September 26, 2020

Crowdfunding for Small Business Is Still an Unclear Path

Mr. Caldbeck and his peers on the panel fumbled for a response. The fact is, most private equity investors and venture capitalists won’t touch a consumer products company until it has surpassed $10 million in sales — anything else is too small to bother with.

The best advice the panel could offer was for the entrepreneur to tap his credit cards.

“The purpose of the panel was to help entrepreneurs raise money, but we had no answers,” Mr. Caldbeck remembers. “That’s when I knew that there is a big issue here.”

That big issue caused Mr. Caldbeck to leave his job to start CircleUp, a company that aims to connect up-and-coming consumer products companies with investors.

Right now, the people allowed to invest through CircleUp must be accredited, meaning they have a high net worth. CircleUp hopes that soon not just the wealthy few, but the general public — whether friends, family members, customers, Facebook friends, or even total strangers — will be able to invest in deserving companies through a hot new area of finance known as crowdfunding.

To its advocates, crowdfunding is a way for capital-starved entrepreneurs to receive financing that neither big investors nor lenders are willing or able to provide. To others, it represents a potential minefield that could help bad businesses get off the ground before they eventually fail, and in some cases could even ensnare unsophisticated investors in outright fraud.

Those fears are partly why the Securities and Exchange Commission has delayed rules allowing crowdfunding that were supposed to take effect this month as part of the JOBS Act (Jump-Start Our Business Start-Ups), signed by President Obama last April. The S.E.C. is wary of loosening investor protections that have been in place since the 1930s.

Despite the uncertainty, the outlines of a new industry are emerging as a few crowdfunding start-ups have found ways to raise money within current rules. They include companies like CircleUp and SoMoLend, which lends money to small, Main Street-type businesses that typically wouldn’t interest private investors.

By themselves, of course, a few start-ups can’t completely democratize finance. But they begin to illuminate what the future of crowdfunding could look like, as the debate continues over a vast widening of the private investor pool.

Mr. Caldbeck formed CircleUp last fall along with Rory Eakin, a former business school classmate who was working for a philanthropic foundation. Through their start-up, the two men seek to finance food, personal care, apparel and pet-related companies, often with an environmental or social bent.

CircleUp considers applications from companies with $1 million to $10 million in revenue. Companies whose applications are accepted make their pitches to investors behind a firewall on the CircleUp Web site, offering equity stakes in return for capital. CircleUp, which helps companies raise up to $3 million, takes a small cut of the money.

Under current federal regulations, CircleUp wouldn’t be able to arrange such deals on its own. But it struck a partnership with W. R. Hambrecht, a registered broker-dealer that can handle investments from accredited, or high-net-worth, individuals whom the S.E.C. considers sophisticated enough to invest in private companies.

“Living here in Silicon Valley, a lot of people don’t understand the need,” Mr. Caldbeck says. “If you’re a tech company with a good idea, you can raise money. But it’s a different story for food, agriculture, retail and other consumer-oriented businesses.”

Mr. Caldbeck sees a big opportunity. Consumer goods companies account for a sizable portion of the nation’s businesses, yet very little capital — from private equity funds or from accredited investors — flows to them, he says.

What’s more, only a tiny percentage of those who qualify as accredited investors actually invest in private companies, he says. (These are people with a net worth of at least $1 million, not including their primary residence, or who have earned more than $200,000 — $300,000 for couples — in each of the last two years.)

Amy Cortese is the author of “Locavesting: The Revolution in Local Investing and How to Profit From It.”

Article source: http://www.nytimes.com/2013/01/06/business/crowdfunding-for-small-business-is-still-an-unclear-path.html?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: Nasdaq Sets Aside $40 Million to Settle Facebook Trading Claims

The Nasdaq OMX Group said on Wednesday that it planned to set aside as much as $40 million to settle disputes by investors over issues caused by technical glitches in Facebook’s initial public offering.

Under the terms of the plan, Nasdaq will make the money available to its member firms, rather than investors directly. About $13.7 million will be paid in cash, pending review by the Securities and Exchange Commission, while the remainder will be credited to member firms to reduce trading costs.

The long-awaited plan is meant to help quell investor anger over the flawed debut of Facebook on May 18. Errors in Nasdaq’s systems first led to delays in setting an opening price for the social networking giant, and then prevented some traders from knowing for hours whether their orders had been confirmed.

For days afterward, investors claimed that they still didn’t know how many Facebook shares they held, while others argued that the technical problems left them holding stock that had quickly plummeted in value on Friday and days afterward.

Nasdaq has claimed that its technical errors had concluded by 1:50 p.m. on the first day of trading, and that it wasn’t responsible for the company’s stock slide past that. But many investors and people involved in the I.P.O. process still claim that the stock market’s errors spooked investors and created a climate of fear that inhibited trading.

To qualify for Nasdaq’s plan, members must prove they were directly harmed by the glitches that erupted before trading started at 11:30 a.m. on the first day of trading.

And the program applies only to certain kinds of trades, including sale orders priced at $42 or less that did not execute or were carried out at lower prices and purchases that were priced at $42 but were not immediately confirmed.

Claims will be evaluated by the Financial Industry Regulatory Authority.

Nasdaq also said that it had hired I.B.M. to analyze its computer systems in the wake of the Facebook glitches.

Article source: http://dealbook.nytimes.com/2012/06/06/nasdaq-sets-aside-40-million-to-settle-facebook-trading-claims/?partner=rss&emc=rss

High & Low Finance: Questioning the Evil of Short Sales

Back in what now seem to be the long-ago days of 2003 through 2007, when the economy seemed to be healthy and stocks were expected to rise as a matter of course, so-called naked short-selling was a subject of great interest to more than a few companies and politicians. The Securities and Exchange Commission responded with a new rule that was supposed to curb the practice.

This week the S.E.C. settled a case against a former options market maker for violating those rules in 2006 and 2007. The trader, Gary S. Bell, will pay $2.1 million to settle the allegations. Most of that is in the form of disgorging illegal profits, which shows, if nothing else, that finding a way around the rule was profitable.

To economists, restrictions on short-selling often seem to be foolish and costly impediments to efficient markets. To companies, and their executives, any short-selling — whether legal or not — can seem pernicious. That is particularly true when market stresses are at their greatest. It can become an article of faith that short-sellers are spreading false rumors aimed at destroying a company.

A short-seller sells shares in a company that he does not own, hoping to repurchase them later at a lower price. Normally, a short-seller borrows the shares from someone who does own them, but when a stock seems especially overvalued such borrowing can become very expensive, if not impossible. Selling a stock that has not been borrowed is called naked shorting. Of course, the shares will not be delivered when the trade settles — that is called a failure to deliver — but the seller still stands to profit if the shares fall in price, and to lose money if they rise.

These days, it is not only the naked shorts that arouse ire. Governments in Europe have imposed bans on selling financial stocks short since the August market turmoil. Those bans have not kept financial stocks from being the worst-performing stocks on the Continent, but of course there is no way to know what would have happened without the ban.

It may or may not be relevant to note that financial shares in the United States, where the S.E.C. has resisted pressures to impose a comparable ban, have done better than their European brethren. But returns have been volatile here too, raising questions about whether shorts deserve blame for manipulating markets.

Historically, short-sellers have tended to be right a surprising amount of the time, at least in cases where the company grew upset enough to publicly complain. In 2004, a Yale professor, Owen Lamont, published a study of 266 companies that had publicly complained about short-selling during the quarter-century ending in 2002. Because some companies grew angry more than once, he studied a total of 327 share-price movements. On average, stocks underperformed the market by about 25 percentage points over the following year after they began to campaign against short-sellers.

Mr. Lamont conceded that such data did not prove the companies had been overvalued. An alternative explanation, favored by company managements, he wrote, “is that short-sellers are actually manipulating prices, driving prices down over long periods of time.”

But he noted that a significant number of the companies turned out to be frauds. “The evidence suggests that short-sellers play an important role in detecting not just overpricing, but fraud,” he wrote. “Policy makers might want to consider making the institutional and legal environment less hostile to short-sellers.”

The data Mr. Lamont used is now, of course, rather old. The S.E.C.’s rule to prevent naked short-selling dates from 2004, and was strengthened in 2008. Is there any evidence that those who violated the rule had similarly identified overpriced stocks?

The Bell case is at least the fourth one filed by the S.E.C. that claims violations of Regulation SHO by options market makers, but only the second one I could find that named actual stocks that were illegally shorted, the other being a 2009 case against traders who operated firms with the delightful names of Rhino Trading and Fat Squirrel Trading. All the cases concerned trading that took place before the rule was strengthened.

Perhaps significantly, many of the stocks that the S.E.C. said were illegally shorted appear never to have shown up on the Regulation SHO lists of stocks that are published by markets. Those lists show stocks in which there have been a large number of failures to deliver shares. Such fails can indicate naked shorting, although they also can result from back-office problems. The fact that there were violations in other stocks could mean violations were more widespread than those lists seemed to indicate.

Article source: http://feeds.nytimes.com/click.phdo?i=b7c43929d5bd82d2e3b891b5eafe0183

Former Siemens Executives Charged With Bribery

WASHINGTON — Eight former executives and contractors of Siemens, the German industrial giant, have been charged with criminal bribery in a decade-long effort to help the company secure a $1 billion contract to produce Argentina’s national identity cards, the Justice Department announced Tuesday.

The individuals conspired to pay more than $100 million in bribes to “high-level Argentine officials” in violation of the Foreign Corrupt Practices Act, the Justice Department said. Among those indicted was Uriel Sharef, who from July 2000 to July 2007 was a Siemens managing board member, a position just below the chief executive in rank.

Roughly $60 million in bribes were actually paid in the case, a Justice Department official said.

The indictment documents “a stunning level of deception and corruption,” said Lanny A. Brewer, an assistant attorney general. “Business should be won or lost on the merits of a company’s products and services, not the amount of bribes paid to government officials.”

In 2008, Siemens and its Argentine subsidiary pleaded guilty to criminal violations of the corrupt practices act, agreeing to pay fines of $448.5 million and $500,000, respectively. At the same time, the companies paid another $1.15 billion to settle charges brought by the Securities and Exchange Commission and the Office of the General Prosecutor in Munich.

On Tuesday, the Securities and Exchange Commission also announced civil bribery charges against seven former Siemens executives, six of whom were also named in the criminal indictment.

Robert Khuzami, director of enforcement for the S.E.C., said the case was important because “one of most critical functions of law enforcement is to communicate to companies and individuals that they’re not dupes for obeying the law.”

By enforcing the corrupt practices act, he added, “we reward those companies who refuse to pay bribes” and “root out competitors who do stoop to those levels.”

In both the criminal and civil cases, the individuals were charged with having paid bribes beginning in 1996 to secure the contract and, later, to overcome the Argentine government’s suspension of the project in 2001. The authorities charged that bribes continued to be paid for another six years to a different administration in Argentina in a failed effort to overturn the suspension.

Mr. Brewer said that the cooperation of Siemens corporate officials was “outstanding and extraordinary,” adding that it “played a large role in how we approached this matter.” American authorities also cooperated with the Munich prosecutor’s office in bringing the charges.

One of the men charged by the S.E.C., Bernd Regendantz, settled the S.E.C.’s charges by paying a $40,000 fine without admitting or denying the charges. Mr. Regendantz was not charged in the criminal indictment. The other individuals, who range in age from 51 to 79, are not in custody and are living abroad. United States officials said they were working with foreign governments to bring the individuals to the United States to face the criminal charges.

The cases were filed in United States District Court in Manhattan. The Justice Department said that at least $25 million of the bribes were funneled through United States institutions, giving criminal authorities here jurisdiction. Siemens began issuing financial securities in the United States in 2001, giving the S.E.C. jurisdiction over the $31 million in bribes that are alleged to have been paid after that date. Siemens has about 60,000 employees in the United States.

Article source: http://www.nytimes.com/2011/12/14/business/global/former-siemens-executives-charged-with-bribery.html?partner=rss&emc=rss

Fair Game: Clawbacks Without Claws in a Sarbanes-Oxley Tool

Under the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission was encouraged to hit executives where it hurts — in the wallet — if they certified financial results that turned out to be, in a word, bogus.

SarbOx was supposed to keep managers honest. They would have to hand back incentive pay like bonuses, even if they didn’t fudge the accounts themselves.

That, anyway, was the idea. The record suggests a bark decidedly worse than its bite. The S.E.C. brought its first case under Section 304 of SarbOx in 2007. Since then, it has filed cases demanding that only 31 executives at only 20 companies return some pay.

In 2007 and 2008, most of the cases involved shenanigans with stock options and produced some big recoveries. In the wake of the financial crisis, the dollars recouped have amounted to an asterisk. Since the beginning of 2009, the S.E.C. has pursued 18 executives at 10 companies. So far, it has recovered a total of $12.2 million from nine former executives at five. The other cases are pending.

“It seems like a dormant enforcement tool,” Jack T. Ciesielski, president of R. G. Associates and editor of The Analyst’s Accounting Observer, says of the SarbOx provision. “It was supposed to be a deterrent, but it’s only really a deterrent if they use it.”

How assiduously the S.E.C. enforces this aspect of Sarbanes-Oxley is important. Only the S.E.C. can bring cases under Section 304. Companies can’t. Nor, it appears, can shareholders. In 2009, the Court of Appeals for the Ninth Circuit ruled that there was no private cause of action for violations of Section 304.

Half the companies pursued by the S.E.C. during the past three years have been small and relatively obscure.

For example, the commission sued executives at SpongeTech Delivery Systems (2008 revenue: $5.6 million), contending that the company had booked $4.6 million in phony sales that year. NutraCea, a maker of dietary supplements with 2008 sales of $35 million, was sued along with Bradley D. Edson, its former chief executive, over what the S.E.C. called its recording of $2.6 million in false revenue. An executive at Isilon Systems, a data storage company, was pursued because, the S.E.C. maintained, the company had inflated sales by $4.8 million during 2007.

No money has been recovered in the SpongeTech or Isilon matters, which are still pending. Mr. Edson, who could not be reached for comment, returned his 2008 bonus of $350,000.

In all cases when executives have returned money, they have neither admitted nor denied allegations.

The S.E.C. typically recovers more money from executives at bigger companies. But top executives are rarely compelled to return all their incentive pay.

In a case brought last year against Navistar, for example, the S.E.C. contended that the company had overstated its income by $137 million from 2001 through 2005. Daniel C. Ustian, who is Navistar’s chief executive and who was not charged with wrongdoing, returned common stock worth $1.32 million. He had received $2.2 million in incentive pay and restricted stock during the time that the S.E.C. says Navistar inflated its accounting. A company spokeswoman said Mr. Ustian would not comment.

Robert C. Lannert, Navistar’s former chief financial officer, who also was not charged, gave back stock worth $1.05 million. His incentive pay consisted of only $828,555 during the years that the S.E.C. said the company misstated its results. He didn’t return a phone call seeking comment.  

ANOTHER case brought by the S.E.C. last year involved Diebold, a maker of automated teller machines. Contending that Diebold had overstated its results by $127 million between 2002 and 2007, the commission sued to recover money from three former executives. Walden W. O’Dell, who is a former C.E.O. and who was not charged, repaid $470,000 in cash, and 30,000 Diebold shares and 85,000 stock options. During the years that the S.E.C. alleged that results were overstated, he received bonuses totaling $1.9 million, in addition to restricted stock worth $261,000 and 295,000 stock options. Mr. O’Dell didn’t return a message seeking comment. The cases against the other Diebold executives are pending. A company spokesman said it had settled with regulators and declined to comment further.

Article source: http://feeds.nytimes.com/click.phdo?i=00b6bdbd32a8fbb9500da82b3d536448

A County in Alabama Puts Off Bankruptcy

In a public meeting, the county’s five commissioners read a list of proposed terms for refinancing about $3.2 billion of defaulted debt and found fault with almost all of them.

“It looks like a burden on the people,” said Sandra Little Brown. “The only tool that we have, as a commission, to protect the people is Chapter 9.”

The thing keeping her from using that tool, she said, was a call Friday morning from Gov. Robert Bentley, who urged her and the other commissioners to avoid bankruptcy because it could ripple out and hurt the credit of the whole state. The governor said that if the county kept working toward a settlement, he would push for help from the State Legislature. Until now, the statehouse has shown virtually no interest in helping the county as it sinks under the huge debt, incurred during an attempt to rebuild its failing sewer system.

“The governor’s call makes me want to think it over a little bit more,” Ms. Brown said.

The commissioners voted unanimously to delay a decision until Sept. 16, saying they would use the next few weeks to try to negotiate directly with the county’s creditors. The county’s relations with the debtholders are so frosty that a court-appointed receiver, John Young, has been serving as a go-between. But public opinion turned against Mr. Young this summer when he recommended a 25 percent increase in sewer rates and laid claim to a $75 million payment to the county from JPMorgan, its lead creditor. The payment was part of a settlement with the Securities and Exchange Commission, which had accused the bank of wrongdoing in its dealings with the county.

Mr. Young had said the sewer system needed the money and was legally entitled to it, provoking an outcry.

“It’s time that this commission took ownership of these negotiations,” James Stephens, a commissioner, said during the meeting on Friday.

Working in consultation with the receiver and the governor’s chief of staff, the creditors had proposed a refinancing package that would take the sewer system away from the county and put it under the control of an independent authority. The authority would issue new debt and use $2.07 billion of the proceeds to redeem all the defaulted securities, dealing creditors a loss but lightening the county’s debt burden considerably.

Governor Bentley offered to sweeten the deal by backing the new debt with the state’s “moral authority,” something the State Legislature would have to approve. A moral authority pledge is not as secure as the state’s “full faith and credit,” but it would still strengthen the authority’s standing enough to lower its borrowing costs by as much as 1.8 percentage points, officials said.

Terms of the creditors’ proposal also called for $233 million in issuance proceeds to go into a debt service reserve, and for $23.3 million to pay issuance costs. Some proceeds would also be set aside to provide relief to low-income sewer ratepayers. The total cost of the refinancing would be about $2.3 billion.

The creditors also called for the many lawsuits relating to the sewer project to be dismissed.

George Bowman, a commissioner, said during the meeting that he did not see how the board could agree to the proposal when so much depended on factors beyond the county’s control. No one knows yet whether the legislature will, in fact, create the proposed authority, for instance, or what the interest rate on the new debt would be. He also cited continuing investigations by the Justice Department and Internal Revenue Service, and was unwilling to drop legal claims until the findings were known.

“We have absolutely no control over anything they do,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=db74a29cf82605cc1852ef48e11c98ea

DealBook: Rating Agencies Face Crackdown

S.E.C. chairwoman Mary SchapiroAlex Wong/Getty ImagesMary Schapiro, the Securities and Exchange Commission chairman.

Securities regulators are out to tame the credit rating agencies, crucial Wall Street players at the center of the financial crisis.

The Securities and Exchange Commission proposed sweeping new rules on Wednesday to overhaul the rating business – regulations that would force tougher internal controls, potentially curb conflicts of interest and even mandate that the agencies periodically test the competence of their employees.

“These rules are intended to help investors and other users of credit ratings better understand and assess the ratings,” Mary L. Schapiro, chairman of the S.E.C., said at a public meeting on Wednesday. “It is a massive proposal,” she said of the plan, which spans more than 500 pages.

The S.E.C.’s five commissioners unanimously agreed to advance the proposals, which are now open for public comment for 60 days.

The agency’s Republican commissioners indicated, however, that they would push for some changes. The proposals “could be life threatening” to small rating agencies,” Kathleen L. Casey, a Republican commissioner, said at the public meeting.

A rating agency, for instance, would have to take on the costs of periodically administering performance exams that would “test its credit analysts on the credit rating procedures and methodologies it uses,” according to a summary of the proposal.

The proposals stem from the Dodd-Frank Act, the financial overhaul law enacted last year. The S.E.C. has already proposed new policies under Dodd-Frank that would strip references to credit ratings from rules that govern securities offerings.

The rating agencies in recent years became a target in Washington, as regulators and lawmakers blamed them for feeding the mortgage bubble by awarding top grades to bonds backed by subprime mortgages. The investments later soured, driving the economy to the brink.

A Congressional panel that chronicled the crisis called the largest rating agencies — Standard Poor’s, Moody’s Investors Service and Fitch Ratings — “essential cogs in the wheel of financial destruction.”

The problems, critics say, stem from an inherent conflict of interest plaguing the rating agencies’ business model.

Banks and corporations that issue debt must pay the rating agencies to assign their bonds a letter grade. In the lead up to the crisis, the rating agencies had a heavy hand in the mortgage bond business, as they advised big banks how to earn a top triple-A grade. In a quest for profits, the critics say, the agencies compromised the integrity of their ratings.

The S.E.C.’s proposal intends to mitigate some of those conflicts that have long hurt the industry’s reputation.

The plan would prohibit analysts from issuing a rating if they also marketed their rating agency’s products or services. Small rating agencies can apply for an exemption from this rule.

The proposal also takes aim at the revolving door between the rating agencies and Wall Street firms that seek the grades.

Under the plan, the rating agencies would have to examine whether their former analysts awarded overly rosy ratings to a firm that later hired that person. In such cases, the rating agencies would have to “promptly determine whether the credit rating must be revised.”

Ms. Casey warned that this proposal “threatened to cross the line” into dictating the substance of credit ratings. “I am concerned that this is such a slippery slope,” she said.

Still, the proposals do not go as far as some had expected.

In the final days of negotiations over Dodd-Frank, lawmakers stopped short of eliminating the so-called issuer pays model that causes potential conflicts of interest. Instead, lawmakers opted for a compromise. The S.E.C. must now study whether to create an independent body that will randomly assign ratings to different agencies.

The rating agencies fiercely oppose this plan, among other Dodd-Frank rules. Some rating agencies also may target an S.E.C. proposal that would require the industry to disclose how well their ratings have performed over time.

“One significant concern is whether the S.E.C. will follow up on this rule-making by actively pushing back at rating agencies if these attempts at mandating greater rating agency transparency turn out to produce opaque or formalistic disclosures in practice,” said Jeffrey Manns, a professor at George Washington University law school, who is an expert in credit rating agencies.

Article source: http://feeds.nytimes.com/click.phdo?i=432ae6d1927313586bdbd2fcdf5298c7

High & Low Finance: A Case That Got a Head Start on the Crime

With insider trading, the answer until now was always simple: the crime came first. But the case against Raj Rajaratnam, the hedge fund manager who was convicted by a federal court jury on Wednesday, stemmed from an investigation that began well before the crimes were committed.

And that made all the difference.

In normal insider trading cases, whether the ones involving someone’s brother-in-law or the celebrated one that brought down Ivan Boesky a generation ago, the investigation started only after someone noticed suspicious trading, like the purchase of a stock just before a takeover offer was announced or the short sale of the stock just before bad earnings news was released.

Once the investigation began, the Securities and Exchange Commission could find out who made the trades, and could ask why they chose to make the trades in question. It could also search for a source who might have leaked the “material nonpublic information,” to use the legal term for inside information.

That investigative technique often failed to find proof, even if the investigators were convinced the law had been broken. It was more likely to work with small fish than with whales. If the trader in question had never bought options before and then made a killing by purchasing call options just before a merger was announced, the investigators would be virtually certain there had been a leak.

If it turned out that the chief financial officer of the company being acquired was also a neighbor of the lucky investor, and that phone records showed they had talked just before the trade was made, the case was clear. In many cases, either leaker or leakee would admit what had happened, and often identify others who had shared in the tip.

But that technique is all but useless if the suspect is a hedge fund manager like Mr. Rajaratnam. His firm made dozens, if not hundreds, of trades every day. It had a bevy of analysts and access to all the research by Wall Street firms.

If a trade were somehow questioned, the firm could come up with any number of reasonable-sounding explanations, as Mr. Rajaratnam’s lawyer, John M. Dowd, did in the case that ended in his conviction.

But those explanations sounded pretty lame when stacked up against the audio tape recordings of conversations in which corporate insiders gave confidential information to Mr. Rajaratnam.

Those tapes exist only because the Justice Department got involved in the investigation at the beginning. Presumably, it had reason to believe that insider trading was happening, and that persuaded a federal judge to approve wiretaps.

As a result, the F.B.I. could listen in as the information was provided just before trades were made. And they could hear Mr. Rajaratnam discuss ways to throw off a normal insider trading investigation. He suggested sending choreographed e-mails with fake reasons for a trade. He recommended trading in and out of a stock that was being accumulated because of inside information.

It seems likely that Mr. Rajaratnam had used just such tactics in the past to explain away trades that had aroused suspicion. But hearing him describe them turned a defense into a virtual confession.

Those tapes “showed that the defendant knew what he was doing was not only wrong, but illegal,” said a prosecutor, Reed M. Brodsky, in closing arguments to the jury.

Insider trading was a common practice at Galleon. There were numerous leakers, and they came from the cream of American business — from insiders at major corporations like Intel and Goldman Sachs and from McKinsey, perhaps the most prestigious management consulting firm. Chief executives of smaller firms provided Mr. Rajaratnam inside information about their companies, and profited because they were allowed to invest in his funds.

Galleon ended up sounding like a criminal enterprise, where illegal information was bought through elaborate chains aimed at concealing the source of the money. Hedge fund investments were made in the name of a housekeeper, and money was transferred overseas and back merely to cover up the trail.

Article source: http://www.nytimes.com/2011/05/12/business/12norris.html?partner=rss&emc=rss

UBS to Pay $160 Million to Settle Bid-Rigging Claims

WASHINGTON (AP) — The Swiss banking giant UBS has agreed to pay $160 million to resolve accusations of rigging the bidding process to win investment business from cities and towns in 36 states.

Federal and state officials announced the settlements Wednesday. The Justice Department said that UBS had admitted and had accepted responsibility for illegal, anticompetitive conduct by former employees from 2001 through 2006.

The local governments were looking to invest their proceeds from municipal bond sales. The former UBS employees manipulated the bidding process and at times paid kickbacks to bidding agents who collect proposals for government business, the Justice Department and the Securities and Exchange Commission said.

The $160 million is being paid as restitution and penalties to federal and state agencies. Because UBS admitted to the conduct and cooperated, it will nott being prosecuted.

Article source: http://feeds.nytimes.com/click.phdo?i=eecbd34a1dd38a6dcd16ebd41ec1250e