Financial Mines

News and notes from the business reporters for the Connecticut Media Group.

Archive for the ‘Regulatory’ Category

Apple all alone in eBook conspiracy allegations

Thursday, May 23, 2013 by:Rob Varnon

Consumers might sympathize with Apple over the tax thing, but this eBook business is a different story.

Connecticut Attorney General George Jepsen announced Wednesday Penguin Group got cold feet in the fight against allegations by 32 states that it was part of a conspiracy of book publishers that joined with Apple to fix the prices of electronic books.

Penguin is the fifth publisher to take a settlement deal in a case that is set to go to trial in Manhattan Federal Court in June. Connecticut and Texas have led the investigation into allegations that Apple cooked up some deals with publishers to undercut Amazon’s strangle hold on the eBook market.

“Consumers are entitled to a fair, open and competitive marketplace,” said Attorney General Jepsen. “This agreement is yet another step toward providing restitution to those consumers who were harmed by alleged price-fixing within the eBook market and will further ensure that, going forward, consumers benefit from fair competition in the sale of eBooks.”

The investigations conducted by Connecticut and Texas, and the resulting litigation, have paved the way for recovery of approximately $164 million for consumers nationwide, to date.

Attorney General Jepsen said, “However, our efforts are not yet complete. Connecticut, along with Texas, is leading the upcoming trial effort against the remaining defendant, Apple, on behalf of our partner states, and we will aggressively seek to obtain additional compensation for consumers in our respective states who have been injured by the illegal conspiracy we allege in our complaint.”

The agreement with Penguin will, if approved by the court, provide significant consumer restitution as well as injunctive relief. This agreement grants eBook retailers greater freedom to reduce the prices of eBook titles and provides $75 million to compensate affected consumers nationwide.

If approved by the court, Connecticut consumers will receive approximately $3 million in aggregate compensation from the five settling publishers.

Conn. gets piece of $500 million generic drug settlement from India

Tuesday, May 14, 2013 by:Rob Varnon

Connecticut Attorney General George Jepsen said Tuesday the state will get about $1.5 million from Ranbaxy, the India-based generic drug maker, who settled allegations this week that it was selling generics that were less than full strength or less than pure.

Ranbaxy agreed to settle the charges after a whistleblower made allegations about its drugs in court. The feds and states got involved because, ultimately because Medicaid, like private insurance policies, pushes patients to use cheaper generics when available. In all, the Indian pharmaceutical made 26 generic type of drugs between 2003 and 2010.

Ranbaxy agreed to pay fines and restitution to Medicaid programs, while not admitting it did anything wrong.

Harrisburg a cautionary tale for bond investors and mayors

Tuesday, May 7, 2013 by:Rob Varnon

The SEC slapped Harrisburg, PA, with a cease and desist order Monday, saying the city’s government for allegedly violating securities law.

Regulators found that city officials failed to come clean about the dire debt trouble at its Resource Recovery Facility and its general financial health while issuing bonds. This all happened in 2009 and since then , Harrisburg has been placed in receivership. Yup, PA’s capital is in bankruptcy.

At any event, the SEC pointed out that the Mayor at the time of the problem failed to properly disclose the scope of the problem and in fact the city misled investors on several occasions. One of the major issues that haunted Harrisburg was having a debt level eight times expected revenue. In the end, the city missed about $13.9 million in bond payments.

The SEC also criticized the city on how it handled its budget, knowing the Authority running the Resource Recovery Facility was in trouble. Here’s an excerpt from the SEC’s findings:

On November 25, 2008, the Harrisburg administration submitted a proposed 2009
Budget to City Council, which was approved on December 22, 2008 (”2009 Budget”). The 2009
Budget included $63 million of general fund expenditures. At the time, Harrisburg’s 2009 Budget
and its accompanying transmittal letter were accessible on Harrisburg’s website. By the time the
2009 Budget was passed, Harrisburg was aware of the Authority’s projected budget deficits and
that Dauphin County was challenging the rate increase. As a result, the Authority was unlikely to
have sufficient revenues to pay its 2009 debt service obligations. Harrisburg’s 2009 Budget, as
adopted, did not include funds for debt guarantee payments for the RRF, raising questions as to
whether it would fulfill its obligations under those guarantees. Nevertheless, at the beginning of
the year, Harrisburg administration officials informally set aside $2.1 million of its surplus reserves
in anticipation of potentially having to make those guarantee payments.

The SEC issued guidelines to municipalities regarding their obligations under the Securities Act. It’ll be interesting to see how this case affects future disclosures among Connecticut and municipalities around the country. The Mines fully expects investors will be digging even deeper into muni financials after this.

NY AG says Wells and Bank of America need to be sued

Monday, May 6, 2013 by:Rob Varnon

New York Attorney General Eric T. Schneiderman announced Monday he intends to sue Bank of America and Wells Fargo for violating the $25 billion national mortgage settlement with the states.

As part of the 2012 deal, which Connecticut Attorney General George Jepsen helped craft, the nation’s five largest banks agreed to provide mortgage relief to homeowners and abide by new servicing guidelines, which included timely response to modification requests and to keep track of paperwork.

Wells Fargo maintains it is compliance while Bank of America told the Washington Post it will work to correct any problems.

Schneiderman, in a press release, said his office has received a host of complaints from consumers and the professionals who are helping consumers navigate the mortgage modification process. New York is reporting there were 339 violations by Bank of America and Wells in the Empire State since October of last year.

“The five mortgage servicers that signed the National Mortgage Settlement are legally required to take specific, rigorous, and enforceable steps to protect homeowners,” Schneiderman said in a press release. “Wells Fargo and Bank of America have flagrantly violated those obligations, putting hundreds of homeowners across New York at greater risk of foreclosure. I intend to use every tool available to my office to hold these companies accountable under the terms of the National Mortgage Settlement.”

According to the independent monitor hired to make sure the banks comply, Connecticut was the only state where more professionals, like attorneys and housing counselors, complained about the banks’ process than New York. The monitor tracked complaints between April of 2012 and January of 2013.

However, in Connecticut, direct consumer complaints about the process were among the lowest.

Connecticut Attorney General George Jepsen said he is reviewing New York’s complaint.

In an email sent via his spokeswoman, Jepsen said, “As a member of the Monitoring Committee of the National Mortgage Settlement (NMS), I take any alleged violation of the NMS very seriously. The NMS provides the monitoring committee and each state with the ability to enforce provisions of the settlement, including filing suit, if necessary. Today I received a copy of New York’s letter identifying potential problems with some banks compliance with the NMS. I was aware of many of the issues raised by New York. I am reviewing the information provided by New York’s and will work with the other members of the monitoring committee to ensure full compliance with the NMS.”

The AG’s office maintains that the reports it’s getting from mortgage pros and consumers are that the banks have been more responsive since the settlement, though staff are still hearing complaints about lost documents and a lack of timely communications.

Connecticut’s AG pledges to work with the banks to correct the issues.

Under the agreement, the monitoring committee has 21 days to review New York’s complaints at which time it might decide to move as a group to sue or do nothing and allow New York to go it alone.

SEC requires investor ID theft prevention

Thursday, April 11, 2013 by:Rob Varnon

The problem of identity theft has sparked the SEC to require brokers, dealers, advisers and other investment pros to put in place prevention programs.
Investment pros will have to create programs that will flag suspicious activity.
The problem of ID theft has led to delays in processing tax returns for some individuals during the last two years and is a growing concern.
The SEC finalized its rule Wednesday but it doesn’t go into effect until it is published. But you can take a peek at it here.

Cohen’s hedge funds and advisories settle SEC allegations for $616 million

Friday, March 15, 2013 by:Rob Varnon

The U.S. Securities and Exchange Commission said advisories and hedge funds affiliated with SAC Capital have settled allegations of insider trading in two separate cases, agreeing to pay a total of $616 million.

SAC’s affiliated advisory firm Sigma Capital in New York agreed to settle allegations of insider trading related to Dell for $14 million.

By far the largest settlement involved Stamford-based hedge fund advisory firm CR Intrinsic Investors which will pay about $602 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies.

In its amended complaint, the SEC alleges that insider information was filtered through a trader at CR Intrinsic to the “Portfolio Manager A” of SAC Capital in Stamford. The documents identify Portfolio Manager A as the “owner and founder of SAC Capital and CR Intrinsic.”

Steven A. Cohen is credited as owner and founder of SAC.

However, the SEC noted during a conference call, Cohen has not been named or charged personally. And Bloomberg reported a spokesman for SAC who noted the same thing.

SAC’s official statement said it would “maintain a first rate compliance effort woven into the fabric of the firm.”

The settlement filed today in federal court in Manhattan is the largest ever in an insider trading case, requiring CR Intrinsic – an affiliate of S.A.C. Capital Advisors – to pay $274,972,541 in disgorgement, $51,802,381.22 in prejudgment interest, and a $274,972,541 penalty.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “A robust culture of compliance and zero tolerance toward employee misconduct can help other firms avoid the severe financial consequences that CR Intrinsic is facing for its misconduct.”

The SEC’s complaint against CR Intrinsic, Martoma, and Dr. Gilman alleged that during phone calls arranged by a New York-based expert network firm for which Dr. Gilman moonlighted as a medical consultant, he tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma and CR Intrinsic then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in a little more than a week.

In an amended complaint filed today, the SEC added S.A.C. Capital Advisors and four hedge funds managed by CR Intrinsic and S.A.C. Capital as relief defendants because they each received ill-gotten gains from the insider trading scheme. These ill-gotten gains are comprised of profits and avoided losses resulting from trades placed in the hedge fund portfolios that CR Intrinsic and S.A.C. Capital managed, and include fees that S.A.C. Capital received as a result of these ill-gotten gains.

The settlement is subject to the approval of Judge Victor Marrero of the U.S. District Court for the Southern District of New York. The settlement would resolve the SEC’s charges against CR Intrinsic and the relief defendants relating to the trades in the securities of Elan and Wyeth between July 21 and July 30, 2008. The settling parties neither admit nor deny the charges. The settlement does not resolve the charges against Martoma, whose case continues in litigation. The court previously entered a consent judgment against Dr. Gilman requiring him to pay disgorgement and prejudgment interest, and permanently enjoining him from further violations of the anti-fraud provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by Charles D. Riely and Amelia A. Cottrell of the SEC’s Market Abuse Unit in New York, and Matthew J. Watkins and Neil Hendelman of the New York Regional Office. The case has been supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).

Chase uses unregistered NY and NJ contractors to build new branch

Thursday, March 14, 2013 by:Rob Varnon

The State Labor Department found that Chase Bank turned to out of state companies to build its branch at 149 Amity Road in New Haven.

According to a release from the department, investigators visited the site on Wednesday after an OSHA tip. They found five companies, four from New York and one from New Jersey on site, who could not prove they were properly registered in Connecticut. Investigators also say the contractors could not provide proof of workers compensation coverage.

Stop Work Orders were issued to the five companies:

Franchise Contractors of Elmsford, NY

Extreme Drywall of Fishkill, NY

Dani’s Home Builders of Mt. Vernon, NY

Floor Expo of Merrick, NY

Premium Decorating of Middletown, NJ

When the agency suspects misclassification abuse, a Stop Work Orders is issued, which result in the halting of all activity at a cited company’s worksite, as well as a $300 civil penalty for each day the company does not carry workers’ compensation coverage as required by law.

“We take it very seriously when an employer fails to recognize their workers as employees of their company because they avoid providing certain protections, such as workers’ compensation,” Sharon M. Palmer, state Labor commissioner said. “Unfortunately, when an employer fails to pay for the proper coverage for injuries suffered on the job, and a worker gets hurt, the state’s taxpayers ultimately foot the bill.”

Connecticut contractors have been complaining they are sometimes losing jobs to out of state firms that missclassify workers or are unregistered in the state.

State snatching tax refunds from ‘unemployed’ chiselers

Friday, March 1, 2013 by:Rob Varnon

State Labor Department won't 'bear' unemployment benefit cheating. AP file photo

The Connecticut Labor Department said this week a new program aimed at recovering money from people who were cashing unemployment benefits checks while employed has intercepted $2.66 million in federal tax refunds.

Overall, the Department said it recovered $4.6 million in fraudulently cashed unemployment checks from 5,000 people in February.

“No one wants to see individuals or employers taking advantage of our unemployment system,” said State Labor Commissioner Sharon M. Palmer. “Nationally, Connecticut has one of the best performance records when it comes to minimizing the number of unemployment insurance overpayments, but we are making it a top priority to implement new tools and technology to improve upon our successes.”

According to Palmer, the funds, amounting to $4,622,902, were recovered through the Treasury Offset Program and a State Income Tax Intercept program that was upgraded in 2012.

Of the $4.6 million recovered in the past month, $2.66 million was the result of the new TOP initiative, a partnership with the Internal Revenue Service and the federal Labor Department. This program intercepts federal tax refunds when individuals have not responded to requests to repay unemployment insurance benefits that they were not entitled to collect.

For all of 2011, the state said it recovered $4 million in unemployment payments and expects to recover $8 million this year.

Unemployment benefits are paid for by employers. The money goes into a trust fund and right now Connecticut’s trust fund is deficient by about $670 million.

Nancy Steffens, a labor department spokeswoman, said the department is able to catch some people by cross referencing their names with IRS tax filings to find people who were basically double dipping. In some cases, people have made honest mistakes and filed for UI benefits after being hired but before receiving their first paycheck. She said in most of those cases, the people pay back their benefits immediately.

But Steffens said the department has found people collecting benefits and working under fake names and social security numbers. It’s also had cases where an employer hires his family members and lays them off so the family can collect the unemployment checks. And the department has seen employers create fake employees and lay them off, as well.

The number of cases have gone up in recent years as the number of people collecting has increased, Steffens said, but as a percentage remains fairly small.

During a conference on business development in Fairfield a few years ago, several restaurant owners reported having difficulty hiring people who would work on the books, meaning they would only take cash payments and didn’t wan their names to appear on any employment rosters. One such restaurateur said he was told by several applicants that they were collecting unemployment and didn’t want to lose the benefit.

Some people who have lost high paying jobs justify the continued collection of benefits because their new job doesn’t pay as much and the family would find it hard to cover its expenses.

Whatever the reasons, the state is going after cheats, so look out.“Our efforts are dedicated toward chasing cheaters because ultimately, this benefits the taxpayers of Connecticut and our overall economic health.”

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