The Securities and Exchange Commission (SEC) is quickly changing regulations to encourage transparency for individual investors. Several accounting changes are under review, including mark-to-market, while the commission continues to prosecute insiders involved with fraud. However, the recent move to eliminate paper filings and require electronic filings may usher in a whole new era of transparency for both public and private investors in the United States.

The private sector changes will primarily be seen in the required electronic filing for Regulation D. This controversial filing provides three exemptions from the Securities Act registration. These exemptions allow reporting companies to receive investment in private markets without having to report it as a registration. Further, the filings themselves (which do contain the information) can be concealed by filing it in paper form (so an interested investor would have to obtain a mailed copy from the SEC!).

Times are changing, however, and the SEC is set on increasing financial transparency. The SEC allowed companies to make electronic Regulation D filings this year, but this ability will turn into a requirement next year. This will not only allow visibility into the VC markets but also change a hedge fund strategy that has been built around this secrecy. This is good news for investors who will now be able to see private transactions in the companies they own without hassel.

However, the SEC also took a step backwards with the transparency. The new Regulation D form requires less information than the original. The removed information includes the names of significant shareholders and the specific type of security. So, while the financial terms are disclosed, information about the related parties are withheld. This was likely designed to protect hedge funds and other private investors who value their privacy from the public eye.

Investors are now being given access to the big picture, but it has been broken down into a puzzle...

Orange 21 Inc. (NDAQ: ORNG) shares opened lower after Costa Brava withdrew its $3.90 per share aquisition offer. Many investors are attributing this withdrawal to the poor financing environment that may prohibit anything but an all-cash deal. In fact, Orange 21 even reported a net income of $6,000 for the quarter compared to a loss of $58,000 during the prior year quarter. Consolidated net sales declined, however, to $12 million from $13.2 million. The benefits came from lower operating expenses.

According to the Schedule 13D/A filing made with the SEC:

"On November 21, 2008, Costa Brava sent a letter to the Board of Directors of the Issuer withdrawing its proposal to acquire 100% of the outstanding equity interests of the Issuer. A copy of the letter delivered to the Issuer is filed as Exhibit B hereto and is incorporated herein by reference.

The Reporting Persons believe that the shares of Common Stock of the Issuer are undervalued and they are considering pursuing any and all of the actions enumerated below.

The Reporting Persons may take such actions with respect to their investment in the Issuer as they deem appropriate, including, without limitation: (i) having communications with the Issuer's Board of Directors and management with respect to methods for increasing stockholder value; (ii) purchasing additional shares of Common Stock in the open market or otherwise; and (iii) making a tender offer for shares of Common Stock not owned by the Reporting Persons.

The Reporting Persons may also participate in discussions with potential purchasers of their shares of Common Stock, sell some or all of their shares of Common Stock in the open market or through private negotiated transactions, or change their intent as to any and all matters referred to above.

The Reporting Persons reserve their rights to make alternative plans or proposals in the future or to take other steps to enhance the value of their investments. The Reporting Persons further reserve the right to increase, decrease or eliminate their investment in the Issuer or take any other action relative thereto."

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Luxottica Group S.p.A. (LUX)
Shamir Optical Industry Ltd. (SHMR)

Enzon Pharmaceuticals, Inc. (NDAQ: ENZN) shares moved higher after a large investor disclosed that they hired an advisor to explore strategic alternatives for the company in a Schedule 13D filing with the SEC. DellaCamerca Capital Master Fund engaged the investment banking firm Moelis & Company LLC to explore strategic alternatives with respect to the investment in the company. The 7.8% shareholder is likely attempting to find a buyer to boost the share price.

Last quarter, Enzon reported strong results and a net loss of just $2 million or $0.05 per share. The third quarter results were impacted by the $88.7 million net gain from the sale of a portion of their PEG-INTRON royalty asset. All in all, the company remains strong and continues to see growth and stability in their marketed products. Unfortunately, the volatile external markets impacted the ability to complete the sale of their specialy businesses at this time, however.

The strategic transactions that Enzon is already undertaking represents an effort to unlock value while many of its shareholders also continue to explore ways to maximize their investment. The result has been a stock in decline so far but opportunity in the near future. Shares of the pharmaceutical firm rose $0.08, or 1.86%, to $4.38 per share on the day.

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Gilead Sciences Inc. (GILD)
Johnson & Johnson (JNJ)

Mark-to-market accounting is a term that has received a lot of press in recent months as toxic securities seemed to come out of the woodwork. The idea is that companies holding illiquid securities should sell a few to get a fair market price and then value their portfolio at that value rather than an "estimated value" or "last trade value". The big debate now is whether or not mark-to-market accounting is good or bad for companies, investors and the general public.

The SEC announced today that it would hold a November 21st roundtable concerning this mark-to-market process. The first panel will focus on:

• Usefulness of mark-to-market accounting to investors
• The sufficiency of information and the ability to improve the reliability regarding the valuation of assets recognized at fair value that do not currently trade in an active market
• Challenges encountered and best practice used by preparers of financial statements related to estimating fair value during the current market conditions
• Whether there are aspects of the current fair value measurement accounting standards that are not sufficiently clear, and if so, what are the areas that could be improved and how
• Whether there needs to be more education related to fair value measurements
• Challenges that auditors have faced and best practice employed in providing assurance regarding fair value accounting
• Ways to increase transparency and consistency in the application of impairment models for investments not held for trading purposes

The mark-to-market represents a major problem in the marketplace as illiquid trading may cause securities to trade well below their intrinsic valuation. For example, if a mortgage security is rating AAA grade and expected to come to value in 30 years, but no credit is available for investors to purchase mortgages then nobody will be willing to pay any price for them. As a result, marking them to market may cause an unnecessarily low valuation for a security that may really be worth much more. However, others insist that the only real value is the market value and as a result this is a very fair way of doing things.

International Shipholding Corporation (NYSE: ISH) may be charting a new course after an activist investor took aim at the board. Liberty Shipping Group owns a 9% stake in the firm and previously made an offer to acquire the company. The board established a "special committee" to review the proposal, but failed to take action on the offer. This prompted Liberty to take matters into its own hands and attempt a coup of the board.

Here's the letter they submitted:

We were cautiously optimistic when the special committee’s advisors reached out to us on November 7 with an indication that we start giving consideration to a due diligence request list in connection with our proposal to acquire International Shipholding (ISH). We promptly sent your legal advisors a due diligence request list and a draft confidentiality agreement, which contained terms comparable to those that ISH agreed to when we provided at your request confidential information relating to Liberty’s ability to finance the proposed transaction. Four days later we received your proposed changes and additions to the confidentiality agreement. Our optimism turned to dismay with the realization that the special committee, management, the Johnsen family and their respective advisors are continuing to engage in more of the same obstructionist tactics that have characterized their actions since we initially raised the possibility of a business combination over five months ago.

In particular, we are very disappointed with your request that we agree to a standstill provision, as well as covenants directed at limiting our ability to communicate with other ISH shareholders. Perhaps even more egregiously, you asked that we agree to covenants imposing restrictions on our ability to conduct our day-to-day business in exchange for the receipt of ISH information. These provisions are entirely unacceptable and inappropriate under the circumstances.

Aside from a couple of brief telephone conversations between our advisors during the last ten days and the receipt of your mark-up to our proposed confidentiality agreement, there continues to be no dialogue between us. Both the committee and its advisors are in a constant state of paralysis and unable to act on a real-time basis, or otherwise do or say anything without apparently first consulting with the Johnsen family. This is contrary to your fiduciary duties as directors of ISH, and frankly defeats the purpose of forming a special committee to review our offer.

At this point it has become clear to us that ISH’s current board and the members of the so-called “special committee” are acting at the direction and for the benefit of the Johnsen family and not in the best interest of stockholders. Therefore, we will seek to replace the entire ISH board at the company’s next annual meeting. In the coming weeks we will provide further details to our fellow stockholders about the individuals who we will nominate to replace the Johnsen board. In the meantime, we will continue to prosecute our previously filed complaints in state and federal court. As you are undoubtedly aware by this point, we intend to hold each ISH director fully accountable for his actions and omissions to ISH’s stockholders.

We continue to desire to engage in a cooperative dialogue with you, but, in light of your actions to date, the burden is now firmly on the special committee to demonstrate that it is prepared to act independently and in the best interest of all ISH stockholders.

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Cliffs Natural Resources Inc. (NYSE: CLF) shares fell sharply after the proposed with rival Alpha Natural Resources (NYSE: ANR) fell through toady. This didn't come as a surprise to many shareholders as the value of the deal fell from $8.3 billion when announced to just $2.9 billion right now. However, the failure marks a victory for Philip Falcone's Harbinger Capital who faught the merger agreement since it was announced. The activist hedge fund criticized the move and suggested that Cliffs instead put itself up for sale.

Harbinger owns about 15% of Cliffs Natural Resources and is now facing further declines in the stock price. As part of the settlement, Cliffs will have to pay a $70 million breakup fee, but the hedge fund is optimistic. A combined company could have not only prevented the eventual sale of Cliffs to a third party, but also created an entity with substantial debt and problems. After all, the economies of scale argument doesn't work in every situation.

Cliffs Natural Resources Inc, formerly Cleveland-Cliffs Inc, is an international mining company, a producer of iron ore pellets in North America and a supplier of metallurgical coal to the global steelmaking industry. It operates six iron ore mines in Michigan, Minnesota and Eastern Canada, and three coking coal mines in West Virginia and Alabama. Cliffs also owns 80.4% of Portman, an iron ore mining company in Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore. In addition, it has a 30% interest in the Amapa Project, a Brazilian iron ore project, and a 45% economic interest in the Sonoma Project, an Australian coking and thermal coal project. It is organized into three business segments: North America Iron Ore, North American Coal and Asia-Pacific Iron Ore.

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Bio-Imaging Technologies, Inc. (NDAQ: BITI) shares moved higher after a large shareholder recommended changes to improve the firm in a Schedule 13D filing with the SEC. Heathinvest Partners disclosed a 5.3% stake in the firm and said they are very frustrated with the recent performance of the company that has resulted in the deterioration of value in 2008. Although the Imaging Services division, which has grown 19%, and the newly acquired Phoenix Data Systems unit seem to be developing well, the company's share price has declined 66% year-to-date.

"We believe that the source of the problem lies in the CapMed division," said Anders Hallberg of Healthinvest. "Despite allocating large resources to this loss-making unit for several years, significant revenues have failed to materialize. For example, in the most recent quarter, the division posted revenues of a mere $11,000 despite incurring approximately $776,000 in operating expenses. If the Company had sold CapMed to a third party or closed it down before the start of this year, the Company’s operating earnings for the first nine months in 2008 would have been around 43 percent higher without significant impact on revenues.

"CapMed is an expensive development project with no synergies with Imaging Services and Phoenix Data Systems. If CapMed cannot be sold, it should be closed down. While the decision to divest or close a division is always difficult, it should now be evident to the Company’s Board and senior management that CapMed is having a significant, negative impact on shareholder value, which should be the Board’s highest priority. Surely, the Company’s Board and senior management agree that it is imperative that investor confidence in the Company not be undermined any further. Committing to either divest CapMed or close it down before the end of 2008 would go a long way in this direction."

Combined, Healthinvest believes that these changes could help boost the company's troubled shares.

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How much are you spending on your Christmas presents this year? Lazard Capital apparently spent too much on its gift-giving after regulators found some $600,000 spent "improperly entertaining" Fidelity Investments employees to generate brokerage business. The SEC found that former head of Lazard Capital Market's US sales and trading department, David Tashjian, and a few employees gave extraordinary gifts to, among others, Fidelity equity trader Thomas Bruderman.

What kind of gifts cost so much? The commissioner found that Lazard executives were taking the Fidelity representative on trips to destinations like Europe, the Bahamas, the Caribbean, Florida, and Napa Valley, often by private plane, and paying for meals and lodging at high end restaurants and hotels. According to the orders, they spent money on race car driving lessons, adult entertainment, expensive wine, and even threw a $50,000 bachelor party in Miami!

What's the problem with a little fun? According to the SEC: "Mutual fund traders owe their loyalty and allegiance solely to the funds and their investors. When registered representatives provide mutual fund traders with prohibited travel, entertainment and gifts, it may impair their objective judgment and harm investors. Brokerage firms and their supervisory personnel must reasonably implement procedures to prevent employees from illegally providing compensation for brokerage business."

A slight conflict of interest...