Investors Gone Wild? Consumer Groups Think So

Posted on by admin
investors

Brokerdealer.com blog update courtesy of InvestmentNews’ Mark Schoeff Jr.’s 12 March article “Consumer groups accuse SEC of ignoring investors”. The SEC  holds primary responsibility for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation’s stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.

The Securities and Exchange Commission is not fulfilling its duty to protect retail investors, particularly in how it regulates financial advisers, a number of consumer groups asserted in a letter to the agency.

The eight-page letter dated March 10 outlines several areas that the groups say the SEC “can no longer afford to relegate … to a back burner.”

Most of the letter concentrates on ways the groups want the agency to improve regulation of financial advisers and urged the SEC to take “concrete steps” to raise investment-advice standards for brokers.

The Dodd-Frank law gave the SEC the authority to promulgate a uniform fiduciary standard for retail investment advice that would require all advisers to act in the best interests of their clients. The SEC has not acted. Meanwhile, the Department of Labor is poised to re-propose its own fiduciary-duty rule for advice to retirement accounts.

The topic has split the five-member commission. Chairwoman Mary Jo White has promised since November to make her position on fiduciary duty known in the “short term.”

Duane Thompson, senior policy adviser for Fi360, a fiduciary-duty training firm, agreed with the consumer groups that fiduciary duty has languished.

“The SEC seems to have looked more at capital-formation issues,” Mr. Thompson said. “The elephant in the living room is the uniform fiduciary standard. While Mary Jo White has repeatedly said it’s a priority, I’ve never seen it show up on the SEC’s regulatory agenda.”

Other topics the letter highlights include strengthening financial adviser disclosure about conflicts and compensation, reforming revenue-sharing, limiting mandatory arbitration for investor disputes, and beefing up regulation of risky financial products, including some kinds of exchange-traded funds.

“We are concerned that the Securities and Exchange Commission — which has always prided itself on serving as ‘the investors’ advocate’ — appears in recent years to have strayed from its primary focus on its investor protection mission,” the letter stated. “Given the vital role that average investors play in our markets and the overall economy, and the serious shortcomings that exist in the regulatory protections they receive, it is time in our view for these issues to be prioritized.”

Click here to read the entire article from InvestmentNews.

FOMO Is Leading To Cramming Of Startups According To One Capitalist

Posted on by admin

FOMOBrokerdealer.com blog update courtesy of the Wall Street Journal.

Venture capitalist and Benchmark partner, Bill Gurley, advised people against “cramming” too much money into startups, such as Uber, Snapchat, and WeWork, at last week’s Goldman Sachs technology conference. Following his speech, Gurley gave even further insight to investing in startups and how the slang word, FOMO, plays into investing.

After speaking about the risks of “cramming” too much money in startups at the Goldman Sachs technology conference last week, venture capitalist Bill Gurley exited the stage.

More than a dozen investors swarmed the lanky partner of Benchmark, eager to speak with him— but few were planning to heed the venture capitalist’s advice. According to Gurley, one man, who represented a large mutual fund, asked, “You don’t want us to invest in this but the big tech stocks are not delivering enough growth and my competitors are getting into these startups, so what are we supposed to do?”

Gurley says he didn’t have a good answer but he wasn’t surprised by the sentiment, which he describes as FOMO, a slang popular among millennials that stands for “fear of missing out.”

It is this infectious FOMO, according to Gurley and other venture capitalists, that has created a flotilla of billion-dollar startups with ever-soaring valuations and mixed financials.

According to The Wall Street Journal’s Billion Dollar Startup Club, there are now at least 73 private technology companies worth more than $1 billion dollars, versus 41 a year ago. Some, such as Uber, the $41.2 billion car hailing app backed by Gurley’s Benchmark, are worth enormous sums. At least 48 companies were valued at $1 billion or more for the first time, and another 23 members moved up the ranking after raising more money.

Many investors are treating these 73 companies as if they were publicly traded, says Gurley. They are investing sums of money usually reserved for IPO offerings and, sometimes, giving away those dollars with the kind of confidence usually associated with investors who’ve perused regulatory filings for detailed financial information. The investors themselves are a blend of traditional venture-capital players and typically public-market investors: hedge funds, mutual funds and banks. They are sort of meeting in the middle, with the venture capitalists investing in later-stage companies than they have historically done, through new growth funds, and the institutional investors getting in before the IPO.

“We’ve been calling this the private-IPO slice,” said David York, managing director of Top Tier Capital Partners, a fund of funds. “The valuation of risk is a public-market thought process versus a private-market thought process.”

Gurley, who has become a vocal critic of irrational behavior in the industry, says he’s also very worried about the pile-up in the “private IPO” market.

He’s worried that venture capitalists’ new bedfellows, such as mutual funds, are too new to venture capital to properly weigh the risks and realize that these billion-dollar companies are not guaranteed home runs.

“This replaces the IPO — but not all these companies are IPO level candidates,” he said. “Would you hand a teenager $200,000?”

According to data collected by The Journal, of the 29 firms that have invested in five or more current billion-dollar startups, only about half are traditional venture-capital firms. The rest are a mix of institutional investors, such as the Dragoneer Investment Group and Tiger Global Management, and strategic investors, such as Intel and Google. Near the top of the list is Tiger with 12 investments in private billion-dollar companies, and T. Rowe Price Group with 11. In this group, Tiger also raised the most money last year, keying up $4 billion, or 12% of all venture capital raised in 2014.

With such financial heavyweights jumping in, many of their peers are wondering: Can I afford to sit out?

It’s difficult to quantify exactly how much money is sloshing around at this level. Several top venture capital firms have raised large growth funds in the past few years, but total contributions from hedge funds, mutual funds and banks is practically immeasurable without knowing how much each invested in particular funding rounds. Whatever the amount, this layer of growth capital could warp prices, venture capitalists say.

“It’s like traffic on the highway, you add just 5% more cars and it slows down traffic considerably,” said Glenn Solomon, a managing partner at GGV Capital. His firm is an investor in four companies in The Billion Dollar Startup Club.

In some ways, Gurley’s firm has benefited from this influx of pre-IPO capital. His firm is an early investor in four companies in the Billion Dollar Startup Club: Uber, Snapchat, WeWork and Jasper Technologies. All four have since raised money from a big public-market investor.

For the entire article from the Wall Street Journal, click here

SEC Officials Fight The SEC

Posted on by admin

Brokerdealer.com blog update courtesy of InvestmentNews.Securities-and-Exchange-Commission

Yes, you read the title right, SEC officials are blasting the commission for turning a blind eye to fining brokerdealer firm Oppenheimer & Co. Inc. for further misconduct. As you may remember a brokerdealer.com blog from last week, Oppenheimer & Co. Inc. was fined $20 million for improper penny stock trades. The SEC said that the firm failed to prevent suspicious penny stock trading and pump-and-dump schemes. Officials are now claiming that further fines should be given to Oppenheimer due to continued misconduct. 

Two members of the Securities and Exchange Commission blasted the agency’s decision to spare Oppenheimer Holdings Inc. from additional sanctions related to a recent settlement, saying regulators were turning a “blind eye” to the investment bank’s pattern of misconduct.

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, said they opposed a waiver of a penalty that would have barred Oppenheimer from raising money for private firms and hedge funds after the company admitted last week to improperly selling billions of shares of penny stocks.

“These violations are just the most recent chapter in a long and unfortunate history of regulatory failures, some more significant than others, but cumulatively indicative of a wholly failed compliance culture,” Mr. Aguilar and Ms. Stein wrote in a statement released Wednesday.

Their dissent is the latest example of partisan disputes at the five-member SEC over how the agency polices Wall Street. The fight over waivers stalled an earlier settlement with Bank of America Corp. and portends future difficulties for companies seeking to end enforcement cases, especially if they are repeat offenders.

Ms. Stein previously criticized a penalty waiver that benefited Royal Bank of Scotland Group Plc and fought to attach more onerous conditions to a reprieve that Bank of America obtained after settling a $16.7 billion mortgage-bond case. SEC Chair Mary Jo White, an independent, and Commissioners Daniel Gallagher and Michael Piwowar, both Republicans, voted in favor of the waiver for Oppenheimer.

The SEC has typically granted waivers to keep from punishing parts of financial companies that weren’t implicated in the wrongdoing at issue.

Oppenheimer spokesman Stefan Prelog said the firm will hire “a fully independent law firm” to review its compliance procedures. The findings and recommendations will be reported to the company’s independent directors, he said.

‘LACKS TEETH’

Mr. Aguilar and Ms. Stein said the SEC’s action “lacks teeth” because it leaves the door open to Oppenheimer hiring a law firm it already uses, which “has every incentive to be accommodating by ignoring or dismissing inadequacies in the firm’s practices.”

Oppenheimer admitted Jan. 27 that it failed to report red flags that its client Gibraltar Global Securities, a Bahamas-based firm, was selling penny-stock shares without being registered in the U.S. The firm acknowledged additional sales of penny stocks for a different customer that resulted in about $588,400 in commissions, according to the SEC. Oppenheimer agreed to pay $20 million to settle the case.

“The company is dedicated to putting these issues behind it through the adoption of a strong compliance infrastructure,” Mr. Prelog said in the statement.

U.S. representative Maxine Waters, a California Democrat, agreed with Mr. Aguilar and Ms. Stein.

“Investors and the American public are greatly disserved when our regulators throw away valuable enforcement tools and adopt a policy of ‘too-big to bar,’” Ms. Waters said in a statement, adding that said she will work with other Democratic lawmakers on legislation that “sends a strong message to the markets that wrongdoers like Oppenheimer will be sufficiently held accountable for their misdeeds.”

Oppenheimer has settled at least 30 separate cases with regulators since 2005, according to Mr. Aguilar and Ms. Stein’s statement. In 2010, the firm agreed to pay $31 million to investors to settle the New York Attorney General’s claims it misrepresented the safety of auction-rate securities. The firm agreed in 2013 to pay $675,000 to the Financial Industry Regulatory Authority Inc. to settle claims that it charged unfair prices to customers buying municipal securities.

Domo Arigato, Mr. Roboto: Cambridge to offer robo-offering in 2016

Posted on by admin

robo-offeringBrokerdealer.com blog update courtesy of InvestmentNews’ Bruce Kelly.

Independent broker-dealer, Cambridge Investment Research Inc. announced plans to have a competitive robo-type offering that works in sync with its 3,000 advisers’ practices in 2016. It is the independent broker-dealer’s aim to incorporate an online advice platform as a tool for reps.

“It’s an opportunity for us to give advisers tools that are similar to other offerings but [which] don’t take them out of the middle of the relationship with the client,” said Amy Webber, president of Cambridge. “I don’t think it’s a threat. We have to figure out how to integrate it and we have to embrace what an investor wants from it. It’s a low cost tool for the next gen client who typically doesn’t have a lot of money” that ultimately will contain a pay-for-advice component, she said.

Some type of robo-offering will be a 2016 technology initiative at Cambridge. “I think we will have pieces of it,” Ms. Webber said. “It could be a digital partner to the planning and advice process and [include] tools we already give our advisers. Just like websites didn’t exist 20 years ago, it’s another tool we will plug into this independent model that keeps evolving.”

So-called robo-advisers, or automated wealth management platforms, appear to be gaining traction among traditional brokerage and registered investment advisers. In the fall, Commonwealth Financial Network CEO Wayne Bloom said the firm was looking at how it could develop a robo-adviser type offering that meshes with the high-end practices of its 1,700 registered reps and advisers.

Also in the fall, high-profile advisory firm Ritholtz Wealth Managementlaunched its own robo-adviser platform with the help of technology startup Upside Financial. In October, Charles Schwab Corp. said it was introducing an online advice platform for retail investors in the first quarter of this year and an online platform that advisers can use with their clients in the second quarter.

“In our space, I see them as more of a digital partner to what the adviser does,” said Ms. Webber, who made her comments in San Antonio, Texas, on Tuesday at the annual meeting of the Financial Services Institute. “Our human advisers will keep doing the great work that they do, but Cambridge has to give them some tools where they can talk to their clients who will say to them, ‘Hey, my neighbor is using a robo-adviser.’”

Children of older clients are using robo-advisers, and then they bring what the robo-adviser produces to meetings and ask advisers what to make of it, she said. “That’s where the value of the adviser comes in,” she said. Robo-advisers will be attractive to the so-called do-it-yourself investor, who first gained attention in the stock market boom of the 1990s, she said.

An internal group of advisers is looking at the issue, she said. Current robo-offerings vary. “They have financial planning tools, such as a plan and a proposal,” she said. “But, do we really want the end client trading? Is there a stop at that point that pings the adviser and asks, ‘What do you think?’”

For the original article from InvestmentNews, click here.

Oppenheimer’s Penny Stocks Results in $20M Fine 

Posted on by admin
PennyStocks

Oppenheimer fined for failure to report suspicious penny stocks

Brokerdealer.com blog update is courtesy of Mason Braswell from InvestmentNews

Brokerdealer firm, Oppenheimer & Co. Inc., has reach a deal with the SEC and FinCEN resulting in the firm paying $20 million, pleading guilty, and hiring an independent consultant over improper penny stock trades. The SEC and FinCEN said,  firm failed to prevent suspicious penny stock trading and pump-and-dump schemes.

The firm, which runs a retail brokerage operation with around 1,400 financial advisers, failed to properly detect and report suspicious trades in penny stocks, which are thinly traded securities that can be vulnerable to manipulation by stock promoters, according to FinCEN. The regulator identified at least 16 customers in five states who engaged in “patterns of suspicious activity.”

“Broker–dealers face the same money laundering risks as other types of financial institutions,” said FinCEN Director Jennifer Shasky Calvery, in a release. “And by failing to comply with their regulatory responsibilities, our financial system became vulnerable to criminal abuse. This is the second time FinCEN has penalized Oppenheimer for similar violations. It is clear that their compliance culture must change.”

In a parallel action, the SEC pointed to two instances between 2008 and 2010 in which the firm engaged in unregistered sales of penny stocks.

In one case, a financial adviser and his branch manager willfully engaged in unregistered sales of 2.5 billion shares of penny stocks on behalf of a customer, despite the fact that the shares were not exempt from registration, according to the SEC settlement. The trades generated $12 million in proceeds, of which Oppenheimer was paid $588,400 in commissions.

The settlement did not name the broker or branch manager, but said that its investigations into the matter were ongoing.

The other charge revolves around Oppenheimer’s role in possibly assisting allegedly illegal activity by a Bahamas-based brokerage firm, Gibralter Global Securities.

The firm disclosed in quarterly filings earlier this year.

that it was setting aside $12 million to deal with the possible fallout from regulatory investigations, mostly dealing with penny stock issues.

The head of the firm’s retail brokerage, Robert Okin, resigned in December, reportedly to pursue other interests. His Finra BrokerCheck record discloses he is facing an SEC investigation.

A spokesman for Oppenheimer, Stefan Prelog said in an email that the firm was “pleased to put these matters, which involve activity that occurred years ago, behind it.”

The firm has also agreed to hire an independent consultant as part of the settlement.