Green Mountain, CME, Apple, P&G, Trucking: Compliance
The U.S. Securities and Exchange Commission sued a former Green Mountain Coffee Roasters employee, claiming he repeatedly obtained quarterly earnings data and traded in advance of its public release.
Chad McGinnis, who worked as a systems administrator at Vermont-based Green Mountain, bought the company’s securities -- typically out-of-the-money options -- shortly before earnings announcements, the SEC said in a statement Aug. 2. He also tipped Sergey Pugach, a longtime friend and business associate, who was also accused of illegal trading, the SEC said.
The two men reaped $7 million in illegal profit by using the inside information from earnings announcements since 2010, according to the complaint filed in federal court in Connecticut.
“McGinnis and Pugach exploited confidential company financial data to conduct their insider trading scheme to the detriment of Green Mountain Coffee and its shareholders,” said Donald Hoerl, director of the SEC’s Denver office. “The timing of their trades was consistently and exceptionally successful, but their scheme ultimately was not.”
In a statement, Brian Kelley, Green Mountain’s president and chief executive officer, said the company is “appalled at the alleged actions of this individual.” He said Green Mountain had “no reason to believe anyone else associated with the company was involved.”
The SEC complaint was filed under seal on July 24, when the court granted a motion seeking a temporary restraining order and an asset freeze, the agency said.
McGinnis is represented by Michael English, an attorney at Finn Dixon & Herling LLP in Stamford, Connecticut, who declined to comment.
Pugach is represented by Alan Sobol of Pullman & Comley LLC in Hartford, Connecticut. When reached by phone Aug. 2, Sobol said because the complaint had just been unsealed, he wanted to “review the pleadings before” before making a statement.
A hearing is set for Aug. 7.
The case is Securities and Exchange Commission v. McGinnis, 13-cv-01047, U.S. District Court, District of Connecticut (New Haven).
CME Must Improve Surveillance of Derivatives Trades, CFTC Says
CME Group (CME) Inc., owner of the world’s largest futures exchange, must improve surveillance of transactions on its systems and require traders to keep better records, the Commodity Futures Trading Commission said.
CME, which is also a self-regulatory organization, had inadequate systems to oversee trades that result in an exchange for a related cash or derivative position, the Washington-based CFTC said in a 75-page enforcement review released Aug. 2.
“An improved and robust program is necessary,” the agency said. Chicago-based CME should require all firms that clear the trades to have a “more robust audit process,” it said.
Many of the CFTC’s recommendations have already been implemented, according to Laurie Bischel, a spokeswoman for CME.
“We are committed to ensuring fair, well-regulated markets for all of our customers and are continually working to enhance the oversight of our markets,” Bischel said in an e-mail statement.
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Issa Subpoenas Treasury for IRS Documents in Tea Party Probe
House Oversight Committee Chairman Darrell Issa sent a subpoena for U.S. Internal Revenue Service documents to the Treasury secretary, saying he thinks the agency’s chief counsel’s office is compromised.
The IRS hasn’t been forthcoming in responding to committee requests for documents related to the agency’s scrutiny of Tea Party groups seeking tax exemptions, Issa, a California Republican, said Aug. 2. He spoke at a hearing of a subcommittee of his panel in Washington and issued the subpoena afterward.
“You are slow-rolling us,” Issa told acting IRS Commissioner Danny Werfel.
“That’s not true,” Werfel responded.
Issa’s move escalates the confrontation between Republicans and the administration over the IRS, which apologized in May for applying tougher scrutiny to Tea Party groups applying for tax-exempt status.
At least four IRS officials have lost their positions. Seven congressional committees have opened inquiries into the IRS, requesting internal documents that would help explain how and why the agency scrutinized Tea Party groups.
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Morgan Stanley, Citigroup Cooperate With DOJ Derivatives Inquiry
The two firms were among more than a dozen financial institutions accused by the European Union last month of colluding to curb competition in credit derivatives.
“The company and others have also responded to an ongoing investigation by the antitrust division of the United States Department of Justice related to the CDS market,” Morgan Stanley, owner of the world’s largest brokerage, said Aug. 2 in a quarterly filing.
Citigroup, the third-biggest U.S. bank by assets, said in a quarterly filing that it had responded to civil investigative demands from the DOJ’s antitrust division “concerning potential anticompetitive conduct in the CDS industry” in July 2009 and in September 2011. Spokesmen for both New York-based companies declined to comment.
The Justice Department sent civil investigative notices in July 2009 to banks that own London-based Markit Group Ltd., a provider of data on derivatives and bonds, to find out if they had unfair access to price information, three people familiar with the matter said at the time. Bloomberg LP, the owner of Bloomberg News, competes with Markit in selling information to the financial-services industry.
Markit’s shareholders included JPMorgan Chase & Co., Bank of America Corp., Royal Bank of Scotland Group Plc and Goldman Sachs Group Inc. (GS), according to filings with the U.K.’s Companies House at the time.
The investigation widened last year to include other companies in the credit-default swap market, people familiar with the matter said in May 2012.
In the Courts
Apple Calls U.S. Proposal for E-Books Court Order Draconian
Apple Inc. (AAPL) called a U.S. Justice Department proposal for a court order regulating the company’s sales of electronic books “draconian and punitive.”
The federal government and 33 states submitted the proposal Aug. 2 in U.S. District Court in Manhattan. They asked the judge who ruled that Apple conspired to fix prices of e-books to order the company to cancel existing agreements with five publishers. The proposal also called for the court to appoint someone to monitor antitrust compliance at Apple.
“Plaintiffs’ proposed injunction is a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm,” Apple responded in a court filing hours after the government’s.
The proposal would require Apple to find a new way to do business with publishers, and may affect its sale of music and filmed media as well.
U.S. District Judge Denise Cote, after a nonjury trial in Manhattan, ruled July 10 against Apple. The company, based in Cupertino, California, now faces another trial on damages.
The proposal submitted on Friday needs court approval to become effective. A hearing is scheduled for Aug. 9.
“Under the department’s proposed order, Apple’s illegal conduct will cease and Apple and its senior executives will be prevented from conspiring to thwart competition in the future,” Bill Baer, the assistant attorney general in charge of the antitrust division, said in a statement.
The case is U.S. v. Apple Inc., 12-cv-02826, U.S. District Court, Southern District of New York (Manhattan).
Trucking Industry Loses Challenge to U.S. Drive-Time Limits
U.S. Transportation Department regulations meant to ensure truck drivers get more rest were mostly upheld by a federal appeals court, a defeat for companies that said the rules would add cost without improving highway safety.
A three-judge panel of the U.S. Court of Appeals in Washington on Aug. 2 rejected most arguments made by the American Trucking Associations Inc. as “highly technical points best left to the agency.” The court, however, vacated a 30-minute rest requirement for short-haul truck drivers.
The ruling caps 14 years of wrangling among the trucking industry, safety advocates and regulators over drive-time restrictions that led to two previous challenges before the appellate court. The court also ruled against groups including Public Citizen and the Truck Safety Coalition that said the rules didn’t go far enough.
Longer rest breaks and the need to redesign routes may reduce productivity by 3 percent, translating into $18 billion in additional costs to the trucking industry annually, according to freight data and forecasting firm FTR Associates.
Regulators said they weighed industry costs against billions of dollars in health-care savings and reduced accidents in a profession that has more on-the-job deaths than any other in the U.S.
The Arlington, Virginia-based American Trucking Associations is disappointed in the court’s “unlimited deference” to the administration’s analysis in supporting the regulation, Dave Osiecki, the group’s senior vice president of policy and regulatory affairs, said in a statement.
The court’s decision will allow the industry to improve safety by reducing driver fatigue, a leading factor in truck crashes, said Duane DeBruyne, a FMCSA spokesman, in a statement.
The case is American Trucking Associations Inc. v. FMCSA, 12-01092, U.S. Court of Appeals for the District of Columbia (Washington).
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P&G Pampers Class-Action Settlement Undone by Appeals Court
A Procter & Gamble Co. (PG) settlement of a consumer lawsuit over its Pampers “Dry Max” diapers was overturned by a U.S. appeals court that called the relief afforded to most customers “illusory.”
The Cincinnati-based panel’s 2-1 ruling Aug. 2 canceled a 2011 agreement it said gave named plaintiffs $1,000 per affected child, class counsel $2.73 million, “and provides the unnamed class members with nothing but nearly worthless injunctive relief.”
The litigation began in 2010 after complaints that the diapers tended to cause a severe rash. The U.S. Consumer Product Safety Commission and a Canadian agency found no connection between the product and the rash after reviewing 4,700 cases, the appeals court said.
The litigants still fashioned a settlement that barred class members from opting out or from being able to participate in any future group suit against Procter & Gamble, entitled them to a one-box purchase price refund provided they could produce an original receipt and required the company to make temporary changes to its product packaging and website.
An objector, Daniel Greenberg, appealed.
“The relief that this settlement provides to unnamed class members is illusory,” U.S. Circuit Judge Raymond Kethledge said. “But one fact about this settlement is concrete and indisputable: $2.73 million is $2.73 million.”
U.S. Circuit Judge R. Guy Cole dissented, saying that while the consumers’ recovery may not have been worth much, their claims were worth even less.
“In the absence of this settlement, class members would have almost certainly gotten nothing,” Cole said.
Greenberg’s attorney, Adam Schulman of the Washington-based Center for Class Action Fairness LLC, didn’t immediately reply to a voice-mail message seeking comment. Plaintiffs’ attorney Lynn Sarko, of Seattle-based Keller Rohrback LLP, couldn’t immediately be reached for comment.
Paul Fox, a spokesman for Cincinnati-based P&G, said he couldn’t immediately comment on the court’s decision.
The case is In re Dry Max Pampers Litigation, 11-4156, U.S. Court of Appeals for the 6th Circuit (Cincinnati).
Tourre Juror Says SEC’s Evidence Held Sway With Panel
Former Goldman Sachs Group Inc. Vice President Fabrice Tourre was seen as likable, unbelievable and “a bit shady,” said one of the jurors who found him liable for fraud in a failed $1 billion investment.
Beverly Rhett, a retired special-education teacher who lives in the Bronx, New York, said the panel quickly agreed with the Securities and Exchange Commission that Tourre should have disclosed Paulson & Co., the hedge fund owned by billionaire John Paulson, helped structure the “Abacus” deal with the intention that the assets behind it would fail.
Tourre was found liable Aug. 1 in Manhattan federal court on six of seven claims filed against him by the SEC, and faces unspecified penalties and disgorgement that U.S. District Judge Katherine Forrest said will be determined later, with filings due later this month.
The key to the verdict, the juror said, was the government evidence, including documents and e-mails, that showed Tourre’s alleged duplicity. The nine jurors delivered their verdict on the second day of deliberations, giving a victory to the SEC in one of the most prominent trials to grow out of the 2007-2008 financial crisis.
Tourre, 34, also faces a possible ban from the securities industry.
Rhett said she and the others had a hard time at first following some of the specialized Wall Street language that the lawyers and witnesses were using. At times, some of the jurors looked bored, distracted and drowsy.
“I think it was too much information -- information overload for someone that’s not in that field,” she said.
That changed over the course of the two-week trial.
“By the end, we had people who sounded like experts” on the transaction, she said of her fellow jurors.
The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).
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Halliburton, Schlumberger Sued Over Fracking Price-Fixing Claims
Halliburton Co. (HAL), Schlumberger Ltd. (SLB) and Baker Hughes Inc. (BHI) were sued over claims they conspired to raise prices and crush oilfield service competitors in the booming U.S. market for hydraulic fracturing services.
The allegations against units of the companies are pegged to the U.S. Justice Department’s July 25 announcement that it’s investigating the “possibility of anticompetitive practices” in the hydraulic fracturing, or fracking, sector of the oilfield services industry, according to the proposed class-action, or group suit, filed in federal court in Corpus Christi, Texas.
The suit, filed on July 31, seeks unspecified damages.
The three companies jointly control about 60 percent of the U.S. market, according to the suit. Cherry Canyon Resources LP, a Texas oil and gas partnership, sued on behalf of all customers who bought fracking services from the defendants since May 29, 2011.
Halliburton and Baker Hughes, both based in Houston, disclosed they are targets of the federal investigation within hours of the Justice Department’s announcement. Schlumberger, based in Houston and Paris, hasn’t publicly disclosed whether it’s a target.
The case is Cherry Canyon Resources LP v. Halliburton Co., 2:13-cv-00238, U.S. District Court, Southern District of Texas (Corpus Christi).
Goldman Sachs, London Exchange Sued Over Aluminum Supply Claims
Goldman Sachs Group Inc. and the London Metal Exchange are restraining aluminum supplies and driving up the metal’s price in violation of federal antitrust law, according to a lawsuit.
The suit, for which the aluminum products company Superior Extrusion seeks class-action status, was filed Aug. 1 in federal court in Detroit.
“Through an interconnected series of agreements in unreasonable restraint of trade, Goldman and LME restrained approximately 1.5 million tons of aluminum in LME Detroit warehousing,” causing delays of as long as 16 months between customer orders and corresponding deliveries, Gwinn, Michigan-based Superior alleged.
Buyers in Michigan, Ohio, Illinois and elsewhere in the U.S. Midwest suffered harm in the form of inflated prices, according to the complaint. The plaintiffs asked for an order barring the practice and money damages tripled under U.S. antitrust law.
“We believe the suit is without merit and will contest it vigorously,” Michael DuVally, a spokesman for New York-based Goldman, said Aug. 2 in a phone interview. The market price for the metal has fallen about 40 percent since 2006, he said.
Chris Evans, a spokesman for the LME in London, didn’t immediately respond to an e-mail after regular business hours seeking comment on the lawsuit.
The case is Superior Extrusion Inc. v. Goldman Sachs Group Inc., 13-cv-13315, U.S. District Court, Eastern District of Michigan (Detroit).
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Apple Can Keep Selling IPhone 4 After Reprieve From U.S.
Samsung Electronics Co. (005930)’s patent-infringement victory over Apple Inc. turned hollow after President Barack Obama’s administration overturned an order barring shipments of some older iPhone models into the U.S.
U.S. Trade Representative Michael Froman, designated by Obama to review the case, on Aug. 3 said a ban on versions of the iPhone 4 and iPad 2 3G was unwarranted, based on his consideration of public-policy issues regarding patents on fundamental technology for mobile devices.
It was the first time the executive branch has overturned an import ban ordered by the U.S. International Trade Commission since 1987, when President Ronald Reagan did so in a case involving Samsung computer-memory chips. The dispute is the latest in a series of spats between the world’s two biggest smartphone vendors, underscoring their battle for dominance of a market that was worth $293.9 billion last year
“We applaud the administration for standing up for innovation in this landmark case,” Apple spokeswoman Kristin Huguet said in an interview. “Samsung was wrong to abuse the patent system in this way.”
Samsung is “disappointed” the ITC decision was overturned, Nam Ki Yung, a spokesman at the company’s headquarters in Seoul, said yesterday in a mobile-phone text message. “The ITC’s decision correctly recognized that Samsung has been negotiating a license in good faith and that Apple remains unwilling to take a license.”
The Apple case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, and Samsung’s case is In the Matter of Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-794, both U.S. International Trade Commission (Washington).
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To contact the editor responsible for this report: Michael Hytha at email@example.com.