Expert Networks, Insider Trading, Armor, News Corp., Toys: Compliance
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U.S. investigators received permission in 2009 to wiretap 104 callers to two conference lines used by Primary Global Research LLC, a so-called expert networking firm, according to a court filing.
U.S. District Judge Kevin Duffy in Manhattan signed an order in October 2009 permitting investigators to listen in on the lines, which included Primary Global customers, four employees and five consultants, according the court filing submitted July 12 by James Fleishman, a former sales manager at the firm.
Fleishman, who is scheduled to be tried on two counts of conspiracy next month, submitted the order and related papers in support of his motion to block the government from introducing evidence from the wiretaps.
Primary Global is at the center of a nationwide probe of insider trading at hedge funds, technology companies, banks and consulting firms. Winifred Jiau, a former Primary Global consultant, was convicted of securities fraud and conspiracy June 20 in Manhattan federal court.
Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment.
The case is U.S. v. Fleishman, 11-CR-32, U.S. District Court, Southern District of New York (Manhattan).
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Galleon Insider Case’s Chiesi to Pay $540,000 in SEC Suit
Danielle Chiesi, who pleaded guilty to insider trading in January, agreed to pay $540,000 to settle related allegations by the U.S. Securities and Exchange Commission.
A final judgment in the case, signed by U.S. District Judge Jed S. Rakoff in New York, was posted on the court’s electronic docket yesterday with Chiesi’s signed consent dated June 29.
In addition to her liability for $500,000 in principal and $40,535 in interest, Chiesi agreed not to violate SEC rules prohibiting her from directly or indirectly engaging in fraudulent or deceptive practices including insider trading.
Chiesi, 45, who was an analyst at New Castle Funds LLC, and Mark Kurland, New Castle’s co-founder, both pleaded guilty in connection with a government investigation of hedge-fund insider trading centered on Galleon Group LLC and its co-founder, Raj Rajaratnam.
The SEC first sued Rajaratnam, Chiesi, Kurland and three other people in October 2009. Her agreement resolves allegations contained in a revised complaint filed last year.
Chiesi’s lawyer, Alan Kaufman, yesterday declined to comment on the agreement. John Nester, a spokesman for the SEC, didn’t immediately respond to a phone message seeking comment.
The criminal case is U.S. v. Rajaratnam, 09-cr-1184, U.S. District Court, Southern District of New York (Manhattan). The civil case is Securities and Exchange Commission v. Galleon Management LP, 09cv8811, U.S. District Court, Southern District of New York (Manhattan).
Armor Holdings to Pay $16 Million to Settle Bribery Claims
Armor Holdings Inc., the military-truck maker that’s now a unit of BAE Systems Plc (BAESY), agreed to pay $16 million to resolve U.S. claims it bribed a United Nations official to win contracts connected to peacekeeping missions.
The company will pay $10.3 million to resolve criminal charges and $5.7 million to settle related civil claims, the Justice Department and Securities and Exchange Commission said in separate statements yesterday. The payments violating the Foreign Corrupt Practices Act, which began as early as 2001, took place before London-based BAE acquired the company in 2007, the Justice Department said.
In 2001 and 2003, Armor employees set up sham consulting contracts to funnel bribes to a UN procurement official in exchange for information about competitors’ bids to provide body armor for peacekeeping troops, according to the complaint. Armor won about $6 million in contracts through the corrupt payments for a profit of about $1 million, the Justice Department said.
“Armor and BAE Systems have cooperated extensively with the government since this conduct was first reported in April 2007,” BAE spokesman Brian Roehrkasse said in a statement. As a result of Armor’s “disclosure, cooperation, and extensive remediation, the DOJ and SEC have entered into settlements that close the matter without any FCPA prosecution or litigation.”
In settling the SEC claims, Armor didn’t admit or deny the allegations. The criminal probe by the Justice Department was settled with a non-prosecution agreement that cited the company’s cooperation and internal investigation in the case.
The SEC case is Securities and Exchange Commission v. Armor Holdings Inc., 1:11-cv-01271, U.S. District Court, District of Columbia (Washington).
Three U.S. Senators Urge Agencies to Investigate News Corp. (NWSA)
Democratic Senators Jay Rockefeller of West Virginia, Barbara Boxer of California and Frank Lautenberg of New Jersey yesterday asked Attorney General Eric Holder and SEC Chairman Mary Schapiro to investigate whether News Corp. violated U.S. law as a scandal over phone hacking unfolds in Britain.
The lawmakers asked the agencies to investigate whether New York-based News Corp. violated the Foreign Corrupt Practices Act in light of allegations that employees of the company’s now- defunct London tabloid News of the World bribed U.K. police. News Corp. yesterday abandoned its 7.8 billion-pound ($12.5 billion) bid for full control of British Sky Broadcasting Group Plc (BSY) amid a growing political backlash.
“The reported allegations against News Corporation are very serious, indicate a pattern of illegal activity, and involve thousands of potential victims,” Boxer and Rockefeller said in their joint statement. “It is important to ensure that no United States laws were broken and no United States citizens were victimized.”
The U.S. Justice Department will review the senators’ letters, spokeswoman Laura Sweeney said, declining to comment further. SEC spokesman John Nester also declined to comment. White House spokesman Jay Carney said the Obama administration is aware of the situation and referred questions about the Justice Department and SEC to the two agencies.
Teri Everett, a spokeswoman for News Corp., declined to comment. Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.
Toy Lead Limits Cut Two-Thirds by U.S. Consumer Safety Panel
The U.S. Consumer Product Safety Commission voted to lower limits on lead content in children’s goods, starting next month, while raising concerns about the costs to retailers who may have to dispose of inventory.
Yesterday’s 3-2 vote comes four years after the discovery of lead paint in toys from China that prompted legislation expanding the safety agency’s powers. The commission followed its staff’s recommendation yesterday to lower the maximum acceptable lead content to 100 parts per million, from 300 parts per million.
The new limits will take effect on Aug. 14, CPSC Chairman Inez Tenenbaum said.
“The scientific literature is abundant and has established there is no safe limit for lead,” Tenenbaum said. “Technologically feasible does not mean economically feasible.”
The commission’s two Republicans, in comments before the vote, accused its three Democrats of regulatory overkill, adopting a policy that will add costs to businesses without a commensurate safety benefit.
Commissioner Nancy Nord, the senior Republican, said there will be higher costs, fewer choices for consumers and closings of small businesses.
“Just because it’s out there somewhere on the planet doesn’t mean it’s commercially available,” Nord said. “Just because a material is out there for a jet plane doesn’t mean it’s appropriate for a toy plane.”
The agency was criticized by lawmakers of both parties as failing to protect consumers in 2007, after toys from China such as Barbie accessories made by El Segundo, California-based Mattel Inc. (MAT), the world’s largest toymaker, and RC2 Corp.’s Thomas the Tank Engine trains were recalled for containing high levels of lead paint.
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WaMu, Creditors Face Insider Trading Claim at Exit Hearing
Washington Mutual Inc., former owner of the biggest U.S. bank to fail, began a court hearing yesterday to end its bankruptcy facing a shareholder claim that it enabled hedge funds to profit from insider trading.
During a three-day hearing, shareholders will try to show that WaMu’s reorganization plan is tainted by the hedge funds’ alleged use of confidential information to trade in the bank holding company’s debt.
WaMu “fed four of these hedge funds, known as the ‘settlement noteholders,’ confidential inside information about the debtors and about settlement negotiations and then turned a blind eye to trading that the settlement noteholders were conducting based on this information,” a committee of shareholders said in court documents unsealed yesterday.
Shareholders would get nothing under a reorganization plan that was negotiated with JPMorgan Chase & Co. (JPM), the four hedge funds and the Federal Deposit Insurance Corp. U.S. Bankruptcy Judge Mary Walrath has already approved the main settlement that plan is based on and is now being asked to approve the plan itself, which would distribute more than $7 billion to WaMu’s creditors.
The hedge funds, Aurelius Capital Management LP, Centerbridge Partners LP, Appaloosa Management LP and Owl Creek Asset Management LP, all deny that they engaged in insider trading. They have argued in court papers and in hearings that the information they used to buy and sell WaMu’s debt was either publicly available or wasn’t “material,” and therefore its use was legal.
The case is In re Washington Mutual Inc. (WAMUQ), 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Banks and Investors Seek to Intervene in Bank of America Deal
Six federal home loan banks filed court papers seeking to intervene in a case in which a New York state judge will decide whether to approve a proposed $8.5 billion settlement by Bank of America Corp. (BAC) over mortgage-securitization trusts. A group of investors operating under the name Walnut Place reaffirmed their request to intervene in the case as well, and TM1 Investors also filed a request to intervene.
The motions filed yesterday in Manhattan came a day after it was revealed that New York Attorney General Eric Schneiderman is seeking client information from more than 20 companies as part of a probe of the deal.
ThyssenKrupp Wins $225 Million Cartel-Fine Cut, Otis Loses
ThyssenKrupp AG (TKA) won a court appeal to slice 159.9 million euros ($225 million) off a 479.7 million-euro antitrust fine for carving up the markets for elevators and escalators.
The European Union’s General Court cut the 479.7 million- euro fine for ThyssenKrupp and several of its units, saying the EU antitrust regulator wrongly cited repeated infringements by the companies as a reason for increasing the penalties. The Luxembourg-based court upheld fines against United Technologies Corp. (UTX)’s Otis unit, Finland’s Kone Oyj (KNEBV) and Schindler Holding AG. (SCHN)
The European Commission penalized five companies 992.3 million euros in February 2007 for their roles in the elevator cartel. Appeals by ThyssenKrupp and its units, whose overall fine was the biggest in the cartel, made up about half of the cases before the court. Otis was fined 224.9 million euros, Kone 142.1 million euros and Schindler 143.7 million euros.
The penalty was an EU record at the time. It has since been surpassed by a 1.38 billion-euro EU penalty imposed in 2008 on three companies, including Cie. de Saint-Gobain SA, for unlawfully rigging car window prices, and by a 1.1 billion-euro fine in 2009 for price-fixing on sales of natural gas in national markets.
The elevator companies were accused of setting prices in Belgium, Germany, Luxembourg and the Netherlands between at least 1995 and 2004. They rigged contract bids, allocated projects to each other and shared confidential information, the commission said.
Schindler said it would appeal the ruling. Kone said in a statement it would study the judgment before deciding on further steps, adding that its penalty was recognized as a cost in the first quarter of 2007.
ThyssenKrupp said in an e-mail that it welcomed the court’s decision. The Essen, Germany-based company declined to comment further until it has studied the ruling.
Spokespeople for Otis declined to immediately comment. Mitsubishi Elevator Europe BV was fined 1.8 million euros in the cartel. It didn’t appeal.
Yesterday’s decisions can be appealed a final time to the EU Court of Justice, the region’s highest court.
The cases are T-138/07, Schindler v. European Commission; T-141/07, General Technic-Otis v. Commission; T-142/07, General Technic v. Commission; T-145/07, Otis and Others v. Commission; T-146/07, United Technologies v. Commission; T-147/07, T-144/07, T-148/07, T-149/07, T-150/07, T-154/07, ThyssenKrupp and Others v. Commission, T-151/07, Kone and Others v. Commission.
Deutsche Bank Said to Try Settling ‘Spread Ladder Swap’ Cases
Deutsche Bank AG (DBK), Germany’s biggest bank, is trying to settle pending lawsuits involving swap contracts that were similar to those in a German high court decision that ruled against the lender.
The bank has settled several cases and is trying to end others in lower tribunals and Germany’s top civil court, three people with knowledge of the issue said. They declined to be identified because the negotiations are private.
The Federal Court of Justice, Germany’s top civil court, ruled in March that Deutsche Bank must cover losses caused by a derivative it branded “CMS Spread Ladder Swap,” unless the bank disclosed the product had an initial negative market value. The bank said at the time that there are eight cases at the top court and 17 in lower courts over the same type of derivative.
Deutsche Bank respects the Federal Court of Justice’s legal assessment and is reviewing to what extent it applies to pending cases, said Armin Niedermeier, a spokesman for the Frankfurt- based lender. The bank declined to comment further, he said.
Frankfurt judges postponed a hearing this month involving the bank and the city of Neuss after the parties said they were in settlement negotiations, said Arne Hasse, a court spokesman. The case involves claims of 8 million euros ($11.4 million), he said.
Treasury’s Miller Warns Against Effort to Weaken Dodd-Frank
Mary Miller, the U.S. Treasury Department’s assistant secretary for financial markets, yesterday warned against curtailing the Dodd-Frank law.
“Scaling back or repealing major parts of the Dodd-Frank Act, or not providing regulators with the funds they need to implement the act, will leave our economy exposed to a cycle of collapses and crises, with potentially devastating repercussions,” Miller said in remarks prepared for a speech in New York.
Miller was speaking at a conference held by the Securities Industry and Financial Markets Association, Wall Street’s biggest lobbying group, to mark the one-year anniversary of Dodd-Frank, which was signed into law on July 21, 2010.
House Republicans, swept into power in the November 2010 elections, are pushing bills to revise, delay or repeal parts of the law affecting areas including the Consumer Financial Protection Bureau, derivatives rules and registration requirements for private-equity advisers. Regulators are still working to write hundreds of rules mandated by the law.
“We can’t allow loopholes, gaps and weaknesses to undermine the fundamental strength of our reform,” Miller said. “The leaders of the major U.S. financial institutions should be champions, not opponents, of ensuring that regulators have sufficient resources to achieve their objectives.”
It’s essential that regulators “have the critical resources necessary to do their jobs effectively,” Miller said. “If resources are not adequate, we simply will not be able to bring the care and judgment to the process that will allow the new rules to work.”
Miller was nominated by President Barack Obama on July 1 to be promoted to Treasury undersecretary for domestic finance.
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