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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.
•
•
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
More Articles
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News 282005 / TeleCom Buy Outs and Asset Seizure
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