Post on 07-Aug-2018
8/20/2019 Introduction to the U.S. Securites and Exchange Commision
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Dave Michaels
Bloomberg Newsdmichaels5@bloomberg.net
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George Bluth should have known:
The SEC can’t arrest you
• It’s a civil law enforcement agency
• They don’t have boats
* it would be cool if they did!• Remedies include authority to seek
sanctions (disgorgement, penalties,
interest) and to bar participants
from regulated industries
• Under Sarbanes-Oxley, SEC has authority to
return money to harmed investors
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Regulator of Wall Street
• Companies that raise money in the public
markets (IPOs, debt offerings, etc.)
• Stock exchanges and similar trading platforms
• Brokerages and securities dealers
– Goldman, JP Morgan, Credit Suisse, etc.
•
Investment advisers: mutual fund sponsors,hedge fund managers, private equity
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Debt Markets: $39T
3,652.4
12,504.8
8,728.3
7,845.3
2,028.7
2903.31,336.5
In billions
Municipal
Treasury
Mortgage Related
Corporate Debt
Agency Debt
Money MarketsAsset-Backed
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US Stock Market: $23T
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Broker-Dealers
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Investment Advisers
• Who is this hedge fund manager?
• http://www.adviserinfo.sec.gov/IAPD/Content
/Search/iapd_Search.aspx
– Assets under management
– Owners of fund adviser (general partner)
– Fees they charge
http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspxhttp://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspxhttp://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspxhttp://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspx
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Mutual Funds
• Total net assets in mutual funds (millions):
0.00
2,000.00
4,000.006,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
18,000.00
2009 2010 2011 2012 2013 2014
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Mutual Funds
• https://www.sec.gov/edgar/searchedgar/mut
ualsearch.htm
• Additional disclosures on the fund company’s
webpage:
– Prospectus
– Statement of Additional Information (more on
fees, relationships with broker-dealers)
– Statement of Holdings
https://www.sec.gov/edgar/searchedgar/mutualsearch.htmhttps://www.sec.gov/edgar/searchedgar/mutualsearch.htmhttps://www.sec.gov/edgar/searchedgar/mutualsearch.htmhttps://www.sec.gov/edgar/searchedgar/mutualsearch.htm
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Disclosures
• Securities laws are based on idea that
investors can make good decisions if they are
fully informed
– Thus, it’s a disclosure-based regime: companies
must share material information in 10Ks, 10Qs,
8Ks, etc.
• Bad guys often in trouble not for what theydo, but what they didn’t say they would do
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Company Filings
• S-1: The “registration statement”; filed whencompanies go public or issue new stock
• 10-Ks, 10-Qs: Keep an eye out for “Legal
Proceedings,” “Management’s Discussion andAnalysis,” and “Risk Factors”
• 13-D: Reports of major shareholders; filed
when investor exceeds 5% of outstandingshares
• 8-K: Current report of material information
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Report of the whale (8-K)
From JP Morgan 8-K, 9/19/13:
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Annual Proxy Reports
• In SEC-speak, form “DEF 14A” (for searching)
• How much is the CEO paid? What was his/her
bonus?
• Annual vote on the board of directors
• What shareholder-initiated ballot items are up
for a vote? What is management’s position on
them?
• Advisory vote on CEO pay
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Insider Transactions – Form 4
https://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_MainAccess.jsp
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A Commission
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Rulemaking and Enforcement Actions
Require Commission Votes
• ``Expectations were high for White, who came
to the job with a reputation as a tough
prosecutor. … That reputation has been
dented at the SEC. The pace of rulemaking hasbeen so slow that some staff have labeled
White’s office the cheese cellar: It’s where
policy goes to age.’’
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Agency Structure
Chairman
Trading andMarkets
InvestmentManagement
Enforcement
CorporationFinance
Examiners
GeneralCounsel
Commissioner
Commissioner
Commissioner
Commissioner
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Enforcement
• Commissioner votes on settlements and
decisions to litigate
• Subpoenas are issued by staff under delegated
authority
• Defendants can be sued in federal district
court or SEC administrative court
– http://www.sec.gov/litigation/litreleases.shtml
– http://www.sec.gov/litigation/apdocuments.shtml
http://www.sec.gov/litigation/litreleases.shtmlhttp://www.sec.gov/litigation/litreleases.shtml
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The SEC just sued Mark Cuban!
• Check: Federal Court or Administrative Proceeding?
• Names of defense counsel on SEC news release (202-551-4120)
• Read the SEC Complaint (linked from news release)
• What does any of this mean?
• Call law professors who are experts in securities law:
• Columbia’s John Coffee, Duke’s Jim Cox, Michigan’s Adam
Pritchard, etc.
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Five National Specialized Units
• Asset Management (mutual funds, hedge
funds, private equity)
• Municipal Securities and Public Pension
• Complex Financial Instruments
• Foreign Corrupt Practices (Bribery)
•
Market Abuse (Insider Trading, Cases AgainstExchanges or Trading Venues)
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Financial Crisis
• As of 2002, highest penalty ever was $10M vs.
Xerox for accounting fraud
• 2010: Goldman Abacus (CDO) case: $550M
• 2014:
– Morgan Stanley - $275 million
– Credit Suisse - $196 million
– Alcoa - $175 million
– RBS - $150 million
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SEC Enforcement Trends
Source: Steinway, Sonia “SEC Monetary Penalties Speak Very Loudly, But What Do They Say?”Yale Law Journal, October 2014
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Administrative Proceedings
* SEC’s in-house court
* Trial by SEC-appointed
judge, not by jury
* “Win rate” is 90%,
versus 69% in federal
court (WSJ, 5/6/15)
* Authority expanded by
2010 Dodd-Frank law
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Administrative Proceedings vs.
Civil Court Actions
386352
429 469 462 469
610
285312
252266 272
207
145
0
100
200
300
400
500
600
700
800
2008 2009 2010 2011 2012 2013 2014
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Municipal Bonds
• A debt security issued by a state, municipality or
county to finance capital expenditures
• Municipal Securities Rulemaking Board’s EMMA
site is source for disclosures and priceinformation/trade data
• http://emma.msrb.org/home •
http://emma.msrb.org/homehttp://emma.msrb.org/home
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Other Fun Stuff
• Political contributions by municipal securitiesdealers:
http://emma.msrb.org/MarketActivity/PoliticalContributions.aspx
• Find any issuers in your home state or region:http://emma.msrb.org/issuerhomepage/Map
• Sign up for alerts:http://emma.msrb.org/EmmaHelp/ManagingAlerts.aspx
http://emma.msrb.org/MarketActivity/PoliticalContributions.aspxhttp://emma.msrb.org/MarketActivity/PoliticalContributions.aspxhttp://emma.msrb.org/issuerhomepage/Maphttp://emma.msrb.org/issuerhomepage/Maphttp://emma.msrb.org/MarketActivity/PoliticalContributions.aspxhttp://emma.msrb.org/MarketActivity/PoliticalContributions.aspxhttp://emma.msrb.org/MarketActivity/PoliticalContributions.aspx
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Enforcement Cases vs. Munis
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Disclosures are good source of info re: local finances
and economies
Source: City of Dallas Official Statement, GO Bonds, issued: 12/22/2014, CUSIP: 235219KF8
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Disclosures cover balance sheet info,
legal matters, pension obligations
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Munis face increasing scrutiny
• “Calpers, at $300 billion the largest publicpension in the U.S., reported in July that itearned 2.4 percent in its last fiscal year, less
than one-third its 7.5 percent target.”• ``Dallas is facing increasing financial pressure
as lower-than-forecast returns cause theshortfall in its police and firefighters’ pensionfund to more than triple to $4.7 billion,Moody’s Investors Service said.’’
Source: Making U.S. Pensions Honest About Returns Means Bigger Deficits,
Bloomberg 9/13/15