Top finance executives, such as chief financial officers (CFO) and chief accounting officers (CAO), represented 44 per cent of the total number of individuals which were charged by the US Securities and Exchange Commission (SEC) in 2008 with committing financial statement fraud, according to a recent survey.
This was the result of the third annual study of SEC Accounting and Auditing Enforcement Releases, conducted by the Deloitte Forensic Center. Apart from CFOs and CAOs, it also found that both corporate chief executive officers and other members of senior management, each represented 24 per cent of allegations, while directors and general counsel both represented four per cent of the executives cited.
Meanwhile, the survey also found that revenue recognition fraud, once the most prevalent form of financial statement fraud, has been in steady decline since the beginning of the decade. The category represented 30 per cent of all financial statement fraud in 2008, down slightly from 33 per cent in 2007.
The other top infractions were improper disclosure (18 per cent), and manipulation of expenses (16 per cent).
“If alleged revenue recognition frauds continue to decline, they could soon be at a level similar to that of other alleged financial statement fraud schemes rather than being several times more common, as has been the case during most of the decade. This may have implications for corporate fraud risk assessments and for regulatory policy,” said Howard Scheck, a partner for Deloitte Financial Advisory Services’ Forensic & Dispute Services Practice.
Across industries, financial statement fraud was most prevalent in technology, media and telecommunications companies (30 per cent in 2008), consumer business (29 per cent), financial services (18 per cent), and life sciences and health care (12 per cent). Mr Scheck noted that compared to 2007, fraud by technology and media companies had declined by six per cent, while those by financial services firms and in the consumer sector edged up. He said this could be due to increased regulatory focus on the latter industries.
“Organisations may wish to consider how financial statement risks may be changing and any impact such changes may have on the organisation’s fraud risk assessment and risk management activities,” he said.
Sunday 27 December 2009
Koss fires top executive for US$20 million personal shopping spree
Headphone maker Koss has fired a vice-president of finance who allegedly took US$20 million from company coffers to make purchases of expensive clothing, jewellery, and other items for personal use.
In a criminal complaint filed by the US Attorney’s Office in Wisconsin, Sujata “Sue” Sachdeva, who held the position since 1992, has admitted she used her position at the company to authorise company funds to pay her credit card bills. She then falsified Koss’s bank account records to hide the act, according to a report by news agency Reuters.
Between January 2008 and December 2009 alone, Ms Sachdeva allegedly accumulated a credit card bill of more than US$4.5 million. Bills often amounted to hundreds of thousands of dollars. They included nearly US$1.4 million at a high end fashion retailer in Wisconsin called Valentina Boutique, US$670,000 at women’s clothing store Au Courant in Milwaukee, US$649,000 at Zita Bridal Salon in Wisconsin, and US$255,000 at Karat 22 Jewellers in Texas.
Preliminary estimates have put the amount of unauthorised transactions since 2006 at more than US$20 million, according to the criminal complaint. The company, which posted first quarter sales of US$10.8 million, has said that as a result its financial statements since the end of its 2006 fiscal year will need to be restated. It has also placed two members of its accounting staff, who reported to Sachdeva, on unpaid administrative leave, the report said.
The unauthorised transactions was first spotted by American Express, with which Sachdeva paid her purchases with, when they noticed that her personal credit bills were being settled by large cash payments from Koss’s corporate bank accounts.
They notified Koss’s chief executive, Michal Koss, who began an internal investigation, and found boxes of women’s clothing in Sachdeva’s office, some with price tags still attached. They also found credit card statements in Sachdeva’s name.
Koss told the news agency that it is continuing its internal investigation of the matter, as well as efforts to recover the merchandise purchased using company funds. Sachdeva’s lawyer, Michael Hart, has declined to comment.
In a criminal complaint filed by the US Attorney’s Office in Wisconsin, Sujata “Sue” Sachdeva, who held the position since 1992, has admitted she used her position at the company to authorise company funds to pay her credit card bills. She then falsified Koss’s bank account records to hide the act, according to a report by news agency Reuters.
Between January 2008 and December 2009 alone, Ms Sachdeva allegedly accumulated a credit card bill of more than US$4.5 million. Bills often amounted to hundreds of thousands of dollars. They included nearly US$1.4 million at a high end fashion retailer in Wisconsin called Valentina Boutique, US$670,000 at women’s clothing store Au Courant in Milwaukee, US$649,000 at Zita Bridal Salon in Wisconsin, and US$255,000 at Karat 22 Jewellers in Texas.
Preliminary estimates have put the amount of unauthorised transactions since 2006 at more than US$20 million, according to the criminal complaint. The company, which posted first quarter sales of US$10.8 million, has said that as a result its financial statements since the end of its 2006 fiscal year will need to be restated. It has also placed two members of its accounting staff, who reported to Sachdeva, on unpaid administrative leave, the report said.
The unauthorised transactions was first spotted by American Express, with which Sachdeva paid her purchases with, when they noticed that her personal credit bills were being settled by large cash payments from Koss’s corporate bank accounts.
They notified Koss’s chief executive, Michal Koss, who began an internal investigation, and found boxes of women’s clothing in Sachdeva’s office, some with price tags still attached. They also found credit card statements in Sachdeva’s name.
Koss told the news agency that it is continuing its internal investigation of the matter, as well as efforts to recover the merchandise purchased using company funds. Sachdeva’s lawyer, Michael Hart, has declined to comment.
Monday 21 December 2009
FTC sues Intel for anti-competitive practices
The US Federal Trade Commission has sued microprocessor-making giant Intel for illegally using its dominant industry position to shut out competitors and to strengthen its monopoly.
The FTC complaint alleges that Intel threw its weight around using a system of threats and rewards – called exclusive or restrictive dealing – aimed towards some of the biggest computer makers in the world, in order to force them not to buy computer chips from its rivals. Additionally, the commission also charged that Intel also secretly wrote software that stunted the performance of computer chips made by competitors, and that it is plotting to employ similar tactics as it eyes the smaller but growing competition in the adjacent market for computer graphics chips.
The commission is not suing for money, but for Intel to change the way it conducts business. It is seeking an order to prevent it from using threats, bundled prices, to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its microprocessors or graphics chips. It also wants Intel to submit some business decisions for approval by the commission before carrying them out, and to set up some type of monitoring of its practices.
“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly. It’s been running roughshod over the principles of fair play and the laws protecting competition on … merits,” said Richard Feinstein, director of the FTC’s bureau of competition, in a statement.
Douglas Melamed, general counsel for Intel, told the New York Times that the FTC action was “misguided and unwarranted”, and amounted to “new rules for micromanaging business conduct.” He said the FTC’s recommendations would unfairly constrain the company’s pricing and marketing, hamper product design process and innovation, and force it to give away intellectual property.
According to the FTC, Intel’s actions violated section five of the FTC Act, which prohibits unfair methods of competition, and deceptive acts and practices in commerce.
This latest complaint comes just one month after Intel reached a US$1.25 billion settlement with rival AMD, over anti-trust and patent claims. In May, the European Commission fined Intel US$1.6 billion for abusing its dominant market position – a decision which the company is appealing. Intel was also found to be anti-competitive by South Korean regulators, who ordered the company to pay a fine of US$25.5 million, and by the Japan Fair Trade Commission, which ordered the company to eliminate discounts which were discriminatory to its competitors.
The case will go before an administrative law judge in September.
The FTC complaint alleges that Intel threw its weight around using a system of threats and rewards – called exclusive or restrictive dealing – aimed towards some of the biggest computer makers in the world, in order to force them not to buy computer chips from its rivals. Additionally, the commission also charged that Intel also secretly wrote software that stunted the performance of computer chips made by competitors, and that it is plotting to employ similar tactics as it eyes the smaller but growing competition in the adjacent market for computer graphics chips.
The commission is not suing for money, but for Intel to change the way it conducts business. It is seeking an order to prevent it from using threats, bundled prices, to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its microprocessors or graphics chips. It also wants Intel to submit some business decisions for approval by the commission before carrying them out, and to set up some type of monitoring of its practices.
“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly. It’s been running roughshod over the principles of fair play and the laws protecting competition on … merits,” said Richard Feinstein, director of the FTC’s bureau of competition, in a statement.
Douglas Melamed, general counsel for Intel, told the New York Times that the FTC action was “misguided and unwarranted”, and amounted to “new rules for micromanaging business conduct.” He said the FTC’s recommendations would unfairly constrain the company’s pricing and marketing, hamper product design process and innovation, and force it to give away intellectual property.
According to the FTC, Intel’s actions violated section five of the FTC Act, which prohibits unfair methods of competition, and deceptive acts and practices in commerce.
This latest complaint comes just one month after Intel reached a US$1.25 billion settlement with rival AMD, over anti-trust and patent claims. In May, the European Commission fined Intel US$1.6 billion for abusing its dominant market position – a decision which the company is appealing. Intel was also found to be anti-competitive by South Korean regulators, who ordered the company to pay a fine of US$25.5 million, and by the Japan Fair Trade Commission, which ordered the company to eliminate discounts which were discriminatory to its competitors.
The case will go before an administrative law judge in September.
SFO sets out policy on treating self-reported fraud
The head of UK’s graft buster has set out the conditions under which the country’s Serious Fraud Office will pursue self-reported incidents of fraud by companies as either a civil or criminal matter.
In an open letter to New York-based lawyer Marcus Asner, a partner at law firm Arnold & Porter, Richard Alderman, the UK agency’s director, said that when considering whether to treat self-reported fraud as a civil or criminal case, it would primarily look at a number of factors. This would include the seriousness of the wrongdoing, whether it was an isolated incident, and whether the company in question had been previously warned that its internal controls were inadequate.
He also said it would depend on whether the company reported the wrongdoing in a timely and reasonable manner, and whether it provided a report to the SFO which was detailed and complete.
Mr Alderman also touched upon other topics, such as how far should companies go in conducting internal investigation to avoid additional probing by the SFO, and the circumstances under which monitors will be appointed to make sure that a company does not commit the same offense again.
He said that the SFO expects companies to present a report which allows the agency to determine whether the wrongdoing was thoroughly investigated, and discussing remediation measures.
On the latter issue, he said that the SFO will not appoint a monitor in cases where a company’s board can prove that it is committed to enforcing a culture against corruption. With serious cases, he said that the SFO will expect companies to actively propose measures to monitor compliance. He also said the agency will work with its counterparts in other countries if the wrongdoing involved multiple jurisdictions.
On attorney-client privilege, he said the SFO acknowledged that the concept of waiver of attorney client privilege was different in the US, when compared to the UK. He will not expect US companies to provide documents consisting of legal advice it received on how it should conduct an internal investigation, the types of remedial options that are open to them, or how it should negotiate with the SFO. The agency will expect companies to provide a full factual report on the investigation, including notes taken during investigation interviews.
Finally, he said that the SFO would consider closing a case, without further action, where a company self-reported violations. There would have to be “special circumstances”, and the company would have to offer to pay remediation.
Alternatively, he said it could also happen if a company conducts its investigation into a suspected violation, and the report on the investigation that does not support the initial suspicions. However, Mr Alderman added that he expected such cases where cases are closed without further action to be rare.
In an open letter to New York-based lawyer Marcus Asner, a partner at law firm Arnold & Porter, Richard Alderman, the UK agency’s director, said that when considering whether to treat self-reported fraud as a civil or criminal case, it would primarily look at a number of factors. This would include the seriousness of the wrongdoing, whether it was an isolated incident, and whether the company in question had been previously warned that its internal controls were inadequate.
He also said it would depend on whether the company reported the wrongdoing in a timely and reasonable manner, and whether it provided a report to the SFO which was detailed and complete.
Mr Alderman also touched upon other topics, such as how far should companies go in conducting internal investigation to avoid additional probing by the SFO, and the circumstances under which monitors will be appointed to make sure that a company does not commit the same offense again.
He said that the SFO expects companies to present a report which allows the agency to determine whether the wrongdoing was thoroughly investigated, and discussing remediation measures.
On the latter issue, he said that the SFO will not appoint a monitor in cases where a company’s board can prove that it is committed to enforcing a culture against corruption. With serious cases, he said that the SFO will expect companies to actively propose measures to monitor compliance. He also said the agency will work with its counterparts in other countries if the wrongdoing involved multiple jurisdictions.
On attorney-client privilege, he said the SFO acknowledged that the concept of waiver of attorney client privilege was different in the US, when compared to the UK. He will not expect US companies to provide documents consisting of legal advice it received on how it should conduct an internal investigation, the types of remedial options that are open to them, or how it should negotiate with the SFO. The agency will expect companies to provide a full factual report on the investigation, including notes taken during investigation interviews.
Finally, he said that the SFO would consider closing a case, without further action, where a company self-reported violations. There would have to be “special circumstances”, and the company would have to offer to pay remediation.
Alternatively, he said it could also happen if a company conducts its investigation into a suspected violation, and the report on the investigation that does not support the initial suspicions. However, Mr Alderman added that he expected such cases where cases are closed without further action to be rare.
Tuesday 15 December 2009
Taiwanese LCD maker fined US$220 for rigging market
A Taiwanese producer of LCD displays has been fined US$220 million after pleading guilty to participating in a price-fixing racket. This brings to six the number of companies which has been implicated in the global LCD price-fixing ring that authorities in the US, Europe, and in Japan have been investigating.
Tainan-based Chi Mei Optoelectronics has pleaded guilty to one count of participating in a conspiracy to fix the prices of LCD display panels, which are used in consumer electronics products such as computer monitors, notebook PCs, mobiles phones, and televisions, between September 2001 and December 2006.
The five other companies which have previously pleaded guilty are LG Display, Sharp, Chunghwa Picture Tubes, Seiko Epson, and Hitachi. They have been fined an aggregate US$860 million, and nine executive have been charged in the-going investigation.
According to the US Department of Justice, the company manipulated the market by holding meetings and conversations with competitors, at which point they would agree to sell goods at certain pre-determined levels. To enforce and monitor the agreement, Chi Mei exchanged information on its sales of LCD panels with competitors, the agency said.
Its actions directly affected some of the largest computer and television manufacturers in the world, including Apple, Dell, and HP. By the end of the period in which Chi Mei engaged in the price-fixing racket, the global market for LCD panels was valued at US$70 billion.
As part of the plea agreement, Chi Mei has agreed to cooperate with the government’s on-going anti-trust investigation.
Price-fixing is in violation of the US Sherman Act, and each violation carries a maximum penalty of US$100 million. This could be increased to twice the gain derived from the crime, or double the loss suffered by its victims.
Commenting on its decision to plead guilty, Eddie Chen, Chi Mei’s head of finance, told Bloomberg: “We thought it was the best way to get things over.”
Tainan-based Chi Mei Optoelectronics has pleaded guilty to one count of participating in a conspiracy to fix the prices of LCD display panels, which are used in consumer electronics products such as computer monitors, notebook PCs, mobiles phones, and televisions, between September 2001 and December 2006.
The five other companies which have previously pleaded guilty are LG Display, Sharp, Chunghwa Picture Tubes, Seiko Epson, and Hitachi. They have been fined an aggregate US$860 million, and nine executive have been charged in the-going investigation.
According to the US Department of Justice, the company manipulated the market by holding meetings and conversations with competitors, at which point they would agree to sell goods at certain pre-determined levels. To enforce and monitor the agreement, Chi Mei exchanged information on its sales of LCD panels with competitors, the agency said.
Its actions directly affected some of the largest computer and television manufacturers in the world, including Apple, Dell, and HP. By the end of the period in which Chi Mei engaged in the price-fixing racket, the global market for LCD panels was valued at US$70 billion.
As part of the plea agreement, Chi Mei has agreed to cooperate with the government’s on-going anti-trust investigation.
Price-fixing is in violation of the US Sherman Act, and each violation carries a maximum penalty of US$100 million. This could be increased to twice the gain derived from the crime, or double the loss suffered by its victims.
Commenting on its decision to plead guilty, Eddie Chen, Chi Mei’s head of finance, told Bloomberg: “We thought it was the best way to get things over.”
US House passes sweeping financial reform bill
The US House of Representatives has passed a bill which is expected to help usher in the most sweeping changes to the way the country regulates its financial services sector since the economic programmes of the 1930s, which lifted the US out of the depression.
Defying stiff resistance from the US Republican party as well as banking sector lobbyists, the bill passed by a vote of 223 to 202. It will strengthen consumer protection, as well as reinforce government regulation in the financial services industry. Before it is made into law, it still needs to be approved by the US Senate, but some US senators expect it to be passed within the first six months of 2010.
Under the House version of the bill, which is slightly different than the one being debate in the US Senate, the US Federal Reserve would be stripped of its powers to write consumer protection laws. This responsibility would be taken over by a newly-created independent Consumer Financial Protection Agency which will go after abuses such as unscrupulous mortgage deals and excessive credit card rates.
Among its many provisions, it will also create a new body called the Financial Services Oversight Council to identify and regulate financial firms that are so large and interconnected that they are considered too big to fail. It will also give the US government the right to step in and dismantle failing non-bank financial firms that threaten the economy, powers that have been put in place to avoid another collapse such as that faced by Lehman Brothers or the American Insurance Group.
Meanwhile, the Government Accountability Office, an investigative arm of the US Congress, will be bestowed the authority to audit the US Federal Reserve. Banks will also have to pay the Federal Deposit Insurance Corporation US$150 billion to set up a fund in case of future failures in the US financial sector.
In his weekly radio and internet address, US President Barrack Obama said that although the roots of the most recent financial slump can be traced to the use of “easy credit” that encouraged people to borrow regardless of their financial position, he added that “much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”
“This legislation brings us another important step closer to necessary, comprehensive financial reform,” he added.
Defying stiff resistance from the US Republican party as well as banking sector lobbyists, the bill passed by a vote of 223 to 202. It will strengthen consumer protection, as well as reinforce government regulation in the financial services industry. Before it is made into law, it still needs to be approved by the US Senate, but some US senators expect it to be passed within the first six months of 2010.
Under the House version of the bill, which is slightly different than the one being debate in the US Senate, the US Federal Reserve would be stripped of its powers to write consumer protection laws. This responsibility would be taken over by a newly-created independent Consumer Financial Protection Agency which will go after abuses such as unscrupulous mortgage deals and excessive credit card rates.
Among its many provisions, it will also create a new body called the Financial Services Oversight Council to identify and regulate financial firms that are so large and interconnected that they are considered too big to fail. It will also give the US government the right to step in and dismantle failing non-bank financial firms that threaten the economy, powers that have been put in place to avoid another collapse such as that faced by Lehman Brothers or the American Insurance Group.
Meanwhile, the Government Accountability Office, an investigative arm of the US Congress, will be bestowed the authority to audit the US Federal Reserve. Banks will also have to pay the Federal Deposit Insurance Corporation US$150 billion to set up a fund in case of future failures in the US financial sector.
In his weekly radio and internet address, US President Barrack Obama said that although the roots of the most recent financial slump can be traced to the use of “easy credit” that encouraged people to borrow regardless of their financial position, he added that “much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”
“This legislation brings us another important step closer to necessary, comprehensive financial reform,” he added.
Sunday 6 December 2009
Former pharmaceutical exec charged with bribery
A UK-based former senior healthcare executive for US consumer giant Johnson & Johnson has been accused of bribing Greek officials to win business contracts.
According to UK’s The Times¸ it is believed to be the first time the country’s Serious Fraud Office (SFO) has charged a British national with paying a bribe to someone outside the country.
The accused Robert John Dougall, 44, is a former vice-president of DePuy International – a Johnson & Johnson subsidiary based in Leeds. He appeared at a City of Westminster Magistrates’ Court charged with one count of conspiracy to corrupt.
The SFO said between February 2002 and December 2005, Dougall made corrupt payments to medical professionals working in the Greek public healthcare system. The bribes were made to win a contract for the sale of orthopaedic products.
The case originated from an investigation of healthcare companies by the US Department of Justice. The SFO did not further elaborate on the case. Dougall was released on bail, and the case has been adjourned until February 3.
Johnson & Johnson disclosed two years ago that some of its foreign subsidiaries may have made improper payments over of the course of the sale of medical equipment.
According to UK’s The Times¸ it is believed to be the first time the country’s Serious Fraud Office (SFO) has charged a British national with paying a bribe to someone outside the country.
The accused Robert John Dougall, 44, is a former vice-president of DePuy International – a Johnson & Johnson subsidiary based in Leeds. He appeared at a City of Westminster Magistrates’ Court charged with one count of conspiracy to corrupt.
The SFO said between February 2002 and December 2005, Dougall made corrupt payments to medical professionals working in the Greek public healthcare system. The bribes were made to win a contract for the sale of orthopaedic products.
The case originated from an investigation of healthcare companies by the US Department of Justice. The SFO did not further elaborate on the case. Dougall was released on bail, and the case has been adjourned until February 3.
Johnson & Johnson disclosed two years ago that some of its foreign subsidiaries may have made improper payments over of the course of the sale of medical equipment.
DynCorp discloses violation, fires compliance chief
US defence contractor DynCorp has fired one of its top lawyers, after it was revealed earlier this week that the company had violated the US Foreign Corrupt Practices Act when it tried to speed up the issuance of visas and licenses related to its work for the US government overseas.
The company said it made a filing with the US Securities and Exchange Commission (SEC) on November 9 after it had discovered that as much as US$300,000 had been spent in a single questionable transaction. It also self-disclosed to the US Department of Justice. The SEC filing was not disclosed until earlier this month.
The money was paid to a subcontractor “in connection with servicing a single existing task order that the company has with a US government agency”, DynCorp said. The funds were used to expedite the issuance of a limited number of visas and licences from foreign government agencies, the company added.
Douglas Ebner, a spokesman for DynCorp, decline to further elaborate on the violation, but he told the Wall Street Journal that it makes clear to its employees that business must always be conducted legally and ethically.
“We found this internally, and voluntarily brought it to the Department of Justice and the SEC. We feel that it is very important to be proactive,” he added. The company said it has hired a consultant to investigate the matter further.
Both the SEC and the US Department of Justice declined to comment.
In a separate filing, the company also said that it had terminated the employment Curtis Schehr, a senior vice president, executive counsel, and the company’s chief compliance officer. DynCorp declined to comment on whether it was related to the FCPA violation.
The company said it made a filing with the US Securities and Exchange Commission (SEC) on November 9 after it had discovered that as much as US$300,000 had been spent in a single questionable transaction. It also self-disclosed to the US Department of Justice. The SEC filing was not disclosed until earlier this month.
The money was paid to a subcontractor “in connection with servicing a single existing task order that the company has with a US government agency”, DynCorp said. The funds were used to expedite the issuance of a limited number of visas and licences from foreign government agencies, the company added.
Douglas Ebner, a spokesman for DynCorp, decline to further elaborate on the violation, but he told the Wall Street Journal that it makes clear to its employees that business must always be conducted legally and ethically.
“We found this internally, and voluntarily brought it to the Department of Justice and the SEC. We feel that it is very important to be proactive,” he added. The company said it has hired a consultant to investigate the matter further.
Both the SEC and the US Department of Justice declined to comment.
In a separate filing, the company also said that it had terminated the employment Curtis Schehr, a senior vice president, executive counsel, and the company’s chief compliance officer. DynCorp declined to comment on whether it was related to the FCPA violation.
Sunday 29 November 2009
China executes two in poisoned milked scandal
Two men in China have been executed for their role in the tainted milk scandal last year that killed at least six infants, made another 300,000 sick, and caused widespread panic in the country.
According to a statement issued by Shijiazhuang Intermediate People’s Court, Zhang Yujun, a farmer, was executed for endangering public safety. He was named by prosecutors as one of the “principal criminals”, guilty of producing more than 750 tons of milk powder laced with the chemical melamine. He then sold 600 tons of it to distributors for 6.83 million yuan.
Geng Jinping, a milk salesman, was executed for producing and selling toxic food. He was convicted of adding 434kg of powder containing melamine to around 900 tons of milk.
Melamine is a protein-like substance which is high in nitrogen. It is used primarily to make plastics and fertilisers, and can cause kidney stones or kidney failure among children if ingested. In an attempt to boost profits, sometimes producers water down the milk they obtain from cows, and add melamine in order to fool inspectors who test for protein content.
The milk then made their way for the production of infant formula, causing many children to be sick after drinking it.
The two men were among the 21 people tried and sentenced in January for involvement in the scandal. One person was handed down a suspended death sentence, and the other 18, including senior executives from Sanlu – a state-own producer of infant formula – were given prison sentences of between two years to life.
The Chinese government has been keen to be seen as having responded swiftly and decisively to the scandal, partly because of allegations it tried to cover up the problems until last year’s Beijing Olympics ended in late August. The first allegations surfaced in mid-July. Parents of affected children have since been offered compensation ranging from 2,000 yuan to 200,000 yuan, in exchange for not pursuing civil lawsuits.
According to a statement issued by Shijiazhuang Intermediate People’s Court, Zhang Yujun, a farmer, was executed for endangering public safety. He was named by prosecutors as one of the “principal criminals”, guilty of producing more than 750 tons of milk powder laced with the chemical melamine. He then sold 600 tons of it to distributors for 6.83 million yuan.
Geng Jinping, a milk salesman, was executed for producing and selling toxic food. He was convicted of adding 434kg of powder containing melamine to around 900 tons of milk.
Melamine is a protein-like substance which is high in nitrogen. It is used primarily to make plastics and fertilisers, and can cause kidney stones or kidney failure among children if ingested. In an attempt to boost profits, sometimes producers water down the milk they obtain from cows, and add melamine in order to fool inspectors who test for protein content.
The milk then made their way for the production of infant formula, causing many children to be sick after drinking it.
The two men were among the 21 people tried and sentenced in January for involvement in the scandal. One person was handed down a suspended death sentence, and the other 18, including senior executives from Sanlu – a state-own producer of infant formula – were given prison sentences of between two years to life.
The Chinese government has been keen to be seen as having responded swiftly and decisively to the scandal, partly because of allegations it tried to cover up the problems until last year’s Beijing Olympics ended in late August. The first allegations surfaced in mid-July. Parents of affected children have since been offered compensation ranging from 2,000 yuan to 200,000 yuan, in exchange for not pursuing civil lawsuits.
US drops FCPA probe against Statoil
US authorities have dropped their foreign bribery case against Norwegian energy giant Statoil, after the satisfactory completion of a three-year deferred prosecution arrangement.
In 2006, the US Department of Justice charged the Norwegian gas and oil producer of violating the US Foreign Corrupt Practices Act (FCPA) by making a bribe of more than US$5 million, through an intermediary, to an Iranian official with the purpose of influencing the award of oil and gas contracts in the Middle East country.
The company was charged with making corrupt payments, as well as committing securities fraud by falsifying its books and mislabelling the illicit payments as “consulting fees”. As part of a settlement, Statoil acknowledged that the bribes were paid, was fined US$10.5 million, and had to submit to periodic reviews on the company’s compliance controls as they related to the FCPA for a period of three years.
Under the deferred prosecution deal, the criminal charges against it were to remain pending until it was dismissed or followed through by prosecution, depending on whether the company was able to demonstrate good conduct.
In a statement, Statoil said that it had fulfilled its obligations under this deferred prosecution agreement, and the criminal charges against the company have been dismissed. As such, the company’s controls, policies, and procedures related to compliance with FCPA will no longer be subject to review by external compliance consultants, it said.
“Three years of diligent efforts by Statoil to address past misconduct and serious compliance failures have led to the dismissal of foreign bribery charges against the company. Bribing foreign government officials and then attempting to disguise the payments cannot be standard operating procedure. Companies that have robust compliance programs risk far less than companies that take their chances on possible FCPA violations,” said US assistant attorney general Lanny Breuer.
US Attorney Prett Bharara said the case showed that deferred prosecution agreements worked, and they served as an important middle ground between declining to prosecute and getting a conviction. “The deferred prosecution in this case helped restore the integrity of Statoil’s operations and preserve its financial viability while at the same time ensuring that it improved what was obviously a failed compliance and anti-corruption program,” he said.
In 2006, the US Department of Justice charged the Norwegian gas and oil producer of violating the US Foreign Corrupt Practices Act (FCPA) by making a bribe of more than US$5 million, through an intermediary, to an Iranian official with the purpose of influencing the award of oil and gas contracts in the Middle East country.
The company was charged with making corrupt payments, as well as committing securities fraud by falsifying its books and mislabelling the illicit payments as “consulting fees”. As part of a settlement, Statoil acknowledged that the bribes were paid, was fined US$10.5 million, and had to submit to periodic reviews on the company’s compliance controls as they related to the FCPA for a period of three years.
Under the deferred prosecution deal, the criminal charges against it were to remain pending until it was dismissed or followed through by prosecution, depending on whether the company was able to demonstrate good conduct.
In a statement, Statoil said that it had fulfilled its obligations under this deferred prosecution agreement, and the criminal charges against the company have been dismissed. As such, the company’s controls, policies, and procedures related to compliance with FCPA will no longer be subject to review by external compliance consultants, it said.
“Three years of diligent efforts by Statoil to address past misconduct and serious compliance failures have led to the dismissal of foreign bribery charges against the company. Bribing foreign government officials and then attempting to disguise the payments cannot be standard operating procedure. Companies that have robust compliance programs risk far less than companies that take their chances on possible FCPA violations,” said US assistant attorney general Lanny Breuer.
US Attorney Prett Bharara said the case showed that deferred prosecution agreements worked, and they served as an important middle ground between declining to prosecute and getting a conviction. “The deferred prosecution in this case helped restore the integrity of Statoil’s operations and preserve its financial viability while at the same time ensuring that it improved what was obviously a failed compliance and anti-corruption program,” he said.
Tuesday 24 November 2009
The Red Flag Group Launches its Financial Services Practice
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New arm will help banks and financial services companies deal with new wave of banking sector regulation reform
HONG KONG, 24 November 2009 – The Red Flag Group, Asia’s leading Compliance Advisory, Due Diligence & Technology firm, today launches its financial services practice to help banks and other financial institutions deal with the changing and increasingly complex regulatory landscape that has formed in the wake of the global financial crisis.
Around the world, financial institutions are facing greater scrutiny and regulation. In the UK, the government has proposed giving more power to the Financial Services Authority to preserve stability in the banking sector. Across the Atlantic, banks are also facing a shake-up to the banking system, proposed by the Obama Administration, which has been described as the biggest since the 1930s.
The race to regulate the financial services sector has been mirrored in Asia. Earlier this year, Hong Kong has launched a consultative study into proposed legislation that will tighten the customer due-diligence and record-keeping requirements for banks and other financial services companies. It will also empower regulators to supervise compliance, and set up criminal and supervisory sanctions in case of breaches in compliance. Across the border in China, there has also been increasing focus on financial irregularities.
Scott Lane, principal and chief executive officer at The Red Flag Group, said that it has become more important for financial services companies to understand and stay up-to-date with these regulatory changes that affect how they operate. The alternative is they run the risk of falling afoul of new laws. “We are seeing reforms in financial services sector across the globe because regulators have been made aware that systematic risks in banks can hurt economic sectors that they used to think were unrelated. In the US and UK, what started as weaknesses in the sub-prime mortgage market, brought on by imprudent lending practices, spread its contagion to other credit markets, and led us to the economic conditions that we are seeing today.
“Banks and other financial services companies are becoming increasingly concerned about this increasing regulation. They need to understand how it will impact the way they do business, and what the changes they need to stay compliant. This is something that we think our new financial services practice will be able to help them address.
“Because of the changing regulatory environment, not only do firms in the financial services sector run the risk of being liable to massive fines as well as criminal prosecution, there is also the danger of damage to a firm’s reputation associated with a high profile investigation by a regulator. Regardless of whether a violation has actually taken place, sometimes the mere suggestion that a financial institution is being probed is all that is needed for its clients to lose confidence,” Mr. Lane said.
The Red Flag Group’s new financial services practice will include Michael Clement, a 17-year veteran of the financial services sector, with extensive experience in building compliance programs, internal audit, compliance, and risk management. Prior to his appointment, he was most recently an Associate Director with a global consulting firm in Hong Kong. Previously, he was Director of International Compliance for Charles Schwab, for whom he worked for over 15 years, based in San Francisco.
In addition, Perminder Kaur has been appointed as a Due Diligence Manager, Asia South in the Group. With a Bachelor of Law degree, Mrs. Kaur has extensive experience in the field of Anti-Money Laundering, particularly conducting Due Diligence enquiries in Asia South countries. Prior to joining the firm, Mrs. Kaur worked as a Compliance professional in a Hong Kong- based firm, which provides Trust and Company services. “Our Due Diligence practice continues to grow and extend into new markets, with a growing focus on India and South East Asia, so it essential that we have talent like Mrs Kaur’s background with a rich experience in regional due diligence and law to provide clients with local intelligence.
Sunday 22 November 2009
Hong Kong tightens property sales rules
Property developers in Hong Kong will have to comply with a new tighter set of rules governing the way uncompleted apartments are marketed and sold in the city.
The rules, which will take effect at the end of November, are aimed at improving transparency in the retail property market. As flat prices have soared in recent months, there were concerns that misleading sales tactics used by property developers contributed to the price surge.
In particular, in one instance, local property developer Henderson Land said in October that it had set a global record by selling an apartment for HK$88,000 per square foot. The unit in question was advertised as being located on the 68th floor, when the building was only 46 floors high. It is common practice for developers to skip floors which had numbers that were considered inauspicious in Chinese culture. In this case, Henderson omitted the floor numbers 13, 14, 24, 34, 40 to 59, 62, 64, 65, 67, 69, and 87.
While it is also common practice also for developers to include space set aside for common use in calculating how big an apartment being sold is, the revised regime will require developers to spell out the exact usable square footage of the uncompleted flats being sold. According to Bloomberg, typically as much as 20 to 30 per cent of new residential buildings are set aside for common use.
The new rules will also require developers to make floor numbering information in a more prominent manner in sales brochures, to ensure that buyers are not misled.
“The government is deeply concerned about some recent sales tactics in the first-hand uncompleted residential property market and confusing market information. The new measures will enhance the transparency of transactions of uncompleted first-hand properties and the clarity of property information,” a spokesperson for the Hong Kong government’s policy-setting Transport and Housing Bureau said.
The rules, which will take effect at the end of November, are aimed at improving transparency in the retail property market. As flat prices have soared in recent months, there were concerns that misleading sales tactics used by property developers contributed to the price surge.
In particular, in one instance, local property developer Henderson Land said in October that it had set a global record by selling an apartment for HK$88,000 per square foot. The unit in question was advertised as being located on the 68th floor, when the building was only 46 floors high. It is common practice for developers to skip floors which had numbers that were considered inauspicious in Chinese culture. In this case, Henderson omitted the floor numbers 13, 14, 24, 34, 40 to 59, 62, 64, 65, 67, 69, and 87.
While it is also common practice also for developers to include space set aside for common use in calculating how big an apartment being sold is, the revised regime will require developers to spell out the exact usable square footage of the uncompleted flats being sold. According to Bloomberg, typically as much as 20 to 30 per cent of new residential buildings are set aside for common use.
The new rules will also require developers to make floor numbering information in a more prominent manner in sales brochures, to ensure that buyers are not misled.
“The government is deeply concerned about some recent sales tactics in the first-hand uncompleted residential property market and confusing market information. The new measures will enhance the transparency of transactions of uncompleted first-hand properties and the clarity of property information,” a spokesperson for the Hong Kong government’s policy-setting Transport and Housing Bureau said.
Middle managements engaging in more fraud
A recent survey has found that not only are firms falling prey more often to fraud as a result of the recession, but the profile of the typical fraudster has evolved as well.
Surveying more than 3,000 businesses in 54 countries, the poll by accounting firm PricewaterhouseCoopers and business school INSEAD found one in three companies has suffered as victims of economic crime in the last 12 months.
It also found that of companies which reported fraud, 53 per cent said it came from inside the organisation, and 44 per cent said it was external. Internal fraud was highest in the aerospace, chemicals, manufacturing, and pharmaceuticals industries, while external fraud was common in insurance, technology, communications, and financial services sectors.
Particularly alarming was the increasing likelihood that middle management was complicit in fraud. It accounted for 42 per cent of all internal fraud reported by respondents, compared to 26 per cent in 2007, the last time the survey was carried out. On the other hand, the number of fraud reported to be committed by senior management has declined from 26 per cent in 2007, to 14 per cent.
For companies which reported fraud from external sources, 45 per cent said it was committed by customers, and 20 per cent said it was either agents or intermediaries.
The survey also found 43 per cent of respondents said the incidences of fraud had increased during the last 12 months, and 42 per cent said that the cost of fraud had gone up compared to a year ago.
The greatest risk came from asset misappropriation or theft, with 67 per cent of respondents who had suffered from economic crime citing fallen victim to it in the last 12 months. This was followed by financial statement fraud (38 per cent), and bribery and corruption (27 per cent).
On top of monetary loss, respondents also said fraud caused “collateral damage”, the top four of which were damage to employee morale (32 per cent), business relationships (23 per cent), reputation and brand (19 per cent), and relationships with regulators (16 per cent).
“In these tough times, the temptation to inflate results or take part in other forms of financial statement fraud may overcome ethical values. In an economic downturn, financial targets are more difficult to achieve, individuals may feel pressured, and their personal financial position may be threatened by reductions in pay or layoffs.
Countries that reported the highest incidents of fraud were Russia (71 per cent), South Africa (62 per cent), and Kenya (40 per cent). At low end of the scale were Turkey (15 per cent), Hong Kong (13 per cent), and Japan (10 per cent). The industries most affected by fraud were communications (46 per cent), hospitality and leisure (42 per cent), and financial services (44 per cent).
Surveying more than 3,000 businesses in 54 countries, the poll by accounting firm PricewaterhouseCoopers and business school INSEAD found one in three companies has suffered as victims of economic crime in the last 12 months.
It also found that of companies which reported fraud, 53 per cent said it came from inside the organisation, and 44 per cent said it was external. Internal fraud was highest in the aerospace, chemicals, manufacturing, and pharmaceuticals industries, while external fraud was common in insurance, technology, communications, and financial services sectors.
Particularly alarming was the increasing likelihood that middle management was complicit in fraud. It accounted for 42 per cent of all internal fraud reported by respondents, compared to 26 per cent in 2007, the last time the survey was carried out. On the other hand, the number of fraud reported to be committed by senior management has declined from 26 per cent in 2007, to 14 per cent.
For companies which reported fraud from external sources, 45 per cent said it was committed by customers, and 20 per cent said it was either agents or intermediaries.
The survey also found 43 per cent of respondents said the incidences of fraud had increased during the last 12 months, and 42 per cent said that the cost of fraud had gone up compared to a year ago.
The greatest risk came from asset misappropriation or theft, with 67 per cent of respondents who had suffered from economic crime citing fallen victim to it in the last 12 months. This was followed by financial statement fraud (38 per cent), and bribery and corruption (27 per cent).
On top of monetary loss, respondents also said fraud caused “collateral damage”, the top four of which were damage to employee morale (32 per cent), business relationships (23 per cent), reputation and brand (19 per cent), and relationships with regulators (16 per cent).
“In these tough times, the temptation to inflate results or take part in other forms of financial statement fraud may overcome ethical values. In an economic downturn, financial targets are more difficult to achieve, individuals may feel pressured, and their personal financial position may be threatened by reductions in pay or layoffs.
Countries that reported the highest incidents of fraud were Russia (71 per cent), South Africa (62 per cent), and Kenya (40 per cent). At low end of the scale were Turkey (15 per cent), Hong Kong (13 per cent), and Japan (10 per cent). The industries most affected by fraud were communications (46 per cent), hospitality and leisure (42 per cent), and financial services (44 per cent).
Sunday 15 November 2009
Four guilty in Hong Kong’s first stock manipulation case
Four people have been found guilty for inflating the liquidity in shares of a listed company in Hong Kong, in what the city’s stock market regulator has described as its first and largest ever market manipulation case.
The four, Chan Chin-yuen, Elaine Au Yeung Man-chun, Chan Chin-tat, and Chiu Siu-fung, conspired to create a false or misleading impression with respect to shares in Hong Kong Stock Exchange-listed Asia Standard Hotel Group, according to the city’s Securities and Futures Commission (SFC).
Between August and September 2005, three of the four traded in shares of the company between themselves, with the final member – Chan Chin-yuen – funding the trades conducted by his co-conspirators. This made the hotel investment and management company’s shares seem more liquidity, raised their price by 78 per cent, and boosted the company’s market capitalisation by HK$4 billion, the commission said.
The commission said the actions by the four during the period in question made up for more than half of all the trades – totalling HK$190 million – that were made in the shares of the company.
“Market manipulation is a serious crime of dishonesty designed to defraud the investing public for illegal profit. In this case, we allege the market was given an entirely false picture of the market for shares in this company, giving a falsified value to the tune of HK$4 billion. Criminals who think they can take advantage of innocent investors by falsifying the market are on notice by this result that the SFC will fight them all the way,” said Mark Steward, the commission’s executive director of enforcement.
Sentencing will carried out on November 26. The defendants could now face up to 10 years in jail and a HK$10 million fine. The four were released on bail of HK$200,000 each, the regulator said.
In addition, Chan Chin-tat, and Chui have also been charged with failing to answer questions, as required under an SFC investigation, without a reasonable excuse. They will be tried separately for these charges, and trial is set to begin on December 17.
The four, Chan Chin-yuen, Elaine Au Yeung Man-chun, Chan Chin-tat, and Chiu Siu-fung, conspired to create a false or misleading impression with respect to shares in Hong Kong Stock Exchange-listed Asia Standard Hotel Group, according to the city’s Securities and Futures Commission (SFC).
Between August and September 2005, three of the four traded in shares of the company between themselves, with the final member – Chan Chin-yuen – funding the trades conducted by his co-conspirators. This made the hotel investment and management company’s shares seem more liquidity, raised their price by 78 per cent, and boosted the company’s market capitalisation by HK$4 billion, the commission said.
The commission said the actions by the four during the period in question made up for more than half of all the trades – totalling HK$190 million – that were made in the shares of the company.
“Market manipulation is a serious crime of dishonesty designed to defraud the investing public for illegal profit. In this case, we allege the market was given an entirely false picture of the market for shares in this company, giving a falsified value to the tune of HK$4 billion. Criminals who think they can take advantage of innocent investors by falsifying the market are on notice by this result that the SFC will fight them all the way,” said Mark Steward, the commission’s executive director of enforcement.
Sentencing will carried out on November 26. The defendants could now face up to 10 years in jail and a HK$10 million fine. The four were released on bail of HK$200,000 each, the regulator said.
In addition, Chan Chin-tat, and Chui have also been charged with failing to answer questions, as required under an SFC investigation, without a reasonable excuse. They will be tried separately for these charges, and trial is set to begin on December 17.
Blackwater allegedly bribed Iraqi officials US$1m
US private security firm Blackwater Worldwide authorised bribes of up to US$1 million to Iraqi officials to silence criticism after an incident in 2007 in which the company’s guards shot and killed 17 Iraqi civilians in Bagdad, according to a report which appeared in the New York Times.
The allegations were based on interviews conducted by the newspaper with four former Blackwater executives. They allege that the payments, which are illegal under US anti-bribery laws, were approved by then-president Gary Jackson in December 2007. The money was sent from the company’s operations hub in Amman, Jordan to a manager in Iraq. However, they could not confirm whether the funds were then distributed to Iraqi officials. What is known is that officials in Iraq’s Interior Ministry were the intended recipients.
In September 2007, Blackwater guards, travelling in a convoy, opened fire on Iraqi civilians in a section of Bagdad known as Nisour Square. They sprayed automatic weapons fire and launched grenades into civilian buildings. A total 17 Iraqi civilians were killed and many more were wounded. Despite an international outcry over the incident, Blackwater was not immediately stripped of its operating licence in Iraq due to pressure from the US State Department. The company continued to operate in Iraq until earlier this year, when its licence renewal was rejected.
Speaking on condition of anonymity, the four former Blackwater executives said they had either took part in the talks on payments, or had been told by other company officials of the plans. They also described a culture of questionable conduct in the company, where officials were contemptuous of government regulations, and that some top company executives pushed the boundaries of legality to keep lucrative contracts to protect US diplomatic personnel in war-torn Iraq, as well as in Afghanistan.
A spokesperson for the security firm, which has been renamed Xe Services, said the allegations were baseless, and declined to comment on former employees. Mr Jackson, who resigned as the company’s president earlier this year, said: “I don’t care what you write.”
A US State Department official said they were not aware of any illicit payments made to Iraqi officials.
According to a report by the BBC news service, Iraqi officials have ordered an investigations in whether the payments had been made.
The allegations were based on interviews conducted by the newspaper with four former Blackwater executives. They allege that the payments, which are illegal under US anti-bribery laws, were approved by then-president Gary Jackson in December 2007. The money was sent from the company’s operations hub in Amman, Jordan to a manager in Iraq. However, they could not confirm whether the funds were then distributed to Iraqi officials. What is known is that officials in Iraq’s Interior Ministry were the intended recipients.
In September 2007, Blackwater guards, travelling in a convoy, opened fire on Iraqi civilians in a section of Bagdad known as Nisour Square. They sprayed automatic weapons fire and launched grenades into civilian buildings. A total 17 Iraqi civilians were killed and many more were wounded. Despite an international outcry over the incident, Blackwater was not immediately stripped of its operating licence in Iraq due to pressure from the US State Department. The company continued to operate in Iraq until earlier this year, when its licence renewal was rejected.
Speaking on condition of anonymity, the four former Blackwater executives said they had either took part in the talks on payments, or had been told by other company officials of the plans. They also described a culture of questionable conduct in the company, where officials were contemptuous of government regulations, and that some top company executives pushed the boundaries of legality to keep lucrative contracts to protect US diplomatic personnel in war-torn Iraq, as well as in Afghanistan.
A spokesperson for the security firm, which has been renamed Xe Services, said the allegations were baseless, and declined to comment on former employees. Mr Jackson, who resigned as the company’s president earlier this year, said: “I don’t care what you write.”
A US State Department official said they were not aware of any illicit payments made to Iraqi officials.
According to a report by the BBC news service, Iraqi officials have ordered an investigations in whether the payments had been made.
Sunday 8 November 2009
Hedge fund insider probe widens
A further 14 people have been charged in the widening of what is believed to be the biggest insider trading case involving hedge funds. The new indictments bring the total number of people officially charged in the insider trading case, first brought to light with the arrest of Raj Rajaratnam, to 20.
At the centre of a new insider trading ring is Zvi Goffer, 32, a former trader at the Galleon Group and Schottenfield Group - two hedge funds. According to prosecutors, Goffer was referred to by others in the insider trading ring as “Octopussy” a reference to the James Bond movie, because of the many sources of inside information he had access to. Also charged Arthur Cutillo, 33, an attorney at Ropes & Gray who supplied tips on deals that the law firm was advising on, and Jason Goldfarb, 31, a Brooklyn-based lawyer who acted as a go-between for Goffer and Cutillo.
The others arrested were Craig Drimal, 53, a Galleon employee; Zvi Goffer’s brother Emanuel Goffer, 31; Ali Hariri, a vice president at Atheros Communications, David Plate, 34, an employee at Incremental Capital; and Michael Kimelman, 38. Deep Shah, a former analyst at Moody’s investor service, was still at large, prosecutors said. They were charged with conspiracy and fraud, and were released on bonds of between US$100,000 to US$500,000.
Another five people, including Roomy Khan, a former Intel employee and who is a key witness in the Rajaratnam case, have already pleaded guilty.
According to a 24-page criminal complaint filed in a New York federal court, prosecutors say that the group used non-public information to trade in shares of Avaya, a privately held telecommunications communications company. They also traded in shares of network equipment provider 3Com, retail solution provider Alliance Data Systems, and drug maker Axcan Pharma. The new charges bring the total illicit profit gained by the group from trading on inside information to US$53 million, according to the Bloomberg report.
Prosecutors also said that those charged behaved like common criminals, and took a page from the way drug dealers operated. In one instance, they said that the conspirators used mobile phones to communicate sensitive information related to a bid by private equity firm Bain Capital to purchase 3Com. After the deal was announced, they said that both the phones and SIM cards inside were destroyed to destroy an records of their misconduct.
In announcing the new charges, Manhattan US attorney Preet Bharara said that the current probe was focused on hedge funds, and how they obtained their information. He added that more arrests may be coming.
The US Securities and Exchange Commission has also filed a civil complaint against those arrested.
At the centre of a new insider trading ring is Zvi Goffer, 32, a former trader at the Galleon Group and Schottenfield Group - two hedge funds. According to prosecutors, Goffer was referred to by others in the insider trading ring as “Octopussy” a reference to the James Bond movie, because of the many sources of inside information he had access to. Also charged Arthur Cutillo, 33, an attorney at Ropes & Gray who supplied tips on deals that the law firm was advising on, and Jason Goldfarb, 31, a Brooklyn-based lawyer who acted as a go-between for Goffer and Cutillo.
The others arrested were Craig Drimal, 53, a Galleon employee; Zvi Goffer’s brother Emanuel Goffer, 31; Ali Hariri, a vice president at Atheros Communications, David Plate, 34, an employee at Incremental Capital; and Michael Kimelman, 38. Deep Shah, a former analyst at Moody’s investor service, was still at large, prosecutors said. They were charged with conspiracy and fraud, and were released on bonds of between US$100,000 to US$500,000.
Another five people, including Roomy Khan, a former Intel employee and who is a key witness in the Rajaratnam case, have already pleaded guilty.
According to a 24-page criminal complaint filed in a New York federal court, prosecutors say that the group used non-public information to trade in shares of Avaya, a privately held telecommunications communications company. They also traded in shares of network equipment provider 3Com, retail solution provider Alliance Data Systems, and drug maker Axcan Pharma. The new charges bring the total illicit profit gained by the group from trading on inside information to US$53 million, according to the Bloomberg report.
Prosecutors also said that those charged behaved like common criminals, and took a page from the way drug dealers operated. In one instance, they said that the conspirators used mobile phones to communicate sensitive information related to a bid by private equity firm Bain Capital to purchase 3Com. After the deal was announced, they said that both the phones and SIM cards inside were destroyed to destroy an records of their misconduct.
In announcing the new charges, Manhattan US attorney Preet Bharara said that the current probe was focused on hedge funds, and how they obtained their information. He added that more arrests may be coming.
The US Securities and Exchange Commission has also filed a civil complaint against those arrested.
UBS fined for letting employees gamble with client cash
Global financial services group UBS has been fined US$13.2 million by the UK’s top financial watchdog, because the bank failed to put in place safeguards to prevent its employees from using client funds to made unauthorised trades.
Bloomberg has reported that the Financial Services Authority has fined UBS after the Swiss-based lender failed to prevent four employees in its wealth management department in London from using client money to make as many as 50 bets a day on currency and commodity markets. The trades, which were made without the authorisation of the clients to whom the funds belonged to, occurred between January 2006 to December 2007, the report said.
In fining UBS, the FSA has said it applied a 20 per cent discount on the original penalty of US$16.5 million because the bank had settled the investigation early.
The watchdog said that the bank’s bonus policies contributed to the violations because it created a conflict of interest between an employee’s personal interests, and its compliance obligations. According to the UK financial watchdog, investigators found that the four employees, one of which headed a desk in bank’s wealth management teams, would make the trades without informing clients during this period.
If there were any profits or loss from the trade, this would then be evenly allocated to the accounts from which the money came from. If there were shortfalls in some accounts, other customers would be persuaded to lend so that it can be concealed, the FSA said.
“These employees were able to take advantage of UBS’s inadequate systems and controls, giving them free rein to make unauthorised trades with customer money that they were then able to conceal,” said the FSA’s enforcement director Margaret Cole.
The FSA has not said whether it would bring penalties against the individuals who made the trades, but added that the employees concerned no longer worked at the bank.
“UBS deeply regrets this incident and having fully cooperated with the FSA’s investigation, we are now pleased that this matter has been settled so that we can move forward,” a spokesperson for UBS said.
Bloomberg has reported that the Financial Services Authority has fined UBS after the Swiss-based lender failed to prevent four employees in its wealth management department in London from using client money to make as many as 50 bets a day on currency and commodity markets. The trades, which were made without the authorisation of the clients to whom the funds belonged to, occurred between January 2006 to December 2007, the report said.
In fining UBS, the FSA has said it applied a 20 per cent discount on the original penalty of US$16.5 million because the bank had settled the investigation early.
The watchdog said that the bank’s bonus policies contributed to the violations because it created a conflict of interest between an employee’s personal interests, and its compliance obligations. According to the UK financial watchdog, investigators found that the four employees, one of which headed a desk in bank’s wealth management teams, would make the trades without informing clients during this period.
If there were any profits or loss from the trade, this would then be evenly allocated to the accounts from which the money came from. If there were shortfalls in some accounts, other customers would be persuaded to lend so that it can be concealed, the FSA said.
“These employees were able to take advantage of UBS’s inadequate systems and controls, giving them free rein to make unauthorised trades with customer money that they were then able to conceal,” said the FSA’s enforcement director Margaret Cole.
The FSA has not said whether it would bring penalties against the individuals who made the trades, but added that the employees concerned no longer worked at the bank.
“UBS deeply regrets this incident and having fully cooperated with the FSA’s investigation, we are now pleased that this matter has been settled so that we can move forward,” a spokesperson for UBS said.
Sunday 1 November 2009
Big three Japanese electronics makers probed
The US Department of Justice (DoJ) has subpoenaed Japanese technology giants Sony, Hitachi, and Toshiba in an investigation into potential anti-trust violations in the optical disk drive business.
Officials from the three firms said they had received the subpoenas seeking information about each of their company’s optical disk drive business in the US, according to the reports which appeared in the Wall Street Journal.
The DoJ has yet to make public the details of the subpoenas sent to the three companies, but the report quoted a source close to the department as saying that it concerned a criminal anti-trust probe in the market for optical disk drives. The department was investigating whether price-fixing, bid-rigging, and allocation of markets had occurred.
Sony has said that it believes that the DoJ is conducting an investigation on competition in the optical disk drive market, which include products such as DVD and Blu-ray drives used by consumers to view home movies. Sony has declined to comment on the precise nature or the scope of the DoJ’s inquiry.
Neither Hitachi nor Toshiba has disclosed the contents of the subpoena. All three companies have said their US business units will cooperate fully with the inquiry. The DoJ has declined to comment.
Officials from the three firms said they had received the subpoenas seeking information about each of their company’s optical disk drive business in the US, according to the reports which appeared in the Wall Street Journal.
The DoJ has yet to make public the details of the subpoenas sent to the three companies, but the report quoted a source close to the department as saying that it concerned a criminal anti-trust probe in the market for optical disk drives. The department was investigating whether price-fixing, bid-rigging, and allocation of markets had occurred.
Sony has said that it believes that the DoJ is conducting an investigation on competition in the optical disk drive market, which include products such as DVD and Blu-ray drives used by consumers to view home movies. Sony has declined to comment on the precise nature or the scope of the DoJ’s inquiry.
Neither Hitachi nor Toshiba has disclosed the contents of the subpoena. All three companies have said their US business units will cooperate fully with the inquiry. The DoJ has declined to comment.
China cracks down on invoice fraud
Police in China have arrested more than 5,000 people in a crackdown against invoice fraud, the official news agency Xinhua reported.
In a national campaign that lasted for 10 months, police shut down 1,045 sites which were producing fake business invoices. They also arrested 5,134 people and seized more than 80 million fake invoices, according to Wu Heping, a spokesman for China’s Ministry of Public Security. An additional 540 people were also arrested and charged with tax evasion and fraud by submitting fake invoices to tax authorities, Mr Wu said.
In China, it is common for people and companies to purchase such fake invoices off vendors. They are then passed off as real expenses when submitting tax return to authorities, thereby lowering tax liabilities. Mr Wu also said that use of fake invoices was also linked to other illegal activities, such as smuggling, money laundering, and other forms of corruption.
Mr Wu said the problem was especially prevalent in Guangdong Province, where more than 35 per cent of the fake invoices were seized.
He also said that fake invoices were most commonly used in the catering and retail industries, accounting for 51 per cent of the number of fake invoices confiscated in the crackdown. However, he added that it was also a problem in the construction and transportation sectors, because the sums involved led to bigger tax losses.
More than 18 per cent of the invoices were sold to local government and government sponsored bodies, Mr Wu added.
In a national campaign that lasted for 10 months, police shut down 1,045 sites which were producing fake business invoices. They also arrested 5,134 people and seized more than 80 million fake invoices, according to Wu Heping, a spokesman for China’s Ministry of Public Security. An additional 540 people were also arrested and charged with tax evasion and fraud by submitting fake invoices to tax authorities, Mr Wu said.
In China, it is common for people and companies to purchase such fake invoices off vendors. They are then passed off as real expenses when submitting tax return to authorities, thereby lowering tax liabilities. Mr Wu also said that use of fake invoices was also linked to other illegal activities, such as smuggling, money laundering, and other forms of corruption.
Mr Wu said the problem was especially prevalent in Guangdong Province, where more than 35 per cent of the fake invoices were seized.
He also said that fake invoices were most commonly used in the catering and retail industries, accounting for 51 per cent of the number of fake invoices confiscated in the crackdown. However, he added that it was also a problem in the construction and transportation sectors, because the sums involved led to bigger tax losses.
More than 18 per cent of the invoices were sold to local government and government sponsored bodies, Mr Wu added.
Wednesday 28 October 2009
Ex-Ford engineer stole secrets to job-hunt
An engineer who formerly worked at the US-based Ford Motor company has been accused of stealing secrets from his former employer by downloading it into a USB drive, and then using it to look for a new job in China.
Xiang Dong Yu, also known as Mike Yu, was arrested on October 14 in Chicago’s O’Hare Airport on his return from a trip to China, according to a report published by the Associated Press. The 47 year-old Yu is charged with theft, attempted theft of trade secrets, and unauthorized access to a computer.
Around December 2006, he allegedly copied design details on doors, mirrors, steering wheel assemblies, power systems, wipers, among other components, of cars manufactured by Ford. The information totalled 4,000 documents. Less than a month later, he quit Ford to work for a company in Shenzhen. He used the information again in the spring of 2008, when he was hunting for another job in China.
He sought employment with China’s Shanghai Automotive Industry Corporation using these secrets. Eventually, he was hired by Beijing Automotive Corporation, according to a Bloomberg report.
A spokeswoman from the FBI said the case began with a referral from Ford. Ford said it is aware of the case, and is cooperating with authorities, but declined to comment further.
“Employees and employers should be aware that stealing proprietary trade secrets to gain an economic advantage is a serious federal offense that will be prosecuted aggressively,” said US Attorney Terrence Berg.
The maximum penalty for Yu’s offenses is 45 years in jail and US$1.25 million in fines.
Xiang Dong Yu, also known as Mike Yu, was arrested on October 14 in Chicago’s O’Hare Airport on his return from a trip to China, according to a report published by the Associated Press. The 47 year-old Yu is charged with theft, attempted theft of trade secrets, and unauthorized access to a computer.
Around December 2006, he allegedly copied design details on doors, mirrors, steering wheel assemblies, power systems, wipers, among other components, of cars manufactured by Ford. The information totalled 4,000 documents. Less than a month later, he quit Ford to work for a company in Shenzhen. He used the information again in the spring of 2008, when he was hunting for another job in China.
He sought employment with China’s Shanghai Automotive Industry Corporation using these secrets. Eventually, he was hired by Beijing Automotive Corporation, according to a Bloomberg report.
A spokeswoman from the FBI said the case began with a referral from Ford. Ford said it is aware of the case, and is cooperating with authorities, but declined to comment further.
“Employees and employers should be aware that stealing proprietary trade secrets to gain an economic advantage is a serious federal offense that will be prosecuted aggressively,” said US Attorney Terrence Berg.
The maximum penalty for Yu’s offenses is 45 years in jail and US$1.25 million in fines.
Monday 26 October 2009
Banks and financial firms most exposed to fraud
The financial services industry has been hit the hardest by fraud in the wake of the global financial crisis, according to recently released report.
The Global Fraud Report, released by consulting firm Kroll, surveyed 10 industries around the world. It found that while losses to fraud by companies across industries in the last three rose by only seven per cent, to an average of US$8.8 million per company.
However, the report also found that sectors which are closer to source of the financial contagion which spread around the world were more prone to fraud. The financial services industry was hit the hardest, losing a average of US$15.2 million in the three years to 2009 per company, an increase of 18 per cent compared to the 2008 figure.
The number of financial services companies that say they have suffered at least one form of fraud rose to 87 per cent, from 79 per cent last year. Half of respondents from the finance sector said that the global financial crisis has caused an increase in the number of cases of fraud at their organisations.
Other industries which saw an increase in fraud include professional services, health care, pharmaceuticals and biotechnology, retail, wholesale and distribution, and travel, leisure and transportation. The other five sectors actually saw a decrease in fraud. They were manufacturing, technology, media and telecommunications, natural resources, and consumer goods and construction.
The report said that, combined together, the decreases in fraud in some sectors cancelled out the rise in other sectors. Overall, fraud remained relatively steady, its authors concluded.
Kroll said that the financial services sector faced the broadest exposure to fraud in the wake of the economic downturn, dealing with issues such as money laundering, financial mismanagement, regulatory and compliance, internal financial fraud and informational loss or theft.
“Traditionally, every downturn brings about a rise in fraud, but what we are seeing in 2009 is something far more complex. Companies are seeing greater vulnerability due to reduction in internal controls, pay cuts, and reduced revenue across the board, but counteracting this increased risk are the realities of today’s constrained business environment, where factors such as high staff turnover, entry into new markets, and inter-firm collaboration are far less common than in years past. In short, the current economic crisis has increased the motive for fraud, but decreased the opportunity,” said Blake Coppotelli, senior managing director at Kroll’s business intelligence and investigations unit.
“Of course, this shift in business behaviour is only as lasting as the economic crisis itself, which is why companies must work to bolster their existing anti-fraud strategies in preparation for the economic changes to come,” he added.
The survey was conducted by the Economist Intelligence Unit, of 729 executives.
The Global Fraud Report, released by consulting firm Kroll, surveyed 10 industries around the world. It found that while losses to fraud by companies across industries in the last three rose by only seven per cent, to an average of US$8.8 million per company.
However, the report also found that sectors which are closer to source of the financial contagion which spread around the world were more prone to fraud. The financial services industry was hit the hardest, losing a average of US$15.2 million in the three years to 2009 per company, an increase of 18 per cent compared to the 2008 figure.
The number of financial services companies that say they have suffered at least one form of fraud rose to 87 per cent, from 79 per cent last year. Half of respondents from the finance sector said that the global financial crisis has caused an increase in the number of cases of fraud at their organisations.
Other industries which saw an increase in fraud include professional services, health care, pharmaceuticals and biotechnology, retail, wholesale and distribution, and travel, leisure and transportation. The other five sectors actually saw a decrease in fraud. They were manufacturing, technology, media and telecommunications, natural resources, and consumer goods and construction.
The report said that, combined together, the decreases in fraud in some sectors cancelled out the rise in other sectors. Overall, fraud remained relatively steady, its authors concluded.
Kroll said that the financial services sector faced the broadest exposure to fraud in the wake of the economic downturn, dealing with issues such as money laundering, financial mismanagement, regulatory and compliance, internal financial fraud and informational loss or theft.
“Traditionally, every downturn brings about a rise in fraud, but what we are seeing in 2009 is something far more complex. Companies are seeing greater vulnerability due to reduction in internal controls, pay cuts, and reduced revenue across the board, but counteracting this increased risk are the realities of today’s constrained business environment, where factors such as high staff turnover, entry into new markets, and inter-firm collaboration are far less common than in years past. In short, the current economic crisis has increased the motive for fraud, but decreased the opportunity,” said Blake Coppotelli, senior managing director at Kroll’s business intelligence and investigations unit.
“Of course, this shift in business behaviour is only as lasting as the economic crisis itself, which is why companies must work to bolster their existing anti-fraud strategies in preparation for the economic changes to come,” he added.
The survey was conducted by the Economist Intelligence Unit, of 729 executives.
Singapore to tighten hedge fund regulation
A set of new rules is expected to be proposed by the Singaporean central bank that would tighten the regulation of the island-state’s hedge fund industry, and make it more difficult for smaller funds to be set up.
The Reuters report said that the Monetary Authority of Singapore (MAS) is believed to be in the process of drafting guidelines that will be announced in a public consultation in November. The guidelines are expected to require new hedge fund start-ups to detail clearly the qualifications and experience of its managers, and the infrastructure it has in place to ensure it has adequate levels of corporate governance.
However, it will not remove tax incentives fund managers currently enjoy in Singapore, according to the report’s unnamed sources.
Currently, smaller funds with less than 30 accredited investors are not required to hold a capital markets services license. This frees managers from fulfilling a number of requirements including the filing of a number of reports to regulators, and passing exams, the report said.
“MAS Is monitoring market developments and global initiatives, and will fine-tune our regulatory approach as appropriate,” a MAS spokeswoman told the news agency.
The report also quote unnamed fund managers as expressing concerned that exempt funds may be required to purchase indemnity insurance, raising costs.
David Gray, UBS’s head of Asia Pacific prime services told the news agency that there have been around 20 relatively large hedge funds set up in Singapore in 2009. He noted that new hedge funds tend to be bigger in light of the financial crisis because of the increased demands on meeting compliance, due diligence, and risk management needs.
The Reuters report said that the Monetary Authority of Singapore (MAS) is believed to be in the process of drafting guidelines that will be announced in a public consultation in November. The guidelines are expected to require new hedge fund start-ups to detail clearly the qualifications and experience of its managers, and the infrastructure it has in place to ensure it has adequate levels of corporate governance.
However, it will not remove tax incentives fund managers currently enjoy in Singapore, according to the report’s unnamed sources.
Currently, smaller funds with less than 30 accredited investors are not required to hold a capital markets services license. This frees managers from fulfilling a number of requirements including the filing of a number of reports to regulators, and passing exams, the report said.
“MAS Is monitoring market developments and global initiatives, and will fine-tune our regulatory approach as appropriate,” a MAS spokeswoman told the news agency.
The report also quote unnamed fund managers as expressing concerned that exempt funds may be required to purchase indemnity insurance, raising costs.
David Gray, UBS’s head of Asia Pacific prime services told the news agency that there have been around 20 relatively large hedge funds set up in Singapore in 2009. He noted that new hedge funds tend to be bigger in light of the financial crisis because of the increased demands on meeting compliance, due diligence, and risk management needs.
Sunday 18 October 2009
Massive global insider trading ring unearthed
Six people, among them a well-known hedge fund kingpin and executives from blue chip companies the likes of IBM and McKinsey, have been arrested in what has been described as the biggest insider-trading scandal in a generation.
Both the US Attorney in Manhattan and the Securities and Exchange Commission have accused the group of running, between 2006 and 2008, an insider-trading ring that paid informants for privileged commercial information. The group then used this information to realise gains in the investment markets to the tune of US$20 million, according to the report which appeared in the Wall Street Journal.
At the centre of the scandal is Sri-Lankan-based New York hedge fund manager Raj Rajaratnam. Rajaratnam, known as a prolific investor of technology stocks, is a founder of the Gallon Group, which manages US$3.7 billion in assets. He was arrested at 6am on the morning of October 17, after the FBI raided his New York apartment.
He has been charged with committing securities fraud, conspiracy to commit securities fraud, as well as a civil charge of insider trading. The other executives arrested were Robert Moffat , 53, an executive who ran the supply chain department at IBM, Rajiv Goel , 51, a treasury department executive at Intel, Anil Kumar, 51, a director at consulting firm McKinsey, as well as Mark Kurland, 60, and Danielle Chiesi, 43, who both worked at a hedge fund group called New Castle Partners.
The complaints, which were compiled through the use of phone wiretaps, alleged that the group swapped information that could affect stock prices, but which has not yet been made public.
The report said the court filings, which contained excerpts of taped conversations, showed that Rajaratnam and his co-conspirators treated informants as if they were outsourced analysts, at times discussing earnings projections and deals.
Among the deals that the group were privy to was the bid by the Blackstone Group to take the Hilton chain of hotels private. Using this information, The Galleon Group bought and sold 400,000 Hilton shares, and earned an illicit profit of US$4 million. An analyst at Moody’s Investors Service received US$10,000 for the tip, the report said.
Cooperating witnesses who provided information to the group said Rajaratnam and his cohorts were similarly alerted to sensitive commercial information at wireless broadband service provider Clearwire, Google, and Sun Microsystems. The network of informants also allegedly extended to companies including internet platform provider Akamai Technologies, chipmaker Advanced Micro Devices, investor relations firm Market Street Partners, telecommunications equipment manufacturer Polycom, and software maker Peoplesoft.
Both the US Attorney in Manhattan and the Securities and Exchange Commission have accused the group of running, between 2006 and 2008, an insider-trading ring that paid informants for privileged commercial information. The group then used this information to realise gains in the investment markets to the tune of US$20 million, according to the report which appeared in the Wall Street Journal.
At the centre of the scandal is Sri-Lankan-based New York hedge fund manager Raj Rajaratnam. Rajaratnam, known as a prolific investor of technology stocks, is a founder of the Gallon Group, which manages US$3.7 billion in assets. He was arrested at 6am on the morning of October 17, after the FBI raided his New York apartment.
He has been charged with committing securities fraud, conspiracy to commit securities fraud, as well as a civil charge of insider trading. The other executives arrested were Robert Moffat , 53, an executive who ran the supply chain department at IBM, Rajiv Goel , 51, a treasury department executive at Intel, Anil Kumar, 51, a director at consulting firm McKinsey, as well as Mark Kurland, 60, and Danielle Chiesi, 43, who both worked at a hedge fund group called New Castle Partners.
The complaints, which were compiled through the use of phone wiretaps, alleged that the group swapped information that could affect stock prices, but which has not yet been made public.
The report said the court filings, which contained excerpts of taped conversations, showed that Rajaratnam and his co-conspirators treated informants as if they were outsourced analysts, at times discussing earnings projections and deals.
Among the deals that the group were privy to was the bid by the Blackstone Group to take the Hilton chain of hotels private. Using this information, The Galleon Group bought and sold 400,000 Hilton shares, and earned an illicit profit of US$4 million. An analyst at Moody’s Investors Service received US$10,000 for the tip, the report said.
Cooperating witnesses who provided information to the group said Rajaratnam and his cohorts were similarly alerted to sensitive commercial information at wireless broadband service provider Clearwire, Google, and Sun Microsystems. The network of informants also allegedly extended to companies including internet platform provider Akamai Technologies, chipmaker Advanced Micro Devices, investor relations firm Market Street Partners, telecommunications equipment manufacturer Polycom, and software maker Peoplesoft.
Sunday 11 October 2009
BAE snubs £300 million settlement offer
Under investigation for allegedly bribing foreign officials to secure lucrative defence contracts in Africa and Eastern Europe, BAE Systems has reportedly turned down an offer to settle the case for £300 million.
However, the report appearing in The Times newspaper also said that the UK defence contractor would be willing to settle the six-year investigation by the UK’s Serious Fraud Office (SFO) into its corporate conduct, but only if it is presented with compelling evidence to support the bribery claims.
The company, which is alleged to have bribed officials in Africa and Eastern Europe to win arms sales contracts, is also unwilling to settle the case if it came at too great a cost, the report said.
The BAE board is refusing to pay the rumoured £300 million settlement sought by the SFO to end the case, the report said. BAE directors were advised that it may leave themselves exposed to lawsuits alleging misuse of shareholder funds if they agreed to the amount, the report added.
The newspaper report also noted that there has been suggestion inside BAE that a payment of £20 million would be more suitable. The company was also willing to admit to a measure of guilt that its agents and middlemen had acted improperly. The report said that BAE was keen to avoid the trial over fears it would damage its reputation.
Separately, The US Department of Justice (DoJ) is believed to have also turned its attention to whether the same BAE deals in Africa and Eastern Europe breached American anti-corruption rules. The report in The Independent said that there has already been an informal exchange of information between the SFO and the DoJ, and that this is expected to become formalised soon.
However, the report appearing in The Times newspaper also said that the UK defence contractor would be willing to settle the six-year investigation by the UK’s Serious Fraud Office (SFO) into its corporate conduct, but only if it is presented with compelling evidence to support the bribery claims.
The company, which is alleged to have bribed officials in Africa and Eastern Europe to win arms sales contracts, is also unwilling to settle the case if it came at too great a cost, the report said.
The BAE board is refusing to pay the rumoured £300 million settlement sought by the SFO to end the case, the report said. BAE directors were advised that it may leave themselves exposed to lawsuits alleging misuse of shareholder funds if they agreed to the amount, the report added.
The newspaper report also noted that there has been suggestion inside BAE that a payment of £20 million would be more suitable. The company was also willing to admit to a measure of guilt that its agents and middlemen had acted improperly. The report said that BAE was keen to avoid the trial over fears it would damage its reputation.
Separately, The US Department of Justice (DoJ) is believed to have also turned its attention to whether the same BAE deals in Africa and Eastern Europe breached American anti-corruption rules. The report in The Independent said that there has already been an informal exchange of information between the SFO and the DoJ, and that this is expected to become formalised soon.
IBM probed over anti-trust claims
The US Department of Justice is probing allegations that IBM has abused as its dominant position in mainframe computers, illegally keeping new competitors out of the market by refusing to license the use of its software.
IBM both manufactures expensive mainframe computers, used by government agencies and multinational organisations to handle vast volumes of information, and also writes the software that they run on.
The accusations are that while IBM used to license its software to competitors building mainframe computers using non-IBM hardware, the company stopped the practice a few years ago to choke off competition, according to the report by the Associated Press.
The reported cited the Computer and Communications Industry Association, a US trade body. The association said that the government was requesting information from IBM’s competitors over the anti-trust allegations.
The probe originated from complaints filed by two companies. They are Boston-based IT solutions developer Platinum Services, and Tampa-based T3 Technologies. In particular, T3, which used to resell IBM mainframe computers, has accused IBM of frustrating the smaller company’s ambitions to expand into the hardware manufacturing business. They allege that IBM denied the company licenses to use IBM software “for no reason other than to remove all competition from the mainframe market.”
Currently, IBM enjoys a virtual monopoly in the mainframe computer market, but some companies try to build computers that are less expense than those offered by the computing giant, but which also run the same IBM software.
“IBM will tell big customers that if you buy that other stuff, we’re not going to let that stuff talk to our stuff. We think of the Internet as open and innovative, but that’s a lock’em up strategy. That’s very unsatisfactory for the customer base,” said Ed Black, CEO of the Computer and Communications Industry Association.
The DoJ did not comment. IBM said it will cooperate with any inquiries from the department. The company also said it believes there were no merits to T3’s claims, and that IBM was entitled to enforce its intellectual property rights.
In 1956, IBM was forced to operate under anti-trust agreement with the government over allegations it was abusing its monopoly power in the electronic tabulating machines market. The agreement also covered computers, but was gradually phased out over the years, and all its provisions were dropped in 2001.
IBM both manufactures expensive mainframe computers, used by government agencies and multinational organisations to handle vast volumes of information, and also writes the software that they run on.
The accusations are that while IBM used to license its software to competitors building mainframe computers using non-IBM hardware, the company stopped the practice a few years ago to choke off competition, according to the report by the Associated Press.
The reported cited the Computer and Communications Industry Association, a US trade body. The association said that the government was requesting information from IBM’s competitors over the anti-trust allegations.
The probe originated from complaints filed by two companies. They are Boston-based IT solutions developer Platinum Services, and Tampa-based T3 Technologies. In particular, T3, which used to resell IBM mainframe computers, has accused IBM of frustrating the smaller company’s ambitions to expand into the hardware manufacturing business. They allege that IBM denied the company licenses to use IBM software “for no reason other than to remove all competition from the mainframe market.”
Currently, IBM enjoys a virtual monopoly in the mainframe computer market, but some companies try to build computers that are less expense than those offered by the computing giant, but which also run the same IBM software.
“IBM will tell big customers that if you buy that other stuff, we’re not going to let that stuff talk to our stuff. We think of the Internet as open and innovative, but that’s a lock’em up strategy. That’s very unsatisfactory for the customer base,” said Ed Black, CEO of the Computer and Communications Industry Association.
The DoJ did not comment. IBM said it will cooperate with any inquiries from the department. The company also said it believes there were no merits to T3’s claims, and that IBM was entitled to enforce its intellectual property rights.
In 1956, IBM was forced to operate under anti-trust agreement with the government over allegations it was abusing its monopoly power in the electronic tabulating machines market. The agreement also covered computers, but was gradually phased out over the years, and all its provisions were dropped in 2001.
Sunday 4 October 2009
Corruption not confined to poor countries
Almost two out of five business in a recent global survey said they had been asked to pay bribes to governments in the normal course of doing business.
The latest Global Corruption Report, issued by the non-profit organisation Transparency International, also found that half of the international business executives polled believe that corruption added at least 10 per cent to project building costs. Around 20 per cent said they had lost business to competitors paying bribes.
Transparency International said that that bribery and price-fixing were influencing global public policy and costing countries billions in lost revenue. It also undermined fair competition, and stifled economic growth. It estimated that bribes paid to politicians and officials were in the area of US$20 billion to US$40 billion annually.
It estimated that consumers around the world were over-charged by around US$300 billion in the 15 years between 1990 and 2005, because of the existence of nearly 300 private business cartels around the world.
The report also ranked country by how corrupt they were perceived to be. Denmark, New Zealand, and Sweden were the most corruption-free. Hong Kong ranked 13th, the UK 17th, and the US 20th. China was ranked 72nd. The lowest ranked countries were Iraq, Myanmar, and Somalia. There were a total of 180 countries ranked.
Corruption was not confined to poor countries, and blatant bribery was only part of the problem, it said. In many places, nepotism, favouritism, and informal understandings between businesses led to inefficiencies, and waste of resources.
There were also “revolving doors” between the private and public sectors which fostered “deceitful public procurement deals where non-competitive bidding and opaque processes lead to immense waste and unreliable services or goods”.
The report noted that the world’s biggest companies all have codes of ethics, but few monitor how they are implemented.
The group’s global programmes director, Christiaan Poortman, said tackling corruption was especially important in light of the current financial crisis. He noted that financial and economic stability hinged on an efficient and transparent market.
He noted that corruption acted as a catalyst for the downturn, since ratings agencies “turned a blind eye to high levels of risk” - in a clear conflict of interest, he said. The report called on companies to issue regular reports on efforts they were making to fight corruption, and to reveal financial support donated to politicians, lobbyists, and governments.
The latest Global Corruption Report, issued by the non-profit organisation Transparency International, also found that half of the international business executives polled believe that corruption added at least 10 per cent to project building costs. Around 20 per cent said they had lost business to competitors paying bribes.
Transparency International said that that bribery and price-fixing were influencing global public policy and costing countries billions in lost revenue. It also undermined fair competition, and stifled economic growth. It estimated that bribes paid to politicians and officials were in the area of US$20 billion to US$40 billion annually.
It estimated that consumers around the world were over-charged by around US$300 billion in the 15 years between 1990 and 2005, because of the existence of nearly 300 private business cartels around the world.
The report also ranked country by how corrupt they were perceived to be. Denmark, New Zealand, and Sweden were the most corruption-free. Hong Kong ranked 13th, the UK 17th, and the US 20th. China was ranked 72nd. The lowest ranked countries were Iraq, Myanmar, and Somalia. There were a total of 180 countries ranked.
Corruption was not confined to poor countries, and blatant bribery was only part of the problem, it said. In many places, nepotism, favouritism, and informal understandings between businesses led to inefficiencies, and waste of resources.
There were also “revolving doors” between the private and public sectors which fostered “deceitful public procurement deals where non-competitive bidding and opaque processes lead to immense waste and unreliable services or goods”.
The report noted that the world’s biggest companies all have codes of ethics, but few monitor how they are implemented.
The group’s global programmes director, Christiaan Poortman, said tackling corruption was especially important in light of the current financial crisis. He noted that financial and economic stability hinged on an efficient and transparent market.
He noted that corruption acted as a catalyst for the downturn, since ratings agencies “turned a blind eye to high levels of risk” - in a clear conflict of interest, he said. The report called on companies to issue regular reports on efforts they were making to fight corruption, and to reveal financial support donated to politicians, lobbyists, and governments.
UK fraud buster to prosecute BAE
Britain’s Serious Fraud Office (SFO) said it will seek permission from the country’s attorney general to prosecute the national defence contractor BAE, over bribery charges.
According to the report which appeared in the UK’s The Times, the country’s fraud-buster said it is preparing to submit papers to the Baroness Scotland to seek consent to prosecute BAE for “offences relating to overseas corruption”.
This comes after a controversial decision in 2006 by then-Prime Minister Tony Blair not to prosecute the company for alleged bribery in order to secure a contract to supply 100 fighter jets, worth £43 billion, to Saudi Arabia. The case was dropped on national security grounds.
The report noted that the agency has been investigating the case for the last six years, and will submit the paperwork when it “believes it is ready to proceed”. No further details on the timing of such a prosecution, which has to be approved by the attorney general, were provided by the office.
What was revealed was that investigators had probed alleged bribes paid by BAE to win contracts in the Czech Republic, Romania, South Africa, and Tanzania.
BAE has responded by describing the charges levied against it by the SFO as “historical”, and that it was making “considerable effort” to resolve them. The company also repeated its assertion that it had always acted “responsibly” in its business dealings.
“If the director of the SFO obtains the consent that he seeks from the Attorney General and proceedings are commenced, the company will deal with any issues raised in those proceedings at the appropriate time and, if necessary, in court,” the company said.
The Times report also noted that the agency is believed to be willing to settle the case if BAE were to accept a fine of £500 million.
According to the report which appeared in the UK’s The Times, the country’s fraud-buster said it is preparing to submit papers to the Baroness Scotland to seek consent to prosecute BAE for “offences relating to overseas corruption”.
This comes after a controversial decision in 2006 by then-Prime Minister Tony Blair not to prosecute the company for alleged bribery in order to secure a contract to supply 100 fighter jets, worth £43 billion, to Saudi Arabia. The case was dropped on national security grounds.
The report noted that the agency has been investigating the case for the last six years, and will submit the paperwork when it “believes it is ready to proceed”. No further details on the timing of such a prosecution, which has to be approved by the attorney general, were provided by the office.
What was revealed was that investigators had probed alleged bribes paid by BAE to win contracts in the Czech Republic, Romania, South Africa, and Tanzania.
BAE has responded by describing the charges levied against it by the SFO as “historical”, and that it was making “considerable effort” to resolve them. The company also repeated its assertion that it had always acted “responsibly” in its business dealings.
“If the director of the SFO obtains the consent that he seeks from the Attorney General and proceedings are commenced, the company will deal with any issues raised in those proceedings at the appropriate time and, if necessary, in court,” the company said.
The Times report also noted that the agency is believed to be willing to settle the case if BAE were to accept a fine of £500 million.
Thursday 1 October 2009
One-third of companies have no FCPA controls
More than a third of respondents to a survey said their companies had no compliance programme to detect or prevent violations of the US Foreign Corrupt Practices Act.
The online survey by Deloitte Financial Advisory Services of 1,090 executives found that 34 per cent of respondents said their companies had no comprehensive compliance plan dealing with the FCPA. This is despite the fact that 72 per cent of respondents said they expect the US government, through the Securities and Exchange Commission and the Department of Justice, to up its enforcement of the act, which bars Americans from bribing foreign officials.
When asked where they expected FCPA violations to most likely occur, 35 per cent responded that they imagine it would be from a US company’s foreign subsidiary, 28 per cent said from an agent or consultant, and 18 per cent said joint ventures or strategic partnerships.
Just under a quarter (23 per cent) of respondents attributed the lack of attention to the fact that many companies are unaware of the harsh penalties meted out for breach of compliance.
Ed Rial, Deloitte Financial Advisory Services principal, noted that FCPA enforcement is increasing significantly, even in industries not traditionally targeted such as insurance and financial services. “When it comes to FCPA, corporate ignorance is not bliss,” he said.
“Regardless of the industry or country where a US company or issuer is conducting business, an organisation should have a well-documented and communicated FCPA compliance programme in place, with monitored controls to prevent and detect potential violations,” he added.
The survey, which polled professionals from a cross-section of industries, also found that 59 per cent expected the increased enforcement activity to deter some FCPA violations in the next two years.
The online survey by Deloitte Financial Advisory Services of 1,090 executives found that 34 per cent of respondents said their companies had no comprehensive compliance plan dealing with the FCPA. This is despite the fact that 72 per cent of respondents said they expect the US government, through the Securities and Exchange Commission and the Department of Justice, to up its enforcement of the act, which bars Americans from bribing foreign officials.
When asked where they expected FCPA violations to most likely occur, 35 per cent responded that they imagine it would be from a US company’s foreign subsidiary, 28 per cent said from an agent or consultant, and 18 per cent said joint ventures or strategic partnerships.
Just under a quarter (23 per cent) of respondents attributed the lack of attention to the fact that many companies are unaware of the harsh penalties meted out for breach of compliance.
Ed Rial, Deloitte Financial Advisory Services principal, noted that FCPA enforcement is increasing significantly, even in industries not traditionally targeted such as insurance and financial services. “When it comes to FCPA, corporate ignorance is not bliss,” he said.
“Regardless of the industry or country where a US company or issuer is conducting business, an organisation should have a well-documented and communicated FCPA compliance programme in place, with monitored controls to prevent and detect potential violations,” he added.
The survey, which polled professionals from a cross-section of industries, also found that 59 per cent expected the increased enforcement activity to deter some FCPA violations in the next two years.
Party officials ordered to reveal family assets
Chinese officials will soon be required to disclose assets and investments held by their family members, in addition to their own, under new rules announced at the end of the Chinese Communist Party’s most important plenary of the year.
Xinhua News Agency reported that high-ranking members of the Chinese government will be ordered to disclose all housing and business dealings, and the jobs held by their spouses and children. This was announced by the government’s Central Commission for Discipline Inspection at the end of the Fourth Plenary Session held in Beijing.
The commission renewed its commitment to punish people who sell or buy an official post, and those who try to rig election results. It will also renew efforts to investigate abuses of power, corruption and bribery, complaints about dereliction of duty, and official misconduct.
The move is aimed to “beef up self-discipline and strengthen the management of officials whose spouses and children have emigrated abroad,” the report said.
Among the measures the commission has taken in stamping out graft include the monitoring, since July 2004, of job and college applications made by party officials and their relatives, the report said. Between July 2003 and last December, more than 880,000 officials were punished for misconduct, the commission revealed.
There was also a call for disciplinary inspection and supervisory bodies in the government to improve oversight, and communist party cadres were reminded they must present an image that is respectable and approachable, the report said.
At the end of the Chinese government’s fourth plenum, officials also acknowledged that were problems within the party that “seriously damage [its] flesh and blood bond with the people and seriously affect the solidity of [its] ruling status,” according to the report.
The party’s Central Committee also pledged that it would “resolutely fight corruption” during the four-day plenum.
Xinhua News Agency reported that high-ranking members of the Chinese government will be ordered to disclose all housing and business dealings, and the jobs held by their spouses and children. This was announced by the government’s Central Commission for Discipline Inspection at the end of the Fourth Plenary Session held in Beijing.
The commission renewed its commitment to punish people who sell or buy an official post, and those who try to rig election results. It will also renew efforts to investigate abuses of power, corruption and bribery, complaints about dereliction of duty, and official misconduct.
The move is aimed to “beef up self-discipline and strengthen the management of officials whose spouses and children have emigrated abroad,” the report said.
Among the measures the commission has taken in stamping out graft include the monitoring, since July 2004, of job and college applications made by party officials and their relatives, the report said. Between July 2003 and last December, more than 880,000 officials were punished for misconduct, the commission revealed.
There was also a call for disciplinary inspection and supervisory bodies in the government to improve oversight, and communist party cadres were reminded they must present an image that is respectable and approachable, the report said.
At the end of the Chinese government’s fourth plenum, officials also acknowledged that were problems within the party that “seriously damage [its] flesh and blood bond with the people and seriously affect the solidity of [its] ruling status,” according to the report.
The party’s Central Committee also pledged that it would “resolutely fight corruption” during the four-day plenum.
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