Entries in SEC (17)


Moody's Ex-Staffer Says Ratings Rife with Conflicts

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- The former Moody's analyst who filed blistering comments with U.S. regulators about conflicts of interest at his former employer says analysts must be shielded from retaliation if the bond ratings system is to be fixed.

William Harrington, a Moody's senior vice president in the Derivatives Group who was an employee from June 1999 until his resignation in July 2010, filed a 78-page letter with the Securities and Exchange Commission about proposed rules for the ratings agencies.

Harrington described systematic problems within the ratings agencies that can lead to conflicts of interest and flawed ratings reports. Harrington seems to confirm the familiar concern that Moody's is being paid by the companies whose securities it rates and therefore has their best interests at heart.

The major ratings agencies Moody's and Standard & Poor's have come under fire for their role in assigning top ratings to bundles of mortgage securities that went delinquent, leading to the financial meltdown that began in 2008.

Harrington said analysts were intimidated or harassed, and dissenting analysis was not properly weighed in final decisions. "Putting up a spirited effort before caving-in made analysts look good in the eyes of management. Opposing a banker or issuer brought only trouble from Moody's senior management," Harrington wrote.

He wrote that "bankers and issuers were willing to have as many calls a day as were necessary to wear a rating team down."

Formal feedback in annual reviews for an analyst, or "contributor," centered on "the recurring themes that the contributor should make life easier for bankers and issuers and that he should be more alert to the bottom line."

Over 55 comments have been submitted after the SEC announced the beginning of the public comment period in May.

An agency spokesman said the commission is beginning to sort through the comments and may not begin further steps until January to June next year.

In response to the Harrington's letter, Moody's issued a statement:

"We cannot emphasize strongly enough the importance Moody's places on the quality of our ratings and the integrity of our ratings process. For that very reason, we have robust protections in place to separate the commercial and analytical aspects of our business."

The goal of management, Harrington wrote, "is to mold analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximizing earnings of the largely captive franchise."

He wrote that the management and the board "are squarely responsible for the poor quality of previous Moody's opinions that ushered in the financial crisis and should not be given first shot at debasing future opinions as well. Seriously, dudes, not for nothing, but something is way wrong with this picture. The phrase 'bass ackwards' recurs. Please re-calibrate."

Harrington asks why analysts would want to work at Moody's given the possibly troubled internal reporting process within the company.

He answers that "analysts once came to Moody's solely to do work of which they would be proud, not to kowtow to their superiors and certainly not to prostrate themselves in front of whichever external entity happened to be footing the bill on a given day."

Copyright 2011 ABC News Radio


J.P. Morgan Settles With SEC, Agrees to Pay $153.6M

STAN HONDA/AFP/Getty Images(WASHINGTON) -- J.P. Morgan has agreed to pay $153.6 million to settle charges that it misled investors in Collateralized Debt Obligations (CDOs) tied to the housing market.

The Securities and Exchange Commission alleged that J.P. Morgan did not tell investors that hedge fund Magnetar helped select assets in the CDO portfolio and was betting that those assets would lose value. As a result, the hedge fund was poised to benefit if the CDO assets it was selecting for the portfolio defaulted.

J.P. Morgan did not admit or deny the allegations but agreed to a final judgment.  As part of the agreement,  J.P. Morgan agreed to improve the way it reviews and approves mortgage securities transactions.

The affected investors included:

  • Thrivent Financial for Lutherans, a faith-based non-profit membership organization in Minneapolis.
  • Security Benefit Corporation, a Topeka, Kan.-based company that provides insurance and retirement products.
  • General Motors Asset Management, a New York-based asset manager for General Motors pension plans.
  • Financial institutions in East Asia including Tokyo Star Bank, Far Glory Life Insurance Company Ltd., Taiwan Life Insurance Company Ltd., and East Asia Asset Management Ltd.

Copyright 2011 ABC News Radio


Trading Suspended for 17 Companies Suspected in Microcap Fraud

Comstock/Thinkstock(WASHINGTON) -- The SEC on Tuesday suspended 17 microchip stocks with concerns about the the exactitude of public information about companies that trade in the over-the-counter (OTC) market.

The SEC's Office of Market Intelligence, several regional offices and its new Microcap Fraud Working Group worked together in a proactive effort to detect fraud involving microchip securities, the agency said in a release.  

"They may be called 'penny stocks,' but victims of microchip fraud can suffer devastating losses," Robert Khuzami, director of the SEC's enforcement division, said Tuesday.

Khuzami said the Microcap Fraud Group will continue to target transfer agents, brokers, attorneys, auditors and other "gatekeepers" who benefit from less-than-transparent practices.

The companies included in the suspension are:

-- American Pacific Rim Commerce Group (APRM), based in Citra, Fla.
-- Anywhere MD, Inc. (ANWM), based in Altascadero, Calif.
-- Calypso Wireless Inc. (CLYW), based in Houston.
-- Cascadia Investments, Inc. (CDIV), based in Tacoma, Wash.
-- CytoGenix Inc. (CYGX), based in Houston.
-- Emerging Healthcare Solutions Inc. (EHSI), based in Houston.
-- Evolution Solar Corp. (EVSO), based in The Woodlands, Texas.
-- Global Resource Corp. (GBRC), based in Morrisville, N.C.
-- Go Solar USA Inc. (GSLO), based in New Orleans.
-- Kore Nutrition Inc. (KORE), based in Henderson, Nev.
-- Laidlaw Energy Group Inc. (LLEG), based in New York City.
-- Mind Technologies Inc. (METK), based in Cardiff, Calif.
-- Montvale Technologies Inc. (IVVI), based in Montvale, N.J.
-- MSGI Security Solutions Inc. (MSGI), based in New York City.
-- Prime Star Group Inc. (PSGI), based in Las Vegas, Nev.
-- Solar Park Initiatives Inc. (SOPV), based in Ponte Verde Beach, Fla.
-- United States Oil & Gas Corp. (USOG), based in Austin, Texas.

Copyright 2011 ABC News Radio


SEC Investigating Former Fannie Mae CEO

Mark Wilson/Getty Images(NEW YORK) -- The former chief executive of Fannie Mae announced that he is being investigated by the Securities and Exchange Commission after receiving a Wells Notice - notification of impending charges.

Daniel Mudd, who ran Fannie Mae from 2004 to 2008, when the government took control of the mortgage giant, could be charged with misleading investors on subprime mortgages.

Since his dismissal, Mudd has served as CEO of the New York-based hedge fund Fortress Investment Group.

Copyright 2011 ABC News Radio


Trader Arrested for Threatening SEC

Photo Courtesy - Alnbri Management, LLC(NEW YORK) -- A New York trader who put a price on the heads of officials from the U.S. Securities and Exchange Commission (SEC) on his website was arrested Thursday night at Newark Liberty Airport upon his return to the U.S. from Singapore, authorities said.

Court records say Vincent McCrudden threatened to kill 47 current and former financial regulators officials at the SEC, the Financial Industry Regulatory Authority, National Futures Association and the U.S. Commodity Futures Trading Commission.

“He’s a good guy,” McCrudden’s lawyer, Bruce Barket, told ABC News. “He’s certainly not going to hurt anybody. He’s short tempered and he’s ill mannered. His creative writing needs some work. His timing is particularly bad, but the idea that this is anything other than a guy spouting off is just silly.”

Barket said that McCrudden, who trades primarily for himself, has been upset with financial regulators since 2003 when he was acquitted of mail fraud.

Copyright 2011 ABC News Radio


Investment Fraud on the Rise, Federal Officials Say

Photo Courtesy - Getty Images(WASHINGTON) -- On Monday, Attorney General Eric Holder and representatives from the FBI, Securities Exchange Commission and Commodity Futures Trading Commission announced the results of an operation that has been ongoing since August titled, “Operation Broken Trust,” which highlighted a series of arrests and cases targeting investment fraud. The cases announced Monday ranged from taking down Ponzi schemes and business opportunity fraud, to high-yield investment scams.
The round-up targeted 343 criminal defendants who scammed an estimated 120,000 victims.  The victims suffered approximately $8.38 billion in losses due to the fraud. One example cited in the press conference was Frank Castaldi, who targeted friends and people in his neighborhood in establishing a $77 million Ponzi scheme. One of the victims in the case, Frank Cesare, told local media at the time that he knew Castaldi and his family for 55 years, but lost his entire life savings to him.

FBI Executive Assistant Director Shawn Henry said, "The perpetrators of these crimes are those who you might trust -- hence the term Operation Broken Trust -- friends, colleagues, people you worship with, people in your workplace, people from your kid's soccer team. Criminals have always preyed on the trust of individuals, with offers too good to be true.”

Robert Khuzami, the SEC’s Director of Enforcement, said he feared these types of scams were on the rise: “I do think that we see situations, where as more and more people look to third parties to invest their money, through intermediaries, money managers and the like, you know, the frequency with which we might see these types of schemes arise, I think, is on the increase.”

Copyright 2010 ABC News Radio 


SEC: Computerized Trading Caused 'Flash Crash'

Photo Courtesy - Getty Images(WASHINGTON) -- The Securities and Exchange Commission said Friday that a major sell-off by a mutual fund caused the so-called "flash crash" back on May 6 that caused the Dow to drop nearly 1,000 points in minutes.

Identified by The Wall Street Journal as Kansas-based Waddell & Reed, the company apparently decided to sell $4.1 billion worth of futures contracts, electing to computerize the order.

Within 20 minutes, computers pushed the volume of shares onto the market, effectively flooding it and triggering other automated sell orders, which snowballed into the massive sell-off. Manually entering the trade could have taken five hours.

Regulators have recalibrated market circuit breakers and the report says the SEC will determine whether that is enough.

Copyright 2010 ABC News Radio

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