what has become daily lead stories across broadcast and print media. Clearly these moves have been complete failures. I’m sure the Fed and SEC would argue things would be much worse without their interventions and policy tweaks.

I don’t know about that.

What is clear is we are in uncharted territory. And the government bodies in charge of fiscal policy don’t really have a clue what is going on. Credit default swaps, investment derivatives and other exotic high finance tools? Looks like no one really understands them. Not the parties using these tools, not the regulatory agencies charged with monitoring that use and certainly not the average investor whose money has been tied (maybe by a noose around the neck) to machinations of high finance.

Now don’t get me wrong — at some point high finance truly does become almost magical alchemy. It’s no longer balance sheets and stacks of physical money, it’s more arcane incantations, esoteric handshakes and ephemeral figures written on the sands of an imaginary beach.

Given all this, my theory is maybe it really is magic. Since a lot of the highest order finance these days is totally driven by computers and algorithms no single person understands, maybe a native artificial intelligence grew unbeknownst to anyone involved in the industry and is now rising against its masters. 2009 may become the Age of the Machine.

Hey, it’s as good an excuse as anything I’ve heard from Wall Street or DC for this mess. And makes about as much sense.

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Mary Schapiro to head Obama’s SEC

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:47 pm

She has quite the job ahead of her.

From the link:

President-elect Barack Obama nominated Mary Schapiro as the next chairman of the Securities and Exchange Commission, calling on her to help overhaul the troubled U.S. regulatory system.

Obama said Schapiro, a one-time acting SEC chairman and a political independent, who currently heads the Financial Industry Regulatory Authority, is “known as a regulator both smart and tough, so much so that she’s been criticized by the very industry outsiders who we need to get tough on.”

Also from the link:

Noting that it’s rare for a president-elect to designate a new SEC chairman before taking office, Obama stressed the need for changes in the financial system. He had harsh words for the current administration’s regulatory oversight during a morning press conference, during which he also announced his nomination of former Treasury undersecretary Gary Gensler to chair the Commodity Futures Commission, and of Georgetown law professor Daniel Tarullo for a seat on the Federal Reserve Board.

November 17, 2008

SEC ropes a maverick

I think the SEC has much bigger fish to fry than busting Mark Cuban for adding a portion of one percent to his fortune, but I guess those little regulators need a diversion right now to compensate for the ongoing failure of epic proportions that is the Fed, the Treasury, and the rest of the alphabet soup of financial regulatory bodies.

I’m going to go out on a limb to suggest this action totally squashes Cuban’s tiny hope for owning the Chicago Cubs. MLB is that dumb.

From the link:

The Securities and Exchange Commission said Monday that it had charged Mark Cuban, the billionaire Internet entrepreneur and owner of the Dallas Mavericks basketball team, with insider trading for selling 600,000 shares of an Internet search engine company.

The S.E.C. said Mr. Cuban sold the stock in the company, Mamma.com, based on nonpublic information about an impending stock offering. The commission asserted that Mr. Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering.

The commission filed a civil lawsuit against Mr. Cuban in Federal District Court for the Northern District of Texas, accusing him of violating federal securities laws. It said it was seeking to impose financial penalties and confiscate gains from the trades.

In its complaint, the S.E.C. asserted that Mamma.com invited Mr. Cuban to participate in the stock offering in June 2004 after he agreed to keep the information confidential. The S.E.C.’s complaint asserted that Mr. Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders.

August 8, 2008

Google’s AOL investment …

Filed under: Business — Tags: , , , — David Kirkpatrick @ 5:24 pm

… looks to be heading south. Google is just another company sucked in the financial black hole that is America Online.

Google filed with the SEC yesterday its 5% $1 billion investment from 2005 may be “impaired.”

From the link:

The Mountain View-based company disclosed in a quarterly report filed late Thursday with the Securities and Exchange Commission that the 5 percent AOL stake that it bought in 2005 “may be impaired.” Impairment is an accounting term used to describe an acquisition or investment that has eroded.

Unless there is an about-face, the acquiring company eventually must absorb a charge on its books to account for the diminished value of its holdings.

Google acknowledged for the first time that it might have to recognize a loss on its 5 percent stake in AOL, whose struggles have made it a financial albatross for its owner, Time Warner Inc.

“There can be no assurance that impairment charges will not be required in the future, and any such amounts may be material,” Google said of its AOL investment.

June 27, 2008

Is the SEC growing instead?

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:22 pm

This post is a follow-up to one earlier this week about a Wall Street Journal article stating the SEC is on its way out and the way the Bear Stearns debacle was handled is a symptom of the disease within the commission.

Christoper Cox, current chairman of the SEC, has vehemently fired back (albeit internally) in response to Monday’s WSJ story.

From the second link:

Rarely in its 74-year history has the Securities and Exchange Commission been so squarely on the griddle, with new reforms seeming to target its very existence and Chairman Christopher Cox personally being criticized as “peripheral,” in the words of a critical Monday profile on the Wall Street Journal’s front page.

Cox has said little publicly about the criticism, much of which relates to his and the SEC’s role in dealing with the collapse of Bear Stearns and its later bailout managed by the Fed. But in internal memos made available to CFO.com, the chairman clearly seems to be simmering close to the boiling point.

In a 17-paragraph memo to the entire SEC staff that started with a note that he was “very disappointed” by the Journal story, Cox defended the SEC’s role in dealing with Bear as “one of a high degree of inter-agency cooperation.” And he noted that the SEC’s position in the case of the bailout was legally limited because the agency could not be “cast in the role of regulator of the merger and also potentially enforcer of the laws against fraud in connection with the transaction.”

June 25, 2008

Is the SEC on its last legs?

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 5:45 pm

According to one former commissioner, no.

From the link:

Some suggest that the Securities and Exchange Commission is hurtling toward extinction. On Monday, for example, a Wall Street Journalfront-page analysis of Chairman Christopher Cox’s “low key leadership” — especially during the Bear Stearns crisis — described Treasury Secretary Henry Paulson’s recent blueprint for regulatory reform as containing a proposal “to eliminate the SEC and shift responsibility for Wall Street to the Fed.”

Not likely, says former SEC Commissioner Arthur Levitt, now a senior advisor in New York for The Carlyle Group. In a telephone interview with CFO.com, Levitt noted that there have been a range of interpretations of the Treasury secretary’s comments about the future of the SEC. “Rest assured. Congress will have the last word, and the SEC is not likely to go away,” said Levitt, who served as commissioner from July 1993 to Februrary 2001.