Tag: SEC

Posted on

Article: Financial Finger-Pointing Turns to Regulators

Article - Media

Financial Finger-Pointing Turns to Regulators

Louise Story, Gretchen Morgenson

New York Times, 22 November 2011

In the whodunit of the financial crisis, Wall Street executives have pointed the blame at all kinds of parties — consumers who lied on their mortgage applications, investors who demanded access to risky mortgage bonds, and policy makers who kept interest rates low and failed to predict a housing market collapse.

But a new defense has been mounted by a bank executive: my regulator told me to do it.

Read full article.

Posted on

Testimony: Kauffman Foundation on ETFs Danger to Capital Formation

Testimony

ETFs and the Present Danger to Capital Formation

Prepared Testimony by Harold Bradley and Robert E. Litan

Before the United States Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investments

ETFs have increasingly distorted the role of equities
markets in capital formation, while posing systemic risks from potential
settlement failures.

Continue reading “Testimony: Kauffman Foundation on ETFs Danger to Capital Formation”

Posted on

Article: SEC under Schapiro struggles to turn around amid political, financial head winds

Article - Media

SEC under Schapiro struggles to turn around amid political, financial head winds

David S. Hilzenrath

Washington Post, 7 October 2011

Mary L. Schapiro took over a discredited SEC in early 2009 and vowed to rebuild it.

She promised tougher enforcement — “war without quarter” on financial fraud. Modernized rules to keep up with Wall Street. And a new, more effective organization.

Her tenure at the federal agency responsible for protecting investors and policing markets offers a Washington lesson: Even when epic crises create a sense of urgency, it is tough to tighten the reins on powerful industries. Dramatic results can prove elusive.

Read full article.

Posted on

Article: United States: Open-Market Manipulation Under SEC Rule 10b-5 And Its Analogues: Inappropriate Distinctions, Judicial Disagreement And Case Study: FERC’s Anti- Manipulation Rule

Article - Media, Publications

United States: Open-Market Manipulation Under SEC Rule 10b-5 And Its Analogues: Inappropriate Distinctions, Judicial Disagreement And Case Study: FERC’s Anti- Manipulation Rule

Maxwell K. Multer,  01 September 2011

Regulators have addressed market manipulation with Rule 10b-5 since its promulgation under the Securities Exchange Act in 1942. While Section 9 of the Securities Exchange Act addresses manipulation of securities prices, it requires the specific intent “for the purpose of inducing the purchase or sale of such security by others”1 or “for the purpose of creating a false or misleading appearance [of market activity] . . ..”2 It is likely for that reason that prosecutors rarely use Section 9, choosing instead to bring manipulation proceedings under Rule 10b-5.3 But as the tools available for accomplishing market manipulation have evolved, the judicially narrowed contours of Rule 10b-5 may be such that certain new schemes escape liability. With modern advances in trade execution, market platforms and derivatives, it is now possible to accomplish a profitable market manipulation without engaging in any overtly fraudulent or illegal behavior.

Several courts have elected to distinguish between these alleged schemes and schemes which do include illegal behavior, employing a higher level of scrutiny and requiring proof of additional elements in the former situation. Manipulative schemes are referred to as “open market manipulations” when the alleged scheme is accomplished solely through the use of facially legitimate open market transactions. That is, where the manipulator has not engaged in any conduct that is inherently or otherwise illegal, such as fictitious transactions, wash sales or by disseminating false reporting. The transactions are seemingly legitimate, but for their manipulative intent and effect in combination. Continue reading “Article: United States: Open-Market Manipulation Under SEC Rule 10b-5 And Its Analogues: Inappropriate Distinctions, Judicial Disagreement And Case Study: FERC’s Anti- Manipulation Rule”

Posted on

Article:Short Selling in a Financial Crisis: The Regulation of Short Sales in the United Kingdom and the United States

Article - Academic

Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States

Katherine McGavin

Northwestern Journal of International Law & Business, 15 December 2010

In a well-regulated market with minimal risk of abuse, the liquidity
and information efficiency benefits of short selling far outweigh its
potential harm. Contrary to the recent hostility short sellers face from
market regulators and the popular press,’ short sellers in aggregate are
neither market villains nor agents of destruction. While a small minority of
short sellers have exploited lax regulation and inattentive enforcement of
anti-abuse rules to manipulate stock prices and earn substantial fees, these
rare episodes suggest that the world’s major capital markets need better
enforcement of existing rules and not new rules per se. The failure of
market regulators to prevent abuse and manipulation of stock prices by short sellers and curb naked short selling reflects a failure of enforcement,
not bad underlying policy.

PDF  (41 pages): Short Selling in a Financial Crisis: The Regulation
of Short Sales in the United Kingdom and the
United States

Posted on

Paper: Choking the Recovery: Why New Growth Companies Aren’t Going Public and Unrecognized Risks of Future Market Disruptions

Paper

Choking the Recovery: Why New Growth Companies Aren’t Going Public and Unrecognized Risks of Future Market Disruptions

Harold S. Bradley and Robert E. Litan

Kauffman Foundation, 8 November 2010

We show here that ETFs are radically changing the markets, to the point where they, and not the trading of the underlying securities, are effectively setting the prices of stocks of smaller capitalization companies, or the potential new growth companies of the future. In the process, ETFs that once were an important low-cost way for investors to assemble diversified stock holdings are now undermining the traditional price discovery role of exchanges and, in turn, discouraging new companies from wanting to be listed on U.S. exchanges.

Continue reading “Paper: Choking the Recovery: Why New Growth Companies Aren’t Going Public and Unrecognized Risks of Future Market Disruptions”

Posted on

Article: The skinny on the 2008 naked short-sale restrictions

Article - Academic

The skinny on the 2008 naked short-sale restrictions

Thomas J. Boulton, Marcus V. Braga-Alves

Journal of Financial Markets, 1 November 2010

On July 15, 2008, the US Securities and Exchange Commission announced temporary restrictions on naked short sales of the stocks of 19 financial firms. The restrictions offer a unique empirical setting to test Miller’s (1977) conjecture that short-sale constraints result in overpriced securities and low subsequent returns. Consistent with Miller’s overpricing hypothesis, we find evidence of a positive (negative) market reaction to the announcement (expiration) of the short-sale restrictions. Announcement returns are higher for firms that appear to be subject to more naked short selling in the days immediately preceding the announcement of the restrictions.

Paywall access to article.

Posted on

Article: SEC Charges Conn. Hedge Manager With Fraud

Article - Media, Publications

SEC Charges Conn. Hedge Manager With Fraud

Matt Ackermann, 25 October 2010

The Securities and Exchange Commission and the Connecticut banking commission have sued a Connecticut hedge fund manager with fraud.

The SEC and Connecticut Banking Commissioner Howard Pitkin charged Southridge Capital Management LLC and its chief executive officer, Stephen M. Hicks, with defrauding investors in million of undeserved fees.

According to a filing in federal court in Connecticut Monday, the SEC alleged that Hicks overvalued the largest position held by funds managed by Southridge and Southridge Advisors LLC. The SEC also said he made material misrepresentations to investors and misused their money to pay legal and administrative expenses of other funds managed by Hicks and Southridge. Continue reading “Article: SEC Charges Conn. Hedge Manager With Fraud”

Posted on

Article: UPDATE 1-SEC, Connecticut charge fund manager with fraud

Article - Media, Publications

UPDATE 1-SEC, Connecticut charge fund manager with fraud

Jonathan Stempel, 25 October 2010

NEW YORK, Oct 25 (Reuters) – A Connecticut hedge fund firm was sued on Monday by U.S. and state regulators for allegedly inflating the value of its holdings, allowing it to fraudulently collect millions of dollars of undeserved fees.

Southridge Capital Management LLC and its Chief Executive Stephen Hicks, 52, were sued by the U.S. Securities and Exchange Commission and Connecticut Banking Commissioner Howard Pitkin over their management and financial reporting of several funds.

The SEC said Hicks falsely valued Southridge’s largest holding, speech recognition company Fonix Corp, at $30 million or more based almost entirely on a 2004 transaction in which Fonix bought two companies from an entity he controlled.

It also said Hicks raised $78.9 million over the 2004 to 2007 period after falsely promising investors that more than 75 percent of assets would be put in liquid investments or cash.

Connecticut alleged the overvaluing of fund assets allowed Ridgefield-based Southridge to fraudulently collect more than $26 million in fees from 2004 to 2007. Continue reading “Article: UPDATE 1-SEC, Connecticut charge fund manager with fraud”

Posted on

Article: SEC Brings Fraud Charges Against Another Hedge Fund

Article - Media, Publications

SEC Brings Fraud Charges Against Another Hedge Fund

Stephen Taub, 25 October 2010

Another day, another hedge fund accused of wrong-doing by regulators.

The Securities and Exchange Commission Monday charged hedge fund manager Stephen M. Hicks and his investment advisory businesses with defrauding investors in funds managed by Southridge Capital Management LLC and Southridge Advisors LLC by overvaluing the largest position held by the funds. The SEC also alleges that Ridgefield, Ct.-based Hicks “made material misrepresentations” and misused investor money to pay legal and administrative expenses of other funds managed by Hicks and Southridge. Continue reading “Article: SEC Brings Fraud Charges Against Another Hedge Fund”

Posted on

Article: Whistle. Then Worry and Wait.

Article - Media

Whistle. Then Worry and Wait.

Edward Wyatt

New York Times, 9 October 2010

Sitting in a Minneapolis mansion and listening to a charismatic investment manager describe a currency trading system that kept earning handsome returns year after year, Arthur F. Schlobohm IV was certain he had stumbled onto a Ponzi scheme.

A longtime trader who started running tickets on the floor of the New York Stock Exchange as a teenager, Mr. Schlobohm, known as Ty, knew that Minneapolis, his home for nine years, was too small a town for a $4.4 billion investment fund to have escaped his notice.

Read full article.

Posted on

Paper: Fails to Deliver: The Price Impact of Naked Short Sales

Paper

Fails to Deliver: The Price Impact of Naked Short Sales

Elizabeth Stone

Stanford University, 27 September 2010

The effect of naked short selling on asset prices and trading dynamics is a prominent topic of debate among market participants, regulators, and the popular press. This paper evaluates the validity of the claim that naked shorting leads to negative excess returns by creating additional selling pressure. While data on naked short sales is not publicly available, Securities Exchange Commission data on failures to deliver is a strong proxy. Fail to deliver data for 2004 covers a period during which the prevalence of naked short selling was not public knowledge since neither the fail to deliver data nor the Regulation SHO List were publicly available. In excluding information and regulation effects, the analysis presented in this paper isolates potential microstructure price effects.

Read full paper.

Posted on

Article: Chinese coal company’s share placement produces interesting collection of investors

Article - Media

Chinese coal company’s share placement produces interesting collection of investors

Chris Carey

sharesleuth, 13 September 2010

Sharesleuth took a closer look at the registration statement covering the resale of those shares, and found that no fewer than eight people who participated in the placement have been the subject of Securities and Exchange Commission actions or criminal prosecutions.

The list includes at least four people who were directly or indirectly linked to stock-manipulation schemes. Several other investors were previously involved in a small cluster of U.S. companies whose placements were manipulated by a ring of boiler room brokerages in the 1990s.

Read full article.

Posted on

Article: Naked Shorting Will Cause U.S. Exchange Exodus

Article - Media

Naked Shorting Will Cause U.S. Exchange Exodus

Bud Burrell

Financial Wire, 5 August 2010

This week, an important online news service released an article that should send shockwaves into our public markets. In very curt form, the article chronicles the many abuses of U.S. public companies by short selling manipulators, particularly through naked short selling and regular and derivative based synthetic shorting. By implication, the article recites the sheer embarrassing ineffectiveness of our regulators, who are engaged in a pattern of systematic conflicts of interest with revolving doors that are a major disgrace to our own government.

Read full article.

THE DOLLAR HAS NO INTRINSIC VALUE : DO YOUR ASSETS?