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DealBook: Judge Approves MF Global Liquidation Plan

April 6, 2013 by Leave a Comment

Jon S. Corzine, former MF Global chief. Some lawyers are skeptical of the outcome of talks with the bankruptcy trustee.Jonathan Ernst/ReutersJon S. Corzine, former MF Global chief. Some lawyers are skeptical of the outcome of talks with the bankruptcy trustee.

A day after MF Global’s bankruptcy trustee hinted he might sue top executives for “negligent conduct,” his separate plan to liquidate the firm secured court approval, ushering in a final phase of a case that rattled Wall Street and prompted a federal investigation.

At a hearing in bankruptcy court in Manhattan on Friday, nearly 18 months after the brokerage firm imploded, Judge Martin Glenn cleared the way for Louis J. Freeh, the trustee, to sell the firm’s remaining assets and return money to creditors. For Mr. Freeh, a former director of the F.B.I. who is liquidating MF Global’s estate, the ruling was a major step toward ending the largest Wall Street bankruptcy since the financial crisis.

When the firm collapsed — and improperly tapped customer money to plug a gap in its own finances — the blowup consumed Wall Street and Washington. MF Global, then run by Jon S. Corzine, the former governor of New Jersey, became a byword for excessive risk-taking and the target of a federal investigation into $1.6 billion in missing customer money.

Criminal and civil investigations continue. And in a report released on Thursday, Mr. Freeh suggested that he might sue Mr. Corzine and other top executives, accusing them of engineering a “risky business strategy” and ignoring “glaring deficiencies” in internal controls.

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Mr. Freeh pointed to Mr. Corzine’s outsize bet on European debt. While the bonds were not by themselves to blame for the fall of MF Global, the bet alarmed investors and rating agencies, sending the firm into a tailspin.

Mr. Freeh agreed to postpone the lawsuit while he pursued mediation with Mr. Corzine. A spokesman for Mr. Corzine argued that “there simply is no basis for the suggestion that Mr. Corzine breached his fiduciary duties or was negligent.” The spokesman, Steven Goldberg, added that “the trustee’s report, with its allegations of negligent conduct, is a clear case of Monday-morning quarterbacking.”

Judge Glenn’s decision to approve the liquidation plan will empower Mr. Freeh to wind down his role in the case. When the plan becomes effective, he will hand the reins in part to a committee of MF Global creditors.

Mr. Freeh attended the hearing on Friday to speak in favor of the liquidation deal.

Under the plan, MF Global will pay up to 34 percent of claims filed by hedge funds and other unsecured creditors that owned MF Global bonds. The hedge funds, including Silver Point Capital, supported the plan.

JPMorgan Chase, one of MF Global’s largest lenders, will fare better. The bank is expected to collect up to 76 percent of its claims under the plan approved on Friday.

The firm’s customers, whose money vanished after the bankruptcy, are also poised for a big payout. James W. Giddens, a trustee whose job was to return money to customers, has recovered most of the funds from MF Global’s banks and clearinghouses. Mr. Giddens, who already returned about 89 percent of the missing money, recently sought court approval to dole out up to about 97 percent.

Article source: http://dealbook.nytimes.com/2013/04/05/judge-approves-mf-global-liquidation-plan/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: As Unit Pleads Guilty, R.B.S. to Pay $612 Million Over Rate Rigging

February 6, 2013 by Leave a Comment

A branch of the Royal Bank of Scotland in Edinburgh.David Moir/ReutersA branch of the Royal Bank of Scotland in Edinburgh.

LONDON – The Royal Bank of Scotland on Wednesday struck a combined $612 million settlement with American and British authorities over accusations that it manipulated interest rates, the latest case to emerge from a broad international investigation.

In an embarrassing blow to the bank, its Japanese subsidiary also pleaded guilty to criminal wrongdoing in its settlement with the Justice Department. The R.B.S. subsidiary, a hub of rate-rigging activity, agreed to a single count of felony wire fraud to settle the case.

The settlement reflects the Justice Department’s renewed vigor for punishing banks ensnared in the rate manipulation case. In December, a Japanese subsidiary of UBS pleaded guilty to felony wire fraud as part of a larger settlement, representing the first unit of a big bank to agree to criminal charges in more than a decade.

As authorities built the R.B.S. case, they seized on a series of incriminating yet colorful e-mails that highlighted an effort to influence the rate-setting process, a plot that spanned multiple currencies and countries from 2006 to 2010. One senior trader expressed disbelief at reaping lucrative profits from the scheme, saying “it’s just amazing” how rate “fixing can make you that much money,” according to the government’s complaint. Another trader, after pressuring a colleague to submit a certain rate, offered a reward of sorts: “I would come over there and make love to you.”

In a statement on Wednesday, the American regulator leading the case slammed the bank for manipulating benchmarks like the London Interbank Offered Rate, or Libor. The regulator, the Commodity Futures Trading Commission, noted that R.B.S. employees “aided and abetted” other banks in the rate-rigging scheme and continued to run afoul of the law, though more covertly, even after learning of a federal investigation.

“The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s Libor submissions, trying to manufacture winning trades. That’s what happened at R.B.S.,” David Meister, the enforcement director of the commission, said in the statement.

Libor Explained

The settlement represents the latest setback for Royal Bank of Scotland, which has struggled to shake the legacy of the 2008 financial crisis. The British firm already has put aside $2.7 billion to compensate customers who were inappropriately sold loan insurance over recent years. On Jan. 31, British regulators also called on the bank and other local rivals to review the sale of interest-rate hedging products after more than 90 percent of a sample were found to have been sold improperly.

The broader rate-rigging case has centered on how much the Royal Bank of Scotland and a dozen other banks, including Citigroup and HSBC, charge each other for loans. Such benchmarks, including Libor, help determine the borrowing costs for trillions of dollars in financial products like corporate loans, mortgages and credit cards.

But the Royal Bank of Scotland, like many of its competitors, corrupted the process. Government complaints filed over the last year outlined a scheme in which banks reported false rates to lift trading profits and deflect concerns about their health during the crisis.

Authorities filed the first Libor case in June, extracting a $450 million settlement with the British bank Barclays. In December, UBS agreed to a record $1.5 billion settlement with European regulators, the Justice Department and the American regulator that opened the case, the Commodity Futures Trading Commission. The Justice Department’s criminal division, which secured the guilty plea from the bank’s Japanese unit, also filed criminal charges against two former UBS traders.

Some of the world’s largest financial institutions remain caught in the cross hairs of the case. Deutsche Bank has set aside an undisclosed amount to cover potential penalties.

While foreign banks have received the brunt of the scrutiny to date, an American institution could be among the next to settle. Citigroup and JPMorgan Chase are under investigation.

The Royal Bank of Scotland case represents the second-largest fine levied in the multiyear investigation into rate manipulation.

The Justice Department imposed a $150 million fine as part of a deferred-prosecution agreement with R.B.S., while the trading commission’s financial penalty reached $325 million. The Financial Services Authority, the British regulator, also levied a £87.5 million ($137 million) fine against the firm, one of the largest financial penalties ever from British authorities.

R.B.S., based in Edinburgh, had aimed to avert the guilty plea for its Japanese subsidiary. But the Justice Department’s criminal division declined to back down, and the bank had little leverage to push back. If it had balked at a plea deal, the Justice Department could have moved to indict the subsidiary.

“Like with Barclays and UBS, the settlement with R.B.S. is much more than a slap on the wrist,” said Bart Chilton, a commissioner at the trading commission who is a critic of soft fines on big banks.

In the wake of the settlement, Royal Bank of Scotland is shaking up its management team as it moves to repair its bruised image. John Hourican, the firm’s investment banking chief, resigned on Wednesday, and agreed to forgo some of his past compensation.

Royal Bank of Scotland, in which the government holds an 82 percent stake after providing a $73 billion bailout in 2008, also plans to claw back bonuses totaling $471 million to help pay for the rate-rigging penalty.

“We condemn the behavior of the individuals who sought to influence some Libor currency settings at our bank from 2006 to 2010. There is no place at R.B.S. for such behavior,” Stephen Hester, the bank’s chief executive, said in a statement on Wednesday. “Libor manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom.”

Article source: http://dealbook.nytimes.com/2013/02/06/as-unit-pleads-guilty-r-b-s-pays-612-million-over-rate-rigging/?partner=rss&emc=rss

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Recall Study Finds Flaws at Toyota

May 24, 2011 by Leave a Comment

The seven-member panel, created last year by Toyota and headed by a former United States transportation secretary, Rodney E. Slater, did not try to identify whether any electronic defects could have caused vehicles to accelerate suddenly. A federal investigation found no evidence of an electronic problem, mirroring Toyota’s assertion that the problems were limited to defective accelerator pedals and ill-fitting floor mats.

But Monday’s report said Toyota had been slow to discover the pedal and floor mat issues because it viewed complaints made to the company or to federal regulators about sudden acceleration skeptically and defensively. It said Toyota had failed to apply the principles of its manufacturing process, known as “the Toyota Way” and built around the concept of detecting and responding to problems quickly, to evaluate criticism from external sources.

The report described Toyota’s attitude toward regulators, which fined the company nearly $50 million for taking too long to initiate recalls, as “adversarial.”

“The very culture that works so well for them when things are stable and predictable really doesn’t work when you’re dealing with a fast-paced crisis,” Jeremy Anwyl, the chief executive of the vehicle information Web site Edmunds.com, said. “If you had to characterize a company that was sort of uniquely vulnerable to this, it’s Toyota.”

The recalls dealt a devastating blow to Toyota. The company has been struggling to overcome the damage done to its once-spotless reputation, and the effect has been evident in its sales.

Toyota was the only major carmaker to report a decline in its sales last year, while the rest of the industry experienced a 13 percent gain. It has continued to lag its competitors in 2011 even as small, fuel-efficient cars — its strength — become more popular.

The report said Toyota had treated safety differently from other manufacturers, by lumping it into the larger issue of “quality” and making it part of everyone’s responsibility rather than assigning it to specific executives and employees.

“Safety and quality are very different attributes, and a process that produces quality vehicles will not necessarily produce safe vehicles,” said one panel member, Brian O’Neill, a former president of the Insurance Institute for Highway Safety. “This safety philosophy might suffer from the old adage, ‘When everyone is responsible, no one is accountable.’ “

The panel members met with numerous Toyota executives, talked with the president, Akio Toyoda, shortly after the March earthquake in Japan by telephone and visited many of the company’s plants and offices to study what happened leading up to the recalls. The panel is made up of people outside the company who are being paid by the automaker, but members declined to reveal their compensation, citing confidentiality agreements.

Though some said they had been longtime Toyota and Lexus drivers, all insisted that they had acted independently, and they conceded that Toyota was unlikely to follow all of their recommendations.

The report said Toyota had taken some important steps toward improvement, including the appointment of a global chief safety officer, but it made many additional recommendations. It said, for instance, that Toyota should have a single executive oversee its North American operations, which now operate as separate sales, engineering and manufacturing organizations, each reporting to executives in Japan.

Some of the panel members suggested that the seriousness and frequency of the sudden acceleration incidents had been overblown.

“Any machine built by any company, as long as they employ humans, is going to be imperfect,” said one member, Norman R. Augustine, a former chief executive of Lockheed Martin. “The record for Toyota is that safety issues are so infrequent that, statistically, one should be very comfortable driving a Toyota or Lexus.” Mr. Augustine added that he drove a Lexus.

Among the top recommendations by the panel is for Toyota to decentralize its corporate structure and break down the “silos” within its organization that “hindered information-sharing and contributed to miscommunication.” The report concluded, “Toyota has erred too much on the side of global centralization and needs to shift the balance somewhat toward greater local authority and control.”

Toyota said it had already given more decision-making authority to executives outside its headquarters, particularly in North America, where it created a position of chief quality officer more than a year ago. The company also has added more time for testing into the development of new vehicles.

“Over the past year, Toyota has learned a great deal from listening to the panel’s valuable counsel,” Mr. Toyoda said in a statement. “Their advice has been reflected in the meaningful steps we’ve taken to give our North American operations more autonomy and become an even more safety-focused and responsive company.”

When Toyota created the review panel last year, company officials said it was intended to exist for two years. In its second year, the panel is charged with monitoring how well Toyota carries out its recommendations and their effectiveness.

Although the panel is financed by Toyota, analysts said they saw a genuine interest within the company in repairing problems uncovered by the investigation. The recalls, compounded recently by the earthquake in Japan that has disrupted production for months, have left Toyota on the defensive and eager to regain some of the momentum it lost.

“I have no doubt about their motivation,” Edmunds.com’s Mr. Anwyl said. “Now it boils down to execution.”

Article source: http://feeds.nytimes.com/click.phdo?i=8e353fb7394f7aa9560a0c1e4bd19ffd

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Medtronic Bone-Growth Product Scrutinized

April 12, 2011 by Leave a Comment

Recently, the Food and Drug Administration turned down the company’s application to sell a new spinal fusion device that is essentially a high-strength version of an approved one called Infuse. An agency review of clinical studies raised questions about a higher rate of cancers in patients treated with the new product, which is called Amplify, compared with those who did not get it.

Meanwhile, a long-running investigation by the Justice Department into the marketing of Infuse is apparently widening. In recent years, a number of physicians were contacted by prosecutors in connection with that inquiry, but just a few weeks ago, another doctor said he had also been contacted by Justice Department officials. He asked not to be identified because the inquiry is under way.

Prosecutors have also sought records from United States Army researchers involved in studies of Infuse, a bioengineered bone growth product that has also been used to treat severely wounded American soldiers, according to people who have been contacted as part of the inquiry.

Medtronic has said it plans to discuss the rejection of Amplify with regulators to try to allay their concerns, and the company has not been charged with any wrongdoing in the criminal inquiry. But the developments could pose significant future problems for Medtronic, a medical device giant whose other products include heart pacemakers and defibrillators.

A Wall Street analyst, Larry Biegelsen of Wells Fargo Securities, said Infuse accounts for the vast majority of Medtronic’s sales of biologic products, which he projected would reach $897 million in the company’s current fiscal year.

Mr. Biegelsen said the continuing federal investigation of Infuse, along with the F.D.A.’s rejection of Amplify, could lead to a slowdown of Infuse sales over the next year. He estimated that off-label use by doctors of the bone-growth protein made up 70 to 80 percent of Infuse sales.

The extent of the federal criminal inquiry involving Infuse is not clear. But the doctor who was recently contacted by Justice Department officials also said that it was his understanding that prosecutors had contacted other physicians in recent months.

One military surgeon testified before a federal grand jury in Boston investigating the Infuse issue about a year ago, said people with knowledge of the inquiry who also requested anonymity because it was continuing.

Army officials have also provided the Justice Department with the results of a military investigation into the experimental use of Infuse on dozens of soldiers at Walter Reed Army Medical Center in Washington, said Col. Norvell V. Coots, commander of the Walter Reed Health Care System. The Army’s 2008 report on that investigation found that a former military doctor, Dr. Timothy R. Kuklo, had overstated Infuse’s benefit in a medical journal study that examined its use in the treatment of solders whose shin bones had been severely shattered by explosive devices in Iraq.

Dr. Kuklo, who became a Medtronic consultant, also forged the signatures of that study’s co-authors in a journal submittal, the Army said. Medtronic later broke its ties to him, and the medical journal that published the article retracted it.

Medtronic has previously disclosed both the existence of a federal inquiry into its marketing of Infuse as well as the Justice Department’s interest into research it underwrote at Walter Reed.

In response to an inquiry from The New York Times, the company released a statement noting its previous disclosures. It declined to say whether federal officials were examining specific issues like company-sponsored research.

“Medtronic does not comment on what precise topics the government may or may not be examining at any point in the investigation,” the company said.

Henry J. Dane, who represented Dr. Kuklo in the Walter Reed investigation, said the Justice Department had subpoenaed the doctor’s records. Mr. Dane said he understood that prosecutors had also sought records from academic researchers and doctors outside the military who worked on other studies about Infuse that had been financed by Medtronic.

“He’s far from the only one,” to get a subpoena, said Mr. Dane, referring to Dr. Kuklo.

Mr. Dane said that a lawyer in Boston, Thomas C. Frongillo, has represented Dr. Kuklo and other physicians contacted by the Justice Department in the Infuse investigation. Reached by telephone, Mr. Frongillo declined comment. Several academic researchers involved in Medtronic-financed studies about Infuse did not respond to inquiries or declined to comment.

A spokeswoman for the United States attorney’s office in Boston, Christina DiIorio-Sterling, cited Justice Department policy in declining to confirm or deny the existence of an investigation.

In 2002, the Food and Drug Administration approved the use of Infuse for a certain type of spinal fusion procedure, in which problem spinal vertebrae are joined in an effort to stop severe back pain. Doctors are free to use an approved product in any way they choose, and many surgeons began using Infuse for other types of spinal fusion operations.

Some of the doctors who performed research studies into such so-called off-label uses of Infuse received millions of dollars in consulting fees from Medtronic, Congressional investigations have found.

In 2008, the F.D.A. issued a warning about the use of bone-growth proteins like Infuse in one off-label fusion procedure used to treat neck pain, citing reports of life-threatening injuries.

Article source: http://feeds.nytimes.com/click.phdo?i=37afb8e7001c28a201826e18162dc225

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