Today's Top Stories Also Noted: Spotlight On... European hedge fund execs move to U.S. hedge funds News From the Fierce Network:
Today's Top News1. Rengan Rajaratnam rewarded for turning himself in promptly
Rengan Rajaratnam's legal team says he "literally" dropped everything when he found out via news reports that he had been criminally indicted for insider trading. According to Reuters, he quickly volunteered to turn himself in to U.S. authorities, rendering a complex extradition process unnecessary, and promptly headed to the airport. He even offered to pay for FBI agents to travel with him. He ended up traveling back from Brazil to New York City, with an FBI agent on the same flight, keeping an eye on him. After he landed, he was promptly arrested. The very next day, Rengan was in court to emphatically plead not guilty to charges that he conspired with his older brother, the convicted Raj Rajaratnam, to trade on material nonpublic information about Clearwire and Advanced Micro Devices in 2008. For that proactive approach, the younger Rajaratnam as rewarded. Government prosecutors did not demand his incarceration and his is free to walk about. Rengan Rajaratnam certainly hopes to stay out of jail, but at this point, it would be fair to say he has his work cut out for him. He has been charged with six counts of securities fraud and one count of conspiracy; each fraud count carries a maximum penalty of 20 years in prison. You have to favor the government right now, based on recent history. Prosecutors have put together an impressive string of victories, enough to give pause to anyone thinking about fighting charges in court--even if he or she truly is not guilty. Even the circumstantial cases have resulted in huge victories for the government. Rengan Rajaratnam would be wise to consult with his brother, if they are still talking, who was sentenced to 11 years in prison after being convicted of insider trading. I'm sure Raj Rajaratnam believed to the bitter end that it would not come to that. For more: Related articles:
Read more about: insider trading
2. Should Goldman Sachs run for public office?
Harrington Investments, an investment group that supports progressive causes, submitted a proposal to the Goldman Sachs (NYSE:GS) board last year asking for a resolution that would allow shareholders at the next annual meeting to vote on whether the gilded bank should run for public office. If you buy the idea that "corporations are people too" and if you look at recent court cases, then perhaps the idea isn't so far-fetched. Harrington put forward the proposal under the idea that the Supreme Court has ruled that corporations have political rights akin to people. The point of the proposal was to call attention to Goldman Sachs' political giving. The bank's employees gave $6.39 million in political contributions last year. "It would be less damaging to the integrity of our political system and our company, for our corporation to directly run for office as a person under federal or state law, than to continue in the current form of political participation," Harrington wrote in the proposal, as noted by Bloomberg. As it turns out, the SEC has ruled that the bank doesn't have to offer the resolution as a proxy voting item at its next meeting, which means we won't be in for a Goldman Sachs for President campaign. For more: Read more about: Goldman Sachs, Politics 3. Private equity fuels housing revival amid low rents
It didn't long for institutional money to flood into the real estate market at the ground level. Once prices hit rock bottom, the likes of Blackstone and other firms rushed into the market to snap up distressed real estate properties, fix them up and rent them out---and then securitize the income streams to reduce their risk. As these institutional buyers offer ore homes to rent and fewer to buy, the result in places like Phoenix and other areas that were hit hard during the real estate collapse has been slow growth in rents as home prices surge. So far, according to Bloomberg, Blackstone has spent more than $3.5 billion to buy 20,000 single-family rentals. Colony Capital has raised $2.2 billion. Lots of other firms have similarly rushed into the market. GTIS Partners, KKR, Oaktree Capital, Och-Ziff Capital also entered the fray. JPMorgan Chase has plans to offer wealth management clients a chance to invest in a partnership that has bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California. All in all, institutional investors have raised between $6 billion and $9 billion to buy single-family homes, according to KBW. So much institutional money has flooded the market that some latecomers may even be forced return some capital to limited partners, as the window of opportunity slowly descends. This has upended a market traditionally dominated by locals, be they long-term investors or mere flippers. The LATimes notes that some critics call the movement "profiteering at the expense of neighborhoods and families who want to buy the same affordable homes." For more: Related articles:
Read more about: Private Equity, real estate 4. Fed seeks shift on exec compensation benchmarking
When it comes to executive compensation in the banking industry, it has become a compensation committee best practice to benchmark pay in some form to the bank's performance against a carefully selected group of peers. The selection of this peer group has been controversial in the past, but most banks thinks some sort of relative benchmarking is in order. Indeed, the likes of ISS and Glass Lewis have recommended that such benchmarking should be smiled upon by shareholders. But the Federal Reserve Board is taking a different approach. Reuters reports that, "The Fed fears that these relative performance measures encourage executives to take big risks to keep up with stronger competitors and reward executives even when their banks aren't performing well, the sources said. Regulators also fear that banks may be paying executives large sums at precisely the time when they should be reining in compensation to conserve capital. The Dodd-Frank financial reform law charged the Fed with implementing new rules about Wall Street pay. At this point, the Fed is just talking to banks, and has not yet issued formal rules or directives. Lawmakers and regulators hope that changing pay practices will reduce the chance of future financial crises, though some corporate governance experts question whether removing relative performance from the picture will have much impact on risk taking." The impetus for relative metrics all along has been that executives should not be rewarded for simply coasting, growing in line with the market. The board wanted to incentivize truly above-average performance. But in doing so, they run the risk of encouraging overly aggressive risk-taking, which has been a hot-button issue as of late. Compensation committees will have to consider all of this as they craft plans. Relative benchmarking would seem to have a place in plans, but of course there are other components. For more: Read more about: executive compensation 5. Goldman Sachs discrimination dispute goes to arbitration
When Cristina Chen-Oster, a former vice president in convertible bonds, Lisa Parisi, a former managing director, and Shanna Orlich, a former trading associate, sued Goldman Sachs in 2010 for gender discrimination, it generated lots of media attention, as it seemed to suggest that the old boom-boom-room culture on Wall Street had yet to truly be banished. The complaint included lots of lurid details that certainly painted an unflattering picture of the gilded bank. The suit is back in the news. As it turns out, one of the plaintiffs, Parisi, had signed an arbitration agreement when she accepted employment at the firm. Last week, a judge in New York ruled that the arbitration agreement was binding, which means that Parisi's gender discrimination claim will now go to arbitration rather than remain part of a class action suit. The suits by the other two plaintiffs are unaffected. Still, the decision did not go over well with all. A Bloomberg columnist had this to say: Parisi "can kiss her chances of victory goodbye. Arbitration is where plaintiffs' dreams go to die, which is probably why it was in her Goldman Sachs employment contract." And this: Parisi is "not likely to win in arbitration, and what they are asking for on the culture side may come about only when the dominant culture becomes female. As for pay, there's more hope. We can't outlaw corporate parties at strip clubs. But we can at least make it illegal to pay the women less than men for comparable work. The women forced to attend these parties shouldn't make less money than the horndogs who organize them." It will be interesting to see how the other two plaintiffs fare. For more: Related articles: Read more about: Goldman Sachs, Gender Discrimination Also NotedSPOTLIGHT ON... European hedge fund execs move to U.S. hedge funds Lots of European banks cut back on risk in the past year, prodding quite a few to seek employment at hedge funds. But that hasn't turned out all that well in some cases, and now many are seeking employment elsewhere. This has played to the advantage of U.S. hedge funds that are bent on staffing up in Europe, perhaps in hopes that a big bet on European sovereign debt is brewing. Article Company news:
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Wednesday, March 27, 2013
| 03.27.13 | Rengan Rajaratnam rewarded for turning himself in promptly
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