THREE PLEAD GUILTY TO BID RIGGING MUNICIPAL TAX LIEN AUCTIONS

The following is from the Department of Justice website: Wednesday, August 24, 2011 Three New Jersey Investors Plead Guilty to Bid Rigging at Municipal Tax Lien Auctions WASHINGTON – Three financial investors who purchased municipal tax liens at auctions in New Jersey pleaded guilty today for their roles in a conspiracy to rig bids at tax liens auctions held by municipalities, the Department of Justice announced. Charges were filed today in U.S. District Court for the District of New Jersey in Newark, N.J., against Isadore H. May of Margate, N.J.; Richard J. Pisciotta Jr. of Long Beach Township, N.J.; and William A. Collins of Medford, N.J. According to the felony charges, from at least 2003 through approximately February 2009, the investors participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to allocate among certain bidders which liens each would bid on. The investors proceeded to submit bids in accordance with their agreements and purchased tax liens at collusive and non-competitive interest rates. “The collusion taking place at these auctions is artificially raising the interest rates that financially distressed home and property owners must pay, and is lining the pockets of the colluding investors,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The Antitrust Division will vigorously pursue these kinds of collusive schemes that eliminate competition from the marketplace.” The department said that the primary purpose of the conspiracy was to suppress and restrain competition to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates. When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes. If the taxes remain unpaid after a waiting period, the lien may be sold at auction. State law requires that investors bid on the interest rate delinquent homeowners will pay upon redemption. By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent. If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached. According to the court documents, May, Pisciotta and Collins conspired with others not to bid against one another at municipal tax lien auctions in New Jersey. Because the conspiracy permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate. Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition. Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.”

DEFENDANT AND MANAGED COMPANIES CHARGED IN COMMODITY FUTURES AND FOREX SCHEME

The following excerpt is from the CFTC website: “Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that on August 18, 2011 a federal court in California entered an order freezing the assets of defendants Douglas Elsworth Wilson of Poway, Calif., and three California companies that he controls and manages, Elsworth Berg Capital Management LLC (EBCM), Elsworth Berg Inc., and Elsworth Berg FX LLC (collectively, Elsworth Berg). The order also prohibits the destruction of their books and records. The order arises out of a CFTC civil complaint filed on July 27, 2011 in the U.S. District Court for the Southern District of California. The complaint alleges that the defendants solicited at least $4.4 million from over 60 customers to trade commodity futures contracts and foreign currency (forex). The defendants allegedly misappropriated customer funds, committed solicitation fraud, and issued false statements in the commodity futures and forex scheme. In connection with their fraud, defendants allegedly misrepresented to customers and prospective customers that regardless of Elsworth Berg’s commodity futures or forex trading results, the return of customers’ investment principal was guaranteed at the end of a five-year period through use of a purportedly innovative “Collateral Reserve” structure, which owned life insurance policies on third-parties. Wilson and EBCM also allegedly issued false statements to some customers that overstated the value of their investments. Wilson and EBCM misappropriated approximately $72,000 in customer funds and used the money for purposes other than trading, according to the complaint. In its continuing litigation against the defendants, the CFTC seeks restitution to defrauded customers, civil monetary penalties, permanent trading and registration bans, and permanent injunctions against further violations of federal commodities law."

CFTC: INDICATIONS OF FRAUD

The following excerpt is from the CFTC website. The article involves watching out for the signs of fraud: "Watch Out For These Warning Signs of Fraud Get-rich-quick schemes that sound too good to be true. There’s never a free lunch. Be very careful if you recently retired or came into money and you’re looking for a safe investment. You could be a very attractive target for a crook. Once your money is gone, it can be impossible to get it back. Predictions or guarantees of large profits. Always get as much information as you can about a firm or individual’s track record and verify that information—even if you know the people involved or they are recommended by friends or relatives. If you can’t get solid information about your investment and the company, don’t invest. Before you invest, always check it out with someone whose financial advice you can trust. Promises of little or no financial risk. Be suspicious if the firm or individual says there is little risk. Be suspicious if someone tells you that a written risk disclosure statement is only a routine formality. Written risk disclosure statements are important to read thoroughly and understand. Claims of trading in the “Interbank Market.” If a firm claims that they will trade foreign currency for you in the interbank market, or that you should trade in the interbank market, be cautious. The term “interbank market” refers to a loose network of currency transactions negotiated between financial institutions, usually banks and investment banks, and other large companies. Unsolicited telephone calls about investing. Be skeptical if someone you don’t know calls you about investment opportunities. Someone asking you to send cash immediately. Be very cautious if someone tries to convince you to send cash or transfer money to them immediately by overnight express, the Internet, mail, or any other method."

FDIC GOVERNORS SAY LARGE LOAN COMMITMENTS OWNED BY BANKS ARE IMPROVING

The following is an excerpt from an e-mail sent out by the FDIC: Joint Release Board of Governors of the Federal Reserve System Federal Deposit Insurance Corporation Office of the Comptroller of the Currency August 25, 2011 Credit Quality of Large Loan Commitments Improves for Second Consecutive Year The credit quality of large loan commitments owned by U.S. banking organizations, foreign banking organizations (FBOs), and nonbanks improved in 2011 for the second consecutive year, according to the Shared National Credits (SNC) Review for 2011. A loan commitment is the obligation of a lender to make loans or issue letters of credit pursuant to a formal loan agreement. Total criticized loans declined more than 28 percent to $321 billion in 2011, although the percentage of criticized assets remained high compared to pre-financial crisis levels. A criticized loan is rated special mention, substandard, doubtful, or loss. Loans rated as doubtful or loss—the two weakest categories—fell 50 percent to $24 billion in 2011. Reasons for improvement in credit quality included better operating performance among borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets. Industries that led the improvement in credit quality were real estate and construction, media and telecommunications, and finance and insurance. Despite this progress, poorly underwritten loans originated in 2006 and 2007 continued to adversely affect the SNC portfolio. Approximately 60 percent of criticized assets were originated in these years. Refinancing risk remained elevated as nearly $2 trillion, or 78 percent of the SNC portfolio, matures by the end of 2014. Of this maturing amount, $204 billion was criticized. Although nonbank entities, such as securitization pools, hedge funds, insurance companies, and pension funds, owned the smallest share of loan commitments, they owned the largest share (58 percent) of classified credits (rated substandard, doubtful, or loss). In other highlights of the review: Total SNC commitments increased less than 1 percent from the 2010 review. Total SNC loans outstanding fell $93 billion to $1.1 trillion, a decline of 8 percent. Criticized assets represented 13 percent of the SNC portfolio, compared with 18 percent in 2010. Classified assets declined 30 percent to $215 billion in 2011 and represented 9 percent of the portfolio, compared with 12 percent in 2010. Credits rated special mention, which exhibited potential weakness and could result in further deterioration if uncorrected, declined 25 percent to $106 billion in 2011 and represented 4 percent of the portfolio, compared with 6 percent in 2010. Nonaccruals declined to $101 billion from $151 billion. Adjusted for losses, nonaccrual loans declined to $92 billion from $137 billion, a 33 percent reduction. The distribution of credits across entities—U.S. banking organizations, FBOs, and nonbanks—remained relatively unchanged. U.S. banking organizations owned 42 percent of total SNC loan commitments, FBOs owned 38 percent, and nonbanks owned 20 percent. The share owned by nonbanks declined for the first time since 2001. Nonbanks continued to own a larger share of classified (58 percent) and nonaccrual (60 percent) assets compared with their total share of the SNC portfolio. Institutions insured by the Federal Deposit Insurance Corporation owned only 17 percent of classified assets and 15 percent of nonaccrual loans. The media and telecommunications industry group led other industry groups in criticized volume with $70 billion. Finance and insurance followed with $37 billion, then real estate and construction with $35 billion. Although these groups had the largest dollar volume of criticized loans, the three groups with the highest percentage of criticized loans were entertainment and recreation, media and telecommunications, and commercial services. The 2011 review indicated that the number of credits originated in 2010 rose dramatically compared to 2009 and 2008. Although the overall quality of underwriting in 2010 was significantly better than in 2007, some easing of standards was noted compared to the relatively tighter standards in 2009 and the latter half of 2008. Federal banking agencies expect banks and thrifts to underwrite syndicated loans using prudential underwriting standards, regardless of the intent to hold or sell the loans. Poorly underwritten syndicated loan transactions are subject to regulatory criticism. The SNC program was established in 1977 to provide an efficient and consistent review and analysis of SNCs. A SNC is any loan or formal loan commitment, and any asset such as real estate, stocks, notes, bonds, and debentures taken as debts previously contracted, extended to borrowers by a federally supervised institution, its subsidiaries, and affiliates that aggregates to $20 million or more and is shared by three or more unaffiliated supervised institutions. Many of these loan commitments are also shared with FBOs and nonbanks, including securitization pools, hedge funds, insurance companies, and pension funds. In conducting the 2011 SNC Review, agencies reviewed $910 billion of the $2.5 trillion credit commitments in the portfolio. The sample was weighted toward non-investment grade and criticized credits. The results of the review are based on analyses prepared in the second quarter of 2011 using credit-related data provided by federally supervised institutions as of December 31, 2010, and March 31, 2011." # # #

ALLEGED INSIDER TRADER GETS FINAL JUDGMENT

The following is an excerpt from the SEC website: "The SEC announced that the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment as to Daniel L. DeVore on July 12, 2011, in the SEC’s insider trading case, SEC v. Mark Anthony Longoria, et al., 11-CV-0753 (SDNY) (JSR). The SEC filed its Complaint on February 3, 2011, charging two expert network employees and four consultants with insider trading for illegally tipping hedge funds and other investors. On February 8, 2011, the SEC filed an Amended Complaint, charging a New York-based hedge fund and four hedge fund portfolio managers and analysts who illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants. The scheme netted more than $30 million from trades based on material, nonpublic information about such companies as AMD, Seagate Technology, Western Digital, Fairchild Semiconductor, and Marvell. The charges were the first against traders in the SEC's ongoing investigation of insider trading involving expert networks.
The SEC alleged that DeVore, a Global Supply Manager at Dell, was privy to confidential information about Dell’s internal sales forecasts as well as information about the pricing and volume of Dell’s purchases from its suppliers. DeVore regularly provided Primary Global Research LLC (“PGR”) and PGR clients with this inside information so it could be used to trade securities. From 2008 to 2010, DeVore received approximately $145,000 for talking to PGR and its clients.
The Final Judgment entered against DeVore: (1) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act of 1933; (2) orders him liable for disgorgement of ill-gotten gains of $145,750, together with prejudgment interest of $6,098.50, for a total of $151,848.50; and (3) permanently bars him from acting as an officer or director of a public company. Based on DeVore’s agreement to cooperate with the SEC, the Court is not ordering Defendant to pay a civil penalty.”

IS THE SEC STRENGTHENING PROTECTIONS FOR MUNI BOND PURCHASERS?:

The following is an excerpt from the SEC website: "What is the SEC doing to strengthen protections for municipal bond investors? Public companies that issue stocks are required to provide ongoing disclosure to the SEC and to investors. In contrast, most offerings by municipal issuers are exempt from the provisions of federal law requiring filings with the SEC. However, for most municipal securities issued after July 3, 1995, annual financial information and operating data, as well as notice of certain events, is required by SEC dealer regulations to be filed with the Municipal Securities Rulemaking Board and is available at no charge to investors at www.emma.msrb.org. Improved disclosure is underway: the SEC approved changes to its rules in May 2010 designed to increase the quality and timeliness of disclosure about municipal bonds, including newly issued variable rate demand obligations. Those changes are slated to take effect on the compliance date of December 1, 2010. Beginning in September, the SEC staff will hold field hearings to gather input from municipal market participants. Some of the topics to be considered include: disclosures in official statements when municipal bonds are first issued; the availability of continuing information on municipal bonds; accounting practices, including whether the bond issuer prepares its financial statements in accordance with the standards set by the Government Accounting Standards Board, or GASB; and sales practices and potential conflicts of interest. The hearings will help inform a planned SEC staff report that will recommend ways to better protect municipal bond invesTORS."