Securities Lawyer Blog

Remember last year when the deep freeze hit the Auction Rate Securities market?
It's been a long winter for the firms involved in the ARS failure.

Securities Lawyer Blog has been keeping an eye on the price tag for the buy-back of these securities. Across the board, firms told investors that these securities were safe, liquid and more like CD's than securities. Estimates are the cost is now up to about $61 billion.

Recently, the California Attorney General announced that Wells Fargo & Co. has agreed to buy back approximately $700 million in auction-rate securities from investors in California. The deep freeze for Wells' California ARS investors is over.

In addition to making investors whole, the bank's settlement includes a $600,000 payment back to the Attorney General's office for the expenses involved in investigating and settling the auction-rate failure.

Wells Fargo joins the ranks of many other firms that have paid out millions to their investors after the ARS market froze last year. In a statement regarding the settlement, Charles Daggs, Wells Fargo Investments CEO noted: "We have been working with ARS issuers since the auction rate market froze, and while there has been progress, redemptions by issuers have not occurred as fast as anyone would have hoped or predicted. We are glad to have resolved this for our customers."

California AG, Jerry Brown, who also happens to be trying to regain his residence as Governor of California commented on the settlement saying, "Wells Fargo convinced thousands of investors to purchase auction-rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold."

In addition to the California settlement, Wells Fargo will also buy back $700 million in frozen ARS from residents outside California. This settlement was reached through efforts on the part of the California Department of Corporations and the North American Securities Administrators Association. In total, Wells Fargo states that it will pay penalties and fines as part of the settlements in the amount of $1.9 million.

Related Web Resources

For more information on the Auction Rate Securities issue, visit FINRA.org.

Continue reading "Auction-Rate "InSecurities" -- Wells Fargo's $1.4 Billion Buy Back" »

Does playing with the numbers ever really pay off? The Securities & Exchange Commission (SEC) is working hard to make sure we all know that it doesn't.

Yesterday, the SEC announced that it has filed its first enforcement action using Regulation G against SafeNet, Inc. and several of its former officers and accountants.

The SEC filed its complaint in the United States District Court for the District of Columbia and it includes a laundry list of allegations and fines, which the parties have settled without admitting or denying allegations. All are subject to court approval.

The SEC complaint alleges that SafeNet engaged in two fraudulent schemes from late 2000 through May 2006, including backdating of options and the other improper earnings management. In each scheme, SafeNet is alleged to have materially misstated financial results and disseminated materially false and misleading information to investors about its financial status. Senior officers of the company were involved in these schemes and accounting executives are alleged to have been involved in the earnings management scheme.

In addition to many other violations, the SEC makes its first enforcement use of Regulation G against SafeNet. The SEC instructs that: "Regulation G applies whenever a company subject to the periodic reporting requirements under Section 13(a) or 15(d) of the Exchange Act of 1934, or a person acting on the company's behalf, discloses publicly any material information that includes a 'non-GAAP financial measure.' "

According to the SEC, non-GAAP financial measures, those not calculated in conformity with Generally Accepted Accounting Principles, frequently exclude non-recurring, infrequent, or unusual expenses. Companies are required to reconcile these with the most directly comparable GAAP financial measure. The regulation also prohibits companies and their employees from disseminating false or misleading non-GAAP financial measures or presenting the non-GAAP financial measures in such a manner.

The complaint against the company and individuals alleges that in order to meet earnings targets improper accounting adjustments were made to expenses that included such things as: the improper classification of ordinary operating expenses as non-recurring integration expenses (costs incurred to integrate acquired companies into current operations), and the improper reduction of accruals and reserves.

SafeNet is alleged to have issued materially false and misleading securities filings and press releases with regard to earnings specifics. Backdating of option grants for senior executives and employees is also alleged to have occurred resulting in substantial profit-taking by those receiving these option grants.

The parties are enjoined from violating a long list of antifraud and other Securities Act and Securities Exchange Act provisions. SafeNet is ordered to pay a civil penalty of $1,000,000.

The complaint provides more specifics regarding the settlements, fines and penalties imposed on the parties. Their cooperation with the SEC was taken into account in the matter.

Related Web Resources

For additional information on SEC enforcement activities, visit www.sec.gov.

Continue reading "SEC's First Enforcement Using Regulation G Targets SafeNet - Over $1 Million in Fines" »

Last month, the Securities and Exchange Commission (SEC) brought securities fraud charges against a New York securities broker who allegedly created and disseminated "fake press releases to manipulate the stock prices of multiple publicly traded companies."

But for this publicity hound, the alleged campaign failed in short order.

The accused broker, Mr. Lambros Ballas, is a registered representative with the firm Global Arena Capital Corporation. His alleged scheme was simple, fraudulent and has landed him in a big heap of trouble.

First, there was a phony press release in which Mr. Ballas clamed that the United States Food and Drug Administration (FDA) had approved a drug developed by Discovery Laboratories, a Pennsylvania biotech firm. Next, he posted a confirmation of this news on a stock message board, making it seem even more legitimate by linking back to the "official press release." These activities apparently spiked the stock price as the company's shares opened much higher the next day.

Perhaps having been charmed by these results, the broker continued with this activity.

Again, he started with a fake press release in which he claimed that Disney had acquired IMAX Corporation. The pattern continued with a posting to a stock message board in which he attempted to independently confirm this "news" and boasting of big IMAX share acquisitions. This apparently was intended to lure investors and spike the price.

The fake PR game continued with a claim, again using a phony press release, in which it was claimed that Microsoft was acquiring Local.com of California. The scheme continued with the same pattern of activity and postings with links on stock message boards in which the broker attempted to independently verify the acquisition.

When Local.com's price rose almost 80 percent, the company issued its own press release stating that the Microsoft acquisition was false. Undeterred, the broker issued another fake press release stating that Google was to acquire Local.com.

The broker and his unwitting clients purchased shares of these companies just prior to the false publicity.

In its statement, the SEC's San Francisco Regional Office Director Marc Fagel characterized the activities as "disturbing" and stating that "Ballas caused significant market disruption with his hoaxes, forcing companies to scramble to correct the public record." He noted that "swift SEC action" was warranted "because Ballas is an industry professional responsible for handling his customers' brokerage accounts."

The broker is charged with violations of the antifraud provisions of the federal securities laws. In its complaint, the SEC is seeking injunctive relief, disgorgement of ill-gotten gains, and monetary penalties against the broker.

Related Web Resources

For additional information on SEC enforcement activities, visit www.sec.gov.

Continue reading "Publicity Stunted -- SEC Shuts Down Broker's Fake PR Blast " »