SEC Litigation Releases: Week in Review - August 10th, 2012
(Aug 2012)
SEC Charges Participants in $5 Million Boiler Room Scheme
August 10, 2012, (Litigation Release No. 22444)
The SEC charged Edward M. Laborio, Jonathan Fraiman, Matthew K. Lazar, and seven entities controlled by Laborio for their alleged roles in a boiler scheme that ran from December 2006 to August 2009. The seven entities include Envit Capital Group, Inc., Envit Capital, LLC, Envit Capital Holdings, Inc., Envit Capital Private Wealth Management, LLC, Envit Capital Multi Strategy Mixed...
Many ETF Issuers Consolidating Offerings
(Aug 2012)
As inflows to ETFs have exploded over the past few years, many issuers expanded their lineup of funds to take advantage of the increased investor interest. Some have tried to compete with established funds by creating funds with very similar exposure, while others have offered highly specific investment strategies in an attempt to capture a niche market.
In general the ETF market has exhibited a 'winner take all' pattern whereby the oldest and largest funds attract by far the most investor...
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,...
Mutual Fund and ETF Issuers Competing on Fees
(Aug 2012)
In March, we posted a graph of the returns and fees of the 25 largest funds by net assets and called attention to the striking difference in fees between funds offered by the Vanguard Group and those offered by American Funds. While both had very similar 5-year annualized total returns, the Vanguard funds had significantly lower fees.
Today the Wall Street Journal ran an article about how Vanguard's funds have attracted net inflows of $452 billion from January 2008 to June 2012, while...
SEC Litigation Releases: Week in Review - August 3rd, 2012
(Aug 2012)
SEC Settles Litigation with Former Veritas Software Corporation Chief Financial Officer
August 2, 2012, (Litigation Release No. 22432)
On July 20, 2012, a final judgment was entered against Kenneth E. Lonchar in the case SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton. Lonchar, the former Chief Financial Officer of Veritas Software Corporation, had been charged with inflating Veritas' reported revenues "by approximately $20 million in...
ETFs are Finding Their Way into 401(k) Plans
(Aug 2012)
In a recent blog post we discussed how mutual fund fees can drastically reduce funds available for retirement (see "401(k) Fees Can Drastically Reduce Nest Egg"). We cited a paper from the Center for Retirement Research that studied a typical 401(k) plan's investment costs, which including advertising fees, administration fees, asset management fees, and trading costs total 1-2% of assets annually. The paper proposed boosting the returns of 401(k) plans by investing in passively managed and...
Hedge Fund "Side Pockets" Explained
(Jul 2012)
Hedge funds can be extremely complicated investments, and one of the features that contributes to their lack of transparency is their so called 'side pocket' accounts. Side pockets have drawn scrutiny from the SEC and have been the subject of high profile investigations (see also) due to their potential for abuse from hedge fund managers eager to hide losses from investors.
Side pockets are essentially separate accounts that a hedge fund may use to separate illiquid or thinly traded assets...
SEC Litigation Releases: Week in Review - July 27th, 2012
(Jul 2012)
SEC Charges Aider and Abettor of Penny Stock Company's Disclosure of Fake Investment
July 25, 2012, (Litigation Release No. 22424)
The SEC lodged a complaint against Ronald Feldstein who allegedly filed a false press release announcing a "fictitious $6 million investment in a penny stock company, Interlink-US Network, Ltd." Feldstein was paid by Interlink's management to play the role of a prospective investor. Feldstein, posing as President of LED Capital Corp., entered into a phony...
FINRA Issues Warning on ETNs
(Jul 2012)
The Financial Industry Regulatory Authority (FINRA) recently issued an Investor Alert regarding the risks of exchange-traded notes (ETNs).
ETNs are a type of unsecured debt instrument typically issued by banks and other financial institutions. Similar to its close cousin the exchange-traded fund (ETF), ETNs track the returns of a specified asset class--often an index. However, unlike ETFs, ETNs do not hold actual assets tracked by the underlying index. This means investors in ETNs can suffer...
Buffered and Capped Closed-End Funds
(Jul 2012)
Last Friday the Wall Street Journal reported on a new product which combines features of both structured notes and closed-end funds. The eUnit 2 Year US Market Participation Trust IIwas first issued by Boston-based investment company Eaton Vance on May 30. This was the second offering by Eaton Vance of such a product: the first trust with identical name debuted on Jan 26.
Inessence, the eUnit Trust is like a structured note with capped upside potential and buffered downside loss. At the end...
