The Markets May 10, 2011

Advisers Move Into Equities, Away from Treasuries

Advisers will be advising clients to move into domestic equities, emerging market equities, and global developed market equities and away from Treasury bills, U.S. fixed income, and cash, according to a new survey from Aberdeen Asset Management. 
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The survey of financial advisers across wirehouses, regional brokerage firms, independent wealth management shops and other investment advice providers, found 46% of advisers plan to increase the allocation of clients’ assets to U.S. equities (S&P 500 Index); 38% plan to increase the allocation to emerging markets equities; and 34% to global developed equities.  

Contrarily, 58% plan to decrease their allocations to Treasury bills; 42% plan to decrease their allocations to U.S. fixed income; and 42% plan to decrease the allocation to cash.     

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Regarding emerging market equities, 44% of advisers will recommend that clients allocate between 6-10% to those funds, while 25% of advisers polled will recommend clients allocate between 11-20% to emerging market equity funds.  As for percentages dedicated to emerging market fixed income funds, 43% of advisers will recommend clients allocate between 0-5% to emerging market fixed income funds; 35% of advisers stated they will recommend client allocate between 6-10% to emerging market fixed income funds. 

Most (60%) of the advisers prefer to invest in open-ended mutual funds when increasing allocations to international or emerging markets, while 24% stated a preference for exchange-traded funds (ETFs) when investing in international or emerging markets.  

This survey was conducted online within the United States by Harris Interactive on behalf of Aberdeen Asset Management Inc. between March 15, 2011 and March 22, 2011 among 805 investment professionals.  

Compliance May 10, 2011

Personal SEC Contact Not Needed From Whistleblower

The U.S. District Court for the Southern District of New York has ruled that a whistleblower need not personally contact the Securities and Exchange Commission to claim retaliation protection under the Dodd-Frank financial reform law.
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The court first ruled that the anti-retaliation provisions in the Securities Whistleblower Incentives and Protection provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act require a plaintiff’s disclosures to be made to the SEC or that they fall under one of four categories of disclosures delineated by 15 U.S.C. § 78u-6(h)(1)(A)(iii) that do not require reporting to the SEC as a predicate to filing suit. The court then decided that the plaintiff need not personally make such disclosures, reported a memo from law firm Seyfarth Shaw LLP. 

According to the memo, in Egan v. TradingScreen, Inc., Case No. 10-cv-8202 (S.D.N.Y.), Patrick Egan was the head of sales for the Americas of TradingScreen when he allegedly learned that the CEO was diverting corporate assets to another company that he solely owned. Egan reported that alleged conduct to TSI’s President, who then informed members of the Board of Directors. The Board hired a law firm to conduct an investigation, which confirmed Egan’s allegations of misconduct. The CEO subsequently terminated Egan’s employment. 

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The court rejected the defendants’ motion to dismiss, claiming that Egan could not invoke those provisions because he never personally contacted the SEC regarding the CEO’s alleged misconduct. The court held that “[t]he plain text of the statute merely requires that the person seeking to invoke the private right of action have acted with others in such reporting, not that he or she led the effort to do so.” Thus, the court concluded that Egan’s cooperation with the law firm’s investigation was sufficient to allow him to take advantage of Dodd-Frank’s protections if he could also show that the law firm subsequently provided the information to the SEC. 

The court also determined that Egan’s disclosures did not fall under any of the four categories that do not require reporting, so he needed to show that the alleged misconduct was reported to the SEC. It granted Egan leave to amend his complaint to plead facts supporting his knowledge that the law firm reported its findings to the SEC.

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