Tag Archive | "SEC"

Fiat Chrysler’s U.S. Unit Redeems Bonds due 2019

The U.S. unit of carmaker Fiat Chrysler Automobiles has redeemed senior secured notes that mature in 2019 with a total face value of $2.875 billion, a filing with U.S. market regulator SEC showed, reports Reuters.

The notes, which carry a coupon of 8 percent, were redeemed at a price equal to their principal amount plus the applicable premium and any accrued and unpaid interests, according to the filing.

Fiat completed the buyout of its U.S. unit last year but needs to refinance all of Chrysler’s bonds and past credit agreements before it can gain full access to the unit’s cash. After this payment, FCA still has to repay or refinance Chrysler bonds due in 2021 and renegotiate other credit agreements.

Having full access to Chrysler’s money will help FCA carry out an ambitious five-year investment plan that includes spending 48 billion euros ($55 billion) to 2018 to boost sales by 60 percent to 7 million cars and increase net profit five-fold.

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GM ignition switch recall: SEC opens investigation

Via Michigan Live

DETROIT — U.S. securities regulators are looking into General Motors’ delayed recall of more than 2 million cars with a deadly ignition switch problem.

GM disclosed in a quarterly report Thursday that the Securities and Exchange Commission has made inquiries about the recall. It also confirmed for the first time that the U.S. Attorney’s office in New York and an unidentified state attorney general are conducting investigations. Congress and federal highway safety regulators also are investigating.

The SEC likely is probing whether GM failed to disclose the switch problem to investors quickly enough, said Peter Henning, a former SEC lawyer who now is a law professor at Wayne State University in Detroit.

GM is recalling 2.6 million older small cars because the switches can unexpectedly slip out of the “run” position. That can shut down the engine, knock out the power-assisted steering and brakes and disable the air bags. Drivers can lose control of their cars and crash.

The company, which has linked 13 deaths to the problem, has acknowledged that engineers knew about it more than a decade ago. Also, CEO Mary Barra has said she was told of the problem in December, yet it was not disclosed in the company’s annual report filed in February.

“That’s what the SEC is looking at,” said Henning. “If it should have been picked up, or it should have been included in the company’s financials, it could be a violation of securities law.”

A spokeswoman for the SEC would neither confirm nor deny that the agency is investigating. A message was left for a GM spokesman.

GM also disclosed that it faces 60 class-action lawsuits in the U.S. and Canada from people alleging that their cars have lost value because of the recalls. And it faces shareholder lawsuits alleging that it failed to monitor and disclose the ignition switch problem.

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SEC Settles with Capital One Financial Corp. For $3.5 Million For Understating Auto Loan Losses

Washington, D.C. — The Securities and Exchange Commission charged Capital One Financial Corp. and two senior executives for understating millions of dollars in auto loan losses incurred during the months leading into the financial crisis.

An SEC investigation found that in financial reporting for the second and third quarters of 2007, Capital One failed to properly account for losses in its auto finance business when they became higher than originally forecasted. The profitability of its auto loan business was primarily derived from extending credit to subprime consumers. As credit markets began to deteriorate, Capital One’s internal loss forecasting tool found that the declining credit environment had a significant impact on its loan loss expense. However, Capital One failed to properly incorporate these internal assessments into its financial reporting, and thus understated its loan loss expense by approximately 18 percent in the second quarter and 9 percent in the third quarter.

Capital One agreed to pay $3.5 million to settle the SEC’s charges. The two executives – former Chief Risk Officer Peter A. Schnall and former Divisional Credit Officer David A. LaGassa – also agreed to settle the charges against them.

“Accurate financial reporting is a fundamental obligation for any public company, particularly a bank’s accounting for its provision for loan losses during a time of severe financial distress,” said George Canellos, co-director of the Division of Enforcement. “Capital One failed in this responsibility by underreporting expenses relating to its loan losses even as its own internal forecasting tool had signaled an increase in incurred losses due to the impending financial crisis.”

According to the SEC’s order instituting settled administrative proceedings, beginning in October 2006 and continuing through the third quarter of 2007, Capital One Auto Finance (COAF) experienced significantly higher charge-offs and delinquencies for its auto loans than it had originally forecasted. The elevated losses occurred within every type of loan in each of COAF’s lines of business. Its internal loss forecasting tool assessed that its escalating loss variances were attributable to an increase in a forecasting factor it called the “exogenous” – which measured the impact on credit losses from conditions external to the business such as macroeconomic conditions. A change in this exogenous factor generally had a significant impact on COAF’s loan loss expense, and it was closely monitored by the company through its loss forecasting tool. Capital One determined that incorporating the full exogenous levels into its loss forecast would have resulted in a second quarter allowance build of $72 million by year-end. Since no such expense was incorporated for the second quarter, it would have resulted in a third quarter allowance build of $85 million by year-end.

However, according to the SEC’s order, instead of incorporating the results of its loss forecasting tool, Capital One failed to include any of COAF’s exogenous-driven losses in its second quarter provision for loan losses and included only one-third of such losses in the third quarter. The exogenous losses were an integral component of Capital One’s methodology for calculating its provision for loan losses. As a result, Capital One’s second and third quarter loan loss expense for COAF did not appropriately estimate probable incurred losses in accordance with accounting requirements.

The SEC’s order also finds that Schnall and LaGassa caused Capital One’s understatements of its loan loss expense by deviating from established policies and procedures and failing to implement proper internal controls for determining its loan loss expense. Schnall, who oversaw Capital One’s credit management function, took inadequate steps to communicate COAF’s exogenous treatment to the senior management committee in charge of ensuring that the company’s allowance was compliant with accounting requirements. Despite warnings, he also failed to ensure that the exogenous treatment was properly documented. LaGassa, who managed the COAF loss forecasting process, failed to ensure that the proper exogenous levels were incorporated into the COAF loss forecast. He also failed to ensure that the exogenous treatment was documented consistent with policies and procedures.

“Financial institutions, especially those engaged in subprime lending practices, must have rigorous controls surrounding their process for estimating loan losses to prevent material misstatements of those expenses,” said Gerald W. Hodgkins, Associate Director of the Division of Enforcement. “The SEC will not tolerate deficient controls surrounding an issuer’s financial reporting obligations, including quarterly reporting obligations.”

Capital One’s material understatements of its loan loss expense and internal controls failures violated the reporting, books and records, and internal controls provisions of the federal securities laws, namely Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-13. Schnall and LaGassa caused Capital One’s violations of Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-13 thereunder and violated Exchange Act Rule 13b2-1 by indirectly causing Capital One’s books and records violations.

Schnall agreed to pay an $85,000 penalty and LaGassa agreed to pay a $50,000 penalty to settle the SEC’s charges. Capital One and the two executives neither admitted nor denied the findings in consenting to the SEC’s order requiring them to cease and desist from committing or causing any violations of these federal securities laws.

The SEC’s investigation was conducted by Senior Counsel Anita Bandy and Assistant Chief Accountant Amanda deRoo and supervised by Assistant Director Conway Dodge.

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CFPB Investigating Ally Financial

Washington — Ally Financial, in its March 1 filing with the Securities and Exchange Commission (SEC), revealed that it was one of the finance sources warned by the Consumer Financial Protection Bureau that it could face lawsuits under the Equal Credit Opportunity Act (ECOA).

“The CFPB has recently advised us that they are investigating certain [parts] of our retail financing practices,” read the filing. “It is possible that this could result in actions against us.”

The filing didn’t offer any further details regarding the CFPB’s actions, and company officials declined to comment on the matter.

In February, Bloomberg, citing unnamed sources, reported that the CFPB alerted “at least four” banking institutions that they could face lawsuits related to their policies that allow auto dealers to mark up the interest rates on retail installment sales transactions in exchange for services rendered. The bureau, through speeches, alleged these policies have caused a disparate impact and caused members of minority groups to pay higher interest rates.

Bill Himpler, executive vice president of the American Financial Services Association, said that the association had yet to see the letters, but said he believed Bloomberg’s report was “close to accurate. We feel fairly confident that letters have gone out.”

The CFPB has not returned calls seeking comment, and has yet to publicly confirm the warnings.

Ally’s filing with the SEC is the first confirmation of the CFPB’s actions, which legal insiders say signals an imminent crackdown on the auto industry. It’s a move experts have been predicting since the CFPB was formed in 2011 as a result of the Dodd–Frank Wall Street Reform and Consumer Protection Act.

Financial institutions are also reacting. Through a bulletin faxed to dealers in late February, Chase announced a new dealer rate participation monitoring program. Under the program, Chase will periodically monitor dealer pricing on retail installment contracts it purchases from dealerships.

“Our dealer monitoring program reaffirms our commitment to fair lending and supports our indirect auto lending activities,” a Chase spokesperson said.

According to the bulletin, if a dealer is found to have different pricing for protected classes, Chase will require them to provide an explanation, and “will consider taking further action” if it is not satisfactory.

Thomas B. Hudson, a partner in the law firm of Hudson Cook LLP, said the CFPB’s approach is inherently flawed, if reports are true. But if the bureau’s legal strategy is successful, he speculated that “finance companies and banks will end up imposing a lot more supervision and control over dealers.”

However, this outcome is far from inevitable, Hudson said. Alleging that banking and finance company policies have allowed dealers to create a disparate impact — which holds that practices that have a disproportionate adverse impact on members of a minority group are discriminatory and illegal — could be a hard sell.

“There are people on the legal side of the credit business who don’t think it’s appropriate to graft that concept on to the Equal Credit and Opportunity Act,” he explained.

The ECOA takes its definition of disparate impact discrimination from Supreme Court cases concerning employment, including the 1971 case of Griggs vs. Duke Power Co. and the 1975 case of Albemarle Paper Co. vs. Moody. Prior to the Griggs decision, which found that Duke Power’s employment requirements did not pertain to applicants’ ability to perform the job, employers did not have to separate intentional wrongs from unintentional wrongs if they appeared to treat all applicants equally.

Using the disparate impact theory, the CFPB has taken the position that violations of the ECOA can be pursued based solely on statistics that suggest an otherwise neutral policy disparately affects minorities. Consequently, the government does not have to prove intent to discriminate to launch claims related to the ECOA.

“The concern is the banks are never face to face with a customer. The banks don’t know the customer’s race or ethnicity or age or sex,” Hudson said. “The dealer is sitting there across the desk from these folks, so if there’s discrimination in the bank’s portfolio, you would think that it was there because dealers were marking up in a discretionary manner, to a greater degree, for protected classes than for others. And if that’s the case, then the bureau is going to sit there and scratch its head and say, ‘Okay, how do we fix this?’”

No federal court of appeals has yet determined whether the ECOA permits disparate impact claims, although two have questioned its appropriateness.

Last month, the CFPB Director Richard Cordray spoke to at a National Association of Attorneys General (NAAG)’s meeting. While he did not confirm the CFPB’s reported actions, he did make clear the bureau’s interest on how interest rates are set for minority buyers.

“When consumers and lenders sit down to discuss loans, consumers are often unaware what options may or should be available to them,” he said. “If a rate or a price is quoted, they do not know whether that quote accurately depicts their actual position in the loan market.

“Interest rates can and do vary based on the characteristics of the borrower,” he continued. “Lender policies that provide incentives for brokers or loan officers to negotiate higher rates have often been shown to result in African-American and Hispanic borrowers paying more for mortgages and auto loans.”

Cordray said the NAAG has been working closely with the CFPB since its inception. “The NAAG working groups on such topics as student loans and auto-loan financing have fostered important conversations and allowed for closer and more effective coordination,” Cordray stated.

Legal insiders believe that the CFPB’s analysis of retail pricing for portfolios of retail installment sale contracts has the potential to yield false positives for a disparate impact. For example, if two dealerships both apply their pricing policies consistently, but one charges a higher rate, there is still a potential for disparate impact if their customer demographics differ.

As Hudson pointed out, the Supreme Court has yet to determine the validity of disparate impact theory as it relates to the ECOA, but “until it does, the bureau is going to pretend like it’s live ammunition.”

“They are going to use it,” he said. “They are going to continue to assume that it’s one of their tools, and they’re going to proceed as if it’s a valid theory.”

If Cordray’s speech to members of the NAAG is any indication, it appears that’s what the CFPB intends to do. “We made it clear last year that — like the other banking regulators and the Justice Department — we will pursue discrimination in consumer financial markets based on disparate impact as well as on intentional violations,” he said. “From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether or not a lender consciously intended to discriminate.”

Via F&I Showroom

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Chinese Auto Parts Manufacturer Submits Settlement Offer to SEC

JINZHOU, China – Wonder Auto Technology Inc., a manufacturer of automotive electrical parts, safety products, suspension products and engine accessories, submitted an offer of settlement with the Securities and Exchange Commission (SEC) to resolve an outstanding proceeding revoking it’s registration of securities for failure to file periodic reports, in violation of Section 12(g) of the Securities Exchange Act of 1934. As a result, the company’s registration will be revoked.

Once a de-registration order has been issued by the SEC, no member of a national securities exchange, broker, or dealer in the United States can effect any transaction in, or induce the purchase or sale of, the company’s stock.

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SEC Delays Vote on Deal for Rattner

The Securities and Exchange Commission on Thursday delayed a vote on a deal to end a pension fraud probe involving ex-auto czar Steve Rattner, The Detroit News reported.

The deal under consideration would reportedly include a $6 million fine and ban Rattner from serving in the financial industry for two years.

The deal also would reportedly allow him to continue to advise New York Mayor Michael Bloomberg, according to published reports.

The settlement is on hold as Rattner continues to work out a deal with New York State Attorney General Andrew Cuomo on a separate investigation.

Rattner declined to comment Thursday.

At issue is a “pay-to-play” scandal where Rattner paid a hefty “finders fee” to land an investment from the $129 billion New York State Pension Fund.

Rattner’s investment firm, Quadrangle Group LLP, paid $1.1 million to Hank Morris, a former top political consultant to ex-New York Comptroller Alan Hevesi, according to Cuomo’s investigation. Rattner reportedly met with Morris.

Quadrangle then received an investment of $100 million from the state pension fund. Quadrangle settled a probe of the firm in April for $7 million and reproached Rattner as part of a settlement with Cuomo.

Rattner left the firm in February 2009 to oversee the Obama administration’s restructuring of the auto industry and left the auto task force in July 2009.

“We wholly disavow the conduct engaged in by Steve Rattner, who hired the New York State Comptroller’s political consultant, Hank Morris, to arrange an investment from the New York State Common Retirement Fund. That conduct was inappropriate, wrong and unethical,” the firm said.

Quadrangle called reforms proposed by Cuomo “vitally necessary to eliminate pay-to-play practices from the public pension fund investment process.We urge others in the industry to follow.”

Quadrangle retained Morris as a placement agent to increase to $100 million from $25 million an investment Quadrangle was seeking from the pension fund.

In the middle of the investment decision-making process, Quadrangle also arranged a DVD distribution deal for a low-budget movie, “Chooch,” that was produced by the brother of then New York pension fund Chief Investment Officer David Loglisci.

Hevesi, 69, pleaded guilty to a second-degree charge of receiving reward for official misconduct.

He resigned as state comptroller in 2006.

Peter Henning, a Wayne State University law professor and former SEC attorney, said Rattner is trying to put the matter behind him.

“Two years is not crippling, but this is a stain on his reputation,” he said.

Rattner is worth an estimated $188 million to $608 million and is on a book tour to tout his memoir “Overhaul.”

In his book, Rattner described the episode as wrenching.

“During my 35 years in the working world, I had never been accused of so much as jaywalking,” Rattner said. “It was painful for me and my family to have my honesty and integrity impugned, often by innuendo.”

Rattner, a former New York Times reporter, is set to appear at the Detroit Economic Club to discuss his book on Oct. 26.

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