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More Evidence of SEC Negligence from former Chief
You are right. I was Chief Counsel of the Division of Corporate Regulation in
the 1970s and changed the former staff position, which was more permissive.
After I left the Division to go to the General Counsel's office, the staff
became more permissive, sometimes with adverse results, because several similar
funds that registered then paid no attention to the '40 Act and got into
trouble. Is your name really David Schenker? That was the name of the staff
person that represented the SEC in ther hearings that preceded the enactment of
the '40 Act.
Alan Rosenblat
How Many SEC Lawyers Does it Take to Answer One Question?
Date: Mon, 5 Jan 2004 19:50:42 -0800 (PST)
From: David Schenker <dave_schenker@yahoo.com>
Subject: re: bank affiliated "funds"
--- In FundLaw@yahoogroups.com, "balchlaw" <rpearson@b...> wrote:
> In doing some research, I ran across this article about banks that
> had registered subsidiaries under the 40 Act to hold a part of their
> portfolios. The article indicates that the "funds" have been
> shutdown. Is this the situation in which the SEC required funds to
> deregister because registration wasn't required in the first place?
> If so, what was the rationale for registration so clearly not being
> required.
I wasn’t involved in the de-registrations to which you refer, and I
obviously can’t speak for the SEC or the Staff. What is left is my own
take on the matter.
I think you are incorrect in the penultimate sentence of your post.
This is not a case of registration not being "required,” but rather a
case where registration is not permitted at all.
You ask what was the "rationale for registration so clearly not being
required." I sense a bit of sarcasm, and perhaps a bit of frustration.
This is natural; many fine corporate and banking lawyers, especially
those who don't regularly deal with investment company regulation, often
find themselves a bit frustrated when dealing with a slightly nuanced
'40 Act issue. I have a certain amount of sympathy for your plight. I
have therefore provided a step-by-step analysis below, along with some
pertinent no-action letters that you may wish to pull and examine.
Section 8 of the 1940 Act is the section that governs the registration
of investment companies. Section 8(a) states that "[a]ny investment
company organized or otherwise created under the laws of the United
States or of a State may registered for the purposes of this title...." A
narrow reading of this section makes it clear that only "investment
companies" may register under section 8. It follows, therefore, that any
issuer that falls within one of the 3(c) exceptions to the definition of
an investment company, and is thus definitionally not an "investment
company," may not register under section 8. To illustrate: an issuer
that meets the requirements of section 3(c)(1) of the Act, i.e., has 100
or fewer shareholders and which is not making and does not presently
propose to make a public offering of its securities, is not an
“investment company,” and therefore would be prohibited from registering under
section 8.
I have a hunch that if you look at the registration statements for the
effected bank subs you will notice two things: (1) the registration
statements were filed as '40 Act-only registrations, and consequently did
not involve public offerings, and (2) the subs had 100 or fewer
shareholders. If that is the case, the subs fit nicely within the 3(c)(1)
exception, they are not investment companies, and they may not register
under section 8 of the Act.
This is, admittedly, my own supposition and could very well be wrong.
The available staff guidance, however, appears to support me on this
one. See, e.g., The Franklin Corporation (pub. avail. June 1, 1981);
Paradise & Alberts (pub. avail. Oct. 27, 1975). Also, the fact that these
subs were apparently registered solely in an attempt to obtain
favorable tax treatment might have gotten the staff's dander up. See, e.g.,
George E. Mrosek (pub. avail. Jan. 7, 1973) (stating that the staff does
"not favor registration under the Act where the sole or predominant
purpose is to obtain a tax advantage for a limited number of private
investors."); Plans Incorporated (pub. avail. Feb. 27, 1972) (stating that a
issuer that does not fall "within the statutory definition of
investment company or which comes within the an exception of the definition has
no standing to register under the Act merely to qualify for some
favorable tax treatment afforded registered investment companies by the
Internal Revenue Code.").
Good luck with your quest to figure this one out.
David Schenker
[Non-text portions of this message have been removed]
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NASD Regulatory & Compliance Alert (RCA)
Publication of the Regulatory & Compliance Alert has been discontinued. The Spring 2003 issue is the final edition of RCA.
NASD will continue to provide members and other securities industry professionals with timely, practical information—including NASD, SEC, and state compliance developments and updates on NASD regulatory policy—through a series of articles called "Member Updates". Member Updates will be published as needed, when NASD has new information to distribute.
In addition to Member Updates, NASD publishes Member Alerts, which provide warnings about issues or problem trends significant to member firms. Member Alerts will give members helpful information quickly to warn them and help them avoid problem areas.
Back issues of the RCA will remain available on this Web Site.
http://www.nasdr.com/3000.asp
The NASD has announced in an interpretive letter that 3(c)(7) funds
may include related performance information in sales materials. Letter
to Yukako Kawata (Dec. 30, 2003). A 3(c)(7) fund is a private fund that
is exempt from the Investment Company Act because all of its investors
are qualified purchasers (in general, individuals with at least $5
million in investments or entities with at least $25 million in
investments). The NASD took the position in October that related performance
information (information about the performance of other funds or accounts
managed by the same investment adviser or portfolio manager) may not be
included in sales materials for hedge funds; the new interpretation is
a substantial modification of the October position.
The NASD response is somewhat different from what was requested: The
inquiry letter, submitted on behalf of Credit Suisse First Boston,
requested an interpretation that private equity funds may use related
performance information. The NASD response was that both hedge funds and
private equity funds may use related performance information, if they are
3(c)(7) funds and all recipients of the information are qualified
purchasers. Based on our discussions with the NASD, we understand that that
private equity funds that are not 3(c)(7) funds cannot use related
performance information in sales materials. The NASD interpretative letter
is available online at
http://www.nasdr.com/2910/2210_12.asp
B/D Compliance Officer Bonuses Grow; Hiring Rises
Compliance Reporter
January 5, 2004
For the first time in three years, compliance officers at broker/dealers can count on getting bigger bonuses than they did the year before, according to recruiters who also say hiring is also on the rise. Bonuses should increase by up to 10% from last year, said Daniel Solo , director of compliance and legal consulting for Robert Hadley Associates in New York. Last year was the low point of a three-year slide in compliance bonuses, said Solo, adding, "Everyone expects a bounce back this year."
Solo estimated a compliance officer at a retail firm with five years experience could take home a 20-25% bonus this year up from 10-15% of a salary typically in the range of $65,000-80,000. A compliance officer at an institutional firm with the same experience should see a bonus of 25-35% of a salary in the range of $75,000-100,000, he said. Andrea Stern , v.p. of the legal and compliance search division of Solomon-Page Group in New York, gave an even wider range for the bonuses, pegging them at 10-30% of $90,000-125,000 salaries. Solo said that a director of compliance at a retail shop, who would have more than five years experience, could expect to make around $300,000, and at an institutional B/D the salary could be anywhere above that.
Solo attributed the increase in bonuses to the general upturn in the market, as well as an intense regulatory climate that puts a premium on skilled compliance personnel. The increase in bonuses is directly related to the strength of the market in 2003, added Stern. "It's a trickle-down effect," she said, noting that since the market has performed better, firms have more money to pass on in the form of bonuses.
Stern said hiring has increased at both retail and institutional B/Ds. She said that since regulators are delving into complicated areas such as hedge funds, firms need compliance officers with specific training and experience, and will pay almost anything to get them. "Salaries are going up almost daily," she said. Len Adams , president of Adams Consulting Group in New York who places compliance officers for institutional B/Ds, said salaries have increased by as much as 10% across the board. Adams and Stern also said they expect the demand for compliance to continue to increase as the market improves in 2004. Firms are expanding after trimming their operations for a few years, said Adams. He compared the industry shrinkage to a similar period following 1987 when the market fell. After a few years, firms started making money and hiring again and that is happening now, he said.
In particular, retail B/Ds are beefing up their mutual fund compliance teams, and institutional B/Ds are hiring mostly for their fixed income, equities and mutual fund areas, Stern said. The personnel are needed to deal with mutual fund sales rules for B/Ds that are under development by the NASD and the Securities and Exchange Commission , said Solo. Stern added many institutional firms were adding compliance officers in their research departments, as well as their fixed income and hedge fund departments, in response to focuses on hedge funds and research by regulators.
A Right Royal Manager
Alpha
January 2, 2004
Andrew Capon
The princely family of Liechtenstein didn't get to be Europe's richest royals, with a fortune estimated at $4.5 billion, by not taking care of their money. Along the way they've developed quite a penchant for managing other people's riches as well.
Their ventures did not always win the family praise, but Prince Hans Adam II von und zu Liechtenstein, the ruler of the tiny principality located between Austria and Switzerland, and his younger brother, Philipp, have displayed a regal knack for snatching victory from the jaws of seeming defeat.
Consider the saga of LGT Chancellor. After spending a decade building a global asset management business, the princes unloaded this once-premier firm to Amvescap in 1998 for $1.1 billion. To the world they looked like forced sellers. LGT Chancellor was disintegrating, beset by poor returns and bitter infighting. Yet for all the bad publicity they earned, the canny princes managed to make a killing -- parlaying an investment of $318 million into a nearly $800 million profit. Moreover, they exited from traditional fund management at what turned out to be close to the high-water mark of what buyers were prepared to pay for asset businesses.
The family's initial foray into hedge funds was also a chastening one. The princes were founding investors in ill-fated Long-Term Capital Management. When LTCM melted down in 1998, LGT Group, the holding company for the princes' money management operations, took a $30 million hit. Nonetheless, LGT still made a double-digit return on its initial investment. How? Wary of the increasing opaqueness of the hedge fund's accounts, the princes had sold a majority of their stake that year.
The early success of the LTCM investment whet the princes' appetite. In 1996 they created what is now known as LGT Capital Partners to manage their alternative assets and to solicit third-party co-investors. The proceeds from the 1998 sale of the LGT Chancellor mutual fund operation helped ignite the business, even as it led to a restructuring of LGT Group. The royals, who own vineyards, large tracts of forest and a private art collection that includes a dozen paintings by Rubens, narrowed their focus principally to their private bank, LGT Bank in Liechtenstein, and to building a business in alternative assets -- creating funds of funds for hedge funds as well as for private equity investments in venture capital and leveraged buyouts.
Marketing chiefly to institutions and to very-high-net-worth customers, the princes have built a thriving operation. Based in the tax haven of Pfäffikon, Switzerland, halfway between the private banks of Zurich and the princely castle in Vaduz, Liechtenstein's capital, LGT Capital Partners now manages $3.7 billion -- $2.4 billion in private equity and $1.3 billion in hedge funds. With institutional money management businesses desperate for expertise in high-margin alternatives, fund-of-
funds businesses are changing hands at 10 percent of assets, or five times the valuations of mainstream firms. In seven years LGT Capital has blossomed from little more than the princes' family office into a business that could be worth $400 million.
Not that the family has any reason to sell. LGT Capital contributed mightily to LGT Group's reported 2002 profits of Sfr115.9 million ($89.2 million). And it manages a healthy chunk of the family fortune, about 40 percent of the princes' estimated $1.3 billion in liquid assets. Altogether about one seventh of LGT Capital's assets is the royal family's own money, evenly divided between hedge funds and private equity.
This commingling of funds is a big selling point for LGT Capital, which has embarked on an aggressive buildup of its private banking business. With the lure of offshore banking diminished by tough new anti-money-laundering rules in the wake of the September 11 terrorist attacks on the U.S., LGT has shifted its focus onshore, opening six private banking offices in Germany this year. Unabashedly embracing its heritage, it is advertising its services with the slogan "Investing like the prince."
"We believe this is an important point of differentiation," says LGT Capital Partners CEO Roberto Paganoni. "As well as the money from the princely family, most of the partners' investable assets are in the funds. We think it is the best way to align the interests of clients, the firm and its owners."
The approach is old-school Europe -- emphasizing capital preservation and a low risk tolerance. "We are in this business because we are passionately convinced that alternative investments, hedge funds and private equity, are an important asset class that can protect and build wealth," says LGT Capital partner Thomas Weber, a 14-year veteran.
LGT's move into hedge funds was largely orchestrated by the 42-year-old, German-born Weber, who has a Ph.D. in mathematics from St. Gallen University, the finishing school for Switzerland's financial elite. From there, in 1989, he was appointed a special assistant to former LGT Group chairman Christian Norgren. Prince Philipp replaced Norgren that year, following an investigation into Norgren's role in an insider trading scandal involving the takeover of U.S.-based Combustion Engineering by ABB Brown Boveri, of which he was a director.
Weber then worked as an equity portfolio manager and later headed a small department that developed quantitative models. His interest in hedge funds was piqued by the royal returns the princes' investment in LTCM was yielding. In ten months of 1994, LTCM was up 20 percent; in 1995, 43 percent; and in 1996, 41 percent. By the end of 1997, when the original investors were allowed to sell for the first time, $10 invested in LTCM was worth more than $28.
In 1996, LGT Group began to look at other hedge funds. Though LTCM's returns were exceptional, Weber found they were far from unique. So he persuaded LGT Group to found an investment firm, then called LGT Non Traditional Advisers, and to establish an innovative fund-of-hedge-funds vehicle, Castle Alternative Invest. To encourage institutional investors Castle Alternative Invest was listed as a closed-end investment fund on the Zurich Stock Exchange in September 1996, only the second fund-of-funds vehicle to list in Europe.
"The more I looked at hedge funds, the more convinced I was that institutions should have access to the asset class," says Weber, adding that the exchange listing was critical to soliciting funds. "It was the only onshore structure that worked in Switzerland at that time, and for reputational reasons institutions preferred to invest onshore rather than in the available offshore vehicles."
Pfäffikon neighbor RMF Investment Group, set up by Ranier-Marc Frey in 1992 as one of the first fund-of-hedge-funds businesses in Europe, took a 20 percent stake in LGT Non Traditional Advisers and helped with investment advice. (In 2000, Swiss Life Group replaced RMF as an investor.)
The fund raised $120 million and now has $440 million. Then in early 1997, LGT Non Traditional Advisers established a private equity division and appointed Paganoni, a former McKinsey & Co. partner, as chief executive and Ivan Vercoutère as head of private equity investments. Vercoutère had worked at Pacific Corporate Group in La Jolla, California, managing money for the likes of California Public Employees' Retirement System and the World Bank. The executive team also includes Maximilian Brönner, the leader of the private equity investment team; Tycho Sneyers, in charge of business development; and Kassandra Wipf, responsible for legal and compliance issues.
Castle Private Equity, launched in June 1997, was the first exchange-listed private equity fund of funds in continental Europe. It now has committed equity of $800 million and total assets of $1.2 billion.
All went well, initially. In 1997, Castle Alternative Invest returned 12.95 percent net of fees. Then came 1998. Castle lost 2.12 percent for the year, having sold down its LTCM stake as the fund grew less and less transparent and began losing money. Investors fled. From June through October, Castle's portfolio suffered a cumulative drawdown of 10.15 percent.
But LGT did not walk away from hedge funds. Instead, after it sold LGT Chancellor in early 1998 and suddenly had more than $1 billion in liquid assets, it hiked its commitment to the asset class.
The princes asked Weber and his team at LGT Non Traditional Advisers to design an asset allocation strategy for the windfall. Weber in turn asked the biggest and best investment banks and fund managers, including Goldman, Sachs & Co., Morgan Stanley and UBS Warburg, for advice on model portfolios. Meanwhile, he and his team fed return and volatility assumptions into a portfolio optimizer and ran thousands of simulations.
Weber recommended that the princes put 20 percent of their assets into hedge funds and 20 percent into private equity. The balance of the portfolio was to be split almost evenly between traditional long-only bonds and equities, with the majority of the long-only money invested in passive or quasipassive index-tracking mandates. Such a barbell asset allocation has lately become fashionable in academic journals but was decidedly avant-garde then.
"We did a lot of quant work on strategic asset allocation, but ultimately, the allocation was based on our judgment," says Weber. "We decided that there is a greater possibility of generating alpha from the skill of hedge funds and private equity managers. We are happy to pay for that skill. There is no skill to generating beta, so we want to pay relatively little for that."
For LGT, which traces its history back to 1920, it was a short step from managing the royals' money to soliciting outsiders' investments. Paganoni says that LGT is pursuing a conservative growth strategy that aligns the interests of the firm's partners with those of its investors. "Some firms are looking to grow because their principals want to exit, others because they are driven by a distribution machine," he says. "We are invested in our funds and are driven by risk-controlled performance." To that end LGT has no ambition to pile on assets. Instead, it wants to continue to serve a small but sophisticated institutional client base.
"We learned a lot from LTCM," says Weber. "We analyzed what went wrong, changed our approach to risk management and built up our team and resources." From three full-time employees in 1996, LGT Capital Partners now has 50; more than half research and do due diligence on hedge and private equity funds.
Paganoni adds: "We don't want to be the biggest alternative investment house in Europe. We want to be the best in terms of performance and client service. Successful investing in alternative assets is about controlling growth and managing capacity, not maximizing assets under management. We want a select group of relationships with committed, long-term investors who understand the asset class."
The support of a royal family that has been around since 1719 probably helps nurture this long-term perspective. It is an approach that has worked well for LGT. The closed-end fund structure of Castle Alternative, the backing of the princely family and the long-term contracts that come with segregated mandates from institutions mean that its assets are relatively stable and that it can afford to think strategically.
Throughout the 1998 hedge fund crisis, for example, LGT added to its positions with hedge funds that were suffering redemptions from other investors. For hedge fund managers this sets LGT apart.
"It is a generalization, but many funds of funds have a bit of a reputation for jumping from one hot fund to another. That is certainly not LGT's style," says Colin McLean, a founder of SVM Asset Management, which manages the Highlander Fund, a $1 billion long-short European equity fund that has been one of LGT's top ten holdings. "It is good at building relationships. It is more methodical, disciplined and analytical than other fund-of-funds managers we have dealt with. It has an aura of maturity and experience."
The firm's character, he says, reflects that of hedge fund chief Weber. "I regard him as one of the most astute hedge fund investors in Europe," says McLean.
Weber says that the typical LGT hedge fund portfolio turns over about 20 percent a year. It is LGT's longevity and stability that give it access to funds such as Raptor Global Funds, run by Tudor Investment Corp., and Kensington Global Strategies, run by Citadel Investment Group, which have been largely closed for many years.
LGT Capital has two main hedge fund vehicles, Castle Alternative and the princes' portfolio, which is known internally as the Global Investable Markets fund and externally is marketed as LGT Alternative Invest. Castle has about $400 million in assets, while GIM has $1.7 billion, which includes some private equity investments.
Both are managed with the same conservatism, described as typically Swiss by ABN Amro fund analyst Mark James. Neither fund's performance has been harmed by that approach.
Despite its dalliance with LTCM, Castle Alternative boasts an 8.91 percent compound annual return since its inception, with 4.94 percent volatility (the MSCI world index has an annualized return of 5.22 percent, with 14.74 percent volatility for the same period). Since 1998 the worst losing months for Castle Alternative were 0.76 percent in November 2001 and 0.97 percent in March 2003. With these exceptions, the graph of its returns has been the smooth, upward-sloping curve that fund-of-funds managers like to boast they can deliver. Although the performance of Castle Alternative is bested by the 10.17 percent return of Hedge Fund Research's fund-of-funds index, Castle has lower volatility than HFR's 5.83 percent. It has also demonstrated better performance than other Swiss closed-end funds, such as Julius Baer Group's CreInvest, RMF's Swiss Life Absolute Return Strategies and Bank Leu's Leu Prima Global Fund.
"From the risk-return perspective it is one of the very best funds available," says ABN Amro's James. "It rarely trades at a discount because it is such a high-quality portfolio. For many investors it is the only way to get access to funds like Raptor, Highbridge Capital Corp. and Kensington."
The performance of the GIM portfolio has been similarly impressive. It has returned 9.9 percent annualized since its inception, versus a decline in the MSCI world index of 2 percent.
This track record has been noticed by some prominent institutions. LGT's external clients include Axa Private Equity, Benelux insurer Fortis and AP3 and AP7, part of the Swedish national pensions system. Today 75 percent of LGT Capital's $3.7 billion under management comes from external institutional investors, with the balance from the princely family and the firm's partners.
Weber describes his investment process as bottom-up, driven by the imperative of getting access to the world's most talented managers. "In the traditional long-only world, finance theory tells you that more than 90 percent of the variance of returns comes from asset allocation and less than 5 percent from stock selection," says Weber. "In my view and experience, in the hedge fund world more than 50 percent of the variance of returns comes from manager selection."
Weber heads a 16 person-strong hedge fund investment team. His chief aides include Bruno Hidber, who leads a manager selection committee that meets once a month, and Stefan Muehlemann, who directs the strategy allocation committee that meets quarterly. Weber thinks strategy allocation is gaining in importance but is still secondary to fund selection.
"Fund-of-funds investing is not just sitting around and picking some great managers," Weber says. "There are times when it is right to be in merger arbitrage and times when it right to have a smaller allocation. But the reality is that most funds have limited liquidity, so it is hard to aggressively shift allocations around. There are also funds that you may want to stay invested in even if the strategy isn't optimal, because once you sell it might be difficult to get back in."
Weber describes his approach to manager selection as a variation on the core-satellite asset allocation model. Ten managers typically make up 50 percent of the overall portfolio, although at the end of July, it was closer to 60 percent. These are generally well-known names such as Caxton Global Investments (the world's largest hedge fund), Raptor and Highbridge Capital. The remaining 50 percent satellite portfolio might be made up of as many as 20 other managers.
Weber says that buying into smaller, lesser-known funds allows LGT to grow familiar with the managers and their strategies and more flexibly manage its own growth. Satellite positions can become core if the manager does well. For example, McLean's Highlander Fund, which is only three years old and relatively low-profile, was a top-five holding for LGT until this spring.
The private equity portfolios follow broadly the same core-satellite philosophy. There are big allocations to the largest buyout funds, such as Permira in Europe and Clayton, Dubilier & Rice in the U.S. But half of the portfolio is committed to smaller venture capital funds.
There is also an emphasis on secondary investments. "There are many financial institutions pulling out of private equity, often because they are distressed, and we see that as a great opportunity to acquire some good assets cheaply," says CEO Paganoni. Last year LGT hired Marco Bizzozero, a leveraged finance specialist at UBS Capital, to lead its secondary investments team.
The Castle Private Equity portfolio has an annualized internal rate of return of 6.4 percent since 1997. Top-quartile performance for European private equity funds of funds is 2.8 percent over the same period, according to Thomson Venture Economics.
Having been for most of its life something of an exclusive (and secretive) Swiss club, LGT Capital Partners is now telling its story to Europe's broader investment community. For years it scarcely bothered to market itself, but in 2001 it hired Sneyers, a Goldman, Sachs & Co. veteran who had most recently run AltGate, a London-based hedge fund research business, to head a business development effort. However, Sneyers is under no pressure to add billions in assets. "We can grow, of course we can, but growth is driven by investment capacity."
Firms like Pfäffikon neighbor RMF, which was acquired by Man Group for $833 million in 2002, have far outstripped the growth of LGT. That doesn't bother Paganoni. The firm has a partnership structure, and senior employees are incentivized with both equity and profit sharing.
"We feel comfortable growing our asset base by between 20 and 25 percent each year," says Paganoni. "We want to generate the very best risk-adjusted performance, not to engage in an asset grab."
That's a very royal we, by the way.
Fannie Forms Fannie PAC
Fannie Mae has formed a political action committee so that the company can make direct contributions to congressional and presidential candidates who support its housing mission. The giant mortgage company, which enjoys favorable borrowing rates because of its government charter and other federal benefits, has not had a PAC since 1993. Fannie executives made individual contributions to candidates, but the corporation made soft-money contributions to political parties. The company decided to file a PAC registration statement with the Federal Election Commission because of recent changes in federal campaign finance laws, according to Fannie spokesman Chuck Greener. "The company's decision's to establish a PAC is consistent with the spirit of the Bipartisan Campaign Finance Report Act, which points to individual contributions and PACs as an appropriate way for companies and employees to be involved in the political process," Mr. Greener said. The Bush administration and key members of Congress are pushing for stronger regulatory oversight of Fannie and Freddie Mac, which the two companies are resisting. The two government-sponsored enterprises have not faced such a threat since 1992, when Congress created their safety-and-soundness supervisor -- the Office of Federal Housing Enterprise Oversight.
NAHB Names Chief Lobbyist
Joseph Stanton has been named the lead Capitol Hill lobbyist for the National Association of Home Builders. Mr. Stanton, a former NAHB employee, was most recently vice president for government relations at the Beer Institute in Washington, where he lobbied for the brewing industry. His new post carries the title of senior staff vice president for legislative and political relations, and he will be responsible for managing the NAHB's legislative and political operations, the association said. Mr. Stanton worked for the NAHB from 1986 to 1990 as senior congressional representative in the association's former Government Affairs Division. He will assume his new position in mid-January. The association can be found online at http://www.nahb.com.
Trade Groups Mull REMIC Bill Input
The Commercial Mortgage Securities Association, the Mortgage Bankers Association, and other real-estate-related trade groups are considering what input to offer for pending congressional legislation on real estate mortgage investment conduits, according to CMSA chief executive Dottie Cunningham. The legislation, part of the American Jobs Creation Act of 2003, would "modify the definitions of REMIC regular interests, qualified mortgages, and permitted investments, so that certain types of real estate loans and loan pools can be transferred to, or purchased by, a REMIC," the CMSA said. The various real estate trade associations are working together and separately to come up with proposals, Ms. Cunningham told MortgageWire.
MBA Urges Delay of SEC Loan Policy
The Securities and Exchange Commission is planning to issue a staff accounting bulletin that would treat loan commitments as liabilities, according to the Mortgage Bankers Association, but the MBA is urging the SEC to wait until the Financial Accounting Standards Board completes a project on loan commitments. The SEC's treatment of loan commitments as "liabilities only" would misrepresent the economic substance of hedging a loan production pipeline and reflect a "lack of understanding of the mortgage banking business," the MBA says in a letter to SEC chief accountant Donald Nicolaisen. FASB has agreed to re-examine the treatment of loan commitments because some mortgage companies are booking them as liabilities and others as assets. In addition, there is a divergence in the way lenders value loan commitments. However, the MBA is concerned that conflicting SEC and FASB accounting standards could confuse investors and increase companies' earnings volatility, as well as their funding costs. "We respectfully request that the Commission reconsider any decision to require loan commitments to be accounted for as liabilities only and to refrain from releasing any [staff accounting bulletin] until FASB releases guidance upon the completion of its loan commitment project," MBA chairman Robert Couch says.
FASB May Put LC Project on Hold Due to SEC
The Financial Accounting Standards Board may put its loan commitment project on the back burner because the issue may be losing its "urgency" in light of an expected action by the Securities and Exchange Commission. One of the main reasons FASB decided to take up the loan commitment project is that mortgage companies are all over the map in the way they account for LCs. But the SEC is preparing to issue a staff accounting bulletin that would require publicly traded mortgage companies to book loan commitments as liabilities, which should put an end to this diversity in practice. If everyone will be accounting for LCs in the same way, "what is the urgency of this project?", FASB senior project manager Bob Wilkins asked rhetorically. At a Jan. 14 meeting, Mr. Wilkins will ask the board members if they want to put the loan commitment project on hold, while they push ahead with other projects -- involving income recognition and fair value -- that could also affect the way LCs are treated. They may want to push ahead with the loan commitment project, he said, adding, "That is what I am trying to find out from the board." On Oct. 1, the board members decided to start the LC project by a 4-3 vote.
Annaly to Buy Adviser Affiliate
Annaly Mortgage Management Inc., New York, has announced a merger agreement to acquire Fixed Income Discount Advisory Co., an affiliated investment adviser, for stock valued at $40.5 million to $90.0 million, depending on FIDAC's future revenues and pretax profits.
Ingrian Raises $14 Million in Third Round Funding
Investors Include Prism Venture Partners, Globespan Capital Partners, HighBAR Ventures, and Partech International
REDWOOD CITY, Calif.--Jan. 5, 2004--Ingrian(TM) Networks, Inc., enablers of data privacy throughout the enterprise, today announced the completion of a $14 million third round of funding. Investors participating in this round include Prism Venture Partners, Globespan Capital Partners (formerly JAFCO Ventures), HighBAR Ventures, and Partech International. Ingrian will leverage this funding to enhance its pioneering solutions and further expand its leadership in the emerging data privacy segment.
"We are extremely pleased with our investors and the support they've placed in our corporate direction and technology," said Robert Steinkrauss, Ingrian's chairman, president, and CEO. "With this new round of funding, we're well-poised to capitalize on the emerging market requirement for data privacy solutions, which we see as a high-growth segment of the security market."
Jon Callaghan, managing director of Globespan Capital Partners, stated, "We're very excited about Ingrian's opportunity in the growing data privacy market. Ingrian has the technology leadership and experienced management team to deliver solutions that help organizations across the Fortune 1000 secure all types of sensitive corporate data. Ingrian's global customer base provides substantial market validation of the increasingly urgent need for data privacy solutions."
Based on extensive industry research, Ingrian has found that, in spite of the range of security technologies deployed today, there are still critical security gaps prevalent within most enterprises. These security gaps continue to lead to often devastating breaches. Further, as corporations contend with the increasingly rigorous legislation and privacy policies being enacted across many industries and regions, the need to address these gaps will become paramount. Ingrian DataSecure(TM) Platforms bring tremendous value to organizations because they address these critical security gaps, and they do so with unprecedented cost efficiency and intelligence.
Founded in 1999, Ingrian has received over $40 million in funding to date. Prism Venture Partners led this round of funding, and was accompanied by Globespan Capital Partners, HighBAR Ventures, and Partech International -- all of which invested in previous financing rounds.
About Ingrian Networks
Ingrian Networks brings complete data privacy to the enterprise. Ingrian DataSecure Platforms ensure that sensitive information is impervious to any attacks, whether data is in storage, in transit, or in use. Ingrian DataSecure Platforms offer intelligent, granular control over what data is protected, they adhere to open standards and are cost effective to deploy, and they deliver comprehensive security capabilities. For all these reasons, Ingrian is the smart choice for addressing one of today's most critical security threats: data left unprotected within the enterprise. Ingrian is a privately held company backed by such investors as American Express (NYSE:AXP - News), Globespan Capital Partners (formerly JAFCO Ventures), HighBAR Ventures, Partech International, and Prism Venture Partners. For more information, visit www.ingrian.com.
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Contact:
Ingrian Networks
Randy Budde, 650-261-2483
randy@ingrian.com
Intransa Secures Additional $8 Million In Venture Financing to Accelerate Market Expansion
Leading IP SAN Company Backed by Advanced Technology Ventures, Sofinnova Ventures, Sofinnova Partners, US Venture Partners, 3Com, and Large Pension Plan
SAN JOSE, Calif.--Jan. 5, 2004-- Intransa, the leader in intelligent information storage, delivery, and management over IP, announced today it has secured an additional $8 million in venture capital funding that will further accelerate the company's aggressive go to market strategy in the IP SAN market. Existing investors Advanced Technology Ventures, Sofinnova Ventures, Sofinnova Partners, US Venture Partners, and a large pension plan participated in this most recent round of series C funding, bringing the company's total funding to date to $49 million. Intransa expects the proceeds of the funding to be put toward sales and marketing programs, global operations, and continued development of its next generation products.
"This latest round of funding validates the progress Intransa continues to make in the IP SAN market," said Eric Benhamou, chairman of the board of directors for Intransa. "This additional funding will enable Intransa to increase its investment in driving the market adoption of affordable IP SAN solutions that simplify the way organizations store, access and manage information."
Since general availability of the Intransa IP SAN in June 2003, Intransa has gained sales traction with many customers, both domestic and international, in multiple markets including sciences, government/homeland security, manufacturing, technology, and education. Intransa customers include Blue Star Solutions, Macrovision, Sandia National Labs, Stratex Networks, Tessenderlo Kerley, UTStarcom, Apara India, SES-India, Hannet-Korea, and CHS- Slovenia.
"Intransa's IP SAN Solution is making an impact on the network storage market by fundamentally changing the way enterprises solve their data storage and information management issues," said Stuart Phillips, general partner at US Venture Partners and member of the board of directors of Intransa. "We are thrilled with the sales progress the company has made and are excited to be a part of the process and look forward to the future of IP SANs."
"This latest round of funding represents another significant milestone in Intransa's short company history and demonstrates the unwavering commitment our loyal investors continue to have in our strategy and execution," said Dr. Avi Katz, president and CEO, Intransa. "With this additional funding, we also remain committed to aggressively executing our short and long term strategies to quickly bolster global operations and build upon the success of Intransa's IP SAN with the development of our next-generation IP SAN solutions. We look forward to exceeding expectations once again and taking Intransa to its next level of success as the industry leader in IP storage solutions, and continue to transform and lead the industry through the third wave of storage."
Intransa's IP SAN solutions offer integrated, automated, and virtualized storage solutions over IP to provide new network and storage services to customers. Intransa's IP SAN introduces a sophisticated architecture and management software that enables customers to easily add storage capacity from 2 to 16 terabytes (TB) and consolidate high volume e-mail and collaborative environments such as Microsoft Exchange, databases, backup and restore applications and other mission-critical data management and disaster recovery applications. Intransa's IP SAN provides IT administrators an attractive alternative to expensive Fibre Channel components by leveraging the network commodity trend and the wide spread knowledge of IP networking. The Intransa IP SAN facilitates the enterprise deployment of tiered and on-demand storage infrastructure.
About Intransa
Intransa, with headquarters in San Jose, California, is an innovator of enterprise-class, intelligent IP storage solutions and technologies to radically reduce the complexity of deploying network scalable storage and services. Based on advanced technology that leverages the cost and performance advantage of Ethernet and the ubiquity of IP networks, Intransa's products will enable a new generation of information storage, delivery and management over the IP networks from objects to blocks. Founded in September 2000, Intransa has secured a total of $49 million in funding from 3Com, Advanced Technology Ventures, Sofinnova Ventures, Sofinnova Partners, US Venture Partners and a major pension fund. For more information visit www.intransa.com.
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Contact:
Intransa
Colette Jack, 408-678-8684
colette.jack@intransa.com
NUR Macroprinters Receives $2.0 Million of Equity Funding
LOD, Israel, Jan. 5 -- NUR Macroprinters, a leading supplier of wide-format inkjet production printing systems for the out-of-home advertising market, today announced that it has received $2.0 million of equity funding from investors who recently provided a $3.5 million stand-by convertible loan financing commitment.
The investors exercised their right to purchase ordinary shares of the Company by converting $2.0 million of the $3.5 million stand-by loan commitment. The conversion price was $0.62 per share, approximately 20% higher than the Company's stock price at the time it accepted the investor term sheet in mid-2003. At the November 2003 annual shareholder meeting, the Company's shareholders approved the stand-by loan financing commitment from accredited investors from the U.S. and other countries, including their right to convert into equity.
Mr. Dan Purjes, Chairman of the Board and a majority shareholder in the Company, participated in this stand-by loan in the amount of $1.3 million. Mr. Purjes and his family exercised their right to purchase $0.4 million of equity in NUR. The remaining unconverted $1.5 million will continue to be available to the Company as a stand-by loan commitment until July 31, 2004.
The conversion was initiated by the Company in order to improve its working capital to meet an anticipated increase in manufacturing volumes in 2004. As an inducement for conversion, NUR offered to register the shares issued under the conversion as soon as possible pending the completion of the Company's 2003 audited financial reports.
Commenting on the equity funding, Dan Purjes, Chairman of the Board, said, "The decision by the stand-by loan commitment investors to convert most of their funds to equity is a strong testimonial of their confidence in the new NUR management team led by David Amir, who became President and CEO in April of 2003. Since then, NUR has gone from a company in difficulty to one whose challenge now is optimizing manufacturing capacity."
Mr. Purjes continued, "In the face of global economic and geopolitical stress, an extraordinary turnaround was executed. Two new product lines were successfully introduced. The Company's Ultima equipment manufacturing facility was relocated to Israel, as was its ink manufacturing facility. The Company's joint venture manufacturing partner in Israel was bought out so that all manufacturing is controlled by the Company. The Company's American headquarters were relocated from San Antonio, Texas to Moonachie (northern) New Jersey, and the Company's Asia-Pacific headquarters were relocated from Shanghai to Hong Kong. New senior management teams were appointed at each of the Company's three global region headquarters. The Company's bank debt was restructured and $3.5 million was raised in the form of a stand-by loan commitment of which $2.0 million has now been converted into equity.
Dan Purjes concluded, "The Board and investors of NUR appreciate the dedication and hard work contributed by NUR's employees that went into this turnaround, and we have great hope for the Company's future. We stand ready to support the Company as its business grows in the days to come."
Commenting on the equity funding, David Amir, NUR Macroprinter's President and CEO, stated, "The original stand-by convertible loan financing commitment was obtained while the Company was emerging from a very difficult period; it represented a belief in our future, despite the inherent risks at that time. The investors' decision to now convert the major portion of their loan into equity signifies their strong confidence in NUR going forward."
About NUR Macroprinters Ltd.
NUR Macroprinters (Nasdaq: NURM - News) is a leading supplier of wide-format inkjet printing systems used for the production of out-of-home advertising materials. From entry-level photo-realistic printers to high-throughput production presses, NUR's complete line of cost-effective, reliable printing solutions and companion inks are helping customers in over 100 countries worldwide address the full spectrum of wide-format printing requirements. NUR customers, including commercial printing companies, sign printers, screen printers, billboard and media companies, photo labs, and digital printing service providers, count on NUR to help them deliver the high quality and fast turnaround they need to meet their clients' exacting demands and succeed in today's competitive marketplace.
More information about NUR Macroprinters is available at www.nur.com.
SAFE HARBOR: Certain statements made herein that use the words "estimate," "project," "intend," "expect," "believe" and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties that could cause the actual results, performance or achievements of NUR Macroprinters Ltd. To be materially different from those which may be expressed or implied by such statements, including, among others, changes in general economic and business conditions and specifically, decline in demand for NUR Macroprinters Ltd.'s products, inability to timely develop and introduce new technologies, products and applications and loss of market share and pressure on prices resulting from competition. For additional information regarding these and other risks and uncertainties associated with the Company's business, reference is made to NUR Macroprinters Ltd.'s reports filed from time to time with the Securities and Exchange Commission. This press release is available at www.nur.com and www.portfoliopr.com.
CONTACTS:
NUR MACROPRINTERS: David Seligman
011 972-67-726-559
cfo@nur.com
PORTFOLIO PR: Paul Holm / Jerry Cahn
212-736-9224
pholm@portfoliopr.com / jcahn@portfoliopr.com
Redback Networks Receives $30 Million from TCV
New Equity Funding to Further Growth in Broadband Market
SAN JOSE, Calif.--Jan. 5, 2004--Redback Networks Inc. (Nasdaq:RBAKD - News), a leading provider of broadband networking systems, today announced that it has received $30 million in equity funding from Technology Crossover Ventures (TCV), a premier provider of growth capital to technology companies. In addition, the company today announced that its plan of reorganization became effective at 6:00 p.m. Pacific Time on January 2, and it has successfully completed the Chapter 11 process (please see separate press release).
"Having successfully completed our financial restructuring and having built a strong and unique position in the growing market for strategic broadband infrastructure, we are moving down the path towards profitability and long-term growth," said Kevin DeNuccio, president and chief executive officer of Redback Networks. "The funding and endorsement from TCV will ensure uninterrupted momentum as we continue to move forward and should serve as a significant sign of progress, furthering the confidence of our customers and partners."
"We believe that Redback Networks holds an important position in the quickly expanding market for strategic broadband infrastructure," said John Drew, General Partner, Technology Crossover Ventures. "TCV is committed to the long-term success of our investments, and we're excited to contribute to Redback's future in a promising market."
In return for their $30 Million investment TCV received 651,749 shares of Series B convertible preferred shares that can be converted into common stock at a one for ten ratio. TCV also received warrants exercisable for 1,629,373 shares of common stock at an exercise price of $5.00 per common share.
The shares of preferred stock and warrants sold to the investors have not been registered under the Securities Act of 1933. Accordingly, these securities may not be offered or sold in the United States, except pursuant to the effectiveness of a registration statement or an applicable exemption from the registration requirements of the Securities Act. Redback has agreed to file a registration statement covering resales of the common stock issuable upon conversion of the Series B preferred stock and exercise of the warrants by TCV. This press release shall not constitute an offer to sell or the solicitation of an offer to buy the common stock.
About Redback Networks
Redback Networks Inc. enables carriers and service providers to build profitable next-generation broadband networks. The company's User Intelligent Networks(TM) product portfolio includes the industry-leading SMS(TM) family of subscriber management systems, and the SmartEdge® Router and Service Gateway platforms, as well as a comprehensive User-to-Network operating system software, and a set of network provisioning and management software.
Founded in 1996 and headquartered in San Jose, Calif., with sales and technical support centers located worldwide, Redback Networks maintains a growing and global customer base of more than 500 carriers and service providers, including major local exchange carriers (LECs), inter-exchange carriers (IXCs), PTTs and service providers.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.
The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including but not limited to, those relating to Redback's position in the broadband market, its path towards "profitability and long-term growth," the "uninterrupted momentum" of its business, the confidence of its customers and partners and the promise and growth of the broadband infrastructure market. All forward-looking statements included in this document are based upon information available to Redback as of the date hereof, and Redback assumes no obligation to update these statements. These forward-looking statements involve a number of risks and uncertainties, the outcome of which could materially and adversely affect Redback's actual future results. These risks and other risks relating to Redback's business are set forth in the documents filed by Redback' with the Securities and Exchange Commission (SEC), specifically the most recent reports on Form 10-K, 10-Q, Form 8-K, Registration Statements on Form S-4 (File Nos. 333-107714 and 333-108170), and amendments thereto, and other reports filed from time to time with the SEC.
REDBACK and SmartEdge are trademarks registered at the U.S. Patent and Trademark Office and in other countries. SMS and User Intelligent Networks are trademarks or service marks of Redback Networks Inc. All other products or services mentioned are the trademark, service marks, registered trademarks or registered service marks of their respective owners.
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Contact:
Redback Networks
Steve Schick, 408-750-5096 (Media)
schick@redback.com
Investor Relations, 408-750-5130
investor_relations@redback.com
psiloQuest Secures $7.0 Million in Venture Capital
NGen Partners Leads Series B Investment to Florida-Based Semiconductor Materials Supplier
ORLANDO, Fla.--Jan. 5, 2004--psiloQuest, Inc., a manufacturer of specialty polishing pads for use in a semiconductor manufacturing process known as Chemical Mechanical Planarization, or CMP, announced today that it recently closed a $7.0 Million, oversubscribed, Series B round of financing. The funding was led by NGen Partners of Santa Barbara, California. The round also included previous investors Aurora Funds, Grace Venture Partners and Greyhound Fund LP, as well as new investors DuPont, Air Products and Chemicals and Cycad Group, also of Santa Barbara.
"We are particularly pleased to have connected with NGen Partners and their unique approach to venture funding, especially in the funding environment we've lived through over the past couple of years," remarked Bob Heid, President and CEO of psiloQuest. "We consider it a validation of our technology and our business that several of NGen's strategic limited partners chose to join NGen independently as individual investors in psiloQuest. It is also gratifying that Aurora, Grace and Greyhound expanded their interests in psiloQuest after having been with us for over two years."
psiloQuest's Application Specific Pads will afford semiconductor manufacturers a tremendous reduction in the cost of ownership for CMP, an enabling manufacturing process used to produce 60% of all the computer chips sold in the world today. The unique construction of psiloQuest's products eliminates costly conditioning steps required by all competitive pads used in the same application. It also enables semiconductor manufacturers to reduce their slurry consumption by as much as 30%.
Steve Parry, NGen Partners notes: "The fact that we were able to quickly build an oversubscribed round with just the original investors and our own limited partners, without seeking outside funds, is a testament to the quality of this company and its management team. There are few deals today where the technology advantage in a high growth market is so clear, and where the market interest is so correspondingly evident."
Since the launch of its first commercial product at the beginning of Q2, 2003, psiloQuest has initiated process qualification programs at nearly a dozen semiconductor manufacturers throughout North America and Asia. Process qualifications such as these typically last 12 to 18 months and require extremely close cooperation between psiloQuest and each customer's process development and manufacturing engineering groups.
A spokesperson for psiloQuest stated that the company will announce its first customer conversions in Q1, 2004.
Proceeds from the funding will be used to expand the company's manufacturing capacity and to build a full scale sales and marketing infrastructure. Portions of the funding will also be used to complete development and begin commercialization of psiloQuest's new product family targeted for polishing copper, the newest and fastest growing semiconductor manufacturing technology introduced in recent years.
Scott Albert, Managing General Partner of The Aurora Funds says: "We are very pleased at the progress made by psiloQuest over the past several years in developing its new pad technology. As an early investor in the company, we believe that this new financing will provide the capital necessary to build out the company's infrastructure and to bring the company's products to the marketplace in the near term."
Recent market research reports estimate the CMP pad market at roughly $400 Million worldwide in 2003, with annual growth estimates of 12% to 18% over the next five years. "The rebound of the semiconductor industry in the fourth quarter of 2003, and the continued growth predicted through 2004 bode well for our future," remarked Mr. Heid. "Our unique technology offers some very demonstrable benefits. With industry wide fab utilization passing 90%, and with the growth of 300mm wafers and the increasing emphasis on defect reduction, psiloQuest is well positioned to become a major force in this market in years to come."
About psiloQuest
psiloQuest, Inc. was established in Orlando, FL during 2000 to develop and commercialize CMP polishing pads to the semiconductor industry. Initial product development and commercialization efforts took 2.5 years, and the company began commercial operations in April 2003.
About NGen Partners:
NGen is a venture capital team comprised of world renowned academic, business and corporate partners. Based in Santa Barbara, CA, NGen seeks high growth companies that address large markets in materials-related fields. The fund is engineered to support accelerated product development through the fund's limited partners that include Air Products and Chemicals, BASF, Bayer, BHP Billiton, Boeing, Canon, DSM, DuPont, Henkel, Honda, Schott Glass, CDP Capital and Unilever. http://www.ngenpartners.com
About The Aurora Funds:
Founded in 1994, The Aurora Funds is a venture capital firm that provides capital, connections and strategic help to entrepreneurs with early stage life science and information technology companies, primarily in the Southeastern and Mid-Atlantic United States. Aurora typically invests in seed and first round financing opportunities. The firm has more than $155 million of total capital under management and is currently investing out of its fourth fund of $85 million. The firm has the capacity to invest between $4 million and $7 million throughout the life cycle of an investment. More information is available at http://www.aurorafunds.com.
About Grace Venture Partners
Grace Venture Partners is an Orlando-based venture capital firm investing in the technology and hospitality industries. The firm's first fund, Grace Venture Partners, LP, has seven investments in early stage technology companies in the areas of communications infrastructure, semiconductors and software. The technology fund has focus geographically on investments in the southeastern United States. The firm also manages a syndicate of investors, Grace Restaurant Partners, LP, which invests in emerging growth restaurant companies located throughout the United States. For more information, visit http://www.graceventure.com
About Greyhound Funds
Greyhound Fund LP is an early stage technology investment venture fund managed by Bulldog Capital Management of Clearwater, Florida. For more information, please contact Philip Goodman at Philip@rtii.net.
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Contact:
psiloQuest, Inc., Orlando
Heather Hruby, 407-781-7237
hhruby@psiloquest.com
General Atlantic Invests in Healthcare Service Provider
Greenwich, Conn.-based private equity firm General Atlantic Partners has announced it has taken a minority share in healthcare service provider MultiPlan.
Code Hennessy Simmons Takes Lining Co Private $213M Deal
Chicago-based private equity firm Code Hennessy & Simmons, through its newly formed portfolio company GEO Holdings Corp., has agreed to purchase publicly held Gundle/SLT Environmental (GSE) for approximately $213 million.
Ripplewood Acquires Time Life, Adds it to Lillian Vernon
In its second deal with operating partner ZelnickMedia, New York-based private investment group Ripplewood Holdings has acquired music and video direct marketing company Time Life from Time Inc.
Vestar Leads $80M Investment in Healthcare Provider
New York-based private equity firm Vestar Capital Partners announced it will lead an $80 million investment in healthcare provider Essent Healthcare.
Onex Partners Makes Debut Deal
$101M Investment in Healthcare Co
Canadian conglomerate Onex Corp. has used its newly created private equity fund Onex Partners for the first time by investing $101 million in managed healthcare organization Magellan Health Services.
India, Inc. is set to take on the world
India Inc is all set to take on the world. The year ’03 saw a sudden spate of overseas acquisitions by Indian companies, newly confident of their engineering and technological skills.
This marks a total reversal of the situation some years ago, when there was a widespead fear that Indian companies would be acquired by cash-rich multinationals.
Among the large acquisitions abroad, there was Reliance Industries’ proposed $211-m acquisition of FLAG Telecom. The AV Birla group acquired copper mines in Australia and a Carbon Black unit in China. Sterlite too took over a copper mine in Australia. ONGC spent over $1bn to pick up a stake in oil fields in Russia and is negotiating with Shell for a stake in an oil field in Angola. Tata Motors, the largest truck maker in the country, acquired a truck plant in South Korea from auto major Daewoo Motors in ’03.
Auto component companies like Bharat Forge, Amtek Auto also made overseas acquisitons during the year. Infosys, Wipro and i-flex acquired small software companes abroad.
According to estimates by analysts, corporate India was sitting on a free cash-flow of Rs 23,000 crore as of March, ’03. This is likely to increase to around Rs 30,000 crore by March ’04. Compare this with a measly Rs 7,500 crore five years back. Analysts say this has been achieved by adopting discipline with regard to capital expenditure, cost-cutting and better working capital management.
STAR News can now uplink from India for 10 yrs
NEW DELHI: STAR News, the 24-hour news and current affairs channel can now uplink from India for a period of 10 years. Three months after the government received the joint venture proposal from Rupert Murdoch’s STAR News Broadcast (SNBL) and Ananda Bazaar Patrika (ABPL) for permission to uplink a 24-hour news and current affairs channel, the I&B ministry has granted it the uplinking licence.
The permission came after months of uncertainty over the fate of STAR TV which had attracted a controversy over the use of shell companies to enable a foreign company to gain proxy editorial control. The possible violation of the spirit of the uplinking norms had the government revise the rules and include a clause that the largest Indian shareholder should hold at least 51% equity stake in the company.
The earlier application had industrialist, Kumar Mangalam Birla and merchant banker Hemendra Kothari holding 25% equity each while the STAR group was to hold 26% stake in the new company Media Content and Communications Services (MCCS), floated for the purpose. The rest was distributed among people close to STAR group — adman Suhel Seth, film personality Jeetendra Kapoor, TV personality Maya Alagh, mediaman Vir Sanghvi and lawyer Raian Karanjawala who hold 4%. Amidst a host of questions raised over the application, Mr Birla exited the company and Mr Seth picked up his stake.
However, the revised uplinking norms forced STAR to apply afresh in September with the restructuring that had ABP as the majority Indian partner with 74% stake. With ABP’s Aveek Sarkar as the chairman, the eight-member board of MCCS includes Peter Mukherjee, Aroop Sarkar, Aniruddha Lahiri, Naresh Chandra, S Nihal Singh and G Subramaniam. Ravina Raj Kohli is the president and Sanjay Pugalia the news editor. MCCS has an authorised share capital of Rs 70 crore and a proposed paid-up capital of Rs 62.5 crore.
The FIPB clearance for the infusion of foreign investment came in October after which STAR applied for uplinking permission too. The above developments took place in the wake of the government’s new policy for FDI in the broadcast segment.
Announced early last year, it made it mandatory for channels in the news and current affairs segment to uplink from India and to adhere to the 26% FDI cap. STAR TV which ended its agreement with NDTV and floated its own news channel has been granted a record number of “temporary uplinking” approvals in the meantime.
Temasek takes 14% stake in Matrix Lab
SINGAPORE/MUMBAI: Singapore state investment agency Temasek said on Friday it would buy a stake in the Indian drug firm Matrix in a $67 million deal that reflects its two new focus areas -- India and pharmaceuticals.
Temasek Holdings said it would take up to a 14 per cent equity stake in Matrix Laboratories, one of the best performing drug makers on the Indian stock market last year, in a preferential share allotment.
Matrix, a developer of generic drugs, will issue 2.25 million shares at Rs 1,500 ($32.87) each to Temasek and US investment fund New Bridge Capital.
Its existing shareholders will also divest 1.8 million shares in a secondary sale, Matrix said.
Both Temasek and New Bridge will participate equally in the issues, Matrix said. The investment by the firms works out to about $67 million each.
OVL hires JP Morgan to study Sakhalin cost rise
NEW DELHI: ONGC Videsh Ltd is likely to appoint JP Morgan Chase to examine the reasons behind the cost escalation in the $1.74-billion Sakhalin-1 oil and natural gas project, India’s largest overseas investment. An Empowered Committee of Secretaries (ECS) had asked OVL to examine the reasons behind the 45% cost overrun in Sakhalin-1 oil and gas project before allowing more funds to be committed to the development off eastern Russia.
“OVL is hiring JP Morgan Chase to detail the reasons leading to the ExxonMobil-led Sakahlin-1 consortium to ask OVL for an additional $800 million,” industry sources said.
Interestingly, JP Morgan was the firm that advised OVL in the year 2000 to invest $1.74 billion in Sakhalin-1 project and had projected a 10% decrease in capital expenditure.
The committee, comprising secretaries from ministries of petroleum, law, external affairs and finance, and Planning Commission, has asked OVL, which has so far invested $921.31 million in the Sakhalin-1 project, to explain why cost escalations of such magnitude have happened in the first place. It also wanted to be sure that no further cost overruns would happen.
Senior OVL officials, however, insist that there is only “a very small cost escalation” because the development plan has been revised and oil production estimates jacked up to 250,000 barrels per day from the earlier figure of 200,000 barrels per day. OVL officials said the cost escalation was due to changes in drilling locations, more local content in contracts, building telecom and airport infrastructure, and providing for 20% contingency money.
Datamatics in acquisition mode
BANGALORE: Datamatics Technologies (DTL), a business process outsourcing operator, plans to acquire a company operating in the data warehousing and management sectors in the next few months.
The company is currently in talks with three companies in the United States and Europe and has cash reserves of over Rs 100 crore. DTL had acquired CorPay an American BPO operator in October last year, for an undisclosed amount in all-cash deal. (Should Indian companies concentrate on R&D rather than make acquisitions abroad?)
This takeover had given the company access to some top corporations including General Electric, Chrysler, General Motors and Ford.
The deal was funded through internal accruals. Continuing this trend, DTL is expected to fund future deals internally, Manish Modi, managing director and CEO said.
"While domain expertise is important, technology is also key to the BPO model," he added. The firm already works with companies such as the data warehousing major Hummingbird to enhance its internal processes.
We will, we will rock you
When the 1991 economic reforms were announced, India was the ugly duckling of the world’s economies, with forex reserves less than $1 billion and economic growth close to stagnant. But 13 years later, it is truly India’s day in the sun, a time for the swan to behold its own reflection.
India is now among the top contributors to world Gross Domestic Product (GDP), with a share of 5%, after USA (22%), China (13%) and Japan (7%). India’s national income is growing at the second highest rate in the world of 6% plus (after China’s 8%), it may not be long before it outstrips at least Japan in share.
India’s at the top of the heap as far as growth in per capita income is concerned too. For the period 1997-02, India’s national income grew at 19%, second only to China, which grew at 39%. But its growth is double that of the US. Moreover, in terms of acceleration of growth rates, India is second to none. India is the only country in the world that has shown rising growth rates over the 1992-2002 decade.
During the current decade 1992-2002, India’s per capita income grew by 46% from the 36.5% growth rate observed during the decade 1982-1992. On the other hand, China has shown a decline in growth rate over the decades by as much as 7%. The fast growing East Asian countries like Thailand and Hong Kong have seen a fall in growth rates by as high as 62% and 51% respectively.
Going for global glory
You’ve heard of Murphy’s Law, the one that says, anything that can go wrong will go wrong. Maybe there should be a law that says, anything that can go right, will go right. Call it the Magi's Law. It could be magical wizardry.
Take a look at India 2003.
Just as there have been times when just about everything seemed to go wrong, for India almost everything turned out right in 2003. Better still, there might be a lot more where this came from, in which case you’ll hear champagne bottles popping and the bubbly flowing, all through 2004.
India now has enough foreign exchange reserves to pay off all of its external debts and become the first free and clear nation on the planet.
But will it go that route while continuing its outsourcing boom of technology, engineers and new innovations?
* It was the year when India Inc posted a dramatic turnaround in financial perfomance;
* The year when the stock markets rose and rose;
* The year when foreign exchange reserves just kept growing and the rupee strengthened almost unbelievably against the dollar;
* The year when outsourcing work poured into India;
* The year when manufacturing didn’t just make a comeback, but also showed it was good enough to compete with the world’s best;
* The year of cross-border deals, as a confident, global-minded India Inc began to hunt overseas for companies and facilities;
* Most importantly, it was the year when Indian businessmen, beyond just our software guys, began to believe they had it in them to make the cut globally.
What you are witnessing is, hopefully, the emergence of a nation that’s ready to take its place at the head of the global table (and at the top of the tables).
But will it choose to unleverage itself from interference by the IMF, World Bank and other Western Bankers who are increasingly coming under the gun for the international financial shenanigans?
Or will it just pay them all off and tell them to take their falling currency elsewhere?
Only the current Parliment knows for sure!
India's Inflation rises to 5.63 per cent
NEW DELHI: A rise in prices of diesel and petrol pushed up inflation to a 29-week high of 5.63 per cent for the week ended December 20 even as vegetables, edible oils and textiles became cheaper.
The wholesale price index (WPI) inflation, which has been rising for the last six weeks, was up by another 0.06 per cent from the previous week's figure of 5.57 per cent though prices of several food and non-food articles and some manufactured items fell.
The general price level was as low as 3.34 per cent in the year-ago period, indicating that the latest price level was not in consonance with the upward GDP growth in the second quarter of this fiscal.
The latest trend in inflation comes amidst Reserve Bank's forecast of 4-4.5 per cent and Finance Ministry's projection of 2.9 per cent by March end.
The WPI rose by 0.1 per cent to 176.5 points during the latest reported week as fuels group index rose substantially, giving a positive linkage to the upward movement in the inflation rate, even as the indices of primary products and manufactured products fell. The index was 167.1 points in the previous year period.
Centre had to revise upwards the point-to-point inflation to 5.13 per cent for the week ended October 25 as compared to the earlier reported figure of 4.96 per cent, which was based on provisional level.
The final WPI stood corrected at 176.1 points during the last week of October as against the provisional level of 175.8 points.
The elephant is ready to dance
From a few Mesopotamian seals found in Harappa and Kalibangan, India’s foreign exchange reserves have grown to over $100 billion. From the white man’s burden, India is fast transforming into Nemesis of the white middle class, apparently bent on stealing all their jobs via outsourcing.
It is one of the fastest growing economies, a growing hub or R&D for the world, an emerging market that is readying for take-off.
All hype and shining propaganda? What about hunger in Kalahandi, Bolangir and Koraput, naxalite violence that merges deprivation into depravation in large parts of Andhra, Bihar, Orissa, Jharkhand, Madhya Pradesh and Chhattisgarh? Don’t the little girls missing from the demographics of northern states and the millions teeming in slums, employment exchange queues and below the poverty line count for anything? Of course, all of these are part of the reality. But it would be completely cynical to see only that part of the Indian reality that doesn’t glitter. On the threshold of 2004, positive energy flows through the Indian economy.
Growth for the current fiscal is expected to be in the 6.5%-7% range. It will be led by a strong recovery in agriculture, probably with a two-digit rate of growth, from last year’s drought-stricken malperformance. After six successive quarters of running a current account surplus, which meant that this developing economy lent its real resources to feed some other nation’s growth, India has managed to run up a decent current account deficit this year. The merchandise trade deficit for the first seven months more than doubled to edge past $9 billion.
The rupee has appreciated against the dollar by about 6%, making dollar imports cheaper and fuelling growth. Interest rates are at historic lows, with triple A rated corporates getting five year money at rates close to the rate of inflation. Housing and other retail finance has boomed. Exports continue to grow faster than the GDP, making for a rising share of exports in GDP, a comfortable situation for an economy India’s size.
He(a)rd Mentality: Who cares about logic, they're brimming with confidence
With the Sensex crossing the 6,000-mark, Taurus continues to be on the ascendant over the Indian economy. The phenomenon can be understood in traditional economic terms by analysing the ‘rational’ factors such as economic growth, strength of fundamentals and sheer volume of investments by foreign funds.
On the other hand, the route which analyses the ‘irrational’ part of investor behaviour uses elements such as people’s emotions and expectations, herd instincts and mob psychology.
In the process, behavioural economics challenges the traditional view of financial markets as bastions of rationality. Daniel Kahneman — the Princeton psychologist who shared the Nobel Prize for Economics with Vernon Smith of George Mason University in ’02 — has shown, for instance, that quirks in human behaviour, such as the tendency to be overconfident or avoid risk, cause investor decisions that don’t always lead to the best or most logical outcomes.
Mr Kahneman’s research, conducted with colleague Amos Tversky, who died in 1996, led to the paper on the ‘Prospect Theory’ in 1979, which remains one of the most widely cited publications in economics.
The Prospect Theory argues that people’s degree of pleasure depends more on their own subjective experience rather than objective reality. “The theory helps explain biases of beliefs like ‘optimistic overconfidence’ — that people believe they can do what they in fact cannot do,” explains Mr Kahneman. “When you have a situation where everybody believes they are above average, the markets are going to behave in a funny way.”
Under such a dispensation, investors are not perfect information processors, motivated solely by the desire to make more money. Instead, they do things that clearly are not in their self interest, like trading too much or holding on to bad stocks, and rely on rules of thumb, hunches and gut feelings rather than clinically cool analyses.
Does that mean people don’t learn? Not really. Experts in behavioural finance concede that people learn, “but very, very slowly”. Most of the time, they rely on gut feelings, what the boffins call heuristics, or mental short cuts, which are very crude.
Moreover, while mainstream economists believe that these individual mistakes generally cancel each other out, behaviourists contend that the erroneous beliefs are systematic enough to move markets.
Behaviourists and traditionalists also differ on the degree of weightage to be given to investor psychology. However, recent research produced a wealth of insights into why people tend to act in ways that ultimately prove self-destructive.
Such trends can be amplified by the recent convergence of communication and computing technologies. In his recent book Smart Mobs, Howard Rheingold, the noted chronicler of community on the internet, describes the power technology bestows on people to gather into swarms suddenly and spontaneously.
The mobs described by Mr Rheingold are smart only in the sense that they are technologically enabled enough to act rapidly and collectively; they do not necessarily have smart ends. This insight, however, has been around for a long time.
Charles Mackay wrote about the “madness of crowds” in 1841: “In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do.
“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion (or trend), and run after it, till their attention is caught by some new folly (or stocks) more captivating than the first.”
Forex reserves swell to $100.59 billion
MUMBAI: After recording a weekly growth of over $1 billion for three consecutive weeks, forex reserves went up at a slower pace during the week ended December 26.
According to the figures released by the Reserve Bank of India (RBI) in its weekly statistical supplement (WSS), total foreign exchange reserves including gold and SDR rose $541 million to $100,598 crore during the period.
The entire growth in reserves during the week was on account of a growth in foreign currency assets which went up $96.5 billion, with the level of gold and foreign exchange reserves remaining unchanged.
Even though significantly higher than other years,’ FII inflows -the major driver of reserves - were marginally lower in the Christmas break. In the subsequent week, however, the reserves are likely to slow down in growth or show a dip as the government bought $2 billion from the Reserve Bank to prepay a portion of its external debt.
In rupee terms, the forex reserves translate into Rs 4,58,605 crore, which comprises a major source of reserve money. It went up Rs 3,045 crore during the week.
Universal Music mulls music TV venture
NEW YORK: Universal Music Group, the world's largest record label, is teaming up with satellite broadcaster DirecTV and business partners behind a prominent pornography video company to launch a music channel featuring uncensored videos.
According to a report on Friday in the Los Angles Times Universal, a unit of Vivendi Universal, is in negotiations with DirecTV to offer the new subscription-based channel, known as "1 AM."
Universal and the entrepreneurs of Vivid Entertainment Group founders, which is known for porn videos such as "Bad Wives" and "Women In Uniform," are expected to split ownership of the venture, the newspaper said, citing sources familiar with the matter.
Other partners in the channel will be the Endeavor talent agency and Shady Records, the Universal-backed label managed by rap superstar Eminem.
General Electric Co. unit, NBC, is in the process of combining its television broadcast and cable networks with Universal's parks, film and TV studios.
ICBC to buy Fortis' HK operations
HONG KONG : Dutch-Belgian financial services group Fortis said on Thursday the Hong Kong arm of China ’s biggest lender will pay HK$2.2bn ($276.5m) to buy most of its local banking operations, accelerating consolidation of the city’s banking sector.
The Industrial & Commercial Bank of China ( Asia ) will buy the retail and commercial operations of Fortis Bank Asia (HK) for 1.05 times the net asset value. The consideration will be made in cash. Issue of new shares represent 9% of the enlarged capital of ICBC ( Asia ).
NYSE m-cap rises to $17 trillion in '03
NEW YORK : The New York Stock Exchange said its global market capitalisation for shares traded rose in ’03, amid one of the most turbulent periods in the exchange’s 211-year history.
In a year-end review statement, the world’s largest exchange said its market capitalisation increased to $16.8 trillion during the year from $13.4 trillion at the end of ’02.
During ’03, it maintained a market share of 81% in listed stocks traded during trading hours. NYSE garnered “the dominant share” of the market for initial public offerings during the year with 65 new offerings, while adding 106 new companies to its listings.
ABN Amro to sell US broking unit to Merrill Lynch
AMSTERDAM : Dutch bank ABN Amro said on Wednesday it had reached a preliminary agreement to sell its US-based Professional Brokerage business to Merrill Lynch & Co.
ABN Amro, the Netherlands ’ biggest bank, said the parties hope to sign a contract confirming the agreement in January and want to complete the sale by the end of the second quarter.
If unable to finalise the deal, ABN Amro said it would consider restructuring the US unit, which provides security clearing, trade execution and operational support to investors in US options and securities markets. An ABN Amro spokesman declined to discuss any financial details of the deal.
“This decision has been taken as part of our strategy to focus increased resources on a more limited range of core activities within Wholesale Clients (WCS division) and to ensure our product offering is fully aligned with our client-led model,” ABN Amro said.
ABN Amro has tried to compete in investment and corporate banking in the US , but has recently withdrawn from that arena after failing to hold its own viably against market leaders like Goldman Sachs and Merrill Lynch.
ABN Amro said either the sale or restructuring would involve associated costs. These would, be offset by the gains from a sale of its US Prime Brokerage business, helping to erase any impact on the group’s '03 results.
'Wells' Submissions Ruled Not Protected From Civil Discovery
Wednesday December 31, 1:56 am ET
Mark Hamblett, New York Law Journal
Submissions made to the Securities and Exchange Commission by a party who is told charges might be filed are not protected from discovery in subsequent civil cases merely because they contain an offer of settlement, a Southern District of New York judge has ruled.
Deciding an issue of first impression, Judge Shira Scheindlin said that so-called Wells submissions are not settlement materials that should be shielded from discovery.
The judge's ruling came in In re Initial Public Offering Securities Litigation, 21 MC 92, where investors have sued investment banks for, among other things, inflating the price of initial offerings by the process of "laddering," or requiring customers who receive allocations of hot offerings to buy shares in the aftermarket.
After the SEC and the Southern District U.S. Attorney's Office launched investigations into initial public offering practices in late 2000, the SEC served subpoenas on a number of investment banks that underwrote the offerings for hundreds of technology companies.
The SEC eventually sent the banks Wells notices, which give the target of an investigation a chance to appear before the commission to give their side of the story and, possibly, prevent the filing of charges.
The investors' suits, filed in early 2001, alleged the same practices that were the subject of the SEC probe.
While the suits also named as defendants the technology companies that went public, plaintiffs' lawyers reached a settlement with those companies and their insurers in June. The settlement called for the payment of some $1 billion to investors, leaving only the investment banks in the litigation.
As discovery proceeded against the underwriting investment banks, plaintiffs' lawyers sought the Wells submissions made by the banks in their discussions with the SEC.
The underwriters argued against discovery, claiming that the submissions included settlement materials that required a "particularized showing of relevance that Plaintiffs cannot satisfy."
But Judge Scheindlin said that "plaintiffs have made the minimal showing of relevance" that is required by the Federal Rules of Civil Procedure, and that the plaintiffs were entitled to the submissions.
The judge noted that defense attorneys may have many reasons for filing a Wells submission, including an attempt to persuade the SEC's Enforcement Division staff to recommend against an enforcement action or to "drop certain charges, change the forum for the enforcement action, or request different relief."
While offers of settlement can be made in a Wells submission, such offers "are not intrinsically part of Wells submissions," Scheindlin said.
"To the extent that a respondent may make a settlement offer, that offer is typically clearly identified and thus easily severable from the remainder of the submission," she said.
And even if one assumed that the Wells submissions "are offers of compromise," she said, "this should not affect their discoverability."
RELEVANCE OF SUBMISSIONS
The submissions are relevant, Scheindlin said, because they "were drafted precisely to address, and rebut, the same charges the plaintiffs raise here." The judge said her in camera review of the submissions confirmed that they are relevant to how the defendants allocated IPO shares and the involvement of senior management in the allocations.
They are also relevant, she said, to "the awareness of senior management with respect to those practices and what, if anything, defendants' compliance personnel did in response to such knowledge," and, finally, the allegedly "unlawful quid pro quo extracted by the defendants in return for IPO allocations."
Attorneys with Milberg Weiss Bershad Hynes & Lerach and Bernstein Liebhard & Lifshitz are liaison counsel for plaintiffs. Attorneys with Sullivan & Cromwell and Wilmer, Cutler & Pickering are liaison counsel for the defendant underwriters.
Parmalat Investigators Ready for New Push
Thursday January 1, 3:57 pm ET
By William Schomberg and Jacopo Barigazzi
MILAN/PARMA (Reuters) - Italian prosecutors on Thursday stepped up their probe of the multibillion euro scandal at food firm Parmalat(Milan:PRFI.MI - News) with plans to question former finance heads and auditors in what is turning out to be one of the biggest corporate scandals in history.
Judicial sources told Reuters that on Friday magistrates would grill Fausto Tonna and Luciano Del Soldato, ex-chief financial officers of the company, as well as Gianpaolo Zini, a lawyer for Parmalat's disgraced former chairman Calisto Tanzi.
Lorenzo Penca, who has now quit as head of the company's auditors Grant Thornton Spa, is also likely to be questioned, a legal source said.
The four were arrested on Wednesday along three others on warrants issued by magistrates im Milan and Parma, near the group's headquarters, who are searching for Parmalat's missing billions. The additional three who were arrested on Wednesday are also likely to be questioned on Friday, judicial and legal sources said.
Investigators in Parma also want to hear from U.S. and South American banks which have been asked for information.
Long-standing concerns about Parmalat's opaque finances exploded into a full-blown crisis two weeks ago when Bank of America (NYSE:BAC - News) rejected as fake a document purportedly showing a Cayman Islands unit of Parmalat held four billion euros ($5 billion) of cash and securities with the U.S. bank.
Parmalat's founder Calisto Tanzi was seized by police in Milan last weekend and has been questioned in a Milan jail.
Prosecutors say they have uncovered a scheme of systematic fraud going back years which was used to cover up the true state of Parmalat's finances.
The auditor Grant Thornton's Italian unit, which certified the accounts of a Cayman Islands unit at the center of the probe, has denied any wrongdoing.
Tanzi has estimated under interrogation that the hole in Parmalat's accounts could be about eight billion euros, according to court documents.
Prosecutors say the hole could surpass 10 billion euros.
He has also admitted to funnelling 500 million euros from the publicly listed company -- now declared insolvent -- into firms owned by his family.
Doctors were due to begin a medical examination of 65 year-old Tanzi, who has previously suffered a heart attack, on Friday to determine whether he should stay in Milan's San Vittore jail.
"BRAZEN"
The U.S. Securities and Exchange Commission (News - Websites) this week launched its own investigation into what it called one of the "most brazen corporate financial frauds in history."
On Wednesday, a SEC representative met Italian prosecutors and investigators in Parma checked accounts at Bank of America, a police source said, following the seizure of documents and computer data at a Parmalat subsidiary.
As well as blowing the whistle on the non-existent bank account in December, the U.S. bank's involvement with Parmalat includes putting together a deal for outside investors to take a stake in a Brazilian unit of the group.
A warrant has also been issued for the head of Parmalat's Venezuela business, Giovanni Bonici, who is out of the country.
His lawyer Antonino Tuccari said on Thursday that Bonici was willing to return to meet magistrates and was trying to find a flight, adding his client had done nothing wrong.
No one has been charged in the case.
Italian news agency ANSA said on Thursday that Parma's soccer team could be one of the first of Parmalat's assets to be sold off by administrator Enrico Bondi as he seeks ways to keep the firm running.
But a source close to the matter played down the likelihood of a quick sale. "Among the dossiers on Bondi's desk, Parma Calcio -- while needing attention -- is not one which is likely to need precipitous moves." ($1=.7932 Euro)
Bank Of America Securities Receives SEC Notification
Fri Jan 2, 2:43 PM ET
CHARLOTTE, N.C. -(Dow Jones)- Bank of America Corp. (NYSE:BAC - News)'s securities unit said the Securities and Exchange Commission (news - web sites) may take civil action against it for allegedly violating books and record retention laws at its San Francisco office.
The SEC allegations arose from a regulatory inquiry that began two years ago, which sought to probe trading activities at the firm's San Francisco office. A company spokeswoman wouldn't elaborate further on the specific trading activities.
In a press release Friday, Bank of America Securities said the SEC staff alleged that it didn't store documents relevant to an unidentified inquiry in a proper fashion. In addition, the SEC is claiming that the securities operation didn't produce the requested documents in a manner deemed timely by the regulators.
The spokeswoman said that Bank of America Securities didn't provide the requested documents to the SEC in a timely manner, due to technological reasons. She said the firm had trouble finding the documents, which were of interest to the regulator, because of technological problems.
She added that the potential civil action and inquiry have nothing to do with mutual funds.
In September, New York Attorney General Eliot Spitzer said Canary Capital Partners, a hedge fund, was allowed to illegally trade the bank's Nations funds.
The securities firm is fully cooperating with the SEC at this time.