DOD CFO POINTS OUT POST-SEQUESTOR PROBLEMS

FROM: U.S. DEPARTMENT OF DEFENSE

Comptroller Offers Glimpse of Post-sequester Options

By Karen Parrish
American Forces Press Service

WASHINGTON, June 13, 2013 - The budget storms assailing the Pentagon are unprecedented, the Defense Department's chief financial officer said here today.


"I've never seen anything like this," Pentagon Comptroller Robert F. Hale told an audience attending the 2013 Defense Communities National Summit, "and I hope we never see it again."

Hale asked attendees how many of them had seen serious effects from sequestration defense spending cuts at their home installations, and dozens of hands went up around the room.

Hale said the across-the-board cuts, costs for the war in Afghanistan that were higher than expected, and continuing resolutions that have in recent years replaced approved budgets have left Pentagon planners unable to make long-term course corrections.

Remaining shortfalls in fiscal year 2013 clearly show "we haven't fully landed this plane," Hale acknowledged, and he warned that 2014 and 2015 could be just as bad.

Cuts to training and maintenance this year will result in future "get-well" costs as the services clear backlogs and retrain members, Hale noted. If Congress passes a budget this year, he added, he's confident defense programs will be funded near the levels President Barack Obama requested. If a continuing resolution again takes the place of an approved budget, however, "we would face the get-well costs without the resources to get well," the comptroller said.

Defense officials, including Hale, have maintained repeatedly that they can save greatly in the long term if Congress allows them to close excess facilities, and the budget request this year again asks for a round of base realignments and closures, Hale noted.

Studies have shown DOD has 25 percent too much infrastructure, all of which is expensive to maintain and operate, the comptroller said. He added that while it's a "significant understatement" to say Congress is reluctant to approve base closures, previous BRAC rounds resulted in ongoing savings of $12 billion per year. Consolidating or closing underused military facilities will be essential to the department's future financial health, he added.

"We need the help of the United States Congress. BRAC is an obvious example," he said, but it's not the only area in which the Pentagon needs Congress to act.

"We need their permission to retire lower-priority weapons ... [and] slow the growth in military pay and benefits," he said, noting "uniform agreement" among the Joint Chiefs of Staff that the department must contain personnel costs.

Hale said results from Defense Secretary Chuck Hagel's strategic choices in management review -- which has been completed and is now being studied at the Pentagon's highest levels -- will guide spending decisions in the coming years.

Sequestration has been and remains a painful experience, Hale said, but he added that defense managers are learning to identify lower-priority initiatives as cuts increase.

"Some of those decisions shouldn't be reversed. ... As we recover from this long disease called sequestration, I hope we can benefit just a little bit from the cure," he said.

ONLINE BROKER CHARGED BY SEC WITH NOT COMPLYING WITH STOCK DELIVERY REQUIREMENTS

FROM:  SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 16, 2012 – The Securities and Exchange Commission today charged an online brokerage and clearing agency specializing in options and futures as well as four officials at the firm and a customer involved in an abusive naked short selling scheme.

The SEC’s Division of Enforcement alleges that Chicago-based optionsXpress failed to satisfy its close-out obligations under Regulation SHO by repeatedly engaging in a series of sham “reset” transactions designed to give the illusion that the firm had purchased securities of like kind and quantity. The firm and customer Jonathan I. Feldman engaged in these sham reset transactions in a number of securities, resulting in continuous failures to deliver. Regulation SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date (T+3). If no delivery is made by that time, the firm must purchase or borrow the securities to close out the failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4).

The former chief financial officer at optionsXpress – Thomas E. Stern of Chicago – was named in the SEC’s administrative proceeding along with optionsXpress and Feldman. Three other optionsXpress officials – head of trading and customer service Peter J. Bottini and compliance officers Phillip J. Hoeh and Kevin E. Strine – were named in a separate administrative proceeding and settled the charges against them for their roles in the scheme.

“OptionsXpress used sham reset transactions to avoid, sometimes for months, its obligation to comply with Reg. SHO’s stock delivery requirements,” said Robert Khuzami, Director of the Division of Enforcement. “Illegally extending its naked short positions put optionsXpress in plain violation of the law and undermined Reg. SHO’s intent to reduce fails to deliver.”

Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit, added, “Reg. SHO compliance continues to be a high enforcement priority. Broker-dealers, their employees, and their customers must ensure that they comply with the close-out requirements of the short sale rules and regulations.”

According to the SEC’s order, the misconduct occurred from at least October 2008 to March 2010. In September 2011, optionsXpress became a wholly-owned subsidiary of The Charles Schwab Corporation.

The SEC’s Enforcement Division alleges that the sham reset transactions impacted the market for the issuers. For example, from Jan. 1, 2010 to Jan. 31, 2010, optionsXpress customers including Feldman accounted for an average of 47.9 percent of the daily trading volume in one of the securities. In 2009 alone, the optionsXpress customer accounts engaging in the activity purchased approximately $5.7 billion worth of securities and sold short approximately $4 billion of options. In 2009, Feldman himself purchased at least $2.9 billion of securities and sold short at least $1.7 billion of options through his account at optionsXpress.

According to the SEC’s order, by engaging in the alleged misconduct, optionsXpress violated Rules 204 and 204T of Regulation SHO; Feldman willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-21 thereunder; optionsXpress and Stern caused and willfully aided and abetted Feldman’s violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-21 thereunder; and Stern caused and willfully aided and abetted optionsXpress’s violations of Rules 204 and 204T.

In the separate settled administrative proceeding, Bottini, Hoeh, and Strine consented to a cease-and-desist order finding that they caused optionsXpress’s violations of Rules 204 and 204T of Regulation SHO and ordering them to cease-and-desist from committing or causing violations of Rule 204. They neither admitted nor denied the SEC’s findings.
The SEC’s investigation was conducted by Deborah Tarasevich, Jill Henderson, and Paul Kim. Market Surveillance Specialist Brian Shute, Market Abuse Unit Trading Specialist Ainsley Fuhr, and Financial Economist Michael P. Barnes provided assistance with the investigation. The litigation will be led by Frederick Block.