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Forensic News November 2016

FINANCIAL/ACCOUNTING FRAUD
Exxon in Negotiations With Chad About $74 Billion Penalty
Exxon Mobil Corp. is negotiating with Chad’s government about a record $74 billion fine the oil company was told to pay last month by a court in the central African nation because of a dispute over royalties. While the world’s biggest oil producer by market value, valued at $360 billion, has appealed the Oct. 5 ruling by the High Court, the appeals court hearing has been delayed because of the talks, Thomas Dingamgoto, a lawyer for the company, said in an interview in the capital, N’Djamena. The penalty exceeds the $61.6 billion financial blow BP Plc incurred after the Deepwater Horizon disaster in 2010 killed 11 rig workers and fouled the Gulf of Mexico with crude for months, and is more than 70 times larger than the $977.5 million Exxon was ordered to pay fishermen and other victims of the 1989 Valdez oil spill in Alaska. The Chadian court imposed the fine after the Finance Ministry said a consortium led by Irving, Texas-based Exxon hadn’t met tax obligations. The court also demanded the oil explorer pay $819 million in overdue royalties. “This dispute relates to disagreement over commitments made by the government to the consortium, not the government’s ability to impose taxes,” Todd Spitler, an Exxon spokesman, said in an e-mailed statement. “It is vital for all parties to honor the terms of a contract and abide by applicable law in order to achieve the desired long-term benefits envisioned when projects begin.” The penalty, almost six times Chad’s gross domestic product, is in line with the customs code of a regional organization of which Chad is a member, the Economic and Monetary Community of Central African States, according to the government’s general director of legal affairs, Fang Langou Operal. The code stipulates that “in the event of fraudulent behavior, as is the case, the fine should amount to double the value of the object of the fraud,” Operal said in an interview in N’Djamena late Monday. He declined to elaborate.
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Japanese firms face tighter audits after Toshiba scandal
After a damaging accounting scandal at Toshiba Corp (6502.T) last year, half of Japanese firms have seen changes in the way they are audited and have taken or are considering steps to boost book-keeping compliance, a Reuters poll shows. The findings suggest some, if incomplete, progress has been made in Prime Minister Shinzo Abe’s push to improve corporate governance. Government efforts to make firms more transparent and shareholder friendly have won plaudits from investors and are soon set to be followed by plans from regulators for new rules to improve standards in the auditing profession. The spotlight has shone particularly harshly on auditors after Toshiba’s $1.3 billion padding of profits over seven years went unnoticed by its auditor, a lapse that was a painful reminder of a similar scandal at Olympus Corp (7733.T) in 2011 where accounting tricks were used to mask big losses. In the Reuters Corporate Survey, conducted October 26–November 8, 52 percent of firms said that auditing had changed. Of those, the vast majority noted more detailed questioning, while a third said the frequency with which they met with auditors had risen. Another 17 percent said they were getting better advice. “There’s been a rise in the number of man-hours spent checking for fraud,” wrote a manager at a retailer. Companies answered anonymously to the poll survey, which is conducted monthly for Reuters by Nikkei Research. Of the 531 large and medium-sized non-financial firms polled, 246 replied to questions on audit-related and accounting matters. Much of the blame for the scandal at Toshiba has been laid at the feet of a corporate culture that placed too much emphasis on unquestioning loyalty to top bosses even when unrealistic sales and profit targets were set. But it seems as if companies are now more keen to make sure their books are in order, with exactly 50 percent saying they have taken or are considering steps to increase compliance. “We’ve made our internal rules stricter,” wrote a manager at a machinery firm. Other measures cited by companies in the poll include bumping up headcount in finance and accounting departments, the strengthening of education programs for employees about compliance and increased oversight of group firms. “Japan’s corporate culture has changed a lot,” said Yoshinori Kawamura, a Waseda University professor specializing in accounting.
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Europe’s top truck makers could face 100 billion euro cartel damages claim
Litigation management company Bentham Europe plans to fund a potential 100 billion euro ($110 billion) damages claim against Europe’s biggest truck makers after they admitted to operating a 14-year price cartel. Bentham said on Monday it intends to back a group action on behalf of truck buyers who fell victim to the cartel involving Volvo (VOLVb.ST), Daimler (DAIGn.DE), Paccar’s (PCAR.O) DAF, CNH Industrial’s (CNHI.MI) Iveco and Volkswagen’s (VOWG_p.DE) MAN. Four truck makers were fined a record 2.9 billion euros by EU regulators in July for price fixing and passing on to customers the costs of complying with stricter emission rules. Volkswagen’s MAN escaped a fine after it blew the whistle, but all five conceded that they had operated a cartel between 1997 and 2011 apart from VW stablemate Scania, which remains under investigation. Bentham Europe, owned by funds managed by U.S. investment firm Elliott Management, estimates that 10 million trucks were sold across the EU in the period and that each one was overpriced by about 10,500 euros. Bentham, which is also funding shareholder lawsuits against British supermarket chain Tesco and VW, said that it is too soon to announce which law firm would bring its proposed claim or in which European jurisdiction it would be filed. Third-party litigation funding has become increasingly mainstream in the UK over the past seven years. Funders offer to pay for lawsuits in exchange for a share of any payout and returns can be sizeable, but it is a high-risk business and payments for successful claims can take years to materialize. Critics say that litigation funding operators can bully smaller companies by threatening class actions. But Bentham Europe, whose competitors include the likes of Burford Capital (BURF.L) and United States-based Gerchen Keller Capital, says it only takes on sizeable claims where it scents proper misconduct. “Bentham is determined to bring the opportunity to recover the overcharges to the attention of as many truck purchasers as it can and enable these victims of the cartel collectively to seek redress,” said Bentham Europe’s Chief Investment Officer Jeremy Marshall.
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U.S. top court skeptical toward State Farm hurricane fraud appeal
The Supreme Court on Tuesday appeared unlikely to throw out a jury verdict against State Farm that found the insurance company defrauded the U.S. government when it assessed damage caused by Hurricane Katrina along the Gulf of Mexico coast in 2005. The eight justices heard arguments in State Farm’s challenge to a 2015 lower court ruling upholding the verdict in a 2006 lawsuit brought by two whistleblowers, sisters Cori and Kerri Rigsby, under the False Claims Act, which lets people sue on behalf of the government over allegations it has been defrauded. The suit accused the Bloomington, Illinois-based company of improperly seeking to foist the costs of covering Katrina-related damage to a Biloxi, Mississippi home onto the government rather than covering the costs itself. State Farm argued the claims brought by the sisters, former claims adjusters who worked for the company after the hurricane, should be voided because their lawyer violated a court order requiring that details of the case be kept under seal. The women’s former lawyer, Dickie Scruggs, had distributed information about the lawsuit to members of the news media. False Claims Act lawsuits are required to be filed under seal and remain private for 60 days. In 2008, Scruggs was convicted of conspiring to bribe a judge in a different case. He was sentenced to five years in prison. The jury found that the federal government had been defrauded of $250,000, and State Farm was ordered to pay $758,000 in damages. The sisters were awarded $227,000 for disclosing the fraud under the False Claims Act and almost $3 million in attorney’s fees and expenses. Based on the one-hour argument, it appeared unlikely the justices will find that Scruggs’ disclosures to the media merit throwing out the 2013 jury verdict. None of the media organizations disclosed the lawsuit’s existence to the public.
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Wall Street scion Caspersen gets 4 years in prison for $38.5 million fraud
Former Wall Street executive Andrew Caspersen was sentenced on Friday to four years in prison for engaging in what prosecutors say was a Ponzi-like scheme to defraud investors including family members and friends out of $38.5 million. Caspersen, who worked at a unit of investment banker Paul Taubman’s PJT Partners Inc before his arrest in March, was sentenced by U.S. District Judge Jed Rakoff in Manhattan after pleading guilty to charges including securities fraud. Prosecutors sought up to 15-2/3 years in prison for the Princeton University and Harvard Law School graduate, who they said for 18 months shamelessly exploited his victims’ trust. But Paul Shechtman, his lawyer, urged Rakoff to consider as a mitigating factor Caspersen’s “pathological” gambling addiction that led him to obtain millions of dollars to engage in risky options trading. “I was willing to do anything to continue, and eventually I did,” Caspersen, 40, said in court. After hearing from testimony from an expert in gambling addition, Rakoff agreed Caspersen’s condition impacted his decision making. He called the lengthy prison term prosecutors pushed “absurd.” “No purpose will be served by letting him rot in prison for years on end,” said Rakoff, who is expected to order restitution at a later date. Caspersen, the son of late Wall Street financier Finn M.W. Caspersen, had worked at Park Hill Group since 2013. The advisory firm was spun off from private equity group Blackstone Group LP last year and is now part of PJT Partners. Prosecutors said beginning in 2014, Caspersen sought to defraud over a dozen investors including his mother, a brother and friends by claiming he would use their funds to make loans to private equity firms, generating annual returns of 15 to 20 percent. Instead, prosecutors said he used the $38.5 million he raised to make options trades, to pay earlier investors and to replace over $8 million he misappropriated from Park Hill, which Caspersen said during his July guilty plea he used for gambling. In total, he tried to raise over $150 million, prosecutors said.
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Police arrest 178 in Europe-wide money laundering crackdown
Police forces across Europe and the United States arrested 178 people as part of a crackdown on money laundering last week and identified some 23 million euros ($24.46 million) in stolen funds, the European Union judicial agency Eurojust said. The arrests were the result of an operation targeting the practice of money muling, where illicit funds are disguised by wiring them through the accounts of intermediaries, or mules, who are paid with a cut of the proceeds. Some 580 money mules were identified and police interviewed 380 suspects during the operation, which was intended to tackle the growing volume of online payment and card fraud across the continent. The growing scale of card fraud was highlighted at the weekend, when cyber security analysts said criminals had used malicious software to “jackpot” cash machines in more than a dozen European countries – rigging them so they spit out cash. Money mules are essential to the money laundering strategies of many criminal networks. Since the practice is often disguised as legitimate employment, many are unaware they are involved in a scam for which they can end up facing criminal charges. “Money muling may on the surface seem to be a small crime, but (it) is orchestrated by organized crime groups,” said Michele Consinsx, president of Eurojust, which helped coordinate the operation alongside European policing agency Europol. Authorities from Britain, Bulgaria, Croatia, France, Germany, Greece, Hungary, Italy, Latvia, Moldova, the Netherlands, Portugal, Romania, Spain, Ukraine and the United States were involved in last week’s operation.
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CUNY Misuse of Funds Is Systemic, Report Says
City University of New York misused funds from nonprofits connected with several of its schools, according to a preliminary report the state’s inspector general released Tuesday. The board of the university, which operates 11 colleges and serves more than 270,000 students, requested an investigation in October following the resignation of the president of City College of New York, who allegedly misused funds from an affiliated nonprofit to pay for personal expenses. The former president, Lisa Coico, didn’t respond to a request for comment. She has previously denied wrongdoing. A U.S. attorney is investigating Ms. Coico’s handling of funds. The inspector general’s report found additional potential financial mismanagement at other CUNY schools, which all have similar nonprofits. It said Brooklyn College’s former president used $36,000 intended for the school to pay for a part-time housekeeper for her university housing, according to a school agreement from 2015, as well as $35,000 in school funding for her retirement party. Karen L. Gould served as president during that time, although she wasn’t named in the report. She retired last summer and couldn’t be reached for comment. Brooklyn College declined to comment. Queens College also used funding from its nonprofit to add $40,000 to the annual salary of its president, Felix V. Matos Rodriguez, at the request of CUNY Chancellor James B. Milliken, ”making the distribution of income susceptible to favoritism and outside influence without any oversight,” according to the report. “Spending practices at [CUNY] have raised several clear and immediate concerns, including a glaring lack of transparency and the potential for waste and abuse,” said Inspector General Leahy Scott. ”CUNY’s affiliated foundations are entrusted with approximately $1 billion and must ensure those funds are expended for the benefit of the school’s educational mission.”
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FOREIGN CORRUPT PRACTICES ACT (FCPA)
Macau billionaire faces new U.S. charges in U.N. bribe case
U.S. prosecutors on Tuesday brought new charges against a billionaire from Macau accused of engaging in a scheme to pay hundreds of thousands of dollars in bribes to a former United Nations General Assembly president. A revised indictment filed in Manhattan federal court against Ng Lap Seng, a real estate developer from the Chinese territory, and his assistant, Jeff Yin, included new charges that both men violated the U.S. Foreign Corrupt Practices Act. Prosecutors also added tax-related charges against Yin. The indictment said he took steps to evade paying income taxes and helped a diplomat from the Dominican Republic involved in the scheme conceal portions of his income from U.S. tax authorities. And prosecutors unveiled an alias that they said Ng, the founder of Macau-based real estate developer Sun Kian Ip Group, was known by: “Boss Wu.” Lawyers for Ng and Yin did not immediately respond to requests for comment. Both have previously denied wrongdoing and pleaded not guilty to bribery and money laundering charges. Ng, who was once linked to a campaign fundraising investigation during former U.S. President Bill Clinton’s administration, is one of seven individuals charged since October 2015 in the U.N.-related probe. Prosecutors accuse Ng and Yin of paying more than $500,000 in bribes to John Ashe, a former U.N. ambassador from Antigua and Barbuda who served as General Assembly president from 2013 to 2014. Ashe died in June awaiting trial. The indictment said Ng and Yin also paid bribes to Francis Lorenzo, a then-deputy U.N. ambassador from the Dominican Republic who pleaded guilty in March to bribery and money laundering charges as part of a deal to cooperate in the probe.
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Samsung Raid Turns Spotlight on Companies’ Role in Korea Scandal
The influence-peddling scandal shadowing South Korean President Park Geun-hye is raising fresh questions about decades of cozy ties between the nation’s big conglomerates and those in power. Successive governments – including Park’s administration – have pledged to curb the influence of the companies, often family-run, known as chaebols. That’s amid public disquiet about how much they affect policy making and, in turn, how strongly and openly they are regulated. Now, one of the biggest chaebols is caught up in the turmoil that is casting doubt on Park’s political future. Investigators on Tuesday raided the headquarters of Samsung Electronics Co., seeking evidence on whether the smartphone maker illegally provided gifts to a confidante of Park who is accused of having undue influence on the president. The company confirmed the probe and declined to comment further. While the public outrage has mostly been directed at Park and her friend Choi Soon-sil, the search of Samsung’s premises, which follows raids on eight banks last week seeking financial details related to Choi, could spur a backlash against major corporations. Hours after the Samsung raid, prosecutors said a Hyundai Motor Co. executive was summoned to provide details related to donations the company made to two foundations. Other chaebols mentioned in the latest allegations include Lotte Group, which gave 7 billion won ($6.2 million) to a foundation in May but said it wasn’t aware of Choi’s alleged role. Local media said the foundation took advantage of the group’s family feud and allegations of improper business transactions, but returned the money the next month after getting wind of a potential investigation.
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France adopts U.S.-style anti-corruption settlement system
France adopted new anti-corruption legislation on Tuesday which will for the first time enable companies to strike negotiated financial settlements with magistrates, in line with practice in the United States and Britain. The measure approved by the lower house of parliament comes after France has been criticized by international organizations for failing to ever convict a French firm for bribery abroad. French firms including Alstom or Total have however been fined in corruption cases in the United States. France ranks 23rd in Transparency International’s latest corruption perception index, behind Germany, Britain and the United States. The new system, allowing for a Deferred Prosecution Agreement (DPA), aims to speed up lengthy legal procedures. The maximum fine will amount to 30 percent of the company’s annual turnover. “It will help companies resolve cases without going to court, without the press being around day after day, and it will probably be cheaper,” Washington-based anti-corruption lawyer Saskia Zandieh of the Miller & Chevalier practice told Reuters. Initial proposals were criticized by the Conseil d’Etat – the country’s highest administrative court – which said it was worried they would lead to a lack of public scrutiny. To alleviate those concerns, the final version includes provisions to ensure a judge checks the legality of the settlement in a public hearing. “I am sure that this provision will be implemented usefully by magistrates and that our country will at last fight so-called transnational corruption effectively,” Finance Minister Michel Sapin told.
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LITIGATION MATTERS
Walgreens Sues Ex-Partner Theranos Over Agreement Violation
Embattled startup Theranos Inc. was sued by Walgreens Boots Alliance Inc. in connection with claims it violated an agreement tied to a scandal over faulty blood-testing claims. Deerfield, Illinois-based Walgreens, which joined with Theranos to provide testing at some of its retail stores, filed a sealed lawsuit against its former partner on Tuesday in federal court in Delaware. The suit seeks $140 million in damages, the Wall Street Journal reported, citing court records that couldn’t be confirmed in the public docket. Walgreens terminated its relationship with Theranos and closed 40 Arizona sites in June after questions arose about whether the Palo Alto, California-based company misled consumers and investors about the validity of its testing capabilities. “Over the years, Walgreens consistently failed to meet its commitments to Theranos,” the startup said in a statement on its web site. “Through its mishandling of our partnership and now this lawsuit, Walgreens has caused Theranos and its investors significant harm. We will respond vigorously to Walgreens’ unfounded allegations, and will seek to hold Walgreens responsible for the damage it has caused to Theranos and its investors.” Michael Polzin, a spokesman for Walgreens, declined to comment on the case. Walgreens joins testing patients who’ve already sued Theranos, claiming faulty blood-test results led to heart attacks and other issues. It’s also facing fraud claims in state court in Delaware from one of its investors. Theranos’s reputation suffered a hit after it issued tens of thousands of corrected or voided results to former patients. It’s been investigated by federal prosecutors, securities regulators and federal and state health officials. U.S. District Judge Sue Robinson in Wilmington, Delaware, agreed to seal the suit for seven days so Theranos officials can decide whether it contains any proprietary information, according to a public court filing. Walgreens claims Theranos misled it about the state of its technology when the two firms entered into their agreement, the Journal reported, citing unidentified people familiar with the suit.
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Google nears tax settlement with Indonesian government
Alphabet Inc’s (GOOGL.O) Google is expected to reach a tax settlement with the Indonesian government in the next few weeks, people familiar with the matter told Reuters. Under the proposed settlement, Google will pay back taxes and fines, and the search giant will have to agree to a new calculation of profits made in the country, said one of the people, who declined to be named as the information was not public. If the settlement goes ahead, it could pave the way for more countries to aggressively pursue back taxes from internet companies like Google, analysts say. A tax office spokesman declined to comment. A Google spokesman also declined to comment. Most of the revenue generated by Google in Indonesia is booked at its Asia Pacific headquarters in Singapore, according to the tax office. A senior tax official said in September that Indonesia planned to pursue Google for five years of back taxes, and the company could face a bill of more than $400 million for 2015 alone if it were found to have avoided payments. “I think other countries that have a significant population will also try to chase Google for taxes,” said Yustinus Prastowo, executive director of the Center for Indonesia Taxation Analysis. Indonesia, which launched a tax amnesty scheme in July to lure back billions of dollars stashed abroad, is eager to ramp up its tax collection to narrow its budget deficit and fund an ambitious infrastructure program. The country of 250 million people has a youthful demographic that is among the world’s biggest users of social media like Facebook and Twitter. Senior executives from Google’s Asia Pacific headquarters had met with Indonesian tax officials several times to negotiate its tax bill, people familiar with the matter told Reuters. In January, Google agreed to pay 130 million pounds ($185 million) in back taxes to settle a probe by Britain’s tax authority, which had challenged the company’s low tax returns for the years since 2005. Other governments around the world are also seeking to clamp down on what they see as egregious corporate tax avoidance.
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Xerox Overcharged Student Debtors, State Prosecutor Says
Xerox Corp. has agreed to pay $2.4 million to settle Massachusetts state prosecutors’ accusations that the company mistreated student debtors in violation of state law banning unfair and deceptive practices, Attorney General Maura Healey said. Xerox, known more for its photocopiers than for its student loan business, allegedly took months to process debtors’ applications to make reduced payments under a federal program, charged excessive fees, harassed borrowers with numerous phone calls, and overcharged active-duty service members in violation of federal law, according to a copy of the settlement filed on Monday in Massachusetts state court. Xerox denied liability. The company “regularly undermined the opportunity for students to access appropriate repayment plans,” Healey said in a statement. “This conduct increases the already high cost of education, damages credit, and prevents students and their families from achieving long-term economic security.” Kevin Lightfoot, a Xerox spokesman, said the company cooperated with Healey’s office and worked closely with prosecutors to improve its loan-servicing practices. The agreement is the latest in a growing list of settlements struck between government agencies and student loan companies accused of misconduct, part of a government crackdown following years of widespread consumer complaints of shoddy customer service. Since 2014, federal regulators have settled similar allegations lodged against companies such as Navient Corp., formerly known as Sallie Mae; Wells Fargo; and Discover Financial Services. The Massachusetts agreement is probably the first in what is expected to be a much broader settlement between the company and numerous state and federal regulators over its student loan practices. In January the federal Consumer Financial Protection Bureau told Xerox that its enforcement staff had amassed enough evidence in a two-year investigation to indicate the company violated federal laws banning unfair practices, according to Xerox’s securities filings. CFPB officials are considering whether to sue the company in court.
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CHINA MARKET
JPMorgan to settle U.S. government probe of China hiring
JPMorgan Chase & Co (JPM.N) will pay more than $250 million to settle allegations by the U.S. government that it had hired children of Chinese decision makers to win business, a source familiar with the matter told Reuters. The bank will pay roughly $200 million combined to the Securities and Exchange Commission and the Justice Department and more than $50 million to the Federal Reserve, the source said. There will not be any individual prosecution at this time, the source said. The SEC opened an investigation into JPMorgan in 2013 over the hiring. The Justice Department opened a parallel investigation around the same time. Investment banks have a long history of employing the children of China’s politically connected. While close ties to top government officials are a boon to any banking franchise across the world, they are especially beneficial in China, where relationships and personal connections play a critical role in business decisions. The SEC, JPMorgan and the Justice Department all declined to comment. The settlement was first reported by Bloomberg. It will end a probe into whether the bank’s hires violated U.S. anti-bribery laws, Bloomberg said.
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China approves Pfizer vaccine Prevenar
Chinese regulators have approved Pfizer Inc’s blockbuster vaccine Prevenar 13, the U.S. drugmaker said on Wednesday, a breakthrough for the firm after it was forced to shut its vaccine business in China last year. Prevenar – one of Pfizer’s top selling products – is used primarily for infants to help prevent pneumococcal disease, a bacterial infection that can lead to illnesses such as pneumonia, meningitis and sepsis. Pfizer shuttered its China vaccines business after a license for an earlier version of Prevenar was not renewed in 2015. Foreign drugmakers face growing difficulties obtaining approvals for medicines in China, the world’s No. 2 drug market. The U.S. firm said it had received approval from the China Food and Drug Administration (CFDA) to market Prevenar 13 to infants and children aged between 6 weeks to 15 months. “We applaud the efforts of CFDA and other relevant Chinese government agencies to bring new medicines and vaccines to the Chinese healthcare system,” Wu Xiaobin, president of Pfizer China, said in a statement. The firm aims to make the vaccine available in China within the earliest possible timeframe, but there was no set date, said Pfizer spokeswoman Trupti Wagh. “We have just received the approval and we are working through the timing of our launch,” she said in an e-mail.
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Ctrip Acquires Skyscanner for $1.7 Billion to Expand Bookings
A day after the U.K. Chancellor of the Exchequer Philip Hammond highlighted the problem of British technology companies’ inability to grow to international scale, another one of its most promising startups was snapped up by a Chinese buyer. Ctrip.com International Ltd. will buy air-ticketing specialist Skyscanner Ltd. for about 1.4 billion pounds ($1.7 billion), as China’s biggest online travel company explores ways to expand beyond a home market it already dominates. The deal marks another purchase of a U.K. tech firm by a foreign buyer. Skyscanner, based in Scotland, was valued at more than 1 billion pounds by investors after a financing round in January, according to a British securities filing. Ctrip, whose growth in years past was tied to the phenomenal rise of Chinese tourism, gains a strong foothold in Europe through the purchase of 13-year-old Skyscanner, one of the region’s larger flight ticketing services with more than 60 million monthly active users. The Chinese company said the acquisition will help it offer users a more complete array of options that combine air, rail and road travel. Ctrip said in a statement that the purchase is “mainly” a cash transaction, with the remainder consisting of equity and loans. Skyscanner, a 13-year-old company based in Edinburgh, Scotland, searches through travel options for users and provides price comparisons. Bloomberg reported last month it was looking to sell itself or go public. Sequoia Capital and Scottish Equity Partners are among its backers. Skyscanner reported revenue of 120 million pounds for the year ending December 2015, up 29 percent year-on-year, according to filings with U.K. business registry Companies House in May. Profit hit 17.5 million pounds during over the same time period, up 3 percent year-on-year. In China, visitors to Skyscanner’s platform grew 67 percent in 2015 and mobile visitors nearly doubled, according to a company statement in February. Skyscanner acquired Chinese travel startup Youbibi in 2014 for an undisclosed sum. Qatalyst advised Skyscanner on the Ctrip deal, according to a spokeswoman for Skyscanner.
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HEALTHCARE INDUSTRY
Martin Shkreli Blames It All on His Lawyers, Wants Documents
Martin Shkreli’s new strategy to defend himself against criminal fraud charges is to blame his lawyers. The 33-year-old founder of Retrophin and Turing Pharmaceuticals AG, who’s been dubbed in the media as the “most hated man in America” for raising the price of a potentially life-saving drug by 5,000 percent, asked for a court order to force his former law firm to turn over three years’ worth of documents. He says the evidence will help clear him. “Shkreli sought and received his lawyers’ legal advice and he followed it,” his lawyers, Ben Brafman and Marc Agnifilo, said in the request for a subpoena. The documents sought “would tend to show that he acted in good faith and without criminal intent in connection with the decisions and actions that the government alleges to be illegal.” Shkreli’s securities-fraud case stems from his operation of two hedge funds. Federal prosecutors say he defrauded investors in the hedge funds and used $11 million of Retrophin assets to pay them off. He’s also accused of hiding his control in the company’s unrestricted stock to help pay off his debts. His former law firm, Katten Muchin Rosenman LLP, fired back Friday, saying Shkreli’s sweeping document request covers all correspondence from 2011 to 2014 that involves Katten, Shkreli, Retrophin and the two hedge funds. The firm says it shouldn’t be forced to hand over almost 600,000 pages of material, including 175,000 e-mails and documents, which covers years of work for multiple entities. Shkreli’s subpoena is not only overly broad, but covers materials that can’t be shared because they’re protected by the attorney-client privilege, Katten said. Much of the material Shkreli and his legal team seek is for entities which the firm hasn’t represented since 2014 or that it doesn’t have the authority to turn over, Katten said. ”We think the privilege belongs to Mr. Shkreli, and as a result, it’s a privilege he has a right to waive,” Brafman said in a telephone interview Monday.
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Mylan working to finalize EpiPen Medicaid settlement-CFO
Generic drugmaker Mylan NV said on Wednesday it was working to finalize a settlement with the U.S. government over Medicaid rebates for its EpiPen emergency allergy treatment, adding that money set aside for the settlement led to a third quarter loss. The company had previously said it agreed to terms of a settlement set at $465 million. However the U.S. Justice Department and other agencies have yet to confirm any such agreement. The dispute involves the classification of EpiPen as a generic rather than a branded product, which led to significantly smaller rebates to state Medicaid programs. Mylan has been under investigation and faced harsh criticism over steep price increases for its life-saving auto-injector used for severe allergic reactions. Chief Executive Heather Bresch, on a conference call with analysts, said high deductible health plans and pricing pressure had created U.S. headwinds for its business. “We wish we had better anticipated the acceleration of rising out-of-pocket costs” for our customers, she said. With the distraction of the U.S. presidential election over, Bresch said she hoped to be part of a discussion aimed at finding solutions to better transparency around the complexities of drug pricing. Mylan’s announcement earlier this year of a near doubling of the price for a pair of EpiPen injectors to $600 set off a firestorm of criticism from parents, politicians and patient advocates. The company said it expects EpiPen to account for 6 percent of total sales in 2017. Mylan has virtually had the market for emergency allergy auto-injectors to itself. However, competition is coming. Last month, privately held Kaleo Inc announced plans for a U.S. relaunch of its Auvi-Q injector in the first half of next year following a product recall. While Mylan works to integrate recent acquisitions, Bresch said business development plans will focus on smaller bolt-on acquisitions, perhaps to enhance a particular therapeutic area. “It’s buyer’s market. I think there’s great assets out there,” Bresch said. “We don’t need to do any big acquisitions.”
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Philips to Start Selling Smart Software for Doctors to Rival GE
Royal Philips NV plans to roll out software designed to help doctors improve the diagnoses of diseases such as cancer as it challenges General Electric Co. and Siemens AG for a bigger share of the lucrative health-care solutions market. The apps will improve interpretation of data such as a sequence of scans, with different colors showing up minor differences easily be missed with the naked eye, Chief Executive Officer Frans van Houten said in a media briefing. It’s a market that could potentially grow twice as fast as Philips’ traditional business supplying scanners and other big-ticket medical gear. Software currently accounts for about 3 billion euros ($3.1 billion) of the 17 billion euros in sales generated by Philips. “The world does not need much more capacity in scanners, but is especially in need of better interpretation of data,” Van Houten said, adding that currently about half of diagnoses given to patients are incorrect. “This is the holy grail that we all are after.” Van Houten earlier this month told investors at a capital markets day in London that they should increasingly consider Philips a provider of software, as opposed to the iconic lightbulbs, TVs and CD players that have been core products during the company’s 125-year history. Philips has exited traditional businesses to focus on health care, and is streamlining its factory network and increasing spending on research to close the gap on its rivals. The Dutch company’s 12-month trailing 8.9 percent operating margin in healthcare sales lags behind GE Healthcare’s 16.9 percent and Siemens’ 15.7 percent, according to Bloomberg Intelligence. GE is bundling software apps on its health-care cloud platform capable of linking imaging machines and patient devices. Siemens also made the first steps in the area of ​​computer-assisted detection with software that analyzes pictures for typical patterns and irregularities and support radiologists in their analysis, including in mammography and lung screening.
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Teva Revenue Rises on Allergan Deal, But Its Specialty Drugs Saw Pressure
Teva Pharmaceuticals Industries Ltd. reported acquisition-driven revenue growth in its latest quarter, but sales fell across much of its specialty-drug business. Shares fell 3.6% in premarket trading as Teva also cut its guidance for the year. Teva also disclosed that it had set aside $520 million as it was in advanced discussions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission to settle potential violations of foreign corruption laws. The potential settlement relates to conduct in Russia, Mexico and Ukraine from 2007 to 2013. Teva said the conduct doesn’t involve its U.S. business. Teva said in response to the investigation that it had ended “problematic” business relationships, withdrawn from some countries, gotten rid of relevant employees and overhauled the management of several subsidiaries. Teva cut its revenue guidance for the year to between $21.6 billion and $21.9 billion, from between $22 billion and $22.5 billion previously. It also expects adjusted earnings per share to be between $5.10 and $5.20, down from $5.20 to $5.40 previously. During the quarter, the Israeli pharmaceutical company known for its generic-drugs business closed its $40.5 billion deal for Allergan’s generics business. Revenue in its generic medicine segment grew 32% to $2.9 billion, largely due to the Allergan deal. In its specialty segment, revenue fell 6% to $2.05 billion due to lower sales of its multiple sclerosis drug copaxone and sleepiness treatment nuvigil. Sales fell across most of its specialty segment’s divisions including central nervous system, respiratory, cancer and women’s health. Research-and-development costs jumped 84% to $663 million, with the increase largely being attributed to $250 million paid to Regeneron Pharmaceuticals Inc. related to development of pain medication product Fasinumab.
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SEC REGULATORY ACTIONS
SEC Charges Renewable Energy Company, CEO, and Others With Defrauding Investors
The Securities and Exchange Commission today filed fraud charges against four individuals and others who allegedly profited by defrauding investors in a cash-strapped California-based renewable energy company. Patrick Carter, the founder and CEO of 808 Renewable Energy Corp. was charged along with the company, chief operating officer Peter Kirkbride, sales representatives Martin Kinchloe and Thomas Flowers, and three other firms: 808 Investments LLC, West Coast Commodities LLC, and T.A. Flowers LLC. The complaint alleges that the fraud began in 2009 and lasted at least five years, raising more than $30 million from hundreds of investors. According to the SEC’s complaint, filed in U.S. District Court for the Central District of California, the defendants misled investors, falsely claiming their funds would be used to acquire new equipment and expand 808 Renewable. Instead, the complaint alleges that Carter paid millions for “consulting fees” by 808 Investments LLC, a company he owned and controlled, and diverted millions more to support his lavish lifestyle, to pay commissions to sales representatives, and to make Ponzi-like payments to investors. The SEC also alleges that in 2013 Carter falsely announced that the New York Stock Exchange had preliminarily approved 808 Renewable’s stock for trading on the AMEX, and sold millions of his own shares to investors. “We allege that Patrick Carter orchestrated a fraudulent scheme using 808 Renewable Energy Corporation to raise millions,” said Michele Wein Layne, Director of the SEC’s Los Angeles Office. “While telling investors their funds would be used for the benefit of the company, Carter and his associates looted 808 Renewable.” The SEC’s complaint charges Carter, 808 Renewable, Kirkbride, Kinchloe, Flowers, 808 Investments, LLC, West Coast Commodities LLC and T.A. Flowers LLC with violating federal antifraud laws and related SEC rules. The SEC seeks disgorgement of allegedly ill-gotten gains plus prejudgment interest and penalties, permanent injunctive relief, and penny-stock bars against the defendants, as well as officer and director bars against Carter and Kirkbride.
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Firm Charged With Misleading Investors About Binary Options Profitability
The Securities and Exchange Commission today announced that an Israeli-based firm must pay more than $1.7 million for misleading investors into trading binary options over the internet, and the agency warned that other firms may be out there actively trying to do the same thing. Binary options generally have an all-or-nothing payout structure in which investors bet on the increase or decrease in value of a company stock or other securities serving as the underlying asset. The options contract expires after a fixed time period, and if an investor’s prediction was wrong then all of the investment can be lost. According to the SEC’s order issued today against EZTD Inc., not only did the firm fail to register the binary options or register as a broker-dealer to legally sell the investment to U.S. investors in the first place, but it failed to disclose on its trading platforms that there was significantly greater potential for investors to lose rather than earn money. EZTD instead made statements that extolled the profitability of trading binary options, calling it a “highly profitable trading platform” and “an extremely lucrative avenue for individuals who are looking to see an increase in income.” The SEC’s order finds that less than 3 percent of the approximately 4,000 U.S. investors who opened accounts with EZTD actually made any profit on their investment. “EZTD’s revenues were largely derived from customer trading losses, yet EZTD emphasized the profitability of trading in binary options,” said Stephanie Avakian, Deputy Director of the SEC’s Division of Enforcement. “Companies dealing in binary options must disclose more than general statements about investment risk so investors in these instruments understand that the odds are stacked against them.” The SEC today issued an investor alert detailing red flags that signal binary options fraud and warning investors to never put in more money in an attempt to win back money they lost, which was not an issue in the EZTD matter. The alert reminds investors that they may not have the full protection of the U.S. securities laws when they purchase binary options from an unregistered firm that isn’t subject to SEC oversight. Investors can quickly and easily check the credentials of people selling investments and determine whether they are registered by using the SEC’s investor.gov web site.
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Movie Producer Charged With Defrauding Hedge Fund Investors
The Securities and Exchange Commission today charged a former movie producer and self-proclaimed private equity executive with defrauding investors in hedge funds and using the money he stole to support his extravagant lifestyle. According to the SEC’s complaint, David R. Bergstein of Hidden Hills, California, stole millions from investors in 2011 and 2012 and used the money for purchases with a firearms dealer, an antique watch and jewelry retailer, and a bonsai tree nursery. The SEC’s complaint alleges that the scheme relied on a series of intricate transactions by Weston Capital Asset Management, then a registered investment adviser, with two of its unregistered hedge funds, Weston Capital Partners Master Fund II Ltd. and the Wimbledon Fund SPC Class TT Segregated Portfolio. In one transaction, the SEC alleges that Bergstein misappropriated at least $2.3 million of money that was purportedly meant for investments in medical-billing businesses and helped Weston Capital Asset Management conceal the true nature of the transaction from Weston investors. In a second allegedly fraudulent transaction, Bergstein stole more than $3.5 million of funds also purportedly meant, in part, for investments in medical-billing businesses. “The use of elaborate corporate transactions to mask old-fashioned theft of investor monies will not prevent the SEC from enforcing the federal securities laws and protecting investors,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Violators will be held to account no matter the artifice used to perpetrate their frauds.” In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Bergstein and Keith D. Wellner, who was formerly Weston Capital Asset Management’s general counsel, chief compliance officer, and chief operating officer. Wellner previously settled SEC charges filed in federal district court in Florida and has been barred from working in the securities industry. The SEC’s complaint charges Bergstein with violating Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) and aiding and abetting violations by Weston Capital Asset Management of Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8. The SEC is seeking injunctions, the return of allegedly ill-gotten gains, and monetary penalties.
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