CFTC SETTLES "BUCKETED ORDRS" CHARGES AGAINST TRADERS

FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Suspends Registrations of Chicago Mercantile Exchange Traders Christopher Foufas, William Kerstein, and Maksim Baron for Unlawful S&P 500 Trading

Washington DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued orders filing and settling charges against Christopher T. Foufas and Maksim Baron of Chicago, Ill., and William K. Kerstein of Riverwoods, Ill., all registered floor brokers in the Chicago Mercantile Exchange’s (CME) Standard & Poor’s 500 Stock Price Index futures contract (S&P 500) trading pit.

The CFTC order entered against Foufas finds that he indirectly bucketed his customers’ orders on at least 11 occasions between May 2009 and October 2010. On each of these occasions, Foufas, while filling customers’ orders in the S&P 500 trading pit, indirectly took the opposite side of his customers’ orders for his own account through noncompetitive round-turn trades with accommodating traders, according to the order. This practice permitted Foufas to establish a position for his own account without competitive execution, according to the order.

The CFTC orders entered against Kerstein and Baron find that Kerstein and Baron accommodated another broker in taking the opposite side of his customer orders into his own account on seven and four of these occasions, respectively.

The CFTC orders require Foufas, Kerstein, and Baron to pay civil monetary penalties of $75,000, $50,000, and $20,000, respectively. The orders also suspend Foufas’ and Baron’s floor registrations for two months and Kerstein’s floor registration for one month, removing them from the trading floor. The order also prohibits Foufas from filling or executing orders for customers for 18 months. The orders require all three traders to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged.

The CFTC’s Enforcement Division thanks the staff of the CME’s Market Regulation Department for their assistance.

CFTC Division of Enforcement staff members responsible for this case are Jon J. Kramer, Mary Beth Spear, Ava M. Gould, Elizabeth M. Streit, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner. Meghan M. Wise of the CFTC’s Division of Market Oversight also contributed to this matter.

TWO OPTIONS TRADERS TO PAY $14.5 MILLION TO SETTLE SHORT SALES CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 17, 2012 – The Securities and Exchange Commission today announced that two options traders who the agency charged with short selling violations have agreed to pay more than $14.5 million to settle the case against them.

An SEC investigation found that brothers Jeffrey A. Wolfson and Robert A. Wolfson engaged in naked short selling by failing to locate shares involved in short sales and failing to close out the resulting failures to deliver. SEC rules require short sellers to locate shares to borrow before selling them short, and they must purchase securities to close out their failures to deliver by a specified date. The Wolfsons made approximately $9.5 million in illegal profits from their naked short selling transactions.

"The Wolfsons attempted to game short-selling restrictions in order to win millions of dollars in illegal profits. This settlement deprives them of those profits and more," said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

According to the SEC’s orders settling the administrative proceedings against the Wolfsons, they made illegal naked short sales from July 2006 to July 2007. Jeffrey Wolfson, who lives in the Chicago area, conducted illegal naked short sales while working as a broker-dealer himself and later as the principal trader at a Chicago-based brokerage firm that is no longer in business. Robert Wolfson, who lives in Massachusetts, conducted illegal naked short sales while trading in an account at New York-based broker-dealer Golden Anchor Trading II LLC, which also was charged by the SEC and agreed to the settlement. Jeffrey Wolfson generated approximately $8.8 million in net illicit trading profits, and Robert Wolfson and Golden Anchor made more than $700,000.

The Wolfsons and Golden Anchor settled the SEC’s administrative proceedings without admitting or denying the findings. Jeffrey Wolfson is required to pay $13.425 million, which includes a $2.5 million penalty in addition to disgorgement and prejudgment interest. Robert Wolfson and Golden Anchor are required to collectively pay $1.1 million in disgorgement, prejudgment interest, and penalties. Jeffrey Wolfson is suspended from working in the securities industry for 12 months, and Robert Wolfson is suspended for four months. Golden Anchor has been censured, and along with the Wolfsons is subject to a cease and desist order from committing or causing violations of the short sale rules they violated.

The SEC’s investigation was conducted in the New York Regional Office by Steven Rawlings, Peter Altenbach, Daniel Marcus, and Layla Mayer. The litigation was led by Kevin McGrath. The SEC acknowledges the assistance of the Chicago Board Options Exchange and the Financial Industry Regulatory Authority in this matter.

JUDGMENTS ENTERED AGAINST DEFENDANTS FOR DISTRIBUTING UNREGISTERED SHARES OF UNIVERSAL EXPRESS INC.

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that the United States
District Court for the Southern District of New York entered an amended judgment
on July 26, 2012, against defendants Michael J. Xirinachs and Emerald Asset
Advisors LLC (Emerald Asset) of Melville, New York, previously finding on August
11, 2011 that they had engaged in an unregistered distribution of billions of
shares of Universal Express Inc. (USXP) between February 2006 and June 2007. The
judgment enjoined Xirinachs and Emerald Asset from future violations of the
securities registration provisions of Section 5 of the Securities Act of 1933,
ordered them jointly and severally to disgorge over $3.8 million in profits plus
prejudgment interest, and pay civil penalties of $3,835,000 based on 590
unregistered transactions; ordered Xirinachs separately to disgorge over
$428,000 in compensation plus prejudgment interest, and pay civil penalties of
$2,119,000 based on 326 unregistered transactions; and barred Xirinachs and
Emerald Asset from participating in penny stock offerings for three years, but
allowed them to purchase penny stocks during that period. The other defendants
were previously sanctioned on September 8, 2011.

SEC UNDER SECRETARY MILLER SPEAKS AT BRETTEN WOODS COMMITTEE

Remarks of SEC Under Secretary Miller at an event hosted by the Bretten Woods Committee

"Navigating Transformatinal Change of Global Financial Landscape: Realizing Systemic Stability, Avoiding Unintended Consequences"

As prepared for deliveryWASHINGTON - Thank you very much for the invitation to join you today.

Meetings like this are important opportunities for global leaders in the public and private sectors to collaborate and learn from each other. I am joined today by my colleagues from the Financial Stability Oversight Council and the Office of Financial Research. As we work to get the rules of regulatory reform right and to address threats to financial stability, we need broad engagement. Every rule I work on benefits from public input.

Today I want to build on your constructive dialogue by talking about our progress implementing regulatory reform and the challenges that remain, particularly in connection with identifying and addressing risks to financial stability. Then I look forward to answering your questions.

For the last two years, Treasury and financial regulators have been hard at work creating a more resilient financial system. We were given a big assignment, and we have made tremendous progress. Nine out of 10 rules with deadlines before mid-July have been proposed or finalized. New institutions are up and running and already hard at work, including the Consumer Financial Protection Bureau, the Financial Stability Oversight Council, and the Office of Financial Research, or better known to you as the CFPB, the FSOC, and the OFR. The framework of our new system is in place.

Financial reform has significantly improved our ability to monitor and contain risks to financial stability. Financial institutions are much stronger, making them better able to withstand shocks. Increased trading on exchanges and new trade repositories and reporting are bringing transparency to markets. The FSOC and OFR are actively monitoring threats to financial stability and strengthening coordination among regulators. Every day I see more evidence of this progress.

But even with the benefit of these new rules and institutions, we approach the task of identifying and addressing risks to financial stability with humility. In my experience, you are never handed the same script for a financial crisis or shock. The next financial crisis is unlikely to look like the last. Problems can surface in unexpected ways that will challenge even the most sophisticated tools and the smartest regulators.

The reforms we have put in place have made our financial system less vulnerable, but we all have more to do.

PROGRESSA Strengthening Economy As a result of this Administration’s efforts, we’ve made considerable progress in repairing the economic damage from the crisis and putting our financial system on sounder footing.
The U.S. economy is gradually getting stronger. GDP is back to its pre-crisis levels. The private sector has added more than 4.4 million jobs over the last 28 months.
Not only is credit expanding, but the cost of credit has fallen significantly from the peaks of the crisis. Commercial and industrial lending at banks increased 10 percent in 2011 and increased at an annual rate of 11 percent in the first five months of this year.
Our national deficit peaked three years ago in 2009, both in dollars and as a share of GDP.
The government has closed most of the emergency programs put in place during the crisis and recovered most of its financial sector investments. For example, the Troubled Asset Relief Program is expected to cost taxpayers a small fraction of original forecasts. Most of the expected cost will be a result of the support provided to the housing market, which is showing signs of stabilizing.
But challenges remain. Although the U.S. economy is still expanding, the pace of economic growth has slowed during the last two quarters. Headwinds from Europe are partly to blame. In addition, the rise in oil prices earlier this year, the ongoing government spending reduction, and slow rates of growth in income have all adversely affected U.S. growth.

The slowdown in U.S. growth could be exacerbated by uncertainty about fiscal matters. The United States faces unsustainable fiscal deficits. To restore fiscal responsibility, policy makers must take action but there is significant uncertainty about the shape of the reforms to tax policy and spending to come.

Further, global economic growth has slowed in recent months and forecasts for future growth have been reduced. The continuing crisis in Europe is the key factor behind the slowdown. Growth in China, India, Brazil and other large emerging economies has also slowed as a result of weaker external demand combined with the effects of past policy tightening and an increase in risk aversion.

In summary, U.S. economic activity has moderated in recent months, with growth held back by a number of temporary factors. Looking ahead, the fundamentals for the private sector are generally supportive, and the housing market appears to be stabilizing. We continue to expect growth to strengthen gradually going forward.

Financial Regulatory Reform: Stronger Financial Institutions and Financial MarketsDespite these challenges, we have remained focused on the need to complete financial regulatory reform, which we believe is a necessary foundation for sustained economic growth and financial stability. More resilient financial institutions and markets are less vulnerable to financial shocks and less likely to propagate risk.

I want to highlight a few specific areas where we believe reform is building stronger institutions and markets.
More capital: We have forced banks to substantially increase the amount of capital they hold, so that they are able to provide credit to the economy and absorb losses in the future. Banks have added over $400 billion of high-quality capital, up 70 percent from three years ago.

Reduced leverage: Overall leverage in the financial system has been reduced significantly. Financial sector debt has dropped by more than $3 trillion since the crisis, and household debt is down $900 billion.

More stable funding models: Banks are funding themselves more conservatively, relying less on riskier short-term funding. As we learned during the financial crisis, reliance on short-term funding can quickly threaten a troubled firm. In addition, the use of the "shadow banking system"—a key source of financial stress during the crisis—has decreased substantially.

Reducing risk: Regulators are limiting risk-taking at the largest financial institutions, recognizing the outsized threats they can pose in times of market stress. Federal regulators have imposed tougher standards on the largest banks, and we can now subject the largest non-banks to enhanced supervision and prudential standards. Eight large financial market utilities, such as clearinghouses, will now be subject to heightened risk management standards. High-risk trading strategies and investments at depository institutions will be more constrained by the Volcker Rule.

Limiting contagion: Regulators are putting in place the framework for the "orderly liquidation authority," a mechanism to unwind large, complex financial companies. Through this authority, which was sorely lacking during the crisis, we are protecting taxpayers and preserving financial stability in the event of a failure of a large financial firm. In addition, nine of the largest bank holding companies recently submitted their "living wills," providing contingency plans for an orderly bankruptcy.
And finally,
More transparent derivatives markets: The SEC and CFTC are putting in place a new framework for derivatives oversight, providing new safeguards for market participants. Following the adoption of swaps definitions this month, more than 20 key rulemakings can now move forward. This marks a major milestone in the implementation of derivatives reforms. As swaps move onto transparent trading venues and are centrally cleared, regulators and market participants will have much more insight into these exposures and potential risks in the derivatives markets.
Financial Regulatory Reform: Identifying and Addressing Risks to Financial StabilityFSOC
We are also building new institutions. The Financial Stability Oversight Council and the Office of Financial Research, both created by the Dodd-Frank Act, are actively monitoring and mitigating threats to the stability of the financial system.

Since its first meeting in October 2010, the FSOC has met regularly to discuss market developments and potential threats to stability. Most recently, the FSOC has focused on the situation in Europe, our housing market, and the lessons to be drawn from recent errors in risk management at several major financial institutions, including the failure of MF Global and the trading losses at JPMorgan Chase.

One of the duties of the FSOC is to facilitate information-sharing and coordination among its member agencies. In the run-up to the crisis, fragmentation in our regulatory system allowed many risks to slip through the cracks. As Chair of the FSOC, Secretary Geithner continues to make it a priority that the work of the regulators is well-coordinated.

Last week, the FSOC released its second annual report, which includes a review of significant financial market and regulatory developments, potential emerging threats to financial stability, and recommendations to strengthen the financial system. As Under Secretary, I spend time working with the FSOC staff and agencies, and I can tell you that generating the report is an extraordinarily useful and demanding process.

OFRThe Dodd-Frank Act also established the OFR to collect and standardize financial data, perform essential research, and develop new tools for measuring and monitoring risk. In its first annual report, also released last week, the OFR noted that gaps in financial data and in our understanding of the financial system still represent risks.

Currently, the OFR is working on a number of projects with the FSOC, including developing metrics for and indicators of financial stability. The OFR is also providing analysis related to the FSOC’s evaluation of nonbank financial companies for potential designation for Federal Reserve supervision and enhanced prudential standards.

One ongoing priority is establishing a legal entity identifier (LEI), or unique, global standard for identifying parties to financial transactions. The LEI can improve the quality of financial data, especially in identifying the largest and most complex firms’ exposures, and thus help to detect a buildup of risk in the system.

Current Threats to Financial StabilitySo where do we see threats to financial stability today? I would like to highlight just a couple of areas raised in the FSOC’s report.

Risks in Wholesale Funding MarketsThe FSOC recommended a set of reforms to address structural vulnerabilities, particularly in wholesale short-term funding markets such as money market funds and the tri-party repurchase agreement market. As we saw during the financial crisis, these sources of funding were particularly vulnerable to disruption, which quickly spread through the markets.

Firms should closely monitor their reliance on wholesale short-term funding. Maturity transformation, which entails funding longer-term assets with short-term debt, is a core function of the financial system, but overreliance can create additional vulnerabilities in stressed environments.

The SEC adopted a number of reforms to the regulation of money market funds in 2010 that provided additional safeguards. However, money market funds continue to lack a mechanism to absorb a sudden loss in value of a portfolio security, and investors have an incentive to redeem at the first indication of any perceived threat to the value or liquidity of the fund, potentially disadvantaging remaining shareholders. The FSOC recommends that the SEC publish structural reform options for public comment and ultimately adopt additional reforms.

In the tri-party repo markets, the FSOC supports additional steps toward reducing intraday credit exposure between clearing banks and market participants. In addition, the FSOC recommends that regulators and industry participants work together to better define standards for collateral management in the tri-party repo market, particularly for lenders (such as money market funds) that have certain restrictions on the instruments that they can hold.

Risk Management and Supervisory AttentionThe FSOC also recommends that financial institutions establish strong risk management and reporting structures to help ensure that risks are evaluated independently and at appropriately senior levels. This means prudent risk management practices for complex trading strategies. Financial institutions also need to maintain disciplined credit underwriting standards and vet emerging financial products.

The report notes, for example, that high-speed trading is an area where increased speed and automation of trade execution may require a parallel increase in trading risk management and controls. The Flash Crash in May 2010 highlighted system-wide vulnerabilities in the equities and futures markets. Since then, the regulators have taken a number of steps to address potential risks.

For example, the SEC put in place a dynamic single-stock circuit breaker called the limit up/limit down rule. In addition, they recently approved a plan to create a consolidated audit trail that would allow regulators to monitor and respond to events in the equity markets in a more robust and timely manner. However, more work needs to be done as financial markets evolve and high speed trading becomes more prevalent. We must continue to track developments and analyze risks with real-time policy responses.

GOING FORWARD: PARTNERING IN FINANCIAL STABILITYAs you can see, reform is improving the way we identify threats to financial stability. We have made tremendous strides. Our financial system is stronger and safer. A number of important reforms are in place. The FSOC and the OFR are on the job.

While the government will continue to work diligently to strengthen the financial system against potential threats, we cannot do this alone. The financial services industry must become a stronger partner in both regulatory reform and initiatives aimed at financial stability.

During the financial crisis, some in the private sector acted irresponsibly. Risk built up where we did not have visibility or the tools to contain it. Taking risk is an important engine of financial returns, but it must be managed.

I would like to share a few suggestions on how the private sector can do its part.

First of all, reward people for both realizing profit and constraining risk. A culture that primarily rewards short-term profits should be set aside in favor of one that strives for long-term gains and stability.

Implement best-in-class risk management practices.
Run rigorous stress tests and scenario analyses. Consider how investments and activities can have unintended consequences for financial markets.
Increase transparency in financial reporting beyond existing requirements.
Empower, recognize, and reward effective risk managers. Signal to the organization that risk management is valued.
Participate in industry forums to share lessons learned and develop best practices.
These initiatives are not only good for the financial system but also benefit financial firms by promoting client, customer, bondholder, and stockholder confidence.

I would also add that the relentless efforts of some in the financial industry to undermine, work around, or stall reform are short-sighted. I strongly believe that such efforts will further undermine trust in financial firms – trust that is essential for the functioning of the industry.

Regulatory reform benefits, not disadvantages, financial firms. We look forward to continued engagement to make our financial system more vibrant and safe. To achieve that, the financial services industry and the government each have a lot of work to do. We share responsibility for protecting Americans from the extraordinary damage – lost jobs, lost homes, lost businesses, and lost wealth – that a financial crisis can cause. Americans deserve a financial system that is the foundation for sustained growth and economic security.

Thank you.

MAN SETTLES CHARGES OF MARKET MANIPULATION WITH SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Defendant Matthew Brown Settles Penny Stock Manipulation ChargesThe Securities and Exchange Commission announced today that Chief Judge Gregory M. Sleet of the United States District Court for the District of Delaware entered a final judgment against Defendant Matthew W. Brown on July 2, 2012 in SEC v. Dynkowski, et al., Civil Action No. 1:09-361, a stock manipulation case the SEC filed on May 20, 2009, and amended on March 25, 2010 and December 22, 2011, to charge additional individuals. The SEC’s complaint alleges that Brown participated in market manipulation schemes involving the stock of GH3 International, Inc. and Asia Global Holdings, Inc.

As alleged in the complaint, the schemes generally followed the same pattern: Defendant Pawel P. Dynkowski and his accomplices agreed to sell large blocks of shares for penny stock companies in exchange for a portion of the proceeds. The shares were put in nominee accounts that Dynkowski and his accomplices controlled. The defendants artificially inflated the market price of the stocks through wash sales, matched orders and other manipulative trading, often timed to coincide with false or misleading press releases, and then sold shares obtained from the issuers and divided the illicit proceeds.

As alleged in the complaint, Dynkowski orchestrated the manipulation scheme involving GH3 International, Inc. stock in 2006 with Brown, who operated a penny stock website called InvestorsHub.com. The complaint alleges that in this scheme Dynkowski and Brown engaged in manipulative trading and that Brown helped coordinate this manipulative trading with issuance of false press releases. The complaint alleges that this scheme generated approximately $747,609 in illicit profits.

The complaint further alleges that in 2006, Brown planned the manipulation scheme involving the stock of Asia Global Holdings, Inc., with two defendants who were registered representatives at a small broker-dealer in California. As alleged in the complaint, Dynkowski and another defendant manipulated the price of Asia Global stock using wash sales, matched orders, and other manipulative trading, coordinated with false press releases. After manipulating the price of the stock, the complaint alleges, Dynkowski, Brown, and others in this scheme sold 54 million shares that had been improperly registered on SEC Form S-8 and held in nominee accounts, generating over $4 million in illicit profits.

To settle the SEC’s charges, Brown consented to a final judgment that permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 13(d) of the Securities Exchange Act of 1934, and Rules 10b-5, 13d-1 and 13d-2 thereunder; orders disgorgement of $86,745 and prejudgment interest of $24,081; and bars Brown from participating in any offering of a penny stock. In a related criminal case, Brown previously pled guilty to conspiracy to commit securities fraud and conspiracy to engage in money laundering. He was sentenced to four years in prison and ordered to pay criminal forfeiture of $4,798,138. U.S. v. Brown, Criminal Action No. 09-46-SLR (D. Del.).

The SEC thanks the following agencies for their cooperation and assistance in connection with this matter: the U.S. Attorney’s Office for the District of Delaware; the Delaware State Police; United States Immigration and Customs Enforcement, Department of Homeland Security, Homeland Security Investigations; and the Department of the Treasury, Internal Revenue Service, Criminal Investigation.

SEC EDUCATION: INTERNATIONAL INVESTING

FROM: SECURITIES AND EXCHANGE COMMISSION
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law
International InvestingIndividual investors in the United States have access to a wide selection of investment opportunities, including international investments. The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help educate investors about international investing. This Investor Bulletin describes ways individual investors may obtain information about international investments— including special factors to consider when investing internationally.

Should I consider international investments?Two of the chief reasons individual investors invest internationally are:
diversification (spreading your investment risk among foreign companies and markets in addition to U.S. companies and markets); and
growth (taking advantage of the potential for growth in some foreign economies, particularly in emerging markets).
Investors should consider various factors when assessing potential investments, be they domestic or international.

International investment returns may move in a different direction, or at a different pace, than U.S. investment returns. Including exposure to both domestic and foreign securities in your portfolio may reduce the risk that you will lose money if there is a drop in U.S. investment returns and your portfolio’s overall investment returns over time may have less volatility. Keep in mind that with globalization, markets are increasingly intertwined across borders. Investors should balance these considerations along with factors unique to international investing, including those described below.

How can I invest internationally? There are a number of ways individual investors may gain exposure to international investments. As with domestic investments, investors should first learn as much as they can about an investment.

Mutual funds. There are different kinds of mutual funds that invest in foreign securities, including: global and international funds (that invest in companies and businesses outside of the United States); regional or country funds (that invest in a particular region or country); or international index funds (that seek to track the results of a particular foreign market or international index). Investing through mutual funds may reduce some of the potential risks of investing internationally because mutual funds provide more diversification than most investors could achieve on their own. If you want to learn more about investing in these types of mutual funds, as well as in mutual funds generally, information is available in Mutual Funds – A Guide for Investors.

Exchange-traded funds. An exchange-traded fund (ETF) is a type of investment that typically has an objective to achieve the same return as a particular market index. ETFs are listed on stock exchanges and, like stocks (and in contrast to mutual funds), trade throughout the trading day with fluctuating market prices. A share in an ETF that tracks an international or foreign index seeks to give an investor exposure to the performance of the underlying international or foreign stock or bond portfolio along with the ability to trade the ETF shares like any other exchange-traded security.

American depositary receipts. The stocks of most foreign companies that trade in U.S. markets are traded as American depositary receipts (ADRs) issued by U.S. depositary banks (rather than the actual foreign company stock). Each ADR represents one or more shares of a foreign stock or a fraction of a share. If you own an ADR you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient and cost-effective to own the ADR. The price of an ADR generally corresponds to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares. Sometimes the terms "ADR" and "ADS" (for American depositary share) are used interchangeably.

U.S.-traded foreign stocks. Although most foreign stocks trade in the U.S. markets as ADRs, some foreign companies list their stock directly here as well as in their local market. For example, some Canadian stocks that are listed and trade on Canadian markets are also listed and trade directly in U.S. markets, rather than as ADRs. Some foreign companies list their securities in multiple markets, which may include U.S. markets. You can purchase ADRs and U.S.-listed foreign stocks that trade in the United States through your U.S. broker.

Trading on foreign markets. Your U.S. broker may be able to process an order for a company that only trades on a foreign securities market. These foreign companies are not likely to file reports with the SEC. The information available about these companies may be different than the information available about companies that file reports with the SEC. Moreover, the information may not be available in English.

Where can I find information about investing internationally?You should learn as much as you can about an investment, and about an investment adviser or broker-dealer, before you invest. Tracking down information on international investments may require extra effort, but it will make you a more informed investor. One of the most important things to remember is to read and understand the information about an investment before you invest. Here are some sources of information to consider:

SEC reports. Foreign companies listed on U.S. stock exchanges or that publicly offer their securities in the United States must file reports with the SEC. The SEC requires these foreign companies to file electronically, so their reports are available through the SEC’s EDGAR website at www.sec.gov/edgar/searchedgar/companysearch.html at no charge. However, if the company’s securities trade on the over-the-counter markets in the United States rather than on a stock exchange, the company may not be required to file reports with the SEC.

Mutual fund firms. You can get the prospectus for a particular mutual fund directly from the mutual fund firm. Many firms also have websites and phone lines that provide helpful information about international investing.

Broker-dealers and investment advisers. Your broker or investment adviser may have research reports on particular foreign companies, individual countries or geographic regions. Ask whether updated reports are available on a regular basis. Your broker or investment adviser also may be able to provide you with copies of SEC reports and other information.

Foreign companies. Foreign companies often prepare annual reports, and some, but not all, companies also publish an English language version of their annual report. Ask your broker for copies of the company’s reports or check to see if they are available from the SEC. Some foreign companies post their annual reports and other financial information on their websites.

Foreign regulators. You may be able to learn more about a particular foreign public company by contacting the foreign securities regulator that oversees the markets in which that company’s securities trade. You may also be able to learn more about a particular foreign broker-dealer or foreign investment adviser by contacting the securities regulator with which the firm is registered. Many foreign securities regulators post information about issuers and registrants on their websites, including audited financial statements.

You will find a list of international securities regulators on the website of the International Organization of Securities Commissions (IOSCO) at www.iosco.org. Foreign regulators sometimes post warnings about investment scams and information about their enforcement actions that can be useful to investors. IOSCO publishes investor alerts that it receives from its securities regulator members on its website.

You may already be investing internationally. In the United States, we have access to information and products from all over the world. Foreign companies can achieve the status of household names in the United States without public awareness that these companies are domiciled outside of the United States, or they may conduct a majority of their business operations abroad. You should conduct your own review of your holdings to determine whether the securities you own or are considering for purchase already provide you with international or foreign exposure.

What issues and risks should I consider when investing internationally? While investing in any security requires careful consideration, international investing raises some special issues and risks. These include:

Access to different information. In some jurisdictions, the information provided by foreign companies is different than information provided by U.S. companies. The nature and frequency of disclosures required under foreign law may also be different from that of U.S. companies. In addition, foreign companies’ financial statements may be prepared using a different set of accounting standards than companies use in the United States. Information foreign companies publish may not be in English.

Moreover, the financial statements of publicly listed companies in the United States, whether based in the United States or abroad, must be audited by an independent public accounting firm subject to oversight by the Public Company Accounting Oversight Board (PCAOB). The financial statements of a foreign company that is not publicly listed in the United States may or may not be subject to analogous auditing and auditor oversight arrangements.

Costs of international investments. International investing can be more expensive than investing in U.S. companies. In some countries there may be unexpected taxes, such as withholding taxes on dividends. In addition, transaction costs such as fees, broker’s commissions and taxes may be higher than in U.S. markets. You also should be aware of the potential effects of currency conversion costs on your investment. Mutual funds that invest abroad may have higher fees and expenses than funds that invest in U.S. securities, in part because of the extra expense of trading in foreign markets.

Working with a broker or investment adviser. If you are working with a broker, make sure the broker is registered with the SEC. It is against the law for a broker, foreign or domestic, to contact you and solicit your investment unless it is registered with the SEC. You can obtain information about a U.S.-registered broker by visiting FINRA’s BrokerCheck website or calling FINRA’s toll-free BrokerCheck hotline at (800) 289-9999. If you are working with a U.S.-registered investment adviser, you may be able to obtain information about the investment adviser by visiting the SEC’s Investment Adviser Public Disclosure (IAPD) website. If you directly contact and work with a foreign broker not registered with the SEC, you may not have all the protections under the laws of the United States as would be the case if the broker were registered with the SEC.

Changes in currency exchange rates. A foreign investment also has foreign currency exchange risks. When the exchange rate between the foreign currency of an international investment and the U.S. dollar changes, it can increase or reduce your investment return in the foreign security. In fact, it is possible that a foreign investment may increase in value in its home market but, because of changing exchange rates, the value of that investment in U.S. dollars is actually lower. In addition to exchange rates, you should be aware that some countries might impose foreign currency controls that restrict or delay you from moving currency out of a country.

Changes in market value. All securities markets can experience dramatic changes in market value. One way to attempt to reduce the impact of these price changes is to be prepared to hold your investments through adverse times and sharp downturns in domestic or foreign markets, which may be long lasting.

Political, economic and social events. Depending on the country or region, it can be more difficult for individual investors to obtain information about and comprehensively analyze all the political, economic and social factors that influence a particular foreign market. These factors may provide diversification from a domestically-focused portfolio, but they may also contribute to the risk of international investing.

Different levels of liquidity. Some foreign markets may have lower trading volumes for securities or fewer listed companies than U.S. markets. Some foreign markets are open for shorter periods than U.S. markets. In addition, some countries may restrict the amount or type of securities that foreign investors may purchase. Where these factors exist, they can contribute to less liquidity when you want to sell and lead to difficulty finding a buyer.

Legal remedies. Where you purchase a security can impact whether you have, and where you can pursue, legal remedies against the foreign company or any other foreign-based entities involved in your transaction, such as a foreign broker. Even if you sue successfully in a U.S. court, you may not be able to collect on a U.S. judgment against a foreign company, entity or person. You may have to rely on legal remedies that are available in the home country, if any.

Morrison v. National Australia Bank Investors should be mindful when either buying or selling securities on foreign securities exchanges or otherwise outside the United States, or entering into securities transactions with parties located outside the United States, that, as a result of a recent Supreme Court decision, Morrison v. National Australia Bank, investors may not have the ability to seek certain legal remedies in U.S. courts as private plaintiffs. Investors who purchase or sell securities outside the territory of the United States will generally not be able to bring suit as private plaintiffs in U.S. courts to address fraudulent activity that may occur in connection with these transactions—even if the fraudulent activities occur within the United States. Please note, however, that the SEC’s law enforcement authority with respect to fraudulent conduct within the United States, and conduct outside the United States that has a foreseeable substantial effect within the United States, is generally not subject to the limitations placed on private rights of action by the Morrison decision.

Investors who would like to provide information about fraud or wrongdoing involving potential violations of the U.S. securities laws may contact the SEC using the SEC’s Tips, Complaints and Referrals Portal. SEC action may or may not lead to the investor receiving funds to redress any fraud.

Different market operations. Foreign markets may operate differently from the major U.S. trading markets. For example, there may be different time periods for clearance and settlement of securities transactions. Some foreign markets may not report securities trades within the same period as U.S. markets. Rules providing for the safekeeping of shares held by foreign custodian banks or depositories may differ from those in the United States. If a foreign custodian has credit problems or fails, shares purchased in a foreign market may have different levels of protection than provided under the laws of the United States.