2nd Circ. Jeopardizes Fund’s Buy Of $230M Madoff Claim

New York (September 26, 2014, 12:39 PM ET) — The liquidator for an offshore Bernard L. Madoff feeder fund can try to undo an imprudent sale of its $230 million claim against the Ponzi schemer’s defunct firm to a hedge fund after the Second Circuit ruled Friday that the transaction is subject to U.S. court review. Chapter 2 was just released. It is a blockbuster! It’s based on exclusive interviews the authors conducted with Madoff, himself, during the past five years and it’s based on facts to which JPMC admitted in its January 2013 settlement of criminal charges asserted by the federal government. More on Law360 [...]

S.E.C. Is Examining Pimco Exchange Traded Fund

The Securities and Exchange Commission is looking into whether the money management firm Pimco inflated the returns of an actively traded $3.6 billion exchange traded fund that mirrors the bond giant’s flagship fund. The Pimco Total Return Exchange-Traded Fund is run by the money manger’s founder, William H. Gross, who has come under pressure this year as investors pull out money and as questions persist over his management style following the surprising departure of his heir apparent, Mohamed A. El-Erian, in January. More in the New York Times [...]

Senate Dems demand SEC protect investors

Senate Democrats demanded that the Securities and Exchange Commission (SEC) do more to protect investors. Sens. Carl Levin (D-Mich.), Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.) and Ed Markey (D-Mass.) sent a letter on Tuesday to SEC Chairwoman Mary Jo White asking her to implement safeguards to protect investors from fraud and abuse in private securities offerings. “We urge you to act promptly to finalize and strengthen investor protections for private securities offerings that you proposed more than one year ago,” the senators wrote. “We are deeply concerned that, for the last year, the Commission has allowed private securities offerings to take place using general solicitation and advertising without adequate investor protections.” More on The Hill [...]

Judge Refuses To Cut New York Fund Manager’s 40-year Ponzi Sentence

A federal judge rejected Westgate Capital Management LLC founder James Nicholson’s request to shorten his 40-year prison term for running a $140 million Ponzi scheme at his hedge fund firm, likening it to the much larger fraud run by Bernard Madoff. U.S. District Judge Richard Sullivan in Manhattan on Monday turned aside Nicholson’s claims of ineffective assistance of counsel by his former lawyer, saying he would have imposed the same sentence even if other legal arguments had been made. More on Business Insider [...]

Judge Holds Off Approving MF Global Payment to Creditors

NEW YORK—MF Global’s creditors, who have waited nearly three years to get paid, will have to wait a little longer after a bankruptcy judge Monday held off approving its bid to repay them $295 million. Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan was uncomfortable with one part of the proposal: MF Global’s request to estimate certain unresolved claims at zero dollars. The judge said he was “not happy” that he didn’t have enough information on some of the claims. “I think I’d like to know what the claim is before I estimate it at zero,” Judge Glenn said, his voice raised. More in the Wall Street Journal [...]

S.E.C. Makes Largest Ever Whistle-Blower Award

The identity is a mystery, but someone who provided important information to regulators in a securities fraud enforcement action is suddenly $30 million richer thanks to a federal whistle-blower law. The Securities and Exchange Commission announced on Monday that it had approved a payment of between $30 million and $35 million to an unnamed individual who lives in a foreign country, for providing information that helped federal authorities “detect an ongoing fraud.” The award is the largest ever given out by S.E.C. under the whistle-blower law, which was enacted as part of the financial regulatory overhaul known as Dodd-Frank. The first such payout, in August 2012, was for nearly $50,000. More in the New York Times [...]

Finra Proposes Less Stringent Disclosure for Brokers Switching Firms

Wall Street’s self-regulator appears to have dropped plans to make brokers who change employers to tell all clients about any big-money signing bonuses they get as part of the move. The Financial Industry Regulatory Authority said Friday it will float a new, less stringent proposal. It would oblige the firm that hires the broker to send clients a list of suggested questions they may want to ask before deciding whether to stay with that broker and move their accounts to his or her new firm. One question would be whether the broker was getting a bonus. More in the Wall Street Journal [...]

Madoff Trustee’s Clawback Reach Cut Short

Foreign investors who are concerned about the extraterritorial application of U.S. bankruptcy law can draw some comfort from a recent decision in the liquidation case of Bernard L. Madoff Investment Securities (“BLMIS”). On July 6, 2014, United States District Court Judge Jed S. Rakoff ruled that the BLMIS Trustee could not use the Bankruptcy Code’s avoidance provisions to recover transfers made to foreign investors that had invested in foreign feeder funds, such as the Fairfield Funds. 2014-07-06_BLMIS Decision. Judge Rakoff rejected the Trustee’s contention that he could use section 550(a)(2) of the Bankruptcy Code as a mechanism to claw-back distributions that BLMIS had made to the feeder funds, which then re-distributed the funds to foreigners who were not otherwise subject to the jurisdiction of U.S. courts. The Court reasoned that that would constitute an impermissible extraterritorial application of the statute. The Court noted that although the cash that was ultimately distributed may have originated in the U.S., the subsequent transfers to foreign investors lacked sufficient contact with the U.S. to be considered “domestic.” The Court examined the language of the statute and concluded that Congress did not evidence a clear intention to give the statute extraterritorial application. More on Global Restructuring [...]

Rule proposal for new hire background checks moving to SEC

Finra is pushing ahead with a rule-change that would require brokerage firms to vet new hires more thoroughly. The regulatory agency sent a rule to the Securities and Exchange Commission on Wednesday that would require brokers to put in place written procedures to verify the accuracy of information contained in an applicant’s U4 form, the foundation for broker profiles on the Financial Industry Regulatory Authority Inc.’s BrokerCheck database. Firms already are expected to review job applicants. The new rule makes that requirement more stringent by forcing them to conduct a search of public records. More in Investment News [...]

ALERT: 2 New Co-sponsors Sign on to H.R.3482 – Restoring Main Street Investor Protection and Confidence Act

Congressman Mario Diaz-Balart [R-FL25] and Congressman Tom Cotton [R-AR4] have signed on to co-sponsor H.R.3482, bringing the number of co-sponsors to 55!
Click here for a current list of co-sponsors. If your Representative is not yet a co-sponsor, please urgently call and write your representative to get them to sign on. Letters can be submitted on-line at, where you can also find a Congressional directory for phone contact information.