Financial Integrity

HSBC Fined for Subsidiary’s Rogue Investment Advice to the Elderly

The Financial Services Authority (FSA) has announced that it has issued a fine of £10.5 million to the Hong Kong and Shanghai Banking Corporation (HSBC) for “inappropriate investment advice” provided to elderly customers by HSBC subsidiary, Nursing Home Fees Agency Limited (NHFA). According to Mail Online, the NHFA encouraged 2,485 elderly customers, averaging 83 years of age, between 2005 and 2010 to invest in investment bonds to fund long-term care costs. The FSA deemed NHFA’s advice and sales to be inappropriate “because in a number of cases the individual’s life expectancy was below the recommended five-year investment period”, forcing those with shorter life expectancies to make investment withdrawals before the recommended period.  NHFA was also ordered to pay £29.3 million in compensation to its victims, reports Mail Online.

Meanwhile, The Telegraph reports that HSBC, in an attempt to save its reputation, has offered to compensate investors who bought unsuitable NHFA products dating as far back as 1991, before HSBC bought NHFA.
FSA’s media release (5 December 2011)
Mail Online: Did HSBC sharks prey on 20,000 pensioners? Staff were told to target lone, elderly customers (7 December 2011)
The Telegraph: HSBC acts to stem mis-selling fall-out (7 December 2011)
(Source: FSA; Mail Online; The Telegraph)

Corrupt Culture Blamed for Olympus’s Financial Scandal

The New York Times (NYT) reports that an independent panel has described the corporate culture at Olympus as “corrupt”, and a key factor in a recent financial scandal. The panel reportedly said that Olympus’s former management was “rotten to the core, and infected those around it”, requesting banks to submit incomplete financial statements and thereby cover-up failed investments. Olympus’s auditors, KPMG AZSA and Ernst & Young ShinNihon were also reportedly criticised for “failing to expose fraud”. However, the NYT reports that the panel did not find evidence of organised crime at Olympus.

Olympus has reportedly said that it takes the report’s findings “very seriously” and is considering further measures to restore confidence in the company.
NYT: The Culture Was Corrupt at Olympus, Panel Finds (6 December 2011)
(Source: NYT)

New Insider Trading Charges Expected in Hedge Fund Probe

According to sources familiar with the investigation, the federal government is poised to bring new charges in its widespread investigation into insider trading practices. The charges in this instance will reportedly be brought against individuals from two hedge funds, Diamondback Capital Management (Diamondback) and Level Global Investors (Level Global). Both hedge funds were raided by the government late last year. The government’s investigation into Diamondback and Level Global stemmed from its inquiry into Primary Global Research (Primary). Numerous individuals associated with Primary have been convicted or pled guilty to leaking confidential information to hedge fund traders.
New York Times: New Round of Insider Trading Charges Is Expected (30 November 2011)
(Source: New York Times)

Company Cheques Bounce
Europe, Middle East and Africa

Gulf News reports that a number of suppliers in Dubai are considering taking legal action against Bin Sharif Group, after the owners of the multi-brand retail company allegedly issued cheques worth millions of dirhams and disappeared before the cheques eventually bounced. The Bin Sharif Group reportedly operate more than 10 stores across the United Arab Emirates, including Shobra Shoes, accessories outlet Ardent, clothes company Wadi, and children clothing store BabyDoss. According to Gulf News, approximately 20 suppliers’ cheques have bounced with an estimated Dh150 million to Dh200 million owing, in addition to staff complaints of unpaid wages. Issuing cheques which cannot be honoured is reportedly a criminal offence in Dubai.
Gulf News: Suppliers cry foul as retailer’s cheques bounce (29 November 2011)
(Source: Gulf News)

Cash-strapped Airline Cuts Planes, Faces Probe
Asia Pacific

Gulf News reports that the Indian carrier Kingfisher Airlines Ltd (Kingfisher) is being investigated by the Indian aviation ministry after the airline cut 12 out of 27 planes amid a cash shortage. The aviation ministry is reportedly reviewing Kingfisher’s accounts to determine whether it has the financial strength to pay for spares and aircraft services.
Gulf News: Kingfisher nosedives amid government probe (29 November 2011)
(Source: Gulf News)