Tag Archives: SEC

Michael Burry known for the ‘Big Short’ is betting again on a stock market crash

Michael Burry

Important Takeaways:

  • Michael Burry, the “Big Short” investor who became famous for correctly predicting the epic collapse of the housing market in 2008, has bet more than $1.6 billion on a Wall Street crash.
  • Burry is making his bearish bets against the S&P 500 and Nasdaq 100, according to Security Exchange Commission filings released Monday. Burry’s fund, Scion Asset Management, bought $866 million in put options (that’s the right to sell an asset at a particular price) against a fund that tracks the S&P 500 and $739 million in put options against a fund that tracks the Nasdaq 100.
  • Burry is using more than 90% of his portfolio to bet on a market downturn, according to the filings.
  • Burry’s fund is also getting out of its shares in a number of regional banks – it sold its 150,000 shares of First Republic Bank (FRC) as well as holdings in Huntington Bank PacWest (PACW) and Western Alliance (WAL). It’s unclear whether these sales took place before or after JPMorgan Chase took over First Republic Bank (FRC) in May.
  • Burry also reversed course on Chinese stocks – selling his shares of JD.com (JD) and Alibaba (BABA) in the second quarter of the year.

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U.S. SEC seeks information from SolarWinds clients in cyber breach probe

By Katanga Johnson

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission (SEC) has opened a probe into last year’s SolarWinds cyber breach over whether some companies failed to disclose that they had been affected by the unprecedented hack, an agency official said on Monday.

The SEC sent investigative letters late last week to a small number of public issuers and investment firms seeking voluntary information on whether they had been victims of the hacker and failed to disclose it.

The agency said it was also seeking information on whether public companies that had been a victim had experienced a lapse of internal controls, and related information on insider trading. U.S. securities law requires companies to disclose material information that could affect their share prices.

“We think that the information we’re asking for will help us assess the impact of the breach, and it may also help us identify trading or other securities law violations,” said the official, who spoke under the condition of anonymity for discussing ongoing, confidential agency investigations.

In December, U.S. regulators found that a breach by a foreign actor of SolarWinds’s software gave hackers access to data of thousands of companies and government offices that used its products.

The United States and Britain have blamed Russia’s Foreign Intelligence Service (SVR), successor to the foreign spying operations of the KGB, for the hack, which compromised nine U.S. federal agencies and hundreds of U.S. private sector companies.

A spokesperson for SolarWinds did not respond immediately to request for comment.

(Reporting by Katanga Johnson; Editing by Steve Orlofsky)

U.S. SEC ousts head of accounting watchdog, puts rest of board on notice

WASHINGTON (Reuters) -The U.S. Securities and Exchange Commission on Friday said it has voted to remove the head of the accounting oversight board that sets standards for audits of public companies and left the rest of the members on notice.

The SEC voted to remove William Duhnke III from his role as chairman of the Public Company Accounting Oversight Board, effective Friday, the agency said in a statement. The other four members will stay on, but the SEC is soliciting resumes for those roles.

The move to remove the head of a watchdog critics have described as toothless marks a major warning shot by the new SEC chair, who took the helm at the top markets regulator in mid-April.

“The PCAOB has an opportunity to live up to Congress’s vision in the Sarbanes-Oxley Act,” SEC chair Gary Gensler said in the statement, referring to the 2002 law that established the board.

It also comes amid pressure from some Democratic lawmakers, who have said the board has been falling down on its job to oversee audit firms meant to keep publicly traded companies in check.

Duane DesParte, who joined the board in 2018, will serve as acting chair, the SEC said.

(Reporting by Chris Prentice and Katanga Johnson; Editing by Leslie Adler)

U.S. SEC chief Clayton to call it quits at the end of 2020

By Katanga Johnson

WASHINGTON (Reuters) – U.S. Securities and Exchange Commission Chairman Jay Clayton will step down from his position at the end of the year, the Wall Street regulator said in a statement on Monday.

Clayton’s early exit – his term would not expire until the end of June – clears the way for President-Elect Joe Biden to quickly take control of the regulatory agency when he is sworn in on Jan. 20, as Democrats are eager to create a more aggressive watchdog.

“Working alongside the incredibly talented and driven women and men of the SEC has been the highlight of my career,” said Clayton, who was appointed under President Donald Trump.

Clayton has said he wants to return home to New York and was expected to resign before his term ends in June. His departure would likely position an ultra-conservative ranking Republican commissioner, Hester Pierce, who frequently votes against penalizing companies for wrongdoing, to serve as an interim acting chairwoman at least until Biden takes office, lawyers said.

It is expected that senior Democratic SEC commissioner Allison Lee would be named as the acting chairwoman by Biden, until a permanent SEC chief is nominated and confirmed.

Under Clayton, the SEC has pursued changes to regulations that critics saw as burdensome or hindering corporate growth, often in the face of opposition from Democrats and investor advocates. The former corporate deals lawyer is generally respected for his expertise and described by those who deal with him as thoughtful and affable.

In July 2020, Clayton had been nominated by the Trump Administration to potentially replace a top federal prosecutor who was being fired by President Donald Trump at the time.

It is now unlikely Clayton would assume that role after Trump departs the White House, lawyers said.

As a full-time replacement SEC chief, progressives are keen for former Democratic SEC commissioner Kara Stein to fill the role, although Rob Jackson, also a former Democratic commissioner who currently teaches at New York University School of Law, is preferred by moderates.

Former derivatives market regulator Gary Gensler, who is working on a transition plan for financial industry oversight under Biden, is also a contender, sources told Reuters.

(Additional reporting by Lisa Lambert and Doina Chiacu; Editing by Catherine Evans and Chris Reese)

The top contenders to run Biden’s financial agencies

By Pete Schroeder, Michelle Price and Katanga Johnson

WASHINGTON (Reuters) – Democratic U.S. President-elect Joe Biden’s team has tapped a mix of progressives and centrist policy experts, including former derivatives market regulator Gary Gensler, to work on a transition plan for financial industry oversight.

Here is how staffing could shake out at some of the key financial regulators, according to nearly two dozen lobbyists, officials and policy experts in Democratic circles.

CONSUMER FINANCIAL PROTECTION BUREAU (CFPB)

The CFPB director is a critical role for progressives such as Senator Elizabeth Warren who believe the agency can help tackle wealth inequality and racial injustice. A June Supreme Court ruling handed Biden the power to fire Republican President Donald Trump’s CFPB director, Kathy Kraninger, and many policy experts expect him to quickly replace her after he takes office on Jan. 20.

Potential candidates for the role include Warren’s protégée, U.S. Representative Katie Porter; Federal Trade Commissioner Rohit Chopra; Bharat Ramamurti, Warren’s former aide who sits on a pandemic congressional oversight panel; and Patrice Ficklin, the CFPB’s fair lending director who has been at the agency since its inception in 2011.

SECURITIES AND EXCHANGE COMMISSION (SEC)

Biden is also expected to quickly staff up the SEC, which under Chair Jay Clayton, a Trump appointee, has pursued many rule changes opposed by Democrats and investor advocates.

Clayton, whose role is based in Washington, has said he wants to return home to New York and is expected to resign well before his term ends in June. That would position senior Democratic SEC Commissioner Allison Lee as acting chair until a new chair is sworn in.

Progressives are keen on former Democratic SEC Commissioner Kara Stein for chair, although Rob Jackson, also a former Democratic commissioner who currently teaches at New York University School of Law, is preferred by moderates. Gensler is also a contender, the sources said.

BANKING REGULATORS

There will be a handful of banking regulator roles to fill, with the first likely to be comptroller of the currency. That is because current Comptroller Brian Brooks is serving in an acting capacity, allowing Biden to replace him quickly. Amy Friend, formerly senior deputy comptroller and chief counsel at the agency under Obama, is seen as a leading candidate.

Federal Deposit Insurance Corporation (FDIC) Chair Jelena McWilliams cannot be removed by Biden and has said she wants to serve out her term, which ends in 2023. But Biden can still tilt the agency’s five-seat board, which passes rules via majority vote, by quickly appointing the heads of the CFPB and Office of the Comptroller of the Currency who always hold seats on the FDIC board too. Obama-era holdover and former FDIC Chair Martin Gruenberg already has a seat.

If McWilliams resigns, Michael Barr, professor at the University of Michigan Law School and former Obama administration Treasury official is seen as a contender for that or another banking slot, as is Graham Steele, a director at the Stanford Graduate School of Business and former Federal Reserve staffer. Barr is advising the transition team.

COMMODITY FUTURES TRADING COMMISSION (CFTC)

Current Republican CFTC Chair Heath Tarbert is expected to resign from the chairman’s role, putting senior Democratic Commissioner Rostin Behnam in line for acting chair. But the sources said Dan Berkovitz, the other Democratic CFTC commissioner and formerly general counsel to Gensler when he led the agency, is the front-runner for the permanent chairman’s role.

FEDERAL HOUSING FINANCE AGENCY (FHFA)

The FHFA is led by libertarian Mark Calabria who has said he is committed to overhauling the country’s housing finance market before his term ends in 2024. He is unlikely to resign, the sources said, and cannot currently be fired. That could change, however, pending a Supreme Court challenge to the agency’s structure, which could find the director can be removed.

If so, Biden, for whom affordable housing is a key policy, is likely to replace him. Potential contenders for his job include Eric Stein, who was special adviser to Democratic FHFA Director Mel Watt from 2014 to 2019, and Diane Yentel, chief executive of the National Low Income Housing Coalition. Stein is also advising the transition team.

All those named above, or their representatives, declined to comment or did not respond to requests for comment, other than Ficklin and Clayton. While Ficklin would not comment on whether she was in contention for a role, she said she would be honored to serve. A spokeswoman for Clayton said there are a number of items on his agenda “that he intends to move forward in the upcoming months.”

(Reporting by Michelle Price, Pete Schroeder and Katanga Johnson; Editing by Peter Cooney and Alistair Bell)

U.S. SEC fines World Acceptance Corp $21.7 million for Mexican bribes

By Pete Schroeder

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission announced on Thursday it had fined World Acceptance Corp, a consumer loan company, $21.7 million for paying bribes in Mexico.

The SEC said in a statement that the company’s Mexican subsidiary paid over $4 million in bribes to Mexican government and union officials in exchange for business lending to government employees.

The South Carolina-based company agreed to the penalty without admitting or denying guilt. The company agreed to overhaul its internal operations, as well as pay $17.8 million in disgorgement, nearly $2 million in interest, and a $2 million penalty.

“This long-running bribe scheme did not happen in a vacuum. Through a lack of adequate internal accounting controls and a culture that undermined its internal audit and compliance functions, World Acceptance Corporation created the perfect environment for illicit activity to occur for nearly a decade,” Charles Cain, a senior SEC enforcement official, said in a statement.

The SEC said that the company’s Mexican subsidiary would deposit money into bank accounts linked to the officials or distribute bags of cash. The expenses were then recorded as legitimate business expenses.

The SEC charged that the company’s internal controls were insufficient to detect the activity, and management “lacked the appropriate tone” on compliance.

In a statement, the company’s general counsel, Luke Umstetter, said he was pleased to have resolved the issue and that the company has addressed those past issues.

(Reporting by Pete Schroeder; editing by Jonathan Oatis)

U.S. authorities charge several people in SEC hacking scheme

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst/File Photo

(Reuters) – U.S. authorities on Tuesday charged several individuals and companies in a scheme to trade on information in nonpublic corporate press releases by hacking into a U.S. Securities and Exchange Commission database.

In a filing with the U.S. District Court in Newark, New Jersey, the SEC said individuals in the United States, Russia and Ukraine reaped more than $4.1 million in illegal gains by trading on nonpublic filings from its Edgar database, including approximately 157 corporate earnings announcements.

According to the SEC, some of the defendants kicked back some of their trading profits to Oleksandr Ieremenko, a Ukrainian hacker who along with others infiltrated Edgar between May 2016 and October 2016 to obtain thousands of “test filings,” including some containing earnings results.

Ieremenko was charged in 2015 in a similar scheme involving hacking into databases of corporate press release distributors.

It was not immediately clear whether the latest scheme is the subject of a law enforcement action being announced later Tuesday by the SEC and the U.S. Department of Justice. Neither agency immediately responded to requests for comment.

(Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe)

Exclusive: SEC’s corporate filing system vulnerable to denial of service attacks – memo

FILE PHOTO: The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, DC, U.S. on June 24, 2011. REUTERS/Jonathan Ernst/File Photo

By Sarah N. Lynch and Jim Finkle

(Reuters) – The U.S. Securities and Exchange Commission (SEC), Wall Street’s top regulator, has discovered a vulnerability in its corporate filing database that could cause the system to collapse, according to an internal document seen by Reuters.

The SEC’s September 22 memo reveals that its EDGAR database, containing financial reports from U.S. public companies and mutual funds, could be at risk of “denial of service” attacks, a type of cyber intrusion that floods a network, overwhelming it and forcing it to close.

The discovery came when the SEC was testing EDGAR’s ability to absorb monthly and annual financial filings that will be required under new rules adopted last year for the $18 trillion mutual fund industry.

The memo shows that even an unintentional error by a company, and not just hackers with malicious intentions, could bring the system down. Even the submission of a large “invalid” form could overwhelm the system’s memory.

The defect comes after the SEC’s admission last month that hackers breached the EDGAR database in 2016.

The discovery will likely add to concerns about the vulnerability of the SEC’s network and whether the agency has been adequately addressing cyber threats.

The mutual fund industry has long had concerns that market-sensitive data required in the new rules could be exploited if it got into the wrong hands.

The industry has since redoubled its calls for SEC Chairman Jay Clayton to delay the data-reporting rules, set to go into effect in June next year, until it is reassured the information will be secure.

“Clearly, the SEC should postpone implementation of its data reporting rule until the security of those systems is thoroughly tested and assessed by independent third parties,” said Mike McNamee, chief public communications officer of The Investment Company Institute (ICI), whose members manage $20 trillion worth of assets in the United States.

“We are confident Chairman Clayton will live up to his pledge that the SEC will take whatever steps are necessary to ensure the security of its systems and the data it collects.”

An SEC spokesman declined to comment.

The rules adopted last year requiring asset managers to file monthly and annual reports about their portfolio holdings were designed to protect them in the event of a market crisis by showing the SEC and investors that they have enough liquidity to cover a rush of redemptions.

During a Congressional hearing on Wednesday, Clayton testified that the agency was considering whether to delay the rules in light of the cyber concerns. He did not, however, mention anything about the denial of service attack vulnerability.

VIRTUAL VOMIT

EDGAR is the repository for corporate America, housing millions of filings ranging from quarterly earnings to statements on acquisitions.

It is a virtual treasure trove for cyber criminals who could trade on any information gleaned before it is publicly released.

In the hack disclosed last month involving EDGAR, the SEC has said it now believes the criminals may have stolen non-public data for illicit trading.

The vulnerability revealed in the September memo shows that even an invalid form could jam up EDGAR.

The system did not immediately reject the form, the memo says. Rather, “it was being validated for hours before failing due to an invalid form type.”

That conclusion could spell trouble for the SEC’s EDGAR database because it means that if hackers wanted to, they could “basically take down the whole EDGAR system” by submitting a malicious data file, said one cyber security expert with experience securing networks of financial regulators who reviewed the letter for Reuters.

“The system would consume the data and essentially throw up on itself,” the person added.

(Reporting by Sarah N. Lynch in Washington and Jim Finkle in Toronto; Editing by Carmel Crimmins)

SEC chair grilled by Senate panel over cyber breach, Equifax

Jay Clayton, Chairman of the Securities and Exchange Commission, arrives for a Senate Banking hearing on Capitol Hill in Washington, U.S. September 26, 2017. REUTERS/Aaron P. Bernstein

By Michelle Price and Pete Schroeder

WASHINGTON (Reuters) – The chairman of the U.S. Securities and Exchange Commission (SEC) told a congressional committee on Tuesday he did not believe his predecessor Mary Jo White knew of a 2016 cyber breach to the regulator’s corporate disclosure system, the exact timing of which could not be known “for sure.”

Jay Clayton, who was formally appointed to his role in May, also said listed companies should disclose more detailed information on cyber breaches “sooner,” and that the U.S. regulator was working on new guidelines to ensure this.

The Senate Banking Committee grilled Clayton on Tuesday over a 2016 hack of EDGAR, the agency’s online corporate financial disclosure system, only disclosed last Wednesday, which has shaken confidence in the SEC’s cyber defenses.

Clayton said he had decided last weekend to disclose the breach once he had enough information to establish it was “serious,” but he would not be drawn on who at the agency had known about it and whether there was an attempt to cover it up.

“I have no belief sitting here that Chair White knew,” Clayton said when asked whether his predecessor had been aware of the hack, adding: “I don’t think we can know for sure” on the exact timing of the breach.

Clayton fielded several questions from senators on the recent Equifax Inc data breach in which hackers stole personal data of about 143 million customers of the credit reporting firm, including on the timing of the company’s disclosure.

Although the former Wall Street lawyer declined to comment on whether the SEC was investigating stock sales made by Equifax executives prior to the disclosure, he said he was “not ignoring” the issue.

The hearing, which had been scheduled prior to the disclosure of the SEC’s breach, offered lawmakers, companies and investors the first opportunity to hear from the SEC chief on the incident.

Clayton originally had been scheduled to discuss capital market reform at his first hearing before the committee since being formally appointed in May, but his pro-growth agenda was largely eclipsed by the SEC breach and the Equifax scandal.

Wall Street’s top regulator came under fire last week after disclosing that hackers might have used information stolen from EDGAR, which houses millions of market-sensitive corporate disclosures such as earnings releases, for insider trading.

“When we learn a year after the fact that the SEC had its own breach and that it likely led to illegal stock trades, it raises questions about why the SEC seems to have swept this under the rug,” Senator Sherrod Brown, the ranking Democratic member of the committee, asked Clayton during opening remarks.

“What else are we not being told, what other information is at risk, and what are the consequences?” Brown asked. “How can you expect companies to do the right thing when your agency has not?”

CYBER DEFENSES EYED

Reuters reported on Monday that the Federal Bureau of Investigation and the U.S. Secret Service have launched investigations into the breach, which occurred in October 2016 and appeared to have been routed through servers in Eastern Europe. The breach appeared to have been one of several cyber incidents documented by the SEC in recent months, Reuters reported.

Clayton said he only learned about the 2016 hack in August and that the SEC’s enforcement staff and inspector general’s office have launched internal probes.

The regulator reported the breach to the Department of Homeland Security’s Computer Emergency Readiness Team when it was first discovered, Clayton said in the testimony, adding the regulator plans to hire more cyber security experts.

Clayton said the hack was possibly the result of a defect in the EDGAR software and said that personally identifiable information did not appear to have been put at risk, but he declined to provide further detail.

He said the SEC was still determining the extent and impact of the breach and that it could take “substantial time” to complete due to the amount of data that needed to be analyzed.

The committee also quizzed Clayton about other potential breaches at the agency and the regulator’s general cyber defenses.

Clayton said he could not say with “100 percent certainty” that the EDGAR breach was the only one suffered by the agency, and added that he planned to ask Congress for more funds to tackle the rising cyber threat.

“We’re going to need more money for cyber security, and I intend to ask for it.”

(Reporting by Michelle Price and Pete Schroeder; editing by Leslie Adler and G Crosse)

Investor group seeks probe into SEC hack, urges data rules delay

FILE PHOTO: The headquarters of the U.S. Securities and Exchange Commission (SEC) are seen in Washington,U.S., on July 6, 2009. REUTERS/Jim Bourg/File Photo

By Michelle Price

WASHINGTON (Reuters) – A global investor group on Friday called for an independent investigation into a cyber breach at the U.S. Securities and Exchange Commission (SEC) and urged the regulator to delay new data-gathering rules until it could assure investors that its computer systems were secure.

Wall Street’s top regulator came under fire on Thursday after admitting hackers had breached its database of corporate announcements in 2016 and might have used it for insider trading.

The Investment Company Institute (ICI), which represents over 95 million U.S. shareholders, wants the SEC to clear up concerns about its cyber defenses before requiring funds to submit monthly performance data to the regulator, Paul Schott Stevens, the group’s chief executive, told Reuters in a phone interview.

“What the SEC breach now makes very clear is precisely what we were concerned about – that market-sensitive information of that nature can be exploited to the disadvantage of millions and millions of investors,” Stevens said.

ICI, whose members hold $20 trillion plus in assets, has raised concerns about how the SEC safeguarded industry data it gathers since 2015.

“I’m certain there will be a full inquiry by the Government of Accountability Office – and there should be, so we understand exactly what happened here,” Stevens said.

In a July report, the Government Accountability Office (GAO), a congressional watchdog, criticized the SEC for failing to fully protect its computer networks from cyber attacks and recommended a slew of improvements. Some of recommendations it had made in previous reports had still not been implemented, it noted.

Former SEC Chair Mary Jo White, in office when the hack occurred, told Reuters in 2016 that cyber security posed the biggest risk to the U.S. financial system.

Her successor, Jay Clayton, uncovered the full extent of the hack after launching a review of the SEC’s cyber security standards earlier this year.

“Some recommendations the GAO made haven’t yet been implemented. There’s obviously a failure here of some kind. That’s why we’re so glad Chairman Clayton has moved to address this,” said Stevens.

The SEC declined to comment.

New reporting rules which start to come into force in December would require funds for the first time to confidentially file complete monthly portfolio holdings with the SEC, data which the ICI has said could easily be used for insider trading if obtained by hackers.

“Until that information security environment has been established, funds should continue to collect data quarterly, not monthly information, as quarterly data is not nearly as sensitive,” said Stevens.

The SEC disclosure came two weeks after credit-reporting company Equifax Inc said a breach had exposed sensitive personal of data up to 143 million U.S. customers. This followed last year’s cyber attack on SWIFT, the global bank messaging system.

Stevens said rules governing the disclosure of such breaches should be tighter for both public and private organizations.

“That disclosure obligation fixes the mind on need to fix the breach in the first instance.”

(Reporting by Michelle Price; editing by Richard Chang and Jonathan Oatis)