Judges Ruling on Dodd-Frank Act Beefs Up Protection for Whistleblowers
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SEC Poised to Vote on Broad Stock Surveillance System This Week
The Securities and Exchange Commission is meeting today to consider adopting a proposal issued three weeks after the stock rout of May 6, 2010, to build a single system to track all order and trading data, Bloomberg News reported yesterday. The consolidated audit trail will enable the reconstruction of market crises and analyze trading on 13 equity exchanges, 10 options markets and more than 200 broker-dealers that execute stock away from public venues. Momentum for the proposal increased after it took the SEC and Commodity Futures Trading Commission five months to complete a report on what became known as the flash crash, in which the Dow Jones Industrial Average briefly plunged 9.2 percent. While the CFTC needed several weeks to compile its data, a 20-person SEC team spent three months collecting, cleaning and processing data from exchanges and brokers because of a lack of uniform quotes and trade data, according to Gregg Berman, senior adviser to the director of the SEC’s division of trading and markets.
Commentary A Judge Protects Taxpayers
While District Judge Robert Wilkins noted that he was "truly sympathetic to the plight" of these victims in the Stanford Ponzi scheme case, he also noted that the plain language of the law does not allow compensation from the Securities Investor Protection Corp. (SIPC), according to a Wall Street Journal commentary today. The SIPC program, which collects insurance premiums from the securities industry, only covers investors in cases when assets disappear from their accounts at participating U.S. brokerages. If assets are still in the accounts but turn out to be worth nothing, SIPC does not cover the loss. If customers decide to take a flier on certificates of deposit issued by a bank in Antigua, as the Stanford victims tragically did, SIPC cannot help them, according to the commentary, just as it does not refund money to investors who buy shares before a company goes bankrupt. The SEC was seeking to force SIPC to assist thousands of victims defrauded by R. Allen Stanford, but was rejected by Judge Wilkins last week.
SEC Names Director of Investment Management
The Securities and Exchange Commission yesterday named Norman B. Champ III, a former hedge fund general counsel, as its director of investment management, the New York Times DealBook blog reported yesterday. He replaces Eileen Rominger, a former Goldman Sachs senior executive who is leaving the post after 18 months on the job. Rominger announced her retirement last month. Champ has been with the SEC since 2010, most recently serving as its deputy director of the SEC's compliance inspections and examinations unit. That office has received increased attention because of new requirements that hedge funds and other large private investment firms register with the commission. His office has also played a key role in implementing certain provisions of the Dodd-Frank financial reform law.
SEC Loses Bid to Force SIPC Coverage for Stanford Investors
U.S. District Judge Robert Wilkins on Tuesday ruled that the Securities Investor Protection Corp. is not required to begin a claims process in Texas for the victims of R. Allen Stanford’s $7 billion investment fraud, Bloomberg News reported yesterday. Judge Wilkins said that regulators failed to show that the 7,000 brokerage clients who invested in the Ponzi scheme are entitled to have their losses covered by SIPC, a nonprofit corporation funded by the brokerage industry. The Securities and Exchange Commission told SIPC on June 15, 2001, to start a process that could grant as much as $500,000 for each Stanford client -- the same maximum amount it offers in any case. After SIPC balked, the SEC for the first time sued the congressionally chartered group.
Falcone Said to Face Lawsuit From Regulators over Loan
Philip Falcone, the billionaire hedge-fund manager whose largest investment went bankrupt after being blocked by regulators, now faces a showdown in court with the Securities and Exchange Commission, Bloomberg News reported today. Falcone, the founder of Harbinger Capital Partners LLC, may be sued by the regulator as soon as this week over claims he improperly borrowed client money to pay his taxes. He may also face claims that he gave preferential treatment to Goldman Sachs Group Inc., an investor in his fund, and manipulated markets when trading bonds of MAAX Holdings Inc. The SEC voted to authorize enforcement staff to sue after Falcone in 2009 took out a $113 million loan from his Special Situations fund to pay personal taxes. The loan was disclosed in the fund's annual financial statement the following March. At the time he borrowed the money, clients were barred from pulling money from the fund. Falcone subsequently repaid the loan with interest.
SEC Probing S&Ps Ratings Criteria
The Securities and Exchange Commission is examining Standard & Poor's Ratings Services' last-minute decision to pull its ratings on a high-profile deal backed by commercial real estate loans, the Wall Street Journal reported today. The scrutiny relates to S&P's decision in July 2011 to pull its ratings on a new $1.5 billion commercial-mortgage-backed security (CMBS) issued by Goldman Sachs Group Inc. and Citigroup Inc. The unusual step sent the commercial mortgage securities market into turmoil and scuttled the deal for weeks, angering investors and issuers. The SEC's inquiry is part of its annual review of S&P and other credit-rating firms, but regulators are looking at whether it used more lenient standards to rate new CMBS than it used on outstanding deals.
CFTC Moves to Brake High-Speed Traders
A Commodity Futures Trading Commission (CFTC) subcommittee today is expected to propose a roughly 60-word definition of high-frequency trading that would define it broadly, the Wall Street Journal reported today. The announcement follows three months of meetings by an industry group that was formed by the CFTC to help the agency wrestle with the impact of rapid-fire trading on financial markets. Such trades now generate more than half of all U.S. stock- and futures-trading volume, and critics claim that the surge in high-frequency trading has left Wall Street more vulnerable to computer-driven failures that sap investor confidence. According to a draft version, the CFTC subcommittee working group is proposing to define high-frequency trading as a form of trading that uses sophisticated computer programs to make automated decisions in the markets, with no human decision-making involved in individual transactions. The draft also defines such trading as using technology to amplify the speeds at which firms send orders to exchanges and other trading venues, and generating large volumes of messages, orders and cancellations compared with other, slower types of trading.
Loophole at MF Global Is Headache for Regulators
Most of the senior executives at MF Global Holdings Ltd. were not registered with commodities regulators, meaning the executives cannot be charged with supervision failures related to the firm's collapse, the Wall Street Journal reported today. Among top officials at MF Global, only former Chairman and Chief Executive Jon S. Corzine was registered with the Commodity Futures Trading Commission when the New York company filed for chapter 11 protection in October, regulatory records show. Those who were not registered include Henri Steenkamp, MF Global's finance chief, company treasurer Vinay Mahajan and Edith O'Brien, an assistant treasurer responsible for approving transfers and monitoring their impact on customer accounts.
SEC Staff Ends Probe of Lehman without Finding Fraud
Securities and Exchange Commission investigators have concluded their probe of possible financial fraud at Lehman Brothers Holdings Inc. without recommending enforcement action against the firm or its former executives, Bloomberg News reported yesterday. Lawmakers and investors have pressed the agency for more than three years to determine whether Lehman misrepresented its financial health before filing the biggest bankruptcy in U.S. history in September 2008. Senior SEC officials have been reluctant to formally close the matter even though investigators found a lack of evidence of wrongdoing and officials have weighed in by issuing a public report on their findings that stops short of an enforcement action while highlighting the firm’s questionable conduct. The SEC has indicated that the case remains under review.