GE FUNDING CAPITAL TO PAY $70 MILLION FOR ANTI-COMPETITIVE ACTIVITY IN THE MUNI BOND MARKET

The following excerpt is from the Department of Justice website:

"WASHINGTON – GE Funding Capital Market Services Inc. entered into an agreement with the Department of Justice to resolve the company’s role in anticompetitive activity in the municipal bond investments market and agreed to pay a total of $70 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.

As part of its agreement with the department, GE Funding admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former traders.  According to the non-prosecution agreement, from 1999 through 2004, certain former GE Funding traders entered into unlawful agreements to manipulate the bidding process on municipal investment and related contracts, and caused GE Funding to make payments and engage in other related activities in connection with those agreements through at least 2006.  These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

“GE Funding’s former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Justice Department’s Antitrust Division.  “This anticompetitive conduct harmed municipalities, as well as taxpayers.  Today’s resolution requires GE Funding to pay penalties, disgorgement and restitution to the victims of its illegal activity.  We will continue to use all the tools at our disposal to uphold our nation’s antitrust laws and ensure competition in the financial markets.”

Under the terms of the agreement, GE Funding agreed to pay restitution to victims of the anticompetitive conduct and to cooperate fully with the Justice Department’s Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry.  To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation.  Nine of the 18 executives charged have pleaded guilty.    

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS) and 25 state attorneys general also entered into agreements with GE Funding requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of restitution to the victims harmed by the bid manipulation by GE Funding employees, as well as other remedial measures.

As a result of GE Funding’s admission of conduct; its cooperation with the Department of Justice and other enforcement and regulatory agencies; its monetary and non-monetary commitments to the SEC, IRS and state attorneys general; and its remedial efforts to address the anticompetitive conduct, the department agreed not to prosecute GE Funding for the manipulation of bidding for municipal investment and related contracts, provided that GE Funding satisfies its ongoing obligations under the agreement.

JPMorgan Chase & Co., UBS AG and Wachovia Bank N.A. also reached agreements with the Department of Justice and other federal and state agencies to resolve anticompetitive conduct in the municipal bond derivatives market.  On May 4, 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct.  On July 7, 2011, JPMorgan agreed to pay a total of $228 million in restitution, penalties and disgorgement to federal and state agencies for its role in the conduct.  On Dec. 8, 2011, Wachovia Bank agreed to pay a total of $148 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct.

The department’s ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS-Criminal Investigation.  The department is coordinating its investigation with the SEC, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.  The department thanks the SEC, IRS and state attorneys general for their cooperation and assistance in this matter."

SECURITIES FRAUD AND DISCLOSURE VIOLATIONS MAKES MAN AND HIS TRUST PART WITH NEARLY $50 MILLION

The following excerpt is from the SEC website:

“The Securities and Exchange Commission announced that on December 21, 2011, United States District Court Judge Susan D. Wigenton entered a final judgment ordering defendants Alfred S. Teo, Sr. and the MAAA Trust, a trust Teo controlled, to pay a total of $49,493,143.15 in disgorgement, prejudgment interest and penalties for false filings regarding their Musicland Stores Corporation stock. In particular, the Court ordered Teo and the Trust to pay $17,422,054.13 in disgorgement plus $14,649,034.89 in prejudgment interest, and civil penalties of $17,422,054.13. These amounts are in addition to (i) $996,782.68 in disgorgement and prejudgment interest Teo paid for his insider trading violations pursuant to the Court’s previous order of March 15, 2010, and (ii) a $1 million fine that Teo paid in a parallel criminal action for insider trading. The Court also enjoined Teo and the Trust from further violations of Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 13d-1, 13d-2 and 16a-3 thereunder. Previously, the Court had enjoined Teo from further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer and director of a public company.
On May 25, 2011, following a ten day trial, a jury sitting in Newark, New Jersey returned a verdict in favor of the Commission finding Teo liable for securities fraud and disclosure violations on all counts against him and finding the Trust liable for disclosure violations. Prior to the trial, on August 10, 2010, the Court granted the Commission’s motion for summary judgment against Teo finding him liable for violations of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.
The Commission’s complaint, filed on April 22, 2004, charged Teo and others with insider trading and making false Commission filings. Specifically, Teo and ten of his relatives, friends and colleagues engaged in insider trading in Musicland and C-Cube Microsystems, Inc. stock. Teo, a major Musicland shareholder, learned about a tender offer for Musicland, and in breach of a duty of trust and confidence to Musicland, he purchased Musicland stock on the basis of this information prior to the company’s December 7, 2000 public announcement of the tender offer. Teo tipped eight others with this information, who purchased Musicland stock prior to the Musicland announcement. Teo also engaged in insider trading in the securities of C-Cube. Teo, a director of Cirrus Logic, Inc., which had been negotiating to acquire C-Cube, misappropriated from Cirrus material, non-public information regarding the negotiations, and he purchased C-Cube stock shortly before C-Cube announced on March 26, 2001 that it had agreed to be acquired by another company. Teo tipped his business partner, defendant Mitch Sacks, with this information, who purchased C-Cube stock prior to the C-Cube announcement. Teo also filed false information with the Commission and deceived the investing public regarding his Musicland stock ownership. Between July 1998 and January 2001, Teo, the Trust, and Teren Seto Handelman, the Trust’s trustee and Teo’s sister-in-law, filed multiple false and misleading Forms 13D with the Commission, and failed to make required filings, thereby materially misrepresenting their ownership of Musicland stock. Teo made false filings to avoid triggering Musicland’s shareholders rights plan, or “poison pill,” which Teo understood would have significantly diluted his stock causing massive losses to him. Instead, Teo’s fraud enabled him to secretly purchase millions of Musicland shares well above the poison pill threshold, which he eventually sold, receiving illicit profits.
Between May 3, 2004, and January 3, 2011, the Court entered final judgments against Teo’s tippees: defendants Teren Seto Handelman (Teo’s sister-in-law), Mitch Sacks (Teo’s business partner), Phil Sacks (Teo’s tennis partner and Mitch Sacks’ father), John Reier (CFO of Teo’s companies), Larry Rosen (Teo’s friend), Rich Herron (Teo’s yachting friend), Charles Fortune, Jerrold Johnston and Mark Lauzon (Teo’s business associates), David Ross (Teo’s yacht builder), and relief defendant James Ruffolo. These defendants and relief defendant consented to the entry of judgments without admitting or denying the allegations in the Commission’s complaint. On March 15, 2010, the Court entered a partial judgment on consent against Teo to settle the Commission’s insider trading charges against him, and the Court ordered him to pay $996,782.68 in disgorgement plus prejudgment interest, enjoined him against further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer or director of any public company. Prior to the December 21, 2011 final judgment, the Court ordered a total of $3,869,647.76 in disgorgement, prejudgment interest and civil penalties against Teo and his tippees.
In a separate action, the United States Attorney’s Office for the District of New Jersey prosecuted Teo for violations of the federal securities laws. On June 27, 2006, after a six week trial, Teo pled guilty to insider trading charges. Thereafter, on February 6, 2007, Teo was sentenced to 30 months in prison, followed by two years supervised release and ordered to pay a $1 million fine. United States v. Alfred S. Teo, 04-Cr.-583 (KSH) (D.N.J.)
Teo, age 65 and a resident of Kinnelon, New Jersey and Fisher Island, Florida, is the Chairman of several private companies which produce industrial plastics. Teo’s companies are some of the largest producers of plastic bags in North America. Teo was a director and audit committee member of two public companies: Navarre Corp. from May 1, 1998 to April 22, 2004; and Cirrus from July 21, 1998 to April 10, 2001.
The Commission expresses its appreciation to the United States Attorney’s Office for the District of New Jersey and the New York Stock Exchange for their assistance in this matter.”

SEC ALLEGES MAGYAR TELEKOM PLC. BRIBED OFFICIALS IN MACEDONIA AND MONTENEGRO

The following excerpt is from the SEC website:

December 29, 2011
“The Securities and Exchange Commission today charged the largest telecommunications provider in Hungary and three of its former top executives with bribing government and political party officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry.

The SEC alleges that three senior executives at Magyar Telekom Plc. orchestrated, approved, and executed a plan to bribe Macedonian officials in 2005 and 2006 to prevent the introduction of a new competitor and gain other regulatory benefits. Magyar Telekom’s subsidiaries in Macedonia made illegal payments of approximately $6 million under the guise of bogus consulting and marketing contracts. The same executives orchestrated a second scheme in 2005 in Montenegro related to Magyar Telekom’s acquisition of the state-owned telecommunications company there. Magyar Telekom paid approximately $9 million through four sham contracts to funnel money to government officials in Montenegro.
Magyar Telekom’s parent company Deutsche Telekom AG also is charged with books and records and internal controls violations of the Foreign Corrupt Practices Act (FCPA).

Magyar Telekom agreed to settle the SEC’s charges by paying more than $31.2 million in disgorgement and pre-judgment interest. Magyar Telekom also agreed to pay a $59.6 million criminal penalty as part of a deferred prosecution agreement announced today by the U.S. Department of Justice. Deutsche Telekom settled the SEC’s charges, and as part of a non-prosecution agreement with the Department of Justice agreed to pay a penalty of $4.36 million.
The three former top executives at Magyar Telekom charged by the SEC for orchestrating the bribery schemes are:
Elek Straub, former Chairman and CEO.

Andras Balogh, former Director of Central Strategic Organization.

Tamas Morvai, former Director of Business Development and Acquisitions.
According to the SEC’s complaints filed in the Southern District of New York, in the wake of legislation intended to liberalize the Macedonian telecommunications market, Magyar Telekom entered into a secret agreement entitled the “Protocol of Cooperation” with senior Macedonian government officials to delay or preclude the issuance of a license to a new competitor and mitigate other adverse effects of the new law. To win their support, Magyar Telekom paid €4.875 million to a third-party intermediary under a series of sham contracts with the intention that the intermediary would forward money to the government officials. Magyar Telekom also promised a Macedonian political party the opportunity to designate the beneficiary of a business venture in exchange for the party’s support.

The SEC further alleges that in Montenegro, Magyar Telekom used intermediaries to pay bribes to government officials in return for their support of Magyar Telekom’s acquisition of the state-owned telecommunications company on terms favorable to Magyar Telekom. At least two Montenegrin government officials involved in the acquisition received payments made through the bogus contracts. A family member of a top Montenegrin government official also received payments.

The SEC’s complaint against Straub, Balogh, and Morvai alleges that they violated Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 13b2-1 and 13b2-2, and that they aided and abetted violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act. The SEC seeks disgorgement and penalties and the imposition of permanent injunctions. The SEC’s complaint against Magyar Telekom and Deutsche Telekom alleges that Magyar Telekom violated Section 30A of the Exchange Act and that Magyar Telekom and Deutsche Telekom violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. Magyar Telekom and Deutsche Telekom consented to the entry of final judgments without admitting or denying the SEC’s allegations. The settlements are subject to court approval.”

PROFITS INCREASE AT FDIC INSURED INSTITUTIONS

The following is an excerpt from an FDIC e-mail: November 22, 2011 "Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $35.3 billion in the third quarter of 2011, an $11.5 billion improvement from the $23.8 billion in net income the industry reported in the third quarter of 2010. This is the ninth consecutive quarter that earnings registered a year-over-year increase. "We continue to see income growth that reflects improving asset quality and lower loss provisions," said FDIC Acting Chairman Martin J. Gruenberg. "U.S. banks have come a long way from the depths of the financial crisis. Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete. "Ongoing distress in real estate markets and slow growth in jobs and incomes continue to pose risks to credit quality," Acting Chairman Gruenberg added. "The U.S. economic outlook is also clouded by uncertainties in the global economy and by volatility in financial markets. So even as the banking industry recovers, the FDIC remains vigilant for new economic challenges that could lie ahead." As was the case in each of the last eight quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings. Third-quarter loss provisions totaled $18.6 billion, almost 50 percent less than the $35.1 billion that insured institutions set aside for losses in the third quarter of 2010. A majority of all institutions (63 percent) reported improvements in quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 14.3 percent, down from 19.5 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 1.03 percent, from 0.72 percent a year ago. Asset quality indicators continued to improve as noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a sixth consecutive quarter. Insured banks and thrifts charged off $26.7 billion in uncollectible loans during the quarter, down $17.2 billion (39.2 percent) from a year earlier. Financial results for the third quarter and the first nine months of 2011 are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Also among the findings: Loan portfolios grew slowly for a second consecutive quarter. Loan balances posted a quarterly increase for the second quarter in a row and for only the third time in the last 12 quarters. (The first increase, in the first quarter of 2010, reflected the rebooking of securitized loans onto banks' balance sheets as a result of new accounting rules, not an actual increase in lending.) Total loans and leases increased by $21.8 billion (0.3 percent), as loans to commercial and industrial borrowers increased by $44.8 billion and residential mortgage loan balances rose by $23.7 billion. Loans to other depository institutions declined by $37.1 billion (25.3 percent), reflecting the elimination of intra-company loans reported in the second quarter between two related institutions that merged in the third quarter. Large institutions again experienced sizable deposit inflows. Deposits in domestic offices increased by $279.5 billion (3.4 percent) during the quarter. Almost two-thirds of this increase ($183.8 billion or 65.8 percent) consisted of balances in large noninterest-bearing transaction accounts that have temporary unlimited deposit insurance coverage. The 10 largest insured banks accounted for 75.7 percent ($139.1 billion) of the growth in these balances. The number of institutions on the FDIC's "Problem List" fell for the second quarter in a row. The number of "problem" institutions declined from 865 to 844. This is the second time since the third quarter of 2006 that the number of "problem" banks has fallen. Total assets of "problem" institutions declined from $372 billion to $339 billion. Twenty-six insured institutions failed during the third quarter, four more than in the previous quarter, but 15 fewer than in the third quarter of 2010. Through the first nine months of 2011, there were 74 insured institution failures, compared to 127 failures in the same period of 2010. The Deposit Insurance Fund (DIF) balance continued to increase. The DIF balance — the net worth of the fund — rose to $7.8 billion at September 30th from $3.9 billion at June 30th. Assessment revenue and fewer expected bank failures continued to drive growth in the fund balance. The contingent loss reserve, which covers the costs of expected failures, fell from $10.3 billion to $7.2 billion during the quarter. Estimated insured deposits grew 3.6 percent in the third quarter. Much of this increase is attributable to the growth in balances exceeding $250,000 in noninterest-bearing transaction accounts, for which the Dodd-Frank Act temporarily extended unlimited insurance coverage through the end of 2012.”

DODD-FRANK ON MINE SAFETY

The following excerpt is from the SEC website:

“Washington, D.C., December 21, 2011 – The Securities and Exchange Commission has adopted new rules outlining how mining companies must disclose the mine safety information required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under Section 1503 of the Dodd-Frank Act, mining companies are required to include information about mine safety and health in the quarterly and annual reports they file with the SEC. The Dodd-Frank Act disclosure requirements are based on the safety and health requirements that apply to mines under the Federal Mine Safety and Health Act of 1977, which is administered by the Mine Safety and Health Administration (MSHA).
The new SEC rules, which take effect 30 days after publication in the Federal Register, specifically require those companies to provide mine-by-mine totals for the following:
Significant and substantial violations of mandatory health or safety standards under section 104 of the Mine Act for which the operator received a citation from MSHA

Orders under section 104(b) of the Mine Act

Citations and orders for unwarrantable failure of the mine operator to comply with section 104(d) of the Mine Act

Flagrant violations under section 110(b)(2) of the Mine Act

Imminent danger orders issued under section 107(a) of the Mine Act

The dollar value of proposed assessments from MSHA

Notices from MSHA of a pattern of violations or potential to have a pattern of violations under section 104(e) of the Mine Act

Pending legal actions before the Federal Mine Safety and Health Review Commission

Mining-related fatalities
The accompanying instructions specify that a mining company must report the total penalties assessed in the reporting period, even if the company is contesting an assessment. For legal actions, mining companies are instructed to report the number instituted and resolved during the reporting period, report the number pending on the last day of the reporting period, and categorize the actions based on the type of proceeding.
In addition, the Dodd-Frank Act added a requirement for U.S. companies to file a Form 8-K when they receive notice from MSHA of an imminent danger order under section 107(a) of the Mine Act; notice of a pattern of violations under section 104(e) of the Mine Act, or notice of the potential to have a pattern of such violations. The new SEC rules specify that the Form 8-K must be filed within four business days and include the type of notice received, the date it was received, and the name and location of the mine involved. The new rules specify that a late filing of the Form 8-K will not affect a company's eligibility to use Form S-3 short-form registration.”

SEC CHARGES GE FUNDING CAPITAL MARKETS SERVICES WITH MUNICIPAL BOND MARKET FRAUD

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 23, 2011 — The Securities and Exchange Commission today charged GE Funding Capital Market Services with securities fraud for participating in a wide-ranging scheme involving the reinvestment of proceeds from the sale of municipal securities.

GE Funding CMS agreed to settle the SEC’s charges by paying approximately $25 million that will be returned to affected municipalities or conduit borrowers. The firm also entered into agreements with the Department of Justice, Internal Revenue Service, and a coalition of 25 state attorneys general and will pay an additional $45.35 million.

The settlements arise from extensive law enforcement investigations into widespread corruption in the municipal reinvestment industry. In the past year, federal and state authorities have reached settlements with four other financial firms, and 18 individuals have been indicted or pled guilty, including three former GE Funding CMS traders.

“Our in-depth investigations have uncovered pervasive corrupt practices in the municipal securities reinvestment market, and we are requiring financial firms one by one to step up and pay the price for their misconduct,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “More than $743 million has been recovered from financial institutions in these settlements, much of which has been returned to municipalities that have been harmed.”

Elaine C. Greenberg, Chief of the SEC’s Enforcement Division’s Municipal Securities and Public Pensions Unit, added, “GE Funding CMS’s fraudulent practices and misrepresentations undermined the competitive bidding process and negatively impacted the prices that municipalities paid for reinvestment products. The firm’s misconduct deprived municipalities of a conclusive presumption that reinvestment instruments were purchased at fair market value.”

According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, in addition to fraudulently manipulating bids, GE Funding CMS made improper, undisclosed payments to certain bidding agents in the form of swap fees that were inflated or unearned. These payments were in exchange for the assistance of bidding agents in controlling and manipulating the competitive bidding process.

The SEC alleges that from August 1999 to October 2004, GE Funding CMS illegally generated millions of dollars by fraudulently manipulating at least 328 municipal bond reinvestment transactions in 44 states and Puerto Rico. GE Funding CMS won numerous bids through a practice of “last looks” in which it obtained information regarding competitor bids and either raised a losing bid to a winning bid or reduced its winning bid to a lower amount so that it could make more profit on the transaction. In connection with other bids, GE Funding CMS deliberately submitted non-winning bids to facilitate bids set up in advance by certain bidding agents for other providers to win. GE Funding CMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted.
In settling the SEC’s charges without admitting or denying the allegations, GE Funding CMS agreed to pay a $10.5 million penalty along with disgorgement of $10,625,775 with prejudgment interest of $3,775,987. GE Funding CMS consented to the entry of a final judgment enjoining it from future violations of Section 17(a) of the Securities Act of 1933. The settlement is subject to court approval. The Commission recognizes GE Funding CMS’s cooperation in its investigation.

Other financial institutions charged prior to today’s settlement with GE Funding CMS:
Wachovia Bank N.A. – $148 million settlement with SEC and other federal and state authorities on Dec. 8, 2011.
J.P. Morgan Securities LLC – $228 million settlement with SEC and other federal and state authorities on July 7, 2011.
UBS Financial Services Inc. – $160 million settlement with SEC and other federal and state authorities on May 4, 2011.
Banc of America Securities LLC – $137 million settlement with SEC and other federal and state authorities on Dec. 7, 2010.

The SEC’s investigations have been conducted by Deputy Chief Mark R. Zehner and Assistant Municipal Securities Counsel Denise D. Colliers, who are members of the Municipal Securities and Public Pensions Unit in the Philadelphia Regional Office. The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter.”