SEC Litigation Releases: Week in Review - December 6th, 2013
(Dec 2013)
SEC Obtains Final Judgment Against Massachusetts-Based Broker and Investment Adviser
December 5, 2013, (Litigation Release No. 22885)
Final judgments were entered against Arnett L. Waters and two entities he controlled, "broker-dealer A.L. Waters Capital, LLC and investment adviser Moneta Management, LLC," for their alleged involvement in the "fraudulent sales of fictitious investment-related partnerships." The final judgment enjoins the defendants from future violations of the securities laws...
SEC Litigation Releases: Week in Review - December 2nd, 2013
(Dec 2013)
SEC Charges Weatherford International with FCPA Violations
November 26, 2013, (Litigation Release No. 22880)
According to the complaint, oilfield services company Weatherford International violated the Foreign Corrupt Practices Act by "authorizing bribes and improper travel and entertainment for foreign officials in the Middle East and Africa to win business, including kickbacks in Iraq to obtain United Nations Oil-for-Food contracts." The company allegedly earned more than "$59.3 million in...
Monte Carlo Simulation, Explained
(Nov 2013)
Valuing products with exotic derivatives can be difficult since these products typically have complex payoff formulas. One of the most flexible methods for valuing such products is called Monte Carlo simulation. At SLCG, we use Monte Carlo simulation in a lot of our work, so we thought it would be helpful to explain a bit about it and show how it can be used to estimate the future returns of an asset.
The basic idea behind Monte Carlo simulation is to determine the statistical properties...
SEC Litigation Releases: Week in Review - November 22nd, 2013
(Nov 2013)
Court Enters Final Judgment by Consent Against SEC Defendant Corey Ribotsky
November 21, 2013, (Litigation Release No. 22873)
A final judgment was entered against Corey Ribotsky who, along with The NIR Group, LLC, allegedly made "false statements to investors regarding the poor performance and trading strategy of the various AJW Funds he managed" during the financial crisis. Ribotsky also allegedly "misappropriated client assets and misled investors about the decision to form the AJW Master...
SEC Litigation Releases: Week in Review - November 15th, 2013
(Nov 2013)
Court Orders Charles T. Lawrence to Comply with Commission Subpoena
November 13, 2013, (Litigation Release No. 22869)
This week, the Court ordered Charles T. Lawrence to "to comply with an investigative subpoena previously served on him and relating to his formerly registered investment adviser, Chasson Group." According to a previous litigation release, the SEC's application alleges that in April of this year, "the SEC issued a Formal Order Directing Private Investigation entitled In the...
Athlete-Backed Securities and Credit Risk
(Nov 2013)
The financial media has been abuzz about Fantex, a brokerage firm that is offering investments linked to the earnings of professional athletes. Their first offering was linked to 20% of the future earnings of Houston Texans running back Arian Foster, and the second was for a 10% interest in the future earnings of San Francisco 49ers tight end Vernon Davis.*At first, the plan was met with some skepticism (and some ridicule), which was only magnified when last Sunday both Foster and Davis...
Structured Product Fees and Credit Risk
(Nov 2013)
Kevin Dugan noted in the April edition of Bloomberg's Structured Notes Brief that "Citigroup collected the highest average fees in the first quarter [of 2013] among the 10 biggest underwriters of U.S. structured notes." This got us wondering, is there any relationship between the credit quality of the underwriter and the fees the underwriter collects? If investors truly understood credit risk, issuers with higher credit risk would presumably have to structure products with lower fees to...
SEC Litigation Releases: Week in Review - November 8th, 2013
(Nov 2013)
SEC Charges Royal Bank of Scotland Subsidiary with Misleading Investors in Subprime RMBS Offering
November 7, 2013, (Litigation Release No. 22866)
According to the complaint, RBS Securities Inc. (a subsidiary of the Royal Bank of Scotland plc) misled investors "in a 2007 subprime residential mortgage-backed security (RMBS) offering" by stating that the "loans backing the offering 'generally' met the lender's underwriting guidelines." According to the SEC, nearly 30 percent of the loans "fell...
SLCG Research: Structured Product Indexes
(Nov 2013)
Most research on structured products focuses on what is known as initial date mispricing -- the difference between what a product costs and how much it is worth, as of the issue date. If you look at any of our structured product reports (let's take this reverse convertible, for example), you can see that the product was issued at a price of $1,000, but that the present value of its resulting cashflows only comes out to $960.40. The difference, $39.60 or 3.96%, represents an expected loss to...
The Consequences and Implications of TIC Investments
(Nov 2013)
The research we have outlined all this week strongly suggests that TIC interests are exceptionally poor investments. We have focused our posts on what a thorough due diligence on the TICs should have revealed at the time of issuance. But you may be wondering, what happened to these TICs? What sort of returns did investors receive?
To our knowledge, there is no retrospective study of TIC returns. But in our experience, the vast majority of TIC properties suffered significant impairments during...
