TheCorporateCounsel.net

Recently, the Deloitte Forensic Center released a study about which executives most frequently get named in SEC enforcement actions during 2008. The results were a little surprising to me – the financial executives (ie. CFOs, chief accounting officers and controllers) collectively represented only 44% of the individuals named. In comparison, CEOs represented 24% and directors and general counsel were named 4% of the time. All in all, nearly one third of the individuals named were not CEOs or financial executives!

Speaking of studies, here is an interesting one regarding SEC enforcement against investment banks and brokerage houses – it suggests that the SEC favors defendants associated with big firms compared to defendants associated with smaller firms in three ways.

Trouble in California: Attorney General’s Lawsuit Against Placement Agents

Here is news from Keith Bishop of Allen Matkins:

Last week, the big news here in California was the Attorney General’s action against two individuals who allegedly made millions of dollars in placing private equity fund investments with CalPERS, as noted in this article. One of the defendants is the former CEO of CalPERS.

Interestingly, the complaint relies heavily on violations of California’s broker-dealer law (alleging unlicensed activity and securities fraud by a broker-dealer). This case is an example of potential problems under Blue Sky laws for unregistered or unlicensed “finders,” even when doing business exclusively with institutional-type clients.

A Rebuttal to “SEC’s Rating Agency Regulatory Scheme Heighten Risk of Insider Trading”

A while back, a member sent me the rebuttal below to Floyd Norris’ piece on the SEC’s rating agency proposals (which I included in this blog long ago):

Floyd Norris doesn’t know what he is talking about and is confusing Regulation FD and non-public information with insider trading. The rating agencies do not disclose the information they are provided; they use it in developing their ratings and then they (at least Moody’s, Fitch and S&P) publicly announce their rating (so again, no inside informational advantage to their customers). If the explanation of the rating is dependent on disclosure of non-public information (such as a merger), they will not issue their rating until the information is disclosed (so they get an advance peek to be able to get up to speed).

The problem that will result will be that in the absence of an understanding or even a contractual undertaking (and particularly if the Regulation FD exemption is repealed) from the rating agencies, the companies will not provide confidential information to rating agencies because they will no longer have any assurance as to non-disclosure when it goes to the Egan-Jones of the world, so the ratings will be less useful.

The bottom line is that it’s not right to present this as principally an insider trading issue, except in the case of the customer-paid example, where Egan-Jones does not publicly announce it’s ratings. Want a good example of a customer-paid model, look at RiskMetrics’ ISS – are people happy with their objectivity?

– Broc Romanek