Week in Review
March 17, 2008
Spitzer Resigns After Prostitution Scandal
New York Governor Eliot Spitzer, the former New York State attorney general who was instrumental in waging war against Wall Street corruption and the mutual fund industry's after-hours trading and market-timing activities, resigned his post effective March 17, after a highly publicized scandal last week that linked him to a prostitution ring.
"I have acted in a way that violates my obligations to my family ... I apologize first and most importantly to my family [and] to the public," said Spitzer, 48, during a press conference last week in response to an article in The New York Times that implicated him as a client in a prostitution ring in Washington, D.C.
Lt. Gov. David Paterson was scheduled to be sworn in as governor on Monday.
As attorney general, Spitzer, who has been called the "Sheriff of Wall Street," first uncovered and then prosecuted hedge funds, brokers and mutual fund advisory firms for their part in the after-hours fund trading and market-timing scandal in September 2003.
Those revelations rocked the financial services industry and resulted in a shakeout of several top executives at mutual fund advisory firms and billions of dollars in fines being levied, as well as concessions by several fund advisors to cut their fund management fees for several years.
Spitzer was also the man behind the 2002 so-called $1.4 billion "global settlement" among 10 Wall Street firms accused of biased analysts' reports and improperly allowing investment analysts to influence initial public offering business.
Judge Grants $14M Settlement Against New York Life
A federal judge in Pennsylvania has given final approval to a $14 million settlement against New York Life Insurance Co. by employees who said the company's retirement plans were improperly invested into mutual funds owned by New York Life.
According to the order, an independent consultant advised New York Life's board that their pension plans could save more than $7 million in fees by moving its investments from proprietary funds to a separately managed program. Despite this advice, the trustees did not take action until the plaintiffs filed a class-action lawsuit.
The plaintiffs, who are current and former New York Life employees, charged that the company breached its fiduciary duties under the ERISA act.
A statement by the board of trustees said the plan's investments and menu of investment options have always been prudently selected, and the fees are appropriate.
Blackstone Profit Drops 90%
Global alternative asset manager Blackstone Group reported a 90% drop in profit during the fourth quarter of 2007 compared to the same period in 2006 and warned that conditions will remain difficult for the rest of the year or longer.
Net income fell from $808 million to $88 million, due to falling market conditions in the United States, Western Europe, Asia and other parts of the world.
The credit crunch has made banks reluctant to lend out large amounts of money, damaging the profitability of private equity companies and putting a halt to private equity deals.
"Lack of available financing in the U.S. and Europe for large leveraged transactions limited our transaction fees," said founder and Chairman Steve Schwarzman. "Difficult market conditions in the U.S. and Europe continue in 2008 and there is little visibility on when these conditions might improve."
March Payroll Job Losses Could Top 200,000
TrimTabs Investment Research said the U.S. economy lost 78,000 jobs in February, based on daily income tax deposits to the Treasury from salaried taxpayers. This number is higher than estimates from the Bureau of Labor Statistics, which reported 63,000 job losses in the same period.
Stock markets plunged upon hearing the news.
"According to our data, February's job loss is the fourth monthly job loss in the past five months," said TrimTabs CEO Charles Biderman.
TrimTabs estimates that job losses could continue to soar to 150,000 to 200,000 lost jobs for the month of March, if an eight-day period ending March 5 continues at the same pace.
From October 2007 through February, TrimTabs said the economy has lost 205,000 jobs due to the collapse of the housing market, though the BLS said the economy added 197,000 jobs during the same period.
Nationwide Parent Offers Buyout
Nationwide Financial Service Inc. has received an offer from its parent company Nationwide Mutual to buy its publicly held shares for $2.2 billion.
Nationwide Mutual is offering $47.20 for each Class A share of the insurance and financial services provider, a 24% premium over last week's closing price of $37.93.
Nationwide Mutual includes Nationwide Mutual Insurance Co., Nationwide Corp. and Nationwide Mutual Fire Insurance Co.
Van Kampen Plans New Retirement Funds
Van Kampen Retirement Strategy Trust has filed for 10 new target retirement date funds with the Securities and Exchange Commission.