SEC and Other Investigations of Illegal Trading

Top 11. Jul 19, 2002 9:52 AM

» KLR - Re: Re: Johnson & Johnson Confirms FDA Probe

In response to message posted by Jen_:

I didn't realize things were this bad for JNJ....Merrill has downgraded it to a "BUY"...

Following the news, analyst Daniel Lemaitre at Merrill Lynch cut his intermediate-term rating on J&J's stock to "buy" from "strong buy."

-- posted by KLR

Top 12. Jul 19, 2002 9:57 AM

» zbidnizmin - Re: Re: Fraud Task-Force

I guess we can expect the same from Bush/Cheney.

In response to message posted by Smedly:

-- posted by zbidnizmin

Top 13. Jul 22, 2002 11:17 AM

» Kirk - NASD going after Grubman

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This should help....

7:07AM Citigroup deal helped Enron disguise debts, NASD going after Grubman (C) 36.00: The Wall Street Journal reports that C arranged an unusual financing technique for Enron that enabled the energy trader to appear rich in cash rather than burdened with debt; in a series of deals known as Yosemite, C's complex scheme helped Enron borrow money over the past 3 years that was booked as coming from trades instead of loans. Separately, the NASD is preparing to take regulatory action against Salomon Smith Barney analyst Jack Grubman, which marks the first major crackdown by federal securities regulators investigating how big securities firms obtained investment-banking business with overly optimistic stock picks.

-- posted by Kirk

Top 14. Jul 24, 2002 6:58 AM

» Kirk - Adelphia execs arrested for securities fraud

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This is a good strart!

Former Adelphia execs arrested for securities fraud

Adelphia Keyword Search Results: http://cbs.marketwatch.com/news/newsfind...

7/24/2002 9:36:48 AM

NEW YORK, July 24 (Reuters) - Five former executives of troubled cable operator Adelphia Communications Corp. (ADELQ) were arrested on federal charges, including at least two members of the company's founding family, sources familiar with the matter said on Wednesday.

Former Chief Executive John Rigas and his son, former Chief Financial Officer Timothy Rigas were arrested by U.S. postal inspectors for conspiracy to commit securities fraud are expected to be arraigned in U.S. District Court in Manhattan later Wednesday, CNBC reported.

Both executives resigned from Adelphia, which filed for Chapter 11 bankruptcy protection last month, following the disclosure of billions of dollars of off-balance-sheet loans guaranteed by the company to the Rigas family, allegations that Adelphia overstated its earnings, and other concerns about the company's accounting practices.

The company has been the target of investigations by federal grand juries in Pennsylvania and New York and a probe by the U.S. Securities And Exchange Commission.

>

-- posted by Kirk

Top 15. Jul 24, 2002 1:11 PM

» Kirk - Citigroup responds to NY Times Article

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July 23, 2002 Response to New York Times Article: "Citigroup is Linked to a Deal That Let Enron Skirt Rules"

Below is background information to help our employees understand recent press coverage about Enron and Citigroup.

* The transactions we entered into with Enron were entirely appropriate at the time based on what we knew and what we were told by Enron. We were assured that Enron’s auditors had approved them and we believed they were consistent with accounting rules in place at the time.

* If, as alleged, Enron was engaging in the deceptive conduct being reported, or was inflating the value of its assets on its balance sheet, or if Arthur Andersen was expressing, privately and to the Enron Audit Committee, serious reservations about Enron’s financial statements, it would have entirely altered our dealings with the company.

* With respect to transactions being “disguised loans,” every day, companies use structured finance tools to access the value of their operations to fund their future growth.

* Far from being secret, it was common knowledge that Enron was using these structured finance tools. Rating agencies wrote reports about them and Enron won awards for them.

* And, they were carried on Enron’s balance sheet as liabilities, which are obligations of the company every bit as much as loans.

* Today’s New York Times alleges that Citigroup’s investment bankers intentionally “misrepresented the full nature of a 1999 transaction with Enron” … “so that Enron could ignore accounting requirements and hide its true financial condition.” The article says there was a “secret oral agreement” that ”required that the accounting for the transaction be changed.”

* The New York Times story is wrong. There was no “secret deal” and there was nothing false in the accounting of this transaction. The Times improperly suggested that the Reilly emails demonstrate complicity in Enron’s misrepresentations. They do nothing of the kind.

* The New York Times misses the crucial distinction between an actual binding agreement between parties, and informal discussions, expectations or intentions that do not alter the binding agreement.

* In his email, Reilly used loose language, saying “agreement” to reflect what was only an expectation. In fact, Enron and Citibank never altered the binding agreement between them.

* A good way to understand this distinction is by analogy. For example, if you take out a 7-year variable-rate mortgage from a bank and from day one, are thinking and speaking to the bank about refinancing into a long-term fixed rate mortgage some time in the future, that doesn’t change the provisions of the mortgage.

* Similarly, it is absolutely commonplace for derivatives with multi-year terms to be settled early and for the parties to understand -- in an informal but non-binding way –that the contract they are entering into is intended to be settled early.

* Reilly’s emails noted that the “paperwork” cannot reflect this understanding, because if it did, it would have constituted a new binding agreement between the parties. But there was no such new agreement.

* Indeed, although Reilly referred to September 1999, that date came and went without Enron making any payment. Citibank neither did nor could have taken any action against Enron because there was no binding agreement. A later email from one of Reilly’s colleagues, dated September 29, 1999, confirms this point, noting that the contract still ran for several years, and that they now expected it to settle in December 1999. Enron did not pay off the balance until December 1999.

* Obviously, an important debate is now underway among regulators, Congress, companies and commentators. We believe the changes in accounting rules, together with new certification and disclosure rules proposed by the SEC, and legislation on accounting oversight and regulation such as that now pending before Congress, will go a long way toward restoring faith in the integrity of financial statements. Business and the investing public must be able to bank on certified financial statements.

-- posted by Kirk

Top 16. Jul 24, 2002 8:34 PM

» Kirk - AOL - SEC Accounting Probe on AOHell

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Wednesday July 24, 8:06 pm Eastern Time
Reuters Business Report

AOL Time Warner Discloses SEC Probe
By Reshma Kapadia

NEW YORK (Reuters) - AOL Time Warner Inc., the world's largest media company, on Wednesday posted its first quarterly net profit since completing its mega-merger, and said the U.S. Securities & Exchange Commission has opened an inquiry into accounting practices of its online division.

Chief Executive Richard Parsons said the SEC has opened a fact-finding inquiry into America Online's accounting practices, but the company said its auditors backed the accounting in question.

The Washington Post last week reported that the America Online unit had boosted revenues through unconventional deals from 2000 to 2002.

Parsons defended the company's accounting during a conference call on Wednesday following the release of results. He said AOL was informed by the SEC of the inquiry after the articles were published.

The SEC declined to comment on the inquiry.

Analysts said the SEC inquiry was likely to dominate Wall Street sentiment on AOL Time Warner even though the company's quarterly results topped analysts' expectations, as strength in its film and cable divisions offset weakness at its online unit.

"Is it going to be a material change to its accounting? I doubt it. But it's going to be a cloud over their shares for a while," said SoundView Technology analyst Jordan Rohan.

AOL Time Warner executives said they would cooperate with the SEC inquiry and said they were comfortable with the accounting practices and policies in place.

"We are comfortable with the accounting practices and policies in place at our company. Our accounting is appropriate for the businesses in which we operate," Chief Financial Officer Wayne Pace told the conference call.

"In the current environment, I wouldn't expect the SEC to look the other way when anyone makes any allegations -- if they have merit or not," Paul Cappuccio, the company's general counsel, told Reuters. "We are not only fine with (the inquiry) but we think it's what they should be doing. We have been pro-active with the SEC."

Shares of AOL Time Warner fell in after-hours trade to $10.55, on the Instinet system, after having closed down 1.3 percent at $11.40 in New York Stock Exchange trade.

AOL Time Warner's shares, which have fallen 65 percent since the beginning of the year, have also been hit by accounting-related jitters in the wake of scandals at Adelphia Communications Corp. and WorldCom Group.

RESULTS BEAT ESTIMATES, BUT AOL STILL WEAK

AOL Time Warner posted a second-quarter net profit of $394 million, or 9 cents a share, compared to a net loss of $734 million, or 17 cents a share, a year-earlier.

Year-ago results included a $1.7 billion charge related to goodwill and amortization.

The net profit was the company's first since the completion of Internet pioneer AOL's $106.2 billion takeover of Time Warner in January 2001.

The deal's premise has been questioned after the company's failure to deliver on many of its growth promises and the recent management shake-up that gave control to traditional media veterans from Time Warner.

Revenue rose 10 percent to $10.6 billion in the quarter.

AOL Time Warner said that excluding a range of costs such as noncash amortization expenses, earnings were unchanged at 24 cents a share compared with a year-earlier.

Wall Street analysts, on average, had expected the company, which is home to HBO, People magazine, "The West Wing," and artists like Madonna, to post earnings before a range of items of 22 cents a share and revenue of $10.02 billion, according to Thomson First Call.

Strength at the company's cable systems and its Warner Bros. film unit, driven by the home video release of "Harry Potter and the Sorcerer's Stone" and film hits like "Insomnia," helped offset some of the weakness from AOL.

"The Time Warner numbers are great so the question was, Is the second-quarter going to be the bottom or is the third quarter going to be the bottom." said John Tinker, analyst at Blaylock & Partners. "The problems at AOL are not yet yesterday's stories but are becoming so."

Other analysts, however, were still concerned about AOL.

The AOL service added 492,000 net new subscribers in the quarter, compared to analysts' expectations for up to 1 million net new subscribers.

"Subscriber growth issues at AOL have worsened dramatically," Rohan said. "There's a lot of good to talk about, but the pace of the deterioration of the online subscriber growth is concerning."

Executives attributed some of the slowdown to seasonality and little to no growth abroad and noted that average revenue per user rose to $18.18 from $17.26 a year-ago.

AOL's ad revenue fell 42 percent in the quarter as the unit's EBITDA and revenue fell.

AOL's ad and commerce revenue for the third quarter will be comparable to the second quarter.

The company said it sees its 2002 revenue growth at the upper end of its prior range of 5 percent to 8 percent and cash flow growth near the lower end of its 5 percent to 9 percent range.

-- posted by Kirk

Top 17. Jul 25, 2002 10:42 AM

» Kirk - Feds Plan WorldCom Charges

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Source: Feds Plan WorldCom Charges
http://www.siliconinvestor.com/stocktalk...

By DEVLIN BARRETT 07/25/2002 11:51:31 EST

NEW YORK (AP) - Federal prosecutors plan to charge former officers of WorldCom Inc. sometime next week for their suspected roles in the massive financial wrongdoing at the bankrupt telecommunications giant, a law enforcement official said Thursday.

"Indications are that charges will be filed sometime next week," a source close to the investigation, speaking on condition of anonymity, told The Associated Press.

The official would not identify which individuals, or how many, were likely to be charged. But the Wall Street Journal reported Thursday that former chief financial officer Scott Sullivan and former controller David Myers are expected to be indicted on a variety of charges related to billions of dollars in accounting frauds at the company.

The government also is likely to seek the indictment of former chief executive Bernard Ebbers, the Journal reported, citing unidentified sources familiar with the matter.

Federal prosecutors set a deadline of next Wednesday to file indictments against Sullivan and Myers, who were dismissed from the company last month, the sources told the newspaper. They said prosecutors are seeking Myers's and Sullivan's cooperation to produce evidence against Ebbers, who resigned two months before the company admitted it inflated earnings by nearly $4 billion.

WorldCom also could be indicted as a corporation under a plan being considered by the Justice Department, the newspaper reported. A conviction of the long-distance phone company could drive it out of business and hurt consumers and creditors.

WorldCom spokeswoman Julie Moore told The Associated Press on Thursday the company had no indication that indictments were forthcoming.

"That is flatly inconsistent with what federal prosecutors have communicated to the company," Moore said.

The Justice Department and the FBI declined comment Thursday. Ebbers's attorney, Reid Weingarten, did not immediately return a message left Thursday by The Associated Press. Calls to Myers' home were answered by a recording. His attorney could not immediately be located by the AP for comment. Sullivan's attorney, Andrew J. Graham, did not immediately return a request for comment.

The Securities and Exchange Commission, citing "accounting improprieties of unprecedented magnitude," filed civil fraud charges last month against WorldCom.

The Clinton, Miss.-based company admitted June 25 it falsely accounted for $3.8 billion in expenses. The inflated revenues allowed the company to report profits when it otherwise would have losses. That day, it fired Sullivan, who was subsequently accused by the company's auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.

WorldCom on Sunday filed for bankruptcy under Chapter 11, the largest such filing in U.S. history. The judge overseeing the case approved the appointment Monday of an independent examiner to ensure an honest accounting of the company's value and investigate for mismanagement, irregularities and fraud.

U.S. Bankruptcy Judge Arthur Gonzalez approved $2 billion in financing to keep WorldCom operating as it reorganizes its finances. He also granted the Justice Department's request for an independent examiner to ensure an honest accounting of the company's value and investigate for mismanagement, irregularities and fraud.

-- posted by Kirk

Congressional Panel Studying ImClone Asks for Merrill's Records

Top 18. Jul 25, 2002 3:21 PM

» JenL_2 - Re: IMCL & Merrill Lynch

More on the IMCL Insider Trading Probe from 7/23 Dow Jones Business News.....

This whole IMCL thing is sounding sleazier & sleazier!

Dow Jones Business News

WASHINGTON -- A congressional committee has expanded its investigation into suspicious trading of ImClone Systems (NasdaqNM: IMCL) Inc. stock, asking Merrill Lynch & Co . for information on trades made by one of its New Jersey offices, Wednesday's Wall Street Journal reported.

The House Energy and Commerce Committee wrote Merrill Tuesday requesting detailed information on the Merrill office in Roseland, N.J. The committee said that Merrill brokers or their assistants at that office "facilitated sales of ImClone stock by ImClone executives in December 2001 ," the same month the company received an unfavorable letter from the Food and Drug Administration that proved a huge setback to the company's cancer drug under development.

ImClone stock plummeted after the FDA turned away the marketing application for the drug, Erbitux. In the months that followed, the company came under harsh criticism and federal investigations for the way it handled the drug application. The company's former chief executive was arrested last month on insider-trading charges. He has denied wrongdoing.

In the letter to Merrill, Commerce Committee Chairman W.J. "Billy" Tauzin (R., La.) and other committee leaders pointed out that there were "multiple contacts between ImClone and the Roseland office during the weeks prior to the issuance of the FDA" letter.

Congressional investigators studying ImClone trades were concentrating initially on stock sales, such as that of homemaking entrepreneur Martha Stewart. But once they began looking closely "we discovered some highly unusual stock-purchase activity" at the Merrill New Jersey office on Dec. 27 , the day before the negative action, said committee spokesman Ken Johnson.

Mr. Johnson said the daughter of former CEO Sam Waksal sold ImClone stock through a Merrill broker at 9:49 a.m. Dec. 27 . Moments later, telephone records show that a call was made from ImClone headquarters to the Merrill office in Roseland.

Soon after, a Merrill broker began making a series of rapid-fire purchases. In less than one hour, the broker put in a series of purchase orders for more than 30,000 shares of stock. The purchase requests were made in blocks from 100 shares to 9,700 shares, Mr. Johnson said.

"Why was he buying stock? What was his motivation?" Mr. Johnson said. "There is a basic market tenet if you have to sell you need a buyer. So the question is: Was someone trying to create a market for ImClone stock? We want to know what motivated him to buy ImClone stock when all the tea leaves said to sell."

A person close to the investigation identified the broker as Tim Foster, and also said Mr. Foster had a close relationship with the Waksal family and others at ImClone; Mr. Foster couldn't be reached to comment.

A spokesman for Merrill Lynch said, "We'll cooperate fully with this latest request for information as we have throughout the investigation."

In its letter, the committee asked Merrill for the names of all brokers and their assistants in the Roseland office, a list of clients of each broker, and information on ImClone holdings and trades for the pivotal month of December 2001 . Also, the committee wants all records of communication from the Merrill Roseland office relating to ImClone for that month.

While the FDA action didn't occur until Dec. 28 , information was trickling out during mid- and late-December that indicated the agency might have some objections.

Wall Street Journal Staff Reporters Chris Adams, Tom Hamburger and Charles Gasparino contributed to this report.

Gawd who can we trust?.....not the CEOs nor their well-heeled friends.... not the auditors nor the lawyers... not the brokers nor the bankers.. not the regulators & definately not the politicians - the whole system is rotten to the core and only a complete purging will restore investor confidence.....Jen

-- posted by JenL_2

Top 19. Jul 27, 2002 11:41 AM

» Kirk - Merrill Banker Won't Testify on Enron

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To:Jeffrey D who wrote (1830)
From: Brian Kerecz Friday, Jul 26, 2002 3:26 PM
View Replies (1) | Respond to of 1857

What do these guys have to hide?
Merrill Banker Won't Testify on Enron

NEW YORK (Reuters) - Merrill Lynch & Co. Inc. (NYSE:MER - News) put one of its investment bankers on leave on Friday after he said he would not testify before a U.S. Senate subcommittee investigating the fall of bankrupt energy trader Enron Corp. (Other OTC:ENRNQ.PK - News).

The world's largest brokerage placed Schuyler Tilney on administrative leave after his attorney advised him not to testify before the Senate's permanent subcommittee of investigations during hearings scheduled for next Tuesday.

Merrill said that based on what it knows, its employees acted properly in deals Enron arranged with bankers that investigators said provided the energy trader with billions of dollars in loans through disguised commodity trades.

"However, it is placing the employee on administrative leave because the company's policy is to cooperate fully with governmental and regulatory inquiries," Merrill said in a statement.

Tilney, 46, decided not to testify after he learned that the Department of Justice was probing a deal that the Senate is reviewing, Merrill said.

Tilney's wife, Elizabeth, was a senior vice president for advertising and communications at Enron, according to a source familiar with the matter.

The Senate also is taking testimony from executives of Citigroup Inc. (NYSE:C - News) and J.P. Morgan Chase & Co. (NYSE:JPM - News)

Merrill said it is fully cooperating with the subcommittee and that other executives will testify. It had a $7 million investment in an Enron unit and acted as private placement agent for Enron's LJM2 partnership. Merrill said it acted properly in those dealings, based on what it knew at the time.

Merrill last month also placed broker Peter Bacanovic and his assistant, Douglas Faneuil, on administrative leave pending further investigation into an undisclosed transaction.

Bacanovic was Martha Stewart's stock broker, and regulators are still investigating whether she had inside information before she sold shares of ImClone Systems Inc. (NasdaqNM:IMCL - News) Stewart, who has denied wrongdoing, is friends with former ImClone Chief Executive Sam Waksal, who was indicted last month on insider trading charges.

-- posted by Kirk