SEC Charges Goldman Sachs for not disclosing facts about CDO

SEC has charged GS for omitting key facts about product backed by subprime mortgages.

- Non-disclosure to investors about role of hedge fund (Paulson & Co.) in portfolio selection and short position taken by the said hedge fund against the CDO.
- Marketing material for ABACUS (the CDO) indicated that portfolio selected by a third party risk analyzer, ACA, but did not disclose role of hedge fund which would have benefitted from default on RMBS constituting the CDO.
- A VP at GS, Fabrice Tourre, indicated to ACA that the hedge fund had also invested in ABACUS, while it was exactly opposite position they had taken.

SEC Complaint

Is the Unit Linked Insurance Plan a back door to running a mutual fund

SEBI issued show cause notices to ULIP issuing insurance companies as to why they did not take SEBI registration before issuance and why action not be taken against them under SEBI Act.
Order says that
- ULIPs different from traditional insurance products as they are combination of insurance and investment
- Like MFs as exit at NAV (unutilized fund value)
- Investors subject to investment risks of security markets entirely borne by investors
- By their own admission, issuers have stated that 2 components, insurance and investment
- "Trust" structure requirement for registering a MF with SEBI, but it does not mean SEBI can't regulate because there is no "trust" structure.
- Example of a scheme where just 2% of premium was going towards insurance costs.
- Pooling of investments, investor expectation of profit, management on behalf of investors and investor not having day to day control, render ULIPs as CIS and MFs
- ULIPs not purely "contract of insurance" as exempted under SEBI Act
- ULIPs also not exempted as not being CIS as per the SEBI Act
- Regarding non-transferability of ULIPs comparison made with Open ended MF schemes where issuance and redemption is with MF only. Physical issuance not there in many MF cases as they issue just statement of A/c
- Registration with IRDA does not mean that issuers are exempted from other laws and regulations
Link to SEBI order

MF- Mutual Fund
SEBI - Securities & Exchange Board of India
CIS - Collective Investment Scheme
ULIP - Unit Linked Insurance Plan
IRDA - Insurance Regulatory Development Authority (of India)

SEBI secondary market circulars

SEBI (Securities and Exchange Board of India) has consolidated all secondary market circulars issued and come up with comprehensive compliance requirements. This is a potential compendium for secondary market participants in India. Below is the link to SEBI website where master circular is posted.

http://www.sebi.gov.in/circulars/2010/cirmrddp12.html

SEBI makes changes to listing agreement

SEBI has made changes to listing agreement which will facilitate better and faster information about company financial health to the investors. Besides financial reporting by corporates has been attempted to be made more resposible with more auditor certifications, auditor peer reviews and audit committee signoff for CFO appointment. Here are the suggested changes.

Amendment to listing agreement

- Accounting treatment to M&A schemes to have auditor certificate

- Reducing time for publication of quarterly results to 45 days and annual results in lieu to 60 days

- Turnover PAT and PBT to be included as a part of these results

- Voluntary adoption of IFRS by corporates facilitated. Publication as per Indian GAAP to continue till April 1, 2011.

- Peer review certificate required by all statutory auditors.

- Balance sheet data to be available half-yearly.

- Modification to format of limited review reports.

- Appointment of CFO to be approved by audit committee which will evaluate qual., exp. and background.

http://www.sebi.gov.in/circulars/2010/cfddilcir01.pdf