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The froth may not be off leveraged loans just yet, but with five deals falling through in the past few weeks, the market is definitely a little less giddy, Bloomberg News reported. Vewd Software, a streaming-service provider, joins marketing firm Golden Hippo, Glass Mountain Pipeline Holdings LLC, Chief Power Finance LLC and fitness-center builder Life Time Inc. in dipping its toe in the water and finding borrowing conditions too cold. The leveraged loan market has been a favorite of private equity firms, funding payouts to partners and buyouts of targeted companies at record-low borrowing costs for a decade, doubling in size to about $1.2 trillion. Investors worried about a recession are shying away from companies that just a few months ago might have been an easier sell. Additionally, some borrowers have come to market and had to pay more than they originally planned. The possibility of continued rate cuts by the Federal Reserve has made floating-rate deals less attractive, and companies vulnerable to trade wars have had to promise higher yields.

An accounting expert who raised red flags about Bernie Madoff’s Ponzi scheme has a new target: General Electric Co., the Wall Street Journal reported. In a research report posted today, Harry Markopolos alleges that the struggling conglomerate has masked the depths of its problems, resulting in inaccurate and fraudulent financial filings with regulators. Markopolos said that his group found GE’s insurance unit will need to bolster its reserves by $18.5 billion in cash and faulted the way the company is accounting for its oil-and-gas business. All told, he said, the accounting problems amount to $38 billion, or 40 percent of the conglomerate’s market value. The group’s research indicates that GE is short on working capital — a key measure of liquidity — and that its cash situation is far worse than disclosed in its regulatory filings. GE said it hasn’t been contacted by Markopolos and that the group’s report was produced to help short sellers profit by creating volatility in GE’s shares.

Wall Street watchdogs are poised to take a major step toward overhauling Volcker Rule limits on banks’ ability to trade with their own funds, moving to ease post-crisis safeguards contested by the industry, Bloomberg News reported. Regulators responsible for the Dodd-Frank Act rule could complete work as soon as next week on revisions that include loosening restrictions on banks investing their own money in private equity and hedge funds. The group of five agencies led by the Federal Reserve has focused on a new definition of proprietary trading — which is specifically banned by Dodd-Frank. They’ve chosen to implement the changes without re-proposing the rule and seeking comment, according to three of the people, a step that could open the process to legal challenges. The final definition would remove an “accounting prong” that was floated last year as a new way for determining which types of trading would be permitted. Regulators agreed to scrap the concept after it drew sharp criticism from bank lobbyists. They will instead lean on easier-to-digest models.

The private equity industry is a major player in the American economy, owning companies that employ nearly 6 million people. In the first half of 2019, the value of leveraged buyouts climbed to a near-record $256 billion, according to a commentary in The Hill by Illinois State Treasurer Michael Frerichs and Pennsylvania State Treasurer Joe Torsella. Private equity buyout firms have set up a business model that allows many of them to buy companies, load those firms up with debt, and then pay themselves massive and often secret fees with that borrowed money, according to the commentary. If the companies go bankrupt, investors like public funds might not get paid. Worse yet, these predatory practices harm the economy and make it harder for the governments we represent to stay solvent over the long term. Frerichs and Torsella advocate for the passage of S. 2155, "The Stop Wall Street Looting Act," that aims to protect workers, communities, and investors alike by prohibiting some of the worst abuses, eliminating tax breaks for others, and finally mandating real transparency for this industry. Read more. 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Robert Shapiro, the former chief executive officer of Woodbridge Group of Companies, pleaded guilty to running a $1.3 billion fraud that caused more than 7,000 investors to lose money, according to prosecutors, Bloomberg News reported. Shapiro promised returns as high as 10 percent from investments in loans to property developers. Instead, he used money from new investors to repay earlier ones and stole as much as $95 million, routing money through a network of 270 limited liability companies he controlled, Miami U.S. Attorney Ariana Fajardo Orshan said yesterday. Losses to investors are expected to exceed $100 million, both sides agreed in a court filing. The scam ran from July 2012 until December 2017, when Woodbridge filed for chapter 11 protection. Shapiro pleaded guilty to conspiracy and tax evasion on Wednesday in Miami. He faces as long as 25 years in prison when he’s sentenced Oct. 15. In November, he agreed to pay $120 million to resolve related civil claims by the U.S. Securities and Exchange Commission. Two alleged co-conspirators are scheduled for trial in February.

Jon Corzine’s application to register his hedge fund firm was approved by the Securities and Exchange Commission, which attached a series of seldom-seen conditions on the company, Bloomberg News reported. The restrictions on Corzine’s firm, New York-based JDC-JSC LP, limit the former U.S. Senator’s ability to handle customer cash and invest in less-liquid assets, according to an order that the agency issued on Monday. The SEC order includes “trading parameters” that bar JDC-JSC from engaging in proprietary trading and require it to have a “reasonable basis” to expect that, under normal conditions, each of its funds could be “orderly liquidated” within five trading days. That could restrict Corzine to trading in only the most liquid of markets, such as those for currencies and large-cap stocks, said David Tawil, co-founder of Maglan Capital, a New York-based hedge fund. The limits reflect events at MF Global Holdings Ltd. that unfolded after Corzine, the former co-chairman of Goldman Sachs Group Inc., became chief executive officer of the futures firm in 2010. Seeking to boost trading revenue, he employed the firm’s capital plus leverage to make at least $6 billion in proprietary bets on European sovereign debt. When the firm got hit by a cash crunch tied to the trades in 2011, some $1 billion in client funds went temporarily missing and MF Global was forced to file for bankruptcy. The Commodity Futures Trading Commission later permanently banned Corzine from the futures industry, though he neither admitted nor denied the agency’s claims that he failed to properly supervise the firm.

Wall Street’s push to clean up a $10 trillion corner of the derivatives market is getting poor reviews from an important audience: global financial regulators, Bloomberg News reported. Behind closed doors, watchdogs from Washington, D.C., to London have made clear that a fix the industry came up with this year to crack down on shady deals falls short of what’s needed. The focus of the scrutiny is credit default swaps — instruments tainted by the 2008 financial crisis that traders use to cash in when companies miss bond payments. The pushback hasn’t been subtle. Staff members at the Commodity Futures Trading Commission, the U.S.’s main derivatives regulator, prepared an internal analysis in recent weeks that concluded hedge funds can still profit from CDS in numerous ways by engineering questionable corporate actions, three people said. The agency has shared its findings with other regulators. In June, the U.S. Securities and Exchange Commission and the U.K.’s Financial Conduct Authority joined the CFTC in issuing a rare public statement in which the watchdogs pledged to work together to combat “opportunistic strategies” involving CDS. And the CFTC took the extraordinary step of hosting a July podcast for agency officials to discuss red flags they’re seeing in the market, and how deals are proliferating with seven occurring in the past six months.

The Labor Department released a final rule to make it easier for small businesses to band together to create joint 401(k) retirement plans for workers, the Wall Street Journal reported. The rule, which takes effect Sept. 30, broadens the ways companies could join together to offer retirement accounts. Under the rule released yesterday, companies in different industries — for example, landscaping companies and real-estate firms — could create a joint plan as long as they are located in the same state or metropolitan area. The rule also would clarify that similar companies — for example two landscaping companies — located in different regions of the country could join together. Such arrangements, often called multiple-employer plans, are currently limited to employers with an affiliation or connection, such as a common owner or being members of an industry trade group. The rule means local chambers of commerce are more likely to sponsor retirement plans for companies affiliated with them.