FINREP

New Short-Selling Emergency Rules

2008-07-21T14:08:00.001-04:00

Just a few days ago, the SEC issued their new rules on short-selling, governing a list of (currently) nineteen financial firms. The rules can be found here, or here: http://www.sec.gov/rules/other/2008/34-58190.pdf

Wachovia Investigated Regarding Auction-Rate Securities

2008-07-18T12:11:00.002-04:00

Missouri. Securities regulators entered the St. Louis offices of Wachovia Securities, apparently to obtain information about a type of security that they sold, called "auction-rate" securities. As noted previously in this blog, they're a type of bond with a frequently resetting interest rate.

Although auction rate securities were thought by many to be liquid assets, the fact that they are bonds prevented them from always being sold at will. The market in them has tightened considerably of late, according to Wachovia: “While some liquidity is returning to parts of the (auction-rate securities) market, many securities are not immediately salable.”

Defending Auction Rate Securities Claims

2008-05-13T15:18:00.004-04:00

The WSJ had an article entitled Auction-Rates a Legal Tangle recently. There have been recent liquidity problems in the $330B or so market for this special type of security, and this might be leading to claims against firms in this market.

The securities were unusual in the sense that they were a means of raising money long term (actually a form of long-term bond) wherein the interest rate was reset periodically (weekly or monthly) using auctions (so the bonds acted more like short-term securities in that the interest rate could be reset or the security could be sold in the auction).

The article pointed out that the defense of claims made be made more difficult because Wall Street firms themselves often bid in the "auctions" when there were no other bidders.

Rating Agencies Involvement in Subprime Mess

2008-04-27T11:46:00.002-04:00

The NY Times' Magazine has an article detailing the hand that Moody's, Fitch, and S&P had in helping to create problems with subprime mortgages and their derivatives. You can read it here.

The New Paulson Plan...Stay Tuned

2008-03-30T16:14:00.003-04:00

Treasury Secretary Hank Paulson's new plan for financial regulations is an interesting one. The story is developing, but, according to BusinessWeek and Forbes, some of the highlights include merging the Office of Trift Supervision and the Commodities Futures Trading Commission into other bodies, create a national insurance regulator, and put the Federal Reserve in the primary role of market stability modulator or national risk regulator. The 22-page executive summary can be found here.

Possible Targets in Mortgage Lender Collapse: Accountants and Lawyers

2008-03-27T11:24:00.003-04:00

The court-appointed bankruptcy examiner's report on bankrupt mortgage lender New Century is now open. According to the WSJ's analysis, some fingers may be pointed at NC's auditors, KPMG, and their law firm, O'Melveny & Myers LLP. More on this here.

SEC Proposes New Privacy Rules

2008-03-12T16:20:00.002-04:00

Regulation S-P governs identity theft from securities customers. The SEC, several days ago, proposed a new set of rules to tighten requirements for securing customer data. They include security breach notification and an increased scope of protection for personal data. Here's law firm Goodwin Proctor's take on it.

Investment Advisors Targeted in Subprime Fall-out?

2008-03-12T16:15:00.002-04:00

Pamela Hans, an attorney at Anderson Kill & Olick, told Financial Week that institutional investment advisers might be targeted by corporate pension fund managers for lawsuits, resulting from their subprime exposures. This could come on the back of the current wave of suits already hitting those involved in the mortgage industry.

Broker-Dealers vs Investment Advisers

2008-02-22T18:18:00.003-05:00

The non-profit research group, the RAND Corporation, put out a technical report last month about the increasingly blurred line, particularly since the 1990s, between broker-dealers and investment advisers. The full study can be found here, while a much shorter summary is here.

Some highlights:

about half of the over 10,000 investment advisory firms in 2006 had fewer than 10 employees.
the number of brokerage firms declined about 10% to just over 5,000.
the number of firms on both lists was around 550.
over 72% of clients surveyed were "very satisfied" with the services they received from these firms, with the most desired qualities being trustworthiness, attentiveness, and accessibility.
over 45% of clients found their professional through a family or friend referral.
however, client confusion as to the difference between investment advisers and broker-dealers and what services they perform was commonplace.

SEC Looks Hard at "Free Lunch" Seminars by Firms Seeking Business

2008-02-18T18:10:00.000-05:00

The SEC is scrutinizing advertising seminars put on by firms seeking investors. Often targeting the elderly, these free-lunch seminars are being investigated as improper sales ploys. The SEC put out a whitepaper last year, discussing it's focus on this topic, which can be found here.

Moves Toward Regulating Death Bonds

2008-02-17T22:58:00.000-05:00

Washington is the 24th state to propose legislation regulating so-called "death bonds," which are pools of life insurance settlements packaged up as investments. The Seattle P-I raises the issues involved here.

Credit Default Swaps Markets May Face Challenge

2008-02-17T20:01:00.001-05:00

The NY Times had an article about the market for credit default swaps, noting that it's now twice the size of the entire U.S. stock market. That market is $45.5 trillion now, having grown from $900B in seven years, and it compares with a $21.9 trillion stock market. Credit default swaps are, in a nutshell, insurance policies against default by corporations on their debts. They are largely unregulated, and some analysts worry that if companies start defaulting on bonds due to a poor economy, the financial markets could be in for some big trouble. Worse yet, according to this article, the swaps are often sold, meaning it may be harder to locate the party who has to pay on the swap if it's called upon.

Mortgage Insurers Starting to Take a Hit

2008-02-17T13:45:00.002-05:00

According to the WSJ, the major mortgage insurers have started to post losses, as a result of increased mortgage forclosures. Industry leader MGIC Investment Corp. posted a $1.47B loss in the fourth quarter (on 4Q sales of $399m). Interestingly, the stock (NYSE:MTG) doesn't appear to have been punished as yet.

Negative Home Equity Rates Rise

2008-02-17T13:39:00.002-05:00

According to Zillow.com and reported in the WSJ, the threat of homeowners walking away from their mortgages has increased because of negative equity. Arguably, if people owe more on their mortgage than the property is worth, they have an incentive to let the house be foreclosed upon. For buyers of homes in 2006, a whopping 39% had negative equity in 2007. Just as bad, for the median 2006 buyer, he or she had only 5% equity, which is surprising since the median downpayment in 2006 had been 10% downpayment.

Investment Advisory Firms and CMOs

2008-02-16T10:12:00.000-05:00

The SEC has sued an investment advisory firm regarding statements made to clients over collateralized mortgage obligations (CMOs). The SEC is trying to take a firm to task over representations on the safety of these investments. Investors with the firm, Magnolia Capital Advisors, lost $6m according to the filing. [SEC v. Reinhard.]

Foley Lardner's Monthly Recap

2008-02-15T17:02:00.001-05:00

You can find lawfirm Foley & Lardner LLP's monthly newsletter recapping SEC actions here or here (in PDF form).

Primer on Credit Default Swaps

2008-02-15T15:09:00.000-05:00

We found this kind of primer on credit default swaps as an options market from Mike Jakola, a student at Kellogg School at Northwestern. It's from 2006, but deals with issues you're hearing about today.

Subprime Litigation Increasing

2008-02-14T10:42:00.000-05:00

Here's a WSJ blogpost about increasing litigation in the subprime area. Bottom line: 278 new federal suits were filed in 2007, with the pace doubling in the second quarter. And, "40% of the cases were filed by home-loan borrowers against lenders, mortgage brokers and many others, alleging discriminatory lending practices, improper charges or inadequate disclosures, among other issues." The source for the post info is here, from Navigant Consulting.

Welcome to FINREP!

2008-02-14T08:00:00.000-05:00

Welcome to the inaugural post of our blog. Watch this space for news items and interesting tidbits about professional liability insurance for those in the financial industry, including securities broker-dealers, investment advisors, registered representatives, and financial planners!