Miscellaneous

As Their Prices Hit a 2-Year Low, Gold ETFs Liquidate En Masse

Published on: June 10, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Gold, once a hot commodity in the markets, is, at least for now, considered incredibly passé. ETF Trends editor Tom Lydon says that over 600,000 pounds of gold have been disposed of this year. He says that gold is out of favor for at least a couple of reasons: Central Banks aren’t as interested, and investors are currently looking more to back stocks and bonds, since both are doing relatively well.

Lydon, however, was quick to point out that gold isn’t gone for good, especially when investors will want to hedge against inflation and markets when the need arises once again. Meantime, investors may be opting to buy just a small amount of gold to stick in their portfolios.

Gold ETFs

Morgan Stanley Unveils Trade Flow Insights Product to Give Brokers Better Sales Data

Published on: May 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) has a new trade tool to help brokers better understand who is buying and selling what financial products. Trade Flow Insights was recently rolled out to over 16,000 financial advisers.

The tool provides information on leading sales and purchases that have been executed, in addition to asset allocation. Advisers can even filter data to determine which products were the most popular in the last week or month. Client age, asset class, and household assets are just some of the filter categories.

Not only will Trade Flow Insights let representatives know what products are most in demand, but also it will inform them of which financial instruments their coworkers are most successful with. Some brokers are saying that having this type of insight is beneficial, helping them become aware of current trends while causing them to probe more deeply into the investment options out there before making a buy for an investor.

Number of Banks At Risk of Failing Goes Down

Published on: May 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to The Dealmaker’s Journal, the list of banks in danger of failing has gotten smaller. Bank observers are speculating whether the failures have decreased because of election year politics, the industry is becoming more robust, regulatory agencies have changed leadership, or other factors.

Regulators tend to shut down banks with low capital, and last month alone, data analysis firm Trepp reported a rise in bank failures. That said, the rate of failures has gone down in the last few years. Last year 51 banks failed. By April for this year, 10 banks had failed. However, 651 institutions are still on the Federal Deposit Insurance Corp’s list of problem banks.

Over just the course of a quarter following exams and credit writedowns, there have been banks that have gone from appearing well capitalized to seized. This was especially true 2009 and 2010 when certain bankers were reluctant to admit that credit quality had gone down until regulators forced them to lower the value of their portfolios.

Lawmakers Tackle Investment and Securities Matters

Published on: May 10, 2013 | by Shepherd Smith Edwards & Kantas, LLP

US Senators John Thune (R-SD), Richard Burr (R-NC), and Tom Coburn (R-Okla) have introduced a bill that would mandate that public pension plans reveal more information about the way they calculate liabilities and assets or place at risk the favorable tax treatment for bonds that are issued by the states and cities. S. 799 is a companion legislation to a bill that was recently unveiled in the US House of Representatives.

Like S. 799, SRLR 710 would make pension plans notify the Treasury Department about what assumptions and methods they use to determine assets, debt, and liabilities. Failure to abide by these tougher disclosure requirements would lead to the revocation of tax exemptions for specific bonds put out by municipalities and states. The senators’ bill also would prohibit federal bailout for any public pension funds.

Another Republican, Rep. Ann Wagner from Missouri, recently presented HR 1626, which would prohibit the Securities and Exchange Commission from being able to make companies reveal their political spending. The legislation, co-sponsored by Rep. Scott Garrett (R-N.J.), would amend the 1934 Securities Exchange Act.

Ex-Employer Wants Would-Be Whistleblower’s Appeal Dismissed In Light of the US Supreme Court’s Ruling Over Alien Tort Statute Claims

Published on: May 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In light of the US Supreme Court’s decision in Kiobel v. Royal Dutch Shell Petroleum Co., the attorney for GE Energy (USA) wants the Court of Appeals for the Fifth Circuit to dismiss would-be whistleblower Khaled Asadi’s appeal to have his lawsuit, contending that his firing violates the protections provided to him under the 2010 Dodd-Frank Act, reinstated. Asadi filed his complaint against the company last year claiming that his former employer had violated the whistleblower anti-retaliation provisions. The dual Iraqi and US citizen says that he was let go from his job after he told GE Energy’s ombudsman and his supervisor about a hiring situation that could violate the Foreign Corrupt Practices Act.

A district court, however, threw out his case, finding that, per the Supreme Court’s ruling in Morrison v. National Australia Bank Ltd., applying the anti-retaliation provisions to behavior that happened abroad is precluded. Asadi then went to the Fifth Circuit, arguing that Dodd-Frank protects employees that report violations of any rule, law, or regulation that is under SEC jurisdiction. He claims that these protections extend to US citizens who work abroad and report information about securities violations.

Asadi believes that the way Dodd-Frank incorporates the FCPA supports his claim that the whistleblower protections do have “extraterritorial applicability.” He noted that the anti-corruption statute has a “clear statement rule” that is applicable to individuals and companies outside the US.

Federal Reserve Board Establishes Key Rule That Will Let Regulator Identify Systemically Important Nonbank Financial Institutions

Published on: April 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Reserve Board has moved closer toward being able to designate certain firms as Systemically Important Nonbank Financial Institutions. Earlier this month it set up a key rule that lets the Financial Stability Oversight Council name these SIFIs. The Federal Reserve would be their consolidated supervisor.

The rule defines when a firm is “predominantly” involved in financial activities. An SIFI would need to have at least $50 billion in overall consolidated assets or have risk exposures that could harm the US financial system should it fail. Among the companies that will likely get the SIFI designation are Prudential Financial Inc., GE Financial, MetLife Inc., and American International Group Inc.

A company will be considered as primarily involved in activities that the Bank Holding Company Act deems “financial in nature,” if at least 85% of its assets or revenues are related to such activities. However, the Fed has decided that involvement in physically settled derivatives transactions would generally not be considered a financial activity. This is to protect companies, such as manufacturers and farmers, that work with derivatives to hedge against supply price modifications.

SEC Roundup: Number of Securities Cases Brought Against Attorneys Rises, Permission Granted to Announce Material Information Via Social Media, & Clearing Agency Rulemaking Process Gets Streamlined

Published on: April 16, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Under Rule of Practice 102(e), SEC to File More Securities Cases Against Lawyers

According to the Commission, it intends to bring even more cases against lawyers under its Rule of Practice 102(e). The amount cases had already gone up in the wake of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and the 2002 Sarbanes-Oxley Act. Now, the regulator’s Office of the General Counsel is getting referrals from its Enforcement Division about possible lawyer misconduct.

The cases being brought generally involve alleged securities violations, such as active involvement in financial fraud and the obstruction of probes, with judgment errors and close calls not included. Per rule 102(e), the SEC can bar or censure individuals from practicing or appearing before it for different reasons. Some attorneys, however, are worried about the way the regulator interprets the rule, such as what ‘active participation’ in fraud actually entails. There are also concerns that the rule could be used as a “tactical tool” against attorneys.

AIG Wants to Stop Former CEO Greenberg From Naming It as a Defendant in Derivatives Lawsuit Against the US

Published on: April 13, 2013 | by Shepherd Smith Edwards & Kantas, LLP

American International Group is asking a federal judge to prevent Maurice Greenberg, its former chief executive, from suing the federal government on its behalf. The insurer had already decided it wasn’t going to file a lawsuit against the federal government over its bailout that took place during the economic crisis.

Greenberg, who has filed a $25 billion securities lawsuit against the US, is pursuing derivative claims for the company. He claims that the bailout’s “onerous” terms cost the insurer’s investors billions.

While AIG isn’t trying to stop Greenberg from suing on his behalf or for other shareholders, the insurance giant has made it clear that suing the government over the rescue isn’t where it wants to focus its energy and resources. In its filing, AIG notes that according to Delaware Law, Greenberg, through Starr Investment, cannot take over the right of the AIG board to make the call on whether/not to sue.

Federal Workers’ Privacy Rights if STOCK Act Provision Mandating Online Disclosure of Financial Data Goes Into Effect, Says District Court Judge

Published on: April 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In Senior Executives Association v. United States, U.S. District Court for the District of Maryland Judge Alexander Williams said that the privacy rights of thousands of senior federal workers could be violated if a Stop Trading on Congressional Knowledge Act provision, which mandates that these employees’ financial information is disclosed online, goes into effect.

The court noted that exposure from disclosure online is greater than what existed under the old regime of disclosure. Under the old requirements, per the Ethics in Government Act, federal employees’ financial reports had to individually requested, while the requestor had to name itself. Information about the legal parameters of use was provided.

Meantime, a Congressionally mandated study, which was recently released, reports that broad online disclosure of government workers’ financial data is possibly dangerous and should be indefinitely delayed. Conducted by a National Academy of Public Administration panel, “An Independent Review of the Impact of Providing Personally Identifiable Financial Information Online” found that the STOCK Act’s disclosure requirement could hurt federal agency missions, as well as workers. Among the worries brought up: possible identity theft and potential exploitation by foreign intelligence services and others. There were also concerns that access to what has normally been private financial formation, including debt and other financial losses, could now be used to suss out who might be most vulnerable to bribes and other financial inducements. The study recommends that lawmakers indefinitely suspend this provision.

Noting that only approximately 450 financial reports for senior federal employees were sought over two years under the old disclosure regime, Judge Williams suggested that the privacy of over 28,000 workers eclipses the privacy loss “associated with” the old system.

“The goal of the legislation was to place the same type restrictions on Congresspersons and Senators, their staff, and other government workers that the rest of us face: No trading on insider information!” Said Securities Lawyer William Shepherd. “Folks in Washington get lots of inside information, such as how laws will effect companies, who is getting government contracts, etc. This is information we could all get rich on – and many do! So, what happens when one writes a law to prevent themselves from an unfair advantage over you and me? Well, they could write a law that is unconstitutional so the courts will throw it out. This way, they appear to be taking action – but nothing happens in the long run. The result is that they can keep making money unfairly without worrying about breaking the law.”

Senior Executives Association et al v. United States of America et al, Justia

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Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Bulk of American Securitization Forum’s Board Resigns

Published on: March 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The American Securitization Forum recently experienced an upheaval when most of its board resigned over a dispute with its executive director on the topics of bonuses and governance. The group is the primary trade association for the securitization industry, which generated over $500 billion of new bonds around the world.

Among those that resigned are JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup (C), and Deutsche Bank (DB). Sources that spoke on the grounds of anonymity said that the departures now place the future of the forum in peril. Also no longer on the ASF board are Fitch Ratings Ltd., Amherst Securities Group LP, Natixis SA, and Moody’s Investors Service.

The different board members stepped down after they were unable to remove the ASF board’s executive director Tom Deutsch. Even though they disagreed with the bonuses he received, they couldn’t displace him because of existing documents regarding governance.