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Archive for the ‘Financial’ Category

SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)

Posted by William Byrnes on March 17, 2020

SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance for a small business. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
  • SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

Process for Accessing SBA’s Coronavirus (COVID-19) Disaster Relief Lending

  • The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
  • Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
  • SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
  • Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities.
  • SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.

See §121.201   What size standards has SBA identified by North American Industry Classification System codes?

The size standards described in this section apply to all SBA programs unless otherwise specified in this part. The size standards themselves are expressed either in the number of employees or annual receipts in millions of dollars unless otherwise specified. The number of employees or annual receipts indicates the maximum allowed for a concern and its affiliates to be considered small.  By example, a hotel that does not exceed $35 million gross revenue is a small business whereas a B&B Inn or a full-service restaurant may not exceed $8 million in revenue.

Even tax law firms can qualify for SBA loans. The office of lawyers that do not exceed $12 million in revenue is a “small” law firm. But tax preparation services? Allowed up to $22 million in revenue.

For additional information, please contact the SBA disaster assistance customer service center. Call 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail disastercustomerservice@sba.gov(link sends e-mail).

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Longevity Pegged Annuities – What’s Changed With The Final Regulations

Posted by William Byrnes on February 12, 2015



Longevity Pegged Annuities – What CPAs Need to Know About the New Rules (William Byrnes & Robert Bloink)

The Treasury Department made sparks fly when it recently issued final regulations governing qualified longevity annuity contracts (QLAC).

read the full story at CPA Journal of the New York Society of Certified Public Accountants http://viewer.zmags.com/publication/8df8c3b9#/8df8c3b9/66

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What Is Currency Crisis And How Can It Occur?

Posted by William Byrnes on August 4, 2014

Author Bio: Luke Peters is an avid reader of finance and economics related books, novels and other literature and likes to keep up with the latest news and developments in the market. He has written several blogs and articles related to law, finance and economics across the internet.

currency-crisisIn simple words, a currency crisis is a situation which is a result of decline in the value of the currency in a particular country. Currency crisis is one of the major causes for economic depression and economic downfall of a country. It affects the economy by disturbing the foreign exchange rates and decreases the purchasing power of a country. During the currency crisis, an economy’s central bank is unable to meet the demands that the banknotes promise through its exchange reserves and leads to the devaluation of the currency in foreign market. Listed below are the several factors that can trigger the currency crisis in an economy. (Image Credits @ epSos)

  1. Excessive Credit Creation

While the foreign exchange pegs are intended to increase the inflow of foreign exchange in the reserves to allow the creation of more money, the developing nations are plagued by higher credit creation from the foreign exchange reserves. The monetary policies of most developing nations are aimed at the protection from inflation that keeps their domestic interest rates higher than the foreign ones. This creates more demand for foreign currency.

  1. Excessive Liberalization

Most East Asian countries introduced liberalization policies during their early stages of developments and led to the decline of the domestic market and increase in the demand for imports. Globalization of the financial market during the early stages did not allow the market to fully develop to match the growing competition while the domestic interest rates remain high. Also the lack of risk assessment standards put the economy in further debt.

  1. Speculative Attacks

One of the major factors that have caused currency crisis across the world is the investor’s disbelief in the government’s ability to back up the promised made through their currency. Emerging economies often need large amount of financial credits to develop their economic and industrial sector and several times the debt surpasses the amount of reserves in the country’s central reserve. Pegging the domestic currency against a reserve currency can certainly stabilize a country’s economy but also makes the government susceptible to such speculative attacks from investors.

  1. Real Estate and Bad Debts

While the expansion of credit gave rise to the real estate business, poor risk assessment standards and the excessive amount of bad and unpaid debts led to the collapse of several banking institutions. Unpaid debts cause the depositors to lose faith in the bank’s ability to safe guard their money, leading to withdrawal of depositor funds that in turn leads to the bank’s collapse. The closed down bank put an additional stress on the government’s reserves and also causes a bad impression in the investors’ minds.

  1. Loose Monetary Policies

One of the major causes of currency crisis is the poor fiscal and foreign exchange policy of the government. Less emphasis on the domestic market and loose risk assessment policies often leads to excess credit creation, effectively creating a moral hazard for a country’s reserves.  Abundance of liquid assets allow unrestricted outflow of money without the guarantee of equivalent returns. The IMF policies have further led to the decline of several economies as easy credit increased the probabilities of adverse selection and losses.

The abovementioned factors are the major reasons that can trigger currency crisis in an economy. The controlled use of foreign exchange reserves and enforcement of monetary policies is one probable solution to the problem of currency crisis. One can refer to several foreign exchange websites to shire the services of forex brokers in Switzerland and other places in the world. Foreign exchange brokers facilitate an easy and stress free solution to all your foreign exchange needs.


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Hedge funds using “basket options” to recharacterize income as long term capital gain, bypass leverage limits – Senate webcast hearing today

Posted by William Byrnes on July 22, 2014

13.05.15-SubcommitteeTwo global banks and more than a dozen hedge funds misused a complex financial structure to claim billions of dollars in unjustified tax savings and to avoid leverage limits that protect the financial system from risky debt, a Senate Subcommittee investigation has found.

to watch the webcast and dowload the report, go to http://lawprofessors.typepad.com/intfinlaw/2014/07/hedge-funds-using-basket-options-to-recharacterize-income-as-long-term-capital-gain-bypass-leverage-.html


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DC Appeals rules Stanford’s defrauded investors and not protected by the Securities Investor Protection Corporation (SIPC)

Posted by William Byrnes on July 19, 2014

A three judge U.S. Court of Appeals for the District of Columbia panel unanimously upholding the District Court decision that Stanford International Bank CD Investors do not meet the definition of “customer” under the Securities Investor Protection Act (SIPA).  Thus, the Securities Investor Protection Corporation (SIPC) will not cover the losses of Stanford investors, up to the maximum statutory amount of $500,000 for securities.

What is the SIPC?

SIPC was created under the Securities Investor Protection Act as a non-profit membership corporation. SIPC oversees the liquidation of member broker-dealers that close when the broker-dealer is bankrupt or in financial trouble, and customer assets are missing.

In a liquidation under the Securities Investor Protection Act, SIPC and the court-appointed Trustee work to return customers’ securities and cash as quickly as possible. Within limits, SIPC expedites the return of missing customer property by protecting each customer up to $500,000 for securities and cash (including a $250,000 limit for cash only).

Although created under a federal law, SIPC is not an agency or establishment of the United States Government, and it has no authority to investigate or regulate its member broker-dealers.

SECWhat is the SEC suing the SIPC?

The Securities Investor Protection Act of 1970, 15 U.S.C. § 78ggg SEC functions states that:

(b) Enforcement of actions

In the event of the refusal of SIPC to commit its funds or otherwise to act for the protection of customers of any member of SIPC, the Commission may apply to the district court of the United States in which the principal office of SIPC is located for an order requiring SIPC to discharge its obligations under this chapter and for such other relief as the court may deem appropriate to carry out the purposes of this chapter.


What are the facts?

7,000 investors, on the advice of an SEC registered broker dealer Stanford Group Company (Houston, Texas) (“SGC”) that was a member of the SIPC, invested in certificates of deposit (CDs) issued by an Antigua based Stanford International Bank LLC (“SIBL”), not a member of the SIPC.

The CDs are debt assets that promised a fixed rate of return.  The SIBL CD disclosure statements stated that the products are not covered by the investor protection or securities insurance laws of any jurisdiction such as the U.S. Securities Investor Protection Insurance [sic] Corporation.

What is the central issue? 

The central issue in this appeal is whether investors who purchased SIBL CDs at the suggestion of SGC employees qualify as SGC “customers” under the SIPA, that SIPC may be ordered to cover their losses up to the statutory maximum.

What did the SIPC argue to exclude its protection?

In SIPC’s view, the CD investors were not SGC “customers” within the meaning of the Act, a precondition to liquidation of SGC.  SIPC explained that the Act “protects the ‘custody’ function that brokerage firms perform for customers.”  Here, SIPC concluded, the circumstances fell outside the Act’s custody function because SGC itself never held investors’ cash or securities in connection with their purchase of the CDs. Rather, “cash for the purpose of purchasing CDs . . . was sent to SIBL, which is precisely what the customer intended.”  As for the “physical CDs,” they presumably “were issued to, and delivered to” the investors, and SGC did not “maintain[] possession or control of the CDs.” (citation removed)

Why did the SEC seek to extend SIPC protection?

SEC reached the opposite conclusion.  In June 2011, the Commission issued a formal analysis stating that investors who had purchased SIBL CDs at the urging of SGC employees qualified as SGC “customers” under the Act. Citing evidence that Stanford had “structured the various entities in his financial empire . . . for the principal, if not sole,
purpose of carrying out a single fraudulent Ponzi scheme,” the Commission determined that the “separate existence” of SIBL and SGC “should be disregarded.” (citation removed) ….

The Commission grounds its argument for disregarding the corporate separateness of SIBL and SGC in the doctrine of “substantive consolidation,” an equitable doctrine typically applied in bankruptcy proceedings. “In general, substantive consolidation results in the combination of the assets of [two] debtors into a single pool from which the claims of creditors of both debtors are satisfied ratably.” 2 Collier on Bankruptcy ¶ 105.09[3], at 105-110–11…. Courts have employed a “variety” of tests when assessing whether to grant substantive consolidation. (citation removed) ….

The doctrine of substantive consolidation has been applied in SIPA liquidations. In New Times I, for instance, the bankruptcy court substantively consolidated a SIPC-member
broker undergoing liquidation with a related, non-broker entity.  The assets of the related entity were brought into the SIPC member’s liquidation estate, enlarging the available pool for customer recovery. Investors with cash on deposit with the non-broker entity were treated as “customers” in the liquidation, even though the member broker itself never held those investors’ funds.  (citation removed) ….

Who is a customer under the SIPA?

§78lll Definitions (B) Included Persons

The term ‘customer’ includes-

(i) any person who has deposited cash with the debtor for the purpose of purchasing securities;

(ii) any person who has a claim against the debtor for cash, securities, futures contracts, or options on futures contracts received, acquired, or held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the Commission; and

(iii) any person who has a claim against the debtor arising out of sales or conversions of such securities.

(C) Excluded Persons

The term ‘customer’ does not include any person, to the extent that-

(i) the claim of such person arises out of transactions with a foreign subsidiary of a member of SIPC; or

(ii) such person has a claim for cash or securities which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor, or is subordinated to the claims of any or all creditors of the debtor, notwithstanding that some ground exists for declaring such contract, agreement, or understanding void or voidable in a suit between the claimant and the debtor.

What analysis did the District Court lend to the term customer?

In SEC v. Sec. Investor Prot. Corp., 872 F. Supp. 2d 1 (D.D.C. 2012) Judge Robert Wilkins analyzed this definition of customer by looking to leading treatises.

1024px-D.C._Court_of_Appeals_-_view_from_John_Marshall_ParkAs summarized by one leading treatise, the SIPA statute “attempts to protect customer interests in securities and cash left with broker-dealers….” Loss & Seligman, Securities Regulation ¶ 8.B.5.a, p. 3290 (3rd ed.2003) (citing legislative history) (emphasis added). Another prominent treatise states that “SIPA is designed to protect securities investors against losses stemming from the failure of an insolvent or otherwise failed broker-dealer to properly perform its role as the custodian of customer cash and securities.” 1–12 Collier on Bankruptcy, P. 12.01 (16th ed.) (emphasis added). The usage of the phrase “left with” in the first description and of the term “custodian” in the second description is notable—both usages are in accordance with the plain meaning of statutory term “deposit,” which is “to place esp. for safekeeping or as a pledge” or “[to] giv[e] money or other property to another who promises to preserve it or to use it and return it in kind.” (citation omitted)

Accordingly, it is well settled that “the critical aspect of the ‘customer’ definition is the entrustment of cash or securities to the broker-dealer for the purposes of trading securities.” The “customer” definition has therefore been described as “embodying a common-sense concept: An investor is entitled to compensation from the SIPC only if he has entrusted cash or securities to a broker-dealer who becomes insolvent; if an investor has not so entrusted cash or securities, he is not a customer and therefore not entitled to recover from the SIPC trust fund.” To prove entrustment, the claimant must prove that the SIPC member actually possessed the claimant’s funds or securities. (citation omitted)

What did the Appeals Court’s rule?

When a brokerage firm faces insolvency, the cash and securities it holds for its customers can become ensnared in bankruptcy liquidation proceedings or otherwise be put at risk. Congress established the Securities Investor Protection Corporation (SIPC) to protect investors’ assets held on deposit by financially distressed brokerage firms. SIPC can initiate its own liquidation proceedings with the aim of securing the return of customers’ property held by the brokerage. SIPC, however, possesses authority to undertake those protective measures only with respect to member brokerage firms. Its authority does not extend to non-member institutions.

US-CourtOfAppeals-DCCircuit-SealIn this case, the Securities and Exchange Commission seeks a court order compelling SIPC to liquidate a member broker dealer, Stanford Group Company (SGC). SGC played an integral role in a multibillion-dollar financial fraud carried out through a web of companies. SGC’s financial advisors counseled investors to purchase certificates of deposit from an Antiguan bank that was part of the same corporate family. The Antiguan bank’s CDs eventually became worthless. The massive Stanford fraud spawned a variety of legal actions in a number of arenas, the bulk of which are not at issue here. This case involves the authority of a specific entity—SIPC—to take measures within its own statutorily bounded sphere.  As to that issue, because the Antiguan bank, unlike SGC, was not a SIPC member, SIPC had no ability to initiate measures directly against the bank to protect the property of investors who purchased the bank’s CDs.

The question in this case is whether SIPC can instead be ordered to proceed against SGC—rather than the Antiguan bank—to protect the CD investors’ property. It is common ground that SIPC can be compelled to do so only if those investors qualify as “customers” of SGC within the meaning of the governing statute. SIPC concluded that they do not, and the district court agreed.  The court reasoned that the investors obtained the Antiguan bank’s CDs by depositing funds with the bank itself, not with SGC, and they thus cannot be considered customers of the latter. We agree that the CD investors do not qualify as customers of SGC under the operative statutory definition. We therefore affirm the denial of the application to order SIPC to liquidate SGC.

What was the Appeals Court analysis for the term ‘Customer”?

To come within the fold of SIPA’s protections, an investor thus ordinarily must demonstrate both that the broker “actually . . . received, acquired or held the claimant’s property, and that the transaction giving rise to the claim . . . contain[ed] the indicia of a fiduciary relationship” between the investor and the broker. 1 Collier on Bankruptcy ¶ 12.12[2], at 12-50.  An investor’s “customer” status is evaluated on an asset-by-asset basis and may change over time.

Here, insofar as the analysis focuses on the entity that in fact held custody over the property of the SIBL CD investors, the investors fail to qualify as “customers” of SGC under the statutory definition. That is because SGC never “received, acquired, or held” the investors’ cash or securities. With regard to the investors’ cash, it is undisputed that investors at no time deposited funds with SGC to purchase the SIBL CDs. The funds instead went to SIBL. (citation omitted)

What about the SEC’s Argument for group consolidation?

Even if we were to consolidate, however, SIBL CD investors would not be “customers” of a SIPC-member entity under the statutory definition.  The Act specifically excludes from “customer” status “any person, to the extent that . . . such person has a claim for cash or securities which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor.” We, like other courts, understand that provision to establish that “a claimant cannot qualify for customer status under SIPA to the extent that he or she is a lender rather than an investor.” As the Eleventh Circuit has explained, “[c]ash that is simply lent to the brokerage cannot form the basis of a SIPA customer claim because the statute’s definition of ‘customer’ excludes individuals whose claims are for ‘cash . . . which . . . is part of the capital of the debtor.’” (citation omitted)

Here, investors who purchased SIBL CDs lent funds to SIBL that became part of SIBL’s capital: Those investors gave cash to SIBL in exchange for a promise to be repaid with a fixed rate of return.  The investors invested “in,” not “through,” SIBL.  … Under a consolidated view, investors who purchased SIBL CDs lent money to the consolidated SIBL/SGC entity, forming a “creditor-debtor arrangement.” The CD proceeds thus became part of the consolidated entity’s “capital,” triggering the statutory exclusion from “customer” status for lenders. (citation omitted)

Relevant Sources and Documents

SECURITIES AND EXCHANGE COMMISSION (SEC) v. SECURITIES INVESTOR PROTECTION CORPORATION (SIPC), No. 12-5286 (July 18, 2014 D.C. Court of Appeals)  The  decision is available here SEC v SPIC (Stanford Fraud) DC Appeals 7-18-2014

SIPC has a website regarding the Stanford case here.  SIPC’s statement about the Appeals Court decision is here.




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Dodd Frank Progress Report – 4th Year Anniversary

Posted by William Byrnes on July 18, 2014

On July Wall_Street_Sign18, 2014, Davis Polk LLC released its special Dodd-Frank Progress Report to mark the four-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Progress Report concluded that a total of 280 Dodd-Frank rulemaking requirement deadlines have passed.  Of these 280 passed deadlines, 127 (45.4%) have been missed and 153 (54.6%) have been met with finalized rules.

In addition, 208 (52.3%) of the 398 total required rulemakings have been finalized, while 96 (24.1%) rulemaking requirements have not yet been proposed.


Contents of Davis Polk’s Dodd Frank Progress Report

o   Dodd-Frank Rulemaking Progress by Agency

o   Title VII Progress on Required Rulemakings

o   Dodd-Frank Rulemaking Progress on Passed Deadlines

o   Dodd-Frank Rulemaking Progress in Select Categories

o   Dodd-Frank Rulemaking Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Rulemakings

o   Dodd-Frank Study Progress by Due Date

o   Dodd-Frank Statutory Deadlines for Required Studies

o   Tasks for Swap Dealers and Major Swap Participants


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