SEC Fraud

In a historic decision, the Securities and Exchange Commission has OK’d the request of SUN CEO Jonathan SChwartz’ request to let corporations disclose through blogs, rather than traditional media and distribution channels.

The IR Web Report explains, “UNDER certain circumstances, companies can rely on their websites and blogs to meet the public disclosure requirements under Regulation FD (Fair Disclosure), according to new guidance unanimously approved by the US Securities and Exchange Commission today.”

Traditionally, disclosure has been very expensive. TechCrunch estimates that each disclosure costs a few hundred dollars, sometimes over a thousand, and so this will reduce that cost for most businesses. Interesting!

SEC To Recognize Corporate Blogs as Public Disclosure. Can We Now Kill the Press Release? [ TechCrunch ]

It was announced today that the SEC settled with former Apple Inc. General Counsel Nancy Heinen in a case where she was accused of helping backdate stock options for Apple CEO Steve Jobs and other execs. While she doesn’t admit any wrongdoing, she agreed to a five year ban from serving as an officer or director of a public company, a three year ban from practicing law before the SEC for three years, and pay a $2.2M fine. The monetary penalty will consist of returning the $1.6m received from the exercise of those options, $400k in interest and a $200k fine.

The charges stemmed from a February 2001 granting of 4.8 million options to six Apple execs which included Jobs and Heinen, with an additional 7.5mil in options to CEO Jobs in December of that year.

This is just the beginning of these cases.

Ex-Apple Lawyer Heinen Settles SEC Backdating Case [Bloomberg]

Reuters is reporting that the U.S. Securities and Exchange Commission is formally investigating whether Angelo Mozilo, former chief executive of Countrywide Financial Corporation, misled investors. Mozilo sold over a hundred million dollars worth of stock in late 2006 and 2007 under automatic trading plans but the worry is that his revisions, which came after he first submitted it, indicated he knew of problems without capturing them in financial disclosures.

While Mozilo launched such a plan in October 2006, he later revised it, allowing him to sell more shares. This prompted concern that he was accelerating his stock sales as the housing market began to decline.

I personally don’t see anything wrong with him selling more shares if he saw indications of a slowdown. If Countrywide deceived investors and they lied on financial disclosures, they should be punished to the full extent of the law. I wonder if Bank of America is upset for buying them for two and a half billion.

Distort and Short campaigns have been thrust in the spotlight as of late with the American Bankers Association asking that the SEC more heavily regulate the short selling rules. Distort and Short is the name given to a strategy that investors short a stock, that is sell shares with the hopes that the price will fall, and then distort news such that the share prices do fall. Market manipulation is illegal under SEC rules but it’s often difficult to determine what is considered manipulation. Is the act of short selling an act of manipulation?

The reason why the ABA is involved is because the practice has been involving banks lately.

“Bank customers frequently – and incorrectly – equate significant drops in bank stock prices with safety of bank deposits,” Sarah Miller, an ABA senior vice president, said in a letter addressed to the SEC.

As traders short stock, the stock prices fall and bank customers believe their money is in jeopardy. If the IndyMac fiasco was any indication, when customers waited in line for hours to withdraw funds that were perfectly safe, the average customer doesn’t realize that the two are not at all related. However, if the share price sinks and then the bank faces a liquidity crisis because customers demand their funds, it could spiral out of control with the ultimate winner being the short trader.

The specific short selling technique being targeted is naked short selling, when you sell shares you don’t currently own. As of right now, the SEC prevents naked short selling on Fannie Mae, Freddie Mac, and 17 Wall Street firms in order to calm down the markets. That order expires AUgust 12th.

Banks renew plea for expanded short sale rule [Reuters]