Is There No Tracking Error for ETNs?
(Apr 2012)
Some investors may think that while ETFs are subject to various tracking errors, ETNs are not. The argument goes that index-tracking ETFs often hold part or the entire portfolio underlying their targeted index and are thus subject to imperfect tracking and transaction costs. ETNs, on the other hand, are debt instruments, and have returns guaranteed by their issuers.
It turns out, however, that the daily return of an ETN investment may not necessarily equal the leverage ratio times the daily...
SEC Litigation Releases: Week in Review - April 6th, 2012
(Apr 2012)
Court Holds Defendant in Contempt in SEC Action Involving Rhode Island-Based Offering Fraud,
April 5, 2012, (Litigation Release No. 22317)
In October 2010, the SEC filed a civil injunctive action against David Stern alleging that he misrepresented several key characteristics of his company -- Online Registries, Inc. -- in order to raise investor funds. The SEC also alleged that Stern then misappropriated these funds. The court entered an Order for Other Equitable Relief in March 2011. Last...
Latest Non-Traded REIT Valuations: Not Good...
(Apr 2012)
Non-traded REITs are real estate investments sold to retail investors despite significant liquidity, transparency, and other risks. We've done a great deal of work on non-traded REITs (including a paper and blog posts), and have warned that their dividend payments and debt levels are often not sustainable. Almost all non-traded REITs are reported in customer accounts at acquisition cost, despite widespread declines in real estate values.
FINRA has recently required non-traded REITs to report...
TVIX Explodes...Then Implodes
(Mar 2012)
The Wall Street Journal has an article about the rollercoaster ride that TVIX, a volatility-related ETN, has been on recently. [UPDATE 3/31/12: there is now a second WSJ article]
TVIX is a leveraged ETN issued by VelocityShares, which is Credit Suisse's ETF/ETN brand. Contrary to popular belief, TVIX and other volatility products do not track the CBOE S&P 500 Volatility Index (the VIX); instead, TVIX tracks a daily rolling portfolio of first and second month VIX futures with an average...
SEC Litigation Releases: Week in Review - March 30th, 2012
(Mar 2012)
SEC Obtains Preliminary Injunction in New York Investment Adviser Case
March 28, 2012, (Litigation Release No. 22311)
The US District Court for the Eastern District of New York issued a preliminary injunction against Brian Raymond Callahan and his advisory firms Horizon Global Advisors, Ltd. and Horizon Global Advisors, LLC. This preliminary injunction stems from the charges filed by the SEC alleging Callahan "defrauded investors in five offshore funds and used some of their money to buy...
Regulating the Derivatives Markets
(Mar 2012)
The New York Times had an excellent editorial last week titled "A Long Road to Regulating Derivatives," which discusses the progress made in regulating the types of complex securities which have been implicated in the recent financial crisis. We at SLCG feel that investors should pay close attention to the changes taking place in securities regulation as they could have a significant impact on the entire market.
Traditionally, derivatives were regulated relatively lightly, especially...
A Primer on Investment Companies
(Mar 2012)
Investment companies are entities that issue securities and whose primary business is investing in securities. We have written about investment companies in several of our posts (See blog posts on ETFS and Mutual Funds). This post provides a quick introduction to investment companies and the securities they issue. The three main types of investment companies according to federal securities regulation are: closed-end funds, unit investment trusts, and open-end funds.
Some of the main...
SEC Litigation Releases: Week in Review (Part II) - March 23rd, 2012
(Mar 2012)
Due to the high volume of litigation releases from the Securities and Exchange Commission over the past week, we're spreading this week's review over two posts. This is the second of the two posts.
SEC Settles Litigation with Former Veritas Software Corporation Head of Sales
March 22, 2012, (Litigation Release No. 22304)
The US District Court for the Northern District of California entered a settled final judgment against Paul A. Sallaberry -- former head of sales of Veritas Software...