SEC Category Archives — Page 23 of 24 — Investor Lawyers Blog Published By Investment Fraud Attorneys

Latest in “Race to the Bottom” by Securities Regulators: Relaxed Accounting Procedures for Foreign Issuers

Published on: July 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has published a 121-page proposal for dropping the requirement that non-U.S. companies reconcile to the generally accepted accounting principles (GAAP) as required by U.S. firms in financial reports.

The proposal would apply to foreign private issuers that file financial statements to comply with the English language version of IFRS as published by the International Accounting Standards Board. “The Commission has taken a significant step on this important policy matter that was outlined in the ‘Roadmap’ announced in 2005,” said Conrad Hewitt, the SEC chief accountant.

“Along with the Commission’s work relating to internal control reporting and deregistration, this proposal to accept financial statements prepared in accordance with IFRS as published by the IASB without a US GAAP reconciliation represents another significant action to tailor the regulatory environment for foreign companies in the U.S. public capital markets,” said John White, director of the SEC’s Division of Corporation Finance.

SEC’s New Terrorism Search Site Is the Latest Target of Fear-Mongering Tactics by Business Community

Published on: July 8, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has stirred controversy with its new online tool that allows investors to search for companies with ties to countries the State Department has designated as “state sponsors of terrorism.” The official list includes Sudan, Syria, North Korea, Iran and Cuba.

The SEC initiated the online search site on June 25, with its Director saying that “no investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidizing a terrorist haven or genocidal state.”

However, some in the business community claim that some companies, including Baker Hughes and Immtech Pharmaceuticals, were wrongly placed on the SEC’s so-called terrorism “blacklist.” The list, they say, unfairly portrays a number of internationally-headquartered financial institutions and other corporations in a misleading, negative light and has been compiled without regard to the extent of their dealings, if any, with the five countries.

SEC Declines to Exempt From Broker Dealer Registration A Consulting Firm Which Raises Capital For Small Businesses

Published on: July 4, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Hallmark Capital Corporation sought a “No Action” letter from the SEC’s Division of Market Regulation seeking it be given an exemption from registration as a broker-dealer (securities firm).

Hallmark states that it serves small businesses as a financial consultant, to assist such business with capital raising and other matters. It informs clients and potential clients it is not a broker-dealer, does not act as an agent for the client company and does not effect transactions for the account of others. The company also does not offer to sell securities to or solicit investment funds from the general investing public.

More specifically, its CEO stated that Hallmark assists small businesses with revenues under $25 million with their debt and equity capital needs, including preparing confidential information summaries describing the business, identifying broker-dealer firms that might work with these companies and arranging meetings for engaging broker-dealers to raise capital. It then has control over significant aspects of any securities transactions.

This Time the Feds -Not the SEC- Abandoned Enron Investors

Published on: June 23, 2007 | by Shepherd Smith Edwards & Kantas, LLP

According to reports, the SEC asked the Justice Department’s Office of the Solicitor General to file an amicus curiae (friend of the court) brief to U.S. Supreme Court in support of the Enron investors’ position in a seminal case involving “scheme liability” under a key provision of the federal securities law.

However, lawyers for the Justice Department failed to honor the SEC’s request. After the deadline for such briefs was missed, a spokesman for the U. S. Solicitor General’s Office confirmed that the brief was not filed, while declining to say “whether or when we would file something in the future.”

The case, which has wound its way to the U.S. Supreme Court, was filed against Wall Street banks and brokerage firms for their alleged roles in assisting Enron to defraud its shareholders. Trial was eminent in a Houston Federal Court when a Court of Appeals in New Orleans intervened and said the Securities Exchange Act does not allow such claims. (Congress has forbid all class action claims by investors except under the federal securities laws.)

Wall Street Wars: When Investment Advisors Sued the SEC and Won Did They ‘Tug on Superman’s Cape?’

Published on: June 21, 2007 | by Shepherd Smith Edwards & Kantas, LLP

As discussed in earlier stories on this blog, the SEC was challanged by an investment advisors association in court for exempting Wall Street brokerage firms from liability under laws governing investment advisors, despite the fact that the brokerage firms were performing identical services.

The investment advisors won their suit a few months ago, ending the “Merrill Rule”, which had strangely been championed by the SEC, a 75 year old govenment agency created to protect investors. The SEC Chairman then personally, and not on behalf of the SEC, asked Congress to end “soft dollar” arrangements for investment advisors which he said were being abused.

It its latest ComplianceAlert letter to chief compliance officers of registered firms, the SEC has highlighted numerous areas of noncompliance, including performance advertising deficiencies “discovered” during a SEC review of several registered investment advisers.

Wall Street Wars: SEC Chairman’s “Payback” to Investment Advisors?

Published on: June 16, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Last year, money managers directed a billion in dollars of their clients’ funds in hidden commissions to Wall Street investment firms, says SEC Chairman Christopher Cox. These “soft”dollars” are purportedly for research and other services. Instead, the funds are made available to the money managers who often use these for “lavish trips, theater tickets, and fancy meals,” Cox added.

In these “soft dollar” transactions, clients of investment advisers pay an extra five cents or so per share which is credited to cover costs of research and other services of the firm handling the transaction. A nickel per share may seem small, but on tens of billions of total shares traded becomes a huge amount. Those paying these costs include investors into mutual funds, pension funds, and 401(k) plans.

Laws impose a “fiduciary duty” on money managers to protect their clients’ interests, even over their own. Yet, a “safe harbor” was enacted in 1975 which allows the managers and brokerage firms to “bundle” research and other services with executions and not be liable for violating duties to their clients, including the duty to shop for the best execution price.

Should Brokerage Firms Continue to Vote Their Clients Shares Without Permission, Including for Corporate Directors?

Published on: June 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Few stockholders realize that when their shares of stock are held at a brokerage firm that firm can vote their shares without a “proxy”. Thus, if an investor owns 100 shares of XYZ stock held at ABC brokerage firm, without the investors permission, ABC firm can cast the investors vote in annual meetings of XYZ, including for XYZ’s directors.

At a recent meeting at the SEC on the long debated issue, Catherine R. Kinney, president and chief executive officer of the New York Stock Exchange, announced that the NYSE has agreed to amend its rules to eliminate broker discretionary voting, but only in the election of directors. There is no proposal to stop brokerage firms from voting their clients’ shares, without permission, on other matters.

A NYSE rule states that brokers may vote on “routine” proposals if the beneficial owner of the stock has not provided specific voting instructions to the broker 10 days before the voting date. “Routine” proposals have been interpreted to include such important votes as election of directors. The proposed change will consider election of directors as “non-routine.” The change was previously proposed but revised to exclude such voting by mutual funds.

SEC Says It Has No Jurisdiction To Review NASD Action Against Sky Capital

Published on: June 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that it will not grant Sky Capital LLC’s request that the agency review the NASD’s action against the firm. The commission says it lacks the proper jurisdiction.

Sky Capital became an NASD member in 2002 following initial denials by the NASD and appeals made to its National Adjudicatory Council. Sky Capital says staff members at the NASD used several delay tactics during the application process and were prejudiced against the firm’s CEO because he had problems in the past with both substance abuse and regulatory issues.

Sky Capital also says that NASD got in the way of plans to acquire assets belonging to The Thornwater Company, LLP. It says that NASD did this by placing restrictions on Thornwater and then later lifting those restrictions. And while it approved another Sky Capital acquisition-this time of a broker-dealer in Florida-it did so only after a significant delay.

SEC Favors Companies Committing Fraud Over Investors As Shown by Its Recent Actions

Published on: May 30, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission granted Tenet Healthcare Corp. an unusual break: The company will be given protection against shareholder lawsuits even though it is being punished for fraud.

The SEC accused the largest publicly traded hospital chain of deceiving investors by failing to disclose a scheme to boost earnings. Tenet Healthcare neither admitted nor denied the allegations but agreed to pay $10 million to settle. Yet, the SEC waived a rule that says companies engaging in fraud lose a statutory shield that makes it difficult for shareholders to sue if forecasts made using the bogus earnings information prove wrong.

This decision is the latest used to demonstrate that SEC and its Chairman Christopher Cox, favors corporations at the expense of investors. During the past six months, the agency created to protect investors has repeatedly taken actually sides against investors after being lobbied by business groups. The SEC has even advised the U.S. Supreme Court to raise the bar making it more difficult for even the SEC to win its suits!

SEC says AIG and Other Insurance Companys’ Products Used for Earnings Fraud

Published on: May 27, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission for the first time proved a company used insurance to hide its losses.

The agency accused an executive of cellphone distributor Brightpoint Inc. of overstating the company’s earnings through improper use of an insurance policy. A New York jury found the company’s director liable for assisting in Brightpoint’s fraud and other violations of securities law said the SEC

In November, the American International Group(AIG) paid $126 million to settle claims by the Department of Justice and SEC that it assisted companies, including Brightpoint and the PNC Financial Services Group, inflate earnings through AIG’s insurance products.