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New From the GAO

April 17, 2014 Comments off

New GAO Report
Source: Government Accountability Office

Information Security: SEC Needs to Improve Controls over Financial Systems and Data. GAO-14-419, April 17.
http://www.gao.gov/products/GAO-14-419
Highlights - http://www.gao.gov/assets/670/662614.pdf

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SEC — Staff Analysis of Data and Academic Literature Related to Money Market Fund Reform

March 25, 2014 Comments off

Staff Analysis of Data and Academic Literature Related to Money Market Fund Reform
Source: U.S. Securities and Exchange Commission

The staff of the Securities and Exchange Commission today made available certain analyses of data and academic literature related to money market fund reform.
The analyses, which were conducted by the staff of the SEC’s Division of Economic and Risk Analysis, are available for review and comment on the Commission’s website as part of the comment file for rule amendments proposed by the SEC in June 2013 regarding money market fund reform.

The analyses examine:

  • The spread between same-day buy and sell transaction prices for certain corporate bonds from Jan. 2, 2008 to Jan. 31, 2009.
  • The extent of government money market fund exposure to non-government securities.
  • Academic literature reviewing recent evidence on the availability of “safe assets” in the U.S. and global economies.
  • The extent various types of money market funds are holding in their portfolios guarantees and demand features from a single institution.

SEC — Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio

March 14, 2014 Comments off

Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio (PDF)
Source: U.S. Security and Exchange Commission

As with anything you buy, there are fees and costs associated with investment products and services.

These fees may seem small, but over time they can have a major impact on your investment portfolio. The following chart shows an investment portfolio with a 4% annual return over 20 years when the investment either has an ongoing fee of 0.25%, 0.50% or 1%. Notice how the fees affect the investment portfolio over 20 years.

SEC — Investor Bulletin: Variable Annuities—An Introduction

March 10, 2014 Comments off

Investor Bulletin: Variable Annuities—An Introduction (PDF)
Source: U.S. Securities and Exchange Commission

A variable annuity is an investment product with insurance features. It allows you to select from a menu of investment choices, typically mutual funds, within the variable annuity and, at a later date—such as retirement—allows you to receive a stream of payments over time. The value of your variable annuity will depend on how your investment choices perform.

See also: Variable Annuities: What You Should Know

SEC Comment Letters — Including Industry Insights: Constructing Clear Disclosures

December 9, 2013 Comments off

SEC Comment Letters — Including Industry Insights: Constructing Clear Disclosures
Source: Deloitte

This new release in the Deloitte (United States) SEC Comment Letter series includes extracts of frequently issued SEC staff comments, additional analysis, and links to resources that are relevant to SEC filers. The seventh edition features:

  • New and updated analysis of comments related to MD&A, risk factors, and financial statement accounting and disclosures, including:
  • Quantification and analysis of factors causing changes in registrants’ results of operations.
  • Liquidity risks and restrictions on a registrant’s ability to transfer cash or pay dividends.
  • Cybersecurity risks, disclosures pertaining to sponsors of state terrorism, and non-GAAP financial measures.
  • Disclosures related to unobservable inputs in Level 3 fair value measurements.
  • Revenue recognition disclosures, including those about multiple-element arrangements.
  • Segment reporting, particularly if operating segments are aggregated.

Added coverage of comment trends regarding emerging growth companies and initial public offerings.

Expanded discussions of industries covered in the sixth edition, including retail; travel, hospitality, and leisure; energy and resources; financial services; health sciences; technology; and telecommunications.

Appendixes offering insights into current standard setting, the SEC staff’s review and comment letter process, best practices for managing and resolving SEC comment letters, and helpful tips on searching the SEC’s comment letter database.

Crowdsourcing Peer Firms: Evidence from EDGAR Search Traffic

October 3, 2013 Comments off

Crowdsourcing Peer Firms: Evidence from EDGAR Search Traffic
Source: Social Science Research Network

Using Internet traffic patterns from the Securities and Exchange Commission Electronic Data-Gathering, Analysis, and Retrieval (EDGAR) website, we show that firms appearing in chronologically adjacent searches by the same individual are fundamentally similar on multiple dimensions. In fact, traffic-based peer firms identified by our algorithm significantly outperform peer firms based on six-digit Global Industry Classification Standard (GICS) groupings in explaining cross-sectional variations in base firms’ stock returns, valuation multiples, forecasted and realized growth rates, research and development expenditures, and various other key financial ratios. Our results highlight the usefulness of EDGAR data, as well as the latent intelligence in search traffic patterns.

Form S-1 REGISTRATION STATEMENT – WINKLEVOSS BITCOIN TRUST

July 3, 2013 Comments off

Form S-1 REGISTRATION STATEMENT – WINKLEVOSS BITCOIN TRUST (PDF)
Source: U.S. Securities and Exchange Commission

Risk Factors Related to the Bitcoin Network and Bitcoins
The loss or destruction of a private key required to access a Bitcoin may be irreversible. The Trust’s loss of access to its private keys or its experience of a data loss relating to the Trust’s Bitcoins could adversely affect an investment in the Shares.

Bitcoins are controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which the Bitcoins are held, which wallet’s public key or address is reflected in the Bitcoin Network’s public Blockchain. The Trust publishes the public key relating to digital wallets in use by the Trust when it verifies the receipt of Bitcoin transfers and disseminates such information into the Bitcoin Network, but is required to safeguard the private keys relating to such digital wallets using the Security System. To the extent such private keys are lost, destroyed or otherwise compromised, the Trust will be unable to access the related Bitcoins and such private keys will not be capable of being restored by the Bitcoin Network. Any loss of private keys relating to digital wallets used to store the Trust’s Bitcoins could adversely affect an investment in the Shares.

The further development and acceptance of the Bitcoin Network and other Digital Math-Based Asset systems, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of the Bitcoin Network may adversely affect an investment in the Shares.

Digital Math-Based Assets such as Bitcoins may be used, among other things, to buy and sell goods and services are a new and rapidly evolving industry of which the Bitcoin Network is a prominent, but not unique, part. The growth of the Digital Math-Based Assets industry in general, and the Bitcoin Network in particular, is subject to a high degree of uncertainty. The factors affecting the further development of the Digital Math-Based Assets industry, as well as the Bitcoin Network, include:

  • Continued worldwide growth in the adoption and use of Bitcoins and other Digital Math-Based Assets;
  • Government and quasi-government regulation of Bitcoins and other Digital Math-Based Assets and their use , or restrictions on or regulation of access to and operation of the Bitcoin Network or similar Digital Math-Based Asset systems;
  • Changes in consumer demographics and public tastes and preferences;
  • The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; and
  • General economic conditions and the regulatory environment relating to Digital Math-Based Assets.

The Trust is not actively managed and will not have any strategy relating to the development of the Bitcoin Network. Furthermore, the Sponsor cannot be certain as to the impact of the creation of the Trust and the expansion of its Bitcoin holdings on the Digital Math-Based Assets industry and the Bitcoin Network. A decline in the popularity or acceptance of the Bitcoin Network would harm the price of the Shares.

New From the GAO

April 18, 2013 Comments off

New GAO Reports
Source: Government Accountability Office

1. Securities And Exchange Commission: Continued Management Attention Would Strengthen Internal Supervisory Controls. GAO-13-314, April 18.
http://www.gao.gov/products/GAO-13-314
Highlights - http://www.gao.gov/assets/660/653956.pdf

2. Defense Infrastructure: Improved Guidance Needed for Estimating Alternatively Financed Project Liabilities. GAO-13-337, April 18.
http://www.gao.gov/products/GAO-13-337
Highlights - http://www.gao.gov/assets/660/653911.pdf

3. 911 Services: Most States Used 911 Funds for Intended Purposes, but FCC Could Improve Its Reporting on States’ Use of Funds. GAO-13-376, April 18.
http://www.gao.gov/products/GAO-13-376
Highlights - http://www.gao.gov/assets/660/653930.pdf

4. Satellite Control: Long-Term Planning and Adoption of Commercial Practices Could Improve DOD’s Operation. GAO-13-315, April 18.
http://www.gao.gov/products/GAO-13-315
Highlights - http://www.gao.gov/assets/660/654010.pdf

5. Workplace Safety and Health: OSHA Can Better Respond to State-Run Programs Facing Challenges. GAO-13-320, April 16.
http://www.gao.gov/products/GAO-13-320
Highlights - http://www.gao.gov/assets/660/653800.pdf

6. Status of Funding, Equipment, and Training for the Caribbean Basin Security Initiative. GAO-13-367R, March 20.
http://www.gao.gov/products/GAO-13-367R

New From the GAO

April 5, 2013 Comments off

SEC Says Social Media OK for Company Announcements if Investors Are Alerted

April 3, 2013 Comments off

SEC Says Social Media OK for Company Announcements if Investors Are Alerted
Source: Securities and Exchange Commission

The Securities and Exchange Commission today issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.

The SEC’s report of investigation confirms that Regulation FD applies to social media and other emerging means of communication used by public companies the same way it applies to company websites. The SEC issued guidance in 2008 clarifying that websites can serve as an effective means for disseminating information to investors if they’ve been made aware that’s where to look for it. Today’s report clarifies that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD analysis.

SEC and Justice Department Release FCPA Guide

November 14, 2012 Comments off

SEC and Justice Department Release FCPA Guide
Source: U.S. Securities and Exchange Commission, U.S. Department of Justice

The Securities and Exchange Commission and the Department of Justice today released A Resource Guide to the U.S. Foreign Corrupt Practices Act. The 120-page guide provides a detailed analysis of the U.S. Foreign Corrupt Practices Act (FCPA) and closely examines the SEC and DOJ approach to FCPA enforcement.

The guide provides helpful information to enterprises of all sizes from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world. The guide addresses a wide variety of topics including who and what is covered by the FCPA’s anti-bribery and accounting provisions; the definition of a “foreign official”; what constitute proper and improper gifts, travel, and entertainment expenses; facilitating payments; how successor liability applies in the mergers and acquisitions context; the hallmarks of an effective corporate compliance program; and the different types of civil and criminal resolutions available in the FCPA context. On these and other topics, the guide takes a multi-faceted approach toward setting forth the statute’s requirements and providing insights into SEC and DOJ enforcement practices. It uses hypotheticals, examples of enforcement actions and matters that the SEC and DOJ have declined to pursue, and summaries of applicable case law and DOJ opinion releases.

Hat tip: GDP

Federal Reserve Board releases action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing

March 3, 2012 Comments off

Federal Reserve Board releases action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing
Source: Federal Reserve Board

The Federal Reserve Board on Monday released action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing. It also released engagement letters between supervised financial institutions and independent consultants retained by the firms to review foreclosures that were in process in 2009 and 2010.

The action plans are required by formal enforcement actions issued by the Federal Reserve last year. The enforcement actions direct mortgage loan servicers regulated by the Federal Reserve to submit acceptable plans that describe, among other things, how the institutions will strengthen communications with borrowers by providing each borrower the name of a primary point of contact at the servicer; establish limits on foreclosures where loan modifications have been approved; establish robust, third-party vendor controls; and strengthen compliance programs.

The Federal Reserve enforcement actions also require the parent holding companies of mortgage servicers to submit acceptable plans that describe, among other things, how the companies will improve oversight of servicing and foreclosure processing conducted by bank and nonbank subsidiaries.

The enforcement actions further require the mortgage servicing subsidiaries to provide appropriate remediation to borrowers who suffered financial injury as a result of errors by the servicers. The engagement letters describe the procedures that will be followed by the independent consultants in reviewing servicers’ foreclosure files to determine whether borrowers suffered financial injury as a result of servicer error.

+ Action plans and engagement letters

Investor Bulletin: Social Media and Investing – Understanding Your Accounts

February 13, 2012 Comments off
Source:  U.S. Securities and Exchange Commission
The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to provide investors with tips they should consider when establishing an account on a social media website. Investors’ use of Facebook,Twitter and other social media websites as an investing tool has increased substantially in recent years. Investors who use social media websites for investing should be mindful of the various features on these websites in order to protect their privacy and help avoid fraud.

SEC OIG — Allegations of Enforcement Staff Misconduct in Insider Trading Investigation (8/22/11)

November 1, 2011 Comments off

Allegations of Enforcement Staff Misconduct in Insider Trading Investigation (PDF)
Source: U.S Securities and Exchange Commission, Office of Inspector General

On January 30, 2009, complainant Mark Cuban, through his counsel at the law firm Dewey & LeBoeuf, filed a compliant with the Securities and Exchange Commission (“SEC” or “Commission”) Office of Inspector General (“OIG), outlining various allegations of misconduct by the SEC Division of Enforcement (“Enforcement”) staff. Mr. Cuban, a well-known entrepreneur and owner of the Dallas Mavericks basketball team, alleged Enforcement staff engaged in misconduct in the course of its investigation of Mr. Cuban for insider trading the connection with the sale of all of his Mamma.com stock before the company publicly announced a private investment in public equity (“PIPE”) transaction in 2004. Generally, Mr. Cuban alleged that: (1) the Enforcement staff violated SEC policy when they notified Mr. Cuban that they intended to recommend insider trading charges against him before the investigation was substantially complete; (2) Enforcement staff showed a bias and predetermined agenda against Mr. Cuban and the investigation appeared to have been motivated by political bias because an SEC Fort Worth Regional Office (“FWRO”) Enforcement staff “used the clopsure of [an earlier] investigation to attempt to induce Mamma.com’s executives to cooperate with the staff and perhaps even to depart from the testimony they previously had provided” to Mr. Cuban’s counsel during their own investigation of the matter; and (4) a senior Enforcement official failed to properly report the misconduct of the FWRO Enforcement attorney who was e-mailing Mr. Cuban from his SEC e-mail account during the ongoing investigation into Mr. Cuban’s trading.

In all, the OIG concluded that there was insufficient evidence to substantiate Mr. Cuban’s claims that the SEC Enforcement staff engaged in misconduct in conducting their investigation into Mr. Cuban’s sale of his Mamma.com stock shares. Specifically, the OIG investigation found that there was insufficient evidence to substantiate the claim that Enforcement improperly provided Mr. Cuban with a “Wells” notice before the investigation was substantially complete. The OIG investigation also did not find sufficient evidence to substantiate Mr. Cuban’s claim that an earlier investigation into Mamma.com was closed as a quid pro quo for the investigation relating to Mr. Cuban.

SEC — CF Disclosure Guidance: Topic No. 2 – Cybersecurity

October 21, 2011 Comments off

CF Disclosure Guidance: Topic No. 2 – Cybersecurity
Source: U.S. Securities and Exchange Commission

This guidance provides the Division of Corporation Finance’s views regarding disclosure obligations relating to cybersecurity risks and cyber incidents.

Full Text of Complaint: “SEC Charges Bank Executives With Hiding Millions of Dollars in Losses During 2008 Financial Crisis”

October 11, 2011 Comments off

Direct to SEC News Release

Direct to Full Text of SEC Complaint (26 Pages; PDF)

The Securities and Exchange Commission today charged former bank executives with misleading investors about mounting loan losses at San Francisco-based United Commercial Bank during the height of the financial crisis in 2008 and 2009.

The SEC alleges that the bank’s former chief executive officer Thomas Wu, chief operating officer Ebrahim Shabudin, and senior officer Thomas Yu concealed losses on loans and other assets from the bank’s auditors, causing the bank’s public holding company UCBH Holdings Inc. (UCBH) to understate 2008 operating losses by at least $65 million (approximately 50 percent). A few months later, continued declines in the value of the bank’s loans led the bank to fail, and the California Department of Financial Institutions closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. United Commercial Bank was one of the 10 largest bank failures of the recent financial crisis, causing a loss of $2.5 billion to the FDIC’s insurance fund.

“Today’s charges reflect an all too familiar pattern – corporate executives once seen as rising stars embrace deception to avoid losses and conceal negative news, with investors and the FDIC insurance fund left to pick up the pieces,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “But accountability for these executives begins today.”

[Clip]

According to the SEC’s complaint filed in federal court in San Francisco, UCBH and its subsidiary United Commercial Bank grew rapidly, doubling in size after an initial public offering in 1998. It was the first U.S. bank to acquire a bank in the People’s Republic of China, and Wu was considered a rising star in the banking industry. By 2009, however, Wu found himself at the helm of a bank on the brink of failure.

The SEC alleges that Wu, Shabudin, and Yu deliberately delayed the proper recording of loan losses, and each committed securities fraud by making false and misleading statements to investors and UCBH’s independent auditors. During December 2008 and the first three months of 2009 as the company prepared its 2008 financial statements, Wu, Shabudin, and Yu were aware of significant losses on several large loans. Among other things, these executives allegedly learned about dramatically reduced property appraisals and worthless collateral securing the loans, yet they repeatedly hid this information from UCBH’s auditors and investors.

Read the Complete SEC News Release

Direct to Full Text of SEC Complaint (26 Pages; PDF)

Investigation of Conflict of Interest Arising from Former General Counsel’s Participation in Madoff-Related Matters

September 23, 2011 Comments off

Investigation of Conflict of Interest Arising from Former General Counsel’s Participation in Madoff-Related Matters (PDF)
Source: U.S. Securities and Exchange Commission, Office of Inspector General

The OIG conducted an extensive investigation of the facts and circumstances surrounding the SEC’s former General Counsel and Senior Policy Director David Becker’s participation in issues in the Madoff Liquidation and other Madoff-related matters, notwithstanding his interest in the Madoff account of his mother’s estate. During the course of its investigation, the OIG obtained and searched over 5.1 million e­ mails for a total of 45 current and former SEC employees for various time periods pertinent to the investigation, ranging from 1998 to 2011. The OIG also obtained and analyzed internal SEC documents, documentation provided by the Madoff Trustee, Irving H. Picard, Esq., court filings, and press reports. In addition, the OIG conducted testimony or interviews of 40 witnesses with knowledge of facts or circumstances surrounding the Madoff Liquidation and Becker’s work at the SEC.

Overall, the OIG investigation found that Becker participated personally and substantially in particular matters in which he had a personal financial interest by virtue of his inheritance of the proceeds of his mother’s estate’s Madoff account and that the matters on which he advised could have directly impacted his financial position. We found that Becker played a significant and leading role in the determination of what recommendation the staff would make to the Commission regarding the position the SEC would advocate as to the determination of a customer’s net equity in the Madoff Liquidation. Under the Securities Investor Protection Act of 1970 (“SIPA”), where SIPC has initiated the liquidation of a brokerage firm, net equity is the amount that a customer can claim to recover in the liquidation proceeding. The method for determining the Madoff customer’s net equity was, therefore, critical to determining the amount the Trustee would pay to customers in the Madoff Liquidation. Testimony obtained from SIPC officials and numerous SEC witnesses, as well as documentary evidence reviewed, demonstrated that there was a direct connection between the method used to determine customer net equity and clawback actions by the Trustee, including the overall amount of funds the Trustee would seek to clawback and the calculation of amounts sought in individual clawback suits. In addition to Becker’s work on the net equity issue, we also found that Becker, in his role as SEC General Counsel and Senior Policy Director, provided comments on a proposed amendment to SIPA that would have severely curtailed the Trustee’s power to bring clawback suits against individuals like him in the Madoff Liquidation.

Report on the Implementation of SEC Organizational Reform Recommendations

September 13, 2011 Comments off

Report on the Implementation of SEC Organizational Reform Recommendations (PDF)
Source: U.S. Securities and Exchange Commission

The Dodd–Frank Act directed the U.S. Securities and Exchange Commission (SEC) to engage an independent consultant to conduct a broad and independent assessment of the SEC’s internal operations, structure, funding, and the agency’s relationship with Self-Regulating Organizations (SROs). Issued in March 2011, the consultant’s study provided 16 optimization initiative recommendations designed to increase the SEC’s efficiency and effectiveness. In the six months since the study was issued, the SEC has developed the necessary program management and oversight infrastructure to address the next step in the agency’s on-going multi-year change initiative: conducting a thorough analysis of each recommendation and designing appropriate approaches for those recommendations selected for implementation.

Over the next six months, significant work will have been done within each workstream to analyze the Boston Consulting Group’s (BCG) recommendations and recommend what, if any, actions should be taken. While the agency has made progress, the path forward is still long. As the analysis completes, the agency will develop implementation options, then create a time-phased, multi-year implementation plan that accounts for constraints in the agency budget, management time, and agency priorities. The agency will focus on assessing the schedule, costs, and management bandwidth required for each initiative; identifying cross-work-stream integration points; and developing a detailed prioritization and implementation plan that sequences the various implementation activities. It is at that time that trade-offs and hard decisions must be made about how to best expend resources, time and funding.

The SEC recognizes that successful implementation of many of the ideas in the BCG study will require a long-term commitment and sustained effort over several years. While still in the early stages of considering the BCG recommendations, the SEC is committed to an open and transparent process. Consistent with the statute, the agency intends to report to Congress on a regular basis on the actions taken in response to the study.

SEC — Report of Review of Economic Analysis Performed by the Securities and Exchange Commission in Connection with Dodd-Frank Act Rulemakings

June 17, 2011 Comments off

Report of Review of Economic Analysis Performed by the Securities and Exchange Commission in Connection with Dodd-Frank Act Rulemakings (PDF)
Source: U.S. Securities and Exchange Commission, Office of Inspector General
From Bloomberg BusinessWeek:

U.S. financial regulators have in general properly estimated the costs and benefits of new rules required under the Dodd-Frank Act, according to internal agency watchdogs.

The Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Securities and Exchange Commission and Federal Reserve have adequate procedures to estimate the costs of rules, such as new capital and margin requirements for the $601 trillion swaps market, the inspectors general concluded in reviews sought by Senate Republicans.

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