Compliance August 8, 2013

UBS Misled CDO Investors, SEC Claims

The SEC charged UBS for its failure to disclose that it retained upfront cash received when it acquired collateral for a collateralized debt obligation (CDO).
Reported by

The Securities and Exchange Commission (SEC) found in its investigation that, in the process of acquiring credit default swaps (CDS), UBS Securities received $23.6 million in upfront payments. UBS retained those payments in full, as well as its disclosed fee of $10.8 million, instead of transferring the cash to the CDO when the collateral was transferred.  

“UBS kept $23.6 million that under the terms of the deal should have gone to the CDO for the benefit of its investors,” said George S. Canellos, co-director of the SEC’s Division of Enforcement.  “In doing so, UBS misrepresented the nature of the CDO’s collateral and rendered false the disclosures about how that collateral was acquired.”

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Charged with violating securities laws, UBS agreed to settle the SEC’s charges by paying disgorgement of the $23.6 million, the disclosed $10.8 million fee, prejudgment interest of approximately $9.7 million and a penalty of $5.7 million. UBS did not admit or deny the SEC’s findings, but consented to the entry of an order finding that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and negligently caused ACA to violate Section 206(2) of the Investment Advisers Act of 1940.

According to the SEC’s order instituting settled administrative proceedings, UBS structured the CDO in mid-2007 with ACA Management as collateral manager. The CDO’s collateral consisted primarily of CDS on subprime residential mortgage-backed securities (RMBS), the CDO received monthly premiums from that collateral, and those premiums were then used to make required payments to CDO bondholders. 

The SEC’s order stated that ACA solicited bids on the CDS collateral through a running spread—periodic interest payments—and upfront cash payments, which combined to equal the yield on the CDS. 

UBS did not make any reference to the cash payments when it marketed the deal, and instead inaccurately represented that the CDO had to acquire all collateral at either fair market value or the price it was acquired by UBS—UBS did not acquire the collateral at fair market value, and the CDO did not receive the $23.6 million.

 

 

Diversions August 8, 2013

Smartphones Elbow Their Way Into Majority

For the first time since the Pew Research Center’s Internet & American Life Project began tracking adoption of the device, most Americans now own a smartphone.

 

Reported by

Android smartphone owners still outstrip iPhone owners, but the gap is narrowing slightly (3 percentage points, compared with 5 percentage points two years ago). And BlackBerry continues sliding down the defunct-device chute, with ownership plummeting to 4%, from 10% in 2011.

More than half (55%) of 2,252 adults surveyed by phone termed their cell phone a smartphone and most (58%) also said their phone operates on a smartphone platform common to the U.S. market. More than a third (35%) have some other kind of cell phone and 9% of Americans surveyed do not own a cell phone.

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Ownership remains expectedly high among younger adults, especially those in their twenties and thirties – though a majority of Americans in their mid-forties through mid-fifties now own smartphones as well as those with higher levels of household income and education.

Every major demographic group experienced significant year-to-year growth in smartphone ownership between 2012 and 2013, although seniors (age 65 and older) continue to exhibit relatively low adoption levels. Almost a fifth (some 18%) of Americans age 65 and older now own a smartphone, compared with 13% a year ago.

Adoption still varies significantly by household income but that variation is unevenly distributed across different ages. Younger adults, regardless of income, are very likely to be smartphone owners. For older adults smartphone ownership is more of an “elite” phenomenon.

Smartphones tend to be quite prevalent at the upper end of the income distribution but much less common among those with lower income. Android owners now represent 28% of all cell owners, up from 15% two years ago. iPhone owners now represent a quarter of the cell owner population, up from 10% two years ago.

Android and iPhone owners are equally common within the cell owner population as a whole, although this ratio differs across various demographic groups:

Cell owners from a wide range of educational and household income groupings have similar Android adoption levels, but almost half (49%) of cell owners with a household income of $150,000 or more say their phone is an iPhone.

African-American cell owners are more likely than whites or Latinos to have an Android device as opposed to an iPhone.

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