Stock Market Correlation and Portfolio Diversification
(Feb 2012)
It has long been argued that diversification of stock portfolios across country borders is important to reduce investment risk. Although the 2007-2008 financial crisis wreaked havoc on both the developed and the developing world, diversification remains a central pillar of modern portfolio theory. The following figure from World Federation of Exchanges shows the value of several stock indexes starting from 1992(Full Disclosure: No data available for Tehran SE/TEPIX in 2008, 2009 and 2010)....
Did ARS Interest Payments Adequately Compensate Investors After the Failures?
(Feb 2012)
Auction Rate Securities (ARS) are floating interest rate debt issued primarily by municipalities, mutual funds, and special purpose trusts. ARS were marketed as short-term, cash-equivalent investments similar to commercial paper but any similarities with short-term investments were superficial and misleading. ARS are long-term debt traded in periodic auctions with prices fixed at par. The auction-determined interest rate was constrained by a maximum rate which could prevent the auctions from...
SEC Litigation Releases: Week in Review - February 17th, 2012
(Feb 2012)
Court Enters Default Judgement Against SEC Defendant Daniel J. Burns and Orders Him to Pay over $1.1 Million
February 16, 2012, (Litigation Release No. 22260)
In their January 2011 complaint, the SEC filed a civil injunctive action against Daniel J. Burns and Robert F. McCullough, Jr. alleging that both defendants were guilty of insider reporting violations. In addition, Burns allegedly "received hundreds of thousands of dollars in improper compensation and benefits from CytoCore[, Inc.] as an...
Should You Cash Out Your Home Equity to Find Your Missed Fortune? Careful! A Scam Might Be On the Way
(Feb 2012)
As a result of a lifetime of thrift, many homeowners find themselves in their 50s and 60s with considerable equity in their homes. Some investment advisors and insurance salesmen have been recommending that these homeowners refinance their mortgages to take the equity out of their homes - sometime called "equity harvesting" - to purchase high cost insurance contracts or investments. Whether insurance contracts or high cost investments are being pitched, the advisors and brokers get a big pay...
In the News: Structured CDs
(Feb 2012)
Bloomberg News reported this week that FINRA is investigating a relatively new type of product that ties the returns of certificates of deposit (CDs) to derivatives. These products are known generally as 'Structured CDs' (SCDs) but also go by 'Index-Linked CDs', 'Equity-Linked CDs' or 'Market-Linked CDs'. There have also been news stories concerning Market-Linked CDs issued by Wells-Fargo and Equity-Linked CDs issued by Goldman Sachs in recent years.
SCDs have existed since the late 1980s,...
An Introduction to Non-Traded REITs
(Feb 2012)
Both FINRA and the SEC have started warning investors about non-traded real estate investment trusts (REITs), which are growing in popularity but expose investors to very serious risks. We at SLCG have had a variety of cases involving non-traded REITs and would like to describe our experience analyzing these investments and what they mean for regulators and retail investors.
In the most general sense, REITs are simply companies that hold almost entirely real estate assets. These companies can...
SEC Litigation Releases: Week in Review - February 10th, 2012
(Feb 2012)
This is the first post in what will become a weekly tradition on the SLCG blog.
SEC Charges Kenneth A. Dachman for Orchestrating a Misappropriation Scheme and Offering Fraud
February 6, 2012 (Litigation Release No. 22254)
The SEC filed a complaint in the U.S. District Court for the Northern District of Illinois alleging that Kenneth A. Dachman had misappropriated nearly $2 million of investors funds by making false and misleading statements concerning the offerings of three companies for which...
Could Credit Rating Agencies be Held Accountable This Time?
(Feb 2012)
A recent wall street journal article reports that U.S. lawmakers plan to introduce a bill that would require top credit-rating firms to review their credit ratings on a quarterly basis, hoping that more frequent reviews would increase the accuracy of their ratings and help identify potential problems.
According to Wall Street Journal, the bill would "amend the Securities Exchange Act of 1934 to require the chief executive officer of each [credit-rating firm] to attest, quarterly, to the...
More CDO-related Mischief: Former Credit Suisse Trader Charged with Falsifying Trading Books
(Feb 2012)
Last Tuesday we pointed out how Banc of America transferred at least $35 million of previous losses to unsuspecting investors in two of its CDO offerings. This story was further exposed by the New York Times' reporter Gretchen Morgenson in her report on February 4, 2012 titled "A Wipeout That Didn't Have to Happen".
Also in last week, the ex-global head of Credit Suisse Group AG's CDO business, Kareem Serageldin, was charged in Federal Court by the Manhattan District Attorney for overstating...
