Bridgepoint Restatements, China Broker Rules: Compliance

Bridgepoint Education Inc., an operator of for-profit colleges, restated its financial reports back to 2011, citing material weakness in internal accounting controls and the misstatement of revenue and debt provisions.

Bridgepoint failed to continually reassess assumptions of revenue collectability, according to securities filings. It identified adjustments to revenue, provision for bad debts, accounts receivable and restricted cash balances that should have been recognized during earlier periods, the San Diego-based company said.

The operator of Ashford University and the University of the Rockies is taking steps to repair its internal control shortcomings, including increased training and a review of accounting procedures, according to the filings.

“Management with the requisite level of accounting knowledge, experience and training commensurate with our financial reporting requirements did not analyze certain accounting issues at the level of detail required to ensure the proper application” of generally accepted accounting principles, the filings showed.

For-profit colleges are under increased scrutiny from the federal and state regulators for their recruitment and marketing practices.

Compliance Action

China Brokers’ Shares Jump on Prospects for Easing Rules on Risk

Shares of Chinese brokerages jumped after a report that the government plans to relax some risk-management requirements on securities companies, a move that could free up capital for expansion.

The report appeared in the China Securities Journal, which cited draft rules from the China Securities Regulatory Commission.

Chinese brokerages need capital to develop new businesses such as securities lending and margin financing after industry profitability plunged to about one-eighth of 2007 levels. The industry’s development has been restrained by debt and capital ratio requirements that followed a wave of brokerage bankruptcies from 2002 to 2006.

The CSRC is seeking industry views on rules including a cut in the minimum net capital-to-net asset ratio to 20 percent from 40 percent, the newspaper said. The relaxations could potentially free up as much as 70 billion yuan ($11 billion) of capital, the newspaper reported, citing industry people it didn’t identify.

No comment was immediately available from the CSRC.


Wylys Damages Demand Cut in Half to $750 Million by SEC

Samuel and the estate of Charles Wyly ought to pay as much as $750 million for having used a web of offshore trusts to illegally hide stock holdings and evade trading limits, a lawyer for the U.S. Securities and Exchange Commission said.

The commission cut the demand for damages almost in half after U.S. District Judge Shira Scheindlin had rejected an earlier request for $1.41 billion.

The brothers, founders of Michaels Stores Inc., perpetrated a fraud that earned them at least $550 million in illegal profit over 13 years, jurors in Manhattan federal court found three months ago. A second trial began yesterday before Scheindlin in which she will determine how much Samuel Wyly and the estate of his late brother Charles have to pay in fines and disgorgement.

The Wylys took issue with the SEC’s figures, arguing they should be “far smaller,” and urging the judge to “deny all of the SEC’s requested relief.”

Lawyers for the Wylys chose not to make an opening statement in the damages trial, and argued in court papers that if the judge decides to impose a penalty, the Wylys shouldn’t have to pay more than $1.38 million.

The Wylys claimed they used the offshore trusts for lawful purposes. The trial may take another two days, lawyers in the case said.

The case is SEC v. Wyly, 10-cv-05760, U.S. District Court, Southern District of New York (Manhattan).


A Closer Look With Arthur Levitt: Richard Ketchum

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, interviewed Richard Ketchum, chairman and chief executive officer of the Financial Industry Regulatory Authority, on Bloomberg Radio’s “A Closer Look With Arthur Levitt.”

Ketchum discussed the safety of markets now compared with the time of the 2008 crash and the extent to which retail investors are protected currently.

To listen, click here.

Oversight Action Risks ‘Legal Quagmire,’ GOP Senators Tell Lew

Senator Richard Shelby, the ranking Republican on the banking committee, wrote Treasury Secretary Jacob J. Lew to protest the Financial Stability Oversight Council’s process for designating some financial firms systemic threats before knowing how the Federal Reserve plans to regulate the companies.

The designation process for systemically important financial institutions, known as SIFIs, threatens to put them under rules that haven’t been developed yet, Shelby said in a letter also signed by eight other Republican senators. That will lead to a “legal quagmire and regulatory confusion that could potentially be very costly to our economy,” the lawmakers said in their July 30 letter to Lew, who, as Treasury secretary, is the council’s chairman.

The Fed hasn’t formally explained how it would regulate nonbank financial companies that have or could be designated as SIFIs, the lawmakers said. The council also hasn’t signaled whether it may suggest specific rules to the Fed or slow or stop its designation process until the Fed issues “definitive” guidance, according to letter.

“FSOC may be approaching things backwards,” Shelby wrote.

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