SEC Modifies ‘Admit Nor Deny’
One month after a federal judge in New York rejected a proposed $285 million settlement between Citigroup and the Securities and Exchange Commission, the agency announced that defendants can no longer settle civil cases using “neither admit nor deny” language if they have already admitted to wrongdoing in parallel criminal cases. SEC Enforcement Director Robert Khuzami, who made the announcement in January, said changing the language would affect only a small number of cases. It would have no bearing on the Court’s decision regarding Citigroup, which the SEC plans to appeal.
In one of the most egregious examples, Bernard Madoff pleaded guilty in 2009 for his role in a multibillion-dollar Ponzi scheme, but neither admitted nor denied the allegations in a settlement with the SEC.
“It was ludicrous to say the defendant does not admit charges that he’s already pled criminally guilty to,” John Coffee, a professor at Columbia Law School, told the Chicago Tribune.
The practical impact of the change could be limited. Since defendants will not be required to admit to allegations beyond those in a criminal case, it may do little to help private litigants sue on similar grounds, a concern companies have long raised. “It is a very small, marginal change,” but it “does make them look more flexible,” Coffee said.
In a separate action, the SEC filed FCPA charges against eight former Siemens executives, marking the first charges against a board member of a Fortune Global 50 company. The decade- long bribery scheme was aimed at establishing and protecting a $1 billion contract to produce national identity cards for Argentine citizens. “Our investigation reveals that there were few lines the executives were unwilling to cross to win the contract,” Khuzami said in a conference call on the charges in early January, noting that Siemens executives allegedly approved up to $100 million in bribes.
Recipients of those bribes allegedly included two presidents and cabinet ministers in two Argentinean administrations between 1996 and 2007. Of the funds used in the scheme, approximately $31.3 million were made after March 2001, when Siemens became a U.S. issuer.
Law Firm Warns of ‘Time Bomb’ After Comcast’s Roberts Is Fined
Comcast CEO Brian L. Roberts faces a $500,000 fine for acquiring Comcast stock between 2007 and 2009 and failing to notify the Federal Trade Commission and the Department of Justice before receiving voting shares beyond Hart-Scott-Rodino Antitrust Improvement Act (HSR Act) limits. Roberts originally obtained and made appropriate HSR filings for restricted Comcast stock units in connection with the company’s 2002 merger with AT&T. The shares vested to voting shares in 2007, while his approval expired in September of that year. He continued to obtain Comcast shares after the expiration without notifying the FTC or DOJ until August 2009, when he made a corrective filing and admitted to inadvertently violating the requirements due to faulty advice from outside counsel. Roberts did not gain financially from the violation, and reported the issue once it was discovered, according to the FTC. Considering these factors, the FTC opted not to seek the daily fine option authorized under the HSR Act, which could have totaled almost $9 million, according to a Latham & Watkins client advisory. “This case is a reminder for executives that they must be careful to avoid passive and inadvertent violations of the HSR Act. Counsel should also keep this cautionary tale in mind when advising companies and executives on compensation issues, including awards that will convert automatically into voting shares, to be sure that they are not setting time bombs,” the law firm advised.
Shareholders, Firms Disagree on Frequency of Votes
Seventy-two percent of shareholders called for annual compensation votes in the 2011 proxy season, the first in which the Dodd-Frank Act mandated nonbinding “say-on-frequency” votes, finds GMI in the final report in its say-on-pay series. Only 53 percent of management teams recommended annual votes, while 42 percent recommended the maximum triennial votes, citing the need for extra time to evaluate the programs, review shareholder input and implement changes. At the time of GMI’s study, 40 percent of companies had not yet decided which voting frequency to use, 10 percent had adopted a triennial policy, 50 percent had adopted an annual schedule, and just 0.37 percent chose biennial.
GMI also released its 2011 CEO Pay Survey, which found that total realized compensation in the S&P 500 and the Russell 1000 rose by 36 and 38 percent, respectively. Of the 10 highest-paid CEOs in 2010, three were from the health care providers and services industry, including the top two (John H. Hammergren of McKesson at $145.3 million and Joel F. Gemunder of Omnicare at $98.3 million). Russell 3000 companies saw a median increase in total realized compensation of 27.19 percent, in contrast to a 6.38 percent drop in 2008 and another decrease of 0.28 percent in 2009, often fueled by larger stock option exercises and vested stock profits in 2010.
Global M&A Slow to Return
Limited economic growth and sovereign debt concerns may prevent global mergers and acquisitions from returning to the $4 trillion volume level seen in 2007, according to Bloomberg’s 2012 Global M&A Outlook Survey. Forty percent of those surveyed viewed the energy and power industries as capable of the biggest jump in deal making, while basic materials and financial companies were also expected to succeed in M&A. While the 2011 study found that more than 40 percent of respondents expected equity to be the largest source of M&A funding, the majority of this year’s respondents believed internal cash reserves will be the main source.
Yahoo Explores New Directors
Yahoo Inc. is searching for several board candidates to replace possible outgoing directors, including Chairman Roy Bostock, The Wall Street Journal reported in early January. The executive search firm Heidrick & Struggles International has been hired to help in the effort. Yahoo director Patti Hart, head of the board’s nominating and corporate-governance committee, is spearheading the search. According to the WSJ, directors including Bostock and Yahoo co-founder Jerry Yang have been criticized by some shareholders who have complained about Yahoo’s handling of a strategic review and other issues, including its decision to rebuff a 2008 takeover.
Facebook Aside, Market for IPOs to Stay Cool
A Renaissance Capital study finds more than 200 American firms are waiting to go public, but fragile conditions and a significant backlog of initial public offerings highlight the tepid market, The New York Times reported. Facebook’s upcoming IPO has a market value estimated at $100 billion, but analysts say it will take more than that to heat up the market for IPOs. Nearly 70 percent of companies that went public in 2011 are trading below their offering prices.
Class Actions Stay Steady, Foreign Issuers Scrutinized
The number of shareholder class-action lawsuits filed in 2011 is likely to be on par with annual levels between 2008 and 2010, reports the NERA’s Recent Trends in Securities Class Action Litigation: 2011 Year-End Review. The report projects that there will be 232 shareholder class-action filings in 2011, while 2010 saw 241, 218 were filed in 2009, and 245 were filed in 2008. The study’s authors found that the number of filings remained steady but the composition of shareholder suits changed. Sixty- four cases were filed against foreign issuers, with a particular surge in the number of Chinese companies listed in the U.S. (at 29). Average settlement value decreased to $31 million from the 2010 average of $108 million.
Norway Fund Targets Staples, Schwab, Other U.S. Firms
Norges Bank Investment Management, managers of the $550 billion Norwegian Government Pension Fund Global, is calling on U.S. companies in which they invest to ease their director-replacement processes following financial performance and governance concerns. The fund has asked Charles Schwab, CME Group, Pioneer Natural Resources, Staples, Western Union and Wells Fargo to give shareholders proxy access, allowing them to list director candidates on proxy ballots along with management’s nominees. The Norwegian fund has $98 billion invested in U.S. firms, and is the 19th-largest Wells Fargo shareholder.
China Fund ‘Keen’ to Invest in West’s Infrastructure
China’s sovereign wealth fund, China Investment Corp., has expressed interest in improving infrastructure in the U.S. and Europe to help global economic growth. The fund, established in 2007 to invest abroad and which holds mostly U.S. and European government bonds, reportedly plans to begin the program in Britain. Some Chinese commentators have criticized the fund for investing in only government bonds, and have called for fewer bond purchases with a focus on individual projects in the hopes of being less affected by the sovereign debt crisis.
More Funds Divest From Companies With Iranian Ties
The Massachusetts public employees pension fund has divested all of its stakes in companies with major ties to Iran’s energy industry, according to a story published by Reuters. The decision by Pension Reserves Investment Management follows similar divestitures by other states, most notably Florida, Georgia and New York. In total, a half-dozen companies were divested in accordance with a new Massachusetts law, including Gazprom, Hyundai Heavy Industries and Siemens Ltd.
Expanding Ranks Not in Cards For 2012, Say CEOs
Only 35 percent of U.S. CEOs surveyed by the Business Roundtable in its fourth-quarter CEO Economic Outlook Survey expect to increase their company’s employment rankings over the next six months, down 1 percent from 3Q 2011. Forty-two percent of respondents expected employee populations to remain constant, while 24 percent planned to cut jobs. Fifty-two percent expected capital spending also to stay constant, and 32 percent expected an increase. In contrast, 68 percent expected an increase in company sales in the first half of 2011. The survey found that CEOs’ highest cost pressures stemmed from materials (25 percent), regulation (24 percent) and health care (20 percent).
CEO Safety Net Invites Risk Taking
CEO severance packages can decrease a company’s stock performance by as much as 4 percent over the three years after the agreements are established, finds a new study by Tulane University’s Freeman School of Business Assistant Professor of Finance Peggy Huang.
Those that averaged a 4 percent underperformance rate were companies that offered cash-only contracts, while overall severance agreement establishment resulted in a 1.6 percent rate of underperformance. During the period studied, 1993 to 2007, the number of S&P 500 companies offering CEO severance payments more than doubled, to 56 percent.
New Slate at FASB
Thirteen new members have been appointed to the Financial Accounting Standards Advisory Council, effective Jan. 1. Charles H. Noski, vice chairman of Bank of America, was named chairman for a one-year term that began on Jan. 1.
The Council advises the Financial Accounting Standards Board, the private-sector organization responsible for setting accounting standards for U.S. companies, on technical issues related to FASB’s agenda, project priorities and other issues.
Noski’s appointment was made by John J. Brennan, chairman of the board of trustees of the Financial Accounting Foundation. The FAF is responsible for the oversight, administration and financing of the FASB and its counterpart for state and local governments, the Governmental Accounting Standards Board.
The FASB Advisory Council is comprised of:
- Kay Ryan Booth, managing director, Golden Seeds Fund
- Peter Carlson, EVP and chief accounting officer, MetLife
- Susan S. Coffey, SVP-Public Practice and Global Alliances, American Institute of CPAs
- Kenneth Daly, president and CEO, NACD
- Anthony J. Dowd, chief of staff and special assistant to the chairman, President’s Economic Recovery Advisory Board, Office of Paul A. Volcker
- Cynthia M. Fornelli, executive director, Center for Audit Quality
- Jan Hauser, partner, PwC
- Patrick E. Hopkins, professor of accounting and Deloitte Foundation Accounting
- Adam G. Hurwich, portfolio manager, Ulysses Management
- Joseph Longino, principal of Investment Strategy, Sandler O’Neill + Partners
- Patrick T. Mulva, VP and controller, Exxon Mobil
- James R. Taylor, partner in charge – Assurance, Hogan Taylor; faculty fellow, Kelley School of Business, Indiana University
- John W. White, partner, Cravath, Swaine & Moore