Friday, September 25, 2015

SEC Proposes To Expand Discovery In Administrative Hearings

In response to criticism from banks and investment advisors, the SEC has proposed several rule changes to how it conducts administrative hearings. The proposed changes will do three things. First, they will extend the time between the initiation of the proceeding and the hearing, giving respondents more time to prepare their case. Second, they will allow respondents to take depositions. Third, they will require the parties to use electronic service for the filings of papers.

“The proposed amendments seek to modernize rules of practice for administrative proceedings, including provisions for additional time and prescribed discovery for the parties,” SEC Chairman Mary Jo White said in a statement.

It is interesting, if not particularly surprising, that the SEC has moved so quickly to respond to industry concerns regarding the limited discovery available in these proceedings. Attorneys representing claimants in FINRA arbitrations against banks have complained for years without any success about the limited discovery (including lack of depositions) in those proceedings.

The SEC's proposed rule changes are available here and the SEC's press release discussing those changes are available here.

Tuesday, September 15, 2015

Credit Suisse To Settle With Regulators Over Dark Pools

Credit Suisse is reportedly about to pay $80 million to the SEC and state regulators to settle claims arising out of their management of "dark pools." Dark pools are private exchanges for trading securities where large investors can undertake block trades. Because there is no transparency relating to the trades taking place in dark pools, they are susceptible to conflicts of interests by the operators of the dark pools and to predatory practices by high frequency traders.

This is not the first such settlement with and is unlikely to be the last:

The deal will be the second time in a few weeks that the SEC has set a record payout in a dark pool case. Last month, Investment Technology Group Inc. said it would pay $20.3 million for operating a proprietary trading desk that used knowledge of customers’ requests to trade for its own benefit, among other infractions. In January, UBS Group AG paid $14.4 million for lack of disclosures about how its dark pool operated.

Friday, September 11, 2015

SEC: Calling Leveraged Fixed Income Products Safe Is Fraud

Citigroup has agreed to pay $180 million to settle SEC charges related to its ASTA and MAT municipal bond funds. The advisers called the investments safe while hiding from clients the significant risks involved, according to the SEC.

Citigroup pitched the investment as a “better version of a bond” and instructed some clients to sell their unleveraged fixed-income portfolios in order to buy into the investment, according to the SEC. Internally, the private bank rated the funds as having “significant risk to principal,” while not sharing that assessment with the majority of investors and sales people, the SEC said.

Leveraging even safe investments always increases their risk and the failure to adequately inform investors of those risks and to guard against them can expose investors to significant losses and advisors to legal liability.

Thursday, September 3, 2015

Settlement Of Claims Against Employers For High Fee Funds in 401(k)s

Boeing is the most recent company that employees have held to account for mismanaging its 401(K) plan. Employers offering such retirement plans have a legal obligation to ensure that its employees are not hit with excessive management fees:

If a company does right by its workers, it finds low-cost, well diversified, smart investment choices, many experts say. But Schlichter says some companies offer workers mutual funds with fees that are way too high. Sometimes, he says, the companies get kickbacks for that.

By offering high cost options in its 401(k), a company can cost its employees hundreds of thousands of dollars over the life of the investments. For example, a fee that is only one percent higher will cost employees 28% in returns over a 35-year work career. What does this mean for you?

[G]enerally, if you're paying less than 0.5 percent in fees total for your investments, you're doing well. But if you're paying more than 1 percent, you're losing a lot of money over time.

Is your company's 401(k) costing you more than it should?