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Mar 6, 2014

SEC Gets $7.2 Million Regulation M – Rule 105 Settlement

The SEC continues to crackdown on Regulation M – Rule 105 short selling violations throughout the country. Yesterday, the SEC announced its largest Regulation M settlement to date. Jeffrey W. Lynn and his company Worldwide Capital agreed to pay a total of $7.2 million to settle all charges. According to the SEC’s allegations in an Order Instituting Administrative Proceedings, Mr. Lynn and many traders working for him at Worldwide Capital engaged in an investment strategy to purchase new shares of public issuers in secondary offerings and follow-on public offerings. The Worldwide Capital traders had numerous accounts with many of the broker-dealers involved in the offering where they purchased much of the stock allocated to them. The stock was then delivered to a prime broker and then sold short through a Worldwide Capital account. The large number of traders that Mr. Lynn employed allowed him to obtain large allocations of shares of the soon to be publicly offered issuer. In anticipation of declines in the market price of the shares of the issuer on the effective date of the offering, Mr. Lynn and his traders would sell those shares short and reap huge profits when they delivered the stock allocated to them in the secondary and follow-on offerings. The SEC alleged that Mr. Lynn directly and indirectly participated in over 60 public stock offerings and sold stock short during a restricted period that resulted in Rule 105 violations.

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Feb 28, 2014

EIGHTY YEAR OLD INVESTOR SUES UBS PUERTO RICO

The client is an 80 year old retiree living alone in San Juan, Puerto Rico. He was introduced to the UBS Puerto Rico broker 10 years ago, believing at the time that the broker worked for Oriental Financial Services, Corp. Upon the recommendation of the broker, the client purchased a Sunlife annuity from him and held that annuity for many years. Thereafter, the UBS Puerto Rico broker solicited client to make other investments, but the client had a long standing relationship with a Santander Securities and later Popular Securities broker and declined the stockbroker’s solicitations until last year.

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Feb 24, 2014

Is UBS Puerto Rico Up To Its Same Old Tricks?

Will someone please explain to me how the UBS Puerto Rico sponsored closed-end bond funds (UBS Funds) managed to increase their Net Asset Values (NAVs) after most, if not all, of the Puerto Rico government and agency issued bonds held in the UBS Funds were downgraded to “junk” status? I am questioning whether the NAVs that UBS Puerto Rico reported for the week ending February 19, 2014 in the prior two weeks truly represent the actual NAVs of the UBS Funds. First, how did they manage to fairly price the bonds with the small number and size of Puerto Rico bond transactions in the marketplace? Most of the Puerto Rico bonds in the UBS funds are very thinly traded. Further, the prices of many of the Puerto Rico bond transactions have been all over the place because the trading is very volatile. Did UBS Puerto Rico get these prices from a matrix? Or has UBS Puerto Rico manipulated the Puerto Rico bond market through transactions with their closed-end bond funds? With the increasing number of arbitration claims relating to the UBS Puerto Rico closed-end bond funds, I am wondering whether UBS Puerto Rico is engaging in a trading strategy to pump up the NAVs and prices of the UBS Funds to reduce the Claimants’ damages in those arbitration proceedings. Whatever the reason, there is a slight upward trend in the NAVs of most of the UBS Funds as set forth below:

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Feb 12, 2014

Puerto Rico – Three Strikes and You’re “Chatarra” or “Junk”

Yesterday Fitch Ratings, the last of the big three national credit rating services, Moody’s, Fitch or Standard and Poor’s, downgraded multiple issues of Puerto Rico debt to what the Puerto Ricans describe as “Chatarra”; that is, “Junk.” Moody’s and Standard & Poors had cursed Puerto Rico bondholders with that same rating just last week. Fitch downgraded the Puerto Rico General Obligation bonds to BB from BBB- along with the Building Authority, Aqueduct & Sewer, and Retirement System bonds. Fitch spared the prized Puerto Rico Sales Tax Financing Corporation Bonds (COFINA Bonds) from any downgrade; they are the only general category that still hold an investment grade rating. However, Fitch’s outlook (direction of ratings over the next 1-2 years) for all of these bonds remains negative.

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Feb 7, 2014

Now Moody’s Says Puerto Rico Debt is “Chatarra” – “Junk”

We told you months ago that Puerto Rico debt was going to be downgraded by one or more of the three national credit rating services, Moody’s, Fitch or Standard and Poor’s before June 2014. On Wednesday Standard & Poor’s downgraded multiple issues of Puerto Rico debt to what the Puerto Ricans describe as “Chatarra”; that is, “Junk.” This afternoon Moody’s Investors Service joined in and downgraded the Puerto Rico General Obligation bonds to Ba2 from Baa3 and all of the other agency linked debt two more notches except the Puerto Rico Aqueduct and sewer Authority bonds which only went down one more notch to Ba1. In addition, Moody’s downgraded the prized Puerto Rico Sales Tax Financing Corporation Bonds (COFINA Bonds) another notch which still leaves them with an investment grade rating. Moody’s outlook for all of these bonds remains negative.

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Feb 6, 2014

Puerto Rico Debt is “Chatarra” – “Junk”

You read it on this blog months ago, Puerto Rico debt was going to be downgraded by one or more of the three national credit rating services, Moody’s, Fitch or Standard and Poor’s before June 2014. Well two days ago Standard & Poor’s won the race to the finish line. It downgraded multiple issues of Puerto Rico debt to what the Puerto Ricans describe as “Chatarra”; that is, “Junk.” For example, Standard & Poor’s lowered the ratings from investment grade rating “BBB” to speculative junk bond rating “BB” on the following bonds:

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Jan 21, 2014

Puerto Rico Gov. Padilla’s Spins For Hope and Prayers

Governor Alejandro Garcia Padilla published an article in the Huffington Post’s Latino Voices section today spinning his administration’s accomplishments in the past year. He claimed “Puerto Rico’s Economy Is Stronger Today Than It Was a Year Ago.” He cited the so-called improvements in pension reform, revenue improvement and restructuring of public corporations as the reason for his claims. The article read more like another politician speech than a realistic account of the state of the economy on the Island. The constitutionality of the pension reforms measures are under review by the Supreme Court. He claimed that his administration created over 25,000 jobs but the latest federal report indicated that Puerto Rico has lost more than 40,000 jobs over the last year. He didn’t say anything about the Government Development Bank’s latest Economic Activity Index report that the economy continued to contract in November 2013 over 5.7% on a year-to-year basis (the 12th consecutive monthly contraction in the last year). The Puerto Rico economy has been contracting in greater and greater amounts every month over the last year. Nor did he say anything about the fact that his own administration had dropped its own expectations for any growth this year. He was also silent about the fact that revenues from the sales and use tax (funding the Covina bonds) are also short of estimates this year. Nor did he say anything about the $688 million increase in the fiscal budget for this year. And so, what is his basis for the spin? Hope and Prayers?

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Jan 16, 2014

Little Help For Investors From The Puerto Rico Supreme Court And Rumors

Yesterday, the Puerto Rico Supreme Court temporarily stopped the enforcement of the law signed by Gov. Alejandro Garcia Padilla on Christmas Eve with reformations to the teacher pension system. The Supreme Court blocked the reforms to the pension system that the government insists it needs to avoid a downgrade of Puerto Rico debt securities to junk status. Gov. Garcia Padillo stated “saving the teacher pension system and guaranteeing them sufficient pensions in line with the Island’s fiscal realities is an issue that demands a deep sense of responsibility, as does saving Puerto Rico’s credit rating,” a credit rating that is just one step away from junk status. Today the Supreme Court held a hearing on a lawsuit challenging a separate reform of the pension fund for the judicial system in Puerto Rico. You don’t have to think too hard as to what their decision will be in light of their ruling on teacher pension reform.

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Jan 13, 2014

Thomas Mikolasko Fined and Suspended by FINRA for Sales of Defaulted MMM Notes

Thomas Mikolasko, Registered Principal formerly with HFP Capital Markets, LLC (HFP) of New York, New York, was fined $75,000 and suspended for 18 months by the Financial Industry Regulatory Authority (FINRA) for his participation in the sale of Senior Secured Zero Coupon Notes which were sold to HFP customers for the entity Metals Millings and Mining, LLC (MMM). Mr. Mikolasko was an investment banker with HFP and was involved in the firm’s sale of $3 million of MMM Notes which have defaulted, leaving investors with neither their principal repaid nor the promised 100% return on their investment.

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