Oppenheimer to Pay US Airways $30 Million over Auction Rate Securities
(Feb 2013)
Oppenheimer & Co. has been ordered by a FINRA arbitration panel to pay US Airways $30 million in damages related to the purchase of several series of structured auction rate securities (ARS). The story is being covered by Caitlin Nish at the Wall Street Journal, Bill Singer at Forbes, and Keith Goldberg at Law360. You can find the US Airways v Oppenheimer award on our website.
ARS are debt instruments that paid interest rates that reflect the clearing prices of regular auctions. Oppenheimer...
FTC Releases Report on Debt Buying Industry
(Feb 2013)
The Federal Trade Commission (FTC) released their report yesterday on the "Structures and Practices of the Debt Buying Industry". This rather lengthy report brings into focus the industry -- debt collection and debt buying -- that is responsible for more consumer complaints than any other industry.
"Debt buying" is the practice of purchasing debts from creditors. A creditor may decide that it is unlikely the debtor will repay a debt and as a result may sell the rights to collect the debt for...
NERA Releases Annual Report on SEC Settlement Trends
(Jan 2013)
Last week, NERA released their annual report on trends in SEC settlements for the 2012 fiscal year. The report represents the annual update to NERA's analysis of their proprietary database of SEC litigation releases and administrative proceedings published since July 21, 2002. We've been covering these reports for about a year now and we were excited to see the results of this updated study.
According to the report, the number of settlements rose nearly 7% from FY11. While the number of...
Structured Product Issuers Under Pressure to Disclose Estimated Value
(Jan 2013)
According to securities law firm Morrison & Foerster's Structured Thoughts newsletter, the SEC may soon require issuers of structured products to disclose the estimated value of the product on the front page of the prospectus. From the newsletter:
Elaborating on the [SEC's] sweep letter, the Staff noted that issuers must disclose the "issuer estimated value" on the cover page of the offering document, and share this information with investors prior to the time of sale. This estimated value...
PowerShares to List Actively Managed Downside Hedged S&P ETF
(Dec 2012)
Late last week, Invesco PowerShares filed a form N-1A registration statement with the SEC to list an exchange traded fund (ETF) with exposure to the S&P 500 with downside exposure actively hedged through VIX futures contracts. The PowerShares S&P 500 Downside Hedged Portfolio (PHDG) seeks to "achieve positive total returns in rising or falling markets that are not directly correlated to broad equity or fixed income market returns" and has annual operating expenses of about 39 basis points....
SEC Charges KCAP Financial with Overvaluing Assets
(Nov 2012)
The SEC alleges that KCAP Financial, a publicly traded business development company (BDC), did not accurately report the fair value of its corporate debt and collateralized loan obligation (CLO) assets during the financial crisis, thereby misleading investors. According to the press release, KCAP valued some of their assets at cost, not at fair market value, overstating the net asset value by over 25% during the peak of the financial crisis.
BDCs are similar to REITs in that they hold...
FINRA Fines and Suspends David Lerner for Apple REIT Ten Misrepresentations
(Oct 2012)
Today, FINRA fined David Lerner Associates $14 million, including $12 million in restitution to investors, for charging excessive markups and misleading investors in a non-traded real estate investment trust (REIT) known as Apple REIT Ten. They also suspended David Lerner himself for one year from the securities industry and for two more years from acting as principal for a securities firm. From the news release:
As the sole distributor of the Apple REITs, DLA solicited thousands of...
Two New Exotic Products from the CBOE
(Oct 2012)
The CBOE has begun the offering process on two new and highly innovative volatility-related products that could have broad implications for the exchange traded products market and index investing in general.
The new S&P 500 Variance Futures are futures contracts on the realized variance of the S&P 500 index. This is in contrast with VIX futures, which trade on the impliedvolatility of the S&P 500; however, according to a CBOE press release, the ability to combine the two may have motivated...
New Suitability Rules Now in Effect
(Aug 2012)
FINRA was created in 2007 through a combination of the former NASD with the regulatory functions of the NYSE. Since then, FINRA has been attempting to consolidate each entity's old rules into a single manual. Although progress has been slow, recently new suitability rules took effect. This much-needed update (parts of the old rule date back to 1938) brings the suitability rule a little closer to the realities of business in a modern, full-service securities firm; but it is still a far cry...
