Securities Attorney Briefing for 19 July 2016

Securities Attorney Tom Krebs


Brexit spurs London start-ups to investigate Berlin move

Ten London start-ups have made inquiries about moving to Berlin since Britain voted to leave the European Union, business development group Berlin Partner said on Monday. Along with other European cities, Berlin is jostling for a piece of London’s financial technology industry and has stepped up efforts to promote the German capital as an affordable and creative alternative to other centres. The fintech start-ups that have made inquiries employ between 10 and 18 people each and have expressed interest in matters such as commercial property prices, the local labour market and accommodation availability, Berlin Partner Director Stefan Franzke said. “The most concrete inquiries are coming from London fintechs. They are considering a move to Berlin so as not to lose access to the European single market,” Franzke told a news conference. Berlin’s Senator for Economics, Technology and Research, Cornelia Yzer, has sent hundreds of letters to British businesses and has travelled to London Fintech Week to lobby start-up founders. “There is no doubt these companies will be interested in being in the European Union,” Yzer told Reuters at Fintech Week. More than a hundred companies have been in touch with Berlin since the Brexit vote, though not all fintech, and the German capital will open a London office in September, she said. “Berlin is a boom town for companies focusing on fintech. Every 20 hours a new start-up is created … There is no need to speak German,” Yzer said. PASSPORTING PROTECTION? Rajesh Agrawal, Deputy Mayor of London responsible for business, told Fintech Week that the UK capital is a thriving fintech sector but acknowledged the challenge posed by Britain’s Brexit vote. “The outcome of the EU referendum is bad news for London and for fintech, it’s not what we wanted,” Agrawal said. “We are very clear about what we need. We need access to the EU single market and protection of our passporting rights,” Agrawal said. Maintaining passporting rights for British firms to offer services across the EU must go hand in hand with allowing EU citizens to work unhindered in Britain, EU leaders have said. Eileen Burbidge, Britain’s fintech envoy, said the UK government will re-evaluate its fintech support programmes but she expects passporting rights to be maintained. “Even in the worst case, where people have to get a second licence to operate in other European countries … it’s not a deal breaker, it’s not going to stop momentum,” Burbidge said. Berlin attracted almost 2 billion euros ($2.2 billion) in venture capital investment in start-ups in 2014, outpacing London, Ernst and Young said in a report last year. The German capital has about 100 fintech start-ups, including German mobile financial services firm Number26. Affordable living costs, access to talent and the widespread use of English are among its advantages, Berlin Partner’s Franzke said. Berlin Partner has launched a website in English and will open a pop-up lab in London in October to try to woo more companies, but Franz said he also expects interest from further afield as start-ups that were interested in London now look elsewhere.


GOP platform to call for return to Glass-Steagall

CLEVELAND — Both major political parties are now calling for a major overhaul of the financial industry by calling for a return of Glass-Steagall, a Depression-era banking law. Paul Manafort, Donald Trump‘s campaign manager, told reporters gathered in Cleveland Monday that the GOP platform would include language advocating for a return of that law, which was repealed under President Bill Clinton. “We also call for a reintroduction of Glass-Steagall, which created barriers between what big banks can do,” he said. Including that language in the GOP platform comes shortly after Democrats agreed to similar language in their own, calling for an “updated and modernized version” of the law. A party platform is not binding, but is thought to reflect the values of the party. And the GOP platform has not yet been officially released, although the convention is expected to approve it later Monday. Nonetheless, the embrace of Glass-Steagall by both parties is a telling indication of how unpopular Wall Street remains with the public, years after the financial crisis. Manafort mentioned the return of Glass-Steagall specifically as a cudgel against Hillary Clinton, arguing it was Democrats that were the ones actually beholden to big banks. “We believe the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is why you see all the Wall Street money going to her,” he said. “We are supporting the small banks and Main Street.” News that Republicans were embracing Glass-Steagall was met with surprised optimism from advocates for tougher rules on the financial industry, and resigned sighs from the industry itself. One bank lobbyist said backing the bill in the GOP platform was a naked attempt by Trump to win over disappointed backers of Bernie Sanders, a vocal proponent of the law’s return. Trump has explicitly called on Sanders supporters to join his campaign, although Sanders himself has backed Clinton. The lobbyist also questioned how thoroughly the campaign examined the policy. “I really am not sure if the Trump team has done any analysis of this,” the lobbyist said. Dennis Kelleher, president and CEO of the financial reform advocacy group Better Markets, offered cautious optimism for the move. However, he noted that Republicans have a much longer record of pushing to ease rules for the financial sector, rather than tighten them. “It’s potentially great news for financial reform and protecting taxpayers, as long as it’s not another Republican Trojan Horse that looks good, but concealed underneath are killer loopholes and big bank give-a-ways,” he said. More:


Low bar: How lawyers profit off desperate homeowners

 In 2012, after a heart attack left him too ill to work and unable to make his mortgage payments on time, John M. Green turned to the Litvin Law Firm for help. Green said he paid the firm some $8,000 over the next two years to negotiate better terms with the lender on his house in Baker, Louisiana. But he lost the home anyway, he says, because the Brooklyn, New York, law firm did little beyond taking his money. “My experience was horrible,” said Green, 72, who is back at work part-time as a school teacher. “They didn’t follow through with anything they said they were going to do.” It’s not just former Litvin clients like Green who are aggrieved. The attorneys general of New York and Maryland have accused the firm of preying on distressed homeowners by failing to deliver the legal firepower it promised. People deeply in arrears on their mortgages wasted money they could ill afford to lose, while dozens lost their homes, Maryland officials charged. The case, filed in 2014, targets the firm and its founder, attorney Gennady Litvin. Both state proceedings are pending. Litvin would not comment. Since 2010, tens of thousands of strapped homeowners have alleged they were cheated by lawyers or marketers boasting ties to law firms, whom they trusted to renegotiate mortgage loans or stave off foreclosure actions, a Center for Public Integrity investigation found. Since 2010, a coalition of consumer and law enforcement groups organized by the Lawyers’ Committee for Civil Rights Under Law has tracked companies and law firms that promise to “rescue” homeowners from foreclosure and mostly fail to deliver. The group has collected more than 46,000 written complaints from homeowners whose losses totaled more than $100 million — nearly two-thirds linked to apparent misconduct by lawyers or their associates. More:

Buffett Buys $1.8 Billion ‘Gem’ of a Medical Insurer in New York

Berkshire Hathaway Inc. agreed to buy Medical Liability Mutual Insurance Co., extending Chairman Warren Buffett’s leadership in the business of protecting doctors against lawsuits. The target company is the largest underwriter of medical professional liability insurance in New York and will convert from a policyholder-owned to a stock business, Omaha, Nebraska-based Berkshire’s National Indemnity unit said Monday in a statement that didn’t disclose terms. Policyholder surplus, a measure of assets minus liabilities, was $1.8 billion as of Dec. 31, according to the statement. The deal is expected to be completed in the third quarter of 2017, pending regulatory and customer approvals. “MLMIC is a gem of a company that has protected New York’s physicians, mid-level providers, hospitals and dentists like no other for over 40 years,” Buffett said in the statement. “Good things are worth waiting for.” Insurance has long been a centerpiece of Berkshire, as the operations generate premiums that Buffett can reinvest before paying claims. While the company counts more on giant subsidiaries like auto insurer Geico and Gen Re, Buffett periodically adds companies in niche markets.

Judge Hands Entrepreneur Sam Wyly a $1.1 Billion Tax Bill

A federal judge has ordered Texas entrepreneur Sam Wyly to pay $1.1 billion in taxes and penalties for committing tax fraud using offshore accounts, even though the former billionaire’s net worth has fallen to a fraction of that amount. The payment demand from Judge  Barbara Houser on Monday was made for federal taxes due as far back as 1992. In a court opinion filed last month, she admitted that the money “may now be more difficult for the government to collect given the passage of time and the dissipation of Sam’s wealth.” Financial statements filed with the U.S. Bankruptcy Court in Dallas in November 2014 declared that Mr. Wyly’s assets were worth $382.83 million. His spokesman didn’t return requests for comment on the order. In a May 10 opinion, Judge Houser ruled that Mr. Wyly, 81 years old, and his lawyers created a complex network of offshore accounts to conceal trading profits and “amass tremendous untaxed wealth.” Specifically, Judge Houser said Mr. Wyly transferred stock options he earned, as compensation for serving as a director of business for software maker Sterling Software Inc. and arts-and-crafts chain  Michaels Stores Inc. , into the offshore trusts in exchange for a private annuity. The network enabled Mr. Wyly to “escape his obligation to pay tax on the annuity income he was contractually entitled to receive,” wrote Judge Houser, who called the offshore system “nothing short of mind-numbing…with identically named domestic and foreign corporations, and layers upon layers of foreign entities.” Mr. Wyly’s lawyers, during a three-week trial, blamed his hired financial professionals. Mr. Wyly testified that he hasn’t prepared his own tax returns since the 1960s. Judge Houser was not convinced. “To accept [his] explanation requires the court to be satisfied that it is appropriate for extraordinarily wealthy individuals to hire middlemen to do their bidding in order to insulate themselves from wrongdoing so that, when the fraud is ultimately exposed, they have plausible deniability,” she wrote. More:

Target case a cyber warning to corporate directors

A U.S. federal judge’s dismissal of a shareholder derivative lawsuit filed in connection with Target Corp.’s 2013 cyber breach is a warning to company directors to keep on top of cyber-related issues, says an expert. Following the recommendation of a special litigation committee appointed by Target Corp.’s board of directors, U.S. District Judge Paul A. Magnuson in St. Paul, Minnesota,dismissed the litigation in Mary Davis et al. v. Gregg W. Steinhafel et al. The plaintiffs retain the right, though, to seek legal fees and expenses from Target, while Target in turn retains the right to oppose that motion, according to the July 7 ruling. According to court papers in the case, the two-man committee of independent members — a retired judge and a law professor — was appointed by Target’s board of directors in June 2014 after litigation was filed by Target shareholders. The committee investigated the breach over a 21-month period, conducting 73 interviews of 68 individuals, before concluding in a 91-page report submitted in March 2016 that it would not be in Target’s best interests to pursue claims against the retailer’s directors and officers. Target’s latest 10-Q report, filed with the U.S. Securities and Exchange Commission for the period ended April 30, 2016, said the company has so far incurred $291 million of cumulative expenses since the data breach, which was partially offset by expected insurance recoveries of $90 million, for net cumulative expenses of $201 million. This was the second such dismissal of a case. In October 2014, Judge Stanley Chesler of the U.S. District Court in Newark, New Jersey, dismissed similar litigation filed by shareholders of Wyndham Worldwide Corp. in connection with three cyber beaches that occurred at the hotel chain between April 2008 and January 2010. Judge Chesler held in his ruling that Wyndham’s board “had a firm grasp of plaintiff’s demand when it determined that pursuing it was not in the corporation’s best interest.” The Federal Trade Commission settled a lawsuit against Wyndham in connection with the cyber breaches in 2015. The Target ruling illustrates board members “should be well beyond thinking security is just an information technology issue,” said Craig A. Newman, a partner with Patterson, Belknap, Webb & Tyler L.L.P. in New York. “Board members must have the ability to ask the right questions and, as importantly, assess the answers,” said Mr. Newman. More:

‘Spending money like a drunken sailor’: Trump bankers question his portrayal of financial comeback

“He did not come to the banks and say ‘I have a problem.’ That did not happen” Donald Trump, who often says he only likes winners, tells one grand tale of loss: In 1990, he nearly went bankrupt and was forced to ask dozens of banks to whom he owed money to change the terms on their loans and forgive some of his debts. It was, the real estate developer admits in his 1997 book “The Art of the Comeback,” the darkest period of his professional life. In his telling, it’s a story of redemption, of resilience, and proof of his exceptional negotiating skills and shrewd thinking. Six people who participated in the loan workout negotiations have a different recollection, raising questions about a key part of the personal narrative that many of Trump’s supporters have found compelling as he campaigns to be the next president of the United States on Nov. 8. On the campaign trail he has portrayed himself as a survivor and a master negotiator. Trump says his comeback began when he recognized a downturn in the real estate market and quickly asked banks to renegotiate his loans. “That decision was perhaps the smartest thing I did,” he wrote. The six bankers and lawyers involved in the talks say the bailout wasn’t based on any overture Trump initiated with the banks — and the terms of the deal were dictated by what was best for the banks, not Trump. Three of the participants say Trump didn’t acknowledge he had a problem until his lenders reviewed his books, realized he was on the brink of collapse, and summoned him for debt restructuring talks. While much has been written about Trump’s financial troubles at the time, there has been little examination of his description of the bank negotiations in “The Art of the Comeback,” including his assertion that he chose to initiate those talks. Trump’s spokeswoman, Hope Hicks, declined to comment for this story. More:



MONTGOMERY—Even though the shoddily implemented STAARS accounting software is still causing major headaches for agencies and vendors, the Department of Finance is doubling down on a troubled new time and attendance system named eSTART. All agencies, major and minor, are reporting unanimously: eSTART doesn’t live up to the hype. eSTART is the State’s name for the Kronos time and attendance program that, according to the company’s website, “makes easy work of the tedious tasks involved with monitoring employee time and attendance… simplified time-tracking software — working in tandem with our data collection devices — helps you control labor costs, minimize compliance risk, and improve workforce productivity … without breaking a sweat.” In 2015, the State paid $4,074,000 to Kronos for the product and has paid $2,275,000 so far in 2016. Last week, State Auditor Jim Zeigler made his concerns known to Acting Finance Director, Bill Newton, State Comptroller Tom White, and Dr. Joanne Hale, Director of Information Technology. Zeigler informs the trio, “the State Auditor’s Office cannot implement a system that will decrease efficiencies and increase workload for the two support staff we have remaining in our office.” SEE LETTER He also states that others are refusing to implement what may be a costly failure. Zeigler says the State Personnel Department has pulled out of the project. We could not confirm this by the deadline, but other department heads have privately told the Alabama Political Reporter they want out, too.



The 2004 Election – OHIO’S ODD NUMBERS – Christopher Hitchens

No conspiracy theorist, and no fan of John Kerry’s, the author nevertheless found the Ohio polling results impossible to swallow: Given what happened in that key state on Election Day 2004, both democracy and common sense cry out for a court-ordered inspection of its new voting machines.   it were not for Kenyon College, I might have missed, or skipped, the whole controversy. The place is a visiting lecturer’s dream, or the ideal of a campus-movie director in search of a setting. It is situated in wooded Ohio hills, in the small town of Gambier, about an hour’s drive from Columbus. Its literary magazine, The Kenyon Review, was founded by John Crowe Ransom in 1939. Its alumni include Paul Newman, E. L. Doctorow, Jonathan Winters, Robert Lowell, Chief Justice William Rehnquist, and President Rutherford B. Hayes. The college’s origins are Episcopalian, its students well mannered and well off and predominantly white, but it is by no means Bush-Cheney territory. Arriving to speak there a few days after the presidential election, I found that the place was still buzzing. Here’s what happened in Gambier, Ohio, on decision day 2004. The polls opened at 6:30 a.m. There were only two voting machines (push-button direct-recording electronic systems) for the entire town of 2,200 (with students). The mayor, Kirk Emmert, had called the Board of Elections 10 days earlier, saying that the number of registered voters would require more than that. (He knew, as did many others, that hundreds of students had asked to register in Ohio because it was a critical “swing” state.) The mayor’s request was denied. Indeed, instead of there being extra capacity on Election Day, one of the only two machines chose to break down before lunchtime. More:

Kansas raid on pensions only worsens problem

Forbes called it “fiscal snake oil.” The New York Times editorial board: “ruinous.” Late night talk show host Seth Meyers weighed in saying: “Even when you buy couch cleaner, they tell you to try it on a small patch of fabric first and that’s what happened here. Kansas was the small patch of fabric, and not only did the cleaner not work, the couch exploded.” Kansas is falling into deeper debt. State agencies are underfunded. Important early childhood education programs are under siege. And now, Kansas is borrowing from its pension fund to pay bills because the state refuses to change course on Gov. Sam Brownback’s disastrous 2012 tax policy. Brownback slashed taxes for the wealthy and business, saying it would be a “shot of adrenaline” to the heart of the economy. That shot never came. What did were enormous budget deficits, deep cuts to services that residents of Kansas rely on, and negative job growth. What’s worse? Instead of admitting failure, the state’s elected officials continue to pile one bad financial decision on top of another. Since 2012, Kansas has seen its bond rating downgraded twice. By the end of the 2014 fiscal year, Kansas ran up a deficit of about $300 million and revenue collections fell short of expectations, triggering additional spending cuts. Brownback took millions from transportation, public health and youth education programs; increased taxes on cigarettes and liquor; and continued funneling highway and pension funds to temporarily fill budget holes. Brownback and the GOP-controlled Legislature are still chipping away at the state’s budget and infrastructure, as they desperately look for any possible way to salvage what is clearly a failed policy. In the last general session of the Legislature, in a mockery of fiscal conservatism and responsibility, the House and Senate sent a bill to Gov. Brownback that allowed him to skip up to $100 million in payments to the Kansas Public Employee Retirement System (KPERS) to help balance the budget. More:

Morning Money

PLATFORM SURPRISE ON GLASS-STEAGALL — Republicans surprised some in the financial community by including a call to re-instate the Depression-era law forcing a separation between retail and investment banking (more on which below). The move is a populist appeal intended to try and generate some support among those who think presumptive Democratic nominee Hillary Clinton is too close to Wall Street and too timid on financial reform.

The language: “We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment. Sensible regulations can be compatible with a vibrant economy. They can prevent the strong from exploiting the weak. Right now, the regulators are exploiting everyone.”

ON THE OTHER HAND … The platform also rips Dodd-Frank as “the Democrats’ legislative Godzilla … crushing small and community banks and other lenders.” Hard to think Bernie Sanders/Elizabeth Warren supporters will thrill to that language, though it might appeal to some in the GOP establishment otherwise not inclined toward Trump

Full, searchable GOP platform:

REACT — Compass Point’s Isaac Boltansky and Alison Ashburn: “While party platforms have little if any practical impact, the inclusion of the Glass-Steagall Act recommendation in the GOP platform has notable political and policy dimensions. In terms of politics, its inclusion highlights how uniquely qualified Trump is to challenge Clinton as she will now have to fend off an attack from her ideological left.

“In terms of policy, while lawmakers remain unlikely to reenact the Glass-Steagall Act, we believe the big bank bashing from both parties will eventually lead to targeted policies aimed at lessening the relative regulatory burden for regional and community banks … The Clinton campaign has refused to support the reinstatement of the Glass-Steagall Act even though the Democratic Party platform is supportive of doing so”

Hamilton Place Strategies’ Tony Fratto: “Glass-Steagall is dumb politics and dumb economics. If Republicans think they can outflank Sen. Warren they are delusional. Returning to Glass-Steagall would be destructive and unworkable. As every analysis has demonstrated, Glass-Steagall would have done nothing to prevent the crisis. There is a lot in this platform to ignore.”

WALL STREET ON EDGE — FT’s Barney Jopson in Washington and Demetri Sevastopulo: “The Republican convention has left Wall Street banks on edge by embracing a populist proposal to break up big institutions, an idea loved by many Democrats that adds a new twist to the GOP under … Trump. Defying nearly two decades of party tradition, the Cleveland convention adopted policies that include reining in banks by banning institutions that hold deposits from doing riskier investment banking …

“Presidential candidates do not have to follow party platforms, but big banks will be troubled by the cross-party support for legislation inspired by the 1933 Glass-Steagall act because such ideas can gain a life of their own once in official documents Any prohibition barring investment bankers from operating under the same roof as federally insured deposits would pose an existential challenge to Citigroup, JPMorgan, Bank of America, Wells Fargo and, to a lesser extent, Goldman Sachs”

CHAOS IN CLEVELAND — The convention did not exactly get off to a great start for Trump with a big fight on the floor over an effort to force a roll call vote on the rules package passed last week. The effort, driven in part by a desire among conservatives to close future primaries to only GOP voters, ultimately failed, but it did show great discord among a party Trump hopes to unify. And that came after Trump’s campaign chair, Paul Manafort, spent some of the morning ripping Ohio’s Republican governor, John Kasich.

The evening portion went somewhat better for Trump, who staged a deeply strange WWE-style entrance, to introduce his wife Melania, who gave a short and perfectly serviceable speech (which turned out to actually be somebody’s else speech, see below). But Melania Trump did nothing to really humanize her husband or offer any anecdotes about their family life or provide anything beyond boilerplate encomiums about his love of country and family. If Trump’s goal is to turn around his 60 percent disapproval ratings and broaden his appeal beyond white male voters, it’s not obviously that Night One of the GOP convention did him any good.

TRUMP’s entrance:

UH OH … Turns out large portions of Melania Trump’s speech were pretty much directly ripped off from Michelle Obama’s speech in 2008. Via WP’s Philip Bump: “Journalist Jarrett Hill, though, noticed something interesting about Melania Trump’s speech at the 2016 Republican convention: The values that guided Michelle and Barack Obama appear to have also guided Trump — basically verbatim.”

CNN’s Jake Tapper after reading the side by side speeches with long phrases essentially copied: “This is plagiarism.”

Making it more awkward: Melania Trump told NBC News that she wrote much of the speech herself without a lot of help.

POLITICO Lede-all headline: “Trump’s disastrous day one.”

Expected Trump-land response: This wasn’t really plagiarism just a goof by a speech writer. Plus the media are monsters for going after the candidate’s wife. (Someone ask Heidi Cruz about that.)

EVENT ALERT: POLITICO’s Clea Benson is joined by leading policymakers and thought-leaders for a debate over the housing policy choices facing the next Congress and administration at POLITICO’s Under Construction: How Will the Next President Remodel Home Lending? event — Today, 2 p.m. — POLITICO Hub — 925 Euclid Ave., Cleveland. Learn more: Livestream:

AND DON’T FORGET … our event Wednesday at the POLITICO Hub in Cleveland with Larry Kudlow, Steve Moore, Mark Zandi, Lindsey Piezga and Douglas Holtz-Eakin! None of MM’s remarks will be plagiarized.

WHAT DEMS FEAR FROM CLEVELAND — A top Dem close to the Clinton campaign emails on their concerns: “One of two things. Bring back the establishment GOP, which seems pretty unlikely. Make deep in-roads into blue collar union Dems in Rust Belt. More likely but probably not enough to win.”

BIG DONORS AWOL — POLITICO’s Kenneth P. Vogel: “Sheldon Adelson, David Koch, T. Boone Pickens and Paul Singer were nowhere to be found at a Monday afternoon reception on the sidelines of the GOP convention for a super PAC supporting Donald Trump called Great America PAC. …

“Instead, the roster of attendees was heavy on rich businessmen and celebrities without much big-money political pedigree — including actor Robert Davi of Goonies fame, Christian radio titan Stuart Epperson, Jewelry Exchange president Bill Doddridge and Lending Tree CEO Doug Lebda”

MAYBE DON’T HATE THE BANKS SO MUCH? — Fortune’s Chris Matthews: “[A] recent spate of big-bank earnings releases give us reason doubt the haters. If you look at the financials of four of the largest American banks, Wells Fargo, JPMorgan Chase, Citigroup, and Bank of America, they all show higher lending today than three months ago. …

“This is hugely important for the continued health of the U.S. economy, as there is a strong correlation between growth in bank lending and economic growth. In fact, one can argue that changes in lending by private banks is more important to the real economy than policy changes at the Federal Reserve. That’s because all Federal Reserve policy works through big banks before it makes it way to the broader economy”

HOW TO EAT NAILS — Lots of good suggestions to fulfill my bag of rusty nails pledge from edible nail polish to this from loyal reader Sam Hempel: “Make mock nails by coating pretzel sticks with gray cake frosting (take white frosting and mix in a little black food coloring until you get a suitable gray color). Cut a little circular piece of thin chocolate bark for the head of the nail.” Keep ‘em coming!

DRIVING THE DAY — Featured speakers in Cleveland Tuesday night include Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, New Jersey Governor Chris Christie, Tiffany Trump, Donald Trump, Jr. and Ben Carson … Goldman Sachs reports earnings before the bell.

WHY THE ECONOMY NEEDS IMMIGRANTS — MarketWatch’s Rex Nutting: “Trump’s supporters have it all wrong about immigration: Immigrants make America’s economy stronger, not weaker. And we are going to need a lot more immigrants in coming decades if we want our economy to grow at a faster pace. … Trump himself distinguishes between legal immigration, which he supports (he should: he married two of them!), and illegal immigration, which he says is ‘killing us.’ …

“But many of Trump’s supporters don’t accept the distinction between legal and illegal immigrants: They don’t like either kind. About two-thirds of Trump’s supporters in the primaries said they think immigration is a burden on our country. … Most studies have shown that immigration has a modestly positive impact. For instance, immigrants (and their children) are far more likely to start businesses, including iconic companies such as Apple, Google, Intel, Bank of America, AT&T, Procter & Gamble, Kraft, Pfizer, DuPont, eBay and Ford”

CONVENTION DAY ONE WRAP — POLITICO’s Shane Goldmacher: “Trump’s supporters painted a dark and dystopian portrait of an America in decline on Monday, as a parade of people spoke about a country slipping from their grasp, cops getting gunned down in the streets, and their family members slain by illegal immigrants. It was a red-meat buffet of raw emotion for an angry Republican electorate, with little talk of ideology or policy. Indeed, there were more mentions of fallen American soldiers than conservatism.

“The Trump campaign’s stated theme for the first evening of the Republican National Convention was to ‘make America safe again,’ and they sold Trump as a rescuer of the nation by focusing almost exclusively on the current, imperiled state of affairs. Rudy Giuliani … spoke in prime-time about ‘why our enemies see us as weak and vulnerable’ and of the terroristplanning to ‘come here and kill us.’”

RYAN: TRUMP “NOT MY KIND OF CONSERVATIVE” — WSJ’s Rebecca Ballhaus: “House Speaker Paul Ryan on Monday acknowledged … Trump was ‘not my kind of conservative’ but called for the party to rally behind the New York businessman at this week’s Republican National Convention. Speaking at a lunch hosted by The Wall Street Journal … the Wisconsin Republican said that while he and Mr. Trump differ on certain policy proposals — for example, building a wall on the U.S.’s border with Mexico, or banning Muslims from entering the country — they are ‘on the same page’ on the party’s core principles. ‘We’re a big tent party. Big tent — real big,’ he said”

PENCE AND TRUMP DIFFER ON BUSINESS — NYT’s Andrew Ross Sorkin: “If there is one thing consistent about the business views of Gov. Mike Pence of Indiana — better known as … Trump’s running mate — it is that they are often at odds with the views of Mr. Trump, who has campaigned on his business expertise. Among the bills that Mr. Pence opposed while he was a congressman were those that turned out to have the biggest repercussions on Wall Street and American industry: the $700 billion bailout of the financial industry … and the rescue of the auto industry.

“On the flip side, Mr. Pence voted in favor of amending the Constitution to require a balanced budget, and cutting taxes on the wealthy and on corporations. Mr. Trump’s views on these subjects are not on the record in the same way as Mr. Pence’s votes in Congress, but the signals that the presumptive Republican nominee has given in media appearances would suggest that the two are far from in lock step”

ASSETS FLOW OUT OF ACTIVE FUNDS — FT’s Stephen Foley: “The shift of assets from actively managed investment funds to low-cost index trackers accelerated last month, as US stock-picking funds suffered their worst outflows since the financial crisis. The new US market data … underscore the depth of the business challenges facing active fund managers. While $21.7bn flowed out of actively managed US equity funds in June, the worst monthly figure since October 2008, passive funds, including exchange-traded funds, took in $8.7bn.

“The pattern was repeated across other categories of equity fund. American savers pulled money from active funds that invest in international equities, in specialist sectors and in a combination of equities and bonds. Passive funds in all those categories continued to attract inflows Alina Lamy, Morningstar analyst, said that the shift from active to cheaper passive funds may be most pronounced during volatile markets, as investors examine whether their managers are protecting them from market declines”

NORTH KOREA FIRES THREE MISSILES — Reuters: “North Korea fired three ballistic missiles early on Tuesday which flew between 500 and 600 kms (300 and 360 miles) into the sea off its east coast, South Korea’s military said, the latest in a series of provocative moves by the isolated country. The U.S. military said it detected launches of what it believed were two Scud missiles and one Rodong, a home-grown missile based on Soviet-era Scud technology.

“North Korea has fired both types numerous times in recent years, an indication that unlike recent launches that were seen as efforts by the North to improve its missile capability, Tuesday’s were meant as a show of force … The launches came days after South Korea and the United States announced a final decision to deploy the Terminal High Altitude Area Defence (THAAD) anti-missile system in the South to counter threats from the North, which had prompted Pyongyang to threaten a ‘physical response.’”

NETFLIX HITS A SPEED BUMP — Bloomberg: “Netflix Inc.’s quest to create the first global, online TV network hit a speed bump Monday when the company said a price increase cut subscriber growth to a three-year low, causing its stock to plummet and exacerbating concerns about its future growth. The streaming service added 1.68 million subscribers in the second quarter of 2016, missing its forecasts both at home and abroad .. Netflix added 1.52 million new customers overseas, compared with an April projection of 2 million. It added 160,000 in the U.S., bringing the company total to 83.2 million.

“Netflix blamed a recent price increase that affected some of its earliest subscribers, saying the change led to an increase in cancellations. While the company saw gains in sales and profit, investors focus on user growth, especially from fast-growing international markets, and were shocked by the shortfall”


ANTHEM WOOS STATE POLS — IBT’s David Sirota: “Seeking regulatory approval for a controversial merger proposal, health insurer Anthem recently pumped $460,000 into groups supporting the election campaigns of governors and state attorneys general.”

ICI PUSHES BACK ON FSOC — The Investment Company Institute filed a letter with FSOC “strongly challenging the statements and findings they recently published on potential risk in the fund industry”

FSOC READOUT — Via Treasury: “During the meeting, the Council received an update on recent market developments, including developments related to the United Kingdom referendum on membership in the European Union. … The Council also discussed its ongoing assessment of potential risks to U.S. financial stability from asset management products and activities, following the Council’s public update on this topic in April. Staff provided an update regarding the ongoing work of the Council’s hedge fund working group.”

BANK OF AMERICA PROMISES MORE CUTS — WSJ’s Christina Rexrode and Peter Rudegeair: “Bank of America Corp. said it would deliver another $5 billion in annual cost cuts by 2018 as part of its strategy to deal with persistently low interest rates that are eating away at lenders’ profitability. The move by the second-largest bank in the U.S. by assets shows the importance Chief Executive Brian Moynihan is placing on cost discipline and job reductions to weather a tough period, even as its rivals push harder on loan growth.

“Bank of America on Monday turned in second-quarter earnings and revenue that were lower than a year ago, in part due to relatively weak progress on lending. But investors rewarded the bank for announcing the new cost-cutting target and sent the stock up 3.3 percent to $14.11. Much of the cost-cutting burden is falling on the bank’s staff. Bank of America has shed about 25 percent of its jobs since Mr. Moynihan became CEO in 2010, with employment falling to about 210,000 from nearly 284,000”

POTUS Events

3:45 pm || Meets with Attorney General Lynch and FBI Director Comey
4:45 pm || Meets with Secretary of Defense Carter

All times Eastern
Live stream of White House briefing at 12:45 pm