Feds say wiretaps show evidence of financial plot

INDIANAPOLIS (AP) -- A federal judge in Indianapolis refused to throw out wiretap evidence in the $200 million fraud trial of a former Indiana businessman as the government outlined a case largely based on those recordings.

U.S. District Court Judge Jane Magnus-Stinson on Monday rejecting arguments for the defense that the FBI had failed to show probable cause before obtaining permission for the wiretaps.

Transcripts of about a dozen of the wiretaps included in a brief filed Friday by the government show Tim Durham and his business partners discussing how to hide from investors that Fair Finance was running out of money in 2009, prosecutors said. Meanwhile the partners were raiding the company to finance their lavish lifestyles and unsuccessful businesses, prosecutors said.

In a phone conversation on Nov. 9, 2009, Durham and partner James F. Cochran agreed to close the Ohio offices of Fair Finance with no advance notice using Veterans Day as an excuse. According to the government filing, they were really trying to conceal the fact that there wasn't enough money to pay customers when their investments came due.

"So we're going to buy a day," Cochran told Durham in a phone call, according to the transcripts. "And I told (a Fair Finance employee) ... make sure you don't tell customers in advance."

"Why?" Durham asked.

"He said 'cause they will run in on Tuesday," Cochran said.

"Oh yeah, good story," Durham said, according to the transcript.

In yet another recorded phone call, Durham recommended to another partner, Rick D. Snow, that they overwhelm an Ohio securities official with paperwork to get regulators to approve $250 million in investment certificates.

"My guess is the guy at the State of Ohio isn't a financial genius," Durham said, according to the transcript.

"Yeah, no, I think you're right," Snow said.

"And I think if we absorb, eh, you know, overwhelm him with stuff, that may be the better approach," Durham said. "What do you think?"

"Yeah, I don't know. I ..." Snow said.

"You know: lists and lists and lists of investments," Durham said, according to the transcript.

Durham's lawyer, John L. Tompkins, called the wiretap transcripts misleading in an interview with The Indianapolis Star on Monday. He said the FBI recorded more than 1,800 phone conversations but filed transcripts of only 19 conversations.

"We're confident that when people hear the full conversations, not just the government's excerpts of some of the conversations, it will be clear there is no conspiracy to commit any kind of fraud," Tompkins told the Star.

"They know the filings that they make are going to be read by the press," Tompkins told The Associated Press on Tuesday. "And I think what they want to do is exactly what they did ... get four sentences ... on the front page of the newspaper."

Tompkins said he disagreed with the order rejecting the motion to suppress the wiretaps, but added, "I think the judge did a good, thorough job going through everything we presented."

Durham, Cochran and Snow, were indicted last year on 10 counts of wire fraud, one count of securities fraud and one count of conspiracy to commit wire and securities fraud. Their trial is scheduled for June 8.

Magnus-Stinson last month rejected Durham's request that she dismiss the charges against him because he said the wiretaps were illegal.

Attorneys for Cochran and Snow did not return phone calls seeking comment Tuesday.

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CNO Financial Attains a Settlement

Conseco Life Insurance Company ("Conseco Life"), a subsidiary of CNO Financial Group, Inc. (NYSE:CNO - News), reached a settlement to pursue with the Nicholas putative class action lawsuit.

The litigation comes in the wake of certain changes made last year to certain non-guaranteed elements in some of the universal life policies sold by Conseco Life prior to its takeover.

In the hearing a couple of days back, the judge considered Conseco Life’s request for a countrywide status that would act as an approval for the settlement of the claim. The court also complied with Conseco Life’s request for a stay order on any other legal action pertaining to the cost of insurance increase on the Valulife and Valuterm policies in November 2011, that are a part of Nicholas proceedings.

Even though if the court approves a go ahead on the status of a class for the purpose of settling the claim, the final approval is subject to hearing after a notice to the inforce and former policyholders under the settlement schemes.

As a consequence of this settlement, the company is expected to incur a pre-tax charge about $20 million in its Other CNO Business segment for the first quarter of 2012. Also, CNO Financial’s risk-based capital ratio will be trimmed down by 6%.

The company has scheduled the release of its first quarter results on May 1, 2012. The Zacks Consensus Estimate for the first quarter is 15 cents per share, down 15.9% from a year ago.

CNOFinancial remains committed to its expense management initiatives that help the company improve its operational efficiency supported by a sound capital position. The company also fairs well with the rating agencies.

We retain our long term Neutral recommendation on CNO Financial. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term. CNO Financial competes with AFLAC Inc. (NYSE:AFL - News) and Torchmark Corp. (NYSE:TMK - News).

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U.S. sees long-term profit on financial rescue

WASHINGTON (Reuters) - The U.S. Treasury Department said on Friday that the many programs that it, the Federal Reserve and banking authorities implemented during the darkest hours of the 2007-2009 financial crisis likely will end up making a profit for taxpayers.

At a background presentation for reporters, a senior Treasury official who spoke on condition of anonymity said the department wanted to get word out about the success of the financial bailout before myths developed about it.

The senior official emphasized that rescue of the tottering financial system, which was on the verge of collapse in 2008, had been a bipartisan effort undertaken initially by the Bush administration and continued when President Barack Obama took office in 2009.

There were various pieces to the rescue that caused the Treasury to make investments in some big banks in return for bailout money, and they now are turning out to be profitable. The Fed is also remitting excess earnings from programs it ran to the Treasury.

Earlier this week, the Treasury scaled back the ultimate estimated cost of the centerpiece program, the Troubled Asset Relief Program, or TARP, to around $60 billion from a previous estimate of $68 billion.

It cited rising share prices for two of the companies it rescued, General Motors Co and American International Group. More than three years after TARP was launched, the government still has a 70 percent stake in AIG and a 26.5 percent holding in GM.

The senior Treasury official said it was important that future government officials have a clear picture of how the overall rescue program had worked in case they were confronted with a similar situation.

In response to questions, the senior official said he was confident that government officials had taken the right decisions in implementing the rescue and doubted that a much better outcome could have been achieved.

(Reporting By Glenn Somerville; Editing by Dan Grebler)

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Bernanke defends Fed response to financial crisis

WASHINGTON (AP) -- Chairman Ben Bernanke said Friday that the Federal Reserve was left with few good options when it stepped in to shore up the largest U.S. financial institutions during the 2008 crisis.

Bernanke defended the central bank's actions to support insurance giant American International Group and help with the sale of investment bank Bear Stearns, during a speech to a New York conference examining the crisis.

While there were risks associated with that support, Bernanke said that the billions of dollars in loans the Fed provided were backed by adequate collateral and taxpayers did not lose money. And he noted that the Fed and other U.S. regulators are better positioned to deal with a crisis because Congress passed an overhaul of financial regulations in 2010.

"The Federal Reserve's responses to the failure or near failure of a number of systemically critical firms reflected the best of bad options, given the absence of a legal framework for winding down such firms in an orderly way in the midst of a crisis — a framework we now have," Bernanke said.

Some have criticized the Fed for helping rescuing those institutions rather than letting them fail. They said the Fed sent a message: banks could expect the government to bail them out after taking extraordinary risks that threatened the larger financial system.

In his speech, Bernanke disputed this view. And he said the regulatory overhaul gave the Fed new powers to wind down those institutions without threatening the larger financial system.

Bernanke's speech didn't address the current state of the economy or the Fed's recent policy action to boost growth. But he did emphasize that the Fed's regulatory duties are just as important as that mission.

"Going forward, for the Federal Reserve as well as other central banks, the promotion of financial stability must be on equal footing with the management of monetary policy as the most critical policy priorities," Bernanke said.

After the speech, Bernanke was asked whether the Fed's low benchmark interest rate helped fuel the housing bubble. The question was directed at policies under former Chairman Alan Greenspan., who preceded Bernanke at the Fed.

Bernanke disagreed but said regulators must pay close attention to the financial system when interest rates are low. The comment was Bernanke's only reference to interest rate policies.

___

AP Business Writer Christina Rexrode in New York contributed to this report.

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Treasury freezes pay for CEOs at Ally Financial, GM, AIG

WASHINGTON (Reuters) - The chief executives of General Motors , AIG, and Ally Financial had their 2012 compensation packages frozen for a second year in a row by the Treasury Department after they got "exceptional" bailout help during the financial crisis.

The Treasury said on Friday that all three were making progress at repaying the taxpayer funds given to them to keep them from collapsing during the 2007-2009 financial crisis but their pay practices remain under scrutiny of a "special master" until they do pay it back.

The top executives get a mix of cash, stock and stock options that together make up their overall pay packets.

"Although there has been some modification in the mix of stock, salary and long-term restricted stock for the CEO group, the overall amount of CEO compensation is frozen at 2011 levels," Treasury said.

The government pumped $68 billion into AIG from the Troubled Asset Relief Program, or TARP, and invested $50 billion in GM and $17 billion in Ally Financial to save them from collapse during the 2007-2009 crisis.

The Treasury also said total direct compensation during 2012 for 69 other senior executives at the three firms was being cut by 10 percent from 2011 levels.

The three were part of group of seven firms that got so-called exceptional assistance in the form of taxpayer-financed bailouts during the financial crisis. Four of the original seven -- Bank of America, Citigroup, Chrysler Financial and Chrysler -- have already repaid their TARP money and left the program.

Public anger over high pay and huge bonuses at bailed-out firms was so high that the Obama administration created a "special master's office" to monitor pay practices.

The Treasury report on Friday does not name any of the executives but it is evident the three CEOs still will get pay that puts them among the elite of American income earners.

The top executive at AIG will receive total direct compensation, which includes cash, stock and future stock options worth $10.5 million, while Ally Financial's leader will get $9.5 million and GM's chief executive $9 million, according to documents distributed by the Treasury.

The chief executive officer of AIG is Robert Benmosche, GM's CEO is Daniel Akerson and Ally Financial's is Michael Carpenter, although their names do not appear in any of the documents that Treasury released.

A spokesperson for Ally Financial said its executive pay "continues to be in line with the stated guidelines for TARP companies" and said its management team was focused on repaying the remaining TARP funds to Treasury.

The other 69 executives are among the three firms' senior executive officers as well as the most highly compensated employees who work under them.

The Treasury said the three firms are making progress in repaying their taxpayer funds. It said AIG has reduced its obligations to the U.S. government by more than 75 percent, while Treasury has recovered nearly half the TARP funds it put into GM and close to one-third of the money that went to Ally Financial.

(Reporting by Glenn Somerville; Editing by Neil Stempleman and Lisa Shumaker; Additional reporting by Ilaina Jonas and Antonella Ciancio in New York)

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