April 19, 2021

In Filing, Casino Operator Admits Likely Violation of an Antibribery Law

 In its annual regulatory report published by the commission on Friday, the Sands reported that its audit committee and independent accountants had determined that “there were likely violations of the books and records and internal controls provisions” of the Foreign Corrupt Practices Act.

 The disclosure comes amid an investigation by the Securities and Exchange Commission as well as the Department of Justice and the Federal Bureau of Investigation into the company’s business activities in China.

 It is the company’s first public acknowledgment of possible wrongdoing. Ron Reese, a spokesman for the Sands, declined to comment further.

The company’s activities in mainland China, including an attempt to set up a trade center in Beijing and create a sponsored basketball team, as well as tens of millions of dollars in payments the Sands made through a Chinese intermediary, had become a focus of the federal investigation, according to reporting by The New York Times and The Wall Street Journal in August.

 In its filing, the Sands said that it did not believe the findings would have material impact on its financial statements, or that they warranted revisions in its past statements. The company said that it was too early to determine whether the investigation would result in any losses. “The company is cooperating with all investigations,” the statement said.

 The Sands’ activities in China came under the scrutiny of federal investigators after 2010, when Steven C. Jacobs, the former president of the company’s operations in Macau, filed a wrongful-termination lawsuit in which he charged that he had been pressured to exercise improper leverage against government officials. He also accused the company of turning a blind eye toward Chinese organized crime figures operating in its casinos.

 Mr. Adelson began his push into China over a decade ago, after the authorities began offering a limited number of gambling licenses in Macau, a semiautonomous archipelago in the Pearl River Delta that is the only place in the country where casino gambling is legal.

 But as with many lucrative business spheres in China, the gambling industry on Macau is laced with corruption. Companies must rely on the good will of Chinese officials to secure licenses and contracts. Officials control even the flow of visitors, many of whom come on government-run junkets from the mainland.

 As he maneuvered to enter Macau’s gambling market, Mr. Adelson, who is well known in the United States for his financial and political clout, became enmeshed in often intertwining political and business dealings. At one point he reportedly intervened on behalf of the Chinese government to help stall a House resolution condemning the country’s bid for the 2008 Summer Olympics on the basis of its human rights record.

 In 2004, he opened his first casino there, the Sands Macau, the enclave’s first foreign owned gambling establishment. This was followed by his $2.4 billion Venetian in 2007.

 Some Sands subsidiaries have also come under investigation by Chinese authorities for violations that included using money for business purposes not reported to the authorities, resulting in fines of over a million dollars.

 Success in Macau has made Mr. Adelson, 78, one of the richest people in the world. He and his wife, Miriam, own 53.2 percent of Las Vegas Sands, the world’s biggest casino company by market value. Last year, Forbes estimated his fortune at $24.9 billion.

 Mr. Adelson became the biggest single donor in political history during the 2012 presidential election, giving more than $60 million to eight Republican candidates, including Newt Gingrich and Mitt Romney, through “super PACs.” He presides over a global empire of casinos, hotels and convention centers.

Michael Luo and Thomas Gaffney contributed reporting.

Article source: http://www.nytimes.com/2013/03/03/business/in-filing-casino-operator-admits-likely-violation-of-an-antibribery-law.html?partner=rss&emc=rss

DealBook: Heinz Case May Involve a Side Bet in London

Regulators have escalated an investigation into suspicious trades placed ahead of the $23 billion takeover of H. J. Heinz, focusing on a complex derivative bet routed through London, according to two people briefed on the matter.

The development builds on a recent regulatory action mounted against a Goldman Sachs account in Switzerland that bought Heinz options contracts. It also comes a week after the Federal Bureau of Investigation said it opened a criminal inquiry.

An unusual spike in trading volume in Heinz options a day before the deal was announced first attracted investigators. The Securities and Exchange Commission is also examining fluctuations in ordinary stock trades. The Financial Industry Regulatory Authority, Wall Street’s self-regulatory group, recently referred suspicious stock trades to the S.E.C., a person briefed on the matter said.

Now the S.E.C. is looking into a more opaque corner of the investing world, examining a product known as a contract-for-difference, a derivative that allows investors to bet on changes in the price of stocks without owning the shares. Such contracts are not regulated in the United States, but are popular in Britain. Regulators there recently opened an inquiry into the Heinz trades, one of the people briefed on the matter said.

The expansion of the Heinz investigation illustrates the growing challenges facing American regulators. Charged with policing the American exchanges, authorities increasingly find themselves having to hunt through a dizzyingly complex global marketplace.

After a number of prominent crackdowns on insider stock trading, a campaign that scared the markets, investors are seeking subtler and more sophisticated tools to seize on confidential tidbits. Trading operations also flocked overseas, a careful move that forces the S.E.C. to navigate a maze of international regulations before identifying suspect traders.

The Heinz case illustrates the shift, as the S.E.C. relies on Swiss authorities to expose the trader behind the Heinz options bets.

The suspicious options trades were routed through a Goldman Sachs account in Zurich, where laws prevent the firm from sharing details of the account holder’s identity. In a complaint filed two weeks ago, the S.E.C. froze the account of “one or more unknown traders.” A federal judge upheld that freeze last week, a move that will prevent the traders from spending their winnings or moving the money.

The series of well-timed options trades, bets that produced $1.7 million in potential profits, came just a day before Berkshire Hathaway and the investment firm 3G Capital announced that they had agreed to buy the ketchup maker. News of the deal sent the company’s shares, and the value of the options contracts, soaring.

The S.E.C. called the trading “highly suspicious,” given that there was scant options trading in Heinz in previous months.

“Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag,” Daniel M. Hawke, head of the commission’s market abuse unit, said recently.

While the identity remains a secret, the account holder is a Goldman private wealth management client, according to a person briefed on the matter who was not authorized to speak on the record. Goldman executives in Zurich know the identity of the person, but laws prohibit those executives from sharing the name with American regulators and even Goldman executives outside of Switzerland.

Finma, the Swiss regulator, is the gatekeeper for American regulators. The S.E.C. contacted Finma in an effort to learn more about the trading, and the Swiss regulator has promised to help. It could take weeks to identify the traders.

Goldman has hired outside counsel to advise it on the situation, according to people briefed on the situation who were not authorized to speak on the record. The bank, which is not accused of wrongdoing, is cooperating with the investigation.

An S.E.C. spokesman declined to comment.

The agency’s inquiry may cast a cloud over the Heinz deal. After the traders are identified, the focus will turn to the insiders who had information on the deal and could have leaked details. Dozens of people had confidential information about the deal, including bankers, lawyers and executives for both the buyers and the seller.

As the agency continues to build its case against the options trades, it also is examining suspicious contracts-for-difference.

Investors increasingly favor the contracts because they require little capital investment and can be traded on margin. They are popular on the London Stock Exchange, where regulators are now focusing some attention.

In essence, the derivatives contracts are a side bet on the price of a stock. They have drawn criticism for being opaque, in part because users are not actually trading the shares of a company, but rather a contract linked to those shares.

Regulators have examined the use of the contracts before when accusations of insider trading have arisen. In 2008, the British Financial Services Authority fined an investor for market abuse, saying the investor had used a contract-for-difference to profit from inside information on the Body Shop, a retailer. The person was making a bet in this case that the shares would fall in value.

Despite the focus on such complex products in the Heinz case, the S.E.C. is also examining more mundane activity in equity trades ahead of the deal.

Finra is helping the agency build its investigation. The group’s Office of Fraud Detection and Market Intelligence is coordinating with the S.E.C.

A Finra official declined to comment on Wednesday.

Article source: http://dealbook.nytimes.com/2013/02/27/heinz-case-may-involve-a-side-bet-in-london/?partner=rss&emc=rss

DealBook: Choice for S.E.C. Is Ex-Prosecutor, in Signal to Wall St.

President Obama with Mary Jo White and Richard Cordray.Doug Mills/The New York TimesPresident Obama with Mary Jo White and Richard Cordray.

3:30 p.m. | Updated

President Obama announced Thursday his nomination of Mary Jo White, a former federal prosecutor turned white-collar defense lawyer, to be the next chairwoman of the Securities and Exchange Commission.

In a short ceremony at the White House, Mr. Obama also said he was renominating Richard Cordray as director of the Consumer Financial Protection Bureau, a post Mr. Cordray has held under a temporary recess appointment without Senate approval for the past year. The president portrayed both selections as a way of preventing a financial crash like the one he inherited four years ago.

“It’s not enough to change the law,” Mr. Obama said. “We also need cops on the beat to enforce the law.”

Mr. Obama noted that Ms. White was a childhood fan of “The Hardy Boys,” just as he was. He added that as the United States attorney in New York in the 1990s she “built a career the Hardy Boys could only dream of.”

He noted that she prosecuted money launderers, mobsters and terrorists. “I’d say that’s a pretty good run,” he said. “You don’t want to mess with Mary Jo. As one former S.E.C. chairman said, Mary Jo does not intimidate easily.”

Mr. Obama likewise pressed the Senate to finally confirm Mr. Cordray to the leadership of the consumer agency created by the Wall Street regulation law passed in 2010. The president installed Mr. Cordray as director last January without Senate approval using his recess appointment power, but his term will expire at the end of the year unless he wins approval from the upper chamber of Congress.

“Financial institutions have plenty of lobbyists looking out for their interests,” Mr. Obama said. “The American people need Richard to keep standing up for them. And there’s absolutely no excuse for the Senate to wait any longer to confirm him.”

Ms. White and Mr. Cordray spoke only briefly. Ms. White said if confirmed she would work “to protect investors and to ensure the strength, efficiency and the transparency of our capital markets.” Mr. Cordray said that during his short tenure he has “been focused on making consumer finance markets work better for the American people” and approached it “with open minds, open ears and great determination.”

Regulatory chiefs are often market experts or academics. But Ms. White spent nearly a decade as the United States attorney in New York, the first woman named to this post. Among her prominent cases, she oversaw the prosecution of the mafia boss John Gotti as well as the people responsible for the 1993 World Trade Center bombing. She is now working the other side, defending Wall Street firms and executives as a partner at Debevoise Plimpton.

As the attorney general of Ohio, Mr. Cordray made a name for himself suing Wall Street companies in the wake of the financial crisis. He undertook a series of prominent lawsuits against big names in the finance world, including Bank of America and the American International Group.

The White House expects Ms. White, 65, and Mr. Cordray, 53, to draw on their prosecutorial backgrounds while carrying out a broad regulatory agenda under the Dodd-Frank Act. Congress enacted the law, which mandates a regulatory overhaul, in response to the 2008 financial crisis.

Jay Carney, the White House press secretary, said Ms. White has “an incredibly impressive resume” and that her appointment along with the renomination of Mr. Cordray sends an important signal.

“The president believes that appointment and the renomination he’s making today demonstrate the commitment he has to carrying out Wall Street reform, making sure we have the rules of the road that are necessary and that are being enforced in a way” to avoid a crisis like that of 2008, Mr. Carney said.

Another White House official added that Ms. White and Mr. Cordray will “serve in top enforcement roles” in part so that “Wall Street is held accountable and middle-class Americans never again are harmed by the abuses of a few.”

Ms. White will succeed Elisse B. Walter, a longtime S.E.C. official, who took over as chairwoman after Mary L. Schapiro stepped down as the agency’s leader in December. Mr. Cordray joined the consumer bureau in 2011 as its enforcement director.

The nominations could face a mixed reception in Congress. Republicans had previously vowed to block any candidate for the consumer bureau, leading to the recess appointment. It is unclear whether the White House and Mr. Cordray will face another standoff the second time around.

Mr. Carney argued that there were no substantive objections to Mr. Cordray’s confirmation, only political ones. “He is absolutely the right person for the job,” Mr. Carney said.

Ms. White is expected to receive broader support on Capitol Hill. Senator Charles E. Schumer, a New York Democrat, declared that Ms. White was a “tough-as-nails prosecutor” who “will not shy away from enforcing the laws to ensure that markets operate fairly.”

But she could face questions about her command of arcane financial minutiae. She was a director of the Nasdaq stock market, but has otherwise built her career on the law-and-order side of the securities industry.

People close to the S.E.C. note, however, that her husband, John W. White, is a veteran of the agency. From 2006 through 2008, he was head of the S.E.C.’s division of corporation finance, which oversees public companies’ disclosures and reporting.

Some Democrats also might question her path through the revolving door, in and out of government. While seen as a strong enforcer as a United States attorney, she went on in private practice to defend some of Wall Street’s biggest names, including Kenneth D. Lewis, a former head of Bank of America. She also represented JPMorgan Chase and the board of Morgan Stanley. Last year, the N.F.L. hired her to investigate allegations that the New Orleans Saints carried out a bounty system for hurting opponents.

Consumer advocates generally praised her appointment on Thursday. “Mary Jo White was a tough, smart, no-nonsense, broadly experienced and highly accomplished prosecutor,” said Dennis Kelleher, head of Better Markets, the nonprofit advocacy group. “She knew who the bad guys were, went after them and put them in prison when they broke the law.”

The appointment comes after the departure of Ms. Schapiro, who announced she would step down from the S.E.C. in late 2012. In a four-year tenure, she overhauled the agency after it was blamed for missing the warning signs of the crisis.

Since her exit, Washington and Wall Street have been abuzz with speculation about the next S.E.C. chief. President Obama quickly named Ms. Walter, then a Democratic commissioner at the agency, but her appointment was seen as a short-term solution. It is unclear if she will shift back to the commissioner role if Ms. White is confirmed.

In the wake of Ms. Schapiro’s exit, several other contenders surfaced, including Sallie L. Krawcheck, a longtime Wall Street executive. Richard G. Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority, Wall Street’s internal policing organization, was also briefly mentioned as a long-shot contender.

Kitty Bennett contributed reporting.

Article source: http://dealbook.nytimes.com/2013/01/24/mary-jo-white-to-be-named-new-s-e-c-boss/?partner=rss&emc=rss

Why the S.E.C. Is Likely to Miss Its Deadline to Write Crowdfunding Rules

The “game changer,” as President Obama put it in the Rose Garden as he signed the bill, was a provision to allow small companies to “crowdfund” — that is, to sell stock and other securities over the Internet directly to the general public. “For the first time,” the president said, “ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”

But it now seems that dawn will break late on this new age of democratic investing. The Securities and Exchange Commission appears certain to miss its end-of-year deadline for issuing regulations to put the provision into effect. And with the departure of the S.E.C. chairwoman, Mary L. Schapiro, and three of her top deputies — including two who manage the offices writing the regulations — some in the nascent equity crowdfunding industry worry that it could be 2014 before their line of business becomes legal.

The delay has frustrated many crowdfunding backers. The 270 days that Congress gave the S.E.C. to write the rules “is not a suggested timeline; it is a Congressional mandate,” said Kim Wales, an organizer at Crowdfund Intermediary Regulatory Advocates, a lobbying group formed in April to represent the new industry, in an e-mailed statement. “The S.E.C. answers to Congress, not the other way around.”

The crowdfunding provision, Title III of the Jumpstart Our Business Startups Act, creates an exception to the general rule that before a company can sell its stock to the public, it must register with the S.E.C., a process of disclosure requiring elaborate and expensive assistance from lawyers, accountants and investment bankers that most small companies cannot afford. Instead, businesses seeking less than $1 million will be able to raise capital online from small investors in a streamlined process.

But the law insists on strong investor protections, and as a result, the S.E.C. must iron out numerous issues concerning how crowdfunding companies, the intermediaries handling the transactions and even investors themselves can operate.

Small businesses, especially start-ups, are notoriously risky; in essence, the S.E.C. is writing rules that will govern a very dangerous game. “It’s actually a significant job to do the regulations in this area, so it was an unrealistic expectation that the S.E.C. would have it completed by now,” said Barbara Roper, director of investor protection for the Consumer Federation of America, which is lobbying the agency on other aspects of the Jobs Act. “I think they have 21 or 22 separate regulations to write.”

S.E.C. employees began accepting comments from and arranging meetings with interested members of the public about crowdfunding shortly after the Jobs Act became law. In those meetings, agency officials “have come in with our white papers fully highlighted, line by line, to discuss it,” said Alon Hillel-Tuch, co-founder and chief financial officer at RocketHub, a crowdfunding site that lets people and businesses raise money through donations or by offering rewards. (Current law allows sites to accept donations or deposits on a product.)

A spokeswoman for Senator Jeff Merkley, an Oregon Democrat who largely wrote the crowdfunding measure, said that the S.E.C. was grappling with the more stringent requirements courts had imposed for conducting cost-benefit analyses when writing regulations. This “has slowed down everything from Dodd-Frank to the Jobs Act,” the spokeswoman, Courtney Warner Crowell, said in an e-mail.

With meaningful data for analyzing equity crowdfunding in short supply, the S.E.C. asked RocketHub and Indiegogo, another donation-based crowdfunding service, to provide information about their operating practices and campaigns they had conducted. RocketHub complied, Mr. Hillel-Tuch said. But Indiegogo did not, said Slava Rubin, the company’s chief executive, because it did not want to share trade secrets.

Mr. Hillel-Tuch said S.E.C. officials also requested help from Kickstarter, another leading crowdfunding site. Officials spoke with a Kickstarter executive in July, but neither the agency nor Kickstarter would comment on the meeting.

Under Title III, companies wishing to sell stock to the public will have to provide information to investors and the S.E.C., including financial disclosures that grow more extensive as the size of the offerings increases. They will be allowed to sell stock only through an intermediary: either a broker-dealer or a specialized crowdfunding Web site, or portal. The intermediaries will have to take steps to ensure that small investors are protected, even from themselves. The law sets a cap on how much a person can invest through crowdfunding in a year, depending on income and net worth.

Advocates for both investors and members of the crowdfunding industry have dissected nearly every element of the legislation. “I think there are probably 25 or 30 legitimately important issues,” said Douglas S. Ellenoff, a New York securities lawyer who is advising some in the industry. “But I think they’ve all been hashed out. They have heard issues from a variety of angles, and I think that the draft proposals are fairly advanced.”

High on the list of priorities for the portals is to make sure they face less scrutiny from regulators than broker-dealers do. “What we’re asking for is the funding portals are viewed as sort of a broker-dealer-lite sort of model, where the mandates for broker-dealers are not imposed on a funding portal,” said Ms. Wales, the crowdfunding lobbyist.

Article source: http://www.nytimes.com/2012/12/27/business/smallbusiness/why-the-sec-is-likely-to-miss-its-deadline-to-write-crowdfunding-rules.html?partner=rss&emc=rss

Effort to Overhaul Money Market Funds Gains an Ally

A type of mutual fund could lose its trademark stable value of $1 a share after a crucial government official voiced his support for controversial efforts to overhaul the $2.6 trillion money market fund industry.

An array of regulators have been pushing to change the structure of money market funds so they are no longer vulnerable to the type of panic that hit one of the most prominent funds in 2008 in a major turning point of the financial crisis.

The desire for changes had run up against the opposition of Luis A. Aguilar, one of five members of the Securities and Exchange Commission, and the decisive vote on the issue. But Mr. Aguilar said this week that he had changed his views on the matter and was open to new rules that would force money funds to revalue the price of their shares daily, which would result in a so-called floating net asset value, or N.A.V.

Mary L. Schapiro, the commission’s chairwoman, had proposed the floating value as one of a few options for putting tighter controls on the industry. All of them have faced fierce opposition from the sector. John Nester, a spokesman for Ms. Schapiro, welcomed Mr. Aguilar’s comments and said that the chairwoman “has never wavered from her belief that a floating N.A.V is the most principled reform approach.”

There still are a number of potential obstacles. Ms. Schapiro, who has been one of the most vigorous supporters of an overhaul of money market funds, is stepping down from her position atop the S.E.C. next week, leaving the commission with only four members to vote on any new rules. That means that for a proposal to win a majority vote it would need the backing of one of the commission’s two Republican members. Mr. Aguilar is a Democrat, as is Elisse B. Walter, who is stepping in to replace Ms. Schapiro as chairwoman.

Both Republican commissioners, Daniel M. Gallagher and Troy A. Paredes, opposed Ms. Schapiro’s suggestions. But Mr. Gallagher recently said in an interview with Bloomberg News that he, too, would be open to a floating net asset value, though he said other changes would have to be made. Those caveats could prove crucial.

Mr. Aguilar’s shift is the latest turn in a drama that has attracted the interest of regulators and led to a heated battle with the largest mutual fund managers.

After Mr. Aguilar expressed his opposition to Ms. Schapiro’s proposal at the end of the summer, the Financial Stability Oversight Council said it would take the supervision of money market funds away from the S.E.C. if the agency did not move ahead with some new rules. The council presented the floating net asset value as one of three changes it could support.

Treasury Secretary Timothy F. Geithner and the chairman of the Federal Reserve, Ben S. Bernanke, have said that money market funds, in their current form, represent a systemic risk to the American financial system, in part because investors use them like bank accounts even though they lack the insurance carried by banks.

The funds promise to pay investors $1 for every $1 they put in, and regulators say that the fixed value leads investors to believe, incorrectly, that the value of their investment cannot go down. Regulators believe that a floating share value would provide a more honest picture of the investments and head off sudden panics.

In 2008, investors withdrew billions from the funds, requiring the Treasury Department and the Fed to step in with guarantees, after a leading fund’s share value dropped below $1, an occurrence known as breaking the buck.

The fund industry has waged a costly lobbying campaign against any changes, at one point buying an ad over the subway entrance used by S.E.C. employees. Industry executives have said that rules put in place in 2010 were adequate to shore up any weaknesses in the funds; regulators have said those rules did not go far enough.

Mr. Aguilar said in a statement this week that he was growing more comfortable with change after the commission’s staff released a report on Nov. 30 answering some of his earlier concerns about new rules. On Friday, he told Reuters that the report put him and his colleagues “in a much better position to allow us to vote on a proposal.”

Ianthe Zabel, a spokeswoman for an industry group, the Investment Company Institute, said Friday that “there’s little evidence” that moving to a floating net asset value “would enhance financial stability.”

Investors could change the way they use the funds if the shares no longer had a stable value of $1. Big institutional investors have said the change could cause an accounting headache because they would have to revalue holdings on a daily basis. Retail investors could begin to view the funds as a more risky investment.

Article source: http://www.nytimes.com/2012/12/08/business/effort-to-overhaul-money-market-funds-gains-an-ally.html?partner=rss&emc=rss

Media Decoder Blog: The Breakfast Meeting: YouTube Turns More TV-Like, and Scrutiny for Netflix Over Facebook Post

YouTube began introducing a redesigned Web site on Thursday that even more resembles television by prominently highlighting its “channels,” Claire Cain Miller writes, that is, series of videos by the same creator, whether a friend, a celebrity, or a professional producer like ESPN or PBS. With the redesign, every time you visit YouTube on any device, you will see the latest videos from the channels to which you subscribe. The goal, she writes, is to make YouTube a destination for entertainment, rather than someplace you visit when you receive a link or search for a certain video.

The Washington Post reported that it would probably start charging online readers for access to newspapers articles, probably by the middle of next year. The plan would be similar to the model used by The New York Times, in that readers would only be blocked once they had surpassed a certain number of articles or multimedia features a month. Home subscribers to the print edition would have unfettered access to The Post’s Web site and other digital products. The Post credited a report by The Wall Street Journal, which broke the news.

The Securities and Exchange Commission is considering taking action against Netflix and its chief executive, Reed Hastings, the company disclosed on Thursday, over a brief post he made to Facebook in July about a corporate milestone — one billion hours of video that subscribers watched the month before. The agency, in a so-called Wells notice, warned that it might file civil claims or seek a cease-and-desist order, Michael de la Merced reported.

  • The idea behind notice is to ensure that a company announces information that is material to its business to all investors at the same time; typically, a company uses a news release to share such information. Mr. Hastings’s main defense will probably be that the age of social media has redefined the concept of public disclosure, Mr. de la Merced writes. His Facebook feed is public, and the information reached his 200,000 followers, and then soon the news media.

Robert Lescher, who epitomized the courtly, largely invisible ideal of an Old World author’s agent, died on Nov. 28 at 83, Paul Vitello reports. Among his clients were Robert Frost, Alice B. Toklas and Isaac Bashevis Singer. When, after long representing himself, Mr. Singer asked Mr. Lescher to be his agent, according to Al Silverman in “The Time of Their Lives: The Golden Age of Great American Book Publishers” (2008), Mr. Lescher asked him why he thought he needed an agent: “You know, in the old days, when I wanted to reach Mr. Straus,” Mr. Singer said, referring to Roger Straus of Farrar, Straus Giroux, “I’d call him and he took my call. Now, I call and the secretary says, ‘He’s on the phone with Mr. Solzhenitsyn.’ ”

Article source: http://mediadecoder.blogs.nytimes.com/2012/12/07/the-breakfast-meeting-youtube-turns-more-tv-like-and-scrutiny-for-netflix-over-facebook-post/?partner=rss&emc=rss

Pictures from the Week in Business, Nov. 30

Mary L. Schapiro on Monday at the Securities and Exchange Commission headquarters in Washington. As her bruising tenure comes to an end, Ms. Schapiro, who stepped down on Monday, leaves behind a stronger S.E.C., an overhaul characterized by her attention to detail and meticulous preparation. While the agency still faces its share of challenges, Ms. Schapiro, the first woman to hold the top spot full time, has revamped the management ranks, revived the enforcement unit and secured more funding from a budget-conscious Congress.

Article source: http://www.nytimes.com/slideshow/2012/12/01/business/weekly-business-photos.html?partner=rss&emc=rss

DealBook: Mary L. Scapiro Leaves S.E.C. Better Than She Found It

Mary L. Schapiro, right, and Elisse B. Walter at a meeting of the Securities and Exchange Commission last year.Alex Wong/Getty ImagesMary L. Schapiro, right, and Elisse B. Walter at a meeting of the Securities and Exchange Commission last year.

Mary L. Schapiro spent four years at the Securities and Exchange Commission trying to shake the regulator’s past.

In one of the countless grillings she faced, Ms. Schapiro was slammed at a Congressional hearing in 2010 for missing the signs of Bernard Madoff’s Ponzi scheme, a fraud that took place under her predecessors.

But the S.E.C. chairwoman was ready. As always, she came to Capitol Hill armed with three copies of her testimony and a stack of handwritten note cards, reminders that included details of the agency’s overhaul efforts and even responses to long-forgotten missteps, like when employees were caught watching pornography.

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“Coming to an agency that was in dire straits, this level of preparation was needed to force all of us to be on top of our issues,” Ms. Schapiro, 57, said in a recent interview.

As her bruising tenure comes to an end, Ms. Schapiro, who stepped down on Monday, leaves behind a stronger S.E.C., an overhaul characterized by her attention to detail and meticulous preparation.

While the agency still faces its share of challenges, Ms. Schapiro, the first woman to hold the top spot full time, has revamped the management ranks, revived the enforcement unit and secured more funding from a budget-conscious Congress.

A self-described pragmatist, she has also won over critics and embraced a cautious style that made her a steady hand during periods of tumult, like the May 2010 stock market flash crash.

Still, the makeover is not complete.

The agency must now grapple with the increasingly complex products and rapid-fire trading that dominate Wall Street. Ms. Schapiro’s conservative nature has also drawn fire from consumer advocates, who were hoping for a louder voice more critical of the financial industry. She was slow, they argue, to combat a new law that loosened investor protections and has trailed other regulators in writing rules for Wall Street.

“At a time when we needed an aggressive chairman of the S.E.C., I saw someone who was not pushing back,” said Bart Naylor, an analyst at Public Citizen, a consumer advocacy group.

On Monday, President Obama named Elisse B. Walter, a Democrat who became an S.E.C. commissioner in 2008, the new chairwoman. Ms. Walter, a longtime ally of Ms. Schapiro, is expected to carry out a similar agenda. In a somewhat surprising move, Ms. Walter will take over the top spot, rather than stepping into an interim post. Her appointment does not require Congressional approval because she was previously confirmed as a commissioner.

The White House is expected to nominate another agency chief in the near future, said a person briefed on the matter. Mary Miller, a senior Treasury Department official, is a likely candidate, others briefed on the matter said. Sallie L. Krawcheck, a former top executive at Citigroup and Bank of America, is also in the running, the people said.

Unlike some past S.E.C. chiefs, Ms. Schapiro is not expected to head into private legal practice. Instead, analysts say she is more likely to land at a university or research center.

Ms. Schapiro joined the government straight out of law school. In 1980, she started as a trial lawyer for the Commodity Futures Trading Commission, an agency she later ran under President Bill Clinton. She ultimately headed the Financial Industry Regulatory Authority, or Finra, Wall Street’s self-regulatory group. In 2008, Ms. Schapiro left Finra with a healthy $7 million-plus payout that included pension and deferred compensation.

She inherited a mess at the S.E.C. Critics contended that Christopher Cox, her predecessor, left an agency with low morale that was ill-prepared to cope with the financial crisis. An early plan by the Obama administration called for the S.E.C. to be broken up into a number of different agencies.

At a staff meeting in 2009, she warned that “everyone needs to work harder or this agency could become extinct.” She also circulated letters from Mr. Madoff’s victims.

“We had never been spoken to like that before, and it was exactly what we needed,” said Thomas A. Sporkin, a former enforcement official at the agency.

Ms. Schapiro directed much of her early attention on the beleaguered enforcement unit. In her first week, she accelerated the investigative process by scrapping a Cox-era policy that required enforcement lawyers to seek permission from the five-member commission before opening an inquiry. She also prompted the unit to merge more than 70 tip lines into one. To lead the unit, Ms. Schapiro tapped Robert Khuzami, a former federal prosecutor.

Over the last two years, the unit has filed a record number of actions and brought 129 cases against people and firms tied to the crisis. In 2010, the S.E.C. won a landmark fraud case against Goldman Sachs, netting a record fine in excess of $500 million. Even so, detractors contend that the S.E.C. has not moved aggressively, noting the agency has yet to charge a top bank executive in the crisis.

As the enforcement unit gained its footing, Ms. Schapiro courted its main critics, like Harry Markopolos, a fraud investigator who raised concerns about Mr. Madoff but was ignored. He initially argued that Ms. Schapiro was too soft to turn around the agency.

She then invited Mr. Markopolos to her office for tea, promising him that she would adopt a whistle-blower program at the agency, which was created last May. She also pushed through tougher controls for investment advisers like Mr. Madoff.

“I went in one of her biggest skeptics and left one her biggest supporters,” Mr. Markopolos said.

Ms. Schapiro, a political independent, had some success on Capitol Hill as well. Politicians initially vowed to limit the S.E.C.’s funding. Eventually, Ms. Schapiro, who often made special visits to her critics before a hearing, squeezed out a roughly 50 percent budget bump. Mr. Cox, her predecessor, called this an “enormous achievement.”

But the consensus-driven approach has constrained the agency’s efforts, some contend. Other regulators have outpaced the S.E.C.’s rule writing under the Dodd-Frank Act, the sprawling crackdown passed in response to the crisis. Ms. Schapiro notes that Dodd-Frank forced the S.E.C. to adopt more rules than any other agency.

Ms. Schapiro has also fended off complaints that she took a passive stance with the Jumpstart Our Business Startups Act, a deregulatory effort aimed at increasing investment in small businesses. The so-called JOBS Act rolled back securities regulations.

Ms. Schapiro wrote a letter to lawmakers opposing the act, an effort that produced some wording changes. But she publicly addressed the issue just once, in a passing reference during a speech to journalists. She did not discuss the law Act a week later when speaking to an influential audience attending a conference hosted by the Securities Industry and Financial Markets Association, Wall Street’s lobbying group. The JOBS Act was proposed and signed into law this year in the span of just four months.

“Confrontation is not in her DNA,” said Arthur Levitt, the agency’s chairman under President Clinton.

Even when Ms. Schapiro adopted an aggressive posture, Washington’s political machinery could derail her efforts. Ms. Schapiro wanted money market mutual funds, which played a central role in the crisis, to adopt bolder safety measures like holding cash reserves. The proposal, resisted by the industry and three of the agency’s five commissioners, was never taken to a vote. “It was more important for the future of the regulator to get things done rather than make a lot noise,” Ms. Schapiro said.

She refuses to characterize the money market battle as defeat, saying she decided instead to refer the issue to the Financial Stability Oversight Council, which recently proposed a number of reforms. “In the face of overwhelming industry opposition, she would not compromise to issue something weak,” said the Treasury secretary, Timothy F. Geithner, who runs the council.

Ms. Schapiro confided in staff members that the fight over money market reform left her “exhausted.” Ms. Schapiro told Mr. Geithner in March that she was hoping to leave her post to spend time with her oldest daughter, who left for college this fall. That plan was shelved after President Obama called Ms. Schapiro and asked her to stay until after the election.

Ms. Schapiro would not speculate about her next steps, saying only that she was now finding time to volunteer at a local animal shelter. “The job was incredibly rewarding, but I have no idea what is next.”

Article source: http://dealbook.nytimes.com/2012/11/26/schapiro-head-of-s-e-c-to-announce-departure/?partner=rss&emc=rss

BP Will Plead Guilty and Pay Over $4 Billion

In a rare instance of seeking to hold individuals accountable for company misdeeds, the Justice Department also filed criminal charges against three BP employees in connection with the accident.

“This is unprecedented, both with regard to the amounts of money, the fact that a company has been criminally charged and that individuals have been charged as well,” Attorney General Eric H. Holder Jr. said at a news conference in New Orleans to announce the settlement.

The government said that BP’s negligence in sealing an exploratory well caused it to explode, sinking the Deepwater Horizon drill rig and unleashing a gusher of oil that lasted for months and coated beaches all along the Gulf Coast. The company initially tried to cover up the severity of the spill, misleading both Congress and investors about how quickly oil was leaking from the runaway well, according to the settlement and related charges.

While the settlement dispels one dark cloud that has hovered over BP since the spill, it does not resolve what is potentially the largest penalty related to the incident: the company could owe as much as $21 billion in pollution fines under the Clean Water Act f it is found to have been grossly negligent. Both the government and BP vowed to vigorously contest that issue at a trial scheduled to begin in February.

Under its deal with the Justice Department, BP will pay about $4 billion in penalties over five years. That amount includes $1.256 billion in criminal fines, $2.394 billion to the National Fish and Wildlife Foundation for remediation efforts and $350 million to the National Academy of Sciences. The criminal fine is one of the largest levied by the United States against a corporation.

BP also agreed to pay $525 million to settle civil charges by the Securities and Exchange Commission that it misled investors about the flow rate of oil from the well.

In addition, the company will submit to four years of government monitoring of its safety practices and ethics.

“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 W. Dudley, BP’s chief executive, said in a statement. “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.”

A broader settlement that would have resolved the Clean Water Act claims failed to win agreement from some parties, in particular the state of Louisiana. BP and the government now intend to go to trial on those claims in February.

The government charged the top BP officers aboard the drilling rig, Robert Kaluza and Donald Vidrine, with manslaughter in connection with each man who died, contending that the officials were negligent in supervising tests to seal the well.

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

As part of its plea agreement, BP admitted that, through Mr. Rainey, it withheld documents and provided false and misleading information in response to the House of Representatives’ request for information on how quickly oil was flowing. While Mr. Rainey was publicly repeating BP’s stated estimate of 5,000 barrels of oil a day, the company’s engineering teams were using sophisticated methods that generated significantly higher estimates. The Flow Rate Technical Group, consisting of government and independent scientists, later concluded that more than 60,000 barrels a day were leaking into the gulf during that time.

Lawyers for all three men charged denied that their clients had committed any criminal wrongdoing.

“This is not justice,” Mr. Kaluza’s lawyers, Shaun Clarke and David Gerger, said in a statement. “After nearly three years and tens of millions of dollars in investigation, the government needs a scapegoat.”

Mr. Holder, the attorney general, said that the government’s investigation was continuing and that other criminal charges could be filed.

Clifford Krauss reported from Houston and John Schwartz from New York. Contributing reporting were Julia Werdigier and Stanley Reed in London, Charlie Savage and John M. Broder in Washington and Campbell Robertson in New Orleans.

Article source: http://www.nytimes.com/2012/11/16/business/global/16iht-bp16.html?partner=rss&emc=rss

DealBook: New York Stock Exchange Settles Case Over Early Data Access

Traders on the floor of the New York Stock Exchange on Friday.Brendan McDermid/ReutersNew York Stock Exchange trading data gave some clients a split-second advantage.

In the latest federal action against a major exchange, the New York Stock Exchange settled accusations on Friday that its trading data gave select clients a split-second advantage over retail investors.

The Securities and Exchange Commission issued a civil enforcement action citing the Big Board for “compliance failures” that allowed certain customers to receive stock data before the broader public. The improper actions, which began in 2008, ran afoul of safeguards set up to promote fairness in a system known for favoring elite investors.

The S.E.C. forced the exchange to adopt a battery of internal controls and pay a $5 million penalty. While the fine is a token sum for the country’s biggest and most prominent trading platform, it represents the first penalty the agency has levied against an exchange.

“Improper early access to market data, even measured in milliseconds, can in today’s markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors,” Robert Khuzami, the agency’s enforcement director, said in a statement. “That is why S.E.C. rules mandate that exchanges give the public fair access to basic market data.”

In a statement, the Big Board played down the significance of the action. The S.E.C., the exchange noted, did not unearth intentional wrongdoing or evidence that the problems harmed individual investors. Instead, the exchange blamed the lapses on “technology issues,” which it said had since been fixed.

Traders on the floor of the New York Stock Exchange on Thursday.Spencer Platt/Getty ImagesTraders on the floor of the New York Stock Exchange on Thursday.

“N.Y.S.E. Euronext is pleased to have this matter resolved, and believes that the settlement is in the best interest of its share owners, clients and employees,” Duncan L. Niederauer, the company’s chief executive, said in the statement. “We will continue to take every responsible measure to ensure that our market operates with the utmost fairness and transparency.”

The action on Friday was part of a wider federal crackdown on the nation’s biggest exchanges. The S.E.C. has penalized the Direct Edge exchange for having “weak internal controls,” and it is also pursuing the Chicago Board Options Exchange for not properly policing the markets.

The sprawling investigation has grown after the so-called flash crash on May 6, 2010, when the Dow Jones industrial average plummeted more than 700 points in minutes before quickly recovering. Federal authorities and Congressional committees have focused their scrutiny on technological breakdowns and high-speed trading.

“Today’s action by the S.E.C. affirms what many have believed for years: that our U.S. capital markets are threatened by those with the resources and access to get split-second advantages over the rest of us,” Senator Carl Levin, a Michigan Democrat whose Permanent Subcommittee on Investigations has examined high-speed trading, said in a statement.

In its most prominent case, the S.E.C. is investigating Nasdaq in connection with Facebook’s botched public offering in May. BATS Global Markets has also acknowledged receiving a request from the agency, which is examining whether collaboration between BATS and high-frequency trading firms could hinder competition. Separately, the agency is looking into BATS’s own aborted public offering.

The companies often blame their woes on technological malfunctions. But in the New York Stock Exchange case, regulators described a more pervasive problem, tracing the improper actions to multiple technological mishaps and compliance issues.

In highlighting disparities in the distribution of stock data, the S.E.C. pointed to an “internal N.Y.S.E. system” and a “software issue.” The problems, regulators said, caused the exchange to send stock prices and other data to certain customers milliseconds, or even multiple seconds, before it released information more widely. The breakdown, which first came to light after the flash crash, dates back to 2008.

Despite the scope of the issues, the S.E.C. suggested they were preventable.

The exchange, regulators say, failed to keep computer files that detailed the timing of data feeds. The exchange’s compliance department also steered clear of major technology decisions, according to the S.E.C. The compliance staff, for example, did not help design or adopt the exchange’s market data systems. Under the terms of the settlement, the exchange must hire an independent consultant to study its “market data systems.”

“The violations at N.Y.S.E. may have been technological, but they were not technical,” said Daniel M. Hawke, chief of the agency’s Market Abuse Unit, which is leading the investigations into various exchanges. “Robust technology governance is just as important to preventing investor harm as any other compliance or supervisory function.”

Article source: http://dealbook.nytimes.com/2012/09/14/n-y-s-e-settles-regulatory-action-on-trading-data/?partner=rss&emc=rss