SEC Litigation Releases: Week in Review - August 2nd, 2013
(Aug 2013)
SEC Obtains Preliminary Injunction in Binary Options Case
August 1, 2013, (Litigation Release No. 22767)
A preliminary injunction was entered against Banc de Binary Ltd. which enjoins it from offering or selling unregistered securities and acting as an unregistered broker. The SEC filed a complaint in June that charged Banc de Binary with "offering and selling binary options to investors across the U.S. without first registering the securities" and also acting as an unregistered broker. For...
SEC Halts Texas-Based Forex Trading Scheme
(Jul 2013)
The SEC recently halted a foreign exchange ('forex') trading scheme run by Kevin G. White, an unregistered Plano, TX-based money manager.1 White raised $7.1 million of investor capital through KGW Capital Management and Revelation Forex Fund representing that Revelation had achieved returns of approaching 400% since January 2009.2
Investors should realize that such persistent outsized returns are extremely unlikely. Indeed, bank and brokerage records reveal that the Revelation Forex Fund did...
The Basics of Insurance Linked Securities
(Jul 2013)
Financial innovation is typically associated with banks, but lately we've seen a number of new financial products developed and sold by insurance companies. Some of the most interesting products are known as insurance-linked securities, or ILS.
In the broadest sense, ILS transfer risk from insurance companies to investors. The largest segment of the ILS market is in catastrophe bonds (or 'cat bonds' for short), whose interest and principal payments depend on a specifically defined natural...
SEC Litigation Releases: Week in Review - July 12th, 2013
(Jul 2013)
Serial Fraudster Matthew J. Gagnon Sentenced to Five Years in Prison
July 11, 2013, (Litigation Release No. 22749)
This week Matthew J. Gagnon was sentenced to "five years of incarceration followed by three years of supervised release and ordered...to pay over $4.4 million in restitution to his victims." Gagnon had pleaded guilty to "one count of criminal securities fraud for promoting a securities offering without fully disclosing the amount of his compensation in connection with his...
Similar Structured Product Premia in US and Europe
(Jul 2013)
One point we've made again and again in our research is that structured products -- debt securities with market-contingent payoffs -- tend to be priced at a premium to face value. We have documented premia in reverse convertibles, autocallables, absolute return barrier notes, principal-protected notes, dual directionals, and over 17,000 individual products freely available in our searchable structured product database.
Recently, the SEC has required structured product issuers to disclose an...
Structured Investments Linked to Proprietary Indices
(Jun 2013)
Structured products are often linked to well known indices like the S&P 500 or the Dow Jones Industrial Average, but recently it has become more and more common for banks to issue structured investments linked to proprietary indices that they create themselves. The use of proprietary indices (also known as 'self-indexing') has begun to arouse suspicion from various sources and so we thought we'd take a step back and talk about the issue for a moment.
Structured products linked to well-known...
IRS Could Put a Halt to REIT Conversions
(Jun 2013)
We've talked a lot about real estate investment trusts (REITs) before. In the US, REITs are companies that invest at least 75% of their assets in real estate, pay out almost all of their annual income in dividends, but also pay little or no corporate income tax. As we've discussed before, many companies have tried to qualify for the REIT designation to reduce their tax liabilities, even if their business is only peripherally related to real estate.1 This 'REIT conversion boom' has been...
Reverse Convertibles and Event Risk
(Jun 2013)
Reverse convertibles are short-term debt securities issued by banks whose return of principal at maturity is contingent upon the returns of the linked stock. Although these notes typically pay relatively high coupons, they expose investors to losses on the underlying asset, especially if those losses are beyond the trigger level. Academic research shows that these coupons are not adequately compensating the investor for the market risk that they are bearing by investing in the notes. For...
SEC Litigation Releases: Week in Review - June 14th, 2013
(Jun 2013)
Former Yahoo Executive Settles SEC Insider Trading Case
June 12, 2013, (Litigation Release No. 22726)
A final judgment was entered against Robert W. Kwok, a former Senior Director of Business Management at Yahoo! Inc., for allegedly trading on nonpublic information "concerning Yahoo and Moldflow Corporation." According to the SEC, in April 2008 Kwok learned of an upcoming acquisition of Moldflow by Autodesk, Inc. from Reema Shah, "a former mutual fund and hedge fund portfolio manager at...
Alternative Ways to Gain Municipal Bond Exposure
(Jun 2013)
We've been covering municipal bonds, with a focus on markups, this week on the blog. So far we've discussed some basics, given an example of an excessive markup and introduced SLCG research on excessive markups in municipal bonds . Given that retail investors may be charged excessive markups when purchasing municipal bonds directly, it may make sense for them to purchase municipal bonds indirectly.
Jason Zweig has written a great follow-up to his coverage of the muni markups issue with a...
