Bank of America Corp. raised $4.7 billion selling structured notes to U.S. investors through June, the most of any issuer and more than its 2009 total, as sales of the securities rose to a record pace.
Banks have sold $22 billion of structured notes to individual investors in the U.S. this year, according to data from regulatory filings compiled by Bloomberg. Sales are on pace to exceed what was a record $38 billion in 2008, according to StructuredRetailProducts.com, a database used by the industry.
The securities are created by banks, which package their own debt with derivatives to offer customized bets to investors while also raising money. Last year, Bank of America sold $4.1 billion of the products, second to Barclays’ $4.5 billion in sales, according to StructuredRetailProducts.com.
Friday, July 30, 2010
Subprime Settlement With New Century Officers
On July 29, 2010, the Commission accepted settlement offers from three former officers of New Century Financial Corporation. Brad A. Morrice, the former CEO and co-founder; Patti M. Dodge, the former CFO; and David N. Kenneally, the former controller, consented to the relief described below without admitting or denying the allegations in the Commission's Complaint. The settlement offers, which have been submitted to the Court for approval, are contingent upon the Court's approval of a global settlement in In re New Century, Case No. 07-931-DDP (C.D. Cal.).
The Commission's complaint alleges, among other things, that New Century's second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business. The complaint further alleges that Morrice and Dodge knew about certain negative trends in New Century's loan portfolio from reports they received and that they participated in the disclosure process, but they did not take adequate steps to ensure that the negative trends were properly disclosed. The Commission's complaint also alleges that in the second and third quarters of 2006, Kenneally, contrary to Generally Accepted Accounting Principles, implemented changes to New Century's method for estimating its loan repurchase obligation and failed to ensure that New Century's backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Century's repurchase reserve and a material overstatement of New Century's financial results. The complaint further alleges that Dodge was told of the methodology changes and the backlog of repurchase requests but did not ensure that they were properly accounted for and disclosed.
To settle the charges, Morrice consented to the entry of a permanent injunction prohibiting him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and the internal controls, false statements to accountants, and certification provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-2 and 13a-14 thereunder; and from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. He also agreed to disgorge $464,354 with $76,991 in prejudgment interest thereon, and to pay a $250,000 civil penalty.
The Commission's complaint alleges, among other things, that New Century's second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business. The complaint further alleges that Morrice and Dodge knew about certain negative trends in New Century's loan portfolio from reports they received and that they participated in the disclosure process, but they did not take adequate steps to ensure that the negative trends were properly disclosed. The Commission's complaint also alleges that in the second and third quarters of 2006, Kenneally, contrary to Generally Accepted Accounting Principles, implemented changes to New Century's method for estimating its loan repurchase obligation and failed to ensure that New Century's backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Century's repurchase reserve and a material overstatement of New Century's financial results. The complaint further alleges that Dodge was told of the methodology changes and the backlog of repurchase requests but did not ensure that they were properly accounted for and disclosed.
To settle the charges, Morrice consented to the entry of a permanent injunction prohibiting him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and the internal controls, false statements to accountants, and certification provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-2 and 13a-14 thereunder; and from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. He also agreed to disgorge $464,354 with $76,991 in prejudgment interest thereon, and to pay a $250,000 civil penalty.
Thursday, July 29, 2010
Citi to Settle With SEC for $75 Million
Citigroup will pay U.S. regulators $75 million to settle charges that it failed to disclose $40 billion in subprime exposure to investors in 2007, the Wall Street Journal reported on Thursday.
Under Citigroup's settlement, the Securities and Exchange Commission will charge the bank with material omission of disclosure requirements, but not with fraud, the newspaper said, citing people familiar with the matter.
The SEC is expected to indicate that Citigroup did not intentionally mislead investors, according to the report.
Citigroup failed to disclose its subprime exposure in the second and third quarters of 2007, according to the settlement, the Journal reported.
Under Citigroup's settlement, the Securities and Exchange Commission will charge the bank with material omission of disclosure requirements, but not with fraud, the newspaper said, citing people familiar with the matter.
The SEC is expected to indicate that Citigroup did not intentionally mislead investors, according to the report.
Citigroup failed to disclose its subprime exposure in the second and third quarters of 2007, according to the settlement, the Journal reported.
Wednesday, July 28, 2010
Raymond James Loses $2.5 Million FINRA Arbitration
A FINRA panel ordered Raymond James to pay $2.5 million to investors who alleged that Raymond James failed to divulge ‘risk of illiquidity' in auction-rate securities market
Raymond James Financial Inc., still carrying $600 million in auction rate securities. The firm is reportedly working to draw down its position in the ARS market, which seized up in February 2008, precipitating the credit crisis. When the market froze, Raymond James clients held $1.9 billion of the securities.
Raymond James Financial Inc., still carrying $600 million in auction rate securities. The firm is reportedly working to draw down its position in the ARS market, which seized up in February 2008, precipitating the credit crisis. When the market froze, Raymond James clients held $1.9 billion of the securities.
Tuesday, July 27, 2010
SEC Awards $1 Million for Information Provided in Insider Trading Case
Securities and Exchange Commission v. Pequot Capital Management, Inc., et al., Civil Action No. 3:10-CV-00831-CVD (United States District Court for the District of Connecticut, Complaint filed May 27, 2010).
The Securities and Exchange Commission today announced the award of $1 million to Glen Kaiser and Karen Kaiser of Southbury, Connecticut, who provided information and documents leading to the imposition and collection of civil penalties in the above litigation. This is the largest award paid by the SEC for information provided in connection with an insider trading case.
The SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Defendants Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).
The Securities and Exchange Commission today announced the award of $1 million to Glen Kaiser and Karen Kaiser of Southbury, Connecticut, who provided information and documents leading to the imposition and collection of civil penalties in the above litigation. This is the largest award paid by the SEC for information provided in connection with an insider trading case.
The SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Defendants Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).
Wednesday, July 21, 2010
Financial Overhaul Signed Into Law
Reveling in victory, President Barack Obama on Wednesday signed into law the most sweeping reform of financial regulations since the Great Depression, a package that aims to protect consumers and ensure economic stability from Main Street to Wall Street.
The law, pushed through mainly by Democrats in Washington's deeply partisan environment, comes almost two years after the infamous near financial meltdown in 2008 in the United States that was felt around the globe. The legislation gives the government new powers to break up companies that threaten the economy, creates a new agency to guard consumers in their financial transactions and puts more light on the financial markets that escaped the oversight of regulators.
Obama described them all as commonsense reforms that will help people in their daily life — signing contracts, understanding fees, understanding risks.
He went so far as to call the reforms "the strongest consumer protections in history." The president added to a burst of applause: "Because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes."
The law, pushed through mainly by Democrats in Washington's deeply partisan environment, comes almost two years after the infamous near financial meltdown in 2008 in the United States that was felt around the globe. The legislation gives the government new powers to break up companies that threaten the economy, creates a new agency to guard consumers in their financial transactions and puts more light on the financial markets that escaped the oversight of regulators.
Obama described them all as commonsense reforms that will help people in their daily life — signing contracts, understanding fees, understanding risks.
He went so far as to call the reforms "the strongest consumer protections in history." The president added to a burst of applause: "Because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes."
Friday, July 16, 2010
FINRA Warns About Social Media Ponzi Schemes
The Financial Industry Regulatory Authority (FINRA) warned investors today about Internet-based Ponzi schemes called high-yield investment programs (HYIPs), which purport to offer returns of 20, 30, 100 percent or more per day. HYIPs are unregistered investments sold by unlicensed individuals using sophisticated-looking websites.
The con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate, but investors should know that HYIPs are just Internet-based scams.
As FINRA's investor alert HYIPs—Hazardous to Your Investment Portfolio points out, many HYIPs have a worldwide reach: the recently exposed Pathway to Prosperity scheme allegedly defrauded over 40,000 investors in over 120 countries of $70 million. The Federal Bureau of Investigation has reported that the number of new HYIP investigations during fiscal year 2009 increased more than 100 percent over fiscal year 2008. In order to help combat this growing online fraud, FINRA will be using search engine advertising to direct online investors searching for HYIPS to today's Investor Alert.
"HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world. Some of these schemes encourage people to bring in new victims, while others entice investors to 'ride the Ponzi' by attempting to get in and get out before the scheme collapses," said FINRA Senior Vice President John Gannon. "By using Google AdWords, we are hoping to reach anyone searching the Internet for HYIPs before they fall into the hands of con artists."
HYIPs display multiple signs of fraud, including the promise of extraordinarily high returns. For example, the Genius Fund HYIP at one time promised 36 to 40 percent daily, with two-day yields of 106 percent. Many of the con artists behind HYIPs use existing investors to keep their Ponzi schemes growing by paying current investors "referral bonuses" of up to 25 percent for bringing in new recruits.
HYIPs—Hazardous to Your Investment Portfolio outlines in detail the characteristics of HYIPs, the steps investors can take to protect themselves and where investors can turn for help if they think they have been scammed.
The con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate, but investors should know that HYIPs are just Internet-based scams.
As FINRA's investor alert HYIPs—Hazardous to Your Investment Portfolio points out, many HYIPs have a worldwide reach: the recently exposed Pathway to Prosperity scheme allegedly defrauded over 40,000 investors in over 120 countries of $70 million. The Federal Bureau of Investigation has reported that the number of new HYIP investigations during fiscal year 2009 increased more than 100 percent over fiscal year 2008. In order to help combat this growing online fraud, FINRA will be using search engine advertising to direct online investors searching for HYIPS to today's Investor Alert.
"HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world. Some of these schemes encourage people to bring in new victims, while others entice investors to 'ride the Ponzi' by attempting to get in and get out before the scheme collapses," said FINRA Senior Vice President John Gannon. "By using Google AdWords, we are hoping to reach anyone searching the Internet for HYIPs before they fall into the hands of con artists."
HYIPs display multiple signs of fraud, including the promise of extraordinarily high returns. For example, the Genius Fund HYIP at one time promised 36 to 40 percent daily, with two-day yields of 106 percent. Many of the con artists behind HYIPs use existing investors to keep their Ponzi schemes growing by paying current investors "referral bonuses" of up to 25 percent for bringing in new recruits.
HYIPs—Hazardous to Your Investment Portfolio outlines in detail the characteristics of HYIPs, the steps investors can take to protect themselves and where investors can turn for help if they think they have been scammed.
Thursday, July 15, 2010
New Financial Reforms Move Forward
The financial-overhaul legislation cleared a major procedural hurdle on the way to President Barack Obama's desk Thursday, setting the stage for the Senate to give its final approval to the measure later Thursday.
The Senate voted 60-to-38 to end debate on the wide-ranging legislation, a move that required 60 votes to succeed. The Senate has another procedural vote, scheduled for 2 p.m., to resolve Republicans' budget objections, and then final passage is expected after that point. The final vote will require only a simple majority to pass the bill. Mr. Obama has said he hopes to sign the legislation into law next week.
The successful procedural vote on the "conference" report negotiated between House and Senate lawmakers brings the Obama administration just inches away from scoring a major domestic policy victory.
The measure will touch all areas of the financial markets, affecting how consumers obtain credit cards and mortgages, dictating how the government dismantles failing financial firms, and directing federal regulators' focus on potential flashpoints in the economy.
The Senate voted 60-to-38 to end debate on the wide-ranging legislation, a move that required 60 votes to succeed. The Senate has another procedural vote, scheduled for 2 p.m., to resolve Republicans' budget objections, and then final passage is expected after that point. The final vote will require only a simple majority to pass the bill. Mr. Obama has said he hopes to sign the legislation into law next week.
The successful procedural vote on the "conference" report negotiated between House and Senate lawmakers brings the Obama administration just inches away from scoring a major domestic policy victory.
The measure will touch all areas of the financial markets, affecting how consumers obtain credit cards and mortgages, dictating how the government dismantles failing financial firms, and directing federal regulators' focus on potential flashpoints in the economy.
FINRA to Make Additional Information About Brokers, Former Brokers Publicly Available Through BrokerCheck
The amount of information available to the public about current and former securities brokers will expand significantly in coming months, as the Financial Industry Regulatory Authority (FINRA) implements changes to its free, online BrokerCheck service recently approved by the Securities and Exchange Commission.
The changes will increase the number of customer complaints reported publicly; extend the public disclosure period for the full record of a broker who leaves the industry from two years to 10 years; and, make certain information about former brokers available permanently, such as criminal convictions and certain civil injunctive actions and arbitration awards against the broker.
The changes will also formalize a dispute process for current or former brokers to dispute the accuracy of, or update, factual information disclosed through BrokerCheck.
"This additional information will benefit investors who are considering whether to conduct, or continue to conduct, business with a particular securities firm or broker," said FINRA Chairman and CEO Rick Ketchum. "Just as important, it will provide valuable information about persons who have left the securities industry, often not of their own accord, who have established themselves in other segments of the financial services industry and can still cause great harm to the investing public."
When the expansion is implemented, BrokerCheck will:
Disclose all "historic" complaints against a broker dating back to 1999, when electronic filing of broker information began. Generally, historic complaints are customer complaints, arbitrations or litigations more than two years old that have not been adjudicated or have been settled for an amount less than the reporting requirement (currently $15,000). They are currently reported on BrokerCheck when the broker has three or more currently disclosable regulatory actions, customer complaints, arbitrations, litigations or historic complaints. The expanded BrokerCheck will disclose all historic complaints dating back to 1999 for individual brokers who are currently registered or whose registrations were terminated within the preceding 10 years.
Expand the disclosure period for former brokers. Currently, a broker's record is publicly available for two years after he or she leaves the securities industry. That two-year period coincides with the period in which an individual remains subject to FINRA's jurisdiction and within which an individual can return to the industry without having to take re-qualifying exams. The expanded BrokerCheck will make a former broker's record public for 10 years, so investors can access information about individuals who may work in other sectors of the financial services industry or who have attained other positions of trust.
Further expand the amount of information that is permanently available on former brokers. Last year, BrokerCheck started making information about final regulatory actions (i.e. bars, suspensions, fines, etc.) against former brokers permanently available to the public. The expanded BrokerCheck will make additional information that has been reported to FINRA since 1999 permanently available – including reportable criminal convictions or pleas of guilty or nolo contendere; civil injunctions or findings of involvement in a violation of any investment-related statute or regulation; and, arbitration awards or civil judgments based on the individual's involvement in alleged sales practice violations.
Formalize the process for current and former brokers to dispute the accuracy of factual information disclosed through BrokerCheck. Brokers will be able to submit a written notice of the dispute to FINRA – FINRA will post the appropriate form on its website – with all available supporting documentation. If FINRA determines that the dispute is eligible for investigation, it will add a general notation to the broker's BrokerCheck report stating that the broker is disputing certain information in the report – and that notation will only be removed when FINRA has resolved the dispute. If its investigation shows the information is in fact inaccurate, FINRA will update, modify or remove that information as appropriate.
The BrokerCheck expansion will be implemented in two phases. In late August, historic complaints will be added to the public records of all current and former brokers. By the end of the year, full records will be publicly available for all brokers whose registrations have terminated within the last 10 years. Also by the end of the year, the additional information that will be permanently available will be added to the records of the appropriate former brokers and the formal dispute process will be fully in place.
The changes will increase the number of customer complaints reported publicly; extend the public disclosure period for the full record of a broker who leaves the industry from two years to 10 years; and, make certain information about former brokers available permanently, such as criminal convictions and certain civil injunctive actions and arbitration awards against the broker.
The changes will also formalize a dispute process for current or former brokers to dispute the accuracy of, or update, factual information disclosed through BrokerCheck.
"This additional information will benefit investors who are considering whether to conduct, or continue to conduct, business with a particular securities firm or broker," said FINRA Chairman and CEO Rick Ketchum. "Just as important, it will provide valuable information about persons who have left the securities industry, often not of their own accord, who have established themselves in other segments of the financial services industry and can still cause great harm to the investing public."
When the expansion is implemented, BrokerCheck will:
Disclose all "historic" complaints against a broker dating back to 1999, when electronic filing of broker information began. Generally, historic complaints are customer complaints, arbitrations or litigations more than two years old that have not been adjudicated or have been settled for an amount less than the reporting requirement (currently $15,000). They are currently reported on BrokerCheck when the broker has three or more currently disclosable regulatory actions, customer complaints, arbitrations, litigations or historic complaints. The expanded BrokerCheck will disclose all historic complaints dating back to 1999 for individual brokers who are currently registered or whose registrations were terminated within the preceding 10 years.
Expand the disclosure period for former brokers. Currently, a broker's record is publicly available for two years after he or she leaves the securities industry. That two-year period coincides with the period in which an individual remains subject to FINRA's jurisdiction and within which an individual can return to the industry without having to take re-qualifying exams. The expanded BrokerCheck will make a former broker's record public for 10 years, so investors can access information about individuals who may work in other sectors of the financial services industry or who have attained other positions of trust.
Further expand the amount of information that is permanently available on former brokers. Last year, BrokerCheck started making information about final regulatory actions (i.e. bars, suspensions, fines, etc.) against former brokers permanently available to the public. The expanded BrokerCheck will make additional information that has been reported to FINRA since 1999 permanently available – including reportable criminal convictions or pleas of guilty or nolo contendere; civil injunctions or findings of involvement in a violation of any investment-related statute or regulation; and, arbitration awards or civil judgments based on the individual's involvement in alleged sales practice violations.
Formalize the process for current and former brokers to dispute the accuracy of factual information disclosed through BrokerCheck. Brokers will be able to submit a written notice of the dispute to FINRA – FINRA will post the appropriate form on its website – with all available supporting documentation. If FINRA determines that the dispute is eligible for investigation, it will add a general notation to the broker's BrokerCheck report stating that the broker is disputing certain information in the report – and that notation will only be removed when FINRA has resolved the dispute. If its investigation shows the information is in fact inaccurate, FINRA will update, modify or remove that information as appropriate.
The BrokerCheck expansion will be implemented in two phases. In late August, historic complaints will be added to the public records of all current and former brokers. By the end of the year, full records will be publicly available for all brokers whose registrations have terminated within the last 10 years. Also by the end of the year, the additional information that will be permanently available will be added to the records of the appropriate former brokers and the formal dispute process will be fully in place.
Wednesday, July 14, 2010
SEC eyes changes to shareholder voting system
The Securities and Exchange Commission asked the public to comment on changes to the voting system, including whether companies need more information about the identity of their shareholders.
There are more than 13,000 meetings a year where shareholders can vote in person, via the Internet or by phone, or by mailing in a proxy form.
The SEC issued a discussion paper to examine the accuracy and transparency of the voting process, shareholder participation and the relationship between voting power and economic interest.
The agency is exploring whether rules are needed for proxy advisory firms and how to get more shareholders to participate in the governance of their companies.
Schapiro has said she wants to give shareholders more say in how companies are governed. The SEC has already adopted rules that would bar broker-dealers from voting for corporate directors on behalf of their clients unless told to do so.
Schapiro has also said she soon wants to adopt rules giving shareholders "proxy access" or an easier and cheaper way to nominate corporate board directors.
"Proxy access" has emerged as a priority for activist investors, who want to have some influence on the composition of the board.
The SEC's discussion paper, also known as a concept release, will be open for a 90-day comment period. A concept release is sometimes the first step in the rule-making process, but does not always lead to new rules.
There are more than 13,000 meetings a year where shareholders can vote in person, via the Internet or by phone, or by mailing in a proxy form.
The SEC issued a discussion paper to examine the accuracy and transparency of the voting process, shareholder participation and the relationship between voting power and economic interest.
The agency is exploring whether rules are needed for proxy advisory firms and how to get more shareholders to participate in the governance of their companies.
Schapiro has said she wants to give shareholders more say in how companies are governed. The SEC has already adopted rules that would bar broker-dealers from voting for corporate directors on behalf of their clients unless told to do so.
Schapiro has also said she soon wants to adopt rules giving shareholders "proxy access" or an easier and cheaper way to nominate corporate board directors.
"Proxy access" has emerged as a priority for activist investors, who want to have some influence on the composition of the board.
The SEC's discussion paper, also known as a concept release, will be open for a 90-day comment period. A concept release is sometimes the first step in the rule-making process, but does not always lead to new rules.
Sunday, July 11, 2010
SEC Charges Stock Promoter
The Securities and Exchange Commission filed a civil action against a Huntington Beach-based penny stock promoter, Songkram Roy Sahachaisere, and his company, InvestSource, Inc. for committing fraud while promoting stock of their clients through massive email campaigns.
In its complaint filed in the United States District Court for the Central District of California, the SEC alleges that Sahachaisere, age 40, and InvestSource provide "investor relations services" by touting various penny stocks in its daily email newsletter, called the "Daily Digest," and by posting company profiles on its website. From January 2008 to March 2009, defendants sent nearly 450 email messages publicizing these penny stocks to over 24 million recipients, receiving clients' stock as compensation. The complaint focuses on seven specific penny stocks that defendants touted in which, the SEC alleges, defendants made misleading statements regarding the nature of their compensation on InvestSource's website and in the promotional emails. The defendants also failed to disclose that they were selling the very securities they were recommending investors buy. According to the complaint, between April 2008 and March 2009, defendants sold over 5 million shares of these seven clients through one or more of their approximately 36 brokerage accounts, illegally reaping profits of at least $276,000.
The SEC's complaint charges InvestSource and Sahachaisere with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges them with violating the antitouting provisions contained in Section 17(b) of the Securities Act. The SEC's complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties against both defendants. In addition, the SEC seeks penny stock and officer and director bars against defendant Sahachaisere.
In its complaint filed in the United States District Court for the Central District of California, the SEC alleges that Sahachaisere, age 40, and InvestSource provide "investor relations services" by touting various penny stocks in its daily email newsletter, called the "Daily Digest," and by posting company profiles on its website. From January 2008 to March 2009, defendants sent nearly 450 email messages publicizing these penny stocks to over 24 million recipients, receiving clients' stock as compensation. The complaint focuses on seven specific penny stocks that defendants touted in which, the SEC alleges, defendants made misleading statements regarding the nature of their compensation on InvestSource's website and in the promotional emails. The defendants also failed to disclose that they were selling the very securities they were recommending investors buy. According to the complaint, between April 2008 and March 2009, defendants sold over 5 million shares of these seven clients through one or more of their approximately 36 brokerage accounts, illegally reaping profits of at least $276,000.
The SEC's complaint charges InvestSource and Sahachaisere with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges them with violating the antitouting provisions contained in Section 17(b) of the Securities Act. The SEC's complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties against both defendants. In addition, the SEC seeks penny stock and officer and director bars against defendant Sahachaisere.
Tuesday, July 6, 2010
SEC To Review Marketing of Principal Protected Products
The U.S. Securities and Exchange Commission is asking financial firms for information on how they market "principal-protected" notes," Bloomberg reported on Friday, citing people familiar with the matter.
Principal-protected notes, complex securities marketed as carrying a
money-back guarantee, have started to make a comeback lately after losing much of their luster when Lehman Brothers collapsed in 2008.
The SEC wants to know if investors in "principal protected" securities are being misled into thinking the principal of their investment will not
decline in value because of the name of the security, Bloomberg said. The
agency is also looking at how firms describe the risks associated with the products.
This year, Bank of America Corp , Barclays Plc , Citigroup Inc , HSBC
Holdings Plc and JPMorgan Chase & Co all have filed offering statements with U.S. securities regulators to sell principal-protected notes that guarantee investors the return of either 95 percent or 100 percent of their initial outlay, even if the underlying investment does not pay off.
In December, the Financial Industry Regulatory Authority, the securities
industry's main self-regulatory agency, issued a notice to firms reminding them that any "promotional materials" used to market principal-protected notes must be "fair and balanced" and not overstate the "level of protection."
Principal-protected notes, complex securities marketed as carrying a
money-back guarantee, have started to make a comeback lately after losing much of their luster when Lehman Brothers collapsed in 2008.
The SEC wants to know if investors in "principal protected" securities are being misled into thinking the principal of their investment will not
decline in value because of the name of the security, Bloomberg said. The
agency is also looking at how firms describe the risks associated with the products.
This year, Bank of America Corp , Barclays Plc , Citigroup Inc , HSBC
Holdings Plc and JPMorgan Chase & Co all have filed offering statements with U.S. securities regulators to sell principal-protected notes that guarantee investors the return of either 95 percent or 100 percent of their initial outlay, even if the underlying investment does not pay off.
In December, the Financial Industry Regulatory Authority, the securities
industry's main self-regulatory agency, issued a notice to firms reminding them that any "promotional materials" used to market principal-protected notes must be "fair and balanced" and not overstate the "level of protection."
Sunday, July 4, 2010
Maine Settles With Oppenheimer Over Fund Losses
The state of Maine has reached a settlement with OppenheimerFunds Inc., over losses in some of the funds that make up Maine's state-sponsored NextGen College Investing Plan.
The settlement announced Monday ends an investigation requested by the Finance Authority of Maine, which administers the NextGen program.
The settlement divides more than $6 million among certain account holders based on their exposure to Oppenheimer Core Bond Fund from Jan. 1, 2008 through March 31, 2009. State officials say a relatively small amount of the NextGen investments was invested in that fund.
The finance authority terminated all OppenheimerFunds portfolios in NextGen in July 2009.
Officials say the settlement is similar to those reached by other states.
The settlement announced Monday ends an investigation requested by the Finance Authority of Maine, which administers the NextGen program.
The settlement divides more than $6 million among certain account holders based on their exposure to Oppenheimer Core Bond Fund from Jan. 1, 2008 through March 31, 2009. State officials say a relatively small amount of the NextGen investments was invested in that fund.
The finance authority terminated all OppenheimerFunds portfolios in NextGen in July 2009.
Officials say the settlement is similar to those reached by other states.
Saturday, July 3, 2010
Waterford Funding Fraud
The Commission today announced the filing of a complaint in federal district court against Travis L. Wright, of Salt Lake City, Utah, based on his having carried out an offering fraud in which he raised nearly $145 million from approximately 175 investors. Wright sold these investors promissory notes issued by Waterford Loan Fund, LLC (the "Fund") that were purportedly secured by a lien on a trust that held all the assets of the Fund.
The Fund and its affiliate Waterford Funding, LLC are currently under the supervision of a Chapter 11 trustee, and their assets are being liquidated for the benefit of creditors. In re Waterford Funding LLC and Waterford Loan Fund, LLC, case no. 09-22584 (D. Utah).
The complaint alleges that, in raising these funds, Wright made numerous material misrepresentations to investors, including the following: 1) he assured them that their funds would be used only to make loans secured by commercial real estate, when in fact he used their funds primarily for loans and investments having nothing to do with real estate; 2) he represented to them that their promissory notes were secured by interests in a trust, but no such trust existed, and the notes were not secured; and 3) he represented that Waterford would never lend more than 50% of the value of the real estate in question. Wright also omitted to disclose to investors 1) that he never obtained an appraisal or valuation of real estate before lending investor funds against it; and 2) that he was using investor funds to pay for a lavish lifestyle for himself and his friends and family.
The Commission's complaint charges Wright with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks an injunction, disgorgement, prejudgment interest and a civil penalty, and the issuance of an order prohibiting Wright from offering, selling or soliciting the sale of securities in a private or public offering, except for purchases or sales of securities by him for a personal account maintained at a broker or dealer registered with the Commission.
The Fund and its affiliate Waterford Funding, LLC are currently under the supervision of a Chapter 11 trustee, and their assets are being liquidated for the benefit of creditors. In re Waterford Funding LLC and Waterford Loan Fund, LLC, case no. 09-22584 (D. Utah).
The complaint alleges that, in raising these funds, Wright made numerous material misrepresentations to investors, including the following: 1) he assured them that their funds would be used only to make loans secured by commercial real estate, when in fact he used their funds primarily for loans and investments having nothing to do with real estate; 2) he represented to them that their promissory notes were secured by interests in a trust, but no such trust existed, and the notes were not secured; and 3) he represented that Waterford would never lend more than 50% of the value of the real estate in question. Wright also omitted to disclose to investors 1) that he never obtained an appraisal or valuation of real estate before lending investor funds against it; and 2) that he was using investor funds to pay for a lavish lifestyle for himself and his friends and family.
The Commission's complaint charges Wright with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks an injunction, disgorgement, prejudgment interest and a civil penalty, and the issuance of an order prohibiting Wright from offering, selling or soliciting the sale of securities in a private or public offering, except for purchases or sales of securities by him for a personal account maintained at a broker or dealer registered with the Commission.
Friday, July 2, 2010
UBS re-Files Highland Capital CDO Case
UBS is re-filing its lawsuit against distressed hedge fund firm Highland Capital claiming the firm did the Swiss bank out of $686 million in a CDO deal.
The new case, filed Monday in New York State court, is reminiscent of the SEC’s case against Goldman Sachs over a CDO deal gone bad. However, in the UBS case, it is the bank that is claiming to be the wronged party.
UBS is alleging that Highland didn’t tell it about some of its counterparties’ weaknesses when the bank consented to restructure the CDO deal after losses started piling up 2007.
The new case, filed Monday in New York State court, is reminiscent of the SEC’s case against Goldman Sachs over a CDO deal gone bad. However, in the UBS case, it is the bank that is claiming to be the wronged party.
UBS is alleging that Highland didn’t tell it about some of its counterparties’ weaknesses when the bank consented to restructure the CDO deal after losses started piling up 2007.
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