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NOVEMBER 13, 2006
Edited by Harry Maurer The SEC Gets Busy By and large, the SEC hasn't exactly been overworked lately. The number of cases brought has been shrinking since the 2001 Enron collapse, falling nearly 10%, to 575, in fiscal 2006 from the year before. Chairman Christopher Cox has pledged to root out more wrongdoers in 2007, and a flurry of activity suggests he's already making good. On Oct. 30 the agency charged nine former Delphi (DPHiQ ) executives with fraud, accusing them of manipulating company finances while the auto parts maker sank into insolvency. The same day, Swiss bank UBS (UBS ) said it was cooperating in an SEC probe of Treasury securities price manipulation. And some two dozen mutual funds suspected of accepting kickbacks from vendors are under the microscope. But now the investigators are being investigated. On Oct. 26, Senate Finance Chairman Chuck Grassley (R-Iowa) said the Government Accountability Office would review claims that SEC officials shielded Morgan Stanley CEO John Mack, a campaign donor to President George W. Bush, from an insider trading probe of hedge fund Pequot. The GAO is targeting units led by SEC enforcement chief Linda Thomsen and its head of compliance, Lori Richards. Growth Takes A Breather The hammering of housing slowed the U.S. economy to a crawl in the third quarter, but consumers are feeling O.K.--a relief for Republicans trying to hang onto their seats in Congress. The economy grew at an annual rate of just 1.6% in the July-September quarter thanks to the homebuilding slowdown and a jump in imports. Yet the Conference Board said on Oct. 31 that its index of consumer confidence barely faltered in October. Maybe it's those gasoline prices, averaging just $2.22 a gallon, vs. $3 this past summer. See "The Economy's Housing Problem"   Drugstore Romance Did the specter of Wal-Mart (WMT ) send these two giants into each other's arms? On Nov. 1 drugstore chain CVS (CVS ) and pharmacy benefits manager Caremark Rx (CMX ) said they would marry in a deal worth more than $20 billion. While other suitors for Caremark may step forward, an alliance with CVS would give the two more heft in the fight for market share. Wal-Mart in September began rolling out a plan to sell generic drugs at $4 for a 30-day supply. See "KFC Joins the Trans-Fat Fight" Blockbuster Blues Pfizer (PFE ) executives must be feeling the pain. Data released on Oct 31 show that torcetrapib, the company's drug meant to boost levels of so-called good cholesterol, also hikes blood pressure more than expected. That's a major no-no for a heart drug, and experts say it clouds chances of winning FDA approval. Pfizer is spending close to $1 billion on torcetrapib in hopes that it will be the next Lipitor, its $12 billion cholesterol buster that could face generic competition by 2010. Chevron Wins One Jubilation in the oil patch: The Interior Dept. has thrown in the towel on efforts to get Chevron (CVX ) to fork over additional natural gas royalties. The decision, disclosed by The New York Times on Oct. 31, could set a precedent that saves other oil and gas companies hundreds of millions. Interior said a ruling in a separate case made its pursuit of Chevron pointless. Critics accused the Bush Administration of going easy. Meanwhile, on Oct. 26, Exxon Mobil (XOM ) rang up another $10 billion-plus quarterly profit. Hedge Fund Watch Uh-oh, another hedge fund closing up shop--but not for the familiar reason of scary trading losses. Archeus said on Oct. 30 that it had come undone because an outside bookkeeper it hired had trouble keeping track of its $3 billion in assets. "Protracted delays" issuing audited reports, Archeus said, led investors to yank more than $2.3 billion. The players might have had more patience had returns been less lackluster. Black And White And Unread Newspapers have been sliding for a while, but this drop is a doozy. Data for the six months ended Sept. 30, released on Oct. 30, show the worst industrywide circulation plunge in at least 15 years. The top 50 papers posted an aggregate daily loss of 3.4%, according to Prudential Equity Group. Hardest hit among the top 10 papers: Tribune's Los Angeles Times, down 8%. The only gainers in the top 10 were New York City's warring tabloids, the Post and the Daily News, which were up 5.3% and 1%, respectively. What Did BP Know? Extending BP's (BP ) long string of image-besmirching events, a federal safety panel said the oil giant knew of "widespread safety problems" before a March, 2005, blast at its Texas City refinery killed 15 and injured 180. The Chemical Safety & Hazard Investigation Board released findings on Oct. 30 concluding that the accident resulted from "a perfect storm where aging infrastructure, overzealous cost-cutting, inadequate design, and risk blindness all converged." BP has acknowledged that the accident was preventable but denied that budgetary decisions were an immediate cause. Healthier Chicken? What a coincidence. After years of insisting it couldn't be done, Yum! Brands (YUM ) said on Oct. 30 that its KFC chain will stop using trans fatty oils to deep-fry its chicken. This came just as New York City's health board convened a hearing on whether to make the city the first to ban trans fats in restaurants. By next May, KFC's 5,500 U.S. sites will switch their vats over to a soybean oil without fatty acids, which heighten the risk of heart disease. See "CVS-Caremark: A Drug Industry Behemoth?" That's A Big IPO Global investors continue to stampede into China bank stocks. Industrial & Commercial Bank of China launched a nearly $22 billion IPO in Hong Kong and Shanghai on Oct. 27, the biggest share sale in history. Despite the dodgy record of mainland banks in steering clear of dud loans, the offering was heavily oversubscribed and shot up 15% during its first day of trading. With China's economy sizzling, investors think big banks are ideal proxy plays for the hypergrowth story. See "ICBC's IPO: Reckless Spending in China?" Conviction Of The Week Looks like Halloween brought a trick for Walter Forbes. The former Cendant (CD ) chairman was found guilty on Oct. 31 on one count of conspiracy and two of false reporting in connection with the accounting scandal that erupted at the company almost a decade ago. An attorney for the 64-year-old Forbes told reporters he'll appeal. The verdict came after juries in two previous trials couldn't come to a meeting of minds, and stems from activities at Forbes's CUC International. That company merged with HFS, led at the time by founder Henry Silverman, in 1997 to form Cendant. When the accounting shenanigans came to light just a few months later, Cendant's market capitalization collapsed by $14 billion in one day. The company never fully recovered from the scandal and was broken into four outfits earlier this year. Silverman, who testified in this latest trial but not in the previous two, declined to comment. But a spokesman for Cendant, now called Avis Budget Group (CAR ), says the company "is very happy that at last justice has been served."
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