Labels: Kirk Wright

...Wesley H. Colwell kicked off the fifth week of the fraud and conspiracy trial of Skilling and Enron founder Kenneth Lay, telling jurors he helped the company fraudulently manipulate earnings to meet or beat analysts' expectations by dipping into reserves when Enron needed an income boost that business operations didn't provide.

Colwell didn't say Skilling ordered him to plunder reserves to boost earnings. He said, however, that he e-mailed his boss then-Enron North America chief executive David Delainey days before Enron released second-quarter 2000 earnings to say he understood that it was Skilling's "preference" to surpass expectations.

Colwell explained later he had found out about Skilling's preference third-hand from accounting executive Mark Lindsey, who told Colwell that then-Enron Chief Accounting Officer Richard Causey had discussed it with Skilling. "I didn't talk to Skilling," Colwell said...

Labels: Enron

Trader in insider dealing case not coming back, says GLG

By Gary Parkinson
City Editor
The Independent
February 27, 2006

Philippe Jabre, the GLG Partners star trader under investigation for alleged insider dealing, is unlikely to return to the hedge fund manager whether or not he is cleared of any wrongdoing. The founders of GLG - the Israeli-American Noam Gottesman and the Belgian Pierre Lagrange - are telling investors not to count on Mr Jabre's return no matter what the outcome of the Financial Services Authority inquiry.

The City watchdog is examining whether Mr Jabre traded in the Japanese company Sumitomo on inside information gleaned from the Goldman Sachs banker John Rustum. Separately, French financial regulators are looking into Mr Jabre's trading in the French company Alcatel.

The FSA's decision on Mr Jabre is expected soon, while the French are unlikely to arrive at findings for some time. Theirs is the more complex case. Should the FSA find against him, Mr Jabre faces suspension or even an outright ban from trading....

Labels: Financial Services Authority, insider trading, Philippw Jabre

U.S. Readies Case Against Tort Lawyers

BY JOSH GERSTEIN
Staff Reporter of the Sun
February 24, 2006

Federal prosecutors have told two partners at a leading New York class-action law firm to prepare to be indicted on charges stemming from an investigation into alleged illegal payments to plaintiffs in securities lawsuits, a lawyer involved in the case said yesterday.

Facing indictment are David Bershad and Steven Schulman of Milberg Weiss Bershad Schulman LLP, according to an attorney for Mr. Schulman, Edward Hayes. He said he was informed that criminal charges could also be brought against the firm itself. "They're talking about a Rico case against the firm," Mr. Hayes said, referring to the federal Racketeering Influenced and Corrupt Organizations act.

A spokeswoman for Milberg Weiss declined to comment yesterday, but an attorney for the firm told the Wall Street Journal this week that the firm had not been advised that an indictment was forthcoming...

...An indictment of the Milberg Weiss firm could jeopardize its viability, regardless of whether the government ultimately wins a plea or conviction. "They do so much work that requires them to be appointed as lead counsel acting in the public interest by a court. It would be a mess," a lawyer for Mr. Selzer, David Weichert, said.

Papers filed in connection with the criminal case pending in Los Angeles suggest that payments from Milberg Weiss did end up benefiting Mr. Lazar. One question key to the prosecution is who, if anyone, at Milberg Weiss, knew that Mr. Lazar was getting some of the legal fees paid to Mr. Selzer. "My clients say what went on, if it went on, was not their business," Mr. Hayes said. "To what extent are our people obligated to supervise people on the other side of the table? That's a debatable issue"...

...The indictment filed last year says repeatedly that the payments that allegedly flowed to Mr. Lazar were illegal. However, several lawyers with no ties to the prosecution said yesterday that they were not confident in the truth of that assertion, which is central to the prosecution.

A Philadelphia attorney who has written treatises on legal ethics, Lawrence Fox, said that sharing a referral fee with a client violates legal canons but is not, per se, a violation of the law. "That rule is simply a rule of discipline. It does not have any criminal implications," he said.

The indictment argues that Mr. Lazar committed fraud and obstructed justice by failing to disclose to courts hearing the securities lawsuits the fact that he was to be paid money out of the legal fees in the cases. Mr. Fox said if that took place lawyers involved in the cases may have violated ethical precepts. "I'd again say it's more of a disciplinary problem," he said. "I don't get anywhere criminal there"...

Labels: Melvyn Weiss, Milberg Weiss

Labels: Enron

NYSE chief seeks regulatory venture with NASD: WSJ

February 23, 2006
Reuters

New York Stock Exchange (NYSE) chief John Thain backs the idea of a joint venture with the National Association of Securities Dealers (NASD) to regulate brokerage firms and hopes to create one by year's end, the Wall Street Journal reported on Thursday.

The report, citing an interview with Thain, said the NYSE's chief executive believed a joint venture "is the right way" to scrap redundant rules and reviews faced by brokerage firms.

The NASD regulates most brokerage firms in the United States, while the NYSE Regulation oversees several hundred large firms that are members of its exchange. Both are private groups supervised by the U.S. Securities and Exchange Commission.

U.S. regulators have been debating how to reorganize Wall Street's police force to cut the cost and inconvenience of dual oversight for firms that are subject to both organizations.

The NASD argued in a recent letter to the SEC that the NYSE should not play a major regulatory role as it implements plans to become a for-profit company, the Journal report said.

NYSE officials would like to see a self-regulator jointly owned by the NASD and the NYSE's regulatory unit, which will be a not-for-profit division of the future NYSE Group following its purchase of electronic trading firm Archipelago Holdings Inc., the report said.

Kroll OnTrack bolsters data recovery and forensics with £25m Ibas buy-out

Legal IT
February 23, 3006

Kroll Ontrack has strengthened its position in the data recovery and computer forensics market with the acquisition of Ibas Holdings, a leading Norwegian-based rival, for $45m (£25m). The deal follows Ibas’ recent acquisition of its main European competitor, UK-based Vogon International.

The conditions of the public offer were met within 30 days, with acceptance by 90% of Ibas shareholders and approvals from the Norwegian and German competition authorities.

Ibas has become a subsidiary of Kroll Ontrack AS, a newly-formed Norwegian entity. Bjoern Arne Skogstad, former CEO of Ibas Holdings, will retain his leadership of the Ibas group and the company’s 166 employees.

"By combining the strengths of these organisations, we are able to bring world class data recovery and computer forensics services to customers in 13 different languages in more than 21 countries," said Ben Allen, president of Kroll Ontrack.

Labels: Kroll

Milberg Weiss Partners to Be Indicted Within Month, Lawyer Says

Feb. 23, 2006
Bloomberg
By Jef Feeley

Steven Schulman and David Bershad, partners in New York's Milberg Weiss Bershad & Schulman, were told by prosecutors that they will be indicted within the next month on charges they participated in a scheme to pay kickbacks to clients, Schulman's lawyer said.

Assistant U.S. Attorney Richard Robinson told Schulman and Bershad on Feb. 20 that they are facing indictment on wire fraud and money laundering charges over the fees, according to Edward Hayes, who represents Schulman in a federal criminal probe over the payments. Robinson told the two men they could be indicted in the next 30 days, Hayes said in an interview yesterday.

A lawyer for Melvyn Weiss, the firm's lead partner, said Feb. 21 that prosecutors told Weiss and William Lerach, Weiss's former partner, that there are no plans to charge them in the five-year probe of possible kickbacks. The two men run firms that accounted for 57 percent of securities fraud settlements last year, according to a Cornerstone Research survey.

"Mr. Schulman absolutely denies he was involved in any kickback scheme and that any referral fees involved in his cases were 100 percent legitimate,'' Hayes said. Neither Bershad, a founding member of Milberg Weiss, nor his attorney, Andrew Lawler, were immediately available yesterday to comment on Hayes's statements. Tom Mrozek, a spokesman for the U.S. attorney's office in Los Angeles, which has been conducting the investigation, declined to comment on "any aspect'' of the investigation.


Federal prosecutors have been investigating claims that Milberg Weiss Bershad Hynes & Lerach, the biggest firm representing shareholders in securities fraud cases before it split in two in 2004, illegally paid shareholders to file the suits. At the time of the breakup, Milberg Weiss had represented clients in half of all securities class actions filed in the past decade. The firm took part in suits that paid clients $30 billion in settlements.

Hayes said prosecutors allege Schulman knew about a scheme to pay referral fees to lawyers who sent them clients with securities-fraud claims. Some of the fees allegedly later made their way to the clients, he added. "The government contends there are millions in fees'' at issue in the case, Hayes said.

Schulman will be charged with fraud over allegedly knowing about the fee scheme and not taking steps to stop it, Hayes said. He'll face money laundering charges because he knew some lawyers were reportedly helping plaintiffs hide the source of money they received from the fees, Hayes said.

A referral fee is paid from one firm to another for referring a client and splitting up the work, said George M. Cohen, a law professor and legal ethics teacher at the University of Virginia at Charlottesville. "In many cases, it's not really a huge issue,'' Cohen said, though problems may arise if such fees are used by "lawyers who are less competent and can't get business in a legitimate way.'' "Basically, the rules say you can have some kind of referral fee as long as both lawyers are contributing to the representation or they agree to a joint representation,'' Cohen said. "Then it's OK, as long as the client understands that this is what's going on.''

The Milberg case may be a little different, and the claim "is that they were making payments to a named plaintiff in various class actions, that he was getting extra payments to bring the claims in class actions,'' Cohen said. "The argument is that if the person is paid extra for serving in that capacity, they may not necessarily act in the best interests of the class, but may act in the best interest of themselves or the law firm.''

Investigators are relying on accusations made by two former Milberg partners about the kickback scheme, Hayes said. "We don't believe these individuals have any legitimate proof of any wrongdoing,'' Hayes said. "Every document they've pointed to is inconsistent with the allegations'' over the fees, he said.
Hayes added the charges are an attempt to pressure Schulman and Bershad into cooperating with prosecutors in their continuing investigation of Weiss's and Lerach's actions. Lerach now leads San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins. Weiss leads New York-based Milberg Weiss Bershad & Schulman.

Before 1995, law firms that were the first to file suits against companies whose stock declined often received most of the legal fees when the cases were settled. A change in the law that year gave control of shareholder suits to firms that represent the biggest shareholders.

On Milberg Weiss's Web site, Bershad is listed as a securities and commercial litigator. The site said he has negotiated "more than 100 complex class-action settlements,'' including cases against Lucent and Rite Aid that brought in a total of $900 million for investors. Schulman also is listed as a securities fraud litigator on the site and recently represented Disney investors seeking to recoup former company President Michael Ovitz's $140 million severance.

Two other men already have been indicted in connection with the federal investigation of referral fees among securities lawyers. Paul T. Selzer, a California lawyer, and Seymour Lazar, a retired attorney, have been charged with money laundering in connection with the alleged kickback scheme. Selzer is accused of helping to funnel illegal payments to Lazar, who served as lead plaintiff in securities fraud cases. Selzer allegedly used referral payments made to him by Milberg Weiss to settle Lazar's legal bills with his firm and to make political contributions on his behalf.

Labels: Melvyn Weiss, Milberg Weiss, money laundering

SEC hits 4 KPMG execs with record fines

Reuters
February 22, 2006

Four former and current partners of Big Four accounting firm KPMG agreed to pay record-setting fines to settle charges stemming from a 1997-2000 earnings manipulation scheme at copier maker Xerox Corp., U.S. regulators said on Wednesday.

The Securities and Exchange Commission said three of the executives agreed to pay civil penalties and to be suspended from practice before the SEC, with rights to reapply in one to three years, while a fourth partner agreed to be censured...

...The SEC said the four individuals agreeing to settle were Ronald Safran, KPMG engagement partner on the Xerox audit for 1998 and 1999; Michael Conway, senior engagement partner on the audit for 2000; Anthony Dolanski, engagement partner for 1997; and Thomas Yoho, review partner from 1997-2000...

..."The Xerox fraud was a wide-ranging, four-year scheme to defraud investors," said Paul Berger, SEC associate director of enforcement. "The cases brought by the SEC ... have resulted in over $55.2 million in penalties and disgorgement"...

Labels: KPMG

Morgan Stanley offers $15m to make up for missing emails

By OUT-LAW.COM
February 22, 2006

Investment bank Morgan Stanley has offered to pay the Securities and Exchange Commission (SEC) $15m to settle an investigation by the regulator into an alleged failure by the firm to produce email evidence during a legal dispute.

According to an Annual Report filed by Morgan Stanley with the SEC earlier this month, the investment bank has reached "an agreement in principle" with the enforcement division of the SEC, but the settlement has not yet been presented to the full SEC...

...The investigations relate to the 1998 sale of Coleman Co, owned by billionaire Ronald Perelman, to Sunbeam Corp.

Labels: Morgan Stanley

Fractured Class Actions - "Opt-outs" are a growing headache for companies

Business Week
FEBRUARY 27, 2006

...Plaintiffs' attorney William S. Lerach is at the forefront of what has become the latest headache for defendants in securities cases. No hard statistics are available, but opt-outs appear to be a more popular tactic for plaintiffs' lawyers. "There's no doubt that the numbers are up," says Stanford Law School's Joseph A. Grundfest, who monitors the litigation...

...While Lerach has helped hammer out plenty of class-wide deals in his time, he now lauds the virtues of opting out. "Why should investors sit passively by and take a couple cents on the dollar?" he says. "This is an extraordinarily powerful tactical weapon."

The trend is causing concern in courtrooms and boardrooms. On Feb. 8 a federal judge in New Jersey postponed approval of a $195 million settlement between KPMG International and tax shelter investors because more than 60 of the 284 investors had chosen to pursue their own litigation. Cheryl L. Evans, special counsel for the U.S. Chamber Institute for Legal Reform, says opt-outs increase costs for companies. "When you have this fragmentation, companies are paying to settle several cases when it's more efficient to work on one front," she says...

...There's always a risk that breakaway investors could do worse by striking out on their own, but there's enough evidence to the contrary to keep fueling the trend...

Labels: KPMG, Standford Securities Class Action Clearing House

Labels: Melvyn Weiss, Milberg Weiss

U.S. won't indict high-profile lawyers

February 21, 2006
AP Newswire
Seattle Post Intelligencer

Federal prosecutors have decided not to seek charges against class-action lawyer William Lerach and his former partner, people familiar with the investigation said Tuesday. Lerach and Melvyn Weiss, former partners who had a bitter falling out in 2004, were told Friday that they would not be prosecuted in connection with a five-year investigation into whether they paid kickbacks to people who served again and again as the lead plaintiffs in shareholder lawsuits, some which date to the 1980s.

It is unclear whether Weiss' law firm, Milberg, Weiss, Bershad & Schulman, or other partners will be indicted, the people said on condition of anonymity because the Justice Department has not made any public comment about the lawyers.

Lawyers for Lerach and Weiss did not immediately comment Tuesday.

Retired lawyer Seymour Lazar was indicted in June, accused of accepting kickbacks from Milberg, Weiss in exchange for serving as plaintiff, or getting others to serve, in more than 50 suits. Paul Selzer, Lazar's lawyer, also was indicted on charges he laundered the payments to Lazar.

Labels: Department of Justice, Melvyn Weiss, Milberg Weiss

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FBI Probes Site, Ponzi Scam Alleged

By Gregg Keizer
TechWeb News
February 17, 2006

The Federal Bureau of Investigation announced this week that it has begun an inquiry into 12dailypro.com, a so-called "auto-surfing" marketing company that's been accused of running a Ponzi scam...12dailypro is one of several "auto-surf" sites on the Web that promise large returns to members who agree to view their ads. More than two weeks ago, its payment processor, StormPay, suspended payments to 12dailypro members, claiming that the site was an illegal Ponzi scheme...

...12dailypro.com members, including the company's president, Charis Johnson, continued to rail against StormPay on message forums, at times taking a conspiratorial view of the Ponzi allegations. "The fact is that kind of media in this world are only pawns for a larger enemy, who will eventually lose his battle. Yesterday I lost sight of that," wrote Johnson Thursday. "I am under fire right now and my faith is being tested. I will continue to pray that I will not act as the world does and I will remember who's ultimately in control."

She was confident, however, that the FBI investigation would exonerate 12dailypro. "We have been completely up front with investigators and have answered all questions posed to us and cooperated fully," she wrote on Wednesday. "Let me assure you, had they deemed this to be a scam, I would not be chatting with you right now. I would be in custody."

For its part, StormPay is under investigation by Tennessee authorities who are conducting an audit of the 30,000 to 35,000 frozen 12dailypro accounts...

Labels: ponzi scheme

Westly's history of questionable IPO stock trades

Lance Williams
Chronicle Staff Writer
February 19, 2006

...Experts say 33 of state Controller Steve Westly's dot-com-era stock purchases appear to be consistent with the banned practice of laddering. Under such a scheme, investors are given a chance to buy at a stock's initial public offering price if they agree to buy a like amount of the stock at a much higher price once the stock opens on the market...Such schemes boost the price of the stock, creating the illusion that the stock is in high demand...Westly says he made no such agreement...

...Columbia University law Professor John C. Coffee, an expert in securities fraud, said Westly's trades in the stocks were "consistent with the pattern and phenomenon of laddering." A rational investor would not continue to make those money-losing second purchases of stock, he reasoned. "I don't see another obvious explanation" except a laddering scheme, Coffee said...

...Experts say laddering schemes have been deployed in every bull market since the 1920s. During the dot-com era, investment bankers often specified the number of shares an insider had to buy in the aftermarket to get in on a hot IPO, said Howard Sirota, a plaintiff's lawyer in the combined class-action lawsuits in New York...

The victim of laddering, said Columbia professor Coffee, is the little guy.

Industries Get Quiet Protection From Lawsuits

By Myron Levin and Alan C. Miller
L.A. Times Staff Writers

WASHINGTON — Near sunrise on a summer morning in 2001, Patrick Parker of Childress, Texas, swerved to avoid a deer and rolled his pickup truck. The roof of the Ford F-250 crumpled, and Parker didn't stand a chance. His neck broke and, at 37, he was paralyzed from the chest down. He sued, and Ford Motor Co. settled for an undisclosed amount. "You can imagine what happens when you're belted in and the roof comes down even with the door," Parker said. "Your options are death or quadriplegia."

Parker's case and hundreds like it are behind a beefed-up roof safety standard proposed in August by the National Highway Traffic Safety Administration. But safety regulators tucked into the proposed rule something vehicle makers have long desired: protection from future roof-crush lawsuits like the one Parker filed.

The surprise move seeking legal protection for automakers is one in a series of recent steps by federal agencies to shield leading industries from state regulation and civil lawsuits on the grounds that they conflict with federal authority.

Some of these efforts are already facing court challenges. However, through arcane regulatory actions and legal opinions, the Bush administration is providing industries with an unprecedented degree of protection at the expense of an individual's right to sue and a state's right to regulate.

In other moves by the administration:

• The highway safety agency, a branch of the Department of Transportation, is backing auto industry efforts to stop California and other states from regulating tailpipe emissions they link to global warming. The agency said last summer that any such rule would be a backdoor attempt by states to encroach on federal authority to set mileage standards, and should be preempted.

• The Justice Department helped industry groups overturn a pollution-control rule in Southern California that would have required cleaner-running buses, garbage trucks and other fleet vehicles.

• The U.S. Office of the Comptroller of the Currency has repeatedly sided with national banks to fend off enforcement of consumer protection laws passed by California, New York and other states. The agency argued that it had sole authority to regulate national banks, preempting state restrictions.

• The Food and Drug Administration issued a legal opinion last month asserting that FDA-approved labels should give pharmaceutical firms broad immunity from most types of lawsuits. The agency previously had filed briefs seeking dismissal of various cases against drug companies and medical-device manufacturers.

In a letter to President Bush on Thursday, Rep. Jan Schakowsky (D-Ill.) said, "It appears that there may have been an administration-wide directive for agencies … to limit corporate liability through the rule-making process and without the consent of Congress." Administration officials said the initiatives had not been centrally coordinated.

"Under the constitution, federal laws take priority over inconsistent state laws," said Scott Milburn, spokesman for the White House Office of Management and Budget. "Decisions about … whether particular rules should preempt state laws are made agency by agency and rule by rule."

Preemption initiatives by regulatory agencies have drawn less public attention than controversial legislative moves supported by the White House. With administration support, Congress has restricted class-action suits and banned certain claims against gun makers and vaccine producers.

By embedding similar protections for businesses in regulatory changes, the administration has advanced Bush's repeated pledge to rein in what he calls junk lawsuits. On Thursday, for example, when the Consumer Product Safety Commission adopted a rule to curb mattress fires, it recommended for the first time that courts bar suits against manufacturers that comply with the new standard. Schakowsky called the move "part of an unfortunate and troublesome pattern … to undermine consumer rights."

In addition to trying to bar suits over vehicle roof failures, the highway safety agency in recent months has sought broad legal protection for manufacturers in two other rules on the grounds that lawsuits could undermine its safety goals. One rule related to rear seat belts and the other to visibility requirements for trucks. No similar exemption clauses have been attached to any other highway safety agency rule changes for 35 years.

Industry executives, lobbyists and lawyers have shuttled through jobs in the highway safety agency and other departments over the years, but in the Bush administration, auto industry ties have grown more conspicuous. Before becoming White House chief of staff, Andrew H. Card Jr. served as a General Motors Corp. vice president and as chief executive of the top auto industry trade group. The acting head of the highway safety agency, Jacqueline Glassman, was a senior attorney for DaimlerChrysler Corp. before she became the agency's chief counsel in 2002.

Jeffrey A. Rosen, who became general counsel at the Transportation Department in 2003, was a senior partner at Kirkland & Ellis, a powerhouse law firm that has defended GM in numerous product-liability suits and represents the Alliance of Automobile Manufacturers. Rosen denied using his position to benefit automakers. "We have issued a number of major rules in the two years that I have been here," he said. "Some of them are supported by industry, some are opposed."

Michael S. Greve, a resident scholar at the conservative American Enterprise Institute, has written that preemption is crucial to protect the economy from "trial lawyers, ambitious state attorneys general and parochial state legislatures."

But critics say the preemption push contradicts the conservative ideals of a limited federal government and states' rights — principles espoused by Bush. "This is the most aggressive federal government in the history of the United States," said California Atty. Gen. Bill Lockyer, a Democrat. Some say the election calendar is spurring the moves.

"The message has been clear in the last couple of years that if industries are going to get protection, they need to get it now," because no one knows what will happen in the next election, said Jonathan Turley, a George Washington University law professor.

Rollover accidents kill more than 10,000 people in the U.S. each year, and seriously injure an additional 16,000. Consumer groups say better roofs would have saved thousands of victims over time. Automakers counter with the "roof dive" theory — that rollover victims fall head-first to the roof as it strikes the ground, injuring themselves whether the roof holds or buckles. Thus, they say, the value of stronger roofs is practically nil.

Brian O'Neill, president of the Insurance Institute for Highway Safety, called this argument "patently nonsense." If it were true, he said, people would be "just as well-off in a rollover in a convertible as a hardtop." The highway safety agency always has agreed that roof failures can cause death and injury. Its roof-crush proposal estimates that 596 deaths and 807 serious injuries a year are linked to roof collapse.

Its proposed rule would increase the force a roof must withstand in a rollover from its current 1.5 times a vehicle's weight to 2.5 times — at a cost per vehicle of about $12. It would cover large trucks and SUVs of more than 6,000 pounds for the first time. The agency also is considering requiring stability control systems to reduce rollover risk. The revised roof rule would create "the strongest ever uniform set of minimum … standards" for automakers in the U.S., Transportation Department spokesman Brian Turmail said.

However, the safety agency is projecting relatively modest benefits from the upgrade: 13 to 44 deaths and 500 to 800 injuries prevented a year. One reason: Nearly 70% of existing vehicles already meet the proposed standard.

Critics call this a token improvement. The stiffest criticism, however, has been reserved for the effort to grant immunity from lawsuits. The safety agency says its push to preempt personal injury litigation is based on a concern that automakers, fearful of lawsuits, might beef up roofs to such an extent that the vehicles become top-heavy and more prone to roll over.

John G. Womack Jr., a former acting chief counsel at the safety agency, said that equating roof strength with weight was a "very debatable proposition." Other options are to use high-strength steel or widen the stance of vehicles to compensate for heavier roofs, he said.

Diverse groups — including Public Citizen, a consumer watchdog, and the National Conference of State Legislatures — have condemned the provision and questioned the highway safety agency's authority to protect automakers. Some have complained that if companies could not be held liable for damages, it would remove incentives for automakers to exceed minimum safety standards.

A bipartisan group of 26 state attorneys general said in a December letter to the highway safety agency that the lawsuit ban, if accepted by the courts, would shift significant costs of caring for seriously injured victims from the industry to taxpayer-funded programs such as Medicaid. It would also conflict with consumer rights, they said. "Such an extreme step is unwarranted in the absence of express congressional intent," they wrote.

Roof-crush suits have resulted in costly settlements and verdicts against automakers at a time of widespread financial trouble for the U.S. industry. In 2004, Ford paid $41 million in a case in which a California appeals court compared the company's use of a fiberglass and metal roof in the 1978 Bronco to "involuntary manslaughter."

The same year, a San Diego jury awarded damages against Ford of $367 million, later reduced by the judge to $150 million. In 2003, GM was hit with a $19.6-million verdict, described as the largest product liability award in Nebraska history. The San Diego and Nebraska cases are being appealed.

For victims like Parker, the prospect of manufacturer immunity is an especially bitter pill. The paralyzed Texas man, who had worked as a technician for a local utility, said he at least gained some financial security through litigation by extracting a settlement from Ford. Otherwise, he said, he and his wife "would have been living from hand to mouth."

He criticized the preemption clause, saying it was as if the industry had "this red phone and they just pick it up and it automatically dials NHTSA." The immunity clause was unexpected, even to some in the industry. "Whether this was some conspiracy or whether it was a pleasant surprise, I really don't know," said Barry Felrice, director of regulatory affairs with DaimlerChrysler in Washington. Spokesmen for GM and Ford said that their companies had not lobbied for the lawsuit ban but that they supported it.

Bill Walsh, a former highway safety agency senior executive who worked on the rule before retiring in 2004, said the immunity language "was dropped in from out of the blue." Preempting lawsuits, he said, was "different from how we normally operated … in issuing regulations." Rosen, the Transportation Department's general counsel, said this was not the first time the highway safety agency had tried to override state liability laws.

During the 1990s, the agency joined automakers in arguing that they shouldn't be sued for not installing air bags at a time when the agency allowed either air bags or automatic seat belts. In 2000, the Supreme Court agreed that such suits were preempted but said that compliance with a standard ordinarily "does not immunize a manufacturer."

Card, the White House chief of staff, and Glassman, the agency's chief counsel, declined to discuss how the roof-crush lawsuit preemption originated. Rosen said he did not want "to get into the specifics of who said what to whom…. As a legal matter, I'm obliged to protect the deliberative process."

The Rev. Lawrence Harris of Pittsgrove, N.J., sees the issue from the vantage point of his wheelchair. Had his claim been preempted after a devastating accident with his family in North Carolina, he might not be preaching on Sundays. Harris, then 46, was wearing a seat belt but suffered a fractured spine in 1997 when his Ford Econoline van rolled over. Except for minimal movement in his hands, he was paralyzed from the chest down.

With the damage award he won from Ford, Harris installed a roll-in shower and wheelchair lift in his house, hired a caretaker to help him dress each morning, and modified a van so he could continue as pastor of Olivet United Methodist Church. Without the lawsuit, he said, "I would not be able to do the things I'm able to do." If automakers are immune, Harris said, "where is the check and balance going to be for them?"

Within days of its roof-crush proposal, the highway safety agency again backed the auto industry in challenging California's efforts to cut emissions. The Alliance of Automobile Manufacturers had gone to court to stop the state Air Resources Board from regulating tailpipe emissions of carbon dioxide and other greenhouse gases, contending the rule was preempted.

Because carbon dioxide emissions drop when less fuel is burned, the industry attacked the rule as a backdoor attempt to regulate fuel economy — under federal law, the exclusive domain of the highway safety agency. The agency agreed. On Aug. 23, it issued new mileage standards for light trucks, saying that its authority over fuel economy meant that "a state law that seeks to reduce motor vehicle carbon dioxide emissions is … preempted."

Industry lawyers filed papers the next day in U.S. District Court in Fresno informing the judge of the agency's position. California's global warming rule, which would first apply to 2009 models, is not all that's at stake in the Fresno case. Ten states have copied California's emission rule, and all those rules could be wiped out if the industry wins.

Rosen's former law firm, Kirkland & Ellis, represents the Alliance of Automobile Manufacturers in the suit to block California's global warming rule. The suit was filed in late 2004, a year after Rosen left the firm to join the Transportation Department. Transportation spokesman Turmail said Rosen did not discuss the matter with the law firm. In considering the safety agency's position on the matter, Rosen acted in the government's interest, Turmail said.

Eleven U.S. senators from both parties and 29 House Democrats from California have urged Transportation Secretary Norman Y. Mineta to reverse the agency's opposition to the emissions standard. "Rather than attempting to thwart such state efforts, the federal government should encourage states to develop innovative solutions to serious public health and environmental problems," the senators wrote to Mineta in December.

Kirkland & Ellis also represented automakers in another case against California regulators. In 2002, the industry — backed by the Justice Department — challenged a state rule that required production of a certain number of non-polluting vehicles.

Rosen said he did not participate in that case while he was with the law firm. The case was settled when the state agreed to remove language that the industry said amounted to regulating fuel economy. The Bush administration also helped two industry groups overturn a regulation requiring the purchase of cleaner-running fleet vehicles such as buses and garbage trucks in Southern California.

The Engine Manufacturers Assn. and Western States Petroleum Assn. claimed the rule by the South Coast Air Quality Management District was preempted by federal law. Their challenge was rejected in federal district court and by a federal appeals court. When the case went to the U.S. Supreme Court, the Justice Department filed a brief siding with the industry. The high court agreed that the local rules were preempted.

In the past, said California's Atty. Gen. Lockyer, when industries challenged state regulations, "the federal government abstained from those lawsuits." Now, he said, there's "a policy of rubber-stamping whatever business wants, and that's too bad." The idea behind another California law was simple: Tell credit cardholders on monthly bills how long it would take to retire their debt if they paid the minimum amount. But major banks issuing most of the nation's credit cards didn't like it. In a 2002 court challenge, they attacked the state's credit disclosure law with help from a powerful ally.

The U.S. Office of the Comptroller of the Currency joined forces with the American Banking Assn., Citibank and other plaintiffs, arguing in a friend-of-the-court brief that the law interfered with federal authority to regulate national banks, and with powers granted to the banks by their federal charters. A federal judge blocked the law from going into effect, and the state lost a subsequent appeal. Intervention by the comptroller's office "definitely tipped the balance," said Gail Hillebrand, a lawyer for Consumers Union, which had backed the state's position.

In recent years, the comptroller's office on many occasions has helped national banks and their subsidiaries fend off investigations or enforcement actions by state officials on preemption grounds. In 2004, for example, the agency helped to shoot down a California law that would have required customer permission before banks shared their personal information with business affiliates. Although a U.S. District Court judge upheld the privacy law, an appeals court ruled last year that its major provisions were preempted by federal law.

Last year, the agency went to court on the side of a banking association to block an investigation by New York Atty. Gen. Eliot Spitzer into possible racial bias in the lending practices of several banks. A federal judge agreed that Spitzer's investigation "impermissibly infringes" on the authority of the comptroller's office. The state is appealing.

Turf battles over banking regulation have occurred in the past, but the Office of the Comptroller of the Currency has become more aggressive in pushing preemption under Bush. Agency officials say they have zero tolerance for abusive practices and bristle at complaints that they might be chasing off state watchdogs to the detriment of consumers.

The banks "have an enormous body of consumer compliance laws and regulations that we apply to them at the federal level," said Julie L. Williams, the agency's senior deputy comptroller and chief counsel. But Arthur E. Wilmarth Jr., a George Washington University professor specializing in banking law, said, "The OCC hasn't been, shall we say, a very zealous enforcer on the consumer side…. States have been far more vigorous."

Greve, the American Enterprise Institute scholar who has been a mainstay of the conservative brain trust promoting preemption, said well-connected industry law firms were part of a policy network providing legal and political rationale for the effort. He called them "a merry band of Washington lawyers … who know how to push the buttons" and get things done.

Levin reported from Los Angeles and Miller from Washington. Times researcher Janet Lundblad in Los Angeles also contributed to this report.

Labels: DaimlerChrysler, Department of Justice, Eliot Spitzer, New York AG

Merrill Settles Research Suits

By Walter Hamilton
February 18, 2006
L.A. Times

Merrill Lynch & Co. said Friday that it would pay $164 million to settle 23 class-action lawsuits alleging that investors suffered massive losses by following its dishonest stock recommendations, including those from its former star technology analyst, Henry Blodget.

The settlement represents a fraction of the money investors lost when the Internet bubble burst in 2000 and the stocks collapsed, and it will barely dent Merrill's bottom line. The Wall Street powerhouse reported $5.2 billion in profit last year. But prospects that investors would get any restitution had been in jeopardy since a federal judge in New York dismissed 11 of the cases in 2003.

"Perhaps this is not as much money as I would have liked to have gotten," said Herbert Milstein, the lead investor attorney on 20 cases. "But under the circumstances, it's a very good settlement"...

A New Front in KPMG’s Battle With the Feds

Posted by Peter Lattman
February 17, 2006, 3:19 pm

As it battles the government on the tax-shelter front, KPMG is now facing other charges from the SEC that two of its auditors ignored problems that arose during an audit of the U.S. subsidiary of Dutch supermarket chain Ahold. The Wall Street Journal’s Kara Scannell reports that the SEC’s charges were filed in an administrative proceeding alleging the auditors violated the rules of professional conduct when auditing Ahold’s books...

Labels: KPMG

Hedge fund managers bridle under new regs

By Craig M. Douglas
Boston Business Journal
February 19, 2006

New disclosure rules handed down by the Securities and Exchange Commission are rippling through Boston's investment community, triggering confusion and even some animosity among local hedge fund managers who say the regulations miss the mark.

SEC officials say 962 hedge fund managers have registered with the government since it amended the Investment Advisors Act of 1940. The measure, which requires hedge fund managers to disclose certain information about their operations, aims to protect investors and stabilize securities markets by creating better tracking mechanisms for the hedge fund sector.
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That said, it is still unclear whether the SEC's changes will be permanent: The new rules are being challenged in court by New York hedge fund Bulldog Investors, which is suing the SEC for overstepping its regulatory authority.

A U.S. appeals court in Washington, D.C., is expected to decide on that case shortly, and legal experts say a Bulldog win would ultimately quash the SEC's new decree. The disclosure rules have been in effect since Feb. 1.

"Frankly, it's not quite over yet," said Derek Meisner, a former branch chief at the SEC's Division of Enforcement and a law partner with Kirkpatrick & Lockhart Nicholson Graham in Boston. "There's more than an insignificant chance that the (SEC's) ruling could be overturned"...

US SEC's Atkins frets over settlement disclosures

February 16, 2006
Reuters

A member of the U.S. Securities and Exchange Commission expressed concern on Thursday about what he called "premature" disclosures by companies of settlements with the SEC over enforcement investigations. SEC Commissioner Paul Atkins said there is no clear guidance on when companies should disclose investigations or settlements with the investor protection agency.

He said he intends to work with SEC staff to develop guidance for companies on the matter. The SEC's enforcement division investigates suspected fraud and other misconduct and then recommends to the five-member commission a course of action, but must get approval from the commissioners to bring charges or agree to a settlement.

"I find it hard to believe that the freedom of the staff to recommend settlement to the commission is by itself necessarily an event that must be reported to shareholders," Atkins said at a legal conference.

...The law firm is operating with half of its 65-person staff since it returned to temporary offices in the Big Easy in early January. Several employees lost everything, including Leonard Davis, a partner at the firm, and his paralegal. "We're having a hell of a time," says partner Russ Herman. "We've got medical records destroyed at three hospitals that don't exist anymore"...

...Katrina has caused other serious problems for the 4,350 federal cases consolidated under U.S. District Court Judge Eldon E. Fallon in New Orleans. The first federal Vioxx trial was relocated to Houston after the hurricane, and ended in a mistrial in December. The retrial started in New Orleans on Feb. 6...

...A week after the storm, Herman staffers returned to the damaged office and pulled out essential files -- even those that were yellowed and moldy, Mr. Davis says. "We pick ourselves up and we move on and keep doing what we know how to do," he says. Mr. Davis recounts a humbling moment when he called Judge Fallon to tell him: "Judge, I'm not going to be able to file that brief today. I don't even have a stapler." Mr. Davis says he and Judge Fallon laughed about the predicament.

CA's ex-CEO Kumar accused of deleting data

February 15, 2006
Marketwatch.com

Sanjay Kumar, ex-chief executive of the company formerly known as Computer Associates Inc., has been accused of destroying potential evidence by erasing his laptop's hard drive as the government gears up for an April 24 trial alleging accounting fraud.

In papers filed Feb. 2 with the U.S. District Court in Eastern New York, the U.S. Attorney's office said it will submit new evidence showing that Kumar reformatted his laptop to run the Linux operating system, which would effectively wipe out the computer's memory. It is also alleged that the reformatting occurred after the start of the government's investigation and after the company issued a directive to employees to preserve relevant evidence.

Kumar, along with former head of sales, Stephen Richards, has been charged with fraud and obstruction of justice in an accounting scandal at CA Inc. (CA), which changed its name in the fall of 2005, partly in an effort to distance itself from the scandal. The two executives were indicted in September 2004.

The government also plans to present evidence that Richards created a directory on his hard drive called "incinerate" shortly after receiving a subpoena from the Securities and Exchange Commission, according to the filing...

Labels: CA

"PIPEs" Plea for Deephaven

Stephen Taub, CFO.com
February 10, 2006

Officials at Deephaven Capital Management LLC, the asset-management subsidiary of Knight Capital Group Inc., have submitted a settlement offer to the Securities and Exchange Commission to resolve an investigation concerning trading activity associated with certain private investments in public equities (PIPEs). The SEC's staff has agreed to recommend the deal to the commission, according to a regulatory filing.

Under the terms of the settlement offer, Deephaven would disgorge about $2.7 million, and pay $343,000 in prejudgment interest and $2.7 million as a civil penalty. In addition, the settlement would clear the way for the SEC to file a civil complaint in federal district court in which the commission would allege that Deephaven traded in possession of material, nonpublic information concerning 19 PIPEs offerings...

Labels: PIPES

NASD orders Credit Suisse to pay couple $1.2 mln

February 13, 2006
Reuters

An NASD arbitration panel has ordered a unit of Credit Suisse Group to pay $1.2 million to a retired couple for putting their assets in unsuitably risky stock investments, the couple's law firm said on Monday.

The law firm, Carlson & Lewittes, said in a statement that the panel found Donaldson, Lufkin & Jenrette, now a unit of Credit Suisse, liable for negligence, making unsuitable investments, and failing to adequately supervise employees.

DLJ liquidated Rafael and Corina Montalvo's bond portfolio in 1999 and put the proceeds in aggressive proprietary managed accounts, a discretionary account managed by the branch manager for a DLJ office in Miami, and hedge funds, the law firm said.

The $1.2 million represents compensatory damages, Carlson & Lewittes said.
A spokesman for Credit Suisse was not immediately available.

Inside China's teeming world of fake goods

By Kristi Heim
Seattle Times business reporter
February 13, 2006

...Counterfeiting has become deeply entrenched in China's economy as a source of income for both small-time hawkers and powerful local tycoons. With millions of jobs dependent on the counterfeit trade, many in China think cracking down would mainly benefit foreign companies. While authorities recently have strengthened anti-piracy laws, economic and cultural forces will make change slow and difficult.

The U.S. trade representative claims that 90 percent of virtually every form of intellectual property in China is pirated. (Intellectual property includes copyrights on creative works such as music and software, patents on inventions and formulas, and trademark for logos.) China was the source of two-thirds of all counterfeit goods seized at U.S. ports in 2004.

U.S. and other foreign companies complain they are losing billions of dollars as their ideas and inventions are copied for sale within China and for export across the globe...

Labels: China

Sorrell orders Swiss bank inquiry

by Jon Rees
Mail on Sunday
February 12 2006

The bitter battle engulfing the Italian operation of advertising giant WPP grew even more ferocious this weekend. Investigators are probing a Swiss bank linked to alleged frauds at WPP Italy, while the group's chief executive, Sir Martin Sorrell, has been threatened with legal action.

Sorrell fired Marco Benatti, manager of WPP Italy, last month and filed a writ in London against him for breach of their consultancy agreement. Two more executives are expected to be fired within days, and Giovanni Bossi, chairman of the Italian arm, is likely to follow...

Conditions still ripe for ... another Enron?

By Carrie Johnson and Ben White
The Washington Post
February 12, 2006

Four years after the collapse of Enron spurred the most sweeping revisions in business regulation since the Great Depression, experts warn that the ingredients for a similar financial disaster remain. Despite new laws and regulations, companies still face enormous pressure to meet short-term financial goals, creating a powerful motive for accounting fraud. Outsized executive compensation grows by the year, offering another rich incentive to cook the books. And there is no certainty that Congress will continue to fund regulatory budgets at current levels.

But some things have changed since December 2001, when Enron's sudden descent into bankruptcy protection rocked investor confidence and left the markets reeling. Accountants face independent oversight for the first time in 70 years. Most corporate board members take their jobs far more seriously. Wall Street is somewhat less willing to accommodate clients' interests.

Nearly a dozen experts contacted by The Washington Post, including regulators, accountants, chief executives and board members, agreed to fill out a corporate governance report card on the eve of the Enron trial. The Houston energy trader's implosion exposed wide gaps in the safety net designed to protect shareholders. Former executives Kenneth Lay and Jeffrey Skilling are standing trial in Houston on fraud and conspiracy charges.

Accountants exploited loopholes to curry favor with companies that paid their fees. Executives collected more than $400 million in salary and bonuses but denied knowing about fraud on their watch. Investment bankers engaged in sham deals to help clients meet quarterly profit targets. Boards of directors waived conflicts-of-interest policies and turned a blind eye to overly aggressive business practices. And overwhelmed regulators failed to devote enough resources to combat fraud.

Congress passed the Sarbanes-Oxley Act in July 2002, imposing new duties on corporate executives, auditors and directors. The Securities and Exchange Commission (SEC) and the Justice Department spent tens of millions of dollars to root out malfeasance. Along the way, prosecutors won criminal convictions and decades-long prison terms for former leaders of Adelphia, Tyco and WorldCom.

But the government efforts may have backfired, inspiring a dangerous overconfidence among investors.

"I just don't think we are as far along as we need to be," said former SEC Chairman Harvey Pitt, who led the agency when it brought the biggest-ever fraud case against telecommunications company WorldCom in 2002. "Many shareholders may have been led to believe that [reforms] have cured all the problems and we're home free. Unfortunately, that's a prescription for disaster"...

Labels: Department of Justice, Enron, Tyco

The companies that have received subpoenas control thousands of stations nationwide, including Clear Channel Communications Inc., Infinity, which now operates as CBS Radio, Citadel Broadcasting Corp., Cox Radio Inc., Cumulus Broadcasting Inc., Pamal Broadcasting Ltd., Entercom Communications Corp., Emmis Communications Corp. and ABC Inc., according to court records filed by Spitzer.

Two major recording companies agreed last year to settle their parts of the investigation. Warner Music Group Corp. said it would pay $5 million, and Sony BMG Music Entertainment agreed to pay $10 million.

The probe involves Jennifer Lopez's "I'm Real" and John Mayer's song "Daughters." Songs by other artists are also being examined, including those by Jessica Simpson, Celine Dion, Maroon 5, Good Charlotte, Franz Ferdinand, Switchfoot, Michelle Branch and R.E.M. Artists and writers are not targets, Spitzer's office said. In fact, they have supported the probe and provided several complaints that assistant investigators.

Labels: Eliot Spitzer

Web Sites Hawking Phone Records Shut Down

February 08 2006
By Jennifer C. Kerr
Associated Press Writer

Following a wave of negative publicity and pressure from the government, several Web sites that peddled people's private phone records are calling it quits "We are no longer accepting new orders" was the announcement posted Wednesday on two such sites, locatecell.com and celltolls.com. "Thank you for your patronage. It was a pleasure serving you," the sites said.

The Federal Trade Commission this week conducted a sweep of 40 sites known to have been selling private phone records. According to the FTC's Lydia Parnes, more than 20 sites have recently shut down or stopped advertising for new business. The agency has sent letters to about 20 other sites, warning them that they may be violating the law and should review their business practices, said Parnes, director of the FTC's Bureau of Consumer Protection.

Parnes, who testified before a Senate subcommittee on consumer affairs, said the commission also has a number of ongoing investigations into the sales. She did not elaborate. While some sites appear to be closing up shop, others have seen a boom in business with the recent media attention, said Marc Rotenberg, executive director of the Electronic Privacy Information Center.

Rotenberg urged lawmakers to ban a practice known as "pretexting," in which data brokers or others call a phone company, impersonate a customer and then persuade the company to release the calling records. Those records usually include whom a person called, who called them and the duration of the calls.

In one case that received a lot of attention recently, a blogger was able to buy the phone records of former Democratic presidential candidate Wesley Clark. All the site needed, it said, was Clark's cell phone number and a credit card payment of $89.95.

Pretexting for financial data is illegal, but there's no specific law against pretexting for phone records. Broader fraud laws can be used to prosecute the companies but several witnesses at the hearing suggested a specific law could help halt the shady sales. Lawmakers in both parties expressed outrage over the practice.

"This is fraudulent and criminal activity that must be prosecuted and must be stopped to protect innocent people," said subcommittee chairman George Allen, R-Va. Allen and Sens. Ted Stevens, R-Alaska, and Mark Pryor, D-Ark., are expected to introduce legislation Thursday that would outlaw pretexting for phone records.

The Federal Communications Commission is also investigating online data brokers. It has subpoenaed about 30 companies for information on how they are obtaining the phone records The FCC also is expected to consider whether to tighten rules governing the nation's phone carriers and how they handle customers' calling records.

Nortel agrees $2.5bn class action settlement

MSNBC/Financial Times
February 8, 2006

Nortel, the Canadian telecommunications company, said on Wednesday it had agreed a $2.5bn settlement in cash and shares of two class action lawsuits from shareholders following an accounting scandal that severely damaged its reputation...

Class Actions: Going Out of Style With a Bang?

Posted by Peter Lattman
February 7, 2006, 8:49 am
WSJ Law Blog

Last week in a post titled “Underlawyered.com,” we wrote about a study by Stanford law professor Joseph Grundfest, which found a steep drop in the overall number of securities fraud class actions filed.

Today, The Wall Street Journal’s Paul Davies has a story entitled “Class-Action Pay Settlements Soar.” Davies cites a study by Cornerstone Research finding that corporations paid a record $9.6 billion to shareholders to settle securities class action lawsuits last year, compared with $2.9 billion in 2004.

How to reconcile the two studies? The majority of last year’s payouts came from the $6.1 billion paid out by WorldCom and related parties. The number would’ve been even higher had it included the $7.1 billion settlement involving Enron, which was announced last year but hasn’t been finalized.

Labels: Enron, Standford Securities Class Action Clearing House

Why Let the I.R.S. See What the S.E.C. Doesn't?

February 5, 2006
Economic View
By ANNA BERNASEK

IMAGINE a company that makes a practice of keeping two sets of accounts. One version is revealed to the public through periodic Securities and Exchange Commission filings and public announcements. The other is never made public and conveys a markedly different picture.

Does it sound scandalous? Actually, it's common practice.

It isn't as if companies are breaking the law. Public companies are required by the S.E.C. to keep their books in accordance with generally accepted accounting principles, or GAAP, and to announce their results each quarter. At the same time, companies keep a separate and confidential set of books according to rules established by the Internal Revenue Service. These accounts seldom match. After all, companies typically have an incentive to state the highest possible earnings under GAAP and the lowest possible under tax rules.

Economists have long understood that profits reported to the I.R.S. may be a more reliable guide than those reported to the S.E.C. and scrutinized on Wall Street. The public presentation of accounts involves the exercise of an accountant's judgment on such topics as the useful life of assets, the probability of uncertain events and the fair value of property. Each exercise of judgment, on which reasonable people may differ, offers a degree of flexibility in the final reporting of results.

In general, tax rules are less lenient. That is because allowing companies too much leeway in stating how much tax they owe would make collecting taxes difficult. So when economists analyze corporate profits, they tend to focus on a measure derived from corporate tax returns. Unfortunately, the government publishes only aggregate data, so it is impossible to know what any particular company made, or paid, under I.R.S. rules.

It doesn't have to be that way. Companies already have basic tax information at hand that could be released to the public without imposing significant costs. And some experts say they believe that the benefits to investors, regulators and the overall tax system could be substantial.

A study published in 2003 concluded that the benefits of disclosing additional tax information would outweigh any costs. It was conducted by David L. Lenter, a lawyer now on the staff of the Congressional Joint Committee on Taxation; Joel B. Slemrod, an economist at the University of Michigan; and Douglas A. Shackelford, an accountant at the University of North Carolina.

In the study, published in the National Tax Journal, they quickly agreed that corporate tax returns, which can run into thousands of pages, should not be exposed in their entirety. That could reveal sensitive information that companies have a legitimate need to keep private, they said.

But a simple presentation of summary information — the bottom-line numbers, for example — would have many attractions. Even better, companies could release a simplified version of a schedule that they already prepare. The I.R.S. currently requires companies to reconcile the differences between the numbers on their financial reports and the corresponding amounts on their tax return, but so far those reconciliations have not been made public.

Greater disclosure of tax information would allow investors and analysts to better appreciate the true economic condition of a company. More transparent tax figures would also give analysts a tool to cut through the sometimes confusing tax disclosures currently provided under S.E.C. rules. Even more significantly, investors could track a company's performance under an accounting system believed to be less susceptible to manipulation than GAAP. Together, these effects would permit investors to value securities with greater confidence. Over all, the researchers say they believe that it would help financial markets function more efficiently.

Another significant benefit could be to improve the transparency of the tax system to the voting public. Despite all the information embedded in accounting footnotes, some basic questions go unanswered. Under current S.E.C. rules, a public company does not have to reveal precisely what it paid in taxes for a specific year. "Right now the tax numbers companies release can contain things like taxes on audits 20 years ago," Professor Shackelford said. "What they don't tell us is how much they paid the government in taxes in 2005, for instance. You can't find that anywhere."

The study argued that if companies revealed that figure, it would help clarify how much tax a company was paying relative to its income and relative to other companies. And that would yield positive benefits. For instance, the study says, it could put pressure on legislators to improve the tax system. And it could discourage corporations from aggressive tax-reduction strategies if they feared public criticism.

THERE is good cause for trying to understand what is really going on with corporate taxes, company by company. The aggregate figures suggest a disturbing trend. While companies have reported rising profits in recent years, corporate tax receipts have been dwindling. In the late 1990's, corporate tax receipts hovered between 2 percent and 2.2 percent of the country's overall gross domestic product. But from 2000 to 2004, the last year for which figures are available, the ratio of corporate tax receipts to G.D.P. has dropped, ranging between 1.2 and 2 percent.

Without reliable tax information, we can only guess at what companies are really up to. During the late 1990's, company profits based on tax return information — the profit figure most watched by economists — grew at a much slower rate than reported profits. The divergence between the two measures implied that either companies were finding new ways to minimize their tax bills or they were finding new ways to overstate their accounting earnings. We now know that at least some companies were indeed bolstering their earnings, through both legal and illegal maneuvers.

After a brief reconciliation in 2001 and 2002, reported earnings and taxed earnings are again diverging. While disclosing some basic tax information won't by itself prevent the kinds of abuses that multiplied in the 1990's, it is a step in the right direction. And that's what good public policy is all about.

Hedge fund star faces ban

The Sunday Times
February 05, 2006
By Peter Koening
and Louise Armitstead

One of Europe’s largest hedge funds and its star trader face censure by the City regulator as early as this week over an insider-trading scandal that has rocked the financial capital. Sources close to the Financial Services Authority (FSA) say Philippe Jabre, a fund manager at GLG Partners, may be fined and barred from trading after a two-year investigation. GLG, his employer, could be fined.

But people familiar with the investigation say GLG and Jabre are already considering appeals. So far the probe has taken place behind closed doors. An appeal would be held in public before The Financial Services and Markets Tribunal, a body that has been critical of the FSA in the past. An open hearing may prove embarrassing for the FSA as well as for Goldman Sachs, the US investment firm that managed the 2003 stock sale by Japan’s Sumitomo Mitsui bank, which is at the heart of the FSA’s investigation.

GLG and Jabre are expected to argue Goldman supplied privileged information about the stock sale in a way that left Jabre free to deal without breaking insider trading rules. GLG and Jabre are also expected to claim that Goldman and the FSA sat on evidence that supported this defence...

Labels: Financial Services Authority, insider trading, Philippw Jabre