As public fumes, AIG says will not sue U.S. over bailout

(Reuters) - Facing anger from Congress and the American people, AIG Inc said on Wednesday it would not sue the U.S. government over terms of the company's multi-billion dollar bailout.
Insurer American International Group had been weighing whether to join a lawsuit filed by its former Chief Executive Hank Greenberg and his company Starr International, which owned 12 percent of AIG before its $182 billion rescue that started in 2008.
Greenberg claims the rescue was unfair to shareholders and that the Federal Reserve Bank of New York charged an excessive interest rate on its initial loan. He is seeking billions of dollars in damages.
AIG said its board had carried out its legal and fiduciary duty to consider joining Greenberg's lawsuit before making its decision. Greenberg has a case pending in the Court of Federal Claims in Washington, D.C., and is also appealing the dismissal of a lawsuit in the federal court in New York.
AIG's Chief Executive Bob Benmosche said in an interview with CNBC that ultimately the public had to trust the company.
"It is not acceptable socially for AIG to have taken this money and to think we can go back and sue the government," Benmosche said.
AIG said it would not pursue Starr's claims nor would it allow Starr to pursue them on AIG's behalf, setting the stage for a fresh legal fight between Greenberg and the company.
The idea that AIG might sue the government struck a raw nerve with the public, which took to the Internet to vent its anger at what it viewed as the company's audacity. The volume of AIG mentions on Twitter rose more than 50-fold on Tuesday, according to Topsy Analytics.
Starr's attorney, David Boies, said in a statement that AIG's effort to block Starr from pursuing claims was contrary to shareholders' interests.
"Whether or not the AIG Board will be successful in blocking Starr's efforts to recover damages for their shareholders will ultimately be decided the Court," Boies said.
EMOTIONS RUN HIGH
Former Obama administration adviser Austan Goolsbee said "GO SCREW YOURSELVES" in a multi-tweet tirade. Comedian Andy Borowitz drafted a mock letter from the company to taxpayers, asking for more bailout money to pay for the cost of the lawsuit. Dozens of obscene comments made descriptive references to the anatomy of Chief Executive Robert Benmosche.
And those were the gentler barbs. The New York Daily News ran an editorial cartoon in which a lifeguard saves a drowning man with "AIG" on his belly. When the lifeguard asks the man how he feels, the victim says, "Like suing you."
The vitriol was just like it had been in late 2008 and early 2009 when, with the United States deep in recession, AIG employees hid ID badges and their families were threatened amid an uproar over bonuses.
A group of congressmen led by Vermont Democrat Peter Welch sent AIG's chairman a letter late on Tuesday, advising, "Don't do it. Don't even think about it." Other members of Congress threatened hearings.
AIG took to Twitter to defend itself, saying it was legally obligated to at least consider action, but its defense mostly fell on deaf ears.
The U.S. government rescued the company from the brink of bankruptcy in September 2008 with a bailout that ultimately topped $182 billion. After a recapitalization deal closed in early 2011, the U.S. Treasury owned 92 percent of AIG.
The Treasury sold the last of that stake in mid-December 2012. The government has said it earned a return of $22.7 billion on the rescue.
AIG shares rose 0.3 percent to close at $35.76. The stock lost half its value in 2011 but then rose more than 50 percent in 2012, as it showed consistent profitability.

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U.S. launches review of Shell Arctic drilling program

WASHINGTON (Reuters) - The Interior Department will review Royal Dutch Shell's 2012 Arctic oil drilling program to assess the challenges the oil company faced and to help guide future permitting in the region.
The announcement on Tuesday follows the grounding of one of Shell's rigs off the coast of Alaska last week, the latest mishap the company has encountered as it undertakes an ambitious Arctic exploration effort.
"Exploration allows us to better comprehend the true scope of our resources in the Arctic ... but we also recognize that the unique challenges posed by the Arctic environment demand an even higher level of scrutiny," Interior Secretary Ken Salazar said in a statement.
Any changes in permitting requirements or delays due to the review could threaten Shell's drilling plans for 2013. The company faces a limited window during the summer when weather conditions and regulators will allow drilling.
Interior said it hopes to complete its "high-level" assessment within 60 days.
Also on Tuesday, the U.S. Coast Guard in Alaska ordered a special investigation into the causes of last week's grounding of Shell's Kulluk drill ship, a probe that the Coast Guard said was expected to take several months.
Known as a formal marine casualty investigation, it is convened when a shipping accident has considerable regional significance or may indicate vessel class problems, or if such an investigation is the best way to assess technical issues that may have contributed to the problem, the Coast Guard said.
Shell has spent $4.5 billion since 2005 to develop the Arctic's vast oil reserves, but the company has faced intense opposition from environmentalists and native groups, as well as regulatory and technical hurdles.
The oil company made some strides last year, actually beginning preparatory drilling in the Chukchi and Beaufort seas. But the work was far short of completing up to three wells in the Chukchi and up to two in the Beaufort, as Shell planned.
Instead, its 2012 drilling season was beset by delays due to lingering ice in the water and problems with getting a mandatory oil spill containment vessel certified by the Coast Guard.
Shell welcomed the department's review, conceding that it had experienced some challenges.
"We have already been in dialogue with the DOI on lessons learned from this season, and a high level review will help strengthen our Alaska exploration program going forward," Shell spokeswoman Kelly op de Weegh said in a statement.
Interior said it would examine the issues with Shell's containment vessel, as well as issues with Shell's two Arctic drilling rigs, the Kulluk and Noble Corp's Discoverer, which Shell has under contract there.
It was the Kulluk that broke away from tow boats and ran aground on New Year's Eve in what were described as near hurricane conditions before being towed to safety on Monday.
U.S. Senator Mark Begich, an Alaska Democrat and strong supporter of offshore Arctic drilling, called on Tuesday for a hearing to examine the Kulluk situation.
"While this incident notably involves marine transportation and not oil exploration or drilling, we must quickly answer the many questions surrounding the Kulluk grounding and improve any regulatory or operational standards as needed to ensure this type of maritime accident does not occur again," Begich said in a letter to Coast Guard Commandant Admiral Robert Papp and to Shell.
Environmentalists see the Kulluk accident as new evidence that oil companies are not ready for Arctic drilling, calling on the government to put permitting there on hold.
One group calling for a pause in permitting, conservation group Oceana, said Interior's review was a step in the right direction, but it must be "more than a paper exercise."
"The Department of the Interior, after all, is complicit in Shell's failures because it granted the approvals that allowed Shell to operate," said Michael LeVine, Pacific senior counsel at the ocean conservation group.
As for the Kulluk itself, the unified command for the accident response said it remained anchored in its bay of refuge and still showed no signs of leaks or spills. Later on Tuesday, remote operated vehicles are expected to examine the hull and divers will be called in if necessary, the statement said.

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Defense rests in trial of boy who killed neo-Nazi father

RIVERSIDE, California (Reuters) - Attorneys representing a 12-year-old California boy charged with murdering his neo-Nazi father rested their case Tuesday without calling him to testify in a case that drew attention due to the rarity of a parent being slain by a child so young.
Lawyers for Joseph Hall concede that the boy, then just 10 years old, shot his father in May 2011 at point blank range, but argue that he should not be held criminally responsible. The gun belonged to his father, Jeffrey Hall, 32.
The boy's lawyers had suggested on Monday that he might testify in his own defense before the closely watched juvenile trial in Riverside County Superior Court concludes.
But defense attorney Matthew Hardy, in resting his case, said Hall would not be taking the witness stand, clearing the way for closing arguments to begin on Wednesday. Hardy did not elaborate on the decision.
Superior Court Judge Jean Leonard said she would likely render her verdict in the case, which is being conducted without a jury, on Monday morning.
"At this point, I'm really not sure what I'm going to do. I haven't made any decisions," Leonard told the attorneys.
The case has made headlines because of the father's neo-Nazi associations and the rarity of a parent being killed by a child so young.
Kathleen Heide, a criminologist who specializes in juvenile offenders, has said that 8,000 murder victims over the past 32 years were slain by their offspring, but only 16 of those were committed by defendants aged 10 or younger.
Hardy formally withdrew a plea of not guilty by reason of insanity on Monday and said that he would ask during closing arguments that the charges against Hall be dismissed on the grounds that prosecutors had not proven the boy was culpable.
Since Hall is a minor, the purpose of the trial is not to determine guilt or innocence but whether certain allegations about his motives are true. If he is found responsible for the crime, he could be sent to a juvenile facility until he is 23.
The outcome hinges on the boy's understanding of right and wrong at the time. Defense lawyers have said the boy was conditioned by his father's violent, racist behavior and that he killed him to put an end to the physical abuse inflicted on him.
Prosecutors say Hall, who lived with four siblings, killed his father because he thought he was planning to divorce his stepmother, Krista McCary. Prosecutors said the boy was close to McCary and considered her his true mother.

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U.S. does not rule out removing all troops from Afghanistan

WASHINGTON (Reuters) - The Obama administration does not rule out a complete withdrawal of U.S. troops from Afghanistan after 2014, the White House said on Tuesday, just days before President Barack Obama is due to meet Afghan President Hamid Karzai.
The comments by U.S. Deputy National Security Adviser Ben Rhodes were the clearest signal yet that, despite initial recommendations by the top military commander in Afghanistan to keep as many as 15,000 troops in the country, Obama could opt to remove everyone, as happened in Iraq in 2011.
Asked about consideration of a so-called zero-option once the NATO combat mission ends at the end of 2014, Rhodes said: "That would be an option that we would consider."
Rhodes made clear that a decision on post-2014 troop levels is not expected for months and will be made based on two U.S. security objectives in Afghanistan - denying a safe haven to al Qaeda and ensuring Afghan forces are trained and equipped so that they, and not foreign forces, can secure the nation.
"There are, of course, many different ways of accomplishing those objectives, some of which might involve U.S. troops, some of which might not," Rhodes said, briefing reporters to preview Karzai's visit.
In Iraq, Obama decided to pull out all U.S. forces after failing in negotiations with the Iraqi government to secure immunity for any U.S. troops who would remain behind.
The Obama administration is also insisting on immunity for any U.S. troops that remain in Afghanistan, and that unsettled question will figure in this week's talks between Obama and Karzai and their aides.
"As we know from our Iraq experience, if there are no authorities granted by the sovereign state, then there's no room for a follow-on U.S. military mission," said Douglas Lute, special assistant to Obama for Afghanistan and Pakistan.
Jeffrey Dressler, an Afghanistan expert at the Washington-based Institute for the Study of War who favors keeping a larger presence in Afghanistan, questioned whether the White House comments might be part of a U.S. bargaining strategy with Kabul.
"I can't tell that they're doing that as a negotiating position ... or if it is a no-kidding option," Dressler said. "If you ask me, I don't see how zero troops is in the national security interest of the United States."
SHOULDN'T JUST "LEAVE THEM"
U.S. officials have said privately that the White House had asked for options to be developed for keeping between 3,000 and 9,000 troops in the country, a lower range than was put forward initially by General John Allen, the top U.S. and NATO commander in Afghanistan.
Allen suggested keeping between 6,000 and 15,000 troops in Afghanistan.
Retired General Stanley McChrystal, a former U.S. commander of the Afghan mission who resigned in 2010, said in an interview with Reuters on Monday there was a value to having an overt U.S. military presence in Afghanistan after 2014 - even if it wasn't large.
"The art, I would say, would be having the smallest number so that you give the impression that you are always there to help, but you're never there either as an unwelcome presence or an occupier - or any of the negatives that people might draw," he said, without commenting on any specific numbers.
The United States now has about 66,000 troops in Afghanistan and Rhodes confirmed there would be steady reductions in troop levels through 2014.
Also on the agenda for the Obama-Karzai talks are tentative reconciliation efforts involving Taliban insurgents. Those efforts have shown flickers of life after nearly 10 months of limbo.
Still, hopes for Afghan peace talks have been raised before, only to be dashed. Last March, the Taliban suspended months of quiet discussions with Washington aimed at getting the insurgents and the Karzai government to the peace table.
Washington has also had a strained relationship with Karzai, who in October accused the United States of playing a double game in his country by fighting the war in Afghan villages instead of going after those in Pakistan who support insurgents.
Karzai will give a joint press conference with Obama on Friday and will visit the Pentagon on Thursday, meeting with Defense Secretary Leon Panetta and the U.S. top military officer, General Martin Dempsey.
Still, it is unclear what, if any, concrete agreements might emerge from Karzai's visit to Washington.
Michael O'Hanlon, a defense analyst at Brookings, cautioned against expecting too much from the visit, which he said is best seen as an opportunity for Washington and Kabul to "shore up this partnership that has had such a troubled status and a weak foundation."
"There are a lot of scars in this relationship. There are a lot of hurt feelings," O'Hanlon said. "It's sort of like a bad marriage and it's very easy for just the wrong word to immediately set people off in an emotional way."

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US banks try to clean up remaining mortgage mess

WASHINGTON (AP) — U.S. banks have taken another step to clear away the wreckage of the 2008 financial crisis by agreeing to pay $8.5 billion to settle charges that they wrongfully foreclosed on millions of homeowners.
The deal announced Monday could compensate hundreds of thousands of Americans whose homes were seized because of abuses such as "robo-signing," when banks automatically signed off on foreclosures without properly reviewing documents. The agreement will also help eliminate huge potential liabilities for the banks.
But consumer advocates complained that regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families and fueled an exodus from neighborhoods across the country.
The settlement ends an independent review of loan files required under a 2011 action by regulators. Bruce Marks, CEO of the advocacy group Neighborhood Assistance Corp. of America, noted that ending the review will cut short investigations into the banks' practices.
"The question of who's to blame — the homeowners or the lenders — if you stop this investigation now, that will always be an open-ended question," Marks said.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo, will pay about $3.3 billion to homeowners to end the review of foreclosures.
The rest of the money — $5.2 billion — will be used to reduce mortgage bills and forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.
A total of 3.8 million people are eligible for payments under the deal announced by the Office of Comptroller of the Currency and the Federal Reserve. Those payments could range from a few hundred dollars to up to $125,000.
Homeowners who were wrongly denied a loan modification will be entitled to relatively small payments. By contrast, people whose homes were unfairly seized and sold would be eligible for the biggest payments.
Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time-consuming and costly and didn't reach many homeowners. Banks were paying large sums to consultants to review the files. Some questioned the independence of those consultants, who often ruled against homeowners.
The deal "represents a significant change in direction" that ensures "consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner," Thomas Curry, the comptroller of the currency, said in a statement.
But Charles Wanless, a homeowner in the Florida Panhandle, is among those who question that promise. Wanless, who is fighting foreclosure proceedings with Bank of America, says he doubts the money will benefit many who lost homes.
"Let's say they already foreclosed on me and I lost my home," said Wanless, who runs a pool cleaning business in Crestview, Fla. "What's $1,000 going to do to help me? If they took my house away wrongfully, is that going to get me my house back? I might be able to find one if I'm one of the lucky ones who gets $125,000."
Diane Thompson, a lawyer with the National Consumer Law Center, complained that the deal won't actually compensate homeowners for the actual harm they suffered.
The deal "caps (banks') liability at a total number that's less than they thought they were going to pay going in," she said.
Thompson supports the decision to make direct payments to victimized homeowners. But she said the deal will work only if it includes strong oversight and transparency provisions.
The companies involved in the settlement announced Monday also include Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The 2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage Corp.
Regulators announced the deal on the same day that Bank of America agreed to pay $11.6 billion to government-backed mortgage financier Fannie Mae to settle claims related to mortgages that soured during the housing crash.
The agreements come as U.S. banks are showing renewed signs of financial health, extending their recovery from the 2008 crisis that nearly toppled many of them. They are lending more and earning greater profits than at any time since the Great Recession began in December 2007.
Monday's foreclosure settlement doesn't close the book on the housing crisis, which caused more than 4 million foreclosures. It covers only consumers who were in foreclosure in 2009 and 2010. Some banks didn't agree to the settlement. And resolving millions of claims involving multiple banks and mortgage companies is complicated and time-consuming.
"It's going to take a few more years to get it sorted out," said Bert Ely, an independent banking consultant.
Michael Allen of Petersburg, Va., hopes to benefit from the settlement. He lost his home last month after 2½ years of trying to modify his mortgage. He had fallen behind on his payments after the plant he was working closed.
"I was working with the banks to re-modify (my loan), and I'd get to the final stages and I'd have to start over again. They didn't give me any reason. I'd call them, they'd transfer me from one person to the next. ... They just kept giving me the runaround."
Citigroup said in a statement that it was "pleased to have the matter resolved" and thinks the agreement "will provide benefits for homeowners." Citi expects to record a charge of $305 million in the fourth quarter of 2012 to cover its cash payment under the settlement. The bank expects that existing reserves will cover its $500 million share of the non-cash foreclosure aid.
Bank of America CEO Brian Moynihan said the agreements were "a significant step" in resolving the bank's remaining legacy mortgage issues while streamlining the company and reducing future expenses.
Amy Bonitatibus, spokeswoman for JPMorgan Chase, said the bank had "worked very hard" on the foreclosure review and was "pleased to have it now behind us."
U.S. Bancorp, which owns U.S. Bank, said its part of the settlement includes an $80 million payment to homeowners. That payment will reduce its fourth-quarter earnings by 3 cents per share. It has also committed $128 million in mortgage aid.
Leaders of a House oversight panel have asked regulators for a briefing on the proposed settlement. Regulators had refused to brief Congress before announcing the deal publicly.
Rep. Elijah Cummings of Maryland, the top Democrat on the House Committee on Oversight and Government Reform, said the settlement "may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered."
He complained that regulators failed to answer key questions about how the settlement was reached, who will get the money and what will happen to others who were harmed by these banks but were not included in the settlement.
The settlement is separate from a $25 billion settlement among 49 state attorneys general, federal regulators and five banks: Ally, formerly known as GMAC; Bank of America; Citigroup; JPMorgan Chase and Wells Fargo.

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Exclusive: Disney looks for cost savings, ponders layoffs - sources

LOS ANGELES (Reuters) - Walt Disney Co started an internal cost-cutting review several weeks ago that may include layoffs at its studio and other units, three people with knowledge of the effort told Reuters, in an early sign that big companies may not be finished tightening their belts.
Disney, whose empire spans TV, film, merchandise and theme parks, is exploring cutbacks in jobs it no longer needs because of improvements in technology, one of the people said.
It is also looking at redundant operations that could be eliminated following a string of major acquisitions over the past few years, said the person.
The people did not want to be identified because Disney has not disclosed the internal review.
After years of repeated and sometimes severe cost cutting in the wake of the financial crisis, by last summer it looked as though Corporate America had trimmed all the fat and was back on the path of profits through operating growth. But news Disney is weighing cuts - on the heels of Eli Lilly and Co's warning last week that cost controls would drive earnings this year - could herald yet another wave of retrenchment.
Disney executives warned in November that the rising cost of sports rights and moribund home video sales would dampen growth.
"We are constantly looking at eliminating redundancies and creating greater efficiencies, especially with the rapid rise in new technology," said Disney spokeswoman Zenia Mucha.
In terms of profit margin, Disney's studio is the least profitable of the entertainment conglomerate's four major product divisions. The studio had a profit margin of 12.3 percent in 2012.
Its fifth division, the interactive unit that creates online games, lost $758 million over the last three years, according to the company's financial filings. The unit lost $216 million last year.
Disney could trim jobs at both the studio and interactive divisions as well as its music arm, said Tony Wible, an analyst with Janney Montgomery Scott, who has a neutral rating on the company's stock.
The media company is in what CEO Bob Iger calls a "transition year" after spending on projects such as the "Cars Land" expansion at the Disneyland Resort in California and a new cruise ship that launched last year.
"We invested a lot of money in our theme parks and resorts business," Disney Chief Financial Officer Jay Rasulo told a media conference in December. "We want to execute against delivering the returns that we've been promising all of you for the years that we've been making those investments. We really want to hunker down on it."
CUTS NOT CERTAIN
Staff cuts are not a certainty at this point, the source added, although the company has a history of streamlining operations through layoffs.
In 2011, the interactive group laid off about 200 people at its video games unit after what Disney executives said at the time was a shift away from console games to focus on online and mobile entertainment. In September, 50 employees at Disney Interactive were laid off in a restructuring of the money-losing unit, according to one of the sources.
The company also made cuts at its publishing unit last year, and cut workers at its studio in 2011.
"This is not necessarily a negative thing," said Michael Morris, an analyst with Davenport and Co who has a buy recommendation on the stock but was not aware of the review.
"It speaks to a fiscally responsible management."
CORPORATE AMERICA CUTS BACK
If Disney does make some cuts, it would be the latest company to warn that costs still need to come under control.
Lilly said last week that sales this year would be flat to slightly higher, but said profit growth would exceed Wall Street estimates on the back of cost controls. In late December, book publisher Scholastic Corp said it too would look for cost savings in the current fiscal year.
Disney and Lilly are far from alone, though. Tech companies in particular are expected to have been hurt by the fourth-quarter uncertainty over the impending "fiscal cliff" of automatic tax increases and spending cuts which led corporate clients to slow or stop spending.
Congress agreed to a deal on January 1 that averted the cliff.
Fear of the cliff may have affected sales across a range of industries, further clouding the growth picture. Retailers are also expected to contend with the fallout of a lackluster holiday season, which could lead to cutbacks.
Thomson Reuters corporate earnings research analyst Greg Harrison said many of the themes that held true in 2012 -- like cost cuts that helped earnings, even as sales stalled -- were likely to carry over into this year.
"In the absence of any fresh catalysts for profits emerging, it may be reasonable to expect that current estimates for earnings growth in the low- to mid-single digits throughout 2013 may shrink, even though analysts believe that the slowest part of the earnings growth is now behind us," Harrison wrote in a preview of the fourth-quarter earnings season.
If a trend is emerging, it should begin to be clear as soon as the next two weeks, as companies start reporting 2012 results and offering up their 2013 outlooks.
STUDIO COULD BE TARGET
The present review, headed by CFO Rasulo, has already identified areas to change in the company's travel policy, said one of the sources. It is also looking at a hiring freeze rather than layoffs, said a second source.
Cuts are most likely at the studio, said two of the three sources, where the strategy has changed to focus on fewer films and rely more on outside producers such as Steven Spielberg's DreamWorks studio, which finances its own films and pays Disney a fee to market and distribute them.
The film strategy shift began when Iger took over as CEO in late 2005. Under Iger, the company purchased "Toy Story" creator Pixar Animation and Marvel, which brought it characters such as "Thor" and "Iron Man" that featured in this summer's blockbuster hit "The Avengers."
Disney completed a $4.06 billion acquisition of "Star Wars" creator George Lucas' Lucasfilm in December, and has said that it will begin producing new installments of the lucrative franchise in 2015, and make a film every two to three years.
Shares in the company fell 2.3 percent on Monday to close at $50.97, sharply underperforming broader markets.

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Exclusive: SEC probes Ernst & Young over audit client lobbying

WASHINGTON/NEW YORK (Reuters) - The Securities and Exchange Commission is investigating whether auditing company Ernst & Young violated auditor rules by letting its lobbying unit perform work for several major audit clients, people familiar with the matter told Reuters.
The SEC inquiry began shortly after Reuters reported in March 2012 that Washington Council Ernst & Young, the E&Y unit, was registered as a lobbyist for several corporate audit clients including Amgen Inc, CVS Caremark Corp and Verizon Communications Inc [ID:nL2E8DL649], according to one of the sources.
The SEC's enforcement division and its Office of the Chief Accountant are looking in to the issue, according to the two sources, who spoke in recent days and who could not be named because the investigation is not public.
It is unclear how far along the probe is, or whether it could result in the SEC filing civil charges against Ernst & Young, one of the world's largest audit and accounting firms.
An SEC spokesman declined to comment.
Ernst & Young spokeswoman Amy Call Well declined to comment on whether the company was being investigated. "All of our services for audit clients undergo considerable scrutiny to confirm they are consistent with applicable rules," she said.
U.S. independence rules bar auditors from serving in an "advocacy role" for audit clients. The goal is to allow auditors to maintain some degree of objectivity regarding the companies they audit, based on the idea that auditors are watchdogs for investors and should not be promoting management's interests.
The SEC's rule does not definitively say whether lobbying could compromise an auditor's independence. It is more focused on barring legal advocacy, such as expert witness testimony.
In interviews last year, former SEC Chief Accountant Jim Kroeker told Reuters that certain lobbying activities could potentially be covered under the general prohibition on advocacy. Kroeker is now an executive at Deloitte, a rival of Ernst & Young.
'ABUNDANTLY CLEAR' LINE
Harvard Business School Professor Max Bazerman said on Monday that it was "abundantly clear" that a firm that is lobbying for a company is no longer capable of independently auditing that company.
Ernst & Young has previously said it complied with independence rules. It also said that it did not act in an advocacy role and that the work performed by its lobbying unit was limited to tax issues.
Tax consulting is a permissible activity under auditor independence rules if it does not involve public advocacy.
About two months after publication of the Reuters story, federal records showed Washington Council Ernst & Young was no longer registered as a lobbyist for Amgen, CVS Caremark or Verizon Communications.
A spokesman for Amgen did not immediately respond to calls seeking comment. Verizon and CVS spokesmen declined to comment.
Ernst & Young also terminated a lobbying relationship with a fourth company, Nomura Holdings Inc, which also used an E&Y affiliate for auditing services.
Obtaining an independent view on the books is the main reason companies are required to hire outside auditors, said Richard Kaplan, law professor at the University of Illinois.
Ernst & Young was suspended in 2004 from accepting new public company audit clients for six months because of alleged violations of independence rules. The suspension stemmed from a joint venture that Ernst had in the 1990s with business software provider PeopleSoft, now part of Oracle Corp, when Ernst was also auditing PeopleSoft's books.
An SEC administrative law judge ordered Ernst & Young to give back $1.7 million in audit fees and issued a cease-and- desist order against future independence violations.

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US drone strike in Pakistan kills influential Taliban commander

Key Pakistani Taliban commander Maulvi Nazir – considered a "good" Taliban by some among the Pakistani military – died in a US drone strike that left at least six dead on Thursday, according to local reports.
According to Pakistan's Dawn newspaper, Taliban and local government officials confirm that Mr. Nazir and at least two of his deputies were killed when a US drone hit their vehicle in South Waziristan, a Pakistani tribal region along the Afghan border. The commander's truck had reportedly broken down at the time.
The Guardian notes that neither the Pakistani government nor the Taliban has made an official statement on the reports, and that details remain murky.
Because journalists are usually prevented by militants from visiting places hit by drones, the exact details of what happened and who was killed in such attacks are often extremely hard to verify.
Residents and an intelligence official in South Waziristan who spoke to a local journalist said the total number of people killed in the first attack was either six or 10. The intelligence source said all the men killed were "top leaders" of the Mullah Nazir group, the leading militant group in South Waziristan.
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Maulvi Nazir was the primary militant commander in South Waziristan and a key figure in Pakistan's Taliban, having maintained a complex set of relationships among the region's players.
Unlike some of Pakistan's domestic militants, Nazir chose to focus his efforts fully on Afghanistan and the NATO and US forces stationed there, and according to the US “had a clear collaboration” with Afghanistan's powerful Haqqani network, a primary foe of US and NATO troops in Afghanistan. The Washington Post notes that he was accused of regularly sending troops into Afghanistan to fight alongside the country's own Taliban against the US-led forces there.
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His Afghan focus on targeting foreign troops earned him a reputation with parts of the Pakistani military as a "good" Taliban, and he negotiated a deal with the Islamabad to stay out of its battle with domestic militants in the region. His militants have also aided Pakistani troops in attacking members of Tehrik-e-Taliban Pakistan (TTP), an anti-Islamabad faction of the Taliban.
But that also earned him the hostility of some of his domestic Taliban peers. Nazir was wounded in November during a suicide attack on his convoy. Rival Taliban commanders were believed to have been behind the attack, which was said to have caused some fracturing of the Pakistani Taliban in the region.
Security analyst Imtiaz Gul told the Guardian that Nazir's death will likely be welcomed by both the US and Pakistan – despite the latter's peace deal with the late militant.
"Both the US and Pakistan will be happy because they now have one less enemy," he said. "Although he was in an undeclared peace deal with the government, he was also subverting the stated goals of that agreement by providing support and shelter to al-Qaida people whose leaders have pleaded with the rank and file of the Pakistani army to rebel against the state.

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Russia plans biggest war games since Soviet era

The Russian navy has announced that it will hold its biggest war games since Soviet times in the Mediterranean and Black seas later this month.
The ambitious exercises, which will involve ships from all four major Russian fleets, are a sign of growing confidence on the part of Russia's military as it begins to enjoy the benefits of President Vladimir Putin's huge budget allocations for renewing and re-equipping all branches of the armed forces.
The purpose of the war games will be to strengthen integration between different types of forces and gain practice with major military deployments outside Russia's immediate neighborhood, the Defense Ministry said in a statement Tuesday.
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As part of the maneuvers, naval ships will arrive at an "unprepared" coast in the Russian northern Caucasus region to take amphibious troops onto transport vessels.
"The primary goal of the exercise is to train issues regarding formation of a battle group consisting of troops of different branches outside of the Russian Federation, planning its deployment and managing a coordinated action of a joint Navy group in accordance with a common plan," the ministry's statement said.
The participating ships, it said, will be drawn from all of Russia's four major naval formations: the Northern, Baltic, Pacific, and Black Sea fleets.
Some experts suggest the war games may be cover for an increasingly nervous Moscow's preparations to evacuate Russian citizens and their dependents from war-torn Syria.
About 9,000 Russians are registered with the Russian embassy in Damascus, but some experts say the full number may be 30,000 or more. Over the nearly half a century that Moscow has enjoyed good relations with Syria, thousands of Russian women have married Syrian men and moved to the country. Many of them may urgently demand to return with their children to Russia if the situation turns critical.
This week the Russian navy refreshed a fleet, including several huge amphibious assault ships capable of carrying thousands of people, which it had deployed to the eastern Mediterranean last summer.
Experts say the replacement fleet dispatched this week is of similar makeup, with at least five huge troop-transport ships at its core.
As part of Russia's 8-year, $659-billion rearmament program, the navy is slated to receive 50 new warships by 2016, including new Borey-class nuclear-powered ballistic-missile submarines – the third of which entered service last weekend – 18 major surface warships, and dozens of special purpose and support vessels.

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Taiwan undersea oil plans raise neighbors' eyebrows

Taiwan, a normally quiet claimant to portions of the disputed South China Sea, plans to explore for undersea oil there, a move likely to test fragile relations with China and upset major Southeast Asian nations.
Ringed by China, Vietnam, the Philippines, Indonesia and others, the waters are believed to hold as many as 213 billion barrels of oil but competing claims from the six bordering nations have fueled tensions, prompting US officials to step in last year to urge calm.
Taiwan’s Bureau of Mines and its top energy company plan to explore this year for some of that oil near an islet that the government holds in the Spratly archipelago, a spokesman for the company said.
Taiwan’s search for oil would remind five competing nations that it still has clout, despite old foe China. The more powerful Beijing forbids its allies around Asia from talking to Taipei and has its own ambitions in the disputed 3.5 million-square-kilometer (1.4 million-square-mile) sea.
“Taiwan seems to be seeking ways to remind other nations of its sovereignty claims,” says Bonnie Glaser, senior Asia adviser with the Washington-based think tank Center for Strategic and International Studies. “Taiwan doesn’t want to be ignored or forgotten.”
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China has considered self-ruled Taiwan part of its territory since the Chinese civil war of the 1940s, chilling ties until 2008 when the two sides put aside political differences to discuss trade and economic links.
But new incidents have challenged the fragile détente, and Taiwan is already angry about last year’s Chinese passports that claim two Taiwanese landmarks. Oil could be next, as Taiwan says it has no plans to share its search with China.
Vietnam and the Philippines also staked claims in the sea. Vessels from China and the Philippines were locked in a standoff last year, and 70 Vietnamese sailors died in a clash in 1988.
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But even as both countries periodically make what's thought of as aggressive moves in the region, both would stop short of forcing Taiwan out from the waters near Spratly where it already has an airstrip, analysts say. Too much bluster might push Taiwan closer to China, which wants more economic ties with Taiwan and which Southeast Asian claimants see as a bigger threat to their maritime interests.
“Lacking much naval power, Manila would have a hard time actually physically preventing any oil exploration by Taiwan,” says Scott Harold, associate political scientist at the RAND Corp., a policy research nonprofit in the United States.
“Hanoi would have a better prospect of reacting militarily, but any stand-off would potentially put them on the wrong side of both Washington and Beijing,” he says.
But much of the oil is already spoken for. China’s state-owned CNOOC Ltd. began drilling undersea last year, and its peer in Hanoi, PetroVietnam, has started surveying. The Philippines is also contracting out other exploration tracts.
Fellow claimant Malaysia currently produces about half the South China Sea’s oil, which is estimated at 1.3 million barrels per day. Brunei also claims parts of the ocean.
Taiwan’s Bureau of Mines will draw up a budget this year and hire CPC Corp. Taiwan to look for oil, CPC spokesman Chen Ming-hui says. Officials told parliament that exploration would cost at least $562,000.
Taiwan needs the oil as 99 percent of energy sources are now imported, Mr. Chen says. “The South China Sea is a place where Vietnam and others have sighted oil, so we think the opportunities there are good,” he says.

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