SEC Litigation Releases: Week in Review - April 20th, 2012
(Apr 2012)
SEC Announces Settlement of Accounting Fraud Charges Against Former CSK Auto Corporation Management
April 18, 2012, (Litigation Release No. 22338)
The US District Court in Phoenix entered a final judgment against three former CSK Auto Corporation employees: Don W. Watson (former CFO, Treasurer and Senior VP), Edward W. O'Brien (former controller) and Gary M. Opper (former director of credit and receivables). The judgment is a result of the SEC allegations in which the officers overstated CSK's...
SEC Sends Letter to Issuers of Structured Notes
(Apr 2012)
Recently the SEC sent out a letter to certain financial institutions regarding their offerings of structured notes. The letter was sent by Amy M. Starr, the Chief of the Office of Capital Markets Trends, Division of Corporation Finance. In the letter the SEC urges the structured note issuers to disclose key information with regard to the offerings, such as product pricing and use of issuing proceeds.
The SEC highlighted a number of potentially confusing aspects of structured notes and their...
SEC Litigation Releases: Week in Review (Part II) - April 13th, 2012
(Apr 2012)
Due to the high volume of SEC litigation releases over the previous week, we are summarizing the releases in two parts. This is the second of the two parts.
SEC Charges Ephren J. Taylor, II with Operating a Ponzi Scheme
April 13, 2012, (Litigation Release No. 22330)
The SEC charged Ephren J. Taylor, II, City Capital Corporation and Wendy Connor (Former COO of City Capital) for their roles in a Ponzi scheme that targeted investors in church congregations. The SEC alleges that "Taylor assured...
SEC Litigation Releases: Week in Review (Part I) - April 13th, 2012
(Apr 2012)
Due to the high volume of SEC litigation releases over the previous week, we are summarizing the releases in two parts. This is the first of the two parts.
Fromer Syntax-Brillian Corp. CEO Ordered to Pay More than $11 Million for Insider Trading and Financial Fraud
April 9, 2012, (Litigation Release No. 22324)
The US District Court for the District of Arizona entered a final judgment against James Li -- former CEO and Director of Syntax-Brillian Corp. -- ordering him to pay over $2 million in...
High-Frequency Trading and Market Volatility
(Apr 2012)
The "flash crash" of May 6, 2010 -- when the Dow Jones Industrial Average dropped by 9% in a few minutes and quickly regained ground -- has naturally drawn wide attention. Although the sharp drop was not directly triggered by high-frequency traders (traders who execute trades based on complex algorithms and rarely hold a position more than a day), they have been blamed for fueling the selling after a mutual fund complex initialized a program to sell a large amount of E-Mini S&P 500...
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...
