March 13, 2013

The Frankowski Firm, LLC Announces Investigation of Saba Software, Inc.

Saba Software, Saba, a provider of cloud computing software used for training and conferencing, recently announced that it received a letter from NASDAQ indicating the Company's ongoing failure to comply with NASDAQ's listing requirements. The failure to comply is related to the Company's failure to timely file certain financial statements with the SEC. The Company previously announced that it will be restating previously issued financial statements for fiscal years 2008, 2009, 2010, and 2011, and is reviewing the Company's unaudited financial statements for the three months ended August 31, 2012 and the six months ended November 12, 2012. The Company also announced that its public accounting firm will resign upon the completion of the audit and restatements.

On March 1, 2013, the Company announced that its founder, director and CEO Bobby Yazdani was stepping down from all of those positions effective immediately. The Frankowski Firm is investigating whether the directors and officers of Saba Software breached their fiduciary duties owed to the Company and its shareholders in connection with the above and caused the Company damages.

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March 1, 2013

Raymond James Drops Morgan Keegan's Name After It Was Ordered to Buy Back Securities

Just a few weeks after the 11th Circuit Court ordered Morgan Keegan to buy back more of their ultra-risky auction rate securities, Raymond James dropped the name Morgan Keegan altogether. In November 2012, this blog reported that 11th Circuit Judge William Duffy dismissed an SEC claim against Morgan Keegan. According to the article underlining the blog post, District Judge Duffy dismissed the SEC claims, ruling that the brokers' misleading statements were not material and that the brokers could not predict the market. However, the Court of Appeals disagreed with Judge Duffy and remanded the case back to the judge for a non-jury trial.

The article discussed Judge Duffy's opinion, which said that the brokerage firm did not act fraudulently but some of its brokers negligently made misrepresentations and omitted important information about the securities sold. Though Morgan Keegan voluntarily bought back around $2 billion of the highly-risky auction rate securities, according to the article, Judge Duffy ordered still more of the risky securities to be purchased back from the investors adversely affected by the high-risk funds and the misrepresentations surrounding them. Morgan Keegan was also ordered to pay a fine of over $100,000 per the article.

This decision came just a month before Raymond James Financial announced plans to drop Morgan Keegan from the name of its fixed-income arm. The article quoted Raymond James CEO Paul Reilly as saying that the two companies have reached a "cultural integration." The article also quoted Mr. Reilly as saying that Morgan Keegan was the one that requested their name be dropped.

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February 21, 2013

Class Action Complaint Filed Against Fidelity

A putative Class Action Complaint was filed in the United States District Court for the District of Massachusetts for Timothy Kelley (an ex-participant in the Avanade and Hewlett-Packard 401(k) plans) and Jamie Fine (a participant in the Delta 401(k) plan) accusing Fidelity of fiduciary breaches over its handling of floating participant contributions . Class action status is being sought on behalf of all Fidelity 401(k) participants, not just participants in the Avanade, Delta and HP plans.

The Complaint alleges that Fidelity 401(k) participants' contributions are held in temporary cash accounts before being invested in mutual funds and the like. These contributions are then held in the cash account, earning interest. The Complaint alleges Fidelity takes all of that interest and first pays itself. Then, the Complaint argues, Fidelity will take the rest of that interest and put it in the mutual fund which is spread out over investors. The Complaint focuses on this practice that affected all 401(k) plans for which Fidelity does recordkeeping.

This is not the first time Fidelity has been sued over retirement or investments accounts. According to a NY Times Article, employees of ABB, Inc. sued ABB and Fidelity for charging excessive retirement management fees. The judge in the case ruled that ABB breached its fiduciary duty to its own employees. The court also held that Fidelity breached its fiduciary duty to ABB's retirement plan by failing to allocate properly interest earned from the overnight investment of plan funds. The court originally ordered ABB to pay $35.2 million in damages and Fidelity to pay $1.7 million, according to the article, but later ordered ABB and Fidelity to pay $13.4 million more in attorney fees and costs. The article quoted from the Judge's opinion that "ABB breached its fiduciary duties of both loyalty and prudence to the retirement plans, as a result of which it benefited significantly while plan beneficiaries were deprived of millions of dollars. Fidelity, while less culpable, also took plan assets in violation of its fiduciary duty."

The Plaintiffs' attorneys are: Richard Frankowski in Birmingham, Alabama; Joseph Peiffer of Fishman Haygood Phelps Walmsley Willis & Swanson in New Orleans; Todd Schneider and Mark Johnson in San Fransico, and Garrett Wotkyns and Michael McKay in Scottsdale, Arizona, all four of whom are with Schneider Wallace Cottrell Brayton Konekcy; James Kaufman of Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor in Pensavola, Florida; Elizabeth Ryan and John Roddy with Bailey in Boston; and Suyash Agrawal and Jeannie Evans with Agrawal Evans in Chicago.

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February 13, 2013

Judge Accused of Exceeding Authority by Rejecting SEC Settlement

Trial Court Judge Jed Rakoff is accused of exceeding his authority in rejecting a settlement reached by the SEC and Citigroup. The settlement came after the SEC initiated a civil fraud action against Citigroup regarding the sale of a complex $1 billion mortgage bond deal during the end of the housing boom. The SEC also alleged Citigroup deceived its customers by selling them risky mortgages that the bank allegedly knew would decline in value. The clients involved suffered more than $600 million in losses.

Citigroup agreed to pay $285 million to settle the complaint, but Judge Rakoff rejected the settlement. According to the NY Times Dealbook article, Judge Rakoff called the proposed settlement amount "pocket change" for the bank. The Judge also wrote in his opinion, according to the article, that the settlement did not require Citigroup to admit to or the SEC to prove fraud, which deprived the public "of ever knowing the truth in a matter of obvious public importance."

Judge Rakoff did not attend the proceedings at the United States Court of Appeals for the Second Circuit in Manhattan. His court-appointed lawyer did attend the argument in front of the three judge panel, regarding his authority to reject the SEC/Citigroup settlement. According to the article, John R. Wing, the lawyer for Judge Rakoff, argued that a judge is not bound to approve every consent decree from the SEC while only assuming the decree is in the public's interest. Judge Rakoff wanted additional evidence to ensure his judgment was well informed.

Many governmental bodies use the "neither admit nor deny wrongdoing" language in settlement with corporate defendants. A worry addressed in the article is that if the Second Court of Appeals agrees with the Judge, than other judges would refuse to approve settlements with that language. Also, having to admit fault could be quite the deterrent to corporate defendants choosing to settle and more cases will go on to a costly trial. The NY Times Dealbook article quotes Brad S. Karp, a lawyer for Citigroup, as saying that, "Many corporations will decide to not settle matters if a requirement is to admit liability," Mr. Karp said. "The federal regulatory enforcement regime would screech to a grinding halt."

Judge Rakoff's lawyers argued in response that, "The S.E.C.'s and Citigroup's concept of deference -- in which courts would be effectively reduced to potted plants -- would surely undermine the independence of the federal judiciary." The Courts need not approve every settlement that comes their way just because it was offered by a federal agency. Citigroup and the SEC argued that requiring an admission of fault would lead to more costly trials. However, approving all settlements without an indication of fault may be better for the defendant but their ease in settlement should not be favored over the public's interest.

This is not the first time Judge Rakoff has rejected an SEC settlement. The article acknowledges that the Judge has been a vocal critic of the SEC and their settlements which allow a company to settle fraud case by paying a fine without having to admit any wrongdoing. Such settlements must be approved by the court to be "fair, reasonable, adequate and in the public interest." Judge Rakoff, in 2009, rejected the SEC and Bank of America settlement related to the bank's acquisition of Merrill Lynch. Other federal judges in Brooklyn, Colorado and Wisconsin have followed suit and demanded greater information and/or accountability from defendants approving settlements with the S.E.C. and other government agencies.

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February 7, 2013

Morgan Keegan Opt-Out

Notice to Morgan Keegan Customers Who Invested In the RMK Closed-End Bond Funds: The Frankowski Firm, LLC Urges You to Fully Explore Your Legal Options Regarding the Proposed Class Action Settlement With Morgan Keegan

BIRMINGHAM, AL., Feb. 5, 2013 (GLOBE NEWSWIRE) -- The Frankowski Firm ( advises all Morgan Keegan customers who lost $10,000 or more in the RMK Closed-End Bond Funds and who have not already filed FINRA arbitrations to fully explore all of their legal options in connection with the settlement of In Re Regions Morgan Keegan Closed-End Fund Litigation ("Class Action"), Case No. 07- CV-02830. You have the right to opt out of this settlement on or before March 22, 2013. If you do not opt out, you will release valuable legal rights if the settlement is approved. We are ready to advise you on the opt-out process.

The proposed settlement will result in a few cents on the dollar for aggrieved investors if legal fees and costs of $19.15 million are approved. Many Morgan Keegan customers have done much better than this by filing individual arbitrations. In cases where damages are $50,000 or less, clients do not have to attend an arbitration hearing, and can simply submit a brief to support their claim.

The deadline for filing an objection or opting out of the class is March 22, 2013. If you do nothing by that date, you will be bound by the settlement if it is approved by the Court.
The RMK Closed-End Bond Funds involved in the settlement include the RMK Advantage Income Fund (RMA) n/k/a Helios Advantage Income Fund (NYSE: HAV), RMK High Income Fund (RMH) n/k/a Helios High Income Fund (NYSE: HIH), RMK Multi-Sector High Income Fund (RHY) n/k/a Helios Multi-Sector High Income Fund (NYSE: HMH) and RMK Strategic Income Fund (RHY) n/k/a Helios Strategic Income Fund (NYSE: HSA).
The attorneys at The Frankowski Firm, LLC have successfully represented Morgan Keegan customers in arbitrations throughout the country.
Current and former customers of Morgan Keegan are encouraged to contact Attorney Richard Frankowski at 888-930-9091 for a free consultation to explore their legal rights and options. You can email Mr. Frankowski at Visit BHF on the web at

The Frankowski Firm, LLC has paid for the dissemination of this promotional communication and is responsible for its content. No representation is made that the quality of legal services to be performed is greater than the quality of legal services to be performed by other lawyers.

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January 24, 2013

SEC Bars Egan-Jones from Issuing Certain Ratings

Smaller than Standard & Poor's or Moody's, Egan-Jones is based in Haverford, PA with principle Sean Egan at the helm. It differs not only in size from its competitors but also in its business model. Standard & Poor's and Moody's both are paid by the companies that they rate while Egan-Jones accepts payment only from the investors interested in the ratings. This seemingly less biased business model has not completely protected the ratings firm. The Securities and Exchange Commission (SEC) investigated the firm for a few years and filed charges against the company and its principle. According to a NY Times Dealbook article, Egan-Jones is barred from issuing certain government-recognized ratings for 18 months. The article stated that the trouble Egan-Jones found them in started when the firm made misstatements on an application with the government.

The SEC said the firm had exaggerated its record when it applied for a government designation in July 2008. The firm said then that it had performed 150 ratings of asset-backed securities and 50 ratings of governments, when it actually had performed none at that time, according to the agency. Egan-Jones had also violated provisions preventing conflicts of interest, because two analysts helped to rate entities whose securities they also owned, according to the SEC.

The ratings firm allegedly allowed two analysts to assist in rating entities comprised of securities they also owned. The SEC also alleged that the firm made misstatements when applying for a government designation. These misstatements were characterized in the article as the firm stating they had rated 150 asset-backed securities and 50 ratings of governments when at the time, it had not performed any of the 150 ratings it claimed.

Discussed in the article also were the terms of the penalty- the firm is still allowed to issue ratings but when rating asset-backed or government securities issuers, the firm will not be able call themselves a nationally recognized statistical rating organization. This ban will last for 18 months and Egan-Jones will be eligible to apply again for the designation once the ban ends.

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January 14, 2013

Bank of America to Pay $10.3 Billion Over Questionable Mortgages

A recent CNN Money article disclosed a $10.3 billion settlement between Fannie Mae and Bank of America over questionable home loans sold during the housing bubble and subsequent burst. The article stated the large settlement would be comprised of a direct payment of $3.55 billion in cash as well as $6.75 billion paid to repurchase around 30,000 "questionable" mortgages. These mortgages were combined into mortgage backed securities, which were purchased and guaranteed by Fannie Mae and turned out to be very risky and unstable investments. It was these mortgage backed securities that helped bring down the government backed mortgagor, causing them massive losses and needing a $116 billion bailout to continue to operate.

According to the CNN Money article, the loans in question were originally made by Countrywide Financial between 2000 and 2008 and the original value of the loans covered in this settlement was $1.4 trillion. Bank of America purchased Countrywide in 2008 for $4 billion. This is not the first settlement that BofA has reached regarding Countrywide's mortgage or loan practices and their packaging of mortgage backed securities. BofA repurchased $2.87 billion in bad loans purchased by Fannie Mae and Freddie Mac. In 2011, BofA agred to pay a $335 million fine over Countrywide's alleged discriminatory lending practices.

The settlement between Fannie Mae and BofA was disclosed the same day that the Federal Reserve and Office of the Comptroller of the Currency reached a different agreement with BofA and nine other banks for a total of $8.5 billion regarding foreclosure abuse. The other banks in the foreclosure abuse settlement are Aurora, Citigroup, JPMorgan Chase, MetLife, PNC, SunTrust, US Bank, Wells Fargo and Sovereign Bank.

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January 7, 2013

AIG Considering Suing Government Over Bailout

The Board of American International Group, Inc. (AIG) soon will meet to decide if the company, who just paid off their $182 billion bailout debt, will join a $25 billion shareholder lawsuit against the government, according to an article in the NY Times Dealbook.

The lawsuit in question was filed in 2011 by Maurice Greenberg, AIG's former chief executive for almost forty years. According to the article, Greenberg claimed the government deprived shareholders of tens of billions of dollars and violated the 5th Amendment when it bailed out the large insurance company. Greenberg filed suit against the government in the federal courts of New York and Washington. The New York case was dismissed and is on an expedited path for review at the Court of Appeals for the Second Circuit while the Washington Court declined to dismiss the case. The Washington Court is now waiting on AIG's decision.

Greenberg alleges that when the government bailed out AIG, which even he admittedly agreed the company needed, the government improperly used AIG funds to provide a "backdoor bailout" of Wall Street. He also claims, according to the NY Times Dealbook article, that the government violated the 5th Amendment prohibiting the government taking private property , i.e. AIG shareholder funds, for public use. Greenberg also claims the bailout plan took a "punitive" interest rate of 14 percent or more while also diluting the holdings of investors, according to the article . A spokesman for the Federal Reserve Bank of New York stated that the alternative to the bailout for AIG was to file bankruptcy. Potentially joining the litigation must be brought to the shareholders due to AIG's business responsibilities and the fiduciary duties AIG owes their shareholders. It would be improper for the board members to not consider the lawsuit at all, due to the duty they owe the shareholders.

On January 9, 2013, the board of directors will meet with Greenberg's current company, Starr International. Afterwards, the Treasury Department will make a presentation and then both parties will be allowed time for rebuttal. It is not known when the board will make a decision regarding joining the suit. The article states that while discussions were already scheduled for board meetings, it is rare for the entire board to meet over a question of joining a single litigation.

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December 21, 2012

SEC Charges Penny Stock Investors with Fraud

Four industry professionals were charged by the SEC for a fraudulent penny stock scheme that produced around $17 million in illegitimate profits, all the while claiming false federal securities laws exceptions. The SEC defines penny stocks as low-priced (below $5), speculative securities of small companies that are generally quoted over the counter on the OTC Bulletin Board or in the Pink Sheets but may also be traded on the securities exchange.

The SEC press release alleged the four industry professionals acquired somewhere between 30 to 60 percent of the market price, more than one billion unregistered shares, in microcap companies at very deep discounts. Microcap companies are those smaller, public companies with a market capitalization under $250 million. The press release further alleges the four professionals charged told the companies they intended to hold the shares for investment purposes yet instead they quickly sold the shares unregistered. The SEC asserts that they did so claiming to rely on certain state law exceptions that would permit such a sell. The SEC further contends the four charged set up virtual corporations in numerous states to feign the appearance that the exception was valid.

The Director of the SEC's New York Regional Office stated that the four charged allegedly, "repeatedly violated the registration provisions and in the process also committed securities fraud." The penny stock scheme is said to have started in 2007 and went until 2010. The four charged had previously worked in the securities industry as registered representatives, providers of investment management or provided financial advisory services.

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December 12, 2012


Harry Tanner with American Precious Metals, Andrea Tanner and Sam J. Goldman agreed to pay a $24 million settlement after FTC charged they tricked customers to purchase high risk precious metals on credit without disclosing the risks associated with these purchases, according to the Federal Trade Commission's article. This settlement stems from an FTC investigation that started in May, 2011.

The FTC complaint alleged that consumers were unaware that their investments were financed and loans were taken out for up to 80% of the price of the precious metals. The persons who invested in these precious metals were also unaware that their investments were subject to equity calls; to prevent their investments from being liquidated, they might have to pay more money.

While the investigation and litigation has progressed, the court barred the defendants from misrepresenting the risk and earning potential of their investment offers and required clear disclosure of all the total costs and risks before consumers agreed to invest, pending resolution of the case.

In addition to the settlement, Mr. Tanner and Mr. Goldman are also permanently banned from marketing any investment opportunities. Mrs. Tanner is banned from marketing precious metals investments. In addition, all three of them must fully and honestly disclose all material terms about any goods or services they offer consumers in the future and they cannot disclose or benefit from their future customers' personal information.


December 4, 2012

The Frankowski Firm LLC Announces Investigation of Vascular Solutions Inc.

The Frankowski Firm, LLC announces the commencement of an investigation into Vascular Solutions Inc., ("Vascular Solutions" or the "Company") to determine whether the Company's officers and directors have breached their fiduciary duties owed to Vascular Solutions and its shareholders by causing the Company to illegally market certain of its medical devices for unapproved, or "off-label," uses.

Founded in 1996 and based in Minneapolis, Minnesota, Vascular Solutions is a biopharmaceutical company that markets and sells the products for interventional cardiologists and interventional radiologists. Vascular Solutions offers products and services in three categories: catheter products, hemostat products and vein products and services. Catheter products consist of catheters used in minimally invasive medical procedures for the diagnosis or treatment of vascular conditions. Hemostat products consist of products used to control surface bleeding. The Company's vein products consist of Vari-Lase endovenous devices.

On November 19, 2010, a former Vascular Solutions employee filed under seal a qui tam action against the Company alleging Vascular Solutions illegally marketed its Vari-Lase endovenous laser product to treat conditions other than those approved by the Food and Drug Administration and engaged in an illegal kickback scheme with doctors who prescribed the device for off-label use, in violation of federal law. The complaint also alleges that Vascular Solution's off-marketing scheme resulted in over $20 million in improper Medicare and Medicaid reimbursements.

Soon thereafter, on June 28, 2011, Vascular Solutions announced that it had received a subpoena from the U.S. Attorney's Office for the Western District of Texas under the Health Insurance Portability & Accountability Act of 1996 requesting the production of documents related to the Company's Vari-Lase products. The government later elected to intervene in the qui tam action.

What You Can Do

If you are a long term Vascular Solutions shareholder, you may have legal claims against Vascular Solutions' officers and directors. If you wish to discuss this investigation, or have questions about this notice or your legal rights, please contact attorney Richard Frankowski via toll-free telephone at (888)-390-0036. There is no cost to you.

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November 27, 2012


Morgan Keegan is back in court, this time in a bench trial scheduled to last two weeks in front of a judge who originally dismissed the SEC regulators' claims, according to an article in Bloomberg Businessweek.

US District Judge William Duffy dismissed the action brought by the SEC which alleged Morgan Keegan misled thousands of investors about the high risks of auction-rate securities. The Court of Appeals in Atlanta, GA overruled Judge Duffy and remanded the case back down to him. Judge Duffy originally ruled that statements of the brokers were immaterial in light of disclosures on Morgan Keegan's website, the article explains. The Court of Appeals did not agree with Judge Duffy, per the article, and the trial started on November 26, 2012.

Some of the broker statements classified the auction-rate securities as "liquid, short term investments" and did not disclose that the investors' money could be "tied up" for a very long time, according to the SEC's opening statement. The lawyer for the SEC went on to say the auction-rate securities were sold to investors as zero risk investments. Investors thought they could get their money back at any time due to the allegedly misleading statements of the brokers and unfortunately found that when they needed their money, it was not there. Morgan Keegan did start a buyback program at one point during the failure of the auction-rate securities it sold to its investors; this program only paid back principal invested.

Another point of contention between the District Judge and the Court of Appeals is Judge Duffy's statement that not being able to predict the market is not a securities violation. The SEC is not alleging that Morgan Keegan was misleading investors because they could not predict the market. Instead, the SEC alleges that Morgan Keegan and its brokers were all aware that the auction-rate securities offered and sold to investors was nowhere near as safe as they advertised them to be. The SEC alleges that Morgan Keegan told investors that the auction-rate securities at issue were just the same as cash, or a cash equivalent, with "zero risk", according to the article; however, the investors could not sell the securities when they tried after the auctions started to fall.

The SEC is seeking unspecified monetary penalties against Morgan Keegan. The case is Securities and Exchange Commission v. Morgan Keegan & Company Inc., 1:09-cv-01965, U.S. District Court, Northern District of Georgia (Atlanta).


November 19, 2012


Once again JP Morgan has found itself in hot water with the SEC, this time alongside with Credit Suisse. The announcement came in a recent SEC News Digest that JP Morgan and Credit Suisse agreed to settlements to pay around $400 million dollars to investors harmed by their misleading information regarding residential mortgage backed securities.

The article alleged that Credit Suisse failed to accurately disclose that it retained some cash for itself when it settled claims against mortgage loan originators. Credit Suisse also was accused of making misleading statements in its SEC filings regarding its practice of repurchasing mortgage loans after a borrower missed the first payment due. Using these misleading and fraudulent techniques, Credit Suisse allegedly made $55.7 million in profits while investors lost more than $10 million. Credit Suisse agreed to pay $120 million as settlement to the SEC for the harmed investors.

JP Morgan agreed to pay $296.9 million to settle the newest set of charges against them, according to the SEC News Digest. All of the monies paid by JP Morgan, and Credit Suisse, will be distributed to harmed investors by the SEC. The charges against JP Morgan dealt with misstatements JP Morgan allegedly made regarding the delinquency status of RMBS collateral mortgage based loans in which JP Morgan was the underwriter. JP Morgan is charged with Bear Stearns' failure to disclose it keeping cash settlements paid by mortgage loan originators. All in all, JP Morgan allegedly gained around $2.7 million while costing investors $37 million. The SEC also alleged that JP Morgan made materially false and misleading statements in the prospectus for the $1.8 billion RMBS offering. Those misleading and false statements concerned the loans that provided the collateral for the RMBS transaction and many investors relied on these misleading statements to their detriment.

The SEC worked this case along with the federal-state Residential Mortgage backed Securities Working Group. Both groups hold that many mortgage products, such as the RMBS products at the heart of this matter, were "ground zero" in the financial crisis. The RMBS Working Group and the US Attorneys associated with them have a joint goal- investigating and confronting abuses in the RMBS securities market that contributed to the financial crisis. The SEC and the RMBS Working Group intend to hold those who misled investors accountable for their actions, according to Kenneth Lench, Chief of the SEC Enforcement Division's Structured and New Products Unit.


November 13, 2012


The jury has been selected for the trial of Anthony Chiasson and Todd Newman according to an article in the Dealbook section of the New York Times. Chiasson co-founded Level Global Investors and Newman was a portfolio manager at Diamondback Capital Management. Their charge- being part of a $68 million conspiracy that traded massive amounts of Dell and computer chip maker Nvidia shares based off an insider tip, right before an announcement of the negative value of the shares was released.

The article discusses a greater conspiracy than just Chiasson and Newman. Six other traders have already pleaded guilty.One of the other traders worked for SAC Capital Advisors; Level Global and Diamondback were both started by former employees of SAC Capital Advisors. Prosecutors and investors alike are interested to see what information this trial will bring regarding the trading strategies and practices of SAC Capital Advisors.

So far, the investigation into the Wall Street insider trading has lead to sixty-nine convictions. The majority of the defendants have pleaded guilty; of the eight defendants that have gone to trial, all were found guilty. The conspiracy spanned throughout SAC Capital, Level Global and Diamondback; however, the investigation is not limited to those three companies. Rajat Gupta of Golman Sachs and Sandeep Goyal of Dell have been sentenced to jail time due to their active roles in this conspiracy.

An earlier article in the Dealbook explains more about the actual conspiracy. The men charged passed insider information through a "circle of friends" that were mainly hedge fund managers, the article explained. These men then shorted shares of Dell and Nvidia before a negative earnings announcement was due to be released. The hedge fund and portfolio managers involved in this conspiracy had a duty to their investors as well as to their employers to not use insider information. The negative value of the shares of Dell and Nvidia had not yet been made to the public when they acted upon the tip, thus making their trades illegal insider trading. The many of the ties between the insider trading and the participants of the conspiracy, which produced great gains for the managers and great losses for the individual investors, have been traced to SAC Capital Advisors.


October 22, 2012

Basel May Provide Tougher Rules for Asset Backed Securities

The Basel Committee on Banking Supervision is posed to review how securitization is regulated globally in response to concerns that current regulations are not reducing excessive risk tasking, according to a recent article.

The Basel Committee is associated with the Bank for International Settlements and is a forum for regular cooperation on banking supervisory matters. The Committee consists of members from 27 different countries and is best known for its international standards on capital adequacy- the core principle for effective banking operations.

The article discussed a few of the main focuses of the Basel Committee. One is a review of the liquidity coverage ratio (LCR), which was last tweaked two years ago. The ratio relates to the amount of easy to sell assets a bank has on hand and the ratio relates to how much the bank should have in order to weather a 30 day credit squeeze. Responding to calls from the Euro Central Bank and the Bank of France, the Basel Committee will explore a possible expansion of the list of assets banks can use to meet the LCR. The LCR ratio currently has many asset backed securities, which are financial products whose value derives from assets such as loans or credit card debts rather than mortgages.

Another focus for the Basel Committee during their review is to come to a decision whether to allow banks to use more contingent-convertible bonds (CoCos) to meet their capital requirements. CoCos are a fixed income security that automatically converts into ordinary shares is a bank's capital falls through a predetermined floor. The CoCos have two prices, unlike a traditional convertible bond that just has a strike price. After the strike price, which is the cost of the stock when the bond converts into stock, there is another price. This price is even higher than the strike price and it is what the company's stock price must reach before an investor has the right to make the conversion.

The Basel Committee has set their 2013 priorities, which includes the above issues as well as reviewing a separate liquidity rule for lenders, a net stable funding ratio and studying possible changes to capital rules banks face on assets they intend to trade.

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