SEC Charges Two Mutual Funds for Inaccurate Disclosures about Decisions on Behalf of Shareholders

The United States Securities and Exchange Commission today charged the gatekeepers of two mutual fund trusts with misleading disclosures regarding the factors they deemed when renewing or approving investment advisory contracts.

A decent percentage of trusts are created as turnkey fund operations that launch several funds to be managed by different unaffiliated professionals and overseen by a board of trustees. The U.S. federal securities laws require mutual fund directors to evaluate a fund’s contract with its adviser, and the funds must then report back to shareholders regarding the material factors considered by the directors in initiating these decisions. The SEC has been taking a broad look into the investment advisory contract renewal process and the associated fee arrangements latent in the fund industry.

An investigation that arose from an evaluation of the Northern Lights Variable Trust and the Northern Lights Fund Trust found that some of the trusts’ shareholder reports misrepresented information and/or omitted material details concerning how they evaluated particular factors in reaching their decisions on for their funds and on behalf of the connected shareholders. The trusts’ chief compliance officer, along with the trustees of the Northern Lights Compliance Services were found responsible for causing the violations as according to recordkeeping and reporting provisions, the trusts’ fund administrator (Gemini Fund Services) caused the violations.

All associated firms and trustees have agreed to settle the charges with the United States Securities and Exchange Commission. The five trustees named in the enforcement action are: Lester Bryan of Utah, Michael Miola of Arizona, Gary Lanzen of Nevada, Anthony Hertl of Florida, and Mark Taylor of Ohio.

According to the order, the Northern Lights Trusts included 71 mutual fund series which were mostly managed by different advisers and sub-advisers. These trustees conducted 15 board meetings from January 2009 to December of 2010; during these meetings the individuals made decisions regarding 113 advisory and 32 sub-advisory contracts. Section 15 of the Investment Company Act mandates all fund directors to request and evaluate material information that is necessary to determine the terms of any contract for investment professionals of registered investment companies.

Source: sec.gov

White House Report: The Employment Situation in April

Although more work remains to be done, today’s employment report offers further evidence that the United States’ economy is continuing to strengthen after undergoing one of the worst recessions since the Great Depression. The White House states that it is crucial to remain focused on pursuing initiatives to bolster job creation and expand the middle class, as the nation continues to fight its way back from one of the worst economic collapses of all time.

Today’s job report issued by the United States Bureau of Labor Statistics shows that private sector companies added over 176,000 jobs in April. Total non-farm payroll employment increased by nearly 166,000 jobs last month, and the February and march employment figures were revised upwards by a total of 114,000 jobs. The United States economy has now added private sector jobs every month for 38 straight months, and a total of nearly 7 million jobs has been added to the labor market over that period of time. Moreover, an additional 800,000 private sector jobs have been added to the labor market over the last four months.

The American household survey revealed that the unemployment rate dipped down from 7.6 percent in March to 7.5 percent last month. This rate marks the lowest level since December of 2008. The labor force participation rate; however, remains unchanged at 63.3 percent in April.

The Obama administration continues to urge Congress to replace the sequester with a balanced deficit reduction plan. The White House states that President Obama will continue to put pressure on Congress to act on measures that he called for in his State of the Union to make the nation a magnet for employment opportunities.

According to the establishment survey, employment rose notably in business and professional services, bars and restaurants, health care and social assistance, and retail trade throughout the month of April. Construction declined by roughly 6,000 after increasing for 10 consecutive months and adding nearly 182,000 jobs during this period.

Source: whitehouse.gov

Inflation is Extremely Low Right Now: Is it Time to Worry?

Prices of common goods are not going up very much, but should we celebrate?

The answer to this inquiry is: not exactly. Inflation that is too low could be a terrible sign for the United States economy, and some officials within the United States Federal Reserve are starting to get concerned.

Talking with reporters on Wednesday, St. Louis Fed President Mr. James Bullard looked to the Fed’s favored measure of inflation—amount of personal consumption expenditures, minus energy and food—which has recently revealed that prices rose up 1.3 percent over one year ago.

“This figure is pretty low,” Bullard said at a Levy Economics Institute meeting. “I am getting concerned about this figure, and I think that provides the F.O.M.C with room to work-out its monetary policy.”

The Federal Reserve typically aims to keep inflation around 2 percent per year; inflation at this level is deemed healthy as it coincides with legitimate economic growth, a growing labor market and gradually rising wage rates.

“the history of our economy has shown that our markets perform best with slightly higher levels of inflations such as 2.5 or 3 percent,” said Bernard Baumohl, the chief global economist for the Economic Outlook Group. “Dormant or low inflation translates into a stagnant economy.”

There are a few key reasons as to why low inflation is a bad economic indicator. First, when companies do not have any leeway to raise price, they are more apt to cut costs, which would mean a reduction in their workforce or a cutback in hiring. Second, if inflation remains low, consumers are not as motivated to spend. Third, when inflation is low or dormant, it does not offer a considerable buffer against deflation if an economic event takes place. And lastly, low inflation often comes along with lower revenue growth and wages.

The Federal Reserve has kept its short-term interest rate close to zero since 2008. When this rate was not enough to boost the economy, it launched several bond-buying sprees in an attempt to lower long-term interest rates. The Fed is now operating its third round of asset purchases, buying over $85 billion in mortgage-backed securities and Treasuries each month. This program remains highly controversial, and many are speculating about when the Fed will start to ease its bond purchasing habits.

From Rogue Trader to Locked Up

The United States Securities and Exchange Commission charged a former employee at a Connecticut brokerage firm with scheming to profit from placing unauthorized orders to purchase Apple stock. When the ploy backfired, it ultimately caused the firm to cease operations.

David Miller, an institutional sales trader, has agreed to a partial settlement of the SEC’s charges. Moreover, Mr. Miller pleaded guilty in a parallel criminal case.

The United States Securities and Exchange Commission alleged that Miller misrepresented to Rochdale Securities that a customer had agreed to the Apple order and assumed the risk of loss on the resulting trades. The customer order was to buy 1,625 shares of Apple, but Miller instead entered a number of orders totaling 1.625 million shares at a cost of nearly $1 billion. Miller was hoping to share in the customer’s profit if the trade proved to be profitable, and if the stock price dropped he would claim that he made an error on the size of the order. The shares of Apple would up decreasing after a poor earnings announcement later that day, and Rochdale was forced to halt operations in the wake of covering the losses suffered from the illicit trades.

“Miller’s scheme was brazen, deliberate, and ultimately poorly-conceived,” said Daniel Hawke, the Chief of the SEC Enforcement Division’s Market Abuse Unit. “This is an alert and a wake-up call to the brokerage industry that unchecked conduct of even a single person in a position of trust can pose a tremendous risk on a firm and potentially to the broader markets.”

The complaint filed by the United States Securities Commission charged Miller with violations of Section 17 and 3 of the Securities Act of 1933 and Section 10 of the Securities Exchange Act of 1934 and Rule 10b-5. To settle these charges, Miller will be prohibited in SEC administrative proceedings from working in the securities industry or participating in any dealings or offerings of penny stocks. In the partial in-court settlement, Miller agreed to be enjoined from future violations of antifraud provisions of the U.S. federal securities laws. Moreover, a financial penalty will be assessed at a later date by the court system upon the SEC’s motion.

Source; United States Securities and Exchange Commission www.sec.gov

Social Media Shutdown: Wall Street Cracks Down on Facebook Posts and Tweets

Several states in the U.S. have banned companies from monitoring employees’ social media accounts; however, FINRA wants to introduce an exception for financial firms.

Despite a dozen or so laws that prevent the practice, a Wall Street regulator is seeking for wiggle room to keep close tabs on stockbrokers’ social network entries.

The Financial Industry Regulation Authority, which is a self-regulator for brokerage firms, says investors must be protected; if brokers are chatting about stocks on Twitter and Facebook, FINRA is responsible for ensuring that they comply with Wall Street policies.

These policies involve everything from requiring brokers to disclose conflicts of interests, to guaranteeing they are not recommending a stock in company forums and trashing the company via other mediums. In order to keep firms and stockbrokers in line with said policies, both the Unites States Securities and Exchange Commission and FINRA require broker-dealers to keep a detailed record of all “business communications.”

If brokers are using social media for these types of communications, FINRA claims that firms are required to access said social media accounts. At the beginning of this year, FINRA sent letters to 10 states whose laws banned such monitoring; states instituted these types of legislation after a number of instances where people were terminated because of ill-advised Facebook or twitter posts.

“Banning access to social media accounts conflicts with a firm’s responsibilities to comply with federal requirements and threatens investor protection,” said FINRA in a letter released earlier this year.

Supporters of the social-monitoring bans claim that the government is going down a slippery slope; these individuals opine that if your employer can check your Twitter or Facebook posts to make sure that you are abiding by the rules, what is to stop them from looking through your photos for incriminating evidence.

Regulators understand the impact social media can have on an investor’s decision; however, figuring out how to manage social-media posts has the SEC and FINRA playing an ugly game of catch-up.

Source: SEC.Gov

Stocks Bounce Back After Fake Tweet

After briefly plummeting thanks to a fake tweet sent by the Associated Press saying there were explosions at the White House, stocks bounced back to end the day on a positive note.

The Associated Press said its Twitter Account was hacked, and stocks quickly rebounded. Meanwhile, positive readings on the housing market and strong earnings announcements by several companies overshadowed the disappointing news regarding the pace of global growth.

The S&P 500, the Dow Jones Industrial Average, and the NASDAQ all closed roughly 1 percent higher.

Shares of the heavily shorted Netflix surged nearly 25 percent today, after the streaming video service reported robust subscriber gains on Monday.

Travelers Companies helped boost the DOW as shares climbed more than 2 percent after the insurer reported a substantial increase in profits. Moreover, shares of Coach surged over 10 percent after the retailer posted better-than-expected sales and earnings.

Airline companies were also making waves this week due to concerns regarding flight delays at airports resulting from the government’s forced sequester. That said, Delta Air Lines and US Airways shares rose nearly 5 percent after both companies reported stronger than expected first-quarter profits.

After the bell, Apple reported earnings that surpassed expectations, increased its quarterly dividend by 15 percent and boosted its stock repurchase program. Shares of Apple initially increased approximately 5 percent in after-hours trading, but the gains lost momentum and turned during the evening hours.

AT&T also reported earnings in the afternoon; the telecommunication giant’s earnings were in line with estimates, but revenues failed to meet forecasts. As a result, shares of AT&T fell in after-hours trading.

Earnings have been a primary focus this week as investors seek to grasp any good news they can; however, this does not mean economics concerns have disappeared. Markets are coming off the worst week of 2013 last week primarily due to tepid economic data. Many analysts expect the economy to show several more signs of slowing this spring as budget cuts and higher taxes impact consumer spending.

Investors; however, were greeted with a strong housing market news as the Census Bureau reported a rise in new home sales of 1.5 percent in March to a yearly rate of 417,000. This news boosted shares of a number of home builders, including Toll Brothers, the Pulter Group and Lennar Corp.

Time to Start Worrying: Apple’s Profit Slips 18 Percent

Apple’s older, cheaper devices have long been popular with consumers; however, those discounts have pinched the company’s historically strong profits.

Apple’s profit dipped 18 percent last quarter, and its gross profit margin declined by nearly 10 percent. Although the tech giant’s earnings failed to meet Wall Street’s expectations, its margins came in far below their forecasts.

Shares of Apple initially jumped 5 percent in after-hours trading, but the gains lost momentum and turned flat later in the evening.

Squeezed profits have long been a troubling trend for the tech giant as many customers are opting to purchase older iPhones and the cheaper iPad mini—devices that are less profitable to Apple.

Without a legitimate, market-impacting new device, investors fear that the trend sill persists. Apple’s stock has dropped by nearly 25 percent so far in 2013, a phenomenon that CEO Tim Cook considers “very frustrating to everyone involved.”

Apple addressed disgruntled investors today by increasing its cash hoard to $144.7 billion, and announcing that it plans to hands some of this cash back to shareholders by increasing the quarterly dividend to $3.05 per share. This announcement came after activist shareholder David Einhorn pressured the tech giant to stop hoarding its cash and provide increased value to shareholders.

What’s more, Apple increased its stock buyback plan to $60 billion from $10 billion; the company claims it is the largest stock buyback in Apple’s history and that the tech giant will issue debt to finalize it.

All of this information serves as a welcome distraction from less than exemplary product news. Issues with the company’s supply chain have plagued the latest shipments of iPhones, an ongoing issue that Apple mentioned on its conference call with investors.

Despite the lousy news, Apple still managed to sell over 37 million iPhones last quarter, compared to 35.1 million in the same quarter last year. While this is a large amount of smart phones, Apple typically doubles its smart phone sales over the year.

For the present quarter, Apple expects sales of approximately $34.5 billion, which would fall well below analysts’ median estimates of $38.2 billion. Apple expects its margins to continue declining to roughly between 36 and 37 percent.

Source: SEC.GOV

Stocks Bounce Back