September 2012 Newsletter


•  Scott+Scott Helps Investors Win Significant Victory Against Credit Card Company’s Officers And Auditor In Securities Class Action

•  Recent Insider Trading Convictions Demonstrate NeedFor Private Enforcement Of Federal Securities Laws

•  SEC Adopts Rule Requiring American Companies ToDisclose Resource Extraction Payments To Foreign Governments

•  SEC Alerts Investors Regarding Exchange-Traded Funds

•  On the Record

•  Conferences and Educational Seminars


Scott+Scott Helps Investors Win Significant Victory Against Credit Card Company’s Officers And Auditor In Securities Class Action

            On July 16, 2012, a federal district court for the Eastern District of Pennsylvania handed investors and Scott+Scott a significant legal victory by sustaining, in full, a securities class action brought against the former officers and directors of Advanta Corp. (“Advanta”) and Advanta’s auditor, KPMG LLP.

            The case was brought by two individual investors (the “plaintiffs”) who purchased RediReserve notes and/or certificates from Advanta in 2008 and 2009.  RediReserve notes were a debt instrument that functioned in a manner similar to a bond.  Investors would purchase the RediReserve notes, which had set durations, and Advanta would pay interest on the notes, returning the principal when the notes expired.  Advanta sold the RediReserve notes directly to small investors and advertised the notes in newspapers.

            In the securities suit, the plaintiffs alleged that Advanta made misleading statements and/or omissions in selling the notes to them and other investors.  In particular, the claims allege Advanta made numerous false and misleading statements concerning its financial status and credit card practices.  Among other things, Advanta failed to disclose that, as the economy worsened in 2007 and Advanta began to see increased delinquencies in its credit card portfolio, it tried to protect itself by illegally increasing the rates it charged its customers on credit card balances, sometimes as high as 37%.  Advanta also failed to disclose that it had diverged from its stated loan loss reserve methodology and was inflating its reported financial results by ignoring adverse credit data indicating that it should expect higher credit losses.  Investors further alleged that auditor KPMG LLP made false and misleading representations that Advanta’s financial statements fairly presented its financial position in accordance with generally accepted accounting principles.

            All of the defendants moved to dismiss the plaintiffs’ complaint.  Those motions were denied by the court’s July 16 order.  Now that the plaintiffs’ complaint is found to be legally sufficient, the case will proceed to discovery.

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Recent InsiderTrading Convictions Demonstrate Need For Private Enforcement Of Federal Securities Laws

           On August 20, 2012, a New York jury convicted California hedge fund founder Doug Whitman on insider trading charges.  Prosecutors said Whitman made nearly $1 million between 2006 and 2009 by receiving insider tips relating to earnings of public companies and then trading securities based on those tips.  The conviction was part of a wide-ranging crackdown on insider trading by federal authorities in recent years.  Whitman’s conviction follows no fewer than 66 insider trading convictions and guilty pleas secured by prosecutors in the U.S. Attorney’s Office for the Southern District of New York since August 2009.  Other recent convictions include those of Raj Rajaratnam, Anil Kumar, and Rajat Gupta.  These convictions related to a scheme that profited over $60 million by a hedge fund traded on insider information from executives at companies like IBM, Intel, and Goldman Sachs.

            The recent crackdown, however, has been focused on individuals rather than companies.  On August 9, 2012, the U.S. Securities and Exchange Commission and Department of Justice announced that Goldman Sachs would not face charges for the actions detailed by the U.S. Senate’s Permanent Subcommittee on Investigations (“PSI”) in its April 13, 2011 report titled “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse.”  In the report, the PSI found that Goldman Sachs “used net short positions to benefit from the downturn in the mortgage market, and designed, marketed, and sold CDOs [Collateralized Debt Obligations] in ways that created conflicts of interest with the firm’s clients and at times led to the bank’s profiting from the same products that caused substantial losses for its clients.”

            In response to the DOJ’s announcement that it would not prosecute Goldman Sachs, Senator Carl Levin [D-MI], Chairman of the PSI, issued a statement declaring, “The integrity of our financial markets and the strength of our economy demand that we make sure that actions such as Goldman Sachs’ and other recently discovered misdeeds by financial institutions are ended.”  The lack of criminal prosecution for this conduct leaves only private litigation to stem the tide of the recurring malfeasance in the financial markets.

            Although the recent convictions and guilty pleas work to punish the culpable individuals, they do little to redress the harm done to the marketplace and to counterparties in transactions made with insider information.  Only through private litigation can those injured regain the losses suffered due to insider trading and similar wrongdoing occurring in the financial sector.

For more information about insider trading, the federal securities laws, and how they relate to your investments, please contact David Scott at or 1-800-404-7770.

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SEC Adopts RuleRequiring American Companies To Disclose Resource Extraction Payments To Foreign Governments

On August 22,2012, the U.S. Securities and Exchange Commission (“SEC”) voted two-to-one in favor of implementing a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that applies specifically to American companies seeking to extract natural resources like oil, gas, and minerals from foreign nations.

Starting next September, U.S. extraction companies are required to file “Form SD” with the SEC identifying significant payments made to foreign governments with the purpose of securing commercial development contracts.  Specifically, this new rule requires the more than 1,100 publicly-traded companies in the United States that engage in oil, gas, or mineral development to disclose information regarding payments of $100,000 or more that are made to foreign governments to help facilitate natural resource extraction.

The disclosure of large payments is aimed at reducing corruption and obfuscation by American companies dealing with resource-rich countries that commonly lack robust regulations governing their natural resources.  By requiring U.S. companies to disclose information about their payments to foreign governments, such as taxes, royalties, infrastructure improvement payments, and other forms of incentives, the SEC is hoping to increase transparency in these transactions and create a level playing field.

This effort comes at a time when American companies are increasingly seeking to implement advanced drilling and extraction technologies, first developed domestically, into foreign lands where natural resources like oil, gas, and minerals have yet to be mined with such technological precision.  The fear is that in the rush to implement U.S. drilling and extraction technologies in untapped foreign countries, American companies will use seemingly legitimate “payments” as bribes or illicit incentives to curry local favor and secure an unfair advantage.

Apart from ensuring fair play, the new anti-bribery rule is also designed to protect the resource-rich, but often less developed, countries where U.S. companies are seeking to mine or drill.  A recent research note by the Brookings Institution concluded that increased transparency in these transactions, when accompanied by improved governance and accountability, could improve living standards in developing countries that are dependent on their own resource extraction.  In other words, tighter regulations on payments by U.S. companies ensure the money will go to the foreign country and its people, as opposed to being usurped by government inefficiency and corruption.

However, for all of its perceived fairness, this new rule has its detractors.  American extraction companies and industry groups like the American Petroleum Institute complain that foreign companies will not be bound by the same disclosures and this will put American companies at a competitive disadvantage.  Nevertheless, human rights and business transparency groups overwhelmingly support the rule, arguing that other countries will likely follow suit and that curbing corruption and improving accountability will be beneficial to American companies seeking to do legitimate resource extraction, as well as the countries whose resources are being tapped.

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SEC Alerts Investors Regarding Exchange-Traded Funds

In a recently published bulletin, the U.S. Securities and Exchange Commission (“SEC”) warns investors to thoroughly research certain exchange-traded funds (“ETFs”) before investing in the complex financial products.

ETFs have become increasingly popular and now hold about $1.2 trillion in assets worldwide, according to the SEC.  Created during the 1990s, ETFs are a type of exchange-traded investment product that must register with the SEC under the Investment Company Act of 1940 as either an open-end investment company or a unit investment trust.  “ETFs combine features of a mutual fund, which can be purchased or redeemed at the end of each trading day at its [net asset value per share], with the intraday trading feature of a closed-end fund, whose shares trade throughout the trading day at market prices.”  U.S. Securities and Exchange Commission.  Investor Bulletin: Exchange-Traded Funds (ETFs) (August 2012).

Though early ETFs primarily tracked equities, ETFs are now more frequently pegged to derivatives, such as credit default swaps.  Some ETFs short their underlying instruments, causing a rise in value as an index goes down.  The bulletin notes, even ETFs that would appear to be identical, such as funds based on the same benchmark, can “be quite different and can deliver very different returns.  For example, the S&P 500 is capitalization-weighted, meaning the larger companies make up a much higher percentage of the index than the smaller companies.  However, some ETFs will track an S&P 500-styled index that is equal-weighted, meaning all the companies have equal representation on the index, irrespective of the size of the company.  Although these two benchmarks may seem similar, they provide very different returns.”  Id.

The bulletin follows the SEC’s Division of Investment Management’s broad review of ETFs, launched last fall, which seeks to ensure that the funds are adequately transparent and are not fueling market volatility.  Leveraged ETFs are accused of distorting the market and causing unnatural swings over short trading periods.  Criticism of the instruments has increased since the so-called Flash Crash of May 6, 2010, which saw the Dow Jones Industrial Average plunge by nearly 1,000 points.

In a related vein, the Financial Industry Regulatory Authority (“FINRA”) announced earlier this year that it had sanctioned Citigroup Global Markets, Inc., Morgan Stanley & Co., LLC, UBS Financial Services, and Wells Fargo Advisors, LLC a total of more than $9.1 million for selling leveraged and inverse ETFs without reasonable supervision and for not having a reasonable basis for recommending the securities.  According to FINRA, the firms were fined more than $7.3 million and are required to pay a total of $1.8 million in restitution to certain customers who made unsuitable leveraged and inverse ETF purchases.

For more information about ETFs, the SEC’s Investor Bulletin can be accessed at  For this and other investment topics and alerts, the SEC’s Office of Investor Education and Advocacy regularly publishes free bulletins, also available at

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On the Record

“Justice and goodwill will outlast passion.”

James A. Garfield, U.S. President, died September 19, 1881.

Source of Quote Unknown

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Conferences and Educational Seminars


+September 9-11, 2012

Michigan Association of Public Employees Retirement System (MAPERS) Fall Conference

Grand Hotel

Mackinac Island, MI

MAPERS is recognized as the principal educational legislative forum for trustees, plan administrators, and other retirement and financial professionals in the State of Michigan.  MAPERS employs a full-time professional lobbyist, Capitol Services, Inc., to monitor legislation that may affect the more than 670,000 members and retirees of public pension plans in the State of Michigan.  This outstanding conference is geared toward educating local pension board members and administrators.


+September 9-11, 2012

Institutional Investment Alpha Hedge Conference 18th Annual Conference

The Ritz-Carlton

San Francisco, CA

In this period of dynamic change it is more important than ever to stay abreast of future investment opportunities, winning strategies, upcoming regulation, and asset allocation plans from leading allocators, outperforming managers, and industry experts. This year’s conference will highlight investor case studies and expectations.  International speakers will present during the three-day conference.


+September 10-11, 2012

Native American Finance Officers’ Association (NAFOA) Fall Finance & Tribal Economies Conference

Hard Rock Hotel San Diego

San Diego, CA

NAFOA’s mission is to improve the quality of financial and business management of tribal governments and their business entities while advocating issues affecting sovereignty and supporting the development of Native American financial professionals.  NAFOA invests in Native American communities by building the next generation of Native American financial leaders through educational and networking opportunities in finance.  Expert speakers will illustrate market relationships, policy effects, forecast the near and long-term global trends, weigh in on where the upcoming elections may take the United States economically, and offer ideas on governmental best practices for navigating outside influences and protecting Native American assets.


+September 11-13, 2012

Kentucky Labor-Management Conference 35th Anniversary

Kentucky Dam Village State Resort Park

Gilbertsville, KY

The Conference serves as the centerpiece of the state’s effort to promote labor-management cooperation as an enhancement to economic development.  The event provides participants a relaxed atmosphere, apart from the work environment, that is conducive to positive dialogue between labor and management.  The conference begins with two days of interactive educational opportunities in which the participants are given the chance to talk directly with the presenters on a wide variety of topics of mutual interest to labor and management.


+September 16-19, 2012

Texas Local Fire Fighters’ Retirement Act (TLFFRA) 75th Anniversary and Educational Conference

Moody Gardens Hotel

Galveston, TX

During the Great Depression, the Texas Legislature created the Office of the Fire Fighters’ Pension Commissioner to protect the pensions of firefighters throughout Texas.  This legislative foresight resulted in a sound statutory framework and a strong partnership between the State of Texas and local communities in providing pension benefits to firefighters and their families.  Through an annual conference, fund administrators and boards of trustees are provided training in the fields of investment management, administration, and fiduciary responsibility.


+September 16-18, 2012

Louisiana Association of Public Employees’ Retirement System (LAPERS) Annual Seminar

The Roosevelt Hotel

New Orleans, LA

LAPERS is a nonpartisan, nonprofit organization that brings together individuals employed by state and local public employees’ pension plans to exchange information, ideas, and experiences with others facing the same challenges.  By uniting Louisiana public retirement systems, LAPERS works for their common interests, monitors state and federal legislative activities, and enhances public pension fund management and administration by providing educational and informational services to its more than 347,000 members.


+September 18-20, 2012

Georgia Association of Public Pension Trustees (GAPPT) 3rd Annual Conference

Marriott-Macon Center

Macon, GA

In the summer of 2009, administrators and trustees of several Georgia public pension plans formed GAPPT to provide a forum for support and information for education, training, advancement, and accreditation for public plan trustees and personnel.  The conference will feature topics such as private investing, international investing, defined contribution programs, manager selection and retention, and asset allocation, as well as a plan sponsor-only round table to share and address common interests and concerns.



+September 18-20, 2012

International Brotherhood of Electrical Workers (IBEW) Membership Development Conference

Paris Las Vegas Hotel

Las Vegas, NV

More than 1,300 IBEW delegates attended last year’s conference, which effectively exposes participating organizations to the leaders of more than 700,000 IBEW members. This is the largest annual networking event with IBEW’s decision makers and industry leaders who value the U.S. service providers.  This year’s agenda will be innovative, dynamic, and somewhat controversial as the presidential election approaches.


+September 25-27, 2012

International Brotherhood of Electrical Workers (IBEW) 2nd District Progress Meeting

Sheraton Burlington Hotel and Conference

Burlington, VT

Comprised of approximately 400,000 members, the Second District encompasses the New England States of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.


+September 26-29, 2012

International Union of Police Associations (IUPA) 20th International Convention

Hyatt Regency Coconut Point

Bonita Springs, FL

IUPA is the only AFL-CIO union chartered exclusively for law enforcement professionals and support personnel.  IUPA works toward improving legislation that protects and affects the law enforcement community, whether that be for better equipment, additional staff, fair wages, or protecting pensions.  The conference takes place only once every four years.  This year’s conference coincides with the upcoming presidential election and all anticipate hearing from those on the campaign trail.


+September 30-October 3, 2012

New England States Government Finance Officers’ Association (NESGFOA) 65th Annual Fall Conference

Connecticut Convention Center and Hartford Marriott

Hartford, CT

NESGFOA is a regional professional association for government finance managers from the six New England states who work together to develop a closer relationship and understanding among public officials and to facilitate discussion, analysis, and solutions of such problems under the laws existing in the New England states.  The fall conference is held annually in September or October on a six-state rotating basis and provides continuing education programs for public finance officials and employees.


Government Finance Officers Association Conferences


+September 9-11, 2012

Illinois GFOA

Bloomington-Normal Marriott

Normal, IL


+September 11-14, 2012

Washington FOA

Three Rivers Convention Center

Kennewick, WA


+September 12-14, 2012


Crowne Plaza Cincinnati North Hotel

Cincinnati, OH


+September 18-21, 2012

New Jersey GFOA

Sheraton Convention Center Hotel

Atlantic City, NJ


+September 19-21, 2012

Nebraska League of Municipalities

Holiday Inn

Kearney, NE


+September 20-22, 2012

North Dakota League of Cities

Alerus Center

Grand Forks, ND


+September 20-21, 2012

Wisconsin GFOA

Kalahari Resort & Convention Center

Wisconsin Dells, WI


+September 23-25, 2012

Michigan GFOA

Shanty Creek Resort

Bellaire, MI


+September 30-October 3, 2012

New England States GFOA (NESGFOA)

Connecticut Convention Center and Hartford Marriott

Hartford, CT

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Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firmrepresents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.

Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client  relations is a proven method for institutional investors and their trustees to successfully

  • Monitor their investment portfolios  
  • Identify losses arising from corporate fraud    
  • Consider what level of participation any given situation requires   
  • Recover funds obtained on their behalf through investor litigation action  

To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact:    David R. Scott + Toll Free: 800.404.7770     email: + UK Tel: 0808.234.1396