Week in Review
May 21, 2007
Treadway Pays Second, $75,000 Fine to SEC Over Directed Brokerage
Stephen Treadway, former chairman of PIMCO Funds and chief executive of the firm's brokerage, settled with the Securities and Exchange Commission for $75,000 for directing brokerage business between 2000 and 2003 to nine firms in exchange for shelf space. The SEC said by paying some of the funds' distribution costs out of the funds', rather than the firm's, assets, Treadway caused a conflict of interest that should have been disclosed to the board.
In exchange for the directed trades, the PIMCO funds were placed on lists of preferred mutual funds and prominently mentioned in communications with the brokerages' customers, and the firm was permitted to participate in key meetings with registered reps.
State Street, Investors Bank Begin First Layoff Wave
State Street and Investors Bank and Trust told 450 employees they would no longer have jobs following State Street's $4.5 billion acquisition of IBT by the end of the year, The Boston Herald reports. Of the 450 losing their jobs, 360 are at IBT and 90 at State Street.
The layoffs are due to "redundancies primarily in corporate administration," said State Street spokeswoman Arlene Roberts.
Earlier, State Street indicated that 1,700 people will be losing their jobs.
NASD's Schapiro Foresees More Effective Regulation
NASD Chairman and CEO Mary Schapiro said she believes investment products will be more effectively regulated once the regulatory units of the NASD and the New York Stock Exchange are merged.
"It's my hope that consolidation will encourage more cooperation among regulators of all financial products," Schapiro said in her keynote speech at the Investment Company Institute's General Membership Meeting. "This cooperation will be critical to fixing what I consider the soft underbelly of regulation today: jurisdictional boundaries that focus on product rather than the investor."
This is particularly critical today, given new, and more complex, products being brought to market. Going forward, Schapiro said, it will be important for the NASD to work with the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Municipal Securities Rulemaking Board the 50 state insurance departments and numerous banking authorities.
Schapiro said the NASD is paying particularly close attention to products with high fees and outsize and/or complicated risk, as well as brokerages and investment firms that target "vulnerable populations."
Schapiro said she expects the SEC to approve the merger this summer.
House to Hold Hearings On SEC Enforcement
House Financial Services Committee Chairman Barney Frank (D-Mass.) said that the panel will hold hearings to examine the Securities and Exchange Commission next month, Bloomberg reports. All five SEC commissioners, including Chairman Christopher Cox, will be called to testify.
"There have been concerns that various people have voiced," Frank said. "There is no point in prejudging, but obviously there are enough questions in the air that we are holding a hearing."
Specifically, the committee is concerned that the enforcement division is being stripped of its powers and that the SEC will make it more difficult for investors to bring lawsuits against companies.
The hearings come on the heels of an SEC investigation that the Government Accountability Office began in October at the request of Sen. Charles Grassley (R-Iowa). The probe was the result of a flap over an insider-trading charge at hedge fund Pequot Capital Management. A former SEC attorney, Gary Aguirre, suspected that Morgan Stanley Chairman John Mack, who had briefly served as chairman of Pequot, had tipped off the hedge fund that General Electric and Heller Financial were about to merge in 2001. When the SEC's enforcement division declined to investigate further, Aguirre complained and was fired shortly thereafter; he believed it was over the investigation, but the SEC maintained it was for abrasive and temperamental behavior.
Then, earlier this year, the SEC instituted new rules requiring attorneys with the SEC to obtain authorization from the commissioners before negotiating settlement fines with companies. Critics say that will limit the staff's ability to set fines.
In April, the SEC said it was considering a rule that would allow companies to create bylaws that would require shareholders to settle disputes out of court. Since, then, however, Cox has told Frank that the SEC is likely to drop that rule.
Power CEO: Putnam Will Regain Glory-In 2 Years
Power Financial CEO Jeffrey Orr told attendees at the firm's annual meeting that Putnam Investments is back on track, but that its profit margins won't reach industry levels for a year or two, the Montreal Gazette reports.
"One of the strongest pieces of evidence that the company's affairs are strengthening is that the redemption rate has now reached the industry level," Orr said. "It's not like money is flowing out of Putnam faster than other companies. The challenge right now is to get more gross sales."