Daily Archives: October 14, 2015

Ben Carson Accused Of Taking Part In Costco Stock Options Fraud

Politics aside, few would argue that GOP presidential hopeful Ben Carson—a retired pediatric neurosurgeon—isn’t a bright guy. So what does it mean that, while serving on Costco’s board from 2002 to 2005, Ben Carson was accused of granting over 1.01 million shares worth of illegally backdated stock options?

The allegations stem from two shareholder derivative complaints and their consolidated settlement: documents obtained by Gawker that list Carson as a co-defendant alongside most of Costco’s board and several of its C-level executives.

The suits accused Costco’s board, and in particular members like Ben Carson who served on its “compensation committee,” with essentially cherry-picking the issue dates for Costco’s incentive and nonqualified stock options. By changing the option grant date to a previous day on which the company’s stock price was exceptionally low, the board guaranteed that these stock options would have a greater profit margin once Costco’s executives chose to exercise them (i.e. sell shares). These cheap stocks—real bargains in direct violation of the company’s own policies—were then passed on to Costco’s senior management and, in some cases, bestowed upon the discount retailer’s rank-and-file employees. It was like an elite Costco, inside the Costco.

All told, the beneficiaries of this scheme allegedly wrested over $173 million away from the company in pumped-up stock sales and unrecorded compensation during the 10-year-period covered by the two civil suits. And, incidentally: The U.S. Attorney’s Office for the Western District of Washington state came to similar conclusions after conducting a two-year investigation into Costco’s executive compensation practices. The U.S. Attorney’s Office investigation was looking at backdating from 1996-2003. But this shareholders’ derivative suit covered a slightly wider range, 1995-2005, for the backdating fraud itself, and covered up to the date of the filing, 2009-ish, for all those “by-product” charges, like the inaccurate SEC filings. The U.S. Attorney’s Office and their multiagency task force, however, ultimately declined to pursue criminal charges after considering “multiple actions taken by Costco executives, including the fact that Costco self-reported the backdating to the SEC [in 2006].”

The complaints were filed in September 2008 and June 2009 respectively, by Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust, a Tennessee-based employees beneficiary association, and by Daniel Buckfire, a random guy from Michigan with, you know, Costco stock. Their stats-heavy, 141-page consolidated complaint (which you can read in full here) was settled in plaintiffs’ favor in June 2011, forcing Costco to overhaul its corporate governance. The settlement mandated, for example, in-person votes on key decisions over the less reliable “unanimous written consent” procedures that the company had previously used. It also required Costco and its executives to pay $4.85 million to the plaintiffs in legal fees and expenses.

Read on.

Illinois To Delay Pension Payments Amid Budget Woes: “For All Intents And Purposes, We Are Out Of Money Now”


Now, as Bloomberg reports, pension payments are set to be delayed. Bond payments, apparently, will still be made.

Illinois will delay pension payments as a prolonged budget impasse causes a cash shortage, Comptroller Leslie Geissler Munger said.

The spending standoff between Republican Governor Bruce Rauner and Democratic legislative leaders has extended into its fourth month with no signs of ending. Munger said her office will postpone a $560 million retirement-fund payment next month, and may make the December contribution late.

“This decision is choosing the least of a number of bad options,” Munger told reporters in Chicago on Wednesday. “For all intents and purposes, we are out of money now.”

Munger said the pension systems will be paid in full by the end of the fiscal year in June. The state still is making bond payments, she said.

“We prioritize the bond payments above everything else,” Munger told reporters.

And from Reuters:

Illinois Comptroller Leslie Munger said on Wednesday a $560 million November pension payment will be delayed due to a cash crunch stemming from the state’s budget impasse.

Despite the delay, state pension funds will be paid in full by the end of fiscal 2016, Munger said at a news conference in Chicago.

Here’s some color (again via Reuters) from Tuesday’s preview:

Oct 13 Illinois’ budget impasse has reached a point where full and timely payments for big ticket items such as pensions could be in jeopardy, the state comptroller’s office indicated on Tuesday.

Comptroller Leslie Munger set a Wednesday press conference “to discuss the significant cash flow constraints the continuing budget impasse is placing on state finances and the challenges of making timely state payments in the months ahead,” according to an advisory from her office.

The battle between Republican Governor Bruce Rauner and Democrats who control the legislature has left Illinois without a budget for the fiscal year that began July 1. However, the state is required, even without a budget, to put aside money each month for pensions and debt service on bonds.

Gov. Cuomo paid state workers on taxpayers dime to fill seats at climate change event

Gov. Andrew Cuomo wasn’t taking any chances that there might be empty seats at a speech he delivered last week on climate change — so state workers were summoned on the taxpayer dime to fill the audience, The Post has learned.

The workers said they left their jobs in the middle of the day Thursday and were paid their full salaries to hear Cuomo at Columbia University announce the state was joining a global effort to reduce greenhouse gas emissions.

“I’d rather be at the park,” said one of the workers, who is employed by the state Office of Parks, Recreation and Historic Preservation and who has no connection to climate issues.

He explained that he went because his boss “asked me to make some time available in my schedule.”

The worker confessed that he didn’t know what the event was about before he agreed to go.

He said attendance is not required, but is viewed favorably, and that the practice is common throughout state government to support Cuomo.

Read on.

JPMorgan, Omega Sanctioned by SEC Over Short-Selling Practices

  • Six firms pay $2.5 million for violations in stock offerings
  • Enforcement action stems from 2013 effort to stem manipulation

JPMorgan Chase & Co. and Omega Advisors Inc. were among six firms sanctioned by the U.S. Securities and Exchange Commission over claims that they bet against companies’ stock shortly before participating in new share offerings.

The six firms agreed to pay more than $2.5 million to resolve SEC allegations that they illegally profited by artificially lowering the companies’ stock, the agency said in astatement Wednesday.

The SEC has made a priority of policing violations of a rule meant to protect stock pricing mechanisms and prevent manipulation since adopting a “zero tolerance” policy in 2013. Since then, the agency says, there has been a substantial decrease in the number of infractions. In two previous sweeps, the SEC won more than $20 million in penalties from 42 firms.

Read on.

Libor-Manipulation Trial Kicks Off in New York

MANHATTAN (CN) – Opening the trial Wednesday against two bankers from the London office of Rabobank, a federal prosecutor said the British traders “exploited and abused [their] role over and over again to serve their own ends,” handing currency swap traders an “unfair advantage.”
“Year after year, these defendants manipulated Libor, one of the most important interest rates used over the world and in the U.S.,” Assistant U.S. Attorney Carol Sipperly told a federal jury.
Short for the London Interbank Offered Rate, Libor is the rate banks charge one another for short-term loans necessary to carry on their business. More than $300 trillion in financial derivatives are tied to Libor rates.
It has been more than a year since federal prosecutors indicted British bankers Anthony Allen and Anthony Conti for manipulating these rates on behalf of Rabobank, a Dutch bank also known as Cooperatieve Centrale Raiffeisen-Boerenleenbank BA.
Throughout her opening remarks, prosecutor Sipperly urged the jurors not to be “intimidated” by unfamiliar financial jargon.
There is “no need to think that all of these terms will instantly make sense,” she said.
“Be assured that you’ll see soon enough that the defendants’ scheme is really simple,” the prosecutor continued.

Read on.

J.P. Morgan to some employees: No free BlackBerry for you

Now the banksters  want to nickle and dime their employees. Next bank employees will be bringing their own desk and chair and toilet paper…

More bank employees to pay for own phones

This report appears on WSJ.com:

In its latest round of cost cuts, J.P. Morgan Chase & Co. is picking BlackBerrys.

The nation’s largest bank by assets is hoping to save tens of millions of dollars by eliminating support for the BlackBerry wireless devices next year and mandating that some employees pay for their own devices, BlackBerry or otherwise, according to people close to the bank.

The move is part of a broader effort at big U.S. banks to keep costs low, especially as interest rates set by the Federal Reserve remain stuck near zero. Higher rates generally bring fatter profits for banks’ lending businesses. The lack of rising rates—along with sluggish trading revenue—means bank executives must tighten the belts some more to keep profits growing.

J.P. Morgan, led by Chairman and Chief Executive James Dimon, will shed new light on its expenses Tuesday afternoon, when it is set to disclose its third-quarter results. Even though analysts polled by Thomson Reuters estimate revenue fell 2% during the quarter, earnings per share are expected to edge higher thanks in part to cost discipline.

Wall Street becomes a lightning rod in Democratic Presidential debate

“Congress doesn’t regulate Wall Street. Wall Street regulates Congress.”--Senator Bernie Sanders

“I represented Wall Street when I was a senator from New York… I went to Wall Street and said, ‘Cut it out.”--Hillary Clinton


Regulation of Wall Street was one of the most hotly contested issues in the first Democratic presidential debate held Tuesday, showing the topic still resonates seven years after the financial crisis.

Former Maryland Gov. Martin O’Malley has been trying to make hay with his call to reinstate the Glass-Steagall law separating commercial and investment banking — a law that was repealed during the administration of President Bill Clinton. Vermont Sen. Bernie Sanders has long railed against Wall Street, with the self-described socialist saying, “Congress does not regulate Wall Street. Wall Street regulates Congress.” Sanders is proposing a financial transactions tax to fund free college tuition.

Former Secretary of State Hillary Clinton, by contrast, said she wanted to protect the gains made in the Dodd-Frank Act bank-reform legislation, and said she wanted to focus on the risks coming from so-called shadow banking. Shadow banking refers to the lending activity outside the regulated banking sector.
Clinton’s raised eyebrows when she said that, as New York senator, she told Wall Street to “cut it out.”

A business mystery: 13 secret projects in Central NY’s pitch for $500 million from state

Syracuse, N.Y. — Central New York’s pitch for $500 million in state economic aid contains few details about development projects said to have the potential to create or retain more than 2,000 jobs.

The Central New York Regional Economic Development Council’s application to Gov. Andrew Cuomo’s Upstate Revitalization Initiative makes reference on Page 80 of the 88-page document to “strategic transactions” with first-year project costs of $598.8 million and the potential to create or help retain 1,962 jobs.

That’s 67 percent of the total first-year cost of projects in the council’s application and a third of the 5,909 jobs that all of the projects in the application would create.

The council is seeking a total of $23.2 million in state aid in the first year of the five-year Upstate Revitalization Initiative to help get the “transactions” off the ground. Very few other details about them are included in the application.

When asked about them, Robert Simpson, co-chair of the council and president of CenterState Corporation for Economic Opportunity, said the transactions are 13 projects with the potential to create 1,400 local jobs and retain about 590 existing ones.

The 13 companies behind the projects are prepared to invest $600 million to build new facilities or expand existing ones, he said. They are involved in a variety of industries, including information technology, agriculture and medical devices, he said.

Read on.

Editorial: Foreclosure aid too little, too late

The foreclosure crisis hit Floridians particularly hard. And yet from its inception, Florida’s Hardest Hit Fund failed to prevent foreclosures for too many homeowners despite having nearly $1 billion to provide relief. A report released last week illustrates the depth of Florida’s deficiencies. Florida consistently underperformed when compared with other states that received federal funds to help homeowners. The state made it too hard to qualify for help, had frustratingly long wait times for assistance and failed to be transparent about why homeowners were turned down. At the height of the real estate crisis, the state sat on money that could have helped needy Floridians remain in their homes. There is no excuse for such irresponsible stewardship of federal aid.

The Tampa Bay Times’Susan Taylor Martin reported on Tuesday that a federal investigation of Florida’s HHF revealed that the state had the lowest homeowner admission rate among the agencies tasked by the U.S. Treasury Department with providing mortgage assistance in 18 states and the District of Columbia. Florida also had one of the highest rates of application withdrawals and a denial rate of 27 to 45 percent, above the national average. Five years into the program, only 22,400 people have been helped, a paltry number given the magnitude of the real estate crisis in Florida.

Read on.

RESPA Claims Cited by Foreclosure Defendants Fall Flat in Florida

Homeowners using the Real Estate Settlement and Procedures Act (RESPA) as a shield to foreclosure saw their claims fall flat in Florida court in recent months.

At least two cases decided by the United States District Court Southern District of Florida ended with the court siding against the homeowners and for the servicers, giving financial firms a bit more room when interpreting a significant part of RESPA.

Essentially, two cases – Russel v. Nationstar and O’Brien v. Seterus – tested the limits of a provision in RESPA, which requires servicers to respond to all written requests from borrowers who ask for information on their loans, including servicing information and payment schedules.

In Russel v. Nationstar, a borrower facing foreclosure claimed that Nationstar failed to provide a complete profile of the homeowner’s loan payment history. This report largely stemmed from the fact that the loan was previously transferred from another servicer. To retrieve the payment history, the borrower filed a series of qualified written requests to the servicer asking multiple times for their complete payment history, which dated back to a previous financial institution.

Because Nationstar did not provide an entire listing of each payment made to the prior servicer, the borrowers claimed their request for information under RESPA had not been met. The court sided with Nationstar, noting that all of the borrower’s responses were met and that the loan had not been delinquent at any time before Nationstar took over the servicing component. Based on the provisions outlined in RESPA, the court sided with the servicer and agreed Nationstar complied with the law by responding to each interrogatory issued by the borrower.

Read on.