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...
SEC Charges Municipal Issuer with Misleading Investors
(Nov 2013)
Yesterday, the Securities and Exchange Commission (SEC) charged the Greater Wenatchee Regional Events Center Public Facilities District, a group of nine cities and counties in Washington state, with misleading investors in connection with a bond offering meant to finance the construction of an event center. According to the press release, this is "the first time that the SEC has assessed a financial penalty against a municipal issuer."
In 2008, the municipal issuer issued nearly $42 million...
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...
FINRA Investor Alert: Closed-End Fund Distributions
(Nov 2013)
The Financial Industry Regulatory Authority (FINRA) recently released an Investor Alert to draw investors attention to the subtle difference between distributions and returns in the context ofclosed-end funds. Closed-end funds are pooled investments like mutual funds (which are also known as 'open-end funds'), but have only a fixed number of shares. This distinction has a big impact on how the fund is analyzed.
Distributions from closed-end funds are typically quoted as a rate (e.g. 6%). This...
SEC Litigation Releases: Week in Review - November 1st, 2013
(Nov 2013)
SEC Obtains Summary Judgment Against Defendants Charged with Defrauding Investors in Fictitious Offering
October 30, 2013, (Litigation Release No. 22861)
A summary judgment was entered againstthe Estate of Frank L. Pavlico, Brynee K. Baylor, her law firm Baylor & Jackson, P.L.L.C., and their former "client" The Milan Group, Inc. for their involvement in "a prime bank investment scheme that defrauded at least 13 investors out of more than $2 million." According to the SEC, "Pavlico and Baylor...
SEC Litigation Releases: Week in Review - October 25th, 2013
(Oct 2013)
Jury Finds Mark Cuban Not Liable for Insider Trading
October 23, 2013, (Litigation Release No. 22855)
Last week, "a nine-person federal jury found Mark Cuban not liable for insider trading" in Mamma.com securities.
SEC Obtains Final Judgment Against New Jersey-Based Consultants to Chinese Reverse Merger Companies
October 23, 2013, (Litigation Release No. 22854)
A final judgment was entered against Huakang Zhou (a/k/a David Zhou) and Warner Technology and Investment Corporation for their alleged...
Brokerage Firm Fined for Misrepresentations Made to Former Broker
(Oct 2013)
When brokers sell unsuitable investments to their clients, it is often the case that those clients will sue the broker and the brokerage firm, a process known as 'broker-customer disputes.' What is less common is for brokers to sue the brokerage firm -- their own employer -- for encouraging them to sell risky investments that caused losses for their clients.
In a recent, closely-watched FINRA arbitration, Michael Farah of Newport Beach, California won approximately $4.3 million from his...
SEC Issues Proposal on Crowdfunding
(Oct 2013)
Yesterday, the Securities and Exchange Commission (SEC) issued proposed rules on crowdfunding to regulate the offer and sale of crowdfunding securities. The press release for the proposed rules can be found on the SEC website. These proposed regulations are meant to fulfill the SEC's requirements under Title III of the JOBS Act . We have previously discussed the JOBS Act crowdfunding provisions in the context of real estate investments, but the proposed rules cover all types of crowdfunded...
Just How Risky Are Leveraged and Inverse ETFs?
(Oct 2013)
Leveraged and inverse exchange-traded funds (ETFs) are some of the most volatile securities traded in public markets. They are designed to track a specific index, except multiplying daily return of the index by a positive (leveraged) or negative (inverse leveraged) factor. The 'daily' part is important: leveraged and inverse ETFs do not track the leveraged or inverse return of the index for any period longer than a single day due to portfolio rebalancing. You can find more details about...
Study on Expungements Reveals Gap in Investor Protection
(Oct 2013)
We often encourage investors to visit the Financial Industry Regulatory Authority's (FINRA) BrokerCheck system to check the record of their broker. The broker's record contains information about their qualifications, employment and complaint history. The completeness of the information contained within the complaint history has recently been called into question by the Public Investors Arbitration Bar Association (PIABA).
Last week, PIABA released a study of over 1,600 arbitration cases filed...
