Tag: SEC

As ESG Investments Soften and Pressure Grows on Allegedly ‘Woke’ Finance Giants, Conservative Investment Firms Scour for Missed Opportunities

Mary Pat Campbell

Link: https://www.nysun.com/article/as-esg-investments-soften-and-pressure-grows-on-allegedly-woke-finance-giants-conservative-investment-firms-scour-for-missed-opportunities

Excerpt:

In May, the United Kingdom’s version of the Securities and Exchange Commission will begin enforcing its pledge to crack down on so-called greenwashing by companies wishing to trade on the label of being green-friendly.  

The Financial Conduct Authority’s rules, announced in late November, come as U.S. traders await stronger regulations from the SEC. That body moved in September to curb misleading marketing practices by requiring 80 percent of funds that claim to be “sustainable,” “green,” or “socially responsible” to actually be so. 

The sustainability disclosure requirements are now deemed a necessity after regulators found “environmental, social, and corporate governance” analysts at Goldman Sachs and Germany’s DWS Group were promoting investments that were not as ESG-friendly as they claimed. 

“The portfolio managers weren’t necessarily doing all of the work that they said they were doing,” the associate director of sustainability research for Morningstar Research Services LLC, Alyssa Stankiewicz, said. “They didn’t have documentation or data maybe related to the ESG-ness of these investments.”

At the same time as ESG-friendly firms are facing accusations of insincerity, they’re also coming under pressure from state pension funds in states with Republican-controlled governments that don’t want their employees’ retirement funds affected by what they view as politicized, left-leaning investing strategies.

Author(s): SHARON KEHNEMUI

Publication Date: 16 Jan 2024

Publication Site: NY Sun

SEC attempts to calm muni market over FDTA implementation

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202311101249SM______BNDBUYER_0000018b-ba22-dd16-addf-fb6af3660001_110.1

Excerpt:

As the timeline for implementing the Financial Data Transparency Act grows shorter, the Securities and Exchange Commission is teaming up with other federal regulators in an attempt to allay fears about implementation.

“There’s no new disclosure requirements, standards or timelines, it’s just about structured data,” said Dave Sanchez, director of the SEC’s Office of Municipal Securities.

The comments came during a panel discussion produced by XBRL US on Thursday. The FDTA was passed last year as a remedy for providing more transparency to the financial markets by introducing machine-readable formats into the Municipal Securities Rulemaking Board’s EMMA system, which tracks the muni market.

The SEC is in charge of developing the standards for how the data will be submitted to the MSRB. The upcoming deadlines include publishing proposed rules by June 2024, which will kick off the public comment period. Determining the standards is set for December 2024, with specific rulemaking to be in place by 2026.

Author(s): Scott Sowers

Publication Date: 10 Nov 2023

Publication Site: Bond Buyer at Fidelity Fixed Income

Exxon, Apple and other corporate giants will have to disclose all their emissions under California’s new climate laws – that will have a global impact

Mary Pat Campbell

Link:https://theconversation.com/exxon-apple-and-other-corporate-giants-will-have-to-disclose-all-their-emissions-under-californias-new-climate-laws-that-will-have-a-global-impact-214630

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Excerpt:

Many of the world’s largest public and private companies will soon be required to track and report almost all of their greenhouse gas emissions if they do business in California – including emissions from their supply chains, business travel, employees’ commutes and the way customers use their products.

That means oil and gas companies like Chevron will likely have to account for emissions from vehicles that use their gasoline, and Apple will have to account for materials that go into iPhones.

It’s a huge leap from current federal and state reporting requirements, which require reporting of only certain emissions from companies’ direct operations. And it will have global ramifications.

California Gov. Gavin Newsom signed two new rules into law on Oct. 7, 2023. Under the new Climate Corporate Data Accountability Act, U.S.- companies with annual revenues of US$1 billion or more will have to report both their direct and indirect greenhouse gas emissions starting in 2026 and 2027. The California Chamber of Commerce opposed the regulation, arguing it would increase companies’ costs. But more than a dozen major corporations endorsed the rule, including Microsoft, Apple, Salesforce and Patagonia.

Author(s): Lily Hsueh

Publication Date: 10 Oct 2023

Publication Site: The Conversation

Tweets of the Day on Bonds, Jobs, Leverage, China, Oil, and Artificial Intelligence

Mary Pat Campbell

Link:https://mishtalk.com/economics/tweets-of-the-day-on-bonds-jobs-leverage-china-oil-and-artificial-intelligence/

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Excerpt:

Everyone knows, or at least should know, that the “Big 3” rating agencies that rate about 98 percent of all debt all issue trash ratings. Here’s the background on how that happened.

Rating agencies used to get paid by investors on the basis of how well they did at estimating the likelihood of default. The better your ratings, the more sought out your opinions.

In the mid 1970s, the SEC created nationally recognized statistical ratings organizations (NRSROs). Following that idiotic regulation, the rating agencies got paid on the basis of how much debt they rated, not how accurate their ratings were. Fees come from corporations issuing debt, not investors seeking true default risk.

The more stuff you rate AAA, the more business you get from companies who want their debt rated. The new model is ass backward, and why ratings are trash. A genuine fiasco happened with ratings during the Great Financial Crisis with tons of garbage rated AAA went to zero.

There should not be NRSROs. The SEC made matters much worse, except of course for the Big 3 who have a a captured, mandated audience, coupled with massive conflicts of interest.

Author(s): Mike Shedlock

Publication Date: 5 Aug 2023

Publication Site: Mish Talk

Recent SEC Proposals to Come Under Scrutiny of Financial Services Committee

Mary Pat Campbell

Link: https://www.ai-cio.com/news/sec-recent-proposals-to-come-under-scrutiny-of-financial-services-committee/

Excerpt:

The House Committee on Financial Services will hold an oversight hearing on the Securities and Exchange Commission next Wednesday and Chairman Gary Gensler is expected to testify. The SEC’s proposed budget and their recent proposals, especially the climate disclosure proposal will all likely be discussed.

The SEC requested $2.436 billion for 2024, an increase of $265 million from this year primarily to hire new staff. The new hires are proportionally concentrated in the Divisions of Risk Analysis and Investment Management, whose staffs would increase by more than 5% each. The largest aggregate staffing increase would be to the Division of Enforcement, from its current 1,505 positions to 1,558.

…..

Womack also suggested that the SEC’s proposal on climate disclosure, which would require entities registered with the SEC to disclose their carbon emissions, was not within the SEC’s legal authority, a concern shared by several other Republican members of the committee.

The climate disclosure proposal has been a sensitive issue for agricultural interests. Representative Ashley Hinson, R-Iowa, emphasized the potential impact of this rule on farmers at the hearing. She said that this proposal would be bad for farmers in her state who would have to collect and disclose their emissions data to issue securities and to work with larger businesses who must collect emissions data from their value chain.

Representative Michael Cloud, R-Texas, shared this sentiment during the hearing and said that any issuer subject to Scope 3 disclosure would compel farms in their supply chain to collect this data, a tedious process, which might reduce farmer’s access to credit if they do not comply.

Author(s): Paul Mulholland

Publication Date: 12 April 2023

Publication Site: ai-CIO

What the Madoff Series Left Out

Mary Pat Campbell

Link: https://reason.com/video/2023/02/21/what-the-madoff-series-left-out/

Excerpt:

And yet, nothing in the series leads the viewer to the conclusion that the SEC needed a bigger budget to catch Madoff. In fact, outsiders were sounding the alarm without access to government funding or regulatory muscle. In 2001, Barron’s journalist Erin Arvedlund reported that many Wall Street investors were suspicious that Madoff was engaged in foul play.

And the SEC received its first complaint that Madoff was running “an unregistered investment company” “offering ‘100%’ safe investments” in 1992. In 1999, a derivatives expert named Harry Markopolos, who worked at a competing firm, started to alert the SEC that Madoff’s investment returns were virtually impossible. In 2005, Markopolos sent the agency an infamous 25-page memo explaining why “The World’s Largest Hedge Fund is a Fraud.” The SEC opened an investigation in 2006, and then closed it the following year because the “uncovered violations” were “remedied” and “those violations were not so serious as to warrant an enforcement action.”

So how is this tale of epic failure on the part of a government agency the fault of deregulation?

Instead of making lazy allusions to the evils of free market capitalism, to better understand the lessons of the Madoff saga, director Joe Berlinger should have consulted the work of the free market economist George Stigler, who won the Nobel Prize in part for his work on “regulatory capture.”

Author(s): ZACH WEISSMUELLER AND DANIELLE THOMPSON

Publication Date: 21 Feb 2023

Publication Site: Reason

The End Is Near for Outdated Government Financial Reporting

Mary Pat Campbell

Link: https://www.route-fifty.com/finance/2023/02/end-near-outdated-government-financial-reporting/382747/

Excerpt:

By way of a few paragraphs inserted into the recently enacted 4,000-page 2023 National Defense Authorization Act, Congress mandated that state and local governments prepare their annual financial statements in a standardized format that is electronically searchable. The provision effectively drags state and local governments kicking and screaming into the 20th century, if not the 21st.

As worthy an accomplishment as this appears to be, it was resisted mightily by the state and local government financial community. Most prominently, they argue, the measure can potentially result in a major transfer of accounting and reporting regulatory authority from states to the federal government, thereby undercutting what many consider a fundamental principle of federalism. Moreover, state and local officials see it as one more costly unfunded mandate imposed upon their governments.   

The opposition by state and local governments is understandable. But they have no one to blame but themselves. To this day they are wedded to a technological past. In a perverted way, they may be getting their just desserts. The act requires them to do little more than what they should have done years ago on their own for the benefit of their investors and other stakeholders.  

Implicit in the act is that governments will have to prepare their financial statements using XBRL (eXtensible Business Reporting Language) or some comparable reporting framework. This is the format that the Securities and Exchange Commission, which would be charged with implementing the new provision, currently demands corporations use in their financial filings. XBRL requires all entities to classify each of the elements of their financial statements (e.g., assets, liability, revenues and expenses) by identical rules and in machine readable form.    

Author(s): Michael Granof and Martin J. Luby

Publication Date: 8 Feb 2023

Publication Site: Route Fifty

GOP-led House committee launches working group to combat ESG proposals

Mary Pat Campbell

Link: https://www.pionline.com/washington/republican-led-house-committee-launches-anti-esg-working-group

Excerpt:

Congressional Republicans on Friday took another step in their quest to dismantle the Biden administration’s environmental, social and governance rule-making initiatives.

The House Financial Services Committee has formed a working group to “combat the threat to our capital markets posed by those on the far-left pushing environmental, social and governance proposals,” the committee’s Chairman Patrick McHenry, R-N.C., announced.

The group will be led by Rep. Bill Huizenga, R-Mich., and include eight other Republican committee members.

Among its priorities, the group will examine ways to “rein in the SEC’s regulatory overreach;” reinforce the materiality “standard as a pillar of the nation’s disclosure regime;” and hold to account market participants who “misuse the proxy process or their outsized influence to impose ideological preferences in ways that circumvent democratic lawmaking,” according to a news release.

“This group will develop a comprehensive approach to ESG that protects the financial interests of everyday investors and ensures our capital markets remain the envy of the world,” Mr. McHenry said in the news release. “Financial Services Committee Republicans as a whole will continue our work to expand capital formation, hold Biden’s rogue regulators accountable, and support American job creators.”

Author(s): Brian Croce

Publication Date: 3 Feb 2023

Publication Site: Pensions & Investments

SEC Adopts Amendments to Proxy Voting Advice Rules

Mary Pat Campbell

Link: https://www.ai-cio.com/news/sec-adopts-amendments-to-proxy-voting-advice-rules/

Excerpt:

The U.S. Securities and Exchange Commission Wednesday adopted amendments to its rules governing proxy voting advice, representing another step forward in what has been a fraught regulatory process.

SEC Chair Gary Gensler, in a statement said, the final amendments aim to avoid burdens on proxy voting advice businesses that may impair the timeliness and independence of their advice. The amendments also address misperceptions about liability standards applicable to proxy voting advice, Gensler says, while preserving investors’ confidence in the integrity of such advice.

“I am pleased to support these amendments because they address issues concerning the timeliness and independence of proxy voting advice, which would help to protect investors and facilitate shareholder democracy,” Gensler says. “It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice.”

As outlined in a press release distributed after the vote by the SEC, Wednesday’s final amendments rescind two rules applicable to proxy voting advice businesses that the Commission adopted in 2020. Specifically, the final amendments rescind conditions to the availability of two exemptions from the proxy rules’ information and filing requirements on which proxy voting advice businesses often rely.

Author(s): John Manganaro

Publication Date: 14 July 2022

Publication Site: ai-CIO

Biden Administration Sues a City Over “Rampant Overspending on Teacher Salaries”

Mary Pat Campbell

Link: https://www.educationnext.org/biden-administration-sues-a-city-over-rampant-overspending-on-teacher-salaries/

Excerpt:

The Biden administration’s Securities and Exchange Commission is suing the city of Rochester, New York, contending that “rampant overspending on teacher salaries” plunged the Rochester school district into “extreme financial distress,” misleading investors who bought municipal bonds.

The legal action is unusual. Sure, the federal government’s interaction with K-12 education has often extended beyond the bounds of the U.S. Department of Education. The Department of Agriculture administers the school lunch program, and the Department of Defense operates schools serving military-connected children. Under George W. Bush, the Justice Department toyed with the idea of using antitrust law to support charter schools. And in the waning days of the Trump administration, President Trump issued an executive order authorizing “emergency learning scholarships” to be provided via the Secretary of Health and Human Services.

But, notwithstanding Bloomberg columnist Matt Levine’s theory that
“everything is securities fraud,” in practice, the K-12 education beat hasn’t intersected greatly with the fraud provisions of federal securities laws. At least until now.

….

How much has Rochester been “overspending?” The website Seethroughny.com, a project of the Empire Center for Public Policy, lists 717 Rochester City School District Employees who earned more than $100,000 in 2019. The district has about 25,000 K-12 public school students, according to the state of New York. Spending runs about $20,000, a little below the statewide average. Whether that amounts to “overspending” probably depends on one’s view of how much the children are learning, and also one’s view of whether the students could learn more, and how much more, if more money were spent.

….

In practice, the legal aspects of the case will probably turn more on considerations about disclosure to potential bond buyers than about the details of the spending on teacher salaries.

Even so, the mere mention of securities law and bondholders as potential tools to curb school district “overspending” is intriguing, especially when the action comes under a president who campaigned promising to increase school spending so as to pay teachers “competitive salaries.” For years, reformers have complained that teachers unions capture school boards and run school systems for the benefit of adults rather than children. Now a different set of influential adults—bondholders—is, in a way, asserting, via the SEC, its own claim that could be a countervailing force.

Author(s): Ira Stoll

Publication Date: 15 June 2022

Publication Site: Education Next

SEC Charges Allianz Global Investors and Three Former Senior Portfolio Managers with Multibillion Dollar Securities Fraud

Mary Pat Campbell

Link: https://www.sec.gov/news/press-release/2022-84

Excerpt:

The SEC’s complaint, filed in the federal district court in Manhattan, alleges that Structured Alpha’s Lead Portfolio Manager, Gregoire P. Tournant, orchestrated the multi-year scheme to mislead investors who invested approximately $11 billion in Structured Alpha, and paid the defendants over $550 million in fees. It further alleges that, with assistance from Co-Lead Portfolio Manager, Trevor L. Taylor, and Portfolio Manager, Stephen G. Bond-Nelson, Tournant manipulated numerous financial reports and other information provided to investors to conceal the magnitude of Structured Alpha’s true risk and the funds’ actual performance. 

Defendants reduced losses under a market crash scenario in one risk report sent to investors from negative 42.1505489755747% to negative 4.1505489755747% — by simply dropping the single digit 2.  In another example, defendants “smoothed” performance data sent to investors by reducing losses on one day from negative 18.2607085709004% to negative 9.2607085709004% — this time by cutting the number 18 in half.    

Publication Date: 17 May 2022

Publication Site: SEC

Architect of Allianz fraud made $60 mln as he lied to investors, U.S. says

Mary Pat Campbell

Link: https://www.reuters.com/business/finance/architect-allianz-fraud-made-60-mln-he-lied-investors-us-says-2022-05-17/

Excerpt:

The star portfolio manager at the centre of a fraud at the U.S. funds unit of Allianz SE (ALVG.DE) relied on the German insurer’s good name to lure investors and thrived from a lack of oversight as he pocketed $60 million in pay, U.S. authorities said.

Gregoire “Greg” Tournant, a citizen of France and the United States, was indicted on Tuesday for securities fraud, investment adviser fraud, wire fraud and obstruction of justice in a scheme that ran from 2014 to 2020. read more

It was a major development in a two-year saga that has haunted and embarrassed Allianz, one of the globe’s biggest financial firms, and began after the $11 billion in funds managed by Tournant collapsed as markets roiled with the outbreak of the coronavirus in early 2020.

U.S. prosecutors on Tuesday said Tournant faked documents, fabricated risk reports, altered spreadsheets, and lied about the investment strategy.

Author(s): Tom Sims, Alexander Hübner and John O’Donnell

Publication Date: 18 May 2022

Publication Site: Reuters