December 3, 2020

DealBook: SAC Settles Insider Trading Charges for $614 Million

One of the cases involves a former SAC employee Mathew Martoma, who still faces S.E.C. and criminal charges on trades involving two drug makers.Spencer Platt/Getty ImagesOne of the cases involves a former SAC employee Mathew Martoma, who still faces S.E.C. and criminal charges on trades involving two drug makers.

2:16 p.m. | Updated

Two affiliates of SAC Capital, the giant hedge fund, settled insider trading charges with the Securities and Exchange Commission for $614 million on Friday, in what the agency said was the biggest ever settlement for such cases.

The settlements spare SAC’s founder, the billionaire Steven A. Cohen, who hasn’t been charged with wrongdoing. Mr. Cohen, one of the most successful hedge fund managers in the world, has long been considered a target of federal investigators.

But the settlements represent one of the biggest financial coups by the S.E.C. in insider trading cases yet. The amounts paid by SAC surpass the $400 million that Michael Milken paid to settle charges by the agency in 1990.

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One affiliate of SAC, CR Intrinsic, agreed to pay over $600 million over charges tied to one of its employees, who is accused of trading on illicitly obtained confidential information about the drug makers Elan and Wyeth.

That employee, Mathew Martoma, still faces both civil charges from the S.E.C. and criminal charges from the Justice Department.

A lawyer for Mr. Martoma, Charles Stillman of Stillman Friedman, said in a statement: “SAC’s business decision to settle with the S.E.C. in no way changes the fact that Mathew Martoma is an innocent man. We will never give up our fight for his vindication.”

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The other affiliate, Sigma Capital Management, agreed to pay $14 million to settle charges that it engaged in insider trading in the stocks of Dell and Nvidia.

SAC’s management company will pay the settlements, meaning that investors of the hedge fund aren’t on the hook.

The settlements, especially that of CR Intrinsic, represent more successes by the federal government in its campaign against insider trading.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the S.E.C. will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” George S. Canellos, the acting director of the S.E.C.’s enforcement division, said in a statement.

A spokesman for SAC said in a statement, ““We are happy to put the Elan and Dell matters with the S.E.C. behind us. This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence. We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm.”

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Despite Accord, Spill Aftermath Shadows BP

The agreement, which included 14 guilty pleas and $4.5 billion in fines and other payments to be made over five years, almost certainly removes the possibility of further criminal charges.

But it still leaves BP vulnerable to larger liabilities, particularly fines for spills under the Clean Water Act. Depending on whether BP is found grossly negligent, a term which is open to considerable interpretation by courts, BP could be fined anywhere from $5 billion to $21 billion, or $1,100 to $4,300 per barrel spilled, analysts say. BP took a charge of $3.5 billion in 2010 for potential Clean Water Act claims.

“This is only an interim settlement,” said Stuart Joyner, an analyst at Investec in London. “Until we get the final settlement of civil claims,” he added, the blowout aftermath “is not going away for BP’s management or investors.”

Shares of the company closed at £416.60, or $660, in London on Friday, off from £425.40 on Thursday.

The civil issues are to be decided in a trial in New Orleans scheduled for late February. On Thursday, the U.S. attorney general, Eric H. Holder Jr., said, “We’re looking forward to the trial” in which “we intend to prove that BP was grossly negligent in causing the oil spill.”

During a conference call with analysts on Thursday, a feisty Brian Gilvray, BP’s chief financial officer, said that BP, too, was “comfortable” with a trial in Louisiana and that it had investors’ support. He also said that if found grossly negligent, BP would appeal, which he said would extend the process into 2014 or later.

“The feedback from our investors is that we have the support of our investors to actually fight this case unless we believe we can come up with a fair and reasonable settlement,” Mr. Gilvray said.

On Friday, Bernstein Research estimated the cost of the spill to BP at $41.9 billion to $59.4 billion, depending on the various legal outcomes. That amount comprises all fines and litigation costs, minus settlements BP has received from various parties involved in the incident.

There is also some risk that BP, because it has admitted to a range of felonies and negligence, may be barred from further contracting with the U.S. government. In a statement Thursday, the company said, “Under U.S. law, companies convicted of certain criminal acts can be debarred from contracting for the federal government.”

Mr. Gilvray said during the call that any move to ban BP would prompt it to rethink investing in the United States. The company said Thursday that it had “not been advised of the intention of any federal agency to suspend or debar the company in connection with the plea agreement.”

BP’s U.S. business is of great importance to the company. Its output of oil and natural gas in the country represented 28 percent of its global production, excluding Russia, in the third quarter, and about 20 percent of the profits in its key exploration and production unit.

BP says it has invested $52 billion in the United States over the past five years, more than in any other country, and employs 23,000 Americans.

The company’s North American center in a suburban Houston office park is a major hub of the company, housing the Americas exploration teams and a large computer center for crunching data on the difficult-to-fathom oil fields in the Gulf of Mexico and elsewhere.

The heart of its business is the Gulf of Mexico, where BP, according to the company, holds the most oil leases. BP’s operations in the gulf, which are among its most profitable, are still a long way from coming back from the spill. For instance, production from BP-operated Gulf of Mexico fields is averaging about 150,000 barrels a day of oil equivalent, according to a company spokesman, down about two-thirds from before the spill.

The slump is largely due to the drilling moratorium imposed after the Gulf of Mexico blowout, which prevented the routine maintenance drilling required to support production.

BP said it expected output in the Gulf of Mexico to be flat next year on the so-called core fields it has retained. Thereafter, it expected output to rise steadily.

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BP to Admit Crimes and Pay $4.5 Billion in Gulf Settlement

The payments include $4 billion related to the criminal charges and $525 million to securities regulators, the company said in a statement. As part of the settlement, BP agreed to plead guilty to 11 felony counts of misconduct or neglect related to the deaths of 11 people in the Deepwater Horizon accident in April 2010, which released millions of barrels of oil into the gulf over the course of the next few months.

The Justice Department also filed criminal charges against three BP employees on Thursday.

The government charged the top BP officers aboard the drilling rig, Robert Kaluza and Donald Vidrine, with manslaughter in connection with each of the men who died, alleging that they were negligent in supervising tests before the well blowout and explosion that destroyed the rig.

Prosecutors also charged BP’s former vice president for exploration in the Gulf of Mexico, David Rainey, with obstruction of Congress and making false statements about the rate at which oil was spilling from the well.

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region,” Robert Dudley, BP’s chief executive, said in a statement. “From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the Gulf. We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.”

While the settlement dispels one dark cloud that has hovered over BP since the spill, others remain. BP is still subject to other claims, including billions of dollars in federal civil claims and claims for damages to natural resources.

In particular, BP noted that the settlement does not resolve what is potentially the largest penalty related to the spill: fines under the Clean Water Act. The potential fine for the spill under the act is $1,100 to $4,300 a barrel spilled. That means the fine could be as much as $21 billion.

In addition to the 11 felonies related to the men killed in the accident, the company agreed to plead guilty to one misdemeanor violation of the Clean Water Act and one misdemeanor violation of the Migratory Bird Treaty Act.

BP also acknowledged that it had provided inaccurate information to the public early on about the rate at which oil was gushing from the well.

The company agreed to plead guilty to one felony count of obstruction of Congress over its statements on that issue. It also agreed to pay a civil penalty of $525 million to the Securities and Exchange Commission, spread over three years, to resolve the agency’s claims that the company made misleading filings to investors about the flow rate.

As part of its resolution of criminal claims with the Department of Justice, BP will pay about $4 billion, spread over five years. That amount includes $1.256 billion in criminal fines, $2.394 billion to the National Fish Wildlife Foundation and $350 million to the National Academy of Sciences.

The criminal fine is one of the largest ever levied by the United States against a corporation, roughly equal to the $1.3 billion fine paid by Pfizer in 2009 for illegally marketing an arthritis drug. BP has repeatedly said it would like to reach a settlement with all claimants if the terms were reasonable. The unresolved issue of the claims has been weighing on BP’s share price.

On Thursday, BP’s American shares were trading at about $40 at midday, roughly unchanged on the day and down about 34 percent since the accident.

“It’s one less thing to be negative on BP about and a minor step in the right direction toward the rehabilitation of BP,” Iain Armstrong, an equity analyst at the investment manager Brewin Dolphin, in London, said. But he added that there were still concerns about remaining claims and that “lawyers might yet have their day at court.”

As part of Thursday’s agreements, BP said it was increasing its reserve for all costs and claims related to the spill to about $42 billion.

Stanley Reed reported from London and Clifford Krauss from Houston. Julia Werdigier contributed reporting from London, John Schwartz from New York and Charlie Savage from Washington.

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DealBook: Red Flags Were Raised on Client Cash, MF Global Inquiry Is Told

Christine Serwinski, the former North American chief financial officer, was on vacation during much of MF Global’s final week.Andrew Harrer/Bloomberg News Christine Serwinski, the former North American chief financial officer, was on vacation during much of MF Global’s final week.

Federal investigators are conducting a final round of interviews with former MF Global employees, as they weigh whether to file criminal charges against some senior executives and grant another one immunity from prosecution.

In interviews with investigators, two former back-office employees said they had raised red flags about the firm’s possible misuse of customer money in the final week before it filed for bankruptcy, according to people briefed on the matter. The employees disclosed that a report produced early on Friday, Oct. 28, MF Global’s final day of business, showed a deficiency in customer cash accounts.

Despite the warning, MF Global continued to transfer customer money without fully disclosing the potential problem to regulators, said the people, who spoke on the condition of anonymity because they were not authorized to speak publicly. The revelations raise questions about potential communication breakdowns between the employees tracking the customer money and those transferring the funds.

The wire transfers are at the heart of a seven-month effort to recover more than $1 billion in customer money that disappeared from MF Global.

Federal investigators have homed in on Edith O’Brien, a former treasurer at MF Global official who oversaw some of the transfers. In interviews last month with former employees, investigators focused their questions on Ms. O’Brien’s actions and behavior during the week leading up to the firm’s bankruptcy filing on Oct. 31, one of the people briefed on the matter said.

Ms. O’Brien has sought immunity from prosecution. After conducting a number of interviews with Ms. O’Brien’s lawyers, federal prosecutors and the Federal Bureau of Investigation are nearing a decision about her request for immunity, the people briefed on the matter said.

The latest steps by investigators come as other new details emerge on MF Global’s collapse. On Monday, the trustee overseeing the return of customer money, James W. Giddens, is expected to issue a detailed report on the firm’s demise. The report will outline where customer money was transferred and what certain key employees were doing during that tumultuous period, according to people with knowledge of the report.

Until now, Mr. Giddens has indicated only that he had traced the missing customer money to an array of banks and some of MF Global’s trading partners. He has been reluctant to disclose specifics, fearing it might compromise negotiations to recover the money.

In the days before MF Global filed for bankruptcy, the firm misused client funds to meet its own obligations. Since then, farmers, hedge funds and other customers have been without at least a third of their money.

The trustee’s report has prompted some concern among federal investigators, who fear it could put pressure on them to wrap up their case quickly. But the report, which comes at the request of the bankruptcy judge, does not appear likely to jeopardize the investigation since much of the information is already known.

No one at MF Global, including Ms. O’Brien, has been accused of wrongdoing. And despite revelations that a potential deficiency in customer money was detected on Oct. 28, some investigators have expressed doubt about bringing a criminal case, people close to the matter have said.

Investigators have scoured tens of thousands of e-mails and documents without unearthing a smoking gun. They instead chalk up some of the wire transfers to sloppy record-keeping and mass confusion at the firm.

Regardless of whether a criminal case materializes, civil regulators are pursuing their own investigations. The Securities and Exchange Commission, for instance, is examining whether top MF Global executives failed to publicly disclose the firm’s exposure to European sovereign debt, people briefed on the matter have said. The positions, once fully detailed, prompted the firm’s investors and rating agencies to panic.

The future of the criminal investigation, being led by prosecutors in New York and Chicago as well as the F.B.I., may hinge in part on Ms. O’Brien. On Oct. 28, she oversaw a crucial transfer of $175 million to replenish an overdrawn account at JPMorgan Chase in London. The money used belonged to customers, though it is unclear whether Ms. O’Brien knew its origin at the time.

Some investigators are hesitant to grant Ms. O’Brien immunity, fearing she might be responsible for the breach of customer accounts. But they also say that with the promise of immunity, she may reveal fresh information about wrongdoing at higher rungs of the firm.

Ms. O’Brien has remained mum. When appearing before Congress in March, she declined to testify, invoking her constitutional right against self-incrimination.

Other back-office employees are cooperating with federal investigators. In recent weeks, employees in Chicago and New York have delivered so-called proffers, in which they detail their knowledge to the investigators.

Some employees have focused on the internal report that showed a deficiency in customer cash accounts amounting to hundreds of millions of dollars. The internal report, produced on Oct. 28, reflected end-of-day figures for Oct. 27, a person briefed on the matter said.

The employees who are said to have noticed the deficiency, Matthew Hughey and Mike Bolan, reported to Christine Serwinski, the firm’s North American chief financial officer. The two were unable to immediately confirm whether the deficiencies were real or the result of an accounting error, according to one of those briefed on the matter.

The new details raise concerns about whether Ms. O’Brien’s staff and Ms. Serwinski’s team were isolated from one another during the crucial period. Some say tensions have mounted between the two units in the aftermath of the collapse, with each pointing fingers at the other.

Some people close to the case have said Ms. O’Brien’s staff sent wire transfers on Oct. 28 without checking the reports showing the level of customer cash. Others have countered that Ms. O’Brien was not given access to reports on that final day of operations.

Adding to the disorder, the people say, was that Ms. Serwinski was on vacation much of that final week. One of her deputies, a person briefed on the matter said, also spent part of the week away at a conference.

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RIM Changes Name of New Operating System

OTTAWA — Less than two months after Research In Motion announced that its new operating system to revive the BlackBerry brand would be called BBX, the company has changed its mind. Now, it will be called BlackBerry 10.

The late change followed the granting of a restraining order on Tuesday by a federal court in New Mexico to a small Albuquerque-based software maker, Basis International, that has long used the name BBx.

In a statement on Wednesday about the name change, RIM did not address the trademark infringement action by Basis International. “The BlackBerry 10 name reflects the significance of the new platform and will leverage the global strength of the BlackBerry brand while also aligning perfectly with RIM’s device branding,” the statement said. RIM did not respond to questions about whether it has abandoned the BBX name.

The sudden rebranding is the latest in a series of setbacks, both small and large, for RIM recently, including having to restate its financial guidance for the current quarter because of steep discounts on its tablet computer as well as the firing of two executives whose drunken outbursts forced the return of a Toronto-to-Beijing flight and led to criminal charges. The new financial guidance further depressed RIM’s already battered stock price.

The new phone operating system was developed by QNX Software Systems, a company based in Ottawa that RIM acquired last year. The BBX name appeared to be an attempt to meld the BlackBerry and QNX names.

Basis has been using both the BBX and BBx names for several years on products that allow developers to create apps that can work on any operating system.

“Even the more cursory search for the BBX trademark would have shown that we hold it,” said Nico Spence, the chief executive of Basis.

After RIM announced the BBX name at a developers’ conference in San Francisco in October, Basis sought a permanent injunction under trademark laws. It also asked for the temporary order, which is valid for only 14 days, to prevent RIM from using the name at its developers conference in Singapore this week.

Mr. Spence said Wednesday that he had not heard anything from RIM or its lawyers about the company’s new brand. He said that Basis would continue to seek a permanent injunction as well as damages from RIM. “Their announcement is certainly encouraging in that it looks like they are abandoning it, but it may only be temporary,” he said.

The new name follows RIM’s traditional practice of naming operating systems using numbers. The operating system it will replace is called BlackBerry 7.

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2 RIM Executives Are Fired for Disrupting a Flight

“RIM does not condone behavior that conflicts with applicable laws and employees are expected to act, at all times, with integrity and respect,” the company said in a statement.

The two executives, George Campbell, 45, and Paul A. Wilson, 38, pleaded guilty last week to mischief after an Air Canada flight was forced to turn around near the North Pole and then land in Vancouver, British Columbia. The men were given suspended sentences, placed on probation and each was ordered to pay the airline 35,878 Canadian dollars ($35,382) in restitution by a court in British Columbia.

After drinking heavily on a Toronto-to-Beijing flight, the two men became hostile and were ultimately restrained with plastic handcuffs by crew members and passengers. Neither of them is allowed to fly on Air Canada during their year of probation.

The firing was not the only personnel issue involving RIM on Monday. Citing statements from the police, The Jakarta Post reported that the head of RIM’s unit in Indonesia is now under investigation after a half-price promotion for a new BlackBerry handset led to a near riot that sent several shoppers to the hospital last month.

The newspaper said that the executive, Andrew Cobham, and three other people may face criminal charges of negligence. RIM declined to offer any information about Mr. Cobham, although an online résumé for an Indonesian business group that he advises suggests that Mr. Cobham is Canadian.

In its statement, RIM said that it was cooperating with police and was conducting an internal investigation of the incident, which offered the discounted phones to the first 1,000 buyers.

“We sincerely regret that many loyal customers experienced frustration and upset, and that some individuals suffered injuries,” the company said.

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Madoff’s Former Payroll Manager Admits Faking Records

An employee who has been singled out as a member of Bernard L. Madoff’s “inner circle” pleaded guilty on Monday to charges that he doctored documents to fool auditors, faked payroll records and obtained a loan by inflating the value of his personal accounts.

Eric S. Lipkin, a second-generation employee who worked at Mr. Madoff’s secretive investment advisory business for 16 years, pleaded guilty to conspiracy, bank fraud and falsifying financial records in a cooperation deal with prosecutors. He admitted his role in the Madoff fraud, telling the judge that he “worked to deceive auditors.”

“I’m very sorry for my conduct,” he said.

Mr. Lipkin became the third Madoff employee to plead guilty in the continuing investigation into the fraud that cost thousands of people billions of dollars. In 2009, prosecutors obtained confessions from the Madoff firm’s independent auditor and from Frank DiPascali Jr., Mr. Madoff’s longtime deputy and chief lieutenant.

His guilty plea clearly shifts the legal landscape for five other former Madoff employees facing criminal charges in the case. Those defendants — who include Daniel Bonventre, the former chief of operations at the Madoff firm, two computer programmers and two office administrators — are facing charges that were based in part on grand jury testimony by Mr. DiPascali, who is cooperating with the government investigation while awaiting sentencing.

All five defendants have denied the prosecutor’s allegations and are awaiting trial — trials at which Mr. Lipkin will now almost certainly join Mr. DiPascali on the list of potential government witnesses. In agreeing to a plea bargain with Mr. Lipkin, the prosecution seems to be calculating that he could be a more credible witness than Mr. DiPascali, who played a central role in the complex deceptions that allowed Mr. Madoff to keep his Ponzi scheme alive for so long.

Mr. Lipkin also agreed to settle a related civil fraud case brought by the Securities and Exchange Commission. Without admitting or denying the agency’s accusations, Mr. Lipkin agreed to forfeit profits and pay a fine to be determined later by a court.

Irving H. Picard, a court-appointed trustee seeking to recover billions of dollars in losses for thousands of clients in Mr. Madoff’s Ponzi scheme, said in a lawsuit last year that Mr. Lipkin misled investigators when he provided false information and fabricated trade blotters during an S.E.C. investigation in 2005 and 2006.

Mr. Lipkin also admitted that he falsified payroll records to include people who he knew did not work at the firm. This, prosecutors said, enabled those people to receive retirement and other benefits to which they were not entitled.

Mr. Picard’s lawsuit had labeled Mr. Lipkin a member of Mr. Madoff’s inner circle, saying he profited from the fraud and was an active part of attempts to cover it up.

The lawsuit said Mr. Lipkin’s father, Irwin, was one of the first people hired by Mr. Madoff when he started his investment business and helped build the firm from scratch in 1964. Eric Lipkin followed his father into the company in 1992 and acted as a lieutenant to Mr. Madoff, as well as the company’s payroll manager, Mr. Picard said.

The elder Mr. Lipkin denies that he had any knowledge of the Ponzi scheme, according to his lawyer, Gary S. Redish.

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