Börsipäev 15. märts - Investeerimine - Foorum - LHV finantsportaal

LHV finantsportaal

Foorum Investeerimine

Börsipäev 15. märts

Kommentaari jätmiseks loo konto või logi sisse

  • Täna siis sellised huvitavad lood:

    Many electric utility companies across the nation are collecting billions of dollars from their customers for corporate income taxes, then keeping the money rather than sending it to the government.

    The practice is legal in most states. The companies say it is smart business.

    But some representatives of utility customers say that the practice, which involves using losses from other subsidiaries to reduce taxes owed, is not fair. They say that money that utilities are required to collect for federal and state taxes — typically a nickel on each dollar paid for electricity — should go for just that, or not be included in electric bills.

    Otherwise, they argue, these legal monopolies make more than they are authorized to, and other taxpayers have to make up the difference in higher taxes or reduced services.

    An examination of regulatory filings by The New York Times shows that companies with electric utilities in at least 26 states have pocketed money intended for income taxes, and that utilities can legally do so in 21 more states.

    Because they are legal monopolies, utilities must charge rates set by state regulators. These cover all costs — from buying fuel, to building new power plants, to a virtually guaranteed profit and paying the taxes on that profit.

    Normally, customer payments for those taxes eventually find their way to federal and state governments. That is usually the case for independent utilities like Consolidated Edison, which serves the New York area, and American Electric Power, which operates in 11 states from Kentucky to Oklahoma.

    But in recent years many utilities have expanded into unregulated businesses, like energy trading and aircraft leasing, while others have been acquired by companies that own other businesses. When those other businesses lose money or create artificial losses through tax planning, those losses can be used to offset income earned by the utilities.

    As a result, the parent companies owe less in taxes than their electric customers paid. Sometimes these companies owe nothing, or receive large tax refunds. By not remitting the taxes, the parent companies effectively have more money to invest in their operations or pay to shareholders in dividends.

    The ability to intercept tax payments is not limited to electric utilities. Natural gas, water and telephone utilities can use the same techniques. The potential tax benefits are much smaller for gas and water utilities, however. And most telephone companies are no longer regulated as monopolies and their rates no longer include income taxes. (The taxes and fees that phone companies add to monthly bills are not corporate income taxes.)

    Among the electric utilities whose customer tax payments are not reaching tax coffers is Pepco, serving four states and the District of Columbia. Pepco collected nearly $546 million from customers to cover its income tax bill for the years 2002 through 2004. Yet the parent Pepco Holdings did not pay income taxes during those years; indeed, it received $435 million in tax refunds.

    Pepco says the beneficiaries of those refunds were not the company's shareholders, but utility customers. A vice president, Anthony J. Kamerick, said that without the ability to use taxes embedded in monthly electric bills to help finance its unregulated investments, including new power plants, electric customers would pay higher rates.

    Customers paid Xcel Energy, a big utility in 10 Midwest and Western states, at least $723 million to cover taxes from 2002 to 2004. But the money did not go to the government; in fact, the company received cash refunds of $351.4 million.

    A spokesman, Ed Legge, said the refunds resulted from a failed energy trading business. "Utility customers did not bear the risk of that business, and they should not benefit either," he said.

    Also expressing the utilities' view, Paul L. Joskow, an economist at the Massachusetts Institute of Technology, said, "For the customer, the result is the same." If the utility were a stand-alone company and filed its own tax return, he added, the customer would pay the same for power.

    But critics argue that when utilities collect taxes the government never receives, customers do lose.

    The Minnesota attorney general, Mike Hatch, said, "Essentially, the utility ratepayers pay the tax twice, once through the utility bill and again through the lost revenue to government that means either higher taxes for them or less government services." Mr. Hatch is trying to require that any taxes included in Xcel bills be paid to the government. Xcel opposes this.

    The critics say that while many profitable businesses use losses to minimize their tax bills, utilities are unique because their taxes are built into the bills that customers pay.

    Critics also say utility companies are enriched beyond the limits set by law if they pocket the tax money. "Utilities are entitled to a just and reasonable return," said Myer Shark, a 93-year-old lawyer who sued unsuccessfully to recover $300 million in taxes paid by Minnesota customers of Xcel. "But when they keep the taxes, they are earning an unjust and unreasonable rate of return."

    Enron was a pioneer in turning taxes into profit. Since 1997 the company, now in bankruptcy, has collected nearly $900 million from customers of a utility it acquired, Portland General Electric, to cover income taxes. But none of that money reached the federal government from Enron, and only a quirk in the law forced Portland G.E. to pay about $800,000 in income taxes, of which $20 went to the state of Oregon.

    Enron could keep the tax money because it created 881 subsidiaries in the Cayman Islands, Bermuda and other tax havens, tax shelters that on paper generated losses for the parent.

    The tax benefits are one reason Wall Street these days likes electric utilities, long seen as unexciting investments. Warren E. Buffett, Henry R. Kravis and David Bonderman are among investors drawn to utilities in recent years in hopes of earning returns through parent companies that can be several times those typically approved by state regulators for the utilities themselves.

    For decades utilities have been able to delay paying the government the taxes collected from customers; the delayed taxes are known as phantom taxes. But the more recent issue involves taxes the government will never receive because tax rules have not caught up with changes in the ownership structure of utilities.

    Three decades ago, said James T. Selecky, a utility-rate consultant to the Minnesota attorney general, "we had true utility companies with very few or minor other operations," so the taxes eventually flowed to the government. But that is no longer true.

    Only a few states have mechanisms to prevent pocketing such money. West Virginia and Oregon require that taxes be paid to the government, although the Oregon law, enacted last year, is under attack by utilities there.

    In Pennsylvania, the state Supreme Court ruled in 1985 that "fictitious" expenses, such as taxes government never receives, cannot be included in utility rates.

    The prospect that a utility could charge for taxes that the government would never receive became a major issue in Oregon when David Bonderman's Texas Pacific Group tried to buy Portland General Electric in 2004.

    Texas Pacific specializes in revamping financially troubled companies like Burger King and the clothier J. Crew. Such companies typically have tax losses, but little or no profit to make use of them. If Texas Pacific had acquired Portland General Electric, whose profits are virtually guaranteed and which had $92 million a year of taxes embedded in the bills customers pay, it could have used the losses from its other companies to offset the utility's profit and keep the money paid by customers ostensibly for taxes.

    Texas Pacific persuaded Oregon utility regulators to keep most records of the purchase proceedings secret.

    When these documents became public, they showed that Texas Pacific expected annual returns greater than 33 percent, three times the expected rate of return for a utility. That revelation generated public and official criticism. The state Public Utility Commission unanimously rejected the Portland purchase a year ago.

    In the wake of the controversy, the Oregon Legislature passed a law requiring that taxes on electric bills be turned over to the government and rates adjusted each year to accurately reflect what customers paid and governments collected.

    MidAmerican Electric, an Iowa utility holding company controlled by Mr. Buffett, and PacifiCorp, a Scottish-owned electric utility, have been lobbying in Oregon for repeal of the law.

    The National Federation of Independent Business's Oregon chapter, with 12,000 members, favors the law. J. L. Wilson, its executive director, said it helped prevent a practice that "just bumps up electric rates."

    One way to make sure customers do not pay for taxes that governments never receive would be to require each utility to file its own tax return. That way, taxes would be paid to the government, not to a parent company.

    Another solution has been advanced for three decades by Robert Batinovich, a California businessman who promoted innovative approaches to regulation when he was chairman of the California Public Utilities Commission in the 1970's. Mr. Batinovich, now chairman of Glenborough Realty Trust in San Mateo, Calif., suggested exempting regulated monopolies from the corporate income tax. "It's just a disguised consumption tax, just another way to take from the little guy," he said.

    But he said that if governments wanted to raise money from regulated utilities, it would be easier just to add a tax, similar to a sales tax, to monthly bills and require that all that money be turned over.

    After the Justice Department drastically reduced its request for information from Google, a federal judge said on Tuesday that he intended to approve at least part of that request.

    The government first subpoenaed Web data from Google last August, as part of its defense of an online pornography law.

    At a hearing in Federal District Court here, Judge James Ware said that in supporting the government's more limited request, he would nonetheless pay attention to Google's concerns about its trade secrets and the privacy of its users.

    The government is now requesting a sample of 50,000 Web site addresses in Google's index instead of a million, which it was demanding until recently. And it is asking for just 5,000 search queries, compared with an earlier demand for an entire week of queries, which could amount to billions of search terms.

    A Justice Department lawyer said at the hearing that the government would review just 10,000 Web sites and 1,000 search queries out of those turned over.

    It intends to use the data in a study to measure the effectiveness of software that filters out pornographic Web sites. The government says it is not seeking information that would "personally identify" individuals.

    "It is my intent to grant some relief to the government," Judge Ware said, "given the narrowing that has taken place with the request and its willingness to compensate Google for whatever burden that imposes."

    He said, however, that he was well aware that the request for individual search terms from Google had raised privacy concerns. He appeared to be less troubled about the release of Web site addresses.

    He said he was particularly concerned about perceptions by the public that Web searches could be subject to government scrutiny, "so I'll pay particular attention to that part of it." The judge said that he would issue a full decision shortly, but did not give a date.

    Google stock closed at $351.16, up $14.10, or 4.2 percent.

    Three of Google's competitors in Internet search technology — the America Online unit of Time Warner, Yahoo and MSN, Microsoft's online service — have complied with subpoenas in the case. None of those companies have indicated how much data was turned over to the government.

    Albert Gidari, a lawyer representing Google at the hearing, said in an interview afterward that he had been surprised by the large reduction in the number of Web site addresses, or U.R.L.'s, and search queries the government was requesting.

    The revised request appeared in a footnote to a declaration filed with the court on Feb. 24 by Philip B. Stark, a statistician the Justice Department had hired to study search engine data.

    The reduced data request had not come up in direct discussions between Google and the Justice Department. But it appears that Google's well-publicized resistance forced the department to modify its position.

    The new request substantially mitigates Google's concerns over trade secrets, Mr. Gidari said, adding that "99.99 percent of Google is unexposed, and this teeny sliver will tell them nothing."

    "This would have been a very different case if the government walked in the door and said, 'We need 50,000 U.R.L.'s and a thousand searches,' " Mr. Gidari said. "It's doubtful we would have been in court. We got to where we wanted."

    The Web data study is part of a continuing lawsuit in which the government is defending the Child Online Protection Act, a 1998 law under which it is a crime to make "material that is harmful to minors" commercially available on the Web. The lawsuit was brought by the American Civil Liberties Union, among others.

    The act has faced repeated legal challenges. Opponents contend that filtering software could protect minors effectively enough to make the law unnecessary.

    Two years ago, the Supreme Court upheld an injunction blocking the law's enforcement and returned the case to a district court for further examination of Internet-filtering technology that might be another way to achieve the law's aims. At a trial scheduled to begin in October, the government will try to prove that filters are ineffective.

    "Given the slight amount of information now sought by the government, Google's burden arguments seem less persuasive than they might be," said Susan P. Crawford, a professor at the Cardozo School of Law at Yeshiva University.

    At one point in the hearing, Judge Ware asked Joel McElvain, the lawyer for the government, why the Justice Department needed the Google data when it already had information from three other companies. Mr. McElvain said that although the government had enough information to do its study, it "would be substantially improved if we had the data from Google" because Google commands nearly half the search market.

    Judge Ware appeared to sympathize with Google's concern that it could become entangled in the underlying lawsuit over the Child Online Protection Act, although it is not a party to the suit.

    The judge also sought specific assurance from Mr. McElvain that the government would not use information contained in search queries for other investigations.

    If a search query appeared to suggest a connection between a particular person and Osama bin Laden, the judge asked him, "are you telling me the government would ignore that and not use it?" Mr. McElvain assured him that the government would not.

    Mr. McElvain said at the hearing that the government would pay Google for the effort needed to put the information together.

    "We're very encouraged," said Nicole Wong, associate general counsel at Google. "At a minimum we have come a long way from the government's initial subpoena. If it had started this way, it would have been a very different discussion."

    Still, Ms. Crawford said that even the relatively small amount of data demanded posed a troubling prospect. "The government has been able to commandeer private parties to assist it in its research, and the next request may be far broader," she said.

    Aden J. Fine, a lawyer for the American Civil Liberties Union, was more optimistic.

    "The mere fact that Google has stood up to the government is a positive thing," Mr. Fine said. "The government cannot simply demand that third parties give information without providing a sufficient justification for why they need it, and that's the theme that will hopefully resonate from this hearing, whichever way the judge rules."

    The Labor Department is investigating whether Northwest Airlines systematically shortchanged its employee pension fund over three years, then avoided having to make a $65 million payment to the fund by filing for bankruptcy protection just one day before the payment was due.

    The government has subpoenaed voluminous and detailed information from Northwest going back to January 2002, when both the airline and its pension fund faced severe financial pressures after the terrorist attacks of 2001 and the bursting of the technology bubble in the stock market.

    The investigators appear to be tracing the steps that led to the pension fund's recent shortfall of $5.8 billion, and whether Northwest violated any laws.

    The investigation has implications for many businesses besides Northwest that have shaky pension plans. It suggests that the Labor Department is looking for a way to break an entrenched pattern, in which distressed companies quietly deplete their pension funds over a number of years, then declare bankruptcy and transfer huge obligations to the federal government.

    Officials of the Labor Department confirmed the investigation but declined to elaborate, other than to say it was a civil matter concerning the parts of the pension law that deal with funding and the disclosure of information to participants and regulators. The officials also said that the inquiry was looking at whether corporate pension officials had administered the plans "solely in the interest of the participants" in the pension plans, which would fulfill their fiduciary duty. The subpoena was served in January.

    A Northwest spokesman said yesterday that the company had provided some of the documents sought, but was fighting to keep others confidential, and was scheduled to appear in court later this month to argue for a protective order. Separately, the airline has been lobbying Congress for special relief from the pension law.

    Fiduciary duties to pension participants can sometimes collide with corporate officials' fiduciary duties to their shareholders, especially when a company is struggling financially and trying to conserve cash. Employees caught up in recent pension fund collapses have said they were not adequately warned of the impending failure and have questioned how it could have happened if the people in charge had kept their interests foremost.

    The Labor Department, responsible for enforcing the fiduciary duty requirements, has lately emphasized voluntary compliance, operating a successful amnesty program to help errant pension officials bring their plans back into line. Even so, an alarming number of large plans have collapsed in the last few years, leaving the government to cover huge debts to retirees.

    The Pension Benefit Guaranty Corporation, which has taken over the failed plans, has gone to court to try to hold some of those companies responsible, but it has little power to act until after a pension fund has failed, and by then it is usually too late to recover much of the missing money. The Internal Revenue Service shares enforcement of the pension law, and it sometimes imposes excise taxes on companies that skip their pension payments. But it has no authority to enforce fiduciary duty.

    Enforcement of the pension law, therefore, has been piecemeal, with no one agency responsible for making sure the plans remain solvent.

    Last fall, after the $10 billion collapse of the pension fund at United Airlines, the Labor Department agreed to coordinate with the I.R.S. on enforcing the pension law's minimum funding requirements. At the time, the I.R.S. expressed concern about a flood of requests from companies, and some union-run plans, to waive or postpone their mandatory annual contributions. The requests had swamped the I.R.S.'s systems for evaluating such applications and following up to make sure the companies eventually made good.

    The I.R.S. declined yesterday to say whether it was working with the Labor Department on the Northwest investigation. But Joseph H. Grant, an agency official, said it was "working in close cooperation with the other federal agencies that oversee pension plan operations."

    He added, "This is particularly the case when pension plans are significantly underfunded."

    Northwest received a waiver from the I.R.S. in 2003, allowing it to reschedule that year's pension contributions over five years. Since then, it has been seeking additional ways to reduce or postpone its contributions for 2004, 2005 and beyond. Some of the delayed contributions are now starting to come due, and the airline has been lobbying Congress to give it still more time. The Senate has passed a measure that would give Northwest and the other major airlines 20 years to catch up on their pension contributions — nearly three times as long as most companies would get under a major revision of the pension law that has been passed by both houses of Congress.

    The pension bill is now being completed in a House-Senate conference committee. Many members of the House have also said they support additional relief for the major airlines, fearing that without it, the pension plans will simply fail. This week a lawyer for Delta Air Lines said in an arbitration hearing that it was "more likely than not" that Delta would send its pension funds to the Pension Benefit Guaranty Corporation.

    In its motion for a protective order against the Labor Department's subpoena, Northwest is arguing that the demand is "extremely broad" and that full cooperation could "threaten or undermine" its ability to reorganize in bankruptcy. A hearing has been scheduled for later this month in United States Bankruptcy Court for the Southern District of New York, in Manhattan.

    In the motion, Northwest said it was "willing to cooperate fully" with the Labor Department but not unless the government gave it more forceful guarantees that confidential financial information would be kept private and not used "as leverage to pressure" it.

    Northwest's pension fund consists of three individual plans, for about 8,000 pilots, 9,000 salaried employees and 52,000 unionized workers, including mechanics and agents. At the end of 2004, the plans owed a total of $9.2 billion to their participants but had assets of just $5.4 billion.

    By filing for bankruptcy when it did, Northwest made the federal government an unsecured creditor for the $65 million that was coming due the next day. Once a company declares bankruptcy, an automatic stay prevents creditors from placing liens on corporate assets and forcing the company to pay its debts, including debts to its pension funds.

    The compensation adviser behind an estimated $135 million payout to the chief executive of North Fork Bancorporation has also received fees for other services from the bank in recent years, according to regulatory filings.

    The other business dealings the adviser, Mercer Human Resources Consulting, has had with North Fork raise questions among corporate governance experts about the pay recommendations it made to the bank's board, which has a duty to company shareholders, not to management.

    Employment contracts of executives often contain so-called change-in-control provisions that allow executives to cash in what they have amassed in retirement accounts, restricted stock and option grants when their companies are acquired.

    When the same consulting firm that advises a board on pay practices generates revenue by providing other services to the company, questions can arise about which master the consultant is serving, corporate governance experts say.

    A spokeswoman said Mercer had a policy of not commenting on the work it did for its clients.

    If Capital One's proposed $14.6 billion acquisition of North Fork is completed, John A. Kanas, North Fork's chief executive, will receive an estimated $135 million, said Brian Foley, a pay expert in White Plains.

    Other top executives at the bank will receive generous payouts as well, resulting in costs to the company of $350 million before taxes, according to North Fork calculations.

    Mr. Kanas, who has worked at the bank since 1971 and has been chief executive since 1988, is the architect of its transformation from a Long Island bank to the nation's 16th-largest bank, with $58 billion in assets.

    As a result of the merger, his payout includes $66 million in restricted stock, $15 million in severance that he will receive when he retires, $6 million in stock options and $4 million in stock-based units.

    Mr. Kanas will also receive an estimated $44 million to cover personal income taxes generated by the gains in his restricted stock that will result from the North Fork sale. Such a payment is known as a tax gross-up.

    Yesterday, Mr. Kanas, who is 59, confirmed these numbers generally and said that he and his wife planned to make a major donation to a charitable organization that would reduce the amount of the tax gross-up that North Fork shareholders would ultimately have to pay when the company is sold to Capital One.

    "I spent my life building this company up," Mr. Kanas said. "This is the monetization of a life's work."

    He added that he had never sold a share of North Fork stock and that upon his retirement in three years, he would have received all the compensation he is receiving now as a result of the acquisition.

    The other two executives who are receiving large payouts — John Bohlsen, the vice chairman, and Daniel M. Healy, the chief financial officer — were set to retire in just over a year, he said, and would have received their totals then.

    Nevertheless, pay experts said it was uncommon for companies to pay personal income taxes generated by gains in restricted stock upon a change in control.

    "The most unusual thing here is the income tax gross-up on the restricted stock," Mr. Foley, the pay expert, said. "The fact that it is there is unusual and the size of it is enormous. My concern is, Why aren't these executives paying their own income tax? They certainly have plenty of money."

    Such arrangements are the purview of a corporate board's compensation committee, and North Fork's four-member committee has in recent years been headed by Raymond A. Nielsen, a former chief executive of Reliance Bancorp, which was acquired by North Fork in 2000.

    Mr. Nielsen, who is retired, could not be reached for comment.

    North Fork's compensation committee, as is common among large companies, has relied upon an outside consultant to provide advice on its pay practices, according to its regulatory filings. The consultant employed by North Fork, going back to at least 1998, has been Mercer Human Resources Consulting, a unit of Marsh & McLennan Companies.

    While Mercer's compensation unit has advised North Fork's board on pay matters, another Mercer group has provided North Fork with actuarial services for one of its retirement plans. According to the most recent documents filed with the Department of Labor, Mercer earned a total of almost $1 million in 2002 and 2003 for its services as actuary to North Fork's cash-balance retirement plan.

    "We like clear lines of distinction in corporate governance," said Paul Hodgson, senior research associate at the Corporate Library in Portland, Me., "because you avoid the possibilities of anyone raising a red flag saying wouldn't the consultant be worried about losing their contract with the human resources department if they came to the compensation committee and said we find the C.E.O. is overpaid?"

    Some of the nation's biggest compensation consultants, including Mercer, Hewitt Associates and Watson Wyatt Worldwide, also provide other human resources services to companies, like actuarial calculations for company pension plans, outsourcing services and pension plan administration.

    The potential for conflicts of interest among these big firms is similar to the problems that developed at accounting firms in the late 1990's as they began to make more money providing tax advice and other consulting services to corporate America than they made on traditional auditing services.

    The Sarbanes-Oxley legislation that was enacted in response to corporate scandals effectively barred accounting firms from providing companies with both auditing services and consulting work.

    North Fork's proxy statement filed in 2005 reports that Mercer has suggested in recent years that the compensation committee "place greater emphasis on long-term (vs. annual/cash) incentive components of executive pay, such as stock-based awards." These awards include the restricted shares that have generated the $44 million payment necessary to cover the personal income taxes of Mr. Kanas. The proxy does not say whether Mercer recommended the unusual income tax gross-up provision.

    The nation's top oil executives were called before Congress again yesterday to defend their industry's recent mergers and record profits, in the face of public outrage over high oil and gasoline prices.

    It was the second time in four months that the oil industry faced strong criticism from both Republican and Democratic senators. In November, the Senate held similar hearings, which produced a show of indignation but were followed by little legislation.

    Most of the companies represented, including Exxon Mobil, Chevron and ConocoPhillips, participated in the wave of mega-mergers of the late 1990's and early 2000 that created today's behemoths. Given the sharp rise in oil prices, the top five of them reaped record earnings of well over $100 billion.

    Senator Arlen Specter, the chairman of the Senate Judiciary Committee, called the hearings to examine whether mergers in the oil and gas industry had resulted in higher gasoline prices at the pump.

    Gasoline prices jumped above $3 a gallon after Hurricane Katrina last summer and are now about $2.37 a gallon. They have risen by 60 percent in the last five years.

    "We do know that there have been mergers and that gasoline prices have risen," Senator Specter, Republican of Pennsylvania, said in his opening remarks.

    He proposed to introduce a bill that would tighten scrutiny on mergers that might hurt competition and would reconsider some of the $14.5 billion tax incentives that were granted to energy companies in last year's energy law.

    Increasingly, rising energy and fuel costs are becoming potent issues in Washington. In his State of the Union message in January, President Bush said that he wanted to cut America's "addiction" to oil and develop alternative fuels.

    When five oil executives testified last November, they successfully lobbied for their top executives to be spared the fate of tobacco executives, who were made to testify under oath in 1994. After the hearings, some Democrats said that the executives had misled them with incomplete and inaccurate answers.

    Yesterday, the executives, six of them this time, were sworn in. This formality created the very kind of picture — some of the most powerful American executives lined up with their right hands up in the air — that oil executives had sought to avoid.

    Otherwise, theatrics were largely absent although the arguments from the oil executives were the same.

    "With respect to the committee's specific question — whether mergers and acquisitions in our industry have contributed to higher prices at the pump — my answer is no," Rex W. Tillerson, Exxon Mobil's chairman and chief executive since January, said in response to Senator Specter.

    "We need U.S. energy companies that have the scale and financial strength to make the investments, undertake the risks and develop the new technologies necessary to provide Americans with greater energy access and greater energy security," he said.

    John Hofmeister, the president of Royal Dutch Shell's American unit, said that despite the immense size of the largest oil companies, "this remains a highly competitive industry."

    Also testifying were the top representatives of Chevron, ConocoPhillips, BP America, and Valero, the nation's largest independent refiner.

    While oil prices remain high, the American economy has so far absorbed the increased energy costs. Still, in an election year, politicians seemed eager to turn the heat on oil men.

    Exxon Mobil came under the most criticism. The company was formed in 1999 from the merger of Exxon, the top American oil company, with Mobil, the No. 2. Last year, it earned net income of $36.1 billion.

    There have been 2,600 mergers since 1991 in the oil and gas industry, according to a report by the Government Accountability Office.

    Senator Dianne Feinstein, Democrat of California, said that the degree of competition and the amount of market power held by oil companies following the mergers raised "really serious questions."

    "Although each of these mergers reduced the companies' costs they were nevertheless followed by increases in the costs to consumers," she said.

    Speaking during a witness panel before the industry executives, Severin Borenstein, a professor at the Haas School of Business at the University of California, Berkeley, said oil companies were not solely responsible for high gasoline prices. "It's a world market for oil and that's why we have high gasoline prices," Mr. Borenstein said.

    Senator Specter's proposed legislation would also permit the government to take legal action against the Organization of the Petroleum Exporting Countries for fixing oil prices.

    "One of the biggest causes of high crude oil prices is the illegal price-fixing of the OPEC cartel," said Senator Mike DeWine, Republican of Ohio, a sponsor of the provision.

    Still, there were some moments of levity, such as when Senator Herb Kohl, Democrat of Wisconsin, said: "Our constituents, your consumers, aren't very happy with your explanations. If you'd be losing money, they wouldn't be so upset."

    One senator — John Cornyn, Republican of Texas — defended the industry, providing the oil executives with an easy plank to make their case.

    "Since it isn't a crime to make a profit, what I would ask is, What can the government do that would be positive to bring down the price of oil and gas?" the senator asked.

    "Would it be productive or destructive for us to pass a windfall profit tax?"

    The answer from the executives, of course, was "not productive."

    A former Enron managing director who evaluated risk for the company testified on Tuesday that he strenuously objected to the formation of off-balance-sheet partnerships directed by Andrew S. Fastow and urged the company to "come clean" about the risks they posed.

    The witness, Vince Kaminski, who led a team of more than 50 quantitative specialists at Enron, said he saw a conflict of interest in the LJM partnership set up by Mr. Fastow, Enron's former chief financial officer. Mr. Kaminski also said he told a senior manager that an idea to hedge an investment in an Internet start-up would create a credit risk that could threaten Enron's health.

    But Mr. Kaminski's advice was ignored and in mid-July 1999, he received a call from Jeffrey K. Skilling, then Enron's chief executive, who told him that Mr. Kaminski and his team were being transferred to another department because of complaints that they were acting "more like cops, preventing people from executing transactions, than helping," he testified.

    Mr. Kaminski testified in the seventh week of the trial of Mr. Skilling and Kenneth L. Lay, Enron's founder. Prosecutors are seeking to corroborate the testimony of Mr. Fastow about off-the-books partnerships which he said Mr. Skilling and Mr. Lay knew were being used to manipulate earnings and hide debt.

    Sean M. Berkowitz, the head of the Justice Department's Enron Task Force, said in court Tuesday that the government expected to rest its case against Mr. Skilling and Mr. Lay the week of March 27.

    Scheduled to testify after Mr. Kaminski is Sherron S. Watkins, the Enron vice president who met with Mr. Lay in August 2001 to warn him about concerns over the so-called Raptors financing vehicles and who warned in a widely reported letter to him that Enron could "implode in a wave of accounting scandals."

    A looming question is when, or if, Richard A. Causey, Enron's former chief accounting officer, will testify in the case. He could be crucial to supporting Mr. Fastow's claims that Mr. Skilling was shown a list of side deals that Mr. Fastow kept track of.

    Mr. Causey is not on the government's witness list. But prosecutors say that does not preclude them from calling him in a rebuttal that would follow the expected testimony of Mr. Skilling and Mr. Lay. Mr. Causey pleaded guilty to fraud in December, just one month before the trial started.

    Mr. Fastow testified for four days about the partnerships and about secret side deals he said he made with Mr. Skilling that guaranteed the partnerships would profit from purchasing distressed Enron assets. But during three days of cross-examination by defense lawyers, Mr. Fastow admitted to stealing tens of millions of dollars from Enron while deceiving his bosses and even his own wife about much of his illicit activity.

    The government knew that calling Mr. Fastow brought inherent risks, but chose to call him anyway.

    Mr. Kaminski is one of the first key witnesses for the government who is not testifying under a government cooperation agreement. The Polish-born Mr. Kaminski, 58, worked for Enron for a decade and now heads the quantitative risk management team at Citigroup's energy trading group.

    He said that in early June 2001 he was approached by Mr. Skilling and others about wanting to use LJM to hedge, or insure against loss, an investment in Rhythms Net Connections, an Internet start-up. The transaction involved donating Enron shares to LJM and using the shares to back the investment. After studying the idea, Mr. Kaminski said, he told Richard Buy, Enron's chief risk officer, that he opposed the deal, comparing it to "gambling in a casino that is insolvent."

    As Mr. Kaminski saw it, the entire structure depended on Enron's stock going up or staying even — a risk he considered too great, he said.

    The deal was nevertheless approved and Mr. Kaminski got the call a month later from Mr. Skilling, who pushed his team out of the risk department and into the wholesale energy division.

    Two years later, in 2001, Mr. Kaminski became concerned about the Raptors, another set of financing vehicles involving Mr. Fastow, because they "were based on the same flawed principles as LJM," Mr. Kaminski said. He complained again to Mr. Buy after discovering what he called a "major flaw" in the Raptors. Mr. Kaminski told Mr. Buy that he refused to sign off on the valuation of the vehicles "even if I am fired." He said he also communicated his concerns to Arthur Andersen, Enron's auditor. He was not fired.

    On Oct. 22 of that year, Mr. Kaminski said, his anger boiled over at a meeting of some 50 managing directors, which was presided over by Mr. Lay, who by then was chief executive again. After Mr. Lay defended LJM as properly vetted, Mr. Kaminski stepped to the podium and said he disagreed, telling the managers that LJM was "not only improper but terminally stupid." And, "I said Enron should come clean," he testified.

    After the meeting, other Enron managers came up to Mr. Kaminski and offered support, he said. The next day, Mr. Lay told Enron workers at an all-employee meeting that managers at the previous day's meeting "came out of that room unified," which Mr. Kaminski testified was not true.

    Also on Tuesday, Christopher Loehr, a former Enron employee who worked for Mr. Fastow at the LJM partnership, said he had heard Mr. Fastow discuss a document of side deals, called Global Galactic, though he was unable to connect Mr. Fastow to either Mr. Skilling or Mr. Lay. Mr. Loehr told jurors that Mr. Fastow told him that Enron provided unwritten assurances that it would resell or buy back those interests at a profit, which meant the deals were not legitimate because the partnerships investment were not at risk, the Associated Press reported.

    Mr. Loehr did not say who gave Mr. Fastow those assurances. Under questioning by Mr. Skilling's lead lawyer, Daniel Petrocelli, Mr. Loehr said he did not believe he was breaking the law. "I thought I was aiding others in doing that," he said. "It was no great secret what we were doing."

    A group of European computer researchers have demonstrated that it is possible to insert a software virus into radio frequency identification tags, part of a microchip-based tracking technology in growing use in commercial and security applications.

    In a paper to be presented today at an academic computing conference in Pisa, Italy, the researchers plan to demonstrate how it is possible to infect a tiny portion of memory in the chip, which can hold as little as 128 characters of information.

    Until now, most computer security experts have discounted the possibility of using such tags, known as RFID chips, to spread a computer virus because of the tiny amount of memory on the chips.

    The tracking systems are intended to improve the accuracy and lower the cost of tracking goods in supply chains, warehouses and stores. Radio tags store far more data about a product than bar codes and can be read more quickly. They have even been injected into pets and livestock for identification.

    The chips have already prompted debate over privacy and surveillance, given their tracking ability. Now the researchers have added a series of worrisome prospects, including the ability of terrorists and smugglers to evade airport luggage scanning systems that will use RFID tags in the future.

    In the researchers' paper, "Is Your Cat Infected With a Computer Virus?," the group, affiliated with the computer science department at Vrije Universiteit in Amsterdam, also describes how the vulnerability could be used to undermine a variety of tracking systems.

    The researchers said they realized that there are risks associated with publishing security vulnerabilities in computerized systems. To head off some of the possible attacks they described, they have also published a set of steps to help protect RFID chips from such attacks.

    The group, led by Andrew S. Tanenbaum, an American computer scientist, will make the presentation at the annual Pervasive Computing and Communications Conference sponsored by the Institute of Electrical and Electronic Engineers. Mr. Tanenbaum is the author of the Minix operating system, an experimental project that became the heart of the Linux open-source operating system.

    The researchers asserted that the RFID demonstration had not used the commercial software that collects and organizes information from RFID readers. Rather, it used software that they designed to replicate those systems.

    "We have not found specific flaws" in the commercial RFID software, Mr. Tanenbaum said, but "experience shows that software written by large companies has errors in it."

    The researchers have posted their paper and related materials on security issues related to RFID systems at www.rfidvirus.org.

    The researchers acknowledged that inside information would be required in many cases to plant a hostile program. But they asserted that the commercial software developed for RFID applications had the same potential vulnerabilities that have been exploited by viruses and other malicious software, or malware, in the rest of the computer industry.

    One such standard industry problem is a software coding error referred to as a buffer overflow. Such errors occur when programmers set aside memory to receive data temporarily, but fail to require a check on the size of the value that is moved to the allocated space. A larger-than-expected value can cause the program to break and trick the computer operating system into executing a malicious program. "You should check all of your input all of the time, but experience shows this isn't the case," Mr. Tanenbaum said.

    Independent computer security specialists also said RFID systems were potential problem areas.

    "It shouldn't surprise you that a system that is designed to be manufactured as cheaply as possible is designed with no security constraints whatsoever," said Peter Neumann, a computer scientist at SRI International, a research firm in Menlo Park, Calif.

    Mr. Neumann is the co-author of an article to be published in the May issue of the Communications of the Association for Computing Machinery on the risks of RFID systems. He said existing RFID systems were a computer security disaster waiting to happen.

    He cited inadequate identification for users, the potential for counterfeiting or disabling tags, and the problem of weak encryption in a passport-tracking system being developed in the United States. But he said he had not previously considered the possibility of viruses and other malicious software programs.

    An industry executive acknowledged that the companies that make computerized tracking systems faced potential security problems.

    "We are very actively looking at the different way the technology is used," said the executive, Daniel P. Mullen, president of the Association for Automatic Identification and Mobility, an industry trade group. "It's an ongoing dialogue about protecting information on the tag and in the database."

    The association has a working group of experts assessing both security and privacy challenges, he said.

    There are many types of RFID tag, and some of the sophisticated versions include security features like encryption of the identifying number carried by the chip.

    But the Dutch research group warned that in a variety of situations it is possible for attackers to alter the information in an RFID tag to subvert its purpose.

    "RFID malware is a Pandora's box that has been gathering dust in the corners of our 'smart' warehouses and homes," they write in their paper.

    In one example they offered, a virus from an infected tag on luggage passing through an airport could be picked up when it is scanned by the luggage-handling control systems and then spread to tags attached to other pieces of luggage.

    Such an attack, they suggest, might spread luggage contamination to other airports. It might also be used by a smuggler to cause a piece of luggage to avoid security systems.

    They also described situations of counterfeit RFID tags possibly being be used to subvert pricing and other aspects of commercial sales systems, or a virus could be inserted into RFID tags used to identify pets.

    The Goldman Sachs Group said yesterday that its quarterly profit surged 62 percent, far surpassing Wall Street expectations, on record revenue led by surprisingly strong results from trading stocks and bonds.

    Goldman shares, up 30 percent over the past year, closed at a record high of $149.42, up $8.70. Goldman's report was the first of what was expected to be another quarter of record results among investment banks, again disproving analysts and investors who had expected that rising rates would slow trading.

    Goldman's record trading revenue, accompanied by one of the busiest periods for mergers and acquisitions ever, resulted in record revenue and earnings.

    "They are in the right place at the right time," said Jim Russell, a portfolio manager at Fifth Third Asset Management in Cincinnati. "There were a lot of good things in currencies, in commodities and many credit products.

    "Goldman also has the greatest presence in non-U.S. markets and those markets are growing exceptionally fast," he added.

    The report bodes well for Goldman rivals like Lehman Brothers Holdings and Bear Stearns, which are to report their quarterly results this week, and Morgan Stanley, which announces earnings next week.

    Goldman, which also announced it would increase its quarterly dividend by 40 percent, to 35 cents a share, continues to repurchase its own shares at a fast pace.

    Goldman said net income rose to $2.48 billion, or $5.08 a share, in the fiscal first quarter ended Feb. 24, up from $1.51 billion, or $2.94 a share, in the year-ago period.

    Excluding a noncash charge of $237 million for stock-based compensation, earnings were $2.64 billion, or $5.41 a share. New accounting rules require banks to expense stock awards to certain executives when granted, rather than amortize those costs over many years.

    Goldman far exceeded the average analyst estimate of $3.29 a share, according to Reuters Estimates. The firm has already earned 42 percent of the profit analysts expected for 2006.

    Net of interest expenses and costs associated with operating a number of electric power plants owned by Goldman, revenue soared 61 percent, to $10.3 billion, as nearly all of Goldman's business units produced record or near record results. Return on equity, including the charge, was 36.4 percent.

    Investment banking net revenue rose by two-thirds, to $1.47 billion, the highest in nearly six years. Advisory fees gained 78 percent, to $736 million, while underwriting fees rose by more than half, reflecting a jump in debt issued to finance leveraged buyouts.

    For the fiscal quarter, Goldman was the world's top arranger of mergers and initial public offerings. The firm's investment banking backlog slipped during the quarter, although its chief financial officer, David Viniar, said the level of pending deals was significantly higher than a year earlier.

    "The environment continues to be strong," Mr. Viniar said. "We are seeing strategic deals with a frequency and on a scale not witnessed in six years."
  • Jaa, asjalikku infot ei saa tõesti kunagi liiga palju olla!
  • Jaa, asjalikku infot ei saa tõesti kunagi liiga palju olla!
  • Vaatasin kergelt rulliga üle: päris huvitav!
  • Sidekick, sa piiblit ei taha siia kopida või, saaks veel pikema teksti :)

Teemade nimekirja

Küpsised

Et pakkuda sulle parimat kasutajakogemust, kasutame LHV veebilehel küpsiseid. Valides "Nõustun", annad nõusoleku kõikide küpsiste kasutamiseks. Tutvu küpsiste kasutamise põhimõtetega.

pirukas_icon