Financial Case Study.edited.docx - 1 Financial Case Study...

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1 Financial Case Study Student’s Name Course Code: Course Name University Name Professor’s Name September 21, 2020
2 Financial Case Study Introduction of Topics and Facts A federal court ordered a limited liability company based in Tennessee to provide documents to the Security and Exchange Commission (SEC). In this regard, the commission will investigate potential fraud related to the defaulted Chinese bond that the firm provided and sold. SEC filed an enforcement measure against the American Bondholders Foundation, LLC (ABF) on February 8, 2018 (SEC, 2018). The court filing was aimed to investigate the company for offering and selling defaulted bonds related to the Republic of China. The company failed to provide documents as a response to the enforcement measure. The documents that were not produced included the ones relating to investor funds, commissions remitted to third parties, investor communications, and financial and accounting records. In March, Honorable Matthew F. Kennelly of the District of Illinois ordered the company to produce non-privileged documents in response to the SEC’s orders. SEC is conducting fact- finding investigations on the matter, and it has not reached any conclusion regarding whether the company violated any of the laws related to federal securities (SEC, 2018). SEC sought an order from the federal district court to compel the company to produce the documents. Summary of Finance Areas Financial management theory relates to the utilization of funds regarding sales, acquisitions, and sales. In this case, ABF acquired a Chinese bond to optimize its investment capacity. A bond default happens when the issuer for the bond does not have funds to offset the payments to its bondholders. A bond is a credit instrument that represents a debt since the issuer/ borrower is obligated to pay it with regards to a floating interest rate. The issue in the case study
3 relates to ABF refusing to honor its debt obligation to China. The generally accepted accounting principle (GAAP) regarding a fixed income that is defaulted due to inability to pay interests follows defined regulations (Community Advent, 2020). GAAP postulates that if a debt issuer cannot fulfill its responsibility regarding the interest and principal that it is supposed to remit, the debt will be declared defaulted. However, under the United States (U.S.) financial reporting, ABF will be considered to have defaulted if it files for bankruptcy.

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