Cuomo Sues Ernst & Young Over Lehman
The New York attorney general on Tuesday sued Ernst & Young, accusing the accounting firm of helping Lehman Brothers, its client, “engage in a massive accounting fraud” by misleading investors about the investment bank’s financial health.
The lawsuit, filed more than two years after Lehman collapsed and the global economy buckled, is the first major legal action stemming from Lehman’s demise.
Ernst & Young, Lehman’s longtime outside auditor, certified the bank’s financial statements from 2001 until it filed for bankruptcy in September 2008. The suit focuses on Ernst & Young’s approval of a much-criticized accounting maneuver that shifted debt off the books before the close of financial quarters.
The transactions involved “the surreptitious removal of tens of billions of dollars of securities from Lehman’s balance sheet to create a false impression of Lehman’s liquidity, thereby defrauding the investing public,” the complaint said.
The lawsuit seeks the return of more than $150 million in fees that Ernst & Young collected for work performed for Lehman from 2001 to 2008, plus investor damages.
Among the world’s largest accounting firms — and one of the Big Four auditors — Ernst & Young audits the financial statements of many of the world’s largest corporations, including Coca-Cola and Google.
In a statement, Ernst & Young denied the lawsuit’s claims. “There is no factual or legal basis for a claim to be brought against an auditor” when the transactions at issue followed generally accepted accounting standards, the firm said.
“Lehman’s audited financial statements clearly portrayed Lehman as a highly leveraged entity operating in a risky and volatile industry,” it added.
With just 10 days left as the attorney general of New York, Andrew M. Cuomo, the governor-elect, will hand off the lawsuit to Eric T. Schneiderman, who is succeeding him.
Mr. Schneiderman and his yet-to-be-announced legal team will have to bone up on an accounting maneuver known inside Lehman as Repo 105.
This tactic temporarily removed as much as $50 billion of assets from Lehman’s balance sheet to give the appearance that the firm had reduced its debt levels. It often did this just before the end of a financial quarter, the lawsuit said.
“This practice was a house-of-cards business model designed to hide billions in liabilities in the years before Lehman collapsed,” Mr. Cuomo said in a statement. “Just as troubling, a global accounting firm, tasked with auditing Lehman’s financial statements, helped hide this crucial information from the investing public.”
The 32-page complaint, filed in New York Supreme Court, follows the contours of the claims made in a 2,200-page report by a bankruptcy court examiner, Anton R. Valukas, a lawyer. The attorney general’s investigation of Ernst & Young began after the release of the report in March.
“As we said in the report and as I testified before Congress, we believe that the underlying facts of the report would support charges against E.&Y., but it was up to the government to decide whether they would bring them,” Mr. Valukas said on Tuesday.
The New York lawsuit could spur other regulators to act. Both the Justice Department and the Securities and Exchange Commission have been investigating the demise of Lehman but have not filed charges against any of the firm’s executives.
Repo 105, the transaction at issue, was a variation on a corporate finance tool used by every Wall Street bank. In such a transaction, known as a repurchase and sale, or “repo,” agreement, an investment bank like Lehman would typically raise cash by selling assets and buying them back a few days later.
But in the case of the Repo 105 transactions, Lehman moved assets that represented 105 percent or more of the cash it raised, which it claimed that it could treat as a “sale” rather than a “financing” under accounting rules.
Ernst & Young approved Lehman’s Repo 105 transactions, the lawsuit said.
“We believed their conclusions were acceptable under the accounting literature,” Kevin Reilly, the Ernst & Young partner at one point in charge of the Lehman work, said in a deposition with the attorney general.
The attorney’s general lawsuit, however, asserted that the transactions were nothing more than accounting sleight of hand.
“These Repo 105 transactions had no independent business purpose and were designed solely to enable Lehman to manage the company’s financial balance sheet ‘metrics,’” the lawsuit said.
To execute Repo 105 agreements, Lehman also needed legal opinion that the transaction could be treated as a “sale” rather than as a “financing,” the lawsuit said.
Because it couldn’t get the opinion in the United States, the suit said the firm approached Linklaters, a British law firm, to seek an opinion under English law. Linklaters issued an opinion that Lehman could characterize the Repo 105 transactions as a “sale” but that the transactions had to be executed in Britain.
“Armed with the Linklaters letter,” Lehman transferred securities to banks in Britain to execute the Repo 105 transactions, according to the lawsuit.
Lehman aggressively ramped up its use of Repo 105 transactions in the year before it collapsed, the attorney general contends. Because the investment bank was saddled with billions of dollars of hard-to-sell soured mortgages and real estate assets on its books, Repo 105 gave Lehman a way to improve the appearance of its balance sheet.
A Lehman document from February 2007 said, “Repo 105 offers a low-cost way to offset the balance sheet and leverage impact of current market conditions,” according to the lawsuit.
It also detailed how Lehman’s use of these transactions more than doubled to $50.4 billion in May 2008, from about $24 billion at the end of 2006.
At least one Ernst & Young auditor grew concerned over the firm’s use of Repo 105, according to the lawsuit. In 2006, Bharat Jain, an Ernst & Young auditor on the Lehman account, noted to his manager that he would “like to know what is our thought process behind how much of these Lehman should do from reputational risk, etc., perspective. Are we comparing to other competitors, are we referring to any industry publications, any regulatory guidance, etc.?”
Mr. Jain’s manager told him that she would raise the issue of “reputational risk” with the senior Ernst & Young partner on the account, but that conversation appears never to have taken place, according to the suit.
Mr. Cuomo’s lawsuit was brought under the Martin Act, a 1921 New York state law that gives the attorney general broad powers to pursue financial corruption. The controversial law has been aggressively employed by Mr. Cuomo and his predecessor, Eliot Spitzer, in bringing cases against Wall Street firms and their executives.
Deutsche Makes Deal In Tax Case
Deutsche Bank agreed to pay $553 million and admit to criminal wrongdoing on Tuesday, settling a long-running investigation into tax shelter fraud that prosecutors say generated billions of dollars in bogus tax benefits.
In an agreement with the United States Attorney’s Office in Manhattan, Deutsche Bank will avoid prosecution for helping 2,100 customers evade taxes through 2,300 financial transactions. The arrangements, which took place between 1996 and 2002, helped wealthy Americans report more than $29 billion in fraudulent tax losses, according to the Justice Department.
“This settlement marks another victory in the long effort to stop financial institutions, law firms and accounting firms from designing and marketing abusive tax shelters, and facilitating those who use them,” said Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations, which has been investigating tax shelters for nearly a decade.
The investigation into Deutsche stemmed from an earlier inquiry into the accounting firm KPMG, which marketed tax shelters. The $553 million fine amounted to the fees that Deutsche Bank collected from its role in the scheme, the taxes and interest the Internal Revenue Service could not collect from taxpayers and a civil penalty of about $149 million.
The settlement was reached with the I.R.S. and Preet Bharara, the United States attorney for the Southern District of New York.
“Deutsche Bank is pleased that this investigation, which concerned transactions that ceased more than eight years ago, has come to a resolution,” the company said in a statement on Tuesday, noting that the $553 million penalty would not affect net income. “Since 2002, the bank has significantly strengthened its policies and procedures as part of an ongoing effort to ensure strict adherence to the law and the highest standards of ethical conduct.”
The settlement was drafted in recent weeks as Deutsche Bank lawyers grew increasingly nervous about a coming trial of two former employees, David Parse and Raymond Craig Brubaker, who were indicted for fraud and conspiracy in 2009 for their role in selling tax shelters.
Lawyers for Deutsche Bank, Germany’s largest bank, worried about how that trial might progress and about what evidence might emerge that could potentially taint the bank’s reputation and leave it exposed financially, according to two persons briefed on the matter who were not authorized to speak publicly about the case. The case is scheduled to go to trial on Feb. 28 in Federal District Court in Manhattan.
Both Susan Brune, Mr. Parse’s lawyer, and Barry Berke, a lawyer for Mr. Brubaker, declined to comment.
The Deutsche settlement is the latest in a broader government crackdown on banks that aid tax evaders. Last year UBS, the Swiss bank, agreed to pay $780 million to settle charges that it helped wealthy Americans dodge federal taxes from 2000 to 2007.
The Swiss bank — which like Deutsche admitted to wrongdoing — initially provided information on about 265 of its United States customers. UBS later agreed to hand over another 4,500 names of its clients.
The Justice Department dropped its criminal case against UBS in October 2010, after an 18-month probation period.
The inquiry into KPMG, which led to the investigation of Deutsche, resulted in KPMG agreeing to pay $456 million in a deferred prosecution agreement in 2005. Three people associated with KPMG were convicted on criminal charges in 2008. A federal judge dismissed charges against 13 other executives.
As part of its tax shelter deals, Deutche created transactions that generated seemingly legitimate losses for the bank’s clients. But the financial deals were a sham, “intended to create the appearance of investment activity, ” according to the bank’s statement of facts to the Justice Department. The transactions actually helped taxpayers “evade the payment of several billion dollars in federal income taxes.”
Under the terms of the nonprosecution agreement, Deutsche Bank must continue to cooperate with the investigation and install an independent expert to oversee compliance.
The government has chosen Bart M. Schwartz, a former federal prosecutor who is often sought out in such thorny situations. A few years ago, the Justice Department chose Mr. Schwartz to oversee compliance at BP as part of a deferred prosecution agreement related to charges that the company manipulated energy prices. He was also hired by Hewlett-Packard to review its investigative techniques after the tech company’s spying scandal.
The bank must comply with terms of the nonprosecution agreement for two years or until Mr. Schwartz has concluded his tenure — whichever period is longer.
Michael Jackson’s Neverland to become Music School?
The owners of Michael Jackson’s famous Neverland ranch are reportedly interested in turning the property into a school for teenage musicians.
According to TMZ, Colony Capital wants to transform the 2,800 acre Californian estate into an institute bearing Jackson’s name. The facility would be patterned after prestigious performing arts school Juilliard – which teaches dance, drama and music to undergraduate and graduate students in New York City.
The Neverland school, TMZ reports, would teach talented kids skills across a variety of musical genres.
Before any work can start, Colony Capital needs Santa Barbara County to approve the plan and Michael’s estate must give permission for the King of Pop’s name to be used.
A representative for the estate said: “It’s an interesting idea. And we’d be open to it.”
Jackson bought the property in 1987, with the intention to turn it into a “paradise for children.” After installing a parade of fairground rides and a zoo, which included elephants, snakes, giraffes and llamas, Michael opened up his fairytale home to children.
However, the singer abandoned the fantasy home after being accused of child molestation in 2003. He was acquitted of all charges in 2005.
Will Smith, Mark Wahlberg Offered $1M to Fight Each Other
A boxing promoter is reportedly offering Will Smith and Mark Wahlberg $1 million to face-off in the ring on Feb. 26 in Las Vegas.
The theme: a match between two movie-trained boxers – Smith for “Ali” and Wahlberg for “The Fighter.”
Damon Feldman of the Hollywood Boxing Federation has successfully organized “celebrity” matches in the past… celebrity meaning Danny Bonaduce vs. Michael Lohan and Ricky Gervais vs. Grant Bovey. But Feldman stresses all proceeds would go to Smith and Wahlberg’s charities of choice.
“This will be a great opportunity for both stars to fight in the Superbowl of Hollywood boxing and to donate millions to their favorite charities,” Feldman told RadarOnline.com. “It would be a great event too. Can you imagine?”
Both are also around the same age – Smith is 42 and Wahlberg 39. Smith is 6ft 2in and appeared as a heavyweight in” Ali,” while Wahlberg is 5ft 9in and is a welterweight in “The Fighter.”
Feldman said the actors would only be required to fight three one-minute rounds.
“We don’t think these two are going to rip each other’s heads off,” Feldman said. “We’re just hoping they get into the ring and have a little fun duking it out.”
The fight, if Smith and Wahlberg agree to it, would take place in Las Vegas on Feb. 26, 2011.
Shaquille O’Neal Conducts the Boston Pops
The Boston Globe now refers to him as “The Big Maestro.”
NBA star Shaquille O’Neal – in traditional black tie and tails – was the featured guest conductor for the Boston Pops Orchestra and Tanglewood Festival Chorus during a concert Monday (Dec. 20) at Boston’s Symphony Hall.
Before his big moment, the Boston Celtics center got some tips from Pops conductor Keith Lockhart, who told him to “just keep going’’ when he got a little nervous with the baton.
But the NBA legend quickly caught on during rehearsal, guiding the Pops in his own way through lively renditions of “Sleigh Ride,’’ The Jacksons’ “Can You Feel It?’’ and, perhaps to pad the hopes of Celtics fans, “We Are the Champions.’’
He told reporters before going live that he had a newfound respect for conductors.
“My arms are shot, he said.
Asked how appearing with Lockhart compared to sharing the stage with teen idol Justin Beiber, he said, “I gotta put him a notch above Justin Beiber.’’
Hot 97 DJ Apologizes for Offending Haitians
DJ Cipha Sounds of New York’s Hot 97 has angered local leaders and members of the Haitian community after saying on-air Friday morning, “The reason I’m HIV negative is because I don’t mess with Haitian girls.”
The jock, whose real name is Luis Diaz, immediately apologized after the station was flooded with phone calls. He was also slammed on Twitter and Facebook.
Many listeners had originally thought his co-host, Peter Rosenberg, made the remark. But Diaz, a 34-year-old Bronx native of Puerto Rican descent, admitted that it was him, according to the New York Daily News.
“I made a stupid, tasteless joke that was a one-liner that was taken totally the wrong way,” he said in an on-air apology. “I want to say sincerely that I apologize.”
Diaz, who also deejays parties and has hosted shows on MTV, said during his apology that he does “nothing but rep for the Haitian people.”
He continued, “I said something stupid that I’m embarrassed about.”
But the apology wasn’t enough for a coalition of Haitian community leaders planned a rally earlier today outside of the Hot 97 headquarters on Hudson Street.
Stanford suspicions seen in the WikiLeaks cables
Financier Allen Stanford was suspected of irregular dealing, long before he was accused in a $7.2 billion Ponzi scheme, WikiLeaks cables report.
WikiLeaks is the international cyber organization at the center of massive diplomatic and military leaks during 2010.
As reported Monday by The Guardian, a British newspaper, the cables show that US diplomats were told to avoid contact with Stanford or being photographed with him at least two years before his 2009 fall from grace.
Stanford, four executives with Stanford Financial Group, and a Antiguan bank regulator, were indicted in 2009. He is set to go on trial in Texas in January, although federal court observers there speculate that it won't begin then after numerous attorney changes and other court drama surrounding Stanford.
Embassy staff concerns are revealed in a cable dated May 3, 2006, detailing the first meeting between Stanford and the US ambassador at a breakfast meeting in Barbados which was also attended by the Barbados prime minister and cricket legends signed up by Stanford to push his idea for a series of Twenty20 competitions.
Emphasizing the chance nature of the encounter, the cable notes: "Allen Stanford is a controversial Texan billionaire who has made significant investments in offshore finance, aviation, and property development in Antigua and throughout the region. His companies are rumoured to engage in bribery, money-laundering and political manipulation."
According to the cable, Stanford outlined his ambitious property development plans for the region and talked about his investment in a new airline.
Copyright (c) 2010, Northeast Mississippi Daily Journal
Lawsuit Accuses Kelis Of Failing To Pay Talent Agency
R&B singer Kelis has been hit with a lawsuit for failing to pay a talent agency for "goods and services" for Kelis' performances on a variety of shows, including The Tonight Show with Jay Leno, the Today Show and Late Night with Jimmy Fallon.
Plaintiff Drive Talent Inc. filed the lawsuit in the Supreme Court
of the State of New York on December 17th, claiming Kelis stiff them for $11, 817.91.
The lawsuit claims that Plaintiff Drive Talent was hired by Kelis and her management team between March 30th, 2010 and July 13th, 2010.
The company claims they worked with Kelis on a variety of television shows and non-televised appearances in the United Kingdom, France and other countries.
Drive Talent claims that Interscope paid the money to Kelis, who only made partial reimbursements for travel, labor and production items purchased for her appearances.
Kelis has a 16-month old baby with her ex-husband, Queens rapper, Nas.
Men Arrested For Breaking Into 50's Mansion And Drinking Wine
Two men were arrested in Farmington, Connecticut, for breaking into the lavish mansion owned by world famous rap star, 50 Cent.
According to the New Britain Police Department, officers responded to a call from the rapper's mansion around 6:00AM, when they noticed a suspicious car parked in at the driveway of the 19-bedroom mansion.
Another security guard patrolling the inside of the huge mansion found an intruder named Alexander Hernandez inside one of 50 Cent's closets - drinking a bottle of wine he had taken from inside the house.
His accomplice, Santos Padilla, was found in another section of the mansion.
Alexander Hernandez was released on $50,000 bond, while Padilla was held in jail for the same amount, according to Connecticut's NBC Channel 30.
50, who was not home at the time of the break-in, is attempting to sell the house, which is currently listed at $9.9 million dollars.
Assassin reacts...as Grenada churches protest his performance there
Dancehall artiste Assassin says he believes the Grenada Conference of Churches is protesting his performance in the island based on his name.
The artiste, who also goes by the name Agent Sasco, said their protest is baseless.
"I don't think they took any time to see what my work is about. My last number one in Grenada was Almighty Protect, so it's ironic that the church would be carrying out a campaign based on a name. It is unfortunate that this is how the church go about dem ting," he told THE STAR.
Late last week, the Grenada Conference of Churches issued a statement in which they said their island's Christian heritage was under attack.
"Our heritage is under attack by mega-shows such as the one advertised for Christmas Eve in the National Stadium," said the church leaders of the concert that will feature the likes of Beenie Man, Mr Vegas and Assassin among other acts from Grenada.
The statement said that it is regrettable that shows by foreign artistes, who promote culture contrary to their Christian values, are being held in what is a 'silent night' and a 'holy night'. The Conference of Churches urged persons to celebrate Christmas in ways consistent with Christian values and not bow to other pressures.
Meanwhile, Assassin said he was still baffled by their protest.
"Dem preach reason and not to be judgmental but that is what they are doing here. It's a narrow-minded approach and it was surprising to me," he said.
While the church's protest continues, Assassin said his manager spoke with the promoter and he will be leaving to perform at the show on December 23 as planned.
Source: The Star