I do not know if this is within my powers, but on behalf of everyone out there like me who reads way too much financial news, I am officially calling for a moratorium on the use of the phrase "Mouse House" or "House of Mouse" or any other house-mouse derivation as a reference to The Walt Disney Co.
It is so ordered.
The SEC's Litigation Release yesterday in the Measurement Specialties case is the latest example of what we pointed out in this post last month: Increasingly, a consequence for those investors who fail to file claims in securities class action settlements is that they also will miss out on money that is subsequently made available through SEC settlements.
As noted in yesterday's release, the federal court overseeing the SEC's $1,450,000 settlement in this case has approved the SEC's distribution plan. The plan is that all of the money in the distribution fund will be distributed on a pro rata basis to the class members who have qualified to receive funds under the separate class allocation plan approved by the court in the Measurement Specialties securities class action. The claim deadline in the class action was August 23, 2004.
After meeting with the independent accountants and following a heated 90-minute meeting with the SLW Contest Rules Committee, we have a winner--one W. Lyle Stamps, who emailed in the answer at 2:19 pm. Stamps snatched the worthless prize to be determined later from the grasp of "iocaste," who posted the answer on her blog at 12:53 pm but never contacted SLW to claim her rightful prize. So Stamps it is.
The answer? Leach Coughing Stoic = Lerach Coughlin Stoia, at least when the spell-checker at the Fourth Circuit Court of Appeals gets through with it. In this opinion in In re: PEC Solutions Securities Litigation, the Fourth Circuit lists counsel as follows:
ARGUED: Samuel Howard Rudman, LEACH, COUGHING, STOIC, GELDER, RUDMAN & ROBBINS, L.L.P., Melville, New York, for Appellants.
Lyle Roberts, WILSON, SUNSTONE, GOODRICH & RACED, Reston, Virginia, for Appellees.
For the record, the Fourth Circuit was 4 for 10 on the names, missing completely on Leach, Coughing, Stoic, Gelder, Sunstone, and Raced.
And we must give props to Lyle Roberts, who took time out of his blogging schedule at The 10b-5 Daily to argue and win the PEC case. And the Fourth Circuit even spelled his name right.
Here's a quick contest for Securities Litigation Watch readers, worthless prize to be determined later:
Identify the significance of the phrase "Leach Coughing Stoic," as well as the document in which it recently appeared.
Without giving too much away, "participants" are disqualified--you know who you are.
The recent settlement by all 12 former WorldCom directors totaling $60.75 million (including $24.75 million out of pocket) bumps the total settlement fund in this case up to $6.061 billion. Now only Arthur Andersen remains as a defendant in the case.
Citigroup: $2.575 billion
J.P. Morgan: $2.0 billion
Bank of America: $460.5 million
Deutsche Bank Securities: $325 million
ABN Amro: $278.3 million
West LB AG: $75 million
Tokyo Mitsubishi: $75 million
Lehman Brothers: $62.7 million
Former WorldCom directors: $60.75 million
Caboto Holding SIM: $37.5 million
BNP Paribas: $37.5 million
Mizuho Int'l: $37.5 million
CS First Boston: $12.54 million
Goldman Sachs: $12.54 million
UBS AG: $12.54 million
TOTAL: $6.061 billion
You just knew that when and if the parties agreed to a settlement in the SEC's case against Peter J. Wilson that the SEC was going to insist on a pretty serious sanction. After all, as discussed in this post last year, Wilson allegedly engaged in a creative but ill-fated trading scheme that involved him impersonating employees of NASDAQ and AMEX! Specifically, the SEC alleged,
After seeing an unusual upward spike in the share price or trading volume of a stock, Wilson would telephone the issuer at or about the time he traded the stock. Wilson's trading strategy generally was to sell the securities short prior to the calls. During these calls, Wilson used an alias and told a corporate officer of the issuer that he was an employee of NASDAQ or AMEX, depending on where the issuer's stock was listed. Using that false authority, Wilson then asked the corporate officers if they knew of a reason for their companies' unusually high share price or trading volume. Wilson was seeking-and in several of these telephone calls received-material, non-public information: that the company knew of no reason for the increased price or volume. In all but one case, Wilson instructed the company to issue a press release confirming that it knew of no reason for the increased price or volume. Two of the companies followed Wilson's instructions and issued such releases. Wilson knew that the companies' stock prices would drop as a result of these press releases.
So I've been keeping an eye out for any resolution of this unusual case and was interested to see this Litigation Release announcing a settlement. In it, the SEC states that in addition to the typical disgorgement and injunction against further violations of the securities laws, Wilson consented to a final judgment
"permanently restraining and enjoining him from, directly or indirectly, trading in securities, other than securities issued by registered open-end investment companies."
In other words, the SEC broke out the seldom-seen "Thou Shalt Not Trade" sanction. This sanction is very rarely used, but, then again, securities regulators are very rarely impersonated.
Of course, not being able to trade may be the least of Wilson's troubles. The Litigation Release also states that he is scheduled to be sentenced on April 5, 2005 in a related criminal case for "one count of securities fraud and one count of making false statements to the Commission during its investigation of this scheme, both felonies."
The Washington Post has an interesting article today about a relatively new trend--top corporate executives who maintain their own blogs to discuss, well, whatever they want to discuss. One of the blogs profiled is that of General Motors Vice Chairman Robert A. Lutz, whose maiden post on his FastLane blog jumped right in with some "product talk" about Saturn.
The article also highlights the blog of "Randy" from Boeing , a.k.a. Randolph S. Baseler, Boeing Co.'s vice president of marketing. Randy's initial post back in January stated that "Looking back before the dust settles on 2004, it was a great year of building momentum for BCA [Boeing Commercial Airplanes]. Our orders went up, with 272 in '04 compared to 239 in '03. It was a super year for widebodies for us."
Then there's Sun Microsystems President Jonathan Schwartz, who now blogs at Jonathan's Blog. Schwartz tells the Post that "I rarely have a lawyer look over what I'm posting. It's like, am I going to have a lawyer read my e-mail? A blog is no more dangerous than e-mail or a mobile phone."
Well, we'll see about that. Presumably Schwartz's email and mobile phone are not monitored and searchable by plaintiffs' lawyers the way "Jonathan's Blog" will be if things take a turn for the worse at Sun.
So--what is the over/under on the filing date of the first securities class action to include allegations from a corporate executive's blog? For argument's sake, I'm setting it at December 31, 2005.
J.P. Morgan's $2 billion settlement yesterday pushes the WorldCom total settlement amount to over $6 billion.
Citigroup: $2.575 billion
J.P. Morgan: $2.0 billion
Bank of America: $460.5 million
Deutsche Bank Securities: $325 million
ABN Amro: $278.3 million
West LB AG: $75 million
Tokyo Mitsubishi: $75 million
Lehman Brothers: $62.7 million
Caboto Holding SIM: $37.5 million
BNP Paribas: $37.5 million
Mizuho Int'l: $37.5 million
CS First Boston: $12.54 million
Goldman Sachs: $12.54 million
UBS AG: $12.54 million
TOTAL: $6.001 billion
Here is your updated WorldCom criminal conviction scorecard:
Add Qwest to the list of companies allegedly run through a "culture of fear." As I discussed in detail in this guest column in Compliance Week last week, the criminal trials in both the Ebbers and Scrushy cases brought testimony about CEOs who pressured and intimidated subordinates into committing accounting fraud in the name of "hitting the numbers."
According to the SEC's complaint filed yesterday against former Qwest CEO Joseph P. Nacchio, two former Qwest CFOs, and several others, Nacchio ran Qwest through a "culture of fear." The complaint states that:
Another day, another $437.5 million in settlements in the WorldCom case. Today, settlements were announced with Deutsche Bank ($325 million), as well as WestLB AG ($75 million) and Caboto Holding SIM ($37.5 million). The full list is now as follows:
Citigroup: $2.575 billion
Bank of America: $460.5 million
Deutsche Bank Securities: $325 million
ABN Amro: $268.3 million$278.3 million
West LB AG: $75 million
Tokyo Mitsubishi: $75 million
Lehman Brothers: $62.7 million
Caboto Holding SIM: $37.5 million
BNP Paribas: $37.5 million
Mizuho Int'l: $37.5 million
CS First Boston: $12.54 million
Goldman Sachs: $12.54 million
UBS AG: $12.54 million
TOTAL: $3.991 billion $4.001 billion
[UPDATE: ABN Amro settlement actually was for $278.3 million]
A total of ten banks have now agreed to settle the claims against them in the WorldCom securities class action litigation. To summarize, they are:
Citigroup: $2.575 billion
Bank of America: $460.5 million
ABN Amro: $268.3 million $278.3 million
Tokyo Mitsubishi: $75 million
Lehman Brothers: $62.7 million
BNP Paribas: $37.5 million
Mizuho Int'l: $37.5 million
CS First Boston: $12.54 million
Goldman Sachs: $12.54 million
UBS AG: $12.54 million
TOTAL: $3.554 billion$3.564
[UPDATE: ABN Amro settlement actually was for $278.3 million]
Jury selection in the trial of the remaining defendants, which include JP Morgan, Deutsche Bank Securities, Arthur Andersen and the WorldCom directors, is scheduled to begin one week from today, on March 17.
White Collar Crime Prof Blogger (and fellow Raising Arizona fan) Peter J. Henning has answered the question I wondered about in this post about the SEC's recent enforcement action against one "Peter N. Brant," namely whether this is the same Peter Brant from the famous R. Foster Winans case. He concludes that it is the same person, and provides the SEC's complaint from last week which seems to confirm that.
The White Collar Crime Prof Blog is excellent--I've linked to it on the SLW site and encourage you to check it out.
As I discuss in a guest column in this week's Compliance Week, the CFOs' testimony in the Ebbers and Scrushy criminal trials leads me to conclude that job requirement number one for CFOs may well be courage under fire.
Raising Arizona (1987)
Parole Board Member #1: They've got a name for people like you H.I. That name is called "recidivism."
Parole Board Member #2: Repeat offender!
Parole Board Member #1: Not a pretty name, is it H.I.?
H.I. McDunnough: No sir. That's one bonehead name, but that ain't me anymore.
Parole Board Member #1: You're not just telling us what we want to hear?
H.I. McDunnough: No sir, no way.
Parole Board Member #2: 'Cause we just want to hear the truth.
H.I. McDunnough: Well, then I guess I am telling you what you want to hear.
Parole Board Member #1: Boy, didn't we just tell you not to do that?
H.I. McDunnough: Yes, sir.
Parole Board Member #1: Okay, then.
On March 3, 2005, the SEC announced that it had filed a settled fraud action against "recidivist Peter N. Brant." This was noteworthy to me for two reasons. First, it gave me a reason to break out the quote above from Raising Arizona. Okay, then.
Second, it got me thinking....Brant...recidivist Peter N. Brant...where have I heard that name before? Wait, could it be? How many recidivist Peter N. Brants can there be? Could this possibly be the return of old-school SEC defendant Peter N. Brant from the R. Foster Winans case? Remember Winans--the Wall Street Journal reporter who was sentenced to prison for his part in a scheme to trade stocks based on advance information about WSJ's "Heard on the Street" column? His conviction was later affirmed by the U.S. Supreme Court. A broker at Kidder Peabody who also pleaded guilty to being part of the scheme was one Peter N. Brant.
As this review on Amazon.com of "Trading Secrets," Winans' book about the whole affair, puts it,
This is the true story of how R. Foster Winans, a well-regarded columnist for The Wall Street Journal allowed himself to become corrupted by a Svengali-like, Gatsby-ish stock broker in the heady days of the early 1980s. His is the same storyline used a year later by Oliver Stone in his original film "Wall Street," starring Michael Douglas as an Ivan Boesky standin and Bud Fox as the young, ambitious sycophant. The broker in Winans case, Peter Brant, proved to be the character that makes this story vibrate with authenticity, an attractive, mysterious, driven young man who, like Gatsby, drifted cooly out of nowhere and bought a palace on Long Island sound.
I don't know about all that, but if anyone can confirm or refute that this is the same "Svengali-like, Gatsby-ish" recidivist Peter N. Brant, please let me know.
How's that for a headline?
The SEC announced this week that it had filed a lawsuit against Humatech, Inc. (a fertilizer and animal-feed additive company), and its CEO, David G. Williams, and CFO, John D. Rottweiler.
According to the SEC's complaint,
in January and October 2000, Humatech improperly recorded two sales totaling $297,640 to Humatech Ltd., a United Kingdom distributor that Williams and Rottweiler secretly controlled. These purported sales, however, were contingent on the distributor reselling the product to a U.K. purchaser. The distributor did not resell the product, and, consequently, Humatech failed to ship the products to the U.K. Given the contingent nature of the transactions, they did not qualify for revenue recognition under generally accepted accounting principles.
Interestingly, the SEC alleges that although the company restated its financials to back out this improperly recognized revenue, it "did not disclose that, from the outset, delivery and payment on these purported sales were contingent upon resale of the product by Humatech Ltd. Instead, the amended filings falsely stated that an epidemic of foot-and-mouth disease in U.K. cattle herds interrupted ongoing delivery of the product."
The SEC, however, was not going to fall for the foot-and-mouth epidemic excuse, stating that "in reality, the foot-and-mouth epidemic, which began in February 2001, occurred over a year after the first purported sale, and none of the product had been delivered before the outbreak."
Yesterday, ISS' Securities Class Action Services released a new report listing the Top 100 securities class action settlements of all-time. The report, which will be updated quarterly, provides key information about each settlement including year, amount, court, lead counsel, claims administrator and other information.
Some quick observations:
For a snapshot of the Top 25, please click here.