By Danica Bennewies
Welcome back to another installment of Top Five Friday Finds – the weekly series where we share some of the major corporate and securities law news stories that dominated the headlines, and our conversations, this week.
First, let’s take a look at some of the big securities fraud cases in the U.S. this week.
On Tuesday, the Securities and Exchange Commission (SEC) announced a settlement with “Frack Master” Christopher A. Faulkner for a wide-ranging securities fraud scheme that he started back in 2011. Faulkner raised over $80 million from investors across the U.S. by providing misleading and false information about his experience and how invested funds would be used. Under the settlement, Faulkner will pay the SEC $25 million. He also accepted a plea agreement with the U.S. Attorney’s Office and will serve 12 years in federal prison for securities fraud, money laundering, and tax evasion.
On Wednesday, the New York Attorney General Barbara Underwood brought a lawsuit against Exxon Mobil. The suit claims that Exxon Mobil minimized the risks it faced from climate change regulations, thereby misleading investors. Underwood alleges that the company’s CEO knew of these misrepresentations but allowed them to continue uncorrected for a number of years. In minimizing these risks, Exxon understated costs associated with a group of projects in Alberta by almost $25 million. These allegations do not come as a surprise, as New York has been investigating Exxon since 2015. Exxon later issued a statement saying that there was no evidence to support the suit’s allegations. The company’s shares fell 2.8% on Wednesday in response to the news.
In Canadian news, Osgoode Hall Law School’s Investor Protection Clinic has released its first annual report, which revealed a variety of information about its client base and access to justice issues for Canadian investors. The clinic offers free legal advice to people who have had their investments mishandled but cannot afford a lawyer. The report found that many of the clinic’s clients face language barriers, a lack of financial resources, and a deficiency of financial investment and securities law knowledge. This suggests that there is a portion of Canadians undertaking investment activities without having a sufficient understanding of the relevant laws protecting them and the proper role of an investment advisor. In fact, many individuals are placing their money in the hands of people who are not actually registered advisors. The Investor Protection Clinic aims to help these vulnerable individuals and support access to justice, while also providing law students with hands on securities law experience. A full version of the annual report can be found here.
The Bank of Canada (BoC) raised interest rates on Wednesday, up to 1.75%. This is the fifth time the BoC has raised rates since mid-2017, likely due to the recent series of good news, such as the new trade deal with the U.S. and Mexico. This raise has investors skeptical of whether the central bank will stick to their pledge of increasing rates slowly to get back to a neutral level of 2.5-3.5%. However, the BoC has assured Canadians that it will monitor economic conditions and global trade development to ensure that interest rates are not raised too quickly. In response to the BoC’s announcement, the Canadian dollar rose by half a cent.
While Canadian interest rates rose on Wednesday, the stock market took a plunge. The Dow fell by more than 600 points (2.4%), the S&P fell by over 3% and the Nasdaq dropped more than 4%. This volatility stands in contrast to the steady gains that investors saw over the past few months. The S&P index, which is experiencing a “correction” (a drop of 10% or more from its latest high) is set to have its worst month in 10 years. Canada’s S&P/TSX Composite Index also took a blow this week, falling nearly 128 points on Tuesday. These drops highlight growing investor concerns for the global economy and the negative impact of trade wars and rising borrowing costs. Global stocks are slipping as well, falling even lower on Friday, putting this week on track to be the worst weekly losing streak in over five years.
Thanks for getting caught up with us on this week’s news stories. We’ll be back next week with another round up of the Top Five Friday Finds.