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Overreliance on Credit Ratings Results in Large Losses for Municipalities

(Aug 2012)

Earlier this week, the SEC charged Wells Fargo's brokerage firm with selling complex securities to institutional investors such as municipalities and non-profits. The Institutional Brokerage and Sales Division, between January 2007 and August 2007, made recommendations to institutional clients to purchase asset-backed commercial paper "issued by limited purpose companies called structured investment vehicles (SIVs) and SIV-Lites backed largely by mortgage-backed securities and CDOs." Already...

Direxion to Close Several Leveraged ETFs

(Aug 2012)

Direxion Shares ETF Trust announced last week that -- upon recommendation of the trust's advisor Rafferty Asset Management, LLC -- nine daily leveraged and inverse Exchange Traded Funds will be liquidated and shares will no longer be open for purchase as of early next month. From the announcement,

Due to the Funds' inability to attract sufficient investment assets, Rafferty believes they cannot continue to conduct their business and operations in an economically efficient manner. As a result,...

Consumer Financial Protection Bureau Report on Reverse Mortgages

(Jul 2012)

Most American investors are likely aware of the SEC, and may also be aware of FINRA as an important regulatory institution (certainly, readers of this blog should be). But they may be less aware of the relatively new Consumer Financial Protection Bureau (CFPB), which also has a mandate to protect consumers from financial malpractice. The CFPB was created out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and President Obama appointed its first director in January...

Variable Annuity Regulation: Speech by Susan Nash

(Jul 2012)

Last Tuesday, Susan Nash, Associate Director of the Division of Investment Management at the SEC, gave an interesting speech at the URI 2012 Government, Legal & Regulatory Conference regarding variable annuities. Variable annuities continue to grow in sales -- according to Ms. Nash's comments, sales of variable annuities grew by approximately 12% in 2011 -- but have been the subject of numerous FINRA Investor Alerts and Regulatory Notices due to their high costs and complex risks.

Ms. Nash...

The Small Price of Big Favors

(May 2012)

Yesterday the Securities and Exchange Commission issued a press release announcing that it had filed a complaint alleging Detroit officials -- including former mayor Kwame M. Kilpatrick and former city treasurer Jeffrey W. Beasley -- influenced the city's pension fund investments to favor an advisor, MayfieldGentry Realty Advisors LLC, in exchange for personal gifts. This story illustrates an all too common occurrence in municipal finance. According to the SEC, Kilpatrick and Beasley...

Massachusetts Securities Regulators Fine RBC for Selling Unsuitable Leveraged and Inverse ETFs

(May 2012)

RBC Capital Markets has agreed to pay $2.9 million in restitution to Massachusetts investors related to the sale of unsuitable leveraged, inverse, and inverse-leveraged ETFs. Secretary of the Commonwealth of Massachusetts William Galvin, who has previously investigated Bank of America over warehousing of CLO assets, issued the complaint in July 2011, accusing RBC and its registered representative Michael D. Zukowski of selling these products "to clients who did not understand what these...

FINRA Issues Sanctions on Sellers of Leveraged and Inverse ETFs

(May 2012)

Today FINRA issued sanctions on four firms for selling leveraged and inverse exchange-traded products. The story has also been picked up by the New York Times [UPDATE: the Wall Street Journal too]. The offending firms, with links to their respective Letters of Acceptance, Waiver, and Consent ('AWC's), were:


These firms faced a total of $9.1 million in fines and restitution for sales occurring between January...

SEC Sends Letter to Issuers of Structured Notes

(Apr 2012)

Recently the SEC sent out a letter to certain financial institutions regarding their offerings of structured notes. The letter was sent by Amy M. Starr, the Chief of the Office of Capital Markets Trends, Division of Corporation Finance. In the letter the SEC urges the structured note issuers to disclose key information with regard to the offerings, such as product pricing and use of issuing proceeds.

The SEC highlighted a number of potentially confusing aspects of structured notes and their...

SPIVA Scorecard Year-End 2011

(Mar 2012)

S&P recently released their semiannual report comparing the performance of actively managed mutual funds against their appropriate benchmark indices. The S&P Indices Versus Active Funds (SPIVA) Scorecard contains information the mutual fund industry would likely prefer to be kept quiet.

The Year-End 2011 SPIVA Scorecard reports that "over a five-year horizon[...] a majority of active equity and bond managers in most categories lag comparable benchmark indices." Actively managed mutual funds...

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...

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