Bloomberg News

Olympus Audit, Stiefel Labs Sued, Bair Role: Compliance

December 14, 2011

(Updates MF Global item in Compliance Action; adds AT&T in Compliance Policy; SEC-SIPC lawsuit in Courts; Special Section on RBS Report; and Spitzer in Comings and Goings.)

Dec. 13 (Bloomberg) -- An Ernst & Young ShinNihon LLC committee will determine whether there were auditing problems or lapses in judgment in its probe on the coverup of a $1.7 billion fraud at Olympus Corp.

ShinNihon said Dec. 8 that it formed a committee to investigate its audit of Olympus and verify an internal probe that found nothing wrong. Toshifumi Takada, a panel member and economics professor at Tohoku University in Miyagi, northern Japan, said in Tokyo yesterday that the panel will form a committee to look into whether there were problems in the accounting process for acquisition and will look at judgments made in auditing.

Olympus is investigating about 70 executives to answer queries over losses and transactions for acquisitions, including $687 million in payments to advisers in the purchase of Gyrus Group Plc in 2008 and stake writedowns in three other takeovers. The camera maker set up a special panel in November to conduct a probe after former Chief Executive Officer Michael Woodford revealed the coverup costing 135 billion yen ($1.7 billion).

The ShinNihon committee plans to ask KPMG Azsa LLC, Tokyo- based Olympus’s former auditors, to cooperate with its probe, said Nobuo Gohara, a lawyer and committee member. The committee intends to release an interim report by Dec. 31 and a full account by the end of February, he said.

Compliance Policy

AT&T Cupcakes Make the Rounds in Washington After ‘Cupcakegate’

AT&T Inc. said it distributed cupcakes to friends and colleagues in Washington and defended sending the treats to U.S. regulators at the Federal Communications Commission.

AT&T’s holiday tradition of distributing sweets drew attention last year after Public Knowledge, a Washington-based policy group, obtained a distribution list for 1,530 cupcakes, with recipients including members of the FCC.

Bob Quinn, senior vice president-federal regulatory and chief privacy officer for the company, said in a blog posting yesterday that there was some pressure to stop the tradition this year because of “silly criticisms last year.”

Quinn didn’t say how many cupcakes were delivered this year in what the posting called “a token of holiday cheer” for “friends and colleagues with whom we work in the communications space.”

The FCC last month moved to block AT&T’s proposed $39 billion purchase of T-Mobile USA Inc. The Justice Department earlier sued to block the deal that would eliminate the fourth- largest U.S. wireless carrier, calling the transaction anticompetitive. A federal judge put the antitrust case on hold yesterday, and Dallas-based AT&T has until Jan. 12 to file a report with the court saying whether it still intends to try to acquire T-Mobile.

A dozen cupcakes bearing AT&T’s logo were delivered to Bloomberg’s Washington bureau, and were distributed to building staff not involved in the production or distribution of news.

Compliance Action

Top MF Global Execs Say They Don’t Know How Funds Went Missing

Three of MF Global Holdings Ltd.’s top executives said they didn’t know what happened to as much as $1.2 billion in client funds that went missing in the days before the New York-based brokerage filed for bankruptcy.

Henri Steenkamp, chief financial officer of MF Global, and Bradley Abelow, the firm’s president and chief operating officer, said in testimony prepared for a Senate Agriculture Committee hearing today that they still don’t know the location of the funds.

Jon S. Corzine, former chairman and chief executive officer of the broker, is scheduled to testify at the same witness table, after telling U.S. House lawmakers last week that he never intended to authorize any misuse of client money.

“I do not know why these funds cannot be accounted for, but based on the fact that no shortfalls had been reported to me previously, it appears that any irregularities were likely caused by events that occurred shortly before the bankruptcy filing,” Steenkamp said in the testimony.

Steenkamp said he learned of the shortfall on Oct. 30, the day before the firm filed for bankruptcy protection. Investigators have found misuse of futures-client funds at MF Global as early as Oct. 21, according to a person briefed on the matter.

Lawmakers have joined regulators including the U.S. Commodity Futures Trading Commission, Securities and Exchange Commission and U.S. Justice Department in probing the collapse.

For more, click here.

Sino-Forest Will Miss Deadlines on Earnings, Report Into Fraud

Sino-Forest Corp., the timber company whose shares have plunged 74 percent since June, said it will miss a deadline to publish its third-quarter earnings and a final report into fraud allegations.

The company won’t be able to publish the earnings within the 30-day period stated on Nov. 15, Hong Kong- and Mississauga, Ontario-based Sino-Forest said yesterday in a statement. There’s no assurance if or when the results will be released, it said. Sino-Forest also said a report by an independent committee into the fraud allegations now won’t be issued until 2012, instead of the year-end as previously stated. Sino-Forest said it decided it won’t make a $9.78 million interest payment on its 2016 convertible notes that’s due Dec. 15.

The committee was formed in June after short seller Carson Block’s research firm Muddy Waters LLC published a report that said Sino-Forest overstated its timber holdings in China.

For more, click here.

Deutsche Bank Carries Blame in German CO2 Fraud, Prosecutor Says

Deutsche Bank AG, Germany’s largest bank, carries some blame for a fraud involving carbon-emissions certificate trades, according to prosecutor Thomas Gonder.

The bank isn’t a defendant at the trial of six managers at emissions-trading companies in what prosecutors call an international scheme to evade value-added tax when trading the certificates with Deutsche Bank.

“Deutsche Bank is not directly involved in the case and for that reason does not have access to the files for the process,” Christian Streckert, a spokesman for Deutsche Bank, said in an e-mail. “An internal investigation by an independent law firm has so far shown no clues of an involvement of the bank’s employees.”

Courts

SEC Sues Security Investor Protection Corp. Over Stanford Claims

The U.S. Securities and Exchange Commission sued the federal Securities Investor Protection Corp., seeking an order forcing it to create a claims process for R. Allen Stanford’s alleged investment fraud victims.

The SEC, in papers filed yesterday in federal court in Washington, said it had determined in June that thousands of those alleged victims may be entitled to SIPC coverage and that the agency’s unwillingness to act compelled the commission to sue. The filing couldn’t be independently confirmed with the court.

The SEC sued Stanford and three of his businesses in February 2009, claiming they were part of a $7 billion Ponzi scheme centered on the sale of certificates of deposit by Antigua-based Stanford International Bank.

The financier was indicted by a U.S. grand jury in Houston four months later. He has pleaded not guilty.

SIPC is responsible for providing as much as $500,000 in coverage for individual investors who lose money or securities held by insolvent or failing member brokerage firms.

Stanford investors aren’t covered by that law, SIPC President Stephen P. Harbeck said in a phone interview yesterday.

For more, click here.

SEC Sues Glaxo Unit Over Share Buybacks Before Acquisition

Stiefel Laboratories Inc. and its former chairman were sued by U.S. regulators for buying back stock from employees without disclosing key information, including its acquisition talks with GlaxoSmithKline Plc.

Stiefel Labs, based in Coral Gables, Florida, and former chairman Charles Stiefel defrauded shareholders out of more than $110 million by using low valuations for stock buybacks from November 2006 to April 2009, the Securities and Exchange Commission said in a complaint filed at U.S. District Court in Florida yesterday.

Stiefel Labs announced in April 2009 that London-based GlaxoSmithKline would acquire the firm at a price more than 300 percent higher than the per-share price used in buybacks, the SEC said. The SEC is seeking disgorgement, or repayment, of ill- gotten gains and unspecified fines, which could potentially amount to the value of the gains, said Eric Bustillo, head of the SEC’s regional office in Miami.

A phone call to Holly Skolnick and David Coulson, Stiefel’s attorneys at Greenberg Traurig LLP in Miami, wasn’t immediately returned.

“Stiefel denies that it or Charlie Stiefel acted improperly or did anything to violate the securities laws,” Glaxo said in an e-mailed statement. “Stiefel intends to vigorously defend itself against the SEC’s complaint.”

For more, click here.

Former Workers Say Repsol Banned From Selling YPF Stake

Repsol YPF SA, Spain’s biggest oil company, wasn’t permitted to sell a stake in its Argentine unit YPF SA without the approval of former workers, according to a recent appeals court ruling in the South America nation.

Repsol sold an 11.5 percent stake in YPF to U.S. funds for $1.7 billion in March when it was banned from doing so, the Federation of Former YPF Workers said in an e-mailed statement yesterday, citing the appeals court ruling from earlier this month. The group plans to file a complaint to the Securities and Exchange Commission in the next few days, according to the statement.

A court in the Argentine province of Cordoba ruled on Dec. 5 that Repsol can’t sell a 10 percent stake in YPF without the approval of almost 25,000 former workers and shareholders, according to yesterday’s statement. An Argentine judge in February ordered Madrid-based Repsol to halt plans to sell a 15 percent stake in YPF amid a dispute with former employees, who are seeking to recover their ownership rights in YPF shares.

Repsol Spokesman Kristian Rix declined to comment in an e- mail yesterday. A YPF official wasn’t immediately available for comment.

Special Section: FSA Report on RBS

Taxpayers Have Right to Fury Over RBS Oversight, Turner Says

U.K. taxpayers “had a right to be absolutely furious” with regulators over their supervision of Royal Bank of Scotland Group Plc before its near collapse in 2008, the Financial Services Authority’s chairman said yesterday.

Regulators missed problems with the bank’s liquidity in the months before the 2008 financial crisis and allowed the bank to operate with a capital ratio of one-quarter of current minimums. The FSA had fewer than five team members devoted to supervising RBS in October 2007, a year before its bailout, the watchdog said in a report yesterday.

“One of the flaws with the supervisory system at that time was that the resource devoted to supervising systemically important firms was very light,” FSA Chairman Adair Turner told reporters in London yesterday.

RBS reported a 24.1 billion-pound ($37 billion) loss for 2008, the largest in U.K. corporate history, and required a 45.5 billion-pound taxpayer rescue, the world’s biggest banking bailout, after the acquisition of Dutch bank ABN Amro Holding NV.

Separately, U.K. banks should need the agreement of the financial regulator to make acquisitions, according to a report by Treasury Select Committee advisers Bill Knight and David Walker. They commented in response to yesterday’s report by the Financial Services Authority on RBS.

For more, click here, and click here.

Schmidt Says U.K. Banks to Be More Isolated on EU Veto

Jacob Schmidt, founder and chief executive officer of Schmidt Research Partners Ltd., discussed the Financial Services Authority’s report on the near collapse of Royal Bank of Scotland Group Plc. and the outlook for U.K. banks following Prime Minister David Cameron’s refusal to back a European Union accord.

He spoke with Andrea Catherwood on Bloomberg Television’s “Last Word.”

For the video, click here.

‘Dominant’ Goodwin Perturbed RBS’s Regulators Going Back to 2004

Four years before Royal Bank of Scotland Group Plc collapsed, Britain’s Financial Services Authority identified then-Chief Executive Officer Fred Goodwin’s “dominant” management style as a risk.

A report into the near collapse of Edinburgh-based RBS released by the FSA yesterday said that rather than challenge Goodwin, regulators were too lenient dealing with him.

In 2005, Goodwin asked that FSA staff water down written concerns about RBS risk management after he was shown drafts of correspondence the regulator was preparing to send to the bank’s board. Acceding to Goodwin’s demands for a rewrite was “common practice” by FSA staff at the time, the report said.

“More should have been done to address concerns that the CEO was dominant and that he received insufficient challenge from the RBS board,” the report said. “Greater consideration should have been given to escalating the concern.”

When the regulator sought one-on-one meetings with the bank’s non-executive directors to seek reassurance that proper governance procedures were in place, RBS refused and complained that its employees “should not be picked off.”

For more, click here.

Comings and Goings

Sheila Bair Said to Be Top Pick for Foreclosure Accord Monitor

Ex-Federal Deposit Insurance Corp. Chairman Sheila Bair is a top candidate among state officials to ensure banks comply with any settlement of a nationwide foreclosure probe, a person familiar with the matter said.

Bair, who led the FDIC from 2006 until this year, is supported by some states as a third-party monitor of any accord with mortgage servicers including Bank of America Corp., though Citigroup Inc. opposes her selection, said the person. Selection of a monitor is one of the final issues to be worked out between the banks and state and federal officials, said the person and one other also familiar with the talks. Both declined to be identified because the negotiations are secret.

Bair, 57, now a senior adviser to the Pew Charitable Trusts, was approached about the job two months ago and turned it down, according to a third person who is familiar with the matter. She declined in part because of a book manuscript she is writing that is due in a few months, said the person, who asked not to be identified because the inquiry was private.

For more, click here.

FERC’s Marc Spitzer to Leave U.S. Regulatory Agency on Dec. 14

U.S. Federal Energy Regulatory Commission member Marc Spitzer will leave the agency Dec. 14, he said in a statement.

Spitzer, 54, a former chairman of the Arizona Corporation Commission, was appointed to the U.S. agency by President George W. Bush in 2006. His five-year term expired on June 30.

Spitzer’s departure leaves the commission with four commissioners. The agency on Nov. 30 held a conference to consider the effects of pending Environmental Protection Agency rules on the U.S. power-grid.

--With assistance from Gavin Finch, Ben Moshinsky, Howard Mustoe and Mike Harrison in London; Nicholas Comfort in Frankfurt; Laura Price in Buenos Aires; Naoko Fujimura and Takashi Amano in Tokyo; Brian Wingfield, Silla Brush, Jesse Hamilton and Todd Shields in Washington; Andrew Harris in Chicago; and David McLaughlin and Thom Weidlich in New York. Editor: Glenn Holdcraft

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.


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