This Week in Securities Litigation (April 9, 2010)

This Week in Securities Litigation (April 9, 2010)

This week the SEC proposed new rules regarding asset backed securities while Chairman Mary Schapiro, in an op-ed article in the Washington Post, called for the Senate financial reform bill to be strengthened. SEC enforcement saw another of its proposed settlements held by Judge Rakoff in the Southern District of New York. The Commission also brought another action against broker for fraudulent calculation of NAV and concluded its long running financial fraud case with against Symbol Technologies.

Market crisis

Legislation: SEC Chairman Mary Shapiro, in an op-ed article in the Washington Post (here, registration required), called for Congress to take three key steps to strengthen the current Senate bill on financial reform: 1) create clearer lines of regulation; 2) have more transparency in the swaps market; and 3) maximize the use of clearinghouses and exchanges in transactions involving swaps where possible.

Uniform fiduciary standard: Commissioner Louis Aguilar, in recent remarks, strongly advocated harmonizing the standards, discussed here. Investment advisers, the Commissioner noted, owe their clients an affirmative duty of the utmost good faith and fair disclosure. They are required to serve their clients with undivided loyalty. This standard has served advisory clients well over the years. This standard, and not a variation of it, should apply to all, according to Commissioner Aguilar.


Judge Rakoff, in an step reminiscent of the Bank of America case, discussed here, has requested more evidence before accepting a settlement in an insider trading case. The case is against Schottenfeld Group, discussed here, and is related to the Galleon insider trading action as discussed here.

SEC enforcement actions

Offering fraud: SEC v. Kelly, Case No. 1:07-CV-4979 (N.D. Ill. Filed Apr. 8, 2010) is an action against Michael Kelly and twenty-five other defendants. It alleges a massive fraud through the sale of universal leases. The lease investments were structured as timeshares in several hotels. From 1999 through 2005, Defendant Kelly and others, raised at least $428 million through the Universal Lease scheme. Investors were told they would profit from an arrangement under which the leases would generate guaranteed income. The court entered a final judgment against John Tencza and American Elder Group, LLC, his business. The entry enjoined Mr. Tencza and his company from violating there registration and antifraud provisions of the securities laws. The court also order the payment of disgorgement in the amount of about $1.6 million along with interest and a civil penalty of $600,000. ....

Read This Week In Securities Litigation (April 9, 2010) in its entirety on SEC Actions, a blog by Thomas Gorman.