Tag: SEC

I Finance The Current Thing

Mary Pat Campbell

Link: https://allenfarrington.medium.com/i-finance-the-current-thing-7ea204230315

Excerpt:

Passive investing is most often celebrated as a marvel of risk/reward packaging for the retail investor, who surely doesn’t have the time or energy to do the job of a professional capital allocator. It’s a fair assumption that they have their own job doing something productive in the real economy. Is this arrangement worth sacrificing? Would sacrificing it be ESG-friendly? Yes, absolutely it would, but we will return to this further down.

Passive investing relies on the notion of an index, or, a numerical weighting of every publicly listed company in a given geography, above a certain size, etc. which is determined by relative size and expressed as a percentage of the whole. If the value of all shares outstanding multiplied by their current market price (or, “market capitalization”) of Company A is 1% of the total of all the companies in an index, then it makes up 1% of that index, and its shares are 1% of those held by a passive investment instrument.

The existence of indices is the bane of the lived experience of investment professionals who take Schumpeter a little more seriously and do not allocate by algorithm but by analysis of business fundamentals. “Performance” is measured relative to an index, on the understandable but perverse realization that index investing, which relies only on an algorithm, is much cheaper for the client. If your non-passive (or “active”) manager returned you 50%, you might think that is fantastic, but if the index went up 60% then you paid for nothing. In fact, technically they underperformed by 10%. No performance fees — even on 50%! — and probably also fired.

….

When SEC Commissioner Hester Peirce voiced the lone dissent against the inclusion of “climate risks” in company prospectuses recently, her argument was basically my own above: these are risks. Although the concept is incredibly technically involved, real investors know how to deal with risks and do not need to be condescended to about which deserve their attention more than others. “We are not the securities and environment commission,” Peirce warned, adding, “at least not yet.” Quite right. I would hope not ever if the rule of law is to be taken seriously, and exactly this kind of regulatory capture via backdoor-compliance enforcement of virtue signaling is to stop.

But could we probe deeper still? ESG is an attack vector, but what is the attack surface? Without intending to be flippant, I think it is centralization. Capital markets are centralized institutions and they are being attacked. So far, so bleak. Can we do anything about it? And what was that Thiel talk actually about, again?

Author(s): Allen Farrington

Publication Date: 21 April 2022

Publication Site: Medium

What’s New in Financial Reporting

Mary Pat Campbell

Link: https://cfany.gallery.video/fullconference/detail/videos/most-recent/video/6299420346001/what%E2%80%99s-new-in-financial-reporting?autoStart=true

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Description:

Program will bring you up to date with most recent and coming important financial reporting developments for 2022 from FASB. Speakers include two FASB Board members and SEC’s Senior Associate Chief Accountant.

Author(s): multiple presenters

Publication Date: 1 Mar 2022 originally presented, recording accessed 16 Mar 2022

Publication Site: CFA Society of New York

Big Four Accounting Firms Come Under Regulator’s Scrutiny

Mary Pat Campbell

Link: https://www.wsj.com/articles/big-four-accounting-firms-come-under-regulators-scrutiny-11647364574?st=e3o5412th5mqg7m&reflink=desktopwebshare_linkedin

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Excerpt:

Regulators are carrying out a sweeping investigation of conflicts of interest at the nation’s largest accounting firms, asking whether consulting and other nonaudit services they sell undermine their ability to conduct independent reviews of public companies’ financials, according to people familiar with the matter.

The Securities and Exchange Commission probe highlights the agency’s new focus on financial-market gatekeepers such as accountants, bankers and lawyers. These firms help companies raise capital and communicate with shareholders, but also have duties under federal investor-protection laws. Auditors are a shareholder’s first line of defense against sloppy or dodgy accounting.

….

The Big Four audit 66% of all public companies with a market capitalization over $75 million, according to Audit Analytics. All four have paid fines to the SEC since 2014 to settle prior regulatory investigations of audit independence violations.

Author(s): Dave Michaels

Publication Date: 15 Mar 2022

Publication Site: WSJ

SEC Set to Lower Massive Boom on Private Equity Industry

Mary Pat Campbell

Link:https://www.nakedcapitalism.com/2022/02/sec-set-to-lower-massive-boom-on-private-equity-industry.html

Excerpt:

In a matter of fact, understated manner, the SEC document makes clear that its enforcement regime has not succeeded in getting private equity fund managers to stop or at least considerably reduce their abuses. Recall that in 2014, then enforcement chief Andrew Bowden gave a peculiarly titled speech, Spreading Sunshine in Private Equity. The SEC has just started its initial examinations of private equity firms. Bowden said that the SEC had found serious abuses in more than half of the firms examines, including what in other circles would be called embezzlement. Bowden also said if anything the misconduct was more prevalent at the biggest firms, which was the reverse of what it found in other areas it regulated, where the crooked operators were normally boiler-room level.

This promising start quickly fizzled out. Yes, the SEC did engage in a series of enforcements actions, targeting common abuses like charging “termination of monitoring fees” which had never been contemplated in the fund agreements, and hauling up big name firms like Apollo, KKR, and Blackstone. However, this amounted to enforcement theater. The SEC acted as if “one and done,” citing particular firms for an isolated abuse, when all the big players were certain to have engaged in many others, and then acting as if everyone would shape up, was either craven or willfully blind. Bowden immediately turned to giving speeches on how private equity firms were obviously upstanding and wanted to do right. He then gave a speech at Stanford at a private equity conference where went on far too long about how he wanted his son to work in private equity and an audience member immediately said he wanted to hire him. Bowden left the agency in three weeks.

This SEC letter, by contrast, makes clear that the agency has ample evidence in its files of continued abuses by private equity fund managers. It does not mention a particularly egregious general strategy: of admitting in the annual disclosure documents, the Form ADV, that the private equity fund managers are violating their contracts with investors. Admitting a contractual violation does not cure it, but the private equity barons appear to believe they can create their own alternative reality. And until Gensler showed up, that belief looked to be correct.

Author(s): Yves Smith

Publication Date: 10 Feb 2022

Publication Site: naked capitalism

Judge narrows SEC bond rating lawsuit against Morningstar

Mary Pat Campbell

Link: https://www.businessinsurance.com/article/20220106/NEWS06/912347036/Judge-narrows-SEC-bond-rating-lawsuit-against-Morningstar,-SEC-v-Morningstar-Cre

Excerpt:

A U.S. judge on Wednesday narrowed but refused to dismiss a Securities and Exchange Commission lawsuit accusing Morningstar Inc. of letting analysts adjust credit rating models for about $30 billion of mortgage securities, resulting in lower payouts to investors.

U.S. District Judge Ronnie Abrams in Manhattan said the SEC plausibly alleged that Morningstar Credit Ratings failed to provide users with a general understanding of its methodology for rating commercial mortgage-backed securities and lacked effective internal controls over its ratings process.

Author(s): Reuters

Publication Date: 6 Jan 2022

Publication Site: Business Insurance

19,000 Retired Ohio Teachers Want Pension Prospectuses, Wall Street Wolves Say No Way

Mary Pat Campbell

Link:https://www.forbes.com/sites/edwardsiedle/2021/11/09/19000-retired-ohio-teachers-want-pension-prospectuses-wall-street-wolves-say-no-way/

Excerpt:

For nearly two decades, alternative investment managers have been permitted to handle public pension money while they refuse to play by the rules applicable to these funds and submit to public scrutiny.

Wall Street alternative managers have successfully argued that the very same investment information widely distributed to wealthy individuals somehow amounts to “trade secrets” exempt from public records laws… when requested by state workers.

While it’s not surprising Wall Street’s biggest gamblers want to keep investors in the dark as to their misdeeds, it’s unconscionable that STRS Ohio and other public pensions around the nation are willing to abandon transparency, exposing workers to unfathomable risks and jeopardizing their retirement security.

Alternative investment managers may seek to keep secrets, but it’s no secret what’s often in these well-guarded documents: excessive and illegal fees; outrageous conflicts of interest and self dealing; fiduciary breaches and outright violations of law—even criminal conduct. For example, eight years ago the SEC staff found that a majority of private equity firms inflate fees and expenses charged to companies in which they hold stakes.

Author(s): Edward Siedle

Publication Date: 9 Nov 2021

Publication Site: Forbes

Everyone Is Urging SEC To Stop Public Pension Mismanagement, Looting By Wall Street

Mary Pat Campbell

Link:https://www.forbes.com/sites/edwardsiedle/2021/10/07/everyone-is-urging-sec-to-stop-public-pension-mismanagement–looting-by-wall-street/

Excerpt:

An investigation of the Chicago Policemen Annuity and Benefit Fund was funded by members of the Chicago Police Department Pension Board Accountability Group. According to the report, the CPABF is one of the worst funded public pension plans in the U.S. today with a funding ratio at year-end of only 23%. According to the report, “The toxic mix of defunding the police pension, conflicted and high-risk investments, and poor management of the pension cry out for greater transparency and accountability.”

As Arthur Levitt, Chairman of the SEC stated back in 1999 in connection with the Commission’s review of pay-to-play practices at public pensions, “Today, public funds hold more than $2 trillion of assets. These assets do not belong to the elected officials, and they do not belong to the trustees. They belong to the tens of thousands of firefighters, ambulance drivers, city clerks, bus drivers and other public employees who make our communities work. “Their interests,” as my father said twenty years ago, “must be paramount in investment of that money.”

The tremendous importance of public funds demands that they be managed with complete honesty and integrity and for the sole benefit of their beneficiaries.”

Author(s): Edward Siedle

Publication Date: 7 October 2021

Publication Site: Forbes

Wall Street Links to Pennsylvania Pension Fund Probed by SEC

Mary Pat Campbell

Link: https://www.bloomberg.com/news/articles/2021-09-29/wall-street-links-to-pennsylvania-pension-fund-probed-by-sec

Excerpt:

A $66 billion Pennsylvania state pension fund under scrutiny for errors in calculating investment returns has been asked by securities regulators to turn over records related to possible gifts exchanges with dozens of Wall Street firms, according to a subpoena reviewed by Bloomberg.

The U.S. Securities and Exchange Commission issued the subpoena Sept. 24 to the Pennsylvania Public School Employees’ Retirement System, demanding information about the fund’s dealings with firms including Blackstone Inc., The Carlyle Group Inc., Morgan Stanley, Apollo Global Management Inc. and consultant Hamilton Lane Advisors. 

SEC Enforcement Division Senior Counsel Heidi Mitza asked that the pension fund supply “all Documents and Communications Concerning any compensation, remuneration, money, gifts, gratuities, trips or anything of any value” exchanged between representatives of investment managers, advisers, and consultants and any representatives of PSERS or the state, according to the subpoena. 

Author(s): Neil Weinberg

Publication Date: 29 Sept 2021

Publication Site: Bloomberg

Accounting Regulator Had Climate of Fear and Distrust, Report Says

Mary Pat Campbell

Link: https://www.wsj.com/articles/accounting-regulator-had-climate-of-fear-and-distrust-report-says-11624918488

Excerpt:

The January report by former SEC Chairman Harvey Pitt lays bare deep divisions within the Public Company Accounting Oversight Board, which oversees the audits of companies valued in total at trillions of dollars.

It also alleges organizational dysfunction. There were no records documenting the rationale for several staff firings, and confusion about the roles of the PCAOB’s board members has “created some dysfunctional behavior” by them, the report found.

Current SEC Chairman Gary Gensler this month ousted William Duhnke as PCAOB chairman and is replacing the rest of the five-member board.

A PCAOB spokeswoman didn’t return a request for comment. An SEC spokesman declined to comment. Mr. Duhnke said he hasn’t seen the report and cannot comment on it.

Author(s): Jean Eaglesham, Dave Michaels

Publication Date: 28 June 2021

Publication Site: WSJ

The SEC’s job is bigger than just protecting the investors, Mr. Gensler

Mary Pat Campbell

Link: https://www.truthinaccounting.org/news/detail/the-secs-job-is-bigger-than-just-protecting-the-investors-mr-gensler

Excerpt:

Unlike FASB, the SEC has no control over GASB. But the Commission is obligated “to protect investors in the municipal markets from fraud, including misleading disclosures [emphasis added].” Taken together, the SEC’s own statements make a strong case that it is obligated to prevent fraud in state and local governments’ financial reports, which are confusing and obfuscate the truth. 

The state and local governments’ annual financial reports are based on shoddy accounting practices. If confusing and misleading disclosures are considered fraud, then annual reports produce fraudulent disclosures.

It is confusing and misleading that the GASB requires state and local governments to keep two sets of books. Annual financial reports include governmental fund statements that are prepared using an accounting basis called the “modified accrual basis,” which in essence uses short-sighted cash accounting, while the consolidated financial statements are prepared using accrual accounting standards similar to those used by corporations. 

Author(s): Sheila Weinberg

Publication Date: 20 May 2021

Publication Site: Truth in Accounting

GameStop Frenzy, Archegos Meltdown May Prompt New SEC Rules, Chairman Says

Mary Pat Campbell

Link: https://www.wsj.com/articles/sec-studying-whether-new-rules-are-needed-for-apps-that-gamify-trading-chairman-says-11620239971

Excerpt:

In testimony prepared for the House Financial Services Committee, Securities and Exchange Commission Chairman Gary Gensler says brokerages that “gamify” trading — by using appealing visual graphics to reward a user’s decision to trade, for instance — may encourage frequent trading that results in worse outcomes for investors. Some Democratic lawmakers have blamed gamification for the boom in individual trading that helped drive the rise in GameStop shares.

Mr. Gensler, who will appear before lawmakers on Thursday, also said the SEC would study regulatory changes in response to the March blowup of Archegos Capital Management, an unregulated family-investment vehicle of hedge-fund veteran Bill Hwang whose leverage-fueled bets led to more than $10 billion in losses at major global banks.

Author(s): Dave Michaels, Alexander Osipovich

Publication Date: 5 May 2021

Publication Site: Wall Street Journal

SEC to Review Disclosure Rules in Wake of Archegos, GameStop: Report

Mary Pat Campbell

Link: https://www.fundfire.com/c/3147224/396504/review_disclosure_rules_wake_archegos_gamestop_report

Excerpt:

The Securities and Exchange Commission is considering a tightening of disclosure requirements for investment firms following the collapse of Archegos Capital Management and the GameStop trading frenzy, people familiar with the matter tell Bloomberg.

Officials at the SEC, now being led by Gary Gensler, who was confirmed as chairman of the regulator last week, want to increase transparency of the derivative trading that led to the implosion of Archegos, Bill Hwang’s family office, the people say.

Lawmakers have also heaped pressure on the agency as they seek more transparency about who is shorting stocks following the GameStop debacle.

Author(s): Kathleen Laverty

Publication Date: 22 April 2021

Publication Site: fundFire