Conflicts of Interest




More Directors Banned Over Missing Fund Cash
Asia Pacific

The Australian Securities and Investments Commission (ASIC) has entered into enforceable undertakings with former Trio Capital (Trio) directors Keith Finkelde and David O’Bryen (both dated 24 August 2011), in which both men agreed not to act in any role within the financial services industry or as a director of a company for four years. The enforceable undertakings follow the prosecution of several Trio executives, including director Shawn Richards, who was jailed for three years and nine months for his role in managing approximately AU$125 million in unrecovered funds. ASIC chairperson Gary Medcraft stated that “ASIC is serious about holding gatekeepers to account. Since July 2011, ASIC has entered into enforceable undertakings with each of Trio’s former directors to prevent them from operating in the financial services industry, and to deter others. Our investigations into the Trio matter continue”.
ASIC’s media release (24 August 2011)
(Source: ASIC)


RBI Governor Urges Better Bank Governance
Asia Pacific

The Hindu reports that Reserve Bank of India governor Duvvari Subbarao has called for the introduction of new measures to curb conflicts of interest between corporate services providers and banks which they may represent. Dr Subbarao reportedly stated that “[i]f a corporate has an interest in a bank as a promoter or a shareholder, but has no position on the board, then there is no prohibition on the bank lending to the corporate. This opens up opportunities for self-dealing”. Dr Subbarao reportedly added that “[a]s we contemplate allowing corporates to promote banks, there is need for changes in statutes and regulations to address these concerns”.
The Hindu: Bank licences to corporates: Reserve Bank for strong rules (24 August 2011)

In related news, Moneylife reports that Dr Subbarao has called on banks to implement higher standards of corporate governance. Dr Subbarao reportedly stated that while regulatory oversight “can establish principles and lay down rules … the motivation to implement these principles and rules in their true spirit is a matter of organisational culture”.
Moneylife: RBI governor calls on bankers to implement corporate governance as their ‘dharma’ (23 August 2011)
(Source: The Hindu; Moneylife)


“Playboy” Magazine Connection a Conflict of Interest
Americas

William Marovitz has settled with the Securities and Exchange Commission regarding charges he profited approximately $100,000 from stock trading based on inside information. Pending a judge’s approval, Marovitz has agreed to pay $168,000 in penalties, disgorged profits, and interest to put an end to the case. Marovitz was accused of improperly trading Playboy Enterprises stock based on information he learned from his wife, the company’s former CEO Christie Hefner. Marovitz proceeded with his improper trades despite both his wife and the company’s general counsel warning him not to trade the stock while in possession of material inside information.
Christie Hefner’s Husband is Accused of Insider Trading (3 August 2011)
(Source: DealB%k New York Times)


News Corp Criticized for Lack of Transparency
Europe, Middle East and Africa

Bloomberg reports that News Corporation faces scrutiny over the Management and Standards Committee it recently established to deal with the fall-out of the phone-hacking scandal that engulfed the media empire in July 2011. According to Bloomberg, corporate governance experts have criticised the committee’s lack of independence and transparency, given that two members were executives at News International throughout the hacking scandal. Yale University School of Management Professor Jeffrey Sonnenfeld reportedly said that News Corporation should have appointed independent investigators, and that the company “has a history, obviously, of disappointing internal reviews”.
Bloomberg: Murdoch’s News Corp. Cleanup Effort Draws Fire Over Independence, Mandate (5 August 2011)

In related news, Bloomberg reports that UK Information Commissioner Christopher Graham has called for custodial sentences to be imposed for using stolen personal data, to discourage the actions leading to the recent phone-hacking scandal.
Bloomberg: Phone-Hacking Shows Jail Needed for Data Theft, U.K. Privacy Chief Says (30 July 2011) 
(Source: Bloomberg)


ASIC Enters Into EUs in proposed takeovers
Asia Pacific

The Australian Securities and Investments Commission (ASIC) has announced that it has entered into enforceable undertakings (EUs) with Financial & Energy Exchange Limited (FEX) and FEX Equity Markets Pty Ltd (FEX Equity) (both dated 27 July 2011) concerning the proposed takeover of NSX Ltd by FEX Equity. The EUs reflect ASIC concerns regarding the relationship between FEX and key shareholders, namely WSE Investment Fund No. 2 Pty Ltd (WSE) and Taranaki Investments Pty Ltd (Taranaki), which are companies connected to an FEX employee.

Specifically, ASIC identified the following contraventions of the Corporations Act 2001 No. 50 (Cth) (the Corporations Act):

  • that due to the association between FEX, WSE and Taranaki, 12.9% of shares held by WSE and Taranaki were acquired in contravention of s. 606 of the Corporations Act, resulting in an increase in FEX, WSE and Taranaki’s voting power to 38.07%; and
  • that FEX, WSE and Taranaki failed to comply with the substantial holding notice provisions in s. 671B of the Corporations Act.

The EUs will affect the shares held in NSX Ltd by WSE and Taranaki.
ASIC’s media release (27 July 2011)
(Source: ASIC; Lawlex Legislative Alert & Premium Research)