Forensic News September 2016
FINANCIAL/ACCOUNTING FRAUD
Three former senior executives of Tesco (TSCO.L), Britain’s biggest retailer, will plead not guilty to fraud and false accounting charges, their lawyers said as the men appeared in court for the first time since being charged earlier this month. Christopher Bush, 50, who was managing director of Tesco UK, Carl Rogberg, 49, who was UK finance director, and John Scouler, 48, who was UK food commercial director, were charged by the Serious Fraud Office (SFO) on Sept. 9 with one count of fraud by abuse of position and one count of false accounting. During a brief appearance at London’s Westminster Magistrates’ Court on Thursday, they spoke only to confirm their names, addresses and ages. However, lawyers for the men said their clients would plead not guilty. Judge Vanessa Baraitser said the trio would face trial at Southwark Crown Court in London and granted them unconditional bail until their next court appearance on October 20. The SFO said the alleged crimes occurred between February 1 and September 23, 2014.Tesco issued a statement to the Stock Exchange on September 22, 2014 saying that during its final preparations for a forthcoming interim results announcement it had identified a 250 million pound ($327 million) overstatement of first half profit, mainly due to booking commercial deals with suppliers too early.The discovery led to the suspension of eight senior members of staff including Bush, Rogberg and Scouler, saw Tesco’s shares plummet and plunged the firm into the worst crisis in its near 100-year history. The profit overstatement, identified three weeks after Dave Lewis took over as chief executive from the sacked Philip Clarke, was later raised to 263 million pounds. The court clerk read to the court further details of the charges against the trio. The first charge alleges they dishonestly abused their positions as senior employees of Tesco and failed to safeguard the financial interests of the company, its investors and creditors. The clerk said they are accused of concealing that Tesco’s financial accounts included improperly recognized income and/or that they failed to correct the fact that the accounts did not reflect the true financial position of the firm.
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Two former Bankrate Inc (RATE.N) executives failed to persuade a federal judge to dismiss U.S. Securities and Exchange Commission claims that they fraudulently manipulated the consumer financial information provider’s results to meet Wall Street forecasts. U.S. District Judge Gregory Woods in Manhattan on Thursday said the SEC may pursue all its claims against former Chief Financial Officer Edward DiMaria, and all but one claim against former Director of Accounting Matthew Gamsey. Lawyers for the defendants did not immediately respond to requests for comment. The SEC accused New York-based Bankrate, which reached a $15 million settlement last September, and the executives of using questionable accounting to boost revenue and understate expenses for the second quarter of 2012. It said that in once instance, DiMaria threatened to “rip (the) head off” Bankrate’s top credit card executive if $500,000 of improper revenue were not booked, while Gamsey reacted to an instruction to book that sum and $300,000 of insurance revenue by writing “seriously – oyyyyyyyyyyyyyy.” The SEC also said DiMaria sold $2 million of Bankrate stock at prices inflated by the improper accounting. Both defendants said the accounting entries were immaterial and that the SEC did not show they intended to commit fraud. But Woods said it was premature to infer that DiMaria was “merely pushing” his employees to portray Bankrate’s performance in the best positive light. “DiMaria’s alleged conduct crosses the line from corporate officers’ common practice of taking affirmative action to meet revenue, earnings, or profit estimates, to consciously, falsely creating the appearance that Bankrate was meeting its targets when he knew that was not the case,” Woods wrote.
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The U.S. judge overseeing litigation accusing 16 banks of rigging prices in the $5.3 trillion-a-day foreign exchange market on Tuesday narrowed but refused to dismiss lawsuits against Deutsche Bank (DBKGn.DE), Morgan Stanley (MS.N) and five other large banks that have yet to settle. U.S. District Judge Lorna Schofield in Manhattan dismissed antitrust claims in a class action brought by investors against the seven remaining banks arising out of some transactions executed outside the United States, and claims based on transactions conducted before December 1, 2007. She also dismissed claims under the Commodity Exchange Act for false reporting and based on transactions conducted on foreign exchanges. Schofield said the remaining claims survived. The complaint “plausibly pleads both that artificial prices existed on FX exchanges,” causing investors to pay more, “and that this artificiality was caused by defendants’ actions,” Schofield wrote in a 56-page decision. Investors accused Bank of Tokyo-Mitsubishi UFJ (8306.T), Credit Suisse (CSGN.S), Deutsche Bank, Morgan Stanley, Royal Bank of Canada’s (RY.TO) RBC Capital Markets, Societe Generale (SOGN.PA) and Standard Chartered Bank (STAN.L) of conspiring to manipulate key foreign currency benchmark rates including the WM/Reuters Closing Spot Rates, or the Fix. Traders were accused of using chat rooms with names such as “The Cartel,” “The Bandits’ Club” and “The Mafia” to communicate, and manipulating prices through such tactics as “front running,” “banging the close” and “painting the screen.” RBC had no immediate comment. The other banks declined to comment. Lawyers for the investors, Christopher Burke and Michael Hausfeld, in an e-mailed statement said, “By our estimation, the opinion places the class in an excellent posture and we look forward to its further prosecution.” Last December, Schofield granted preliminary approval to more than $2 billion of settlements with nine other banks over related claims.
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U.S. prosecutors on Thursday announced criminal fraud charges against two former American Realty Capital Properties Inc executives stemming from a 2014 accounting scandal that wiped out roughly $4 billion of the real estate investment trust’s market value. Former Chief Financial Officer Brian Block, 44, was charged with six criminal counts, including securities fraud, conspiracy and making false statements, according to U.S. Attorney Preet Bharara in Manhattan. Lisa McAlister, 52, a former chief accounting officer, pleaded guilty on June 29 to four counts, including securities fraud and conspiracy, and is cooperating, Bharara said. The U.S. Securities and Exchange Commission filed related civil charges against both defendants, seeking fines and officer and director bans. Block was arrested on Thursday at his home in Hatfield, Pennsylvania. He was released on $1 million bond after appearing in the federal court in Philadelphia, prosecutors said. “These charges against Brian Block are entirely unwarranted,” his lawyer Reid Weingarten said in a statement. “He is completely innocent and will be exonerated in court.” McAlister’s lawyer, Dwight Bostwick, declined to comment. McAlister lives in Arlington, Massachusetts. Now based in Phoenix and known as Vereit Inc (VER.N), American Realty was part of a commercial real estate empire built by investor Nicholas Schorsch. Neither he nor Vereit was accused of wrongdoing. A Vereit spokesman declined to comment. The defendants were accused of scheming to manipulate American Realty’s adjusted funds from operations (AFFO), a key financial metric, in the first half of 2014. Authorities said Block concealed an AFFO calculation error he had been warned about internally, and with McAlister in his office plugged fake numbers into a spreadsheet later incorporated into results reported to the public and the SEC. The bogus data made it appear that American Realty met Wall Street forecasts, when it had not, authorities said. “Market investors are entitled to be told the truth from publicly traded companies,” Bharara said in a statement. “When investors are lied to about material information, as is alleged to have happened here, the perpetrators need to be investigated and prosecuted.”
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Retired NBA superstar Tim Duncan’s former financial adviser has been indicted on federal fraud charges accusing him of bilking the long-time San Antonio Spurs player out of millions of dollars, court papers unsealed on Friday showed. Charles Banks, 49, was indicted by a grand jury on two counts of federal wire fraud on suspicion of defrauding Duncan, U.S. prosecutors in Texas said. Banks headed a Colorado-based business called Gameday Entertainment. The indictment identified Duncan, 40, only by his initials, but his lawyer confirmed that it referred to the five-time NBA champion and that the amount misappropriated by Banks through a series of financial schemes totaled $7.5 million to $13 million. “There are two counts of wire fraud where Mr. Banks sent documents to Tim, and Tim returned them with his signature,” Tullos Wells, long-time outside counsel for the Spurs and an attorney for Duncan, said in an interview. “Mr. Banks had misrepresented what those documents were.” Wells said Banks tricked Duncan into committing money to guarantee loans from financial institutions for several of his businesses, many of which Wells said Banks knew were failing. Those businesses included a beauty supply company, a winery and hotels, according to court documents. Banks made an initial appearance in court in San Antonio on Friday and was released on bond. If convicted, Banks faces up to 20 years in prison on each count. “He is innocent of these charges and confident that when all the facts and circumstances are brought to light, he will be exonerated of any wrongdoing,” Banks’ lawyer, Johnny Sutton, said in a statement. The federal indictment said Banks encouraged Duncan to lend $7.5 million to Gameday in 2012. Banks was also accused of asking Duncan to guarantee $6 million in debt for Gameday.
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The city of Miami and its former budget director were found liable by a Florida jury on Wednesday for engaging in a financial shell game in a case brought by the U.S. Securities and Exchange Commission stemming from a municipal bond sale. Taking less than a day to deliberate, the jury found the city of Miami and former budget director Michael Boudreaux violated the federal Securities Act in the process of selling over $150 million worth of municipal debt in 2009. In a 2013 complaint, the SEC alleged that the city and Boudreaux violated the anti-fraud provisions of federal securities law. The nine-person jury found the city of Miami liable on two counts of violating the Securities Act and one count of violating the Exchange Act and Exchange Act rules. It found Boudreaux liable for two counts of violating the Securities Act, though in one count noted he did not use a fraudulent scheme to sell a security. The SEC called Miami a “recidivist violator” of federal securities laws and warned that this first federal trial by jury against a municipality or one of its officers might not be the last. “We will continue to hold municipalities and their officers accountable, including through trials, if they engage in financial fraud or other conduct that violates the federal securities laws,” the SEC said in a statement. Boudreaux was also found liable on two counts of violating the Exchange Act and Exchange Act rules. “I’m very disappointed by all of this,” Boudreaux told reporters as he left the courtroom. Boudreaux’s attorney, Benedict Kuehne, indicated plans to appeal the jury’s decision. “That the jury found Mr. Boudreaux did not engage in a fraud on count one raises significant questions about the validity of the entire verdict,” Kuehne said. City of Miami attorney Victoria Mendez said in a statement to Reuters: “While we respect the jury and the judicial process, we are disappointed in the jury’s verdict. We are reviewing the record to determine how to proceed at this point.” Amie Riggle Berlin, senior trial counsel for the SEC, told the court that the regulator would present its request for injunctive relief and monetary penalties within the next two weeks.
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New York Attorney General Eric Schneiderman faces an uphill climb in building a case against Exxon Mobil Corp for not writing down assets amid the oil-price slump because of the broad leeway that energy companies have enjoyed reporting under U.S. rules, accounting experts said. Schneiderman is investigating Exxon’s accounting practices and why the oil giant has not taken writedowns even while oil prices have fallen, a person familiar with the matter told Reuters. The price drop of more than 60 percent since 2014 has forced many integrated oil producers around the world to write down the value of their wells, leases and equipment, and Exxon is the only major producer to hold off so far. Oil in many wells can no longer be profitably recovered, and failing to write them down could give a misleading picture of a company’s financial health. But accounting experts said it was far from clear that Exxon’s lack of writedowns signaled any wrongdoing. Accounting rules give companies a choice of methods for valuing and impairing their assets, and writedowns can vary sharply based on the method used and other factors, they said. “This is an extremely subjective area,” said Tom Selling, author of The Accounting Onion blog. “Everyone will have a different pattern of writedowns depending on how old their fields are and how much they cost to develop.” Doug Cohen, spokesman for the AG’s office, declined comment. An Exxon spokesman on Friday told Reuters its accounting follows rules of the U.S. Securities and Exchange Commission and the Financial Accounting Standards Board, which sets reporting standards for U.S. public companies. The largest U.S. oil companies have historically not taken large charges to write down the value of their assets when commodity prices tumble, said Brian Youngberg, oil company analyst at Edward Jones in St. Louis. Companies are reluctant to take writedowns because they reduce income and assets on the balance sheet, and once assets are written down, they cannot be written up, said Larry Crumbley, accounting professor emeritus at Louisiana State University. Accounting rules do not require companies to take impairments for a temporary drop in oil prices, but the rules do not define the timeframe of a temporary slump, said Terry Crain, accounting professor emeritus at the University of Oklahoma.
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Telia AB said U.S. and Dutch authorities have proposed a $1.4 billion fine to settle allegations the Swedish carrier paid bribes to win business in 2007 when it entered the former Soviet republic of Uzbekistan. The proposal didn’t go into much detail, Telia said in a statement on Thursday. The company will analyze the offer and decide how to respond as it continues discussions with authorities, it said. On a conference call, Telia executives said they haven’t changed the company’s dividend policy, though they wouldn’t rule out cutting the payout in the future. Telia’s entry into Uzbekistan “was done in an unethical and wrongful way and we are prepared to take full responsibility,” Chairman Marie Ehrling said in the statement. “With that said, our initial reaction to the proposal is that the amount is very high.” A $1.4 billion fine, equal to about 14 percent of annual revenue, would dwarf the largest previous fine levied for violations of the U.S. Foreign Corrupt Practices Act. Telia has been awaiting the outcome of the multi-year probe into its dealings in Uzbekistan led by the U.S., but also involving Dutch, Swedish and Swiss authorities. The U.S. investigation is among the factors slowing down talks for the Swedish carrier to sell its wireless business in other former Soviet countries, people familiar with the matter have said. The former Swedish phone monopoly has turned its focus to northern European markets to capitalize on higher demand for wireless web-browsing and video services, while exiting former Soviet countries and Asia. The company, still part-owned by the Swedish state, made an adjusted profit of 11.4 billion kronor. The company paid out 3 kronor per share in dividends last year, or about $1.5 billion.
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A judge allowed Wal-Mart Stores Inc. investors to bring fraud claims against the retailer as a group, clearing a hurdle in a lawsuit over bribes it allegedly paid to help open new stores in Mexico. The ruling will make it harder for Bentonville, Arkansas-based Wal-Mart to brush aside a Michigan pension fund’s claims that the chain artificially inflated the value of its shares by mishandling the alleged Mexican payoffs. The suit, filed in 2012, accused Wal-Mart of bribing Mexican officials to speed up approval for the opening of new stores. The chain was accused of hiding the bribery scheme for about seven years beginning in 2005. The payoffs were made public in a 2012 New York Times article. The paper reported at the time that Wal-Mart made at least $24 million in “suspect payments” to facilitate construction of Mexican stores. “This was a procedural ruling that has nothing to do with the merits of the case,” Randy Hargrove, a Wal-Mart spokesman, said in an e-mail. “We continue to believe the claims here are not appropriate for class treatment.” In May, the company persuaded a Delaware judge to throw out claims filed by another set of shareholders accusing directors of botching the handling of the Mexican bribery scandal. The world’s largest retailer has said in regulatory filings that it spent $439 million since 2012 in connection with investigations into allegations that employees paid bribes in Mexico, China, India and Brazil. Both U.S. and Mexican prosecutors have open investigations into Wal-Mart de Mexico SAB, one of the country’s largest private employers with more than 200,000 workers. Lawyers for the Michigan pension fund contend former Wal-Mart Chief Executive Officer Michael Duke and other board members failed to thoroughly investigate the claims even though they were put on notice in 2005. The retailer began a comprehensive probe only after the Times reported on the allegations in 2012, investors said.
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A former top aide to New York Governor Andrew M. Cuomo was charged with extortion and soliciting bribes in a wide-ranging case that federal prosecutors said involves hundreds of millions of dollars in state contracts. Joseph Percoco, who was Cuomo’s executive deputy secretary, and seven others were charged in a complaint released on Thursday. Other defendants include Alain Kaloyeros, the president of the State University of New York Polytechnic Institute in Albany, and Louis Ciminelli, a former chairman of the New York Power Authority and the chief executive officer of the construction firm LPCiminelli. A ninth man was charged separately. “Today’s charges shine a light on yet another sordid side of the show-me-the-money culture that has plagued state government in Albany,” Manhattan U.S. Attorney Preet Bharara told reporters. He added that “there are no allegations of wrongdoing or misconduct by the governor.” New York Attorney General Eric Schneiderman later announced the filing of charges against Kaloyeros and real estate developer Joseph Nicolla. Prosecutors accuse Kaloyeros of steering contracts to “handpicked companies” including Nicolla’s Columbia Development Corp. Nicolla isn’t named in the U.S. case. In a statement, Cuomo said that any official who committed a crime should be punished, and he said his office would cooperate with U.S. prosecutors. “If the allegations are true, I am saddened and profoundly disappointed,” the governor said. “I hold my administration to the highest level of integrity. I have zero tolerance for abuse of the public trust from anyone. If anything, a friend should be held to an even higher standard.” Schneiderman said the charges filed by his office “outline a blatant and brazen abuse of taxpayer dollars and the public trust.” Percoco, now a senior vice president at the Madison Square Garden Co., faces six charges in the U.S.’s unsealed criminal complaint, including accusations that he used his government position from 2012 to 2016 to demand that companies with business before the state make payments to him and, in at least one instance, his wife, in exchange for unspecified official actions. Percoco’s wife isn’t charged in the case.
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Two former executives of a foreign defense contractor at the center of a fraud and corruption scandal have been charged with conspiracy to defraud the U.S. Navy and other offenses, the United States Department of Justice said on Thursday. The filing of the charges represented a widening of a U.S. criminal probe known as the Fat Leonard case, in reference to the nickname for a Malaysian businessman named Leonard Glenn Francis at the center of the scandal. In the latest arrests, Neil Peterson, 38, and Linda Raja, 43, both of Singapore, were taken into custody by authorities in Singapore at the request of the U.S. government, federal prosecutors said in a statement. The two worked for Singapore-based Glenn Defense Marine Asia (GDMA), which was owned by Francis, who pleaded guilty to bribery charges last year. Peterson was the firm’s vice president for global operations and Raja was its general manager for Singapore, Australia and the Pacific Isles, prosecutors said. Both Peterson and Raja were charged with conspiracy to defraud the United States, conspiracy to commit wire fraud and multiple counts of making false claims, the Justice Department said. Peterson and Raja submitted more than $5 million in false claims and invoices to the U.S. Navy and covered up their fraud by, among other things, creating fake letterhead with graphics copied off the Internet, prosecutors said. It was not clear if Peterson or Raja have obtained an attorney to represent them in the U.S. court system. In June, U.S. Navy Rear Admiral Robert Gilbeau pleaded guilty to a charge of lying to federal investigators, making him the highest-ranking officer to be convicted in the case. Gilbeau is awaiting sentencing.
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Wells Fargo has long been the envy of the banking industry for its ability to sell multiple products to the same customer, but regulators on Thursday said those practices went too far in some instances. The largest U.S. bank by market capitalization will pay $185 million in penalties and $5 million to customers that regulators say were pushed into fee-generating accounts they never requested. “We regret and take responsibility for any instances where customers may have received a product that they did not request,” the bank said of a settlement reached Thursday with California prosecutors and federal regulators. The Consumer Financial Protection Bureau will receive $100 million of the total penalties – the largest fine ever levied by the federal agency. “Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences,” said CFPB Director Richard Cordray. Los Angeles officials and the Office of the Comptroller of the Currency were also party to the settlement. In a complaint filed in May 2015, California prosecutors alleged that Wells Fargo pushed customers into costly financial products that they did not need or even request. Bank employees were told that the average customer tapped six financial tools but that they should push households to use eight products, according to the complaint. The bank opened more than 2 million deposit and credit card accounts that may not have been authorized, the CFPB said Thursday. Wells Fargo spokeswoman Mary Eshet said the bank fired 5,300 employees over “inappropriate sales conduct.” The firings took place over a five-year period, Eshet said, adding that the bank has 100,000 employees in its branches. Wells Fargo regularly releases numbers about how many products it sells to customers, a practice it calls “cross-sell.” Its wealth and investment management unit, for example, sold 10.55 products per retail banking household in November 2015, up from 10.49 a year earlier, according to the bank’s annual 10-K financial filing.
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Deutsche Bank (DBKGn.DE) is nearing a settlement with U.S. authorities on past misspelling of mortgage-backed securities, two people close to the matter said. The case is of many over the past decade which have tarnished the reputation of the banking sector and cost banks billions in fines. While the price for the Deutsche settlement has not yet been decided, the payment “will not overburden” the bank, one of the people said. German monthly manager magazine earlier reported that Deutsche Bank is expected to receive a demand for more than $2.4 billion from U.S. authorities in settlement of an investigation into past misspelling of mortgage-backed securities. The U.S. Department of Justice (DoJ) is expected to send Deutsche Bank a statement of facts stretching to about 100 pages early next week, specifying how much Deutsche will be asked to pay to settle the case, the magazine said. Deutsche Bank declined to comment. Its shares had risen 5.2 percent by 1121 GMT in a flat German market, with traders citing relief that Deutsche Bank could be close to concluding the long-running investigation. “A $2.4 billion U.S. mortgages settlement would be clearly below the 3 billion euros ($3.4 billion) that I expected, so this is clearly positive news,” said Enrico Racioppi from brokerage Hammer Partners. Deutsche Bank’s shares are still down 37 percent since the start of year, reflecting investor doubts about its ability to turn itself around. Deutsche was once one of Europe’s most successful players on Wall Street. Like many of its peers, it has since has faced a slew of lawsuits that often trace back to the boom years before the crash. Its litigation bill since 2012 has already hit more than 12 billion euros. Claims filed by individuals, companies and regulators against Deutsche, outlined in the bank’s 2015 annual report, relate to misspelling of subprime loans and manipulation of foreign exchange rates or gold and silver prices. Other law suits are for the rigging of borrowing benchmarks Libor and Euribor, used to set the price of mortgages and derivatives.
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The insurance brokerage Willis Towers Watson Plc (WLTW.O) has agreed to pay $120 million to settle litigation accusing it of helping now-imprisoned Texas financier Allen Stanford run a $7.2 billion Ponzi scheme, court papers show. The papers, in which Willis denied wrongdoing, were filed on Wednesday with the federal court in Dallas. The accord requires court approval. In a lawsuit, investors and a court-appointed receiver for Stanford’s companies accused Willis of providing letters describing the insurance policies and touting the credentials of the swindler’s Antigua-based Stanford International Bank. They said Willis did this with an expectation that Stanford would use the letters to lure investors into buying his bogus offshore certificates of deposit and assure them that his business was sound and their investments were safe. The settlement is the largest in 7–1/2 years of litigation brought on behalf of roughly 18,000 former Stanford investors, Edward Snyder, a lawyer for the Official Stanford Investors Committee, said in an e-mail on Thursday. Overall settlements total well over $300 million, Snyder added. Many lawsuits remain pending. In a regulatory filing, London-based Willis said it has set aside reserves to cover its settlement. A spokesman, Josh Wozman, declined to comment on Thursday. Stanford’s fraud was uncovered in 2009. Now 66, he is serving a 110-year prison term following his March 2012 conviction. The case is Janvey et al v. Willis of Colorado Inc et al, U.S. District Court, Northern District of Texas, No. 13-03980. The main Stanford litigation is SEC v. Stanford International Bank Ltd et al in the same court, No. 09-00298.
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China stocks edged higher on Monday morning, as investors returning from the long Mid-Autumn Festival holiday drew optimism from surveys showing improving business confidence. Hong Kong shares also rose, despite lingering uncertainty around U.S. monetary policy, with an index tracking Chinese firms jumping roughly 2 percent on the back of money inflows from the mainland. China’s blue-chip CSI300 index rose 0.7 percent, to 3,262.07 points by the lunch break, while the Shanghai Composite Index gained 0.6 percent, to 3,021.02 points. The People’s Bank of China published surveys on Sunday showing business confidence among entrepreneurs in China had picked up for the second quarter in a row in 2016. Fu Xuejun, analyst at Huarong Securities, said that despite the apparent improvement in sentiment, there was limited room for the Chinese market to go up further due to uncertainty in the economy and global liquidity situations. “I don’t see a strong recovery in the Chinese economy, but the global liquidity situation could be more challenging,” he said, noting that a possible U.S. rate hike soon could stir global markets, bringing more volatility to domestic shares. Investors are counting down to the Federal Reserve’s Open Market Committee meeting on Sept. 20–21, while the outcome of the Bank of Japan’s policy meeting will be on Wednesday. But the Hong Kong market, which is more vulnerable to global market volatility, rose sharply on Monday, benefitting from continuous money flows from mainland China. The Hang Seng index added 0.8 percent, to 23,529.37 points, while the Hong Kong China Enterprises Index gained 1.9 percent, to 9,778.71.
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New Zealand approved on Tuesday the sale of a 50 percent stake in the country’s largest meat processor Silver Fern Farms to a unit of China’s Bright Food Group [SHMNGA.UL], enhancing the South Island-based company’s access into the Chinese market. The approval of the NZ$261 million ($191 million) deal is an encouraging outcome for Chinese investors, following a high-profile rejection and complaints over the slow approval process. The Dunedin-based company had voted in October to allow Shanghai Maling Aquarius Co (600073.SS), a unit of Chinese state-owned enterprise Bright Food Group, to take a half-share in the firm and applied for approval from foreign investment regulators the same month. Minister for Land Information, Louise Upston, who approved the deal after it received the go-ahead from the Overseas Investment Office (OIO), said in a statement it would “put the company in a better financial position and allow it to increase its exports”. Silver Fern Farms Chairman Rob Hewitt told Reuters the capital invested would allow the company to develop its brand and strategy. The company is particularly focused on the China market, their biggest by volume, and can take advantage of Bright Foods’ supply chains and 8,000 Chinese supermarkets. “It’s the fastest growing protein market in the world so it’s going to bring significant benefit,” Hewitt said of Bright Foods’ involvement. Shanghai Maling President Wei Ping Shen said in a statement the regulatory approval “clears the way for us to move ahead with the partnership”. Chinese companies have in recent years been attracted to New Zealand’s agricultural sector as the Asian giant seeks sources of high-quality protein to feed its fast-growing middle class. However, some Chinese investors have hit roadblocks from political opposition to foreign ownership of domestic assets. In September 2015 the New Zealand government blocked the NZ$88 million purchase of a local farm by China’s Shanghai Pengxin, despite the OIO approving the sale. The government said at the time they were not satisfied there would be “substantial benefit” to New Zealand. Investors have also complained the OIO process was slow and uncertain, a problem the government acknowledged in May when it announced plans to speed up approvals by employing more staff.
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China’s attempts to slow runaway home-price growth in major cities are showing little sign of success, stoking the threat of a housing bubble that could destabilize the economy. New home prices rose the most in six years in August, jumping 1.2 percent from July, according to Bloomberg calculations based on government data. Home prices rose in 64 of 70 cities tracked by the government, up from 51 the previous month. Shanghai prices surged a record 4.4 percent for a year-on-year gain of 31 percent, while Beijing’s climbed 24 percent from a year earlier. The gains suggest moves by city governments to cool surging home prices over the past six months are doing little to damp demand from investors looking for alternatives to stocks and overseas property. That may prove to be a challenge for central government policy makers on how to respond without choking off growth in the world’s second-largest economy by squeezing credit. “The more immediate risk of a sudden and steep downturn in the economy comes from the threatened bursting of the property market bubble,” Pauline Loong, managing director at research firm Asia-analytica in Hong Kong, wrote in a Sept. 14 report. “And bubble it is. The real question for investors is when and what will pop the bubble?” Ma Jun, chief economist of the People’s Bank of China’s research bureau, has warned about unsustainable valuations in the real estate market and the potential consequences. “Measures should be taken to put a brake on the excessive bubble expansion in the property sector, and we should curb excessive financing into the real estate sector,” Ma said in an interview with China Business News last week. The Financial News, a newspaper published by the PBOC, wrote on Tuesday that surging property prices in first-tier and some second-tier cities are the result of inefficient regulation by local governments, and that cities should effectively control local property markets to prevent bubbles.
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In the wake of its $66 billion-acquisition of Monsanto Co., Bayer AG risks starving its lucrative drugs business of the resources it needs to grow. Funded with a combination of debt and equity, the deal announced Wednesday will transform Bayer into the world’s biggest supplier of seeds and pesticides. It’ll also leave the German company with little scope for acquisitions to boost its most profitable business: pharmaceuticals. That could hamper the unit’s growth as patent expiry looms for its best-selling heart medicine. “It obviously becomes a different company now,” said Andrea Williams, head of European equities at Royal London Asset Management Co., which manages 1.3 billion pounds ($1.7 billion) in European stocks, including Bayer shares. “The danger is the pipeline is somewhat empty, so they probably need to do some deals.” Bayer will largely rely on borrowed funds to pay for the deal, but says it’s committed to maintaining its current credit rating in the long term. That combination means it’ll need to focus on paying down debt, not doing more acquisitions to boost its pharmaceuticals and consumer-health businesses, Jefferies Group LLC analysts wrote in a report. The tack toward agriculture comes amid increasing pressure for global drugmakers. Thanks to sluggish economies and growing scrutiny on pharmaceutical prices, returns on research and development investments at major life-science companies were at their lowest last year since at least 2010, Deloitte LLP found in a study. Even as the market gets tougher, Bayer’s pharmaceuticals have delivered profitability ahead of agriculture – a unit known as CropScience – in recent years. In the second quarter, pharmaceuticals accounted for about 35 percent of sales and 45 percent of earnings before interest, taxes, depreciation and amortization. Taken together, Bayer’s consumer-health and pharmaceutical divisions form Germany’s biggest drugmaker and rank among the top 10 in the world. To hang onto that position, Bayer has boosted spending on pharmaceutical research and development, which hit 17 percent of the unit’s sales last quarter. The industry is also fed by acquisitions, however, especially when blockbuster medicines reach the end of their life cycle, as will happen to Bayer soon: its heart drug Xarelto loses patent protection in 2020. Companies rely on licensing as well as takeovers to catch up where their own in-house research has lagged.
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GlaxoSmithKline said on Tuesday it had chosen its head of consumer healthcare, Emma Walmsley, as its new chief executive, after several months reviewing internal and external candidates. She will become the first woman to head a top global pharmaceutical company and will bring the number of female chief executives in Britain’s FTSE 100 index to seven. Walmsley, 47, joined Britain’s biggest drugmaker in 2010 from L’Oreal and will replace Andrew Witty, who had previously announced his decision to retire on March 31, 2017. She will join the board from January. The decision will disappoint investors such as Neil Woodford, a top shareholder and a critic of the drugmaker’s current structure, who wanted to see an outsider appointed to overhaul the company. However, Walmsley had always been tipped as a strong internal candidate, along with pharmaceuticals boss Abbas Hussain and manufacturing head Roger Connor. Her appointment is likely to be seen as a signal that GSK will retain the consumer business as a core part of its operations, rather than splitting up the company. “Choosing Emma Walmsley suggests a strategy of evolution rather than revolution,” Joe Walters, senior portfolio manager at Royal London Asset Management, one of GSK’s 30 largest investors, told Reuters. “A big change in the firm’s corporate structure is less likely, but any worries about a reduction in Glaxo’s attractive dividend payments should recede.” GSK’s 5 percent yield is a big lure for investors. A weaker pound after Britain’s vote to leave the European Union helped the group’s 2016 outlook and also soothed fears of a dividend cut, but there had been speculation that an outside CEO might go on a major buying spree that could crimp payouts. Chairman Philip Hampton said in a statement that GSK had market-leading positions in pharmaceuticals, vaccines and consumer healthcare that provided excellent platforms for sustainable, long-term growth.
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Mylan NV, already under fire from patients over the rising price of its EpiPen allergy shots, is facing a growing number of questions from lawmakers and law enforcement after the state of West Virginia launched a Medicaid fraud investigation into the drugmaker’s pricing Tuesday. The inquiry, led by State Attorney General Patrick Morrisey, seeks to force Mylan to turn over company documents related to EpiPen. Similar requests have been made in the last month by lawmakers in Washington, and on Wednesday Mylan Chief Executive Officer Heather Bresch is to testify at a congressional hearing about the product’s price. The state attorneys general in Minnesota and New York also have inquiries, as do several congressional committees. The West Virginia probe was announced at a press conference in Charleston where Morrisey, a Republican, called Mylan’s failure to cooperate a violation of state law and said the company’s actions are “outrageous.” Mylan said it “has been cooperating and continues to cooperate by providing information in response to the AG’s inquiry.” While its headquarters are in Cannonsburg, Pennsylvania, Mylan’s ties to West Virginia are deep. It was founded in the state and has a large manufacturing facility there. Bresch is the daughter of U.S. Senator Joe Manchin, a Democrat. And on Tuesday, USA Today reported that Bresch’s mother, Gayle Manchin, was involved in an effort to encourage states to make schools keep EpiPen on hand, during her time as a state board of education member and the president of a national education group. In a statement, Mylan said the USA Today story was “factually inaccurate in its core premise, as well as in numerous other assertions.” USA Today said it was aware of Mylan’s disagreement and wasn’t aware of any inaccuracies. Mylan’s shares were little-changed at $41.52 at 1:44 p.m. in New York. The stock is down 15 percent in the last month, as of Monday’s close.
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The Securities and Exchange Commission today announced that a self-proclaimed “stock trading whiz kid” and his stock newsletter company in Los Angeles have agreed to pay nearly $1.5 million to settle charges that they defrauded subscribers through false statements and misrepresentations. According to the SEC’s complaint, Manuel E. Jesus and his newsletter company Wealthpire Inc. used advertising materials and web sites touting him as “the untutored prodigy of stock investing” under the alias Manny Backus. A self-purported “math whiz” who boasted a “skyscraping” IQ and training as a professional chess player, Backus claimed to be actively trading in the stock market with “real money” by age 19. The SEC’s complaint also states that Wealthpire materials claimed that Backus made millions of dollars before “deciding to help other investors” by starting an alert service that let traders copy his every trading move. The SEC alleges that from at least January 2012 to September 2014, Backus was not trading in the same stocks recommended by his services as he claimed. He wasn’t the one making all of the recommendations either. For instance, the SEC’s complaint alleges that Robert C. Joiner was paid by Wealthpire to make all of the stock picks for one alert service without any guidance from Backus on how to choose them. Joiner allegedly posed as Backus during chat room sessions by signing in using a password that Backus supplied, and Joiner told investors that he was buying and selling certain recommended stocks when no such transactions were actually taking place. Joiner also is named in the SEC’s complaint and agreed to settle the case. The SEC’s complaint alleges a series of other misrepresentations to Wealthpire subscribers as well, including false claims about one particular stock alert service that purportedly made historic trading recommendations that yielded huge past returns higher than 1,400 percent. “Investors who subscribe to trading alert services are relying on the purported expertise and success of those making the stock recommendations, but Wealthpire and Backus instead circulated repeated lies and falsehoods,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.
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The Securities and Exchange Commission today charged two former accounting executives with overstating the financial performance of a large publicly-traded real estate investment trust (REIT) then known as American Realty Capital Properties (ARCP) by purposely inflating a key metric used by analysts and investors to assess the company. According to the SEC’s complaint, then-chief financial officer Brian S. Block and then-chief accounting officer Lisa P. McAlister devised a scheme to manipulate the calculation of ARCP’s adjusted funds from operations (AFFO), a non-GAAP measure used when the company provided earnings guidance. After warnings from internal accounting staff that an incorrect method was used to calculate AFFO in ARCP’s 2014 first quarter financial results, Block falsified the company’s AFFO presentation in the final hours before filing the company’s second quarter results. With McAlister in his office, Block plugged in fake numbers that concealed the first quarter overstatement of AFFO and made it appear that the company had met second-quarter estimates when, in fact, it had fallen short. “We allege that these senior executives conjured up numbers to purposely conceal ARCP’s true performance, misleadingly suggesting that the company had met AFFO estimates for the first and second quarters of the year,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office. AFFO was a key non-GAAP financial metric by which analysts and investors assessed the company’s performance, and AFFO per share was the primary measure for which the company provided earnings guidance. SEC rules generally permit companies to present non-GAAP financial measures to convey supplemental information about how company management views the company’s results of operations in ways that GAAP results alone may not convey. But companies cannot present non-GAAP measures in a way that is misleading. ARCP is now known as VEREIT Inc. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Block and McAlister.
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The Securities and Exchange Commission today announced that a subsidiary of Oklahoma-based BOK Financial Corporation has agreed to pay more than $1.6 million to settle charges that it concealed numerous problems and red flags from investors in municipal bond offerings to purchase and renovate senior living facilities. The agency also filed a complaint in federal court against a former senior vice president at the bank, Marrien Neilson, who allegedly was chiefly responsible for the failures of the bank’s corporate trust department while overseeing what turned out to be fraudulent bond offerings managed by Christopher F. Brogdon, an Atlanta-based businessman. Brogdon has since been charged with fraud and ordered by the court to repay $85 million to investors. According to the SEC’s order, BOKF NA failed in its gatekeeper role as indenture trustee and dissemination agent for Brogdon’s bond offerings. BOKF and Neilson became aware that Brogdon was withdrawing money from reserve funds for the bond offerings and failing to replenish them, and he had failed to file annual financial statements for the offerings. BOKF and Neilson also knew that the nursing home facilities serving as collateral for one of the bond offerings had been closed for years. But Neilson allegedly warned others that disclosing these and other problems could impair future business and fees from Brogdon, upset bondholders, and cause regulatory issues for bond underwriters. Therefore, they decided not to inform bondholders as required. “BOKF was in a crucial gatekeeper position to stand up for bondholders and notify them about material problems with the bonds, but instead turned a blind eye and chose to protect Brogdon and the fees it collected from his deals,” said Lara Shalov Mehraban, Associate Regional Director of the SEC’s New York Regional Office. Without admitting or denying the SEC’s findings, BOKF agreed to pay disgorgement of $984,200.73 of the fees the bank collected from its work with Brogdon. The bank also agreed to pay interest totaling $83,520.63 and a penalty of $600,000. BOKF promptly terminated Neilson following an internal investigation and reported its misconduct to the SEC.
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