Some Questions for President Obama’s Financial Crisis Probe Panel to Consider

by Jacob Zamansky on January 12th, 2010 at 4:52 pm : Comments 000

Tomorrow, A Who’s Who of Wall Street executives, including the top honchos from Goldman Sachs, Morgan Stanley, and Bank of America will parade before a bi-partisan panel of 10 wise men and women appointed by members of Congress to determine the root causes of our country’s brush with economic collapse last year.  Speculation is rife that the commission could create initiatives as meaningful as the Glass-Seagall Act and the creation of the SEC which were headed by Ferdinand Pecora in the midst of the Depression. Regretfully, I’m skeptical that will be the case.

Although the U.S. was on the brink of economic disaster again in 2008, the stock market’s subsequent surge has given Americans a false sense of confidence.  Wall Street understands that investors have short memories and that their anger has subsided, hence the decision to pay themselves big, fat bonuses again. The fact that Timothy Geithner remains Treasury Secretary speaks volumes about how Washington still serves at the behest of Wall Street.

Nevertheless, the members of President Obama’s Financial Crisis Inquiry Commission (FCIC) are an impressive bunch, and I have no doubt they will ask some pointed questions and elicit some headline grabbing answers.  A good start would be for them to read today’s column in The New York Times by Andrew Ross Sorkin.  He identifies several important questions we’ve yet to get a clear answer on.

Nevertheless, I remain skeptical that this commission will have lasting impact.

Filed under Bank of America, CEOs, Wall Street
and goldman sachs

The “Sophisticated” Regulators at the Sec and FINRA

by Jacob Zamansky on January 6th, 2010 at 12:48 pm : Comments 000

The Wall Street Journal ran an impressive page one story over the weekend about how the auction rate securities debacle is hurting the economic recovery.  Some 400 companies are holding more than $20 billion in securities that can’t be unloaded or are worth dramatically less in value. These companies claim they would use this money to bolster their businesses if it were liquid.

Unlike individual investors who regulators forced Wall Street to make whole, companies who bought auction rate securities pretty much have to fend for themselves. Under the terms of regulatory settlements last year, securities firms who sold auction rate securities to corporations only have to make “best efforts” to make these companies whole because corporate treasurers are supposedly “sophisticated” and understood risks relating to auction rate securities.  “Best efforts” is a nebulous term that in practicality means “as little as possible.”

At the end of the day, the auction rate securities market was rigged and its beyond me how or why corporate treasurers should have been wise to the wrongdoing.  Moreover,  if corporate treasurers should have known about the wrongdoing, why is it that the SEC and FINRA weren’t on to the scheme, particularly as the SEC launched an action against some 15 Wall Street firms in 2006 for rigging the auction rate securities market (link to settlement announcement).

Regulators were wrong to exempt institutional investors from the auction rate securities settlements.  Admittedly, redeeming $20 billion in securities would be a prohibitive undertaking. But Wall Street made the auction securities mess.  They should be forced to clean it up - all of it.

Filed under Auction Rate Securities, FINRA, SEC, Wall Street
and Auction Rate Securities, corporate investors in ARS, corporate treasurer, settlements

FINRA Puts Wall Street on “Double Secret Probation”

by Jacob Zamansky on January 6th, 2010 at 12:43 pm : Comments 000

There is a great scene in the cult-classic movie Animal House that provides an appropriate comparison to FINRA’s second warning to its member firms about inappropriately marketing structured products, such as principal protected notes, to unwitting retail investors.

In the scene, Dean Wormer, whose character is a severe yet inept disciplinarian, declares that he is going to put the roguish Delta Fraternity on “double secret probation” after being told that he already had them on probation. But the Delta frat boys don’t take Dean Wormer seriously and ante up their campus debauchery.

Sadly, FINRA is proving to be Dean Wormer’s regulatory equivalent.  A week before Christmas the agency issued a notice reminding its members that when peddling principal-protected notes they “must present a fair and balanced picture regarding both their risks and potential benefits.” The select few on Wall Street who actually read FINRA’s notices no doubt felt a sense of déjà vu; in September 2005 FINRA issued a dramatically similar notice advising members that when selling structured products they “must present a fair and balanced picture regarding both the risks and potential benefits.”

FINRA’s decision to dust off its four year old decree quite possibly has to do with an arbitration award Zamansky & Associates won on behalf of a South Carolina client in early December. An arbitration panel ruled that our client’s UBS broker didn’t properly advise her of the risks involved when he sold her Lehman Brothers “100 Percent Principal Protected Notes.”  In addition to ordering UBS to reimburse my client for a significant portion of her principal, the panel found that UBS violated South Carolina’s securities fraud law and also required UBS to pay interest, plus all related expenses, including attorneys’ fees.

UBS reportedly sold nearly $1 billion of Lehman principal-protected notes to retail investors and my client’s award is the first arbitration ruling relating to them in the country. Our office has several more cases pending and without exception, the evidence is overwhelming that our clients were not properly advised of the risks in buying these note, despite FINRA’s 2005 UBS regulatory notice.

Delta Fraternity ultimately was disbanded because the frat boys flunked their college exams, not because of any meaningful action by Dean Wormer. Similarly, retail investors cannot expect FINRA to take any meaningful action to protect them other than re-issue a warning as hollow as Dean Wormer’s “double secret probation.”

Filed under FINRA, Investment Banking, Investment Fraud, Securities Arbitration, Wall Street
and FINRA, principal protected notes, structured products, UBS

First Indiana Bank’s Alleged Connection To Accused Indiana Ponzi Schemer Timothy Durham

by Jacob Zamansky on December 23rd, 2009 at 12:16 pm : Comments 000

As I’ve said before, it’s nearly impossible to pull off a Ponzi scheme of any magnitude without the complicity of a seemingly respectable financial services firm.  Bank of America, VISA, Fiserv and MF Global all figure prominently into Ponzi schemes my office is investigating or pursing litigation against.  The former First National Bank of Indiana (FNBI) is yet another firm that appears worthy of some investigation.

According to a federal complaint of forfeiture alleging misdeeds by Timothy Durham, the Indiana businessman and his associates operated at least two holding companies and 19 operating subsidiaries, with approximately 77 individual bank accounts for these entities.  Most of these bank accounts were at JP Morgan Chase and Key Bank and the complaint alleges more than 6,400 FEDWIRE transactions were made between the companies under Durham’s control.

One of these companies was “Fair Financial,” an Akron-based company that apparently was ground zero for Durham’s Ponzi scheme.  “Fair Financial” peddled so-called “investment certificates” supposedly backed by low-risk, high yield, short-term consumer debts ;  in fact, the complaint says money provided by Durham’s victims was used to make interest and redemption payments to earlier investors.  The complaint alleges that unaudited financial statements for “Fair Financial” showed total assets of approximately $241 million, with loans to Durham and his various businesses totaling approximately $192 million.  The unaudited financial statements show a net operating loss for 2008 of approximately $1.7 million and net income of $129,845 for the first six months of 2009.

According to the complaint, “Fair Financial” is owned by “Fair Holdings.” The complaint alleges that between May 2004 and May 2009, FEDWIRE transactions detail more than 900 separate transfers totaling approximately $84.2 to a First Indiana Bank account of “Fair Holdings,” which in turn wired the money to nearly 50 individuals and businesses with connections to Durham.

Current and former subsidiaries of Obsidian Enterprises were among the 50 companies that received the transfers.   According to its website, Obsidian is “a private holding company that invests in small and mid cap companies in basic industries such as manufacturing and transportation.”  The site lists Anthony P. Schlichte as the company’s executive vice president, corporate finance; according to Schlichte’s bio, he previously held “senior lending officer positions at First Indiana Bank” and other banks.

While it’s certainly possible that FNBI was an unwitting participant in the scheme, further investigation of what the bank knew and when it knew is warranted.

FNBI was acquired by Marshall & IIsley in 2007.

Filed under Agape World, Investment Fraud, fraud
and Ponzi Scheme

The Financial Reform Bill Falls Short on Broker Education

by Jacob Zamansky on December 18th, 2009 at 4:04 pm : Comments 000

Late last week, the House of Representatives narrowly passed a bill intended to rein in Wall Street’s worst excesses.  The bill is designed to protect the rest of the economy from the big banks’ enormous appetite for risk.  Some of the proposed changes are systemic, and the banks are now furiously lobbying to defeat those measures.

In addition, the bill has some provisions aimed at helping retail investors.  For example, the bill would impose a fiduciary duty on brokers, requiring them to recommend only suitable investments and to put their clients’ interests ahead of their own. This step is long overdue since brokers, just like their investment advisor counterparts, typically offer products and services that go well beyond the simple purchase and sale of stocks and bonds-giving advice on mortgages, insurance, college tuition and retirement planning.  In light of these wide-ranging responsibilities, many of which go to the heart of investors’ financial well-being, it only makes sense that brokers should be held to this higher standard.

The fiduciary-standard provision of the bill, while welcome, will not by itself protect investors.  In fact, another fundamental problem remains unaddressed: every day of the week, under intense pressure to produce, brokers sell to their retail customers complex and opaque products that not even the brokers themselves truly understand.  I’m talking about so-called “structured products.”

Brokers have pushed billions of dollars worth of these derivatives on their retail customers in recent years, many of them with snappy names like ELKs, LYONs and SPARQS.  Behind the hollow promises of principal protection and the downplaying of risk lie two factors that-when combined-can lead to ruin.  First, in an effort to shore up their balance sheets amid rocky economic times, banks pushed their brokers to step up their sales of these structured products.  The brokers in turn targeted their otherwise conservative and unsophisticated customers looking to combine safety with some upside.  And second, the banks failed to educate their brokers on the workings and risks of the products.  In the current era of rapid financial innovation, that failure has had terrible consequences.

I am hearing from brokers coast-to-coast that the so-called training they received to sell these products was laughably weak-a couple of blast voicemails, the occasional webinar, maybe a lunch session.  I have come to learn that the focus of these “training” sessions was actually on selling rather than on genuine education.  So when brokers claimed the products were “like CDs,” “risk-free” or “guaranteed,” some may not have been knowingly deceiving their customers.  Instead, they may have been earnestly-and mistakenly-passing on the assurances they received from above.  Both brokers and their customers deserve better.

Back in 2005, FINRA put its members on notice that they should be careful in selling structured products to their retail customers.  They were urged to educate their brokers on how the products work, on their risks and benefits, so the brokers could fairly discuss the products with their customers.  It is now clear that some of the top brokerage firms chose to ignore that warning, putting profits ahead of people.  That’s why the Wall Street reform bill and the fiduciary-standard provision will fail without an education clause and an enforcement mechanism to make sure firms follow through.  Short of that, despite Congress’s best intentions, we will continue to see woefully undertrained brokers pitching the “product of the week” to their customers, and everyone will pay a steep price.

Filed under Investment Fraud, SEC, Wall Street

A Significant Award Relating To UBS’s Lehman “100 Percent Principal Protected Notes”

by Jacob Zamansky on December 7th, 2009 at 9:15 am : Comments 000

One of the accomplishments I’m most proud of is the 2001 settlement I negotiated for a client who trusted the bogus research of former Merrill Lynch analyst Henry Blodget.  That award caught the attention of then New York Attorney General Eliot Spitzer and ultimately resulted in the $1.4 billion settlement that nearly a dozen Wall Street firms were required to pay for issuing conflicted research.  Sadly, Spitzer allowed firms to settle without admitting any wrongdoing, which limited the arbitration recoveries of other investors who mistakenly trusted Blodget.

I’m optimistic that the arbitration award I won, covered in Saturday’s Wall Street Journal, on behalf of a client of mine in South Carolina will prove to be another significant case with similar far-reaching consequences for Wall Street as my Blodget settlement.  The award relates to Lehman Brothers “100 Percent Principal Protected Notes” that UBS sold to my client; UBS sold more than $1 billion of these notes to retail investors, my client’s award is the first arbitration ruling relating to them in the country.  In addition to ordering UBS to reimburse my client for a significant portion of her principal, the panel also required UBS to pay interest, plus all related expenses, including attorneys’ fees.

The potential implications of the arbitration panel’s findings are significant. If the South Carolina ruling proves to be a bellwether, UBS’s ultimate liability could be staggering, particularly given that the firm was forced to take a $900 million writedown relating to its sale of auction rate securities.  Though UBS was by far the biggest peddler of the Lehman notes, countless other Wall Street firms sold them as well as other structured notes, and they, too, may face significant liability.

UBS’s sale of Lehman notes has caught the attention of New Hampshire securities regulators.  New Hampshire alleged in a June filing that UBS engaged in “dishonest and unethical” business practices selling the Lehman notes, causing New Hampshire investors to lose $2.5 million.  The North American Securities Administrators Association (NAASA) has said it was considering convening a task force on the Lehman notes, and I have strong reason to suspect the SEC also is looking into the matter.

Contrary to what common sense would suggest, the Lehman “100 Percent Principal Protected Notes” were anything but “principal protected.”  They were essentially high-risk unsecured bonds that were entirely dependent on Lehman’s ability to make good on them.  When the UBS broker sold my client her Lehman notes in April 2008, there already was good reason to be concerned about Lehman’s creditworthiness.  Bear Stearns had failed a month earlier because of its exposure to subprime loans and speculation was rife that Lehman would fail for the same reason.

But my client’s UBS broker assured her that her notes had virtually “no risk” of losing principal and had the potential upside of earning a whopping 20.66 percent return in 18 months if the stock market performed within certain parameters.  As Lehman’s demise increasingly became more likely in the summer of 2008, my client’s UBS broker repeatedly assured her that her notes were safe and dissuaded her from selling them at a loss as she wanted to do.

My South Carolina client is a hard-working individual who lost a sizeable portion of her net worth when the tech bubble burst.  She made it clear to her UBS broker that she wanted only the most conservative investments and she had good reason to believe that in buying the Lehman notes the protection of her principal was a “sure thing.”  Fortunately, the South Carolina arbitration panel understood that UBS deceived her and acted accordingly.  The finding of fraud will be extremely helpful in other related cases.

Filed under FINRA, Securities Arbitration, Wall Street

A Common Tale on Wall Street

by Jacob Zamansky on November 10th, 2009 at 3:13 pm : Comments 000

I’ve said it before but it bears repeating: the multi-million dollar frauds uncovered in the past few years could never have occurred with at least tacit support of major Wall Street firms.  Sometimes their support is a function of negligence, other times Wall Street is an active aider and abettor.

We received yet another example of this yesterday in the form of a settlement agreement between several Wall Street firms and a bankruptcy trustee looking after the interests of investors - many of whom are elderly retirees - who purchased paper issued by American Business Financial Services, (ABFS) Inc., a subprime lender that went bankrupt in 2005.  Wall Street firms including J.P. Morgan Chase, Morgan Stanley, Bear Stearns and Credit Suisse will collectively pay the trustee $100 million without admitting guilt after it was alleged that they propped up the lender in order to charge the company fees.

ABFS’s scheme was to make risky homes loans backed by debt that the company would then sell to retail investors through an aggressive advertising campaign.  So long as they had a market for their debt, they could remain in business.  Therefore, the company manufactured a false, healthy impression to stay afloat.  Wall Street was all too eager to help out.  Allegedly, as part of the agreement to lend ABFS hundreds of millions of dollars to create this impression, Wall Street firms required the company to continually issue debt, which they would underwrite, thus earning huge fees and bonuses.  All the while, Wall Street executives were extremely skeptical about the company’s future.

In an email from 2001 a Morgan Stanley managing director sounded alarms, ”They apparently sell a lot of paper to old ladies in Florida (no joke). This could be a public relations nightmare in the making.”  Not only does this email show that a senior Wall Street executive had doubts about ABFS, but it shows clearly where his priorities lie.  He was more concerned with damage control than those old ladies in Florida whose retirement accounts were at stake.

According to the Wall Street Journal’s account of the settlement, the firms “not only had serious questions about the sales of the notes to these unsophisticated investors, they had serious doubts about the company’s business model, profitability and solvency,” said Steven M. Coren, an attorney for the trustee. “And yet they loaned hundreds of millions of dollars and underwrote billions of dollars of securities.”

So here’s an example of Wall Street knowing and acknowledging a company is in dire straights but continued to help that same company appear solvent so that elderly investors would  continue to buy its worthless paper.  Even a guaranteed PR disaster didn’t deter them.

According to the trustee, investors still hold $600 million of worthless ABFS debt so the settlement won’t do much for them, if anything.  And it’s certainly not a deterrent either.  There isn’t any reported investigation or fines so it appears everyone involved in this scheme will forge ahead as if nothing ever occurred.  Everyone, that is, except those elderly ladies in Florida.

Filed under Investment Fraud, Wall Street
and American Business Financial Services

Cleaning up Wall Street Corruption

by Jacob Zamansky on November 6th, 2009 at 6:15 pm : Comments 000

One of the givens of Las Vegas is that the odds are always stacked in favor of the house.  But to the credit of Nevada’s gaming commission, aggressive measures are taken to ensure that only individuals with squeaky clean records are allowed to operate casinos.  Just associating with someone of questionable repute can lead to a revocation of a casino license.

The arrest yesterday morning of 14 more individuals accused of insider trading serves as yet another reminder as to why Wall Street must be regulated with the same aggressiveness and diligence as state-licensed casinos.  With more than three decades of experience representing individual investors who were deceived or cheated by Wall Street firms I can say with considerable authority that unmitigated greed and dishonesty is rampant in the securities industry.   While Federal prosecutors are to be commended for collaring nearly 24 alleged cheaters connected with Galleon Group for trading on inside information, they simply don’t have the resources to root out the legions of crooks that permeate the stock marts.

The latest arrests include yet another well known hedge fund and an attorney from a prestigious law firm and underscore how insider trading activity typically involves a tangled web of conspirators who often work at well known and seemingly respectable organizations.  What is especially alarming is that Galleon founder Raj Rajaratnam and some of his accused cohorts have allegedly been involved in other questionable and possibly illegal activities but nonetheless were allowed to continue to operate unfettered.   Rajaratnam’s earlier problems with the SEC and the IRS quite possibly could have prevented him from getting a Nevada gaming license, but it didn’t stop him from taking in institutional assets and being one of Wall Street’s most active players.

Contrary to what some economists and academics theoretically argue, insider trading amounts to criminal theft and it is not a victimless crime.  For every buyer of a stock there has to be a seller, and if someone has material inside information about a company, he or she has a decided advantage determining an appropriate price for the security.  Insider trading is somewhat akin to card counting - a practice that will get you permanently barred from Las Vegas casinos.  It cannot be allowed or tolerated in the securities industry.

What is needed on Wall Street is a suitability rule to determine who is qualified to work in the securities business.  Demonstrating character should be a major criterion and repeated SEC and other regulatory violations should be grounds for a permanent ban.  I appreciate that a character standard would forever bar countless Wall Street executives, but we need to dramatically raise the securities industry’s admission bar to facilitate meaningful change and ensure a level investor playing field.

The regulation of state casinos is admirably above politics, as state elected officials understand and appreciate that if character standards aren’t required and enforced, organized crime will ultimately gain control of the gaming industry.  It’s high time that both parties in Congress come to realize that Wall Street is rife with corruption and a task force should be created to figure out how best to clean it up. The SEC clearly isn’t up to the task.

President Obama promised us “Change We Can Believe In,” and the Democrats control Congress.  Ironically, Senate Majority Leader Harry Reid is a former chairman of the Nevada Gaming Commission whose unwillingness to be compromised by a gangster was featured in the Martin Scorsese film Casino.  Mr. Reid has since been accused of some personal ethical lapses, but he could easily redeem himself if he used his gaming regulation expertise and spearheaded a movement to take on Wall Street’s powerful lobby and create a no-nonsense regulatory agency akin to the Nevada Gaming Commission.

Now that would be real change we could believe in.

Filed under Uncategorized
and insider trading scandal, SEC

An Investor Litmus Test for the New Supreme Court

by Jacob Zamansky on November 3rd, 2009 at 1:44 pm : Comments 000

Did the addition of Supreme Court Justice Sonya Satamayor make the court friendlier to investors?  That question should be answered shortly as the Supreme Court decides the case of “Jones v. Harris Associates,” which could impact the 92 million Americans that own shares in mutual funds.  The legal issue the court will address is whether the excessive fees and expenses mutual funds charge is a violation of Section 36 (b) of the Investment Company Act (ICA) that says mutual fund advisors have a “fiduciary duty” with respect to compensation for their services.  The ICA also provides mutual fund investors with the right to file lawsuits if mutual fund advisors violate the law’s provisions.

While the decision itself focuses on this issue, there are broader practices which will also be exposed. Rules state that decisions regarding fees must be done by a board of independent directors.  But it’s not always clear what constitutes being “independent” for this purpose.

In this case, Harris Associates is the manager of several mutual funds including the flagship “Oakmark Fund.”  Investors claim that annual expenses have inappropriately increased as the fund grew larger. Indeed, the firm allegedly increased its expense charges from 1.05% to 1.1% of total assets.  Traditionally, mutual funds decrease expenses as they grow larger because they gain economies of scale.  Moreover, investors contend that Harris charged a smaller fee to large pension funds.

Investors in the Oakmark Fund allege that the expense charges were increased without a careful review by the supposedly independent board that oversaw the fund.  A major problem is that directors are paid by these expenses and routinely mutual funds have a “good ole’ boy” network of directors.  Harris Associates actually had former employees on their mutual fund boards.

Ideally for small investors, the Supreme Court will come down hard on Harris Associates and by doing so accomplish much for these investors.  Mutual fund directors would be more independent, and thus less likely to approve extremely high fees, while at the same time reinforce the fiduciary standard rule as defined by the ICA.

It’s an important decision for investors but it’s also a potential indicator of future decisions that will be of importance to investors.

Filed under Uncategorized
and investors, mutual fund fees, supreme court decision

Galleon Group…Tip of the Iceberg?

by Jacob Zamansky on October 20th, 2009 at 11:08 am : Comments 000

One of the reasons hedge funds have commanded their stratospheric fees is the widely held belief that the people overseeing them are decidedly more brilliant than run-of-the mill institutional or individual investors.   But it has become increasingly clear in recent years that many of the supposedly legendary investor titans aren’t quite as smart as they purported to be.  Turns out, many have figured out a way to rig the system and see everyone else’s proverbial cards before playing their own.

To a layman, this is known as cheating.  On Wall Street, it’s called insider trading.

Trust me on this, the arrest of hedge fund mogul Raj Rajaratnam for allegedly netting $20 million trading on non-public information is just the tip of the iceberg.  Other major hedge funds also have been implicated in insider trading allegations and suspicions have surfaced about some very prominent Wall Street executives.  It’s well known that if you are a big trading macher on Wall Street, you gain access and insight that just isn’t available to even mid-sized institutional investors.  You get Wall Street’s equivalent of the Glengarry Glen Ross real estate leads: the Goldman Sachs weekly “huddle.”

There is sometimes a very fine line between market “color” and “inside information,” and based on the allegations against Rajaratnam and his indicted cohorts, on the surface there appears little doubt that the government has a very compelling case of criminal wrongdoing.  Indeed, the wiretap evidence reveals that some of Rajaratnam’s co-conspirators were clearly aware they were breaking the law; one of them openly feared she would end up like Martha f….g Stewart.”    The U.S. Attorney’s Office is to be commended for bringing this case, and let’s hope that if the accused get convicted, they get put away for considerably longer than the measly 22 months of incarceration meted out to legendary insider trader Ivan Boesky.

Unfortunately, the U.S. Attorney’s office has finite resources and therefore must focus its efforts solely on bringing Rajaratnam and his co-conspirators to justice. What’s needed is a far-reaching Congressional investigation examining how hedge funds garner their information.  Even if you take Goldman Sachs at its word that its weekly “huddle” is merely an exchange of market “color” for the firm’s best customers, the fact remains that hedge funds generating the highest volume of trading commissions invariably get access to the best analysis and insight.  It would be interesting to know if Rajaratnam, or someone from his firm, participated in Goldman’s weekly “huddle”.  If that proves to be the case, then Rajaratnam’s supposedly $20 million of ill-gotten gains likely helped him achieve tens of millions more in “legitimate” profits.

The current laissez-faire treatment of hedge funds by Congress and regulators is reminiscent of what led to the Wall Street Crash of 1929.  All sorts of fraudulent acts were committed by the unregulated banking industry and it wasn’t until Ferdinand Pecora and his famous Pecora Commission exposed the rampant, ongoing fraud that laws were reformed and the SEC itself was created.  Later in his memoirs, Mr. Pecora wrote about the lack of disclosure that led to the crash: “Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker’s stoutest allies.”

We need a modern day equivalent of the Pecora Commission.  The indictment of Raj Rajaratnam badly underscores the fact that wrongdoing on Wall Street today is likely far more pervasive than ever before.

Filed under Hedge Funds, Investment Fraud, SEC, fraud