Securities Law Prof Blog

Black Criminal Trial Still Going On

The criminal trial of Conrad Black, former Chair of Hollinger International is still going on, just having completed its sixth week of testimony.  All the members of the Audit Committee have or will be testifying, with the central issue being whether they were lied to or whether they were inattentive.  Marie-Joseph Kravis, an economist who is usually identified as the wife of Henry Kravis, and Richard Burt testified this week; James R. Thompson, former Illinois governor, is also expected to testify.  At issue are millions of dollars in non-compete payments that were paid to Black and other individuals instead of to the company.  See NYTimes, Ex-Hollinger Audit Panel Member Testifies.

Ponzi Schemer Armstrong Will Begin Criminal Sentence

Martin A. Armstrong, who pled guilty to running a $3 billion Ponzi scheme through his investment fund, Princeton Economics International, has already served seven years in jail for civil contempt, having refused to turn over assets to the court-appointed receiver.  Now he will begin to serve his five-year sentence for the crime.  See NYTimes, Jailed 7 Years for Contempt, Adviser Is Headed for Prison; WSJ, Judge Lifts a Sanction on Armstrong.

Baker Hughes Settles FCPA Charges

The Securities and Exchange Commission today announced the filing of a settled enforcement action charging Baker Hughes Incorporated, a Houston, Texas-based global provider of oil field products and services, with violations of the Foreign Corrupt Practices Act (FCPA). Baker Hughes has agreed to pay more than $23 million in disgorgement and prejudgment interest for these violations and to pay a civil penalty of $10 million for violating a 2001 Commission cease-and-desist Order prohibiting violations of the books and records and internal controls provisions of the FCPA.

In the same complaint, the SEC also charged Roy Fearnley, a former business development manager for Baker Hughes, with violating and aiding and abetting violations of the FCPA. Fearnley has not reached any settlement with the Commission regarding these charges.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "Baker Hughes committed widespread and egregious violations of the FCPA while subject to a prior Commission cease-and-desist Order. The $10 million penalty demonstrates that companies must adhere to Commission Orders and that recidivists will be punished."  See SEC Charges Baker Hughes With Foreign Bribery and With Violating 2001 Commission Cease-and-Desist Order.

Frist Not Charged in HCA Stock Sales

The DOJ and the SEC notified former Senate majority leader Bill Frist that they have concluded their 18-month investigation into his 2005 sales of HCA stock (a chain of hospitals started by Frist and his brother) shortly before a drop in the stock price and will not bring insider trading charges.  Frist maintained that the sales were made to eliminate any appearance of conflict of interest. See WPost, Frist Not Charged as Investigators Close Probe of His Hospital Stock Sales.

Academic Study on Foreign Private Issuers

The WSJ highlights an academic study that disputes the frequently-made assertion that Sarbanes Oxley caused foreign private issuers to flee the U.S. capital markets in favor of London.  Instead, the study (authored by Craig Doidge of U. of Toronto and Andrew Karolyi and Rene Stulz of OSU) finds that the decline in foreign listings since 2002 reflects the fact that there are fewer foreign companies meeting the profile for U.S. listing. It also finds that U.S. investors are still willing to pay a premium for foreign stocks listed on the U.S. markets.  See WSJ, Maybe U.S. Markets Are Still Supreme.  The study is available at SSRN.

Citigroup Completes Nikko Tender Offer

After a long and difficult tender offer, Citigroup acquired 56.2% of Nikko Cordial, Japan's third largest brokerage firm that is recovering from an accounting scandal.  Together with its previous stock ownership, it now owns 61% of Nikko Cordial.  See WSJ, Citigroup Wins Majority Of Nikko Cordial's Stock.

Harman Buyout Offers Shareholders Equity in the Deal

Harman International Industries has agreed to be acquired by KKR and Goldman Sachs for $7.8 billion.  What makes the deal unusual is that current shareholders will have the choice of taking $120 cash or shares in the new company in exchange for their stock.  Public shareholders will not own more than 27% of the new company; if too many shareholders want stock, the stock participation will be prorated.  The shares will not be traded on an exchange.  The stock option may be to avoid criticism over the price that has persisted in the proposed Clear Channel Communications buyout.  See WSJ, Unusual Buyout
Offers a Piece To Shareholders. 

SEC and German Regulator Sign MOU

The Securities and Exchange Commission and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) today signed a comprehensive arrangement to facilitate their supervision of internationally active firms and their oversight of markets.

At a meeting in Berlin, SEC Chairman Christopher Cox and BaFin President Jochen Sanio executed a memorandum of understanding (MOU) that provides clear mechanisms for consultation, cooperation, and exchanges of information between their agencies. The MOU sets forth the terms and conditions for the sharing of information about regulated entities and financial groups that operate in the United States and Germany and, in view of the growing trend toward cross-border exchange affiliations, outlines a framework for cooperation in the oversight of markets in both countries.  See SEC, German BaFin Sign Regulatory Cooperation Arrangement.

NASAA Announces Speakers for Investor Protection Conference

The North American Securities Administrators Association (NASAA) announced today that U.S. Senator Robert P. Casey (D-PA) and former Securities and Exchange Commissioner Harvey J. Goldschmid will be the featured speakers at its May 8 Public Policy Conference in Washington, D.C.  Under the banner, “Because Every Investor Deserves Protection,” this year’s conference will showcase investor protection issues of concern to both state securities regulators and the securities industry, NASAA President and Alabama Securities Commission Director Joseph P. Borg said. The conference will be held at the Renaissance Mayflower Hotel, 1227 Connecticut Avenue, N.W. in Washington, D.C.

Following Senator Casey’s address, NASAA will sponsor a Public Policy Forum entitled “Investor Protection Through Effective Enforcement and Regulation” to showcase how strong and effective regulation enhances the strength of our nation’s capital markets. The panel, to be moderated by Arizona Securities Director Matthew J. Neubert, will feature: Edmund Mierzwinski, Consumer Program Director, U.S. Public Interest Research Group; Damon Silvers, General Counsel, AFL-CIO; Bryan Lantagne, Director of the Massachusetts Securities Division; Ira Hammerman, Senior Vice President and General Counsel, Securities Industry and Financial Markets Association (SIFMA); and Jake Zamansky, principal, Zamansky & Associates.

The Forum will be followed by a luncheon keynote address by Columbia University law professor and former SEC Commissioner Goldschmid.

Tribune Begins Tender Offer for One-Half its Shares

Tribune began the first stage of its $8.2 billion LBO by commencing the tender offer for one-half its shares at $34 per share.  Meanwhile, Tribune's deteriorating financial condition raises questions about whether it will be able to service the debt created by the LBO.  It reported a 6% decline in print-advertising revenues, compared with February projections of only a 3% decline.  The Chandler Trust, the 20% shareholder that is the driving force behind the LBO, will sell as many of its shares in the tender offer as it can.  See WSJ, Tribune Opens Offer For Half of Its Shares.

Wendy's in Revlon Mode

In a sign that its turn-around plan is not working, Wendy's announced that a special committee of the board of directors will investigate options for the company, including a sale or a leveraged recapitalization.  Investor Nelson Peltz, who has three seats on the board, announced last week that he's looking for more restaurant companies.  His "stand-still" agreement with Wendy's expires in June.   See WSJ, Wendy's Considers Possible Sale.

Proxy Advisers' Different Views on Icahn's Motorola Proxy Contest

Carl Icahn, who has brought 2.9% of Motorola stock since January, is waging a proxy contest to elect one seat on the board at the May 13 shareholders meeting.  Yesterday proxy advisor ISS gave its support to Icahn, while rival Glass Lewis sided with management.  See NYTimes, Divided Opinions in Motorola Fight;   WSJ, Proxy Firm Backs Icahn To Join Motorola Board.

Business Doing Well at NYSE

NYSE Euronext announced first quarter net income of 43 cents per share, up from 24 cents from last year's first quarter.  Results do not include Euronext earnings, as the merger closed after the end of the quarter.  See WSJ, NYSE's Net More Than Doubles Boosted By Transaction Revenue.

SEC Settles Charges With Former Cendant Accounting Exec

The U.S. Securities and Exchange Commission (Commission) today announced that it had submitted to the U.S. District Court for the District of New Jersey for filing a proposed settled Final Judgment as to Defendant Anne M. Pember and Relief Defendant Carleton H. Pember IV, in the Commission's previously filed civil injunctive action against Anne M. Pember (Pember) and others, Securities and Exchange Commission v. Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants, Civil Action No. 00-2873 (D.N.J). The Commission filed its injunctive action on June 14, 2000. The Commission's complaint in that action alleged that for several years the management of CUC International Inc. (CUC) operated a fraudulent scheme that added hundreds of millions of dollars to the reported operating income of CUC and, subsequently, of its corporate successor, Cendant Corporation (Cendant). On July 25, 2000, the Commission amended its complaint and, among other things, named Pember's spouse, Carleton H. Pember IV, as a relief defendant.

Former Northwestern Corp. Officers Settle SEC Fraud Charges

The Securities and Exchange Commission today filed separate complaints against four former officers of NorthWestern Corporation ("NorthWestern"), a Midwestern utility company headquartered in South Dakota. The Commission's complaints, each filed in the United States District Court for the District of South Dakota, allege that Merle D. Lewis, NorthWestern's former chief executive officer; Richard R. Hylland, NorthWestern's former chief operating officer; Kipp D. Orme, NorthWestern's former chief financial officer; and Kurt D. Whitesel, NorthWestern's former controller; overstated the performance of NorthWestern and its key telecommunications subsidiary, Expanets, Inc. ("Expanets"), in 2002 during the same period that NorthWestern completed securities offerings totaling more than $800 million. The Commission's complaints further allege that, after restating its financial results for the first three quarters of 2002, and disclosing Expanets' true financial position and results of operations, NorthWestern declared bankruptcy in 2003.  Lewis, Hylland, Orme and Whitesel, without admitting or denying the allegations in the Commission's complaints, each consented to the entry of a final judgment permanently enjoining him from violating or aiding and abetting violations of the provisions he allegedly violated, and to a five-year officer and director bar. Lewis and Hylland each consented to pay $150,000 in civil penalties, Orme consented to pay a $100,000 civil penalty, and Whitesel consented to pay a $25,000 civil penalty.  See SEC Charges Four Former Officers of NorthWestern Corporation with Financial and Disclosure Fraud.

SEC and UK Sign Protocol to Implement IFRS

The Securities and Exchange Commission, the United Kingdom Financial Services Authority (FSA), and the United Kingdom Financial Reporting Council (FRC) signed a protocol today for implementing the Work Plan between the SEC and the Committee of European Securities Regulators to share information on application of International Financial Reporting Standards (IFRS) by issuers listed in the UK and the U.S.

NASD Vice Chair Shulman's Speech at SIFMA Meeting

NASD Vice Chairman Doug Shulman spoke at the SIFMA Independent Broker Dealers on April 25, 2007, on the regulatory consolidation, important trends in the industry and the role of the modern regulator.

SEC Will Seek Comments on Use of IFRS

The SEC announced a series of actions it intends to take relating to the acceptance of financial reporting in International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB).

The Commission anticipates issuing a Proposing Release this summer that will request comments on proposed changes to the Commission's rules which would allow the use of IFRS in financial reports filed by foreign private issuers that are registered with the Commission. The approach in the proposed rule would be to give foreign private issuers a choice between IFRS and U.S. GAAP. In addition, the Commission plans a Concept Release relating to issues surrounding the possibility of treating U.S. and foreign issuers similarly in this respect by also providing U.S. issuers the alternative to use IFRS. Comments on both would be due in the fall.

"The next steps that the Commission is announcing today will keep us on course with the Roadmap announced in 2005," said SEC Chairman Christopher Cox. Pending public comments on the proposal, "we remain on track to eliminate reconciliation by 2009," Cox added.

The Commission's rules currently require that foreign private issuers who report in IFRS, or any other non-U.S. GAAP, provide a reconciliation of those financial statements to U.S. GAAP. The Commission's planned proposal this summer would address eliminating that reconciliation requirement with respect to financial statements filed in IFRS beginning in 2009. This is consistent with the timetable set forth in the Roadmap in 2005.

Because the elimination of the reconciliation requirement will permit some, but not all, registrants to have a choice between IFRS and U.S. GAAP, it raises the question whether all registrants should be able to report under either IFRS or U.S. GAAP. The planned Concept Release will permit the Commission to gather more information on this subject. See SEC Announces Next Steps Relating to International Financial Reporting Standards.

SEC Is Investigating Stock Sales at Sallie Mae

In a SEC filing, Sallie Mae reported that the SEC is investigating trading in the stock by two directors and trading in its stock prior to the April 16 announcement of its sale to four private firms.  The Washington Post had previously reported that the SEC was investigating  Chairman Alfred L. Lord's stock sale shortly before the government announced proposed cuts to subsidies to student loan providers.  See WPost,  Sallie Mae Board Members Under SEC Trading Probe.

IBM Announces $15 Billion Buyback

IBM announced it will borrow money and buy back about $15 billion of its shares, resulting in a 10% of its outstanding shares.  According to its treasurer, IBM is "very underleveraged" for its size and cash flow.  At its annual meeting 52% of the shareholders voted for a nonbinding "majority vote" resolution for directors.  See WSJ, IBM to Spend $15 Billion In Expanded Stock Buyback.