S.E.C. Member’s Role in Failed Mutual Fund Reform

The following is an excerpt from an article in 

The New York Times
Monday, August 27, 2012

S.E.C. Member’s Role in Failed Mutual Fund Reform

By NATHANIEL POPPER

Luis A. Aguilar, one of five members of the Securities and Exchange Commission, is generally known as one of its strongest advocates for tougher oversight of the securities industry. In public statements this year, he has pushed his S.E.C. colleagues to be more aggressive, contending that the commission was not protecting investors assiduously enough.

But last week, Mr. Aguilar derailed one of the most significant current efforts to tighten regulations on the financial industry. His opposition to a proposal put forward by the S.E.C. chairwoman, Mary L. Schapiro, which was intended to improve the safety and soundness of a popular investment, money market mutual funds, put Mr. Aguilar in lock step with the powerful and aggressive mutual fund industry in which he worked as a lawyer from 1994 to 2002. Mr. Aguilar’s decision to oppose Ms. Schapiro’s plan last week became the third and deciding S.E.C. vote against the proposal.

His public criticisms of the approach taken by Ms. Schapiro closely echo those made by the industry in its fierce lobbying effort to scuttle a regulatory plan that had won support from nearly every top financial regulator, including the Federal Reserve chairman, Ben S. Bernanke, and Treasury Secretary Timothy F. Geithner.

It is not uncommon, of course, for regulators to side with the industries they oversee. But Mr. Aguilar has been adamant that he is not against prudent reform. He has said instead that he wants to be sure regulators have enough information before they move forward with new rules.

Behind the scenes, though, Mr. Aguilar had not requested that additional information, according to people briefed on his actions in recent months.

In his statement outlining his opposition to Ms. Schapiro’s plan, for instance, he said “there are larger macro questions and concerns about the cash management industry as a whole” that needed to be studied before the S.E.C. could move forward with efforts to improve money market funds. Mr. Aguilar did not mention the need for further study to Ms. Schapiro until two days before he went public with his opposition last week, commission officials said.

Possible changes to money market funds have been discussed within the agency for over a year, and Ms. Schapiro distributed the 414-page proposal in June to the four other members of the commission, including Mr. Aguilar. During that time, S.E.C. staff members made numerous overtures to Mr. Aguilar to address any concerns he might have had about the proposal, but most were rebuffed, the people said. On the other hand, Mr. Aguilar met with mutual fund companies 11 times this year as the proposal was being developed, according to S.E.C. records.

For more, visit www.nytimes.com.

Carnahan Takes Action Against Kansas Man With Long History of Securities Fraud

FOR IMMEDIATE RELEASE
Tuesday, March 20, 2012
Contact: Ryan Hobart, (573) 526-0949

Carnahan Takes Action Against Kansas Man With Long History of Securities Fraud

Jefferson City, MO– Missouri Secretary of State Robin Carnahan today announced an enforcement action against Danny Moore of Lenexa, Kan., and his company, Moore Financial Management, concerning misuse of investor funds from his supposed investment company.


According to the cease and desist order issued by officials in Carnahan’s Securities Division, Moore and his company raised over $1.4 million from at least 30 investors, 22 of whom were Missouri residents. Many of these investors were elderly friends and acquaintances of Moore.

In 2009, Moore was convicted of securities fraud in Johnson County, Kan. While on probation for that felony conviction, Moore allegedly raised money from investors, often using funds from new investors to repay earlier investors, in classic Ponzi-scheme fashion. In addition to the felony conviction for securities fraud, Moore was the subject of three enforcement orders from the Kansas Commissioner of Securities, none of which were disclosed to his new investors.

“It is important for investors to contact the Investor Protection Hotline before turning over their hard-earned money,” Carnahan said. “If the person offering an investment has been arrested or the subject of an enforcement action, that can all be discovered with one quick, toll-free call.” 

The order alleges that Moore provided investors with promissory notes in Moore Financial Management and told them their funds would be used for advertising or to take over other companies. Moore allegedly has a total of approximately $900,000 in outstanding promissory notes. Bank records uncovered by Securities Division investigators allegedly reveal the money collected from investors was used to pay Moore’s income taxes, mortgage payments, employee salaries, rent, insurance, warehouse club membership fees and other Moore investors.

The order states that Moore pitched a 79-year-old resident of Raytown, Mo., to invest in his scheme. Moore allegedly convinced the elderly man to surrender an annuity worth over $226,000, incurring over $13,000 in surrender charges, which would have funded his investment. Moore is charged with utilizing high pressure tactics in an attempt to persuade the elderly man.

The order alleges that Moore and Moore Financial Management offered and sold unregistered securities and committed securities fraud. Moore and his company face up to $180,000 in penalties and costs and the possibility of paying restitution to harmed investors. The Respondents have 30 days to request a hearing and contest this matter. The Securities Division is cooperating in this matter with other law enforcement and government agencies.

For more information regarding investments and fraud protection, visit the Secretary of State’s online Investor Protection Center at www.MissouriInvestorProtection.gov or call 1-800-721-7996.

 

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To find out more about Missouri's Secretary of State's office, visit www.sos.mo.gov

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News Release from IBM - E*TRADE Korea

E*TRADE Korea Increases Online Trading Capacity and Speed of Customer Service with IBM Systems

IBM POWER7-based systems replace Oracle/Sun servers at growing financial securities firm

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SEOUL, South Korea - 09 Mar 2012: IBM (NYSE: IBM) today announced that E*TRADE Korea (KOSDAQ: 078020.KQ) has selected IBM's Smarter Computing approach to information technology to support its growth in the increasingly competitive and complex financial services market. With enhanced online services, E*TRADE Korea's 200,000 customers will be able to more quickly access up-to-date account information, stock quotes, community bulletin boards and online help features to better manage their financial portfolios. In addition, the new E*TRADE Korea online trading system based on IBM Power Systems will have the capacity to settle up to 970,000 transactions per hour in real-time – 16 percent faster than with the previous technology platform based on Oracle/Sun servers.

Korea currently has the world's second largest online trading market, with over 40 percent of trades conducted online, according to the Korea Securities Dealers Association (KSDA). E*TRADE Korea offers trading in Korea Stock Exchange (KSE) listed securities, as well as KOSDAQ equities, futures, options, beneficiary certificates and mutual funds. To better respond to fast-changing market conditions and customer demand for new services, E*TRADE Korea worked with IBM Business Partner LG CNS to replace its existing Oracle/Sun Solaris systems with IBM POWER7 processor-based systems to gain higher system utilization, availability and flexibility. By matching its IT workload to a system that's optimized for the task, E*TRADE Korea is increasing its IT services capacity while keeping costs low.

"Our goal is to secure a more advanced level of IT competitiveness than other companies by delivering better customer experiences," said Hoon Ki Jung, CIO and Managing Director for E*TRADE Korea. "With IBM Power Systems, E*TRADE Korea will be able to establish a stable and optimized IT environment that supports the company's future business growth, while increasing our current operational efficiency and cost effectiveness."

With the new technology infrastructure platform, E*TRADE Korea will be able to directly integrate its front-end business applications with back-end processes that are linked to the Korea Stock Exchange, resulting in higher transaction results per hour. In addition, E*TRADE Korea will be able to quickly analyze customer activities to draw insights for the company's up-selling and cross-selling marketing efforts. E*TRADE Korea will also be able to utilize the new platform for business application development, shortening the time it takes to deliver new products and services to customers in its core business areas.

"E*TRADE Korea required a secure and robust IT platform to support its enhanced financial products and services, and chose IBM Power Systems for its unparalleled performance and stability," said Kyunghoon Cho, Vice President, IBM Korea. "Like E*TRADE Korea, a number of securities companies in Korea are turning to a Smarter Computing model from IBM to improve customer service and support their rapid business growth in this fast moving market."

Irresistible Mortgage-Backed Securities

Excerpt from an article in The New York Times
Sunday, February 19, 2012

Prices of Mortgage-Backed Securities Prove Irresistible

By AZAM AHMED

Some Wall Street investors made money as the mortgage market boomed; others profited when it fell apart.

Having reaped big gains during both of those turns, Greg Lippmann, a former star trader at Deutsche Bank, is now catching the next upswing: buying the same securities built from mortgages that he bet against before the financial crisis erupted.

Mr. Lippmann is joined by other big-money investors - mutual funds like Fidelity as well as hedge funds - in riding a wave of interest in the same complex loan pools that nearly washed away the financial system.

The attraction is the price. Some mortgage bonds are so cheap that even in the worst forecasts, with home prices falling as much as 10 percent and foreclosures rising, investors say they can still make money.

"Given its significant underperformance in 2011, we believe the product is as cheap to broader markets as it has been in a long time," Mr. Lippmann, whose portfolio is heavy with subprime mortgage securities, wrote in a recent letter to investors.

More broadly, the nascent recovery in the mortgage bond market supports a view that the housing slump may have bottomed out. Sales of existing homes are picking up. State and federal authorities have reached a $26 billion settlement with the big banks that is expected to provide some mortgage relief. And the Federal Reserve Bank of New York has been able to auction off billions of dollars of mortgage securities that it acquired as part of the financial crisis bailouts.

"There is light at the end of the tunnel," said Kenneth J. Taubes, the head of United States investment for Pioneer Investments, a global investment manager that owns these securities. "The mortgage crisis is getting behind us, and things are getting back to some semblance of normality."

That optimism is an about-face from 2006 and 2007, when Mr. Lippmann and others told investors that housing was a bubble ready to burst. On Wall Street, Mr. Lippmann became known as "Bubble Boy," and one of his traders wore a joking T-shirt that read, "I Shorted Your House."

His exploits were chronicled in Michael Lewis's best seller "The Big Short," which described him as somewhat brash and crass. He was known for maintaining a sushi spreadsheet, where he ranked the top Japanese restaurants in Manhattan on ambiance, quality and cost. (He still maintains the spreadsheet.)

These days, industry competitors describe Mr. Lippmann, who runs LibreMax Capital, as a more mellow presence. And he is much more positive about the market, telling investors that his fund is reducing its hedge against a potential market crash. Through a spokesman, Mr. Lippmann declined to comment.

Developer Convicted of Operating a Ponzi Scheme

From the FBI, New York:

Jury Finds Staten Island, New York Real Estate Developer Guilty of Operating Multi-Million-Dollar Ponzi Scheme

U.S. Attorney’s Office February 09, 2012

Eastern District of New York (718) 254-7000

— filed under: Breaking News, Press Release, White-Collar Crime

BROOKLYN, NY—Following two weeks of trial, a federal jury in Brooklyn, N.Y., today returned guilty verdicts against Joseph Mazella, the founder and president of the Great Atlantic Group Inc., a Staten-Island based real estate and financial consulting company, on charges of securities fraud, wire fraud, and money laundering. These charges arose out of the defendant’s operation of a Ponzi scheme that led to more than $14 million in losses. When sentenced by U.S. District Judge Carol B. Amon, the defendant faces a maximum sentence of 25 years in prison on the most serious charge.

The verdicts were announced by Loretta E. Lynch, U.S. Attorney for the Eastern District of New York.
The evidence at trial proved that Mazella solicited money from prospective investors by telling them that he would invest their money in real estate projects, including projects in Trenton, N.J., a warehouse in Utica, N.Y., and a golf course in Greene County, N.Y. Mazella told his victims that their money would be safe and that he would pay them a fixed rate of return. Mazella encouraged several investors, typically senior citizens, to apply for reverse mortgages on their residences and to invest the proceeds with him. From approximately January 2007 until approximately December 2010, investors gave Mazella more than $14 million. By January 2007, though, the evidence showed that Mazella was operating Great Atlantic as a Ponzi scheme in which he paid returns to investors from existing investors’ deposits or money paid by new investors. Mazella also used investors’ money to pay his personal expenses, including payments for a Porsche, a mortgage on his personal residence and family expenses.

“The evidence at trial showed that the defendant callously and systematically defrauded his victims of their lives’ savings. Mazella’s victims, many of whom are senior citizens on a fixed income, turned to him to ensure their security in their golden years. Instead, their security was raided to fund his fraud, and they will feel the impact of Mazella’s crimes for the rest of their lives,” said U.S. Attorney Lynch.

Ms. Lynch extended her grateful appreciation to the FBI, which led the government’s criminal investigation.
The government’s case is being prosecuted by Assistant U.S. Attorneys John Nowak, Winston Paes and Mary M. Dickman.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.