July 13, 2020
SEC Obtains Final Judgment Against Investment Adviser Managers Charged with Misleading Clients (SEC Release)
As a 38-year Wall Street veteran and a founder of the NASD and FINRA Dissident Movement, I have tired of far too many candidates for FINRA elective office who talk the talk but won't walk the walk. Following his election as the 2017 FINRA Small Firm Governor, Stephen Kohn pressed for a number of meaningful reforms. Too often it was Stephen and only Stephen who fought for the small firms. Despite his lonely advocacy, Stephen persisted. If re-elected in 2020, Stephen will remain a passionate voice in raising the legitimate grievances of the small firm community. I urge all FINRA Small Firm Executive Representatives to cast a proxy in support of Stephen Kohn's candidacy for the 2020 FINRA Small Firm Governor.
As reported in part by Bloomberg's Rockeman about the USA:
The producer-price index decreased 0.2% from a month earlier after a 0.4% gain in May, Labor Department figures showed Friday. It marked the fourth decline in five months. A Bloomberg survey of economists projected a 0.4% gain in the June PPI. Excluding food and energy, the so-called core PPI dropped 0.3%.
As reported in part by Bloomberg's Lima about Brazil:
The benchmark IPCA index rose 0.26% in June from the previous month, less than the median forecast for a 0.30% gain from analysts in a Bloomberg survey. In twelve months, inflation accelerated 2.13%, well below this year's 4% target, the national statistics agency reported on Friday.
Bill Singer's Comment: Exactly the kind of crap that keeps me up at night thinking. We got one world. We got a raging COVID pandemic. We got the USA with about 333 million in population (about #3 on the chart) and we got Brazil with about 212 million in population (about #7 on the chart). We got the USA with about 3.6 million square miles (#4) and Brazil with about 3.3 million square miles (#5). All in all, two fairly similar populations and sizes -- which surprises a lot of folks who never quite realized how populous and massive Brazil is. The intriguing question is why did the USA's PPI decrease but Brazil's CPI increased. Yes, yes -- we're comparing apples and mangoes because PPI is not CPI. And, no, I'm not suggesting that there's anything profound here and I'm not trying to make any point about Trump and Bolsonaro or the USA and Brazil. I just love these data puzzles and trying to figure out if there is a trend or an indication or a warning. Knock yourself out!
The United States District Court for the Southern District of New York ("SDNY") entered final consent judgments against:
Separately, the SEC filed an Order Instituting Administrative Proceedings againts Alderson
https://www.sec.gov/litigation/admin/2020/ia-5536.pdf, whereby Alderson was permanently barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with the right to re-apply after two years.
Without admitting or denying the allegations in the SEC SDNY Complaint, Alderson and Hamilton, consented to the entry of the final judgments, whereby:
- Alderson is enjoined him from violating Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940 and from aiding and abetting violations of Sections 204 and 206(4) of the Advisers Act, and Rules 204-2 and 206(4)-7 thereunder and ordered to pay disgorgement of $265,000, prejudgment interest of $10,060, and a civil penalty of $125,000; and
- Hamilton is enjoined from violating Section 206(2) of the Advisers Act and ordered to pay disgorgement of $265,000, prejudgment interest of $10,060, and a civil penalty of $75,000.
- All amounts paid shall be combined with the Fair Fund created in In the Matter of deVere USA, Inc., Administrative Proceeding File No. 3-18527 (June 4, 2018), to be distributed pursuant to a plan of distribution entered in that action.
As alleged in part in the SEC Release:
On June 4, 2018, the SEC charged deVere USA with failing to disclose agreements with overseas product and service providers that resulted in compensation being paid to deVere USA advisers and an overseas affiliate. The SEC order found that the undisclosed compensation-including an amount equivalent to 7% of the pension transfer value-created an incentive for deVere USA to recommend a pension transfer and particular product or service providers that were obligated to make payments. In the SEC's complaint against Alderson and Hamilton, filed the same day, the SEC alleged that the defendants misled clients and prospective clients about the benefits of pension transfers while concealing material conflicts of interest, including the substantial compensation that they personally stood to receive.
The SEC proposed an Amendment to Form 13F https://www.sec.gov/rules/proposed/2020/34-89290.pdf that will raise the reporting threshold from $100 million to $3.5 billion to reflect
the change in size and structure of the U.S. equities market since 1975, when Congress adopted
the requirement for institutional investment managers to file holdings reports. In part, the proposed Form 13F amendment would increase the information provided by institutional investment
managers by eliminating the omission threshold for individual securities, and requiring managers
to provide additional identifying information.
In a blunt statement that makes little attempt to disguise her disdain for the proposed amendments to Form 13F, Commissioner Lee states in part that:
I'm unable to assess the wisdom of today's proposal because it lacks a sufficient analysis of the costs and benefits. The costs of losing transparency are glossed over in brief narrative form and largely discounted. And to the extent the proposal purports to capture benefits in the form of cost savings, those cost savings rest largely on new Paperwork Reduction Act (PRA) estimates of the costs of compliance. The Commission's legal obligation to do a thorough economic analysis under the National Securities Markets Improvement Act, however, cannot be satisfied by simply substituting PRA estimates. What's more, the asserted cost savings derived from the PRA estimates in the final draft of this proposal reflect a quadrupling of our current estimate using assumptions that depart substantially from those used by the Commission for over a decade.
I am concerned that the projected cost savings in today's proposal are greatly overstated and wholly inconsistent with the Commission's past analysis-and, importantly, that the actual cost savings do not justify the loss of visibility into portfolios controlling $2.3 trillion in assets. Additionally, the Commission's assertion of authority to raise the threshold conflicts with the plain text in the Exchange Act that requires us to collect the information. Specifically, section 13(f)(1) withholds authority from the Commission to raise the threshold, and the proposal fails to address that conflict.