Friday, December 28, 2007
A Tennessee state court ordered The Finish Line to complete its $1.5 billion LBO of Genesco. The Finish Line, in September, said it was calling off the deal because its adviser, UBS, raised concerns about Genesco's financial condition. However, the issue of the solvency of the combined entity remains an issue in a New York law suit brought by UBS. CFO.com, Court Orders Shoe Companies to Pair Up.
Deloitte & Touche agreed to pay $38 million to settle accounting fraud charges involving Delphi Corp., the auto parts manufacturer that is currently in Chapter 11. Delphi was required to restate its financials from 1999-2005. Previously the SEC brought charges against eight former employees. CFO.com, Deloitte to Pay $38 Million in Delphi Case.
Earlier this month, the parties announced a $420 million settlement between UnitedHealth Group and its ousted CEO William McGuire. The agreement requires McGuire to forfeit stock options and retirement pay to settle civil and federal charges of stock option backdating. However, the federal district court judge reviewing the proposed settlement has asked the Minnesota Supreme Court the extent to which, under Minnesota law, he can review the reasonableness of the settlement. The judge noted that the lack of findings by the Special Litigation Committee made it difficult for him to determine that its exercise of business judgment was reasonable. WSJ, UnitedHealth Ex-CEO's Pact Is Uncertain.
Warren Buffett's Berkshire Hathaway is in the news today.
First, it is going into the municipal bond insurance business, providing another source of bond insurance for municipalities and competing with the large bond insurers whose triple-A ratings are at risk because of mortgage loans. The Berkshire Hathaway Assurance Corp. expects to charge premium rates for its Berkshire Hathaway name. WSJ, Buffett to Start A Bond Insurer For Cities, States.
Second, a judge ruled that Berkshire Hathaway and its subsidiary General Reassurance must respond to subpoenas in the upcoming criminal trial of former General Re CEO Ronald Ferguson and other former General Re employees. They are accused of helping AIG create sham reinsurance contracts to inflate AIG's reserves. Ferguson claims that Buffett approved the transactions, which Buffett has denied. NYTimes, General Re Subpoenas Supported.
Thursday, December 27, 2007
The SEC filed a civil action in U.S. District Court for the Southern District of Texas, charging Navigators International Management Co., Ltd. ("Navigators"), James R. Spurger and Benjamin W. Young, Jr. with securities fraud, conducting unregistered securities offerings and acting as unregistered broker-dealers. Among the allegations -- in an ongoing offering, Navigators sells unregistered "ZCASH" electronic tokens on its website. Navigators promises exorbitant returns and rebates to be generated in an unspecified manner and timeframe when customers use ZCASH to purchase items on the Navigators' website.
A Goldman Sachs analyst predicts that Citigroup will cut its dividend by 40% and will announce CDO-related write-offs in the fourth quarter of $18.7 billion. Goldman Sachs also increased its estimates of fourth quarter CDO-related write-offs at other firms: JPMorganChase, an estimated $3.4 billion (up from $1.7 billion) and Merrill Lynch, an estimated $11.5 billion (up from $6 billion). And Goldman must be laughing all the way to the bank. Bloomberg.com, Citigroup May Cut Dividend by 40%, Goldman Sachs Says (Update1).
In an effort to rcover from the failed LBO and other troubles of its own making, Sallie Mae announced it would try to raise $2.5 billion by selling common and convertible preferred stock. It needs money to pay off commitments to buy back its shares. Known as equity forward contracts, they are bets that the company's stock will rise in price -- a bet that Sallie Mae has lost. As a result, it needs about $2 billion to buy about 44 million of its shares from Citibank. It also needs additional cash to improve its credit rating. WPost, Sallie Mae Bids to Raise $2.5 Billion In Stock Sale; NYTimes, Sallie Mae to Sell Stock to Pay Off a Failed Bet ;WSJ, Sallie Mae Plans $2.5 Billion Stock Offering.
The Wall St. Journal has a terrific front page story on a CDO called Norma -- a new breed of mortgage investment created by Merrill Lynch that illustrates how Wall St. "took a good idea too far" to generate big fees. Unlike traditional CDOs, whose purpose was to diversify investors' risks, Norma increased risks by constructing portfolios of securities with the same risks, subprime mortgage loans. In addition, banks took large pieces of these CDOs for themselves, further concentrating the risks. Whose brainchild was Norma? A Long Island penny stock dealer. The article is complete with a graphic to show you how it works. I hope this isn't the kind of article Rupert Murdoch plans to do away with. WSJ, Wall Street Wizardry Amplified Credit Crisis.
Wednesday, December 26, 2007
FINRA Eliminates Requirement that Confirmation Include Securities Market on which Transaction was Effected
FINRA Amends NYSE Rule 409(f) (Statements of Accounts to Customers) to Eliminate the Requirement to Include the Name of the Securities Market on which a Transaction is Effected; Effective Date: January 1, 2008. Dual Member firms will not be required to disclose the name of the securities market on which the transaction was effected on confirmations or reports as required under NYSE Rule 409(f). This change makes permanent the temporary relief that was granted in March 2007 and extended until January 1, 2008. FINRA concluded that because of member firms' best execution and disclosure requirements, the usefulness of including on a confirmation the securities market on which a transaction was effected does not outweigh the operational difficulties of capturing the information after adoption of Regulation NMS. FINRA Regulatory Notice 07-65.
Monday, December 24, 2007
Introduction to Trust and Honesty in the Real World: A Joint Course for Lawyers, Business People and Regulators, by TAMAR FRANKEL, Boston University School of Law, and MARK FAGAN was recently posted on SSRN. Here is the abstract:
Open any newspaper and you are likely to find stories of financial scandals, frauds and questionable ethical behavior in the business and professional worlds. The latest and lasting scandals in corporate America touched the highest level of corporate management and professional firms raising the question of whether business leaders are being taught the value of trust and honesty. Yet the very fabric of our economic prosperity and social stability are woven with trust and honesty. Distrust and dishonesty are not new. However, we appear to be at a tipping point where we run the risk of a culture that accepts and justifies corporate abuse of trust and dishonesty. The consequences include higher costs, slower growth and less freedom.
The goal of these course materials is to help students and seasoned practitioners recognize the ease with which trust and honesty can be lost, understand the impact of the business environment and social culture on trust and honesty, and explore measures to reinforce and, if necessary, restore trust and honesty in the business world. These course materials are founded on Trust and Honesty, American's Business Culture at a Crossroad (Frankel, 2006). The centerpiece of each module in this book is a case study drawn from actual business experience. Assigned readings from Trust and Honesty provide context for each teaching module. The case study assessments and discussions are used to highlight and illustrate the issues in more specific and practical terms. They demonstrate the complexity and indeterminacy of the issues. Role plays are provided with each module to provide the students with opportunities to test their ideas, simulate real life situations, manage tradeoffs and build consensus with their peers.
"Blank check" IPOs accounted for nearly 25% of all US IPOs in 2007 -- a total of 66 and a total capital raised of $12 billion. In contrast, in 2006, blank check IPOs raised $3.4 billion and accounted for 16% of new issues. WSJ, 'Blank Checks' Generate New Interest.
Merill Lynch is getting a much needed capital infusion by selling up to $6.2 billion in common stock at a discount price of $48 to two investors. An investment company owned by Singapore (Temasek Holdings) is purchasing $4.4 billion, with an option to purchase an additional $600 million, which would give it a 9.9% interest. The other investor ($1.2 billion) is money manager Davis Selected Advisors. WSJ, Merrill Lynch Cuts Deals With Temasek, GE as Firm Seeks to Shore Up Capital.