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TVInews - Solomon Bros Billion Dollar Victims Trust Fund - What Happened - Since 1992?
































































28th Week WASHINGTON, D.C. / The Solomon Bros Billion Dollar Victims Trust Fund - What Happened, since 1992? It's a fight for control between the Trustees of the $1.4-billion Fund awarded to the victims of the old stock and bond frauds of Salomon Bros. firm, in 1992, might be a story of regulatry missteps in itself. The Investor Protection Trust and Securities and Exchange Commission and Could Delay Investor Education Finaced by the old Salomon Bros. firm.






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But such a tale is indeed unfolding, in an odd footnote to the $1.4-billion settlement of charges by Wall Street brokerages accused of hyping stocks with phony research to dupe investors.
U.S. District Judge William H. Pauley III approved the $55 million deal to the SEC to promote education at the state level, and $30 million to the Investor Protection Trust, to promote education at the state level.
The trust was created in 1993 as part of a settlement by the old Salomon Bros. firm of misconduct in the Treasury auction market. Its trustees include securities regulators from six states.
The 2003 settlement included $85 million for investor education, with $55 million of that earmarked for the Securities and Exchange Commission. But the SEC never got its program off the ground, and is now seeking court approval to hand off the job to another foundation created by NASD, the brokerage industry's self-regulatory body.
That plan in turn has sparked protest from the Investor Protection Trust, the nonprofit group that was chosen to allocate $30 million of the settlement money for investor education.
It hopes to get at least some of the money the SEC wants to surrender, and has questioned whether NASD is the ideal choice for the task.
• • The Investor Protection Trust
In a June 3 letter to the court, the head of the Investor Protection Trust maintained that the 2003 settlement envisioned a non-industry group created by public regulators to oversee the federal program. "The IPT, unlike the NASD Foundation, is precisely such an entity," said Don M. Blandin, the group's chief executive.
• • The SEC / NASD Group
The SEC's proposal to give funds earmarked in a settlement to an NASD group sparks protest. The goal of educating investors to deter financial fraud and promote wise choices may not seem like a source of controversy, finger-pointing and legal friction.
The dispute threatens to further delay an investor education program that all sides agree is already long overdue.
"It seems like two years is an awfully long time to try to put this all together," said Christine Hurt, a specialist in corporate legal matters at Marquette University Law School.
Proponents of investor education say the public's need for greater financial savvy -- including the ability to sniff out frauds -- has never been greater.

• • Investor Education
Statistics Show that About half of
U.S. households are estimated to depend at least partly on Wall Street for their financial well-being, a figure that has been driven by the advent of 401(k) retirement plans and other investment vehicles for the masses.
Middle-aged Americans, meanwhile, are on the receiving end of a vast wealth transfer, as they receive inheritances upon the death of their parents.
An emerging industry of investor education tries to serve such needs, but consumer advocates say much needs to be learned in tailoring the right message to the right audience.
"We're still trying to understand to whom that education should be addressed and what form it should take," said Stephen Brobeck, executive director of the Consumer Federation of America. The Wall Street analyst case, involving 10 major firms, showed that one of the risks is misleading advice from stock analysts. The firms were accused of using their analysts to tout companies with which they had business relationships.
To acting SEC Chairwoman Cynthia A. Glassman, the cure would have to include making investors more savvy.
"Not only do you want the firms to provide unconflicted information, you want the investors to be able to evaluate what they are getting," she said in an interview.
• • "Every day we see the consequences
of Americans not managing their money well -- and in some cases losing their life savings," said Blandin, the trust's CEO. "We want to get more of these investor education and protection programs out there to make sure that every American is a safer and wiser investor."
The trust has spent $2.5 million of the settlement money on an array of programs. In California, about $150,000 was spent to teach military families by distributing information packets to households and live presentations on military installations, in cooperation with the state Department of Corporations.
It also committed $1.57 million for a public television series, "MoneyTrack," with episodes on saving and investment, fraud, the global economy and other realities of the investment world.
The SEC's national effort never got off the ground. In early 2004, SEC then-Chairman William H. Donaldson recruited Charles D. Ellis, a noted investment expert and author, to an unpaid role as head of a new foundation that would run the investor education program.
Ellis and his aides had lots of ideas, but many of them hit a wall with the SEC staff. Ellis, for instance, wanted to tap Abby Joseph Cohen of Goldman Sachs Group and Martin Leibowitz of Morgan Stanley to serve as advisors. But both of their companies were defendants in the analyst case, a point noted by the SEC's then-enforcement chief, Stephen Cutler, who summarily nixed the idea.
Ellis also wanted to recruit directors from major mutual fund families for their expertise. But SEC staffers worried that the public might get confused and wrongly conclude the directors were linked to defendant firms.
More broadly, Ellis wanted to pursue an initiative aimed at increasing the number of workers who chose to participate in 401(k) plans and advise them on a sensible approach. This idea also caused static, with SEC critics pointing out that such an approach might enrich defendant firms and go beyond the foundation's mission.
In March, Ellis announced his plans to quit. Last month, the SEC formally asked Pauley for permission to turn over the money to a foundation set up in 2003 by NASD, formerly the National Assn. of Securities Dealers.
Ellis, who is chairman of Yale University's investment committee and a director of mutual fund company Vanguard Group, would say little about the episode. Still, he expressed optimism that some of the initial plans might get new life under NASD stewardship.
"I feel quite confident that they will treat them sensitively and thoughtfully," he said. "I wouldn't be at all surprised to see them pick up on several of the initiatives we'd have proposed to the board."
The Investor Protection Trust quickly asked the court for at least a slice of the $55-million pie, triggering a sharp response from the SEC.
Luis R. Mejia, the SEC's assistant chief litigation counsel, described the trust's concerns as "unfounded," bluntly maintaining that "it should not receive any additional funds for investor education."
In a court filing, Mejia contended that giving any of the $55 million to the trust would not be consistent with the state-federal split negotiated in 2003. He then raised questions about the Investor Protection Trust's handling of finances and "whether they would be an appropriate entity to entrust with public funds."
Among other things, Mejia said the trust lost $80,000 in investments during the first three months of 2005. The trust later responded that the loss was $28,000. (The SEC's share remains in deposit at the Federal Reserve Bank of New York.)
Mejia questioned the transparency of the trust's disclosures and said that from 1999 to 2003, it paid more than $1 million to a Northern Virginia communications firm, Hastings Group, whose partners included two former co-directors of the trust, Scott Stapf and Maureen Thompson.
In interviews, Stapf and Thompson said Hastings Group put all the trust expenditures to proper use, applying them to such efforts as teacher-training sessions and investor education guides for the classroom.
Stapf said any implication that he and Thompson profited improperly "is based on an incomplete and inaccurate reading of the IPT financials."
The judge has given no indication when he may rule on disbursing the $55 million.
"At this point, we're just declining comment while it's before the court," said John Nester, an SEC spokesman.

Jonathan Peterson, Times Staff Writer



ByLines: Editors Note

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