Traded and Non-Traded REIT to Merge
(Dec 2012)
Earlier this week, American Realty Capital Properties (ARCP), a traded REIT under the American Realty Capital (ARC) family of real estate investments, announced that it will be merging with American Realty Capital Trust III (ARCTIII), a non-traded REIT in the same family. Investors in ARCTIII will be entitled to either $12.00 in cash or $12.26 per share in ARCP stock, a significant premium over the $10 per share purchase price.
This merger is remarkable for a number of reasons. While the...
FINRA and BBB Launch Smart Investing Website to Educate Consumers on Financial Fraud
(Dec 2012)
The FINRA Investor Education Foundation in conjunction with the Better Business Bureau (BBB) announced the launch of their new website, BBB Smart Investing, last Friday. Smart Investing provides investors with "tools and information to help [them] better protect and manage" their money.
One useful feature that we've noted on the blog before is the FINRA BrokerCheck, a free search engine for disclosures, regulatory action and fines against brokers and brokerage firms. The search generates a...
Another Non-Traded REIT Revises Share Value Downwards
(Dec 2012)
Following in the footsteps of several other large non-traded REITs, Wells Timberland REIT has revised its estimated per share value down to $6.56, from approximately $9.50 reported in the company's last 10-Q. The shares were sold for $10.00 per share starting in August 2006 and as late as December 2011.
Non-traded REITs are largely illiquid real estate investments that can be sold to retail investors but are not traded on major exchanges (see our white paper on non-traded REITs for details)....
CFTC Amendment to Rule 4.5 Survives Challenge
(Dec 2012)
Last Thursday, a Federal judge ruled on a challenge to the CFTC's February 2012 amendment to Rule 4.5 that will require mutual funds and ETFs that have sufficient non-hedging participation in derivative markets to register with the CFTC as commodity pool operators (CPOs). The CFTC defines a CPO as a "person engaged in a business similar to an investment trust or a syndicate and who solicits or accepts funds, securities, or property for the purpose of trading commodity futures contracts or...
SEC Charges Tiger Asia Executive with Insider Trading
(Dec 2012)
Earlier this week, the Securities and Exchange Commission (SEC) charged two New York-based hedge fund managers with insider trading. Sung Kook "Bill" Hwang of Tiger Asia Management and Tiger Asia Partners admitted to using material non-public information to short sell shares of Bank of China Ltd. and China Construction Bank Corp resulting in nearly $17 million in unlawfully gained profits. Tiger Asia covered its short positions with private placement shares that were obtained at a discount....
CFTC Chief Economist Finds High Frequency Trading Harms Traditional Investors
(Dec 2012)
Andrei Kirilenko, chief economist at the Commodity Futures Trading Commission (CFTC), recently released a report that purports to show that the "high-speed trading firms that have come to dominate the nation's financial markets are taking significant profits from traditional investors" according to an article posted by Global Association of Risk Professionals (GARP) as well as the New York Times.
The report categorizes HFT firms as 'aggressive', 'mixed' or 'passive' depending upon the...
Massachusetts Securities Regulators Getting Tough on Non-Traded REITs
(Dec 2012)
LPL Financial, the largest independent broker-dealer in the US, is being sued by Massachusetts securities regulators for "numerous regulatory violations in connection with the sale of non-traded REITs." We have covered non-traded REITs extensively on this blog, as well as in a detailed working paper, and it appears that many of the problems that have been identified with these products are finally attracting attention from regulators.
According to the complaint, the action is specifically...
SEC Charges Morgan Keegan Directors with Failing to Oversee Asset Valuations
(Dec 2012)
The SEC has charged eight former Morgan Keegan directors with failing to provide accurate valuations for mortgage-backed securities during the subprime crisis of 2007. We wrote a paper in 2009 explaining the collapse of the RMK bond funds and how they relate to these very same securities.
The mutual funds at issue are 1) RMK High Income Fund, Inc.; 2) RMK Multi-Sector High Income Fund, Inc.; 3) RMK Strategic Income Fund, Inc.; 4) RMK Advantage Income Fund, Inc.; and 5) Morgan Keegan Select...
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...
