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New York (HedgeCo.Net) – SEC Chairman Christopher Cox has launched a probe into his own agency after it surfaced that complaints made to employees regarding the possible misconduct of Bernard Madoff were never investigated.
Saying that specific allegations had been made to certain members of the SEC staff since at least 1999, Cox expressed his disdain that nobody had apparently followed up with the complaints of what eventually became a $50 billion Ponzi scheme.
“I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them,” Cox said.
The probe will be headed by Inspector General H. David Kotz and will look into the SEC’s internal policies and focus on areas of improvement, in addition to delving into the agency’s personal contacts with members of the Madoff family and business.
Cox also said that any agency staff members who had close personal contacts with Mr. Madoff will not participate in the SEC’s investigation of his company.
Cox confirmed in his statement what officials said last week following the arrest of Madoff; that he kept false books and other documentation to cover up his scheme to investors.
Madoff used new capital coming into his firm to pay returns to existing clients. He was arrested last week after confessing to his sons that his company, Bernard L. Madoff Investment Securities, was a “one big lie,” and a “giant Ponzi scheme," duping many large and reputable hedge funds and financial institutions.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
CFO.com – At 12:01 a.m. this morning, the Securities and Exchange Commission pushed out a new "emergency" disclosure rule that requires hedge funds and other large investors to disclose their short positions. The mandate is one of three new SEC investor protection rules that went into effect early this morning in response to widespread drops in stock prices in the wake of a liquidity crisis exacerbated by this week’s Lehman Brothers bankruptcy and sale of Merrill Lynch.
In a joint statement, SEC chairman Christopher Cox and SEC Enforcement Division director Linda Chatman Thomsen said that the rule, which is designed "to ensure transparency in short selling," will affect funds with more than $100 million invested in securities. Those fund managers, who are currently reporting their long positions, will now be required to "promptly begin public reporting of their daily short positions."
West Palm Beach (HedgeCo.net) – While coordinating with overseas regulators to protect Lehman’s customers and maintain orderly markets, the SEC staff who have been on-site at the U.S. broker-dealer will remain in place to oversee the orderly transfer of customer assets to one or more SIPC-insured brokerage firms.
In cases such as this, the SEC says, Lehman Brothers’ customers will benefit from their extensive protections under SEC rules, including segregation of customer securities and cash as well as insurance by the Securities Investor Protection Corporation. These safeguards are designed to ensure that a broker-dealer’s customers will be protected.
"For several days, we have worked closely with regulators around the world including the FSA in the United Kingdom, the BaFin in Germany, and the FSA in Japan, as well as our counterparts in other markets around the world, to coordinate our actions in the interest of orderly markets," said SEC Chairman Christopher Cox. "In doing so we have also worked closely with the Treasury and the Federal Reserve and market participants. We are committed to using our regulatory and supervisory authorities to reduce the potential for dislocations from Lehman’s unwinding, and to maintain the smooth functioning of the financial markets."
In the meantime, Lehman Brothers Holdings Inc. will continue to operate while the bankruptcy process facilitates the reconciliation of claims and the realization of value from its assets in an orderly fashion, according to the SEC.
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Washington Post – When the Securities and Exchange Commission issued an emergency order last month protecting the stocks of the country’s largest financial institutions against a form of short selling, three businessmen saw an opportunity.
Harvey Pitt, SEC chairman from 2001 to 2003 and chief executive of District-based global consulting firm Kalorama Partners, teamed up with John Tabacco, chief executive of LocateStock.com, and Tom Ronk, the chief executive of Buyins.net, to launch RegSHO.com.
The D.C. company operates a Web-based, real-time electronic stock lending and location service that provides tools to help sellers and brokerage firms comply with SEC rules governing naked short selling — the practice the agency sought to prevent — and regular short sales of stocks. The Web site matches traders with available stocks that can be borrowed for short sales and offers immediate data on the short-sell market. It is named after the SEC’s order regulating such trades, Regulation SHO.
Wall Street Journal- Wall Street executives expect the Securities and Exchange Commission to extend the temporary limits it has placed on short-selling and expand them to cover additional stocks beyond the 19 financial companies it targeted two weeks ago.
The limits are set to expire Tuesday, and executives, lobbyists and hedge-fund representatives of the Managed Funds Association, the biggest hedge-fund industry group, have been talking throughout the weekend, trying to come up with possible approaches to asking the SEC to reconsider expanding the rules, according to people familiar with the talks.
A call with regulators on Friday gave the funds group "a fair degree of certainty" that the SEC intends to seek an extension of the emergency period, these people said. Regulators said an extension could be for as short as 60 days and could involve insurance, housing-industry and a broader range of financial stocks, according to these people. SEC Chairman Christopher Cox indicated last week the rules might be extended to all stocks.
West Palm Beach (HedgeCo.Net)- The Managed Funds Association (MFA) and the Coalition of Private Investment Companies (CPIC) called on SEC Chairman Christopher Cox in a letter to not extend the emergency order on short selling beyond the announced expiration date.
"While we recognize that the financial sector is undergoing an extraordinarily difficult period," Richard H. Baker, MFA President and CEO, said, "we believe that these difficulties are the result of poor fundamental conditions and not a mysterious conspiracy or, more to the point, the inadequacy of current rules related to short selling."
"Such action would severely burden short selling activity, which the SEC itself repeatedly has acknowledged plays a vital role in the stability of securities markets." James S. Chanos, CPIC Chairman said, "Restrictions on short sales distort the fundamentals that drive market prices and are, in the long run, counter-productive because they remove liquidity and healthy skepticism from the marketplace."
The current expiration date is 11:59 pm on July 29, 2008.
CPIC is a coalition of private investment companies whose members and associates are diverse in both size and investment strategies managing or advising an aggregate of over $100 billion in assets.
MFA members represent the majority of the largest hedge fund groups in the world who manage a substantial portion of the approximately $2 trillion invested in absolute return strategies. MFA is headquartered in Washington, DC, with an office in New York.
Los Angeles Times- Wall Street regulators are examining whether securities firms adequately police rumor-mongering used to manipulate stocks after shares of Lehman Bros. Holdings Inc., Fannie Mae and Freddie Mac tumbled last week.
The Securities and Exchange Commission’s inspections unit; the Financial Industry Regulatory Authority, which monitors brokerages; and the New York Stock Exchange’s regulatory arm are checking whether firms have controls in place to prevent the intentional spread of misinformation, the SEC said Sunday. The agencies also will look at whether employees have been adequately trained.
"The examinations we are undertaking with FINRA and NYSE Regulation are aimed at ensuring that investors continue to get reliable, accurate information about public companies," SEC Chairman Christopher Cox said.
Regulators already are hunting for traders who may have sought to profit illegally from the credit crisis by falsely stoking panics about the stability of such companies as Bear Stearns Cos., which collapsed in March amid speculation that clients were pulling out their business.
Washington, D.C., Jan. 3, 2008 – The Securities and Exchange Commission has received and posted on its Web site the text of the RAND Corporation’s final report on practices in the investment adviser and broker-dealer industries. The Commission has been anxious to receive RAND’s study of the investment adviser and broker-dealer industries, and the nature of their relationships with customers. The report will assist the Commission’s efforts to update our regulations to improve investor protections in today’s new marketplace," said SEC Chairman Christopher Cox. Our staff is now studying the report and the potential regulatory implications of its findings. RAND produced the report under contract with the Securities and Exchange Commission (http://www.sec.gov/news/press/2006/2006-162.htm). The report is the product of more than a year of empirical study and analysis. Following a March 2007 Court of Appeals decision that overturned a 2005 SEC rule permitting non-adviser broker-dealers to charge fees to investors based on account size, the SEC and RAND agreed that RAND would deliver its final, peer-reviewed report in pre-publication format on Dec. 31, 2007, three months earlier than the contract had originally required. The text of the posted report is final and has been peer-reviewed. Neither the data nor the analysis on which it is based will change.
