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After five years, four judges, three rulings, two appeals and the loss of their careers, John Flannery and James Hopkins this month won their legal battle against the Securities and Exchange Commission, the Wall Street Journal reported today. The former State Street Corp. executives’ long legal fight took place almost entirely in the SEC’s in-house court system, which agency officials have lauded as offering a fast-track alternative to federal court. In fact, the SEC’s use of its own tribunal, more frequent in recent years, has coincided with longer delays in the agency’s handling of appeals, according to a Wall Street Journal analysis of rulings stretching back a decade. Since Mary Jo White became SEC chairman in April 2013, the median time for the agency to decide appeals of its in-house judges’ decisions has increased to 19 months, the analysis found. That is almost double the median times under her two main predecessors, Christopher Cox and Mary Schapiro. Critics — including former SEC officials, business groups and defense lawyers — said the SEC’s approach means defendants often lose both ways. The trial portion of the civil case moves much more quickly than such matters typically would in federal court, giving limited time to prepare for trial, and defendants then can wait years for the SEC to decide appeals.

A federal appeals court yesterday overturned a U.S. Securities and Exchange Commission decision to hold two former State Street Corp. executives liable for misleading investors about a seemingly low-risk mutual fund's exposure to subprime bonds, Reuters reported yesterday. The U.S. Court of Appeals for the First Circuit said that the commission's findings against John Flannery and James Hopkins, respectively State Street's former chief investment officer and former head of North American product engineering, were "not supported by substantial evidence." The decision is a defeat for SEC Chair Mary Jo White, who last December joined a 3-2 majority in holding Flannery and Hopkins civilly liable. Flannery and Hopkins were accused in 2010 of having marketed State Street's Limited Duration bond fund three years earlier as safe, even though the fund had become invested almost entirely in risky securities. The fund, which once had $1.4 billion of assets, lost about 37 percent of its value over three weeks in August 2007, the SEC said.

U.S. regulators are examining whether banks colluded in setting prices in the derivatives market where investors speculate on credit risk, Bloomberg News reported on Friday. The U.S. Securities and Exchange Commission is probing whether firms acted in unison to distort prices in the $6 trillion market for credit-default swaps indexes. The regulator is trying to determine if dealers have misrepresented index prices. The credit-default swaps benchmarks allow investors to make bets on the likelihood of default by companies, countries or securities backed by mortgages. The probe comes after successful cases brought against Wall Street’s illegal practices tied to interest rates and foreign currencies. Those cases showed traders misrepresented prices and coordinated their positions to push valuations in their favor, often through chat rooms — practices that violate antitrust laws. 

Federal securities regulators are intensifying a broad investigation into trading of pre-IPO shares, zeroing in on companies that help technology-firm employees and others resell their shares, the Wall Street Journal reported today. In a Nov. 25 court filing, the Securities and Exchange Commission ordered an unregistered brokerage firm under investigation, NetCirq LLC, to comply with an SEC subpoena sent on April 7. The filing, in a San Francisco federal court, says that the SEC broadly is investigating whether trading of pre-IPO shares could violate securities laws under the Dodd-Frank Act because some of the transactions could be considered “swaps,” or agreements whose value is tied to a future event.

The SEC has recently leaned more heavily on its in-house tribunal, using powers granted in the 2010 Dodd-Frank financial law to send its judges more insider-trading and other serious contested cases, the Wall Street Journal reported today. That practice, however, has attracted a growing number of critics and focused attention on the five judges who handle the cases. The SEC won against 86 percent of defendants in contested cases in its own courts from October 2010 through September 2015, according to an updated analysis by the Wall Street Journal — significantly higher than the agency’s 70 percent win rate in federal court. Thomas McGonigle, a former SEC enforcement official who is now at the law firm Murphy & McGonigle, said that the SEC judges aren’t deliberately biased, but the system itself appears inherently skewed toward the agency. “The SEC and its trial team get the benefit of the doubt in that forum,” he said.

The number of whistleblower tips submitted to the Securities and Exchange Commission continues to rise, with the SEC receiving nearly 4,000 of them in the last fiscal year, according to an annual report, the Wall Street Journal reported today. The SEC’s whistleblower office reported that the 3,923 tips it received in the last fiscal year came from every U.S. state, as well as Washington, D.C., and 61 foreign countries, including a number from the U.K., Canada, China, India and Australia. California, New York, Texas, Florida and New Jersey yielded the highest number of tips among U.S. states, the report said. The office doled out more than $37 million in awards for reporting securities violations during the fiscal year, including one case in which a tipster received $30 million for their information, the report said. Eighty percent of award recipients reported their concerns internally before coming to the SEC, the report said.

Federal securities regulators are looking more closely at whether U.S. mutual funds have proper procedures in place to accurately price shares of private technology companies amid signs the tech boom is wavering, the Wall Street Journal reported today. The Securities and Exchange Commission in recent months has been asking more questions of large fund firms about how they value startups and whether their process ensures an accurate estimate of a company’s worth. The SEC conducts occasional checkups of mutual funds in which they examine things such as the proportion of funds’ holdings that are in hard-to-sell securities, which include shares of private companies. The amount of hard-to-sell shares is an indicator of how easily a mutual-fund investor would be able to get his or her money back. Some SEC examiners have shifted more of their focus in those regular reviews to possible shortcomings in the startup-valuation process. Read more. (Subscription required.) 

For further insights on valuation, be sure to pick up a copy of ABI’s A Practical Guide to Bankruptcy Valuation. 

Federal prosecutors are actively pursuing criminal cases against executives from Royal Bank of Scotland Group PLC and JPMorgan Chase & Co. for allegedly selling flawed mortgage securities, the Wall Street Journal reported today. Officials are working to establish that the bankers ignored warnings from associates that they were packaging too many shaky mortgages into investment offerings and are weighing whether they can prove that constituted fraud. At RBS, prosecutors are scrutinizing a $2.2 billion deal that repackaged home mortgages into bonds in 2007. In a 2013 civil settlement with RBS, the Securities and Exchange Commission described the lead banker on that deal, whom it didn’t name, as trying to push it through over concerns of the diligence department. At J.P. Morgan, prosecutors are focusing on two people who worked on a different residential-mortgage deal.