The Tokyo Stock Exchange has adopted a corporate governance code for listed companies that focuses on enhanced disclosure and assuring the quality and independence of outside auditors. Under the code, listed companies must conduct timely and accurate disclosure regarding corporate activities. In the view of the TSE, such disclosure is indispensable for appropriate investor evaluation of enterprises in the market, and concurrently for the appropriate exercising of voting rights by shareholders.
For this purpose, shareholders require periodic, reliable and comparable information sufficient to evaluate the operational conditions of businesses by the management, and further timely disclosure regarding material events taking place during the intervals between periodic disclosures. Such disclosure shall be conducted simultaneously to ensure equal treatment of shareholders. Fair disclosure helps to secure the confidence of investors in the market, reasoned the exchange, and is an important means to prevent the abuse of insider information.
The corporate governance standards call for the enhanced disclosure of quantitative information on financial conditions and operating results and enhanced disclosure of qualitative information that deepens the understanding of the management conditions of companies by investors. Companies should ensure that investors have access to information equally and easily. Companies should also develop internal systems to secure the accuracy and promptness of disclosure.
The principles of corporate governance also call for the appointment of highly independent outside auditors with an in-depth knowledge of finance and accounting. Also, management and the dequivalent of the board audit committee must work together to strengthen the functions of auditors and maintain adequate resources and infrastructure to support audits carried out by the auditors.
Tuesday, November 30, 2010
Kansas Seeks Public Comments on Exemption for Private Fund Advisers
Pubic comments on whether the State should promulgate an exemption for private fund advisers are being sought by the Kansas Office of the Securities Commissioner ("Office"). The Office believes that having a rule in place by July 21, 2011, the date the Dodd-Frank Act requires the states to begin regulating investment advisers to private funds with assets under management of less than $150 million, would address the legitimate, value-generating business models of private funds it's current rules do not adequately cover.
People submitting comments are asked to include a description of their knowledge, expertise and experience on the private fund adviser topic, and to supply their contact information. Comments should be sent as a PDF or a Microsoft Word document and may be emailed to ksc@ksc.ks.gov (emailed content should also include the text of the comment in the body of the email) or may be mailed to the Office of the Kansas Securities Commissioner, Attn: Private Fund Adviser Comments, 109 S.W. 9th, Suite 600, Topeka, Kansas 66612. Comments should be received by the close of business December 17.
Marc Wilson, the Kansas Securities Commissioner asks people to consider the following questions and include answers to these questions in their comment submission:
1. What is the extent of private fund activity in Kansas currently, with funds of any size and both within and outside of banks, and what types of investment strategies do they typically pursue?
2. Should KSC adopt the same or different rules with regard to advisers to funds formed pursuant to Section 3(c)(1) of the Investment Company Act of 1940 (ICA) and those formed pursuant to Section 3(c)(7) of the ICA? What are the consumer protection consequences of regulating advisers to these funds in the same manner?
3. The Act exempts from SEC registration advisers to a ‘‘venture capital fund,’’ though it does require these advisers to follow SEC recordkeeping and reporting requirements. Though the SEC is yet to define ‘‘venture capital fund,’’ what policy changes, if any, should KSC consider with regard to registration or regulation of advisers to venture capital funds?
4. Should KSC adopt rules or provide exemptions with regard to advisers to funds formed pursuant to Section 3(c)(5) of the ICA?
5. Requiring advisers to private funds to provide yearly audited financial statements of the fund to investors reduces the possibility of fraud. What are the advantages and disadvantages of requiring a private fund adviser, as a condition of their registration exemption, to provide to investors the private fund’s yearly audited financial statements?
6. Should KSC apply current adviser bonding requirements to advisers to private funds?
7. What are the typical qualifications of advisers to Kansas-based private funds? Should KSC require certain minimal examinations and expertise for private fund advisers?
8. Recent changes to financial institution affiliate transaction rules prohibit banks from certain private fund transactions and management arrangements. Will banks with these types of operations spin off their advisory personnel, and if so, to what extent are the needs of these fund advisers different than that of other private fund advisers?
9. Government funds available for borrowing by Small Business Investment Companies (SBICs) are subject to unpredictable congressional appropriation and increasing regulatory scrutiny. Might some SBICs choose to forgo SBIC regulation and convert to a state-sponsored regime if one were available? If so, what characteristics of a state-sponsored regime might be attractive to an SBIC?
People should note that this is not the first and last time they will be able comment on an exemption for private fund advisers; they will have another opportunity to submit written comments between the date the rule is proposed and the date of its public hearing.
People submitting comments are asked to include a description of their knowledge, expertise and experience on the private fund adviser topic, and to supply their contact information. Comments should be sent as a PDF or a Microsoft Word document and may be emailed to ksc@ksc.ks.gov (emailed content should also include the text of the comment in the body of the email) or may be mailed to the Office of the Kansas Securities Commissioner, Attn: Private Fund Adviser Comments, 109 S.W. 9th, Suite 600, Topeka, Kansas 66612. Comments should be received by the close of business December 17.
Marc Wilson, the Kansas Securities Commissioner asks people to consider the following questions and include answers to these questions in their comment submission:
1. What is the extent of private fund activity in Kansas currently, with funds of any size and both within and outside of banks, and what types of investment strategies do they typically pursue?
2. Should KSC adopt the same or different rules with regard to advisers to funds formed pursuant to Section 3(c)(1) of the Investment Company Act of 1940 (ICA) and those formed pursuant to Section 3(c)(7) of the ICA? What are the consumer protection consequences of regulating advisers to these funds in the same manner?
3. The Act exempts from SEC registration advisers to a ‘‘venture capital fund,’’ though it does require these advisers to follow SEC recordkeeping and reporting requirements. Though the SEC is yet to define ‘‘venture capital fund,’’ what policy changes, if any, should KSC consider with regard to registration or regulation of advisers to venture capital funds?
4. Should KSC adopt rules or provide exemptions with regard to advisers to funds formed pursuant to Section 3(c)(5) of the ICA?
5. Requiring advisers to private funds to provide yearly audited financial statements of the fund to investors reduces the possibility of fraud. What are the advantages and disadvantages of requiring a private fund adviser, as a condition of their registration exemption, to provide to investors the private fund’s yearly audited financial statements?
6. Should KSC apply current adviser bonding requirements to advisers to private funds?
7. What are the typical qualifications of advisers to Kansas-based private funds? Should KSC require certain minimal examinations and expertise for private fund advisers?
8. Recent changes to financial institution affiliate transaction rules prohibit banks from certain private fund transactions and management arrangements. Will banks with these types of operations spin off their advisory personnel, and if so, to what extent are the needs of these fund advisers different than that of other private fund advisers?
9. Government funds available for borrowing by Small Business Investment Companies (SBICs) are subject to unpredictable congressional appropriation and increasing regulatory scrutiny. Might some SBICs choose to forgo SBIC regulation and convert to a state-sponsored regime if one were available? If so, what characteristics of a state-sponsored regime might be attractive to an SBIC?
People should note that this is not the first and last time they will be able comment on an exemption for private fund advisers; they will have another opportunity to submit written comments between the date the rule is proposed and the date of its public hearing.
Monday, November 29, 2010
CFTC Chair Says No Going Back to Originate and Hold World of It's a Wonderful Life
Referencing the holiday movie It's A Wonderful Live, CFTC Chair Gary Gensler said that in passing the Dodd-Frank Act, Congress determined that it is incumbent upon regulators to update to the reality that we no longer live in George Bailey’s pre-derivatives originate and hold time. Rather, federal financial regulators must oversee a banking system, shadow banking system composed of mutual funds and hedge funds, a complex derivatives marketplace and a Wall Street that continue to change and pose new risks. In remarks at the Woodrow Wilson School of Public and International Affairs, he emphasized that the CFTC and SEC don’t have the luxury to turn back the clock, but rather have the responsibility to update their oversight for the financial system of the time.
Chairman Gensler joins a growing and by now overwhelmong consensus that we have ``crossed the Rubicon’’ into originate and distribute securitization and there is no turning back to originate and hold. Indeed, restarting private-label securitization markets, especially in the United States, is critical to limiting the fallout from the credit crisis and to the withdrawal of central bank and government interventions. However, no one wants policies that would take markets back to their high octane levels of 2005–07. Thus, the Dodd-Frank legislation aims to put securitization on a solid and sustainable footing and provide for transparency and accountability of the derivatives markets.
When the movie was filmed in 1946, the CFTC Chair noted, 98 percent of bank liabilities were made up of deposits. But today, there are many alternative ways for money and credit to flow through the economy other than banking. There has been explosive growth in shadow or alternative banking, including money market funds, asset backed and mortgage securitizations, government sponsored enterprises, repo and securities lending and open market paper, such as commercial paper. This has all grown to $16.4 trillion, he noted, larger than bank liabilities. That figure does not even include the $1.6 trillion with finance companies, the $1.9 trillion with securities brokers, the $1.8 trillion with hedge funds or the $1.5 trillion in private equity and venture capital, all of which might also be considered part of, up until Dodd-Frank, the largely unregulated shadow banking system that former Fed Chair Paul Volcker warned about.
The changes in how the financial system intermediates money is only part of the story, he continued, as there also have been significant changes in how it intermediates risk. Though risk is intermediated as part of the intermediation of money and credit, it also is done so with the use of derivative contracts. The CFTC Chair explained that derivatives are used by banks and by the alternative banking sector, as well as throughout the economy. Derivatives, and in particular currency swaps, interest rate swaps and credit default swaps, have come to serve important roles in the credit markets as well. Today they are intertwined with many of the client relationships and risks of a bank. Based upon figures compiled by the Office of the Comptroller of the Currency, the largest 25 bank holding companies currently have $277 trillion notional amount of over-the-counter derivatives, he observed, representing more than 20 times these bank holding companies’ combined total assets.
Chairman Gensler joins a growing and by now overwhelmong consensus that we have ``crossed the Rubicon’’ into originate and distribute securitization and there is no turning back to originate and hold. Indeed, restarting private-label securitization markets, especially in the United States, is critical to limiting the fallout from the credit crisis and to the withdrawal of central bank and government interventions. However, no one wants policies that would take markets back to their high octane levels of 2005–07. Thus, the Dodd-Frank legislation aims to put securitization on a solid and sustainable footing and provide for transparency and accountability of the derivatives markets.
When the movie was filmed in 1946, the CFTC Chair noted, 98 percent of bank liabilities were made up of deposits. But today, there are many alternative ways for money and credit to flow through the economy other than banking. There has been explosive growth in shadow or alternative banking, including money market funds, asset backed and mortgage securitizations, government sponsored enterprises, repo and securities lending and open market paper, such as commercial paper. This has all grown to $16.4 trillion, he noted, larger than bank liabilities. That figure does not even include the $1.6 trillion with finance companies, the $1.9 trillion with securities brokers, the $1.8 trillion with hedge funds or the $1.5 trillion in private equity and venture capital, all of which might also be considered part of, up until Dodd-Frank, the largely unregulated shadow banking system that former Fed Chair Paul Volcker warned about.
The changes in how the financial system intermediates money is only part of the story, he continued, as there also have been significant changes in how it intermediates risk. Though risk is intermediated as part of the intermediation of money and credit, it also is done so with the use of derivative contracts. The CFTC Chair explained that derivatives are used by banks and by the alternative banking sector, as well as throughout the economy. Derivatives, and in particular currency swaps, interest rate swaps and credit default swaps, have come to serve important roles in the credit markets as well. Today they are intertwined with many of the client relationships and risks of a bank. Based upon figures compiled by the Office of the Comptroller of the Currency, the largest 25 bank holding companies currently have $277 trillion notional amount of over-the-counter derivatives, he observed, representing more than 20 times these bank holding companies’ combined total assets.
Words reveal an inclination for violence.
In today's SN-L, Michael Pulley has a column that the page editor decided to put under the headline Words reveal an inclination for violence:
In December, 2007, I posted the following photos under the blog title "How It Begins." Pulley and I were on the same wave length.
Delicious violence shaped my youth, with destruction holding special delights. Hurling anything handy at inanimate objects or people was particularly gratifying. I threw gravel at stop signs, walnuts at the windows of abandoned houses, apples at dogs and cats, tomatoes at unsuspecting adults. No one, I thought, was watching. Until as a 10-year-old I was hauled with my parents into a good-natured session before the town sheriff, who told me to stop throwing things. I complied.
Then came the hitting phase. We whacked each others' arms until deliriously numb; we blindsided one another with jolting tackles; in "burn out" we slapped each others' hands until painfully acquiescing. This culminated gloriously in the town's sanctioned coup de grace: high school football. No Mighty Mites or junior high football in those days. At 14, in ill-fitting equipment from the 1950s, we offered ourselves as "live freshman bait" to be pummeled and smashed like gridiron roadkill by brutish seniors. Later, as seniors, we did the same, savoring the inflicted pain and occasional freshman bone-breaking. Sweet stuff, we thought. Violence meets humiliation.
Then college, where the twin charms of violence and humiliation were applied with subterfuge. Stealing. I did not participate but witnessed it: the violence of wrestling from unwilling hands books, papers, clothing -- even ideas. A dorm buddy happened to be working on a similar assignment and wondered what I was doing. I'd spent days on a project I found fascinating and fulfilling. I showed him my work.
"Thanks," he said.
Maybe I had helped him come up with something interesting. Days later, I asked him how he did, and the fool showed me. My paper exactly, nearly word-for-word. His an A. Mine a B. I lashed out verbally before he walked away, unfazed, even pleased. I've seen him occasionally over the years, a successful businessman, always greeting me warmly. Nice guy, really. Perhaps he's softened, as have I.I watched JFK's violent shooting, Martin Luther King's, RFK's, the brutality of the 1968 Chicago street protests, George Wallace's shooting, John Lennon's shooting, the assassination attempt of Ronald Reagan. Then the Vietnam War, Gulf War, World Trade Center disaster, Iraq War, Afghan War. Today I can watch only seconds of Mixed Martial Arts, where hitting and bloodying an opponent while down and helpless is high sport.
Yet, mostly I flinch in disgust at the verbal rampages I witness on talk radio, news stations, blogs, letters to editors. Words at their violent worst and, I suspect, meant to maim and humiliate. Some call it lack of civility. To be sure. But underlying must be a need to strike, to bloody. Destroy.
I wonder about the violence that informed my youth. Why did I once prize it so then and am repulsed by it now? I'll ask my shrink. Or perhaps just repeat the instructive words of that small town sheriff. "Stop throwing things."
Especially loaded words. Someone could get hurt.
In December, 2007, I posted the following photos under the blog title "How It Begins." Pulley and I were on the same wave length.
Sunday, November 28, 2010
ABA Asks SEC to Follow Legislative History When Adopting Securitization Conflict of Interest Regulations
In a joint comment letter to the SEC, the American Bar Association Committees on Federal Securities Regulation and Securitization ask the Commission to permit a broad range of common activities that they believe are essential to the functioning of securitization when adopting regulations dealing with conflicts of interest in securitization as commanded by Section 621 of the Dodd-Frank Act. According to the ABA, the legislative history of Section 621 indicates that the statutory intent was to address blatant conflicts of interest in which an underwriter or sponsor creates an asset-backed security that is designed to fail and then profits by betting against it, by means of short sales or otherwise.
The legislative history further provides that changes in market conditions may lead an underwriter to wish to sell the securities it holds. That is also not likely to pose a conflict. Although the legislative history indicates a focused intent, noted the ABA, the language of Section 621 is significantly broader. The ABA groups request that the SEC, in adopting rules implementing this provision, should give appropriate weight to Congressional intent while permitting a broad range of common activities essential to the functioning of the securitization markets. Ordinary course business transactions do not involve the types of material conflicts contemplated by Congress and should be permitted under the rules. Instead, the SEC regulations implementing Section 621 should focus on the asset-backed securities transactions in which the adverse performance of the pool assets would directly benefit an identified party or sponsor of the applicable securitized transaction, as well as those transactions in which a loss of principal, monetary default or early amortization event on the asset-backed security would directly benefit an identified party or sponsor.
The implied conflicts in most ordinary course transactions involving underwriters, placement agents, initial purchasers and sponsors of ABS do not have the above characteristics, said the ABA, and indeed, these transaction parties generally have a strong interest in the positive performance of the assets and the transaction. The ABA believes that the relationship between an asset-backed security sponsor and investors in such instruments is inherently conflicted. The sponsor is seeking funding and the investors in the securitization are providing that funding on negotiated terms. Pool selection also may involve conflicts, and risk retention itself may create conflicts with some classes of investors. Conflicts of this type relating to the terms and nature of the security exist in any ABS transaction, posited the ABA, and cannot be eliminated. Similarly, many potential conflicts of interest are an unavoidable byproduct of the of the securitization process or arise from transaction features that on the whole are beneficial to investors. For example, subordinate tranches act as credit enhancement for the more senior
tranches and are frequently required by the rating agencies and investors.
The legislative history further provides that changes in market conditions may lead an underwriter to wish to sell the securities it holds. That is also not likely to pose a conflict. Although the legislative history indicates a focused intent, noted the ABA, the language of Section 621 is significantly broader. The ABA groups request that the SEC, in adopting rules implementing this provision, should give appropriate weight to Congressional intent while permitting a broad range of common activities essential to the functioning of the securitization markets. Ordinary course business transactions do not involve the types of material conflicts contemplated by Congress and should be permitted under the rules. Instead, the SEC regulations implementing Section 621 should focus on the asset-backed securities transactions in which the adverse performance of the pool assets would directly benefit an identified party or sponsor of the applicable securitized transaction, as well as those transactions in which a loss of principal, monetary default or early amortization event on the asset-backed security would directly benefit an identified party or sponsor.
The implied conflicts in most ordinary course transactions involving underwriters, placement agents, initial purchasers and sponsors of ABS do not have the above characteristics, said the ABA, and indeed, these transaction parties generally have a strong interest in the positive performance of the assets and the transaction. The ABA believes that the relationship between an asset-backed security sponsor and investors in such instruments is inherently conflicted. The sponsor is seeking funding and the investors in the securitization are providing that funding on negotiated terms. Pool selection also may involve conflicts, and risk retention itself may create conflicts with some classes of investors. Conflicts of this type relating to the terms and nature of the security exist in any ABS transaction, posited the ABA, and cannot be eliminated. Similarly, many potential conflicts of interest are an unavoidable byproduct of the of the securitization process or arise from transaction features that on the whole are beneficial to investors. For example, subordinate tranches act as credit enhancement for the more senior
tranches and are frequently required by the rating agencies and investors.
Saturday, November 27, 2010
UK Will Introduce Tax Transparent Funds to Take Advantage of Master-Feeder Structures under UCITS IV Directive
The UK will launch a new regulatory regime for tax transparent mutual funds to align with other EU jurisdictions taking advantage of the UCITS IV Directive, said UK Finance Minister Mark Hoban. In recent remarks, he said that the new fund vehicle the UK plans to authorize will be suitable for both the pooling of pensions, and for use within the new UCITS IV master/feeder fund structure. A tax transparent fund is one where the taxing authorities disregard the fund entity and look to the shareholders as the source of the income
UCITS IV, or more formally the tongue-twisting Undertakings for Collective Investments in Transferable Securities Directive IV, will usher in the widespread introduction of a master-feeder fund structure across the EU, noted the Minister, and its is currently unlikely that firms will establish master funds in the UK due to a lack of a suitable tax-transparent vehicle. Since other Member States in the EU already have suitable vehicles, and are well-positioned to take advantage of firms wanting to establish master funds, the UK must act or find itself left behind. The Minister also indicated that tax transparent funds are fast becoming the preferred mechanism for cross-border pooling of pension funds. Also, firms operating life insurance funds are looking for alternative options as the EU approaches final agreement on the Solvency II Directive.
According to the Investment Management Association, the UCITS IV Directive includes a number of measures designed to improve the efficiency of European funds, allowing for the first time master-feeder structures to be marketed across Europe as an alternative to merging fund ranges. Feeder funds in different domiciles will invest in the same master fund, thus allowing a single portfolio of assets to be offered in multiple jurisdictions and for different types of investors.
Welcoming the Minister's announcement, Deloitte estimated that around £20billion of additional multinational pension fund investments would be made in the UK each year as a result of the authorization of a tax transparent fund vehiclen entity, which Deloitte described as allowing beneficial double tax treaties between investors and investments to be accessed. The potential for third party investment management funds to be transferred to such vehicles will be far more significant. This is due to the ability of the tax transparent vehicle both to support a master-feeder fund structure, and allow asset managers to realise economies of scale through fund rationalization.
UCITS IV, or more formally the tongue-twisting Undertakings for Collective Investments in Transferable Securities Directive IV, will usher in the widespread introduction of a master-feeder fund structure across the EU, noted the Minister, and its is currently unlikely that firms will establish master funds in the UK due to a lack of a suitable tax-transparent vehicle. Since other Member States in the EU already have suitable vehicles, and are well-positioned to take advantage of firms wanting to establish master funds, the UK must act or find itself left behind. The Minister also indicated that tax transparent funds are fast becoming the preferred mechanism for cross-border pooling of pension funds. Also, firms operating life insurance funds are looking for alternative options as the EU approaches final agreement on the Solvency II Directive.
According to the Investment Management Association, the UCITS IV Directive includes a number of measures designed to improve the efficiency of European funds, allowing for the first time master-feeder structures to be marketed across Europe as an alternative to merging fund ranges. Feeder funds in different domiciles will invest in the same master fund, thus allowing a single portfolio of assets to be offered in multiple jurisdictions and for different types of investors.
Welcoming the Minister's announcement, Deloitte estimated that around £20billion of additional multinational pension fund investments would be made in the UK each year as a result of the authorization of a tax transparent fund vehiclen entity, which Deloitte described as allowing beneficial double tax treaties between investors and investments to be accessed. The potential for third party investment management funds to be transferred to such vehicles will be far more significant. This is due to the ability of the tax transparent vehicle both to support a master-feeder fund structure, and allow asset managers to realise economies of scale through fund rationalization.
Senate Extenders Legislation Contains Carried Interest Provision with Impact Beyond Hedge Fund Managers
Provisions in a Senate version of tax extenders legislation would expand the taxation of carried interest far beyond hedge fund managers, said the ABA Section on Taxation in a letter to Congress, and significantly alter fundamental aspects of partnership taxation. Proposed Section 710 to the Internal Revenue Code would recharacterize income allocations of an investment service partnership from capital gain to ordinary income and defer losses allocated by such a partnership. These new provisions would apply to a partner providing investment services to the partnership. The service partner’s interest would be defined as an investment services partnership interest (“ISPI”). Proposed Section 710 also would change the taxation of distributions by the partnership on ISPIs and dispositions of ISPIs. In addition, Proposed Section 710 would further add penalties with respect to disqualified interests and impose self-employment tax with respect to ISPIs.
While the general purpose of proposed Section 710 is to tax the compensation element of a carried interest granted to fund managers as ordinary income rather than the capital gain it is currently taxed at, the ABA group believes that Section 710 goes beyond that original purpose in several ways. For example, if the intent of the legislation is to convert capital gains to ordinary income, it is unclear why proposed Section 710 provides loss deferral and mandatory gain recognition for C corporations, which are not taxed at different rates on capital gains or ordinary income.
Proposed Section 710 would also treat all partnership interests held by a partnership as “specified assets” regardless of the underlying character of the lower tier partnership’s assets. The ABA is not aware of any significant policy rationale for including all partnership interests, especially those issued by partnerships with no securities, commodities or derivatives, such as operating small grocery stores. If the intent of Congress is to prevent taxpayers from circumventing proposed Section 710 by forming partnerships to hold securities, commodities or derivatives, reasoned the taxation section, this could be addressed in a manner similar to the approach used in IRC section 731(c)(2)(B)(v) and (vi),5 which treatx partnerships holding specified assets in a manner similar to the manner in which those assets would be treated (i.e., a look-through analysis) without causing all partnership interests to be treated as the specified “bad” assets.
Senate Amendment 4386 was introduced on June 23, 2010, by Senate Majority Leader Reid for Finance Committee Chairman Baucus, to amend the American Jobs and Closing Tax Loopholes Act of 2010 to alter the taxation of certain carried interests by adding a new section 710 to the Internal Revenue Code. On July 22, 2010, H.R. 4213, Unemployment Compensation Extension Act of 2010, Pub. Law 111–205, 124 Stat. 2236, was enacted into law. As enacted, H.R. 4213 did not include any provisions affecting the taxation of carried interests. On September 16, 2010, Chairman Baucus introduced S. 3793, Job Creation and Tax Cuts Act of 2010, which includes a proposal with respect to the taxation of carried interests that appears to be identical to proposed Section 710.
While the general purpose of proposed Section 710 is to tax the compensation element of a carried interest granted to fund managers as ordinary income rather than the capital gain it is currently taxed at, the ABA group believes that Section 710 goes beyond that original purpose in several ways. For example, if the intent of the legislation is to convert capital gains to ordinary income, it is unclear why proposed Section 710 provides loss deferral and mandatory gain recognition for C corporations, which are not taxed at different rates on capital gains or ordinary income.
Proposed Section 710 would also treat all partnership interests held by a partnership as “specified assets” regardless of the underlying character of the lower tier partnership’s assets. The ABA is not aware of any significant policy rationale for including all partnership interests, especially those issued by partnerships with no securities, commodities or derivatives, such as operating small grocery stores. If the intent of Congress is to prevent taxpayers from circumventing proposed Section 710 by forming partnerships to hold securities, commodities or derivatives, reasoned the taxation section, this could be addressed in a manner similar to the approach used in IRC section 731(c)(2)(B)(v) and (vi),5 which treatx partnerships holding specified assets in a manner similar to the manner in which those assets would be treated (i.e., a look-through analysis) without causing all partnership interests to be treated as the specified “bad” assets.
Senate Amendment 4386 was introduced on June 23, 2010, by Senate Majority Leader Reid for Finance Committee Chairman Baucus, to amend the American Jobs and Closing Tax Loopholes Act of 2010 to alter the taxation of certain carried interests by adding a new section 710 to the Internal Revenue Code. On July 22, 2010, H.R. 4213, Unemployment Compensation Extension Act of 2010, Pub. Law 111–205, 124 Stat. 2236, was enacted into law. As enacted, H.R. 4213 did not include any provisions affecting the taxation of carried interests. On September 16, 2010, Chairman Baucus introduced S. 3793, Job Creation and Tax Cuts Act of 2010, which includes a proposal with respect to the taxation of carried interests that appears to be identical to proposed Section 710.
Friday, November 26, 2010
Hedge Fund Industry Seeks Fair Market Valuation for Securities in Dodd-Frank Liquidation Authority
The hedge fund industry has urged regulators implementing the orderly liquidation provisions of the Dodd-Frank Act to provide for the fair market valuation of securities of failing financial firms rather than the fixed valuations proposed for government securities and contemplated for other securities. In a letter to the Managed Funds Association said that assigning fixed valuations for certain types of assets in advance, as the Proposed Rule contemplates for Treasury and other U.S. government securities, is likely to lead to valuations inconsistent with the statutory standard of fair market value. It could also lead to distortions in market activity.
In the MFA's view, the appropriate valuation of assets is a critical component of any liquidation process. Section 210(a)(3)(D)(ii)(I) of the Dodd-Frank Act treats any portion of a secured claim which exceeds the fair market value of the underlying collateral as an unsecured claim, paid in the same manner as other general unsecured creditors. But Dodd-Frank does not define the term “fair market value” for the purpose of determining the amount of secured claim that will be treated as an unsecured claim. The proposed rules contemplate adopting a regulation establishing a fixed valuation for U.S. government securities, and asks whether valuations should be fixed for other forms of collateral.
In the MFA's view, the appropriate valuation of assets is a critical component of any liquidation process. Section 210(a)(3)(D)(ii)(I) of the Dodd-Frank Act treats any portion of a secured claim which exceeds the fair market value of the underlying collateral as an unsecured claim, paid in the same manner as other general unsecured creditors. But Dodd-Frank does not define the term “fair market value” for the purpose of determining the amount of secured claim that will be treated as an unsecured claim. The proposed rules contemplate adopting a regulation establishing a fixed valuation for U.S. government securities, and asks whether valuations should be fixed for other forms of collateral.
Thursday, November 25, 2010
The Loved Ones: Canaday, Blunt and Nixon
A frequent bus rider wrote me this this afternoon. I can only assume that after he had his afternoon of sleep inducing turkey, he decided to do some psiber sleuthing and came across this information that dovetails with this information.
The rider writers: I hope you had the chance to read about Doug Cassity's latest adventure in today's News-Leader and here, on November 23.
My family knew Doug's (his grandparents ran the local post office). They were well-respected although some thought they held themselves in a little too high regard.
It is still hard to believe that someone who was so liked and admired turned out to be such an incredible heel. After reading the SNL piece I googled "Doug Cassity" and discovered the item below. The link was dead but I found a cached version of s story that appeared on the WFLD, Chicago's FOX TV affiliate, website.
The SNL piece missed quite a bit. Not the least of which are political contributions made to Jay Nixon and Matt Blunt at the time his company was being investigated.
The Average Joe's MadoffA couple of days ago, another bus rider emailed me asking if I had read the November 23 piece on Cassity, saying, in part, "Hop-Along-Cassidy rides again. I thought Doug was already locked up a Club Fed?"
Regulators and congress are outraged and appalled, as they always are, at the enormity and longevity of the Madoff ponzi scam. Despite the fact that for years the writing was on the wall, with flashing strobe lights, and at times right in their hands, somehow it was overlooked that Madoff was delivering miraculous returns, using a "trading strategy" that in no way could generate returns of that magnitude for long periods of time in various economic environments, and the auditor of this multi-billion fund was a one-man shop in a strip mall. Huh? I could go on and on, but Madoff is not my point.
The ponzi that should be in the spotlight involves a maze of intertwined companies under the umbrella of Missouri-based National Prearranged Services, including Lincoln Memorial Life Insurance Co. and Memorial Services Life Insurance Co., which was relatively quietly forced into liquidation in March 08. Unfamiliar...here's a thumbnail sketch...
NPS sold pre-need funeral contracts through funeral homes in 19 states, over 200,000 contracts nationwide. The pitch is to pre-pay funeral expenses at today's prices and avoid higher inflation adjusted prices later. What did my grandma always say...when it seems to good to be true, it probably is...then she would promptly box my ears for failing to see the obvious.
In a perfect world, NPS would take a percentage of the pre-paid funds and place them in a trust, which is used to buy a whole life insurance policy on the contract holder, which generates interest. When you die, NPS pays the funeral expenses within 24 hours and are reimbursed from cashing out the life insurance policy with interest. The insurance policies are, of course, purchased from their sister companies, Lincoln Memorial and Memorial Services. Keeping it all in the family...
In an imperfect world, a/k/a reality, NPS allows the insurance policies to lapse or cancels the whole life to buy a cheaper, non-interest bearing term-life policy. When you die, they "honor" the old contract with proceeds from new contracts sold. No harm, no foul. Except that you cannot sustain this model, it is illegal and is by any definition a classic ponzi! Aside from the fact that the percentage they are required to put into trust varies by state, with Missouri law allowing NPS to keep 20% of funds in commissions, and of course keep the interest. From the get go, a $10,000 contract is really worth $8,000, allowing consumers the privilege of paying $2,000 in inflation protection. I can feel my grandma's hands coming...
But, like Madoff, NPS operated with a relatively deaf ear from regulators. With it's various businesses...insurance, cemeteries, funeral homes...it fell into one of those gray, murky areas of oversight...insurance? funeral industry? contract law? Like a quick game of hot potato...don't be the last to hold it, or you are the state agency forced to do your job!
NPS was poison from inception. Founded in 1979 by James Douglas Cassity, a disbarred Springfield, MO attorney who served time in federal prison in the early 80's for an unrelated tax shelter fraud. His name rarely appears, instead placing the ownership interests of all of the kissing cousins in various Cassity family trusts and other family members.
FIRST FLASHING STROBE LIGHT
In 1992, the attorney general of MO began investigating NPS, resulting 8 years later in a 2000 court ruling which scolded NPS and told them to tighten up their financial records and make sure proper coverage is in place, with no further or ongoing regulatory monitoring guidelines.
SECOND FLASHING STROBE LIGHT
In 2005, under the cleverly named "Operation Grave Concern", the MO attorney general targeted funeral homes and pre-need contract sellers. A handful funeral directors and contract sellers were charged, and NPS, the godfather of pre-need contract fraud, was harshly scolded for failing to ensure proper coverage in relation to one charged funeral director, and paid an out of court settlement of $10,000 and once again agreed to tighten their financial records, with no further or ongoing regulatory monitoring guidelines.
MORE SPOTLIGHTS It apparently was not important that according to the National Institute of Money & Politics, NPS ranked in the top 10 funeral industry lobbyists and political contributors, giving around $109,000, much to none other than MO attorney general Jay Nixon and MO governor Matt Blunt. It almost feels like I'm talking about Illinois! Where's Blago when you need him...
RESULT
In March 08, Texas forced NPS into liquidation, as the two primary insurance companies wereheadquartered there, noting that the businesses were "inextricably intertwined". Not surprisingly, the Chap. 11 agreement personally exempts the Cassity's and about 50 other entities, including the Nantucket home that Doug Cassity sold last year for over $16M to Google CEO Eric E. Schmidt. In receivership, the unfortunate individual appointed to try to unravel this mess has stated that NPS will honor the existing contracts, but does not state at what value, and the payout will come no later than 60 days of filing the claim. 60 days! That's not much solace for the family who is forced to pony up thousands now for the at-need funeral they believed was paid for in advance, with the pat on the head that they will receive some to all of that money back within 60 days.
Several states, including Iowa, Texas, Missouri, Kentucky and Ohio are investigating, as is the FBI, who preliminarily have stated the loss at around $500,000,000. And various knee-jerk, sloppy and reactionary pieces of legislation have been proposed, with all of them failing to pass.
And the sordid story continues today...with no conclusion and little to no press coverage. At least they weren't deemed too big to fail.
When I replied that I remembered the original story (and more as I refreshed my memory via google.com) he fired this back at me: "Notice how they said "complicated" scheme. Cassity is so good at putting these things together I bet they never convict him. I hope he gets off so we can get in on the ground floor next time... He developed a huge thirst for cash flow to fuel his lifestyle and has ran scams ever since college."
The St. Louis Beacon has this fstory on line :
James Douglas Cassity returned to the area Wednesday to appear in court on charges that he and other leaders of his Clayton-based funeral empire embezzled as much as $600 million.There's more here
A 50-count indictment made public this week accuses Cassity and five others at his company — National Prearranged Services Inc. — of embezzling and laundering money that was supposed to be used to pay funeral expenses for about 150,000 consumers.
The indictment was the latest chapter in the downfall of a multimillion-dollar empire that reaped huge rewards for Cassity and his family, including homes across the country, and featured holdings in multiple funeral homes, insurance companies and cemeteries.
But on Wednesday, when a federal magistrate judge was determining bail for Cassity, 64, the accused embezzler claimed to be pinching pennies.
"He is not living the high life," his lawyer, Scott Rosenblum, told U.S. Magistrate Judge Frederick R. Buckles at the downtown federal courthouse. "He drove up here in a Jeep without windows and rented an apartment here. ... He lives on Social Security and is using credit cards for expenses."
Assistant U.S. Attorney Steven Muchnick had a different argument, saying his office was worried that Cassity might flee. Muchnick said $2.1 million was recently moved from accounts "nominally controlled" by Cassity's wife, Rhonda.
"We believe those proceeds came out of the fraud schemes," Muchnick said.
Rosenblum said that the Cassitys are separated and that his client had no influence over the transfers.
Regardless, Buckles set bail at $500,000, requiring Cassity to deposit $50,000 in cash with federal marshals by noon Monday. Just minutes after describing his client's financial woes, Rosenblum said Cassity would provide the $50,000 on time.
At the hearing, Cassity also pleaded not guilty to numerous fraud and money laundering charges. Buckles ordered him to check in weekly with the government and obtain court permission to travel to Naples, Fla., where Cassity has enjoyed a gulf view from the high-rise Le Jardin building. The luxury condo — valued at $2.6 million, according to tax records — is one of several properties owned by Cassity and his relatives that federal authorities hope to seize.
Cassity told the judge he recently rented an apartment in Chesterfield and will be living there as his case unfolds.
After the hearing, Cassity declined to talk with a reporter. Rosenblum said during the hearing that Cassity "believes he will be vindicated. He believes that in his heart, he believes that in his soul."
Others indicted include Cassity's son, Brent Cassity, 43, of Clayton; Randall K. Sutton, 65, of Chesterfield; Sharon Nekol Province, 66, of Ballwin; Howard A. Wittner, 73, of Chesterfield; and David R. Wulf, 58, of St. Louis County. All served as officers, directors or advisers of National Prearranged and affiliated insurance companies controlled by Cassity family trusts.
Bail has varied by defendant. U.S. Magistrate Judge Terry Adelman ordered Wittner, a lawyer, to wear a GPS monitoring device and pledge $200,000 in property. Adelman freed Brent Cassity on a promise to pay $50,000 if he were to flee.
PAST PRISON TERM
Wednesday wasn't the first time Cassity has had to appear in court as a criminal defendant.
Before moving to the St. Louis area, Cassity was a young lawyer in southwest Missouri. In the 1970s, he ran an investment club in Springfield, Mo.
A federal investigation uncovered a scheme full of intertwined corporations and missing funds. Cassity pleaded guilty of conspiracy and tax fraud violations in 1982, lost his law license and served six months in federal prison.
After Cassity got out, he moved his family to St. Louis to focus his efforts on National Prearranged Services, which aggressively sold prearranged funeral policies.
He had started getting involved in the death business years earlier, after one of his legal clients — a door-to-door seller of prepaid funerals — couldn't come up with the money to pay Cassity's fee and offered him an ownership stake instead.
Business grew rapidly, and by the 1990s, the Cassity family controlled several related companies and was held up as the leading innovators in the funeral business. It operated from a building overlooking Shaw Park in downtown Clayton, and the marble floors, wood-paneled walls and leather furniture were testaments to its success.
Forever Enterprises — one of the Cassity companies — envisioned graveyards where video monitors stood side by side with age-old headstones. Mourners would be able to watch tribute videos of the departed.
Eventually, the Cassity empire would include ownership of several funeral homes and seven area cemeteries as well as control of two insurance companies.
In 2005, Cassity sold a Nantucket, Mass., home for $16 million to Eric Schmidt, Google's chief executive. In July, Cassity and his wife sold their New York City condo for $750,000.
In addition to the Florida condo, the indictment seeks recovery of homes in Clayton and Chesterfield, and Oak Hill Cemetery in Kirkwood. Authorities also are seeking real estate elsewhere, including:
• The 62-acre Hollywood Forever Cemetery — the final resting place of stars like Rudolph Valentino, Cecil B. DeMille and John Huston — next to Paramount Studios.
• A four-bedroom Nantucket residence known as the Hydrangea House, according to an online real estate listing advertising that the house is for sale for $5.9 million.
• An 1,828-square-foot Nantucket house that Rhonda Cassity sold to one of the family businesses in 2002 for $1.5 million, according to tax records.
Most consumers who paid for funeral plans are protected by state insurance-guarantee associations. In some cases, however, the insurance pays only a small portion of the actual cost of the arrangements, and participating funeral homes must make up the difference, funeral directors said.
Connie James, with James & Gahr Mortuaries in St. James, Mo., won't say exactly how many of pre-need contracts her business is on the hook for.
"A few thousand," she said.
But James doesn't hold back when asked about Cassity.
"He's the Bernie Madoff of Missouri," she said.
There's more here: http://www.politicalfriendster.com/showPerson.php?id=7787&name=National-Prearranged-Services-Inc adn herehttp://www.deathcarelaw.com/tags/nps.
Bachus Asks for SEC-Like Transparency in Setting Up Bureau of Consumer Financial Protection
The incoming Chair of the House Financial Services Committee wants to see more transparency and accountability in the process of establishing the new Bureau of Consumer Financial Protection mandated by the Dodd-Frank Act. In a letter to Treasury officials, Rep. Spencer Bachus said that, in sharp contrast to the approach taken by the SEC and CFTC in implementing Dodd-Frank, Treasury has provided little or no transparency in its activities implementing the Bureau for eventual hand-off to the Fed, where it will reside. For example, he noted that Treasury officials have provided little transparency on who they are meeting with and who they are soliciting input from. Rep. Bachus asks for the names of any other persons who Secretary Geithner has delegated duties to during this interim phase. The Congressman wants a response from Treasury on this and his other queries by January 10, 2011.
Rep. Bachus noted that the SEC and CFTC are publicly disclosing the names of all persons from outside government who meet with them about implementing Dodd-Frank, as well as the subject matter of such meetings. Rep. Bachus asks Treasury if the federal employees responsible for establishing the Bureau, including Professor Elizabeth Warren, complying with this protocol with regard to meetings regarding the Bureau. The incoming Chair also asks if the officials creating the Bureau have studied the organizational changes that the SEC and other federal financial regulators made in response to criticisms in the wake of the financial crisis. He believes that the Warren team has a unique opportunity to learn from the lessons of the past in crafting a the largest new federal regulator in a generation with a guaranteed annual budget of over $500 million. The Congressman wants to know the plans for the new organization, including what divisions and offices are being contemplate, as well as how public comment will be sought on this matters. The current Ranking Member said that, since the Bureau will be under scant oversight of how it spends the annual budget, Congress needs to know the internal mechanisms the Bureau will put in place to prevent fraud, waste and abuse.
Rep. Bachus noted that the SEC and CFTC are publicly disclosing the names of all persons from outside government who meet with them about implementing Dodd-Frank, as well as the subject matter of such meetings. Rep. Bachus asks Treasury if the federal employees responsible for establishing the Bureau, including Professor Elizabeth Warren, complying with this protocol with regard to meetings regarding the Bureau. The incoming Chair also asks if the officials creating the Bureau have studied the organizational changes that the SEC and other federal financial regulators made in response to criticisms in the wake of the financial crisis. He believes that the Warren team has a unique opportunity to learn from the lessons of the past in crafting a the largest new federal regulator in a generation with a guaranteed annual budget of over $500 million. The Congressman wants to know the plans for the new organization, including what divisions and offices are being contemplate, as well as how public comment will be sought on this matters. The current Ranking Member said that, since the Bureau will be under scant oversight of how it spends the annual budget, Congress needs to know the internal mechanisms the Bureau will put in place to prevent fraud, waste and abuse.
Thanksgiving Day preparations at the bus garage
1. Get a turkey. This year I had purchased a 10lb bird from Price Cutter on Wednesday evening. Later that evening, my sister Joan called me and, due to a change in plans, she and Greg had a 18 free range bird from Momma Jeans. She wanted to know if I was interested in it. 
2. Take all the stuff out of the inside of the turkey, stuff like this turkey neck.
Someone in our family cooked a turkey one Thanksgiving day with the neck and giblets still in the bird's cavity. The relative is reminded of that instance everything Thanksgiving.
3. Grease up the bird with Crisco or, if you forgot to get crisco when you went to the store because you, Mr. "I don't need a list, I can remember this, there's not that much" not only forgot to buy coffee creamer but also forgot to buy the Crisco, (hey, I've got a lot on my mind, I'm a busy man), vegetable oil or olive oil is a satisfactory substitute. Salt and pepper bird.
4. If not equipped with a popup temperature thermometer, use a meat thermometer stuck in a meaty portion of the thigh but not touching a bone. This is a job for the PvtRN, she has experience giving shots and this meat thermometer is the same principle as giving a shot, only bigger, much bigger.
Turn oven on and preheat oven to 335.
Buy plenty of bread
The night before, have teh bus driver pick bread apart in bite-sized pieces and spread out on table to dry out.
Drying out the bread, in theory, makes for a less soggy dressing, but it take a fine touch to cook the dressing until moist but not soggy. My wife and her mother had that touch.
Put bread into the top of the roasting pan. This is the basis for the family tradition dressing. Bread, onions, celery, broth and pan dropping. Oh yes, an butter, lots of butter. set aside.
Tell husband to smile for camera as he is pulling bread apart. (Yeserday, Regina and I celebrated out 37th wedding anniversary. We went to Pizza House on Commercial Street for dinner. It was wonderful. One of our first dates was at Pizza House. I'm a lucky fella!)
Put turkey into oven.
Take turkey out of oven, put tin foil tent over top of turkey, put turkey, now with tin foil tent (to keep top of bird from burning) back in oven.
Cook the bird for the length of time obtained by doing a complex algebraic formula involving feet above sea level, oven cavity temperature, denseness and weight of turkey, ambient outside temperature and a graphing calculator. Or, you can stick a fork in it and when it comes out easily, it's done. (Thus the origin of the phrase, "Stick a fork in it, it's done."
Now, usually at this part of the preparations, the PvtRN and I will sit down, drink a couple cups of java and read the SN-L. However, because it rained and our paper was thrown in the driveway and slip back down to the ditch, it is soaked and un readable. I can get the news on line, but The PvtRN can't get the ads on line. bummer.
2. Take all the stuff out of the inside of the turkey, stuff like this turkey neck.
Someone in our family cooked a turkey one Thanksgiving day with the neck and giblets still in the bird's cavity. The relative is reminded of that instance everything Thanksgiving.3. Grease up the bird with Crisco or, if you forgot to get crisco when you went to the store because you, Mr. "I don't need a list, I can remember this, there's not that much" not only forgot to buy coffee creamer but also forgot to buy the Crisco, (hey, I've got a lot on my mind, I'm a busy man), vegetable oil or olive oil is a satisfactory substitute. Salt and pepper bird.
4. If not equipped with a popup temperature thermometer, use a meat thermometer stuck in a meaty portion of the thigh but not touching a bone. This is a job for the PvtRN, she has experience giving shots and this meat thermometer is the same principle as giving a shot, only bigger, much bigger.
Turn oven on and preheat oven to 335.
Buy plenty of bread
The night before, have teh bus driver pick bread apart in bite-sized pieces and spread out on table to dry out.
Drying out the bread, in theory, makes for a less soggy dressing, but it take a fine touch to cook the dressing until moist but not soggy. My wife and her mother had that touch. Put bread into the top of the roasting pan. This is the basis for the family tradition dressing. Bread, onions, celery, broth and pan dropping. Oh yes, an butter, lots of butter. set aside.
Tell husband to smile for camera as he is pulling bread apart. (Yeserday, Regina and I celebrated out 37th wedding anniversary. We went to Pizza House on Commercial Street for dinner. It was wonderful. One of our first dates was at Pizza House. I'm a lucky fella!)
Put turkey into oven.
Take turkey out of oven, put tin foil tent over top of turkey, put turkey, now with tin foil tent (to keep top of bird from burning) back in oven.
Cook the bird for the length of time obtained by doing a complex algebraic formula involving feet above sea level, oven cavity temperature, denseness and weight of turkey, ambient outside temperature and a graphing calculator. Or, you can stick a fork in it and when it comes out easily, it's done. (Thus the origin of the phrase, "Stick a fork in it, it's done."
Now, usually at this part of the preparations, the PvtRN and I will sit down, drink a couple cups of java and read the SN-L. However, because it rained and our paper was thrown in the driveway and slip back down to the ditch, it is soaked and un readable. I can get the news on line, but The PvtRN can't get the ads on line. bummer.
Wednesday, November 24, 2010
UK Supreme Court Explains Fiduciary Duty Limits of De Facto Directors
The UK Supreme Court has ruled that a person who created 42 companies to service the tax and business needs of IT contractors, and also created a company to be the sole director of each of the 42 companies with himself as the director of that corporate director, was not the de facto director of each of the 42 companies. In a 3-2 opinion, the Court declined to impose fiduciary duties on the individual when all of his relevant acts were done as a director of the corporate director and could be attributed in law solely to the activities of the corporate director so long as the relevant acts were done by the individual entirely within the ambit of the discharge of the his duties as a director of the corporate director. It is to that capacity that his acts must be attributed. The individual was simply not part of the corporate governance structure of the composite companies, said the Court, and did not assume a role in those companies which imposed on him the fiduciary duties of a director.Holland v. Commissioners for Her Majesty's Revenue and Customs, UKSC 51, Nov. 24, 2010.
The 42 companies were created separately in an effort to stay below a higher corporate tax rate, a scheme that failed when UK tax authorities found that the companies were associated and imposed the higher corporate rate. The government alleged that the individual was a de facto directors of the 42 companies, which had become insolvent, and of which HMRC is the only creditor, and that he had been guilty of misfeasance and breach of duty in causing the payment of dividends to the companies’ shareholders when the companies had insufficient distributable reserves to pay their creditors.
A company is an artificial entity, said Lord Hope for the majority, a creature of statute. So it can act only through human beings. Inevitably it is human beings who must take the decisions, and give effect to them by actions, if the company is to do anything
at all. It follows that persons can be validly appointed as company directors and that persons who are not directors de jure may nevertheless be treated as directors de facto. In addition, UK law allows for a company to be the director of another company and, up until the Companies Act of 2006 which required a company to have at least one natural director, to be the sole director. It followed that the corporate set up here of a sole corporate director for the 42 composite companies was proper since these events occurred before 2006.
The Court cited a key UK precedent holding that a de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.
The Court said that the mere fact of acting as a director of a corporate director will not be enough for that individual to become a de facto director of the subject company. In this case, the individual charged as de facto director wasdoing no more than discharging his duties as the director of the corporate director of the composite companies. Everything that he did was done under that umbrella. Evidence that the individual director of the body corporate was actually giving instructions in that capacity to the subject company and the subject company was accustomed to act in accordance with those directions would not be enough to prove that the individual director assumed a role in the management of the subject company which imposed responsibility on him for misuse of the subject company’s assets.
In his concurring opinion, Lord Collins noted that for almost 150 years de facto directors in English law were persons who had been appointed as directors, but whose appointment was defective, or had come to an end, but who continued to act as directors. There was a striking judicial innovation in the late 1980s by which persons who were held to be part of the corporate governance of a company, even though not directors, could be treated as directors for the purposes of statutory provisions
relating to such matters as wrongful trading by, and disqualification of, directors. To extend that line of authority so as to impose fiduciary duties on the individual in this case in relation to the composite companies, when all of his acts can be attributed solely to the activities of the corporate director of the composite companies would be an unjustifiable judicial extension of the concept of de facto director, and best left to the legislature, given that it was as recently as 2006 that it intervened to require that at least one director of a company be a natural person.
In dissent, Lord Walker feared that the Court’s decision will make it easier for risk averse individuals to use artificial corporate structures in order to insulate themselves against responsibility to an insolvent company’s unsecured creditors. While stopping short of calling it a sham, Lord Walker said that the Court's assertion that everything that the individual did was done in his capacity as a director of the corporate director of the composite companies and was within his authority as a director of that company, is the ``most arid formalism.'' The dissent believes that the individual was acting both as a de jure director of the corporate director and as a de facto director of the composite companies. A de facto director is not formally invested with office, reasoned Lord Walker. but if what he actually does amounts to taking all important decisions affecting the relevant company, and seeing that they are carried out, he is acting as a director of that company. It makes no difference that he is also acting as the only active de jure director of a corporate director of the company.
The 42 companies were created separately in an effort to stay below a higher corporate tax rate, a scheme that failed when UK tax authorities found that the companies were associated and imposed the higher corporate rate. The government alleged that the individual was a de facto directors of the 42 companies, which had become insolvent, and of which HMRC is the only creditor, and that he had been guilty of misfeasance and breach of duty in causing the payment of dividends to the companies’ shareholders when the companies had insufficient distributable reserves to pay their creditors.
A company is an artificial entity, said Lord Hope for the majority, a creature of statute. So it can act only through human beings. Inevitably it is human beings who must take the decisions, and give effect to them by actions, if the company is to do anything
at all. It follows that persons can be validly appointed as company directors and that persons who are not directors de jure may nevertheless be treated as directors de facto. In addition, UK law allows for a company to be the director of another company and, up until the Companies Act of 2006 which required a company to have at least one natural director, to be the sole director. It followed that the corporate set up here of a sole corporate director for the 42 composite companies was proper since these events occurred before 2006.
The Court cited a key UK precedent holding that a de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.
The Court said that the mere fact of acting as a director of a corporate director will not be enough for that individual to become a de facto director of the subject company. In this case, the individual charged as de facto director wasdoing no more than discharging his duties as the director of the corporate director of the composite companies. Everything that he did was done under that umbrella. Evidence that the individual director of the body corporate was actually giving instructions in that capacity to the subject company and the subject company was accustomed to act in accordance with those directions would not be enough to prove that the individual director assumed a role in the management of the subject company which imposed responsibility on him for misuse of the subject company’s assets.
In his concurring opinion, Lord Collins noted that for almost 150 years de facto directors in English law were persons who had been appointed as directors, but whose appointment was defective, or had come to an end, but who continued to act as directors. There was a striking judicial innovation in the late 1980s by which persons who were held to be part of the corporate governance of a company, even though not directors, could be treated as directors for the purposes of statutory provisions
relating to such matters as wrongful trading by, and disqualification of, directors. To extend that line of authority so as to impose fiduciary duties on the individual in this case in relation to the composite companies, when all of his acts can be attributed solely to the activities of the corporate director of the composite companies would be an unjustifiable judicial extension of the concept of de facto director, and best left to the legislature, given that it was as recently as 2006 that it intervened to require that at least one director of a company be a natural person.
In dissent, Lord Walker feared that the Court’s decision will make it easier for risk averse individuals to use artificial corporate structures in order to insulate themselves against responsibility to an insolvent company’s unsecured creditors. While stopping short of calling it a sham, Lord Walker said that the Court's assertion that everything that the individual did was done in his capacity as a director of the corporate director of the composite companies and was within his authority as a director of that company, is the ``most arid formalism.'' The dissent believes that the individual was acting both as a de jure director of the corporate director and as a de facto director of the composite companies. A de facto director is not formally invested with office, reasoned Lord Walker. but if what he actually does amounts to taking all important decisions affecting the relevant company, and seeing that they are carried out, he is acting as a director of that company. It makes no difference that he is also acting as the only active de jure director of a corporate director of the company.
UK Financial Minister Hails Passage of Non-Protectionist Legislation Regulating Hedge Funds
Recently enacted non-protectionist EU hedge fund legislation is an achievement that looked doubtful six months ago, said UK Financial Services Secretary Mark Hoban, but he hailed the Alternative Funds Managers Directive as a signal success for the free cross-border movement of capital. In remarks to PricewaterhouseCoopers, the Minister said that EU authorities reached an agreement where managers of hedge funds and private equity providers will be regulated in an internationally consistent and non-discriminatory way. Rather than seeing US and other third country managers frozen out of EU markets, he added, they will be able to qualify for a passport. This is of huge significance to the UK, as a leading player in this industry, the Minister emphasized, and will introduce greater competition, open up new markets, and create new investment opportunities. Most importantly, the EU has signaled it is open for business and will not close its borders and restrict free movement of capital.
There had been great concern earlier in the year from US and UK officials that the EU was moving towards protectionist hedge fund regulation through legislation that would deny an EU passport to US and other third country hedge funds. Treasury Secretary Tim Geithner had sounded an alarm in this regard. EU Commissioner for the Internal Market Michel Barnier had assured US officials that the EU would work towards non-discriminatory hedge fund and private equity fund regulatory legislation.
There had been great concern earlier in the year from US and UK officials that the EU was moving towards protectionist hedge fund regulation through legislation that would deny an EU passport to US and other third country hedge funds. Treasury Secretary Tim Geithner had sounded an alarm in this regard. EU Commissioner for the Internal Market Michel Barnier had assured US officials that the EU would work towards non-discriminatory hedge fund and private equity fund regulatory legislation.
Florida Adopts Discliplinary Guidelines for Dealers, Investment Advisers and Associated Persons
Disciplinary guidelines applicable to each ground for which disciplinary action may be taken against an individual or firm were adopted by the Florida Office of Financial Regulation, effective November 22, 2010. The guidelines as contained in the "Office of Financial Regulation, Division of Securities, Disciplinary Guidelines for Dealers, Investment Advisers and Associated Persons" specify a range of penalties based on the severity and repetition of specific offenses, and distinguish minor violations from violations that endanger the public health, safety or welfare, provide reasonable notice to the public of the penalties imposed for proscribed conduct and ensure that the penalties are imposed in a consistent manner, but listed mitigating or aggravating circumstances allow the Office to impose penalties other than those specified in the guidelines. Disqualification periods relate to crimes involving dealer, investment adviser, issuer, associated person or branch office applicants or registrants, or crimes involving moral turpitude or fraudulent or dishonest dealing. Disqualification periods suspending applicants from registration are based on criminal convictions or pleas of nolo contendere or guilt and include up to 5 days for a level A suspension, 6 to 30 days for level B suspension and over 30 days for a level C suspension. Fines range from $2,000 to $10,000 depending on the level of the fine from A to D. Applicants are not eligible to register until their disqualifying period expires.
Please see http://www.flofr.com/
Please see http://www.flofr.com/
Tuesday, November 23, 2010
Securities Industry Urges Supreme Court to Apply FRCP Rule 9(b) Standard to Materiality Element of Rule 10b-5
As the US Supreme Court considers the materiality element of Rule 10b-5 for the first time since 1988, the securities industry asks the Court to rule that materiality,like all other elements of a securities fraud, is subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b) and must pled with particularity. In a joint amicus brief filed with the Court in a private securities fraud action, SIFMA and the Chamber of Commerce contend that the Ninth Circuit incorrectly applied the “notice pleading” standard embodied by Federal Rule of Civil Procedure 8. Also, the brief said that the Ninth Circuit wrongly rejected the district court’s use of a “statistical significance” standard to evaluate whether the investors had sufficiently pled materiality. The Court has set oral argument for January 10, 2011. Matrixx Initiatives, Inc, v. Siracusano, Dkt. No. 09-1156.
While conceding that no federal circuit court of appeals has specifically addressed whether Rule 9(b) applies to the pleading of materiality, amici pointed out that a number of courts have held in general terms that Rule 9(b) applies to all elements of a federal securities fraud claim. Moreover, federal circuit courts of appeal have found that Rule 9(b) applies to analogous elements of a Section 10(b) claim, including loss causation and reliance. For example, the Fourth Circuit has observed that a strong case can be made that because loss causation is among the circumstances constituting fraud for which Rule 9(b) requires particularity, loss causation should be pleaded with particularity, see Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 185-86 (4th Cir. 2007). The same “strong case” exists for materiality, contended SIFMA and the Chamber.
The proper choice of pleading standards is important, emphasized amici, since Rule 9(b)’s heightened pleading standard serves to weed out meritless fraud claims. As to the crucial element of materiality, they noted, the complaint should include details
from which a judge could infer that the alleged misstatement or omission involved a fact that a reasonable investor would have considered important. And the securities fraud complaint should be dismissed if it does not do so. In this case, the Ninth Circuit never conducted the required Rule 9(b) particularity analysis.
While conceding that no federal circuit court of appeals has specifically addressed whether Rule 9(b) applies to the pleading of materiality, amici pointed out that a number of courts have held in general terms that Rule 9(b) applies to all elements of a federal securities fraud claim. Moreover, federal circuit courts of appeal have found that Rule 9(b) applies to analogous elements of a Section 10(b) claim, including loss causation and reliance. For example, the Fourth Circuit has observed that a strong case can be made that because loss causation is among the circumstances constituting fraud for which Rule 9(b) requires particularity, loss causation should be pleaded with particularity, see Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 185-86 (4th Cir. 2007). The same “strong case” exists for materiality, contended SIFMA and the Chamber.
The proper choice of pleading standards is important, emphasized amici, since Rule 9(b)’s heightened pleading standard serves to weed out meritless fraud claims. As to the crucial element of materiality, they noted, the complaint should include details
from which a judge could infer that the alleged misstatement or omission involved a fact that a reasonable investor would have considered important. And the securities fraud complaint should be dismissed if it does not do so. In this case, the Ninth Circuit never conducted the required Rule 9(b) particularity analysis.
FSOC Issues ANPR in Effort to Determine Which Securities Clearance and Settlement Utilities Are Systemically Important
As envisioned by the Dodd-Frank Act, the Financial Stability Oversight Council has issued an advanced notice of proposed rulemaking (ANPR) as a precursor of adopting regulations governing a determination when a financial market utility is systemically important. As defined in Section 803(6) of Dodd-Frank, a “financial market utility” is any person that operates a multilateral system for the purpose of transferring, clearing, or settling payments, securities, or other financial transactions among financial institutions or between financial institutions and that person. In Dodd-Frank, Congress recognized that the utility-like arrangements used to settle financial transactions, whether involving payments, securities, or derivatives are critical parts of the financial infrastructure and are integral to the soundness of the financial system. The importance of these arrangements has been highlighted by the recent period of market stress. Dodd-Frank authorizes the Council to designate as systemically important a financial market utility if the Council determines that the failure, or a disruption to the functioning, of a financial market utility could create or increase the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the financial system.
Financial market utilities exist in a number of markets and provide many benefits, but also concentrate risk. The payment and settlement processes of such systems are also highly interdependent, either directly through operational, contractual or affiliation linkages, or indirectly through liquidity flows or common participants. Problems in the completion of settlement at one system could spill over to other systems or financial institutions in the form of liquidity and credit disruptions.
Through the ANPR the Council is seeking to gather information as it begins to develop the specific criteria and analytical framework by which it will designate financial market utilities as systemically important under Title VIII of the Act.
Financial market utilities exist in a number of markets and provide many benefits, but also concentrate risk. The payment and settlement processes of such systems are also highly interdependent, either directly through operational, contractual or affiliation linkages, or indirectly through liquidity flows or common participants. Problems in the completion of settlement at one system could spill over to other systems or financial institutions in the form of liquidity and credit disruptions.
Through the ANPR the Council is seeking to gather information as it begins to develop the specific criteria and analytical framework by which it will designate financial market utilities as systemically important under Title VIII of the Act.
Chinese Auditing Standards Board Is in Full Convergence with International Financial Auditing Standards
The Chinese Auditing Standards Board has adopted financial auditing standards that are in full convergence with the clarified international auditing standards promulgated by the IAASB. The standards will take effect for audits of financial statements for periods beginning on or after January 1, 2011. During the process of international convergence, the CASB made limited additions it considered necessary and maintained some standards dealing with matters that are not specially covered in ISAs to reflect China’s unique circumstances and business requirements, such as standards for the verification of capital contributions and communication between predecessor and successor auditors. The IAASB recognizes that such additional requirements may be necessary and are acceptable where they do not conflict with ISAs.
In recent years, the IAASB has conducted the Clarity Project to enhance the clarity of international standards on auditing, which involved the application of new drafting conventions to all ISAs and substantial revisions of a number of ISAs. On February 27, 2009, the Clarity Project reached its completion with the approval of the Public Interest Oversight Board (PIOB). Auditors worldwide now have access to 36 newly updated and clarified ISAs and a clarified International Standard on Quality Control (ISQC).
In announcing China's firm support for the efforts of the IAASB to promote international convergence of auditing standards, Dr. Wang Jun, Vice Minister of the Chinese Ministry of Finance and Chairman of the CASB noted that the fundamental principle of drafting the Chinese auditing standards is to continuously improve them, as well as achieve continuous and comprehensive convergence with international auditing standards in line with the development of the Chinese market economy and the overall trend of economic globalization and international convergence.
In recent years, the IAASB has conducted the Clarity Project to enhance the clarity of international standards on auditing, which involved the application of new drafting conventions to all ISAs and substantial revisions of a number of ISAs. On February 27, 2009, the Clarity Project reached its completion with the approval of the Public Interest Oversight Board (PIOB). Auditors worldwide now have access to 36 newly updated and clarified ISAs and a clarified International Standard on Quality Control (ISQC).
In announcing China's firm support for the efforts of the IAASB to promote international convergence of auditing standards, Dr. Wang Jun, Vice Minister of the Chinese Ministry of Finance and Chairman of the CASB noted that the fundamental principle of drafting the Chinese auditing standards is to continuously improve them, as well as achieve continuous and comprehensive convergence with international auditing standards in line with the development of the Chinese market economy and the overall trend of economic globalization and international convergence.
Securities Industry Seeks Nuanced Approach to Uniform Federal Fiduciary Standard for Advisers and Brokers
While generally supporting SEC regulations implementing a uniform federal fiduciary standard for investment advisers and brokers, the securities industry asks the Commission to adopt a nuanced approach to the standard recognizing that broker-dealers play an important role in retail brokerage, which cannot be easily replicated with alternative service models. In a recent letter to the SEC, SIFMA said that access to investment products traditionally offered on a principal basis (corporate and municipal securities) is more common and more affordable through commission-based accounts, particularly for small investors. The Dodd-Frank Act mandates an SEC study on advisers and brokers as a precursor to adopting a uniform standard of care.
The legislation does not prohibit commission-based compensation or other common elements of the broker-dealer service model, noted SIFMA, and a survey bears out the relative value of commission-based accounts. If these same brokerage services had to be provided under the existing provisions of the Investment Advisers Act, emphasized SIFMA, it would negatively affect client choice and access to products, such as those now available on a principal basis. Thus, SIFMA reaffirmed its support for a uniform federal fiduciary standard for broker-dealers and investment advisers who provide personalized investment advice to retail clients, but cautioned that the new standard must be “operationalized” to reflect the many different business models currently serving investors.
The legislation does not prohibit commission-based compensation or other common elements of the broker-dealer service model, noted SIFMA, and a survey bears out the relative value of commission-based accounts. If these same brokerage services had to be provided under the existing provisions of the Investment Advisers Act, emphasized SIFMA, it would negatively affect client choice and access to products, such as those now available on a principal basis. Thus, SIFMA reaffirmed its support for a uniform federal fiduciary standard for broker-dealers and investment advisers who provide personalized investment advice to retail clients, but cautioned that the new standard must be “operationalized” to reflect the many different business models currently serving investors.
Indiana Extends Deadline for Filing New Part 2 of Form ADV
The deadline for filing new Part 2 of Form ADV was extended from December 31, 2010 to February 28, 2011 by the Indiana Securities Division. Investment advisers are cautioned, however, that the date for filing Part 1 and paying the renewal fees remains at December 31, 2010.
Monday, November 22, 2010
Ohio Sets Forth Policy on IAs Filing New Part 2 of Form ADV
Investment adviser initial applicants and currently licensed investment advisers filing Form ADV may, between October 12 and December 31, 2010, use either old Part II or new Part 2 of Form ADV. Beginning January 1, 2011, investment adviser initial applicants must file new Part 2A of Form ADV electronically through the IARD, and currently licensed investment advisers must incorporate new Part 2 with their next amended filing of Form ADV. Starting April 1, 2011, all Ohio licensed investment advisers must have converted their existing Part II to new Part 2; additional time to comply will not be granted and failure to comply by April 1, 2011 will subject investment advisers to enforcement action. Investment advisers are encouraged to become familiar with the new Brochure and Brochure Supplement distribution and delivery schedules as provided in the Instructions to new Part 2. NOTE: Ohio will not charge a fee for updating or amending Part 2 of Form ADV.
Please see http://www.com.ohio.gov/secu
Please see http://www.com.ohio.gov/secu
TEXAS Does Not Adopt But Encourages IAs to Use New Part 2 of Form ADV
New Part 2 of Form ADV is not yet adopted in Texas for use by either investment adviser applicants or registrants but the Securities Board encourages new and currently registered firms to use new Part 2. New investment adviser applicants must file Form ADV Part 1B electronically through IARD, beginning January 1, 2011, and the Securities Board encourages applicants to begin the process by importing new Part 2 instead of old Part II onto IARD. After January 1, 2011, registrants may file an annual updating amendment on new Part 2 instead of on old Part
II since an annual updating amendment is not required in Texas.
Please see http://www.ssb.state.tx.us/
II since an annual updating amendment is not required in Texas.
Please see http://www.ssb.state.tx.us/
Sunday, November 21, 2010
SEC Urges US Supreme Court to Reaffirm Flexible Materiality Definition under Rule 10b-5
In what will be the US Supreme Court's first pronouncement in decades on the threshold and seminal materiality element of Rule 10b-5, the SEC urges the Court to reaffirm the flexible standard hammered out in the Northway and Basic, Inc opinions that an omitted fact is ““material”” when there is a substantial likelihood that a reasonable investor would have considered it important. The SEC filed an amicus brief in a private securities fraud action posing the question of whether an investor can state a claim under Rule 10b-5 based on a pharmaceutical company’s nondisclosure of adverse event reports about a drug even though the reports are not alleged to be statistically significant. The SEC urges the Court to hold that information that a drug causes adverse effects may be material to investors even absent statistical significance. Information suggesting a causal link between use of a drug and a serious adverse effect may significantly alter the behavior of consumers and regulators, contended the SEC, even when there is no allegation of a statistically significant association. In turn, because those reactions can affect a company’’s share price reasonable investors would consider such information to be highly relevant to their investment decisions. Matrixx Initiatives Inc. v. Siracusano, Dkt. No. 09-1156.
According to the SEC, the drug company is asking the Court to depart from the settled definition of materiality refined in the 1988 Basic, Inc. v. Levinson case in favor of a categorical rule that deems information about an adverse effect associated with use of a drug immaterial unless the association is statistically significant. In the SEC's view, that rule conflicts with the standard the Supreme Court refined in Basic for two important reasons. First, evidence other than data showing a statistically significant association can suggest a causal link between use of a drug and an adverse effect. Medical researchers, courts, and FDA regularly consider multiple factors in assessing causation, especially where (as in this case) the available epidemiological data
are inconclusive. Second, a reasonable investor may consider information suggesting an adverse drug effect important even if it does not prove that the drug causes the effect. Even reports that simply suggest causation may affect the behavior of consumers, potential litigants, and FDA. Because such a reaction may affect a product’’s commercial viability, and thus the company’’s financial condition, noted the SEC, a reasonable investor often will want to know about such information.
The position urged by the company also conflicts with Supreme Court’ precedent because it establishes a rigid restriction, particularly at the pleading stage. In Basic and Northway, the Court rejected a ““bright-line”” rule both because it was too underinclusive and because the materiality inquiry requires “delicate assessments” better suited to the trier of fact.
The SEC also found unpersuasive the company's concern that indiscriminate release of adverse event reports will mislead investors The Commission pointed to statutory and regulatory requirements that drug manufacturers report those events to FDA, and FDA’’s policy of making those reports publicly available. For all drugs with an approved new drug application as well as for prescription drugs without an approved new drug application, the FDA has long required companies to report post-marketing “adverse drug experiences.”
Finally, it is the SEC's view that the company is placing a false choice before the Court of adopting a statistical significance threshold or forcing companies to disclose every report of an adverse effect to stave off liability. The choice is false, said the SEC, because application of Basic’’s materiality standard could sometimes permit a company to withhold adverse drug information. For example, a company could reasonably conclude that a single report of an adverse event from an anonymous
user, or a dozen reports of a dozen different adverse events, would not be important to a reasonable investor for a widely used drug that had undergone rigorous pre-market testing and FDA review and approval. Even if the reports of an adverse effect were more numerous or reliable, a company could reasonably conclude that they were not material if the effect was minor and transient relative to the drug’’s benefit and the drug sales did not contribute meaningfully to the company’’s revenues.
According to the SEC, the drug company is asking the Court to depart from the settled definition of materiality refined in the 1988 Basic, Inc. v. Levinson case in favor of a categorical rule that deems information about an adverse effect associated with use of a drug immaterial unless the association is statistically significant. In the SEC's view, that rule conflicts with the standard the Supreme Court refined in Basic for two important reasons. First, evidence other than data showing a statistically significant association can suggest a causal link between use of a drug and an adverse effect. Medical researchers, courts, and FDA regularly consider multiple factors in assessing causation, especially where (as in this case) the available epidemiological data
are inconclusive. Second, a reasonable investor may consider information suggesting an adverse drug effect important even if it does not prove that the drug causes the effect. Even reports that simply suggest causation may affect the behavior of consumers, potential litigants, and FDA. Because such a reaction may affect a product’’s commercial viability, and thus the company’’s financial condition, noted the SEC, a reasonable investor often will want to know about such information.
The position urged by the company also conflicts with Supreme Court’ precedent because it establishes a rigid restriction, particularly at the pleading stage. In Basic and Northway, the Court rejected a ““bright-line”” rule both because it was too underinclusive and because the materiality inquiry requires “delicate assessments” better suited to the trier of fact.
The SEC also found unpersuasive the company's concern that indiscriminate release of adverse event reports will mislead investors The Commission pointed to statutory and regulatory requirements that drug manufacturers report those events to FDA, and FDA’’s policy of making those reports publicly available. For all drugs with an approved new drug application as well as for prescription drugs without an approved new drug application, the FDA has long required companies to report post-marketing “adverse drug experiences.”
Finally, it is the SEC's view that the company is placing a false choice before the Court of adopting a statistical significance threshold or forcing companies to disclose every report of an adverse effect to stave off liability. The choice is false, said the SEC, because application of Basic’’s materiality standard could sometimes permit a company to withhold adverse drug information. For example, a company could reasonably conclude that a single report of an adverse event from an anonymous
user, or a dozen reports of a dozen different adverse events, would not be important to a reasonable investor for a widely used drug that had undergone rigorous pre-market testing and FDA review and approval. Even if the reports of an adverse effect were more numerous or reliable, a company could reasonably conclude that they were not material if the effect was minor and transient relative to the drug’’s benefit and the drug sales did not contribute meaningfully to the company’’s revenues.
I get our potato salad at the Pricecutter.
Never underestimate a woman who can get both legs behind her head and wrap her feet around her face. Whoah!
from Clotho98's notes: Solid Potato Salad? No, it's not what you get when you leave the deli container out of the fridge too long. It's a 1940s term for...something (I have no idea what. ) In this classic footage from the movie "Broadway Rhythm" (1944), the Ross sisters, Aggie, Maggie and Elmira, sing and move in ways that don't look humanly possible. Yoga anyone? Movie buffs will recognize the tune as one of the background instrumentals from "The Godfather."
It starts out looking like another kitschy 40's tune, but give it a minute. Things get wild! Now if I can just figure out what apples have to do with potato salad...
(Extra trivia: While the Ross Sisters are billed in their act as Aggie, Maggie and Elmira Ross, their real-life names were actually Vicki, Dixie and Betsy Ross.)
from Clotho98's notes: Solid Potato Salad? No, it's not what you get when you leave the deli container out of the fridge too long. It's a 1940s term for...something (I have no idea what. ) In this classic footage from the movie "Broadway Rhythm" (1944), the Ross sisters, Aggie, Maggie and Elmira, sing and move in ways that don't look humanly possible. Yoga anyone? Movie buffs will recognize the tune as one of the background instrumentals from "The Godfather."
It starts out looking like another kitschy 40's tune, but give it a minute. Things get wild! Now if I can just figure out what apples have to do with potato salad...
(Extra trivia: While the Ross Sisters are billed in their act as Aggie, Maggie and Elmira Ross, their real-life names were actually Vicki, Dixie and Betsy Ross.)
Back yard cook out, year 2
Last year, when Regina's brother Sam and his wife Frankie came to visit, we grilled sausages and onions. We all had a grand time!
This year, Sam and Frankie got here on Thursday, Little Jim's birthday. Sam, Pride and I took down the gates and got the trailer situated in the backyard. It seemed that it was harder to park this year than last year, that gate opening must have shrunk or the trailer got wider.
Remember how hard of a time it was getting the trailer out of the yard last February? I do.
So Saturday night, we had another installment on our yearly "Sam and Frankie came to visit, lets grill some meat, drink some beer and have a grand time!" cookout.
Neighbor Jack Pettijohn didn't make the event this year, he was down at the farm deer hunting with his nephew Steve. No word whether or not they got a deer. But I am sure they are having fun and staying warm. Jack built a new farmhouse a couple years ago after a disastrous flue fire burned down the old farm house.
Jack and son Jim unloading supplies at the old farm house.
We fired up the grill, put some hamburgers on and everyone had a grand time.
Neighbor and good friend Sharon Pettijohn, DIL and neighbor Kristin Lee, daughter Sara Lee, niece Peggy Crable, SIL Frankie Crable and her husband and Regina's brother Sam Crable cutting up jackpots in our kitchen.
Frankie Crable (partially obscured), Kristin Lee, Regina Lee and Sharon Pettijohn sitting at the kitchen table.
The cute little girls! Mattie (Pride and Peggy's daughter), Sophie (Jim and Kristin's daughter), Skyler (Brooke's daughter), Maya (Travis' daughter) and Sadie, who looks up to them all (Jim and Kristin's daughter). (See how they've grown!)
I asked Ganey to look at the camera so I could take her picture. Since I was using her camera and wasn't quite familiar with the controls, it took several tries before I was able to snap this shoot. Patiently, Ganey humored me. Notice the smoke beginning to billow out of the grill?
When Ganey opened up the lid of the grill, the fat from the burgers caught fire and flared up. You can't hear it but she is hollering, "Somebody bring me some water, quick, the burgers are burning!"
Quick thinking son Jim, who is carrying Sadie (You can barely see her through all the smoke) arrived in the nick of time and, while he didn't have any water, he did have a can of Coor's Light. That's why the burgers are savored with the essence of smoke and beer! They were good!
Frankie and Ganey taking the burgers off the grill by the light of a flashlight. Yesterday, I put in some more outdoor lights so we can see through the smoke when we grill.
Good, grilled burgers!
Ganey's brother Sam Crable and our son Jim chit-chatting on the back porch.
Daughter Sara and 12 year-old grandson Trey enjoying an after dinner cigarette and a slouch.
Grandson Austin (and Kristin's red-headed step child!) balances a plate of food on his lap while his dad drinks some "no, Sadie, you can't have any of that, that's Daddy's 'juice'."
While Mattie and Sophie enjoyed their chocolate cupcakes,
Sadie was quite content with her cheese sandwich.
Sadie passed a milestone during this cookout. Her older brother Trey taught her how to step down from the stoop to the porch floor. She hasn't quite mastered going up the stoop standing, but she did good going down. Which she did for quite some time, each time looking at us watching, expectantly awaiting our cheers and applause!:
Sadie climbing up.
Sadie stepping down.
Sadie climbing up.
Sadie getting some practical advice on navigating the stoop step from her older brother Trey.
Later that evening, Sadie gave me a rock.
Ain't life grand!
This year, Sam and Frankie got here on Thursday, Little Jim's birthday. Sam, Pride and I took down the gates and got the trailer situated in the backyard. It seemed that it was harder to park this year than last year, that gate opening must have shrunk or the trailer got wider.
Remember how hard of a time it was getting the trailer out of the yard last February? I do.
So Saturday night, we had another installment on our yearly "Sam and Frankie came to visit, lets grill some meat, drink some beer and have a grand time!" cookout.
Neighbor Jack Pettijohn didn't make the event this year, he was down at the farm deer hunting with his nephew Steve. No word whether or not they got a deer. But I am sure they are having fun and staying warm. Jack built a new farmhouse a couple years ago after a disastrous flue fire burned down the old farm house.
Jack and son Jim unloading supplies at the old farm house.We fired up the grill, put some hamburgers on and everyone had a grand time.
Neighbor and good friend Sharon Pettijohn, DIL and neighbor Kristin Lee, daughter Sara Lee, niece Peggy Crable, SIL Frankie Crable and her husband and Regina's brother Sam Crable cutting up jackpots in our kitchen.
Frankie Crable (partially obscured), Kristin Lee, Regina Lee and Sharon Pettijohn sitting at the kitchen table.
The cute little girls! Mattie (Pride and Peggy's daughter), Sophie (Jim and Kristin's daughter), Skyler (Brooke's daughter), Maya (Travis' daughter) and Sadie, who looks up to them all (Jim and Kristin's daughter). (See how they've grown!)
I asked Ganey to look at the camera so I could take her picture. Since I was using her camera and wasn't quite familiar with the controls, it took several tries before I was able to snap this shoot. Patiently, Ganey humored me. Notice the smoke beginning to billow out of the grill?
When Ganey opened up the lid of the grill, the fat from the burgers caught fire and flared up. You can't hear it but she is hollering, "Somebody bring me some water, quick, the burgers are burning!"
Quick thinking son Jim, who is carrying Sadie (You can barely see her through all the smoke) arrived in the nick of time and, while he didn't have any water, he did have a can of Coor's Light. That's why the burgers are savored with the essence of smoke and beer! They were good!
Frankie and Ganey taking the burgers off the grill by the light of a flashlight. Yesterday, I put in some more outdoor lights so we can see through the smoke when we grill.
Good, grilled burgers!
Ganey's brother Sam Crable and our son Jim chit-chatting on the back porch.
Daughter Sara and 12 year-old grandson Trey enjoying an after dinner cigarette and a slouch.
Grandson Austin (and Kristin's red-headed step child!) balances a plate of food on his lap while his dad drinks some "no, Sadie, you can't have any of that, that's Daddy's 'juice'."
While Mattie and Sophie enjoyed their chocolate cupcakes,
Sadie was quite content with her cheese sandwich.Sadie passed a milestone during this cookout. Her older brother Trey taught her how to step down from the stoop to the porch floor. She hasn't quite mastered going up the stoop standing, but she did good going down. Which she did for quite some time, each time looking at us watching, expectantly awaiting our cheers and applause!:
Sadie climbing up. 
Sadie stepping down.
Sadie climbing up.
Sadie getting some practical advice on navigating the stoop step from her older brother Trey.
Later that evening, Sadie gave me a rock.Ain't life grand!
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