SEC Spanks Canaccord for Research Role


(JDSupra)In March 2016, the SEC entered into a settlement agreement with Canaccord Genuity a U.S. broker-dealer, which initiated research coverage of an issuer after being invited by the issuer to participate as an underwriter for that issuer’s planned equity offering.  The SEC indicated that this is its first action against a broker-dealer for violating Section 5 in this manner.  The SEC’s order can be found at the following link:

In this case, the issuer cancelled a proposed secondary stock offering for which the broker-dealer was planning to act as the lead underwriter.  At that point, the issuer planned another offering, and the broker-dealer was invited to participate as a co-manager.   However, according to the SEC, the broker-dealer’s participation was made contingent by the issuer upon the broker-dealer commencing research coverage – a “quid pro quo” – which the investment bank agreed to do.  In commencing research coverage, the investment bank rated the stock a “buy,” with a price target that was considerably higher than its then current market price.¹

In issuing the fine, the SEC relied on its traditional guidance as to when a broker-dealer is subject to Section 5(b)(1)’s potential limitations on issuing research.  In particular, the SEC has stated that a broker-dealer that publishes research is subject to Section 5(b)(1):

  • while seeking to participate in the underwriting of the issuer’s securities offering;
  • after having been invited to participate by the issuer in the underwriting of its securities offering; or
  • after reaching an understanding with the issuer that it will participate as a managing underwriter in the issuer’s securities offering.

Under these circumstances, the SEC will typically view a research report about the subject company as an improper prospectus.  While SEC Rule 139 includes a safe harbor from the definition of “prospectus” for research reports that satisfy the rule, this safe harbor excludes cases such as this one, where the broker-dealer initiated coverage.  Here, the SEC deemed the research report to be a prospectus, due to its potential to condition the market.  The SEC’s fine in this matter is further indication of regulatory interest in research related supervisory and oversight lapses.

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LPL Independent BrokerDealer Model Challenged


Despite the assortment of advances courtesy of fintech (financial technology) applications, the brokerdealer business model has long posed challenges for individuals determined to sell financial products and earn commissions and fees for assets under management. As evidenced by the travails of newer business models introduced by independent firms such as LPL Financial, which offer better payouts and a bigger slice of fees for AUM vs. the traditional ‘wirehouses’ such as Merrill Lynch or Wells Fargo or Prudential Securities, all is not necessarily rosy for those independent broker platforms, as evidenced by the share price of LPL, which has lost nearly 45% since the start of the year.


(WSJ)-March 26 The future of the brokerage business was supposed to be companies like  LPL Financial Holdings Inc., which works with the growing population of independent financial advisers. But a proliferation of competitors and a major regulatory overhaul are weighing on the company’s growth.

The company—whose brokers are independent contractors who own their own practices but pay LPL for various services—had been a growth juggernaut for years. It added hundreds of financial advisers and billions of dollars of client assets annually between 2010 and 2014. But LPL reported last month that growth slowed drastically last year, with the firm adding just 18 net new advisers and assets under management expanding just 0.1%.

Those numbers spooked shareholders and LPL’s stock tumbled 35% on Feb. 12, the day after it also reported an 8% year-on-year drop in quarterly revenue to $1.02 billion. Its shares are off 43% for the year so far.

Falling securities commissions were a big contributor to LPL’s revenue decline, as a volatile stock market and regulatory scrutiny of some of the alternative investment products sold by brokers weighed it down.

Revenue could be hit further by a coming Labor Department rule requiring advisers working with retirement savings to abide by tougher conflict-of-interest rules, analysts say.

“There’s a lot of uncertainty around the market backdrop right now, and then you layer on top of that regulatory uncertainty as well, that’s going to come together to create pressure” on the company and its stock, said JMP Securities analyst Devin Ryan.

LPL isn’t a household name like many of its rivals, despite the fact that it oversees the fourth-largest adviser force in the U.S. Its 14,054 advisers at the end of 2015 put it just behind Bank of America Corp.’s Merrill Lynch brokerage, which has 14,533 brokers, Wells Fargo & Co.’s brokerage arm, with 14,960, and Morgan Stanley’s 15,889 brokers.

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Longbow Analyst: Bullish or Bull-Sh*t?


Longbow Research Execs Asleep at the Wheel?

aka  Can You Spell C-O-N-F-L-I-C-T-E-D?

Call it the “I Gotcha Moment” courtesy of NYT reporter Gretchen Morgenson via her Fair Game column and weekend spotlight on “independent research” firm Longbow Research. Just when you thought Henry Blodget‘s experience promoting dot com companies while at Merrill and at the same time, sharing with cohorts that his buy recommendations were bull-sh*t,  which led to his being permanently banned from the Industry would not be repeatable by others, the notion of conflicted research still runs rampant. For those who fear losing sleep over another story about conflicted research, this report re: Tempur Sealy coverage is not for you..

Here’s the opening extract of Gretchen’s article:

File this column under: Why It Pays to Read the Footnotes.

longbow-researchOn Tuesday, Longbow Research, an independent institutional research and brokerage firm with offices in New York, San Francisco and Independence, Ohio, published a report recommending that its clients buy shares in Tempur Sealy International, the mattress maker (NYSE:TPX).

That’s not unusual. Wall Street research analysts put out buy recommendations every day. Probably too often, in fact.

But Longbow’s report was atypical in one way: Mark Rupe, the analyst who wrote it, recently left Tempur Sealy as head of its investor relations unit. Investors didn’t learn that, though, unless they read a disclosure on the penultimate page of the 17-page report, which said that Mr. Rupe or a member of his family owned stock and options in Tempur Sealy.

The amount of the holding wasn’t disclosed, but it appears to have resulted from Mr. Rupe’s employment at the bedding maker. The report also noted that Mr. Rupe stood to receive additional incentive compensation from Tempur Sealy over the next two years if the company met certain performance hurdles.

So, an analyst who is supposed to offer unbiased opinions on a company owns a position in it that could benefit from his bullishness. What gives?

This is just the kind of conflict of interest that brought the wrath of regulators down on Wall Street research a dozen or so years ago. Except in those days, analysts’ conflicts weren’t disclosed. At least close readers of the Tempur Sealy report were armed with the information and could base their decisions on it.

Still, it’s hard to imagine that Mr. Rupe’s stake in Tempur Sealy and his close relationship with the company won’t color his view. The question is, why would Longbow, a firm that appears to pride itself on independent research, want to open itself up to this kind of criticism?

I tried to ask this of David MacGregor, Longbow’s chief executive and research director. Neither he nor Mr. Rupe responded to my emails seeking comment.

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BNY Mellon-A Bank That Gives Bank


BNY Mellon ‘Gets It’ and Also Gives It Back.

( close-on $29Trillion in deposits and $1.3Trillion in AUM, BNY Mellon (NYSE:BK), the oldest bank in the U.S. is not just the country’s biggest, it ranks as one of the world’s biggest banks. Hundreds of financial industry professionals now working across the financial markets ecosystem are alumni of BNY Mellon, long-recognized as the top training ground for those who aspire to long-term professional careers within financial services.

While many “BNY” alum (including MarketsMuse senior editor) fondly recall an on-boarding process in which mentors made humorous reference to Alexander Hamilton’s orders to his top executives immediately prior to his ill-fated duel with Aaron Burr (“Don’t do anything until I return..”), most followers of BNY Mellon know that its culture is driven by perseverance and a focus to make sure no stone be left un-turned in the course of overcoming a challenge. In that spirit, a young, London-based BNY Mellon exec by the name of Charlie Thompson, a former professional Rugby star who cashed-in his sports career in favor of banking, deserves a hero’s award for re-uniting an industry colleague and highly-decorated Vietnam War hero and currently Managing Director, Public Finance for minority broker-dealer Mischler Financial Group with an invaluable piece of his personal history.

While Thompson was on holiday last year touring Vietnam, he came across a souvenir hut whose items included a set of US military dog-tags and  purchased them with the goal of hopefully tracking down the owner and returning them. It turns out those dog-tags had been lost nearly 48 years ago by former US Marine Infantry Officer Rick Tilghman, who while serving in Southeast Asia, was awarded not one, but two Purple Hearts and The Bronze Star (with Valor).