Concerning Conduct: Quarterly Cases - Q4 2023

A summary of recent cases concerning culture and conduct.

1. Trump’s civil fraud trial in NYC.  
2. Illumina faces order to sell recent acquisition Grail.
3. BoE officials suggest tighter liquidity rules for money market funds.  
4. Ireland sets out a substantial increase in its banking levy.  
5. KPMG fined £12m over Carillion audit breaches.
6. SEC chair urges action on artificial intelligence (AI) risks.
7. Citibank dismissal for false expense claim.
8. St James’s Place is the latest to halt trading in property funds.
9. Ark highlights silver lining to huge ETF losses.
10. Embarrassingly low proportion of MPs’ pension fund is in UK stocks.
11. Dimon planning to sell 1m JPMorgan shares.
12. Billion-dollar hedge fund to close over sexual assault and harassment allegations.
13. CVC postpones Amsterdam listing plan.
14. Businesses with better gender balance have higher return on assets.
15. Ransomware attack at ICBC impacts US Treasuries market.
16. Apple’s €14.3bn tax dispute with EU suffers setback.
17. Takeover Panel reports financial deficit due to M&A activity decline.
18. McDonald’s sacks 18 over bullying, harassment and sexual assault. 
19. US lawsuit over sacking for inflexible working hours.
20. ANZ threatens cutting bonuses for less than 50% workplace attendance.
21. US watchdog takes action over Chinese audit firms.
22. Entain accepts £615m deferred prosecution agreement over bribery.
23. Former BP CEO sacked over “serious misconduct”.
24. Amazon wins battle with EU over €250m in back taxes.
25. Nikola founder gets a 4-year jail term.
26. Banks cut more than 60,000 jobs in 2023.

Trump’s civil fraud trial in NYC.

Donald Trump’s civil fraud trial took place in Manhattan with the former president accused of inflating his net worth to secure loans on advantageous terms. After 10 weeks and 40 witnesses, the trial concluded in mid-December and a verdict is expected towards the end of January 2024.

Illumina faces order to sell recent acquisition Grail.

US biotech company Illumina is understood to be facing an order from Brussels to sell Grail, the cancer test developer it purchased in 2021 for $8bn. Illumina failed to get approval of the purchase from EU regulators and has already been fined $432m for defying regulatory requirements.

BoE officials suggest tighter liquidity rules for money market funds.

The Bank of England’s quarterly financial stability statement recommended that money market funds should be required to hold 60% of their funds in assets that can be liquidated in 7 days. The current requirement is 30%, although the industry average is 45% to 50%.

Ireland sets out a substantial increase in its banking levy.

Ireland’s banking levy, paid by banks that received state assistance after the financial crisis, is set to increase from around €87m currently to €200m in 2024. The levy impacts Allied Irish Bank, Bank of Ireland and Permanent TSB.

KPMG fined £12m over Carillion audit breaches.

The UK’s Financial Reporting Council fined KPMG a record £12m for multiple breaches in its audit of outsourcing and construction group Carillion. Carillion collapsed into liquidation just months after KPMG had issued an unqualified report on its accounts. Amongst the criticisms were that KPMG’s work on assessing going concern was “seriously deficient” and that it failed to respond to “numerous indicators” that it was lossmaking and reliant on short term financing.

SEC chair urges action on artificial intelligence (AI) risks.

The chair of the Securities and Exchange Commission in the US is concerned that, without swift intervention, an artificial intelligence triggered financial crisis is “nearly unavoidable”. The chair’s worries particularly relate to the concentration of power in AI platforms created by the large tech companies.

Citibank dismissal for false expense claim.

Citibank won an employment tribunal challenge against a banker dismissed over false expense claims. The senior analyst was sacked over the expenses he claimed for a three-day trip to Amsterdam. He claimed for two sandwiches, two coffees and, when challenged, he said that he consumed both whilst maintaining that his expenses were within Citi’s €100 daily allowance. He later admitted he was claiming some consumption by his partner, who accompanied him on the trip. After an investigation by Citi’s ethics office, he was dismissed, and a judge upheld the reasons for dismissal of a person “employed in a position of trust”.

St James’s Place is the latest to halt trading in property funds.

St James’s Place became the latest firm to stop investors withdrawing funds from its open-ended property funds. In the hope of preventing the need to sell properties at fire sale prices, St James’s Place followed M&G and Canada Life Asset Management in taking action on their property funds.

Ark highlights silver lining to huge ETF losses.

Cathie Wood’s Ark Innovation ETF was down 25% in the previous 3 months and had an annualised three-year return of minus 28%. Surprisingly, these losses were expressed as a positive, with the asset manager telling investors that the capital losses could be sufficient to offset tax liabilities as far out as September 2027.

Embarrassingly low proportion of MPs’ pension fund is in UK stocks.

The Parliamentary Contributory Pension Fund, a defined benefit scheme for MPs and ministers, revealed that just 1.7% of its funds were in UK-listed companies. The revelation came as a significant embarrassment given that the chancellor and the government are trying to persuade funds to invest more in the UK.

Dimon planning to sell 1m JPMorgan shares.

A regulatory filing by JPMorgan showed its current CEO, Jamie Dimon, is planning to sell 1m shares for “financial diversification and tax-planning purposes”. The sale will net around $140m at current prices and is the first time that Dimon will have sold shares in the bank in his 20 years working there.

Billion-dollar hedge fund to close over sexual assault and harassment allegations.

After initially announcing the winding down of its wealth business, Odey Asset Management, the London hedge fund founded and run by Crispin Odey announced its closure. Mr Odey and the firm are facing a total of 20 allegations of sexual harassment or assault and Mr Odey has admitted to one incident of misconduct. He said he “did grab her breasts” but that it was an “aberration” that he blamed on an anaesthetic he had been given at the dentist.

CVC postpones Amsterdam listing plan.

European private equity firm CVC Capital Partners postponed its flotation plans in the face of market turbulence. Recent US IPOs from chip designer Arm and German footwear company Birkenstock have fallen in price since listing.

Businesses with better gender balance have higher return on assets.

A BlackRock study based on the constituents of the MSCI World Index found that companies with a more gender-balanced workforce produced return on assets as much as 2% per annum higher than their peers. The study strengthens the case for asset managers to consider gender balance and other social factors in their investment analysis.

Ransomware attack at ICBC impacts US Treasuries market.

The US subsidiary of China’s biggest bank, the Industrial and Commercial Bank of China (ICBC), was hit by a ransomware attack which forced it to seek the help of BNY Mellon to enable it to settle trades in US Treasuries. It appears the attack left ICBC with little choice but to send a USB stick with trading data to BNY to provide the information it needed to settle trades.

Apple’s €14.3bn tax dispute with EU suffers setback.

An advocate-general of the European Court of Justice said that an earlier decision quashing the EU’s order for the tech giant to pay back taxes of €14.3bn to the EU should be “set aside”. Ireland is holding the €14.3bn in escrow pending the completion of legal processes.

Takeover Panel reports financial deficit due to M&A activity decline.

The UK mergers and acquisitions (M&A) regulator, the Takeover Panel, reported a £3.8m deficit for the year ended 31/3/23. The Takeover Panel funds itself on the fees charged on M&A transactions and filings, and the deficit was largely attributed to a substantial decline in market activity in the face of high inflation and rapid increases in interest rates.

McDonald’s sacks 18 over bullying, harassment and sexual assault.

Burger chain McDonald’s dismissed 18 employees after setting up a specialist unit to investigate claims of sexual assault, harassment and bullying from staff.

US lawsuit over sacking for inflexible working hours.

Kate Shiber, a former analyst at M&A investment bank Centerview Partners, is suing the bank for discrimination and requesting $5m in damages. Ms Shiber joined Centerview as a 21-year-old analyst in 2020. After leaving the office after midnight but before confirming her assignments were complete, she told HR that she needed to get 8 hours of sleep each night to avoid mood swings and anxiety. Centerview agreed to implement “guardrails” – a daily 9-hour window starting at midnight. Less than three weeks later, Ms Shiber was fired and told the firm could no longer accommodate her sleep requirement. Ms Shiber’s key legal argument is that Centerview never put her on notice that her job was in jeopardy after acknowledging her condition and implementing the guardrails.

ANZ threatens cutting bonuses for less than 50% workplace attendance.

Australian bank ANZ sent a message to its 40,000 staff saying that in-person office attendance could be a factor in performance and pay reviews in the year ending 30 June 2024. The bank expects staff to spend a minimum of 50% of scheduled work time in the office. It linked the in-person attendance with maintaining the “great culture” the bank is known for.

US watchdog takes action over Chinese audit firms.

The US Public Company Accounting Oversight Board (PCAOB) fined PwC’s Hong Kong firm $4m and China firm $3m for cheating in internal training exams designed to get staff up to speed on US accounting standards. It also fined another Chinese firm, Shandong Haoxin $940k over audits of Nasdaq-listed Gridsum Holding. Gridsum switched to Shandong Haoxin after the firm promised to issue a clean audit report.

Entain accepts £615m deferred prosecution agreement over bribery.

A deferred prosecution agreement was reached between Entain (the gambling group that owns Ladbrokes, Coral and Bwin) and the UK Crown Prosecution Service over a failure to prevent bribery, primarily related to Turkey. The agreement will run for 4 years and sees Entain pay a £465m penalty, £120m disgorgement of profits, a £20m charity donation and £10m in legal costs.

Former BP CEO sacked over “serious misconduct”.

Bernard Looney, former CEO of oil giant BP, was sacked without notice after the board concluded that he committed serious misconduct in failing to disclose past relationships with colleagues. Mr Looney will forfeit as much as £32.4m in pay.

Amazon wins battle with EU over €250m in back taxes.

Amazon won its court battle with the European Commission over €250m in taxes. The European Court of Justice ruled that a €250m tax sweetener from Luxembourg did not amount to illegal state aid. The ruling could impact the ongoing dispute with Apple over Irish back taxes of €14.3bn.

Nikola founder gets a 4-year jail term.

Trevor Milton, the founder of electronic and hydrogen-powered truck maker Nikola, was sentenced to 4 years in prison for misleading investors. The company faked a video by rolling a Nikola truck along a downhill slope to disguise its lack of a working propulsion system. For a short time, Nikola had a higher market value than Ford.

Banks cut more than 60,000 jobs in 2023.

Analysis and research by the Financial Times estimated that the total number of jobs axed by global banks in 2023 was more than 60,000. Top of the pile was UBS which saw 13,000 fewer roles in the enlarged entity after taking over Credit Suisse. Wells Fargo lowered its headcount by 12,000 globally.