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Reuters blog archive
from The Great Debate:
The failure to prosecute corporate crime undermines U.S. justice
Imagine you are driving down the highway at 90 mph where the posted speed limit is 55 mph. As a result of your speeding, you lose control of your vehicle. And you cause a wreck that kills people.
Here’s a sure bet ‑ you will be convicted of a crime. You will admit wrongdoing. And you will be punished.
Now suppose a corporation engages in illegal activity while operating a coal mine. And that illegal activity leads to the death of 29 of its workers.
Here’s another sure bet ‑ that corporation will not be convicted of a crime. And it will not be punished.
from The Great Debate:
Can the SEC ever improve?
The U.S. Securities and Exchange Commission’s case against Citigroup’s Brian Stoker, a director in the bank’s Global Markets group, seemed clear-cut. Stoker structured and marketed an investment portfolio consisting of credit default swaps. The agency accused him of misrepresenting deal terms and defrauding investors for not disclosing the bank’s bet against the portfolio while pitching the investment vehicle to customers. But when it came to trial earlier this summer, the government could not prove that Stoker knew or should have known that the pitches were misleading, and the jury didn’t convict.
It’s hardly surprising. The SEC’s failure to secure a guilty verdict is one more sign that the commission still has not climbed out of the morass in which it was mired for most of the Bush years. The agency tasked with overseeing some 5,000 broker-dealers, 10,000 investor-advisers, 10,000 hedge funds, and 12,000 public companies, as well as mutual funds, the exchanges and even the rating agencies, is ailing because of outdated rules, systems and structures.
from Breakingviews:
China investors get wise to a new four-letter word
By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
China investors have a new four-letter word to decry. Really it’s an acronym: VIEs, for “variable interest entities.” These are the structures used by nearly half of all Chinese firms listed on the Nasdaq to get around restrictions at home. A new Securities and Exchange Commission probe of New Oriental Education may sound their death knell. In the end, that’s probably best for investors - and for China.
from Breakingviews:
Investors ill-served by crude accounting standards
By Christopher Swann and Kevin Allison
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
Investors are poorly served by crude accounting standards - crude oil, that is. Divining the energy resources that explorers uncover matters to shareholders. Yet they must choose between two equally unreliable figures. Estimates based on Securities and Exchange Commission rules gyrate wildly with energy prices, while company data are too opaque. Exxon Mobil, for example, claims to have discovered more oil than it has pumped for each of the past 18 years - a rosier picture than shown by the official figures. Oil punters deserve better.
from Financial Regulatory Forum:
Einhorn/Greenlight Capital fine highlights duty for investors to seek absolute clarity over inside information
By Martin Coyle and Alex Robson
LONDON/NEW YORK, (Thomson Reuters Accelus) - A decision by the UK Financial Services Authority (FSA) to fine hedge fund manager David Einhorn and his Greenlight Capital fund 7.3 million pounds ($11.5 million) has highlighted the need for professional investors to ascertain clearly what constitutes inside information, securities lawyers said. The FSA said that it fined Einhorn 3.64 million pounds and Greenlight Capital 3.65 million pounds for using inside information that he obtained from a broker before selling shares in a UK public company in 2009. Einhorn's is the biggest scalp by far of the FSA's renewed determination to punish market manipulation as part of its "credible deterrence" policy.
The regulator said that Einhorn learned from a telephone conversation with the broker that British pub company Punch Taverns was on the verge of a significant equity fundraising, prompting the New York-based financier to sell down his holdings before an anticipated fall in the shares.
from Bethany McLean:
A tale of two SEC cases
Juries are sometimes told that in the eyes of the law, all Americans are created equal. But if that’s the case, then why does the Securities and Exchange Commission’s treatment of former top Fannie and Freddie executives seem to be so much harsher than its treatment of Citigroup and its senior people for what appear to be similar infractions?
Recall that on Dec. 16, the SEC charged six former executives at mortgage giants Fannie Mae and Freddie Mac with fraud for not properly disclosing the companies’ exposure to risky mortgages. In Fannie’s case, the SEC alleges that former CEO Dan Mudd and two other executives made a series of “materially false and misleading public disclosures.” The SEC says, for instance, that at the end of 2006, Fannie didn’t include $43.3 billion of so-called expanded approval mortgages in its subprime exposure and $201 billion of mortgages with reduced documentation in its Alt-A exposure. In Freddie’s case, the SEC alleges that while former CEO Dick Syron and two other executives told investors it had “basically no” subprime exposure, they weren’t including $141 billion in loans (as of the end of 2006) that they internally described as “subprime” or “subprime like.”
from Financial Regulatory Forum:
SEC’s new whistleblower website – ‘winning’ Dodd-Frank style
By John Sutton
Aug. 17 (Business Law Currents) - As the fabled story goes, almost a decade passed between the time that fraud investigator Harry Markopolos first submitted evidence of the Bernie Madoff Ponzi scheme to the SEC's Boston office and his arrest in late 2008.
With the adoption of the new whistleblower program under Section 922 of the Dodd-Frank Act and the release of the program’s related website specifically designed for whistleblowers to provide tips, the SEC is now able to get serious about following up on whistleblower leads.
from Financial Regulatory Forum:
Corporate Governance: Staggered U.S. boards are endangered species
By Erik Krusch
NEW YORK, March 23 (Westlaw Business) - Classified boards may be moving towards the endangered species list, as investors and even management are hunting them down.
Valero and Biogen Idec’s management teams, for example, are recommending that shareholders approve amendments declassifying their respective boards. Other corporations, such as Alcoa and McDonald’s Corp, however, are fighting their shareholders’ attempts to level their staggered boards. It remains to be seen how many staggered boards emerge from this proxy season unscathed.
from Financial Regulatory Forum:
SEC’s boardroom bombshell: directors can be costly
NEW YORK, March 4 (Westlaw Business) Being an insider with a fiduciary duty sure is risky, as heavyweight Rajat Gupta is now finding out amidst serious SEC charges. So is having board members, as Goldman Sachs and Procter and Gamble are now worrying. Of great concern to each are the reputational risks and attendant costs that this might impose on them. The potential risks could relate to a broad range of issues, ranging from inside information, to disclosure of SEC investigation and board member protection. Though this likelihood may seem remote, recent experiences from Bank of America to Goldman Sachs itself show them to be painfully possible.
With a plot literally ripped from the headlines and a narrative crackling like a Law & Order script, the Commission has charged Gupta in the spreading Galleon insider trading scandal. The case links Berkshire Hathaway, Goldman Sachs and Procter and Gamble (P&G) to what is shaping up to be one of the biggest non-Madoff financial crime stories of the young century.
from Summit Notebook:
So how plugged in is the SEC chair? (technologically speaking)
Securities and Exchange Commission Chairman Mary Schapiro says her agency has its work cut out to compete with the massive amounts of money that private firms, policed by the SEC, pour into the latest technology.
"Can we keep up with Wall Street? I think we have a fighting chance. We'll never have, under any circumstances, the kind of budgets that would allow us to spend a billion dollars a year on technology as some firms do, I mean that's just not going to happen, and I totally understand that," she said at the Reuters Future Face of Finance Summit. 
