Category: Securities

Almost everyone has heard of Kickstarter by now: it’s the premier place for a team with an idea and a plan to raise capital to fund almost any sort of product. However, your return on your investment is the product itself if you pay enough money, or merely a thank you if the donation isn’t large enough, and extra additional services or items if you pay more. You do not, however, receive an additional return on your investment – you either get the fair market value of your contribution or less. What if you could invest in a company personally, not just a product, without being a private accredited investor?

There exists a style of investing similar both to Kickstarter and traditional investment in business called equity crowdfunding. Enabled by the JOBS act of 2012, equity crowdfunding allows companies to raise money from the general public – not just private … Read the rest

           This week, the authors of SEC Enforcement in the PIPE Market: Actions and Consequences are presenting their paper at the CFA-FAJ-Schulich Conference on Fraud, Ethics and Regulation. Their work discusses the SEC’s early 2000s reforms affecting the PIPE (private investment in public equity) market. The SEC intended these reforms to “reduce the opportunities for investor stock price manipulation.”  This article contends (and the paper hints) that the SEC’s efforts to crack down on this price manipulation not only had unintended deleterious effects on the PIPEs market but also had little impact on the intended target of the reforms—investor exploitation of companies seeking PIPE capital.

            A PIPE transaction is a unique way for distressed companies to publicly solicit capital and external financing from privately-held investors, such as hedge funds and private equity funds. A PIPE is generally a good way for these companies to … Read the rest

Flash Trading: The informational age gone awry?

The historical purpose of the stock market, serving as a method for companies to affordably raise capital, is fading quickly. The proliferation of supercomputer trading algorithms and complex derivatives (e.g. Synthetic Collateralized Debt Obligations) has given rise to an age of increasingly complex trading methods. One of the foremost advances is the speed of trading, seen predominantly in high-frequency methods. The expansion of bandwidth and connection speeds has enabled traders to execute trades in as little as one-millionth of a second, a far cry from the historical telephone relays to traders in the pits. However, even with the public outcry for more transparency within the financial markets, little is known about the actual effect high frequency trading has on the markets and the everyday investor.

History

Computerized trading has existed in many forms for decades now, but the real expansion came in 1998… Read the rest

 

It is not every day someone says they want to be sued in federal court. But, in fact, Mr. Rajat Gupta, a former board member at Goldman Sachs and Procter & Gamble, is doing just that. Mr. Gupta sued the Securities and Exchange Commission claiming that the SEC cannot pursue their current administrative case against him because such a case would need to be brought in federal court. (It is alleged that Mr. Gupta fed Raj Rajaratnam inside information about both Goldman Sachs and Procter & Gamble which was used by the Galleon hedge fund investment advisors.) Recently, the SEC delayed Mr. Gupta’s administrative case for at least 6 months. Not only is this bizarre case legally fascinating but it places the potency of a section of the monumental finance-reforming Dodd-Frank Act under siege. 

 

Gupta seeks a federal injunction to prevent the SEC … Read the rest

 

How does the SEC determine where to deploy its resources? What criteria does the SEC use to decide which companies to monitor and which to ignore?

Answers to these questions and more were recently presented to the Illinois Corporate Colloquium by Cindy Alexander, an economist at the SEC. In her working paper, “Regulating Monitoring Under the Sarbanes-Oxley Act”, Ms. Alexander and her coauthor Kathleen Hanley examine the usefulness of two factors used by the SEC in determining which companies to monitor: firm size and stock price volatility. Their findings suggest the answer to my title question is, decidedly, no.

Section 408 of the Sarbanes-Oxley Act of 2002 identifies company size and stock price volatility as two factors, among others, that the SEC should use as indicators of potential problems with a company’s financial reporting. Section 404 of Sarbanes-Oxley requires companies to publicly disclose “material weaknesses” in their … Read the rest

By: Daniel Scheeringa

The New York statute that has given Attorneys General the power to take on Wall Street, and catapulted many of them into the governor’s mansion, is about to undergo a radical change if a Southern District judge’s ruling is upheld.  In a guest editorial in Westlaw Business Currents, Hall and Johnston of DLA Piper explain the law and recent developments.

Sections 352 and 353 of Article 23-A of New York’s General Business Law (collectively known as the Martin Act) give the Attorney General the power to investigate, regulate, and take action against securities fraud.  Since 1987, the courts have held that the Martin Act is the sole province of the Attorney General, and preempts private tort action for securities fraud.  The Martin Act differs from most other state securities statues by having a much lower evidentiary requirement. The Martin Act requires only proof of misrepresentation (including omissions) … Read the rest