Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, October 2, 2007

Refco Shareholders Sue Mayer Brown

Shareholders of the collapsed commodities firm Refco sued Refco's former lead counsel, Mayer Brown, and one of its senior partners, for their alleged role in covering up the fact that $430 million of debt was uncollectible.  Previously Refco's bankruptcy trustee brought a lawsuit based on the same allegations., Refco Shareholders Target Law Firm.

October 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Flowers Proposes New Terms in Sallie Mae Sale

In the continuing drama over the sale of Sallie Mae, J. Christopher Flowers, on behalf of the buyers, proposed a revised deal that cuts the purchase price by $10 per share and replaces it with warrants that have a payout of up to $10 depending on Sallie Mae's performance.  The offer expires in seven days.  Stay tuned.  WSJ, SLM Buyers Propose New Buyout Terms.

October 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

"Scheme Liability" Program this Friday

Case Western Reserve University School of Law is presenting, along with the Corporate Law Practice Group of the Federalist Society for Law and Public Policy Studies, a Supreme Court Preview Symposium focusing on “SCHEME LIABILITY, SECTION 10(b), and STONERIDGE INVESTMENT PARTNERS v. SCIENTIFIC ATLANTA” on Friday, October 5, 2007 from 8:45 a.m. - 1:30 p.m. -- just days before the oral argument.  For those outside the Cleveland area, you can view it live via Webcast.  The program includes a distinguished group of academics and practitioners (and me too).  For more details, see the CWRU website.

October 2, 2007 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Hersey's CEO Announces He Is Stepping Down

Hershey is one of the few public companies that is controlled by a charitable trust.  (A few years ago, the Trust blocked a sale of the company for fear it would interfere with its charitable purposes.)  Yesterday CEO Richard Lenny announced his resignation; the Wall St. Journal reports the reason is his frustration with the Trust.  WSJ, Hershey CEO Richard Lenny to Step Down.

October 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

State Street Sued Over Subprime Losses

Prudential Financial is suing State Street because of $80 million in losses in two State Street funds caused by "undisclosed, highly leveraged" investments including subprime mortgages.  Prudential says the losses were in accounts held by 28,000 individuals in 165 retirement plans that it markets.  WSJ, Prudential Sues State Street Over Losses.

October 2, 2007 in News Stories | Permalink | Comments (1) | TrackBack (0)

Perella Buys Distressed Credit Hedge Fund

Perella Weinberg Partners, the investment bank founded last year, acquired Xerion Capital Partners, a hedge fund that focuses on investments in distressed credit and other troubled companies.  Xerion's managing principal, Daniel Arbess, becomes a partner of the investment firm.  S&P estimates that $35 billion in corporate debt may default over the next 15 months.  NYTimes, Perella to Buy the Hedge Fund Xerion, an Investor in Troubled Companies; WSJ, Why Smaller Hedge Funds May Be Looking to Sell Out.

October 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Big Banks Report 3d Quarter Losses

The big banks are posting their losses as expected:  Citigroup will write off $5.9 billion in the 3d quarter and report a 60% drop in profits from last year.  There is talk that it's time for CEO Charles Prince to go.  UBS has written off $3.4 billion in the value of its mortgage-backed securities and will also report a 3d quarter loss.  NYTimes, Write-Downs by Big Banks Spark Rally; WSJ, A Vote of Confidence For CEO Charles Prince In 'Year of No Excuses';WSJ, For UBS and Citi, It's Crunch Time.

October 2, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)

Monday, October 1, 2007

York International Settles FCPA Charges

The SEC and York International settled anti-bribery, internal controls, and books and records charges under the Foreign Corrupt Practices Act.  York International, a global provider of heating, ventilation, air conditioning, and refrigeration products and services, was acquired by Johnson Controls, Inc. in 2005. The Commission's complaint alleges that York International's Delaware subsidiary paid approximately $522,500 to an intermediary while knowing that most of the money was intended to bribe United Arab Emirate officials; York International's Dubai subsidiary authorized and made approximately $647,110 in kickback payments under the U.N. Oil for Food Program; and that York International's subsidiaries devised elaborate schemes to conceal kickback payments of over $7.5 million made to secure orders on certain commercial and government projects in the Middle East, India, China, Nigeria and Europe.

York International, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $8,949,132 in profits, plus $1,083,748 in pre-judgment interest, and to pay a civil penalty of $2,000,000. York International is also ordered to retain an independent compliance monitor. York International will also pay a $10 million fine pursuant to a deferred prosecution agreement with the U.S. Department of Justice, Fraud Section.

The Commission considered remedial acts promptly undertaken by York International, which self-reported, and cooperation afforded the Commission staff in its continuing investigation.

October 1, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Former Dynergy Officers Settle SEC Fraud Charges

The SEC today announced settled enforcement actions against former Dynegy Inc. chief financial officer Robert D. Doty, Jr. and two other former executives at the Houston-based energy company for their roles in a $300 million accounting fraud known as Project Alpha.  According to the Commission's Order, Doty was involved in the decision to proceed with Project Alpha and improperly disguise a loan as operating cash flow in order to minimize the gap between Dynegy's reported net income and cash flow from operations, and to realize as net income a related $79 million tax benefit that was invalid. Furthermore, Doty was involved in the decision not to make any separate disclosure to investors about Alpha's unique, non-commercial pricing characteristics. Doty will pay more than $375,000 to settle the SEC's charges.

Dynegy's former vice president of taxation, Gene S. Foster, and former manager of accounting-deal structure, Helen C. Sharkey, also settled with the Commission regarding their roles in the creation and implementation of Project Alpha. According to the Commission's Orders, both willfully disregarded accounting advice from Dynegy's outside auditor, and concealed critical transaction details from the auditor in violation of federal securities laws. Jamie Olis, Dynegy's former vice president of finance, is currently incarcerated after being convicted in a parallel criminal proceeding of six felony counts relating to his role in Project Alpha. Dynegy previously settled SEC charges in 2002 that it had engaged in accounting improprieties and made misleading disclosures about a financing transaction involving special-purpose entities (SPEs). The Commission had found that Dynegy violated federal securities laws by improperly disguising the $300 million loan as cash flow from operations on its financial statements, thereby misleading investors about the level of its energy trading activity.  In July 2003, the Commission issued a settled cease-and-desist order against Citigroup for its role in Project Alpha.

October 1, 2007 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Still SEC Split on Shareholder Proxy Access Rule

Tomorrow is the deadline for public comments on the two competing versions of the shareholder proxy access rules proposed by the SEC, and there does not appear to be a consensus forming for the best solution.  Chair Cox promised to have a new rule in place by year-end, in time for the spring proxy season, and it is unlikely that the vacancy created by Commissioner Campos' resignation, will be filled by then.  Barney Frank, who chairs the House Financial Services Committee, meanwhile, says the SEC should "start over."  WSJ, Can SEC's Cox Win Playing the Middle?

October 1, 2007 in News Stories | Permalink | Comments (0) | TrackBack (0)