The Securities and Exchange Commission's case against Jon-Paul Rorech of Deutsche Bank and Renato Negrin of the Millennium hedge fund -- a case that the Manhattan federal court derailed Friday -- attracted a good deal of attention when it was first filed, in May 2009.
Here is the Reuters coverage from that time, for example.
The man-bites-dog reason for the interest is that this was the first insider trading case involving what had only then become a headline-worthy sort of instrument in the mainstream media, credit default swaps (CDS). In this case, the CDSs' were bets for or against the solvency of a Dutch media company, VNU, which was a client of Deutsche Bank.
The case was a test of a new theory of jurisdiction for the SEC based upon the Commodity Futures Modernization Act of 2000, which extended the SEC's enforcement authority to "securities-based swap agreement[s]."
Here's an analysis that Law360 did in August.
Those of you who have a PACER subscription can read Judge Koeltl's decision dismissing the case Friday. Be assured, there is no charge for viewing opinions. But be warned, this one is 122 pages long.
The Wall Street Journal this morning has headlned it on p. C1 (the prime real estate for real finance wonks -- let the 'casual reader' look to A1!): "SEC Loss Shows Difficulty of Insider Cases," with the byline to Kara Scannell.
Frankly, I think that headline itself exhibits exactly the wrong emphasis. (Scannell of course can't be blamed for the headline.) We shouldn't worry about the costs imposed upon the poor SEC as it brings tricky enforcement actions pushing the boundaries of its jurisdiction. They'll be all right, the world is full of porn whereby they can console themselves. We should be concerned, rather, by the individuals whose lives are disrupted by the very act of bringing such a case. Courtroom vindication a year later doesn't give you that year of your life back.
The court conducted a non-jury trial of the case from April 7 to April 28 of this year. It has now issued its findings of fact and of law.
The only good news from the pro-enforcement point of view (never my own) is that the court agreed with the SEC about what Congress had meant to do with that CFMA language I quoted above. Koeltl writes, "[The] CDSs at issue in this case are security-based swap agreements for the purposes of section 206B of the Gramm-Leach-Bliley Act and are subject to 10(b)'s antifraud provisions...."
The bad news for enforcers? He didn't buy anything else they tried to sell him.
I hope to come back to this tomorrow.
Showing posts with label Securities and Exchange Commission. Show all posts
Showing posts with label Securities and Exchange Commission. Show all posts
Monday, June 28, 2010
Monday, June 21, 2010
Some History
I've been reading a bit about the background of the Securities and Exchange Commission's rules regarding proxy fights.
There were several high-stakes high-publicity proxy fights in the early and mid 1950s, involving for example Montgomery Ward and the New York Central.
The Montgomery Ward case led for example to an early court test of the right of corporations to stagger their boards of directors. It also led to an ancillary fight over whether funds paid by a stockholder to an agent for the purpose of waging a proxy battle are an "ordinary and necessary business expense."
Such battles inspired a book by David Karr (1918-1979) which proved popular, Fight for control (1956), and that in turn helped focus the attention of the SEC.
Then, as now, the SEC tends to go where the public attention is.
What was the effect of the rules introduced at that time? They made life more difficult for the challenger, and thus easier for the management. Mark J. Roe, Delaware’s Competition, 117 HARV. L. REV. 588 (2004) wrote, "In the 1950s, the SEC federalized proxy contests to make them harder for insurgents to win, moving even before states acted definitively.”
There were several high-stakes high-publicity proxy fights in the early and mid 1950s, involving for example Montgomery Ward and the New York Central.
The Montgomery Ward case led for example to an early court test of the right of corporations to stagger their boards of directors. It also led to an ancillary fight over whether funds paid by a stockholder to an agent for the purpose of waging a proxy battle are an "ordinary and necessary business expense."
Such battles inspired a book by David Karr (1918-1979) which proved popular, Fight for control (1956), and that in turn helped focus the attention of the SEC.
Then, as now, the SEC tends to go where the public attention is.
What was the effect of the rules introduced at that time? They made life more difficult for the challenger, and thus easier for the management. Mark J. Roe, Delaware’s Competition, 117 HARV. L. REV. 588 (2004) wrote, "In the 1950s, the SEC federalized proxy contests to make them harder for insurgents to win, moving even before states acted definitively.”
Wednesday, May 26, 2010
Listening to the Shorts: A Book Note
I've been reading Richard C. Sauer's fascinating new book, SELLING AMERICA SHORT: THE SEC AND MARKET CONTRARIANS IN THE AGE OF ABSURDITY (2010). Sauer was with the SEC for 12 years, and what he said he learned in that time was that short sellers are a valuable resource, whom the agency ignores at its own cost. And at the cost of the public.
Some fascinating material here concerns the case of the Belgian software company Lernout & Hauspie Speech Products NV. The two named gentlemen, Jozef Lernout and Pol Hauspie, founded that firm in 1987, and they took it public in 1995. They specialized, as the name suggests, in speech recognition, text-to-speech conversion, and digital speech compressions.
Sauer writes, "As a foreign company with a U.S. listed stock, Lernout was subject to relatively loose reporting standards....We allow foreign companies to file stale and incomplete information because otherwise they might not grace our markets with their securities, depriving the NYSE of a revenue source, and denying our investors the opportunity to make ill-informed investments in companies they probably can't sue if things go wrong."
It was Marc Cohodes, of Rocker Partners -- and Herb Greenberg, of MarketWatch -- who raised the possibility that something was funny with the company numbers. While looking into the matter, the SEC wanted the help of Belgian authorities so they could get information from L&H's auditor, KPMG Belgium, which was not responding to a nice pretty-please request.
"In the United States, auditors are prohibited from releasing client files without a subpoena or the consent of the client. We badgered Lernout management into providing a letter of consent. KPMG Belgium, however, claimed that wasn't enough to protect it from liability....We asked a Belgian law firm for its opinion and were told the law was unclear. I would eventually form the opinion that all Belgian law was unclear and therefore there is little to be gained from hiring local attorneys." That will be sufficient as a sample of the style in which the book is written.
Many of you probably know the upshot. L&H turned out to be one of the biggest frauds in Europe's financial history: the biggest fraud, until Parmalat came along to take the crown. Cohodes, in short, was vindicated.
Some fascinating material here concerns the case of the Belgian software company Lernout & Hauspie Speech Products NV. The two named gentlemen, Jozef Lernout and Pol Hauspie, founded that firm in 1987, and they took it public in 1995. They specialized, as the name suggests, in speech recognition, text-to-speech conversion, and digital speech compressions.
Sauer writes, "As a foreign company with a U.S. listed stock, Lernout was subject to relatively loose reporting standards....We allow foreign companies to file stale and incomplete information because otherwise they might not grace our markets with their securities, depriving the NYSE of a revenue source, and denying our investors the opportunity to make ill-informed investments in companies they probably can't sue if things go wrong."
It was Marc Cohodes, of Rocker Partners -- and Herb Greenberg, of MarketWatch -- who raised the possibility that something was funny with the company numbers. While looking into the matter, the SEC wanted the help of Belgian authorities so they could get information from L&H's auditor, KPMG Belgium, which was not responding to a nice pretty-please request.
"In the United States, auditors are prohibited from releasing client files without a subpoena or the consent of the client. We badgered Lernout management into providing a letter of consent. KPMG Belgium, however, claimed that wasn't enough to protect it from liability....We asked a Belgian law firm for its opinion and were told the law was unclear. I would eventually form the opinion that all Belgian law was unclear and therefore there is little to be gained from hiring local attorneys." That will be sufficient as a sample of the style in which the book is written.
Many of you probably know the upshot. L&H turned out to be one of the biggest frauds in Europe's financial history: the biggest fraud, until Parmalat came along to take the crown. Cohodes, in short, was vindicated.
Tuesday, April 13, 2010
Rule 10b(5)-(B)
Recently, the Court of Appeals for the First Circuit, sitting en banc, decided SEC v. Tambone, thereby creating precedent on the question: what does it mean to make a "statement" for the purposes of a securities-fraud enforcement action?
As most of my readers likely know, the Securities Exchange Act of 1934 contains the fateful section 10(b), which declares that it is unlawful to use any "manipulative or deceptive device" in connection with the purchase or sale of any security. The statute also authorizes the SEC to create "rules and regulations" as needed to protect investors against such misstatements. The catch-all rule that the SEC created in reliance on that mandate is 10b-5, which in relevant part, 10b-5(B), prohibits the making of "any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading...."
But, what exactly does it mean to make a statement? Defendants James Tambone and Robert Hussey worked for Columbia Funds Distributor, an underwriter for mutual funds. It was not part of their job to write the prospectuses for those funds, but they did routinely in the course of employment provide both broker-dealers and investors with copies of the funds prospectuses. Thereby, on the SEC's theory of the case, they "made the statements" that they knew or should have known were in those documents.
Originally, at the district court level, the SEC had contended as a matter of fact that the defendants had been involved in the drafting of these prospectuses. But at some point in the proceedings that contention dropped away and the agency stuck instead with a more legalistic claim -- that the defendants were liable irrespective of whether they had anything to do with the drafting.
Frankly, that confuses me a bit. On a motion to dismiss, the trial court in the normal course of events would have assumed that the contested facts favored the side responding to that motion. Anyway, the First Circuit in decided the matter said: "In accordance with our usual praxis, we deem abandoned all arguments that have not been briefed and developed on appeal."
Praxis? That seems unnecessarily fancy and foreign. "Practice" would be sufficient, would it not?
It is all Greek to me. The upshot though is that the Circuit Court has now ruled that the defendants had not made the "statements" at issue. The majority was concerned, it appears, about a slippery slope:
While the defendants in this case held significant positions, there is no obvious stopping point: virtually anyone involved in the underwriting process might under the SEC's "making a statement" theory be charged and subject to liability in a suit under section 10(b). The SEC may select its defendants sensibly; but private litigants have their own incentives, and the SEC concedes that its definition of "make," if adopted, would apply to private party actions as well.
A wise decision: a thicket best avoided.
As most of my readers likely know, the Securities Exchange Act of 1934 contains the fateful section 10(b), which declares that it is unlawful to use any "manipulative or deceptive device" in connection with the purchase or sale of any security. The statute also authorizes the SEC to create "rules and regulations" as needed to protect investors against such misstatements. The catch-all rule that the SEC created in reliance on that mandate is 10b-5, which in relevant part, 10b-5(B), prohibits the making of "any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading...."
But, what exactly does it mean to make a statement? Defendants James Tambone and Robert Hussey worked for Columbia Funds Distributor, an underwriter for mutual funds. It was not part of their job to write the prospectuses for those funds, but they did routinely in the course of employment provide both broker-dealers and investors with copies of the funds prospectuses. Thereby, on the SEC's theory of the case, they "made the statements" that they knew or should have known were in those documents.
Originally, at the district court level, the SEC had contended as a matter of fact that the defendants had been involved in the drafting of these prospectuses. But at some point in the proceedings that contention dropped away and the agency stuck instead with a more legalistic claim -- that the defendants were liable irrespective of whether they had anything to do with the drafting.
Frankly, that confuses me a bit. On a motion to dismiss, the trial court in the normal course of events would have assumed that the contested facts favored the side responding to that motion. Anyway, the First Circuit in decided the matter said: "In accordance with our usual praxis, we deem abandoned all arguments that have not been briefed and developed on appeal."
Praxis? That seems unnecessarily fancy and foreign. "Practice" would be sufficient, would it not?
It is all Greek to me. The upshot though is that the Circuit Court has now ruled that the defendants had not made the "statements" at issue. The majority was concerned, it appears, about a slippery slope:
While the defendants in this case held significant positions, there is no obvious stopping point: virtually anyone involved in the underwriting process might under the SEC's "making a statement" theory be charged and subject to liability in a suit under section 10(b). The SEC may select its defendants sensibly; but private litigants have their own incentives, and the SEC concedes that its definition of "make," if adopted, would apply to private party actions as well.
A wise decision: a thicket best avoided.
Monday, March 29, 2010
Cascade Financial
Craig Skotdal, one of the twelve directors of Cascade Financial, is unhappy with his fellow members.
Twelve sounds like an unwieldy size for a corporate board, but so far as I can tell yet that is not one of Skotdal's points. Rather, he is unhappy because his fellow board members don't know enough about banking (Cascade is the 8th largest community bank in Washington State) and as a consequence they are too subservient to bank management.
Skotdal has put forward his own slate: three nominees whose presence on the board would improve this situation: Tom Rainville, Arnold Hoffman, and Christian Sievers. The next annual meeting takes place next month.
David Duce, who chairs the corporate governance and nomination committee of the board, has sent a rather snippy letter to Skotda's lawyer, Gary F. Linden, expressing wonder that these candidates were willing "to be interviewed only as a group and only with your law firm present. As Mr. Skotdal is well aware, this is not consistent with the Nominating Committee's practices for evaluating board candidates...in light of your clients' recent actions, the disregard for procedures with which Mr. Skotdal is charged as a sitting Director with enforcing, and the lack of cooperation we have received in trying to assess the qualifications of your candidates, we are left to conclude you have no interest in working cooperatively."
In news that may be related, the SEC also recently refused Cascade's request for a no-action letter, in connection with a shareholder proposal submitted by Ed C. McRory. [A no-action letter is a more-or-less informal green light for a contemplated corporate action. A corporation asks the agency -- if we do X, can we proceed on the understanding you will take no enforcement action? So in this case the SEC said that it could not proceed on that understanding.]
Ed McRory, a shareholder, wants the next meeting to vote on a resolution requesting a compensation policy that "restricts the future granting, enlargement or enhancement of any golden parachute plan...."
Cascade, in a letter December 29, 2009, asked for no-action go-ahead concerning its planned exclusion of this proposal from the proxy materials, because it is (a) vague and indefinite, (b) relates to the company's ordinary business operations, and (c) has already been substantially implemented.
In a response March 4, 2010, the SEC said that it does not believe that the proposal is vague, or that it has been substantially imlemented. Accordingly, it can not be omitted from proxy materials on either of those grounds. The case with the claim of "ordinary business operations" is a little more complicated. If the proposal is meant to apply only to "senior executive compensation," then it is not an interference with ordinary business relations, and this contention too fails. The company was required to give McRory a chance to amend the proposal making clear that it is so restricted, and it can proceed with its proposed exclusion if and only if he refuses to do so.
Twelve sounds like an unwieldy size for a corporate board, but so far as I can tell yet that is not one of Skotdal's points. Rather, he is unhappy because his fellow board members don't know enough about banking (Cascade is the 8th largest community bank in Washington State) and as a consequence they are too subservient to bank management.
Skotdal has put forward his own slate: three nominees whose presence on the board would improve this situation: Tom Rainville, Arnold Hoffman, and Christian Sievers. The next annual meeting takes place next month.
David Duce, who chairs the corporate governance and nomination committee of the board, has sent a rather snippy letter to Skotda's lawyer, Gary F. Linden, expressing wonder that these candidates were willing "to be interviewed only as a group and only with your law firm present. As Mr. Skotdal is well aware, this is not consistent with the Nominating Committee's practices for evaluating board candidates...in light of your clients' recent actions, the disregard for procedures with which Mr. Skotdal is charged as a sitting Director with enforcing, and the lack of cooperation we have received in trying to assess the qualifications of your candidates, we are left to conclude you have no interest in working cooperatively."
In news that may be related, the SEC also recently refused Cascade's request for a no-action letter, in connection with a shareholder proposal submitted by Ed C. McRory. [A no-action letter is a more-or-less informal green light for a contemplated corporate action. A corporation asks the agency -- if we do X, can we proceed on the understanding you will take no enforcement action? So in this case the SEC said that it could not proceed on that understanding.]
Ed McRory, a shareholder, wants the next meeting to vote on a resolution requesting a compensation policy that "restricts the future granting, enlargement or enhancement of any golden parachute plan...."
Cascade, in a letter December 29, 2009, asked for no-action go-ahead concerning its planned exclusion of this proposal from the proxy materials, because it is (a) vague and indefinite, (b) relates to the company's ordinary business operations, and (c) has already been substantially implemented.
In a response March 4, 2010, the SEC said that it does not believe that the proposal is vague, or that it has been substantially imlemented. Accordingly, it can not be omitted from proxy materials on either of those grounds. The case with the claim of "ordinary business operations" is a little more complicated. If the proposal is meant to apply only to "senior executive compensation," then it is not an interference with ordinary business relations, and this contention too fails. The company was required to give McRory a chance to amend the proposal making clear that it is so restricted, and it can proceed with its proposed exclusion if and only if he refuses to do so.
Sunday, February 28, 2010
Madoff: Still Messin' With My Head
The legitimate part of the Madoff operation may not have been.
This story has been evolving over roughly five financial quarters now. One constant has been the distinction between the trading (market making) side and the asset management (or investment advisory or just IA) side of Bernie Madoff's operations, a distinction always described as crucial. Madoff's trading operation, which had been quite innovative when launched in 1960, was controversial in some respects (especially among those of us who consider the practice of payment-for-order-flow inherently dubious), but it was legal.
Madoff was often suspected of attaining the unusually consistent results of the account management operation by "front-running," i.e. by making illegal use of information he acquired as a market maker. The SEC would periodically investigate Madoff, only to find that he wasn't front running, so he must be clean! The truth of course is that he wasn't front running because he wasn't really trading through the IA wing of his company at all. It was all a sham, and those surprisingly consistent results were simply invented. So the possibility of front-running was serving perhaps two purposes. First, as noted it was a false scent that kept the regulators harmlessly occupied. But, secondly, it may have helped attract investors. "Pssst, this guy is likely front-running the info from his market maker side. We should get us a piece of that action."
Again, the above two paragraphs state the conventional wisdom. But the new arrest indicates there was still more to the story. Daniel Bonventre, the Madoff associate now under fire, was for thirty years the director of operations of the market-making part of the operation. Here's the criminal complaint against him.
Authorities allege that the income from the ponzi scheme was used to support the market-making operation at least from 1997 onward, and that the necessary transfers were accounted for on the books in such a way as to conceal their true source. Most reports indicate that they caught on to Bonventre because Frank DiPascali has been squealing like a stuck pig of late.
I hereby point out, as is only right, that Bonventre through his attorney has denied doing anything wrong and that he is innocent until proven guilty.
Still, if the investigators are on to something, this changes a good deal. Other potential defendants arise once the supposed wall between the legitimate and illegitimate sides of the supposedly bifurcated operations turns out to have been porous.
This story has been evolving over roughly five financial quarters now. One constant has been the distinction between the trading (market making) side and the asset management (or investment advisory or just IA) side of Bernie Madoff's operations, a distinction always described as crucial. Madoff's trading operation, which had been quite innovative when launched in 1960, was controversial in some respects (especially among those of us who consider the practice of payment-for-order-flow inherently dubious), but it was legal.
Madoff was often suspected of attaining the unusually consistent results of the account management operation by "front-running," i.e. by making illegal use of information he acquired as a market maker. The SEC would periodically investigate Madoff, only to find that he wasn't front running, so he must be clean! The truth of course is that he wasn't front running because he wasn't really trading through the IA wing of his company at all. It was all a sham, and those surprisingly consistent results were simply invented. So the possibility of front-running was serving perhaps two purposes. First, as noted it was a false scent that kept the regulators harmlessly occupied. But, secondly, it may have helped attract investors. "Pssst, this guy is likely front-running the info from his market maker side. We should get us a piece of that action."
Again, the above two paragraphs state the conventional wisdom. But the new arrest indicates there was still more to the story. Daniel Bonventre, the Madoff associate now under fire, was for thirty years the director of operations of the market-making part of the operation. Here's the criminal complaint against him.
Authorities allege that the income from the ponzi scheme was used to support the market-making operation at least from 1997 onward, and that the necessary transfers were accounted for on the books in such a way as to conceal their true source. Most reports indicate that they caught on to Bonventre because Frank DiPascali has been squealing like a stuck pig of late.
I hereby point out, as is only right, that Bonventre through his attorney has denied doing anything wrong and that he is innocent until proven guilty.
Still, if the investigators are on to something, this changes a good deal. Other potential defendants arise once the supposed wall between the legitimate and illegitimate sides of the supposedly bifurcated operations turns out to have been porous.
Wednesday, January 27, 2010
Outside the Safe Harbor
The Second Circuit requested that the Securities and Exchange Commission give it some help with certain issues as to the lawfulness (or otherwise) of forward-looking statements under the Private Securities Litigation Reform Act of 1995.
Accordingly, the SEC has filed an amicus brief in the case of Slayton v. American Express Co.
The litigation arose out of certain statements in the May 2001 Form 10-Q filed by the American Express Co. regarding losses in the high-yield investments of Amex subsidiary American Express Financial Advisors (AEFA).
Here's the link.
In section 102 of the PSLRA, Congress sought to protect certain forward-looking statements from liability in civil lawsuits, in order to weed out what the legislators decided were meritless claims. This was part of the Gingrichian "contract with America."
Civil liability will not attach due to a forward-looking statement that is identified as such, "and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."
The controversial May 2001 10-Q said that Amex expected that total losses of AEFA's high-yield investments would be lower in the second quarter than they had been in the first. But at the end of the second quarter that year, Amex issued a press release that announced that its subsidiary AEFA would be recognizing a loss of $826 milion, due largely to write-downs of high-yield debt.
Slayton came about because the plaintiffs alleged that Amex should not have made the statement it did in May, because "the Company and the other Defendants had no basis for making this representation."
The SEC's amicus filing is generally but not entirely supportive of the plaintiffs. Amex was outside of the safe harbor, because the cautionary statements were not sufficiently meaningful. Furthermore, "A speaker who makes a forward-looking statement with actual knowledge that he or she has no reasonable basis upon which to make the statement has actual knowledge that the statement is misleading," it says. That is what the plaintiffs want to hear. On the other hand, the SEC added that the defendants are entitled to be particular about the pleadings. "[To] survive a motion to dismiss, the plaintiff must plead facts sufficient to establish the defendant was subjectively aware that one of the implicit factual assertions underlying its forward-looking statement was false when the statement was made." The defendants must either have disbelieved their own statement about what the second quarter would show, or they must have known that they had no reasonable basis for that belief, or they must have been "aware of ... undisclosed facts tending to seriously undermine the accuracy of the statement."
So, although the good ship Amex is outside the safe harbor and the waters are a bit choppy, it is not necessarily sunk.
Accordingly, the SEC has filed an amicus brief in the case of Slayton v. American Express Co.
The litigation arose out of certain statements in the May 2001 Form 10-Q filed by the American Express Co. regarding losses in the high-yield investments of Amex subsidiary American Express Financial Advisors (AEFA).
Here's the link.
In section 102 of the PSLRA, Congress sought to protect certain forward-looking statements from liability in civil lawsuits, in order to weed out what the legislators decided were meritless claims. This was part of the Gingrichian "contract with America."
Civil liability will not attach due to a forward-looking statement that is identified as such, "and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."
The controversial May 2001 10-Q said that Amex expected that total losses of AEFA's high-yield investments would be lower in the second quarter than they had been in the first. But at the end of the second quarter that year, Amex issued a press release that announced that its subsidiary AEFA would be recognizing a loss of $826 milion, due largely to write-downs of high-yield debt.
Slayton came about because the plaintiffs alleged that Amex should not have made the statement it did in May, because "the Company and the other Defendants had no basis for making this representation."
The SEC's amicus filing is generally but not entirely supportive of the plaintiffs. Amex was outside of the safe harbor, because the cautionary statements were not sufficiently meaningful. Furthermore, "A speaker who makes a forward-looking statement with actual knowledge that he or she has no reasonable basis upon which to make the statement has actual knowledge that the statement is misleading," it says. That is what the plaintiffs want to hear. On the other hand, the SEC added that the defendants are entitled to be particular about the pleadings. "[To] survive a motion to dismiss, the plaintiff must plead facts sufficient to establish the defendant was subjectively aware that one of the implicit factual assertions underlying its forward-looking statement was false when the statement was made." The defendants must either have disbelieved their own statement about what the second quarter would show, or they must have known that they had no reasonable basis for that belief, or they must have been "aware of ... undisclosed facts tending to seriously undermine the accuracy of the statement."
So, although the good ship Amex is outside the safe harbor and the waters are a bit choppy, it is not necessarily sunk.
Monday, November 23, 2009
What's a Proven Reserve?
The accountants for oil companies report their employers' "proven reserves" of crude oil. Not a difficult concept to grasp, right? A "reserve" is like a company's inventory -- except that insofar as it is "reserve" it hasn't been recovered yet -- it is still in the ground. But we known where it is, because that is implied in the adjective "proven," right?
Well ... maybe not. Alan von Altendorf suggests that there is some controversy about these simple-seeming terms.
Altendorf begins with the fact that the SEC has two new regulations coming into effect on January 1, 2010, that bear on this matter: S-K and S-X.
I'll skip down to page 7 of the PDF for you: "The new SEC rules are a joke and
professional explorationists know it. Very few will speak out about it, because there was a wave of computer automation and black box software to cover up and gloss over the shortage of experienced oil & gas geoscientists."
Who is Altendorf? The principal of CWSF, an independent oil consultancy out of Houston. I know nothing first-hand about him, but normally reliable folk think he's a bright guy who knows the field. It which case, the new rules may just be a cover for fraud and very bad news.
Well ... maybe not. Alan von Altendorf suggests that there is some controversy about these simple-seeming terms.
Altendorf begins with the fact that the SEC has two new regulations coming into effect on January 1, 2010, that bear on this matter: S-K and S-X.
I'll skip down to page 7 of the PDF for you: "The new SEC rules are a joke and
professional explorationists know it. Very few will speak out about it, because there was a wave of computer automation and black box software to cover up and gloss over the shortage of experienced oil & gas geoscientists."
Who is Altendorf? The principal of CWSF, an independent oil consultancy out of Houston. I know nothing first-hand about him, but normally reliable folk think he's a bright guy who knows the field. It which case, the new rules may just be a cover for fraud and very bad news.
Monday, November 9, 2009
SEC Looking at Proxy Voting Mechanics
Nothing new in the news here, but I dutifully pass it along.
The chairman of the Securities and Exchange Commission, Mary Schapiro, gave a speech November 4 to the Practicing Law Institute, and addressed the issue of shareholder voting.
First, by way of throat clearing, she said things like this: "I know that we might sit on opposite sides of the table in any given matter, but I believe that all of us — regulators, attorneys, and business people alike — all share the common goal of ensuring that our capital markets work — and work fairly and effectively."
But, hey, why should I offer you a Readers' Digest version of what she said? Here is the link.
The chairman of the Securities and Exchange Commission, Mary Schapiro, gave a speech November 4 to the Practicing Law Institute, and addressed the issue of shareholder voting.
First, by way of throat clearing, she said things like this: "I know that we might sit on opposite sides of the table in any given matter, but I believe that all of us — regulators, attorneys, and business people alike — all share the common goal of ensuring that our capital markets work — and work fairly and effectively."
But, hey, why should I offer you a Readers' Digest version of what she said? Here is the link.
Sunday, September 20, 2009
MRV Communications
A networking/ethernet company based in California, MRV Communications Inc., has reported some good news to its stockholders in recent days. The staff of the SEC has completed its investigation of MRV's stock option granst and practices and has decided not to recommend any enforcement action.
Yet MRV continues to face the prospect of a proxy fight at its upcoming annual meeting. Dissident shareholders including Spencer Capital
Opportunity Fund LP, and Boston Avenue Capital LLC have indicated they plan to wage a proxy contest to replace the entire board.
The board, in a letter to shareholders, has characterized the dissidents as a group of Johnny-come-latelies with no long-term interest in the company. "The dissidents collectively own approximately 1.2% of the Company`s outstanding shares, which they only began acquiring in July of this year."
But it assures the stockholders, or the other 98.8% of them: "We are always interested in the views of our stockholders and, in fact, we tried
to reach out to this group on a number of occasions to better understand their
objectives and share our plans with them as to MRV`s future. To date, they have
refused to engage in a dialogue with us about their ideas or objectives and have
refused our invitation to consider some of their candidates in our director
search. What we believe to be true about the dissident group is that they are
trying to gain control of MRV without offering stockholders any premium for
their investment."
Yet MRV continues to face the prospect of a proxy fight at its upcoming annual meeting. Dissident shareholders including Spencer Capital
Opportunity Fund LP, and Boston Avenue Capital LLC have indicated they plan to wage a proxy contest to replace the entire board.
The board, in a letter to shareholders, has characterized the dissidents as a group of Johnny-come-latelies with no long-term interest in the company. "The dissidents collectively own approximately 1.2% of the Company`s outstanding shares, which they only began acquiring in July of this year."
But it assures the stockholders, or the other 98.8% of them: "We are always interested in the views of our stockholders and, in fact, we tried
to reach out to this group on a number of occasions to better understand their
objectives and share our plans with them as to MRV`s future. To date, they have
refused to engage in a dialogue with us about their ideas or objectives and have
refused our invitation to consider some of their candidates in our director
search. What we believe to be true about the dissident group is that they are
trying to gain control of MRV without offering stockholders any premium for
their investment."
Sunday, July 19, 2009
Insider Trading: Three Cases
1. SEC v. Mark Cuban
On Friday, July 17, 2009, Judge Sidney Fitzwater, of the US District Court, Northern District, Texas, in Dallas, ruled in Favor of Mark Cuban, dismissing a lawsuit that the SEC had brought against him. Fitzwater found that the SEC had failed to state a claim on which relief could be grantred.
It did so without prejudice, i.e. the SEC may replead.
The case involved Cuban's knowledge of a forthcoming PIPE -- a private investment in public equity. When all other things are equal, a PIPE will cause a reduction in a stock's price, simply because it increases the supply of that company's stock in the marketplace. Without some corresponding increase in the demand for it, the price should fall.
Cuban was an investor in the company in question but he was not an "insider" to it in the strictest sense -- he was not a board member, officer, etc. On the SEC's theory, he was a fiduciary, and the insider trading was thus a breach of a fiduciary responsibility, i.e. his agreement to keep confidential the information that an issuer's CEO provided to him about a forthcoming PIPE.
But the agreement to keep the information confidential that the SEC alleges does not amount, the court said, to an agreement to refrain from a sale of stock. A sale may hint, to those who learn of it, that the seller has just received some information, but it is hardly a clearcut case of communication. "The complaint asserts no facts that reasonably suggest that the CEO intended to obtaion from Cuban an agreement to refrain from trading on the information as opposed to an agreement merely to keep it confidential," the court said.
2. US v. Ralph Cioffi
Cioffi, who is a criminal defendant in the case arising from the failure of two Bear stearns affiliated hedge funds in 2007, has not been so fortunate as Cuban. His trial judge has rejected his motion to dismiss.
In New York, on Tuesday, July 14, Judge Frederic Block refused to dismiss the criminal case against him that arose because Cioffi transferred a portion of his own holdings out of one of these funds without telling investors. In contrast to Fitzwater, Block has not prepared a written opinion giving us the reasons for this decision. But hsi situation isinherently different from that of Cuban's, and as I've noted here before, I thought the motion to dismiss was a matter of slicing the Oscar Meyer pretty thin.
It is still a rum business -- prosecuting "insider trading," at all. But thinking within the box of the law as now exists, Cioffi's position is much worse than that of Cuban's so the difference results of their motions was to be expected.
3. SEC v. Anthony Perez et al. This is a new one. The SEC has charged 5 individuals with insider trading on the ground that they learned that Liberty Mutual was about to announce a bid for Safeway Corp., and acted naturally, buying Safeway themselves.
There are actually three separate complaints, because this information leaked out at least that many times. In two of the three complaints arising out of the safeway bid, a tippee as well as the tipper are named.
The first-named defendant of one of these three complaints, Perez, acquired this information through his work at Goldman Sachs. His tippee? His brother. Ach! the government is now criminalizing brotherly love!
It is also enabling Goldman conspiracy theories. Personally, I much prefer Cerberus conspiracy theories, but Cerberus seems to have had nothing to do with Safeway.
On Friday, July 17, 2009, Judge Sidney Fitzwater, of the US District Court, Northern District, Texas, in Dallas, ruled in Favor of Mark Cuban, dismissing a lawsuit that the SEC had brought against him. Fitzwater found that the SEC had failed to state a claim on which relief could be grantred.
It did so without prejudice, i.e. the SEC may replead.
The case involved Cuban's knowledge of a forthcoming PIPE -- a private investment in public equity. When all other things are equal, a PIPE will cause a reduction in a stock's price, simply because it increases the supply of that company's stock in the marketplace. Without some corresponding increase in the demand for it, the price should fall.
Cuban was an investor in the company in question but he was not an "insider" to it in the strictest sense -- he was not a board member, officer, etc. On the SEC's theory, he was a fiduciary, and the insider trading was thus a breach of a fiduciary responsibility, i.e. his agreement to keep confidential the information that an issuer's CEO provided to him about a forthcoming PIPE.
But the agreement to keep the information confidential that the SEC alleges does not amount, the court said, to an agreement to refrain from a sale of stock. A sale may hint, to those who learn of it, that the seller has just received some information, but it is hardly a clearcut case of communication. "The complaint asserts no facts that reasonably suggest that the CEO intended to obtaion from Cuban an agreement to refrain from trading on the information as opposed to an agreement merely to keep it confidential," the court said.
2. US v. Ralph Cioffi
Cioffi, who is a criminal defendant in the case arising from the failure of two Bear stearns affiliated hedge funds in 2007, has not been so fortunate as Cuban. His trial judge has rejected his motion to dismiss.
In New York, on Tuesday, July 14, Judge Frederic Block refused to dismiss the criminal case against him that arose because Cioffi transferred a portion of his own holdings out of one of these funds without telling investors. In contrast to Fitzwater, Block has not prepared a written opinion giving us the reasons for this decision. But hsi situation isinherently different from that of Cuban's, and as I've noted here before, I thought the motion to dismiss was a matter of slicing the Oscar Meyer pretty thin.
It is still a rum business -- prosecuting "insider trading," at all. But thinking within the box of the law as now exists, Cioffi's position is much worse than that of Cuban's so the difference results of their motions was to be expected.
3. SEC v. Anthony Perez et al. This is a new one. The SEC has charged 5 individuals with insider trading on the ground that they learned that Liberty Mutual was about to announce a bid for Safeway Corp., and acted naturally, buying Safeway themselves.
There are actually three separate complaints, because this information leaked out at least that many times. In two of the three complaints arising out of the safeway bid, a tippee as well as the tipper are named.
The first-named defendant of one of these three complaints, Perez, acquired this information through his work at Goldman Sachs. His tippee? His brother. Ach! the government is now criminalizing brotherly love!
It is also enabling Goldman conspiracy theories. Personally, I much prefer Cerberus conspiracy theories, but Cerberus seems to have had nothing to do with Safeway.
Wednesday, July 15, 2009
The Investor Protection Act of 2009
The Treasury Department has released (as of July 10) the administration's proposed Investor Protection Act of 2009. If enacted, it will implement parts of the financial-reform proposals contained in the recent White Paper.
Under existing law, there is an important difference between investment advisers on the one hand and broker-dealers on the other. Both can be held to certain standards in terms of the fiduciary and anti-fraud obligations, but the broker-dealers get to police themselves through self-regulatory organizations, which historically they have found quite comfortable.
The Fact Sheet included in the Treasury Department’s press release announcing the Act states that in the department's view the distinctions are "no longer meaningful," that investors rely upon recommendations from BDs in the same way that they rely upon recommendations from IAs. The Act would authorize the SEC to create a unified set of standards. In the words of a "client newsflash" posted on the webpage of the Davis Polk law firm, "The inclusion of these provisions in the Act may presage greater involvement by the SEC, in addition to FINRA, in directly regulating sales practices of broker-dealers."
By the way (have I mentioned this lately?) nothing you have read or are ever going to read in this blog is to be taken by any rational or even vaguely conscious being as a piece of investment advice to any degree whatsoever.
I'm so glad we've cleared that up.
Under existing law, there is an important difference between investment advisers on the one hand and broker-dealers on the other. Both can be held to certain standards in terms of the fiduciary and anti-fraud obligations, but the broker-dealers get to police themselves through self-regulatory organizations, which historically they have found quite comfortable.
The Fact Sheet included in the Treasury Department’s press release announcing the Act states that in the department's view the distinctions are "no longer meaningful," that investors rely upon recommendations from BDs in the same way that they rely upon recommendations from IAs. The Act would authorize the SEC to create a unified set of standards. In the words of a "client newsflash" posted on the webpage of the Davis Polk law firm, "The inclusion of these provisions in the Act may presage greater involvement by the SEC, in addition to FINRA, in directly regulating sales practices of broker-dealers."
By the way (have I mentioned this lately?) nothing you have read or are ever going to read in this blog is to be taken by any rational or even vaguely conscious being as a piece of investment advice to any degree whatsoever.
I'm so glad we've cleared that up.
Monday, July 13, 2009
A "special meeting" outside the office door.
CNS Response Inc., a company based in Costa Mesa, California, describes itself as the developer of "A patented data-analysis capability that, with the help of a simple, non-invasive EEG, will analyze a patient's brain waves and compare the results to an extensive patient outcomes database."
It is engaged in a dispute with Len Brandt, its own former chief executive officer. And some wild stuff seems to have happened in that regard over the Independence Day weekend.
Brandt mailed out a "Notice of Special Meeting of Shareholders of CNS Response Inc.," purporting to call a meeting on July 3, at the office of the company's registered agent in Dover, Delaware. July 3 was a federal and a Delaware state holiday.
According to the company's filing with the SEC, Brandt didn't go to the meeting he had called, but he gave his proxy to his attorney, and the attorney went to the Dover office. Finding the registered agent's office closed for the holiday, the attorney "attempted to call the purported meeting to order in the hallway outside of the office and adjourn the meeting when it became clear that the necessary quorum to conduct business was not present."
Hmmm. If he was doing this in an empty office building corridor, how do the company officials who filed this know about it? Because they had sent somebody to that corridor, too. So it appears there was some sort of gathering (if not a "meeting") in the corridor on the holiday.
"CNS' counsel was present to object to the attempt to call the purported meeting, the attempt to adjourn the purported meeting, and other matters."
Was it just these two in the hallway? Apparently the incumbent CEO, George Carpenter, was somewhere around, although perhaps not at the epicenter of the excitement. The filing says he was "ready outside of the purported meeting...."
The purported meeting was outside a closed office door in a corridor. Where was Carpenter if he was "outside" of that? In the corridor a floor below? In the building's lobby?
I don't know what is going on, but I am amused. Thanks, corporate America!
It is engaged in a dispute with Len Brandt, its own former chief executive officer. And some wild stuff seems to have happened in that regard over the Independence Day weekend.
Brandt mailed out a "Notice of Special Meeting of Shareholders of CNS Response Inc.," purporting to call a meeting on July 3, at the office of the company's registered agent in Dover, Delaware. July 3 was a federal and a Delaware state holiday.
According to the company's filing with the SEC, Brandt didn't go to the meeting he had called, but he gave his proxy to his attorney, and the attorney went to the Dover office. Finding the registered agent's office closed for the holiday, the attorney "attempted to call the purported meeting to order in the hallway outside of the office and adjourn the meeting when it became clear that the necessary quorum to conduct business was not present."
Hmmm. If he was doing this in an empty office building corridor, how do the company officials who filed this know about it? Because they had sent somebody to that corridor, too. So it appears there was some sort of gathering (if not a "meeting") in the corridor on the holiday.
"CNS' counsel was present to object to the attempt to call the purported meeting, the attempt to adjourn the purported meeting, and other matters."
Was it just these two in the hallway? Apparently the incumbent CEO, George Carpenter, was somewhere around, although perhaps not at the epicenter of the excitement. The filing says he was "ready outside of the purported meeting...."
The purported meeting was outside a closed office door in a corridor. Where was Carpenter if he was "outside" of that? In the corridor a floor below? In the building's lobby?
I don't know what is going on, but I am amused. Thanks, corporate America!
Monday, June 22, 2009
Short selling and Knight Capital
Back in April, the SEC asked for comment on certain rule changes designed to make short sales more difficult, such as an uptick rule.
I'll proceed on the hypothesis that readers of this blog know what short selling is, and know what the uptick rule used to be.
I return to the subject, discussed here before, because Knight Capital has this week (June 18) submitted its own comment, signed by Leonard Amoruso, and it is quite discerning.
Amoruso writes that in Knight's view no change in Reg SHO is necessarily warranted, but that if the SEC must enact some change, "the approach which may have the least negative impact on liquidity and price discovery is the circuit breaker approach with the Modified uptick (bid test) -- with the appropriate exceptions, including for bona fide market making."
Knight Capital is a services firm that provides electronic access to the global capital markets. As such, it has an obvious interest in the liquidity of those markets, and it is aware of the role short selling plays in providing that liquidity.
I'll proceed on the hypothesis that readers of this blog know what short selling is, and know what the uptick rule used to be.
I return to the subject, discussed here before, because Knight Capital has this week (June 18) submitted its own comment, signed by Leonard Amoruso, and it is quite discerning.
Amoruso writes that in Knight's view no change in Reg SHO is necessarily warranted, but that if the SEC must enact some change, "the approach which may have the least negative impact on liquidity and price discovery is the circuit breaker approach with the Modified uptick (bid test) -- with the appropriate exceptions, including for bona fide market making."
Knight Capital is a services firm that provides electronic access to the global capital markets. As such, it has an obvious interest in the liquidity of those markets, and it is aware of the role short selling plays in providing that liquidity.
Monday, June 8, 2009
Investment Advisory Committee
The SEC has released the names of the members of its new Investment Advisory Committee.
Mark Anson, President and Executive Director of Investment Services, Nuveen Investments
Jeff Brown, Senior Vice President, Legislative and Regulatory Affairs, Charles Schwab & Co., Inc.
Mercer Bullard, Founder and President of Fund Democracy, Inc. and Associate Professor of Law, University of Mississippi Law School
Stephen Davis, Senior Fellow and Project Director, Yale University School for Management's Millstein Center for Corporate Governance, and nonexecutive chair of Hermes Equity Ownership Service
Abe Friedman, Global Head of Corporate Governance and Proxy Voting and Managing Director, Barclays Global Investors
Mellody Hobson, President of Ariel Capital Management
Dennis A. Johnson, Managing Director, Shamrock Capital Advisors, Inc.
Adam Kanzer, Managing Director and General Counsel, Domini Social Investments LLC
Mark Latham, Director of Proxy Democracy, a nonprofit organization helping individual investors
Barbara Roper, Director of Investor Protection, Consumer Federation of America
Dallas Salisbury, President and CEO, Employee Benefit Research Institute
Kurt Schacht, Managing Director, CFA Institute
Damon Silvers, Associate General Counsel, AFL-CIO
Kurt Stocker, Chairman of the Individual Investors Advisory Board of the NYSE
Mark Anson, President and Executive Director of Investment Services, Nuveen Investments
Jeff Brown, Senior Vice President, Legislative and Regulatory Affairs, Charles Schwab & Co., Inc.
Mercer Bullard, Founder and President of Fund Democracy, Inc. and Associate Professor of Law, University of Mississippi Law School
Stephen Davis, Senior Fellow and Project Director, Yale University School for Management's Millstein Center for Corporate Governance, and nonexecutive chair of Hermes Equity Ownership Service
Abe Friedman, Global Head of Corporate Governance and Proxy Voting and Managing Director, Barclays Global Investors
Mellody Hobson, President of Ariel Capital Management
Dennis A. Johnson, Managing Director, Shamrock Capital Advisors, Inc.
Adam Kanzer, Managing Director and General Counsel, Domini Social Investments LLC
Mark Latham, Director of Proxy Democracy, a nonprofit organization helping individual investors
Barbara Roper, Director of Investor Protection, Consumer Federation of America
Dallas Salisbury, President and CEO, Employee Benefit Research Institute
Kurt Schacht, Managing Director, CFA Institute
Damon Silvers, Associate General Counsel, AFL-CIO
Kurt Stocker, Chairman of the Individual Investors Advisory Board of the NYSE
Wednesday, May 20, 2009
Three brief items
1. SEC Thresholds
There have been reports, though there has as of yet been nothing official from the Securities and Exchange Commission itself, that the SEC is about the propose a new system for the nomination of dissident directors. Dissidents will be able to piggyback on the company's proxy materials if their stock holdings pass certain percentage thresholds.
Specifically, to piggyback on the materials of a small market capitalization companys (below $75 million), the dissident group will need to show that it has owned 5% of the equity for at least a year. For a market cap between $75 and $700 million, that becomes 3% over a year. For a market cap above $700 million, its a mere 1%.
Any such measure, even if adopted (and so far, remember, this is only a report of a coming proposal) would certainly face a court fight, on federalism grounds among others.
2. Shell's executive pay
There's been a rebellion at Royal Dutch Shell. Shareholders have voted "no" in resounding fashion to a remuneration report. The remuneration committee that produced the report is chaired by Sir Peter Job. I just had to mention that because the name seems so blooming appropriate.
Jeroen van der Veer, Shell's CEO, steps down in June. He received a bonus nt he 2006-08 incentive scheme of 1.35 million euros, i.e. $1.84 million dollars, on top of his salary of 2008, of 10.3 euros, which was itself an increase of 58% from the year before.
3. Catching up on Amylin
Amylin Pharmaceutical's annual meeting is now but a week away. Proxy advisory RiskMetrics has advised shareholders to vote in favor of three of the dissident nominees, two from eastbourne's slate and one from Icahn's.
In a letter to shareholders May 15, Amylin expressed disappointment in this, but said that its board and management "have recognized and embraced the need for change."
Then the news got worse for the besieged company. On Monday, the two other major advisory services also recommended the introduction of new blood. Although they don't all agree on which new blood should get into the boardroom, they all agree things need to change.
There have been reports, though there has as of yet been nothing official from the Securities and Exchange Commission itself, that the SEC is about the propose a new system for the nomination of dissident directors. Dissidents will be able to piggyback on the company's proxy materials if their stock holdings pass certain percentage thresholds.
Specifically, to piggyback on the materials of a small market capitalization companys (below $75 million), the dissident group will need to show that it has owned 5% of the equity for at least a year. For a market cap between $75 and $700 million, that becomes 3% over a year. For a market cap above $700 million, its a mere 1%.
Any such measure, even if adopted (and so far, remember, this is only a report of a coming proposal) would certainly face a court fight, on federalism grounds among others.
2. Shell's executive pay
There's been a rebellion at Royal Dutch Shell. Shareholders have voted "no" in resounding fashion to a remuneration report. The remuneration committee that produced the report is chaired by Sir Peter Job. I just had to mention that because the name seems so blooming appropriate.
Jeroen van der Veer, Shell's CEO, steps down in June. He received a bonus nt he 2006-08 incentive scheme of 1.35 million euros, i.e. $1.84 million dollars, on top of his salary of 2008, of 10.3 euros, which was itself an increase of 58% from the year before.
3. Catching up on Amylin
Amylin Pharmaceutical's annual meeting is now but a week away. Proxy advisory RiskMetrics has advised shareholders to vote in favor of three of the dissident nominees, two from eastbourne's slate and one from Icahn's.
In a letter to shareholders May 15, Amylin expressed disappointment in this, but said that its board and management "have recognized and embraced the need for change."
Then the news got worse for the besieged company. On Monday, the two other major advisory services also recommended the introduction of new blood. Although they don't all agree on which new blood should get into the boardroom, they all agree things need to change.
Tuesday, May 12, 2009
Three brief items
We're in the thick of proxy fight season. We'll do our best to keep up.
1. One of the founders of Amylin Pharmaceuticals, Howard Greene Jr, has said recently that he will vote for the dissident slate at that company's annual shareholder's meeting May 27.
"There needs to be a fresh wind blowing through the boardroom,” Greene told an interviewer. "I think our science and technology is first in class. . . . On the other hand, the last few years have shown that our commercialization of that has been pretty disappointing.”
The dissident slate is a combination of Icahn and Eastbourne nominees, and the combination itself was made possible by an SEC no-action letter.
2. SEC proceeds against David E. Hurley
Hurley, an investment adviser, has settled a case brought against him by the SEC, which charged him with violating SEC rules pertaining to proxy voting by failing to describe his investment company's proxy voting policies and procedures to its clients properly.
Hurley was the chief operating officer of Intech, a firm that it appears routinely voted its proxies in accord with AFL-CIO recommendations, in the hope of getting a high ranking in that organization's "Key Votes Survey," which in turn was expected to help Hurley/intech attract new union-affiliated clients and keep its existing clients of that sort happy.
But, says the SEC, Intech's "written policies and procedures did not addresss material potential conflicts that may have arisen between Intech's interests and those of its clients who were not pro-AFL-CIO."
3. A closed-end real estate fund -- meeting May 20.
RiskMetrics Group has recommended against the liquidation proposal that will be up for debate at the special meeting of shareholders in DWS RREEF Real Estate Fund Inc. on May 20.
Here's a press release on the subject.
DWS is a closed-end real estate fund. What, you might ask, does that mean? A closed-end fund generally does not continuously offer its shares for sale and its shares are not redeemable, except perhaps at stated internals. As a consequence, the value of these shares on the secondary market can often trade at a discount on the funds' net asset value. When that discount becomes large, pressure to iquidate often develops, which is what is happening here.
The May 20 meeting may tell us something about the extent of push-back we're goiing to be seeing at what I take it is the bottom of a business cycle: push-back against such liquidation proposals.
1. One of the founders of Amylin Pharmaceuticals, Howard Greene Jr, has said recently that he will vote for the dissident slate at that company's annual shareholder's meeting May 27.
"There needs to be a fresh wind blowing through the boardroom,” Greene told an interviewer. "I think our science and technology is first in class. . . . On the other hand, the last few years have shown that our commercialization of that has been pretty disappointing.”
The dissident slate is a combination of Icahn and Eastbourne nominees, and the combination itself was made possible by an SEC no-action letter.
2. SEC proceeds against David E. Hurley
Hurley, an investment adviser, has settled a case brought against him by the SEC, which charged him with violating SEC rules pertaining to proxy voting by failing to describe his investment company's proxy voting policies and procedures to its clients properly.
Hurley was the chief operating officer of Intech, a firm that it appears routinely voted its proxies in accord with AFL-CIO recommendations, in the hope of getting a high ranking in that organization's "Key Votes Survey," which in turn was expected to help Hurley/intech attract new union-affiliated clients and keep its existing clients of that sort happy.
But, says the SEC, Intech's "written policies and procedures did not addresss material potential conflicts that may have arisen between Intech's interests and those of its clients who were not pro-AFL-CIO."
3. A closed-end real estate fund -- meeting May 20.
RiskMetrics Group has recommended against the liquidation proposal that will be up for debate at the special meeting of shareholders in DWS RREEF Real Estate Fund Inc. on May 20.
Here's a press release on the subject.
DWS is a closed-end real estate fund. What, you might ask, does that mean? A closed-end fund generally does not continuously offer its shares for sale and its shares are not redeemable, except perhaps at stated internals. As a consequence, the value of these shares on the secondary market can often trade at a discount on the funds' net asset value. When that discount becomes large, pressure to iquidate often develops, which is what is happening here.
The May 20 meeting may tell us something about the extent of push-back we're goiing to be seeing at what I take it is the bottom of a business cycle: push-back against such liquidation proposals.
Sunday, May 10, 2009
Short-selling Roundtable
The SEC held another one of its "roundtables" last week.
This one, on Tuesday, May 5, concerned short sales and the best way to check a bear raid. The SEC under its new leadership seems to have made up its mind that one of two checks ought to be in place -- either a trae-by-trade uptick rule or a day by day circuit breaker rule. Maybe both. It appears that the roundtable was convened to assist it in making up its mind among those alternatives.
The circuit breaker proposal would mean, specifically, that if a particular stock declined by more than 10% in a given day, something would happen to staunch the bleeding. Under the most restrictive of the three variants of the circuit-breaker proposal, such a decline would simply result in an end to the trading in that stock for the remainder thereof.
One of the panelists was James Angel, an associate professor at the McDonough School of Business at Georgetown University, and the co-author (with Douglas McCabe, of "The Business Ethocs of Selling Short and of Naked Short Selling," which you can find here.
This one, on Tuesday, May 5, concerned short sales and the best way to check a bear raid. The SEC under its new leadership seems to have made up its mind that one of two checks ought to be in place -- either a trae-by-trade uptick rule or a day by day circuit breaker rule. Maybe both. It appears that the roundtable was convened to assist it in making up its mind among those alternatives.
The circuit breaker proposal would mean, specifically, that if a particular stock declined by more than 10% in a given day, something would happen to staunch the bleeding. Under the most restrictive of the three variants of the circuit-breaker proposal, such a decline would simply result in an end to the trading in that stock for the remainder thereof.
One of the panelists was James Angel, an associate professor at the McDonough School of Business at Georgetown University, and the co-author (with Douglas McCabe, of "The Business Ethocs of Selling Short and of Naked Short Selling," which you can find here.
Sunday, April 5, 2009
Credit Agencies Roundtable
The SEC will hold a roundtable on credit rating agencies one week from Wednesday, April 15, at 10 AM, at the agency's DC headquarters.
Here are the particulars.
10:10 a.m. — Panel One: Current NRSRO Perspectives: What Went Wrong and What Corrective Steps Is the Industry Taking?
Panelists:
Daniel Curry, DBRS
Sean Egan, Egan-Jones Ratings
Stephen Joynt, Fitch Ratings
Raymond McDaniel, Moody's Investor Service
Deven Sharma, Standard & Poor's
11:30 a.m. — Panel Two: Competition Issues: What are Current Barriers to Entering the Credit Rating Agency Industry?
Panelists:
Ethan Berman, RiskMetrics Group
James H. Gellert, RapidRatings
George Miller, American Securitization Forum
Frank Partnoy, University of San Diego
Alex Pollock, American Enterprise Institute
Damon Silvers, AFL-CIO
Lawrence J. White, New York University
12:30 p.m. — Lunch Break
1:15 p.m. — Panel Three: Users' Perspectives
Panelists
Deborah A. Cunningham, Securities Industry and Financial Markets Association
Alan J. Fohrer, Southern California Edison
Christopher Gootkind, Wellington Management
James Kaitz, Association of Financial Professionals
Kurt N. Schacht, CFA Institute
Bruce Stern, Association of Financial Guaranty Insurers
Paul Schott Stevens, Investment Company Institute
2:45 p.m. — Panel Four: Approaches to Improve Credit Rating Agency Oversight
Panelists
Richard Baker, Managed Funds Association
Jörgen Holmquist, European Commission
Mayree C. Clark, Aetos Capital
Joseph A. Grundfest, Stanford Law School
Glenn Reynolds, CreditSights
Stephen Thieke, Group of Thirty
The roundtable is expected to end at approximately 4:15 p.m. with concluding remarks by Erik R. Sirri, Director of the SEC's Division of Trading & Markets.
Here are the particulars.
10:10 a.m. — Panel One: Current NRSRO Perspectives: What Went Wrong and What Corrective Steps Is the Industry Taking?
Panelists:
Daniel Curry, DBRS
Sean Egan, Egan-Jones Ratings
Stephen Joynt, Fitch Ratings
Raymond McDaniel, Moody's Investor Service
Deven Sharma, Standard & Poor's
11:30 a.m. — Panel Two: Competition Issues: What are Current Barriers to Entering the Credit Rating Agency Industry?
Panelists:
Ethan Berman, RiskMetrics Group
James H. Gellert, RapidRatings
George Miller, American Securitization Forum
Frank Partnoy, University of San Diego
Alex Pollock, American Enterprise Institute
Damon Silvers, AFL-CIO
Lawrence J. White, New York University
12:30 p.m. — Lunch Break
1:15 p.m. — Panel Three: Users' Perspectives
Panelists
Deborah A. Cunningham, Securities Industry and Financial Markets Association
Alan J. Fohrer, Southern California Edison
Christopher Gootkind, Wellington Management
James Kaitz, Association of Financial Professionals
Kurt N. Schacht, CFA Institute
Bruce Stern, Association of Financial Guaranty Insurers
Paul Schott Stevens, Investment Company Institute
2:45 p.m. — Panel Four: Approaches to Improve Credit Rating Agency Oversight
Panelists
Richard Baker, Managed Funds Association
Jörgen Holmquist, European Commission
Mayree C. Clark, Aetos Capital
Joseph A. Grundfest, Stanford Law School
Glenn Reynolds, CreditSights
Stephen Thieke, Group of Thirty
The roundtable is expected to end at approximately 4:15 p.m. with concluding remarks by Erik R. Sirri, Director of the SEC's Division of Trading & Markets.
Wednesday, March 25, 2009
three brief items
1. Routine votes from brokers
The Securities and Exchange Commission has recently put out for comment a proposed amendment to NYSE rule 452. This rule allows brokers to cast votes on certain routine matters on a client/investor's behalf, if that investor (the beneficial owner) has not provided specific instructions to the broker at least 10 days before a scheduled meeting.
The significance of the practice is that it helps companies meet quorum requirements for those boring issues real people don't care about.
But of course there is lots of room for debate over what should or shouldn't count as a routine issue for this purpose. I hope to have something more to say here along these lines next week.
2. Orthofix resisting Ramius nominees
Ramius LLC and affiliated entities are trying to put three nominees on the board of the orthopedics-product company Orthofix. The nominees are: J. Michael Egan, Peter A. Feld and Charles T. Orsatti. If successful, they will replace current Chairman of the Board James F. Gero, and directors Peter J. Hewett and Walter P. Von Wartburg.
Orthofix is resisting, and the matter will presumably be resolved by or at a special meeting of the company's shareholders on April 2.
Proxy Governance Inc. has issued its own report on this contest, in which it said: "The problem with the dissident campaign is not an inability to evaluate what went wrong, but the profound absense of a plan to effect a credible recovery."
Orthofix is of course ensuring that everybody knows that PGI has said this.
3. CV Therapeutics takeover bid ends
Astellas Pharma, a Japanese company, announced last week the end of its hostile bid for CV Therapeutics. It had made a tender offer of $16 a share.
Astellas was outbid by Gilead Sciences, and Astellas says that it doesn't see value for its shareholders in trying to top Gilead's offer of $20 a share.
My impression is that there is a lot of dry powder out there, especially in the far East. Companies have responded to the crises of the last year and a half by selling assets and holding cash. Now they're tire of cash. Cash is boring. They want to put it to work. We may see a lot of merger and acquisition activity and even some bidding wars coming down the pike, and this one may look like a harbinger.
Gilead and CV are both California-based companies, so this is a neighbor-buys-neighbor story. But not every Far Eastern bidder will withdraw with such quiet grace.
The Securities and Exchange Commission has recently put out for comment a proposed amendment to NYSE rule 452. This rule allows brokers to cast votes on certain routine matters on a client/investor's behalf, if that investor (the beneficial owner) has not provided specific instructions to the broker at least 10 days before a scheduled meeting.
The significance of the practice is that it helps companies meet quorum requirements for those boring issues real people don't care about.
But of course there is lots of room for debate over what should or shouldn't count as a routine issue for this purpose. I hope to have something more to say here along these lines next week.
2. Orthofix resisting Ramius nominees
Ramius LLC and affiliated entities are trying to put three nominees on the board of the orthopedics-product company Orthofix. The nominees are: J. Michael Egan, Peter A. Feld and Charles T. Orsatti. If successful, they will replace current Chairman of the Board James F. Gero, and directors Peter J. Hewett and Walter P. Von Wartburg.
Orthofix is resisting, and the matter will presumably be resolved by or at a special meeting of the company's shareholders on April 2.
Proxy Governance Inc. has issued its own report on this contest, in which it said: "The problem with the dissident campaign is not an inability to evaluate what went wrong, but the profound absense of a plan to effect a credible recovery."
Orthofix is of course ensuring that everybody knows that PGI has said this.
3. CV Therapeutics takeover bid ends
Astellas Pharma, a Japanese company, announced last week the end of its hostile bid for CV Therapeutics. It had made a tender offer of $16 a share.
Astellas was outbid by Gilead Sciences, and Astellas says that it doesn't see value for its shareholders in trying to top Gilead's offer of $20 a share.
My impression is that there is a lot of dry powder out there, especially in the far East. Companies have responded to the crises of the last year and a half by selling assets and holding cash. Now they're tire of cash. Cash is boring. They want to put it to work. We may see a lot of merger and acquisition activity and even some bidding wars coming down the pike, and this one may look like a harbinger.
Gilead and CV are both California-based companies, so this is a neighbor-buys-neighbor story. But not every Far Eastern bidder will withdraw with such quiet grace.
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