Securities Lawyer Blog

If Shakespeare were alive today, he might be seeking out an interview with Judge Jack Weinstein. Or perhaps invite him up to Stratford for a weekend of discussion on the human condition and its intersection with the sub-prime crisis.

Last week, the Judge sentenced Eric Butler, a securities dealer who formerly worked for Credit Suisse. Think of all the good work he could have done in five years on Wall Street.

Instead, he will be in prison and he will pay $5 million dollars in fines. He will also be supervised for three years after his release from prison. He told the court tearfully last week that he regrets all of this.

Mr. Butler was fairly brazen apparently in his push to get investors into very high-risk sub-primes that also happened to carry high-commissions. These investors lost over one billion dollars.

He was convicted of things that Shakespeare would not have known about and some things he would like fakery and fraud. In fact, allegations of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud were the rub for Mr. Butler.

The Judge's Statement of Reasons at the sentencing on some of these charges included deeply cutting prose. Pointing to the "the pernicious and pervasive culture of corruption" on Wall Street, the Judge went out of his way to express his concerns saying that "[t]he most compelling aspect of this case may be its illumination of the need to reconsider how compensation is calculated and investment products are marketed by the financial industry." He urged reform.

Lots of people are condemning this culture. It has hurt many people in America.

If Shakespeare failed to rip this story from the headlines, perhaps Charles Dickens would. The tale aligns well with so many Dickens characters as life imitates art. Or more likely, these great artists understood what is in the human character. One such Dickens character Mr. Merdle, swindles all the swooning swells of the time in a Ponzi-like scheme almost exactly along the lines of Mr. Madoff. The character of Mr. Butler is apparently not far off the mark.

And so into the annals of American law go the likes of Eric Butler. He is the new Merdle. He hopefully has learned that crime does not pay as his family has lost him for a period of years to another place, maybe not as bad as the Marshalsea prison, but still, prison.

In his Sentencing Statement of Reasons the Judge passed responsibility around the table like a plate of cookies in a Rockwell painting gone wrong. "The blame for this condition is shared not only by individual defendants like Butler, but also by the institutions that employ them, those who carelessly invest, and those who fail to regulate. Supervision is seriously negligent; greed and short-term gain are so enormous that fraud and arrogant disregard of others' rights and of ethics almost encourage criminal activities such as defendant's."

So, in short, the Judge seemed to be saying that we all need to look at this culture, because it is not any one defendant's doing. It is a culture Americans have allowed, it is our Wall Street and it is our responsibility to make it right. Both Shakespeare and Dickens would probably approve of that message.

Related Web Resources

For a complete review of the Sentencing Statement of Reasons, click here.

The Financial Industry Regulatory Authority (FINRA) recently announced that its Investor Education Foundation is again teaming up with the American Library Association (ALA) to help Americans learn about financial matters. Over the past three years, this program has awarded $3.2 million to public libraries and library networks nationwide. The ALA's initiative -- Smart investing@your library® -- is targeted at public education with effective, unbiased financial education resources.

The initiative supports education to Americans in the management of personal finances and more complex decisions that can be quite challenging in this economy. The programs include resources and content that are intended to increase access to, and understanding of, financial information.

Nineteen libraries across the country have been awarded grants for this program and include urban, suburban and rural communities across the country. Grantee libraries have developed programs that range from drop-in weekly clinics to programs that will target specific communities of interest such as youth, low-income women, newer Americans, English learners and many more.

One program coordinates with a local university to involve finance students and faculty for the education of the public on various financial issues and financial planning. Another partners with local schools to reach younger audiences. The use of technology is prevalent in the programs, and includes the use of social media, such as Second Life, and on-line learning for the educational content and outreach.

The ALA will provide assistance with program marketing, outreach and evaluation.

ALA's President Camila Alire noted that "libraries are part of the solution when a community is struggling economically. From free access to books and online resources for families to library business centers that help support entrepreneurship and retraining, libraries enable lifelong learning. ... We are thrilled that through the FINRA Foundation's generous support, Smart investing @ your library® grantees will have the resources to provide library users with access to unbiased investor education."

In his statement on the continued support of this program, John Gannon, the FINRA Foundation's president said that "smart decisions about personal finances and investing often begin at the local public library. By nearly doubling last year's funding for Smart investing @ your library®, we are helping to turn library cards into passports for people hoping to arrive at a brighter financial future."

Related Web Resources

More information on the FINRA Investor Education Foundation and its initiatives can be accessed at its website.

For more information on The Reference and User Services Association, which is a division of the American Library Association, visit www.ala.org.

Continue reading "$1.5 Million for Investor Literacy -- FINRA Foundation and the American Library Association Team Up" »

Earlier this week, Judge Rakoff refused to allow the SEC to amend its previously-filed complaint against the Bank of America Corp. related to its merger with Merrill Lynch. Denying the motion to amend, the judge also stated that the SEC could file a new action if it chose to do so. It chose to do so.

A quick refresher is in order. As the Securities Lawyer Blog has noted in prior posts, the case has been moving forward with Judge Rakoff's firm management in one of the most well-reported cases in recent years. All of this after the parties had reached a settlement that was ultimately rejected by the judge.

The case is of significant interest to the American public and to industry insiders for many reasons, not the least of which is the allegation that substantial bonuses to Merrill were not disclosed to shareholders prior to the merger vote in December 2008.

Back to the recent motion. The SEC sought by amendment, to present a charge that BofA failed to disclose "extraordinary losses" at Merrill prior to the merger vote.

Although Judge Rakoff refused to allow the amendment to the SEC's complaint, he gave some solid reasons for this decision. First, he intends to move forward with a March 1, 2010 trial date on the original complaint. Second, he expressed concern that new allegations with new underlying facts could confuse the jury and the bank should be permitted time to assess the allegations and present a defense to it.

The SEC's litigation release details the charges against Bank of America which include the allegation that the bank violated "federal proxy rules by failing to disclose extraordinary financial losses at Merrill Lynch prior to a shareholder vote to approve a merger between the two companies.

The SEC's complaint alleges that Bank of America learned prior to the shareholder vote that Merrill Lynch had incurred a net loss of $4.5 billion in October 2008 and estimated billions of dollars of additional losses in November.

The SEC claims that BofA "erroneously and unreasonably concluded that no disclosure concerning these extraordinary losses was required as shareholders were called upon to vote on the proposed merger with Merrill Lynch." The bank's failure to disclose this information, according the SEC, "violated its undertaking to update shareholders concerning fundamental changes to previously disclosed information, and rendered its prior disclosures materially false and misleading."

In the litigation release, the SEC acknowledged the assistance of the US Attorneys' offices in the Southern District of New York and Western District of North Carolina, the Federal Bureau of Investigation, and the Office of The Special Inspector General for the Troubled Asset Relief Program.

Continue reading ""Extraordinary" -- Claims SEC In New Suit Against BofA in Merrill Deal " »

The Securities and Exchange Commission (SEC) announced earlier this week that it has secured a settlement with the former Perot family companies employee charged with insider trading. The Securities Lawyer Blog featured this matter on an earlier post.

The settlement includes a return of illicit profits and the overall amount to be returned exceeds $8.6 million. The settlement was filed in federal court in Dallas, Texas. Part of the settlement includes a request by the SEC that a distribution plan be developed for the illegal profits to be returned. This plan would be handled by a third party. The agency also seeks to impose a financial penalty against the former Perot family company employee, Mr. Reza Saleh.

The insider trading case developed after Dell Inc. announced its intention to acquire Perot Systems. The agency alleged that Mr. Saleh had made "increasingly large purchases of Perot Systems call options contracts based on material, non-public information that he learned in the course of his employment with, or duties for, two Perot-related private companies and Perot Systems." Allegedly, immediately after the tender offer he sold all call option contracts and gained about $8.6 million in illicit profits.

WIthin two days, the SEC was in court and pursuing the insider trading deal as it sought and secured an order freezing the profits that resulted from the it. The SEC alleged that Mr. Saleh had "illegally traded in Perot Systems call options after learning about the merger before it was announced."

The SEC was assisted in the matter by several other entities including the Chicago Board Options Exchange, Options Regulatory Surveillance Authority, the Nasdaq OMX and the Financial Industry Regulatory Authority (FINRA).

Mr. Saleh has not admitted or denied the allegations against him. The settlement includes an agreement that he will be permanently enjoined from violations of the anti-fraud provisions of the Securities Exchange Act of 1934 as well as an agreement to an SEC administrative order barring him from future association with any investment adviser.

Related Web Resources

Click here to read more about the Options Regulatory Surveillance Authority and the authorities involved in surveillance and investigation of insider trading matters.