Thursday, May 14, 2015

Wednesday, May 13 GAFI Recap: FX&Beyond, The Seaboard Report, Tri-Party Repos, Iftikar Ahmed & The Repercussions Of Being A Failed Bank Director


The SEC filed a subpoena against FX & Beyond Corporation

Ceresney tells companies how to avoid fines through cooperation

Chairman of the FDIC spoke about the repercussions of being the director of a failed bank.

 OFC published "The Influence of Systemic Importance Indicators on Banks’ Credit Default Swap Spreads"

NY Fed published "Financial Innovation: Evolution of the Tri-Party Repo Arrangement"

SEC charged Iftikar Ahmed, an investment professional, with fraud

  • The SEC filed a subpoena against Virginia-based FX & Beyond Corporation and its president, Steve H. Karroum. The subpoena application suggests that the SEC is investigating whether or not the firm and Karroum violated "anti-fraud or other provisions of the federal securities laws through an investment scheme that has raised nearly $4 million and involves possible foreign currency trading, Ponzi payments, and the misappropriation of investor funds," the statement reads. FX & Beyond has failed to respond to the SEC's subpoena in any way and this application is a court order "directing FX & Beyond and Karroum to show cause why they should not comply with the administrative subpoenas." Good luck with that.
  • Andrew Ceresney, Director, Division of Enforcement at the SEC gave remarks at the University of Texas School of Law’s Government Enforcement Institute in Dallas, Texas. Ceresney used the speech to discuss how cooperation with the SEC can result in lower fines. The speech referred to a report called the Seaboard report in which the SEC outlines four broad factors that the SEC considers when making judgement and penalties against a company, they are: self-policing, self-reporting, remediation, and cooperation. Ceresney uses Goodyear Tire & Rubber Company as an example of what cooperation can get you. In the case of Goodyear, it resulted in no penalty at all. "...Seaboard continues to provide a framework under which entities can receive cooperation credit in settlements," says Ceresney. This is a must read for anyone in a regulatory, audit, or legal function of the company.
  • Martin J. Gruenberg, Chairman of the FDIC spoke to the American Association of Bank Directors about the responsibilities and repercussions of being a director of a failed bank. "From the beginning of 2007," says Gruenberg, "through the end of 2014, 510 banks and thrifts failed. That's less than 8 percent of the approximately 6,500 FDIC-insured institutions." He goes on to warn that "The FDIC fully investigates potential claims in connection with all failed institutions, big or small. Actions are not brought lightly or in haste. Most investigations are completed within 18 months from the time an institution is closed, although the FDIC generally has three years, depending on state laws, to file suit against directors and officers." I'm sure he had an extremely attentive audience.
  • The OFC published The Influence of Systemic Importance Indicators on Banks’ Credit Default Swap Spreads. The paper "examines credit default swap (CDS) spreads in a sample of international banks for evidence of a benefit related to possible measures of systemic importance." The authors find that there's a negative relationship between five year CDS spreads of banks "and nine different systemic importance indicators." The benefit is evidently most severe for banks of a certain asset range and weaker for those banks deemed "global systemically important banks".
  • The SEC charged Greenwich, Connecticut, based Iftikar Ahmed an investment professional, with  fraud and self-dealing at Oak Investment Partners, the venture capital firm where he was employed. The charges allege that Ahmed "transferred approximately $27.5 million in illegal profits to accounts under his control at the expense of investors in the Oak funds, including public pension investors."