Archive for September, 2009

Madoff scandal prompts dozens of SEC reforms (Reuters)

Tuesday, September 29th, 2009 | Finance News

WASHINGTON (Reuters) –
After dismissing complaints that might have uncovered Bernard Madoff's $65 billion fraud, the U.S. Securities and Exchange Commission must reform how it reviews tips and conducts examinations, the SEC's internal watchdog said on Tuesday.

SEC Inspector General David Kotz outlined 58 recommendations to overhaul the agency and in particular its compliance unit, where staff made critical mistakes in nearly every aspect of their examinations of Madoff and his business, the report said.

"Examiners did not properly plan or conduct their examinations of Madoff, and because of these failures, were unable to discover Madoff's fraud," the report said, referring to the Office of Compliance, Inspections and Examinations.

High on Kotz's list of 37 recommendations for the SEC compliance unit is to create a protocol detailing how staff can identify red flags and potential securities violations based on information gleaned from sources.

In a response to Kotz, the compliance unit said it agreed with the recommendations and noted that some of them would require more funding and resources for the agency.

Madoff, 71, pleaded guilty in March to Wall Street's biggest investment fraud and is serving a 150-year prison term.

Earlier this month, Kotz issued a blistering critique of how the SEC missed numerous red flags, failed to follow up properly on leads and disregarded tips that might have uncovered Madoff's massive investment fraud. Madoff used a Ponzi scheme, in which money from earlier investors is used to pay the later ones, until the fraud collapsed as redemption requests overwhelmed the money available.

That report found that the SEC compliance unit lacked staff with enough expertise to identify signs of fraud and failed to take a closer look at numerous contradictions discovered during examinations. SEC examiners also did not acquire and analyze trading data from an independent source, the report said.

Kotz urged the SEC to require examination staff to verify a sample of transactions with an independent third party.

The recommendations also included some 21 improvements for the SEC enforcement unit, such as creating formal guidance for agency lawyers to evaluate various types of complaints.

The SEC enforcement division said it agreed with the recommendations, and has already made it easier for staff to use subpoenas when investigating cases.

SEC Chairman Mary Schapiro and top agency enforcement and examination officials have publicly apologized for the agency's botched handling of tips about Madoff and have vowed to make sweeping changes.

(Reporting by Rachelle Younglai; editing by Andre Grenon and Matthew Lewis)


No truth to CIT-IndyMac merger talk: source (Reuters)

Tuesday, September 29th, 2009 | Finance News

NEW YORK (Reuters) –
CIT Group Inc (CIT.N) shares surged on Tuesday following a newspaper report that hedge fund Paulson & Co wants to combine the cash-strapped lender with a Paulson-affiliated bank once known as IndyMac. But a person familiar with the matter denied the report.

The New York Post, citing unnamed sources, said a number of CIT creditors, including Paulson, were considering several scenarios, including merging the struggling finance company into IndyMac, now called OneWest Bank.

One source familiar with the situation dismissed the talk: "There is absolutely no relations between IndyMac and CIT. Linking the two companies is just wrong."

Paulson declined to comment on the matter. CIT did not immediately return a call seeking comment.

CIT shares were up 19 cents, or 11 percent, to $1.86 in midday trading on the New York Stock Exchange.

Currently, CIT is scrambling to line up new financing and restructure its balance sheet as billions of dollars in debt comes due over the next year.

The lender, which relies on debt sales to fund its business, has been fighting for survival since the credit crunch shut down capital markets in 2007. Crumbling mortgage markets fueled losses, while its weakened condition has slowed its lending business to a crawl.

In July CIT creditors extended $3 billion in loans, though the company's advisers continue to seek a more comprehensive restructuring to avoid bankruptcy.

Paulson, led by billionaire investor John Paulson, was part of a consortium that purchased failed mortgage lender IndyMac from the Federal Deposit Insurance Corp earlier this year.

Paulson has been closely watched by investors since it reaped windfall gains betting that U.S. mortgage markets would collapse in 2007. It also correctly forecast that financial services companies would tumble last year.

Before its setbacks, CIT was one of the largest lenders to small and mid-sized businesses in the United States.

(Reporting by Joseph Giannone and Paritosh Bansal in New York; additional reporting by Biswarup Gooptu in Bangalore; Editing by Will Waterman and John Wallace)


Google to expand Wave testing, eyes Wave store (Reuters)

Tuesday, September 29th, 2009 | Finance News

Google Inc's (GOOG.O) highly anticipated real-time communications service is not "ready for prime time," but the company said on Tuesday it was on track to begin the biggest field test yet of the potentially groundbreaking Google Wave.

The Internet search leader intends to launch a limited preview of the service, already tested by developers and considered one of the company's most promising innovations as it seeks to widen its footprint among corporate clients.

Experts say the project has the potential to advance Google's plans to provide software to corporations, as well as giving Google a bigger role in a social networking space now dominated by companies like Facebook and Twitter.

Wave, first announced in May, aims to combine instant messaging, email, document handling and social networking features in one package.

In a pair of posts on the official Google blog on Tuesday, it also said it was exploring plans for a "monetizable wave extension store" that would allow developers to sell software that enhances the service's capabilities.

The comments come a day before Google is due to send invitations to access Wave to more than 100,000 developers, individual testers and "select" corporate users of Google Apps -- a suite of office-oriented applications from email to word processing -- in the biggest field test of the new service to date.

Wave was developed by a small team in Australia, led by brothers Jens and Lars Rasmussen.

"Some of you have asked what we mean by preview. This just means that Google Wave isn't quite ready for prime time. Not yet, anyway," wrote Lars Rasmussen in Tuesday's post. He noted that Wave still experiences occasional downtime, crashes and sluggishness.

He said that Google will allow some of the new Wave preview users to nominate friends, family and colleagues to use Wave, and it will soon invite many more people to try the service if all goes well during the preview.

In a separate blog post on Tuesday, Wave Product Manager Stephanie Hannon cited efforts by companies like SAP (SAPG.DE) and Inc (CRM.N) to develop software prototypes that extend the capabilities of Wave, as well as products that add video conferencing, trip planning tools and games like Sudoku puzzles to Wave.

"To help foster a strong developer ecosystem, we're exploring plans for a monetizable wave extension store," wrote Hannon.

Google has not given a public timeframe for Wave's general availability, though the home page of the official Wave Web site says the service is "coming later this year."

(Reporting by Alexei Oreskovic; Editing by Phil Berlowitz)