CompliancEX

SEC Looks into Corporate Twitter Use

Securities and Exchange Commission staff are "actively looking" at the question of whether corporate Twitter users may be required to give additional SEC disclosures, according to SEC Chairman Mary Schapiro.

Twitter has been a hit in the financial arena. Several popular services such as StockTwits have sprung up to track discussions around publicly traded securities and foreign currency exchanges. However, the SEC may be less concerned with these and more concerned with information tweeted by executives and employees that potentially conflicts with SEC regulations on corporate communications. For example, eBay's lawyers have required in-house blogger and tweeter Richard Brewer-Hay to include regulatory disclaimers with some of his posts.

Speaking Monday at the annual conference of the Society of American Business Editors and Writers in Denver, Schapiro said, "It is safe to assume that we favor greater and broader disclosure. But we haven't come to a resolution on each technology that exists."

Source: PC World

Avenue Capital's Lasry: Hedge Fund Regulation Inevitable

Hedge fund regulation is coming and it's not a matter of if, but when, said Marc Lasry, chief executive and co-founder of Avenue Capital Group. 

There is still the myth in the industry that over time the market will fix itself and "we will not get regulated," he said during a panel discussion at The Milken Institute Global Conference in Beverly Hills. 

Hedge funds have been fighting regulation for years, and as of now the industry is lightly regulated. As new and revised financial market regulation comes from Washington, it seems that will change. Included in Treasury Secretary Timothy Geithner's plan to regulate financial markets is increased oversight and regulations for hedge funds. 

General Partner at Boston Provident Orin Kramer said there are no versions in any regulatory rewrite bills from Washington that don't include regulating hedge funds. 

Lasry commented that his firm is "actually pushing for it [regulation] because we'd rather be in the middle of it saying how it should be regulated, then have it imposed on us." 

Lasry, who's firm does not use leverage, also noted that "leverage is no longer the sexy thing." Investors want managers to make money with the money they have as opposed to using leverage, he said. Lasry said he gets weekly phone calls from investors making sure the "fund is not levered and also making sure we can't get it." 

Fellow panelist Joseph Dear, Chief Investment Officer at California Public Employees' Retirement System (CalPERS) agreed that regulation "is absolutely coming." He was cautious that the industry not be over regulated, and "risk shouldn't be regulated out of the system." An important aspect of the pending new rules that needs to be sorted out is how leverage should be regulated, he said. 

Source: Easy Bourse

SEC Freezes Assets Of Connecticut-Based Hedge Fund

The Securities and Exchange Commission succeeded in convincing a federal judge to freeze the assets of a Connecticut-based money manager and his two hedge funds amid allegations he lied to investors to raise more than $30 million, the agency announced Monday.

The SEC's civil complaint, filed in a federal court in Austin, Tex., claims that on at least two occasions, Francesco Rusciano, 27, of Ponta Negra Group LLC forged brokerage account statements to make it appear that a hedge fund account had millions more dollars in assets than it had. Rusciano controls Ponta Negra Fund I and Ponta Negra Offshore I.

The SEC claims that on January 11, 2008, Rusciano represented that Ponta Netra Fund I had an account balance of more then $43 million, but its actual balance was less than $3 million. The SEC said he later misrepresented the account balance again in August of last year.

In addition, the SEC also charged Rusciano with misrepresenting the hedge fund's monthly and yearly performance as well as its annual returns.

According to the complaint, Rusciano previously worked at UBS Securities before forming the Ponta Negra Group, but was later forced to resign after he allegedly misreported certain Brazilian bond transactions and non-deliverable forwards. He now also faces charges by the Federal Reserve that he engaged in illegal trading and banking practices and schemed to defraud UBS by trying to conceal major losses, the complaint said. After starting up his own company, the SEC further claims he never disclosed the Fed's allegations against him or the reasons why he left UBS.

The hedge funds are based at Rusciano's home in Stamford, Conn., but the case was filed in Texas because it was brought to the SEC's attention by a Texas-based brokerage firm, according to an SEC enforcement official.

Rusciano did not have a counsel on record and did not have a listed phone number.

Source: The Wall Street Journal

Two Beverly Hills hedge funds shut over fraud claims

SEC alleges Bradley L. Ruderman scammed investors out of at least $38 million through his funds, Ruderman Capital Partners and Ruderman Capital Partners A. His assets have been temporarily frozen.

A pair of Beverly Hills hedge funds were shut down Wednesday by a federal judge based on claims that their operator scammed investors out of at least $38 million, using the cachet of famous names including Oracle Corp. Chief Executive Larry Ellison.

The Securities and Exchange Commission alleged that Bradley L. Ruderman raised the money for his funds, Ruderman Capital Partners and Ruderman Capital Partners A, by claiming returns as high as 60% through positions in well-known companies such as Apple Inc., Microsoft Corp. and Wal-Mart Stores Inc.

At least one investor was lured into the hedge funds by being falsely told Ellison and Lowell Milken, younger brother of former junk-bond king Michael Milken, were contributors to the funds, the commission said in a civil complaint filed against Ruderman in U.S. District Court in Los Angeles.

Judge Valerie Baker Fairbank on Wednesday temporarily froze the assets of Ruderman, his company, Ruderman Capital Management, and the hedge funds. The commission is seeking injunctions preventing Ruderman from continuing to operate his funds, repayment for investors and financial penalties against Ruderman and his funds.

Lawyers identified by the commission as representing Ruderman didn't respond to requests for comment Wednesday.

From 2002 to 2009, Ruderman found about 20 investors, telling them the two funds held more than $800 million in assets, the commission said. Instead, the hedge funds were losing millions of dollars a year, and as of March 31, the funds were valued at $387,000, the complaint said.

On Jan. 22, Ruderman made a $750,000 payment to a previous investor using funds from two new investors in a Ponzi-like transaction, the commission said. The two investors, the last two known to invest in the hedge funds, gave Ruderman $500,000 each Jan. 15. Without their $1-million investment, Ruderman wouldn't have been able to pay the previous investor, the complaint said.

Ruderman also issued quarterly account statements to investors stating false returns on investments at rates of 60% to 15% from 2002 to 2008, court documents said.

As recently as March 31, Ruderman asked his current hedge fund investors to help him find new investors, the commission said.

The scheme collapsed on April 15 when Ruderman's attorney sent investors a letter saying "there is currently very little value in the assets held by the [funds]," the suit said.

"As alleged in our complaint, Ruderman was willing to say or do anything to persuade investors to entrust their money to him, particularly when his scheme was unraveling," said Rosalind R. Tyson, director of the SEC's Los Angeles regional office. "Ruderman's fabricated account statements presented a rosy picture for investors who were cajoled into believing these hedge funds were well-capitalized and experiencing significant gains rather than major losses."

Source: The Los Angeles Times

SEC head says to review TARP company disclosures

The U.S. Securities and Exchange Commission plans to review the public disclosures made by financial companies that have received bailout money from the government, the agency's top official told Reuters.

SEC Chairman Mary Schapiro said the review into what companies participating in the $700 billion Troubled Asset Relief Program have revealed to investors would be part of a general assessment of disclosures by corporations.

"We will be looking obviously at corporate disclosure generally," Schapiro told the Reuters Global Financial Regulation Summit in Washington on Tuesday. "We will be looking particularly at TARP-recipient firms and the quality of their disclosures."

Shareholders have grown increasingly concerned over whether they are getting enough information from companies about aspects of the bailout.

Last week, New York Attorney General Andrew Cuomo said Bank of America Corp (BAC.N) Chief Executive Kenneth Lewis was pressured by senior government officials Henry Paulson and Federal Reserve Chairman Ben Bernanke in mid-December to keep quiet about losses at Merrill Lynch ahead of the closing of their merger on January 1.

Cuomo said Lewis testified he was asked to minimize disclosure and that Paulson, then the U.S. Treasury Secretary, wanted the Merrill acquisition to go through "to stem a financial disaster" in the markets. The testimony came as part of Cuomo's probe into the circumstances of $3.6 billion of bonuses to Merrill executives before the buyout went through.

Schapiro declined to comment when asked if the SEC was reviewing Bank of America's disclosures surrounding those discussions. The talks occurred before Schapiro took over as SEC chairman this year.

She said, however, that "there is nothing in TARP nor anywhere else that I know of that overrides corporations' duty under federal securities laws to disclose material to shareholders."

Securities law experts have been questioning whether there has been enough disclosure to investors about the "stress tests" undertaken by the government to study the health of 19 large U.S. banks. The government plans to release the results of the tests the week of May 4.

Schapiro said disclosure law did provide exceptions for certain types of bank examination findings but companies should not deprive shareholders of information that they have an obligation to disclose.

She said the latest stress test program "certainly has been promoted and talked about as a key component of the financial crisis rescue program and so I think it's different in terms of the expectations for what is coming out of the process."

Source: Reuters

EU hedge fund regulation proposal angers British financial sector

Leaders of Britain's financial sector call a European Commission proposal to regulate hedge funds a "blatant attack" on London's financial services industry.     The directive looks set to open a deep divide between the United Kingdom where more than 80 percent of the alternative investment industry is based and the rest of Europe.     The Daily Telegraph on Thursday reported that the directive is particularly tough on non-European fund operators because it stipulates that only funds held in Europe can be marketed in the European Union.     An estimated 90 percent of hedge funds are domiciled offshore while the industry is also dominated by American players.     "This is a blatant attack on the UK and U.S. financial systems by continental countries that neither have a tradition of alternative investments nor a proper understanding of them," said Antonio Borges, chairman of the Hedge Fund Standards Board. "With the European elections coming up this is clearly political."     In Europe, however, the directive was criticized for not going far enough. Poul Nyrup Rasmussen, a Danish MEP and president of the Party of European Socialists who led parliamentary pressure for the new rules, said the commission had come forward with a regulation that was "so light, it's flyweight."     "Private equity can pop the champagne today but they may not be celebrating for long as we will not accept such an ineffective regulation," he said.     The directive proposes imposing "demanding regulatory standards" on all managers with funds of more than 100 million euros.     The regulations will also extend to "all major sources of risks in the alternative investment value chain" including "key service providers ... depositories and administrators". The directive says they will be "subject to robust regulatory standards."     The proposed legislation still needs the backing of the European Parliament and member states, which is unlikely to happen before the middle of next year.

Source: China View

Frank: Congress to give SEC hedge fund authority

The chairman of the U.S. House of Representatives Financial Services Committee said Congress will give the Securities and Exchange Commission the authority it needs to require hedge funds to register with the agency.

"We will give them (SEC) explicitly that authority" to register hedge funds, Democratic Representative Barney Frank told the Reuters Global Financial Regulation Summit in Washington on Tuesday.

In 2006, a federal court rejected the SEC's efforts to oversee the loosely regulated $1.3 trillion hedge fund industry.

Source: Reuters

Fairfield Greenwich rejects fraud allegations

The largest "feeder fund" to Bernard Madoff's fraudulent investment scheme rejected on Wednesday allegations by Massachusetts regulators who say it misled investors in its knowledge of Madoff's business.

Connecticut-based Fairfield Greenwich Group, whose Sentry funds lost $7.2 billion to Madoff, said the fraud allegations were "so filled with errors and factual distortions as to completely misstate the conduct" of the firm.

The hedge fund manager called the Massachusetts lawsuit filed on April 1 by Massachusetts Secretary of State William Galvin "grossly unfair" and said its diligence and risk management practices were consistent with representations to Sentry's investors.

The Massachusetts lawsuit marked the first charges against one of Madoff's so-called "feeder funds" after Madoff pleaded guilty on March 12 to orchestrating Wall Street's biggest-ever investment fraud.

Sentry's offering memoranda made clear Madoff held substantially all of the funds' assets, and Galvin's civil complaint relied on theories of "guilt by association" and "fraud by hindsight", Fairfield said.

Galvin accused Fairfield of failing to question how Madoff generated strong and steady returns over decades even when the market was down. It seeks to have Fairfield return the fees investors paid and the money they invested, and pay an administrative fine.

Madoff, 71, a former chairman of the Nasdaq stock market, was arrested on Dec. 11 and pleaded guilty on March 12 to charges accusing him of perpetrating a fraud worth as much $65 billion over 20 years. He is in jail pending sentencing.

Fairfield said consistent returns and low volatility from Madoff were expected given his supposed trading strategy, known as a "split strike conversion", along with Madoff's other supposed strategies including investments in Treasury bills.

Galvin's complaint said Madoff coached Fairfield executives, who once managed about $14 billion, on how to respond to questions from the Securities and Exchange Commissions in 2005.

According to a transcript of a phone conversation between Madoff and two Fairfield executives, Madoff said: "Obviously, first of all, this conversation never took place."

Fairfield said allegations its executives took "instructions" from Madoff and "tailored" answers to the SEC were "demonstrably false."

A spokesman for Galvin was not available to comment.

In its response to Galvin, Fairfield said it had no reason to believe Madoff operated a Ponzi scheme, which uses money from new investors to pay distributions and redemptions to existing investors.

Madoff's broker-dealer operation, Bernard L. Madoff Investment Securities, honored more than $3 billion in redemption requests from its Sentry funds between 1990 and 2008, Fairfield said.

Source: Reuters

Regulatory commission for stock exchange opens

Finance officials say global economic crisis will not prevent country’s first stock exchange from launching by end of year even if listings are minimal

Photo by: Sovann Philong

Finance Minister Keat Chhon opens the Securities and Exchange Commission of Cambodia on Wednesday. The government says the stock exchange launch remains on schedule.

DESPITE the global financial crisis, Cambodia is still committed to launching a securities market by the end of this year, the finance minister said Wednesday at the official launch of the Securities and Exchange Commission of Cambodia. "The launch of the securities market in Cambodia is still on the schedule for 2009, but a suitable date will be determined by the government later," Keat Chhon said during the SECC launch Wednesday.  "We have eight months to launch the stock market. We will launch it, even if at the start only two companies list on it."  He said that only profitable companies that maintain high standards of accountability, transparency and corporate governance will be allowed to make public offers.  "There are tens of thousands of companies in Cambodia, but when we selected around 400 companies with accurate financial reports, there was an instant negative reaction because they worried they could no longer embezzle taxes," he said.  "That's why I always appreciate foreign investors because most of them maintain good governance."  We will launch it, even if at the start only two companies list. To encourage companies to join the stock market, Keat Chhon said that the government will consider tax incentives that will be provided for the issuing companies, investors and securities intermediaries.  This will in turn push companies towards better business practices, he added. Inpyo Lee, project director of the Korean Exchange, said Wednesday that the SECC launch was a step towards the stock market, but that Cambodia's stock market launch date could be changed depending on the global economic climate.  "It can be delayed ... but we will try our best to achieve it on schedule," he said.  In mid-February, at the Business Roundtable in Siem Reap, Prime Minister Hun Sen said that the absence of a stock exchange in Cambodia had helped the country escape the worst of the global economic crisis and that opening a stock market in this economic climate could be a mistake. "If it is born just to die, we shouldn't let it be established at this time," he said. Pung Kheav Se, president of Canadia Bank, said Wednesday that his bank was still deciding whether to list or not, but added that listing the company would be a good opportunity to build confidence among the public.  "We will discuss with our shareholders and board if we're to list on the upcoming market. Now our bank is sufficiently qualified for the stock market, in capital and profits, as well as in governance," he said.  Source: Phnom Penh Post

Share price manipulation

IT has taken the vigilance of the management of African Petroleum (AP) Plc to spot and blow the whistle on the finagling with the price of the company's shares on the Nigerian Stock Exchange. But by the time it raised the alarm through advertorials in the print media last month, the company's estimated 160,000 shareholders had lost about N240 billion in the value of their stocks. The manipulation of the share price occurred over an eight-week period this year through cross deals that were camouflaged as active trading but with the sinister motive of diluting the value of the stock. The AP share had been marked down at N273 from N300 during its public offer last year. The price was a bare N54 per share when the scam cross deals were exposed.

Amid the throes of the catastrophic losses of the Nigerian capital market in the past 13 months, the serious allegations of the manipulation of the share price of a well-heeled company like AP is bound to rattle tentative investors and put off altogether the already wearied losers in the impoverished market. Nevertheless, it is gratifying that the regulatory authorities, which were in a deep slumber while the share price manipulation lasted, have suddenly awoken to their responsibilities.

The Securities and Exchange Commission (SEC) has since announced a number of punitive measures. Nova Finance and Securities Limited, the firm that masterminded the illicit transactions, has been fined N190,000 and banned from operating in the capital market for one year. Similarly, the firm's managing director, Mr. Eugene Anenih, has been disqualified from being employed in any arm of the securities industry for the next five years.

On the other hand, Alhaji Aliko Dangote, the business mogul on whose behalf Nova Securities crossed the AP share deals, has been exonerated. This is because there was no evidence that Dangote gave explicit instructions to the stockbroking firm to trade in the manner it did. The Economic and Financial Crimes Commission (EFCC) has also waded in on the strength of the petition filed by Mr. Femi Otedola, chairman/chief executive officer of AP. The EFCC is currently interrogating the dramatis personae, namely, Dangote, Anenih, and Otedola. Even though he also petitioned the House of Representatives Committee on the Capital Market and allied institutions, Otedola has twice shunned the Committee's summons, provoking threats of a parliamentary warrant of arrest. Both Dangote and Anenih and others have appeared before the Committee.

What is gradually emerging in the pubic domain are matters often discussed in hushed tones by some operators in the capital market who take the investing public for a ride. There is no question whatsoever that share price manipulation goes against the grain of market forces in determining the true value of a stock. Without the correct, or appropriate information, investors are often misled into taking decisions that may result in huge losses. This saps confidence and results in the diversion of resources and investible funds into other areas with the attendant consequences on the financial health of quoted companies. This is why the rules of the capital market frown at share price manipulation.

Sections 105 and 106, read together with section 115 of the Investment and Securities Act 2007 prohibit and criminalise false trading and market rigging transactions as well as securities market manipulation. For instance, s.105(1) provides that "A person shall not create, or cause to be created, or do anything which may create a false or misleading appearance: (a) of active trading in any securities on a securities exchange or capital trade point or (b) with respect to the market for the price of any such securities". Furthermore, s.105(2)(b) stipulates that "A person shall not by any fictitious transactions or devices maintain, inflate, depress, or cause fluctuations in the market price of any securities".

Obviously, the custodians of the rules, the Nigerian Stock Exchange and SEC, were either absent-minded or plain lethargic while Nova Securities over a period of eight weeks was fiddling with the share price of AP. This is one more instance of the glaring inadequacies of both the Exchange and SEC. Since March last year when the Nigerian capital market fell into a coma, accusing fingers have been pointed at the operators of the Exchange and its SEC monitors for their failure to detect and promptly deal with the range of factors that eventually precipitated the crash.

In this regard, we commend the government for facilitating the removal of the Director-General of SEC, Mallam Musa Al-Faki, who has been forced on compulsory leave, preparatory to his exit at the end of his five-year tenure in October, this year, without renewal of same. The Acting Director-General, Ms Daisy Ekineh, must see the new developments as a wake-up call for the commission to realise its mandate.

Meanwhile, the allegation of the manipulation of share prices is one issue that must never suffer the usual Nigerian fate of abandonment. The on-going investigations must get to the root of the matter. At the weekend, an advertorial sponsored by the 'Committee for the Defence of Justice and Advancement' drew attention to the meteoric rise in the value of AP shares between the first week in October 2007 and the second week in December 2007. This significant climb in share value occurred on the eve of the company reaching out to the market through public offer and rights issue.

Fresh allegations have also been made against Mr. Femi Otedola for allegedly manipulating the share price of Chevron Oil directly and through surrogates. These are all shocking developments indeed.

As hinted by Anenih while appearing before the House Committee, there may be other instances of manipulation perpetrated by other players in the market. What is required, therefore, is full disclosure of such price rigging. This means that the investigations must not be restricted to AP shares but should cover other companies for which allegations have also surfaced. This will, of course, be accompanied by sanctions in deserving cases. And to achieve the objective of full disclosure, the investigating committee and other agencies must strive to reach beyond persons who have been named in the current saga. Where necessary, let the agencies call for confidential petitions and memoranda, so that the net can be cast wide enough to fish out the outlaws in the Nigerian capital market.

Inherent in the AP matter is an object lesson for other companies quoted on the Exchange. It took the alertness of AP's management to detect and raise alarm over the fiddling with its share price. Other companies, in the interest of their teeming shareholders, must equally be on their watchposts, to apprehend the sort of illegality that has cost AP shareholders quite a fortune.

Source: Guardian News, Nigeria