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Posted by on Apr 1, 2011 in CONFUSING MONEY | 0 comments

Changes in stock quoting throws system into confusion

On the Money From the  April 1, 2011 print edition A recent change in how some over-the-counter (OTC) stocks are quoted caused lots of distress for their investors — who wondered if their stocks had disappeared, stopped trading, been delisted or otherwise had vanished from the trading platforms. The situation started in September 2009, when FINRA (Financial Industry Regulatory Authority), which owns and operates the OTC Bulletin Board, announced it wished to sell it. But FINRA hasn’t been able to sell the OTCBB, and many nervous broker dealers left that exchange starting in January. That’s left many companies with no representation on the OTCBB, resulting in them being pushed down to the less-prestigious Pink Sheets. The OTCBB has been identified with companies that fully report to the Securities and Exchange Commission, and the Pink Sheets with companies that don’t report. Until recently, most small, fully reporting issuers believed they were being listed exclusively on OTCBB, owned by FINRA. However, to their shock, many learned their shares simultaneously were trading...

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Posted by on Dec 3, 2010 in RISKS WITH MONEY | 0 comments

Another insider-trading case hits financial world

On the Money From the  December 3, 2011 print edition The FBI raided three large hedge funds in New York, Connecticut and Massachusetts on Nov. 22 as part of a three-year insider-trading investigation. Already, 14 defendants have pleaded guilty. “There’s a lot more patterns and serial insider trading than we previously thought had occurred,” said Scott Friestad, associate director in the Securities and Exchange Commission’s division of enforcement. Authorities say the criminal and civil investigations could surpass the impact on the financial industry of any previous such probes. There may be more arrests, as investigators examine the role of consultants and analysts who provide hedge funds and mutual funds with detailed information about the businesses and industries in which they specialize. To better understand what all this is about, let’s examine what federal law has to say about insider trading. Financial gain often is dependent upon the ability to predict the future. (The back-dating options scandal showed that in the absence of predicting the future, some people will re-invent the...

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Posted by on Oct 1, 2010 in RISKS WITH MONEY | 0 comments

Multilayered leverage amplifies money’s rises, falls

On the Money From the  October 1, 2011 print edition The ancient Greek Archimedes said, “Give me a lever that is long enough, give me a fulcrum that is strong enough and give me a place to stand and single-handed, I’ll move the world.” He was describing the physics of “leverage.” Recently, The Wall Street Journal reported that “leveraged debt, part of the credit bubble” was making a comeback. In finance, leverage is borrowed money. To the extent assets are controlled by borrowed money, that’s financial leverage. But furthermore, when the money that’s lent to a consumer also is borrowed, that creates debt upon debt – or leveraged debt. The credit bubble is made up of the multiple lenders that sit between the ultimate lender and ultimate borrower. The term “leveraged buyout” (LBO) frequently is used in connection with acquisitions. Companies buy control of another company (hopefully an asset) using borrowed funds. If the increase in value of the asset is greater than the cost of the borrowed funds, the leverage...

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