March 29, 2023

Italy’s Highest Court Upholds Berlusconi Tax Fraud Sentence

The sentence the court confirmed was four years, but it was automatically reduced to one year under a law aimed at combating prison overcrowding.

The decision by the Court of Cassation was the first time Mr. Berlusconi has received a definitive conviction in 20 years of tangles with Italy’s judicial system. In the other cases brought against Mr. Berlusconi over the years — which range from tax evasion to buying judges to embezzlement — he was either acquitted on appeal or the statute of limitations ran out.

However, Thursday’s ruling does not automatically send Mr. Berlusconi to jail or house arrest. The same Milan appeals court that convicted the former prime minister must also formally request his arrest. Mr. Berlusconi’s lawyers could also request a suspended sentence.

A Senate committee must rule on whether Mr. Berlusconi must resign from public office, a procedure that could take months. Almost all lawmakers handed definitive sentences have chosen to leave Parliament of their own volition in order to avoid embarrassment.

Opposition politicians immediately called for Mr. Berlusconi to resign out of respect for a Parliament elected to uphold laws, not break them. Vito Crimi, a member of Parliament from the Five Star Movement, called the it “shameful” that Mr. Berlusconi would stay in public office. “I would expect that all his MPs call for his resignation out of respect for Parliament.”

The ruling could upend his center-right People of Liberty party, more a charismatic movement than an ideologically coherent party, and also strain the center-left Democratic Party, elements of which have never liked sharing power with their former rival.

Mr. Berlusconi is still facing trial on charges of paying for sex with the Moroccan-born Karima el Mahroug, nicknamed Ruby Heartstealer, when she was still a minor, and abusing his office to cover it up.

In the case upheld Thursday, prosecutors had argued that Mr. Berlusconi and other defendants bought the rights to broadcast American movies on his networks through a series of offshore companies and falsely declared how much they paid in order to avoid taxes.

Experts had said that if the high court upheld the tax fraud sentence, Mr. Berlusconi, 76, would more likely face house arrest, considering his age.

In comments published recently on his party’s Facebook page, Mr. Berlusconi, a former prime minister, said he was prepared to go to prison if he was convicted, and would not go into exile like Bettino Craxi, Italy’s former Socialist leader, who died in exile in Tunisia after a party-finance scandal that brought down the Italian postwar political order in the early 1990s.

The case has once again brought Mr. Berlusconi to the fore of the national conversation, where he occupies far more space and airtime than Mr. Letta, the current prime minister.

For days, Mr. Berlusconi’s core of loyal supporters has been up in arms, lambasting the Italian judiciary for what it sees as its attacks on him, and some members of Parliament from his People of Liberty party have hinted that they would leave the government if he was convicted.

Others seem to be enjoying the spectacle. A verdict that was upheld would be “the death of democracy,” Daniela Santanchè, a former government official best known for her frequent television appearances defending Mr. Berlusconi, wrote on Twitter.

Many, even on Mr. Berlusconi’s own legal team, said they believed the court would uphold the sentence in some form.

The dozens of trials involving Mr. Berlusconi have often caused political turmoil. In July, members of Mr. Berlusconi’s party stormed out of Parliament and blocked parliamentary activities for a day after the court set the hearing for the tax fraud case earlier than expected.

Gaia Pianigiani contributed reporting.

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European Leaders Reach Budget Deal

BRUSSELS — European Union leaders on Friday agreed to a budget worth nearly €1 trillion to support farming, transportation and other infrastructure, as well as big research projects for the 27-nation bloc.

After two days of marathon negotiations, the Union’s 27 leaders agreed to a slightly smaller communal budget for the next seven years — the first decrease in its history — that reflects the climate of austerity in a region still struggling to emerge from a crippling debt crisis.

“Deal done,” Herman Van Rompuy, the president of the European Council, which organizes summit meetings, said in a message sent on Twitter.

The deal would cover the cost of project for “the rest of the decade” and was “worth waiting for,” wrote Mr. Van Rompuy.

The budget is negotiated every seven years and involves furious horse-trading as leaders focus on getting the best deal for their own countries’ citizens, rather than emphasizing pan-European considerations.

The marathon session was the second attempt to reach a deal on the funding package, which will run from 2014 to 2020; the first attempt collapsed in November.

Another failure to strike a deal on a sum of money that represents only about 1 percent of the Union’s gross domestic product would have been a severe embarrassment for the leaders, who already have spent the past few years bickering over how to save the euro.

The European Commission, the bloc’s policy-making arm, had sought an increase in the overall budget of around 5 percent to more than €1 trillion, or $1.35 trillion.

Mr. Van Rompuy pared that sum to about €973 billion at the previous summit meeting in November.

On Friday morning, Mr. Van Rompuy presented further revisions lowering the amount to about €960 billion but holding down the amount of cash governments contribute up front.

That formula was designed, in part, to satisfy countries like Britain and the Netherlands that pay more into the budget than they receive, while also accommodating the demands of countries like France and Italy that want to maintain generous payments for agriculture and infrastructure.

The deal faces still more hurdles before it is enacted by the European Parliament, which has the power to veto the budget.

Some of the most influential figures in Parliament have already signaled that they are prepared to reject a budget that foresees spending less on Europe in the years ahead.

Guy Verhofstadt, the head of the alliance of liberals in the Parliament, called on Thursday for a full-revision clause to be inserted into the budget, so that it could be increased after three years if economic conditions improved.

Martin Schulz, the president of the Parliament, said Thursday that he would not approve a budget that widened the overall gap between the amount of cash paid upfront by governments and the somewhat higher amounts, known as commitments, which make up the overall budget.

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DealBook: Facebook Debut Raises Questions on I.P.O. Process

Facebook stock, which slid again Tuesday, is now more than 18 percent below its offering price.Keith Bedford/ReutersFacebook stock, which slid again Tuesday, is now more than 18 percent below its offering price.

9:38 p.m. | Updated

Just days before Facebook went public, some big investors grew nervous about the company’s prospects.

After publicly warning about challenges in mobile advertising, Facebook executives held conference calls to update their banks’ analysts on the business. Analysts at Morgan Stanley and other firms soon started advising clients to dial back their expectations. One prospective buyer was told that second-quarter revenue could be 5 percent lower than the bank’s earlier estimates.

As investors tried to digest the developments, Morgan Stanley was busy setting the price and the size of the stock offering. While some big institutions scaled back on their plans, others placed large orders. And retail investors clamored for shares.

In the end, Facebook and the Morgan Stanley bankers decided they had enough demand and interest for Facebook to justify an offering price of $38 a share.

They didn’t.

When Facebook went public on Friday, its shares barely budged — and they have been falling ever since. On Tuesday, the stock closed at $31, more than 18 percent below its offering price.

The I.P.O. of Facebook was supposed to be Morgan Stanley’s crowning achievement, but it is turning out to be a big embarrassment, raising broader questions from regulators about the I.P.O. process.

Over the last year, Morgan helped usher in a new generation of technology companies, leading the offerings of LinkedIn, Groupon, Pandora and more than a dozen other start-ups. Facebook was poised to be the biggest and most ambitious. When the dust settles, Morgan Stanley could make more than $100 million in fees on the I.P.O.

But rival bankers and big investors have complained that Morgan Stanley botched the debut. They contend that the bank set the price too high and sold too many shares to the public. Facebook’s management team is also shouldering some blame. David Ebersman, the company’s chief financial officer, spent more than a year orchestrating the stock offering, drafting the prospectus and meeting with investors long before the company picked its bankers.

Facebook’s fate as a public company is hardly sealed. Many newly public companies stumble out of the gate and later become top performers with appealing stocks, a group that includes

But regulators are concerned that banks may have shared information only with certain clients, rather than broadly with investors. On Tuesday, William Galvin, the secretary of state in Massachusetts, subpoenaed Morgan Stanley over discussions with investors about Facebook’s offering. The Financial Industry Regulatory Authority, Wall Street’s self-regulator, is also looking into the matter. The chairwoman of the Securities and Exchange Commission, Mary L. Schapiro, said Tuesday that the agency would examine issues related to Facebook’s I.P.O., but she did not elaborate.

The steps a company takes to go public are highly choreographed and regulated by securities law. A company cannot comment or disclose new information about its business or prospects unless it does so publicly by amending its prospectus. Otherwise, it risks running afoul of regulators. The company could also be vulnerable to securities lawsuits, as investors would have to prove only that it made “material misstatements” ahead of an offering, rather than a high threshold of securities fraud.

“Morgan Stanley followed the same procedures for the Facebook offering that it follows for all I.P.O.’s,” a bank spokesman said in a statement. “These procedures are in compliance with all applicable regulations.”

A Facebook spokeswoman declined to comment.

In the weeks leading up to Facebook’s I.P.O., Morgan Stanley took a frontal approach to the pricing process. When the firm considered raising the offering price as high as $38 a share and increasing its size, other bankers pushed back. They worried that the company’s growth prospects did not support such lofty valuations.

Some bankers were also troubled by the huge demand from individual investors, a relatively capricious group. While Facebook allocated most of its shares to big, institutional investors like mutual funds and hedge funds, it also gave a larger-than-usual block, close to 25 percent, to ordinary investors.

Around the same time, red flags emerged about the company’s growth prospects. On May 9, Facebook revealed in a regulatory filing some potential challenges to its growth. In particular, the company highlighted that users were increasingly using Facebook on mobile devices, but the company was not making much money on mobile ads.

Even after some analysts revised their expectations downward, underwriters were inundated with orders. Demand from American investors alone exceed the number of shares by 20 times.

On Thursday, top bankers and Mr. Ebersman held discussions on a final price. The bankers were looking to orchestrate a “pop” of 10 percent, but not more than 20 percent. The underwriters, who at one point discussed a price as high as $40, settled on $38 a share. Mr. Ebersman signed off.

“The demand was astronomical,” said a banker involved in the process who spoke on the condition of anonymity. “We were all trying to thread a needle.”

On the day of the debut, last Friday, the mood at Facebook’s campus in California and at Nasdaq’s market site in Midtown Manhattan was jubilant. Nasdaq’s chief executive, Robert Greifeld, had flown to Menlo Park, Calif., to stand by Mark Zuckerberg as he rang the bell. In New York, Nasdaq and Facebook officials had Champagne on hand to commemorate the moment.

The celebration didn’t last.

Institutional investors began calling underwriters for guidance on where Facebook shares would open. Early market whispers had pegged the price at $50 a share. By 10:45 a.m., that fell to $45. Then $43. Then $42.

Investors were already uneasy, with many having received far more shares than expected. To some, that portended growing troubles with the offering — and made many consider selling their entire investments.

A few minutes before 11 a.m., Nasdaq advised of a five-minute delay, typical for an I.P.O. When Facebook still hadn’t started trading at 11:05 a.m., investors grew even more nervous. After switching software, Nasdaq was able to open Facebook manually at $42.05 at 11:30 a.m.

But Facebook shares quickly began to tumble. One investor, after being briefed on Facebook’s revised forecast, unloaded all of its holdings in the first hour of trading, according to Scott Sweet, founder of the IPO Boutique, who advises mutual funds, hedge funds and individuals. The investor sold hundreds of thousands of shares at about $42.

“They knew the jig was up,” Mr. Sweet said.

Retail stock brokerage firms, which had been besieged by customers seeking a piece of Facebook, were overwhelmed as well. Customers of Just2Trade, a discount broker with hundreds of orders lined up by 11:30 a.m., received an unusual message notifying that its orders were still open.

As investor calls began flooding the broker’s offices, Just2Trade tried to contact Nasdaq and Wall Street brokers. The exchange didn’t respond; the Wall Street firms said they had no clarity from Nasdaq.

“I have never experienced this before,” said Fuad Ahmed, Just2Trade’s chief executive. “You are driving a car with a broken windshield. You have no idea what was happening.”

At Morgan Stanley, the situation grew tense. The din of shouting and barked orders echoed across the trading floor, with several of the top bankers on the deal gathering to monitor the erratic trading. As the stabilization agent, the firm was tasked with keeping Facebook shares from falling below their offer price of $38 a share. But the market problems only made Morgan Stanley’s job more difficult.

Shares of Facebook ended the day at roughly the same place they started. Now as controversy swirls around Facebook and its bankers, the uncertainty could cloud the stock, as well as the broader I.P.O. market.

“There is a stigma around a broken deal, and Facebook is a broken deal,” said Connor Browne, a managing director for Thornburg Investment Management.

Reporting was contributed by Nathaniel Popper, Jeffrey Cane, Nick Bilton and Susanne Craig.

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