SEC complaint process coming out of the Stone Age

26 10 2010

The opening scene of the original 1987 film Wall Street, shows an investment brokerage firm using old IBM computers flashing green dot matrix data on a black screen.  It looks like the SEC if finally getting rid of those old machines and is “streamlining the complaint process”… From the Wall Street Journal:

“We will have all of it in one place, searchable, which will do a lot for us in the long run,” he said.

The system will be installed in two phases. The first will improve the agency’s ability to track and search the information it receives, Mr. Khuzami said. In a second phase, which the agency hopes to complete in 2011, more tools for analyzing the data will be put in place.

The system makes it easier to file complaints online, using a tool that prompts the person making the complaint to answer certain questions, depending on the allegation. Staff who receive telephone complaints will use a similar program that will prompt them to ask callers the same questions. SEC employees will key in handwritten complaints using the same format. This will standardize the information available to staff everywhere.

It has taken this long for the SEC to standardize the complaint process?  It is no wonder everyone and their mother seems to be able to get away with securities fraud these days.  When I need to file a trademark application, I go online, I go online, I fill it out, and I am able to search for similar marks to make sure mine is unique.  The Federal Court system is going totally electronic.  Heck, we have had EDGAR for over a decade?  Why is it that the compliance portion of the SEC innovative, while the complaint process is as antiquated as the Securities Exchange Act itself?





Madoff gets 150 years

29 06 2009

Bernard Madoff has been sentanced to 150 year for perpetuating a Ponzi Scheme which may have cost contributors a total of $65 Billion.  In his sentencing, Judge Denny Chin noted that no other fraud scheme in history had cost so much, and that there was  an important “symbolism” in the 150-year sentence. From Bloomberg:

Over three decades, he built a reputation as a brilliant stock picker who delivered steady returns through both bull and bear markets. He attracted an international client roster that included celebrities including filmmaker Steven Spielberg, fund managers such as J. Ezra Merkin, charities, universities, friends and even European royalty.

Big Lie

His facade shattered on Dec. 11, as Madoff confessed to authorities that his firm, Bernard L. Madoff Investment Securities LLC, was “one big lie.” Under immense pressure from a rush of investor redemptions, he admitted he used money from new investors to pay old ones. Regulators later said that his investment advisory business hadn’t made a trade in at least 13 years….

Madoff received the maximum sentence on the 11 fraud charges to which he pleaded guilty. Before his sentencing, he consulted with Herbert Hoelter of the National Center on Institutions and Alternatives, a prisoner advocacy group, according to court records.

Madoff gets what he deserves.  There is no other way to describe his crime other than, grand-grand-grand-grand-grand-grand larceny.  What will be interesting to watch is the progression of the civil case against Madoff.   Civil litigation arising out of this Ponzi scheme will last at least a decade as all of the assets of Bernard L. Maddoff Securities Investments LLC are already in a constructive trust with Securities Investment Protection Corporation (SIPC) as trustee.   It is very likely that many of Madoff’s personal assets will also be placed in trust.  For more information on the SIPC, see this article.

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).





Yet Another Ponzi Scheme

10 06 2009

This time two it involves California men allegedly involved in a $80million Ponzi scheme.  The SEC is now suing them for fraud.  From Bloomberg:

An important thing to note about Ponzi schemes, especially in trying to avoid them, is that they largely target specific ethnic groups, and are committed by members of that ethnic group.  The imfamous Madoff Ponzi scheme targeted wealthy Jews and their families.  No, Kevin Bacon isn’t Jewish, but his wife Kira Sedgwick is Jewish.  This ponzi scheme was instigated by two Korean-Americans, and targeted the local Korean community.





Madoff Victims and the Securities Investor Protection Corporation

9 06 2009

The New York Times online has an article on how Madoff Victims may be compensated.  Included is a brief discussion of the Securities Investor Protection Corporation or SIPC.   The SIPC may be the only source of relief for some of the victims, and unfortunately, many of the elderly victims may not be eligible for SIPC relief.  From the New York Times Article:

The approach they seek would produce a significantly higher tally of cash losses than the formula being used by the court-appointed trustee overseeing the claims process for the Securities Investor Protection Corporation, a government-chartered agency financed by the brokerage industry….

Customers who qualify are eligible for up to $500,000 in immediate compensation from SIPC. Those whose eligible losses exceed that amount would divide up the assets recovered by the trustee.

Thousands of long-term investors, including elderly people who lived for decades on withdrawals from their Madoff accounts, do not qualify for SIPC payments because they withdrew considerably more over time than they originally entrusted to Mr. Madoff, Barry Lax, a lawyer for the plaintiffs, said.

The SIPC is like the FDIC for securities investors.  It is a government mandated, non-profit insurance company set up to protect the accounts of securities investors.  However, unlike the FDIC, it is not a federal agency, but a self-funded corporation.  Although it is not administered by the government, government officials play a role in that some of its governors are appointed by the President of the United States, under the bill that orginally created the corporation.  Generally, investors are insured for up to $500,000 per account.   Most of the securities traded on Wall Street are covered, however, failure to execute  trades transacted under naked short selling are not.





SEC worst favored Government Agency

8 06 2009

People are frustrated with the government.   Bailout money, increased national debt, tax hikes, wire-tapping, torture, all give people a reason to be upset at the government.  Of all the government agencies, which should be the worst rated, FBI? CIA, IRS?  No, among all the agencies in the alphabet soup of government agencies, the letters  SEC draw the most ire.  An interesting article on Investment News‘s website:

Among six large government agencies, the Securities and Exchange Commission ranked dead last on the likeability scale with the public, with even the Internal Revenue Service coming in ahead….

Fifty-five percent of the respondents in the telephone survey had an unfavorable view of the SEC, compared to 43% for the IRS, according to the survey, which was conducted in April for Persuasion Strategies, a service of Denver law firm Holland & Hart LLP.

Why the SEC?  Well they are damned if they do, and they are damned if they don’t.  Lack of government oversight has been largely blamed for the nation’s current economic crisis.  This is no more true than in the regulation of financial markets.  On the other hand, others are lead to believe that government interference in markets only have the affect of prolonging economic problems.   To top it all off, the SEC has received a lot of bad press lately, summed up in one word, Madoff.  Of course Madoff is not the only source of SEC problems.  The silver lining in the status of the SEC is that, as the article points out, at least the people under investigation by the SEC are less popular than the SEC itself.





Stanford cannot afford his own legal defense

1 04 2009

“Sir” Allen Stanford, accused of masterminding the second largest Ponzi scheme in modern times, next to the Bernard Madoff, supposedly cannot afford to pay his own legal defense, due to the seizure of his assets.    According to the Associated Press Article, Standford’s legal issues are not limited to the lawsuit filed by the SEC, he is also facing a divorce.  Stanford has asked that papers relating to the SEC investigation be sent to his divorce attorney, even though he would not be handling his SEC case.  Essentially, Stanford argues that the government cannot seize all his assets and expect him to fight an intense and complicated legal battle without being able to pay for representation.  There is precedent to set aside seized money to pay for a legal defense.  More on Ponzi Schemes later.





Welcome to Lots, Stocks, and Gavel

22 01 2009

Hello, and welcome to my new project online, a little blog on an aspect of law I find fascinating, securities law.
Why a blog on securities and securities law?

The buying of selling of securities effects us every day, and most of us don’t know it.  Trading in securities is not just something that occurs on Wall Street and the London Stock exchange.  Every time you fill your gas tank, you are purchasing something that was once purchased as a security.  Every time you go to the grocery store, you are purchasing products that were in one way shape or form bought and sold as securities.

The problem most people have with the securities trade is that, although it has an impact on their daily lives, they do not understand what it is, or how it works.  The main purpose of this blog is to give people a forum to better understand what they read on their newspaper headlines.  For example: What did Bernie Madoff do, how did he do it, and how does it affect the people who trusted him?  What is insider trading,  why is it illegal, and what does it have to do Mark Cuban?

What will this blog cover?

Hopefully this blog will be something more than a place for people to go in order to understand the things they hear on the farm report and the stock market page.

Securities law is big in the news these days.  With the largely unprecedented drop in the stock market, the government bailouts of the banks and the automotive industry,  and billion dollar scandals involving prominent traders, issues in securities law are going to be discussed for a long time to come.  This blog will primarily cover the news, including goings on inside the Securities and Exchange Commission, the coming change in rules and legislation, the issues facing the stock market and commodities exchanges, and the enforcement of securities law.  However, unlike the newspapers and the 24hr new channels, I will give a more in depth analysis on what is happening, and will present it in a way that the average layman can understand easily. This blog will also cover issues in securities law globally.  Topics I will discuss include the coming securities law reform in the European Union, and how sharia is influencing the development of securities law in the Middle East.

Since securities law tends to run into other aspects of law, such as bankruptcy, banking, and criminal law; and because of the ongoing crisis in the global economy, this blog will discuss issues beyond the relatively narrow topic of securities.

How did you come up with the name?

Well basically, it is a take of the phrase, “lock, stock, and barrel”.  Since the blog is about securities, I wanted to tie in two more common types of securities, commodities (Lots), and “Stocks”.  I included the “Gavel” because this blog is about the law.