SEC Charges South Miami with Defrauding Investors
(May 2013)
Yesterday the Securities and Exchange Commission (SEC) charged the City of South Miami with defrauding investors over the tax-exempt status of some municipal offerings.
In 2002, the City of South Florida obtained access to tax-exempt financing through a pooled conduit municipal bond issued by the Florida Municipal Loan Council (FMLC) to fund the construction of a mixed-use retail and parking structure in the city's commercial district.* The 2002 FMLC bond offering can be found online. The...
Fitch Rolls Out New Ratings Indenture Abstract
(May 2013)
It is looking more and more like collateralized debt obligations (CDOs) and other asset-backed securities -- the 'toxic' assets highlighted as some of the worst excesses of the financial crisis -- are back. And while the agencies that rate asset-backed securities are still at the center of the debate over the validity of these investments, at least one of them is trying to improve its explanation of their labyrinthine terms and conditions.
Fitch has recently published the first example of...
New FINRA Guidelines for Non-Traded and Private REITs
(May 2013)
In recent months, FINRA has been investigating how non-traded and private real estate investment trusts (REITs) are presented to retail investors. Last week, FINRA alerted broker-dealers that they had uncovered "deficiencies" in how these investments are sold, and issued Regulatory Notice 13-18 "to provide guidance to firms on communications with the public concerning unlisted real estate investment programs, including unlisted real estate investment trusts (REITs) and unlisted direct...
FINRA Fines Merrill Lynch for Failing to Provide Best Execution to Customers
(Apr 2013)
FINRA announced yesterday that it has fined Merrill Lynch more than one million dollars "for failing to provide best execution in certain customer transactions involving non-convertible preferred securities executed on one of its proprietary order management systems (ML BondMarket)" as well as inadequate supervision.
FINRA's Department of Market Regulation found what amounts to a systematic issue in the ML BondMarket software that prevented customer orders from being evaluated at the most...
More Trouble for Inland American Real Estate Trust
(Mar 2013)
Inland American's March 2012 quarterly report revealed that the company was the subject of an ongoing SEC investigation (we wrote about this in our blog post titled "SEC Investigation into Largest Non-Traded REIT May Be A Sign of Things To Come"). Inland American's 2012 annual report further disclosed that several stockholders have sued the company seeking recovery of damages (View the SEC filing). According to the information in Inland American's SEC filings, both the SEC investigation and...
SEC Charges the State of Illinois for Misleading Pension Disclosures
(Mar 2013)
Yesterday, the Securities and Exchange Commission (SEC) charged the State of Illinois with misleading municipal bond investors by making inaccurate or incomplete statements concerning their statutory plan to fund the state's pension obligations. In particular, the "SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early...
SEC Examination Priorities 2013
(Feb 2013)
Last week, the Securities and Exchange Commission announced their examination priorities for 2013 "to communicate with investors and registrants about areas that are perceived by the staff to have heightened risk, and to support the SEC's mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
For those that are unfamiliar, SEC staff conducts examinations of SEC registrants through their regional offices and headquarters
to determine...
Mis-sold Interest Rate Hedges
(Feb 2013)
The Financial Services Authority (FSA), Britain's highest financial regulatory agency, has ordered Barclays, HSBC, Lloyds, and Royal Bank of Scotland to review all of their interest rate linked swap agreements sold to small businesses. In an investigation, the FSA found that four banks had violated at least one of its rules in over 90% of the 173 cases reviewed. The London Evening Standard is reporting that seven other banks may also launch similar reviews.
Interest rate swaps -- and related...
Securities Class Action Filings Decrease in 2012
(Feb 2013)
Earlier this year, Cornerstone Research released 2012 review of Securities Class Action Filings in conjunction with the Stanford Law School -- see the press release. The report notes that the number of federal securities class action filings have decreased in recent years and, in particular, has fallen nearly 20% from 2011 to 2012. For the number of filings over the past sixteen years can be found below (Figure 2 in their report).
Cornerstone attributes the majority of the decline in class...
Auction Rate Securities Responsible for $9.6 Billion Loss to Taxpayers
(Dec 2012)
In a complaint filed in Nevada against Goldman Sachs last year, the city of Reno states that it issued $73.45 million of Auction Rate Securities (ARS) in 2005 and $137.43 million ARS in 2006 on the advice of Goldman. Like many other municipalities, Reno subsequently saw the market crash in 2008 and yields skyrocket, leading to a $9.6 billion loss for issuers.
The ARS structure was promoted by Goldman as liquid, cash-equivalent investments that would allow Reno to borrow money for long term...
