March 24, 2023

DealBook: Obama Nominates 2 Senate Aides for S.E.C. Posts

President Obama continued his shake-up of the Securities and Exchange Commission on Thursday, naming two Senate aides to senior posts at the Wall Street regulatory agency.

The nominees to the five-member agency are Kara M. Stein, a Democrat, and Michael Piwowar, a Republican. If confirmed by the Senate, they will succeed commissioners whose terms are set to expire.

The move comes just months after Mr. Obama named Mary Jo White, a former federal prosecutor turned Wall Street defense lawyer, to be chairwoman of the agency. In recent weeks, Ms. White has started to overhaul the staff, naming co-heads of the agency’s enforcement unit, new leaders of other major divisions and her own chief of staff. She also hired a general counsel, Anne K. Small, who rejoined the S.E.C. from the White House.

The transition period has coincided with challenges for the agency, which has fallen far behind its rule-making responsibilities. Nearly three years after Congress passed the Dodd-Frank Act, the overhaul of Wall Street regulation, the S.E.C. has carried out only a small fraction of the changes.

The possible arrival of Ms. Stein and Mr. Piwowar could add to some delays as they settle into the agency. Yet the nominees are hardly strangers to the S.E.C.’s business.

Ms. Stein is an aide to Senator Jack Reed, a Rhode Island Democrat who is a senior member of the Senate Banking Committee, which oversees the S.E.C. Mr. Piwowar is the committee’s Republican chief economist.

In a statement late Thursday, the committee chairman, Tim Johnson, expressed support for both nominees. “I look forward to moving both their nominations forward to ensure the commission continues to operate at full strength,” said Mr. Johnson, Democrat of South Dakota.

Article source:

DealBook: Questions of Fair Play Arise in Facebook’s I.P.O. Process

As Washington intensifies its scrutiny of the initial public offering of Facebook, the company’s bankers are facing questions about whether the process — even if perfectly legal — was fair.

The concerns center on Morgan Stanley, Goldman Sachs and other banks involved in the I.P.O. that shared a negative outlook about Facebook with a select group of clients, rather than broadly with all investors.

In the days leading up to Facebook’s debut, analysts at several banks ratcheted down their growth estimates for the social network. The move came after the company told them that quarterly and annual revenue would be on the softer side, said people briefed on the matter who spoke on the condition of anonymity because they were not authorized to discuss the issue publicly.

As is typical in the I.P.O. process, research analysts at Morgan Stanley, Goldman Sachs and other firms contacted certain clients to discuss their revised expectations, while other big investors called on the banks to get their new take. But ordinary mom-and-pop investors did not have the same access to the valuable information.

Now, regulators and lawmakers are taking a closer look.

This week, the Securities and Exchange Commission’s enforcement division opened a preliminary inquiry into the Facebook offering, a person briefed on the matter said. The Senate Banking Committee and the House Financial Services Committee have also started informal examinations into the I.P.O. process.

Congressional aides plan to talk with Facebook executives, regulators and others involved in the I.P.O. in the coming days, after which the Senate committee will weigh whether to hold a public hearing about the matter.

“While the S.E.C. investigates some of the problems surrounding the Facebook I.P.O., I think it is important to broadly and publicly examine the procedures for taking a company public,” said Senator Jack Reed, Democrat of Rhode Island and chairman of the Senate Banking Subcommittee on Securities, Insurance, and Investment. “We need to ensure the system is fair, balanced, and works for everyone.”

The scope of the S.E.C. inquiry is unclear, though the agency’s market abuse unit could examine how nonpublic information was disseminated to certain investors — and whether it conflicted with the company’s public disclosures and regulatory filings. One person close to the matter added that the agency has also heard complaints from investors who did not know how many shares they held, amid technical missteps at the Nasdaq exchange on Friday.

No one at Facebook or any of its underwriters have been accused of any wrongdoing, and people close to the matter cautioned that the company and its banks might not have run afoul of any regulations. The S.E.C., Facebook and Morgan Stanley all declined to comment.

The most highly anticipated technology offering in years, Facebook’s debut has instead disappointed many once-enthusiastic investors. While underwriters, investors and analysts had hoped for even a small “pop” on the first day, Facebook barely broke its offering price of $38 a share and required support from Morgan Stanley to remain above that.

Facebook tumbled in its next two days of trading before finally closing up 3.2 percent on Wednesday. Still, at $32, the company’s shares remain well below their offer price.

Many market participants continue to cope with the fallout of Facebook’s messy debut. Morgan Stanley’s brokerage arm wrote in an internal memorandum on Wednesday that it was reviewing clients’ orders and might reimburse customers for pricing discrepancies.

As the largest Internet I.P.O. on record, Facebook’s offering has drawn intense scrutiny from the start. But with the stock shedding $16 billion in market value, some small-time investors are crying foul and regulators are wondering what went wrong.

“What brighter light exists than the highest profile I.P.O. in memory,” Jacob S. Frenkel, a former S.E.C. lawyer and now a partner at Shulman, Rogers, Gandal, Pordy Ecker. “With Memorial Day weekend, the summer pools are open, and this is an invitation for all the regulators to jump right in.”

One avenue for regulators could be Facebook’s conversations with analysts, particularly whether the social network made statements that contradicted its public filings. Under securities rules, a soon-to-be public company is permitted to provide “material” information to research analysts. But if that data is inconsistent with the company’s public prospectus, the issuer must revise the regulatory filing.

Such scrutiny is likely to focus on at least two recent conference calls Facebook held with its analysts. During a discussion in April, Facebook briefed about 20 bank analysts on its revenue guidance for the second quarter and the full year, according to a person briefed on the matter. On May 9, the day the company submitted a revised public prospectus disclosing its challenges in mobile advertising, Facebook spoke to the analysts again, telling them that revenue would come in at the lower end of its forecast.

One bank then cut its revenue expectations by 5 percent for the second quarter. Goldman analysts sent an internal memo, with the revised figures, to the firm’s private wealth managers and institutional sales force.

While the forecasts did not appear in the company’s filings, they do not seem to contradict any information the company previously disclosed, according to securities lawyers and professors following the details of the Facebook I.P.O. In its prospectus, Facebook highlighted broad risks facing its future growth.

Another potential line of inquiry for regulators, securities experts say, is whether bank analysts disseminated information unfairly to only choice investors. Before a company goes public, analysts at banks that underwrite the offering are not allowed to publish forecasts or other research about the company. They can provide those estimates only orally, for example in a telephone conversation, and they generally do so only with their biggest clients.

Securities lawyers note that research analysts are not obligated to share their work with the wider public. The rules governing the I.P.O. process allow analysts to confer with particular clients, as long as it is done in line with a bank’s longstanding policies.

Still, Facebook’s I.P.O. has left a sour taste with some investors, who believe the system is structured to favor the biggest investors. The process — which prominently features a series of closed-door meetings with management teams known as a roadshow — gives big investors like hedge funds a privileged window into the company.

“You have this legacy problem,” said Christopher J. Keller, a partner at Labaton Sucharow. “Twenty to thirty years ago, there was no such thing as a retail investors as we know it, so we still have rules that allow the large player in the market to have a leg up.”

It’s a lesson Elias Fiani recently learned.

During Facebook’s first hour of trading on May 18, Mr. Fiani, a 53-year-old employee of the New York City Transit Authority, bought 1,000 shares through Bank of America Merrill Lynch for $38 a share. On Monday morning, he panicked as the stock dove, and unloaded his stake at $33, taking a $5,000 loss.

Two days later, his brokerage firm called, asking him for an additional $4,000. Because of an error, the correct purchase price should have been $42.

Adding insult, he found out that some investors had received information about Facebook’s financials that he never got. He called the S.E.C. on Wednesday afternoon to air his complaints.

“It’s about distrust,” Mr. Fiani said. “This is another stock market rigging.”

Article source:

Square Feet: Providence Makes Itself a Home for Knowledge

PROVIDENCE, R.I. — When Brown University opened its new $45 million medical school in August about a mile from its campus here, it was the institution’s first academic department to be located away from its home on College Hill overlooking downtown Providence.

Brown’s reasons were twofold: there was little room on its campus for a building large enough for an Ivy League medical school, and it would bolster a 360-acre so-called Knowledge District that would draw high-tech, high-wage jobs to Rhode Island, which was among the hardest-hit states in the recession.

The Warren Alpert Medical School is in a converted, four-story, 134,000-square-foot factory building that dates to 1928 and was once used to make watchbands. At a ribbon-cutting ceremony in August, Senator Jack Reed, Democrat of Rhode Island, said that the Speidel Twist O Flex watchband was a Rhode Island innovation, and likened it to plans for the state’s biotech industry.

“The future is the double helix,” Mr. Reed said, “and that’s what this building is going to allow.”

The Knowledge District is three years in the making, and involves a combination of financial incentives, rezoning and coordinated planning among Providence’s major hospitals, colleges and universities.

In addition to the medical school, the toy maker Hasbro, which has its headquarters in nearby Pawtucket, and 38 Studios, a video game company started by the former Boston Red Sox pitcher Curt Schilling, are moving into existing buildings in the Knowledge District.

The state, through its Economic Development Corporation, agreed to a $1.6 million sales tax exemption for Hasbro, which said it would create 284 new full-time jobs, and a $75 million loan guarantee for 38 Studios, which has promised to bring 450 jobs to Providence.

Several years ago, in what Laurie White, the president of the area Chamber of Commerce, called a “grass-roots effort,” prominent figures in the public and private sectors came together to create a strategy for Providence’s economic future. The city’s manufacturing base was waning, and the luster of the city’s so-called Renaissance in the 1990s, which focused on the arts as a means of revitalizing, was losing steam.

The resulting blueprint called for an economy based on “meds and eds,” as the hospitals and colleges are sometimes called, in a district with a lot of underutilized factory and office space, as well as vacant land. The state’s governor, Lincoln D. Chafee, an independent, has embraced this vision and called Brown’s new medical school a “terrific catalyst” for the new district.

“Good things are happening here,” Mr. Chafee said.

After he was elected in 2010, Mr. Chafee traveled to Baltimore, Houston and Pittsburgh to tour the University of Maryland Medical Center BioPark, the Texas Medical Center and the University of Pittsburgh Medical Center, all of which were attracting high-tech and research companies. He said he came away from those trips impressed that growth was occurring there despite the sluggish economy, and was persuaded that Providence had the assets needed to make the concept work in Rhode Island.

In addition to Brown, other major institutions in Providence include the Rhode Island School of Design, Providence College, Johnson Wales University, Rhode Island Hospital and Women Infants Hospital.

“It’s just a good fit,” Mr. Chafee said.

Hasbro chose to expand in Providence because the young talent it needed to attract to its gaming division preferred an attractive, urban environment, said Dolph Johnson, Hasbro’s senior vice president for global human resources. The toy maker, which employs approximately 6,000 worldwide and 1,700 in Rhode Island, also wanted to invest in the city’s future, he said.

For Brown, the decision to move its medical school into another part of the city came in 2007 after an internal planning process revealed that it essentially had no choice if the university wanted to grow, said Richard Spies, Brown’s executive vice president for planning. New science buildings, in particular, require a sizable footprint and significant infrastructure, two requirements not readily available in historic College Hill, he said.

“Our capacity to grow was not zero,” he said, “but it was clearly limited.”

Article source: