News Archive

Credit markets open to Argentina for first time in years: ministry

BUENOS AIRES (Reuters) – Argentina has been approached by financial institutions offering it loans at favorable rates, the economy ministry said on Sunday, marking a tentative reopening of international credit markets for the first time in over a decade.

The economy ministry issued a statement on Sunday, saying it had received offers of credit from abroad. It did not name the institutions.

“In recent weeks … various financial institutions have presented proposals of access to external financing with repayment timetables and interest rates similar to those offered to other countries in the region,” it said.

It would be the first time Argentina has received loans from international creditors since a massive default in 2002.

The offers followed Argentina’s $5 billion settlement with Spain’s Repsol (REP.MC) over its expropriation of YPF and progress on talks to repay over the $9.5 billion Caracas owes the Paris Club creditor nations, said the ministry.

The statement followed an earlier report in local newspaper Pagina/12 that the government was closing in on a deal to receive around $1 billion in loans from investment bank Goldman Sachs (GS.N) and had been approached by other lenders.

The paper, which has close ties with the government of President Cristina Fernandez, said the two-year loan would be announced in the next few days and carry an annual interest rate of 6.5 percent.

Goldman Sachs declined to comment.

The loans would come as the government seeks cash to avoid a further devaluation of the peso and increase its depleted foreign exchange reserves.

Dollars have been scarce in Argentina due to capital flight, weak exports, and low competitiveness because of high inflation.

The government hopes securing the Goldman Sachs loan would demonstrate that its strategy of thawing relations with international creditors was starting to take effect, said the paper.

Argentina has already offered to repay the debt it owes the Paris Club, which stems from the 2002 default.

The club had accepted Argentina’s initial proposal to pay back the funds without recourse to the International Monetary Fund and to request credit lines from the countries it owed money to, Pagina/12 said in a separate report on Sunday.

Talks were continuing over the repayment terms, it added.

The economy ministry also on Sunday restated its intention not to issue debt in foreign currency.

(Reporting by Maximiliano Rizzi, additional reporting by Lauren LaCapra; Writing by Rosalba O’Brien; Editing by Sophie Hares and Sandra Maler)

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Japan March manufacturing PMI slows for second month, snowstorms blamed

TOKYO (Reuters) – Japanese manufacturing activity expanded at a slower pace in March, a survey showed on Monday, pulling back further from an eight-year high set in January as heavy snow in some areas curbed production.

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 53.9 in March from 55.5 in February.

The index remained above the 50 threshold that separates expansion from contraction for a 13th consecutive month but showed that growth slowed for a second straight month.

“Firms attributed this increase in output to last minute demand before the increase in the sales tax from 5 percent to 8 percent, which is due to be implemented in April this year,” said Amy Brownbill economist at Markit.

“It will be interesting to see whether output in the manufacturing industry will continue to grow as fast after the increase in the sales tax is implemented.”

The output component of the PMI index fell to 54.2 from 58.4 in February, indicating the slowest growth in six months due to disruptions caused by unusually cold weather.

The index for new export orders rose to 52.3 in March from 51.5 in the previous month as orders from China and the Philippines strengthened, the survey showed.

Prime Minister Shinzo Abe’s government will raise the sales tax from April 1 to pay for rising welfare costs.

Since the middle of last year, sales of apartments, houses, cars and durable goods have been rising as consumers look to buy big-ticket items before the tax increase.

There are also signs that consumers stocked up on daily goods in the days leading up to the tax hike.

Many economists expect the sales tax increase to slow growth temporarily, but there are lingering concerns the economy will not rebound quickly, which would increase the need for stimulus measures.

(Reporting by Stanley White; Editing by Jacqueline Wong)

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Wall St. Week Ahead: U.S. jobs and Russia to rule stocks

NEW YORK (Reuters) – U.S. stock investors will take their cues this week from March jobs data and diplomacy to defuse East-West tensions over Russia’s annexation of Ukraine’s Crimea region.

Friday’s monthly jobs report, the most widely watched U.S. economic indicator, is expected to show that employers added 200,000 jobs in March to nonfarm payrolls, according to a Reuters poll of economists.

If the March jobs figure is strong, that could convince stock investors that the U.S. economy’s recent setbacks related to the weather were only temporary.

The rebound in hiring started last month despite the icy weather. Employers added 175,000 jobs to nonfarm payrolls in February after creating 129,000 new positions in January.

“We potentially could have a big positive surprise. The polar vortex is over, and I believe we could get a snapback in payroll numbers that is significantly better than expected,” said Doug Cote, chief market strategist at ING U.S. Investment Management in New York.

Job growth would be a plus for the market, which has suffered a bout of volatility as some of the most high-flying shares, including biotechs, tumbled in the past week.


When trading begins on Monday, investors will keep an eye on developments involving Russia and Ukraine. Over the weekend, the Ukraine crisis prompted the United States to send its top general in Europe back to the Continent early from a trip to Washington. On Sunday, the Pentagon called the move a prudent step, given Russia’s “lack of transparency” about troop movements across the border with Ukraine.

The Pentagon made the announcement as U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov met in Paris to work out the framework of a deal to reduce tensions over Russia’s annexation of the Crimea region in Ukraine.


Wall Street will get more data on the broader economy this week as well.

The Institute for Supply Management will release its national surveys for March on the manufacturing and services sectors, on Tuesday and Thursday respectively. The indexes are expected to show improvement from the previous month as well.

Rosier data could confirm for investors that recent weakness in economic data was caused by the winter’s harsh weather, suggesting the U.S. economy’s uptrend is intact.

Improvement in the labor market, along with a pickup in the manufacturing and services sectors, could also bolster the case for the Federal Reserve’s scaling back of economic stimulus and put more focus on the timing of when the central bank will begin raising interest rates.

Car sales for March will be released this week, along with ADP’s private-sector payrolls report for March and data on the U.S. international trade deficit for February.

Investors will be anxious to get a look at more trade data after China’s weak export numbers earlier this month underscored worries that the world’s second-largest economy is slowing.


The recent selloff in biotech and other recent big gainers could persist, strategists said, although so far it has not eroded the market’s bull run. Investors have been putting money instead into utilities and other sectors.

The Nasdaq biotechnology index .NBI fell 7 percent for the week. With just one trading day left in March, the Nasdaq biotech index was down about 13 percent for the month at Friday’s close.

“There’s definitely been rotation out of tech in terms of asset flows, and energy and utilities have been growing,” said John Kosar, director of research with Asbury Research in Chicago.

For the past week, the SP utilities sector index .SPLRCU rose 1.2 percent and the SP energy index .SPNY climbed 2.5 percent.


More U.S. companies could issue outlooks for the coming reporting period in the week ahead. So far, negative outlooks have surpassed positive ones from SP 500 companies by a ratio of 6.9 to 1 for the first quarter, Thomson Reuters data showed.

That’s still lower than the ratio for the fourth quarter, but the high number of negative outlooks has driven profit estimates down for the first quarter.

SP 500 first-quarter earnings growth is now expected to increase just 2.1 percent, down sharply from a January 1 growth estimate of 7.6 percent, the Thomson Reuters data showed.

Among companies that have already reported earnings, FedEx (FDX.N) said severe winter weather hurt results. FedEx cut its fiscal-year profit forecast.

Monsanto (MON.N) is due to report earnings this week, along with Micron Technology (MU.O). But the earnings season won’t get under way until April 8, when Alcoa (AA.N) is scheduled to report results.

“You’ll start to have companies giving you an indication of how the quarter looked,” said Dan Veru, chief investment officer of Palisade Capital Management LLC in Fort Lee, New Jersey, which oversees $4 billion.

(Wall St Week Ahead runs every Sunday. Questions or comments on this column can be emailed to: caroline.valetkevitch(at)

(Reporting by Caroline Valetkevitch; Editing by Jan Paschal; For the U.S. stock report, click on .N)

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Delphi told panel GM approved ignition switches below specifications

WASHINGTON/DETROIT (Reuters) – General Motors Co approved ignition switches for cars that have been linked to 13 deaths, even though the parts did not appear to meet the company’s specifications, officials of Delphi Automotive told U.S. congressional investigators.

In a memo released on Sunday by the House of Representatives Energy and Commerce Committee, documents provided by GM and a federal regulator provided “unsettling” information, according to Republican Representative Tim Murphy, who leads a subcommittee of the panel.

The memo was released ahead of Tuesday’s testimony from GM Chief Executive Mary Barra, who will appear at the committee’s first public hearing on the recalls. She is likely to be asked why it took GM so long to identify and address the ignition switch problem.

The information from Delphi officials was detailed in the memo, which is mainly a chronology of actions taken by GM and the National Highway Traffic Safety Administration since the late 1990s and through Friday, when GM expanded its global recall of cars with defective ignition switches to 2.6 million.

GM switches in Chevrolet Cobalts and other models were prone to being bumped or jostled into accessory mode while cars were moving, which would shut off engines and disable power steering, power brakes and airbags, leading to dozens of crashes.

Delphi told U.S. congressional investigators last week that GM approved the original part in 2002, despite the fact it did not meet GM specifications

Congressional investigators also want to know what led NHTSA, as long ago as 2007 and 2010, to determine that there was not a safety defect trend with airbags that were failing to deploy in Chevrolet Cobalts.

“What did NHTSA do to investigate whether a trend existed? What data did it consider,” the committee asked.

The Energy and Commerce Committee said GM had submitted more than 200,000 documents on the ignition switches. The panel said the NHTSA submitted about 6,000 documents.

Murphy, a Pennsylvania Republican, did not give details on what was “unsettling” about the information the panel received. His statement was accompanied by the memo, prepared by Republican investigators.


According to one entry of the chronology in the memo, officials of Delphi, which supplied the ignition switches to the recalled GM cars, told committee investigators that GM had approved the part, even though sample testing of the ignition switch torque was below the original specifications set by the automaker.

The committee, according to aides, does not know GM’s thinking on why it may have approved a part that did not meet all specifications.

One aide, who asked not to be identified, noted that there were 60 specifications for the switch and it is not clear what the significance is of one specification being below-standard. That is one of the questions the committee intends to ask in hearings.

GM knew as early as 2001 that it was facing problems with its ignition switch, but no auto recalls were ordered until earlier this year.

A February 2005 entry in the congressional committee’s chronology illustrates that engineers were grappling with what to do about the defective ignition switches.

“Engineers considered increasing or changing the ignition switch ‘torque effort,’ but were advised by the ignition switch engineer that it is ‘close to impossible to modify the present ignition switch’ as the switch is ‘very fragile and doing any further changes will lead to mechanical and/or electrical problems.'”

The committee’s memo concludes with a series of questions, which likely will dominate Tuesday’s hearing with Barra.

“Why did GM approve ignition switches that did not meet its specifications for torque performance? What was GM’s assessment of the implications for performance and safety,” the memo asked.

It is also not clear yet which GM engineer approved a revision to the ignition switch in 2006, and why the change did not lead to an earlier recall of older model cars to fix the problem.

(Editing by Jim Loney, Peter Cooney, Frances Kerry and Eric Walsh)

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SocGen facing bribery lawsuit over Libyan deals: Financial Times

(Reuters) – The Libyan Investment Authority has accused France’s second-biggest bank Societe Generale (SOGN.PA) of funneling bribes worth tens of millions of dollars to associates of Saif al-Islam, the son of former Libyan leader Muammar Gaddafi, the Financial Times reported late Sunday.

“Societe Generale contests the unfounded allegations in the Libyan Investment Authority’s (LIA) complaint,” a spokeswoman for the bank said in an emailed statement, without giving more details.

The newspaper said the LIA has filed a $1.5 billion lawsuit against the bank in London’s High Court. (

Acccording to the FT, the LIA alleges that SocGen paid at least $58 million to Leinada, a Panamanian-registered company, for advisory services related to $2.1 billion of derivative trades that the Libyan sovereign wealth fund entered into with SocGen between late 2007 and 2009.

The LIA’s legal filing claims that Leinada did not have the expertise to advise or structure such deals, the newspaper reported.

The FT said that the LIA claims to have suffered heavy losses in the deals with SocGen, and is seeking to have the trades voided to recoup the money allegedly paid to Leinada and to be awarded damages for the alleged fraud.

“This claim, together with the one against Goldman Sachs that was initiated in January 2014, reflects the desire of the LIA’s new board of directors to redress previous wrongs and seek the recovery of these substantial funds as it seeks to invest and generate wealth for the people of Libya,” AbdulMagid Breish, chairman of the LIA told the FT.

He added that “the former Libyan regime left behind many challenges in its wake. The LIA is resolved to address these challenges, and to develop a new strategy for the future. The board has embarked on a short to medium-term transformation program to strengthen the LIA and to enhance its corporate governance in accordance with best practices, enabling the institution to invest wisely for the future.”

(Reporting by Aashika Jain in Bangalore; Editing by Eric Walsh)

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Key GM crisis questions: Who approved switch revision and why recall took so long

WASHINGTON/DETROIT (Reuters) – Among the most critical unanswered questions in General Motors’ mounting crisis over a defective ignition switch that led to crashes and at least 13 deaths is who, eight years ago, approved a change in the part for new vehicles and why that didn’t lead to a recall of older cars to fix the problem.

Among the evidence that investigators inside and outside of the company will need to reconcile is the company’s timeline of the switch’s engineering, which describes an unnamed GM engineer approving the design change, and the deposition of a senior switch engineer, Ray DeGiorgio, who said he was not aware of it.

GM declined to discuss the matter beyond its timeline or to make DeGiorgio available for an interview. DeGiorgio referred Reuters to GM, which has presented no evidence to suggest that he was the executive approving the design change. Delphi Automotive, which made the part for GM, also declined to comment.

However, Delphi told U.S. congressional investigators last week that GM approved the original part in 2002, despite the fact it did not meet GM specifications, according to congressional aides on Sunday.

GM CEO Mary Barra is due to testify to Congress this week on the recall. Lawmakers have requested documents from GM and could call other executives for further hearings.

The availability of the fix in 2006 raises the question of whether the no 1 U.S. automaker could have recalled older models sooner and saved lives.

GM on Friday, almost eight years later, increased the recall by nearly one million to 2.6 million vehicles, spanning models years between 2003 and 2011. It has also increased the confirmed fatalities to 13 from 12.

GM’s timeline, as prepared for federal regulators, says that “the GM design engineer responsible for the ignition switch” in six recalled vehicles approved an ignition switch design change on April 26, 2006.

The change was made to the portion of the switch that holds the ignition key in place as it clicks between off, accessory and on positions, called the detent plunger and spring.

GM switches in Chevrolet Cobalts and other models were prone to being jostled into accessory mode while cars were moving, often by something as small as additional keys hanging off a key ring. That would shut off engines and disable power steering, power brakes and airbags, which led to many crashes. Pressure from the new, tighter spring on a slightly longer plunger resisted bumps and keeps the engine running.

“We certainly did not approve a detent plunger design change,” DeGiorgio said last April in a deposition taken by plaintiff’s attorney Lance Cooper. DeGiorgio identified himself as the “main responsible engineer” for the ignition switch in the Cobalt and the Saturn Ion, which is also part of the recall.

Cooper’s clients, the family of Brooke Melton, sued GM after the young woman died in the 2010 crash of a 2005 Chevy Cobalt. They settled with GM.

DeGiorgio recalled GM bringing ignition switch design in-house around the time the 2005 model Cobalt was being developed, but it still worked closely with its supplier, Delphi Automotive, which made the switch. Suppliers alert GM to any changes and then must test and validate the redesigned part.

“Revalidation would mean that you have to go through the same procedures that we had done previously,” he said. “My point here is changing the spring would have required a revalidation by the supplier for the new spring,” he said. “That was never brought to my attention.”

When asked if anyone else at GM was aware of the change GM adopted in 2007 models, he said, “I am not aware about this change.”

In the deposition, DeGiorgio questioned whether the old switch was dangerous. The weekend before he testified he drove his son’s 2007 Chevrolet Cobalt around their neighborhood to try to replicate conditions that contributed to the accidents.

In the moving car, he coaxed the ignition switch into the “accessory” position, disabling power assist systems. He had no trouble safely maneuvering his son’s car to the side of the road, he said.

“You definitely can control the car … That’s not an issue,” he testified, reflecting GM’s official position until the recall.


Attorney Cooper only became aware of the ignition change after hiring an engineering consultant, Mark Hood, who found the change in the spring.

Neither GM nor Delphi changed the part number when they redesigned the switch, GM has said. Experts say that is contrary to industry practice and made it all the more difficult for investigators including Hood to understand what originally went wrong.

Retired GM executives familiar with the automaker’s longstanding engineering, manufacturing and purchasing processes say that even minor changes in a car’s basic components must be thoroughly documented.

Internal records should show if the changed ignition switch was tested and validated by GM engineers, they say.

“In the auto world, with safety and health issues involved, you can’t willy-nilly just be making changes without a paper trail,” said R. Bick Lesser, who previously worked as an engineer at Packard Electric, which became Delphi-Packard. Packard was a GM supplier for wire harness electrical systems.

“If it is not there, this would be a total breakdown of the system,” said Lesser, who wrote a book on the division’s relationship with GM.

Congressional investigators are still gathering records from the companies and say they are prepared to probe the company’s manufacturing controls.

“It is critical that all potential problems are identified and fixed as soon as possible so we can keep Americans safe,” said Representative Fred Upton, a member of the House energy and commerce subcommittee that will hear testimony from Barra on Tuesday.

(Additional reporting by Eric Beech, Richard Cowan and Julia Edwards in Washington, Ben Klayman in Detroit and Jessica Dye in New York; editing by Peter Henderson and Frances Kerry)

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ECB wrestles with ‘danger zone’ inflation

BRUSSELS (Reuters) – The European Central Bank’s dilemma over barely rising prices seems likely to dominate a week starting with a euro zone inflation estimate and ending with U.S. jobs figures, the monetary policy driver on the other side of the Atlantic.

After more than a month of East-West tensions centered on Russia’s annexation of Crimea, U.S. President Barack Obama and Russia’s Vladimir Putin finally spoke to each other on Friday, suggesting a possible diplomatic path out of crisis.

With geopolitical issues calmer, even if not resolved, the financial markets are more likely to be guided more by global economic data and central bank deliberations.

The ECB’s Governing Council meets on Thursday and, although the vast majority of economists expect it to hold interest rates ECB/INT, it is wrestling with a response to inflation persistently below its target of below but close to 2 percent.

The first estimate of euro zone inflation for March will be published on Monday.

Initial figures from Germany showed EU harmonized inflation easing by slightly more than forecast to 0.9 percent year-on-year, while in Spain consumer prices fell at their steepest annual pace in almost four-and-a-half years.

That could push the level for the euro zone as a whole even below the 0.6 percent consensus from February’s 0.7 percent. The figure is set to be the lowest since November 2009.

It will also be a sixth straight month of inflation in the ECB’s “danger zone” of below 1 percent, although the bank can point to energy and food prices as the culprits. A far later Easter this year should also lead to a rebound in April.

The ECB left interest rates on hold and took no new measures to bolster the fragile recovery at its last monthly meeting. Its president, Mario Draghi, suggested then that the bank would either do nothing or take bold action should the outlook deteriorate.

That could include buying loans and other assets from banks, something Germany’s Bundesbank, a long-time critic of quantitative easing (QE), accepted last week as a viable option.

For now, most economists believe the ECB will maintain its current course.

“I don’t think there’ll be enough for the ECB to deliver something next week. We do see this happening in June, when there will have been a cleaner May inflation figure and new ECB staff forecasts,” said Guillaume Menuet, economist at Citi.


Federal Reserve policy comes back into focus on Friday with U.S. March non-farm payroll and unemployment data – the key determinant of the pace at which the U.S. central bank cuts its bond buying program.

U.S. job creation slowed sharply in December and January, turning in its weakest performance in three years, but extreme winter weather played a key role.

February brought an encouraging 175,000 posts even as freezing temperatures held sway.

Economists on average believe around 200,000 more Americans joined the workforce in March, though the number is among the most difficult of numbers to forecast, with the U.S. economy on average creating and destroying around 8 million jobs per month.

“It will be cleaner than anything we’ve seen since the start of winter… So if it is bad, it would have a bigger impact,” said ING chief international economist Rob Carnell.

Still, many believe the Fed will not easily change course. It has cut its monthly bond purchases by $10 billion at each of its last three meetings, and a similar reduction is expected when officials next meet on April 29-30.

“There’s a high hurdle to changing the pace of the taper. It would need a reading of below 100,000 to change the course,” Aichi Amemiya of Nomura Securities.

The unemployment rate, a slightly more predictable and less volatile indicator, is seen dropping to 6.6 percent from 6.7 percent in February.


In Japan, the start of April on Tuesday local time will bring a rise of national sales tax to 8 percent from 5 percent.

Economists will be trying to assess its impact from the March purchasing manager index, February factory output and housing starts on Monday, with slowing growth as late demand ahead of the tax hike has peaked.

Tuesday’s much-watched tankan report from the Bank of Japan will most probably show an improvement in business sentiment for a fifth straight quarter in the three months to March, although a dip is seen for the April-June period.

In China, more comprehensive and final purchasing manager indices for manufacturing and services are expected to confirm the view that the world’s second largest economy is facing a slowdown.

A preliminary PMI survey last week by HSBC and Markit Economics showed that factory sector activity hit an eight-month low. [ID:nL4N0ML0CG] The official PMI is seen ticking up slightly for the first time since November.

Chinese Premier Li Keqiang last week said Beijing was ready to support the cooling economy, with some economists now believing the country’s official growth target of 7.5 percent this year is too ambitious after a week first quarter.

(Additional reporting by Tetsushi Kajimoto in Tokyo, Jason Lange in Washington; Editing by John Stonestreet)

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After years of probes, SEC fraud trial over Texas tycoons to start

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission faces off against wealthy Texas investor Samuel Wyly and the estate of his late brother, Charles, this week in a trial over long-standing accusations that they engaged in a $550 million fraud.

Jury selection is set to begin Monday in a federal court in New York in what is expected to biggest test this year of the SEC’s ability to hold individuals accountable at trial, following a recent series of disappointing verdicts in fraud and insider trading cases.

The trial is the culmination of years of litigation and investigations by the SEC of the Wylys. The case has continued even after Charles Wyly died in a car crash in August 2011, with his estate substituted for him.

The SEC accuses the Wylys of concealing stock trading from 1992 to 2004 in Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc, and Scottish Annuity Life Holdings Ltd through the use of offshore trusts and entities.

The SEC also contends the Wylys earned $31.7 million from insider trading in Sterling Software after deciding to sell the company in 1999.

The Wylys have denied wrongdoing, saying they were not the beneficial owners of the stock held in the trusts, which they say were established for their families for tax purposes. The Wylys also have said they were advised by their lawyer that they did not need to disclose the trusts’ holdings and sales.

So old is the case that the law has shifted under the SEC, after a U.S. Supreme Court case last year restricted it from pursuing civil penalties for much of the period in question.

As a result, the case has been cut in two, with part of the lawsuit to be heard by U.S. District Judge Shira Scheindlin after the jury rules in the first part. The jury will consider charges stemming from the failure to disclose the trusts and the trading in them.

The judge will decide the insider trading claims and will also determine any penalty that might be warranted from the jury’s verdict.

The SEC and Samuel Wyly had been engaged in settlement talks ahead of trial, with the regulator demanding an admission of wrongdoing as part of its shift in settlement terms under Chair Mary Jo White.

But Samuel Wyly, 79, and his brother’s estate decided instead to go to trial, despite facing what their lawyer Stephen Susman in court in February called a “huge” demand for money running into the hundreds of millions of dollars. Susman declined to comment.


Long before the case was filed, the Wyly brothers made a name for themselves as large donors to charitable and conservative causes after striking it rich with a series of business and investment ventures.

In his 2008 autobiography, Samuel Wyly said he became a millionaire at age 30, and by 35, “I had more money, power and fame than most ever wish for.” He last appeared on Forbes’ list of the 400 richest Americans in 2010 with a net worth of $1 billion.

Among the companies behind the brothers’ fortunes was Sterling Software, which they co-founded in 1981 and which was sold to Computer Associates Inc for $4 billion in 2000.

Michaels Stores, which the Wylys bought in 1983 and where both served as chairman at various points, was taken private by Blackstone Group LP and Bain Capital LP in 2006 for $6 billion.

The Wyly family was also involved in the 1993 launch of Maverick Capital, a $9 billion hedge fund headed by Lee Ainsilie.

But the reputations of the Wylys became tainted starting in 2005, when Michaels Stores disclosed that the Manhattan District Attorney’s office and the SEC had opened probes related to offshore trusts that held shares of the company. Allegations later emerged regarding shares of other companies.

The trusts also became the subject of a federal grand jury probe, regulatory filings state, and was the focus of a 2006 report by the U.S. Senate Permanent Subcommittee on Investigations about tax havens.

No criminal case emerged. But the SEC finally sued the Wylys in 2010 in what became one of the bigger cases it pursued in the wake of criticism of lax enforcement and its failure to discover Bernard Madoff’s Ponzi scheme.


The case marked a second run-in between the SEC and Samuel Wyly, who in 1979 agreed to settle charges he made undisclosed payments to encourage the buying of bonds of computer services company Wyly Corp.

Until earlier this year, the Wylys were also going to trial in a more recent case alongside Louis Schaufele, their former stockbroker, and Michael French, their former lawyer who served as a director and consultant on several of their companies.

Both recently settled charges stemming from their roles in the alleged fraud. Schaufele, who worked for the Wylys while at Credit Suisse First Boston, Lehman Brothers Holdings Inc and Bank of America Corp, agreed in January to pay $498,693.

French, a former partner at the law firm Jackson Walker and onetime chief executive of Scottish Re Group Ltd, agreed on March 20 to pay $794,609 and admit wrongdoing.

Both French and Schaufele are listed as possible witnesses, as is Wyly himself. Wyly’s lawyers, though, have indicated he would testify only up to two hours at a time due to medical issues. His exact condition is unclear from the court record.

The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.

(Reporting by Nate Raymond; Editing by Dan Grebler and Cynthia Osterman)

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Kraft challenged by "healthier" macaroni and cheese brands

LOS ANGELES (Reuters) – Kraft Macaroni Cheese has been a favorite meal for generations of American children, but smaller brands made with more natural ingredients are starting to nibble at its market share, part of a trend that is biting into growth at large U.S. food companies.

Zenobia Godschalk, an Atlanta mother of two young boys, stopped buying Kraft’s “mac and cheese” after reading its complicated ingredient list. Now she buys Annie’s organic version in bulk at Costco Wholesale Corp (COST.O).

“I’m fully aware that it is not a health food,” said Godschalk, of Annie’s macaroni and cheese product. “But the ability to make it just a little bit better, and the color that I can believe comes somewhat naturally is good.”

Sales of macaroni and cheese are growing as busy Americans look for convenient and inexpensive meal options and older consumers indulge in the comfort foods of their youth. Kraft Foods Group Inc (KRFT.O) still dominates the category, but the battle for the hearts and minds of American mac-and-cheese lovers may become a new front in a running war in the $360 billion U.S. packaged food industry.

On one side stand established food companies like Kraft, which seem more focused on slashing costs than taking big risks on emerging trends. The challengers are more nimble upstarts catering to rapidly evolving consumer tastes by offering products in the fast-growing “health and wellness” category.

“Even though individual companies by size are quite small, in aggregate they’re more on trend with consumer demand and pose a threat to Big Food over time,” said Consumer Edge Research analyst Robert Dickerson.

Nestle SA’s (NESN.VX) Gerber baby food division and General Mills Inc’s (GIS.N) Yoplait yogurt business may each offer a cautionary tale for Kraft. Both led their respective categories, but their market shares tumbled in recent years. In Gerber’s case, it was the growing popularity of small organic baby-food brands. In Yoplait’s, it was the arrival of Chobani Greek yogurt, which has more protein and a thick, creamy texture that struck a chord with consumers.


Kraft dominates the U.S. market for packaged macaroni and cheese, but its share fell to 78 percent this month from 82 percent in March 2010, according to Consumer Edge data.

A key rival is Annie’s Inc (BNNY.N), whose natural and organic foods were once sold only at specialty retailers like Whole Foods Market Inc (WFM.O) but are now available at Wal-Mart Stores Inc (WMT.N), Kroger Co (KR.N) and other mass-market grocers.

Catering to middle- and low-income consumers can transform brands from niche players to powerhouses.

Annie’s macaroni and cheese share grew to 7 percent this month from 5 percent in March 2010, according to Consumer Edge.

WhiteWave Foods Co’s (WWAV.N) Horizon brand, the No. 1 U.S. organic dairy purveyor by sales, also is coming on strong. Its new macaroni and cheese already is sold by natural and mainstream grocers. Analysts bet the big-box retailers, which stock Horizon’s organic milk and cheeses, will soon follow.

Kraft, with net revenue of more than $18 billion last year, has said its macaroni and cheese business generates more than $500 million in annual sales. It also has an organic version, but distribution is limited.

Dollar sales for Kraft’s macaroni and cheese last year rose more than 1 percent. But because the category grew at a faster rate than Kraft’s sales growth, the company’s share declined slightly, a spokesman said.

Kraft, which also sells Velveeta, Cheez Whiz and Jell-O, is tweaking some items with its more mainstream customers in mind, including adding whole grain and removing artificial colors from some macaroni and cheese products. It also took artificial preservatives out of its Kraft Singles processed cheese.

“Consumers (are) seeking more fresh, real foods that are made with simple ingredient lines, and we have to think that this is more than just a premium trend,” Kraft Chief Executive Tony Vernon said at a recent industry conference in Boca Raton, Florida. “We are democratizing health and wellness, we are not marketing to the 1 percent.”


Some experts estimate that health and wellness brands account for roughly 10 percent of overall packaged food sales.

Organics and Greek yogurt fall into the category, as well as gluten-free products for special dietary needs.

A recent survey from consultancy AlixPartners showed that so-called “superusers,” defined as individuals who spend 40 percent or more of their budget in the health and wellness category, are most willing to pay a premium of 10 percent or more for locally-sourced or organic products.

Large packaged food companies, under pressure to change from parents and anti-obesity activists including first lady Michelle Obama, have made incremental moves into health and wellness.

Like Kraft, they tend to rework existing products to be “better for you” by removing fat or sodium, or by adding fiber or vitamins. They have also bought small but successful health and wellness brands that end up accounting for just a tiny slice of overall revenue.

Some food industry observers warn that there could be a limit to how long large companies can resist consumers’ stepped-up demands for changes.

“The food industry is at a tipping point,” said Stephen Hughes, chief executive of Boulder Brands Inc (BDBD.O), which makes Smart Balance spread. Boulder was a pioneer in removing artery-clogging trans fats from its products and is taking out ingredients with genetically modified organisms (GMOs).

The industry’s big players won’t start taking more risks until “the cost of not changing exceeds the cost of changing,” Hughes said.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Jilian Mincer and Paul Simao)

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