Conflicts of Interest




UK Regulator Fines Co for Mismanagement of Clients’ Conflict of Interest
Europe, Middle East and Africa

The UK Financial Services Authority (FSA) has announced that it has fined Martin Currie Investment Management Limited and Martin Currie Inc (Martin Currie) £3.5 million “for failing to manage a conflict of interest between two of its clients”, which arose when it “caused one client (Fund B) to enter into an ill-advised transaction which rescued another client (Fund A) from serious liquidity concerns”. According to the FSA, Fund B caused a client significant detriment but greatly benefited Fund A, whose “liquidity problems were solved by Fund B’s investment, because nearly half of the proceeds of the bond issue were used to repay these illiquid investments”. Furthermore, it also staved off reputational damage to Martin Currie. The key failing on the part of Martin Currie was a failure to identify and disclose the conflict of interest as it “failed to ensure that Fund B understood that the transaction proceeds would be used to repay an investment made by one of Martin Currie’s other clients”. According to FSA acting director of enforcement and financial crime Tracey McDermott, the responsibility to identify and manage the conflict of interest “is a core requirement for asset managers” and “senior management must ensure that there are adequate systems and controls in place to manage conflicts and to oversee the actions of employees”.

FSA’s media release (10 May 2012)
(Source: FSA)


Anti-Corruption Regulator Laments Absence of Conflicts of Interest Laws
Europe, Middle East and Africa

All Africa reports that the Anti-Corruption Commission (ACC) has expressed concern at the lack of a laws barring conflicts of interest, claiming that “conflict of interest has resulted in the improper management of public affairs and social injustice towards the country’s masses who are pushed away from the country’s key resources”. The ACC reportedly said that “conflict of interest often gives birth to corruption”, adding that the failure to criminalise such conduct has made it extremely difficult to catch people who have acted in conflict of interest. In addition, the ACC has voiced the need for legislation “that compels public officials, especially those in management positions, to disclose companies in which they or their relatives have interests”, in order to counter the problem of officials favouring companies in which they have interests, reports All Africa.

All Africa: Namibia: ACC Hands Tied On Conflict of Interest (10 April 2012)
(Source: All Africa)


Outgoing Goldman Sachs Director Criticises Firms Culture
Global

The Age reports that former Goldman Sachs executive director Greg Smith has accused the firm of having a “toxic and destructive” environment, following his departure from the firm. Mr Smith, in an opinion piece, reportedly stated that Goldman Sachs had “dumped its old culture of helping its customers make money”, adding that staff call their customers “muppets” and talk about “ripping off their clients”. Mr Smith reportedly blamed the change on a shift in how the firm promoted its people, namely that if an employee made “enough money for the firm”, that employee would be promoted into a “position of influence”. The firm reportedly expressed disagreement with Mr Smith’s views and stated that “[Goldman Sachs] will only be successful if [its] clients are successful”.

The Age: Departing Goldman banker slams ‘rip-off’ culture (15 March 2012)
(Source: The Age)

Related article:
New York Times: Why I am Leaving Goldman Sachs (15 March 2012)
(Source: New York Times)


Court Refuses Investor Request to Block Corporate Takeover
Americas

Last week, Chancellor Leo E. String Jr. refused investor requests to block Kinder Morgan’s takeover of El Paso Corporation (El Paso). While String did not stop the deal from moving forward, he did state that he had reservations about how the deal was put together. A group of El Paso’s investors had petitioned the Delaware Court of Chancery to restart the sale of El Paso because they felt the price Kinder Morgan had agreed to pay for the company was too low. According to the investors, Goldman Sachs (Goldman) was advising El Paso on a spinoff opportunity for its exploration and production business while at the same time owning a 19% interest in Kinder Morgan and also being a longtime advisor to the company. According to Goldman and El Paso, they took steps to mitigate the potential Goldman’s potential conflict of interest before a price was agreed upon. The Chancellor’s ruling does not prevent the plaintiff investors from pursuing their claim for monetary damages.

New York Times: Delaware Court Declines to Block Kinder Morgan’s El Paso Corp. Deal (29 February 2012)
(Source: New York Times)


Former SEC Enforcement Official Settles US$50K Conflicts of Interest Case
Americas

Spencer Barasch, a former enforcement official for the Securities and Exchange Commission (SEC), has reached an agreement with the Department of Justice (DOJ) over charges he violated conflicts of interest rules. According to the DOJ, Barasch discouraged or stopped investigations into the Stanford Financial Group several times. After leaving the SEC, Barasch went on to represent the firm before the commission. Barasch will be forced to pay a fine of $50,000, the maximum for a violation of federal conflicts of interest rules. The SEC is still pursuing its own separate civil case against Barasch.

New York Times: Ex-Official at S.E.C. Settles Case for $50,000 (13 January 2012)
(Source: New York Times)