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JPMorgan to Pay $300 Million to Settle U.S. Allegations

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JPMorgan Chase & Co. will pay more than $300 million to settle U.S. allegations that it didn’t properly inform clients about what the Securities and Exchange Commission called numerous conflicts of interest in how it managed customers’ money over a half decade.

The largest U.S. bank by assets failed to tell customers that it reaped profits by putting their money into mutual funds and hedge funds that generated fees for the company, the SEC said in announcing $267 million in penalties and disgorgement against JPMorgan. The bank agreed to pay $40 million more as part of a parallel action by the Commodity Futures Trading Commission.

JPMorgan admitted disclosure failures from 2008 to 2013 related to two units that manage money — its securities subsidiary and its nationally chartered bank — as part of the SEC settlement. The New York-based bank said that the omissions in its communications were unintentional and that it has since enhanced its disclosures.

“Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” Andrew J. Ceresney, director of the SEC Enforcement Division, said in a statement. “These JPMorgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers.”

Two-Year Probe

The settlement caps roughly two years of investigations during which the government deposed asset-management executives and issued subpoenas for internal documents. The SEC’s enforcement division had been looking into whether the bank encouraged their financial advisers to steer clients improperly into investments that generated fees for the bank, people familiar with the investigation said earlier this year.

In its order, the SEC said the bank cooperated with commission staff, hired an independent compliance consultant and carried out its recommendations.

The disclosure weaknesses cited in the settlements “were not intentional and we regret them,” said Darin Oduyoye, a JPMorgan spokesman. “We have always strived for full transparency in client communications, and in the last two years have further enhanced our disclosures in support of that goal.”

Record Penalty

While the agency extracted a record penalty for an asset manager, JPMorgan can continue operating as it has been in one of its most profitable businesses. The $307 million in fines and disgorgement accounts for a bit more than 1 percent of the company’s annual operating profits, or about a month of those at its asset-management division.

The settlement, announced on the Friday before Christmas, didn’t go far enough, said Dennis Kelleher, a lawyer who runs Better Markets, a consumer advocacy group.

“The conduct involves steering clients into proprietary products so brokers get higher commissions and JPMorgan gets good asset-management numbers,” said Kelleher, who said the practices remain costly for customers, additional disclosures notwithstanding. “This wasn’t a rogue trader. It wasn’t an individual employee. It’s not a mistake. It’s a five-year pattern.”

‘Exhausting Process’

With the settlement, the bank moves beyond one of its last major regulatory challenges since the 2008 financial crisis. JPMorgan has been penalized more than $23 billion in major settlements with U.S. authorities in recent years, in connection with allegations that included conspiring to manipulate foreign-currency rates, allowing the “London Whale” trader to exceed risk limits, failing to flag transactions related to Bernard Madoff’s Ponzi scheme and misrepresenting the value of mortgage-backed securities.

“Investors are glad that the bank agreed to a settlement to move forward and this isn’t an overhang for the business anymore,” said Pri de Silva, a senior banking analyst at CreditSights Inc. in New York. “We are at the tail-end of the post-crisis litigation actions, but its been an expensive, exhausting process. I think both banks and the investor base are tired of it.”

JPMorgan shares fell 2.8 percent to $64.40 at 4:15 p.m. amid a broad decline in financial shares. The bank has climbed 2.9 percent this year, outperforming the 2.3 percent decline of the KBW Bank Index.

Expanded Operation

The SEC’s inquiries looked into JPMorgan Asset Management, a unit that grew rapidly after the 2008 financial crisis, as new regulations crimped areas including hedge-fund and proprietary trading operations that have traditionally been lucrative for Wall Street firms. The bank expanded an operation that pairs wealth management and investment funds in one reporting structure, run by Mary Erdoes, seen as one of a half-dozen in-house favorites to eventually replace Chief Executive Officer Jamie Dimon.

JPMorgan expanded its in-house mutual funds even as many competitors pulled back. Over the past decade, Morgan Stanley, Citigroup Inc. and Bank of America Corp. have shed such fund businesses after being fined for allowing conflicts of interest to result in sales abuses.

JPMorgan Asset Management — with mutual funds, alternative investments, private wealth management and some trust operations — had the highest rate of revenue growth among the bank’s four main operating units. It also had the highest percentage growth in asset inflows of any large manager in the five years through 2014, ending the year with $1.7 trillion under management, according to a February presentation to investors.

Cross-selling and synergies between units was worth $14 billion across the bank in 2012, it said in a February 2013 presentation to investors. The bank attributed $1.1 billion of that to the synergies of selling the bank’s investment-management products to private banking clients.

‘Numerous Conflicts’

JPMorgan “failed to disclose numerous conflicts of interest to certain wealth management clients,” the SEC said in its announcement. That included not telling customers of a retail product, Chase Strategic Portfolio, that it was designed to favor in-house mutual funds, or that the bank might put them into a higher-fee fund when a lower-fee version of the same fund was available. The bank’s investment advisory business, J.P. Morgan Securities LLC, also failed to disclose that it had a financial incentive to favor the bank’s funds because it received a discount on them from another JPMorgan unit, the SEC said.

At one point in early 2011, JPMorgan invested 47 percent of mutual-fund assets and 35 percent of hedge-fund assets in products and accounts that had ties to it, according to the SEC order.

‘Retrocession Payments’

JPMorgan Chase Bank failed to disclose its preference for third-party funds that shared revenue with the bank, the SEC said. During initial meetings, third-party managers were typically asked if they were willing to share their fees. If they declined, JPMorgan typically would look for an alternative manager who was willing. The bank began disclosing that it may receive these “retrocession” payments in August 2015, the SEC said.

JPMorgan agreed to pay a $40 million civil penalty to the CFTC, which also cited $60 million in disgorgement that was part of the SEC settlement.

The bank’s settlement with the SEC included a penalty component of $127 million. That surpassed the agency’s previous record of $100 million, levied on Alliance Capital Management 11 years ago, according to an SEC spokeswoman.

SEC Waiver

As part of the settlement, JPMorgan received permission to continue raising money for private companies including hedge funds and startups. The bank could have been barred from that lucrative activity based on investor protections that automatically disqualify firms found to have violated securities laws. That so-called waiver came with a condition that JPMorgan hire an independent consultant to annually certify its plan for complying with rules for private fundraising.

A senior bank executive or legal officer will have to certify in writing that they reviewed the consultant’s report. The SEC can revoke the waiver if JPMorgan is found to have repeated the kind of wrongdoing that triggered the latest SEC enforcement action.

“J.P. Morgan put its interest before its clients by failing to disclose significant conflicts of interest,” said Democratic Commissioner Kara Stein, who supported the added waiver restrictions. “These failures were part of an institutional breakdown that operated as a fraud on both its clients and its prospective clients.”

Bloomberg

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Dangote Group Expands Refinery Storage Capacity to 5.3 Billion Litres

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Dangote Refinery

The Dangote Group has announced a significant expansion of its refinery storage capacity.

The expansion, disclosed by Alhaji Aliko Dangote, President of the Dangote Group, during his address at the Afreximbank Annual Meetings and AfriCaribbean Trade & Investment Forum in Nassau, The Bahamas.

Currently boasting a storage capacity of 4.78 billion litres, the Dangote Petrochemical Refinery is set to increase this figure by an additional 600 million litres, bringing the total capacity to an impressive 5.3 billion litres.

This expansion underscores Dangote’s commitment to transforming Nigeria into a hub for refined petroleum products and solidifies the refinery’s role as a strategic reserve for the nation.

Addressing stakeholders at the forum, Dangote highlighted the refinery’s pivotal role in addressing longstanding challenges in Nigeria’s energy sector, particularly the absence of strategic reserves for petrol.

“The country doesn’t have strategic reserves in terms of petrol, which is very dangerous. But in our plant now, when you came, we had only 4.78 billion litres of various tankage capacity. But right now, we’re adding another 600 million,” Dangote affirmed.

The expansion comes amidst various operational challenges faced by the refinery, including attempts by international oil companies to hinder its operations.

Dangote asserted that these challenges, aimed at impeding the success of the refinery, were indicative of broader resistance to change within the oil industry.

“We borrowed the money based on our balance sheet. I think we borrowed just over $5.5bn. But we paid also a lot of interest as we went along, because the project was delayed because of a lack of land, also the sand-filling took a long time,” Dangote revealed, emphasizing the resilience required to overcome these obstacles.

Moreover, Dangote expressed optimism regarding the refinery’s capacity to influence regional fuel prices, citing the success story of diesel price reduction following the refinery’s market entry.

He indicated that while petrol pricing remains a complex issue governed by governmental policies, the refinery’s operations would strive to offer competitive pricing and supply stability.

The expansion of the Dangote Petrochemical Refinery not only marks a significant milestone in Nigeria’s industrial landscape but also positions the conglomerate as a key player in reshaping Africa’s energy dynamics.

As construction progresses towards completion, the refinery aims to further consolidate its role in meeting regional energy demands and fostering economic growth across West Africa.

With plans to commence sales of refined products in the coming months, Dangote’s refinery is poised to play a transformative role in Nigeria’s quest for energy independence and regional economic integration.

As stakeholders await the refinery’s operational debut, expectations are high for its potential to drive down fuel prices and enhance energy security across the region.

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Musk Secures Shareholder Support for Compensation and Texas Relocation

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Elon Musk

Tesla Inc. shareholders have voted in favor of Chief Executive Officer Elon Musk’s compensation package and the company’s state of incorporation change to Texas.

The results, announced at Tesla’s annual meeting in Austin on Thursday, reflect shareholder approval despite challenges such as declining sales and a significant drop in stock price.

Musk had hinted at the likely outcome the night before the meeting in a post on X, stating that both resolutions were “passing by wide margins.”

The electric car manufacturer did not disclose the detailed breakdown of the votes.

The approval of Musk’s pay package, although advisory, demonstrates continued investor support for his leadership.

The package had previously been nullified by a Delaware judge in January, but Tesla plans to appeal. Should the appeal fail, relocating Tesla’s legal home to Texas may provide the board an opportunity to reintroduce the compensation plan under potentially more favorable legal conditions.

Originally approved in 2018 with 73% of the vote, Musk’s compensation plan makes him eligible for up to $55.8 billion in stock options if Tesla achieves specific milestones.

Currently, the value of these options is approximately $48.4 billion, according to the Bloomberg Billionaires Index.

Musk’s leadership has been a topic of significant debate, particularly in light of his oversight of six companies and his tendency toward abrupt strategic changes.

Earlier this year, Musk orchestrated Tesla’s largest layoffs to date, only to rehire some of the affected workers weeks later.

In addition to the compensation package, shareholders voted to reelect James Murdoch and Kimbal Musk to Tesla’s board.

Murdoch, son of media mogul Rupert Murdoch, has served on the board since 2017, while Kimbal Musk, Elon’s younger brother, has been a member since 2004.

Tesla’s stock saw a modest increase of 0.3% in extended trading following the announcement, though the stock had fallen about 27% over the year compared to a 14% gain in the S&P 500 Index.

During the annual meeting, held at Tesla’s Austin headquarters, shareholders showed enthusiastic support as Musk took the stage in a black Cybertruck T-shirt.

He shared updates on the company’s progress, including the introduction of three new models, the expansion of the Supercharger network, and record production levels for Cybertrucks.

“A lot of people said Cybertruck was fake, never going to come out. Now we’re shipping a lot of Cybertrucks,” Musk stated.

In addressing his substantial pay package, Musk clarified that it is structured as options requiring him to hold Tesla stock for five years. “I can’t cut and run, nor would I want to,” he said.

The push for shareholder support involved a dedicated “Vote Tesla” website and advertising on X, with Tesla investors and executives vocalizing their backing for Musk.

Despite some opposition from significant investors like Norway’s sovereign wealth fund and the California Public Employees’ Retirement System, the measures passed.

The relocation to Texas has been formalized, with the certificate of conversion available on the Texas Secretary of State website.

However, any future compensation plan will need to be restructured to comply with Texas legal standards, should the Delaware appeal fail.

The recent shareholder vote may enhance Tesla’s position in the forthcoming appeal. Delaware Chancery Court Judge Kathaleen St. Jude McCormick’s January decision to void the compensation package cited conflicts of interest and inadequate disclosure.

The appeal’s outcome, expected later this year, will determine the next steps for Musk’s compensation plan.

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Merger and Acquisition

Exxon Mobil’s Sale to Seplat Progresses After NNPC Drops Legal Challenge

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exxonmobil

The Nigerian National Petroleum Corporation (NNPC) has withdrawn its legal challenge against Exxon Mobil Corp.’s sale of its oil and gas assets to Seplat Energy Plc.

This decision eliminates a major obstacle that had stalled the completion of the $1.3 billion deal.

The NNPC submitted an application to the high court in Abuja to discontinue the case, as confirmed by its legal firm, Afe Babalola, in an email on Thursday.

This move follows an agreement reached last month between NNPC and Exxon Mobil to finalize the transaction under undisclosed terms.

However, court documents reviewed by Bloomberg reveal that NNPC retains the right to resume its legal challenge if the settlement terms are not honored.

The sale, initially signed in February 2022, still requires approvals from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), which has set an August deadline, and from Nigerian President Bola Tinubu.

The NNPC’s withdrawal significantly advances the deal but does not mark its final hurdle.

The addition of Exxon Mobil’s blocks will significantly enhance Seplat’s portfolio, almost quadrupling its output to over 130,000 barrels per day.

This acquisition is set to bolster Seplat’s status as one of the leading suppliers of domestic gas to Nigerian power plants, fortifying its influence in the region.

In a parallel development, Shell Plc’s divestment of its Nigerian onshore oil business to a consortium of local firms, valued at over $1.3 billion, also awaits regulatory approval after being announced in January.

Both deals highlight the ongoing restructuring and consolidation within Nigeria’s oil and gas industry, aimed at increasing efficiency and local participation.

As Nigeria navigates these substantial industry shifts, the successful completion of the Exxon Mobil-Seplat deal will be a critical indicator of the nation’s ability to manage large-scale energy transactions.

It will also set a precedent for future agreements and regulatory processes in the country’s vital oil and gas sector.

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