Bloomberg News

Kansas Bonds, Deutsche Bank, Nucor Mill Suit: Compliance

August 12, 2014

The U.S. Securities and Exchange Commission charged Kansas with failing to disclose a “multibillion-dollar” pension liability to bond investors.

Documents for eight bond offerings in 2009 and 2010 by the state’s Development Finance Authority didn’t tell investors that a study had pegged Kansas’s public-employee pension as the second-most underfunded in the nation. Kansas agreed to settle the case without admitting or denying the allegations and has established new disclosure rules.

“Kansas failed to adequately disclose its multibillion-dollar pension liability in bond offering documents, leaving investors with an incomplete picture of the state’s finances and its ability to repay the bonds amid competing strains on the state budget,” LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Securities and Public Pension Unit, said yesterday in a news release.

The SEC has been cracking down on faulty disclosure by states and localities that borrow in the $3.7 trillion municipal-bond market.

It settled a similar case with New Jersey in 2010, the first time the regulator targeted a state. Last year, Illinois became the second state to settle with the SEC over charges it misled investors about a growing shortfall in its employee pension funds as it sold $2.2 billion in bonds.

Compliance Action

Ex-SAC Capital Manager Martoma Forfeiture Sought by U.S.

Former SAC Capital Advisors LP portfolio manager Mathew Martoma, convicted of orchestrating the most lucrative insider trading scheme in U.S. history, should be ordered to forfeit $9.4 million and required to pay a fine, U.S. prosecutors said.

The amount sought is equal to Martoma’s 2008 bonus, and exceeds his reported net worth of $7.4 million, prosecutors said in a filing yesterday in Manhattan federal court.

Guidelines for the fine range from $20,000 to more than $570 million, representing twice the gains to SAC Capital of the illegal trades, prosecutors said. The court’s probation department recommended a fine of $20,000, they said, without making their own recommendation.

Martoma should spend more than eight years in prison, prosecutors have said. He was convicted in February of using illegal tips from doctors, who were overseeing drug tests, to trade in shares of Elan Corp. and Wyeth LLC. Before trial, Martoma rejected the government’s offer of leniency in exchange for his help in the investigation of SAC Capital and its founder, Steven A. Cohen.

Martoma is scheduled to be sentenced on Sept. 8

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).

Lawsuit News

Deutsche Bank Sues Former China Head Lee Zhang for $6.3 Million

Lee Zhang, a former China head of Deutsche Bank AG (DB:US), was sued in Hong Kong by the firm over the 2001 transfer of $3.99 million to the account of a company with a bank in Shenzhen.

The bank asked Hong Kong’s Court of First Instance on Aug. 8 to find that Zhang breached his fiduciary duty by causing the transfer to Harperskille Ltd.’s account with China Merchants Bank, and for damages including the principal amount and interest of $2.3 million.

Zhang, who left the Frankfurt-based bank in 2010 to join Industrial & Commercial Bank of China Ltd., didn’t immediately respond to a call requesting comment. The banker, whose Chinese name is Zhang Hong Li, had risen to be Deutsche Bank’s Asia-Pacific head of global banking and China chairman after working for almost a decade at the bank.

Michael West, a Hong Kong-based spokesman for Deutsche Bank, declined to comment, as did a press officer for ICBC in Beijing.

Zhang joined Deutsche Bank from Goldman Sachs Group Inc. (GS:US) in February 2001 as head of its China corporate finance business. He was promoted to China chairman in September 2003 and Asia co-head of global banking the following year.

The case is Deutsche Bank AG Hong Kong Branch v Zhang Hong Li, HCCL19/2014 in the Hong Kong Court of First Instance.

Nucor Sues to Halt $1.3 Billion Big River Steel Mill in Arkansas

Nucor Corp. (NUE:US), the largest U.S. steelmaker by market value, has sued to block construction of a $1.3 billion mill in Arkansas, accusing developer Big River Steel LLC of violating obligations under the Clean Air Act.

Pollutants from the planned mill would harm the air quality in Arkansas’ Mississippi County, including at a Nucor facility there, according to a 50-page complaint filed Aug. 7 in federal court in Jonesboro, Arkansas.

“If the air quality goes down, the productivity of Nucor’s workforce will likewise go down, hindering Nucor’s ability to generate revenue and decreasing the value of Nucor’s Arkansas facilities,” the Charlotte, North Carolina-based company said in the complaint.

The Arkansas Democrat-Gazette in July reported that an investment in the plant by the Arkansas Economic Development Commission was the biggest in the state’s history.

The planned mill will employ about 500 people and produce steel for the automotive, oil and gas and electrical energy industries, Big River Steel said in a statement on July 1 on its website. Construction will last about two years, it said.

Big River Steel’s website said the company isn’t commenting regarding the mill.

A message left at the press office of Arkansas Governor Mike Beebe, a Democrat, wasn’t immediately returned.

The case is NucorSteel-Arkansas v. Big River Steel LLC, 14-cv-00193, U.S. District Court, Eastern District of Arkansas (Jonesboro).

Texas Lawmakers Didn’t Target Minority Voters, Court Is Told

Texas lawmakers didn’t discriminate against blacks and Latinos by drawing election maps that critics claim make it harder for minorities to elect their candidates, a lawyer for the state said at a trial that’s become a Justice Department test case for revitalizing the Voting Rights Act.

Texas and voting-rights activists supported by the U.S. government are back in federal court in San Antonio, resuming a three-year battle over claims Republican lawmakers intentionally drew Congressional districts that would curb the political power of the state’s rapidly growing Latino population.

Texas seeks to convince a three-judge federal panel that its voter maps were designed to improve re-election chances for Republican incumbents and weaken Democratic opponents, not dilute minority voting strength.

Funds Say Puerto Rico Utility Has Options to Pay Debt

Funds managed by Franklin Templeton Investments (BEN:US) and Oppenheimer Funds Inc. want to add claims to a suit challenging Puerto Rico’s debt-restructuring law.

The restructuring law, passed under threat of a “fiscal emergency,” would allow public utilities to negotiate their debt with bondholders, potentially forcing investors to accept unfavorable terms, according to the investment funds, which hold about $1.6 billion in Puerto Rico Electric Power Authority bonds.

The funds asked a San Juan federal judge to add to their June lawsuit to show that the power authority (27482MF:US) has other ways to salvage its finances apart from restructuring, including collecting more than $640 million in bills owed by the commonwealth, raising rates and cutting costs.

Puerto Rico has asked a judge to throw out the lawsuit, claiming that the law is a “valid exercise” of its power and that the power authority lacks other options because it isn’t eligible to reorganize its finances under Chapter 9 or Chapter 11 of the U.S. Bankruptcy Code.

The cases are Franklin California Tax-Free Trust v. Commonwealth of Puerto Rico, 14-cv-01518; and BlueMountain Capital Management LLC v. Garcia-Padilla, 14-cv-01569, U.S. District Court, District of Puerto Rico (San Juan).

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Charles Carter, Joe Schneider


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