In one of the first major decisions of the SEC under its new chairman, Mary Jo White, the SEC has adopted long-awaited final rules which, when they go into effect, will allow companies to raise money in a private placement through general solicitation or advertising as long as all purchasers in the offering are accredited. While on its face this is a welcome development for companies seeking greater access to capital, the SEC has taken questionable steps that have the potential to eviscerate its potential benefits. To appreciate the significance of all of this, one has to step back and understand the landscape of raising money through the private sale of company securities. More in the Huffington Post [...]
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Zhang Defa hurried into an Industrial & Commercial Bank of China Ltd. branch in Shanghai on a sizzling July afternoon breathlessly looking for the manager. HARTFORD, Conn.—In one of the first lawsuits to go to trial involving Bernard L. Madoff’s massive fraud, a group of investors is nearing a settlement with a Connecticut bank that they said should have uncovered the Ponzi scheme years before it collapsed, according to a lawyer involved in the cases whose clients aren’t settling. The tentative settlement, reached just as the two sides were about to deliver closing arguments, may return a fraction of the $60 million that the investors said they lost. But any sums could be a blow for the bank, Connecticut Community Bank and its branch, Westport National Bank, which are controlled by William R. Berkley, chairman of a large insurance company. More in the Wall Street Journal [...] The trial of former Goldman Sachs bond trader Fabrice “Fabulous Fab” Tourre next week gives the U.S. Securities and Exchange Commission an opportunity to prove that it can win big cases tied to the financial crisis. The SEC claimed an 85 percent success rate in all trials last year, but its critics have said that, when it comes to the financial crisis, its win rate has been dismal. Tourre’s civil fraud trial, which starts in federal court in New York on Monday, could help silence those critics, but experts said the regulator is facing no easy task. More in the Huffington Post [...] The Securities and Exchange Commission has barred three former employees of Bernard Madoff’s now defunct brokerage and investment advisory firm from the securities industry for assisting the convicted Ponzi schemer with his multi-billion dollar scam, according to orders from the agency. The SEC released orders late Thursday permanently barring David Kugel, Eric Lipkin and Enrica Cotellessa-Pitz. The three former employees of Bernard L. Madoff Investment Securities LLC each agreed to the sanction to settle civil proceedings started by the agency in 2011. More in the Chicago Tribune [...] The Securities and Exchange Commission voted Wednesday to allow hedge funds and other private firms to raise money by advertising to the public for the first time in decades, a dramatic loosening of the rules governing the investing landscape. Currently, firms that issue private stock are allowed to solicit only wealthy individuals, who can presumably withstand potential losses. But by October, hedge funds and others will be able to advertise to the masses via e-mail, billboards or even Facebook — expanding their reach to a much wider circle of potential investors. More in The Washington Post [...] With two bad rules adopted on Wednesday, the Securities and Exchange Commission has all but invited hucksters, rip-off artists and other bad actors to prey on individual investors. The new rules are another disturbing sign that under the leadership of the new chairwoman, Mary Jo White, the S.E.C. will pursue deregulation at the expense of investor protection. One rule concerns “general solicitation,” or the mass advertising of investments in companies that are not publicly traded. Until last year, federal securities laws had long banned general solicitation — and for good reason. Private securities offerings — say, by hedge funds, venture capital firms and start-ups — are not subject to disclosure rules and other investor protections that apply to publicly held companies; as a result, they are difficult if not impossible to evaluate without inside knowledge and are especially prone to fraud. More in the New York Times [...] When MF Global went bankrupt in October 2011, thousands of its customers in the United States discovered that their overseas investments were not as safe or secure as they had assumed—and that they no longer had access to their funds. The company had faced extraordinary liquidity demands in its final, chaotic days, including margin calls on massive European sovereign-debt bets taken by CEO Jon Corzine and others. Desperate for funds, management improperly raided segregated customer money held by the company’s broker-dealer in the U.S., resulting in a $900 million shortfall. Once MF Global U.K. was put into liquidation, British administrators determined that under U.K. law virtually no money had been actually segregated for customers—which added an additional $700 million shortfall in customers’ foreign accounts. More in the Wall Street Journal [...] Whatever else Bernard L. Madoff did with the proceeds from his $17 billion Ponzi scheme, he didn’t splash out on great art. Toward the end of the year, Sotheby’s in Manhattan and Stair Galleries in Hudson, New York, will auction 61 items formerly owned by Madoff with an insured value of more than $575,000, according to a recent filing by Irving Picard, the trustee liquidating the Madoff brokerage, with U.S. Bankruptcy Court. More on Bloomberg [...] When it comes to investor protection, Occam’s Razor rules. Keep standards as simple as possible: Everyone who sells a financial product should be a fiduciary who puts investors’ interests first. They should adhere to a time-honored legal definition that says they (advisers) can be held liable if they fail to protect their clients. More on Forbes [...] |
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