Time Warner Inc. may have to pay more than
$500 million to settle U.S. government claims over how its America
Online unit accounted for advertising sales.
Washington Post reported on Nov. 23 that the company was
close to an agreement to pay about $750 million to settle claims
by the Securities and Exchange Commission. The next day, Bloomberg
News reported that Time Warner and government officials are
discussing a $500 million settlement, but they could not agree
on whether any company employees would be accused of wrongdoing.
The media giant announced Nov. 3 that it had set aside $500
million to resolve claims by the SEC and the Justice Department.
On Nov. 19, an Alabama state judge declared a mistrial in a
state pension fund's lawsuit against Bear Stearns
Cos. over its sale of bonds backed by WorldCom
jury deadlocked over the Retirement Systems of Alabama's
claims that Bear Stearns sold $10.3 million in bonds despite
knowing that WorldCom was collapsing. The bonds were originally
issued by Intermedia Communications, which
was acquired by WorldCom in 1999. With WorldCom's backing,
the bonds' rating was raised from junk to investment grade.
pension fund earlier negotiated a $111 million settlement with
Citigroup Inc., JPMorgan Chase
& Co. and Bank of America Corp. over the
banks' underwriting of WorldCom bond offerings. See the
November issue of the SCAS Alert for more on this story.
new trial is scheduled for Jan. 10. Bill Kelley, the pension
fund's general counsel, told Bloomberg News that: "We
are confident we will win the retrial."
other WorldCom news, a federal judge in New York delayed the
trial in the federal securities class-action case against the
company's underwriters from Jan. 10 until Feb. 28.
the No. 2 U.S. long-distance phone company, lost $200 billion
in market value before filing for bankruptcy in 2002. The company
emerged from bankruptcy in April as MCI Inc.
Qwest Communications International Inc. is
negotiating a class-action settlement with investors that might
exceed $700 million, the Rocky Mountain News reported
on Nov. 18.
newspaper reported that a spokeswoman for the California
State Teachers' Retirement System confirmed that
the parties met for a mediation session in San Francisco.
based in Denver, is the largest local phone-service provider
in the western U.S. The company agreed in October to pay $250
million in a settlement with the SEC. The agency claimed in
a lawsuit that the phone company improperly booked $3.8 billion
in revenue over three years through network capacity swaps and
American International Group Inc. announced
Nov. 24 that it would pay $126 million to settle claims by the
SEC and the Justice Department over transactions that clients
used to inflate their earnings.
government claims stem from transactions with PNC Financial
Services Group and Brightpoint Inc.,
which distributes cell phones. According to the government,
PNC used AIG products to remove bad loans from its books, while
Brightpoint used an insurance policy to avoid telling investors
about a one-time loss that was $11 million higher than expected.
still faces a probe by New York Attorney General Eliot Spitzer
into collusion between insurers and insurance brokers.
Nov. 17, the SEC announced it had reached a settlement with
Harold Baxter and Gary Pilgrim in the mutual fund market-timing
scandal. They each agreed to pay $80 million, which includes
$60 million in disgorgement and $20 million in civil penalties.
money-management company, Pilgrim Baxter and Associates,
already paid $90 million in July to resolve SEC allegations.
Pilgrim and Baxter also will be banned from working in the securities
industry and associating with investment advisers or investment
companies, the SEC said.
amounts being paid in this settlement are virtually unprecedented
for individuals in civil cases," Stephen Cutler, the SEC's
enforcement director, said in a press release.
commission, which is seeking restitution for investors, has
reached more than a dozen settlements with mutual fund companies.
See the October SCAS Alert for more on the other settlements.
Quattrone, the former Credit Suisse First Boston
technology banker, has been barred for life from working in
the securities industry.
ban was imposed Nov. 22 by the National Association
of Securities Dealers' National Adjudicatory
Council, which overruled an earlier NASD panel ruling that had
barred him for a year. Quattrone refused to cooperate with the
probe and argued that providing testimony to the NASD while
criminal charges were pending would violate his constitutional
right against self-incrimination.
Hausman, a lawyer for Quattrone, told the Associated Press that
his client would appeal the ban to the SEC.
was convicted in May on charges of obstructing justice. Those
charges stem from a federal probe into CSFB's allocation
of highly coveted shares from initial public offerings of technology
companies. He took dozens of Internet companies public in the
late 1990s. He faces 18 months in prison if his conviction is
former Enron Corp. executive and three ex-Merrill
Lynch & Co. officials were convicted of fraud and
conspiracy charges for helping Enron inflate earnings.
Nov. 3 verdicts in Houston came in the first criminal cases
to go to a jury that arose from Enron's accounting scandal.
The charges stem from Enron's 1999 sale to Merrill of
a $7 million stake in three Nigerian energy-generating barges.
Enron, which promised to pay the money back, booked the sale
as a $12 million profit so it could meet earnings estimates.
a statement, Assistant U.S. Attorney General Christopher Wray
said the case was "a milestone in bringing both an Enron
executive and Merrill Lynch executives who aided and abetted
the fraud at Enron to justice."
once the world's largest energy trader, collapsed into
bankruptcy in December 2001, wiping out $68 billion in market
value and $800 million in employee pension investments.
SEC, in a brief filed with the U.S. Circuit Court of Appeals
for the Ninth Circuit, argued that investors should be allowed
to sue business partners and vendors and others who are indirectly
involved in securities fraud by a company.
SEC made this argument in a supporting brief filed Oct. 21 in
a case involving online home-listing company Homestore.com
Inc., which allegedly used transactions with business partners
to inflate its revenue. The Ninth Circuit is considering whether
to allow investors to also sue Time Warner,
Cendant Corp. and MaxWorldwide
over their roles in those transactions. The U.S. Supreme Court
ruled in 1994 that private actions under SEC Rule 10(b)(5) may
only be brought against "primary violators."
brief is the SEC's latest attempt at persuading the courts
to accept a broad definition of primary responsibility for securities
law violations," David Becker, former SEC general counsel,
told Bloomberg News.
Sarbanes-Oxley Act has led to a surge in whistleblower complaints
by corporate employees, the Associated Press reported.
law, which included numerous corporate reforms, prohibits public
companies from firing or retaliating against employees who complain
about financial fraud. Since the law took effect in July 2002,
at least 331 employees have filed whistleblower complaints.
During the fiscal year that ended Sept. 30, 181 employees filed
complaints, making Sarbanes-Oxley cases the fastest growing
category of whistleblower claims, the U.S. Labor Department
for companies say most of the claims are unfounded and often
are attempts by underperforming employees to get better severance
packages and settlements, AP reported. Intel
Corp. and commuter airline Flyi are among the
companies that have been accused in these whistleblower complaints.