While much has been written lately about the supposed ill effects that the current securities regulatory scheme in the United States has on market competitiveness, that isn't stopping securities regulators from approximately 70 countries from descending on Washington DC next week to learn about securities regulation, US Style, according to this State Department press release.

The program, known as the International Institute for Securities Market Development, brings together senior securities regulators from emerging or recently emerged market economies for lectures, panels and workshops on the development, operation and regulation of securities markets.

Later in the year, participants will have an opportunity to attend the International Institute for Securities Enforcement and Market Oversight. That program focuses on "practical techniques for conducting investigations, market surveillance and auditor oversight."

According to Robert M. Fisher, assistant director in the SEC's Office of International Affairs, "in today’s global economy it is common that crucial evidence of securities crimes committed in the United States is found abroad. Foreign regulators “often request our help and we often request their help.” This cooperation has resulted in hundreds of successful transborder investigations, according to Fisher.

The release also notes that:

The United States does not try to impose its own regulatory solutions on other countries . . . However, foreign regulators might find aspects of the U.S. model useful and implement them in their jurisdictions.

Thus:

To the extent that regulators around the world are sharing ideas and approaches to various challenges with one another, there is more likely to be long-term convergence in regulation, and that tends to reduce cost for investors, issuers and everybody in the market,

according to Ethiopis Tafara, director of the SEC's Office of International Affairs.

According to the State Department's press release, in 2006 alone, the SEC provided training for more than 1,000 securities regulators from 107 countries. The SEC's website indicates that regulators from five continents have participated in these programs.

OK, so assuming we are using the traditional seven continent model we were taught in elementary school, we can safely assume that Antarctica is NOT on the list, but what other continent has skipped out on this global securities regulation love in?

Tuesday, February 13, 2007

A Gentle Rebuttal to Prof. Grudfest

Last week, in a widely-circulated and much discussed Wall Street Journal op-ed column entitled “The Class Action Market” (here, sub. req'd), former SEC Commissioner and current Stanford Law Professor Joseph Grundfest suggested that private securities class actions have lost their utility in policing the securities markets and compensating investors.

I respectfully disagree with Prof Grundfest.

And so, apparently do the Department of Justice and the Securities and Exchange Commission.

In a little noticed amicus brief filed last Friday by the DOJ and the SEC in the Tellabs, Inc. v. Makor Issues & Rights, Ltd. appeal before the U.S. Supreme Court, the federal regulators noted:

Meritorious private actions are an essential supplement to criminal prosecutions and civil enforcement actions brought, respectively, by DOJ and the SEC.

Prof. Grudfest also suggests that private securities litigation is "virtually useless as means of compensating investors for their losses."

Investors in AOL or Time Warner securities would also probably disagree with Prof. Grundfest.

The private securities class actions involving AOL Time Warner settled for $2.5 billion. Time Warner settled with the federal regulators for a small fraction of that amount - $150 million to the Department of Justice and $300 million to the United States Securities and Exchange Commission. While the combined $450 million in federal regulatory settlements is not chicken feed, it is only 18% of the amount recovered in the private class action.

And the AOL case represents two of the largest payments ever made by a corporate defendant to the federal government to settle securities fraud related allegations. In many private cases, there are no state or federal penalties or disgorgements to compensate investors. For example, in the Williams Securities Litigation:

1. The company had not restated their financial statements.
2. No governmental investigation had uncovered any fraud.
3. No employees of the corporate defendants had been fired
4. Defendants never acknowledged that any improper conduct had occurred.

Yet the private securities class litigation was able to recover a substantial sum for investors, settling in 2006 for $311 million.

Expect more chatter on Prof. Grundfest's proposal during the next few months.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Thursday, April 27, 2006

GAO Flags SEC Security Holes

As discussed in this Reuters article, the GAO announced last month that its audit of the SEC showed that the SEC had "failed to limit remote access to its servers, establish controls over passwords, securely configure all network devices, and adopt security monitoring procedures."  The article posits that "a successful hacker could use nonpublic information to make trouble for a targeted company or rival" and offers this "nightmare scenario:"

A hacker accesses e-mails in U.S. Securities and Exchange Commission computers and splashes them across the Internet, revealing an inquiry into a company that shakes investor confidence before the probe is complete.

Such an attack has never happened at the SEC, but computer experts say it could if the agency fails to tighten security.

"Splashing information" actually would be a fortunate and much less embarrassing outcome for the SEC compared to what greedier hackers might choose to do with such information.  For instance, what do you think the Estonian Spider Hackers would do with that information?  What would Plotkin and Pajcin do with it?  You guessed it.

In fact, "hacking into the SEC" was probably already on the Plotkin/Pajcin business plan, somewhere between stealing Business Week and hiring "exotic dancers" to extract information from investment bankers.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Thursday, January 12, 2006

High-Level SEC Vacancies Continue to Grow

Anyone want to work at the SEC?

The SEC announced yesterday that Alan Beller, Director of the Division of Corporate Finance since 2002, will leave the Commission to return to the private sector.  The SEC stated that Beller will remain at the Commission until February 2006 to assist with ongoing and transition matters.

Beller's departure means that as of next month, three of the SEC's four divisions will be without a permanent director.  As discussed here back on October 12, the divisions of Market Regulation and Investment Management have each had vacancies at the very top of their organizations for months.  Two months later, these positions remain vacant, as do all of the other SEC and PCAOB positions (head of PCAOB, District Administrators in various cities, etc.) noted in the earlier post.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, December 13, 2005

Fortune: In-Depth Article on SEC Chairman Cox

Fortune has an excellent, in-depth article on SEC Chairman Christopher Cox entitled The Stock Cop.  The article provides a detailed view of Chairman Cox and his life experiences, and includes the following description of a framed check that Cox keeps on the wall of his office at the SEC:

That's the message on the wall of his tenth-floor office in the SEC's sun-washed new Washington headquarters, where Cox has assembled a makeshift shrine.  It consists of a framed check made out to his grandfather alongside a plaque depicting the notorious Samuel Insull, whose empire of utility companies collapsed in 1929, taking with it the money of countless investors, including Cox's grandfather.  Insull's chicanery helped inspire the creation of the federal regulatory apparatus, including the SEC, that sprang up during the Depression.  But the lesson here isn't historical as much as it is personal.  Cox's grandfather lost $6,000—or $70,000 in today's dollars—and the check was intended to compensate for the loss. It's for $3.36.  Cox's message: Investors, I'm on your side.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Thursday, July 7, 2005

Donaldson's Farewell Remarks to SEC Staff

A transcript of SEC Chairman William Donaldson's farewell remarks to the SEC staff is available here (thank you to TheCorporateCounsel.net blog for the link).  It is a nice farewell address that contains some creative speechwriting, particularly in some of his opening remarks about the SEC's new headquarters at Station Place:

Most recently, we’ve moved from the concrete bunker we fondly know at Judiciary Plaza, into this gleaming, sun-filled structure. With this move, the people who spend their days preaching the virtues of transparency now get to experience life inside a large glass box. That gentle irony aside, I can’t think of a more appropriate location than Station Place for the Securities and Exchange Commission. Here, with a great train station on one flank and the Thurgood Marshall building on the other, we find ourselves physically nestled between a dynamic hub of commerce and the protections of our legal system. This is precisely the juncture where our founding statute placed us 71 years ago.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, May 24, 2005

SEC Hits Budget Crunch

As discussed in this article by the AP, the SEC has suddenly gone from a "flush with cash" situation where it couldn't even spend its entire budget to a serious budget crunch.  According to the article, unplanned cost overruns might total $50 million through fiscal 2007, and the SEC staff was told last week

"to put all nonessential travel, training and conferences on hold, effective immediately. Hiring for all but the most qualified candidates also is on the back burner."

The primary cause of this budget crunch appears to be real-estate cost overruns related to the SEC's move to a new Washington headquarters and its relocation of offices in Boston and New York.  Peter Derby, the SEC managing executive for operations, reportedly stated that higher-than-expected security and building costs for the new offices could run between $48 million and $50 million over the next two-and-a-half years.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Monday, February 28, 2005

Donaldson Puts Coveted Office on the High Shelf

SEC Chairman Donaldson is being credited with having the "wisdom of Solomon," for crafting an "elegant" and "practical" solution to an issue that had roiled the usually serene halls of the SEC: which commissioner other than himself will get the one office with a coveted view of the U.S. Capitol? 

His solution?  Bloomberg reports that no one will get the room with a view.  It will instead be turned into a conference room.

As discussed here previously, Commissioners Roel Campos and Cynthia Glassman both had been jockeying for the office:

Commissioners Roel Campos and Cynthia Glassman have made it clear they want the only office besides Donaldson's that overlooks the Capitol, according to people familiar with the matter. Commissioner Paul Atkins has said it's unfair for any one official to get a better office, the people familiar said. Commissioner Harvey Goldschmid, who is recovering from surgery, has mostly stayed out of the squabble.

Of the four commissioners, the three who lose will get offices looking over train tracks at Washington's Union Station in the new headquarters.

So maybe that was the wisdom of Solomon under the circumstances.  All I know is that I did the same thing with "the good basketball" that my 7 and 4 year olds were arguing over, putting it on the high shelf where no one could have it.  It worked for me, too.

Permalink | Comments (1) | TrackBacks (0) | Print Article

Back To Top

Tuesday, February 8, 2005

Without Wheels? Now That's Cold!

Business Week has this interesting interview with SEC Commissioner Paul Atkins, which has the added benefit of invoking one of my favorite SEC quotes, from former SEC Chairman Richard Breeden.  Breeden once famously stated that he wanted to leave people who engaged in insider trading "naked, homeless and without wheels." 

From the interview:

Q: Why have you opposed some fines for corporate wrongdoers?
A: [Former SEC Chairman] Richard Breeden used to say "I want to leave them naked, homeless, and without wheels," which I thought crystallizes very well the idea that we should show no quarter to people who intentionally, willfully lie, cheat, and steal. They should not be left with the fruit of their misdeeds.

But when we extract a penalty from a company for financial fraud, it affects shareholders and employees. If you're a shareholder who held shares through all that and are still holding the shares now, your shares are worth less, but now we're taking money from the company to give only pennies on the dollar back to you. That hurts the company's ability to grow and ultimately hurts shareholder value.

Are we just sort of headline-grabbing? Is that really the best way to deter bad conduct, by hurting the people that we're supposedly helping? No. The best solution is to hold individuals accountable because someone in the company cooked the books. We ought to hold individuals accountable, not shareholders

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, February 1, 2005

Office Space

In case you thought the SEC's top men and women might be immune to the bickering, jockeying and politics that accompany the dreaded "office move," well, just read this.  The issue?  Who among the four SEC commissioners will get the one office with a view of the U.S. Capitol (as opposed to train tracks at D.C.'s Union Station) when the agency moves to its new headquarters in March.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Saturday, January 1, 2005

The Streak Lives

Bill Miller, the manager of the Legg Mason Value Trust fund entered December 2004 with his incredible 13-year streak of outperforming the S&P 500 index in serious jeopardy. As this article from December 1, 2004 put it, Miller's record is the "mutual fund world's equivalent of Joe DiMaggio's 56-game hitting streak. Or the 74 consecutive victories for game show champ Ken Jennings."

After trailing the S&P 500 index virtually all year.  Miller's fund finally overtook it on Monday, December 27, 2004, and finished the year ahead once again (11.96% versus 10.98%).

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, June 1, 2004

SEC Seeking In-House Psychologist

Attention psychologists! You have just 9 more days to respond to the SEC's job posting seeking an in-house psychologist to help "improve employee attitudes and satisfaction related to employee retention, job satisfaction, burnout, conflict and stress."

The SEC's decision to hire a psychologist for its employees, discussed in this article by Judith Burns of the AP, was reportedly met with a steady stream of one-liners from former SEC officials, including:

Bill McLucas (former Director of the SEC's Division of Enforcement): "Just one? They should get a couple." McLucas also figured "it's going to take more than two years" to buck up morale at the federal securities agency. "This is a long-term job." McLucas also was quoted as saying said he'd like current Enforcement director Stephen Cutler to get the first appointment once the psychologist is on board so that "he can take out his hostilities with that person instead of my clients."

David Becker (former SEC General Counsel): "Working for the SEC in the current media climate is enough to drive anybody nuts." Becker also wondered if the SEC is "about to introduce the group hug as a regulatory technique."

Harvey Pitt (former SEC Chairman): "The SEC is a great place to work, but it is not for the faint of heart." Asked if the SEC is a very stressful place to work, he joked: "Certainly, if you're chairman."

Laura Unger (former acting SEC Chairman): Asked whether SEC employees would line up to talk to a psychologist, Unger said "I have this picture of Charlie Brown sitting at his window with a 'doctor is in' sign and nobody showing up."

Personally, I don't know what to make of this other than I predict that a lot of heated discussions with SEC staff are going to end with the following salvo by defense counsel: "I think you need to see the SEC shrink!"

Permalink | Comments (0) | TrackBacks (4) | Print Article

Back To Top

Wednesday, March 10, 2004

SEC Roundtable on Security Holder Director Nominations

The SEC's Roundtable discussion regarding proposed rules relating to security holder director nominations is being webcast live now and will run through 5:15 pm today. The SEC has made the webcast available at the following links:

Real Player: Click here

Windows Media: Click here

According to this SEC release,

The Roundtable will cover a number of topics, including (1) whether problems in the proxy process need to be addressed; (2) whether the proposed rules are a reasonable solution to those problems; (3) how the proposed rules would apply to companies and investors; (4) the impact of the proposed rules on retail and other investors; (5) federal and state law issues that may be raised by the proposed rules; and (6) how proxy voting mechanics might impact the proposed rules.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, March 2, 2004

Another "Shortest Ever" Contest

It must be blog "Sweeps Week" or something, as the "shortest ever" contests continue to roll in. First The 10b-5 Daily asked readers to identify the shortest class period ever for a securities class action. We're still waiting for our 10b-5 Daily tee-shirts to arrive in response to SLW's (winning?) submission--the one hour and 44 minute class period in the Corinthian College case.

Now the Mayor of Blog City, Broc Romanek, poses the following challenge to readers of Broc's Daily Blog--what is the shortest 8-K ever filed? Broc has opened the bidding with this 35-word 8-K filed by Global Crossing. I definitely will need to use a Lifeline on this one.

Permalink | Comments (0) | TrackBacks (1) | Print Article

Back To Top

Thursday, January 8, 2004

Does the SEC Have a Sense of Humor?

In September 2003, John Ruark of Acronym Soup pondered whether the SEC was a regulator with sense of humor after discovering that the SEC had posted in its "FAQ" section the following Q & A:

Question: Is the Andrew Carlssin case for real?

Your Answer: Many investors and other members of the public have asked us about news reports concerning the Andrew Carlssin, an alleged "time-traveler" who supposedly made a fortune in the stock market by trading in the year 2003 based on information gleaned from his travels to the future. The reports appear to be a hoax. The SEC has not, in fact, brought an enforcement action against any such person.

Shortly thereafter, I found what I believed was further, if only minor, support for the existence of an SEC sense of humor in this October 23, 2003 Litigation Release announcing the settlement of a case against Clifford G. Baird with the provocative, Matt Foley ("Van Down by the River")-inspired headline, "Commission Settles with Motivational Speaker."

Conclusive evidence was discovered today, however, in the SEC's January 6, 2004 Complaint filed in connection with the alleged financial fraud at now-defunct cheesemaker Suprema Specialties. Part of the Complaint concerned the alleged illegal "adulteration" of certain of Suprema's cheese products with various imitation cheese and other non-cheese ingredients in order to reduce Suprema's costs and boost sales. The word "adulteration" is used exclusively throughout the Complaint to describe this conduct....with the curious exception of paragraph 42, where the SEC mischievously elected to use different terminology:

III. The Adulteration of Suprema's Cheese Products

42. The third component of the fraudulent scheme involved the "cutting" or adulteration of Suprema's cheeses with inexpensive imitation cheese products, in order to reduce the company's costs and boost sales....

QED

Permalink | Comments (0) | TrackBacks (2) | Print Article

Back To Top

Tuesday, November 18, 2003

Life Imitates Art

In his testimony before the Senate Committee on Banking, Housing and Urban Affairs today, SEC Chairman Donaldson stated that the SEC is moving beyond just reacting to fraudulent or illegal activity, and will be implementing a program designed to anticipate such conduct and "head off major problems before they occur."

The following conversation may or may not have occurred in the days leading up to his testimony:

SEC Staff: Chairman, we can't do this.

Chairman: We can do it. Steven said it was OK.

SEC Staff: Steven?

Chairman: Spielberg.

SEC Staff: No, that's not what I mean. My point is that we can't restore investor confidence simply by announcing that we're forming a "Pre-Crime Unit" to stop fraud before it happens! Who's going to buy that?! Chairman, trust me. Please. Everyone has seen Minority Report already. It's in Blockbuster.

Chairman: Nobody saw that movie--and you know none of those Senators saw it. It'll work.

SEC Staff: (hands to face, rubbing bleary eyes) It won't work. If we show up Tuesday talking about a Pre-Crime Unit and how we're going to staff it with "Pre-Cogs," they're going to run us out of the Capital building!

Chairman: Look, we're doing it. This train has left the station.

SEC Staff: Can we at least change the name to something government-sounding?

Chairman: Fine. We'll call it the Office of Risk Assessment and we'll just call the Pre-Cogs "directors" or something. Happy now?

SEC Staff: Perfect.

Permalink | Comments (0) | TrackBacks (1) | Print Article

Back To Top

Monday, November 17, 2003

Rebuttal to the "New Attorney Gatekeeper" Notion

In Friday's post concerning the "New Attorney Gatekeeper" proposed by Professor John Coffee of Columbia Law School, I solicited reactions from corporate lawyers to this proposal. Mike O'Sullivan of the Corp Law Blog has stepped up to the plate with this thoughtful response.

Permalink | Comments (0) | TrackBacks (1) | Print Article

Back To Top

Friday, November 14, 2003

The New Attorney Gatekeeper?

Back from the Institutional Investor Forum in New York City, which was quite good. Among the highlights was a somewhat startling suggestion by Professor John C. Coffee, Jr., of Columbia Law School, who spoke about the breakdown of "gatekeepers" such as auditors as deterrents to securities fraud. Prof. Coffee proposed that public companies should be required to "nominate" an attorney to review their MD&A disclosures who would certify, after conducting reasonable due diligence, that he or she was not aware of any false statement contained in the MD&A.

Prof. Coffee seemed to envision this role as something comparable to the independent public accountant role, where the attorney would be an outside lawyer who was not the company's regular corporate counsel. He suggested further that such lawyers should be subject to the same scrutiny as accountants under Rule 102(e), i.e., subject to discipline for "improper professional conduct" in the event of either of the following:

(1) a single instance of highly unreasonable conduct that results in a violation of applicable professional standards in circumstances in which an accountant knows, or should know, that heightened scrutiny is warranted.

(2) repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards, that indicate a lack of competence to practice before the Commission.

The Forum's audience of predominately pension fund executives and plaintiffs' counsel did not challenge Prof. Coffee on this proposal, but I look forward to hearing the reactions of corporate lawyers to this idea. My sense is that corporate lawyers will not be eagerly lining up for this role....

Permalink | Comments (0) | TrackBacks (1) | Print Article

Back To Top

Monday, November 3, 2003

SEC Hires Headhunters

According to this article in the Washington Post, the SEC has now turned to headhunter Korn/Ferry in an effort to fill 110 accountant positions in its Division of Corporate Finance. As discussed here previously, the SEC has had a surprisingly difficult time filling over 800 positions made possible by an increased budget.

In case you're interested, Korn/Ferry's job posting promises applicants that taking the accountant position at the SEC will help them "Escape the Rat Race." (Scroll down to Oct. 31, 2003 listing).

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top