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Labels: Eliot Spitzer, prostitution

Labels: Eliot Spitzer, prostitution

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Labels: Eliot Spitzer, Houston's Clear Thinkers, New York AG

Labels: Eliot Spitzer, New York AG

...Five former Prudential brokers and two branch managers in Boston were sued by the SEC and Massachusetts regulators for securities fraud in November 2003. Brokers used aliases to conduct short-term trades on behalf of seven hedge fund clients, driving up costs for the mutual funds' other shareholders, according to the complaints.

Using 183 accounts under phony names and identification numbers, the brokers made more than $3.2 million in net commissions from the trades between January 2001 and September 2003, according to the SEC. The group's ``success relied significantly on a lack of supervision by Prudential,'' the Massachusetts complaint said.

Martin Druffner, whom the government called the leader of one group, pleaded guilty in federal court last year to four counts each of wire fraud and securities fraud. Ex-broker Skifter Ajro also pleaded guilty last year to two counts each of wire and securities fraud. They haven't been sentenced.

Branch manager Robert Shannon pleaded guilty in May to a criminal charge of aiding and abetting securities fraud and was sentenced to three years of probation and a $5,000 fine...

Labels: Eliot Spitzer, New York AG

Labels: Eliot Spitzer, New York AG

Grasso Took the 5th a Lot During His SEC Deposition

June 15, 2006, 8:30 amPosted by Peter Lattman

Former NYSE chief Dick Grasso invoked his Fifth Amendment right to not answer questions more than 150 times in an SEC deposition looking into potentially improper trading on the NYSE, according to a story in today’s Wall Street Journal. The 2005 deposition, along with one taken earlier this year by Eliot Spitzer’s office regarding Grasso’s pay package, was released to the media yesterday...

Labels: Eliot Spitzer

Labels: Eliot Spitzer, New York AG

Labels: Eliot Spitzer, New York AG

Spitzer Versus the Poor

New York Sun Editorial
March 17, 2006

"So the Lord High Executioner of Wall Street, Eliot Spitzer, now wants to make it "fraud" to help a poor person save for retirement. That's the message of the complaint filed this week in New York State court in Manhattan in The People of the State of New York against H&R Block. Those who have been following Mr. Spitzer for years now thought they'd pretty much seen it all, but for an example of leftist ideology run amok, this lawsuit sets a new standard of cynicism, denying those of modest means a first step into the system of capitalism and savings that is enjoyed with impunity by wealthy leftists such as Mr. Spitzer himself."

Labels: Eliot Spitzer

Labels: Eliot Spitzer, New York AG

Industries Get Quiet Protection From Lawsuits

By Myron Levin and Alan C. Miller
L.A. Times Staff Writers

WASHINGTON — Near sunrise on a summer morning in 2001, Patrick Parker of Childress, Texas, swerved to avoid a deer and rolled his pickup truck. The roof of the Ford F-250 crumpled, and Parker didn't stand a chance. His neck broke and, at 37, he was paralyzed from the chest down. He sued, and Ford Motor Co. settled for an undisclosed amount. "You can imagine what happens when you're belted in and the roof comes down even with the door," Parker said. "Your options are death or quadriplegia."

Parker's case and hundreds like it are behind a beefed-up roof safety standard proposed in August by the National Highway Traffic Safety Administration. But safety regulators tucked into the proposed rule something vehicle makers have long desired: protection from future roof-crush lawsuits like the one Parker filed.

The surprise move seeking legal protection for automakers is one in a series of recent steps by federal agencies to shield leading industries from state regulation and civil lawsuits on the grounds that they conflict with federal authority.

Some of these efforts are already facing court challenges. However, through arcane regulatory actions and legal opinions, the Bush administration is providing industries with an unprecedented degree of protection at the expense of an individual's right to sue and a state's right to regulate.

In other moves by the administration:

• The highway safety agency, a branch of the Department of Transportation, is backing auto industry efforts to stop California and other states from regulating tailpipe emissions they link to global warming. The agency said last summer that any such rule would be a backdoor attempt by states to encroach on federal authority to set mileage standards, and should be preempted.

• The Justice Department helped industry groups overturn a pollution-control rule in Southern California that would have required cleaner-running buses, garbage trucks and other fleet vehicles.

• The U.S. Office of the Comptroller of the Currency has repeatedly sided with national banks to fend off enforcement of consumer protection laws passed by California, New York and other states. The agency argued that it had sole authority to regulate national banks, preempting state restrictions.

• The Food and Drug Administration issued a legal opinion last month asserting that FDA-approved labels should give pharmaceutical firms broad immunity from most types of lawsuits. The agency previously had filed briefs seeking dismissal of various cases against drug companies and medical-device manufacturers.

In a letter to President Bush on Thursday, Rep. Jan Schakowsky (D-Ill.) said, "It appears that there may have been an administration-wide directive for agencies … to limit corporate liability through the rule-making process and without the consent of Congress." Administration officials said the initiatives had not been centrally coordinated.

"Under the constitution, federal laws take priority over inconsistent state laws," said Scott Milburn, spokesman for the White House Office of Management and Budget. "Decisions about … whether particular rules should preempt state laws are made agency by agency and rule by rule."

Preemption initiatives by regulatory agencies have drawn less public attention than controversial legislative moves supported by the White House. With administration support, Congress has restricted class-action suits and banned certain claims against gun makers and vaccine producers.

By embedding similar protections for businesses in regulatory changes, the administration has advanced Bush's repeated pledge to rein in what he calls junk lawsuits. On Thursday, for example, when the Consumer Product Safety Commission adopted a rule to curb mattress fires, it recommended for the first time that courts bar suits against manufacturers that comply with the new standard. Schakowsky called the move "part of an unfortunate and troublesome pattern … to undermine consumer rights."

In addition to trying to bar suits over vehicle roof failures, the highway safety agency in recent months has sought broad legal protection for manufacturers in two other rules on the grounds that lawsuits could undermine its safety goals. One rule related to rear seat belts and the other to visibility requirements for trucks. No similar exemption clauses have been attached to any other highway safety agency rule changes for 35 years.

Industry executives, lobbyists and lawyers have shuttled through jobs in the highway safety agency and other departments over the years, but in the Bush administration, auto industry ties have grown more conspicuous. Before becoming White House chief of staff, Andrew H. Card Jr. served as a General Motors Corp. vice president and as chief executive of the top auto industry trade group. The acting head of the highway safety agency, Jacqueline Glassman, was a senior attorney for DaimlerChrysler Corp. before she became the agency's chief counsel in 2002.

Jeffrey A. Rosen, who became general counsel at the Transportation Department in 2003, was a senior partner at Kirkland & Ellis, a powerhouse law firm that has defended GM in numerous product-liability suits and represents the Alliance of Automobile Manufacturers. Rosen denied using his position to benefit automakers. "We have issued a number of major rules in the two years that I have been here," he said. "Some of them are supported by industry, some are opposed."

Michael S. Greve, a resident scholar at the conservative American Enterprise Institute, has written that preemption is crucial to protect the economy from "trial lawyers, ambitious state attorneys general and parochial state legislatures."

But critics say the preemption push contradicts the conservative ideals of a limited federal government and states' rights — principles espoused by Bush. "This is the most aggressive federal government in the history of the United States," said California Atty. Gen. Bill Lockyer, a Democrat. Some say the election calendar is spurring the moves.

"The message has been clear in the last couple of years that if industries are going to get protection, they need to get it now," because no one knows what will happen in the next election, said Jonathan Turley, a George Washington University law professor.

Rollover accidents kill more than 10,000 people in the U.S. each year, and seriously injure an additional 16,000. Consumer groups say better roofs would have saved thousands of victims over time. Automakers counter with the "roof dive" theory — that rollover victims fall head-first to the roof as it strikes the ground, injuring themselves whether the roof holds or buckles. Thus, they say, the value of stronger roofs is practically nil.

Brian O'Neill, president of the Insurance Institute for Highway Safety, called this argument "patently nonsense." If it were true, he said, people would be "just as well-off in a rollover in a convertible as a hardtop." The highway safety agency always has agreed that roof failures can cause death and injury. Its roof-crush proposal estimates that 596 deaths and 807 serious injuries a year are linked to roof collapse.

Its proposed rule would increase the force a roof must withstand in a rollover from its current 1.5 times a vehicle's weight to 2.5 times — at a cost per vehicle of about $12. It would cover large trucks and SUVs of more than 6,000 pounds for the first time. The agency also is considering requiring stability control systems to reduce rollover risk. The revised roof rule would create "the strongest ever uniform set of minimum … standards" for automakers in the U.S., Transportation Department spokesman Brian Turmail said.

However, the safety agency is projecting relatively modest benefits from the upgrade: 13 to 44 deaths and 500 to 800 injuries prevented a year. One reason: Nearly 70% of existing vehicles already meet the proposed standard.

Critics call this a token improvement. The stiffest criticism, however, has been reserved for the effort to grant immunity from lawsuits. The safety agency says its push to preempt personal injury litigation is based on a concern that automakers, fearful of lawsuits, might beef up roofs to such an extent that the vehicles become top-heavy and more prone to roll over.

John G. Womack Jr., a former acting chief counsel at the safety agency, said that equating roof strength with weight was a "very debatable proposition." Other options are to use high-strength steel or widen the stance of vehicles to compensate for heavier roofs, he said.

Diverse groups — including Public Citizen, a consumer watchdog, and the National Conference of State Legislatures — have condemned the provision and questioned the highway safety agency's authority to protect automakers. Some have complained that if companies could not be held liable for damages, it would remove incentives for automakers to exceed minimum safety standards.

A bipartisan group of 26 state attorneys general said in a December letter to the highway safety agency that the lawsuit ban, if accepted by the courts, would shift significant costs of caring for seriously injured victims from the industry to taxpayer-funded programs such as Medicaid. It would also conflict with consumer rights, they said. "Such an extreme step is unwarranted in the absence of express congressional intent," they wrote.

Roof-crush suits have resulted in costly settlements and verdicts against automakers at a time of widespread financial trouble for the U.S. industry. In 2004, Ford paid $41 million in a case in which a California appeals court compared the company's use of a fiberglass and metal roof in the 1978 Bronco to "involuntary manslaughter."

The same year, a San Diego jury awarded damages against Ford of $367 million, later reduced by the judge to $150 million. In 2003, GM was hit with a $19.6-million verdict, described as the largest product liability award in Nebraska history. The San Diego and Nebraska cases are being appealed.

For victims like Parker, the prospect of manufacturer immunity is an especially bitter pill. The paralyzed Texas man, who had worked as a technician for a local utility, said he at least gained some financial security through litigation by extracting a settlement from Ford. Otherwise, he said, he and his wife "would have been living from hand to mouth."

He criticized the preemption clause, saying it was as if the industry had "this red phone and they just pick it up and it automatically dials NHTSA." The immunity clause was unexpected, even to some in the industry. "Whether this was some conspiracy or whether it was a pleasant surprise, I really don't know," said Barry Felrice, director of regulatory affairs with DaimlerChrysler in Washington. Spokesmen for GM and Ford said that their companies had not lobbied for the lawsuit ban but that they supported it.

Bill Walsh, a former highway safety agency senior executive who worked on the rule before retiring in 2004, said the immunity language "was dropped in from out of the blue." Preempting lawsuits, he said, was "different from how we normally operated … in issuing regulations." Rosen, the Transportation Department's general counsel, said this was not the first time the highway safety agency had tried to override state liability laws.

During the 1990s, the agency joined automakers in arguing that they shouldn't be sued for not installing air bags at a time when the agency allowed either air bags or automatic seat belts. In 2000, the Supreme Court agreed that such suits were preempted but said that compliance with a standard ordinarily "does not immunize a manufacturer."

Card, the White House chief of staff, and Glassman, the agency's chief counsel, declined to discuss how the roof-crush lawsuit preemption originated. Rosen said he did not want "to get into the specifics of who said what to whom…. As a legal matter, I'm obliged to protect the deliberative process."

The Rev. Lawrence Harris of Pittsgrove, N.J., sees the issue from the vantage point of his wheelchair. Had his claim been preempted after a devastating accident with his family in North Carolina, he might not be preaching on Sundays. Harris, then 46, was wearing a seat belt but suffered a fractured spine in 1997 when his Ford Econoline van rolled over. Except for minimal movement in his hands, he was paralyzed from the chest down.

With the damage award he won from Ford, Harris installed a roll-in shower and wheelchair lift in his house, hired a caretaker to help him dress each morning, and modified a van so he could continue as pastor of Olivet United Methodist Church. Without the lawsuit, he said, "I would not be able to do the things I'm able to do." If automakers are immune, Harris said, "where is the check and balance going to be for them?"

Within days of its roof-crush proposal, the highway safety agency again backed the auto industry in challenging California's efforts to cut emissions. The Alliance of Automobile Manufacturers had gone to court to stop the state Air Resources Board from regulating tailpipe emissions of carbon dioxide and other greenhouse gases, contending the rule was preempted.

Because carbon dioxide emissions drop when less fuel is burned, the industry attacked the rule as a backdoor attempt to regulate fuel economy — under federal law, the exclusive domain of the highway safety agency. The agency agreed. On Aug. 23, it issued new mileage standards for light trucks, saying that its authority over fuel economy meant that "a state law that seeks to reduce motor vehicle carbon dioxide emissions is … preempted."

Industry lawyers filed papers the next day in U.S. District Court in Fresno informing the judge of the agency's position. California's global warming rule, which would first apply to 2009 models, is not all that's at stake in the Fresno case. Ten states have copied California's emission rule, and all those rules could be wiped out if the industry wins.

Rosen's former law firm, Kirkland & Ellis, represents the Alliance of Automobile Manufacturers in the suit to block California's global warming rule. The suit was filed in late 2004, a year after Rosen left the firm to join the Transportation Department. Transportation spokesman Turmail said Rosen did not discuss the matter with the law firm. In considering the safety agency's position on the matter, Rosen acted in the government's interest, Turmail said.

Eleven U.S. senators from both parties and 29 House Democrats from California have urged Transportation Secretary Norman Y. Mineta to reverse the agency's opposition to the emissions standard. "Rather than attempting to thwart such state efforts, the federal government should encourage states to develop innovative solutions to serious public health and environmental problems," the senators wrote to Mineta in December.

Kirkland & Ellis also represented automakers in another case against California regulators. In 2002, the industry — backed by the Justice Department — challenged a state rule that required production of a certain number of non-polluting vehicles.

Rosen said he did not participate in that case while he was with the law firm. The case was settled when the state agreed to remove language that the industry said amounted to regulating fuel economy. The Bush administration also helped two industry groups overturn a regulation requiring the purchase of cleaner-running fleet vehicles such as buses and garbage trucks in Southern California.

The Engine Manufacturers Assn. and Western States Petroleum Assn. claimed the rule by the South Coast Air Quality Management District was preempted by federal law. Their challenge was rejected in federal district court and by a federal appeals court. When the case went to the U.S. Supreme Court, the Justice Department filed a brief siding with the industry. The high court agreed that the local rules were preempted.

In the past, said California's Atty. Gen. Lockyer, when industries challenged state regulations, "the federal government abstained from those lawsuits." Now, he said, there's "a policy of rubber-stamping whatever business wants, and that's too bad." The idea behind another California law was simple: Tell credit cardholders on monthly bills how long it would take to retire their debt if they paid the minimum amount. But major banks issuing most of the nation's credit cards didn't like it. In a 2002 court challenge, they attacked the state's credit disclosure law with help from a powerful ally.

The U.S. Office of the Comptroller of the Currency joined forces with the American Banking Assn., Citibank and other plaintiffs, arguing in a friend-of-the-court brief that the law interfered with federal authority to regulate national banks, and with powers granted to the banks by their federal charters. A federal judge blocked the law from going into effect, and the state lost a subsequent appeal. Intervention by the comptroller's office "definitely tipped the balance," said Gail Hillebrand, a lawyer for Consumers Union, which had backed the state's position.

In recent years, the comptroller's office on many occasions has helped national banks and their subsidiaries fend off investigations or enforcement actions by state officials on preemption grounds. In 2004, for example, the agency helped to shoot down a California law that would have required customer permission before banks shared their personal information with business affiliates. Although a U.S. District Court judge upheld the privacy law, an appeals court ruled last year that its major provisions were preempted by federal law.

Last year, the agency went to court on the side of a banking association to block an investigation by New York Atty. Gen. Eliot Spitzer into possible racial bias in the lending practices of several banks. A federal judge agreed that Spitzer's investigation "impermissibly infringes" on the authority of the comptroller's office. The state is appealing.

Turf battles over banking regulation have occurred in the past, but the Office of the Comptroller of the Currency has become more aggressive in pushing preemption under Bush. Agency officials say they have zero tolerance for abusive practices and bristle at complaints that they might be chasing off state watchdogs to the detriment of consumers.

The banks "have an enormous body of consumer compliance laws and regulations that we apply to them at the federal level," said Julie L. Williams, the agency's senior deputy comptroller and chief counsel. But Arthur E. Wilmarth Jr., a George Washington University professor specializing in banking law, said, "The OCC hasn't been, shall we say, a very zealous enforcer on the consumer side…. States have been far more vigorous."

Greve, the American Enterprise Institute scholar who has been a mainstay of the conservative brain trust promoting preemption, said well-connected industry law firms were part of a policy network providing legal and political rationale for the effort. He called them "a merry band of Washington lawyers … who know how to push the buttons" and get things done.

Levin reported from Los Angeles and Miller from Washington. Times researcher Janet Lundblad in Los Angeles also contributed to this report.

Labels: DaimlerChrysler, Department of Justice, Eliot Spitzer, New York AG

The companies that have received subpoenas control thousands of stations nationwide, including Clear Channel Communications Inc., Infinity, which now operates as CBS Radio, Citadel Broadcasting Corp., Cox Radio Inc., Cumulus Broadcasting Inc., Pamal Broadcasting Ltd., Entercom Communications Corp., Emmis Communications Corp. and ABC Inc., according to court records filed by Spitzer.

Two major recording companies agreed last year to settle their parts of the investigation. Warner Music Group Corp. said it would pay $5 million, and Sony BMG Music Entertainment agreed to pay $10 million.

The probe involves Jennifer Lopez's "I'm Real" and John Mayer's song "Daughters." Songs by other artists are also being examined, including those by Jessica Simpson, Celine Dion, Maroon 5, Good Charlotte, Franz Ferdinand, Switchfoot, Michelle Branch and R.E.M. Artists and writers are not targets, Spitzer's office said. In fact, they have supported the probe and provided several complaints that assistant investigators.

Labels: Eliot Spitzer

Hedge fund to settle case with N.J. for $10M

Wednesday, January 18, 2006
Associated Press

Defunct hedge fund Canary Capital Partners LLC has agreed to pay the state $10 million to settle allegations it stacked the deck against ordinary investors, the New Jersey Attorney General's office said Tuesday.

Secaucus-based Canary, two of its units and managing principal Edward J. Stern were accused of trading after hours, when mutual fund prices are frozen, to reap profits from after-hours events that affect a stock's price the next day.

In addition, Canary and Stern were accused of engaging in market timing, or making trades into and out of funds to take advantage of short-term market fluctuations at the expense of long-term shareholders.

"The whole idea of our marketplace is that they're supposed to be fair and open and that everyone gets a fair shot," said Franklin Widmann, chief of the state Bureau of Securities.

"They weren't playing that way. They set up a situation where they concealed and disguised the nature of their trading."

Ron Simoncini, a spokesman for Canary Capital, said the company was not commenting Tuesday.

Stern - the youngest scion of the family that owns developer Hartz Mountain Industries - sparked a sweeping probe of the mutual fund industry when he struck a deal with New York Attorney General Eliot Spitzer in September 2003.

Stern paid $40 million to Spitzer's office to escape prosecution for illegal trading, and agreed to cooperate with the attorney general's investigation.

The probe shook the industry and resulted in scores of people fired and dozens of firms under scrutiny.

They paid out more than $1.5 billion in settlements.

Stern testified for the prosecution last year in the trial of Bank of America broker Ted Sihpol, who was accused of larceny, securities fraud and other charges related to mutual fund trading with Canary. Stern told a Manhattan court that his trading gave him an "unfair" edge over other investors.

A jury cleared Sihpol of 29 counts and the remainder were dropped.

Canary's payment to New Jersey is tied for the third-largest ever paid to the state to settle securities violations, said Peter Aseltine, a spokesman for the Attorney General's office.

As part of the settlement, Stern and Canary have agreed to be barred from acting as brokers or investment advisers for 13 years.

Last week, UBS Financial Services Inc. agreed to pay New Jersey nearly $25 million - the largest sum ever collected in a state securities matter - to settle allegations that it failed to properly supervise brokers who engaged in deceptive market-timing activities.

The UBS payment to New Jersey included a civil penalty of $12.75 million and an additional $12 million for investigative costs, investor education and other enforcement initiatives.

Staff Writer Hugh Morley contributed to this article.

The original appears here.

-- MDT

Labels: Eliot Spitzer, New York AG

AIG may pay up to $1.5 bln in settlement: report

Herald News Daily
January 13, 2005

American International Group Inc. may pay as much as $1.5 billion to settle civil investigations by state and federal authorities into an accounting scandal, The Wall Street Journal said Friday, citing sources familiar with the matter.

New York Attorney General Eliot Spitzer and the New York State Insurance Department filed a civil suit against the largest U.S. insurance company and its former chief executive, Maurice "Hank" Greenberg, last May, charging them with misleading investors by using improper accounting. A settlement is likely in two or three weeks and would include a deal with the Securities and Exchange Commission , a source familiar with the matter told Reuters. The agency declined to comment.

AIG spokesman Chris Winans declined to comment on the report other than to say, "We continue to cooperate with all our regulators." Talks are ongoing, a spokesman for Spitzer said, but it is too early to speculate on the terms of any settlement. "We‘re in no position to comment," he said.

A settlement of $1.5 billion would nearly equal the $1.57 billion in losses from Hurricanes Katrina and Rita that AIG suffered in the third quarter. A settlement would put an end to the lawsuit against AIG but would not include a deal with Greenberg or former AIG Chief Financial Officer Howard Smith, The Wall Street Journal said. Greenberg and Smith have denied any wrongdoing.

Settling for $1 billion would represent about 25 cents per AIG share after taxes, Wachovia Securities analyst John Hall said in a research note Friday, and 1 percent of AIG‘s book value. The cost rises to 38 cents a share if the settlement is not deductible.

"We had been projecting AIG‘s regulatory settlement would total roughly $550 million," Hall said. "While considerable, we don‘t believe the divergence between our expectation and the reported settlement will have a material effect on AIG‘s financial position." AIG shares were down 24 cents to $70.02 in midday dealings on the New York Stock Exchange , trading at about 2.04 times book value, which is relatively high for the sector.

Since February 11, 2005, the trading day before the company said it had been subpoenaed concerning investigations of products that might help companies smooth earnings, AIG shares have fallen about 4 percent, while the S&P insurance index has risen about 10 percent.
Any SEC settlement would have to be reviewed by the agency‘s five commissioners later this month, The Wall Street Journal said. Terms of the deal could change in that time, but parties are negotiating a payment of about $1.5 billion, it said.

The SEC has not brought a lawsuit against AIG, but the federal regulatory agency is expected to file and settle civil charges on the same day, if a deal can be reached. The civil suit against AIG and Greenberg by Spitzer and the New York State Insurance Department accused them of fraud and cooking the company‘s books. Smith was also named as a defendant.

The suit alleged that Greenberg and Smith, who were ousted as the investigation picked up steam, took part in numerous fraudulent business deals that exaggerated the strength of AIG‘s underwriting business and propped up its stock price. In addition to a fine, a settlement is likely to make formal a number of corporate governance reforms, some of which AIG has already put in place, the newspaper report said.

Citing sources close to the AIG board, it said AIG is weighing three new director candidates. While interim Chairman Frank Zarb has said he will stay in the job until AIG‘s annual meeting in May, the newspaper said he could stay up to an additional six months if a successor is not in place.

Labels: AIG, Eliot Spitzer, General Re, New York AG

Appeals Judges Question SEC's Hedge Fund Rule

By Carrie Johnson
Washington Post Staff Writer
Saturday, December 10, 2005; D01

Appeals court judges sharply questioned yesterday whether the Securities and Exchange Commission had a reasonable basis for adopting a controversial rule that requires hedge funds to register with the agency.

A divided SEC passed the rule in a 3 to 2 vote last year, citing evidence that the loosely regulated investment pools had become a breeding ground for fraud and trading abuses. But New York fund adviser Phillip Goldstein sued to stop the rule, arguing that the SEC had overstepped its authority and did not provide adequate foundation for the move.

Goldstein's case appeared to get a boost yesterday based on questions from two of the three judges on the U.S. Court of Appeals for the D.C. Circuit panel.

"You don't have authority to act simply because you exist," Judge Harry T. Edwards told Jacob H. Stillman, the SEC's lawyer.

A few moments later, Edwards said: "We have to test your thesis, and your thesis doesn't hold up."

Judge A. Raymond Randolph also expressed skepticism about the agency's arguments.

Legal experts cautioned that it is difficult to draw conclusions about how a court will rule based on questions asked by judges during oral arguments. The appeals court, however, has criticized the SEC's approach in a few recent cases.

Earlier this year, the court sent back for more research a rule mandating that mutual fund board chairmen be independent of management. The SEC retooled the rule, prompting a second, pending legal challenge by the U.S. Chamber of Commerce. That case is to be argued Jan. 6.

Last month, the court rejected a separate bid by agency lawyers to impose financial penalties on board members at an investment fund called the Rockies Fund Inc., ruling that the agency had levied the fines "arbitrarily and capriciously."

Former SEC Chairman William H. Donaldson made the hedge fund effort one of his central initiatives before he resigned in June. In recent years, the market has boomed to include more than 8,000 funds with over $1 trillion in assets. Average investors and pension funds increasingly are investing in the funds.

From 1999 to 2004, the agency filed 51 fraud cases involving hedge funds. Last week, Millennium Partners LP, a highflying New York fund, agreed to pay $180 million to settle trading abuse allegations lodged by the SEC and New York state Attorney General Eliot L. Spitzer. In September, two top officers at the Bayou Management fund pleaded guilty to criminal charges for engaging in a fraud that cost investors $450 million.

Stillman, the SEC's lawyer, stressed to the appeals court yesterday that the agency moved to register funds with more than 14 investors and $25 million under management to further its mission of protecting investors.

"Aren't they really getting at trying to enhance the government's ability to identify and prosecute fraud when it occurs?" Judge Thomas B. Griffith asked a lawyer for Goldstein. "That's really what's at the core of this."

The rule is set to take effect in February. Critics fear the hedge fund rule could foreshadow inspections and other efforts to rein in the funds. Before it was adopted, the plan had been criticized by Treasury Secretary John W. Snow and Federal Reserve Board Chairman Alan Greenspan, among others.

A ruling is expected within the next several months, according Philip D. Bartz, a lawyer at McKenna Long & Aldridge LLP who represents Goldstein.

Labels: Bayou Group, Eliot Spitzer, New York AG

Millennium Settles With Spitzer, SEC for $180 Million

December 1, 2005
Bloomberg
By Christopher Mumma & Katherin Burton

Millennium Partners LP, a $5 billion hedge fund company accused of improper mutual fund trading, agreed to pay $180 million in a settlement with New York Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission.

Millennium, run by Israel Englander, defrauded fund companies from 2000 to 2003 by rapidly buying and selling mutual fund shares, a practice known as market timing, which drove up costs for long-term investors, Spitzer and the SEC alleged. The New York-based firm set up more than a thousand accounts to hide its identity as it made more than $52 billion in trades, Spitzer said today in a statement.

The sanctions are the biggest against a hedge fund in the two-year investigation of improper mutual fund trading that regulators say hurt other investors. Millennium is one of more than 30 companies that have paid a total of about $3.7 billion since Spitzer got a tip in 2003 about Canary Capital Partners LLC, a now-defunct hedge fund. The SEC later started its own probe of the $8.6 trillion mutual fund business...

Labels: Eliot Spitzer, New York AG

Labels: Eliot Spitzer, PIPES

Federated settles late-trading charges

By Danielle Kost
Bloomberg News
November 29, 2005

Federated Investors, a U.S. money manager, said Monday that it had agreed to pay $100 million to settle regulatory allegations that it allowed traders to buy and sell mutual funds in ways that hurt long-term investors.

Federated will pay $35 million in restitution, $45 million in penalties and cut fees by $20 million over the next five years under agreements with the U.S. Securities and Exchange Commission and the New York State attorney general, Eliot Spitzer, Spitzer said in a statement. Federated did not admit to or deny regulators' findings as part of the settlement, the securities regulator said.

The Pittsburgh company is the 14th investment company to resolve claims of improper trading in the $8.1 trillion fund industry. The announcement comes after two setbacks for Spitzer's office, including a decision last week to drop charges against a former Canadian Imperial Bank of Commerce executive who was indicted in connection with alleged improper fund trading...

Labels: Eliot Spitzer, New York AG

Millennium nears $100M fraud settlement - Hedge fund talking with Spitzer, SEC over $100M pact

By Alistair Barr
MarketWatch
November 3, 2005

SAN FRANCISCO - Millennium Partners LP, a $5 billion hedge-fund firm run by Israel Englander, is in talks with New York Attorney General Eliot Spitzer and the Securities and Exchange Commission about settling securities-fraud charges, the Wall Street Journal reported on Thursday.

The New York-based company could pay more than $100 million to settle charges that it traded mutual funds between 2000 and 2003 at improper prices after the close of trading, as well as charges that the firm tried to disguise its identity to help it trade the funds rapidly, the newspaper said, citing an unidentified person close to the talks...

Labels: Eliot Spitzer, New York AG

Legal fight looms after J&J threatens to drop plan to buy Guidant

By Barry Meier and
Andrew Ross Sorkin
The New York Times
November 3, 2005

Johnson & Johnson has threatened to abandon its plan to acquire Guidant, a troubled maker of heart devices, setting the stage for a financial and legal confrontation between the two companies over a deal valued at $25.4 billion.

The development, announced on Wednesday, was a stunning reversal for a deal that was applauded when it was announced in December as both a handsome payoff for Guidant shareholders and a way for Johnson & Johnson to enter the growing market for implanted heart devices.

But along the way, Guidant, the second-largest U.S. maker of heart devices, found itself ensnared by safety issues and product recalls that appeared to spin out of control.

Guidant disclosed in late May, for example, that one of its defibrillators had repeatedly failed because of an electrical flaw. That disclosure led to regulatory scrutiny, a string of product recalls and, most recently, a Department of Justice investigation.

In a statement, Johnson & Johnson, based in New Brunswick, New Jersey, said on Wednesday that it believed that the recalls and federal investigations had materially affected Guidant's "short-term results and long-term outlook."

Guidant, based in Indianapolis, responded that any impact from the recalls would be short-term and that Johnson & Johnson was legally obligated to complete the deal by Friday as originally negotiated.

Guidant's legal problems also grew more complex on Wednesday as the New York State attorney general, Eliot Spitzer, filed a lawsuit accusing the company of fraud in connection with sales of a defibrillator model that short-circuited in some cases. The lawsuit seeks to force Guidant to disclose device malfunction data and disgorge its profit from sales of the defibrillator.

The deal's breakdown could present a challenge to Johnson & Johnson's strategy of growth by acquisition.

Guidant and Johnson & Johnson did not rule out continuing talks, but with the original deal valued at $76 a share, any new agreement will depend on whether the two sides can compromise on a lower price. People involved in those talks described the latest moves by both companies as a high-stakes game, with neither particularly interested in walking away just yet.

But these people suggested that a gap remained between the price that Johnson & Johnson is now willing to pay and the price that Guidant is willing to accept. These people said Johnson & Johnson was hoping to pay no more than something in the mid-$60s a share, while Guidant was seeking a price in the low $70s.

While some analysts said Johnson & Johnson appeared to have the negotiating edge, other analysts said Guidant executives might choose to sue Johnson & Johnson because they believe that the company's stand-alone value is close to $60 a share. On Wednesday, Guidant closed at $60.40 a share, down 4.3 percent, or $2.70 a share.

"They are playing chicken, and right now it appears that J&J has the upper hand," said Joanne Wuensch, an industry analyst with Harris Nesbitt.

The centerpiece of any legal fight will revolve around a single but complex issue: whether Guidant's product recalls and related events have had a materially negative impact on its future sales and profit. Not surprisingly, both companies on Wednesday staked out their positions. In its statement, Johnson & Johnson said it believed that developments had clouded Guidant's future prospects. For its part, Guidant characterized those effects as "near-term."

Courts have found that a significant negative impact must extend beyond the near term to qualify as grounds for terminating a contract. In 2001, a Delaware court ruled that Tyson Foods was not justified in terminating its merger deal with IBP, a beef processor. Tyson had argued that undisclosed financial problems at an IBP subsidiary had invalidated the deal.

Guidant's chief executive, Ronald Dollens, said in a statement, "We believe that the fundamentals of our business are strong and our markets and products have attractive prospects for growth."

Spokesmen for both companies declined to comment beyond their public statements or make executives available for interviews. Johnson & Johnson issued its statement immediately after the Federal Trade Commission on Wednesday gave it conditional approval to acquire Guidant.

It was in mid-December that Johnson & Johnson announced its plan to purchase Guidant, with the $25.4 billion deal representing the company's biggest acquisition by far. The move represented a decision by Johnson & Johnson to move into the market for implantable defibrillators and pacemakers, a field that is rapidly growing because of an aging population.

Defibrillators are devices that send out an electrical charge to disrupt a potentially fatal heart rhythm; a pacemaker controls a heart that is beating too fast or too slowly.

Spitzer's lawsuit, filed on Wednesday in New York State Supreme Court in Manhattan, accuses Guidant of fraud in connection with its failure to alert doctors about the electrical flaw in the defibrillator known as the Prizm 2 DR. In a statement, Spitzer said doctors needed safety information about implanted devices to determine which model was most appropriate for a patient.

"We would not permit this type of conduct in connection with the sale of cars or washing machines," said Spitzer, who last year sued drug companies to force them to disclose more clinical trial data. "It is simply unconscionable that it occurred with a critical medical device."

Late Wednesday, a Guidant spokesman, Steven Tragash, said the company had not seen the lawsuit. The company, however, has said repeatedly that it has done nothing wrong.

In a recent filing with the drug regulator, Guidant also said it planned to release more detailed data to doctors to show how many units of a particular model had failed because of severe malfunctions like a short circuit that prevented a unit from delivering therapy. The company has declined to say when it will begin disclosing that data.


NEW YORK Johnson & Johnson has threatened to abandon its plan to acquire Guidant, a troubled maker of heart devices, setting the stage for a financial and legal confrontation between the two companies over a deal valued at $25.4 billion.

The development, announced on Wednesday, was a stunning reversal for a deal that was applauded when it was announced in December as both a handsome payoff for Guidant shareholders and a way for Johnson & Johnson to enter the growing market for implanted heart devices.

But along the way, Guidant, the second-largest U.S. maker of heart devices, found itself ensnared by safety issues and product recalls that appeared to spin out of control.

Guidant disclosed in late May, for example, that one of its defibrillators had repeatedly failed because of an electrical flaw. That disclosure led to regulatory scrutiny, a string of product recalls and, most recently, a Department of Justice investigation.

In a statement, Johnson & Johnson, based in New Brunswick, New Jersey, said on Wednesday that it believed that the recalls and federal investigations had materially affected Guidant's "short-term results and long-term outlook."

Guidant, based in Indianapolis, responded that any impact from the recalls would be short-term and that Johnson & Johnson was legally obligated to complete the deal by Friday as originally negotiated.

Guidant's legal problems also grew more complex on Wednesday as the New York State attorney general, Eliot Spitzer, filed a lawsuit accusing the company of fraud in connection with sales of a defibrillator model that short-circuited in some cases. The lawsuit seeks to force Guidant to disclose device malfunction data and disgorge its profit from sales of the defibrillator.

The deal's breakdown could present a challenge to Johnson & Johnson's strategy of growth by acquisition.

Guidant and Johnson & Johnson did not rule out continuing talks, but with the original deal valued at $76 a share, any new agreement will depend on whether the two sides can compromise on a lower price. People involved in those talks described the latest moves by both companies as a high-stakes game, with neither particularly interested in walking away just yet.

But these people suggested that a gap remained between the price that Johnson & Johnson is now willing to pay and the price that Guidant is willing to accept. These people said Johnson & Johnson was hoping to pay no more than something in the mid-$60s a share, while Guidant was seeking a price in the low $70s.

While some analysts said Johnson & Johnson appeared to have the negotiating edge, other analysts said Guidant executives might choose to sue Johnson & Johnson because they believe that the company's stand-alone value is close to $60 a share. On Wednesday, Guidant closed at $60.40 a share, down 4.3 percent, or $2.70 a share.

"They are playing chicken, and right now it appears that J&J has the upper hand," said Joanne Wuensch, an industry analyst with Harris Nesbitt.

The centerpiece of any legal fight will revolve around a single but complex issue: whether Guidant's product recalls and related events have had a materially negative impact on its future sales and profit. Not surprisingly, both companies on Wednesday staked out their positions. In its statement, Johnson & Johnson said it believed that developments had clouded Guidant's future prospects. For its part, Guidant characterized those effects as "near-term."

Courts have found that a significant negative impact must extend beyond the near term to qualify as grounds for terminating a contract. In 2001, a Delaware court ruled that Tyson Foods was not justified in terminating its merger deal with IBP, a beef processor. Tyson had argued that undisclosed financial problems at an IBP subsidiary had invalidated the deal.

Guidant's chief executive, Ronald Dollens, said in a statement, "We believe that the fundamentals of our business are strong and our markets and products have attractive prospects for growth."

Spokesmen for both companies declined to comment beyond their public statements or make executives available for interviews. Johnson & Johnson issued its statement immediately after the Federal Trade Commission on Wednesday gave it conditional approval to acquire Guidant.

It was in mid-December that Johnson & Johnson announced its plan to purchase Guidant, with the $25.4 billion deal representing the company's biggest acquisition by far. The move represented a decision by Johnson & Johnson to move into the market for implantable defibrillators and pacemakers, a field that is rapidly growing because of an aging population.

Defibrillators are devices that send out an electrical charge to disrupt a potentially fatal heart rhythm; a pacemaker controls a heart that is beating too fast or too slowly.

Spitzer's lawsuit, filed on Wednesday in New York State Supreme Court in Manhattan, accuses Guidant of fraud in connection with its failure to alert doctors about the electrical flaw in the defibrillator known as the Prizm 2 DR. In a statement, Spitzer said doctors needed safety information about implanted devices to determine which model was most appropriate for a patient.

"We would not permit this type of conduct in connection with the sale of cars or washing machines," said Spitzer, who last year sued drug companies to force them to disclose more clinical trial data. "It is simply unconscionable that it occurred with a critical medical device."

Late Wednesday, a Guidant spokesman, Steven Tragash, said the company had not seen the lawsuit. The company, however, has said repeatedly that it has done nothing wrong.

In a recent filing with the drug regulator, Guidant also said it planned to release more detailed data to doctors to show how many units of a particular model had failed because of severe malfunctions like a short circuit that prevented a unit from delivering therapy. The company has declined to say when it will begin disclosing that data.

Labels: Department of Justice, Eliot Spitzer, New York AG

“The vast majority of state and federal prosecutors don’t have the resources, staff, energy, perspective, know-how, legal authority, and – perhaps most importantly – political drive needed to bring major corporate crime prosecutions,” said Russell Mokhiber, editor of the Corporate Crime Reporter. “The overwhelming number of prosecutors in the country look at the obstacles and say – I’ll pass. But these ten prosecutors have what it takes to tackle the problem.”

“The prosecutors who enter this field need an added element – a finely tuned sense of political and prosecutorial discretion – knowing when to go and when to stop, so as not to offend the powers that be,” Mokhiber said. “If things go right, prosecutors use the publicity they gain from these prosecutions to fuel their ongoing quest for higher office. If things go wrong, as they can easily and often do, these prosecutors will be publically humiliated in the courtroom by high-priced white collar crime defense attorneys and in the court of public opinion by the business press and political rivals.”

The top prosecutors (in alphabetical order) are:

Christopher Christie, U.S. Attorney, New Jersey
James Comey, Deputy Attorney General, Justice Department, Washington, D.C.
Patrick Fitzgerald, U.S. Attorney, Chicago
David Kelley, U.S. Attorney, Manhattan
Alice Martin, U.S. Attorney, Birmingham, Alabama

Patrick Meehan, U.S. Attorney, Philadelphia, Pennsylvania
Robert Morgenthau, District Attorney, Manhattan
Eliot Spitzer, Attorney General, New York
Michael Sullivan, U.S. Attorney, Boston, Massachusetts
Debra Yang, U.S. Attorney, Los Angeles, California.

The prosecutors were chosen for their consistent emphasis on high profile corporate and white collar crime cases.

Labels: Department of Justice, Eliot Spitzer, New York AG, Quest

Spitzer and SEC question Lloyd's

By Jason Nisse
August 21, 2005
Eliot Spitzer, the New York State Attorney General, and the US financial regulator, the Securities & Exchange Commission, have dragged Lloyd's of London into their investigation into insurance market abuses in America.

Investigators from the SEC and the Attorney General's office contacted Lloyd's last month with a list of questions, The Independent on Sunday has learnt. These relate to a practice called "finite reinsurance", a system of complex long-term transactions which the regulators contend may have been used to make insurance companies' accounts look in better shape than they were.

The investigation has centred on particular contracts between American International Group, one of the US's largest insurers, and General Re, a subsidiary of Warren Buffett's Berkshire Hathaway investment giant. Berkshire admitted earlier this month that it was the target of the investigation and that the Financial Services Authority in London was also involved.

The probe has led to the departure of Milan Vukelic, the chief executive of a Berkshire subsidiary with links to the Lloyd's market, and to questions being asked about the reputation of Mr Buffett, one of America's most respected businessmen.

Lloyd's has confirmed that it has been in discussions with the investigators. US reinsurance accounts for nearly two fifths of the entire turnover at Lloyd's.

"We have had a request from the US regulators for information which we are in the process of complying with," said Julian James, the director of markets at Lloyd's. "We understand that the investigation is not directed at us and the business area they are investigating is a small part of Lloyd's annual business."

Labels: Eliot Spitzer, General Re, New York AG

Payola Shocker: J-Lo Hits, Others Were 'Bought' by Sony

Monday, July 25, 2005
By Roger Friedman

... internal memos from Sony Music, revealed today in the New York state attorney general's investigation of payola at the company, will be mind blowing to those who are not so jaded to think records are played on the radio because they're good. We've all known for a long time that contemporary pop music stinks. We hear "hits" on the radio and wonder, "How can this be?"

Now we know. And memos from both Sony's Columbia and Epic Records senior vice presidents of promotions circa 2002-2003 — whose names are redacted in the reports but are well known in the industry — spell out who to pay and what to pay them in order to get the company's records on the air...

...Announced today: Sony Music — now known as Sony/BMG — has to pony up a $10 million settlement with New York's Attorney General Eliot Spitzer. It should be $100 million. And this won't be the end of the investigation. Spitzer's office is looking into all the record companies. This is just the beginning.

...Who will take the fall at Sony for all this? It's not like payola is new. The government investigated record companies and radio stations in the late 1950s and again in the mid 1970s... Spitzer is said to be close friends with Sony's new CEO, Andrew Lack, who publicly welcomed the new investigations earlier this year when they were announced..

Spitzer Evidence To Be Handed Over To FCC

July 25, 2005
By Paul Heine and Bill Holland

..."I would encourage the FCC to take a very hard look at whether something that is this pervasive, something that is so corrosive to the integrity of the market place should not merely be investigated and pursued, but whether some of these stations deserve to have their licenses stripped," said Spitzer at the downtown Manhattan press conference trumpeting the settlement. "They know what the law is and they have been disregarding it willfully and pervasively"...

...[FCC] commissioner Jonathan Adelstein says Spitzer has given the FCC "an arsenal of smoking guns" to ramp up federal payola enforcement. Adelstein says he has asked Spitzer for "everything he’s got" so that evidence uncovered in New York's pay-for-play probe can be evaluated for possible federal violations. An outspoken advocate for heightened payola enforcement, Adelstein says an email trail now exists to justify a full-on federal investigation...

..."These same exact practices are explicitly prohibited by the Communications Act, including criminal violations that would be handled by the Justice Department," Adelstein says. "People haven't been willing to come forward." "It took an attorney general's subpoena power to blow the lid off a potentially far-reaching payola scandal...Now it's incumbent on us to enforce our rules and conduct a thorough investigation of each of the allegations."

FCC protocol calls for the agency to investigate and act upon filed complaints... Although he expects to receive complaints based on the settlement, Adelstein says the magnitude of potential federal violations warrants an immediate investigation and potential enforcement action. "What we have here for the first time are emails documenting the reasoning behind this," Adelstein said, referring too materials uncovered by Spitzer. "We no longer have to guess what was in the mindset of people, we can actually see it."

Labels: Eliot Spitzer, New York AG

Welcome to the murky world of Kroll Inc - the private CIA

By Ben Hills
June 25, 2005

They helped track down billions of dollars of treasure looted from Kuwait by Saddam Hussein. They finally proved that "God's Banker", Roberto Calvi, found hanging under London's Blackfriars Bridge with bricks in his pockets, was murdered. They were hired by Prince Charles to find the "Princess Di tapes".

Move over James Bond, this is the real-life fantasy world of the thousands of former cops and spooks, bodyguards, forensic accountants, journalists and criminal lawyers who made up what claims to be "the world's foremost independent risk consulting company", Kroll Inc.

Not for nothing did a former executive of the company describe Kroll as "like a private CIA".

"Of course, there's lots of boring stuff too - corporate profiles, background checks on employees, data recovery," says a rival in the business, "But these are the ones that get the adrenaline going."

In the process, inevitably for a company employing large numbers of former CIA, FBI and Special Forces people, the company has occasionally been accused of misconduct - the bugging scandal in Brazil is just the latest in which Kroll Inc has been embroiled.

Founded in 1972 by a New York assistant district attorney, Jules Kroll, the company expanded aggressively across America and internationally into 60 countries. In Australia, Kroll formed an ongoing partnership with the accountancy firm Ferrier Hodgson.

Its customers were a who's who of the business world: Ford, Citibank, Hilton hotels, drug company Pfizer and Nestle among them. It has also worked for the US government.

Although its bread and butter work was legal corporate intelligence, such as profiling takeover targets, in countries such as Brazil, and now Iraq, where kidnapping is rampant, Kroll also specialised in "close body work" - bodyguards, protection and ransom.

In May last year, Julius Kroll received an offer he could not refuse. Marsh & McLennan, the New York insurance broker which claims to be the world's largest, took over Kroll for an eye-popping $US1.9 billion ($2.46 billion), more than $US100 million of which was pocketed by its founder.

Capitalised at $US6 billion, and with 60,000 employees in more than 100 countries - including Australia - Marsh & McLennan was the colossus of the industry, claiming a 40 per cent share of the global market for insurance broking.

But the company saw insurance as a mature market and wanted to expand into the related risk-management industry. No one could have foreseen when the takeover deal was signed in May last year that the sky was about to fall in.

Last October, New York's crusading district attorney, Eliot Spitzer, filed suit against Marsh & McLennan, accusing the company of having, for years, colluded with big insurance companies to "cheat customers in an elaborate charade of price fixing and bid rigging".

The three insurers he named were the giants American International Group, Zurich America Insurance Company and Ace Ltd. Adding spice to the story was the relationship between them: AIG was headed by the 79-year-old insurance industry legend Maurice "Hank" Greenberg; his son Jeffrey ran Marsh & McLennan, and; another son, Evan, was boss of Ace.

Spitzer claimed that Marsh & McLennan jacked up insurance premiums - thus increasing its commissions, and the profits of the insurers - with "fake bids, collusion, improper steering of business, payments by insurers to avoid solicitation of competing of competing quotes, and threats against those resisting participation in the fraudulent schemes".

The company "acted, in short, less like a broker with a fiduciary obligation to its clients than as the linchpin of a racket", Spitzer said.

Marsh & McLennan's shares tumbled more than 25 per cent, despite pledging it was "committed to getting all the facts, determining any incidence of improper behaviour and dealing appropriately with any wrongdoing".

Jeffrey Greenberg was forced to resign. His replacement was a man the company had inherited a few months earlier when it took over Kroll Inc, Michael Cherkasky, who was uniquely placed to steer the company through the scandal which threatened to destroy it.

For 16 years, Cherkasky was a white-collar crime buster for the New York District Attorney's office; Spitzer, now prosecuting Marsh & McLennan, was his protege. In 1994, Cherkasky joined Kroll - gamekeeper become poacher - working his way up to the chief executive's office.

Within three months, Cherkasky had overseen a clean-out of Marsh & McLennan's board, and the sacking of most of the executives deemed accountable for the corruption. In January, he persuaded Spitzer to drop the civil charges against the company by pledging to pay $US850 million to clients around the world - including Australia - that Marsh & McLennan had defrauded.

Criminal charges are still pending against 10 former executives of Marsh & McLennan and the insurance companies. In February, Kathryn Winter, the 50-year-old managing director of Marsh Inc, pleaded guilty to fraud in the Manhattan State Superior Court. She faces up to four years' jail, depending on how keenly she co-operates with Spitzer's investigators.

Cherkasky personally apologised to 120 of his biggest clients, and showed thousands of staff the door in a bid to restore the ailing giant to profitability.

He is now engaged on an even greater challenge - to convince outraged clients who had been deserting the company in droves, that Marsh & McLennan is serious about its reforms.

Labels: AIG, background checks, Eliot Spitzer, Kroll

N.Y. official sued over bank probe

By Larry Neumeister
The Associated Press
Jun. 17, 2005

NEW YORK - An association of leading commercial banks and a federal agency sued New York Attorney General Eliot Spitzer on Thursday, saying his probe into the lending practices of national banks violates laws ensuring that banks are not subject to supervision by state authorities.

The suit asked the U.S. District Court in Manhattan to block Spitzer from demanding information to enforce federal and state discrimination-in-lending laws against banks belonging to the Clearing House Association. The Manhattan association said it was protecting the rights of its 11 members, eight of which are federally chartered national banks already subject to federal regulation.

The bank association said at least three members -- HSBC Bank USA, JPMorgan Chase Bank and Wells Fargo Bank -- have been subjected to the inquiry.

The suit by the Office of the Comptroller of the Currency seeks to block what it said was Spitzer's interference in the agency's fair-lending supervision.

The agency "is absolutely committed to assuring that the national banking system is free of lending discrimination of any sort," acting comptroller Julie Williams said in a statement. "This issue is vital and it is complex, and it must not be politicized."

Spitzer has questioned some of the nation's biggest banks in an investigation of potentially discriminatory mortgage practices. Community groups have said blacks and Hispanics are more likely than Anglos to be given higher-cost mortgage loans and are much more likely to be turned down for mortgages.

Labels: Eliot Spitzer, New York AG

AIG executive rolls for Spitzer

June 9, 2005

A former American International Group senior executive may spill the beans on the controversial reinsurance deals of Warren Buffett's company. Joseph Umansky was once known inside the company as a troubleshooter. In the sprawling, multi-tiered investigation of AIG and former top executives, he may be a source of trouble.

Mr Umansky was a senior vice-president in the corporate division of the insurer AIG and president of AIG Reinsurance Advisers, a reinsurance unit. Part of the inner circle of executives who dealt closely with the former chief executive, Maurice Greenberg, he was intimately involved in many of the deals that regulators and AIG itself have found to be improper.

Mr Umansky is to co-operate with New York attorney-general Eliot Spitzer in exchange for immunity. That complicates a parallel investigation by the Justice Department and the Securities and Exchange Commission.

Labels: AIG, Eliot Spitzer, General Re, New York AG

NY Attorney General Spitzer Targets Identity Theft

Apr 18, 2005

NEW YORK (Reuters) - New York Attorney General Eliot Spitzer on Monday said he is seeking stronger state laws against identity theft and computer hacking.

Spitzer's office, together with several consumer advocate groups and crime victim organizations, are asking legislators to give consumers better control over personal information, enhance the state's ability to prosecute crimes that lead to identity theft, and boost penalties.

Spitzer, known for his sweeping probes of Wall Street research, the mutual fund and insurance industries, said he submitted a package of bills to the state legislature.

Labels: Eliot Spitzer, identity theft, New York AG

Wall Street Needs A New Cop

Liz Moyer
04.14.05

NEW YORK - As Stephen Cutler prepares to step down as the top cop at the U.S. Securities and Exchange Commission, he leaves behind an intensifying investigation into the insurance industry but a sense that an era of corporate scandal is winding down.

Cutler said today he would leave in the next month after three and a half years as director of the SEC's enforcement division, which acts as the watchdog of Wall Street. It has been among the most tumultuous periods in corporate America. As director, he levied more than $6 billion in penalties and disgorgement, targeting Enron, Adelphia Communications (otc: ADELQ - news - people ), Qwest Communications (nyse: Q - news - people ), Tyco International (nyse: TYC - news - people ), WorldCom (nasdaq: MCIP - news - people ), Time Warner (nyse: TWX - news - people ) and others.

Earlier this week, Cutler finalized a multiyear investigation into trading practices by specialists on the New York Stock Exchange, bringing civil charges against 20 individuals and scolding the NYSE for failing to police those traders, who are supposed to make efficient markets in listed stocks.

Already today, there was speculation that Linda Thomsen, a highly regarded longtime SEC prosecutor and Cutler's deputy, would be named interim enforcement director, if not his outright successor. An SEC spokesman declined to comment.

Naming Thomsen would "send a powerful signal that the chairman wants continuity," says Joel Seligman, a professor of corporate law at Washington University's School of Law. "It would be seen as disquieting to bring someone in from the outside."

Cutler joined the agency as deputy director of enforcement in 1999. Before that, he was a partner in the Washington firm Wilmer, Cutler & Pickering. He has not said where he is headed, though the announcement said he planned to return to private practice.

Just weeks after he became director in 2001, Enron, a Houston energy firm that was once the seventh-largest U.S. company, collapsed into bankruptcy amid allegations of massive accounting fraud.

Cutler worked often in tandem with New York State Attorney General Eliot Spitzer. Two years ago this week, the SEC and Spitzer announced a $1.4 billion settlement with ten Wall Street firms, including Citigroup (nyse: C - news - people ), Merrill Lynch (nyse: MER - news - people ) and Morgan Stanley (nyse: MWD - news - people ), and ordered them to put better controls on avoiding conflicts of interest between bankers and research analysts.

"It's been one of the most amazing times in the agency's history," says Charles Elson, a professor and corporate governance expert at the University of Delaware.

An investigation into transactions and accounting at American International Group (nyse: AIG - news - people ) is just under way, but observers said they didn't believe Cutler's departure from the SEC would interrupt that probe.

Cutler's departure "is certainly not sending us a signal that we can discern anything with regards to the AIG case," says Roy Smith, a professor at New York University's Stern School of Business.

A steady stream of earnings restatements in the last year will ensure that there is plenty of work for the SEC's enforcement division, but even Cutler suggested a lot of the heavy lifting is over.

In a speech last month, he said, "I do believe our enforcement approach is about where it needs to be--and is producing real results... I don't think we'll be seeing an enforcement docket three to five years from now that looks anything like the enforcement docket we have today."

Labels: AIG, Eliot Spitzer, Enron, Morgan Stanley, New York AG, Tyco

AIG admits 'improper' accounting in deals with Buffett group

Mark Milner
Thursday March 31, 2005
The Guardian

American International Group, the world's biggest insurer, admitted yesterday that it had improperly accounted for a deal at the heart of a series of investigations.

The insurer said the agreement with General Re, a subsidiary of Warren Buffett's Berkshire Hathaway, had been wrongly characterised.

"Based on its review to date, AIG has concluded that the Gen Re transaction documentation was improper and, in the light of the lack of evidence of risk transfer, this transaction should not have been recorded as insurance," it said.

Berkshire Hathaway said this week that Mr Buffett, America's most respected investor, had not been briefed on the structure of the transactions between General Re and AIG or on "any improper use or purpose of the transactions". He is expected to talk to investigators in the next fortnight.

AIG said yesterday that improper documentation related to two transactions between AIG and General Re, each involving $250m (£133m). AIG said yesterday that the deals should have been accounted for as deposits.

Last month AIG acknowledged that it had received subpoenas from the New York attorney general, Eliot Spitzer, and the US securities and exchange commission relating to "non-traditional insurance products and certain assumed reinsurance contracts". The New York department of insurance is conducting inquiries into related matters.

The affair has already seen the departure of AIG's chairman and chief executive, Maurice "Hank" Greenberg. Mr Greenberg, who ran AIG for almost four decades, was forced to stand down as chief executive only two weeks ago and this week confirmed that he would quit his new role as non-executive chairman when he returned from a business trip in Asia. Three other executives have also left.

AIG said yesterday that it would have to delay further the release of its 2004 figures as it continued to investigate its records. It warned that shareholders' equity could be reduced by up to 2% and that it faced tax charges of up to $670m as a result of discoveries thrown up by the review.

AIG said it was reviewing the impact of fresh evidence of its relationships with a series of offshore companies with which it had done business.

It said it would have to consolidate the results of Richmond, a Bermuda-based reinsurance company, in which it holds a 19.9% stake, after finding "previously undisclosed evidence of AIG control".

It is also examining its relationship with the Barbados-based Union Excess. Though AIG has no direct stake in Union, it said yesterday that "a significant portion of the ownership interests of Union Excess shareholders are protected under financial arrangements with Starr International ... which owns approximately 12% of AIG's common stock and whose board of directors consists of current and former members of AIG management".

Labels: AIG, Eliot Spitzer, General Re, New York AG

In this corner, in the blue pinstripe suite, Maurice "Hank" Greenfield - the grizzled and wiley World War II veteran and thirty-year chief executive who stormed Omaha Beach on D-Day, winning the bronze star. He is now the most powerful man in the insurance industry.

v/s

In this corner, in the white hat, Eliot "Babyface" Spitzer - the upstart, high-flying young Attorney General from New York state. Using his fearsome submission maneuver, The Martin Act, Spitzer has run roughshod over his competition is recent bouts.

Labels: Eliot Spitzer, New York AG

Labels: Eliot Spitzer

Labels: Eliot Spitzer