Securities Law Prof Blog

Icahn Seeks to Replace Yahoo Directors

As expected, Carl Icahn launched a proxy contest to replace all ten directors on the Yahoo board at its upcoming shareholders' meeting, saying that the current board has "acted irrationally and lost the faith of shareholders."  Among the nominees is Harvard Law Professor Lucian Bebchuk.  WSJ, Icahn Moves to Oust Yahoo Board.

Merrill Reforms its Stock Rating System

Merrill announced a new system for rating stocks that requires its analysts to assign "underperform" ratings to 20% of the stock they cover and "buy" ratings to no more than 70%.  Even after the Global Analysts' Settlement that mandated industry reforms to improve research, analysts remain reluctant to advise investors to sell.  According to Bloomberg, only about 5% of all stock recommendations today are "sell."  NYTimes, Merrill Tries to Temper the Pollyannas in Its Ranks.

Moody's Will Restrict Bond Analysts' Talks with Issuers

Moody's Investors Service said it would revise its code of conduct to limit bond-rating analysts' discussions with issuers to "credit issues."  The independence of debt-rating agencies has been doubted, and there are calls for regulatory reform.  The SEC is expected to propose new rules for rating agencies shortly.  WSJ, Moody's Aims to Buff Image By Revising Policies.

Freddie Reports Quarterly Loss

As evidence that the housing market crisis is not over, Freddie Mac reported a loss for the first quarter of 2008 of $151 million (66 cents per share), compared with a loss of $133 million (35 cents per share) for the first quarter of 2007.  Freddie reported $1.45 billion of credit-related expenses in the quarter.  Its estimated asset value was negative $5.2 billion on March 31, compared with a positive $12.6 billion on December 31.  The March estimated loss would have been about $4.6 billion more, except for changes in valuation methods.  Freddie said it planned to raise an additional $5.5 billion in capital through sales of common and preferred shares, a commitment it made to its regulator.  WPost, Freddie's Quarterly Loss Widens.

Icahn Will Run Slate for Yahoo Board

Carl Icahn plans to launch a proxy contest to replace all ten of Yahoo's directors, with the goal of pressuring the company to resume merger negotiations with Microsoft.  The Yahoo deadline for board nominations is Thursday.  WSJ, Icahn Will Launch Proxy Contest To Unseat Yahoo's Entire Board.

IAC and Liberty Settle Dispute over Spin-offs

Liberty Media (controlled by John Malone), which has majority voting power in IAC/Interactive Corp. (controlled by Barry Diller), went to court in Delaware to block IAC's planned restructuring that would have diluted its voting power.  After a lower court decision largely favoring IAC, the two now have settled their differences, and Liberty's spin-off of four businesses, including Ticketmaster, LendingTree and home-shopping network HSN, will go forward.  The businesses will have a single-tier voting structure, as IAC wanted, and Liberty will have the right to appoint 20% of the directors.  IAC will keep its Internet businesses, including Ask.com and Match.com.  WSJ, Liberty Media Ends Its Opposition to IAC Spinoffs.

Icahn Purchases Yahoo Stock and Considers Proxy Contest

Carl Icahn reportedly has purchased about 50 million shares of Yahoo stock since Microsoft withdrew its bid and is trying to decide whether to launch a proxy campaign to replace some or all of the directors at the upcoming July 3 shareholders' meeting.  Yahoo's deadline for board nominations is Thursday.  WSJ, Icahn Enters Microsoft-Yahoo Fray.

SEC Investigates Wachovia's ARS Practices

Wachovia disclosed that the SEC and other regulators are seeking information about the underwriting, sale, and auctions of municipal auction-rate securities and auction-rate preferred securities.  In addition, a lawsuit was filed in March in New York by customers who purchased ARS alleging misrepresentations about the quality and risk of the securities.  Wachovia's CEO said the company hired a consultant to review its financial controls and risk management practices.  NYTimes, Wachovia Faces S.E.C. Inquiry Over Auction-Rate Securities.

Exxon Urges Investors to Reject Corporate Governance Proposal

Exxon Mobile asked its institutional investors to reject a shareholder's proposal, introduced by activist shareholder Robert A.G. Monks, to separate the positions of CEO and Chair at the May 28 shareholders' meeting.  The resolution received 40% of the vote at last year's meeting and is supported by some influential shareholders, including members of the Rockefeller family.  In emails, Exxon said that there is no "one size fits all" model of corporate governance.  WSJ, Exxon Email Opposes Shareholder Measure.

Broker Sentenced in First Criminal Case Against Hedge Fund for Market-Timing

Beacon Rock Capital LLC ("Beacon Rock"), a hedge fund located in Portland, Oregon, and Thomas J. Gerbasio ("Gerbasio"), a former registered representative with a registered broker-dealer based in Philadelphia, have been sentenced in connection with the first U.S. criminal case brought against a hedge fund for deceptive market timing. On May 7, 2008, the United States District Court for the Eastern District of Pennsylvania sentenced Gerbasio to one year and one day in prison, two years of supervised release, and ordered him to pay a fine of $7,500. The Judge further sentenced Beacon Rock to three years of probation, and ordered the hedge fund to forfeit $475,905 and to pay a fine of $600,000.

The criminal action began with an Information filed on March 20, 2007, by the U.S. Attorney for the Eastern District of Pennsylvania, charging Beacon Rock and Gerbasio with securities fraud. According to the Information, from December 1999 through November 2003, Gerbasio, while associated with two brokers registered with the Commission, provided brokerage services to Beacon Rock. The Information charged that the primary purpose of this relationship was to permit Beacon Rock, whose primary trading strategies involved market timing, to evade and circumvent controls implemented by mutual funds seeking to restrict market timing or other excessive trading. Gerbasio and others at his direction, engaged in a number of deceptive and fraudulent practices designed to conceal the identity of Beacon Rock and the nature of its trading activity, resulting in more than 26,000 Beacon Rock market timing trades. The U.S. Attorney charged Beacon Rock and Gerbasio with, and the defendants pled guilty to, securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5].

Greenberg Calls for Postponement of AIG Annual Meeting

Maurice Greenberg, who was forced out as AIG's CEO after an accounting scandal and who remains CEO of AIG's largest shareholder, C.V. Starr & Co., filed a 13D with the SEC, stating that AIG is "in crisis" and calling for a postponement of the annual meeting scheduled for this week.  Last week AIG announced a first quarter net loss of $7.81 billion, the largest loss in the company's history. 

Banks Agree to Fund Clear Channel Buyout at Reduced Price

A settlement is imminent between Wall St. banks and Thomas H. Lee Partners and Bain Capital, the two private equity firms that agreed to buy out Clear Channel Communications.  The buyers sued the banks to force them to fund the deal.  Under the settlement, the banks would fund the deal at $36 per share, down from the previously agreed $39.20.  WSJ, Settlement in Clear Channel Case Imminent.

Principles for Distribution of Structured Products to Individual Investors Released

Five leading trade associations, co-sponsors of the Joint Associations Committee (JAC), today released an exposure draft of “Structured Products: Principles for Managing the Distributor-Individual Investor Relationship.” The global, non-binding, Principles address a wide range of issues affecting distribution of structured products to individual investors and reflect "collective industry expectations of integrity, professionalism, and ethical conduct in the retail structured products market,” according to Timothy Hailes, managing director and associate general counsel at JPMorgan Chase in London who is Chairman of the joint-associations working group that developed the Principles.

The Principles are the product of a coalition of trade associations that form the JAC, which comprises:  European Securitisation Forum (ESF), International Capital Market Association (ICMA), London Investment Banking Association (LIBA), the International Swaps and Derivatives Association (ISDA®) and SIFMA.  The principles were based on extensive work and collaboration with the associations’ member firms, and on consultation with distributor associations.  The JAC invites public comments on the Principles until June 16, 2008. 

Cablevision Set to Acquire Newsday

The Dolan family, who failed in its effort to take Cablevision private last year, seems to have prevailed with its $650 million bid for the Long Island newspaper, Newsday, after Rupert Murdoch pulled the News Co's $580 million bid and said it would not raise its price.  Cablevision consists of the cable company and a mix of sports and entertainment businesses, including Madison Square Garden, the Knicks and the Rangers.  Sam Zell, who controls the Newsday's parent company Tribune after taking its private last year, needs to sell assets to pay down the debt from the LBO.  Analysts view Cablevision's acquisition of the newspaper with skepticism, saying shareholders would be better off if the company repurchased its shares.  NYTimes, Cablevision Offer Baffles Wall Street (Again); WSJ, Cablevision Closes In On Deal for Newsday.

SEC Plans to Rein in Wall St.

SEC Chair Cox's response to the Bear Stearns collapse -- and perhaps to the Treasury Dept's Blueprint that calls for a diminishment of the SEC's role -- is to call for greater agency oversight over the four remaining "consolidated supervised entities" -- Morgan Stanley, Goldman Sachs, Lehman and Merrill Lynch --- those giant financial firms that do not have a bank that subjects them to Federal Reserve supervision.  In recent speeches Cox has called for more disclosure about capital and liquidity and a reduction of short-term financing.  Todays Wall St. Journal's Heard on the Street column questions whether additional disclosure about capital and liquidity would be useful to investors.  Reducing firms' leverage might be useful, although Wall St. will complain that the SEC is turning "pit bulls into poodles."  That might be a good thing.  WSJ, The SEC's Show of Force.

UBS Returns Money to Massachusetts Cities That Purchases ARSs

UBS concluded an investigation by the Massachusetts Attorney General and agreed to return $35 million to Massachusetts municipalities that bought auction rate securities for short-term cash needs and were unable to sell them later when the auction market dried up.  UBS said that ARSs had not been permissible for the municipalities to buy, adding that "The reasons supporting this agreement apply only to the circumstances of this specific case under Massachusetts law." WSJ, UBS to Return Investor Funds.

Thain Says Merrill's Capital is Adequate

Merrill CEO John Thain said yesterday that the company has $44 billion of equity capital, an all-time high, and that it does not need to raise any more.  He also stated that he expects Merrill's clients' auction-rate securities to be fully refinanced by their issuers within a year.  WSJ, Merrill's Thain Backs Auction-Rate Securities.

Cox Calls for Supervision of Large Investment Firms

In recent speeches, SEC Chair Cox has emphasized the regulatory gap in the supervision of investment banks after Gramm-Leach-Bliley, where there is no mandatory consolidated supervision for four of the major linvestment banks -- Goldman Sachs, Lehman, Merrill Lynch and Morgan Stanley.  To date the SEC has filled the gap with its voluntary Consolidated Supervisory Entity (CSE) program.  Specifically, he has emphasized that the law does not require investment bank holding companies to compute capital and maintain liquidity on a consolidated or for a consolidated supervisor that is knowledgeable in the securities business.  Cox also said that investment banks must disclose capital and liquidity positions in a way that investors can understand.  Did the Chair's statements rattle the market yesterday?  NYTimes, A Plunge Disrupts the Recent Calm; WSJ, SEC Ramps Up Street's Disclosure.

BlackRock Gains Prominence in Wake of Bear Stearns Collapse

BlackRock, the largest publicly traded asset management firm, is making big bucks in the troubled credit markets, currently responsible for managing $30 billion of hard-to-sell assets of Bear Stearns and another $22 billion from UBS.  Laurence D. Fink, BlackRock's CEO, began his career over 20 years ago at First Boston, working on mortgage bonds.  While Rep. Henry Waxman, head of the House Oversight Committee, has questioned the New York Federal Reserve about BlackRock's selection to manage the Bear assets without a competitive bidding process, others defend it because of the need to move swiftly upon Bear Stearn's collapse.  NYTimes, BlackRock Is Fix-It Firm to Manage Risky Assets of Others in Distress.

Fannie Announces Another Big Loss

Fannie Mae plans to raise another $6 billion through sales of common and preferred shares.  It announced a first quarter loss of $2.19 billion ($2.57 per share) and plans to cut the dividend from 35 cents to 25 cents.  WSJ, Fannie to Boost Capital After Posting Big Loss.

Bush Expected to Nominate Paredes to SEC

The Wall St. Journal reports that President Bush will nominate Professor Troy Paredes, Washington University at St. Louis School of Law, to replace Paul Atkins on the SEC.  If Professor Paredes and the two Democratic nominations (Luis Aguilar and Elisse Walter) are confirmed, the SEC will be back to its full five-member strength.  Troy has written extensively in the area and is now co-author, with Joel Seligman, of the multi-volume treatise originally authored by Louis Loss.  WSJ, Bush to Nominate Paredes to SEC.

Senate Banking Committee Looks at SEC Oversight

A subcommittee of the Senate Banking Committee will hold a hearing tomorrow on the SEC's oversight of investment firms.  The focus is likely to be the SEC's CSE (consolidated supervised entity) program that regulates the large firms from the holding company level down.  SEC Chair Cox and Director of Trading and Markets Eric Sirri are expected to testify, as are former SEC Chairs David Ruder and Arthur Levitt.  WSJ, SEC to Come Under Scrutiny.

Say on Pay Votes Are Down This Year

Is the "say on pay" shareholder proposal campaign losing its momentum?  While Aflac yesterday became the first major U.S. corporation to give its shareholders an advisory vote on executive compensation, so far this proxy season these proposals have received a majority of votes cast only at Apple and Lexmark International.  At many corporations the say on pay proposal received less support than last year, in part because of aggressive campaigning by the corporation, who argue that it is not necessary.  WPost, 'Say-on-Pay' Movement Loses Steam; NYTimes, Aflac Investors Get a Say on Executive Pay, a First for a U.S. Company.

Brooklyn Federal Prosecutor Leads Subprime Task Force

The U.S. Attorney for the Eastern District of New York (Brooklyn) has set up a special taskforce of federal, state and local agencies to investigate possible crimes relating to the subprime mortgage crisis.  Investigations already underway include USB( alleged improper valuation of mortgage holdings), Bear Stearns (collapse of two hedge funds) and American Home Mortgage Investment (possible accounting fraud).  WSJ, Wall Street, Lenders Face Subprime Scrutiny.

Microsoft Withdraws Bid for Yahoo!

Microsoft announced that it would not pursue its bid to acquire Yahoo!  In a letter to Yahoo!'s CEO Jerry Yang, Microsoft CEO Steve Ballmer stated:

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons....

In response, Yahoo!'s Chairman Roy Bostock stated:

We remain focused on maximizing shareholder value and pursuing strategic opportunities that position Yahoo! for success and leadership in its markets. From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view. Yahoo! is profitable, growing, and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market. Our solid results for the first quarter of 2008 and increased full year 2008 operating cash flow outlook reflect the progress the company is making.

"Dolan Discount"?

Another example that it's tough being minority shareholders in a family-controlled public corporation.  Last fall the public Cablevision shareholders rejected the Dolan family's bid to buy them out at $36.26.  This year Cablevision's stock has declined, while the stock of its two competitors -- Comcast and Time Warner -- has risen.  Investors worry about CEO James Dolan's acquisition plans, including a bid for Newsday, the Long Island newspaper.  Some think he is punishing the company for rejecting the offer; according to Dolan, the shareholders gave him a mandate to grow the company.  WSJ, 'Dolan Discount' Affliction.

Herbalife President Resigns

Herbalife's President Gregory Probert resigned, after admitting he faked a MBA claimed in the company's SEC filings.  "Vanity" made him do it.  WSJ, Herbalife President Resigns.

Time Warner Will Spin Off Cable Subsidiary

The dismantling of the failed Time Warner-AOL merger continues.  Time Warner announced that it would spin off Time Warner Cable, its 84% owned subsidiary and the second largest provider of cable television, high-speed Internet, and telephone service.  The cable company needs to invest in capital improvements, but much of its excess cash has gone back to Time Warner. 

Next Time Warner is expected to focus on the future of AOL.  Previously Time Warner had discussions with Yahoo about combining AOL's advertising platform and Yahoo's portal, in an effort to thwart Microsoft's bid for Yahoo, but there does not appear to be any progress on those talks.  WPost, Time Warner To Spin Off Cable; NYTimes, Time Warner Refocusing With Move to Spin Off Cable.   

Meanwhile, Microsoft's board reportedly met yesterday to discuss the Yahoo bid, but no public announcement of its plans yet.  NYTimes, Microsoft’s Board Meets on Yahoo Bid; WSJ, Microsoft Fails to Reach Yahoo Decision.

Cabelvision Joins Bidding for Newsday

Cablevision entered the auction for the Long Island newspaper Newday with a $650 million bid, competing against Rupert Murdoch and Mortimer Zuckerman, each of whom has bid $580 million.  The latter two have also agreed to structure the deal so that the Tribune, parent of Newsday, can avoid taxes on the deal.  NYTimes, Cablevision Set to Raise the Stakes in Newsday Bidding

Survey of Auditors' Fees

A survey of financial executives at 185 companies found that larger firms spent an average of $3.6 million on total audit costs in 2007, up 2% from 2006, but a 5.4% decline in the cost for auditors' review of management's internal controls.  Larger firms paid an average of $210 per hour for auditors, up 5% from 2006.  WSJ, Sarbanes-Oxley Costs For Compliance Decline.

Report Calls for Eliminating Price Discrepancies

The Security Traders Association will release a report calling on the NYSE and Nasdaq to work on "an appropriate and coordinated opening process" to eliminate growing price discrepancies in stocks at the opening of trading.  "Divergent prices confuse investors," explained John Giesea, president of the group.  WSJ, NYSE, Nasdaq Urged To Cut Price Divergence.

Countrywide Announces Another Big Loss

Countrywide Financial announced a $893 million loss in the first quarter ($1.60 per share) because of rising loan defaults.  The Wall St. Journal reports that a federal investigation has uncovered evidence that Countrywide sales executives falsified income figures for many borrowers, particularly in the Fast and Easy mortgage program, where borrowers did not have to provide documentation of their income.  NYTimes, Countrywide Says It Lost $893 Million in Quarter; WSJ, Countrywide Loss Focuses Attention on Underwriting.

Citigroup Issues $3 Billion in New Stock

Citigroup will sell $3 billion in common shares this week to increase its capital and help protect its dividend.  This will make $39 billion Citigroup has raised since November.  NYTimes, Citigroup to Sell $3 Billion in Stock.

Freddie Mac's Compensation Committee Cites Accomplishments in Awarding CEO Compensation

Freddie Mac lost $3.1 billion in 2007, its first annual loss, and its regulator Ofheo reported to Congress that the company remains "a significant regulatory concern."  Yet the company's compensation committee cited management's "notable accomplishments" in the annual report and disclosed total compensation to the chairman and CEO Richard Syron of over $13 million.  His $2.2 million performance-based cash bonus, though, was only 66% of his target amount since, a spokesperson explained, Freddie Mac's financial performance was "not good."  WPost, Freddie Mac Differs With Regulator on 2007 Results.

Two Views on SEC Reform

The New York Times today has two pieces relevant to the question of market reform.  First, an Op-Ed piece, "Muzzling the Watchdog," by three former SEC Chairs, Arthur Levitt, William Donaldson, and David Ruder, warns against a regulatory approach that would turn the SEC, in its words, "from a market referee into an industry coach -- a regulator that is heavy on forgiveness and light on punishment."  It calls for a thorough study of the causes of the current market crisis.  Perhaps predictably, the piece concludes by saying that the problem with the SEC today is lack of adequate funding to allow the agency to perform its job as law enforcement agency and investors' advocate.

Andrew Ross Sorkin's column, Junk Bonds, Mortgages and Milken, is a response to recent assertions that Michael Milken, and specifically the creation of junk bonds, is to blame for the recent credit crisis.  While I agree that blaming Milken is classic passing-the-buck, what caught my attention are the following two sentences:

Toward the end of every bubble, people misuse the financial tools at their disposal, and then a witch hunt begins for the villain. Then, of course, the regulators jump in and try to fix things — and often go a bit overboard. (emphasis added)

Huh?  In fact, the response to this crisis, to date, has been quite the opposite.  Treasury Secretary Paulson's Blueprint, as the former SEC Chairs point out, is more deregulatory than otherwise, and even if anyone in this current administration thought beefing up the SEC's budget was a good idea, it's hard to see where the money would come from.  Moreover, despite the inspirational words from the former SEC Chairs, the current SEC seems, to this outside observer, to lack the energy and the will to be a true Investors' Advocate.

Circuit City Investors Urge Sale

Two large Circuit City shareholders have called upon the company to allow Blockbuster to conduct due diligence.  To date Circuit City has refused, saying that it did not believe that Blockbuster had the finances for the deal.  HBK Investments, a hedge fund that is a large investor in both companies, says that Circuit City should conduct an auction for its sale.  WSJ, Circuit City Gets Pressure From Big Investor for a Deal.

Mars and Wrigley Agree to Join Candy and Gum Businesses

Mars' acquisition of Wrigley for $23 billion cash($80 per share, or a 28% premium)will create a huge privately owned company with many of the iconic brands in the candy and gum business (along with pet food and Uncle Ben's rice).  While the deal surprised Wall St., Mars reportedly had its eye on Wrigley for some time.  Wrigley has been a public company since 1923; the Wrigley family controls two-thirds of the supervoting shares, although Bill Jr. is the only family member active in the business.  Warren Buffett's Berkskhire Hathaway is providing $4.4 billion in loans to finance the deal.  The Wall St. Journal has a complete history of both companies.  WSJ, Mars's Takeover of Wrigley Creates Global Powerhouse; NYTimes, Mars Offers $23 Billion Cash for Wrigley.

SEC Drops Whole Foods Blogging Investigation

Whole Foods Market said that the SEC ended its probe into blog postings by CEO John Mackey without recommending any action.  Last July Mackey's postings, some of which denigrated its merger partner Wild Oats, under an assumed name received a great deal of attention.  A special committee of the Whole Foods board conducted an investigation last fall and affirmed its support for management.  CFO.com, Whole Foods "Blogging" Probe Dropped by SEC.

Tracinda Bids for 20 Million Ford Shares

Kirk Kerkorian's Tracinda bid $8.50 for up to 20 million shares of Ford, a 13% premium over its closing price on Friday.  The shares represent about 1% of Ford's outstanding.  Tracinda currently owns about 4.7%.  Nasdaq, Tracinda Bids $8.50 A Share For 20 Million Ford Shares.

Fiorina A Possible Republican VP Candidate?

Carly Fiorina, the former "rock-star" Hewlett-Packard CEO, now Victory Chairman of John McCain's campaign, is being mentioned as a possible VP candidate.  WSJ, Ex-CEO Fiorina Seems Comfortable Following McCain's Lead.

Yahoo Does Not Respond to Microsoft's Deadline

Saturday was the deadline Microsoft gave Yahoo to agree to a deal.  Now Microsoft must decide whether to back away or go forward with a hostile tender offer and proxy contest as Steve Ballmer stated several weeks ago.  Many of Microsoft's own executives, however, are said to oppose the deal as diverting resources from other projects.  WSJ, Microsoft Confronts Tough Choice on Yahoo.

Mars Negotiates to Buy Wrigley

Mars, privately owned by the Mars family (M&M's, Mars, Snickers) reportedly has struck a deal to acquire the Wm. Wrigley Jr. Co. (chewing gum, Lifesavers, Altoids) for approximately $22 billion.  Warren Buffett's Berkshire Hathaway will provide Mars with financing.  Wrigley's market value on Friday was $17.3 billion.  Mars is the world's largest maker of chocolate by sales.  NYTimes, Candy Maker Reported Near Deal for Chewing Gum Giant; WSJ, Mars, Buffett Team Up in Wrigley Bid.

Countrywide's CEO Does Well

Countrywide Financial's CEO Angelo Mazilo made $121.5 million in 2007 from exercising stock options under a Rule 10b5-1 plan.  He also received $22.1 million in compensation -- $1.9 million in salary, $20 million in stock and option awards, no bonus.  Countrywide, in contrast, lost $704 million, and its shares declined 79%.  NYTimes, A Losing Year at Countrywide, but Not for Chief.

Is Microsoft-Yahoo Merger Dead?

Maybe the Microsoft-Yahoo merger is over.  Microsoft reportedly has a list of nominees for the Yahoo board in the event it decides to go forward with a hostile takeover, and this Saturday is the date Microsoft previously gave Yahoo to decide whether to enter into friendly negotiations or face a hostile bid.  However, CEO Steve Ballmer suggested that Microsoft might give up the fight in the face of  skepticism from Microsoft employees about the deal.  WSJ, CEO Says Microsoft Could Forgo Yahoo.

Estate of James Brown Sues Morgan Stanely

The estate of singer James Brown brought a lawsuit charging that Morgan Stanley failed to prevent the late singer's manager from stealing money from his investment account.  The lawyers for the estate say there is no mandatory arbitration agreement.  Morgan Stanley said that the suit was without merit.  NYTimes, Stewards of James Brown Estate Sue Morgan Stanley.

SEC Refuses to Respond to Congressional Inquiry on Bear Stearns

The SEC refused to respond to a congressional request for information about why it dropped two investigations begun in 2005 into Bear Stearns' methods of valuing complex debt securities.  The agency cited its confidentiality policy.  WSJ, SEC Rebuffs Lawmakers Over Bear.

EBay Brings Shareholders Suit against Craigslist

EBay, which owns almost 25% of Craiglist (that it acquired from a disgruntled ex-employee or from Craigslist itself, depending on whom you ask), filed a shareholders' derivative suit in Delaware against Craigslist, saying that undisclosed actions unfairly diluted its interest.  EBay said the complaint was under seal because of confidentiality restrictions.  NYTimes, EBay Files a Stockholder Lawsuit Against Craigslist.

CFTC Puts on Hold Changes in Face of Agriculture Industry Concerns

The CFTC placed on hold proposals that would have raised the amount that financial speculators could hold and would have exempted commodity index funds from those limits.  At a hearing representatives from the agricultural industry, who use commodity futures as a hedge against declines in crop prices, blamed speculators for the increased volatility in agricultural futures.  NYTimes, Regulators Back Away From Changes to Commodity Hedging.

Former Mercury Interactive CFO Indicted on Backdating Charges

The former CFO of Mercury Interactive Corp., Sharlene P. Abrams, was indicted on charges stemming from backdating stock options.  According to the indictment, Abrams orchestrated the backdating for herself and both the former CEO and COO.  She was charged with one count of income tax evasion and two counts of aiding and assisting the preparation of false returns.  CFO.com, Mercury Interactive Ex-CFO Is Indicted.

Ofheo Issues Warning About FAS 159

Deja vu all over again?   The Office of Federal Housing Enterprise Oversight (Ofheo) warned Fannie Mae and Freddie Mac about strict compliance with the new fair use accounting rule FAS 159 that permits companies to make quarterly adjustments to reflect changes in the value of certain assets and liabilities.  Ofheo said changes sholuld be documented to prevent retroactive changes and promote transparency.  WPost, Fannie Mae, Freddie Mac Warned on Accounting.

Raines Settles Charges with Ofheo

Remaining defiant to the end ("I did not break any laws or rules"), former Fannie Mae CEO Franklin Raines settled Ofheo charges that he manipulated the company's earnings.  The settlement, which also included two other former officers, provides that Fannie's insurer will make cash payments of about $3 million; the three officers will surrender stock options that are now worthless.  In addition, Ofheo said that Raines will donate proceeds from the sale of $1.8 million of Fannie Mae stock.  Ofheo had originally sought return of substantial amounts of cash compensation from the officers.  WSJ, Former Top Fannie Officials Won't Pay Any Cash in Settlement.

NYS Attorney General Investigates Auction Rate Securities Market

New York State Attorney General Andrew Cuomo is investigating the auction-rate securities market and has sent subpoenas to eighteen institutions seeking information.  The market for the securities collapsed in February when Wall St. firms stopped their support for the securities, and investors have been unable to sell their holdings that were marketed as liquid investments.  WSJ, Auction-Rate Debt Market Faces Probe.

AARP Survey Finds Investors Confused by Jargon

A survey of investors conducted by AARP Financial found that use of "technical and confusing" language by financial services firms caused investing mistakes.  More than one-half also said they did not read the financial literature because they found it "too hard to understand."  InvNews, Survey: Financial lingo baffles investors.

Washington Mutual Announces Changes at Shareholders Meeting

Washington Mutual announced at its shareholder meeting the resignation of Mary Pugh, the director who was head of the board's finance committee.  In addition, the company will revise its incentive-pay plan that did not take mortgage losses into account in calculating cash bonuses.  51% of shares voted in favor of a shareholders' request to separate the positions of chairman and CEO.  WSJ, WaMu Revises Pay Plan And a Director Resigns As Holders Press Change.

Merrill's Troubles Not Over

According to the Wall St. Journal, Merrill Lynch will report $6-8 billion in new writedowns tomorrow, bringing the total to $30 billion since October.  It will also report its third straight quarterly loss.  Meanwhile, the SEC continues to look into whether investors should have been warned earlier about the extent of Merrill's risk in mortgage securities.   A Page One story examines how risk controls at the firm were relaxed under former CEO Stanley O'Neal.  WSJ, Merrill Upped Ante as Boom In Mortgage Bonds Fizzled.

President's Working Group Releases Two Reports on Hedge Fund Practices

Two blue-ribbon private-sector committees established by the President's Working Group released separate yet complementary sets of best practices for hedge fund investors and asset managers today. The PWG tasked the committees with collaborating on industry issues and developing a set of best practices for their respective groups of stakeholders. The PWG includes the heads of the U.S. Treasury Department, the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The best practices for the asset managers call on hedge funds to adopt comprehensive best practices in all aspects of their business, including the critical areas of disclosure, valuation of assets, risk management, business operations, compliance and conflicts of interest. Eric Mindich, CEO of Eton Park Capital Management, chairs the Asset Managers' Committee.

The best practices for investors include a Fiduciary's Guide and an Investor's Guide. The Fiduciary's Guide provides recommendations to individuals charged with evaluating the appropriateness of hedge funds as a component of an investment portfolio. The Investor's Guide provides recommendations to those charged with executing and administering a hedge fund program once a hedge fund has been added to the investment portfolio. Russell Read, Chief Investment Officer of the California Public Employees' Retirement System, leads the Investors' Committee.

Parmalat Suit Against Citigroup Set for Trial in New Jersey

The trial in New Jersey state court brought by Parmalat against Citigroup for allegedly assisting former Parmalat management in committing financial fraud will begin next month.  Citigroup sought to dismiss the case on a number of grounds, including that New Jersey was not an appropriate forum and on the basis of Stoneridge Investors.  CFO.com, Judge Orders Citi to Trial in Parmalat Case.