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More CDO-related Mischief: Former Credit Suisse Trader Charged with Falsifying Trading Books

Last Tuesday we pointed out how Banc of America transferred at least $35 million of previous losses to unsuspecting investors in two of its CDO offerings. This story was further exposed by the New York Times' reporter Gretchen Morgenson in her report on February 4, 2012 titled "A Wipeout That Didn't Have to Happen".

Also in last week, the ex-global head of Credit Suisse Group AG's CDO business, Kareem Serageldin, was charged in Federal Court by the Manhattan District Attorney for overstating...

A Wipeout That Didn't Have to Happen

This weekend the New York Times' Gretchen Morgenson wrote an article about the recent FINRA award against Banc of America Securities for their LCM VII CLO. We have blogged about this case before, and have put together a research paper describing the underlying issue of warehousing assets in structured credit derivatives. We are very grateful to the New York Times and Gretchen Morgenson for giving this story the attention it deserves.

The fundamental problem with structured credit and many...

Schwab Sues FINRA RE: Class Action and Consolidated Claims

There has been some buzz on the blogosphere concerning the ongoing dispute between Schwab and FINRA concerning the issue of class action waivers attached to securities products.

FINRA recently alleged that Charles Schwab & Co. violated FINRA rules by including class action waivers in their customer agreements. From their press release:

FINRA's complaint charges that in October 2011, Schwab amended its customer account agreement to include a provision requiring customers to waive their rights...

SLCG Research: Reverse Convertibles and Stochastic Volatility

We've talked a lot about structured products -- and reverse convertibles in particular -- on this blog. In this blog post we discuss reverse convertibles in more detail and present some results found in a new research paper my colleagues and I have just completed.

Reverse convertible notes -- or simply "reverse convertibles" -- are structured products whose payoff at maturity is dependent upon the return of an underlying asset or security during the tenor of the note. If the underlying asset...

Did BoA's 2007 CLOs Defraud Investors?

We have posted a new paper today showing that on July 2007 Banc of America appears to have transferred at least $35 million of previous losses to unsuspecting investors in two of its CLO offerings - LCM VII and Bryn Mawr II. Investors ultimately lost nearly $150 million in October 2008 when these two CLOs backed by leveraged loans were liquidated.

Leveraged loans issued to below investment grade corporations were frequently extended by a syndicate of lenders intending to re-sell...

Oppenheimer Ordered to Repurchase $5.98 Million in Auction Rate Securities

In January 2012, a Financial Industry Regulatory Authority arbitration panel in New York ordered Oppenheimer to repurchase certain Auction Rate Securities sold to Claimant Nicole Davi Perry for $5.98 million, plus payment of $134,108 in legal fees. The award was posted in FINRA's arbitration database this Monday. See this related report from Reuters. Dr. O'Neal at SLCG testified on behalf of the Claimant; Dr. O'Neal and Dr. McCann have authored a report on ARS previously.

Auction rate...

Freddie Mac, complex derivatives, and one huge conflict of interest

There have been many news reports lately describing the difficulty homeowners have had in refinancing their mortgages. Many decry the strict requirements imposed on them by Fannie Mae and Freddie Mac, the massive taxpayer-owned-but-ostensibly-nongovernmental mortgage financing firms. Well today, NPR and ProPublica are reporting that Freddie Mac bet billions that many homeowners would not be able to refinance their mortgages.

Now that's a conflict of interest. Other outlets have begun to...

President and CIO of Direxion admits that leveraged ETFs are not appropriate for most investors

Today Seeking Alpha posted an interview with Dan O'Neill, President and CIO of Direxion, one of the first and best known issuers of leveraged ETFs. Readers familiar with our work on leveraged ETFs know that we feel these products are almost always unsuitable for retail investors.

Surprisingly enough, Mr. O'Neill agrees completely:

The leveraged indexed ETFs are used by very tactical investors, and so there we have bull and bear funds. They have daily betas, which means that essentially...

Interest Rate Swaps

In this blog post, we will discuss a particular kind of over-the-counter (OTC) derivative instrument called interest rate swaps. This post is meant as a broad stroke and an introduction to interest rate swaps. In the future, we plan to have additional posts about specialized interest rate swaps, case studies of particular interest rate swaps and on the pricing of interest rate swaps.

Interest rate swaps are customizable bilateral (involving two parties) agreements wherein one party exchanges...

FINRA Regulatory Notice: Complex Products

FINRA recently released Regulatory Notice 12-03: Heightened Supervision of Complex Products, outlining their increased scrutiny of a wide variety of alternative investments including structured products, inverse or leveraged exchange traded funds, and asset-backed securities. Here at SLCG, we've done research on each of those subjects, and have a variety of ongoing projects that bear directly on the issues highlighted by the Notice.

The products identified include:

  • Asset-backed...

189 Results