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Today's Top News1. Rajat Gupta gets two years in prison
"He is a good man. But the history of this country and the history of the world is full of examples of good men who did bad things." And with that, Judge Jed Rakoff sentenced Rajat Gupta to two years in prison. He also has to pay a $5 million fine. It could have been a lot worse, as the federal sentencing guidelines stipulated that eight years would have been appropriate. He faced a maximum of 10 years, which the prosecution thought was appropriate. The defense will not rest and has announced plans to appeal. But that will take time, of which Gupta has little. The former head of McKinsey and director of Goldman Sachs must report to prison in January. No word yet on where he will serve his time. Gupta was no doubt hoping that the many character references from the likes of Bill Gates and strong testimony about his charitable works would persuade the judge to impose a penalty that did not include jail. But In his sentencing order, Judge Rakoff called Gupta's actions "the functional equivalent of stabbing Goldman in the back." Still, the judge was moved by the character references. "The court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need." When Gupta gets out of jail at age 65, there will be plenty of time for a third act in his life. You get the feeling that this is not the last we've heard of his good works. For more:
Read more about: Enforcement Action, insider trading
2. Shareholders vs. employee pay battle steps up
Banker compensation has been a big deal for several years how, as shareholders grew increasingly restive about what they see as shockingly high compensation to revenue ratios. That battle seems to be getting more pitched. Reuters recently quoted a CalSTRS investment officer by name: "Sometimes executives are being rewarded immensely for just sitting in their chairs, just coming into work every day. There is a need to conform to truly performance-based compensation." It's fair to say that big funds are much less reticent about the issue, but have bank boards really heard the message loud and clear? For the most part, the answer would be yes. While Citigroup shareholders voted negatively on the say-on-pay resolution last year, most bank boards were able to carry the vote on their incentive and pay plans, which in most cases were vetted by key shareholders before going to a vote. That said, shareholders are still eyeing current trends. Unstructured Finance notes that total compensation accruals for both Morgan Stanley and Goldman Sachs "so far this year are up to $23 billion, 2 percent higher than the amount set aside a year ago. That equates to or 47 percent of adjusted net revenue, down from 50 percent for the first nine months of 2011, but still much higher than the pay levels some shareholders are demanding." In the fourth quarter, we may see banks cut the compensation-revenue ratio dramatically. For the year, the amount paid in compensation may well rise. We'll just have to wait and see how it all shakes out in the end. This would be much less of an issue if the banks were able to get stocks moving north again. For more: Read more about: banker pay, bonuses 3. Judges to rule on Rajaratnam wiretaps
Raj Rajaratnam has been in federal prison since December of 2011, since he was sentenced to a whopping 11 years of hard time after he was convicted by a jury of insider trading. His lawyers have been hard at work on his appeal, which centers on the admissibility of the wiretap evidence that was so crucial to the case against him. That effort will come to a head this week, when his lawyers go before a federal appellate court to argue that the government committed egregious errors when it applied to a judge to secure wiretap approval. "Such a ruling is considered a long shot, but a reversal would have broad implications. Not only would it upend Mr. Rajaratnam's conviction but also affect the prosecution of Rajat K. Gupta, the former Goldman Sachs director who was convicted of leaking boardroom secrets to Mr. Rajaratnam. Mr. Gupta is scheduled to be sentenced on Wednesday. A decision curbing the use of wiretaps would also affect the government's ability to police Wall Street trading floors, as insider trading cases and other securities fraud crimes are notoriously difficult to build without direct evidence like incriminating telephone conversations." Giving the defense hope were the choice words a district judge had for the government for it sloppy application, making clear that they should have detailed the SEC's investigatory efforts in much greater detail. In the end, the judge approved the wiretap because the SEC efforts had appeared to stall. A lot is on the line. For more: Related articles:
Read more about: insider trading, Raj Rajaratnam 4. SEC probes Citigroup board over CEO change
"Vikram chose to submit his resignation and the board accepted it," was how Citigroup chairman of the board Michael O'Neill initially explained the bank's abrupt CEO change. But it was painfully obvious that so much more was going on. I have suggested that the board would be wise to come clean, taking an ultra-transparent approach about how it ended up ousting Pandit. The issues just got a little more complicated, however, in the wake of an incipient SEC investigation into how the board handled the transition. FOX Business has reported that "just after the market closed" the day before the earnings announcement, "Pandit was alerted by the board that they wanted him out, having lost confidence in his ability to run the bank, and that he should submit his resignation immediately. The move by Citigroup chairman O'Neill came just hours after the firm released its third-quarter earnings, which included no mention that the board had already planned to oust Pandit later that afternoon. Pandit's ouster came after months of disagreements with the board and O'Neill." The regulatory issues are two-fold: Should the board have disclosed to the public that it had initiated a CEO change, and were the statements that it was Pandit's decision to leave the bank misleading? Most agree that the transition was not handled well, and that there was a lot of odd spinning going on. At best, the transition was sloppy. It remains to be seen if there is any enforcement fallout against the board. For more: Related articles:
Read more about: Enforcement Action, CEO 5. Bank of America again sued over faulty loans
Pundits have already deemed Bank of America's purchase of Countrywide in 2008 as among the worst corporate deals in history, one that tanked the career of then-CEO Ken Lewis, who has shouldered most of the blame. The deal got even worse for Bank of America when Phreet Bharara, the U.S. Attorney in Manhattan, announced that he was brining civil charges against the bank, seeking $1 billion for the fraudulent manner in which the company misrepresented the quality of the loans to government sponsored enterprises Fannie Mae and Freddie Mac. The government alleges that via a program known internally as "the hustle," the bank was able to evade internal controls and safeguards to ram through loans that otherwise wouldn't have met standards. In general, these types of claims aren't new, though there may be some new details to emerge. They dovetail nicely with lots of private litigations and litigation brought by Fannie Mae itself. To some, the charges may seem like a piggy-back attempt to score an easy settlement. Indeed, in February, the bank settled a $1 billion action brought by the U.S. attorney in Brooklyn that sought penalties over loans sold to the FHA. The charges also follow the move by Bharara's office to charge Wells Fargo with similarly misrepresenting loans backed by the FHA. For Bank of America, this is yet another cost that has to be factored into its financials. The bank has shelled out more than $42 billion so far in total costs, including reserves and legal expenses. That's likely going to head higher. For more: Related articles: Read more about: mortgages, Enforcement Action Also Noted
SPOTLIGHT ON... Nevada AG settles with RBS RBS has settled mortgage-related charges with the Nevada attorney general, agreeing to pay $42.5 million. The payment will end a long investigation into "the deep ties between the bank and two mortgage lenders during the housing boom," reports the New York Times. The guts of the case was the RBC conspired with Countrywide and OptionOne to finance a huge amounts of deceptive mortgages. About $36 million of the proceeds will be used to help distressed borrowers throughout the state. Article Company News:
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Thursday, October 25, 2012
| 10.25.12 | Rajat Gupta gets two years in prison
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