GOP-led House committee launches working group to combat ESG proposals

Link: https://www.pionline.com/washington/republican-led-house-committee-launches-anti-esg-working-group

Excerpt:

Congressional Republicans on Friday took another step in their quest to dismantle the Biden administration’s environmental, social and governance rule-making initiatives.

The House Financial Services Committee has formed a working group to “combat the threat to our capital markets posed by those on the far-left pushing environmental, social and governance proposals,” the committee’s Chairman Patrick McHenry, R-N.C., announced.

The group will be led by Rep. Bill Huizenga, R-Mich., and include eight other Republican committee members.

Among its priorities, the group will examine ways to “rein in the SEC’s regulatory overreach;” reinforce the materiality “standard as a pillar of the nation’s disclosure regime;” and hold to account market participants who “misuse the proxy process or their outsized influence to impose ideological preferences in ways that circumvent democratic lawmaking,” according to a news release.

“This group will develop a comprehensive approach to ESG that protects the financial interests of everyday investors and ensures our capital markets remain the envy of the world,” Mr. McHenry said in the news release. “Financial Services Committee Republicans as a whole will continue our work to expand capital formation, hold Biden’s rogue regulators accountable, and support American job creators.”

Author(s): Brian Croce

Publication Date: 3 Feb 2023

Publication Site: Pensions & Investments

SEC Adopts Amendments to Proxy Voting Advice Rules

Link: https://www.ai-cio.com/news/sec-adopts-amendments-to-proxy-voting-advice-rules/

Excerpt:

The U.S. Securities and Exchange Commission Wednesday adopted amendments to its rules governing proxy voting advice, representing another step forward in what has been a fraught regulatory process.

SEC Chair Gary Gensler, in a statement said, the final amendments aim to avoid burdens on proxy voting advice businesses that may impair the timeliness and independence of their advice. The amendments also address misperceptions about liability standards applicable to proxy voting advice, Gensler says, while preserving investors’ confidence in the integrity of such advice.

“I am pleased to support these amendments because they address issues concerning the timeliness and independence of proxy voting advice, which would help to protect investors and facilitate shareholder democracy,” Gensler says. “It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice.”

As outlined in a press release distributed after the vote by the SEC, Wednesday’s final amendments rescind two rules applicable to proxy voting advice businesses that the Commission adopted in 2020. Specifically, the final amendments rescind conditions to the availability of two exemptions from the proxy rules’ information and filing requirements on which proxy voting advice businesses often rely.

Author(s): John Manganaro

Publication Date: 14 July 2022

Publication Site: ai-CIO

Biden Administration Sues a City Over “Rampant Overspending on Teacher Salaries”

Link: https://www.educationnext.org/biden-administration-sues-a-city-over-rampant-overspending-on-teacher-salaries/

Excerpt:

The Biden administration’s Securities and Exchange Commission is suing the city of Rochester, New York, contending that “rampant overspending on teacher salaries” plunged the Rochester school district into “extreme financial distress,” misleading investors who bought municipal bonds.

The legal action is unusual. Sure, the federal government’s interaction with K-12 education has often extended beyond the bounds of the U.S. Department of Education. The Department of Agriculture administers the school lunch program, and the Department of Defense operates schools serving military-connected children. Under George W. Bush, the Justice Department toyed with the idea of using antitrust law to support charter schools. And in the waning days of the Trump administration, President Trump issued an executive order authorizing “emergency learning scholarships” to be provided via the Secretary of Health and Human Services.

But, notwithstanding Bloomberg columnist Matt Levine’s theory that
everything is securities fraud,” in practice, the K-12 education beat hasn’t intersected greatly with the fraud provisions of federal securities laws. At least until now.

….

How much has Rochester been “overspending?” The website Seethroughny.com, a project of the Empire Center for Public Policy, lists 717 Rochester City School District Employees who earned more than $100,000 in 2019. The district has about 25,000 K-12 public school students, according to the state of New York. Spending runs about $20,000, a little below the statewide average. Whether that amounts to “overspending” probably depends on one’s view of how much the children are learning, and also one’s view of whether the students could learn more, and how much more, if more money were spent.

….

In practice, the legal aspects of the case will probably turn more on considerations about disclosure to potential bond buyers than about the details of the spending on teacher salaries.

Even so, the mere mention of securities law and bondholders as potential tools to curb school district “overspending” is intriguing, especially when the action comes under a president who campaigned promising to increase school spending so as to pay teachers “competitive salaries.” For years, reformers have complained that teachers unions capture school boards and run school systems for the benefit of adults rather than children. Now a different set of influential adults—bondholders—is, in a way, asserting, via the SEC, its own claim that could be a countervailing force.

Author(s): Ira Stoll

Publication Date: 15 June 2022

Publication Site: Education Next

SEC Charges Allianz Global Investors and Three Former Senior Portfolio Managers with Multibillion Dollar Securities Fraud

Link: https://www.sec.gov/news/press-release/2022-84

Excerpt:

The SEC’s complaint, filed in the federal district court in Manhattan, alleges that Structured Alpha’s Lead Portfolio Manager, Gregoire P. Tournant, orchestrated the multi-year scheme to mislead investors who invested approximately $11 billion in Structured Alpha, and paid the defendants over $550 million in fees. It further alleges that, with assistance from Co-Lead Portfolio Manager, Trevor L. Taylor, and Portfolio Manager, Stephen G. Bond-Nelson, Tournant manipulated numerous financial reports and other information provided to investors to conceal the magnitude of Structured Alpha’s true risk and the funds’ actual performance. 

Defendants reduced losses under a market crash scenario in one risk report sent to investors from negative 42.1505489755747% to negative 4.1505489755747% — by simply dropping the single digit 2.  In another example, defendants “smoothed” performance data sent to investors by reducing losses on one day from negative 18.2607085709004% to negative 9.2607085709004% — this time by cutting the number 18 in half.    

Publication Date: 17 May 2022

Publication Site: SEC

Architect of Allianz fraud made $60 mln as he lied to investors, U.S. says

Link: https://www.reuters.com/business/finance/architect-allianz-fraud-made-60-mln-he-lied-investors-us-says-2022-05-17/

Excerpt:

The star portfolio manager at the centre of a fraud at the U.S. funds unit of Allianz SE (ALVG.DE) relied on the German insurer’s good name to lure investors and thrived from a lack of oversight as he pocketed $60 million in pay, U.S. authorities said.

Gregoire “Greg” Tournant, a citizen of France and the United States, was indicted on Tuesday for securities fraud, investment adviser fraud, wire fraud and obstruction of justice in a scheme that ran from 2014 to 2020. read more

It was a major development in a two-year saga that has haunted and embarrassed Allianz, one of the globe’s biggest financial firms, and began after the $11 billion in funds managed by Tournant collapsed as markets roiled with the outbreak of the coronavirus in early 2020.

U.S. prosecutors on Tuesday said Tournant faked documents, fabricated risk reports, altered spreadsheets, and lied about the investment strategy.

Author(s): Tom Sims, Alexander Hübner and John O’Donnell

Publication Date: 18 May 2022

Publication Site: Reuters

I Finance The Current Thing

Link: https://allenfarrington.medium.com/i-finance-the-current-thing-7ea204230315

Excerpt:

Passive investing is most often celebrated as a marvel of risk/reward packaging for the retail investor, who surely doesn’t have the time or energy to do the job of a professional capital allocator. It’s a fair assumption that they have their own job doing something productive in the real economy. Is this arrangement worth sacrificing? Would sacrificing it be ESG-friendly? Yes, absolutely it would, but we will return to this further down.

Passive investing relies on the notion of an index, or, a numerical weighting of every publicly listed company in a given geography, above a certain size, etc. which is determined by relative size and expressed as a percentage of the whole. If the value of all shares outstanding multiplied by their current market price (or, “market capitalization”) of Company A is 1% of the total of all the companies in an index, then it makes up 1% of that index, and its shares are 1% of those held by a passive investment instrument.

The existence of indices is the bane of the lived experience of investment professionals who take Schumpeter a little more seriously and do not allocate by algorithm but by analysis of business fundamentals. “Performance” is measured relative to an index, on the understandable but perverse realization that index investing, which relies only on an algorithm, is much cheaper for the client. If your non-passive (or “active”) manager returned you 50%, you might think that is fantastic, but if the index went up 60% then you paid for nothing. In fact, technically they underperformed by 10%. No performance fees — even on 50%! — and probably also fired.

….

When SEC Commissioner Hester Peirce voiced the lone dissent against the inclusion of “climate risks” in company prospectuses recently, her argument was basically my own above: these are risks. Although the concept is incredibly technically involved, real investors know how to deal with risks and do not need to be condescended to about which deserve their attention more than others. “We are not the securities and environment commission,” Peirce warned, adding, “at least not yet.” Quite right. I would hope not ever if the rule of law is to be taken seriously, and exactly this kind of regulatory capture via backdoor-compliance enforcement of virtue signaling is to stop.

But could we probe deeper still? ESG is an attack vector, but what is the attack surface? Without intending to be flippant, I think it is centralization. Capital markets are centralized institutions and they are being attacked. So far, so bleak. Can we do anything about it? And what was that Thiel talk actually about, again?

Author(s): Allen Farrington

Publication Date: 21 April 2022

Publication Site: Medium

What’s New in Financial Reporting

Link: https://cfany.gallery.video/fullconference/detail/videos/most-recent/video/6299420346001/what%E2%80%99s-new-in-financial-reporting?autoStart=true

Graphic:

Description:

Program will bring you up to date with most recent and coming important financial reporting developments for 2022 from FASB. Speakers include two FASB Board members and SEC’s Senior Associate Chief Accountant.

Author(s): multiple presenters

Publication Date: 1 Mar 2022 originally presented, recording accessed 16 Mar 2022

Publication Site: CFA Society of New York

Big Four Accounting Firms Come Under Regulator’s Scrutiny

Link: https://www.wsj.com/articles/big-four-accounting-firms-come-under-regulators-scrutiny-11647364574?st=e3o5412th5mqg7m&reflink=desktopwebshare_linkedin

Graphic:

Excerpt:

Regulators are carrying out a sweeping investigation of conflicts of interest at the nation’s largest accounting firms, asking whether consulting and other nonaudit services they sell undermine their ability to conduct independent reviews of public companies’ financials, according to people familiar with the matter.

The Securities and Exchange Commission probe highlights the agency’s new focus on financial-market gatekeepers such as accountants, bankers and lawyers. These firms help companies raise capital and communicate with shareholders, but also have duties under federal investor-protection laws. Auditors are a shareholder’s first line of defense against sloppy or dodgy accounting.

….

The Big Four audit 66% of all public companies with a market capitalization over $75 million, according to Audit Analytics. All four have paid fines to the SEC since 2014 to settle prior regulatory investigations of audit independence violations.

Author(s): Dave Michaels

Publication Date: 15 Mar 2022

Publication Site: WSJ

SEC Set to Lower Massive Boom on Private Equity Industry

Link:https://www.nakedcapitalism.com/2022/02/sec-set-to-lower-massive-boom-on-private-equity-industry.html

Excerpt:

In a matter of fact, understated manner, the SEC document makes clear that its enforcement regime has not succeeded in getting private equity fund managers to stop or at least considerably reduce their abuses. Recall that in 2014, then enforcement chief Andrew Bowden gave a peculiarly titled speech, Spreading Sunshine in Private Equity. The SEC has just started its initial examinations of private equity firms. Bowden said that the SEC had found serious abuses in more than half of the firms examines, including what in other circles would be called embezzlement. Bowden also said if anything the misconduct was more prevalent at the biggest firms, which was the reverse of what it found in other areas it regulated, where the crooked operators were normally boiler-room level.

This promising start quickly fizzled out. Yes, the SEC did engage in a series of enforcements actions, targeting common abuses like charging “termination of monitoring fees” which had never been contemplated in the fund agreements, and hauling up big name firms like Apollo, KKR, and Blackstone. However, this amounted to enforcement theater. The SEC acted as if “one and done,” citing particular firms for an isolated abuse, when all the big players were certain to have engaged in many others, and then acting as if everyone would shape up, was either craven or willfully blind. Bowden immediately turned to giving speeches on how private equity firms were obviously upstanding and wanted to do right. He then gave a speech at Stanford at a private equity conference where went on far too long about how he wanted his son to work in private equity and an audience member immediately said he wanted to hire him. Bowden left the agency in three weeks.

This SEC letter, by contrast, makes clear that the agency has ample evidence in its files of continued abuses by private equity fund managers. It does not mention a particularly egregious general strategy: of admitting in the annual disclosure documents, the Form ADV, that the private equity fund managers are violating their contracts with investors. Admitting a contractual violation does not cure it, but the private equity barons appear to believe they can create their own alternative reality. And until Gensler showed up, that belief looked to be correct.

Author(s): Yves Smith

Publication Date: 10 Feb 2022

Publication Site: naked capitalism

Judge narrows SEC bond rating lawsuit against Morningstar

Link: https://www.businessinsurance.com/article/20220106/NEWS06/912347036/Judge-narrows-SEC-bond-rating-lawsuit-against-Morningstar,-SEC-v-Morningstar-Cre

Excerpt:

A U.S. judge on Wednesday narrowed but refused to dismiss a Securities and Exchange Commission lawsuit accusing Morningstar Inc. of letting analysts adjust credit rating models for about $30 billion of mortgage securities, resulting in lower payouts to investors.

U.S. District Judge Ronnie Abrams in Manhattan said the SEC plausibly alleged that Morningstar Credit Ratings failed to provide users with a general understanding of its methodology for rating commercial mortgage-backed securities and lacked effective internal controls over its ratings process.

Author(s): Reuters

Publication Date: 6 Jan 2022

Publication Site: Business Insurance

19,000 Retired Ohio Teachers Want Pension Prospectuses, Wall Street Wolves Say No Way

Link:https://www.forbes.com/sites/edwardsiedle/2021/11/09/19000-retired-ohio-teachers-want-pension-prospectuses-wall-street-wolves-say-no-way/

Excerpt:

For nearly two decades, alternative investment managers have been permitted to handle public pension money while they refuse to play by the rules applicable to these funds and submit to public scrutiny.

Wall Street alternative managers have successfully argued that the very same investment information widely distributed to wealthy individuals somehow amounts to “trade secrets” exempt from public records laws… when requested by state workers.

While it’s not surprising Wall Street’s biggest gamblers want to keep investors in the dark as to their misdeeds, it’s unconscionable that STRS Ohio and other public pensions around the nation are willing to abandon transparency, exposing workers to unfathomable risks and jeopardizing their retirement security.

Alternative investment managers may seek to keep secrets, but it’s no secret what’s often in these well-guarded documents: excessive and illegal fees; outrageous conflicts of interest and self dealing; fiduciary breaches and outright violations of law—even criminal conduct. For example, eight years ago the SEC staff found that a majority of private equity firms inflate fees and expenses charged to companies in which they hold stakes.

Author(s): Edward Siedle

Publication Date: 9 Nov 2021

Publication Site: Forbes

Everyone Is Urging SEC To Stop Public Pension Mismanagement, Looting By Wall Street

Link:https://www.forbes.com/sites/edwardsiedle/2021/10/07/everyone-is-urging-sec-to-stop-public-pension-mismanagement–looting-by-wall-street/

Excerpt:

An investigation of the Chicago Policemen Annuity and Benefit Fund was funded by members of the Chicago Police Department Pension Board Accountability Group. According to the report, the CPABF is one of the worst funded public pension plans in the U.S. today with a funding ratio at year-end of only 23%. According to the report, “The toxic mix of defunding the police pension, conflicted and high-risk investments, and poor management of the pension cry out for greater transparency and accountability.”

As Arthur Levitt, Chairman of the SEC stated back in 1999 in connection with the Commission’s review of pay-to-play practices at public pensions, “Today, public funds hold more than $2 trillion of assets. These assets do not belong to the elected officials, and they do not belong to the trustees. They belong to the tens of thousands of firefighters, ambulance drivers, city clerks, bus drivers and other public employees who make our communities work. “Their interests,” as my father said twenty years ago, “must be paramount in investment of that money.”

The tremendous importance of public funds demands that they be managed with complete honesty and integrity and for the sole benefit of their beneficiaries.”

Author(s): Edward Siedle

Publication Date: 7 October 2021

Publication Site: Forbes