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The City of Tucson, Ariz., decided last year to pay rent on five golf courses and a zoo — to itself. In California, West Covina agreed to pay rent on its own streets. And in Flagstaff, Ariz., a new lease agreement covers libraries, fire stations and even City Hall. They are risky financial arrangements born of desperation, adopted to fulfill ballooning pension payments that the cities can no longer afford, the New York Times reported. Starved of cash by the pandemic, cities are essentially using their own property as collateral of sorts to raise money to pay for their workers’ pensions. It works like this: The city creates a dummy corporation to hold assets and then rents them. The corporation then issues bonds and sends the proceeds back to the city, which sends the cash to its pension fund to cover its shortfall. These bonds attract investors — who are desperate for yield in a world of near-zero interest rates — by offering a rate of return that’s slightly higher than similar financial assets. In turn, the pension fund invests the money raised by those bonds in other assets that are expected to generate a higher return over time. If they can pull off the strategy, cities issuing these bonds can reduce their pension bills by an amount that’s the difference between what they earn and what they pay out. But as with any strategy based on long-term assumptions, there is risk. Taxpayers can still owe the pension fund money if the investments don’t get the return they expect. And although most municipal debt is considered bulletproof because a government pledges to make its creditors whole in the event of a default, bonds like the ones West Covina issued don’t have that guarantee.

The U.S. Securities and Exchange Commission (SEC) on Tuesday sued Morningstar Credit Ratings LLC for allegedly violating U.S. securities laws in its ratings of commercial mortgage-backed securities, Reuters reported. Morningstar’s credit ratings business allegedly violated disclosure and internal controls requirements in 30 commercial mortgage-backed securities transactions from 2015 to 2016 when the agency allowed analysts to make undisclosed adjustments to key stresses in its modeling, the SEC said. A spokesperson for Morningstar said the firm had complied with all regulatory requirements and the complaint related to methodology it had voluntarily retired in 2018. The SEC had also not alleged any investor harm, she said. Ratings agencies came under criticism after the U.S. financial crisis as inflated ratings of mortgage-backed securities helped fuel a U.S. housing bubble. In the wake of the crisis Congress charged the SEC with overseeing the ratings agencies, but the agency struggled with the oversight due to insufficient resources and technology changes, Reuters previously reported. Morningstar previously paid $3.5 million to settle SEC charges it violating conflict of interest rules designed to separate credit ratings and analysis from sales and marketing.

A group of technology and financial industry executives will face a bipartisan firestorm Thursday during the first congressional hearing on the GameStop stock controversy, The Hill reported. The leaders of major companies at the center of last month’s wild stock market volatility will find few allies on the House Financial Services Committee as members in both parties plan to hold their feet to fire. Executives from Robinhood, hedge fund Citadel, Melvin Capital and Reddit will seek to defend the heavily scrutinized ways they dealt with a surge in purchases of shares of GameStop and other struggling companies organized by an online community of traders. The GameStop frenzy raised serious questions about stock market regulation, the rise of retail trading websites and Wall Street transparency. The hearing may also lay the groundwork for further congressional investigations or attempts to impose tougher rules on hedge funds and trading platforms. But financial policy experts say those concerns are likely to take a backseat to big tech backlash, mistrust of Wall Street and other politically potent grievances when lawmakers get their crack at the executives.

Regulators and federal prosecutors are probing potential misconduct in the GameStop trading frenzy, as the Securities and Exchange Commission moves to restore harsher penalties on wrongdoers, the Washington Post reported. Attorneys in the Justice Department’s criminal division are conducting a wide-ranging investigation into possible market manipulation from the trading surrounding GameStop, and recently issued a subpoena to Robinhood as part of that, a person familiar with the matter said. The probe, though, appears to be in its early stages. SEC acting chair Allison Herren Lee in a radio interview earlier this month said the agency already is investigating the matter “from a number of different angles, and they’re very significant.” Specifically, she indicated the agency is looking into whether brokers such as Robinhood complied with regulations when they limited trading in certain so-called “meme stocks.” And she said the agency is looking for signs of market manipulation amid the trading mania. Beyond the GameStop probe, Lee said Thursday that the agency is reversing a policy that shielded financial firms settling charges from further punishment. Under the Trump-era approach, the SEC bundled settlement agreements with waivers that allowed the targeted companies to continue raising money in public markets. Lee in a statement said the new policy marks a “return to the division’s long-standing practice” and ensures “that the consideration of waivers is forward looking and focused on protecting investors, the market, and market participants from those who fail to comply with the law.”

GPB Capital Holdings LLC, the private-equity firm at the center of an alleged $1.7 billion Ponzi-like scheme to deceive investors, agreed late Thursday to have an independent monitor oversee the firm’s operations, the Wall Street Journal reported. The Securities and Exchange Commission made an emergency request for a monitor on Monday, to protect the capital of some 17,000 investors in four of the firm’s funds. A hearing on the request was set for Friday morning in the U.S. District Court for the Eastern District of New York in Brooklyn. The monitor has the authority to block significant financial moves by the firm, which owns dozens of auto dealerships through its funds. The firm accepted the SEC’s proposal to install Joseph T. Gardemal III, a managing director with Alvarez & Marsal Holdings LLC in Washington, as the monitor. Set up in 2013 by David Gentile, Jeffry Schneider and Jeffrey Lash, the firm was hit with civil actions by seven states and the SEC last week, while the three men were indicted on criminal fraud charges. Gentile and Lash have entered not guilty pleas while Schneider is expected to enter a plea on the criminal charges on Friday. Gentile, who has denied the civil as well as criminal charges, stepped down as the firm’s chief executive last Friday until the matters are resolved.

Federal prosecutors are investigating whether market manipulation or other types of criminal misconduct fueled the rapid rise last month in prices of stocks such as GameStop Corp. and AMC Entertainment Holdings Inc., the Wall Street Journal reported. The Justice Department’s fraud section and the San Francisco U.S. attorney’s office have sought information about the activity from brokers and social-media companies that were hubs for the trading frenzy, the people said. Prosecutors have subpoenaed information from brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors used to trade GameStop and other shares, the people said. GameStop shares surged from about $20 to $483 over a period of two weeks in January. The stock has since fallen to around $50. It was fueled by an army of bullish individual traders exhorting one another on Reddit to buy the shares and squeeze hedge funds that bet the price would fall. Traders who bet stock prices will decline are known as short sellers. In addition to the probe by the Justice Department, the Commodity Futures Trading Commission is examining similar trading. The CFTC has opened a preliminary investigation into whether misconduct occurred as traders, including those coordinating on Reddit, targeted silver futures and the largest exchange-traded fund tied to silver, the iShares Silver Trust.

Among the winners from the recent retail-driven frenzy in U.S. stocks are investors in the niche market of convertible debt, capping a year of gains for the securities and potentially drawing new interest, according to a Reuters analysis. While buyout firm Silver Lake capitalized on a surge in AMC Entertainment, one of the stocks at the epicenter of the retail frenzy linked to a convertible bond, others have also seen their bonds gain. Those holding convertible notes — which allow investors to convert the debt to equity when a company’s shares hit a set price — in Ligand Pharmaceuticals have seen prices rise 10% since Jan. 25. Over the same period, the American Airlines convertible note rose to a record high, as did that of First Majestic Silver, last up 9% and 14% respectively. All three stocks were pushed higher in the retail buying rush.

The wild run-up of trades popular with Reddit crowds is starting to come crashing down, Bloomberg News reported. GameStop Corp. sank 34% in U.S. pre-market trading, extending a 31% plunge on Monday. AMC Entertainment Holdings Inc. slid 25% and Express Inc. lost 18%. Silver tumbled more than 5% after surging to an eight-year high. The speculative activity hatched online has captivated global markets, drawing attention from U.S. politicians and overwhelming brokerages around the world. Now, the speculative tide is turning. In GameStop, short interest plunged to 53% of the available shares, from more than 140% just last month, according to data from financial analytics firm S3 Partners. Trading volume on Monday slowed to around one-third of the average of the past five sessions. Read more.

The U.S. House of Representatives Financial Services Committee will hold a hearing on recent market volatility involving GameStop Corp and other stocks on Feb. 18. Click here for the Committee notice.