June 25, 2015

SEC Calling: Charges Brought Over Fake Filing

On a subject near & dear to Broc’s heart and following up on his blog from last month, the SEC filed a lawsuit in the Southern District of New York relating to the fake Schedule TO involving Avon. According to the SEC’s press release, a Bulgarian trader & four related entities were charged with violating multiple antifraud provisions of the federal securities laws – including Section 17(a) of the ’33 Act and Sections 10(b) & 14(e) of the ’34 Act in connection with the manipulation of Avon’s stock – among other charges. The SEC also announced that the court issued an emergency order to freeze $2 million in assets held in two related brokerage accounts. According to the SEC, this isn’t a new scheme. The complaint also charges the defendants in two other false takeover attempts involving Rocky Mountain Chocolate Factory in 2012 and Tower Group International in 2014. Here’s an excerpt from the press release about the SEC’s sleuthing:

“We used parallel trading analysis to connect the dots and track down these defendants,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Even when traders attempt to hide behind proxy servers, false filings, and phony foreign entities, we are able to quickly identify patterns and relationships to focus our investigation and identify who is behind the manipulative trading.”

However, in an odd turn to an already unusual set of facts – this wsj article reports that contrary to the SEC’s complaint – the 2014 offer for Tower Group International may have been real. A representative of Euroin’s Insurance Group – one of the entities identified in the complaint as issuing a “fraudulent press release” containing an offer to acquire Towers Group International – claims that the press release was part of a legitimate takeover attempt. Here’s an excerpt:

Kiril Boshov, the chairman of the board of Euroins’s parent, Eurohold Bulgaria, said it was a legitimate offer and denied any link with the trader accused of illegally profiting from the proposal. “The offer for the acquisition of Tower Group International by Euroins Insurance Group was submitted in compliance with all regulations,” Mr. Boshov said in an email exchange.

Prior to the SEC’s filing of the lawsuit, Senator Charles Grassley – the Judiciary Committee Chair – submitted a letter looking for answers relating to the ease in which a fake SEC filing can be made. While the letter recognizes that the SEC & FBI were investigating the incident, Sen. Grassley calls for a review of EDGAR filing standards. Here’s the questions he’s looking to get answered:

– What, if any, efforts are made to verify any of the filings on EDGAR? What are the time deadlines associated with these verifications?
– How many instances of false postings to the EDGAR system have there been in the last 3 years? Please provide a list with information such as date of filing, type of filing and an explanation of the information in the filing that was determined to be false.
– Has any attempt been made by the SEC to determine what the cost to investors and market participants was as a result of the false postings to EDGAR? If there has, please provide that information. If not, please explain why not?
– How many of the approximately 4,000 daily filings made on EDGAR are made by first time users of the system?
– Has any attempt been made by the SEC to determine what the costs would be to verify the information on its most common filings? If there has, please provide the results of that effort. If not, why not?
– What other steps has the SEC taken to address the systemic vulnerabilities exposed by this incident?

Also check out Broc’s blog from last year that asks a similar question about how fake filings sneak past the SEC . . .

Bonuses & Perks: The New “Normal”?

According to this NY Times article, there’s been a “drastic shift” in the type of compensation increases received by salaried employees. Since the 1980s, annual pay raises have markedly decreased – while one-off bonuses & non-monetary rewards have increased. According to the article, the big question is whether we will see another shift over time or is this the new “normal”? Here’s an excerpt:

According to Aon Hewitt’s annual survey on salaried employees’ compensation, the share of payroll budgets devoted to straight salary increases sank to a low of 1.8 percent in the depths of the recession. It dropped to 4.3 percent in 2001, from a high of 10 percent in 1981. It has rebounded modestly since the recession, but still only rose to 2.9 percent in 2014, the survey of 1,064 organizations found. (These figures are not adjusted for inflation.)

Aon Hewitt did not even start tracking short-term rewards and bonuses — known as variable compensation — until 1988, when they accounted for an average of 3.9 percent of payrolls. Ten years later, that share had more than doubled to 8 percent. Last year, it hit a record 12.7 percent.

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Sample: Proxy Statement Reg Summary Sheet
– Shareholder Proposals: Corp Fin Allows Exclusion of “Review of Company’s Voting Policies” Proposal
– More Debate: Harvard’s “Shareholder Rights Project”
– Trinity v. Wal-Mart: Serious Implications for the Ordinary Business Exclusion
– Shareholder Proposals: Playing Games With Submission Deadlines

– Jeff Werbitt