Falcone the First To Admit Guilt Under New SEC Settlement Policy
(Aug 2013)
On Monday, Philip Falcone and Harbinger Capital Partners, LLC, the hedge fund he founded in 2001, agreed to a settlement with the Securities and Exchange Commission (SEC) that in addition to an $18 million penalty included an admission of wrongdoing.1 This is the first high-profile settlement with an admission of guilt since SEC Chairman Mary Jo White said the commission would seek more admissions of guilt rather than continue its longstanding policy of allowing defendants to 'neither admit...
Banks Water Down Loan Terms in Quest for Growth
(Aug 2013)
The Global Association of Risk Professionals (GARP) is reporting that banks are watering down terms of new loans under competitive pressure. For example, some banks are increasing the length of amortization from the usual 15 years to the 25 years, others are decreasing required debt-service coverage from 1.25 to as low as 1 times cash flow while still others are waiving cancellation/prepayment fees.
The relaxation of loan standards is not unique to the commercial loan industry. Recently,...
MSRB Proposes Rule on Muni Bond Markups
(Aug 2013)
Our colleagues' recent paper on municipal bond markups, which showed that retail investors were charged nearly $11 billion in markups from 2005-2013, has generated a lot of attention. In June we spent an entire week covering the background, methodology, findings, and implications of that paper, which we think has important implications for the municipal bond investors.
On Tuesday, the Municipal Securities Rulemaking Board (MSRB) proposed a new "fair-pricing" rulethat could help address the...
FINRA's Market Data Center
(Aug 2013)
FINRA has a number of useful web-based tools on their website. We mention their BrokerCheck tool quite often, as it allows investors to check on the professional background and disciplinary history of any particular broker or firm registered with the agency. Another very useful tool is their Market Data Center, which provides a wide variety of market data for free.
Perhaps the most useful aspect of the Market Data Center is the the TRACE (Trade Reporting and Compliance Engine) database. TRACE...
SEC Charges Indiana School District and Underwriter with Defrauding Investors
(Jul 2013)
Yesterday the Securities and Exchange Commission (SEC) announced thatWest Clark Community Schools -- and Indiana School District -- City Securities Corporation and Randy G. Ruhl have been charged with defrauding investors in connection with municipal bond offerings. The SEC order against the school district and against the underwriter can be found on the SEC website.
The action stems from the fact that the school district was contractually obligated to disclose financial information on an...
FINRA Focuses Investigation of High-Frequency Trading Firms
(Jul 2013)
In January, FINRA released their annual regulatory and examinations priorities for the upcoming year, in which they vowed to "focus significant resources" on, among other things, algorithmic trading and high-frequency trading (HFT) abuses. They have already levied a record fine against a brokerage firm for failing to supervise manipulative high-frequency trading, and their emphasis on HFT issues mirrors efforts by the SEC and CFTC to bring the HFT industry under better regulatory...
Persistence Scorecard: Even Harder to Stay on Top
(Jul 2013)
S&P Dow Jones Indices has recently updated their semiannual Persistence Scorecard, which studies the consistency of returns for actively managed US equity mutual funds. Like the previous Persistence Scorecard from December 2012, the updated study finds little evidence that actively-managed mutual funds can outperform stated benchmarks on a consistent basis.
In fact, the results are rather worse than in the previous study. The report highlights three factors:
- Percentage of funds in top quartile...
SEC Halts Texas-Based Forex Trading Scheme
(Jul 2013)
The SEC recently halted a foreign exchange ('forex') trading scheme run by Kevin G. White, an unregistered Plano, TX-based money manager.1 White raised $7.1 million of investor capital through KGW Capital Management and Revelation Forex Fund representing that Revelation had achieved returns of approaching 400% since January 2009.2
Investors should realize that such persistent outsized returns are extremely unlikely. Indeed, bank and brokerage records reveal that the Revelation Forex Fund did...
State Pension Funds Would Benefit from Passive Indexing
(Jul 2013)
The Maryland Public Policy Institute and the Maryland Tax Education Foundation released a report that uses data on state pension funds to question the value of active money management. The report finds that paying Wall Street managers to actively select and trade securities in state pension funds does not generate better investment returns, although it does provide higher fees and commissions for Wall Street managers. The results are in line with that of the S&P Indices Versus Active Funds...
SEC Investigating Early Release of Data to High Frequency Traders
(Jul 2013)
Every month at 10:00 AM Eastern time, Thomson Reuters publishes the Institute for Supply Management (ISM) manufacturing data on its website. The ISM data is a widely cited benchmark, and its announcement can move stock markets. On June 3, that data was disappointing, and the stock market fell in response to the news. But it fell 15 milliseconds before the data was released.
Likewise, every month at 10:00 AM Eastern the University of Michigan publishes its Consumer Sentiment Index data through...
