Magazine

Executive Summary


Madoff Gets the Max

Short apology, long sentence. "I'm sorry. I know that doesn't help you," said Ponzi schemester Bernard Madoff as part of his statement to victims assembled in Manhattan federal court for his June 29 sentencing. "One hundred fifty years," said U.S. District Judge Denny Chin, calling Madoff's crimes "evil." The judge also said he thought Madoff had not fully cooperated with authorities since his arrest in December and not a single friend or relative had written to attest to Madoff's good character or charitable deeds. On June 30, the Associated Press reported that prosecutors are looking into criminal charges against as many as 10 other people. But the feds said the next day that Madoff's wife, Ruth, isn't one of them.

Madoff Sentenced to Maximum 150 Years

GE Cashes In

Quick, who's the biggest beneficiary of a federal program to thaw the credit markets? Nope, it's not Bank of America (BAC) or Citigroup (C) or any of the other troubled banks. Correct answer: General Electric (GE). The company didn't initially qualify to take part in the scheme, known as the Temporary Liquidity Guarantee Program, in which Washington guarantees debt issued by banks. But GE managed to win inclusion because its finance arm, GE Capital, owns a savings and loan in Utah. GE had raised $74 billion through TLGP as of the first quarter—equal to nearly one-quarter of the $340 billion in debt backed by the program since its inception last year. Yet unlike banks that have participated in the effort, GE has not had to submit to the Fed's stress tests or rules limiting risk. The White House is working to close some of the loopholes in its rescue programs.

ProPublica, Washington Post

High Court Thunder

On the last day of its current term, June 29, the U.S. Supreme Court took action on a trifecta of cases concerning business. The most important: In a 5-4 ruling that employment lawyers say may prompt more reverse-discrimination lawsuits, the court said a group of mostly white New Haven firefighters were wrongly denied promotions when the city tossed out an employment test because of concerns that it was biased against blacks. A second 5-4 decision dealt a blow to banks hoping to answer to just a single national regulator: The justices held that a financial institution's federal charter does not insulate it from investigation by state attorneys general for discrimination and other crimes. Finally, the court let stand a lower court ruling allowing Cablevision Systems (CVC) to offer its subscribers a setup under which they can store TV shows on a central server, rather than a box in their home. That turned back a copyright challenge by TV networks and Hollywood studios and portends broader adoption of remote DVR services.

A Coup in Honduras

In the eyes of many Hondurans, President Manuel Zelaya was getting way too cozy with fiery Venezuelan leader Hugo Chávez, who is giving Honduras some $350 million in subsidized oil and infrastructure financing as part of his efforts to build a leftist bloc in the Americas. So when Zelaya copied a page from Chávez's playbook and tried to carry out a referendum that might have let him run for reelection, the Honduran Congress and Supreme Court ruled he was out of line. Zelaya defied that ruling and was ousted in a June 28 military coup—the first in Latin America since the Cold War ended. Now the Organization of American States says it will expel Honduras unless it lets Zelaya return to office, and the World Bank has cut off aid to the impoverished nation.

Honduras' Coup: The Last Thing a Poor Nation Needs

Look Out, CO2

Could this help to save the planet? On June 26, by a slim vote of 219 to 212, the House of Representatives passed a landmark bill to fight climate change. It aims to slash U.S. greenhouse gas emissions by 83% by 2050, largely through a cap-and-trade system under which companies could buy and sell the rights to emit such gases. Backers call it the most important environmental legislation in U.S. history, though some greens alarmed by recent evidence of accelerating climate change say the bill is too timid. Meanwhile, Republicans charge that it will cripple the economy. Prospects in the Senate? Uncertain.

Wal-Mart Weighs In

The Bentonville behemoth and the White House don't agree on much these days, but they found common ground on June 30 when Wal-Mart (WMT) told the Obama Administration that it supports requiring employers to provide health insurance to workers. The surprise move from the nation's largest private employer could bolster Obama's attempts to extend health care to more Americans. Retail industry lobbyists said they were "flabbergasted" by Wal-Mart's new stance, which was backed by the Service Employees International Union, a longtime Wal-Mart foe. But the big store's motives may not be purely altruistic: It wants to quash a more burdensome health-insurance requirement for low-wage employers making the rounds in Congress.

Al Franken, Senator

It took 238 days to figure out who won the Minnesota race for U.S. Senate, but the contest is finally over. On June 30 the state Supreme Court ruled in favor of Democrat Al Franken, and his opponent, Norm Coleman, conceded. Franken's victory gives Democrats their avidly sought 60 votes in the Senate, making it theoretically possible to thwart GOP filibusters.

China Backs Off

It isn't often that opponents of Internet censorship in China get to celebrate a win. But on June 30, a day before the deadline for PC vendors to include filtering software with all computers sold in China, Beijing backed down. The government claimed the locally made software, called Green Dam Youth Escort, would protect young Chinese Web surfers from pornography, but critics said it would also help censor political content. After protests not only from U.S. hardware and software companies but from computer users inside China, the official Xinhua news agency said the government had postponed implementation indefinitely.

China Censorship: After the Green Dam Fiasco"

The Search for a Friendlier Tax Haven

For years, Bermuda and its Caribbean siblings, the Cayman Islands and British Virgin Islands, have played host to companies seeking favorable tax treatment. But rising concerns about a U.S. crackdown on tax havens have executives rolling up their beach blankets and decamping to far less sunny shores.

Since October at least a half-dozen major corporations, including Tyco International (TYC), Noble (NE), and Ingersoll Rand (IR), have reincorporated in Ireland or Switzerland or proposed doing so. The two countries may have higher tax rates than prevail in the tropics, but both offer bigger tax savings than does the U.S. or the rest of Europe. Plus, both have well-established tax treaties, which decide which country has primary taxing rights and help avoid double taxation.

The extent to which managers will be downing pints of Guinness or eating Lindt chocolates depends on the company. Some, such as offshore driller Transocean (RIG), are shipping their senior management to Switzerland. Executives at health-care products maker Covidien (COV), meanwhile, will stay put in Mansfield, Mass., despite Dublin becoming its principal office and the place it's expanding financial staff.

Tax experts believe the trend will continue among Caribbean-based companies with market cap above $500 million, according to Capital IQ. But they also predict public relations controversies and exit taxes to the IRS will be so outsized that U.S.-based multinationals are unlikely to leave. They could also be scared off from relocating by the prospect of getting kicked off the S&P 500, because that could affect a company's stock price if mutual fund managers are forced to unload. Still, some U.S.-based CEOs won't rule out the possibility. J. Erik Fyrwald, head of water-treatment and chemicals company Nalco, says that while he has no interest in doing so, "if it got to where we were unable to effectively compete globally, we would have to evaluate our options."

U.S. Companies Seek New Tax Havens

Abbott: Ouch!

Abbott Laboratories (ABT) on June 29 earned the dubious honor of being on the losing side of one of the largest patent verdicts in U.S. history. A federal jury ordered the company to pay nearly $1.7 billion to Johnson & Johnson (JNJ) for infringing on a patent related to the manufacture of Humira, Abbott's drug for rheumatoid arthritis. J&J's Centocor subsidiary argued that Humira is made by the same proprietary method used to create its own similar drug, Remicade. Although the patent in dispute expires in two years, it's easy to see why the jury came up with such a big number: Humira racked up $4 billion in sales last year, while Remicade brought in $5 billion. Abbott, which says it will appeal, got more bad news on June 30: An FDA advisory panel voted to recommend pulling its painkiller Vicodin off the market, along with Percocet, made by Endo (ENDP), because of safety concerns about acetaminophen.

Painkiller Dosage: It's J&J vs. Wyeth

An Oil Auction Flops

Iraq remains deeply troubled, but it still beckons to oil majors like a shimmering vision in the desert. So why was Iraq's auction of eight promising fields on June 30 something of a bust? Only a consortium of BP and China National Petroleum Corp. placed a winning bid, to boost production in the giant Rumaila field. The other seven fields on offer went begging as ExxonMobil (XOM) and the rest shied away from tough terms and big risks.

GM Wants Out—Fast

General Motors, like Chrysler before it, seems to be racing for the checkered flag that signals an exit from Chapter 11. On June 30, CEO Fritz Henderson testified in bankruptcy court to support GM's plan, saying the Treasury Dept. wants the key piece—a sale of the company's good assets into a "New GM" that is 60% owned by the government—to be in place by July 10. Meanwhile, GM kept stripping away its rusty parts. The company pulled out of a joint venture plant in Fremont, Calif., leaving Toyota (TM) to manage the factory on its own. However, the BBC reports that regulators in China have balked at approving the sale of GM's Hummer brand to Sichuan Tengzhong because of environmental worries.


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus