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...
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,...
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...
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...
A Wipeout That Didn't Have to Happen
(Feb 2012)
This weekend the New York Times' Gretchen Morgenson wrote an article about the recent FINRA award against Banc of America Securities for their LCM VII CLO. We have blogged about this case before, and have put together a research paper describing the underlying issue of warehousing assets in structured credit derivatives. We are very grateful to the New York Times and Gretchen Morgenson for giving this story the attention it deserves.
The fundamental problem with structured credit and many...
Oppenheimer Ordered to Repurchase $5.98 Million in Auction Rate Securities
(Jan 2012)
In January 2012, a Financial Industry Regulatory Authority arbitration panel in New York ordered Oppenheimer to repurchase certain Auction Rate Securities sold to Claimant Nicole Davi Perry for $5.98 million, plus payment of $134,108 in legal fees. The award was posted in FINRA's arbitration database this Monday. See this related report from Reuters. Dr. O'Neal at SLCG testified on behalf of the Claimant; Dr. O'Neal and Dr. McCann have authored a report on ARS previously.
Auction rate...
NY Times on the Hosier decision
(Jan 2012)
The New York times has an article about the MAT and ASTA products sold by Citigroup that were the subject of a $54.1 million award in Denver last April. SLCG provided expert testimony and analysis for the claimants in this case, including assessing the MAT/ASTA products at issue, and we are excited that the Times has drawn attention to these highly risky investments.
The MAT and ASTA products were hedge funds that implemented a leveraged municipal bond arbitrage strategy. Essentially,...
What are 'structured products', anyway?
(Jan 2012)
By Tim Husson, PhD
We've done a lot of work on structured products. And I mean a lot. In addition to our research on valuation and suitability issues, we've devoted a section of our website to informing investors about different types of products, as well as Tear Sheets evaluating several thousand structured products released over the past couple years. We have found that most structured products are issued at a substantial premium, and that many investors (especially retail investors) do...
