October 18, 2017

DealBook: A Towering Fine for Naught, as the S.E.C. Tracks Cohen

Steven Cohen's lawyers may not have seen the possibility of administrative charges by the S.E.C.Steve Marcus/ReutersSteven Cohen’s lawyers may not have seen the possibility of administrative charges by the S.E.C.

“We’re willing to pay $600 million because we have a business to run and don’t want this hanging over our heads with litigation that could last for years.”

That’s what Steven A. Cohen’s lawyer told a judge just four months ago to justify why Mr. Cohen had agreed to pay $616 million to the Securities and Exchange Commission to settle civil accusations that his firm was involved in insider trading without admitting or denying guilt.

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If that explanation sounded like a payoff — “buying off the U.S. government” is the way John Cassidy of The New Yorker put it at the time — that’s because, with hindsight, that’s what it was.

But it didn’t work.

The S.E.C., having been shamed by critics for making what seemed like a deferential deal, returned with a new civil action against Mr. Cohen individually on Friday, seeking to bar him from the industry.

The new charges and evidence raise all sorts of questions. But within the legal community, one question is now particularly baffling: Why did Mr. Cohen pay more than half a billion dollars to settle a case that now appears far from settled?

“It’s hard to believe he got bad advice. It’s not like he’s using some street-corner lawyer,” said Jacob S. Frenkel, a former S.E.C. enforcement lawyer who is now a partner at Shulman Rogers Gandal Pordy Ecker.

Within Mr. Cohen’s legal camp, which includes Paul, Weiss and Willkie Farr, the new civil action came as a surprise, according to people involved in the case. His legal team had thought that by settling with the S.E.C. in March for such a large sum it would be unlikely that the agency would come back for more, despite assertions by the S.E.C. that it reserved the right to pursue additional charges against Mr. Cohen.

At minimum, Mr. Cohen’s lawyers thought they had strong evidence that would help them talk the S.E.C. out of bringing a fraud charge against their client, these people said. In that regard, they succeeded. But they never imagined the S.E.C. would bring an administrative claim of “failure to supervise” against Mr. Cohen, which, to their way of thinking, would be an admission of defeat by the S.E.C. because it would be perceived as a demonstration of weakness, the equivalent of charging Al Capone with tax evasion.

“The S.E.C. created expectations in the settlement by strong inference,” Mr. Frenkel said. “There is an expectation of reasonable closure.”

But Mr. Cohen’s lawyers — and perhaps everyone else — missed the larger picture: The S.E.C.’s “failure to supervise” case can still have the same effect as a more damning fraud charge because it has the potential to put his firm out of business.

When Mr. Cohen’s $616 million settlement was first presented to Judge Victor Marrero of Federal District Court in Manhattan, he resisted approving it, saying aloud what so many people were thinking at the time, “There is something counterintuitive and incongruous about settling for $600 million if it truly did nothing wrong.”

What Judge Marrero didn’t appreciate — and what the public may have missed as well — was the math behind why the whopping settlement arguably made sense if it would end the years-long investigation into Mr. Cohen.

The goal of the settlement, and its timing, were clearly aimed at assuaging nervous investors in Mr. Cohen’s fund so that they wouldn’t seek the return of their money. Mr. Cohen managed $15 billion, including about $9 billion of his money and other employees’. The remaining $6 billion comes from outside investors — and it is worth big fees to the firm. Mr. Cohen collects a 3 percent “management fee” and takes upward of 50 percent of profits. On $6 billion, if you follow the math, annual management fees collected can total as much as $180 million. If the firm can produce profits of as little as 10 percent, the firm can collect $300 million more. If the firm produces more than 30 percent returns, its historical average, the fees could jump to over $1 billion.

Consequently, a settlement payment of $616 million could pay for itself in a year or two.

That was then. Now, that $616 million settlement appears to be a down payment on a much longer soap opera that could still include a criminal case down the road.

When Mr. Cohen made his original settlement agreement, the S.E.C.’s leadership was in transition, a clear red flag from a tactical perspective. With the addition of Mary Jo White a month after the deal was reached, she pressed to continue the inquiry, and ultimately, the new action.

While the S.E.C. under Ms. White clearly didn’t rescind its previous agreement, the new civil action could have one adverse outcome: it could make the agency’s job more complicated in future investigations.

“This could impact the approach to cooperation,” Mr. Frenkel said. “You have to believe whatever ambiguities existed were intentional on the S.E.C.’s part. It calls into question whether the agency negotiated in good faith.”

Maybe so. But after years of Wall Street executives appearing to outnegotiate the S.E.C., it finally seems as if the agency won a round.


Andrew Ross Sorkin is the editor-at-large of DealBook. Twitter: @andrewrsorkin

A version of this article appeared in print on 07/23/2013, on page B1 of the NewYork edition with the headline: A Towering Fine For Naught, As the S.E.C. Tracks Cohen.

Article source: http://dealbook.nytimes.com/2013/07/22/a-towering-fine-for-naught-as-the-sec-tracks-cohen/?partner=rss&emc=rss

Australian Leader Scraps Tax on Carbon Emissions

The decision to scrap the politically toxic tax, which narrowly passed into law with the support of the minority Greens party, is the most significant policy change unveiled by Mr. Rudd since he regained the leadership of the nation from Julia Gillard in a party coup last month. The announcement comes as a raft of new polls show his Labor Party running neck and neck with the opposition for elections currently scheduled for Sept. 14.

“The government has decided to terminate the carbon tax, to help cost-of-living pressures for families and to reduce costs for small business,” Mr. Rudd said at a news conference.

Mr. Rudd, who signed onto the Kyoto Protocol as his first official act as leader in 2007 and once famously called combating climate change “the greatest moral challenge of our time,” framed Tuesday’s announcement in terms more economic than environmental. That prompted politicians with the Greens party to express fears that his new plan would be financed at least partially through cuts to environmental and clean energy programs.

Christine Milne, the leader of the Greens party, was quick to criticize Mr. Rudd for what she said was a shortsighted decision to sacrifice the environment in order to score political points with the electorate. Her party’s support was key in allowing Labor to form a minority government after a poor showing by Ms. Gillard in elections held in 2010, and it could be crucial to Mr. Rudd’s chances in case of a similar outcome later this year.

“What he is now doing in order to make it cheaper for the big polluters to pollute, in order to try and make a political point, he’s actually slashing a billion dollars out of environmental protection in Australia,” she told reporters. “You don’t protect the environment by cutting environment programs.”

Under the current system, Australia’s worst polluters pay a high fixed price on their carbon emissions. Since it went into effect last year after squeaking through the lower house of Parliament by just two votes in late 2011, the tax has proved wildly unpopular with big business and voters, due in part to a relentlessly negative campaign by the opposition.

The current system was supposed to remain in place until 2015, then replaced by a system in which market mechanisms would determine the cost of producing a ton of carbon. The move to bring forward the market-based system a full year earlier is expected to quickly produce a sharp drop in the cost of carbon from a predicted $23.30 per metric ton in July 2014 to around $5.50 per ton in U.S. dollars.

Because the lower price means the government would lose about $3.5 billion in tax revenue for the next financial year, Mr. Rudd has proposed nearly $3.7 billion in cuts or deferrals to public spending, including environmental programs. Several clean technology programs will face cuts, such as investments in carbon capture and storage, which will be cut by $538 million over four years.

The path to the passage of the carbon tax was among the most perilous in recent Australian political history. It was key to the downfall of two sitting prime ministers and a popular opposition leader and culminated in a showdown on the floor of Parliament between guards and furious protesters.

Many blame Mr. Rudd’s decision, during his first term as prime minister, to abandon his own emissions trading scheme for the plunge in popularity that presaged his ouster as leader in favor of Ms. Gillard in 2010. Mr. Rudd’s counterpart, the popular former opposition leader Malcolm Turnbull, was forced out in 2009 over his support for the government’s climate change policy.

By the same token, Ms. Gillard was haunted during her rocky three-year tenure as leader by a simple pledge given during a television interview in the run-up to the 2010 election: “There will be no carbon tax under the government I lead.”

Ms. Gillard, who subsequently used the tax to entice the Greens into supporting her minority government, was never allowed to forget those words, which the opposition used to devastating effect in painting her as dishonest. It seemed no coincidence that Mr. Rudd’s first major policy announcement since returning to the leadership was aimed at neutralizing that line of attack.

Tony Abbott, the leader of the opposition Liberal-National coalition, said Tuesday that Mr. Rudd’s decision vindicated his criticism of the policy. However, he dismissed the change in the timeline as mere window dressing, saying Mr. Rudd was simply accelerating the policies of Ms. Gillard’s government in an attempt to win votes.

“He’s not the terminator, he’s the exaggerator. He’s not the terminator, he’s the fabricator,” he told reporters.

Article source: http://www.nytimes.com/2013/07/17/world/asia/australian-leader-scraps-tax-on-carbon-emissions.html?partner=rss&emc=rss

MetLife Will Repatriate an Offshore Reinsurance Unit

For a number of years, MetLife has been using a Bermuda subsidiary, Exeter Reassurance, to reinsure several billion dollars’ worth of variable annuity contracts, in which customers pay in advance to receive guaranteed payments in retirement. By buying the reinsurance, MetLife was able to remove the obligations to these policyholders from its balance sheet.

Such transactions have become extremely popular in the life-insurance business in recent years, and regulators at the New York State Department of Financial Services have been investigating the deals since last July. The department’s superintendent, Benjamin M. Lawsky, recently called them “financial alchemy.”

“Let’s call it shadow insurance,” Mr. Lawsky said in a speech in April, recalling the so-called shadow banking system that appeared in the run-up to the financial crisis.

MetLife and other insurers have been trying to cope with the Federal Reserve’s long-running policy of keeping interest rates very low to help revive economic growth. Many life insurers are having trouble because they normally buy bonds to make good on annuities they sold in the past, and they cannot get the yields they need in the current low-rate environment. They can reduce the obligations on their balance sheets, however, by shifting them to reinsurers.

But buying reinsurance from an off-balance-sheet subsidiary “does not actually transfer the risk for those insurance policies off the parent company’s books,” Mr. Lawsky said in his speech. By law, reinsurance must involve a real transfer of risk; otherwise insurers are not supposed to use it to improve their balance sheets.

Mr. Lawsky said questionable reinsurance deals throughout the industry were increasing the likelihood that policyholders would not receive their payments at some point. He also expressed concern that they were causing systemic risk within the broader economy, the way the booming growth of mortgage-backed securities had done in the years before 2008.

MetLife’s chief executive, Steven A. Kandarian, said in an annual presentation to investors on Tuesday that repatriating MetLife’s policy obligations from Exeter “proactively addresses recent regulatory concerns” about such deals, adding that Mr. Lawsky’s inquiry had been an important factor. He also said the change would put MetLife in a better position to comply with new collateral requirements put in place by Congress after the financial crisis.

Mr. Lawsky issued a statement on Tuesday praising MetLife’s decision, saying the company had “acted wisely in bringing this subsidiary back to the United States, where it will be subject to stronger rules and oversight.”

MetLife said the transaction, which it expects to complete next year, was also part of an effort to lower the risk of its variable annuities business. It also said it was ratcheting back on sales of the annuities, aiming for $10 billion to $11 billion worth this year, compared with $28.4 billion in 2011.

MetLife’s shares closed down 1 percent, or 48 cents, to $42.82.

When MetLife’s transaction is complete, it will have returned Exeter to the United States and merged it with three state-regulated MetLife units: the MetLife Insurance Company of Connecticut; the MetLife Investors U.S.A. Insurance Company, now based in Delaware; and the MetLife Investors Insurance Company, based in Missouri. A spokesman said it was not yet clear where the merged company would be based.

Article source: http://www.nytimes.com/2013/05/22/business/metlife-will-repatriate-an-offshore-reinsurance-unit.html?partner=rss&emc=rss

Bucks Blog: A Social Security Site for Smartphone Users

Courtesy Social Security Administration

The Social Security Administration is now offering a version of its Web site that is designed specifically for smartphones.

But wait. Most of those who are interested in Social Security are older Americans who may not be technology-savvy smartphone users, right?

Not necessarily, the agency says. About 35 million page views of Social Security Web pages each year, out of roughly 540 million total, come via smartphones — just over 6 percent.

The agency cannot determine whether those visitors to its Web site — either the previous version or the new mobile version — are receiving benefits or not, an agency spokesman, Mark Hinkle, said in an e-mail. But visitors probably include younger recipients receiving disability or survivor benefits, as well as older people nearing retirement age, he said.

Working Americans can go online, using a “mySocialSecurity” account, to check the accuracy of their earnings information, on which future benefits are based. (Bucks has written previously about these accounts).

Now, smartphone users can gain access to much of the information available on the main Web site via the new mobile site, which makes it easier to view the information. Anyone using a smartphone to go to socialsecurity.gov will be automatically directed to the mobile site.

“With significant budget cuts of nearly a billion dollars each year over the last few years, we must continue to leverage technology and find more innovative ways to meet the evolving needs of the American public without compromising service,” said Carolyn W. Colvin, acting commissioner of Social Security, in a prepared statement about the mobile site.

Mr. Hinkle said the agency aimed to include content that would most likely be of value to mobile users, and tested the mobile site with agency employees, advocates and members of the public.

I took a quick look at the site Monday morning on my iPhone (the site also works for Android, Blackberry and Windows devices).

The mobile site does allow access to an account to check benefits, or creates an account if you do not have one already. But that function does not seem to be fully optimized, saying that it is “best viewed on a desktop.” I logged onto my account anyway, and was able to see my estimated monthly retirement benefit and my last reported earnings information. The type can be made bigger so it is easier to see, but that requires scrolling around a bit more to see all the information on the page.

There is information about obtaining a replacement Social Security card, frequently asked questions and a tool for locating Social Security offices.

There is also a feature that prospective parents can have fun with: a list of the top baby names, compiled annually by the agency. (No. 1 for boys in 2012 was Jacob; for girls, Sophia, as a colleague on the Economix blog has noted.)

Take a look at the mobile site and let us know what you think in the comments section. Is it helpful?

Article source: http://bucks.blogs.nytimes.com/2013/05/13/a-social-security-site-for-smartphone-users/?partner=rss&emc=rss