The Morning Brief: Roomy Khan Gets One Year in Prison; Wall Street Weighs In on Activists

Former Intel executive Roomy Khan was sentenced today to one year in prison for her role in the massive insider trading scandal involving Raj Rajaratnam, the founder and former head of the Galleon Group. Khan provided material, nonpublic information to a number of people, including Rajaratnam. She pled guilty in October 2009 to securities fraud, conspiracy to commit securities fraud, and obstruction of justice under a cooperation agreement with the government. Khan was also ordered to forfeit $1.525 million. Prosecutors reportedly planned to ask for a lenient sentence on Khan for cooperating with government investigators, even though she also was accused of lying, destroying evidence and tipping off other targets of the investigation when she was helping government officials involved in the probe.


•••

Analysts are divided over Elliott Management’s plans to launch a proxy fight with Hess. UBS downgraded Hess shares Thursday in reaction to the recent rally and the company’s conference call. The investment bank said management seemed reluctant to spin off some of its key assets. The company plans to provide a formal response to Elliott’s proposals shortly. Meanwhile Deutsche Bank, which lifted its rating on the stock to Buy at the beginning of the year, raised its price target to $80, from $70, on Wednesday, in response to Elliott’s calls for board changes and an overall restructuring. Previously, the investment bank said: “We were skeptical on the potential for truly dramatic restructuring, given the entrenched position of Chairman and CEO John Hess, with 10.3% of the stock, and a long-tenured & supportive board.”

•••

Barclays raised its target price on Agrium to $121, from $116, on Wednesday, following an updated presentation from activist investor Jana Partners and an analyst meeting with the Canadian fertilizer company on Monday. Agrium has been somewhat responsive to the New York hedge fund firm, which has called for the company to split into two separate entities. “The debate between Jana and Agrium is not likely to end soon,” UBS writes in a note to clients. “Our view remains this: The more clarity Agrium provides in response to investor/Street demands, the better the stock tends to perform as the underlying business appears robust.” Agrium shares were down $0.24, closing at $113.49.


•••

The Clinton Group has taken a 5.2 percent stake in Neutral Tandem Inc., a small, telecommunications wholesaler operating as Inteliquent, according to a 13D filing Thursday. The $2.5 billion New York City hedge fund firm called for the entire board to be replaced by independent directors, and plans to nominate its own slate if the company does not act. Clinton said it initially took a passive stake, but on January 30 it sent a letter to Neutral Tandem’s board signed by managing director Gregory Taxin, detailing why it believes management and the board have destroyed shareholder value. Neutral Tandem stock closed Thursday at $2.77, up 6.95%.


•••

Tiger Global sold another 775,000 shares of TAL Education Group, cutting its total stake to 24.9 percent of the total outstanding shares. According to a regulatory filing, the investor sold the stock of the after-school tutoring services provider in China in the last week of January for between $8.60 and $8.77 a share.


•••

A judge ruled that bond insurer ACA Financial Guaranty can add John Paulson’s Paulson & Co. as a defendant in a lawsuit initially brought against its infamous Abacus collateralized debt obligation vehicle. ACA claims Paulson and Goldman conspired to market Abacus, which was designed to fail so that Paulson could earn huge profits from shorting the portfolio and Goldman Sachs could earn huge fees. The complaint alleges that Goldman Sachs and Paulson conspired to coax ACA to provide financial guaranty insurance for Abacus, giving the erroneous impression that Paulson was investing in the structured product when, in fact, the hedge fund and Goldman knew Paulson plan to take a huge short position. Paulson personally earned $3.7 billion in 2007 betting against the residential mortgage market.


•••

Brazilian investment banking group BTG Pactual is no longer accepting money for its Global Emerging Markets and Macro Fund, after assets topped $5 billion. The fund, launched in 2009, has declined about $500 million since late last year, according to Reuters. The fund was reportedly up 28 percent in 2012.

Related