Mortgage Sector Off to Worst Start Since 2013 Despite Fed Help

Mortgage investors have yet to enjoy robust returns this year despite the Federal Reserve providing $688 billion of support to the sector since mid-March.

The year-to-date excess return versus Treasuries for the Bloomberg Barclays U.S. MBS Index stands at -0.31% as of Friday, the worst seen over a similar period since 2013, which was also a time of central bank mortgage purchases.

After an excess return of +0.48% in April — with the help of $295 billion in Fed support — last month’s $101 million in central bank buying was barely enough to fog the performance mirror, resulting in a tepid 0.03% excess return.

Several factors have kept investors wary of the sector.

First off are the surprisingly robust prepayment speed reports over the past two months, which proved that lockdown or not, when it comes to the chance of lowering their monthly mortgage payments (and for lenders to make fees for refinancings) Americans are nothing if not persistent. The April prepayment report saw aggregate conventional Fannie Mae 30-year speeds rise 26%, following the previous month’s 42% increase.

While May prepayment speeds (to be released Thursday afternoon) are expected to drop between 10% to 15%, Nomura MBS analysts wrote in a recent report that they have long-term concerns about “the risk of rising prepayments” with mortgages rates at record lows.

A second factor is the wave of forbearance after recent legislation that allowed homeowners to demand it on easy terms. As of May 17, servicers have seen 8.36% of their loans drop into forbearance, according to the Mortgage Bankers Association.

The question is how many of those loans will eventually default and require buyouts, an event that can hurt mortgage sector performance. Unfortunately, the root cause of the forbearance spike is a lockdown-driven slump in nationwide economic activity — which is unprecedented and therefore not quantifiable.

Most concerning for valuations is an issue put best by Bank of America in their latest research report. “Our survey responders flag the Fed as the overriding driver of value and risk,” and the risk they’re referring to is “a taper tantrum repeat that looms large beyond 2020.”

The “taper tantrum” was sparked by comments from former Federal Reserve Chairman Ben Bernanke on May 22, 2013 about the potential for reduced central bank support for mortgages. In the two weeks that followed, the mortgage sector’s excess return dropped 0.73%. By July of that year, 30-year mortgage rates had increased to 4.51% from 3.59%.

That reaction highlights that any sector supported by a central bank, by necessity, becomes dependent on that bank’s continued largess to maintain its current valuations. Having benefited from almost $700 billion in Fed credit since mid-March, it’s arguable that mortgage sector performance going forward will depend most heavily on decisions made by the Federal Reserve Board.

  • Christopher Maloney is a market strategist and former portfolio manager who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

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Tesla China Rival NIO Is Bullish About Domestic Market Growth

NIO Inc. founder William Li said the long-term growth potential of China’s electric-vehicle market remains in place, boding well for his company even as competition from the likes of Tesla Inc. intensifies.

The country’s auto market has started to recover from the depths of the coronavirus pandemic, and the minuscule market share of electric cars means they have a chance to grab sales from gas guzzlers, Li said in an interview on Bloomberg Television.

But he has his work cut out. Electric-car sales have declined for 10 straight months in China and are forecast to drop 14% this year to fewer than 1 million units, according to BloombergNEF. Meanwhile, global electric-car leader Tesla started deliveries from its massive new Shanghai plant around the start of the year.

“We do compete against each other, but in general we are allies,” Li said, stressing both are trying to win users from gasoline rivals. “In fact, our sales kept growing since Tesla started production in Shanghai.”

NIO predicted Thursday that its deliveries and revenue this quarter will more than double from a year earlier, as well as from the first three months of 2020. The company also reported a narrower first-quarter loss after curbing spending.

In April, the company struck a definitive pact for a 7 billion yuan ($1 billion) investment from entities led by the Hefei municipal government in China, alleviating concerns that it is running out of cash. That funding and potential future financings have put NIO on a solid footing, Li said.

“We are confident to have secured sufficient funding for the company’s development,” Li said.

The April fundraising effort paves the way for more Chinese financing for New York-traded NIO, Li said. That could prove helpful as U.S.-China tensions are heating up, with Chinese companies listed in the U.S. facing a threat of being forced out. The company now meets the criteria for a local Chinese listing, though it has no concrete plans for one, he said.

“This isn’t a challenge for NIO only,” Li said. “We wouldn’t exclude any potential options.”

Shares of NIO have lost more than a third of their value since the company’s 2018 initial public offering in New York.

Li also described Volkswagen AG’s plans, announced last week, to deepen its relationship with a Chinese EV partner in the Hefei region as “very positive news” for NIO. The move signals that the area is emerging as a powerhouse in the EV industry, and Li said NIO is also seeking to increase cooperation with local partners and encourage its suppliers to invest more in the region.

— With assistance by Charlie Zhu, Selina Wang, and Chunying Zhang

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Target closes 175 stores nationwide after Minneapolis protests

Target closes 24 Minnesota stores amid looting

Minneapolis stores are taking precaution and shutting down to prevent further looting during protests. FOX Business’ Jackie DeAngelis with more.

Target is temporarily closing 175 stores in 13 states, the company announced Saturday evening.

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This news comes after videos circulated on social media showing the big-box retailer getting looted amid Minneapolis-based protests related to the death of George Floyd.

The protests have resulted in the destruction of several commercial properties.

TARGET, AUTOZONE RESPOND TO VIOLENT MINNEAPOLIS PROTESTS

"We are heartbroken by the death of George Floyd and the pain it is causing communities across the country. At this time, we have made the decision to close a number of our stores. We anticipate most stores will be closed temporarily," the company said in a statement. "Our focus will remain on our team members’ safety and helping our community heal."

People leave a vandalized Target store in Oakland, Calif. (AP Photo/Noah Berger)

The update also included guidelines for employees who may have been impacted directly by the protest-related store closures.

TARGET CEO RESPONDS TO MINNEAPOLIS PROTESTS: 'WE ARE A COMMUNITY IN PAIN'

"Additionally, team members impacted by store closures will be paid for up to 14 days of scheduled hours during store closures, including COVID-19 premium pay," the company explained. "They will also be able to work at other nearby Target locations."

Ticker Security Last Change Change %
TGT TARGET CORP. 122.33 +3.90 +3.29%

As of Saturday at 8 p.m. Central Time, 71 Target stores in Minnesota had been closed, according to the company's media release. Several other stores have been closed down throughout other states, including California, Colorado, Georgia, Illinois, Michigan, Missouri, Nebraska, New York, Oregon, Pennsylvania, Texas and Wisconsin.

Target’s closed stores

Stores marked with an asterisk are closed until further notice, according to Target.

THOUSANDS IGNORE MINNEAPOLIS CURFEW AS U.S. PROTESTS SPREAD

Minnesota

  • Alexandria, MN
  • Andover, MN
  • Apple Valley, MN
  • Apple Valley South, MN
  • Bemidji, MN
  • Blaine, MN
  • Bloomington, MN
  • Brainerd, MN
  • Brooklyn Park, MN
  • Buffalo, MN
  • Burnsville, MN
  • Cambridge, MN
  • Champlin, MN
  • Chanhassen, MN
  • Chaska, MN
  • Coon Rapids, MN
  • Coon Rapids Northtown, MN
  • Cottage Grove, MN
  • Crystal, MN
  • Duluth, MN
  • Eagan, MN
  • East St. Paul, MN
  • Eden Prairie, MN
  • Edina, MN
  • Forest Lake, MN
  • Fridley, MN
  • Grand Rapids, MN
  • Hutchinson, MN
  • Inver Grove Heights, MN
  • Lakeville, MN
  • Lino Lakes, MN
  • Mankato, MN
  • Maple Grove North, MN
  • Medina, MN
  • Minneapolis Dinkytown, MN
  • Minneapolis Lake Street, MN*
  • Minneapolis Northeast, MN*
  • Minneapolis Nicollet Mall, MN
  • Minneapolis Uptown, MN*
  • Minnetonka, MN
  • Monticello, MN
  • North St. Paul, MN
  • Northfield, MN
  • Oakdale, MN
  • Otsego, MN
  • Owatonna, MN
  • Plymouth, MN
  • Red Wing, MN
  • Richfield, MN
  • Ridgedale, MN
  • Rochester, MN
  • Rochester South, MN
  • Roseville, MN
  • Savage, MN
  • Shakopee, MN
  • Shoreview, MN
  • St. Cloud, MN
  • St. Cloud East, MN
  • St. Louis Park, MN
  • St. Louis Park Knollwood, MN
  • St. Paul Highland Park, MN
  • St. Paul Midway, MN
  • Stillwater, MN
  • Vadnais Heights, MN
  • Virginia, MN
  • Waconia, MN
  • West St. Paul, MN
  • Willmar, MN
  • Winona, MN
  • Woodbury, MN
  • Woodbury East, MN

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California

  • 17th Street Store Santa Ana, CA
  • Alameda, CA
  • Azusa, CA
  • Baldwin Park, CA
  • Bayfair San Leandro, CA
  • Bellflower Long Beach, CA
  • Beverly Blvd Los Angeles, CA
  • Bixby Long Beach, CA
  • Central Berkley, CA
  • Central San Francisco, CA
  • College Park San Jose, CA
  • Colma, CA
  • Commerce, CA
  • East Orange, CA
  • East Palo Alto, CA
  • Fashion Island San Mateo,  CA
  • Folsom, CA
  • Hawthorne, CA
  • Koreatown Los Angeles, CA
  • LA Central Los Angeles, CA
  • Los Angeles, CA
  • Madison Sacramento, CA
  • Mountain View, CA
  • North Hayward, CA
  • NW Long Beach, CA
  • NW Santa Ana, CA
  • Oakland, CA*
  • Oakland Emeryville, CA
  • Pico Rivera, CA
  • Pinole, CA
  • Rancho Dom Compton, CA
  • Redondo Beach, CA
  • Redwood City, CA
  • Richmond, CA
  • Riverside Sacramento, CA
  • Rosemead, CA
  • San Pedro, CA
  • Serramonte Daly City, CA
  • SF Folsom and 13th St San Francisco, CA
  • South Gate, CA
  • South San Francisco, CA
  • Stockton, CA
  • SW Sacramento, CA
  • Tanforan San Bruno, CA
  • University Ave Berkeley, CA
  • Walnut Creek, CA
  • West Hollywood, CA
  • Westlake Daly City, CA
  • Westwood Los Angeles, CA

Colorado

  • Aurora, CO
  • Downtown Denver, CO*
  • Stapleton Denver, CO
  • West Aurora, CO

Georgia

  • Buckhead Atlanta, GA*
  • Buckhead South Atlanta, GA*

Illinois

  • Hyde Park Chicago, IL
  • McKinley Park Chicago, IL
  • South Loop Chicago, IL
  • State Street Chicago, IL
  • Streeterville Chicago, IL
  • Wilson Yard Chicago, IL
  • West Loop Chicago, IL

Michigan

  • Flint, MI

Missouri

  • Brentwood, MO
  • Bridgeton, MO
  • Florissant, MO
  • Hampton Village St. Louis, MO
  • Springfield, MO

Nebraska

  • Omaha, NE

New York

  • Bronx-Throggs Neck Bronx, NY
  • Bronx Terminal Bronx, NY
  • Brooklyn Junction Brooklyn, NY
  • College Point, NY
  • Elmont, NY
  • Flushing, NY
  • Gateway Brooklyn, NY
  • Harlem New York, NY
  • Hicksville, NY
  • Mount Vernon,  NY
  • Queens Place Elmhurst, NY
  • Riverdale Bronx, NY​

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Oregon

  • Clackamas,  OR
  • East Washington Street Portland, OR
  • Eugene, OR
  • Galleria Morrison Portland, OR
  • NE Portland,  OR
  • NW Portland, OR
  • Powell, Portland, OR
  • Springfield, OR

Pennsylvania

  • Northern Liberties Philadelphia, PA
  • Phila-Art Museum Philadelphia, PA
  • Phila-Washington Square W Philadelphia, PA
  • Rittenhouse Square N. Philadelphia, PA

Texas

  • North Austin, TX
  • Cityplace Market Dallas, TX
  • Love Field Dallas, TX
  • Medallion Dallas, TX
  • North Dallas,  TX
  • Northeast Skillman Dallas, TX
  • Preston Center Dallas, TX
  • Saltillo Austin, TX
  • UT Campus Store Austin, TX

Wisconsin

  • West Milwaukee, WI
  • Chase Milwaukee, WI

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Saudi Arabia Moved $40 Billion in Reserves to Sovereign Fund

Saudi Arabia transferred 150 billion riyals ($40 billion) from its central bank to its sovereign wealth fund as it went on an investment spree seeking to take advantage of recent market turmoil.

The transfers from the kingdom’s foreign-currency reserves to its Public Investment Fund were made in March and April on an “exceptional” basis, and will “strengthen the investment capacity of the fund,” Finance Minister Mohammed Al-Jadaan said in a statement published by the official Saudi Press Agency on Friday.

The move comes as the world’s largest crude exporter faces exceptional fiscal pressure from a crash in global oil markets. Al-Jadaan said the central bank transfer contributed to a historic drop in Saudi Arabia’s net foreign assets, which fell at the fastest rate in two decades in March, and will also have an impact on April’s central bank data, expected to be released on Sunday.

“This procedure was taken after comprehensive study and taking into consideration the sufficient level for foreign-currency reserves,” Al-Jadaan said. The PIF has an “important role in diversifying and strengthening economic growth,” he said, noting that the fund’s investment returns “will be available to support public finances if needed.”

A regulatory filing earlier this month showed that the sovereign fund has spent billions of dollars this year buying equities, including stakes in cruise operator Carnival as well as BP Plc, Boeing Co., Citigroup Inc and Facebook Inc.

READ MORE: Saudi Arabia Wealth Fund Buys Boeing, Citi, Disney Stakes

In his statement on Friday, Al-Jadaan said the fund was capitalizing on “a range of investment opportunities that presented themselves in light of the current circumstances global financial markets are passing through.”

The news of the fund’s buying spree abroad coincided with the government cutting back on spending at home. Al-Jadaan has said that the kingdom will need to trim expenses this year to redirect resources to health care and supporting businesses as the coronavirus pandemic hobbles economic growth.

Earlier this month, the government cut back state worker allowances and announced it will triple a value-added tax, shocking citizens and business owners. Saudi Arabia’s non-oil economy is expected to contract this year for the first time in three decades.

READ MORE: Saudi Arabia Triples VAT, Cuts State Allowances Amid Crisis (2)

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Crude Oil Futures Settle Notably Higher

Crude oil prices moved higher on Thursday, driven by data showing a drop in gasoline inventories in the U.S, amid an increase in demand thanks to reopening of businesses in almost all the states in the country.

West Texas Intermediate Crude oil futures for July ended up $0.90, or about 2.7%, at $33.71 a barrel.

Brent crude futures moved up $0.55, or 1.6%, to $35.29 a barrel.

According to the data released by the U.S. Energy Information Administration (EIA), crude inventories were up 7.9 million barrels in the week ended May 22, as against expectations of a near 2-million barrels drop.

Gasoline inventories dropped by about 700,000 barrels last week, beating expectations for an increase of 100,000 barrels. Meanwhile, distillate stockpiles were up 5.5 million barrels in the week, about three times the expected jump.

The American Petroleum Institute (API) reported late Wednesday that stockpiles expanded by 8.7 million barrels for the week ended May 22, compared with analysts’ expectations for a draw of 1.9 million barrels.

The API report, which was released a day later than usual because of Monday’s Memorial Day holiday, also showed gasoline stockpiles rose by 1.1 million barrels, while distillate fuel inventories climbed by 6.9 million barrels.

Oil’s uptick was halted somewhat due to uncertainty about Russia continuing with its output reduction from July. The OPEC and other major producers, have however, stated that they would continue with production cuts till the end of the year.

There are worries about energy demand due to rising tensions between the U.S. and China, with the former warning that any effort by China to go ahead with its proposal to impose a new security law on Hong Kong could invite trade sanctions on the world’s second largest economy.

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Trump administration to crack down on Chinese student visas: report

China national security legislation is communist takeover of Hong Kong: State Department spokesperson

State Department Spokesperson Morgan Ortagus discusses rising tensions between the U.S. and China amid Hong Kong protests.

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The Trump administration is expected to cite national security concerns and cancel visas for Chinese graduate students connected to universities tied to the People's Liberation Army, according to a Thursday report from The New York Times.

Such a move would come amid rising U.S.-China tensions over China's alleged lack of transparency about coronavirus and controversial attempts to override Hong Kong's independence.

CHINA VOTES TO OVERRIDE HONG KONG'S AUTONOMY ON NATIONAL SECURITY

The reported crackdown would apply to 3,000 out of the 360,000 Chinese students in the U.S., according to The Times. The FBI has warned American universities about espionage by students, especially in the sciences, for years.

(iStock)

Those universities may disapprove of canceling visas for Chinese students and researchers tied to both military schools and traditional Chinese universities, which would dry up one of their sources of tuition money. Such a move could also cause retaliation by China against American students and researchers.

FOX Business' inquiry to the White House was not returned at the time of publication.

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Amazon brushes off conservative questions on Southern Poverty Law Center ties

Fox Business Flash top headlines for May 27

Fox Business Flash top headlines are here. Check out what’s clicking on FoxBusiness.com.

Amazon shareholders rejected a conservative investor's proposal Wednesday to examine whether a company charity's use of the Southern Poverty Law Center as a gatekeeper in selecting recipients has led to discrimination against right-leaning organizations.

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The resolution, one of 12 at the Seattle-based company's annual meeting, was introduced by Justin Danhof of the Free Enterprise Project and sought a report on so-called viewpoint discrimination in the AmazonSmile charity. The philanthropic program, which allows Amazon shoppers to donate 0.5 percent of their purchase amounts to nonprofits, has given out more than $100 million.

Its rules ban organizations that promote terrorism, violence or hatred, qualities the charity depends in part on the Southern Poverty Law Center to identify. While the center was once relied upon by an array of companies and even the U.S. government for similar functions, its reputation has been called into question in recent years.

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An article in The Washington Post, now owned by Amazon founder Jeff Bezos, questioned in 2018 whether the organization was fair in its identification of more than 900 hate groups amid complaints by right-leaning groups that they didn't belong on the widely followed list. Social media platform Twitter no longer lists the SPLC among its Trust and Safety Council advisers, and co-founder Morris Dees was ousted in March 2019.

COULD JEFF BEZOS BECOME A TRILLIONAIRE?

Ticker Security Last Change Change %
AMZN AMAZON.COM INC. 2,410.39 -11.47 -0.47%

"The SPLC is a widely discredited, very partisan organization that uses its hate map to try to put Christian conservative organizations on a par with the Ku Klux Klan," Danhof said after the meeting where his resolution failed.

"Amazon is basically in a very weird extreme here," he added. "It's admittedly engaging in viewpoint discrimination in its charitable program. We called them out on it, and they endorsed it."

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The Free Enterprise Project with which Danhof works uses ownership stakes in publicly traded companies to promote conservative positions, a tactic long employed by other advocacy groups that takes advantage of rules allowing investors who own as little as $2,000 worth of stock to introduce proposals at a corporation's annual meeting.

Neither Amazon nor the Southern Poverty Law Center immediately responded to messages seeking comment. The law center, founded in 1971, has supported causes from civil rights for black Americans to equal rights for gays and lesbians and children's rights.

TWITTER CREATES DIFFERENT SET OF RULES FOR TRUMP

It has opposed a number of Trump administration policies, including the establishment of detention camps for undocumented immigrants, and on Thursday, applauded Twitter's addition of a fact-check label to some posts from the president that it viewed as potentially misleading.

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Asian Stock Futures Mixed; U.S. Shares Climb: Markets Wrap

Asian stocks looked set for a mixed session as investors weighed continued gains in U.S. shares with an increase in Sino-American tensions over Hong Kong. Treasury yields dipped.

Futures pointed higher in Japan and Australia, and retreated in Hong Kong. The Trump administration said it could no longer certify Hong Kong’s political autonomy from China, a move that could have far-reaching consequences on its special trading status with the U.S. Still, the S&P 500 climbed to an 12-week high, holding above technical levels considered key by chart watchers. The Nasdaq turned positive late in the session after Micron Technologies forecast earnings that were ahead of estimates, lifting chipmakers. The dollar ticked higher.

Investors are closely watching the new U.S.-China friction — including possible sanctions over Beijing’s crackdown in Hong Kong — as global stocks push higher on hopes economies are beginning to recover after a deep downturn. Federal Reserve Bank of St. Louis President James Bullard said the American economy may already have bottomed.

Elsewhere. the Stoxx Europe 600 Index ended higher and Italy’s government bonds rose after details emerged of Europe’s 750 billion euros ($823 billion) fiscal stimulus package. The euro gained. Oil slumped toward $32 a barrel in New York.

Here are some key events coming up:

  • Thursday brings the U.S. jobless claims reading for the week ended May 23.
  • Federal Reserve Chairman Jerome Powell participates in a virtual discussion on Friday.
  • Euro-area data due Friday is forecast to show consumer inflation fell to 0.1% on May from 0.4% the previous month.

These are the main moves in markets:

Stocks

  • The S&P 500 Index rose 1.5%.
  • Futures on Japan’s Nikkei 225 climbed 0.9%.
  • Hang Seng futures slipped 0.7%.
  • Futures on Australia’s S&P/ASX 200 Index rose 0.9%.

Currencies

  • The Bloomberg Dollar Spot Index increased 0.1%.
  • The yen was at 107.73 per dollar.
  • The offshore yuan was at 7.1812 per dollar.
  • The euro bought $1.1009.

Bonds

  • The yield on 10-year Treasuries fell two basis points to 0.68%.

Commodities

  • West Texas Intermediate crude dipped 6.2% to $32.22 a barrel.
  • Gold was at $1,709.91 an ounce.

— With assistance by Kyoungwha Kim, and Jeremy Herron

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Euro-Area Economy Closer to ECB’s Worst-Case Estimates, Lagarde Says

The euro-area economy is faring worse than hoped, facing a recession as bad as the European Central Bank’s more pessimistic forecasts, according to President Christine Lagarde.

Output in the region is set to shrink between 8% and 12%, she said, with estimates for a milder slump now “out of date.” Her remarks highlight the severity of the repercussions for Europe after many businesses were forced to close because of the coronavirus pandemic, costing hundreds of thousands of jobs and furloughing millions more.

Both the central bank and governments have ramped up spending to offer companies and households support, with the European Commission due to announce plans for a region-wide support package later on Wednesday.

“We’ll have a better sense in a few days as we publish our numbers in early June, but it’s likely we will be in between the medium and severe scenarios,” Lagarde said of the outlook in an online question-and-answer session. ECB Vice President Luis De Guindos reiterated her assessment later on Wednesday.

The ECB is set to update its official projections for growth and inflation next week, when the Governing Council also decides on policy.

In March, the central bank launched a 750-billion euro ($822 billion) emergency asset-purchase program, which might be increased at next week’s meeting.

Executive Board member Isabel Schnabel said in an interview with the Financial Times that policy makers are ready to expand any of its instruments if incoming data show a need.

“With respect to the Pandemic Emergency Purchase Program, this concerns the size but also the composition and the duration of the program,” she said.

ECB bond-buying has helped reign in borrowing costs and made it easier for governments to fund stimulus.

Lagarde expressed confidence that higher public spending won’t result in a new debt crisis in the euro area. Debt-servicing costs are “extremely low,” she said, adding that if economies are transformed to be made more efficient, productive and sustainable, then spending should be encouraged.

“All countries around the world had to respond, and as a result of that had to increase their debt,” she said. In the face of the pandemic, “use of debt is not only recommended, it’s the way to go.”

In the virtual event, which was targeted at European youth, Lagarde also answered a question about what advice she would give young people embarking on their careers in such challenging times.

She encouraged viewers to embrace the “beauty of the course of changes we are seeing” by acquiring new skills and being “prepared to do all sorts of jobs.”

— With assistance by Piotr Skolimowski, Alexander Weber, Jill Ward, and Catherine Bosley

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Coronavirus misconduct crackdown by SEC fueled by whistleblower tips

Government warns of ‘coronavirus-related fraud’

Commodity Futures Trading Commission Chairman and Chief Executive Heath Tarbert discusses the markets and gives details on ‘bad actors’ who are peddling false coronavirus cures or products.

WASHINGTON  – The novel coronavirus outbreak and economic fallout is proving to be a bonanza for whistleblower lawyers as the U.S. securities regulator cracks down on a range of related misconduct from companies touting sham cures to misuse of federal aid.

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The Securities and Exchange Commission (SEC) fielded about 4,000 complaints from mid-March to mid-May, a 35 percent increase compared to the period one year ago, Steven Peikin, the agency's co-head of enforcement, said this month as cases of COVID-19, the respiratory illness caused by the coronavirus, shot up.

HOW DO I REPORT A CORONAVIRUS SCAM? 

That is creating work for lawyers who help whistleblowers navigate the SEC's bounty program for tipsters whose information leads to penalties of more than $1 million for offenders. The agency is already working with some tipsters, lawyers said.

"Unfortunately, fraudsters often seek to exploit difficult situations like the ongoing pandemic for their own gain. The SEC frequently relies on the tips that we receive from the public," an SEC spokeswoman said.

Two factors appear to be driving the current surge in tips, according to lawyers: the sheer scale of the crisis has sparked a wave of misconduct across all areas of the SEC's remit, and mass unemployment has unleashed whistleblowers who may otherwise have feared retaliation by their employers.

Neil Getnick, managing partner of Getnick & Getnick, said his practice had seen a jump in whistleblower complaints.

CORONAVIRUS SCAMS: A LOOK AT SCHEMES BUSTED BY THE FBI

"I expect that is just the beginning. Typically about six months in we'll see that matters will begin to crystallize, and at that point I would expect an uptick in enforcement cases," he said.

Getnick said a broad range of misconduct related to the COVID-19 outbreak, such as loan fraud, price-gouging, counterfeit or substandard medical goods, or healthcare fraud, could potentially find their way into the SEC's remit, due to the breadth of U.S. securities law.

"Anything that in effect interferes with the free market operating freely, will potentially give rise to SEC liability."

The agency has created a new group to closely monitor the market and spot potential abuses. So far, that effort has led it to suspend trading in 31 so-called penny stocks for allegedly touting dubious COVID-19 cures, tests, treatments and medical supplies to investors.

Ticker Security Last Change Change %
GLP GLOBAL PARTNERS LP 10.52 +0.38 +3.75%

The SEC this month charged two of those companies, Applied BioSciences Corp and Turbo Global Partners Inc, for allegedly publishing misleading information on the status of their COVID-19 screening offerings. The companies did not respond to multiple emails and calls for comment.

EAGER TIPSTERS

The SEC has also begun scrutinizing companies that took emergency aid for potential disclosure issues. Lawyers also expect to see it bring charges against coronavirus-related insider trading, Ponzi schemes and "boiler room" stock scams.

"We expect to see the SEC bring more actions as we continue to investigate suspected COVID-19 related scams," Peikin and his enforcement co-head, Stephanie Avakian, said in a statement.

Stephen Kohn, a partner at Kohn, Kohn and Colapinto, said his firm has seen "a slew of coronavirus-related tips." The SEC has heard from investors about scams related to a large number of small private companies as well as larger, listed "essential" firms like meat-packing houses, he said.

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He added that many tipsters have been recently laid off and are eager to help identify issues that have surfaced at their previous employers without fear of reprisals.

With so many tips, lawyers are being selective about which cases they take on. Sean McKessy, a partner at Phillips & Cohen who previously worked to set up the SEC whistleblower office, said he was on the lookout for misconduct the SEC tends to penalize most harshly, such as companies padding earnings or disclosure violations.

"While the SEC has so far penalized penny stock firms, the regulator is also quite vigilant about what larger companies are telling investors about how COVID-19 might impact them," he said.

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