Maverick’s Mark Cuban off the Hook, SEC Compliant Dismissed

17 07 2009

Wall Street Journal is reporting that a federal judge is dismissing an insider trading complaint by the Securities and Exchange Commission. From the Wall Street Journal’s Law Blog:

Cuban denied the allegations and played hard ball with the agency, both in statements on his blog and in court. Cuban even had support from five big-wig law professors, who filed an amicus brief in the case that argued Cuban did no wrong.

The SEC originally filed a complaint stating Cuban sold his shares of mama.com upon hearing from the CEO that they would be issuing low-priced shares, a move that would have hurt the value of Cuban’s stock.  While this looks like a textbook insider trading case, it didn’t help that Cuban had amicus briefs filed on his behalf by eminent law professors, Allan Bromburg, Allen Ferrill, Jonathan Macey, Todd Henderson and Stephen Bainbridge.  All of them argued for Cuban stating he did nothing wrong.

A Copy of the SEC Complaint

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Leave of Absence

17 07 2009

Hi, I have the bar exam in two weeks, so I am taking a leave from writing on this blog. There will be more interesting articles in August. I look forward to writing more soon!

Update: So I wrote another post.   It was just too important on a topic I have been covering.  I am going back to studying.





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).





Sweepting Changes for the SEC and CFTC

17 06 2009

The White House today released a “white paper” outlining their plans for reform for the regulation of financial markets.  Two major changes will greatly affect the world of Securities Markets.  The first deals with Hedge Fund filings with the SEC.  From the Wall Street Journal.

Hedge funds and other private pools of capital would have to register with the Securities and Exchange Commission. Thousands of financial institutions would be required to hold more capital in reserve to protect against unexpected losses, and companies would also have to retain a portion of the credit risk for loans they have packaged into securities.

It seems that the main target of this regulation is not the hedge funds themselves, but Ponzi schemes.  The registration and reserve requirements will have the affect of allowing the SEC to monitor investments closely.  Ponzi schemes by their nature lack reserves because they are structured based on continuing investment and payouts to where their capitol is always less than what was invested.  This will raise large red flags for the SEC which has been criticized for their inability to spot Ponzi schemes.

The second major change involves an increase of police powers by both the SEC and the CFTCWall Street Journal:

The Securities and Exchange Commission and Commodity Futures Trading Commission should get “clear, unimpeded authority to police and prevent fraud” in the derivatives markets, according to a new Obama administration proposal….

“All OTC derivatives markets, including CDS (credit default swaps) markets, should be subject to comprehensive regulation that addresses relevant public policy objectives,” according to a near-final draft of the regulator plan….

The plan calls for amending commodities and securities laws “to authorize the CFTC and the SEC, consistent with their respective missions, to impose recordkeeping and reporting requirements (including an audit trail) on all OTC derivatives.”

In their conception, the SEC and the SFTC were not designed as policing bodies, but as regulatory institutions.  It will be interesting to see how they make the shift.   It would involve a major shift in the role played by both bodies.  There may even be some constitutional questions regarding federal policing powers.  Congress, and more importantly, the public ought to take a hard look at the Obama plan and scrutinize the proposed changes.

The white paper has been made available by the Wall Street Journal.  You can access it here.





Chicago White Sox and a Ponzi Scheme

16 06 2009

The Securities and Exchange Commission today obtained a court order ending a $11 millions ponzi scheme operated by David Hernandez, a local felon turned Chicago sports internet entrepreneur.   Looks like his entrepreneurial efforts were focused on something other than Chicago sports.  From the SEC:

The SEC alleges that David J. Hernandez, who was convicted in 1998 for wire fraud arising from his previous employment at a bank, sold “guaranteed investment contracts” through his company that, unbeknownst to investors, was actually out of business. Hernandez promised returns of 10 percent to 16 percent per month and made false and misleading statements about his background, the use of investor proceeds, and the safety of the investment. Among Hernandez’s illicit uses of investor funds was to start up a Chicago sports-talk Web site called “Chicago Sports Webio” featuring Chicago-area sports figures and reporters.

Now look how Hernandez grossly misrepresents his credentials:

The SEC alleges that Hernandez, who lives in Downers Grove, Ill., misrepresented that Next Step Financial was a successful company that invested in payday advance stores when, in fact, it was out of business. He trumpeted a strong educational and banking background, claiming to hold a J.D. and M.B.A. and have more than 20 years of experience in banking. According to the SEC’s complaint, Hernandez never received the claimed degrees, and his banking career ended with the conviction for wire fraud. He never invested in payday advance stores as he claimed, nor did he purchase the insurance policies that purportedly covered investor funds.

“Chicago Sports Webio” is a venture between Hernandez and Chicago sports radio personality, Mike North, who was recently fired from sports radio The Score 670. For those northsiders who know that the good guys wear blue pinstripes and hats, not black, should not be surprised that the site is sponsored by none other than the “Chicago White Sox“.  The site features a rather attractive model/”sports personality”, April Rose.   I am assuming that she is nothing more than a pretty face, who looks good in a White Sox jersey, and really does not care at all about sports.

On a side note, if you would like read a blog by a stunningly attractive woman, it had better be someone who knows sports inside and out and is passionate about the subject.  I am talking about none other than Sarah Spain, who posts on mouthpiecesports.com. Best of all, she is a Cubs fan!

If you want to read the complaint, it is available in pdf. form from the SEC’s website.





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.