Securities Industry Commentator by Bill Singer Esq

December 11, 2020
Time to break up Facebook? Veteran lawyer Aegis Frumento isn't ready to jump on that bandwagon. For those arguing that the antitrust cases against Facebook are what's best for the consumer, Aegis asks whether Instagram and WhatsApp would have been better consumer products had they been left independent -- and reminds us that Facebook is essentially free to the consumer. Aegis asks us to weigh the value of a free consumer service against the cost to society of same. Very Zen like. A wonderful exercise in antitrust law and theory.
Dunno 'bout y'all but I sure as hell had to read that headline twice. Failing to timely impair goodwill . . . timely impair . . . goodwill.  Wow, who even knew that there was such a thing, right? In any event, in a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged Sequential Brands Group Inc. with 
charges Sequential with violating antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. As alleged in part in the SEC Release:

[S]equential failed to properly assess its goodwill for potential impairment after several months of declining stock prices followed by a precipitous drop in early November 2016.  According to the complaint, in December 2016, shortly after Sequential passed its annual goodwill testing, the company conducted internal calculations showing that, in light of the declining stock price, Sequential would fail the first step of its disclosed two-step impairment test. The complaint alleges that the company ignored this objective evidence of impairment. Instead, the complaint alleges, Sequential performed a qualitative analysis that omitted any mention of its internal calculations, as well as numerous other negative developments in the company's business, leading it to unreasonably conclude that goodwill was not impaired. As alleged, by avoiding an impairment to its goodwill in 2016, Sequential inflated its income from operations, created a false impression of its financial condition, and misstated its financial statements and reports for almost a year. Sequential allegedly continued to improperly account for goodwill in the next three quarters, before belatedly impairing all of its goodwill-totaling $304 million-in the fourth quarter of 2017.
The Madoff Victim Fund ("MVF") made its sixth distribution of some $488 million in forfeited funds in connection with the Bernard L. Madoff Investment Securities LLC ("BLMIS") fraud scheme, which raises the total distributions to about $3.2 billion to nearly 37,000 victims -- a nearly 80.05% recovery. As noted in part in the DOJ Release:

For decades, Bernard L. Madoff used his position as chairman of BLMIS, the investment advisory business he founded in 1960, to steal billions from his clients.  On March 12, 2009, Madoff pleaded guilty to 11 federal felonies, admitting that he had turned his wealth management business into the world's largest Ponzi scheme, benefitting himself, his family and select members of his inner circle. 

On June 29, 2009, U.S. District Judge Denny Chin sentenced Madoff to serve 150 years in prison for running the largest fraudulent scheme in history.  Of the approximately $4.05 billion that will be made available to victims, approximately $2.2 billion was collected as part of the historic civil forfeiture recovery from the estate of deceased Madoff investor Jeffry Picower.  An additional $1.7 billion was collected as part of a deferred prosecution agreement with JPMorgan Chase Bank N.A. and civilly forfeited in a parallel action.  The remaining funds were collected through a civil forfeiture action against investor Carl Shapiro and his family, and from civil and criminal forfeiture actions against Bernard L. Madoff, Peter B. Madoff and their co-conspirators.

Sweden Explores Moving to a Digital Currency (Bloomberg by Rafaela Lindeberg and Ott Ummelas)
An intriguing article from Bloomberg that explores Sweden's interest in launching an e-Krona. As I've long argued, nations are not easily going to surrender their sovereign currencies to the likes of Bitcoin, and this development may be an attempt by Sweden to retain control over its currency before it evaporates into some universal cryptocurrency. 

PayPal-backed fintech start-up Tink valued at more than $800 million after fresh funding (CNBC by Ryan Browne)
What the hell is in the water in Sweden -- perhaps a tad too much Aquavit? Following up on the story about that nation looking into an e-Krona, we now learn that so-called Open Banking is all the rage there: 

[S]wedish fintech start-up Tink has seen its valuation rise to 680 million euros ($824 million) in a new investment round, according to people familiar with the matter.

Tink, whose software lets banks and fintech firms access banking data to create new financial products, raised 85 million euros in fresh funding co-led by French private equity firm Eurazeo and U.K.-based venture capital firm Dawn Capital.

There are those who are infuriated by SEC Commissioner Peirce's frequent musings and there are those who love her hectoring. Frankly, I applaud her forays into the public square because her voice is provocative and challenging, and frequently in an uncomfortable yet constructive manner. It's nice that some regulator thinks about the difference between having the right to do something versus doing the right thing. In her speech to the Federalist Society, Peirce asserts in part that:

[O]ur instincts as regulators are to protect people, but protection that comes in the form of overruling personal choices is what parents do for children, not what governments ought to be doing for citizens.  Financial regulation, therefore, often undercuts personal liberty. 

Having set the tone of her speech, Peirce goes about torching such hot-button topics as accredited investors, finder's fees, regulation by fiat, ESG, and CAT. As to accredited investors, for example, Peirce admonishes that:

Although I am pleased with the progress and welcome the call for further public engagement, the presumption that people need to entreat a regulator for permission to invest still offends principles of personal liberty, which allow people both to earn and spend money as they see fit.  Why should government be authorized to assess the sophistication of the American people so as to constrain their decision-making in this particular area?  If we as a society permit government to do so in this area, is that a license for government to make other, even more consequential life decisions for us?

Peirce then takes on the debate about finder's fees, which she frames, in part, this way [Ed: footnote omitted]:

[F]inders are the people in your community who know lots of people, including potential investors.  Under the law as it is presently interpreted, however, finders, if they want to get paid for introducing small businesses to those investors, likely would have to register as broker-dealers, which would cost a lot more than any compensation they would get from this activity.  One commenter on the proposal explained, "A business owner should be able to compensate people for helping him or her to find and raise capital." Our rules can hinder the kind of community support for business that, particularly at a time like the present, could keep an otherwise doomed business afloat.  Here too, well-intentioned regulation is very much in tension with personal liberty.

Regardless of whether the good commissioner will set your blood aboil or merely confirm what you already believe, I commend Peirce's speech to your consideration. 

Maintaining Over $100 in Savings Linked to Increased Likelihood of Financial Stability in Lower Income Households (FINRA Release)
Among the more dumb-ass bits of jackassery published by FINRA over the years, I would be hard-pressed to cite something more ridiculous that this garbage. I mean, for godsakes, at some point does anyone on FINRA's Board read this crap and ask why good money is being wasted on such nonsense? Parading as a so-called "new report from the FINRA Investor Education Foundation and SaverLife." we are told, now sit down for this shocking revelation:

[P]eople who maintained more than $100 in savings were much less likely to have their utilities shut off or resort to high-cost borrowing methods. Those who had more than $250 in savings experienced reduced likelihood of losing their housing for financial reasons. In addition, individuals with a savings balance over $100 were much more likely to say they were financially satisfied.

I mean, gimme a goddamn break already. Puhlease tell me that FINRA will not spend more money on a future study to ascertain whether those who maintained more than $500 in savings are even less likely to have their utilities shut off or resort to high-cost borrowing than those who only maintained more than $100. As I often urge in frustration, why the hell doesn't FINRA just donate the money it wastes on these moronic studies to those who are being studied? See, for example: "Dubious FINRA Study Finds Female Arkansas Prison Inmates Are Usually Poor and Financially Illiterate" ( Blog / July 24, 2020) 

Finally, let me offer you the following direct quotes from the FINRA Release as an overly abundant example of the stupidity of the report and the grotesque waste of corporate funds -- as if any of the "key findings" were not self evident and as if the researchers' observations are not insulting obvious before the dubious study began:

Key findings from the report include:

  • People who were unable to maintain a savings balance above $100 were 95% more likely to have their utilities shut off vs. people who were able to sustain a balance above $100 (37% vs. 19%, respectively).

  • People who were unable to maintain a savings balance above $100 were 83% more likely to use high-cost borrowing, such as auto title loans, payday loans, refund advances, rent-to-own stores or pawn shops, vs. people who sustained a balance above $100 (42% vs. 23%, respectively).

  • People who were unable to maintain a savings balance above $250 were 71% more likely to have moved in the past five years for financial reasons vs. people who were able to sustain a balance above $250 (29% vs. 17%, respectively).

  • People who were able to maintain a balance above $100 were 61% more likely to say they were financially satisfied vs. those who couldn't maintain a balance above $100 (53% vs. 33%, respectively).

Based on these findings, researchers observe:

  • There is a growing need for innovative savings products that enable households struggling with income volatility and low wages to save, even in small amounts.

  • Cash infusions, such as stimulus payments and tax credits, can help lower-income households avoid predatory lending, keep on top of utility bills and achieve housing stability. The implications for families should factor into policy decisions.

  • Financial education efforts may need to be updated to encourage saving money even in the smallest of increments. The prevailing conventional wisdom that equates adequate emergency savings with three months of living expenses may be appropriate for some households, but is not always attainable for many lower-income Americans.

In the Matter of Nicholas G. Baecker, Respondent (FINRA AWC 2019063056701)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Nicholas G. Baecker submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Nicholas G. Baecker was first registered in May 2009 with Thrivent Investment Management, Inc. The AWC alleges that Baecker "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA deemed that Baecker had violated FINRA Rules 4511 and 2010; and the self-regulator imposed upon him $5,000 fine and a four-month suspension from association with any FINRA member firm in all capacities. The AWC alleges that "Thrivent discharged Baecker in November 2019 after 'the Firm concluded that authentic signatures were not collected and misstatements were made on product applications including variable products.' "In part, the AWC alleges that:

During the relevant period, the firm's written supervisory procedures required that client signatures on firm documents always be authentic and expressly prohibited representatives from forging a customer's signature. Although Baecker was aware of the firm's procedures, he electronically forged sixteen firm customers' signatures on life insurance applications. Eleven of the forged applications were for variable universal life insurance, a securities product sold by prospectus through the broker-dealer, and therefore were firm records. 

By electronically forging his customers' signatures on the life insurance applications, Baecker violated FINRA Rule 2010. Because eleven of these documents were firm records, Baecker also caused the firm to maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010