Posts tagged SEC

Mary Jo White, President Obama’s nominee to lead the Securities and Exchange Commission, is trying to quell concerns about potential conflicts of interest as she approaches her Senate confirmation hearing. Facing questions about her lack of regulatory experience and her work defending Wall Street clients, Ms. White recently scheduled meetings with members of the Senate Banking Committee and answered a 20-page boilerplate questionnaire, DealBook’s Ben Protess reports.

 http://dealbook.nytimes.com/2013/02/27/the-s-e-c-nominees-charm-campaign/

Financial Reform’s Triple “F” Rating

The examination priorities address issues that span the entire market as well as issues that relate specifically to particular business models and organizations.

The market-wide priorities include fraud detection and prevention, corporate governance and enterprise risk management, conflicts of interest, and technology controls. Priorities in each program area include:

• For investment advisers and investment companies — presence exams for newly registered private fund advisers, and payments by advisers and funds to entities that distribute mutual funds
  
• For broker-dealers — sales practices and fraud, and compliance with the new market access rule
  
• For market oversight — risk-based examinations of securities exchanges and FINRA, and order-type assessment
  
  
• For clearing and settlement — For transfer agent exams, timely turnaround of items and transfers, accurate recordkeeping, and safeguarding of assets. For clearing agencies designated as systemically important, conduct annual examinations as required by the Dodd-Frank Act.

Click here to read the full playbook of the SEC’s program for 2013: http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2013.pdf

The U.S. Securities and Exchange Commission has been trying for four years to convince investors and critics that it’s back on the beat.

As part of that effort, the agency has cited a record number of enforcement actions over the past two years — 734 in fiscal 2012 and 735 the year before — as evidence that an overhaul of its investigative forces has made the regulator smarter, faster and more effective.

“The sustained high-level performance comes two years after the division underwent its most significant reorganization since it was established in the early 1970s,” the SEC said in a November statement when it released the tally. “The results in 2012 were aided by many of the reforms and innovations put in place in the past two years.”

However, an analysis of that data by Bloomberg shows that the SEC filed fewer new actions last year compared to 2009, the year before it reorganized. The agency didn’t surpass those levels in 2011 either.

About 228, or 31 percent, of the 734 enforcement actions were so-called administrative proceedings that institute penalties in cases that were already brought, sometimes years earlier. Examples of administrative actions include barring people who’ve already been found guilty of fraud from working in the industry, or temporarily suspending accountants from practicing before the SEC.

Excluding such follow-on proceedings, the SEC filed 506 original actions last year, fewer than the 520 it filed in 2009, the year before the reorganization. In 2009, 144, or 22 percent, of the 664 total actions were follow-on proceedings.

‘Bad Actors’

“The SEC is the only federal agency that can kick bad actors out of the securities industry,” SEC spokesman John Nester said in an e-mail. “These proceedings are fiercely contested, but it’s hard to see how investors would benefit if we won a fine in court but let the person go on cheating customers.”

When the SEC announced the results in November, then- Chairman Mary Schapiro cited the “innovative reforms” for the results.

“We’ve now brought more enforcement actions in each of the last two years than ever before, including some of the most complex cases we’ve ever seen,” she said.

Penalties Rose

The agency did order $3.1 billion in financial penalties and disgorgement of illegal profits last year compared with $2.4 billion in fiscal 2009. Investigators in specialized units set up under Schapiro also have brought novel electronic trading cases.

On the other hand, the number of actions was buoyed by the most so-called delinquent filings cases since at least 2006. Those cases often entail sanctioning or delisting companies that have stopped filing public statements. Typically, they require little investigation compared to securities fraud cases and aren’t related to the overhaul of the division.

Stock manipulators have used securities with delinquent filings to hype the price before selling the shares into the artificial demand they created, Nester said.

“Rather than wait until investors lose their money, we take the securities off the market before innocent investors are ripped off,” Nester said.

Nearly Half

Taken together, follow-on administrative proceedings and delinquent filings cases made up 48 percent of the enforcement division’s actions in fiscal 2012, compared with 36 percent in 2009, before the enforcement division was reorganized. At the same time, the SEC brought the fewest number of accounting-fraud cases since at least 2003.

In addition, the SEC issued 479 formal orders of investigation last year, down from 496 in fiscal 2009. A formal order authorizes staff to compel testimony and issue subpoenas.

The SEC has struggled for more than four years to beat back criticism that isn’t up to the job of policing markets. Lawmakers, investors and judges have faulted the agency for missingBernard Madoff’s multibillion dollar fraud and for not being tough enough on Wall Street for misconduct that helped fuel the financial market turmoil of 2008.

Schapiro, who was succeeded as chairman by Elisse Walter in December, took over the agency’s helm in 2009, just after Madoff’s multibillion dollar fraud was exposed. To remake the enforcement division, she tapped Robert Khuzami, who eliminated a layer of management and established specialized units in 2010 to focus on areas such as hedge funds, market abuse and structured products. The SEC also established a program to reward whistleblowers and set up a system to sort tips and referrals.

‘Increasing Complexity’

“It’s not simply the numbers, but the increasing complexity and diversity of the cases we file that shows how successful we’ve been,” Khuzami said in the November statement. “The intelligence, dedication, and deep experience of our enforcement staff are, more than any other factors, responsible for the division’s success.”

Khuzami stepped down earlier this month and was replaced on an interim basis by his deputy George Canellos.

The 2012 numbers cited by the SEC include follow-on actions for cases filed last year and in previous years, sometimes prior to Khuzami’s restructuring.

For example, Zvi Goffer, a former trader, was sued by the SEC in October 2009 in connection with the Galleon insider trading case. Goffer was convicted of criminal charges in 2011 and was later sentenced to 10 years in prison. In December 2011, the SEC submitted a three-page follow-on action barring Goffer from association with any broker or investment adviser. That was added to the division’s tally.

In another matter, the SEC sued Preston L. Sjoblom in March 2012 over claims he made false statements to investors about his company. In August, after the court had entered a final judgment against Sjoblom, the SEC filed a follow-on administrative order to bar him from associating with a broker. The SEC counted both actions in the 2012 results.

http://www.bloomberg.com/news/2013-02-22/sec-boosts-tally-of-enforcement-successes-with-routine-actions.html

Mary Jo White, President Obama’s nominee to head the Securities and Exchange Commission upon Mary Schapiro’s exit, may be too good of a lawyer.

Her storied legal career including a partnership with Debevoise & Plimpton, a top New York law firm, could present numerous conflicts of interest as SEC chairwoman.

A portion of her high-profile and fortune 100 clients include JP Morgan Chase & Co., auditor Deloitte & Touche,  former Bank of America Corp. Chief Executive Ken Lewis,  Microsoft, Hess, Verizon , UBS,  Toyota. and Goldman Sachs Group Inc. former outside director Rajat Gupta.

Oh, her financial disclosures indicate that Debevoise & Plimpton LLP  will pay her “… $42,500 a month in retirement pay for life, or more than $500,000 a year”. That is a sizable sum and would open the potential for her having an interest in Debevoise’s future profits, which are earned by representing Wall Street and Banks.

We haven’t even mentioned that her husband, a former SEC attorney, is the co-chairman of the corporate governance practice at Cravath, Swaine & Moore a top-tier law firm with a marquee list of corporate, Wall Street, financial and banking clients.

According to regulatory filings, Ms. White and her husband, John White, have disclosed a net worth of at least $16 million. Surely, that was not earned at the SEC. 

While she may indeed become a great SEC chief, don’t let her non-threatening appearance fool you,  all the hype of  President Obama choosing a tough-anti-wall street-cop may be just hype after all.

She may be another revolving door regulator/attorney/big corporation/rich person looking for the next calculated  and lucrative career move.

Please Read: Chicago Tribune.

Three former brokers at Atlanta-based JP Turner & Co were charged with “churning” by the U.S. Securities and Exchange Commission, which alleged they caused investors big losses while collecting fat fees.

Churning is a fraudulent practice in which brokers disregard the customer’s investment objectives and engage in excessive trading for the purpose of generating commissions and other revenue for themselves or their firms.

The SEC’s enforcement division alleged that brokers Ralph Calabro, Jason Konner, and Dimitrios Koutsoubos engaged in churning while they worked at the company.

They generated commissions and fees of about $845,000 while the defrauded customers suffered losses of about $2.7 million.

The SEC also charged the firm, Head Supervisor Michael Bresner and President William Mello with compliance failure. It ordered the company to pay about $416,051 in interest and penalty as well as its share of the fees earned by the fraud.

JP Turner settled the charges without admitting or denying the findings. It also agreed to hire an independent consultant to review supervisory procedures to prevent future violations, the SEC said in a statement.

Mello has been suspended from associating in a supervisory capacity with a broker, dealer, or investment adviser for five months and has been fined $45,000.

Source: Reuters

We had hoped that the rumors that the SEC was asleep at the wheel while Wall Street lawyers were turning it was overblown.

Again, our hopes have been dashed. Literally. In an e-mail to an SEC commissioner turned Wall Street lawyer named Annette Nazareth, the SEC’s then-Council David Becker referred to reading new Wall Street regulation as “nap time.”

Read more: Businessinsider

In response to numerous technology driven disasters on Wall Street (Knight Capital, Facebook IPO, Flash Crash, etc.), securities regulators will attend a round-table meeting to discuss solutions to promote market stability.

The Securities and Exchange Commission’s September 14 meeting will invite outside professionals to share their thoughts on needed controls, policies and procedures to battle new, growing and challenging technology threats.

 Our prediction of the meeting: lots of talk about how we need to reign in evil technology, heads nodding, chins being stroked in contemplative thought, huremphing, technology guys blaming the business people, business guys blaming the regulators, the regulators complaining that they don’t have enough money to do their jobs and nothing happens.  

Source: Reuters

The U.S. Securities and Exchange Commission is writing new rules in the wake of Knight Capital Group Inc. (KCG)losses that could turn longstanding policies for how exchanges manage their automated systems into regulations.

BofA Law Firm Says Lenders May Need More Mortgage Reserves

Bank of America Corp. (BAC)’s law firm defending the company against MBIA Inc. in a dispute over defective mortgages said that a court ruling in a separate case means lenders should reevaluate their reserves for bad loans.

Standard Chartered Probe Said to Require Up to $700 Million

Standard Chartered Plc (STAN) might be asked to pay as much as $700 million to resolve money-laundering allegations filed by New York’s banking superintendent after his department grew impatient with inaction by federal regulators, a person familiar with the case said.

Higher One Pays Students $11 Million for Unfair Fees, FDIC Says

Higher One Holdings Inc. (ONE) and Bancorp Bank (USB)have agreed to pay civil penalties for their handling of student debit cards, according to the U.S. Federal Deposit Insurance Corp.

Ex-Home Diagnostics CEO Pleads Guilty to Insider Trading

George Holley, former chief executive officer and chairman of Home Diagnostics Inc., pleaded guilty during his trial on insider-trading charges, according to the U.S. attorney’s office in New Jersey.

Ex-Terex CFO Apuzzo Must Defend SEC Case, Appeals Court Says

Joseph Apuzzo, the former chief financial officer of Westport, Connecticut-based Terex Corp. (TEX), must defend a U.S. Securities and Exchange Commission lawsuit claiming he aided an accounting fraud, an appeals court said.

Keating Says Obama ‘Demonizes’ U.S. Banking Industry

Frank Keating, president and chief executive officer of the American Bankers Association, discussed the impact of scandals and President Barack Obama’s remarks on the financial services industry, the importance of community banks and the impact of regulations on bank profitability. 

Read More: Businessweek

It seems that the regulators always arrive AFTER a major regulator disaster.

Bloomberg reports that the SEC is busy writing new rules designed to manage automated trading systems.

It would be understandable if this was the first instance of an algorithmic system going haywire, however we have now experienced several “flash crashes”, “fat finger” errors and other silly-named excuses for trading related blow-ups.

The SEC and other regulators can write as many rules as they like. Unfortunately, the reality is that they, nor the industry itself, has a firm handle on the programs they created.

While Wall Street puts their faith in the rocket scientist PHDs from MIT designing algo systems, the codes and trading systems are just as fallible as an internet site going down or spreading a virus.

The difference, when trading systems develop a mind of their own millions of dollars are lost, the average investor looses confidence in the stock market, regulatory oversight, governmental protection and capitalism itself.

Source: Bloomberg

NYSE Euronext is working with the U.S. Securities and Exchange Commission to address compliance with a rule prohibiting markets from disseminating information to subscribers faster than it is sent to organizations that provide the data publicly.

NYSE Euronext and the SEC are resolving possible violations of “a technical rule governing the timing of delivery of certain exchange market data,” Richard Adamonis, a spokesman, said in an e-mail. “The company does not expect that any settlement of this matter will be material.”

U.S. securities exchanges aren’t allowed to release data about trades and their best bids and offers to clients faster than they send it to the organizations that collect and disseminate it publicly. Exchanges earn money from the sale of subscriptions to proprietary and public data feeds, or streams of information.

Read More: Businessweek

In a bold move of chutzpah Knight Capital Chief Executive Office Thomas Joyce called Securities and Exchange Commission chief Mary Schapiro to ask her if Knight could cancel the erroneous trades.

Due to the heat endured by the SEC concerning past “flash crashes”, Ms. Schapiro was not inclined to honor his request.

I guess it can’t hurt to at least ask…

Source: Wall Street Journal

The top U.S. securities regulator said government lawyers are trying to determine if Wednesday’s big trading blunder at Knight Capital Group violated a new rule designed to protect the markets from rogue algorithmic computer trading programs.

The Securities and Exchange Commission’s market access rule, which took effect last year, requires brokers to put in place risk control systems to prevent the execution of erroneous trades or orders that exceed pre-set credit or capital thresholds.

The rule gets at the heart of what went wrong on Wednesday at Knight, after a software error led the brokerage to flood the market with erroneous orders over the course of 45 minutes.

Read More: Chicagotribune

As concerns rise about the state of America’s cities and the bond markets where they raise money, federal regulators on Tuesday called for broad reforms, while noting that some of the most rudimentary changes would require an act of Congress.

The Securities and Exchange Commission said, for example, thatmunicipal bond investors were entitled to basics like audited financial statements — something investors in stocks take for granted — but said it could not force municipalities to undergo audits unless Congress gave it that power.

“We think we’re at the edge of the current authority that we have,” said an S.E.C. commissioner, Elisse Walter, in a conference call with journalists to explain the content of a 165-page report on the municipal securities market and the commission’s recommendations. As a practical matter, Congress does not typically amend the federal securities laws unless faced with a crisis.

Source: NYtimes