Taking the SEC To Trial

The U.S. Securities and Exchange Commission, long known for settling enforcement actions without having to prove its case in court, is struggling to cope with a surge in the number of executives and companies willing to go to trial to defend themselves.

The SEC’s office in Washington is actively litigating about 90 cases, up more than 50 percent in the past year, Matthew Martens, the SEC’s chief litigation counsel, said in an interview. At the same time, Martens’ trial unit staff has stayed relatively flat at about 36. He recently added three more lawyers to his group and is looking to hire more.

Martens said its critical that his unit present a credible threat. “At the end of the day, if we can’t win cases, then people don’t settle. That’s the reality,” he said.

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FINRA Respondent Wins Case, Now Running for FINRA Board

Three years ago, Kevin Carreno was about to become the top securities regulator in Florida, by way of an appointment by the Governor. However, as the appointment was being announced, FINRA decided to file an enforcement proceeding against Mr. Carreno, and the appointment slipped away.

Kevin believed that the enforcement case stemmed from an animus that developed between him and some Finra officials over his earlier, rigorous defense of a broker-dealer client, and fought the charges. In a rare decision, the FINRA hearing panel threw out all of FINRA Enforcement's claims - but that was too late for the Florida securities post.

Now Kevin is running for a seat on the FINRA Board of Governors. I have known Kevin for many years,he is not only an attorney but a well known and respected compliance professional. His background, experience and knowledge will make him an excellent addition to the FINRA Board. Having witnessed first hand the harm that an abusive regulator can cause to even the most respected securities professional, his election might bring some balance to an organization that is too often abusive towards member firms - in particular small firms.

Kevin is running for one of three small firm seats on the FINRA Board. The small-firm seat became available earlier this month when FINRA Board member Joel Blumenschein, president of Freedom Investors Corp., resigned after settling failure-to-supervise charges brought by Finra enforcers last September. Mr. Blumenschein's term was due to expire in August. We wrote about his settlement, the fact that he remainded on the Board despite being suspended, and his ultimate resignation. 

Potential candidates for the vacant seat have to collect signatures from 3% of the 4,059 small firms registered with Finra in order to get on the ballot. 

Read the InvestmentNews Article - If you can beat 'em, join 'em: Finra target now running for board - InvestmentNews

Related Articles

• FINRA Board Member Fined - Wrist Slap For a Prominent Member?
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Morgan Stanley Cut Facebook Estimates Just Before IPO?

When I posted last week that the Facebook IPO was an opportunity for fraud, and quoted Jim Sallah, the well-known Boca Raton securities attorney, I was talking about stock scammers, not major brokerage firms.
Reuters is reporting, under a headline Morgan Stanley Cut Facebook Estimates Just Before IPO that in the run-up to Facebook's $16 billion IPO, Morgan Stanley the lead underwriter on the deal, unexpectedly  told some of its clients that the firm was reducing its revenue forecasts for the company.

It remains to be seen whether that was fraudulent conduct, but that information, if true, is certainly going to attract the interest of regulators and customer attorneys. The impact of such a statement, in particular coming from the lead underwriter might have contributed to the weak performance of Facebook shares, which sank on Monday and Tuesday - their second and third days of trading - to end more than 18 percent below the IPO price.

Institutions and major clients generally enjoy quick access to investment bank research, while retail clients in many cases only get it later. According to the article, it is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly. The company declined to comment when asked who was told about the research.

Corzine's Compensation - 8.5 Million Dollars in Salary and Options From MF Global in 2011

MF Global's bankrupcty court filings apparently disclosed that Chief Executive Officer Jon Corzine received approximately $8.5 million in compensation last year, including almost $5.4 million of stock options in the bankrupt brokerage firm. While some will point out that the options are now worthless, they were not worthless when they were given to Corzine, and his pay was still $3.1 million for 20 months of work.
And he did not do such a good job. Not only did he resign in the midst of regulatory probes, the firm cannot find $1 billion that vanished during his watch.

And why is there no pending civil or criminal cases against him and the others who ran MF Global? A billion dollars disappear, customer funds are missing - not lost in the market - missing, and no charges have been brought?

MF Global last year paid Corzine $8.5 million in salary, stock options

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Yahoo Executive and Mutual Fund Manager Charged With Insider Trading - Civil and Criminal.

Sometimes clients and prospective clients express disbelief when I tell them that violations of the securities acts can have criminal ramifications, and that simply because you do not often see criminal cases, that does not mean that violations of the acts are not crimes.

The most recent case in point came with the SEC's announcement on Monday that it charged a former executive at Yahoo! Inc. and a former mutual fund manager at a subsidiary of Ameriprise Financial Inc. with insider trading on confidential information about a search engine partnership between Yahoo and Microsoft Corporation.

The SEC alleged that Robert W. Kwok, who was Yahoo's senior director of business management, breached his duty to the company when he told Reema D. Shah in July 2009 that a deal between Yahoo and Microsoft would be announced soon. Shah had reached out to Kwok amid market rumors of an impending partnership between the two companies, and Kwok told her the information was kept quiet at Yahoo and only a few people knew of the coming announcement. Based on Kwok's illegal tip, Shah prompted the mutual funds she managed to buy more than 700,000 shares of Yahoo stock that were later sold for profits of approximately $389,000.

The SEC further alleges that a year earlier, the roles were reversed. Shah tipped Kwok with material nonpublic information about an impending acquisition announcement between two other companies. Kwok traded in a personal account based on the confidential information for profits of $4,754.

The SEC's press release reflects that Kwok and Shah have agreed to settle the SEC's charges. Although financial penalties and disgorgement will be determined by the court at a later date, Shah will be permanently barred from the securities industry and Kwok will be permanently barred from serving as an officer or director of a public company.

At the end of the press release, the SEC added that in a parallel criminal case Kwok has pled guilty to conspiracy to commit securities fraud, and Shah has pled guilty to both a primary and conspiracy charge. Both are awaiting sentencing.

The financial penalties alone will be interesting, since there are no allegations that Kwok received any money or benefit from tipping Shah, and there is no allegation that Shah directly profited from the tip, since the purchase was made in a mutual fund that Shah managed. However, the Commission may be attempting to use the profits from the reverse tip, of Shah to Kwok and the $4,000 profit there, as the basis for the fines.

SEC Charges Former Yahoo Executive and Former Ameriprise Manager With Insider Trading

 

Beam & Astarita Reviewing Claims For Facebook Trading Disaster

The world's largest IPO has turned into an unmitigated disaster for NASDAQ, which was unable to handle the volume of trading on Friday, the first day of trading in Facebook shares. According to press reports, NASDAQ has admitted that it bungled Facebook's offering, and acknowledge that technology problems affected trading in millions of shares.
Thus far it is estimated that the losses will be in the tens of millions of dollars for brokerage firms, traders and investors. Beam & Astarita is reviewing potential claims by brokerage firms and investors for losses that were occasioned on Friday and again today.
Thus far it appears that brokers and traders who entered orders on behalf of institutions and retail investors did not receive confirmation of executions until hours after the fact, and even then, the reports were not correct. That forced brokers to go back to their customers, who thought their trades were executed earier in the day, and to attempt to fix the trade discrepencies for those customers.
The issue clearly goes back to NASDAQ but brokers will have to deal with the issue with their customers, and customers are getting ready to file claims against their firms, and NASDAQ for their losses.
That put the onus on brokers to determine whether or not to make customers good on trades they thought had been completed hours earlier. Wholesale market makers, the major electronic order-handling operations that handle the trading of individual investors, were seen among the worst-hit by Nasdaq's glitches due to the large number of orders that needed to be fixed for customers eager to trade in Facebook's debut.
 Nasdaq OMX officials claim that clients would have to seek "accommodation" through the exchange's rules for handling disputed transactions, but a more direct route, through arbitration or traditional lawsuits, may be the ultimate dispute resolution.
If you have been damaged by the trading in Facebook IPO shares, give us a call at 212-509-6544 or 973-559-5566, or email our team at facebookipo@beamlaw.com.

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Introduction to Private Placements

Is the economy picking up?  One of SECLaw's most popular articles is getting hits like crazy. Here

Accredited Investor Definition

The question keeps coming up, so I thought a new blog post was in order. The question - what is the definition of an accredited investor for purposes of Reg D?
For years, the definitions that most are familiar with are:

• a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; OR

• natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year

The confusion apparently stems from a 2011 amendment to the definition under Dodd Frank which excluded the value of the investor's home from the calculation of net worth. An investors' home is no longer included in the calculation.

The earnings definition remains the same, despite the passage of time, but the Commission is now required to review the accredited investor definition in its entirety every 4 years.

The original release is at SEC Adopts Net Worth Standard for Accredited Investors Under Dodd-Frank Act; 2011-274

The definition itself is contained in Rule 501(a) of the Securities Act of 1933.

Facebook IPO Opportunity for Fraudsters?

From the Sun-Sentinel, as the Facebook IPO arrives, not only are investors lining up for what they hope will be a golden opportunity, but so are scammers. The combination of heavy hype, potentially lucrative returns and starry-eyed novice players in the equities market have created ripe conditions for con artists to operate, according to financial regulators and securities attorneys. People are being warned to be especially careful about offers to purchase private shares of Facebook before the initial public offering (IPO) of stock expected later this week.

'It's the hottest IPO in years and anything that is hot will be exploited by scammers," said Jim Sallah, a Boca Raton securities attorney. "If you want to raise a quick $5 million, the quickest thing to do is start marketing Facebook pre-IPO shares."

Facebook's looming IPO a juicy opportunity for South Florida fraudsters, authorities say - South Florida Sun-Sentinel.com

JPMorgan's Big Loss: Explain it to Me

JPMorgan announced last week that it lost 2 billion dollars over the past six weeks. The local newspapers and talking heads made a huge deal about it. After all, it is 2 BILLION dollars, and the implied worries that the bank will go under, the economy will collapse and there were will be general mayhem abound.
However, that loss will not crash the bank, or anything else. According to the real money media, JPMorgan has more assets than any other bank in the country. Its net loss for the quarter is estimated to be $800 million and the bank made $5.4 billion in the first three months of the year alone.

But 2 billion dollars is a lot of money, and one has to wonder how in the world any one, or any financial institution, could lose that much money in a month. According to CNN Money and the Wall Street Journal, it is all caused by huge hedging transactions in credit default swaps. You remember them, they played a large part in the collapse in 2008 and 2009. According to the press, the credit default positions were so large that they caused unusual market movements, prompting hedge funds to take the opposite position.

So far, no one is saying that anyone did anything wrong, but we will have to wait and see on that one. But the back story is interesting, and starts at CNN Money - JPMorgan's big loss: Explain it to me