Securities Attorney Briefing For 22 June 2016

Securities Attorney Tom Krebs


Inside Trump’s Most Valuable Tower: Felons, Dictators and Girl Scouts

A hedge-fund manager on the 28th floor who pretended to be dead when investors asked for their money reported to prison in January. A few weeks later, an investment adviser on the 17th floor was accused of running a Ponzi-like scheme. Thirteen floors up, a lawyer pleaded guilty this month to stealing millions of dollars from clients. It was all happening at 40 Wall St., across from the New York Stock Exchange, behind golden capital letters proclaiming that this is THE TRUMP BUILDING. “Iconic and wonderful,” Donald J. Trump said at a South Carolina town hall event last year, praising the 86-year-old Art Deco tower as one of his great possessions. The presumptive Republican presidential nominee also told fans in Maine that critics who mock his failed companies should focus instead on the Manhattan skyscraper. “They don’t want to talk about 40 Wall Street,” he said. But the 72-story building has housed frauds, thieves, boiler rooms and penny-stock schemers since Trump took it over in 1995 in what may be the best deal of his career. No single property in his portfolio is more valuable than 40 Wall St., according to a Bloomberg valuation of his assets last year. And no U.S. address has been home to more of the unregistered brokerages that investors complain about, according to the Securities and Exchange Commission’s current public alert list. More:

This Bank Wants to Pay Down Your Student Loans

A small Boston bank is betting it can attract tens of thousands of millennials by giving them a chance to pay off their student loans a few months early, rather than offering more common incentives such as interest on their deposits or airline miles for their purchases. Radius Bank, a one-branch lender with $655 million in deposits, announced on Tuesday that it has partnered with Gradifi, the student debt-repayment platform known for its work with employers, to relaunch what they described as the nation’s only debit card dedicated to paying down account holders’ student loans. Radius and Gradifi are pitching debt reduction, rather than rewards points or small reimbursements, to young Americans as part of a plan to capitalize on the nation’s nearly $1.4 trillion student loan tab. There’s no shortage of student debt-driven fear. Nearly 42 million borrowers with government-backed student loans owe $30,100 on average, up more than 42 percent since 2007, after adjusting for inflation, federal data show. Government loans make up more than 90 percent of the market. The federal Consumer Financial Protection Bureau said in September that one in four borrowers, or about 10 million Americans, was either delinquent or in default on student debt. The growing size of this burden has led federal financial regulators and the Treasury Department (PDF) to worry that households may cut back spending or eschew other forms of credit as a result. The National Association of Realtors is so concerned that it is now lobbying Congress on student debt relief. Gradifi and Radius are wagering that Americans in their twenties and thirties will favor paying down their debt over incurring more of it or increasing their consumption. More:

A $541 Million Loss Haunts Deutsche Bank And Former Trader Dixon

Troy Dixon had hit the big time: he’d gone, as they say in his old neighborhood, from “Hollis to Hollywood.” It was a June night last year at the Apollo Theater, the legendary Harlem spot that’s helped launch stars from Billie Holiday to Michael Jackson, and Dixon was back-slapping his way through the annual spring gala. Dixon, a member of the Apollo’s celebrity-studded board, is a star of a different sort. First at Deutsche Bank AG and now at his own hedge fund, he’s become one of the most powerful — and controversial — figures in the $6 trillion market for government-backed mortgage bonds. The story of his journey from Hollis, a working- and middle-class neighborhood in Queens, to the pinnacles of finance is a tale of outsize trades and power plays. In the arcane world of mortgage securities, no one was bigger, no one bolder. At one point, Dixon built up a $14 billion position, among the largest anywhere at the bank. Word spread that he effectively controlled a quarter of his target market, inspiring awe and ill-will among rivals, even within his own bank, and raising eyebrows at the Federal Reserve Bank of New York. Only now, more than two years after Dixon struck out on his own, the story of his meteoric rise has become something else too: a tale of a half-billion-dollar trading loss that has belatedly drawn the attention of federal authorities. At issue is who is ultimately responsible for losses that Deutsche Bank ran up in the aftermath of the 2008 financial crisis, when Dixon, now 44, ran a mortgage-backed trading desk there. The Securities and Exchange Commission wants to know what happened and, specifically, how the German bank accounted for certain bonds as they lost value. A whistle-blower has filed a complaint with the SEC claiming the bank inflated some of the values, according to people with knowledge of the complaint. More:

Rep. Chaka Fattah found guilty on corruption charges

Rep. Chaka Fattah (D-Pa.) on Tuesday was found guilty of all charges in a federal corruption trial.

Fattah and several associates had been charged with 29 counts related to bribery, money laundering, fraud and racketeering. After Tuesday’s conviction, Fattah could potentially face jail time. The charges related to conspiracy, falsification of records and mail fraud each carry sentences of up to 20 years in prison. The charges included allegations that Fattah borrowed $1 million from a donor during his unsuccessful campaign for Philadelphia mayor and later repaid part of the loan by using funds from charitable and federal grants for his nonprofit. The Justice Department further alleged that Fattah used funds from his mayoral and congressional campaigns to help pay off his son’s student loan debt.

He was also charged with accepting financial bribes while trying to secure an ambassadorship or appointment to the U.S. Trade Commission for former Philadelphia Deputy Mayor Herbert Vederman.

The indictment charged that Fattah agreed to help award federal grant money to a political consultant in exchange for forgiving a $130,000 campaign debt. Fattah allegedly told the consultant to apply for a $15 million grant, which he did not ultimately receive. Fattah became the first incumbent lawmaker to lose a primary this year amid the allegations. The 11-term lawmaker immediately relinquished his post as the top Democrat on the House Appropriations subcommittee overseeing the Justice Department after his indictment last July. The other four associates facing charges were Vederman; Bonnie Bowser, who served as Fattah’s Philadelphia-based district director; political consultant Robert Brand; and former Fattah aide Karen Nicholas. While Fattah was convicted of all charges, the jury only convicted the four associates on some of the charges against them.

Here’s the Moody’s Economic Report Clinton’s Using to Attack Trump

Hillary Clinton’s speech attacking Donald Trump’s economic proposals on Tuesday is expected to draw on a new analysis that says his ideas — if enacted in full — would bring about a “lengthy recession” by the end of his first term. That report, released on Monday by Moody’s Analytics, a subsidiary of the credit rating and research agency Moody’s Corporation, explores the consequences of the policies Mr. Trump, the Republican Party’s presumptive presidential nominee, has proposed in speeches, interviews and on his website. Those policies would, under almost any scenario, result in an economy that is “more isolated and diminished,” the authors concluded. “If Mr. Trump gets precisely what he’s proposed, then the U.S. economy will suffer meaningfully,” said Mark Zandi, chief economist at Moody’s Analytics. “It will result in a lot of lost jobs, higher unemployment, higher interest rates, lower stock prices.” Mr. Zandi, the report’s lead author, is a registered Democrat who has donated to Mrs. Clinton, the Democratic Party’s presumptive presidential nominee. But he has worked the other side of the political aisle, too: In 2008, he advised the presidential campaign of Senator John McCain, Republican of Arizona. The Trump campaign did not immediately respond to requests for comment on the report, titled “The Macroeconomic Consequences of Mr. Trump’s Economic Policies.” But an unnamed adviser cited by The Wall Street Journal on Monday disputed the report’s conclusions, noting that more detail on the policies is forthcoming and taking issue with the assumption that proposed tax cuts would hurt the economy. Mr. Zandi defended the work, saying that such an analysis demands impartiality. “This is my job,” he said. “I have clients that ask, ‘What do these economic policies mean for me?’ — in all kinds of industries, in all walks of life.” What Mr. Trump’s policies on trade, taxes, spending and immigration would mean, he and three co-authors say, is slow growth for the nation, even under the most restrictive of the three scenarios they considered, in which Mr. Trump’s proposals were significantly moderated by Congress. More:

House Speaker Ryan unveils Republican alternative to Obamacare

U.S. House of Representatives Speaker Paul Ryan unveiled a Republican healthcare agenda on Wednesday that would repeal Obamacare but keep some of its more popular provisions. The proposal is part of Ryan’s blueprint, titled “A Better Way,” which offers a Republican alternative to the Democratic Party on policy issues ahead of the Nov. 8 election. Earlier this month, Ryan, the country’s highest-ranking elected Republican, released initiatives on national security and combating poverty. Proposals on regulation, tax reform and constitutional authority are expected in the coming weeks. Republicans have challenged President Barack Obama’s signature healthcare law, the Affordable Care Act, since it was enacted in 2010 after a bitter fight in Congress. “Obamacare has limited choices for patients, driven up costs for consumers, and buried employers and health care providers under thousands of new regulations,” a draft of the Ryan plan said. “This law cannot be fixed.” But Ryan’s proposal would keep some popular aspects of the law, including not allowing people with pre-existing conditions to be denied coverage and permitting children to stay on their parents’ coverage until age 26. The Obama administration says some 20 million Americans have become insured as a result of the Affordable Care Act. The Ryan plan recycles long-held Republican proposals like allowing consumers to buy health insurance across state lines, expanding the use of health savings accounts and giving states block grants to run the Medicaid program for the poor. For people who do not get insurance through their jobs, the Republican plan would establish a refundable tax credit. Obamacare, by contrast, provides subsidies to some lower-income people to buy insurance if they do not qualify for Medicaid. The Republican proposal would gradually increase the Medicare eligibility age, which currently is 65, to match that of the Social Security pension plan, which is 67 for people born in 1960 or later. Like Obamacare’s so-called Cadillac tax on expensive healthcare plans offered by employers, the Republican proposal would cap the tax deductibility of employer-based plans. The Republican plan includes medical liability reform that would put a cap on non-economic damages awarded in lawsuits, a measure aimed at cutting overall healthcare costs. Under Obamacare, many states expanded the number of people eligible for Medicaid. The Republican plan would allow states that decided to expand Medicaid before this year to keep the expansion, while preventing any new states from doing so.

Goodbye, Password. Banks Opt to Scan Fingers and Faces Instead.

The banking password may be about to expire — forever. Some of the nation’s largest banks, acknowledging that traditional passwords are either too cumbersome or no longer secure, are increasingly using fingerprints, facial scans and other types of biometrics to safeguard accounts.

Millions of customers at Bank of America, JPMorgan Chase and Wells Fargo routinely use fingerprints to log into their bank accounts through their mobile phones. This feature, which some of the largest banks have introduced in the last few months, is enabling a huge share of American banking customers to verify their identities with biometrics. And millions more are expected to opt in as more phones incorporate fingerprint scans. Other uses of biometrics are also coming online. Wells Fargo lets some customers scan their eyes with their mobile phones to log into corporate accounts and wire millions of dollars. Citigroup can help verify 800,000 of its credit card customers by their voices. USAA, which provides insurance and banking services to members of the military and their families, identifies some of its customers through their facial contours. Some of the moves reflect concern that so many hundreds of millions of email addresses, phone numbers, Social Security numbers and other personal identifiers have fallen into the hands of criminals, rendering those identifiers increasingly ineffective at protecting accounts. And while thieves could eventually find ways to steal biometric data, banks are convinced they offer more protection. “We believe the password is dying,” said Tom Shaw, vice president for enterprise financial crimes management at USAA, which is based in San Antonio. “We realized we have to get away from personal identification information because of the growing number of data breaches.” More:



No report.


Morning Money

DRILLING DOWN ON WARREN FOR VEEP — Crowdfunding site Crowdpac crunched the numbers and concluded that Hillary Clinton has more to gain in fundraising from picking Elizabeth Warren than she might lose from Wall Street: “To date roughly 11% of Clinton’s campaign fundraising in the 2016 cycle has come from the Finance and Insurance sector. In 2008, the financial sector gave $62.8M to President Obama’s campaign … Clinton seems on track to match that figure, if not beat it, given the Wall Street ties she developed as First Lady and as Senator from New York.

“However, this figure obviously pales in comparison to the quarter of a billion dollars Bernie Sanders was successful in raising from 1.1 million donors (many of them new). Warren’s close ideological proximity to Sanders on many key economic issues could help Clinton engage this base in a more effective way than say a Senator Tim Kaine would. Meaning that the ‘trade off’ would potentially be worth it for Clinton.”

SHOT: Trump to “CBS This Morning” on Hillary Clinton’s fundraising lead: “Look, she is getting tremendous amounts from Wall Street. She is going to take care of Wall Street.”

CHASER: What Trump was doing Tuesday night according to the NYT: “Trump is holding a fund-raiser in New York City … to be hosted by a who’s who of the financial world, including John A. Paulson, whose hedge fund made billions betting on the collapse of the housing market.

“Joining him are Stephen A. Feinberg, the secretive financier and founder of Cerberus Capital Management, and Peter Kalikow, the politically connected real estate magnate. Neither man had publicly announced his support for the Republican presidential candidate and presumptive party nominee, until now. … Tickets are going for $50,000 a person, though the hosts are paying $250,000 a couple.”

Bloomberg: “Trump courted some of Wall Street’s biggest donors on Tuesday to kick-start a fundraising effort that is lagging far behind … Among the major donors spotted heading into the dinner, at Manhattan’s Le Cirque restaurant, was the Long Island hedge-fund manager Robert Mercer. Mercer is the biggest spender so far in the 2016 election cycle and hasn’t publicly disclosed whether he would support Trump’s presidential bid.

“Previously, he put $13.5 million behind Texas Senator Ted Cruz … Also on hand were billionaire financiers Carl Icahn and John Paulson. Other familiar faces from the Republican fundraising circuit included Woody Johnson, the owner of the New York Jets, and the investment manager Anthony Scaramucci.”

MEET THE MIKES — Reuters: “Hillary Clinton has no shortage of economic advisors. Scores of world-class experts pour ideas into her campaign … But before much of the input reaches the Democratic candidate, it is filtered through a pair of staffers known inside the campaign as the ‘Economikes.’

“Working out of Clinton’s campaign headquarters in Brooklyn, New York, Michael Shapiro and Michael Schmidt are helping shape what could be a lasting economic agenda … In an interview with Reuters, Shapiro and Schmidt described Clinton’s process for forming policy by broadly soliciting ideas and crafting them into the action points that she takes to voters”

INVESTORS BACK TRUMP — Per a Bloomberg/Morning Consult poll out this a.m.: “Registered voters with stock market investments view Donald Trump as a better bet for their portfolios than Hillary Clinton. A new Bloomberg/Morning Consult national poll on investment, tax and economic questions also shows registered voters as a whole strongly support both limiting pay for corporate executives and a Clinton-backed proposal to add a 4 percent income tax ‘surcharge’ on earnings of more than $5 million.”

FIRST LOOK: DONOHUE IN NEW YORK — U.S. Chamber CEO Thomas J. Donohue plans to deliver a “major” address at Nasdaq in NYC today “where he will call for a stop to the destructive attacks against our nation’s financial system and institutions.” From the remarks: “Our country needs a dynamic private sector if it’s ever going to pull itself out of the mud of this lackluster recovery. We can’t do it without a smartly regulated financial system. …

“When politicians and others attack our capital markets, they are really attacking the very foundation on which a growing and prosperous economy is built. They are attacking free enterprise and our economic freedoms. They are attacking our country’s ability to innovate, expand, and lead the world.”

ZANDI RESPONDS — The Trump campaign on Tuesday ripped Moody’s Analytics’ Mark Zandi over the report he and colleagues put out assessing the economic impact of Trump’s policies. Zandi, who advised John McCain’s 2008 GOP presidential campaign, emailed MM: “In response I would say that our Trump analysis, like all of our special studies, is the product of a team of economists using the same model of the economy that we use for all our clients.”

NYT’s Neil Irwin: “So what should a properly skeptical person think of the new report? … A careful reading of the Moody’s report shows this: Its underlying assumptions about what Mr. Trump would do as president and how the effects of those policies would ripple through the economy are plausible, and squarely within the mainstream consensus view among economic forecasters about how the economy works.

“But the report also offers a big helping of false precision, offering exact numerical forecasts on effects that have vast amounts of uncertainty”

DRIVING THE DAY — Fed Chair Janet Yellen continues her semiannual Hill testimony at 10:00 a.m. before House Financial Services … Treasury Secretary Jack Lew “will convene a meeting at Treasury as Managing Trustee of the Board of Trustees of the Social Security and Medicare Trust Funds” before a presser on the Social Security and Medicare Trustees Reports … Existing Home Sales at 10:00 a.m. expected to rise to 5.55M from 5.45M …

ALSO TODAY: Public Citizen releases its new book, “Too Big: The Mega-banks are Too Big to Fail, Too Big to Jail, and Too Big to Manage,” by Bartlett Collins Naylor, at 9:00 a.m. at the National Press Club. Speakers include Sen. Jeff Merkley (D-Ore.).

NEW INVESTMENT CAUCUS LAUNCH — Per release: “On the heels of the SelectUSA Summit, the Congressional Global Investment in America Caucus will launch tomorrow with Rep. Andy Barr (KY-6), Rep. Jim Himes (CT-4), Rep. George Holding (NC-13), Rep. Mike Honda (CA-17), and Bruce Andrews, Deputy Secretary, U.S. Department of Commerce.” 9:00 a.m. at the Capitol Visitors Center.

CLINTON RIPS TRUMP ON ECONOMY — POLITICO’s Gabriel Debenedetti: “In presidential politics, the spoils go to the candidates who define their opponents first. That’s why Hillary Clinton’s effort to define Donald Trump is now in overdrive. Taking dead aim at her Republican rival for the second time this month in a policy speech, the presumptive Democratic nominee swung hard at Trump’s economic record on Tuesday … while some of her highest-profile surrogates ratcheted up their own attacks in stereo.

“The timing was as notable as the forcefulness of her criticism: it came while Trump was plainly reeling from a series of self-imposed campaign mishaps. Clinton’s assault came just hours after Trump disclosed that he had far less cash on hand than any other modern presidential campaign to this point, and one day after he fired his controversial campaign manager. It will be capped by an even broader attempt to lock in her advantage: a still-growing series of ad buys adding up to at least $50 million”

Larry Summers on Brexit: “Thursday’s choices will have immediate financial and economic consequences. And they can be assessed by outside economists. My judgments are I believe widely, though not universally, shared by both progressive and conservative global financial and economic analysts. Put simply, Brexit could well be the worst self-inflicted policy wound by a G7 country since the formation of the G7 forty years ago.

“It is a risk no prudent policymaker would take. And the risk is not confined to the UK. In the current context, Brexit would unsettle the global economy and possibly tip it into recession. … There is no reversing Brexit if it proves unwise. … [M]arkets are likely to suffer extraordinary volatility in the wake of Brexit. A Black Friday could follow referendum Thursday. It is likely that foreign investors in British stocks would lose 15 percent off the bat, adding together market declines and currency losses”

CAMERON: EXPECT A “REMAIN” DIVIDEND — FT: Lionel Barber and George Parker: “David Cameron has predicted a ‘Remain dividend’, with an investment surge into Britain, if the country votes on Thursday to stay in the EU. But he admitted: ‘It’s very close; nobody knows what’s going to happen.’ The bosses of 1,200 companies have signed a letter warning that a Brexit vote would ‘put jobs at risk’, but Mr Cameron told the Financial Times he was ‘frustrated’ that more had not spoken out in recent weeks.

Speaking ahead of a vote that could determine his own political future as well as Britain’s place in the world, Mr Cameron said voters could expect to see immediate economic benefits if they voted Remain. ‘I think on Friday that businesses, wealth creators, job creators will think: Britain has made a decision, let’s pile back into the economy and create jobs and opportunity because it’s a great place to do business,’ he said”

A REFERENDUM ON EXPERTS (SOUNDS FAMILIAR!) — WP’s Griff Witte: “[A]s much as anything, the vote is shaping up as a referendum on whether Britain still trusts the people who supposedly know the most about economics, international relations and global security. The vast majority of authorities in all three fields have said that leaving could be disastrous. Nonetheless, with only two days to go before the country votes, polls show a tie that could swing either way.

“If Britain does vote to go, it will be the culmination of a shift underway for more than a decade as the country has lost faith in those who are supposed to have the answers. The Iraq War, the global financial crisis and scandals large and small involving the high and mighty of British society have all contributed. … The rise in the United States of Donald Trump, a man not known for his fidelity to facts and who breezily dismisses expert opinion, exemplifies the trend on the other side of the Atlantic”

INVESTORS ON HOLD — Reuters: “Asian stocks were steady on Wednesday as nervous investors counted down to Britain’s make-or-break EU referendum, while … Yellen’s cautious tone on future rate hikes added to a subdued mood in markets … On Wall Street, U.S. S&P 500 Index gained 0.27 percent but was still below an 11-month high touched earlier this month. Fed chief Yellen said on Tuesday the Fed’s ability to raise interest rates this year may hinge on a rebound in hiring that would convince policymakers the U.S. economy isn’t faltering”

MUSK SHOCKS INVESTORS — WSJ’s Mike Ramsey, Lynn Cook and Mike Spector: “Elon Musk proposed combining the electric-car and solar-energy companies that he backs, the latest in a series of financial shuffles among disparate firms of his empire. Tesla Motors Inc., Mr. Musk’s Palo Alto, Calif., electric-car company, on Tuesday offered to acquire SolarCity Corp. in an all-stock deal valuing it at up to $2.8 billion. Mr. Musk is the chairman and largest shareholder of both companies.

“Tesla shares tumbled 12% in after-hours trading following Mr. Musk’s announcement, while SolarCity shares surged 15%. Tesla, in a letter to SolarCity Chief Executive Lyndon Rive — also Mr. Musk’s cousin — said its offer represented a value of between $26.50 and $28.50 a share, or a premium of roughly 21% to 30% over SolarCity’s Tuesday closing price of $21.19.”

BANKS MOVE PAST THE PASSWORD — NYT’s Michael Corkery: “The banking password may be about to expire — forever. Some of the nation’s largest banks, acknowledging that traditional passwords are either too cumbersome or no longer secure, are increasingly using fingerprints, facial scans and other types of biometrics to safeguard accounts. Millions of customers at Bank of America, JPMorgan Chase and Wells Fargo routinely use fingerprints to log into their bank accounts through their mobile phones.

“This feature, which some of the largest banks have introduced in the last few months, is enabling a huge share of American banking customers to verify their identities with biometrics. And millions more are expected to opt in as more phones incorporate fingerprint scans.”

YELLEN STAYS CAUTIOUS — FT’s Sam Fleming in Washington: “Federal Reserve chair Janet Yellen said she will tread carefully as she gauges when to lift short-term interest rates again as the central bank assesses whether the economic recovery remains on track and the jobs market is still improving. In a cautious statement, Ms Yellen told a Senate Committee that she saw ‘considerable uncertainty’ about the US economic outlook, singling out weaker hiring numbers and soft investment …

“In the short term the UK’s referendum on its membership of the EU could have ‘significant economic repercussions’, the Fed chair added, while the economy faces longer-term doubts over the likely pace of productivity growth. Ms Yellen’s words will further damp expectations of a rate rise next month following the Fed’s December increase as policymakers weigh a mixed set of economic indicators”


LEW ON FSOC REPORT — Treasury Secretary Jack Lew on the latest FSOC report: “In this year’s annual report, the Council outlines potential threats on the horizon and offers an important roadmap to help guide the Council’s focus in the coming years.” Full report:

TOP STATES FOR PE — Per release: “Private equity firms invested over $625 billion in more than 3,700 U.S.-based companies last year, according to the 2015 Top States and Districts analysis released today by the American Investment Council (AIC). … Illinois received the most investment from private equity (measured in dollars invested) totaling $94.6 billion in 193 companies, followed by California, New York, Texas, and Georgia.”

SEC PREPARES MERRILL SUIT — WSJ’s Jean Eaglesham: “The Securities and Exchange Commission is preparing a civil enforcement case against Merrill Lynch over an investment that fell as much as 95% in value and was marketed in a way that one of the firm’s financial advisers called ‘borderline crooked,’ people close to the probe said.

“The expected case against the brokerage arm of Bank of AmericaCorp. underscores some of the risks of so-called structured notes, securities custom-built by banks out of options and other derivatives and often sold to retail investors”