investigation

Tax Cheats Received Billions In Stimulus Cash, Report Finds

by AP on May 24, 2011

Huffington Post…

WASHINGTON — Thousands of companies that cashed in on President Barack Obama’s economic stimulus package owed the government millions in unpaid taxes, congressional investigators have found. The Government Accountability Office, in a report being released Tuesday, said at least 3,700 government contractors and nonprofit organizations that received more than $24 billion from the stimulus effort owed $757 million in back taxes as of Sept. 30, 2009, the end of the budget year. The report said the tax delinquents accounted for nearly 6 percent of the 63,000 contractors and grantees examined and cautioned that the real number might be higher because the known tax debt does not measure such factors as income underreporting. Among the examples was an engineering firm that received a $100,000 stimulus act contract but owed $6 million in taxes. The IRS called it “an extreme case of noncompliance.” A social services nonprofit that received more than $1 million in stimulus funds owed taxes of $2 million. The GAO referred those two cases and 13 others to the IRS for further investigation. On Tuesday, a Senate Homeland Security and Governmental Affairs subcommittee will hold a hearing on the report. Federal law does not prohibit tax delinquents from getting government contracts or grants, though there are provisions that enable the government to withhold payments in some cases. While the federal government requires contractors to present documentation that their taxes are paid, some recipients escaped federal review because the money was disbursed at state or local levels. Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee holding the hearing, said it’s been known for years that a few federal contractors and grantees don’t pay their taxes. He said a program to recover funds from tax delinquents has been strengthened, and “the executive branch has made it clear” that nonpayment of tax can be grounds for denying a specific contract or barring a contractor from bidding on any contract. He added that the executive branch should “get on with it” and bar “the worst of the tax cheats from the contractor workforce.” “It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else,” said Sen. Tom Coburn of Oklahoma, the panel’s top Republican. “That such a huge amount of the stimulus money went to known tax cheats should be a wakeup call for Congress.’” The stimulus package, enacted in February 2009, funneled some $821 billion into the recession-hit economy. Of that, about $275 billion was designated for contracts and grants, of which nearly $200 billion had been paid out as of March 25, 2011. The report noted that about 35 percent of the unpaid taxes were for debts incurred prior to 2003 and that more than half of the apparent violations, $417 million, were from unpaid corporate taxes. Another quarter, $207 million, came from unpaid payroll taxes. The most serious documented case was a security firm that owed $9 million, mainly in unpaid payroll taxes from the mid-2000s. IRS records indicated that the company paid other creditors while shirking its tax obligations. The company, which received more than $100,000 in stimulus money, had a history of being uncooperative, missing deadlines and repeatedly filing appeals, according to the records. Sen. Max Baucus, D-Mont., chairman of the Finance Committee, said every unpaid tax dollar was “added to our deficit or taken from future generations, so I will certainly use the conclusions from this report to look for new ways to ensure everyone pays their fair share.” For Republican the report provided another way to criticize Obama’s recovery package. “This shows how fundamentally flawed the failed stimulus has turned out to be when Washington jams through almost a trillion dollars in spending with little scrutiny,” said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee. ___ Associated Press writer Stephen Ohlemacher contributed to this report.

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Tax Cheats Received Billions In Stimulus Cash, Report Finds

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Goldman Sachs Says Regulators Might Bring Fraud Charges

by AP on May 10, 2011

Huffington Post…

WASHINGTON — Goldman Sachs & Co. says one of its units is being investigated by federal regulators over whether it improperly used investment accounts to make trades and could face civil fraud charges. Goldman says the staff of the Commodity Futures Trading Commission has told the firm it will recommend that the agency file charges. The charges involve money belonging to customers of another financial firm that was a Goldman client. Goldman says in a filing with regulators that the charges would be based on allegations that it knew or should have known that the money belonged to customers of that firm rather than to the firm itself. Goldman says it is cooperating with the investigation. It didn’t name the client firm.

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10 States Launch Investigation Into For-Profit Colleges

May 3, 2011

Top prosecutors in 10 states have convened a joint investigation into potential violations of consumer protection laws by for-profit colleges, Kentucky Attorney General Jack Conway (D), who is leading the multi-state effort, said in an interview with The Huffington Post. The combined investigation only began within the past two months, but it comes after several state attorneys general launched individual probes of deceptive recruiting practices and possible misrepresentations to recruits regarding federal financial aid dollars. The multi-state probe is the latest sign that rapidly rising enrollments and an increased reliance on federal student aid dollars by for-profit colleges are attracting greater scrutiny of the industry. The for-profit higher education industry, which includes a vast swath of colleges ranging from the more than 400,000-student University of Phoenix to small mom-and-pop beauty schools, is facing intense scrutiny from the federal government due to growing federal student loan default rates at many schools. Although only about 10 percent of college students nationwide attend such for-profit institutions, the schools account for nearly half of all student loan defaults, leaving the government to pick up the tab. “A lot of people who are in Washington right now want to run around talking about fiscal responsibility,” said Conway, who issued subpoenas to six for-profit schools in Kentucky last year, seeking information on job placement claims made to prospective students and management of financial aid dollars. “Well, making certain that $25 billion in federal education dollars doled out is being spend in a way that appropriately trains people and prepares them for job opportunities that are out there … That, to me, is a fiscal responsibility issue.” Conway confirmed that 10 states so far have signed on to the multi-state working group. He declined to name the other states, but representatives for Attorneys General Tom Miller of Iowa (D), Lisa Madigan of Illinois (D) and Pam Bondi of Florida (R) confirmed that they are participating in the investigation. A spokesman for the Association of Private Sector Colleges and Universities, Bob Cohen, said in a statement that the organization’s schools are “committed to putting students first” and enforcing existing federal and state laws. “We support a dialogue with the attorneys general that is based on hard facts, on principles fairly applied to all, and is not a product of ideology, innuendo or anecdote,” the statement said. “We firmly believe such a conversation will demonstrate that there is no systemic, sector-wide issue here.” At this point, Conway said, the primary goal is to share information and compare notes about violations of consumer protection statutes. But he said it is possible that the participating states could outline a joint agreement to require such schools to adhere to certain industrywide standards. “There need to be guidelines for information on cost and student loan debt provided to the students before they sign up, and we need to make sure that these schools reform the way they target and recruit potential students,” Conway said. He said the investigation so far involves civil violations, not criminal activity. But he did not rule out a criminal prosecution if investigators discover more information. There are precedents for multi-state settlements with state attorneys general, most notably in litigation against tobacco companies and in an agreement reached with state attorneys general and social networking sites meant to protect children against sexual predators. In 2008, 11 states reached an $8 billion settlement with Countrywide Financial to settle predatory lending allegations. And state attorneys general and the Obama administration are negotiating with the nation’s five largest mortgage companies to settle accusations of improper foreclosures and violations of consumer protection laws. “If you’ve got a school negotiating with 10 attorneys general, they snap to much faster than if they’re dealing with just one,” Conway said. Conway noted that unlike the tobacco industry, which was concentrated in a few major corporations, there are many smaller, independently-owned colleges throughout the country. The Department of Education has stepped up its scrutiny of for-profit colleges in the past year, proposing stronger federal regulations regarding bonuses or raises given to recruiters based on enrollment numbers . The department has also drafted rules regarding student loan accountability, which could cut off funding to programs with a track record of enrollees failing to pay back student loans and facing high debt loads. The industry has mounted an aggressive, multimillion-dollar lobbying campaign against the student loan regulations, saying they unfairly target for-profit colleges and would restrict college access to low-income students who attend such schools in large numbers. The multi-state investigation comes as the Department of Justice is also stepping up its involvement in litigation against for-profit colleges. This week, Education Management Corp. of Pittsburgh, the second-largest publicly traded college corporation, acknowledged that the U.S. Attorney of Western Pennsylvania had intervened in a civil case that had been brought against the company. Other states have also gotten intervened as parties in the case against Education Management Corp., which owns schools ranging from The Art Institutes to Argosy University. In a filing with the Securities Exchange Commission, the corporation noted, “The case alleges that the company’s compensation plans for admission representatives violated the Higher Education Act.” The company said it plans to “vigorously defend itself.”

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Video: Falkenrath Says NSA Probe Shows Nasdaq Worry Over Hacker

March 30, 2011

March 30 (Bloomberg) — Richard Falkenrath, a principal at the Chertoff Group and a Bloomberg Television contributing editor, discusses the October cyber attack on Nasdaq OMX Group Inc. The National Security Agency has joined the investigation of the attack amid evidence the intrusion by hackers was more severe than first disclosed. Falkenrath speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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21 Airlines Fined For Price Fixing

March 7, 2011

WASHINGTON — When the airline industry took a nose dive a decade ago, executives at global carriers scrambled to find a quick fix to avoid financial ruin. What they came up with, according to federal prosecutors, was a massive price-fixing scheme among airlines that artificially inflated passenger and cargo fuel surcharges between 2000 and 2006 to make up for lost profits. The airlines’ crimes cost U.S. consumers and businesses – mostly international passengers and cargo shippers – hundreds of millions of dollars, prosecutors say. But the airlines caught by the Justice Department have paid a hefty price in the five years since the government’s widespread investigation became public. To date, 19 executives have been charged with wrongdoing – four have gone to prison – and 21 airlines have coughed up more than $1.7 billion in fines in one of the largest criminal antitrust investigations in U.S. history. The court cases reveal a complex web of schemes between mostly international carriers willing to fix fees in lockstep with competitors for flights to and from the United States. Convicted airlines include British Airways, Korean Air, and Air France-KLM. No major U.S. carriers have been charged. The price-fixing unraveled largely because two airlines decided to come clean and turn in their co-conspirators. In late 2005, officials with German-based Lufthansa notified the Justice Department that the airline had been conspiring to set cargo surcharges. By Valentine’s Day 2006, FBI agents and their counterparts in Europe made the investigation public by raiding airline offices. After those raids, British-based Virgin Atlantic came forward about its role in a similar scheme to set fuel surcharges for passengers. Investigators eventually found a detailed paper trail laying out agreements, stretching back to 2000, to set passenger and cargo fuel surcharges The probe expanded to airlines doing business between the U.S. and Europe, Asia, South America, and Australia. The Lufthansa and Virgin Atlantic mea culpas allowed them to take advantage of a Justice Department leniency program because they helped crack the conspiracies. Former Associate Attorney General Kevin J. O’Connor, who oversaw Justice’s antitrust division in the late 2000s, said he doesn’t know why they confessed, but the result “demonstrates the effectiveness of that amnesty program.” Now in private practice, O’Connor said companies that confess for amnesty may be wisely trying to limit liabilities from illegal conduct. “Generally speaking, if they have an inkling they might get caught, they come in,” O’Connor said. “The theory might be that eventually these things will be exposed and why risk continuing.” Federal prosecutors and investigators declined to discuss details of the cases because they are still investigating. “Lufthansa Cargo fully cooperated with the investigation launched by DOJ,” Martin Riecken, Lufthansa’s director of corporate communications for the Americas said. Virgin Atlantic referred all questions to the Justice Department. Airlines and executives who didn’t come forward were charged with violating the Sherman Antitrust Act. Two former airline executives were sentenced to six months in prison; two others were ordered to prison for eight months. Charges are pending against 15 executives, nine of whom are considered fugitives. Bruce McCaffrey, one-time vice president of freight for the Americas at the Australian carrier Qantas, pleaded guilty to conspiracy to restrain trade. He was sentenced to six months in prison in 2008. He admitted working with other airlines to fix cargo fuel surcharges between 2000 and 2006. Keith H. Packer, a former senior manager of sales and marketing for British Airways, pleaded to conspiracy to restrain trade and was sentenced to eight months in prison in 2008. He admitted joining the cargo conspiracy in 2002 and participating until February 2006. British Airways and Korean Air pleaded guilty to violating the Sherman act; each was fined $300 million in August 2007. British Airways admitted fixing cargo surcharges from 2002 to 2006 and passenger fuel surcharges from 2004 to 2006. Korean Air admitted fixing cargo and passenger surcharges from 2000 to 2006. Announcing four guilty pleas in June 2008, O’Connor said the case “conservatively, has affected billions of dollars of shipments. Estimates suggest that the harm to American consumers and businesses from this conspiracy is in the hundreds of millions of dollars. “As an example of the impact of the conspiracy, fuel surcharges imposed by some of the conspirators rose by as much as 1,000 percent during the conspiracy, far outpacing any percentage increases in fuel costs that existed during the same time period,” O’Connor said. In one of several lawsuits by passengers and cargo shippers now being heard in a California federal court, San Francisco-based lawyer Christopher Lebsock and others allege airline officials routinely gathered at industry meetings to discuss fuel costs and how to make up losses. Lebsock said they agreed to add or increase the fuel surcharges that are tacked onto passenger fares and cargo fees. “We have seen in public documents that they were concerned and wanted to raise revenue to offset the increasing price in fuel,” Lebsock said. According to published notes of an October 2005 meeting of airline representatives in Jeddah, Saudi Arabia, a host of executives openly spoke about surcharges already in place. One official, identified in meeting minutes only by the initials” GF,” suggested the group create “a subcommittee to study this subject and come up with a joint proposal.” According to published notes of another meeting of airline representatives in Saudi Arabia in September 2004, “the participants agreed to make uniform policy for such (insurance and fuel) surcharges to be applied.” Not all airline officials at these meetings agreed to join the conspiracies. During a 2004 industry meeting in Thailand, executives from U.S. based-United Airlines and Northwest Airlines left the meeting when others started discussing setting fares and fuel surcharges, according to a court filing by lawyers in one class action suit. Warren Gerig, an international manager for United when he walked out of that meeting, declined to discuss the case. The Northwest executive was identified only as Sarathool M. and could not be reached. While meeting notes make it appear the discussions were open to anyone who accidently walked into the wrong ballroom, Lebsock and Justice officials believe executives were more careful to hide their activities. “My sense is they weren’t really open to the public,” Lebsock said. “They weren’t that stupid.” Lebsock said documents obtained in pretrial discovery make clear that many surcharge discussions carried over from large group meetings around the world to more private office settings and e-mail discussions According to one passenger lawsuit, several Asian airlines – including Cathay Pacific Airways, Japan Airlines, and All Nippon Airways – confined many discussions to phone calls and e-mails. Lebsock said evidence shows some airline executives tried to hide or destroy incriminating documents and e-mails. Lebsock believes the conspiracies were so well hidden that it’s possible they would have continued undetected had Lufthansa not come forward. “In the absence of someone coming forward, and ratting it out, it is very, very difficult to establish that there was a (conspiracy),” Lebsock said. ___ Online: Justice Department’s antitrust division: http://www.justice.gov/atr/index.html

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Banker In Jail For What Could Be ‘Germany’s Biggest Case Of Corruption’

March 3, 2011

In January, Gerhard Gribkowsky, the former risk manager of the Bavarian regional public-sector bank BayernLB, was taken into custody under suspicion of bribery, tax fraud and breach of trust toward his former employer — in what the German paper Sueddeutsche Zeitung is saying “could become Germany’s biggest case of corruption.” The investigation stems from an alleged kickback Gribkowsky took for engineering the sale of the bank’s stake in Formula One — a popular motor sport — to London based private equity firm CVC Capital Partners Ltd. The grounds for the investigation, according to Die Zeit , are the unclear origins of Gribkowsky’s $50 million fortune which he has allegedly placed in a private Austrian trust called Sunshine. Bloomberg provides a rundown of the tangled web surrounding the investigation into Gribkowsky and the sale of BayernLB’s Formula One stake to CVC: That mystery has thrown a spotlight on the partnership between 80-year-old Formula One Management Ltd. Chief Executive Officer Bernie Ecclestone, a fixture of London’s tabloids, and the company’s buyer, CVC Capital Partners Ltd., one of Europe’s largest and most-private buyout firms. The case is also reviving the anger of media mogul Leo Kirch, who says the racing company he once owned was sold on the cheap. Meanwhile, Gribkowsky sits in a German prison that held Adolf Hitler. This is not the first time Gribkowsky has been enmeshed in controversy. As the Telegraph reports : BayernLB’s purchase of 50 per cent of the Austrian bank Hypo Group Alpe Adria for €1.63 billion in 2007, and the subsequent re-sale for one euro and nationalisation to avoid a collapse, led to his questioning by prosecutors last year. BayernLB reported a net loss in 2008 of €5.1 billion, mostly lost in disastrous investments on the American sub-prime mortgage market. BayernLB is seeking damages against Gribkowsky for his role in the scandal-ridden acquisition of HGAA. BayernLB lost $5.1 billion in the deal and had to be backed with $13.8 billion in tax money by the state government, according to Die Zeit . Check out Bloomberg ‘s story for an in-depth run down of the complex investigation.

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Zachary Karabell: The Insider Trading Scandal: Is It the Crime or the Prosecution?

March 2, 2011

The media is abuzz with the news that the former head of McKinsey consulting, Goldman Sachs director and current board member of Proctor & Gamble Rajat Gupta has been charged with insider trading by the Securities and Exchange Commission. He is now the highest-profile individual to be implicated in the widespread investigation driven by U.S. Attorney Preet Bharara that has already ensnared dozens of lower-level traders and Raj Rajaratnam , former head of hedge fund Galleon. The spin has been predictably excoriating, describing Gupta as yet another Wall Street/business titan warped by greed and hubris who is now witnessing his fall. Though he has not been convicted of anything, he has already been found guilty in the press, and it’s safe to say that if the day comes when charges are dropped or he is exonerated, that news will not be on the front page of any paper or grace the home page of any web site. Such is the court of public opinion, which has little sympathy for the masters of finance who so recently contributed to a near-meltdown of the very system that made them so rich. I have opinion about the guilt or lack thereof of Gupta or Rajaratnam. Like almost everyone save for a handful involved, I don’t know what happened and likely never will. But the nature of this investigation should raise the eyebrows even of those who believe that there is something rotten at the heart of American business. In essence, this investigation and its prosecutions raise the question of whether we are criminalizing behavior simply because it is deemed immoral and allowing prosecutors too much latitude to pry into personal relationships. Both the left and the right are wary of the potential abuses of government investigatory power, and the United States has nurtured a long and powerful tradition of wariness of the claims of officials to be on the side of the angels in pursuing wrong-doing. Until 2000, when Regulation FD (“fair disclosure”) was created by the SEC to curb the trading abuses of the internet bubble of the 1990s where large institutional investors were seen as having an unfair advantage and access to information compared to the masses who bought and sold shares on-line. Reg FD holds that no employee of a publicly traded company could disclose material non-public information on a selective basis. Give it to one person and you had to give to all people, in order to level the investing playing field. Fair enough in theory, but much stickier in practice. There’s a bright line between someone at Intel sharing what the company’s sales are to a friend who trades stocks and having a general conversation about how business is going, but a much fuzzier line between having a general conversation over drinks and complaining that senior management doesn’t appreciate some new business trend. There have been many cases of prosecution of individuals who have crossed the bright line, but ensnaring big fish is often harder, so prosecutors become more creative. In the case of Gupta, he made calls to Rajaratnam just after several important meetings of the Goldman Sachs board, and Galleon then made trades of Goldman stock (or options) just after those calls. So it’s hard to deny the appearance that information was exchanged. But just what information? What if Gupta simply said “It went well.” Or “it didn’t.” That might have been sufficient information to trade on, and it certainly was information that the general public didn’t have. But is that insider trading according to the definition? Is it disclosure of material non-public information? Are all forms of communication between insiders and outsiders to be criminalized? And if such communication creates some advantages, are advantages born of personal relationships “unfair” to the point where there should be legal action? In part, all of this is the fallout of a culture looking for villains for the financial crisis. As Charles Ferguson, director of the documentary Inside Job said in accepting his Academy Award, no financial executive has gone to jail for their role in the financial meltdown, and in his view, that is wrong. But is it? Generals routinely mess up during war, either from incompetence, vanity, arrogance or simply the unexpected. They are recalled and sacked, we hope, but unless it can be shown that they willfully and purposely screwed up, they are in our society rarely see a court-martial. Financial executives were culpable in myriad decisions that led to the financial crisis, but that in itself does not translate into prosecution and jail time. Finally, prosecutors have extraordinary powers in our society, and it is difficult for them to resist the temptation to use the law to enforce public mores. At any given time, some law on the books can be used to police a wide range of behavior. That’s great if you agree with the morality that they are enforcing (no abortions, for instance, or no emissions by chemical companies). But it’s not so great when that morality is at odds with yours (no abortions, for instance, or no emissions by chemical companies). We live in a system where trials are supposed to afford the accused a chance to clear their name or face penalty, but in a world where reputations are hard to build and easy to lose, prosecutors have undeniable advantages. It is up to them to use that power judiciously. I have managed money and still do. Stocks today move for all sorts of reasons, are traded globally and electronically often by programs rather than people, and often based on factors having nothing to do with the company per se. Rarely is one data point sufficient. As a result, insider information is neither worth the risk of obtaining it nor usually worth much even if you do . What is perhaps most striking about this case from that perspective is that Galleon is alleged to have made a grand total of $17 million in profit from this inside information. That is a lot of money in the real world, but for Galleon’s bottom line, it hardly rates, and certainly would be worth nowhere near the risk of obtaining it by violating Reg FD. If the charges are true as alleged, then these individuals destroyed careers and their future not for untold riches but for minimal advantage relative to others who did not flirt with the rules. The narrative may say greed, but in truth, the gain wasn’t enough for the risk. Galleon reaped hundreds of millions annually by legitimate means, and Gupta supposedly reaped nothing for his insider troubles. We like the simple narratives, but human motives, those are often far more complicated.

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CEO, COO Of E-Commerce Giant Alibaba Resign

February 21, 2011

SHANGHAI — Chinese e-commerce giant Alibaba says two of its top executives are resigning to take responsibility after a probe discovered more than 2,000 suppliers had defrauded customers, sometimes with the alleged collusion of its sales staff. Alibaba said in a notice Monday to the Hong Kong Stock Exchange that its chief executive and chief operating officers, who were not implicated by the investigation, were resigning to take responsibility for the company’s “breakdown in integrity.” The company said 100 sales representatives, out of a total workforce of 14,000, allegedly involved in defrauding customers were fired. Some supervisors and sales managers had either intentionally or negligently allowed the creation of fraudulent “storefronts” by letting some 2,326 suppliers evade authentication and verification measures, it said. Most purchases involved offerings of popular consumer electronics at bargain prices with low required minimum orders. “The methods of the perpetrators suggest that they have engineered an organized and systemic attack on the integrity of the Alibaba.com platform for illegal gains,” the company said. “The investigation concluded that the pursuit of short-term financial gain at all cost had tainted parts of our sales organization, risking serious damage to our company’s core values,” it said. Jack Ma, the entrepreneurial whiz and former English teacher who founded Alibaba in 1999, said he was sending a strong message meant to reinforce trust in his company, which has thrived in this age of online commerce and outsourcing. “One of our most important values is integrity. That means the integrity of our employees and the integrity of our online marketplaces as trusted and safe places for our small business customers,” Ma said in a statement. Jonathan Lu Zhaoxi, CEO of affiliated Chinese e-commerce company Taobao, will replace David Wei Zhe as Alibaba’s CEO, the notice said. It did not say who would replace resigning COO Elvis Lee Shi-Huei. Alibaba, based in the eastern Chinese city of Hangzhou, claims more than 56 million registered users in more than 240 countries and regions. The company says it investigated after noticing an increase in complaints of fraud by buyers using its websites in late 2009. The probe found that 1,219 of its “Gold Supplier” customers who joined in 2009 and 1,107 that joined in 2010 had engaged in fraud against buyers. Alibaba terminated the “storefronts” of those allegedly fraudulent customers and will collaborate with authorities to seek redress, said company spokeswoman Linda Kozlowski. But such efforts would depend partly on buyers deciding to take legal action, she said. The average amount of fraud involved in the cases was less than $1,200, the company said. It gave no total amount involved. But Kozlowski said the company has paid out $1.7 million since 2009 from a fund set up to redistribute to buyers any revenues from companies found to be engaged in fraud. “We decided we did not want to take revenue from fraud,” she said. Alibaba, whose shares are traded in Hong Kong, says the cases would not have an impact on its overall finances.

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Massey Energy To Be Sold To Alpha Natural Resources

January 30, 2011

NEW YORK — Massey Energy Co., struggling with losses after an explosion that killed 29 workers at a West Virginia coal mine last spring, agreed Saturday to be taken over by Alpha Natural Resources Inc. Alpha is paying $7.1 billion in cash and stock for Massey, the nation’s fourth-largest coal producer by revenue. Massey operates 19 mining complexes in Virginia, West Virginia and Kentucky including the Upper Big Branch mine where the April 5 disaster occurred. Alpha is offering 1.025 share of its stock for each share of Massey, plus $10 per share in cash. Together, that represents a bid of $69.33 per share, a 21 percent premium over Massey’s closing share price Friday. In an interview, Alpha CEO Kevin Crutchfield said the acquisition will offer greater access to international markets. Shortages of coal for making steel have driven up prices around the world, a trend Alpha hopes to capitalize on. “We sell into 20-some countries now and that will increase significantly,” Crutchfield said. Asked about safety concerns at Massey’s operations, Crutchfield said, “We try to let our performance speak for itself. Nobody is perfect, but we have a very good record regarding safety and a good working relationship with regulators.” He added, “Massey has a lot of great people who want to do the right thing.” A sale of Richmond, Va.-based Massey was expected even before the sudden retirement last month of Don Blankenship, the company’s CEO. He was the strongest advocate for remaining an independent company on Massey’s board. The company’s losses since the disaster were another factor leading to its sale. Massey lost a total of $130 million in the second and third quarters of last year. It has not yet released fourth-quarter results. Alpha expects the deal will help the combined company cut costs by at least $150 million a year. Recent reports have suggested Massey was also being sought by global steel conglomerate ArcelorMittal SA. Alpha, based in Abingdon, Va., is the leading U.S. producer of metallurgical coal – the kind used to make steel as opposed to electricity – while ArcelorMittal already owns several metallurgical coal mines in Appalachia. Demand from steelmakers allows coal producers to charge premium prices of $200 or more a ton, more than double the price of Appalachian coal sold to power plants. About 1.3 billion tons of Massey’s 2.9 billion tons of coal reserves is metallurgical coal. Under Blankenship, the company increased coal exports and opened important inroads to India, which is seen as the next big industrial market by some in the coal industry. Massey has faced questions about its safety practices since a fire killed two miners at it Aracoma Alma No. 1 mine in West Virginia in January 2006. The fire helped persuade Congress to pass sweeping safety changes that year. Alpha, on the other hand, has faced few questions about its safety practices and Crutchfield has been an invited speaker at industry safety conference. It has avoided major disasters, though several miners have died at its operations. Most notable was a roof collapse that killed two miners in Cucumber, W.Va., in January 2007. The April explosion, the worst U.S. mining disaster in 40 years, is the subject of civil and criminal investigations. On Friday, Massey rejected nearly every part of the federal government’s theory on what caused the deadly explosion. The company doesn’t believe that broken equipment or an excessive buildup of coal dust contributed to the blast. Instead, Massey argues there was a sudden inundation of natural gases from a crack in the floor that overwhelmed what it insists were good air flow and other controls that should have contained the blast. It acknowledged the shearing machine that cuts the coal may somehow have ignited the gas but said the company’s own investigators haven’t determined how. Massey won’t issue its own report on the explosion until after state and federal investigators release theirs. The proposed sale won’t affect the investigation into the explosion, said J. Davitt McAteer, who was asked by former West Virginia Gov. Joe Manchin to conduct a separate investigation. “It doesn’t impact the investigation since the investigation looks at a moment in time and what lead up to that,” said McAteer, who headed the federal Mine Safety and Health Administration during the Clinton administration. “Hopefully the purchase by Alpha would be helpful in adopting a new culture that would establish safer operating procedures at these mines operated by Massey,” he said. The explosion is also being investigated by MSHA and the West Virginia Office of Miners’ Health Safety and Training. Miner Clay Mullins, who lost his brother Rex in the Upper Big Branch explosion, said it’s a surprise anyone would want Massey. “I really don’t care what happens to them as long as there’s men and there’s families that need to make a living, I understand that, but Massey needs to be held accountable for the 29 men they murdered,” Mullins said. The companies said the deal is expected to close by mid-year. It must be approved by regulators and Alpha and Massey shareholders. If approved it will create a company with combined annual revenue of roughly $7 billion and more than 12,000 employees. Massey’s stock closed Friday at $57.23. The stock had tumbled from its close of $54.69 the day of the explosion to a low of $26.31 on July 2. Investors sensing the possibility of a takeover have bid the stock higher since then. Investors profited under Blankenship, but the former CEO alienated neighbors of his company’s mines over environmental issues. His staunch defense of the company after the explosion raised more anger. A statement from Alpha executives and Massey’s current CEO, Baxter F. Phillips Jr. did not mention the disaster. Coal broker A.T. Massey created the company bearing his name in 1920. Massey was sold in 1974 to St. Joe Minerals, which later formed a partnership with Royal Dutch/Shell Group in 1980. A year later, Massey Coal Partnership was purchased by Fluor Corp. Massey Energy was created in 2000 when Fluor spun off its coal holdings. Alpha was founded in 2002 and went public three years later. It has grown to one of the industry’s largest with a series of smaller acquisitions and the $1.4 billion takeover of rival Foundation Coal Holdings in July 2009 ___ Huber reported from Charleston, W.Va. AP Writer Brian Farkas in Charleston also contributed to this report.

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Feds Arrest Over 100 In NY-NJ Mob Takedown

January 20, 2011

NEW YORK — Federal prosecutors say 127 people are facing charges in one of the largest Mafia crackdowns in FBI history. U.S. Attorney General Eric Holder said at a news conference Thursday in New York City that the defendants include high-ranking members of the Gambino and Colombo crime families and the reputed former boss of organized crime in New England. Holder says the charges cover decades worth of offenses, including hits to eliminate perceived rivals, a killing during a botched robbery and a double shooting in a barroom dispute over a spilled drink. Authorities say the investigation was aided by informants who recorded thousands of conversations by suspected mobsters. THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below. NEW YORK (AP) – Federal agents dealt another major blow to New York’s five Mafia crime families by arresting more than 100 suspected mobsters throughout the Northeast on charges including murder, extortion and narcotics trafficking. The FBI said most of the arrests were made Thursday morning. Many were in Brooklyn, but they also occurred throughout New York City and in New Jersey and New England. Luigi Manocchio, the reputed head of New England’s Patriarca crime family, was arrested Wednesday in Fort Lauderdale, Fla., the U.S. attorney’s office in Providence said. A newly unsealed indictment accused him of collecting protection payments from strip club-owners. Also arrested was Thomas Iafrate, who worked as a bookkeeper for strip clubs and set aside money for Manocchio, prosecutors said. The takedown was the result of multiple investigations. Federal probes aided by mob turncoats have decimated the families’ ranks in recent years and have resulted in lengthy prison terms for several leaders. On Friday, a federal judge in Brooklyn sentenced John “Sonny” Franzese, 93, to eight years in prison for extorting Manhattan strip clubs and a pizzeria on Long Island. Federal prosecutors had sought at least 12 years behind bars for the underboss of the Colombo crime family – in effect, a life term. To bolster their argument, they had an FBI agent testify that Franzese bragged about killing 60 people over the years and once contemplated putting out a hit on his own son for becoming a government cooperator. In October, Mafia turncoat Salvatore Vitale was sentenced to time served after federal prosecutors praised his total betrayal of his own crime syndicate – and after he apologized to the families of his victims. Authorities said he had a hand in at least 11 murders, including that of a fellow gangster in the fallout from the infamous Donnie Brasco case. The evidence provided after his arrest in 2003 helped decimate the once-fearsome Bonanno organized crime family, Assistant U.S. Attorney Greg Andres said. “The Mafia today is weaker because of his cooperation,” Andres said. “Mr. Vitale provided lead after lead. … The results speak for themselves.”

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Video: Professor Lott Says Gun Control Laws Can Encourage Crime

January 13, 2011

Jan. 12 (Bloomberg) — John Lott, a professor at the University of Maryland, College Park and author of “More Guns, Less Crime,” Eric Pianin, Washington editor for the Fiscal Times and Bloomberg News’s Michael Riley talk about U.S. gun control laws and the Jan. 8 shootings at a shopping center in Arizona. One-day sales of handguns in Arizona jumped 60 percent to 263 on Jan. 10 compared with 164 the corresponding Monday a year ago, the second-biggest increase of any state in the country, according to Federal Bureau of Investigation data. They talk with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

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CHART: Florida AG’s Disturbing Foreclosure Fraud Presentation

January 7, 2011

In their effort to sniff out foreclosure fraud, Florida regulators followed the trails of mortgage and foreclosure paperwork into a world of alleged forgeries and false identities. The Florida Attorneys General (FLAG) office recently released a PowerPoint presentation highlighting findings from their investigation into potentially fraudulent foreclosure practices that may have illegally evicted families from their homes. In late 2009, two years after the foreclosure crisis began, all 50 states attorneys general announced a joint investigation into the legality of foreclosure practices around the country. FLAG’s presentation presents even more evidence that some banks and mortgage firms may have used fake witnesses, fake notaries, fake documents and false affidavits during the foreclosure process. One section of the presentation shows documents issuing mortgage-backed security assignments authorized with a signature by Linda Green, a supposed mortgage firm Vice President. The problem FLAG found is that the name Linda Green is on hundreds of thousands of mortgage assignments as the ‘Vice President’ of multiple mortgage firms, indicating that someone who was not authorized to assign the mortgages was doing the job. As the documents below show, signatures for Linda Green come in numerous styles – some clearly written while others are loopy and illegible. Check out this slide from the FLAG’s presentation: Another part of the presentation features a selection from court testimony by Tammie Lou Kapusta, an employee at a law firm hired to help banks process foreclosure paperwork. According to Kapusta, employees who were not authorized to sign foreclosure paperwork used notary stamps they were not authorized to use to push the paperwork through the law firm and into Florida courts. Banks who committed this kind of foreclosure fraud may not face criminal consequences , according to Bloomberg News . Iowa Attorney General Tom Miller, who headed up the states attorneys’ general investigation, reportedly isn’t pursuing a criminal investigation. “Our focus is to reform the servicing process and that’s inherently civil, not criminal,” Miller told Bloomberg news. Check out FLAG’s presentation below: Florida Attorney General Fraudclosure Report | Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases

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Exec Hit With Subpoena After Refusing To Wear Wire In Insider Trading Case

December 3, 2010

NEW YORK (By Matthew Goldstein): John Kinnucan, the owner of an independent Portland, Oregon-based research firm that has been implicated in a major insider trading investigation, said he had received a subpoena on Friday morning to provide federal prosecutors with documents dating back to January 2008. Kinnucan, in a telephone interview with Reuters, said the subpoena was personally served on him at his home by an FBI agent. The agent appeared at Kinnucan’s home as his children were getting ready to go to school. The owner of Broadband Research, Kinnucan said he had no plans to hire a lawyer because he did not want to bankrupt his family in the process. “The feds have been taping my calls, they know who my clients are,” he said. He said he had asked his former clients to contribute to a legal defense fund. Kinnucan said so far he hasn’t received any contributions. Kinnucan became something of a celebrity after refusing to cooperate with the investigation and notifying all his clients and industry contacts in an email last month. Several of the hedge funds and mutual funds that did business with him have been served with subpoenas. “My clients are not some scummy fly-by-night hedge funds,” said Kinnucan, who insisted the kind of information on technology companies he provided his clients was perfectly legitimate. Some of the current and former Kinnucan clients that have gotten subpoenas include Citadel and SAC Capital. Mutual fund companies Janus Capital Group Inc and Wellington Management also got federal subpoenas. FBI spokesman Jim Margolin declined to comment. Kinnucan sent his October email to more than 50 people associated with roughly 20 hedge funds and mutual funds. He said he had rebuffed the FBI’s demand that he cooperate and secretly record conversations, people familiar with the situation said. (Reporting by Matthew Goldstein and Jonathan Stempel; Editing by Lisa Von Ahn, Dave Zimmerman) Copyright 2010 Thomson Reuters. Click for Restrictions .

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EPA Investigates Radiation Release At New York Nuclear Lab

December 2, 2010

NISKAYUNA, N.Y. — The U.S. Environmental Protection Agency is investigating whether the release of radioactive material into the air and water at a Cold War-era atomic power laboratory in upstate New York violated federal laws. The investigation stems from the open-air demolition of an old research building at Knolls Atomic Power Labs near Albany. On Sept. 29, radiation above safe levels was discovered on workers’ boots, and demolition work there has since been suspended. EPA Regional Administrator Judith Enck said in a statement Wednesday that the agency is investigating whether the releases of radioactive material into the air and the Mohawk River violated federal environmental laws. EPA officials would not elaborate beyond saying the investigation is ongoing.

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Video: Lafferty Says Arrests Could Be Next in Insider Probe

November 24, 2010

Nov. 24 (Bloomberg) — Latour “LT” Lafferty, practice leader of white collar crime, government investigations, and corporate compliance and ethics at Fowler White Boggs, discusses the investigation into possible insider trading at hedge funds and mutual funds. Lafferty speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Horwitz Says Galleon `Broke the Mold’ on Insider Trading

November 24, 2010

Nov. 24 (Bloomberg) — Daniel Horwitz, a partner at Lankler & Carragher LLP, discusses the investigation into possible insider trading at hedge funds. Horwitz speaks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Administration Official Blames Foreclosure Firms For ‘Inexcusable Breakdowns’

November 23, 2010

WASHINGTON (By Martin Crutsinger, AP) – An Obama administration official says a preliminary investigation into the foreclosure process has found inexcusable breakdowns in the basic controls mortgage lenders should have been using. Assistant Treasury Secretary Michael Barr said Tuesday that a foreclosure task force composed of 11 federal agencies had found serious problems in the way home foreclosures were being handled. Barr told a new financial stability council headed by Treasury Secretary Timothy Geithner that the task force hoped to have a set of recommended improvements ready by late January. Barr said the goal of the task force was to hold banks accountable for fixing the problems that have been found and making sure that individuals who have been harmed are given a way to seek redress. Bar said the investigation had found “widespread and, in our judgment, inexcusable breakdowns in basic controls. The problems must be fixed.” Barr was delivered his comments before the Financial Stability Oversight Council. The group of top federal officials including Geithner and Federal Reserve Chairman Ben Bernanke was holding its second meeting. The panel was created by the Dodd-Frank legislation passed by Congress last summer in an effort to fix flaws in current government regulation that were exposed by the financial crisis that struck with force two years ago. Barr said that the 11 federal agencies were coordinating their investigation with state regulators across the country. He said the federal task force hoped to report back to the stability council at its January meeting. “Major financial institutions are being reviewed for problems across a wide range of issues in foreclosure processing,” Barr said. Members of the stability council heard Barr’s presentation but made no comments during the portion of the group’s meeting that was open to the public. The foreclosure crisis followed a housing boom that had been fueled by borrowers being allowed to take out risky loans with variable interest rates that they could not afford. Several major lenders temporarily suspended their foreclosures to review thousands of cases for improper handling. Attorney generals in all 50 states have also launched a joint investigation into the issue.

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David Callahan: Secrets of Florida’s "Foreclosure King"

October 28, 2010

A troubling truth about today’s white collar crime wave is that wherever there is a complicated fraud, there is usually a lawyer helping make it happen — or even a whole firm of lawyers. That was the case in the dotcom era, where Enron and other companies cooked their books with the help of top law firms. It was also true with subprime mortgages and predatory lending, where lawyers helped generate the loan contracts that hoodwinked consumers and, on Wall Street, helped structure some of the shady deals that securitized mortgage debt. So it should come as no great surprise that lawyers are now implicated in some of the bad behavior that has surrounded the collapse of the housing market and the epidemic of foreclosures. Specifically, a number of law firms have been accused of generating false documentation for banks intent on repossessing homes as fast as possible. These so-called “foreclosure mills” are said to have created paper trails to prove bank ownership of homes in those cases where proper record-keeping was ignored during boom times. New insights into how foreclosure mills operate have emerged in Florida, where the state attorney general is going after David Stern, a lawyer known as the “Foreclosure King.” Stern’s business model was based on volume and his firm was paid $1,400 to produce documents for each foreclosure. That put a premium on churning out the documents fast and the firm became adept at doing exactly that. According to a deposition of a key Stern employee, taken by the attorney general’s office, over 1,000 foreclosure documents were sometimes signed in a single day without being reviewed and without any witnesses present, as required by notarization rules. Often signatures were forged. (Read the deposition to get an inside look at how a foreclosure mill operates.) One paralegal claims she was fired after refusing to falsify documents. Asked about the investigations into foreclosure fraud, the paralegal, Tammie Lou Kapusta, told ABCNews.com: “This is just the beginning really. . . . It’s the tip of an extreme iceberg.” Stern’s firm filed a staggering 70,382 foreclosure cases in 2009 and reportedly billed nearly $100 million. As explained by the deposed employee, Kelly Scott, the firm was always under heavy pressure from lenders — including Fannie Mae and Freddie Mac — to speed up the processing of documents. The case against Stern is still under investigation and no charges have been filed against him. Stern’s lawyer says that the campaign to vilify him is unfair and advances the interests of “a well-organized defense bar who is making a lot of money keeping people in their homes.” Others say that it’s the banks that are to blame for the existence of foreclosure mills in the first place, which is a good point. One thing that is clear, though, is that Stern has done very well for himself thanks to the misery of others. He reportedly owns a $20 million yacht, a $15 million mansion, and several other expensive properties. Along with the bankers who have made record profits due to the Fed’s zero interest lending, Stern is an example of those who have prospered as a result of the financial crash. Greed, it turns out, thrives in both good times and bad. David Stern may, in fact, not be a bad guy. But it can be pretty tempting to forget about ethics when there’s the potential to make tens of millions of dollars by systematically cutting corners. Especially when the chances of punishment are pretty slim. Beyond the investigation by the state attorney general, Stern may eventually face judgment before his peers in the Florida State Bar Association. But don’t expect much there, even if it turns out that Stern has been unethical. State bars have a spotty track record at best of disciplining their own wayward members.

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David Callahan: Secrets of Florida’s "Foreclosure King"

October 28, 2010

A troubling truth about today’s white collar crime wave is that wherever there is a complicated fraud, there is usually a lawyer helping make it happen — or even a whole firm of lawyers. That was the case in the dotcom era, where Enron and other companies cooked their books with the help of top law firms. It was also true with subprime mortgages and predatory lending, where lawyers helped generate the loan contracts that hoodwinked consumers and, on Wall Street, helped structure some of the shady deals that securitized mortgage debt. So it should come as no great surprise that lawyers are now implicated in some of the bad behavior that has surrounded the collapse of the housing market and the epidemic of foreclosures. Specifically, a number of law firms have been accused of generating false documentation for banks intent on repossessing homes as fast as possible. These so-called “foreclosure mills” are said to have created paper trails to prove bank ownership of homes in those cases where proper record-keeping was ignored during boom times. New insights into how foreclosure mills operate have emerged in Florida, where the state attorney general is going after David Stern, a lawyer known as the “Foreclosure King.” Stern’s business model was based on volume and his firm was paid $1,400 to produce documents for each foreclosure. That put a premium on churning out the documents fast and the firm became adept at doing exactly that. According to a deposition of a key Stern employee, taken by the attorney general’s office, over 1,000 foreclosure documents were sometimes signed in a single day without being reviewed and without any witnesses present, as required by notarization rules. Often signatures were forged. (Read the deposition to get an inside look at how a foreclosure mill operates.) One paralegal claims she was fired after refusing to falsify documents. Asked about the investigations into foreclosure fraud, the paralegal, Tammie Lou Kapusta, told ABCNews.com: “This is just the beginning really. . . . It’s the tip of an extreme iceberg.” Stern’s firm filed a staggering 70,382 foreclosure cases in 2009 and reportedly billed nearly $100 million. As explained by the deposed employee, Kelly Scott, the firm was always under heavy pressure from lenders — including Fannie Mae and Freddie Mac — to speed up the processing of documents. The case against Stern is still under investigation and no charges have been filed against him. Stern’s lawyer says that the campaign to vilify him is unfair and advances the interests of “a well-organized defense bar who is making a lot of money keeping people in their homes.” Others say that it’s the banks that are to blame for the existence of foreclosure mills in the first place, which is a good point. One thing that is clear, though, is that Stern has done very well for himself thanks to the misery of others. He reportedly owns a $20 million yacht, a $15 million mansion, and several other expensive properties. Along with the bankers who have made record profits due to the Fed’s zero interest lending, Stern is an example of those who have prospered as a result of the financial crash. Greed, it turns out, thrives in both good times and bad. David Stern may, in fact, not be a bad guy. But it can be pretty tempting to forget about ethics when there’s the potential to make tens of millions of dollars by systematically cutting corners. Especially when the chances of punishment are pretty slim. Beyond the investigation by the state attorney general, Stern may eventually face judgment before his peers in the Florida State Bar Association. But don’t expect much there, even if it turns out that Stern has been unethical. State bars have a spotty track record at best of disciplining their own wayward members.

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Matt Sledge: Aqueduct Report: Jay-Z Was Clueless

October 27, 2010

The New York inspector general’s report on the tainted Aqueduct bidding process contains a little-noticed tidbit about the Aqueduct Entertainment Group’s most famous would-be investor. Jay-Z, as it turns out, never actually inked a deal with AEG. “Contrary to numerous media reports,” the investigation finds, nothing was ever made official. (Earlier this year multiple outlets seemed to suggest that Jay-Z had an active stake in the project). What’s more, Jay also didn’t seem to know much about the project, Inspector General Joseph Fisch determined after taking his testimony. That conversation “revealed”: scant knowledge of AEG’s proposal and its composition, no finalized agreement with AEG, and no lobbying by him whatsoever. Regardless, his notoriety caused his name to be mentioned in most news articles discussing AEG which brought his name, and well-known conviction, to the forefront. So much for the the savvy, take-charge CEO persona Jay-Z likes to present to the world. The report seems to suggest that he was little more than a hype man for the AEG bid. The project’s real heavy hitters may have been hoping to use Jay to impress just one person: Governor David Paterson. A February report in the New York Post suggested the AEG consortium chose Jay-Z to gain the favor of the governor, who became friends with the rapper last year. The multimillionaire music impresario’s part of the AEG bid bears a striking resemblance to his role with the New Jersey Nets. Although he controls only a tiny share of the basketball franchise, his stake is trumpeted loudly in promotional materials for the related Atlantic Yards arena project, and he was prominently featured at its groundbreaking in Brooklyn, along with Governor Paterson. As Norman Oder has perceptively written of the groundbreaking, putting the rapper “front and center” was “a brilliant move relying on the unsurprising shallowness of a star-struck press.” For AEG, however, Jay-Z’s inclusion in the project backfired. New York State Assembly Speaker Sheldon Silver was apparently irritated with the governor’s fanboy crush on the best rapper alive . On January 29 he imposed as a stipulation for his support of the bid a rule prohibiting anyone “convicted within the past 15 years of a felony” from investing in the project. Jay-Z’s misdemeanor conviction (for stabbing a record producer) presumably would have disqualified him. The IG found that Silver’s condition was “specifically directed” at Jay-Z and one other potential financial backer. But Jay-Z didn’t immediately drop out, instead waiting “several weeks” until an investigation on him was initiated — and a subpoena was sent. It wasn’t until March 8, after he had drawn additional critical scrutiny from the press, that he officially backed out. On the Aqueduct deal, Shawn Carter’s much lauded (and self-lauded) business acumen was nowhere to be seen.

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Lloyd Chapman: Federal Judge Denies SBA Move To Drop Case on PR Contract

October 14, 2010

United States District Judge Saundra Brown Armstrong has denied a motion put forth by the Small Business Administration (SBA) to dismiss a lawsuit filed against the agency by the American Small Business League (ASBL). The ASBL is pursuing information on potentially damaging public relations contracts awarded by the agency to APCO Worldwide Inc., a large public relations firm specializing in crisis management. The ASBL suspects the SBA has spent American tax dollars to hire consultants to help them obscure the SBA’s role in diverting billions of dollars a month in federal small business contracts to Fortune 500 firms and other large businesses around the world. The ASBL believes the SBA may have launched a massive campaign to cover-up the diversion of federal small business contracts to large businesses, and to discourage the media from covering the issue. In one case, the SBA paid $30,000 for a one-day meeting with APCO executives. The SBA is refusing to release the complete details of the contract. ( http://www.asbl.com/documents/APCO_SBA_Contract.pdf ) Since 2003, more than a dozen federal investigations have uncovered billions of dollars a month in federal small business contracts to corporate giants. In Report 5-15, the SBA’s own office of inspector general referred to the issue as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today” ( http://www.asbl.com/documents/05-15.pdf ) In Report 5-16 from March of 2005, the SBA IG reported that large businesses had committed fraud by misrepresenting themselves as small businesses through “false certifications,” and “improper certifications.” Another investigation from the SBA Office of Advocacy found large businesses had received federal small business contracts fraudulently through what they referred to as “vendor deception.” In recent years, the SBA has claimed the diversion of federal small business contracts to large corporations is the result of harmless “miscoding.” In May of 2007, the SBA even went as far as to claim that it was a “myth” that large corporations received federal small business contracts. ( http://www.asbl.com/documents/sbamythvfact.pdf ) I think it is very telling that the SBA has a PR contract with an international public relations firm that specializes in crisis management. The fact that they are withholding information on that contract is even more suspicious.

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White House: No Need For National Foreclosure Moratorium

October 10, 2010

WASHINGTON — A top White House adviser questioned the need Sunday for a blanket stoppage of all home foreclosures, even as pressure grows on the Obama administration to do something about mounting evidence that banks have used inaccurate documents to evict homeowners. “It is a serious problem,” said David Axelrod, who contended that the flawed paperwork is hurting the nation’s housing market as well as lending institutions. But he added, “I’m not sure about a national moratorium because there are in fact valid foreclosures that probably should go forward” because their documents are accurate. Axelrod said the administration is pressing lenders to accelerate their reviews of foreclosures to determine which ones have flawed documentation. “Our hope is this moves rapidly and that this gets unwound very, very quickly,” he said. With the reeling economy already the top issue on voters’ minds, the doubts raised over foreclosures and evictions are becoming a political issue with the approach of Nov. 2 elections. Underscoring those pressures, two leading lawmakers took opposing stances on the wisdom of a moratorium. Rep. Debbie Wasserman Schultz, D-Fla., a top House Democrat, said she backed a foreclosure moratorium and government talks with the banking industry to concoct ways to let lenders reshape troubled mortgages. She said the foreclosure problem has been “extremely vexing” in her state. The No. 2 House Republican, Rep. Eric Cantor of Virginia, said a national moratorium would remove the protections that lenders need. “You’re going to shut down the housing industry” with a national stoppage, Cantor said. “People have to take responsibility for themselves.” In recent days, Senate Majority Leader Harry Reid, D-Nev., in a tough re-election race, urged five large mortgage lenders to suspend foreclosures in his state until they establish ways to make sure homeowners don’t lose their homes improperly. Attorney General Eric Holder said that the government is looking into the matter, and Democratic lawmakers urged bank regulators and the Justice Department to probe whether mortgage companies violated laws in handling foreclosures. The attorneys general of up to 40 states plan to shortly announce a joint investigation into banks’ use of flawed foreclosure paperwork, a person familiar with the investigation told The Associated Press late Saturday. On Friday, Bank of America became the first bank to halt foreclosures in all 50 states. Three other institutions – JPMorgan Chase & Co., Ally Bank’s GMAC Mortgage unit and PNC Financial – have stopped foreclosures in the 23 states where foreclosures must be approved by a judge. President Barack Obama vetoed a bill last week that would have made it easier for banks to approve foreclosure documents, which the White House said could hurt consumers. Axelrod spoke on CBS’ “Face the Nation” while Wasserman Schultz and Cantor appeared on “Fox News Sunday.”

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Foreclosure Fraud Inquiry Planned By Up To 40 States

October 10, 2010

WASHINGTON — The attorneys general of up to 40 states plan to announce soon a joint investigation into banks’ use of flawed foreclosure paperwork. A person briefed on the investigation said Saturday night that an announcement could come as early as Tuesday. The person spoke on condition of anonymity because the investigation was not yet public. Iowa Attorney General Tom Miller will lead the investigation. Miller already has been leading multistate reviews of questionable foreclosure documents. A joint investigation by 40 states would further escalate pressure on banks to widen their suspensions of foreclosures. On Friday, Bank of America became the first bank to halt foreclosures in all 50 states. JPMorgan Chase & Co., Ally Bank’s GMAC Mortgage unit and PNC Financial have stopped foreclosures in the 23 states where foreclosures must be approved by a judge. The plans for a joint inquiry were reported earlier by Bloomberg News. A furor has been growing as evidence has surfaced that mortgage lenders have been using flawed court papers to evict homeowners. That’s led state and federal officials to ramp up pressure on the mortgage industry. Officials in several states have either announced they are investigating potential legal violations or have called for a freeze on foreclosures. Ohio Attorney General Richard Cordray was the first to sue a mortgage company over the issue. He sued Ally last week, claiming the company’s employees signed and filed false documents to mislead courts. Ally says the company’s practices were neither fraudulent nor deceitful. Attorney General Eric Holder has said the federal government is looking into the issue. And Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, said he would hold a hearing on the issue next month. Problems with foreclosure procedures were discussed during two recent conference calls between officials from the Treasury Department, Department of Housing and Urban Development, White House and other agencies, according to an Obama administration official who spoke Saturday on condition of anonymity because the meetings were private. __ AP Business Writer Christopher S. Rugaber contributed to this report.

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Phil Trupp: FINRA Proposes All-Public Dispute Panels

October 8, 2010

Not long ago, if you were an investor seeking beat a financial scam you stood little, if any chance, of gaining justice. But the outright inquisition of scammed investors may end with a pilot program now being expanded by the Financial Industry Regulatory Authority (FINRA). Begun after the 2008 market meltdown, the program overturns brokerage industry rules that forced investors to settle disputes through FINRA arbitration which consisted of a panel of industry insiders. Aggrieved investors were compelled to face a panel of biased industry insiders who made sure investors walked away either empty handed or with just pennies on the dollar. FINRA arbitration was a notorious one-way street where complaints went to die. If the new FINRA proposal is approved, it will allow investors to select a three-person panel of non-industry judges to hear charges of fraud and malfeasance. The rule will apply to investor disputes against any financial services firm or individual brokers. At present, most arbitration panels are composed of two “public” arbitrators and one industry representative. Despite the move to allow investors to select outsiders to hear their complaints, the arbitration process remains somewhat veiled. For example, the new setup does not place a fiduciary duty on arbitrators; they have no obligation to take into account the best interests of investors. Neither are they bound to produce written an explanation of the panel’s decisions. In addition, unfavorable decisions can’t be taken to a higher court. The panel’s decision is the end of the road. “Even with an all-public panel, arbitration is still an opaque process,” according to a source inside FINRA, the brokerage industry’s bought-and-paid-for “overseer.” Still, Pat Huddleston, chief executive of Investor’s Watchdog, says the all-public panel is a “good step” but doesn’t go far enough to protect investors. “Nobody but the parties understands what happens in that arbitration room,” Mr. Huddleston says. The proposal allowing all-public panels will be filed in November and must be approved by the Securities and Exchange Commission. “Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the arbitration process,” says Richard Ketchum, FINRA chairman and CEO. Mr. Ketchum’s use of the word “perception” has caused some investors to express skepticism. “What does ‘perception’ have to do with it,” said one investor preparing for arbitration. He made his remarks anonymously for fear of prejudicing the FINRA panel before which he is scheduled to appear. “Perception is a murky term of art,” he added. “It doesn’t always add up to reality.” The current pilot program involves 14 firms that agreed to examine a number of investor cases that did not involve individual brokers. Under the new proposal, however, investors will be able to file complaints against any firm or individual broker. It will not apply to disputes involving only industry parties. Since the Public Arbitration Pilot Program began in 2008, slightly more than 60 percent of investors opted in, resulting in 560 cases to date. Given the power to eliminate all non-public arbitrators, investors still chose to have one non-public arbitrator on their panel about half the time. If the new proposal is approved by the SEC, the program will be extended for one year. Currently, there are 6,200 FINRA arbitrators — 2,700 are non-public and 3,500 public. “This is a wait-and-see process,” Arnold Ripkin, an independent day trader who is suspicious of FINRA’s motives. “People and organizations don’t change overnight,” he said. “FINRA has a long history as a bad actor, especially under (former FINRA chief) Mary Schapiro.” It was recently reported that Ms. Schapiro walked away from the organization with a $10 million golden parachute, despite having missed the $65 billion Bernard Madoff Ponzi scheme and the investigation of R. Alan Stanford’s alleged $7 billion Ponzi operation. Ms. Schapiro now heads the SEC and was named the seventeenth most powerful woman in the country by Forbes , a notch below former Alaska Governor Sara Palin.

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Lloyd Chapman: GTSI Admitted They Were Not a Small Business on 1999 SEC Documents

October 7, 2010

In 1999, GTSI, a Top 50 government contractor reported that it was no longer a small business for the purposes of government contracting. Yet from fiscal year (FY) 2004 to FY 2010, GTSI received more than $1.18 billion in federal small business contracts. Data from the Federal Procurement Data System – Next Generation (FPDS-NG) indicates that GTSI received as much as $268 million a year in small business contracts over the 7 year period. The company’s 1999 annual report to the Securities and Exchange Commission (SEC) stated, “As a result of the acquisition of the BTG Division in February 1998, GTSI no longer qualifies as a small business for contract awards after February, 1998.” The company reiterated that statement in its 2000 report. On October 1, the Small Business Administration (SBA) suspended GTSI from federal contracting programs. The suspension came as the result of government allegations that the company inappropriately gained access to contracts set aside for small businesses. Section 16(d) of the Small Business Act, prescribes penalties of up to $500,000 and up to 10 years in prison for firms that misrepresent themselves as small businesses in order to illegally receive federal small business contracts. Since 2003, more than a dozen federal investigations have uncovered billions of dollars a year in federal small business contracts flowing into the hands of corporate giants around the world. The most recent information released by the Obama Administration indicates that of the top 100 recipients of federal small business contracts, 65 percent of the dollars actually went to large businesses . Large businesses included in the Obama Administration’s small business data include: Lockheed Martin, Boeing, British Aerospace (BAE), Rolls-Royce, Raytheon, Dell Computer, and General Electric. In Report 5-15 , the SBA’s Office of Inspector General referred to the diversion of federal small business contracts to corporate giants as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” This is a serious federal crime that carries a penalty of up to 10 years in prison. The fact that the SBA waited almost 12 years to suspend GTSI after they admitted that they were not a small business, is proof they are assisting these large firms in high-jacking small business contracts. It is time for the Justice Department to step in and take over the investigation from the SBA.

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Chrysler Auto Workers Caught Drinking During Lunch, Possibly Smoking Pot (VIDEO)

September 24, 2010

UPDATE: Chrysler has indefinitely suspended 15 workers from the Jefferson North plant in the wake of Fox 2′s report, according to the WSJ . Fox 2 Detroit busted a group Chrysler auto workers during what appears to be a particularly raucous lunch hour. In the segment, reporter Rob Wolchek, acting on a tip from a plant worker, follows a group of workers from Detroit’s Jefferson North plant who used their lunch hour to journey to a local park. Wolchek approaches a group of workers, who appear to be drinking beer and smoking some sort of substance. “Hey, guys I hate to be a buzzkill, but shouldn’t you be building cars?” Wolcheck asks. Last July, President Obama paid the Jefferson North plant a visit. The workers were observed in the park “day after day,” Wolchek reports. After seeing the video, Scott Garberding, Chrysler’s senior vice president of manufacturing, told Fox 2 Detroit: “I’m very, very disturbed about what I just saw in the video and I want to make it clear that we at Chrysler take it very seriously. For us this behavior is totally unacceptable and will be dealt with swiftly. In fact, we’ve already identified a few of the people involved in this incident. Each of them has been suspended indefinitely, without pay, pending further investigation. We’ll continue to pursue this in fact, until we’re done. ” WATCH the Fox 2′s video:

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Tech Firms Try To Settle With DOJ Over Staff Poaching

September 18, 2010

SAN FRANCISCO — Several major Silicon Valley employers are trying to settle a government investigation focused on whether they colluded to hold down their payroll expenses by restricting the recruitment of each other’s employees. Google Inc., Apple Inc., Intel Corp., Adobe Systems Inc., Intuit Inc. and Walt Disney Corp.’s Pixar Animation Studios are among the companies seeking a truce with the Department of Justice, people with knowledge of the discussions said Friday. These people didn’t want to be identified because they weren’t authorized to speak publicly. The Wall Street Journal first reported the talks. The negotiations could still break down, catapulting the issue into court. Even as they try to avoid a high-profile court battle, the Justice Department and the targeted companies differ on how the limitations on their hiring practices affected employee wages and the competitive landscape. The dispute revolves around promises made as part of partnerships among the companies under investigation. To alleviate fears that the alliances would lead to payroll poaching, the companies agreed not to court their partners’ employees if those workers hadn’t already expressed interest in getting another job. Reaching out to workers who aren’t actively seeking other employment is commonly known as “cold calling.” The government is looking into whether this cold-calling prohibition helped employers lower their labor costs by stifling possible job offers that might have prompted them to offer raises to retain top employee. If the restrictions had that effect, it could be interpreted to be a form of price-fixing collusion that violates antitrust laws. Regulators also are assessing whether the agreements diminished competition by limiting rivals ‘ability to benefit from the knowledge and skills of elite workers. The employers argue the cold-calling ban fostered innovation and economic growth because it enabled top tech companies to work together on key projects and initiatives. These alliances are less likely to occur, the companies contend, if employers think the partnerships could open the door to their best workers being poached. What’s more, the companies targeted in the investigation say their agreements still allowed them to hire employees from one another. This could be done if workers took the first step and applied for a vacant job or by simply stating that they’re interested in pursuing other opportunities in an online forum such as LinkedIn. ____ AP Technology Writer Jordan Robertson contributed to this report.

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Neil McCormick, UBS Banker, Jumped To His Death After Snorting Cocaine

September 8, 2010

Neil McCormick, the head of UBS’s Asia Derivatives Unit, jumped to his death in London after ingesting cocaine at a party, according to the U.K.’s Daily Mail report of a court investigation into the death. (Hat tip to Business Insider. ) On June 21, Reuters reported that McKormick had died , based on a statement from UBS. McCormick, 36, had returned to London and was attending a party thrown in his honor, according to the Daily Mail’s account of the investigation. After walking around mumbling to himself, one attendee had this very grim description of McCormick’s death: I saw him vault between the window boxes and the balustrade, then there was a scramble. That’s the image I will probably have solidly with me forever. He steadied himself, and that was it.’ According to IFRAsia, McKormick worked at JPMorgan for more than 10 years prior to UBS and was a founding member of JPMorgan’s “exotics” team. Check out the full article at the Daily Mail .

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3 Reps Under Further Investigation Over Alleged Bank Bribery

August 31, 2010

WASHINGTON — House investigators have recommended that three lawmakers be further investigated to determine whether political contributions were improperly linked to votes on the huge financial overhaul bill. The independent House Office of Congressional Ethics recommended that the member-run House ethics committee pursue potential rules violations by Republicans John Campbell of California and Tom Price of Georgia and Democrat Joseph Crowley of New York. The ethics office recommended no further investigation of five other lawmakers in the same probe: Democratic Reps. Earl Pomeroy of North Dakota and Mel Watt of North Carolina, and Republicans Jeb Hensarling of Texas, Chris Lee of New York, and Frank Lucas of Oklahoma. All offices of the lawmakers had received letters from the OCE by Tuesday and made the conclusions public. President Barack Obama signed the financial overhaul bill into law July 21. It aims to restrain Wall Street excesses with the most sweeping overhaul of financial rules since the Great Depression, clamping down on lending practices and expanding consumer protections to address failures that precipitated the 2008 meltdown that knocked the economy to its knees. The Democrats – Crowley, Pomeroy and Watt – voted for the final bill. The Republicans – Campbell, Price, Hensarling, Lee and Lucas – voted against it. Campbell said he was “perplexed by OCE’s decision, as they have presented no evidence that would suggest wrongdoing.” Campbell added that he “always complied with the letter and the spirit of the law. To suggest otherwise is unfounded and untrue. In addition, my voting record and opposition to a culture of taxpayer-funded bailouts has been and always will be unshakable.” Price said it was “truly a mystery” that his case was referred for further investigation. “There being no evidence of any wrongdoing or any inconsistency in my policy position, one can only guess as to the motive behind their decision or even why they chose to initiate a review in the first place,” he said. “My constant allegiance to a transparent and conscious divide between my official duties as a member of Congress and my actions as a candidate is without question.” Crowley’s office said in a statement that he “has always complied with the letter and spirit of all rules regarding fundraising and standards of conduct.” All three lawmakers referred for further investigation had fundraisers last December, around the time of crucial House votes. Price had two fundraisers, including a breakfast on Dec. 2 and a luncheon Dec. 10 billed as a financial services event. A special guest was Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. Crowley had a cocktail reception Dec. 10. Campbell had fundraisers Dec. 8 and Dec. 9. Campbell and Price consistently opposed the regulation legislation. Crowley, after attending his fundraiser, returned to the House and voted against Democratic amendments aimed at toughening some financial regulations. In each case he joined more than 100 Democrats, including fellow New Yorkers, to vote against the proposed changes. ___ Associated Press writer Jim Kuhnhenn contributed to this report.

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West Virginia Mine Explosion Investigator: Methane May Be Bubbling Up

August 25, 2010

CHARLESTON, W.Va. — Methane gas may be bubbling up in a flooded area of West Virginia’s Upper Big Branch mine where 29 men died in an April 5 explosion, a federal mine regulator said Wednesday. Kevin Stricklin, an official with the federal Mine Safety and Health Administration, said several feet of water have kept investigators from searching that area of the Massey Energy mine near where nine of the victims were found. Stricklin said the bubbling water probably signals the presence of methane. But he cautioned that methane is frequently found seeping from coal seams in underground mines and that the explosion may not have begun there. Officially, the cause of the explosion hasn’t been determined, but MSHA said it suspected methane and coal dust in a preliminary report delivered last April to President Barack Obama. Investigators have mapped about 90 percent of the mine even though water has kept them from searching two underground areas, said Stricklin, MSHA’s administrator of coal mine safety and health. Both areas are lower than surrounding areas of the mine and haven’t been pumped out since the April 5 blast, he said, adding authorities hope to begin draining the larger of the two areas this week in seeking clues to the disaster. The mine has about 12 miles of underground workings. The agency has signaled much work remains in the investigation, including about 50 more interviews and testing on electrical equipment. MSHA said it has interviewed 197 witnesses, collected hundreds of pieces of evidence, taken more than 3,000 photographs and tested 1,800 dust samples.

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Video: Clemens Said to Face U.S. Charges for False Statements: Video

August 19, 2010

Aug. 19 (Bloomberg) — Roger Clemens, the former Major League Baseball pitcher, faces federal charges for allegedly lying to Congress over the use of performance-enhancing drugs, according to a person familiar with the investigation. Bloomberg’s Scott Soshnick talks with Mark Crumpton and Julie Hyman about Clemens, who testified in February 2008 before a U.S. congressional committee that he never used banned substances in his baseball career. (Source: Bloomberg)

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Jodie Fisher, Accuser In HP Case, Says Her Work Was Cut After Turning Down CEO’s Advances

August 18, 2010

SAN FRANCISCO — The woman whose sexual harassment allegations led to the ouster of former Hewlett-Packard Co. CEO Mark Hurd claimed her work with the company dried up because she rebuffed Hurd’s advances, a person close to the investigation told The Associated Press. The substance of the complaint that led to Hurd’s resignation from the world’s largest technology company had not been publicly known until late Tuesday. Hurd denies making any advances on Jodie Fisher, who worked as a contractor for HP’s marketing department from 2007 to 2009, according to this person, who requested anonymity because of not being authorized to discuss the case. Fisher, 50, is an actress and businesswoman who helped HP organize networking events for customers and introduced executives to each other. She and Hurd would often dine together after the events. HP determined that Hurd didn’t violate the company’s sexual harassment policies in his interactions with Fisher. But the company said it did find falsified expense reports connected to those meetings, and said those led to the board’s unanimous decision to seek Hurd’s resignation. Hurd says he didn’t prepare his own expenses and that Fisher’s name was not intentionally left off any reports. He resigned August 6 and was given a severance package that could top $40 million. Fisher’s lawyer, celebrity attorney Gloria Allred, declined to comment, as did an HP spokesman. Fisher worked more than a dozen events in her two years with HP, the bulk of which occurred in her first year, according to the person with knowledge of the investigation. She was paid up to $5,000 per event. Her work dwindled in the second year because HP’s marketing budget was cut and had nothing to do with her relationship with Hurd, the person said. Hurd settled with Fisher for an undisclosed amount before his resignation. HP had urged Hurd for weeks to settle the case, and Hurd eventually agreed because his lawyers convinced him it would be cheaper than taking the case to trial, according to the person close to the investigation. Hurd had decided to step down a week before the resignation was announced because the board wanted to publicly disclose the harassment allegation based on advice from a public relations firm and lawyers, even though the company’s investigation found the claims to be without merit, the person said. Hurd claims he still doesn’t have an accounting for all the expenses he is alleged to have falsified.

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Massey: Don’t ‘Rush To Judgment’ Blaming Us For West Virginia Mine Explosion

August 13, 2010

MORGANTOWN, W.Va. — A 36-foot crack in the Upper Big Branch mine isn’t venting methane and didn’t contribute to a blast in April that killed 29 men, a federal official said Friday, disputing a company’s claim that the crack could have caused the blast. The crack has been the subject of a running dispute between the Mine Safety and Health Administration and the mine’s owner, Virginia-based Massey Energy. Company officials have suggested a massive crack could have unexpectedly flooded the southern West Virginia mine with explosive methane gas. Ruling out any possible contributing factors at this point in the investigation is “completely irresponsible,” company spokesman Jeff Gillenwater said in an e-mail. “No one investigating the tragedy at UBB should rush to judgment,” he said, insisting the crack merits further investigation. Some of the victims’ relatives said Massey told them the crack was 150 feet long. MSHA coal administrator Kevin Stricklin strongly disputed that in a media briefing earlier this week but couldn’t offer an exact measurement. Stricklin said he sent a geologist underground to measure the crack for a second time Thursday. The crack – near the longwall mining machine and a number of other, smaller cracks – was 36 feet long about 5 inches deep, he said. Investigators believe the April 5 explosion occurred in an area near the machine. But the geologist said the crack in the sandstone floor was “rootless,” meaning it did not lead to a coal seam, and was not venting methane, Stricklin said. Cracks and floor heaving are common in longwall mining, he said, and this one had no special significance. Stricklin wouldn’t rule out another crack elsewhere in the mine causing the blast. “I just didn’t want a family member thinking this particular crack was the cause of the explosion,” he said. “I didn’t want the question lingering out there.” Stricklin also insisted earlier this week that all explosions are preventable. Even if a massive inundation of methane occurred, he said, it should not have automatically exploded. Mines should have enough fresh air movement to carry methane out, the equipment underground should not be able to provide a spark, regular inspections should find flaws in any safety systems, and all mines should be thoroughly coated with rock dust to prevent coal dust from exploding. “Those are four key components we stand by,” Stricklin said. “We don’t think explosions need to occur anywhere.”

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HP Bribery Investigation Heats Up

August 13, 2010

WASHINGTON — Hewlett-Packard Co. said Thursday it is cooperating with U.S. and German authorities investigating allegations that three company executives used bribes to win a contract to sell computer gear to the Russian prosecutors’ office. German prosecutors have been looking into whether the executives, plus at least six accomplices who did not work for the company, paid bribes totaling 8 million euros (about $10.3 million) to win a 35 million-euro contract to supply computers, software and hardware to the Russians. Prosecutors say at least two of the executives no longer work for HP. The Wall Street Journal reported Thursday that the Justice Department has asked HP to hand over internal documents to German prosecutors after they complained that the company had refused to provide them with relevant records. The Securities and Exchange Commission is also investigating possible violations of the foreign Corrupt Practices Act, which prohibits bribes of foreign officials. Russian officials, who raided HP’s Moscow offices in April at the request of German prosecutors, have joined the investigation, too. “HP is and has been fully cooperating with all authorities on this matter,” the company said in a statement. The Justice Department and SEC declined comment to The Associated Press. The latest development came just days after HP CEO Mark Hurd abruptly resigned following an investigation into sexual-harassment claims. The company said it found that its sexual harassment policy wasn’t violated, but it uncovered falsified expense reports connected to dinners and other meetings with the woman who made those claims, Jodie Fisher. Hurd has settled with Fisher for an undisclosed sum. HP, based in Palo Alto, Calif., is the world’s No. 1 personal computer maker. The contract for the Russian deal was signed in 2000, and the deliveries continued until 2006 or 2007, German authorities have said. The three executives were arrested in Germany and Switzerland in December and later freed on bail. The participants are suspected of offenses including breach of trust, tax evasion and money laundering, authorities said. Authorities say it’s unclear who took the bribes, which flowed through a network of foreign firms and bank accounts. The matter came to the attention of Dresden prosecutors when a tax office in Germany’s Saxony state inspected a local company whose account was used in the kickback scheme, authorities said.

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HP CEO Mark Hurd Resigns After Sexual-Harassment Probe

August 6, 2010

SAN FRANCISCO — Hewlett-Packard Co. said CEO Mark Hurd is stepping down following a probe that found he falsified expense reports related to a former HP contractor who accused him of sexual harassment. HP said Friday that Hurd decided to leave after the sexual-harrassment claim, which was made against him and the company. The company probe concluded that HP’s sexual-harassment policy was not violated, but that its standards of business conduct were. In a conference call with analysts late Friday, Michael Holston, HP’s general counsel, said Hurd displayed a “systematic pattern” of turning in inaccurate expenses and financial reports connected to the female marketing contractor who accused him of sexual harassment. “The facts that drove the decision for the company had to with integrity, had to do with credibility, had to do with honesty,” Holston said, declining to elaborate on specifics. Holston added that the pattern of inaccurate financial reports “related to Mark’s conduct with this specific individual and wasn’t broader than that.” After the announcement, the technology company’s shares dropped nearly 10 percent. In a statement, Hurd said that during the investigation he “realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP.” He added that he believed it would be “difficult to continue as an effective leader at HP.” Hurd and Robert Ryan, HP’s lead independent board member, stressed that Hurd’s departure has nothing to do with the company’s financial health. Ryan said in a statement that HP’s board “deliberated extensively” about whether Hurd should leave his post. “The board recognizes that this change in leadership is unexpected news for everyone associated with HP, but we have strong leaders driving our businesses, and strong teams of employees driving performance,” he said. Hurd, 53, joined HP in April 2005 as its CEO, president and a board member. He gained the title of board chairman in September 2006. Before coming to HP, he worked as CEO of ATM maker NCR Corp. for two years, and as that company’s president for nearly four years before that. He is also a member of News Corp.’s board. The company’s stock price has nearly doubled since Hurd started at HP on April 1, 2005, when the shares closed at $21.71. They closed trading Friday on the New York Stock Exchange at $46.30, then tumbled to $41.85 as investors reacted to the stunning news of his resignation. HP, which makes a range of tech products including printers and computers, named Chief Financial Officer Cathie Lesjak as its interim CEO. Lesjak, 51, who has been at HP for 24 years, will continue to act as CFO. HP said a board committee will search for a new CEO, and the company said Lesjak decided not to be considered for the position of permanent CEO. Also Friday, HP issued preliminary results for its fiscal third quarter, which came in slightly above analyst expectations. HP said it earned 75 cents per share during the period, compared with 67 cents per share in the same quarter a year ago. When excluding one-time items, the company earned $1.08 per share. Analysts polled by Thomson Reuters expected adjusted earnings of $1.07 per share. HP said its revenue rose 11 percent from last year to $30.7 billion; analysts were looking for $30 billion in revenue. HP gave outlook for its fiscal fourth quarter as well. The company forecast earnings of $1.03 to $1.05 per share, or $1.25 to $1.27 per share after excluding one-time items. Analysts were hoping for adjusted earnings of $1.26 per share. HP expects $32.5 billion to $32.7 billion in revenue, in line with analysts’ expectations of $32.6 billion. HP plans to report its final results Aug. 19.

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SEC Probes Possible BP Insider Trading: Report

August 2, 2010

WASHINGTON (Reuters) – U.S. securities regulators are investigating whether people may have illegally profited from trading on nonpublic information at BP Plc (BP.N) (BP.L) in the weeks and months following the disastrous Gulf of Mexico oil spill, two sources familiar with the investigation said on Monday.

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Shanshan Du, Ex-GM Worker, Allegedly Tried To Sell Hybrid Car Secrets To Chinese Companies

July 23, 2010

DETROIT — A former General Motors engineer and her husband conspired to steal trade secrets about hybrid technology and use the information to make private deals with Chinese competitors, according to a federal indictment unsealed Thursday. Shanshan Du and Yu Qin, both of Troy, were indicted on conspiracy, fraud and other charges. They had been under scrutiny for years and were charged in 2006 with destroying documents sought by investigators, a case that was dropped while a broader probe was pursued. The indictment says Du, who was hired at GM in 2000, purposely sought a transfer in 2003 to get access to hybrid technology and began copying documents by the end of that year. In 2005, she copied thousands of documents, five days after getting a severance offer from the automaker, according to the indictment. By that summer, Qin was telling people he had a deal to provide hybrid technology to Chery Automobile, a GM competitor in China, the indictment says. The couple had set up their own company, Millennium Technology International. Outside court, Assistant U.S. Attorney Cathleen Corken said there’s no indication the Chinese benefited. Jin Yibo, a Chery spokesman in China, said early Friday that the company saw a news report about the case but knew nothing else about it. “We are surprised about why anyone connected this with Chery. This is ridiculous,” Jin said. Du, 51, and Qin, 49, were arrested Thursday and remained mostly silent during a court appearance where they waived a reading of the indictment. Not-guilty pleas were entered for them. The maximum penalty if convicted is 20 years in prison. “Theft of trade secrets is a threat to national security,” Andrew Arena, head of the FBI in Detroit, said in a statement. Du’s attorney, Robert Morgan, declined to comment. Qin’s attorney, Frank Eaman, said he was “completely surprised” by the indictment. “This investigation has been going on so long I figured if they had a basis they would have charged them a long time ago,” Eaman said. Corken said GM learned about the alleged theft and called the FBI. GM estimates the value of the stolen information at $40 million. In May 2006, Du and Qin were charged with destroying records to stifle an investigation of them. FBI agents followed them to a major grocery store where Qin approached a Dumpster, according to a court filing at the time. Agents later retrieved shredded documents. That criminal complaint was dropped less than two months later, a common move when investigators want to further develop a case. The indictment includes an obstruction of justice charge against Qin for the alleged Dumpster incident. Du and Qin, both U.S. citizens, were released on bond and ordered to mostly stay in the Detroit area.

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Glenn Beck’s Sponsor Goldline Under Investigation By Los Angeles D.A. For Fraud (VIDEO)

July 20, 2010

Goldline, more popularly known for its high-profile endorsements from Fox News’ Glenn Beck and former presidential candidate Mike Huckabee, is under investigation by the Los Angeles County District Attorney’s office and was the subject of Monday night’s “Nightline” on ABC . Authorities in Los Angeles began the investigation after receiving over 100 complaints from consumers who claimed to have lost thousands of dollars after investing with Goldline and Superior Gold Group, a company based out of Santa Monica, California. Adam Radinsky, Santa Monica City Deputy Attorney, whose office is partnering with investigators in L.A., spoke with “Nightline” about the types of complaints that consumers were making: There are two main types of complaints we’re seeing. One is that customers say that they were lied to and misled in entering into their purchases of gold coins. And the other group is saying that they received something different from what they had ordered. The problem is allegedly with the antique gold coins that Goldline sells as a part of their investing scheme. Rep. Anthony Weiner (D-N.Y.), who is hoping to conduct a congressional investigation into the gold company, also spoke with “Nightline”: Once they get people on the phone, they basically steer them into these so-called collectible coins, and that’s where the rip-off becomes really profound. The companies spokespeople declined to speak with “Nightline” but issued a statement to ABC citing the transparency of their prices and that customers know and understand the risks involved before they invest. WATCH:

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Susan Klein: The Controversy Surrounding the Criminal Probe into the Gulf Oil Spill

July 19, 2010

Now that oil is no longer pouring into the Gulf, everyone can breathe easier –except the people responsible for the spill. They may go to prison. The Justice Department has a criminal investigation underway. Admittedly, governmental investigations of business torts are more likely to result in fines than prison time. Joseph Hazelwood, who captained the Exxon Valdez when it ran aground, was the only person indicted in connection with that accident and he was sentenced to community service after being convicted on a misdemeanor charge. The BP spill is different, of course. Eleven people died when the Deepwater Horizon caught fire, and the environmental damage is unprecedented. The feds may reasonably decide that the magnitude of the catastrophe requires a high profile criminal prosecution, the same conclusion President Bush’s Justice Department reached in the wake of the Enron debacle. Still, if history provides any guidance, years will pass before anyone is indicted and few people, if any, will spend much time in prison. We know that a criminal investigation is underway because Eric Holder, the Attorney General, has said so many times. He first announced it at a press conference on June 1. Since then, he has commented on it and clarified its scope, emphasizing that BP is not the only potential target . Both for launching the investigation and discussing it openly, Holder has taken serious heat. Initially, political opponents of the Obama Administration contended that the investigation diverted BP’s attention from its efforts to plug the well and deal with the consequences of the spill. The merits of this allegation never were clear. Even before the probe was acknowledged, BP’s managers knew the EPA would punish the company severely. The reputational damage and civil consequences flowing from the spill were also known to be enormous. BP’s executives must also have expected a criminal investigation. In 2007, the company pled guilty to felony violations of the Clean Water Act after a refinery outside Houston, Texas exploded, killing 15, injuring 170, and ultimately saddling BP with $373 million in criminal and civil fines. The prospect of being prosecuted criminally may even have strengthened BP’s resolve to make every possible effort to get matters under control. The U.S. Sentencing Guidelines, which apply to every federal criminal felony conviction, mandate significantly lower sentences and fines for corporations and individuals who cooperate with federal investigators. Reductions are even greater (and may include deferred or non-prosecution agreements, called DPAs and NPAs) when corporations police themselves by creating compliance programs and reporting potential federal criminal and civil violations before to getting caught. Conservatives also slammed Holder for publicly acknowledging the investigation. They claimed, first, that he departed from Justice Department policy which, they said, is neither to confirm investigations nor to deny them. They also charged that, by speaking about the investigation in public, Holder caused BP’s stock to tank. Finally, several commentators and editorial boards criticized Holder for participating in the negotiations, headed by President Obama, which led to the creation of the $20 billion BP victim compensation fund. The Washington Post argued that Holder’s “presence inevitably raised the specter of the criminal probe — and the possibility that it could be used to pressure BP on the size and terms of the fund.” Texas Representative Joe Barton (in)famously characterized to BP as the victim of a “shakedown.” In a column endorsed by Sarah Palin and many others, conservative commentator Thomas Sowell argued along the same lines, while raising the level of hyperbole considerably. Sowell accused President Obama of following in Adolf Hitler’s footsteps by using a crisis as an excuse for subjecting a private enterprise to an illegal and unprincipled exercise of raw power. None of these criticisms makes sense to us. Start with the claim that Holder acted wrongly by acknowledging that a probe was underway. True, the general policy of the Justice Department is to disclose neither the existence of a criminal investigation nor its details. But in two sections (1-7.401C and 1-7.530B), the U.S. Attorneys’ Manual expressly recognizes that “[t]here are exceptional circumstances when it may be appropriate to have press conferences … about ongoing matters before indictment or other formal charge, … includ[ing] cases where … the heinous or extraordinary nature of the crime requires public reassurance that the matter is being promptly and properly handled by the appropriate authority.” Disciplinary rules governing public statements by prosecutors similarly permit communications needed to inform the public of the nature and extent of the government’s response to high-profile crimes. The BP oil spill is the worst environmental disaster in U.S. history. If a crime was committed in connection with it, then the crime was extraordinary by definition and is obviously a matter of great public interest. By confirming the existence of the investigation, Holder acted properly and responsibly. Now consider the charge that Holder’s public statements caused the value of BP’s shares to tumble. Assuming the charge is correct (something that is not self-evident, given the fairly continuous decline in the price of BP stock from April 23rd to June 25th), one must ask, So what? Holder is the highest law enforcement officer in the land. The criticism supposes that he should have acted so as to enhance the value of a private company rather than to protect the public interest. That can’t be right. Public officials are supposed to advance the public good. Shareholders can protect themselves from these extraordinary occasions which require public disclosure by diversifying their stock holdings. Finally, consider the charge that Obama and Holder acted improperly by using the crisis to twist BP’s arm. Although we certainly believe that governmental coercion of private persons, including companies, should be regulated by law, when creating the compensation fund the federal government neither confiscated BP’s money nor coerced the company into paying victims of the spill. Thomas Sowell recognized this, but he thought it an irrelevant nicety. In fact, this is the heart of the matter. The compensation fund is creature of a contract between BP and the federal government. Like all contracts, this one created value for both sides. President Obama showed Americans that he was focused on the disaster and trying to protect them. BP showed the world that its word was good. Hoping to salvage some measure of goodwill, BP had verbally promised to cover losses stemming from the spill. The agreement to create the compensation fund made that promise formal. It also gave BP an opportunity to stretch out its payments and reduce the volume of spill-related civil litigation greatly. As an article in the New York Times pointed out, in return for agreements not to sue, BP is offering to quickly reimburse victims for their full economic losses, thereby sparing them years of delay and the burden of paying attorneys. The compensation fund is an example of mutual gain, not Hitler-esque subjugation. Years or decades will pass before all civil and criminal liabilities stemming from the disaster in the gulf are resolved. Real arm-twisting will occur at many points. Plaintiffs’ attorneys will threaten BP with enormous punitive damage awards to squeeze as much money as they can from BP for their clients. The federal government will hit the responsible companies with billions in penalties and may threaten to put their executives in prison. Fortunately, given the magnitude of the disaster, intense media interest, reporting requirements for public companies, and the transparency of the compensation fund, the negotiations that resolve these complaints will likely be open and above board. Attorney General Holder can and should be involved in these negotiations. Global settlements, DPAs and NPAs, which have been utilized under both Republican and Democratic Administrations, provide many advantages when compared to criminal prosecutions and concurrent civil regulatory actions by multiple federal agencies. Such agreements encourage full disclosure to the investing public, allow targeted reform of mismanaged or corrupt corporations, ensure restitution to victims, and may protect shareholders and employees from bankruptcy proceeding, all while minimizing the collateral consequences on the current law-abiding customers, shareholders, and the general public. Attempting this type of negotiation in the wake of a national disaster of this magnitude is something that cannot be done on the down low.

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Charles M. Silver: The Controversy Surrounding the Criminal Probe into the Gulf Oil Spill

July 19, 2010

Now that oil is no longer pouring into the Gulf, everyone can breathe easier –except the people responsible for the spill. They may go to prison. The Justice Department has a criminal investigation underway. Admittedly, governmental investigations of business torts are more likely to result in fines than prison time. Joseph Hazelwood, who captained the Exxon Valdez when it ran aground, was the only person indicted in connection with that accident and he was sentenced to community service after being convicted on a misdemeanor charge. The BP spill is different, of course. Eleven people died when the Deepwater Horizon caught fire, and the environmental damage is unprecedented. The feds may reasonably decide that the magnitude of the catastrophe requires a high profile criminal prosecution, the same conclusion President Bush’s Justice Department reached in the wake of the Enron debacle. Still, if history provides any guidance, years will pass before anyone is indicted and few people, if any, will spend much time in prison. We know that a criminal investigation is underway because Eric Holder, the Attorney General, has said so many times. He first announced it at a press conference on June 1. Since then, he has commented on it and clarified its scope, emphasizing that BP is not the only potential target . Both for launching the investigation and discussing it openly, Holder has taken serious heat. Initially, political opponents of the Obama Administration contended that the investigation diverted BP’s attention from its efforts to plug the well and deal with the consequences of the spill. The merits of this allegation never were clear. Even before the probe was acknowledged, BP’s managers knew the EPA would punish the company severely. The reputational damage and civil consequences flowing from the spill were also known to be enormous. BP’s executives must also have expected a criminal investigation. In 2007, the company pled guilty to felony violations of the Clean Water Act after a refinery outside Houston, Texas exploded, killing 15, injuring 170, and ultimately saddling BP with $373 million in criminal and civil fines. The prospect of being prosecuted criminally may even have strengthened BP’s resolve to make every possible effort to get matters under control. The U.S. Sentencing Guidelines, which apply to every federal criminal felony conviction, mandate significantly lower sentences and fines for corporations and individuals who cooperate with federal investigators. Reductions are even greater (and may include deferred or non-prosecution agreements, called DPAs and NPAs) when corporations police themselves by creating compliance programs and reporting potential federal criminal and civil violations before to getting caught. Conservatives also slammed Holder for publicly acknowledging the investigation. They claimed, first, that he departed from Justice Department policy which, they said, is neither to confirm investigations nor to deny them. They also charged that, by speaking about the investigation in public, Holder caused BP’s stock to tank. Finally, several commentators and editorial boards criticized Holder for participating in the negotiations, headed by President Obama, which led to the creation of the $20 billion BP victim compensation fund. The Washington Post argued that Holder’s “presence inevitably raised the specter of the criminal probe — and the possibility that it could be used to pressure BP on the size and terms of the fund.” Texas Representative Joe Barton (in)famously characterized to BP as the victim of a “shakedown.” In a column endorsed by Sarah Palin and many others, conservative commentator Thomas Sowell argued along the same lines, while raising the level of hyperbole considerably. Sowell accused President Obama of following in Adolf Hitler’s footsteps by using a crisis as an excuse for subjecting a private enterprise to an illegal and unprincipled exercise of raw power. None of these criticisms makes sense to us. Start with the claim that Holder acted wrongly by acknowledging that a probe was underway. True, the general policy of the Justice Department is to disclose neither the existence of a criminal investigation nor its details. But in two sections (1-7.401C and 1-7.530B), the U.S. Attorneys’ Manual expressly recognizes that “[t]here are exceptional circumstances when it may be appropriate to have press conferences … about ongoing matters before indictment or other formal charge, … includ[ing] cases where … the heinous or extraordinary nature of the crime requires public reassurance that the matter is being promptly and properly handled by the appropriate authority.” Disciplinary rules governing public statements by prosecutors similarly permit communications needed to inform the public of the nature and extent of the government’s response to high-profile crimes. The BP oil spill is the worst environmental disaster in U.S. history. If a crime was committed in connection with it, then the crime was extraordinary by definition and is obviously a matter of great public interest. By confirming the existence of the investigation, Holder acted properly and responsibly. Now consider the charge that Holder’s public statements caused the value of BP’s shares to tumble. Assuming the charge is correct (something that is not self-evident, given the fairly continuous decline in the price of BP stock from April 23rd to June 25th), one must ask, So what? Holder is the highest law enforcement officer in the land. The criticism supposes that he should have acted so as to enhance the value of a private company rather than to protect the public interest. That can’t be right. Public officials are supposed to advance the public good. Shareholders can protect themselves from these extraordinary occasions which require public disclosure by diversifying their stock holdings. Finally, consider the charge that Obama and Holder acted improperly by using the crisis to twist BP’s arm. Although we certainly believe that governmental coercion of private persons, including companies, should be regulated by law, when creating the compensation fund the federal government neither confiscated BP’s money nor coerced the company into paying victims of the spill. Thomas Sowell recognized this, but he thought it an irrelevant nicety. In fact, this is the heart of the matter. The compensation fund is creature of a contract between BP and the federal government. Like all contracts, this one created value for both sides. President Obama showed Americans that he was focused on the disaster and trying to protect them. BP showed the world that its word was good. Hoping to salvage some measure of goodwill, BP had verbally promised to cover losses stemming from the spill. The agreement to create the compensation fund made that promise formal. It also gave BP an opportunity to stretch out its payments and reduce the volume of spill-related civil litigation greatly. As an article in the New York Times pointed out, in return for agreements not to sue, BP is offering to quickly reimburse victims for their full economic losses, thereby sparing them years of delay and the burden of paying attorneys. The compensation fund is an example of mutual gain, not Hitler-esque subjugation. Years or decades will pass before all civil and criminal liabilities stemming from the disaster in the gulf are resolved. Real arm-twisting will occur at many points. Plaintiffs’ attorneys will threaten BP with enormous punitive damage awards to squeeze as much money as they can from BP for their clients. The federal government will hit the responsible companies with billions in penalties and may threaten to put their executives in prison. Fortunately, given the magnitude of the disaster, intense media interest, reporting requirements for public companies, and the transparency of the compensation fund, the negotiations that resolve these complaints will likely be open and above board. Attorney General Holder can and should be involved in these negotiations. Global settlements, DPAs and NPAs, which have been utilized under both Republican and Democratic Administrations, provide many advantages when compared to criminal prosecutions and concurrent civil regulatory actions by multiple federal agencies. Such agreements encourage full disclosure to the investing public, allow targeted reform of mismanaged or corrupt corporations, ensure restitution to victims, and may protect shareholders and employees from bankruptcy proceeding, all while minimizing the collateral consequences on the current law-abiding customers, shareholders, and the general public. Attempting this type of negotiation in the wake of a national disaster of this magnitude is something that cannot be done on the down low.

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Frank DiPascali Auction: Madoff Associate’s Possessions Up For Sale

June 24, 2010

MORRIS PLAINS, N.J. — A public viewing of items to be auctioned from the former home of jailed financier Bernard Madoff’s chief financial officer produced a diversity of agendas from prospective buyers Thursday. Some came in search of bargains, while simple curiosity drew others. Then there was Reenie Harris. “It’s a combination of things, but there’s a certain amount of outrage,” Harris said as she browsed through the belongings of Frank DiPascali that ranged from an ornate table with a built-in chess board to a snowblower and a couple of all-terrain vehicles. “I wanted to experience disgust at these people who blatantly took other people’s money,” Harris added as an explanation of her presence in the drab, humid garage where the items were displayed. “This kind of screams out how appalling the whole thing is.” Proceeds will go to a fund to compensate Madoff’s victims, said the U.S. Marshals Service, which is running the auction at the Morris County Public Safety Training Academy. DiPascali, who was released on bail this week, is awaiting sentencing after pleading guilty last August to money laundering, securities fraud and other crimes that could put him in prison for decades. As part of his $10 million bail package, DiPascali must remain under house arrest and forfeit all family assets, except for an agreed-upon dollar amount directed to be less than $300,000. DiPascali and his wife already have sold three cars and a yacht for a total of nearly $1 million, federal prosecutors have said. It is not clear whether the possessions to be auctioned Friday will equal that amount. Many appeared to be recreational in nature rather than high-ticket goods: Home-theater electronics, a vintage pinball machine, foosball game and video road racing game; plenty of pool or patio furniture, in addition to more formal dining room and bedroom sets. “It looks like they got all his fun stuff,” said Sharon Lee, who said she was looking for a bedroom set for her son. Lee and others said misgivings about buying items connected to an admitted swindler whose crimes remain incomprehensibly vast is balanced by the fact that the money will go to those who were victimized. “I’d be doing my part to see the losers win something, I hope,” said Agnes Gertz, a retiree from Wayne who said most of the furniture on display was either too bulky or too fancy for her tastes. “But at the same time, I now see how ornately people lived on other people’s money,” she said. Prosecutors have confirmed that DiPascali has cooperated in the investigation and that information he has provided has been partly responsible for the charges brought against Madoff’s former director of operations and the two computer programmers. The government said it expects to call DiPascali as a witness if those cases proceed to trial.

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Frank DiPascali, Madoff’s Ex-Finance Chief, Released On Bail

June 22, 2010

NEW YORK — The former finance chief for jailed financier Bernard Madoff was released on $10 million bail Tuesday, months after he admitted his role in an epic fraud that cost thousands of investors billions of dollars and agreed to cooperate with investigators. Just a few hours after Frank DiPascali left U.S. District Court in Manhattan without speaking to reporters, prosecutors revealed they had filed civil papers to recoup $5 million from two longtime former back office Madoff employees who have never been charged criminally. DiPascali, 53, was freed according to the terms of a bail package that a judge had set in February. He pleaded guilty in August to helping with Madoff’s multi-decade Ponzi scheme until it collapsed in late 2008, when Madoff revealed to his sons that his private investment business was a fraud and they notified the FBI. DiPascali walked quickly in front of his lawyer Marc Mukasey as he left the courthouse. Mukasey and prosecutors have said DiPascali provided substantial information that contributed to the arrests of two computer programmers for the firm and Madoff’s longtime auditor. The FBI’s work to identify those who can be held accountable for the fraud and to help civil investigators identify assets continued soon afterward when prosecutors announced they were seeking to recover $5 million in assets controlled by two women who worked for Madoff for more than 25 years. The civil complaints seeking proceeds of Madoff’s fraud were filed against Annette Bongiorno and Joann Crupi, identified as members of Madoff’s back office staff. Prosecutors said in a news release that Bongiorno was a supervisor of the back office staff and was responsible for answering questions from clients about their purported investments, along with overseeing the fabrication of account statements, trade confirmations and other documents and distributing those documents to clients. A lawyer for Bongiorno did not immediately return a telephone call for comment Tuesday. Eric Breslin, a lawyer for Crupi, said: “Our position is that Ms. Crupi did nothing wrong here, and we intend to contest the government’s allegations.” Madoff, 72, is serving a 150-year prison term after admitting that his secretive investment advisory service at Bernard L. Madoff Investment Securities never bought any securities. Instead, he used new investments to pay returns to existing clients. DiPascali’s cooperation has delayed his sentencing on his guilty plea to securities fraud, money laundering and other charges that carry potential penalties of up to 125 years in prison. “I was loyal to him. I ended up being loyal to a terrible, terrible fault,” DiPascali said during the plea. DiPascali began working for Madoff in 1975, just after he finished high school. He has said he became aware of the fraud by the 1980s or early 1990s. After the plea, U.S. District Judge Richard Sullivan twice turned down bail packages that were arranged for DiPascali and were supported by prosecutors. He called DiPascali’s role in the fraud “crucial” and the potential sentence “astronomical.” He asked for proof that DiPascali’s cooperation had been significant. He agreed to the $10 million bail in February but ordered that DiPascali remain under house arrest after his release and required that he and his wife forfeit all family assets except for an amount less than $300,000 to be agreed upon by the government, the defendant and the judge. The government in April filed papers saying DiPascali’s wife could keep $178,000 after the family gave up assets estimated to be worth more than $6 million. The government said the sales of three cars and a yacht alone totaled nearly $1 million. It was unclear where DiPascali was headed Tuesday. In January, he and his wife, Joanne DiPascali, agreed to the sale and forfeiture of their Bridgewater, N.J., home, which is being prepared for its marketing and sale. Items also surrendered by the couple included a Jet Ski, two motorcycles, two minibikes, a scooter and a snow blower, along with watches and jewelry. The judge has asked prosecutors to notify him by letter before Nov. 17 whether DiPascali’s cooperation has concluded and whether the parties are prepared to proceed with sentencing. In a May 14 letter to the judge, prosecutors said DiPascali’s cooperation was ongoing. It confirmed that DiPascali’s cooperation had been partly responsible for the charges brought against Madoff’s former director of operations and the two computer programmers. The government said it expects to call DiPascali as a witness should those cases proceed to trial. The government redacted several paragraphs from the letter, saying disclosure of all its parts would unfairly prejudice subjects of the investigation who haven’t been indicted. Prosecutors have said they expect to request leniency at sentencing in return for the cooperation.

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BP&rsquos U.S. Future Teeters as CEO, Lawmakers Clash

June 18, 2010

By Joe Carroll and Jessica Resnick-Ault June 18 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward ’s failure to set safety standards to prevent the Gulf of Mexico oil spill may cost the company control over U.S. oil fields, refineries and pipelines that account for more than one- third of its sales, lawmakers and analysts said. Less than 24 hours after Hayward met President Barack Obama ’s demand to set aside $20 billion to clean up and compensate victims of the worst oil spill in U.S. history, lawmakers yesterday accused the BP CEO of “stonewalling.” Hayward appeared before a House committee probing the cause of the April 20 offshore rig explosion that killed 11 workers. Citing a five-year string of accidents and deadly disasters at BP-operated facilities, Representative Bart Stupak suggested the poor safety record could justify banning the London-based company from doing business in the U.S. “Setting up the fund was a nice pro-active approach by BP, but in reality it’s going to take a decade for them to recover and regain public trust in this country,” said Jonathan Dison of Bender Consulting, a risk management and strategy firm that has advised BP, Chevron Corp. and Royal Dutch Shell Plc. At risk is BP’s standing as the biggest producer in the U.S., built up after spending $100 billion buying Amoco Corp. and Atlantic Richfield Co. Shares Gain BP rose as much as 5.5 percent in London trading before paring gains to trade 2.1 percent higher at 356.40 pence as of 12:50 p.m. local time. The shares have lost 44 percent of their value since the April 20 explosion and fire aboard the Deepwater Horizon rig. BP’s senior unsecured ratings were cut three levels to A2, the sixth-highest investment grade, from Aa2 by Moody’s Investors Service today, which warned that further downgrades are possible. The cost of credit-default swaps protecting BP’s debt against default for one year fell 7 basis points to 624 basis points, prices from CMA DataVision in London show. Congressman Stupak didn’t elaborate on how BP could be banned from operating in the U.S. and whether such authority rests with Congress, the administration, or regulatory agencies. Scrutiny of BP’s operations in the U.S. intensified after a fire killed 15 workers at its Texas refinery in 2005, and will increase further following the rig disaster, said John Bresland , chairman of the U.S. Chemical Safety and Hazard Investigation Board. The board added an investigation into the cause of the rig disaster to a list of federal probes into BP, Bresland said in an interview yesterday. The probe was requested by Representative Henry Waxman , a California Democrat. New Investigation “Our investigation will look at 2 years before the incident, a year before it, the day before, what happened on that day, up to the time the explosion took place,” Bresland said. BP was cited for 760 safety violations in the past half decade by the U.S. Occupational Safety and Health Administration, compared with eight each for ConocoPhillips and Sunoco Inc., two for Citgo Petroleum Corp. and one for Exxon Mobil Corp., Representative John Sullivan , an Oklahoma Republican, said during yesterday’s hearing. Inspections of the company’s five U.S. plants after the Texas refinery fire resulted in a fine of $21 million by the Occupational Safety and Health Administration for safety violations. Last year, discovery of more violations resulted in BP being slapped with a record fine of $87.4 million. ‘Extremely Frustrated’ In his testimony yesterday, Hayward not only failed to convince lawmakers he was committed to making BP safer, he may have deepened suspicion of the company by repeatedly pleading ignorance to events that took place under his command, said Matt Eventoff, a partner at New Jersey communications firm, Princeton Public Speaking. “Mr. Hayward’s comments today, saying ‘I don’t know’ 66 times, evaporated any feeling of responsibility,” Eventoff said. “Any goodwill that the company bought back yesterday eroded today with his testimony.” Questioned by the panel about BP practices that may have led to the disaster, Hayward said it was too early in the investigation to know the cause. Stupak, a Michigan Democrat, told Hayward he and other committee members were “extremely frustrated with your lack of candor and inability to answer questions.” Waxman described the CEO’s responses as “stonewalling.” “I’m not stonewalling,” Hayward responded. According to a transcript of his testimony, Hayward said at least 23 times he was not involved in decisions. ‘Laser-like Focus’ After taking over from John Browne in May 2007, Hayward, now 53, pledged to apply a “laser-like focus” to improving safety at the company, declaring it one of his three top priorities along with people and performance. In Nov. 2007 he said that BP already was making “great progress” on safety. He simplified BP’s corporate structure and cut several thousand jobs. This year, at a March 2 presentation to analysts, Hayward focused on financial performance. “Our direction is clear: the unrelenting pursuit of competitive leadership in respect of cash costs, capital efficiency and margin quality,” he said. BP is the biggest crude and gas producer in the Gulf of Mexico. The company has amassed about 500 deep-water exploration leases in the Gulf. BP has spent about $1.6 billion on containing and cleaning up the spill so far. The company’s spending for cleanup and liabilities may reach $40 billion, Standard Chartered Plc estimated last week. The yield premium investors demand to hold BP’s 500 million pounds of 4 percent bonds due 2014 decreased 1 basis point to 359 basis points, according to HSBC Holdings Plc prices on Bloomberg. The spread on the company’s 1 billion euros of 2016 notes tightened 6 basis points to 531 basis points. To contact the reporters on this story: Joe Carroll in Washington at jcarroll8@bloomberg.net , Jessica Resnick-Ault in New York at jresnickault@bloomberg.net

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Video: Hong Kong Authorities Probe Henderson’s Failed Sales

June 18, 2010

June 18 (Bloomberg) — Bloomberg’s Phillip Yin reports on the investigation into canceled apartment sales at Henderson Land Development Co.’s 39 Conduit Road project in Hong Kong. Henderson, controlled by billionaire Lee Shau-kee, will provide “all necessary information” to Hong Kong authorities, spokeswoman Bonnie Ngan said by telephone today. The sales were canceled due to “the economic environment” and lending policies that were tightened by the Hong Kong Monetary Authority, Ngan said.

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New York Money Manager Chimay Charged With Larceny, Forgery

June 12, 2010

By Karen Freifeld and Joshua Gallu June 12 (Bloomberg) — New York money manager Guy Albert de Chimay was indicted in New York on grand larceny and forgery charges, according to the Manhattan District Attorney’s office. Chimay, 47, chairman and chief investment officer of Chimay Capital Management Inc., was arrested yesterday in Wrightsville Beach, North Carolina, on a New York state warrant, said Adam Kaufmann , chief of the investigation division of the Manhattan District Attorney’s office. The U.S. Securities and Exchange Commission sued Chimay yesterday, accusing him and his firm of fraud for touting investments he claimed were tied to the Chimay royal family of Belgium, and then stealing millions of dollars to pay his divorce lawyers and the mortgage on his house in the Hamptons on Long Island east of New York City. “He lied to investors, took their money and used it to support his lifestyle,” Kaufmann said in a phone interview. The SEC obtained an emergency court order to freeze the assets of Chimay and his firm. Chimay Capital claimed to be the U.S. investment arm of the royal family based in the Chimay region of Belgium and dating to the 14th century, according to the SEC. “Chimay used the trappings of royalty to perpetrate the most common of frauds,” said George Canellos , director of the SEC’s New York regional office. “Chimay blatantly lied to investors about non-existent investments and then used their money to bankroll his exorbitant personal and business debts.” Bridge Loan Chimay solicited money from October 2008 to September 2009 for a bridge facility that he said would make lucrative short- term loans to firms with ties to the Belgian royal family, the SEC said in its complaint . There is no evidence that any loans were made and some funds were used to pay off disgruntled investors in Chimay’s other business ventures, the agency said. In December, Chimay sought a multimillion dollar loan, falsely claiming he had $14 million in liquid assets in a Bermuda bank account to serve as collateral, the SEC said. In reality, the account was empty, the agency said. Phone numbers listed for Chimay and Chimay Capital weren’t in service yesterday. He and the firm, which are facing at least three investor lawsuits, have no known defense counsel, the SEC said. The SEC case is Securities and Exchange Commission v. Chimay Capital Management Inc., 10-cv-04582, U.S. District Court, Southern District of New York. To contact the reporters on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net ; Joshua Gallu in Washington at jgallu@bloomberg.net .

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New York Money Manager Chimay Indicted on Grand Larceny, Forgery Charges

June 11, 2010

By Karen Freifeld and Joshua Gallu June 11 (Bloomberg) — New York money manager Guy Albert de Chimay was indicted in New York on grand larceny and forgery charges, according to the Manhattan District Attorney’s office. Chimay, 47, chairman and chief investment officer of Chimay Capital Management Inc., was arrested today in Wrightsville Beach, North Carolina, on a New York state warrant, said Adam Kaufmann , chief of the investigation division of the Manhattan District Attorney’s office. The U.S. Securities and Exchange Commission sued Chimay today, accusing him and his firm of fraud for touting investments he claimed were tied to the Chimay royal family of Belgium, and then stealing millions of dollars to pay his divorce lawyers and the mortgage on his house in the Hamptons on Long Island east of New York City. “He lied to investors, took their money and used it to support his lifestyle,” Kaufmann said in a phone interview. The SEC obtained an emergency court order to freeze the assets of Chimay and his firm. Chimay Capital claimed to be the U.S. investment arm of the royal family based in the Chimay region of Belgium and dating to the 14th century, according to the SEC. “Chimay used the trappings of royalty to perpetrate the most common of frauds,” said George Canellos , director of the SEC’s New York regional office. “Chimay blatantly lied to investors about non-existent investments and then used their money to bankroll his exorbitant personal and business debts.” Bridge Loan Chimay solicited money from October 2008 to September 2009 for a bridge facility that he said would make lucrative short- term loans to firms with ties to the Belgian royal family, the SEC said in its complaint . There is no evidence that any loans were made and some funds were used to pay off disgruntled investors in Chimay’s other business ventures, the agency said. In December, Chimay sought a multimillion dollar loan, falsely claiming he had $14 million in liquid assets in a Bermuda bank account to serve as collateral, the SEC said. In reality, the account was empty, the agency said. Phone numbers listed for Chimay and Chimay Capital weren’t in service. He and the firm, which are facing at least three investor lawsuits, have no known defense counsel, the SEC said. The SEC case is Securities and Exchange Commission v. Chimay Capital Management Inc., 10-cv-04582, U.S. District Court, Southern District of New York. To contact the reporters on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net ; Joshua Gallu in Washington at jgallu@bloomberg.net .

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Goldman Sachs’s Hudson Mezzanine CDO Subect Of New Probe By SEC

June 10, 2010

June 10 (Bloomberg) — Goldman Sachs Group Inc.’s $2 billion Hudson Mezzanine collateralized debt obligation, sold in 2006, is the target of a probe by the Securities and Exchange Commission, according to a person with knowledge of the matter. The inquiry into the CDO may not lead to any additional actions against the New York-based securities firm, said the person, who declined to be identified because the investigation isn’t public. Michael DuVally, a spokesman for Goldman Sachs, declined to comment, as did SEC spokesman John Nester. The Financial Times reported the probe yesterday.

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U.S. Government Asks Court to Reject Transocean $27 Million Liability Cap

June 2, 2010

By Margaret Cronin Fisk and Laurel Brubaker Calkins June 1 (Bloomberg) — The U.S. government asked a federal judge to reject Transocean Ltd.’s bid to use a 159-year-old law to cap its liability at $27 million for environmental claims tied to the Deepwater Horizon oil spill. The filing comes the same day the Justice Department announced an investigation of whether any criminal or civil laws were violated in the BP Plc oil disaster in the Gulf of Mexico, the biggest U.S. spill on record. The government is reviewing whether there were violations of the Clean Water Act and the Oil Pollution Act of 1990. The U.S. filed the motion today in Houston federal court to “make clear” it’s entitled to pursue claims “for pollution response costs, environmental damages and other injuries stemming from the oil spill,’’ Assistant U.S. Attorney General Tony West wrote. “It is simply unconscionable, in the circumstances of this case, that Transocean is attempting to use this” law to avoid paying states or the U.S. for damages caused by the rig explosion, West said in a May 24 letter to Transocean’s lawyers. The spill began after an April 20 fire aboard the Deepwater Horizon rig, which London-based BP leased from Switzerland-based Transocean to drill its Macondo well in the Gulf. 1851 Law The law cited by Transocean, the Limitation of Liability Act of 1851, is pre-empted by the Oil Pollution Act of 1990, the U.S. said. The claims of state governments are also “not subject to the limitation act,” West wrote. The Limitation act is “wholly inapplicable to other causes of action that the U.S. may assert as a result of the oil spill and environmental damage,” according to the filing. Mike Geczi, a spokesman for Transocean, declined to comment on the court filing. Transocean said in an earlier statement that it will cooperate with authorities in their investigation. U.S. Attorney General Eric Holder announced the probe at a news conference in New Orleans. President Barack Obama today called the spill “the greatest environmental disaster of its kind in our history.” “We will prosecute to the fullest extent of the law, anyone who has violated the law,” said Holder. “This disaster is nothing less than a tragedy.” The Justice Department will ensure that taxpayer money will be repaid and that damage to the environment and wildlife will be reimbursed, Holder said. The government already has told “all relevant parties” to preserve documents that may “shed light on the facts surrounding this disaster,” he said. BP will cooperate with the Justice Department, said Jon Pack, a company spokesman, in an interview. The case is In Re the Complaint and Petition of Triton Asset Leasing GmbH, Transocean Holdings LLC, 10-01721, U.S. District Court for the Southern District of Texas (Houston). To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net and; Laurel Brubaker Calkins in Houston at laurel@calkins.us.com .

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Video: Gary Aguirre Says Galleon Case May Have Been Avoided: Video

May 28, 2010

May 28 (Bloomberg) — Gary Aguirre, a former U.S. Securities and Exchange attorney, talks with Bloomberg’s Erik Schatzker about his investigation into hedge-fund firm Pequot Capital Management Inc.’s trading activities before he was fired from the SEC in 2005.¶ Pequot and its founder Arthur Samberg agreed to pay almost $28 million to settle regulatory claims they illegally tapped information from a Microsoft Corp. employee to bet on the software maker’s stock in 2001, the SEC said yesterday. (Source: Bloomberg)

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Former AIG Executive Cassano Said Not to Face Charges in Insurer’s Failure

May 22, 2010

By Karen Gullo May 22 (Bloomberg) — Federal prosecutors won’t bring charges against former American International Group Inc. executive Joseph Cassano related to the insurer’s collapse, according to a person familiar with the investigation. The Justice Department found after a two-year investigation that there was insufficient evidence to charge Cassano, who was the former chief executive officer of AIG’s Financial Products division, the person said. The Justice Department and civil investigators from the Securities and Exchange Commission were examining comments made in 2007 by Cassano and other AIG executives. They were probing whether executives misrepresented the value of AIG’s portfolio of “super senior” credit-default swaps, which insured bond losses tied to the U.S. housing market. “Although a 2-year, intense investigation is tough for anyone, the results are wholly appropriate in light of our client’s factual innocence,” F. Joseph Warin , an attorney for Cassano, said yesterday in an e-mailed statement. “The large group of federal agents and prosecutors was diligent and professional throughout the investigation, and our client is grateful that they did their jobs by following the facts to the end,” Warin said. “This result was the product of two things: an innocent client and fair prosecutors and agents. The system worked.” Cassano’s Cooperation Warin said in November 2008 that Cassano was cooperating with investigators and acted lawfully. Cassano, he said, acted appropriately during the valuation of AIG’s credit-default swaps and gave “full and complete information to investors, his supervisors and auditors.” Cassano’s unit managed $2 trillion in derivative trades tied to bonds, currencies, commodities and stocks. He told investors in December 2007 that “it is very difficult to see how there can be any losses in these portfolios.” By Feb. 28, 2008, AIG posted what was then its biggest quarterly loss , writing down $11.1 billion on the swaps. AIG announced Cassano’s resignation as president and chief executive officer of AIG Financial Products a day later. Hannah August, a Justice Department spokesman, didn’t immediately return voice-mail and e-mail messages seeking comment after regular business hours yesterday. The federal government’s bailout of AIG is expected to cost the Treasury Department $45.2 billion, based on March 31 data, the department said yesterday in a statement . The New York-based insurer’s $182.3 billion rescue includes as much as $69.8 billion from Treasury, a $60 billion Federal Reserve credit line and as much as $52.5 billion to buy mortgage-linked assets owned or backed by AIG. To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

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