Tag Archives: SEC

Monday Morning Roundup

##  Is Nevada ready for it’s close up?  Take a look at Nevada Progressive today.   Meanwhile, Senator Dean Heller (R-NV) and Governor Sandoval didn’t seem to want to get anywhere close to the state GOP convention:

“And around the country, Republican officials and the powerful interests that own them worry that their party’s ongoing drift to the Island of Whackadoodledoo could seriously damage their electoral, and hence financial, interests in 2012 and beyond.”  [More From The Gleaner]

While you are at it, and speaking of expunging some of the Whackadoodledoo, take a gander at the NVRDC’s post on same-sex marriage equality. This is one of the better compilations of the current situation you’ll find recently.  No hype, no emotionality, just good old fashioned relevant facts.

## As our Republican Representatives in Congress were voting to shave the national indebtedness by sticking it to working families who need the SNAP program to help with the groceries, the Sin City Siren reports of Nevada’s food insecurity problems,” Unless my eyes are failing me, it looks like the lowest percentage is 8.5%, sadly a real anomaly in our valley (in terms of how low it is), and a high hunger mark of 27.6% (holy crap!). And don’t think that it’s all bad in the valley’s core and cream puff dreams in the suburbs. There’s a 10 to nearly 15% rate in Summerlin zip codes and 11 to 15% range in Henderson. 89109, which is fairly close to center of the valley is 18.3%. The take-away: Hunger doesn’t care where you live.”

##  Hey We’re Number ___! Oh, who cares?  The U.S. is falling behind the rest of the globe in providing health care, and many important measures included in the Affordable Care Act aren’t scheduled to kick in until 2014.

China, after years of underfunding health care, is on track to complete a three-year, $124 billion initiative projected to cover more than 90 percent of the nation’s residents.  Mexico, which a decade ago covered less than half its population, completed an eight-year drive for universal coverage that has dramatically expanded Mexicans’ access to life-saving treatments for diseases such as leukemia and breast cancer.  In Thailand, where the gross domestic product per person is one-fifth that of the United States, just 1 percent of the population lacks health insurance. And in sub-Saharan Africa, Rwanda and Ghana — two of the world’s poorest nations — are working to create networks of insurance plans to cover their citizens.  [WaPo] (emphasis added)

Unfortunately, “American Exceptionalism,” is rapidly coming to mean that everyone EXCEPT Americans can expect basic services from their governments.   Speaking specifically to the ACA, FactCheck finds the Chamber of Commerce advertising on the ACA “misleading.”   Surprised?

## How’s that Austerity Thingie working for you?  Not all that well for German Chancellor Angela Merkel.  “Yesterday was a bitter day, it was a bitter, painful defeat,” Merkel said after results showed the SPD won 39.1 percent against 26.3 percent for the CDU.”  [Reuters] The voters seem annoyed. Additionally, an overly complex system perpetuates mistakes in the Eurozone?  More from Reuters.

## ICYMI:  The Congressional Budget Office has some very pertinent and cogent comments to make on the national debt, among them the following:

“There is no commonly agreed-upon amount of federal debt that is optimal. Higher debt has a number of negative consequences that CBO discusses regularly, but reducing debt or constraining its growth will require some combination of tax increases and spending reductions, and those policy changes can have negative consequences themselves.”

Negative consequences like cutting off the SNAP program and diminishing the automatic economic stabilizer effect maybe?

##  JP Morgan Chase isn’t the only bank having “a problem.”  There’s still some fall out from the GMAC (ALLY) venture into the mortgage market during the Bubble, “Ally’s mortgage unit, called Residential Capital, or ResCap, filed for bankruptcy protection in federal court in Manhattan under a plan that has the support of some of its creditors, although it was still expected to be a drawn-out and litigious process.”  [Reuters]

In view of the mess over at JP Morgan Chase, perhaps this isn’t exactly what we want to be hearing from the CFTC?

The Commodity Futures Trading Commission (CFTC) today voted to propose an Order regarding the effective date for swap regulation.  The Order is a six-month extension from certain provisions of the Commodity Exchange Act that otherwise would have taken effect on July 16, 2011, the general effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act .  Today’s order further narrows the scope of the Order because some rules, for example the further definition of swap dealer and major swap participant, have become effective.

Today, the Commission is extending the effective date for swap regulation until December 31, 2012, or until the Commission’s rules and regulations go into effect, whichever is sooner. The Order proposed today would allow the clearing of agricultural swaps; and remove any reference to the exempt commercial market; and exempt board of trade grandfather relief previously issued by the Commission.   (emphasis added)

How long can the traders’ lobby keep dragging out the regulations?

## Some good news: “The Securities and Exchange Commission today suspended trading in the securities of 379 dormant companies before they could be hijacked by fraudsters and used to harm investors through reverse mergers or pump-and-dump schemes. The trading suspension marks the most companies ever suspended in a single day by the agency as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures.”  [SEC]

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Filed under Amodei, Economy, financial regulation, gay issues, Health Care, Heath Insurance, Heck, Heller, Nevada economy, Nevada news, Nevada politics

H.R. 3606 and Little Billion Dollar Shops of Horrors

When does JOBS not mean JOBS? When it is attached to H.R. 3606 for which all three members of the Nevada Congressional delegation voted. [RC110] The bill can be summarized as follows:

“Ah, yes, the JOBS Act. JOBS stands for Jump-start Our Business Start-ups. Basically, it relieves businesses that are preparing to go public from some of the most important auditing regulations that Congress passed after the Enron debacle. Also, new public companies could delay following the rules on disclosing executive compensation that were passed after the 2008 Wall Street implosion. And salesmen could market stock in new companies to small investors on the Internet. You could also call it the Just Open Bucket Shops Act.”  [NYT](emphasis added)

And, we ask by giving up “important auditing regulations,” “delaying rules on disclosing executive compensation,” and allowing corporations to market stocks on the Internet to small investors (more about this later), how many jobs can we expect? “Republican leaders couldn’t say how many jobs the JOBS Act would actually create.” [WaPo]

Senate Minority Leader McConnell’s comments daring the Democratically controlled Senate not to pass a JOBS bill notwithstanding, there is very little about H.R. 3606 that’s about jobs, as House GOP members admitted, and very much in the bill that undercuts reforms made since the collapse of the Dot.Com Bubble.

A significant part of the bill pertains to what documentation a corporation must provide to the Securities and Exchange Commission before “going public” with an IPO.

#1.Amends SA to state that an emerging growth company need not present more than two years of audited financial statements in order for its registration statement, with respect to an initial public offering of its common equity securities, to be effective. Amends both SA and SEA to state that, in any other registration statement to be filed with the Securities and Exchange Commission (SEC), an emerging growth company need not present financial data for any period before the earliest audited period presented in connection with its initial public offering.”   Translation:  All you need  to present to the investing public is 24 months of audited financial statements.   And, about all you need to recall is what happened during the Dot.Com Bubble when start-up companies with highly questionable business plans launched Initial Public Offerings with all the substance of molded Jello.

But wait! It gets better (or worse).

#2.Amends the the Sarbanes-Oxley Act of 2002 to exempt a registered public accounting firm that prepares or issues a report on its audit of an emerging growth company from the requirement that it attest to, and report on, any assessment of internal controls the company’s management has made.”    Get this? An accounting firm — can we say Arthur Andersen — doesn’t have to attest to, or report on, “any assessment of internal controls the company’s management has made.”   So, who is  going to attest to, or report on, the internal controls of the start up company?

OK, why should we get our knickers in a twist about something as arcane as “internal controls?”  Because “internal controls” consist of some rather basic financial standards.   Internal Controls are necessary in order to (a) reveal errors and omissions, (b) discourage employee theft, and (c) protect corporation assets. [TEHCPA.net pdf]

One of the things the accounting firm should have to note for the investors’ protection is whether or not a corporation has an internal set of checks and balances.  If a single person is tasked with multiple fiscal assignments then those checks and balances are lost.  A prospective shareholder should be made aware of such management decisions as — Is only one person responsible for reviewing monthly financial statements?  Is the person handling cash or other forms of revenue also the one who records the transactions? Are bank reconciliations performed by one person and then independently checked by another?

When we start talking about corporate IPOs we also need to make potential investors aware of the risk management policies decided upon by the corporate management.  Definitely not the least among these policies would be an auditor’s review of whether or not information regarding reliable internal and external information concerning risks are being forwarded to the correct personnel, in complete form, and on a timely basis.  [JofA]

As potential investors we’d want to be assured that the corporation had an audit committee, and better still that the audit committee functioned independently of management, and even more importantly was responsible for the oversight of both the existence of and compliance with a firm policy describing corporate ethical standards.  [JofA] Why would we want publicly traded firms to have less?

#3.Exempts an emerging growth company from any such rules requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the issuer’s financial statements (auditor discussion and analysis).” [HR 3606]  This is demonstrably less. Management and the accounting firm are exempted from rules designed to prevent cozy relationships over time in which the accountancy firm got the contracts from the management for “making nice,” and not necessarily being honest.

#4.Prohibits the SEC and any registered national securities association from adopting or maintaining any conflict-of-interest rule or regulation in connection with an initial public offering of the common equity of an emerging growth company that restricts: (1) which associated persons (based on functional role) of a broker, dealer, or member of a national securities association may arrange for communications between a securities analyst and a potential investor; or (2) a securities analyst from participating in any communications with the management of an emerging growth company that is also attended by any other associated person of a broker, dealer, or member of a national securities association whose functional role is other than as a securities analyst.” [HR 3606] Really? No conflict of interest rulings concerning communications about an IPO on much of anyone involved in the process?   This seems an engraved  invitation to the next Predator’s Ball.

#5.  Under the terms of H.R. 3606 an investment bank underwriting an IPO for an “emerging” corporation could do its own “research” on the new firm, and publish this for investors BEFORE the SEC was finished reviewing the information.  [WaPo]  I can’t think of a better way to undercut the authority of the SEC, unless it might be to ignore the SEC findings altogether.

#6.Amends SEA and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to exempt emerging growth companies from the requirement for separate shareholder approval of executive compensation, including golden parachute compensation. ” [HR 3606] So, if a corporation can get itself classified as an “emerging growth company” then the shareholders have no recourse on such issues as “say on pay?” Or, the deployment of Golden Parachutes? [CFA] And, who might these “little startups be?”

#7.Amends the Securities Act of 1933 (SA) and the Securities Exchange Act of 1934 (SEA) to define “emerging growth company” as an issuer that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year.” [HR 3606]  Yes, that’s Billion with a Big B.

So, forget about what happened to investors when Webvan.Com, Pets.Com, and Kozmo.Com [CNET] and many other enthusiastic participants in the Dot.Com Bubble went POP.  Eliminate from your mind images of employees hauling their personal belongings out of the ENRON building.  Stop thinking about what happened to Arthur Andersen, once a very reputable accounting firm in this nation.

Don’t think about WorldCom, HealthSouth, Tyco, Global Crossing, and Adelphia.  Let not your brow be furrowed by thoughts of such accounting and management disasters like AIG, or the two hedge funds created by Bear Stearns Asset Management, or the infamous Magnetar trade.  [ProPublica]

Potential investors who accept the offer to buy stock over the Internet, who forget momentarily that one can also purchase counterfeit prescription drugs and imaginary cars in the same venue, and wherein one can make contributions to the Nigerian Prince of choice can only lose $10,000 in the process.

In the mean time we are advised to ignore the conclusions drawn by Lynn E. Turner in testimony before the Senate Banking Committee this month (pdf):

“As I review the legislation before the committee, I find it reduces the level of transparency and amount of information investors will receive. It removes critical investor protections put in place to protect against a repeat of past scandals. It decreases the credibility of the information one will receive. It not only allows market participants such as analysts to once again engage in behavior and activities that were associated with prior market disasters, it treads on the independence of independent standard setters such as the Public Company Accounting Oversight Board (PCAOB) established by this Committee, as well as the Financial Accounting Standards Board (FASB). If ill-conceived amendments regulating the cost benefit analysis the SEC would have to perform, that were adopted in the US House of Representatives, I suspect investors would be well served to understand that handcuffs had been put on the SEC, rather than bad actors.”

Current SEC Chair Mary Shapiro added:

“Too often, investors are the target of fraudulent schemes disguised as investment opportunities,” Schapiro wrote. “As you know, if the balance is tipped to the point where investors are not confident that there are appropriate protections, investors will lose confidence in our markets, and capital formation will ultimately be made more difficult and expensive.”

It’s also useful to recall that one of the charges leveled by the banking industry in regard to the Housing Bubble Collapse was that “government regulators failed,” the SEC included.   H.R. 3606 “exempts” so-called small businesses from IPO regulations set by the SEC, thus guaranteeing that if something does go wrong — the SEC will be powerless to prevent it, and Financialist conservatives can the  jump up and wail, “Look, the government regulators failed again!”

The failure in this instance is of political fortitude, enough fortitude to say NO to the investment bankers and their allies inside the Beltway.

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