Friday, August 31, 2007

This Week's Events and News

Social Investors Launch Campaign to Halt Proposed Changes to Proxy Access Rules

According to Portfolio.com, "Socially concerned investors groups say they won't stand by and see Securities and Exchange Commission chairman Christopher Cox crimp their right to demand company accountability on important issues like the business risks of climate change. The Social Investment Forum, the Interfaith Center on Corporate Responsibility and Ceres, a coalition of investors, environmental groups and others, unveiled a new web site to attract 500 institutions and financial professionals to sign a joint statement against proposed S.E.C. changes."

As we noted earlier,

"Those most directly impacted by the policy change are large in number but divided and unorganized. These include shareholder groups like the Interfaith Center on Corporate Responsibility, labor-related funds, faith-based pension funds, 'socially responsible' mutual funds, and individual stockholders...these groups have been unable to mount the type of strategic, sustained effort, or bring forward the new ideas and analysis required to prevent the imposition of a more restrictive shareholder access policy."

This effort is an attempt to even the field. We are not sure it will work, but time will tell.

President of Standard and Poors Steps Down


"Kathleen Corbet, president of the credit rating company Standard and Poor’s, resigned after lawmakers and investors criticized the company for failing to judge the risks of securities backed by subprime mortgages."

Terror Free Investment Product

To divest their money from terror-sponsoring nations got another push Wednesday with a new plan aimed at making college savings investments "terror-free."

Last year, Missouri became the first state to order its employee pension funds to dump shares of companies that deal with Iran, North Korea, Sudan and Syria, all of which are on the U.S. State Department's list of terror-sponsoring nations."

As we noted, we think the SEC was on the right track when it posted online tools to assist in this process. See: http://twisri.blogspot.com/2007/07/sec-backs-off.html

SEC News and Enforcement Actions

On August 23, 2007, the Securities and Exchange Commission "filed an emergency action to shut down a $25 million Ponzi scheme that victimized hundreds of senior and other investors nationwide who bought fractional ownership interests in life insurance policies. The Commission alleges that Donald Neuhaus of Redding, Calif., his daughter Kimberley Snowden, and their company Secure Investment Services, Inc., orchestrated the Ponzi scheme that falsely promised safe, secure and profitable interests in life insurance policies known as "viaticals" while failing to disclose the dire financial condition of the investment venture. Many of the investors were elderly and invested their retirement savings. The Commission also alleges the father-daughter fraudsters pocketed $700,000 for their personal use while the scam was on the verge of collapse."

On August 28, 2007, the Securities and Exchange Commission announced "fraud charges against a Bay Area attorney for her role in illegally backdating stock option grants. The Commission charged Lisa C. Berry with routinely backdating option grants from 1997 to 2003, first as General Counsel of KLA-Tencor Corporation and then as General Counsel of Juniper Networks, Inc. The Commission alleges that Berry's misconduct caused the two companies to conceal hundreds of millions of dollars in stock option compensation expenses relating to undisclosed in-the-money options provided to company executives and employees. "

Also on August 28, 2007, The Commission "filed a settled enforcement action against Juniper, an information technology company based in Sunnyvale, Calif. Without admitting or denying the allegations, Juniper has consented to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws. KLA, a San Jose-based semiconductor equipment company, previously settled charges brought by the Commission"

The Diversity Portfolio

The Creative Investment Research, Inc. Diversity Portfolio contains equity investments in some of the largest U.S. companies. These companies have been selected for inclusion because they have outstanding financial and diversity performance. Diversity performance is calculated by reviewing several key measures: Human capital, CEO commitment, and supplier diversity. From 4/7/06 to 8/30/07, the model portfolio returned 15.56% versus an 15.48% return for the market, as measured by the S&P 500 Index, a major stock market index (without considering dividends. Returns calculated before fees deducted. Past performance is no guarantee of future returns.) See DiversityFund.net for more information...

Angels Descend on Minority Business Enterprises

Investors gather to consider investments in top minority-owned ventures.

Virginia Housing and Community Development Corporation (VHCDC) continues its pioneering initiatives to facilitate the flow of capital to Minority Business Enterprises (MBEs) with the announcement of the 2007 MBE Capital Call Conference, Exhibition, and Venture Forum -- September 20 & 21 in Hampton, Virginia. The MBE Capital Call presents entrepreneurs with innovative and marketable business ideas the opportunity to secure capital, and other essential resources, by "Pitching" their business plans to active, accredited investors. This event invites Entrepreneurs, aspiring entrepreneurs, Investors, aspiring investors, and College/University Students to Hampton, Virginia for a rewarding two day conference aimed at facilitating investment in minority- and women-owned businesses.

VHCDC created the MBE Capital Call to expose and connect MBEs, particularly African-American, Hispanic, and Native American entrepreneurs, to capital (funding) to start and grow or expand their business. This year, twenty-one (21) entrepreneurs will be selected to pitch their business plans to active, accredited investors. A team of active investors and business development professionals will select the presenters from among registrations received thru August 10, 2007. Presenters will be judged on several criteria and may pitch plans for virtually any industry/business sector.

Registration is easy, and there's no additional cost to enter the competition. Business owners, aspiring entrepreneurs, investors, lenders, and students may register by visiting the MBE Capital Call website: www.mbecapitalcall.com now for complete details, registration, and terms and conditions.

Thursday, August 23, 2007

This Week's Events and News

SEC News and Enforcement Actions

On August 9, 2007, the Securities and Exchange Commission "filed a civil injunctive action against former senior officials of Nicor, Inc., a major Chicago-area natural gas distributor, alleging financial fraud lasting from 1999 to 2002. The SEC's complaint alleges that former Chairman, CEO and President Thomas Fisher, former CFO and Executive Vice-President Kathleen Halloran, and former Treasurer and Vice-President George Behrens engaged in or approved improper transactions, and misrepresented Nicor's gas inventory in order to meet earnings targets and increase the company's revenues under a performance-based utility rate plan."

On August 13, 2007, the Securities and Exchange Commission announced "the distribution of approximately $55.6 million in Fair Funds to more than 200,000 investors who were harmed by fraudulent market timing in certain Banc One mutual funds (One Group Funds). The Fair Fund resulted from a settled enforcement action in which Banc One Investment Advisors Corporation (BOIA) agreed to pay $10 million in disgorgement and $40 million in civil penalties to settle charges of unlawful market timing. The entire Fair Fund, plus accumulated interest, has been distributed to investors."

On August 17, 2007, the Securities and Exchange Commission "filed fraud charges against Michael J. Byrd, a former Chief Financial Officer and Chief Operating Officer of Brocade Communications Systems, Inc., alleging that he disregarded indications that other senior corporate executives were improperly backdating stock option grants at the company. The Commission alleges that Byrd, of Saratoga, Calif., learned of instances in which Brocade's then-CEO and others were backdating options for certain individuals, yet failed to ensure that the company properly accounted for the option expenses and disclosed them to investors."

Greenbacks in green investing -Investment funds likely to grow

"Green is good. At least that's the bet of an increasing number of investment fund managers, retirees and armchair stock pickers who are pouring billions into so-called green stocks, and not necessarily for the love of nature.

They're chasing lucrative returns from companies that promise new ways to recycle, power automobiles and harness the wind and sun. Many have had success.

Green investment funds that have been around for at least a year report double-digit gains for the past 12 months. The KDL Global Climate 100 Index, which tracks companies working to offset global warming or its effects, is up nearly 25 percent."

See: http://www.montereyherald.com/business/ci_6677264?nclick_check=1

Investing with your values

According to The Truro Daily News,"While the primary goal of investing is to earn a reasonable profit, for many people it is important that their profit not come at the expense of compromising their social values.

In an era of increased awareness of social issues, many investors may be thinking about the social and environmental effects of their investment portfolios.

Socially responsible investing can encompass a variety of themes. The most common considerations are avoiding “sin stocks” such as firearms, alcohol, tobacco or gaming companies and avoiding companies with questionable labour or environmental practices. In more recent times there has also been a trend to favour companies that demonstrate sound corporate governance practices."

See: http://trurodaily.com/index.cfm?sid=55710&sc=73

We cannot ignore the environment - Climate change will be one of the biggest investment themes of the next 20 years

According to an 8/20/07 comment by published in Financial News Online, "With parts of Britain under water and forest fires in southern Europe this summer as well as the worst of the annual hurricane season yet to hit the Caribbean and southern US, it is hard to get away from news of climate change and how it is affecting daily life.

Without wanting to praise those who led the argument that climate change is the most serious issue facing the human race, it also represents one of the biggest investment themes for the next 20 years.

As such, it is time investors understood how and why climate change and investing are related and how they can adjust their portfolios accordingly.

This is not just about socially responsible investing or even whether you believe the scientific evidence. As an asset manager we have a fiduciary responsibility to provide investors with the best risk-adjusted returns looking at market trends and emerging sectors. It is becoming apparent that our responsibility extends to include environmental considerations in this analysis."

See: http://www.financialnews-us.com/?page=uscomment&contentid=2348577733

The Diversity Portfolio

The Creative Investment Research, Inc. Diversity Portfolio contains equity investments in some of the largest U.S. companies. These companies have been selected for inclusion because they have outstanding financial and diversity performance. Diversity performance is calculated by reviewing several key measures: Human capital, CEO commitment, and supplier diversity. From 4/7/06 to 8/22/07, the model portfolio returned 16.58% versus an 15.93% return for the market, as measured by the S&P 500 Index, a major stock market index (without considering dividends. Returns calculated before fees deducted. Past performance is no guarantee of future returns.) See DiversityFund.net for more information...

Angels Descend on Minority Business Enterprises

Investors gather to consider investments in top minority-owned ventures.

Portsmouth, VA (PRWEB) July 17, 2007 -- Virginia Housing and Community Development Corporation (VHCDC) continues its pioneering initiatives to facilitate the flow of capital to Minority Business Enterprises (MBEs) with the announcement of the 2007 MBE Capital Call Conference, Exhibition, and Venture Forum -- September 20 & 21 in Hampton, Virginia. The MBE Capital Call presents entrepreneurs with innovative and marketable business ideas the opportunity to secure capital, and other essential resources, by "Pitching" their business plans to active, accredited investors. This event invites Entrepreneurs, aspiring entrepreneurs, Investors, aspiring investors, and College/University Students to Hampton, Virginia for a rewarding two day conference aimed at facilitating investment in minority- and women-owned businesses.

VHCDC created the MBE Capital Call to expose and connect MBEs, particularly African-American, Hispanic, and Native American entrepreneurs, to capital (funding) to start and grow or expand their business. This year, twenty-one (21) entrepreneurs will be selected to pitch their business plans to active, accredited investors. A team of active investors and business development professionals will select the presenters from among registrations received thru August 10, 2007. Presenters will be judged on several criteria and may pitch plans for virtually any industry/business sector.

Registration is easy, and there's no additional cost to enter the competition. Business owners, aspiring entrepreneurs, investors, lenders, and students may register by visiting the MBE Capital Call website: www.mbecapitalcall.com now for complete details, registration, and terms and conditions.

Tuesday, August 21, 2007

Motley Fool on GS Sustain

In an August 3rd article titled "Do Gooders Do Well" on the Motley Fool website, Selena Maranjian noted our concerns about the GS Sustain Index and methodology, Goldman Sach's list of “companies from established industries, which have been selected by incorporating our proprietary Environmental, Social and Governance (ESG) framework into long-run industry drivers and returns-based analysis and valuation in order to pinpoint structural improvement and sustainable competitive positioning.”

The article went on to say that "Of course, not every socially responsible investing advocate is anti-Goldman -- the Calvert Large Cap Growth Fund (CLCIX) recently had nearly 2% of its value invested in the company." (The stock is down 12.9% from 12/29/06 to 8/20/07. The S&P 500 is up 1.92% over the same period.)

For the record, we are not anti-Goldman. We correctly listed factual data concerning ethical and diversity lapses at the firm, and tied these to their work on SRI. As we stated, we applaud Goldman's incorporation of the ten principles of the UN Global Compact into an investment analysis framework and the firms’ tacit recognition of “socially responsible” investing.

Monday, August 13, 2007

Black-owned banks in North Carolina to merge

According to the Winston-Salem Journal, "M and F Bancorp Inc. said yesterday (August 10, 2007) that it has agreed to buy Mutual Community Savings Bank Inc. and merge it with M and F’s bank subsidiary, Mechanics and Farmers Bank. The banks, both based in Durham, are two of the nation’s oldest black-owned financial institutions."

We believe the merger is a positive development, and will insure that black banks remain a factor in North Carolina. We also note that this is the third transaction in the Black banking sector over the last 60 days.

Friday, August 10, 2007

Turmoil at the SEC

According to the SEC, "Commissioner Roel C. Campos..announced that he intends to leave the Commission in a month's time and plans to return to the private sector. Currently serving his second term, Mr. Campos was first appointed by President George W. Bush and confirmed by the U.S. Senate as a Commissioner in August 2002." This follows the August 6, 2007 announcement that "Martin P. Dunn, Deputy Director of the Division of Corporation Finance, will leave the agency at the end of August to join O'Melveny & Myers LLP as a partner in its Washington D.C. office."

We believe Mr. Campos and Mr. Dunn may have been implicated in, or administratively responsible for, the leak of a draft proxy access proposal (SEC Proxy-Access Proposal Draws Fire from Investors. The Wall Street Journal. By JUDITH BURNS. July 11, 2007; Page D2). This leak led to concerns about the early and selective distribution of proposed public policies only to moneyed interest groups. We note that, at the last Open Meeting, Wednesday, July 25, 2007, Mr. Campos complained that he did not receive a copy of the second, revised shareholder access proposal until 11 pm on July 24th. This was done to insure confidentiality of the new proposal, released internally only after press publication deadlines had passed. The revised proposal was not leaked.

These changes mean that paths to an optimized shareholder access and proxy policy, while still present, are fewer in number. Thus, chances are greater now that the restrictive shareholder access proposal we discussed on July 20th will be adopted.

Thursday, August 9, 2007

This Week's Events and News

Presbyterian Foundation cited for socially responsible investing

According to The Presbyterian News Service, "The Social Investment Forum Foundation listed the Presbyterian Foundation as one of the leading United States foundations using social or environmental screening along with traditional financial analysis as criteria for their investment strategy. Other foundation leaders in social and environmental screening recognized include the United Methodist Foundation and the United Church Foundation."

SEC News and Enforcement Actions

On August 7, 2007, the Securities and Exchange Commission "filed financial fraud charges against First BanCorp, alleging that former senior management of the NYSE-listed, Puerto Rico-based bank holding company concealed the true nature of more than $4 billion worth of transactions involving "non-conforming" residential mortgages. Non-conforming mortgages have income verification and credit history standards that are generally more flexible than those required for sale or exchange under Fannie Mae and Freddie Mac programs and can constitute 'subprime' mortgages."

On August 3, 2007, the Securities and Exchange Commission announced "that a federal jury found Michael J. Pietrzak and Maurice W. Furlong liable for securities fraud and other charges in their operation of Hexagon Consolidated Companies of America, Inc. (HCCA), a development stage mining company headquartered in Reno, Nev. Pietrzak was HCCA's general counsel, CFO, and executive secretary, as well as a director. Furlong was HCCA's chairman, president and CEO."

Also on August 3, 2007, the Securities and Exchange Commission "charged a London, England resident with insider trading ahead of the July 14, 2006, announcement that San Diego-based Petco Animal Supplies, Inc. would be purchased by two private equity firms."

On August 1, 2007, the Securities and Exchange Commission "announced that it started distribution of the $267 million Fair Fund created as part of settlements with Qwest Communications International Inc. and several of its former executives. The funds will be distributed to approximately 200,000 investors who purchased Qwest's securities between July 27, 1999, and July 28, 2002."

Also on August 1, 2007, the Securities and Exchange Commission "filed charges against Silicon Valley semiconductor company Integrated Silicon Solution, Inc. (ISSI) and its former Chief Financial Officer, Gary L. Fischer, alleging that they engaged in a long-running fraudulent scheme to backdate stock option grants."

On July 26, 2007, the Securities and Exchange Commission "announced that Cardinal Health, Inc., a pharmaceutical distribution company based in Dublin, Ohio, has agreed to pay $35 million to settle charges that it engaged in a nearly four-year long fraudulent revenue and earnings management scheme, as well as other improper accounting and disclosure practices."

Also on July 26, 2007, the Securities and Exchange Commission "filed a civil fraud action against Robert J. Therrien, former President and CEO of Brooks Automation, Inc., a Massachusetts software company, alleging that he received millions of dollars in undisclosed compensation by fraudulently backdating his exercise of an option to purchase company stock."

City Recycles, but Its Investments Aren't Necessarily Green

According to the Seattle Weekly, "the Seattle City Employees' Retirement System—which maintains an investment portfolio of about $2 billion on behalf of current and former employees—has no criteria for how socially responsible a company must be to receive its financial backing. The city's current policy is to make investments that yield the highest returns with a reasonable amount of risk."

SRI Growing in Australasia

“According to the Ethical Investment Association of Australasia, managed SRI portfolios in Australia grew by a staggering 56 percent in the 2006 financial year, growing from AUD$7.76 billion, to AUD$11.98 billion. Managed mainstream portfolios grew by just 15.5 percent over the same period.”

Ways to Do Your Share

According to the Wall Street Journal, "Many twentysomethings want to do something positive for the world but don't have large sums to give to charitable organizations whose efforts they admire. Beyond giving what you can, though, there are numerous other ways, small and large, that you can reach out to address problems such as poverty and global warming. Consider socially responsible investing (SRI). In selecting stocks, SRI funds typically screen out companies that deal in alcohol and tobacco, or which are deemed undesirable for such things as a record of pollution or worker exploitation. Some funds attempt to use their ownership stakes in various companies to push for social, political or ethical revisions. These funds are increasingly becoming available in 401(k) retirement plans, which is good news for younger workers who may have limited investment resources."

The Diversity Portfolio

The Creative Investment Research, Inc. Diversity Portfolio contains equity investments in some of the largest U.S. companies. These companies have been selected for inclusion because they have outstanding financial and diversity performance. Diversity performance is calculated by reviewing several key measures: Human capital, CEO commitment, and supplier diversity. From 4/7/06 to 8/8/07, the model portfolio returned 18.72% versus an 15.59% return for the market, as measured by the S&P 500 Index, a major stock market index (without considering dividends. Returns calculated before fees deducted. Past performance is no guarantee of future returns.) See DiversityFund.net for more information...

Angels Descend on Minority Business Enterprises

Investors gather to consider investments in top minority-owned ventures.

Portsmouth, VA (PRWEB) July 17, 2007 -- Virginia Housing and Community Development Corporation (VHCDC) continues its pioneering initiatives to facilitate the flow of capital to Minority Business Enterprises (MBEs) with the announcement of the 2007 MBE Capital Call Conference, Exhibition, and Venture Forum -- September 20 & 21 in Hampton, Virginia. The MBE Capital Call presents entrepreneurs with innovative and marketable business ideas the opportunity to secure capital, and other essential resources, by "Pitching" their business plans to active, accredited investors. This event invites Entrepreneurs, aspiring entrepreneurs, Investors, aspiring investors, and College/University Students to Hampton, Virginia for a rewarding two day conference aimed at facilitating investment in minority- and women-owned businesses.

VHCDC created the MBE Capital Call to expose and connect MBEs, particularly African-American, Hispanic, and Native American entrepreneurs, to capital (funding) to start and grow or expand their business. This year, twenty-one (21) entrepreneurs will be selected to pitch their business plans to active, accredited investors. A team of active investors and business development professionals will select the presenters from among registrations received thru August 10, 2007. Presenters will be judged on several criteria and may pitch plans for virtually any industry/business sector.

Registration is easy, and there's no additional cost to enter the competition. Business owners, aspiring entrepreneurs, investors, lenders, and students may register by visiting the MBE Capital Call website: www.mbecapitalcall.com now for complete details, registration, and terms and conditions.

Tuesday, August 7, 2007

Mortgage GSE's, Predatory Lending and Minority Banks

The Washington Post reported yesterday that "government-chartered mortgage funding companies Fannie Mae and Freddie Mac .. shares rose on speculation that regulators may relax restrictions on their investments to allow them to pick up slack in the troubled market for home loans." We believe equity markets will trend to the downside until the end of 2007, but believe an increase in lending limits will be good, over the long run, for both mortgage and stock markets.

We believe troubles at Fannie and Freddie allowed predatory lenders to enter the mortgage market in full force. While there is no question that Fannie and Freddie were hurt by their own fraudulent practices, large and small predatory lenders, using groups like FM Policy Focus as a shield and a proxy, were able to obtain a greater share of the profits being generated by an overheated home mortgage market. Significant profit increases depended, however, on an ability to engage in predatory practices. Given distractions caused by their own incompetence, the GSE's were unable or unwilling to protect mortgage borrowers.

Major market institutions are now, as the troubled Bear Stearns reveals, feeling the negative effect of allowing these practices to flourish. Bear Stearns may be in real danger - it's stock decreased in value by 27% over the last month. We do not expect, but would not be surprised if the firm failed, another casualty of arrogance and greed.

These issues also impact smaller, minority-owned institutions, especially black owned institutions, who have been struggling to reverse predatory lending practices in their markets. According to the Kansas City Business Journal, "Louisiana-based bank owner First Guaranty Bancshares Inc. has agreed to buy troubled Douglass National Bank of Kansas City."

This is the second black owned bank in as many months sold to a non-minority banking group. This seems a direct contradiction of FIRREA Section 308, which, according to the FDIC, "requires the Secretary of the Treasury to consult with the Director of the Office of Thrift Supervision and the Chairperson of the FDIC Board of Directors to determine the best methods for preserving and encouraging minority ownership of depository institutions."

Given the two transactions noted above, anecdotal evidence suggests these consultations have not taken place in any meaningful way.