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SEC Charges Merrill Lynch with Securities Violations
Legal Topics |
2009/02/02 17:56
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The Securities and Exchange Commission today charged Merrill Lynch, Pierce, Fenner & Smith, Inc. and two of its former investment adviser representatives with securities laws violations for misleading pension consulting clients about its money manager identification process and failing to disclose conflicts of interest when recommending them to use two of the firm’s affiliated services. Merrill Lynch has agreed to settle the SEC’s charges and pay a $1 million penalty.
“There has been tremendous growth in the pension consulting business in recent years. This case is an important reminder to firms and their investment adviser representatives that, whenever they sit across the table from their advisory clients, they need to make sure that all material conflicts of interest are disclosed,” said Scott W. Friestad, Deputy Director of the SEC’s Division of Enforcement.
According to the SEC’s order, Merrill Lynch failed to disclose its conflicts of interest when recommending that clients use directed brokerage to pay hard dollar fees, whereby the clients directed their money managers to execute trades through Merrill Lynch. These clients received credit for a portion of the commissions generated by these trades against the hard dollar fee owed for the advisory services provided by Merrill Lynch Consulting Services. Consequently, Merrill Lynch and its investment adviser representatives could and often did receive significantly higher revenue if clients chose to use Merrill Lynch directed brokerage services. The SEC’s order finds that Merrill Lynch also failed to disclose a similar conflict of interest in recommending that clients use Merrill Lynch’s transition management desk. In addition, the SEC finds that Merrill Lynch made misleading statements to the clients served by its Ponte Vedra South, Fla. office regarding the process used to identify new money managers to present to its clients.
The SEC also charged Michael Callaway and Jeffrey Swanson, who were formerly employed in Merrill Lynch’s Ponte Vedra South office.
In a settled enforcement action against Swanson, the SEC finds that he made misleading statements to some of the firm’s pension consulting clients regarding the process by which Merrill Lynch assisted them in identifying new managers. As a result, the SEC charged Swanson with aiding and abetting and causing Merrill Lynch’s violation of the Investment Advisers Act of 1940. Without admitting or denying the SEC’s allegations, Swanson has agreed to a censure, and to cease and desist from committing or causing violations of Section 206(2) of the Advisers Act.
In the contested enforcement action against Callaway, the SEC’s Division of Enforcement alleges that Callaway breached his fiduciary duty in making misrepresentations about the manager identification process used by the Ponte Vedra South office and his compensation in connection with transition management services. The Division of Enforcement further alleges that Callaway was a cause of Merrill Lynch’s violation of the Advisers Act because he failed to ensure that Merrill Lynch disclosed to clients the conflicts of interest in recommending that clients enter into a directed brokerage relationship with Merrill Lynch and in recommending that they use Merrill Lynch for transition management services. The Division of Enforcement charges that, by this conduct, Callaway willfully aided and abetted and caused Merrill Lynch’s violations of Section 206(2) of the Advisers Act.
The SEC charged Merrill Lynch with violations of an anti-fraud provision of the Advisers Act, which does not require a showing of scienter. The SEC also charged Merrill Lynch with failing to maintain certain records and failing to supervise its investment adviser representatives in the Ponte Vedra South office. Without admitting or denying the SEC’s allegations, Merrill Lynch has agreed to a censure, to cease and desist from committing or causing violations of Sections 204 and 206(2) of the Advisers Act, and to pay a $1 million penalty. |
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Wyeth Shareholders Reluctant to Pfizer Sale
Legal Topics |
2009/01/28 17:22
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Wyeth shareholders say the company is selling itself too cheaply to Pfizer - for $68 billion, or $33 for each Wyeth share, plus 0.985 of a Pfizer share. The federal class action claims that in the deal, announced Monday, Pfizer is taking advantage of a weak stock market to buy Wyeth on the cheap.
Wyeth shareholders claim the deal is "grossly inadequate," though it offers about a 15% premium over Wyeth's market price. They estimate that the deal works out to about $50.19 per Wyeth share, based on the $33 cash and Pfizer's closing price of $17.19 on Friday, Jan. 23.
Wyeth reported $22.4 billion income in 2007, up from $20.6 billion in 2006, and the company continued to do well since then, reporting $11.7 billion in revenue for the first half of 2008, according to the complaint.
Plaintiffs claim: "On September 25, 2008, Credit Suisse's Equity Research department published a research note noting that Wyeth shares represented an opportunity for the Value Investor, as its shares were trading at just above their 4-year low at $37.76. According to the note: 'Our sum of the Parts Analysis implies a price of $52, roughly 38% upside to Wyeth's $37.76 closing price today. In fact, assuming the biologics business alone (led by Enbrel and Prevnar) is worth $44, the value of just the biologics business is 117% of the current share price.'"
Shareholders cite a Sunday story in The New York Times: "On January 25, 2009, The New York Times reported that 'Pfizer appears to be taking advantage of the bad market for credit to buy Wyeth at a lower price than it might fetch if competing bids emerged, which analysts do not expect.' The article, citing Barbara Ryan, an analyst at Deutsche Bank stated: 'They have a unique opportunity now because not everybody can get that capital. They're probably one of the few companies in the world that can get that capital. These are going to be among the best companies in the U.S. to extend credit to.'
"On January 26, 2008, Forbes reported that the Proposed Transaction 'will give Pfizer a much larger presence in areas where it has been viewed as weaker than the competition, namely biotech drugs and vaccines. Wyeth, which makes the top-selling vaccine for children, Prevnar, would help fill this void. Wyeth also co-markets Amgen's Enbrel biotech drug for rheumatoid arthritis. That is exactly what Pfizer needs as it looks to fill the void that will be left by Lipitor when it loses patent protection in 2010.'"
The complaint adds: "The terms of the Proposed Transaction also present Wyeth shareholders with considerable risk. The onerous terms insisted upon by Pfizer's lenders reflect how disastrous the current market is for sellers and calls into question the Individual Defendants' judgment in deciding to sell the Company at this time. The lenders can abandon their financing commitment if Pfizer's credit rating drops below certain thresholds. ...
"By agreeing to the Proposed Transaction on these terms and placing the fate of all its shareholders in the unreliable hands of the rating agencies the Board has created a huge risk for Wyeth shareholders that cannot possibly be compensated for by a larger than usual reverse termination fee.
"In their pursuit of the Proposed Transaction the Defendants have breached their duty of loyalty to Wyeth's stockholders by using their control of Wyeth to deprive the Company's public shareholders of maximum value to which they are entitled. The
Defendants have also breached the duties of loyalty, good faith and due care by not taking adequate measures to ensure that the interests of Wyeth's public shareholders are properly considered in rejecting the Proposed Acquisition.
"The Individual Defendants are in a position of control and power over Wyeth's public stockholders, and have access to internal financial information about Wyeth to which plaintiff and the Class members are not privy. Defendants are using their positions of power and control to undervalue Wyeth, to the detriment of Wyeth's shareholders."
Plaintiffs want the deal rescinded and enjoined until they get a better offer. Their lead counsel is Joseph DePalma with Lite DePalma Greenberg. |
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Missing Fla. hedge fund manager turns himself in
Legal Topics |
2009/01/27 22:35
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| A Florida hedge fund manager who disappeared this month just as he was due to pay investors $50 million turned himself in to authorities Tuesday to face federal securities and wire fraud charges. Arthur Nadel, accompanied by two attorneys, surrendered in Tampa, about an hour north of his home in Sarasota, the FBI said. He was chained at the waist and wrists when he appeared in court later Tuesday. Attorney Barry Cohen said Nadel is not violent and asked that he be released on his own recognizance. He said Nadel has emotional problems and does not pose a flight risk, but a federal judge ordered him held at least until Friday. Asked outside court where his client had been for two weeks, Cohen said, "He went away for a while just to be alone." He declined to say where exactly Nadel was, and the FBI did not provide details. Federal regulators last week sued Nadel for fraud, saying he misled investors and overstated the value of investments in six funds by about $300 million. The Securities and Exchange Commission also won a court order freezing his assets. A criminal complaint unsealed Tuesday in federal court in Manhattan alleges Nadel has been defrauding investors since 2004. Nadel, 76, disappeared Jan. 14 after telling his wife in a note that he felt guilty. He also threatened to kill himself, according to the Sarasota County Sheriff's Office. Police found his green Subaru the next day in an airport parking lot. In a lawsuit filed in federal court in Tampa, the SEC said Nadel recently transferred at least $1.25 million from two funds to secret bank accounts that he controlled. |
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Sludge company's ex-representative pleads guilty
Legal Topics |
2009/01/27 22:32
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| A former representative of a Texas company pleaded guilty Monday to federal bribery conspiracy, admitting a multiyear scheme to win a sludge recycling contract through cash and trips for Detroit officials. Jim Rosendall's cooperation with the FBI led prosecutors to recommend a sentence of no more than 11 months in prison, well below the five-year maximum. The company used cash and plane trips to Las Vegas to curry favor with Detroit officials and win the $47 million contract to recycle sludge, according to a criminal charge unsealed earlier in the day. The city officials were not identified. The influence-peddling game reached a climax in fall 2007 when a city council member accepted payments to vote in favor of a deal with Synagro Technologies, the government alleges. The contract was approved, 5-4, in November 2007. "People expected me to give things to get their support," Rosendall, former president of Synagro of Michigan, said in court. Earlier Monday, Mayor Ken Cockrel Jr. addressed speculation about a federal investigation into the conduct of city government members. "I think we'll have to see how it plays out," he said. Rosendall's guilty plea comes more than four months after Kwame Kilpatrick resigned as mayor and went to jail in a sex-and-text scandal after admitting he lied during a civil trial to cover up a torrid affair with his chief of staff. |
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Judge gives $65M to USS Pueblo Captives
Legal Topics |
2009/01/02 17:41
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A federal judge in Washington, D.C., ordered North Korea to pay $65.85 million to two crew members of the USS Pueblo, the commander's widow and a civilian oceanographer for kidnapping and torturing the ship's crew in 1968.
In a sordid 33-page ruling, U.S. District Judge Henry Kennedy describes how the crew members were systematically beaten and tortured during 11 months in captivity.
William Thomas Massie, Donald Raymond McClarren, Dunnie Richard Tuck and the estate of Lloyd Bucher, the ship's commander, sued North Korea for damages, alleging egregious violations of human rights.
The USS Pueblo was captured in the Sea of Japan, about 25 miles off the coast of North Korea, while on an electronic surveillance mission on Jan. 23, 1968.
The crew was dragged off the ship while bound and blindfolded, and led through a crowd of hostile and unruly North Koreans, who shouted insults and spat at them. The guards also kicked their legs and administered "karate chops," the ruling states.
The captives were then transported to Pyongyang, where they were taken to a "prison" nicknamed the "Barn" on the outskirts of town. There, they were separated into rooms of four prisoners each. The conditions were cold and dark, and there was no running water. The prison was infested with rats and bed begs, one of which bit Massie, causing him to develop a severe infection that had to be lanced by a North Korean doctor without the use of an anesthetic. Bucher lost about 50 pounds, Massie lost 51 and Tucker lost 37.
For almost a year, North Korean officers beat, starved, tortured and intimidated the men, in order to coerce them into confessing that they were spies for South Korea. The captors tried to get Bucher to sign a typed statement that he was a CIA spy trying to incite a war.
Though Bucher initially refused to sign, he eventually capitulated after his captors threatened to shoot his crew, in his presence, one by one.
While the men were being held hostage, the North Koreans tried to extract a public apology from the U.S. government. The hostages were forced to participate in staged press conferences and propaganda films, which they sabotaged by inserting corny, archaic language into the prepared statements and sticking up their middle fingers in pictures and videos. They told the North Koreans that the middle finger gesture was the "Hawaiian Good Luck Sign." When the captors discovered the true meaning of the obscene gesture, they ramped up the beatings, launching a campaign of torture dubbed "Hell Week."
Judge Kennedy said countries that sponsor terrorism forfeit their sovereign immunity. And although the plaintiffs were released 25 years before Congress enacted the Anti-Terrorism and Effective Death Penalty of 1996, Kennedy said Congress intended it to apply retroactively.
Because North Korea never responded to the damage claim, Kennedy entered judgment for the plaintiffs. He awarded Massie, McClarren and Tuck $16.7 million each, while Bucher's estate recieved $14.3 million. Bucher's widow, Rose, won $1.25 million.
"The effects of the outrageous conduct of North Korea will be felt by Massie, Tuck, McClarren and Rose Bucher for the rest of their lives," Kennedy concluded. |
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Court: No obligation for company to give teen drug
Legal Topics |
2008/12/17 18:20
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| A pharmaceutical company does not have to provide an experimental drug to a Minnesota teen who is terminally ill with a rare form of muscular dystrophy, a federal appeals court ruled Tuesday in reversing a lower court decision. The ruling by the U.S. Court of Appeals for the Third Circuit in Philadelphia was a blow to 17-year-old Jacob Gunvalson, who suffers from Duchenne muscular dystrophy. The court ruled that U.S. District Judge William J. Martini in Newark erred in his August ruling that PTC Therapeutics of South Plainfield, N.J., must provide the drug to Gunvalson. That decision had been stayed pending the company's appeal. "I just think it's really unfair that these drug companies get all these benefits from the federal government," said Jacob's mother, Cheri Gunvalson. "And then they're allowing boys to fall through the cracks and die." She said she would not give up her fight but didn't know what the next step would be. In its ruling, the appeals court said it was "sympathetic to the plight of Jacob and his family," but that the lower court "abused its discretion" in ordering PTC to supply the drug to Gunvalson. The Gunvalsons, who live in Gonvick, Minn., maintained that the company led them to believe that Jacob could participate in a clinical trial of the drug, which is being investigated as a possible treatment — and that the company then went back on its word. |
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2nd suspect arrested in Oregon bank bombing
Legal Topics |
2008/12/16 18:21
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| Two law enforcement officers killed in a bank bombing last week believed the device was a hoax and were trying to open it when it exploded, according to court documents released on Tuesday. A probable cause statement in the case of bombing suspect Joshua Turnidge says a state trooper inspected and X-rayed a green metal box found Friday outside the West Coast Bank building in Woodburn. The document says Oregon State Police Senior Trooper William Hakim, a bomb disposal technician, was confident it was a hoax device, so he took it inside. The statement says a bank employee saw Hakim trying to open it while Woodburn Capt. Tom Tennant held it, and then it exploded. Hakim and Tennant were killed. Woodburn Police Chief Scott Russell was critically injured — he has lost his right leg from the knee down and his left leg was mutilated, according to the statement. The bank employee was treated at Salem Hospital and released. According to the statement, at 10:19 a.m. Friday a man called in a bomb threat to the Wells Fargo Bank in Woodburn, which is close to the West Coast Bank branch. The man said "if 'they' didn't leave the building, all of them would die," the court document states. |
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