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1. MF Global trustee report not likely to draw consequences

When it comes to delayed rulemaking required by highly touted new laws, Dodd-Frank reigns as the granddaddy of them all.

It took years for government agencies, notably the SEC, to implement key provisions via the rulemaking process. A great example is the law's requirement to move the OTC derivatives market to a centrally cleared market. It's been years since the law was passed, and the new market is just now coming to life. That said, the issues were complex, and it's far preferable for the bureaucracy to take the time to get the rules right on the first pass.

And that brings me to the Jumpstart Our Business Startups Act, or JOBS Act, which was signed into law on April 5, 2012.

In many quarters, there is great disappointment with the law. The Washington Post notes, "Now, nearly a year after its enactment, major portions of the act are in limbo, and other parts have failed to measure up to the grandiose job-creation promises."

But it's still too early to pronounce the law a failure, especially when the final rules have yet to be established in key areas, such as crowdfunding and mass market advertising.

The crowdfunding sector has been very vocal in noting that the SEC is behind in terms of drawing up new rules to encourage fund raising by emerging companies from a more diverse group of potential investors. The issue has been controversial in part because investor advocates have warned that the rule could give rise to bad actors bent on corrupting the crowdfunding process.

The same thing goes for the requirement to draw up new, more liberal solicitation rules, which also have yet to be finalized. The idea behind the provision is to give private companies greater leeway to directly market to people even if they are not considered accredited investors. Hedge funds, for example, would be able to advertise to the general public. Investor advocates have warned that in some cases, investors could be led into overly risky investments.

As of now, we can only wait until the SEC draws up the final rules on these two critical pieces.

In other areas, it's fair to say that the law's effect has indeed been muted by circumstances. One goal of the law was to boost the number of IPOs, which has yet to happen.

It would be unfair to blame the dearth of such activity on the JOBS Act alone. But it's true that Wall Street has yet to embrace some provisions of the law, such as the rule that allows underwriters to release research about the stock earlier in the process. As of now, given the thicket of other rules, the provision remains little used. In addition, the new secret filing process allowed by the law, which was designed to let companies test the IPO waters easier, has yet to bear the intended fruit.

There are some corners of the market that have benefitted. For example, about 100 small banks have stopped reporting various financial statement details to the SEC in April, when the JOBS Act was enacted. Previously, banks with fewer than 300 shareholders could de-register with the SEC and avoid detailed filings. The new law raises the threshold to 1,200 shareholders, which can yield savings of up to $250,000 annually, which is a lot for a community bank.

In my mind, one of the more intriguing aspects of the law is the little-noticed provision that requires the SEC to produce research on whether wider spreads will lead to an increase in trading liquidity for small publically traded companies. That just might break the logjam in the effort to usher in market structure reforms, which we discuss often over on FierceFinanceIT.

It will be interesting to see how the overall discussion changes over the next year. -Jim

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By Jim Kim

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2. CFPB settles with private mortgage insurers

The report just released by MF Global Holdings trustee Louis Freeh paints a damning picture of the ex-CEO Jon Corzine, blaming him for leading the company of a cliff.

The report certainly adds a confirming vote to a portrait that has been previously painted by other critics, accusing him of essentially being a walking, talking risk management nightmare masquerading as a CEO.

The 124-page report, as noted by FOX Business, says Corzine implemented risky strategies with minimal oversight, disregarded pressing risk management needs in the risk and treasury departments, and generally acted with impunity in the realm of compliance. In short, the report basically places the blame for the implosion of the once-promising commodities firm squarely on him.

But the report will offer little satisfaction for his critics. In fact, it may come off as a thumb in the eye. The reality is that despite the damning report, he's not likely to face any real consequences for his disastrous stewardship of the company.

Criminal prosecutors have long since given up, as a smoking gun proved to be elusive. The better bet is that the SEC or CFTC will somehow find a way to hit him with civil charges, perhaps over disclosure issues. But the chances of that look increasingly long.

At the same time, there are plenty of signs that he might be on the verge of a comeback. This owes to the fact that the brokerage victims of the scandal have for the most part, quite improbably, been made whole, and the fact that European sovereign debt recovered dramatically after the firm imploded.

For more:
- here's an article on the report from FOX

Read more about: MF Global, Jon Corzine
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By Jim Kim

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3. New niche emerges in private equity push to buy homes

In another example of regulatory muscle flexing, the Consumer Financial Protection Bureau (CFPB) has charged four private mortgage insurers with paying kickbacks to mortgage companies in exchange for business.

All four firms -- Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, Radian Guaranty and United Guaranty Corporation--have settled the charges, agreeing to pay a combined $15 million.

The bureau charged that the insurers essentially paid kickbacks to mortgage companies that steered private insurance business its way. The kickbacks were disguised, the bureau alleges, as reinsurance payments. These payments were deemed by the CFPB as not providing a legitimate service to the banks. Of course, these sorts of reinsurance programs have long been controversial as a means to possibly disguise payments for other services.

"We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements," said the head of the CFPB.

The four companies also agreed to monitoring and reporting requirements by the CFPB to ensure compliance with the remedial orders.

None of the four have admitted guilt. Genworth said that its program was developed with guidance from HUD. Some question whether residential borrowers were in fact harmed, that is, were they really forced to pay higher premiums for insurance? In any case, as is hardly unusual, the four decided to pay up and end the controversy rather than prolong it.

The big question here is which banks were on the receiving end of the illicit payments. It may be that another enforcement action is coming.

For more:
- here's the release
- here's a New York Times article

Read more about: banks, mortgages
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By Jim Kim

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4. Hedge fund culture grows more intense

I've noted that the big private equity firms, led by Blackstone Group and Colony Capital among others, have created a vibrant new business of buying up homes on the cheap, renting them out, and securitizing the income stream to sell to investors. The biggest players are expected to spend up to $10 billion over the next two years to snap up undervalued residential properties.

Blackstone so far has bought 20,000 homes in largely a half-dozen states, often at foreclosure, spending $3.5 billion on its acquisition strategy. The aggressive push by big firms has led to talk that smaller players are finding themselves squeezed out. It wouldn't be a huge surprise if some firms were forced to return some funds to investors, as the market has heated up faster than expected.

There may be some lucrative niches left, however. As noted by PEHub, Cerberus Capital Management is now aiming to finance smaller firms that will target homes much more narrowly.

"Cerberus is targeting investment firms that are looking to buy a small number of homes in niche housing markets in the U.S. and rent them out, the sources said. These investors cannot tap the much larger financing deals being put together by banks such as Deutsche Bank, Credit Suisse, and Goldman Sachs Group for institutional buyers of foreclosed homes. Cerberus' financing deals will be small, under $25 million, and many will be for less than $10 million, the sources said."

The idea is to find highly nimble, independent operators that might want to purchase a handful of homes and then run the operation as a small business.

For more:
- here's the article

Read more about: mortgages, Foreclosures
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By Jim Kim

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5. In broad look at hedge funds, expenses emerge as issue

The conventional wisdom holds that as employers go, hedge funds are not for the faint of heart. These firms attract some very competitive people, for whom winning is of paramount concern. You should watch your back at every turn, and be prepared to play hardball when you have to.

That description may strike some as a stereotype, but confirmation of sorts comes from a recent survey by Labaton Sucharow, HedgeWorld and the Hedge Fund Association. The survey of hedge funds found that just under half of all professionals believe that their competitors engage in illegal activity, 35 percent have personally felt pressure to break the rules, and 30 percent have witnessed misconduct in the workplace.

Ominously for management, nearly 90 percent of respondents said they would report wrongdoing given the protections and incentives offered by such initiatives as the SEC Whistleblower Program. Many also expect consequences for such action. Almost 30 percent reported that they believed they would suffer retaliation if they were to report wrongdoing in the workplace.

This is good news for regulators, but such a heightened sense of dog-eat-dog represents a huge challenge for the industry. Long-term, you have to question whether such an environment imposes any costs on productivity.

For more:
- here's a release

Related Articles:
SAC's "ruthless", "pressure packed" culture

Read more about: Whistleblowers, Employment
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By Jim Kim

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