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Wall Street bonuses are expected to decline for the third consecutive year, reflecting a period of busted mergers, limited trading activity and muted hedge fund returns, the New York Times reported today. The payouts are projected to be from 5 to 10 percent lower this year, according to an annual report to be released today by Johnson Associates, a compensation consulting firm. Bonuses fell about the same amount last year from 2014. The projection confirms a report last month by the New York State comptroller that said firms set aside 7 percent less for bonuses through the first half of this year compared with last year.

Victims of Bernard Madoff's Ponzi scheme will receive another $32.1 million under a new settlement over the swindler's ties to Cohmad Securities Corp, whose clients invested more than $1 billion with him, Reuters reported Friday. Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, on Friday announced that the settlement with the estate of former Cohmad Chairman Maurice "Sonny" Cohn, his widow Marilyn Cohn, and their daughter Marcia Cohn, who was Cohmad's chief operating officer. Though Cohmad is insolvent, Picard said that he plans to keep pursuing claims against six other individuals who received "substantial fees" for helping Cohmad raise money for Madoff. Read more. 

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

Kentucky plans to pull more than half of its investments in hedge funds in the coming three years, a significant retreat for a state that had embraced Wall Street money managers following the last financial crisis, the Wall Street Journal reported today. The deeply indebted Kentucky Retirement Systems, or KRS, expects to withdraw at least $800 million out of $1.5 billion committed to hedge funds, David Eager, interim executive director, said yesterday after a meeting of the committee that oversees investments for the state’s pension and insurance funds. The investment committee drew up a plan to pull $600 million from hedge funds by July and the remaining $200 million by July 2019. The proposal must still be approved by the full board, which meets Dec. 1. Eager said that the investment committee hasn’t decided yet where those funds will be reinvested.

Clients of Bank of America’s Merrill Lynch brokerage can no longer buy mutual funds in retirement accounts that charge commissions, another sign that the effects of new retirement regulations are already being felt months ahead of implementation, the Wall Street Journal reported today. Starting immediately, Merrill clients who have a commission-based individual retirement account can no longer purchase a mutual fund, according to a memo sent to the firm’s more than 14,000 brokers. Merrill clients who already have mutual funds in a commission-based IRA won’t be forced to sell and can continue to make dividend reinvestments. However, after April 10 — when the new retirement rules begin to take effect — clients won’t be able to add or make changes to their mutual-fund positions or make new purchases. The move follows Merrill’s decision in October to no longer offer commission-based IRAs to retirement savers after April in an effort to comply with the Labor Department’s fiduciary rule requiring brokers to put the interests of retirement savers first. Instead, Merrill will offer only IRAs that charge a fee based on a percentage of assets or the option of moving the account to online brokerage Merrill Edge, where clients can direct their own investments, choose a cheaper fee-based account or use its soon-to-launch robo-adviser service.

During a trial that could end her career in the securities industry, turnaround executive Lynn Tilton took the witness stand to defend against civil fraud charges stemming from her handling of a $2.5 billion investment portfolio, the Wall Street Journal reported today. Tilton and her Patriarch Partners LLC investment firm deny the Securities and Exchange Commission’s allegations that she hid losses from investors in her Zohar I, II and III funds, which are collateralized loan obligation vehicles packed with loans to troubled companies. In a trial that began last week, the SEC says that Tilton failed to tell investors in the Zohar funds that she was extending loan maturities based on her belief that the troubled companies had a chance to survive. Tilton said yesterday that investors knew that the loan portfolio included distressed companies and therefore should have expected those companies’ payments on their loans to be “irregular and lumpy.” Instead of calling troubled companies in default on the loans, Tilton said that she typically gave businesses more time to turn themselves around by allowing them to defer their interest payments. She said that she had broad discretion to make this call.

Callidus Capital Corp., the distressed debt lender run by billionaire Newton Glassman, is battling with three of its borrowers who say the Canadian firm pushed them to breach loan terms to get control of assets ranging from coal mines to a ship recycler, Bloomberg News reported yesterday. The case offers a glimpse into the combative world of distressed lending, with Callidus suing its former clients for breaking loan agreements, alleging that funds were diverted in one case, and claiming theft in another. The borrowers fired back with counterclaims seeking more than C$300 million ($224 million) in combined damages. They say that Callidus changed the terms of the loans, required personal guarantees that weren’t part of the original discussions, withheld funds, and ultimately caused them to default or go into receivership. The three lawsuits are tied to Callidus loans to Bentley, Alberta-based well specialist Alken Basin Drilling Ltd.; Texas-based ship recycler Esco Marine Inc.; and Kentucky-based coal company Fortress Resources. The cases are being heard in Alberta, Ontario, and Texas. Callidus, a subsidiary of Catalyst Capital Group Inc., Canada’s second-largest private equity firm, has built up a C$1.2 billion loan book specializing in companies that can’t access traditional lending. 

The Commodity Futures Trading Commission is probing interest-rate swaps trading activities at major investment firms such as Citigroup Inc., the New York-based bank said yesterday in a quarterly filing, MorningConsult.com reported. Earlier this month, the CFTC signed an agreement with U.K. regulators aimed at improving cooperation in their oversight of 20 registered swaps dealers. In September, the U.S. agency updated its interest-rate swaps clearing requirements, which is being phased in over a two-year period.

As private-equity firms and activists compete in an increasingly crowded investing world, where more money chases fewer opportunities, their approaches are growing closer, according to a Wall Street Journal analysis today. Activists, who traditionally buy up minority stakes then agitate for change, are increasingly attempting total takeovers or acquiring stakes at the requests of management teams looking for guidance. Private-equity firms, which typically do friendly buyouts, are increasingly buying noncontrolling stakes in public companies — and they aren’t always letting management in on their plans ahead of time. Both camps target underperforming companies with the goal of improving them and outperforming the market. However, a rising stock market and intense competition for deals have made bargains harder to find. Competition from corporate buyers and a regulatory effort to slash the amount of debt used to fund buyouts have sent private-equity firms searching for new ways to deploy cash. Meanwhile, activists are looking for larger targets to absorb the billions of dollars they have raised in recent years.

A decade after the triple-A failures of the subprime era, grade inflation is back on Wall Street, according to a Bloomberg News commentary yesterday. This time, Moody’s Investors Service and S&P Global Ratings Inc. are cutting companies slack on mergers and acquisitions, an analysis of credit-ratings data by Bloomberg News found. Over the past year and a half, both have bumped up their ratings levels on a majority of the biggest deals, the analysis found. Moody’s and S&P don’t dispute those findings, which are based on ratings guidelines posted on their websites. But the firms say that a by-the-numbers approach overlooks one of their most valuable assets — human judgment. Both make it clear that their analysts have leeway to nudge ratings up or down, based on a company’s track record and their confidence in management’s commitment to reduce indebtedness. “We want our analysts and committees to get behind the story and make their judgments about what they think the organization will look like in the next couple of years,” says Mark Puccia, a chief credit officer at S&P. 

Timothy Massad, the chair of the Commodities and Futures Trading Commission, said that he was willing to narrow a proposal that would govern automated trading, Reuters reported yesterday. Massad said that he stands behind the idea of adding regulations on automated trading but that some industry concerns about the scope were valid. Specifically, he said that he could endorse limiting the oversight to two levels, but not three as originally proposed. "I would support requiring risk controls at the exchange level, and either the trader or FCM [futures commission merchant] level," he said.