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The Morning Risk Report: SEC Probes AIG Unit on Retirement Products for Teachers
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Securities and Exchange Commission Chairman Jay Clayton has expressed concern about high-cost products in teachers’ retirement accounts. PHOTO: JACQUELYN MARTIN/ASSOCIATED PRESS
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Good morning. The Securities and Exchange Commission is investigating sales and disclosure practices at Valic, a unit of giant insurer AIG, including the company’s dealings with retirement-plan participants at school districts and universities, according to people briefed on the matter.
The inquiry centers on whether incentives in Valic’s compensation structure rewarded representatives for selling higher-cost products to retirement plan participants and whether Valic materials and representatives properly disclose the payments its representative receive on certain product sales, people familiar with the matter said. The SEC also is looking at Valic’s arrangements with school districts, in which it provides money to cover certain school expenses while also offering investment advice and products to school employees, the people said.
[Continued below...]
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The investigation into Valic appears to be part of a broad inquiry by the SEC into sales of high-cost products in retirement plans set up for schoolteachers, university employees and other public sector workers. The SEC declined to comment.
Unrelated to the SEC investigation, Jay Clayton, the chairman of the SEC, has expressed a general concern about the prevalence of high-cost investment products in teachers’ retirement accounts. “Teachers provide a tremendous service to our country,” Mr. Clayton said in a statement provided to The Wall Street Journal. “It is important that our teachers have full and fair information about fees, costs and conflicts of interest associated with their investments.”
The SEC also has requested information about the practices of companies hired by school districts to do legal and compliance work for their retirement plans. The regulator’s investigation aims to determine “if violations of the federal securities laws have occurred,” according to an SEC document reviewed by the Journal.
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More Food Companies Cite Risk of Water Shortage, Pollution
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An increasing share of food and agricultural companies are citing the possibility of a clean-water shortage as a key financial risk, according to a new report.
The report evaluated 35 publicly traded companies in the packaged food, beverage, agricultural products and meat industries. Of those, 77% disclosed water scarcity and pollution as a corporate risk factor in 2019, according to Ceres, a Boston-based nonprofit that focuses on environmental issues. That’s up from 59% in 2017.
The report cites several reasons for the heightened focus on water-related risks, including climate change, infrastructure issues and weaker environmental regulations.
—Kristin Broughton
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From Risk & Compliance Journal
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Swedbank Works to Strengthen Anti-Money-Laundering Functions
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Swedbank AB said its work to strengthen anti-money-laundering functions and improve customer knowledge continues throughout the bank.
Responding to a decision from Sweden’s financial supervisory authority on the possibility of issuing sanctions against the bank as it probes money laundering at the lender, Swedbank said its own newly established anti-financial crime unit is coordinating 132 initiatives to improve routines, system support and processes. About 71 of these are expected to be completed in the fourth quarter of 2019, it said.
General employee knowledge about anti-money laundering also has improved, Swedbank said.
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Players jump for the opening tip during the semifinals of the NCAA Final Four college men’s basketball tournament in Minneapolis earlier this year. PHOTO: MORRY GASH/ASSOCIATED PRESS
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The NCAA cleared the way for college athletes to begin profiting from their name, image and likeness, a landmark decision that could dramatically alter the economics of college sports. The move came amid growing pressure from legislators, a month after California passed a law requiring schools in the state to allow college athletes to earn endorsement money, and represents a stark shift in policy.
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U.S. senators sharply criticized the chief executive of Boeing over the company’s response to two fatal crashes of its 737 MAX airliner that investigators say were caused by a malfunctioning flight-control system. Members of the Senate Commerce Committee challenged CEO Dennis Muilenburg about Boeing’s handling of internal concerns about the design of the system, known as MCAS. Lawmakers focused in particular on an instant-message exchange in 2016—made available to federal prosecutors early this year—that shows test pilots warning of “egregious” reactions during tests of the MCAS system.
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Bayer AG said the number of plaintiffs claiming its Roundup herbicides caused cancer more than doubled to 42,700 in the past three months, adding pressure on the chemicals-to-pharmaceuticals company to resolve the legal battle that continues to eat into its market value. The spike in plaintiffs from 18,400 in early July comes as Bayer and plaintiff lawyers discuss a potential settlement. Bayer, which warned about a surge in plaintiffs earlier in October, blamed the rise on plaintiff lawyers doubling advertising spending over the period to file more cases before any settlement might be reached.
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Labor Secretary Eugene Scalia can participate in the department’s rewrite of a closely watched investment-advice rule, career government ethics attorneys said. Mr. Scalia, a former Washington lawyer, assumed the cabinet position a month ago and whether he could participate in the Labor Department’s rule-making on financial advice was an open question. He had previously handled a legal challenge to the Obama administration’s version of the regulation, known as the fiduciary rule.
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The United Nations’ atomic agency’s board picked a new leader with strong U.S. backing who has pledged to shake up the body and strictly monitor Iran’s nuclear activities. Argentine diplomat Rafael Grossi, 58 years old, is likely to be formally elected when he receives the backing of the International Atomic Energy Agency’s full membership, which is expected in the next few weeks. Mr. Grossi, who was a senior IAEA official before becoming Argentina’s ambassador to U.N. institutions in Vienna, has signaled a stricter line on Tehran.
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Uber, Lyft and other ride-share and on-demand companies in California said they would submit a ballot initiative that would alter a statewide law intending to reclassify contract workers as full-time employees. The initiative would effectively exempt Uber, Lyft and similar on-demand companies from key provisions of what is known as the gig-economy law, while also adding guarantees to ride-share workers to appease the law’s defenders.
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The European Central Bank, pictured, has more latitude in what securities it can acquire than the Federal Reserve. PHOTO: KAI PFAFFENBACH/REUTERS
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The world’s top central banks can do more to adapt their monetary policies to help mitigate climate-change risks without giving up on their other goals such as curbing inflation and boosting the economy, according to a new research paper.
Central banks can contribute based on the kinds of securities they buy in support of their stimulus efforts, said a Peterson Institute for International Economics paper written by Patrick Honohan, a fellow at the institute.
“If central banks applied to their own bond purchases the new approach to climate-related financial risk that they are pressing on private bankers, they would reduce their purchases of bonds issued by carbon-intensive firms,” Mr. Honohan wrote in the paper.
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The massive Kincade Fire blazing north of San Francisco is causing damage thousands of miles away: on Wall Street. Investors in PG&E stocks and bonds have lost about $4.1 billion in the four trading days since the blaze in Sonoma County, Calif., started late Oct. 23, according to an analysis by The Wall Street Journal. The stock has dropped 39%, cutting the utility’s market capitalization to $2.7 billion on Tuesday, from a high of $37 billion in 2017.
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A pension fund covering about 90,000 coal workers and their families is on the brink of insolvency while hundreds of these miners also face losing medical benefits, part of mounting financial stress on the larger safety net meant to protect sick or out-of-work miners.
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An Australian regulator alleges Google failed to tell users they had to switch off two account settings, not just one, if they didn’t want the company to keep their personal information. PHOTO: DAVID GRAY/REUTERS
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Google is being taken to court by an Australian regulator that alleges the internet giant misled customers about how it collected and used personal location data. Google said it intends to defend itself against the claims, filed by Australia’s competition watchdog. The regulator alleges Google failed to tell users of its Android mobile phones and tablets that they had to switch off two account settings—not just one—if they didn’t want the company to keep their personal information.
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Facebook has filed a lawsuit against Israel’s NSO Group, alleging the cybersecurity company’s software infected the phones of some users with spyware it delivered through the WhatsApp messaging platform. In the suit Facebook, which owns WhatsApp, filed in the Northern California federal district court, the company says that NSO Group’s software was behind a sophisticated campaign to hack the phones and messages of journalists, human-rights advocates and other targets chosen by its clients, which include foreign governments.
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Sen. Elizabeth Warren over the weekend in Florence, S.C. PHOTO: SEAN RAYFORD/GETTY IMAGES
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Elizabeth Warren is proposing tighter restrictions on the revolving door between government and big business. The Massachusetts senator and Democratic presidential candidate said she would prohibit large corporations and banks from hiring senior government officials for at least four years after they leave government. Her ban would apply to companies valued at more than $150 billion “that control the product or labor supply in their industry,” according to her outline of the plan. She also would apply this standard to federal contractors.
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Across Europe, job training hasn’t kept pace with demand for skilled workers such as software engineers and digital-savvy technicians. European schools that once excelled in vocational training haven’t kept up with technological changes because of spending cuts made during the economic crisis a decade ago. Since then, they have lacked political attention, funding and other resources to catch up with fast-changing industries.
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The new-generation electric Peugeot e-208, on display at the PSA Group plant in Trnava, Slovakia, in September. PHOTO: JOE KLAMAR/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Fiat Chrysler Automobiles and Peugeot maker PSA Group of France said they were in merger talks, discussions that could lead to the creation of a roughly $46 billion trans-Atlantic auto giant that would rank as the world’s fourth largest by volume.
The talks come as the world’s largest auto makers try to restructure their businesses as cost pressures mount and the global car market slows down after a period of heady growth.
Both auto makers separately confirmed talks after The Wall Street Journal reported them first on Tuesday. Neither company provided further details.
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Hot Wheels sales rose 25% in the third quarter. PHOTO: JUSTIN SULLIVAN/GETTY IMAGES
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Mattel’s chief financial officer is leaving, and the company is restating some past earnings after completing an investigation into accounting issues raised in a whistleblower letter. The investigation found shortcomings in the toy maker’s accounting and reporting procedures but concluded the actions didn’t amount to fraud.
The whistleblower letter, disclosed in August, abruptly nixed plans to raise debt at the last minute. The investigation found that Mattel understated its net loss by $109 million in the third quarter of 2017 because of an error calculating its tax valuation allowance, and then understated fourth-quarter results that year by a similar amount. The error wasn’t reported to the CEO at the time or the audit committee. The letter also questioned the independence of the lead auditor, PricewaterhouseCoopers.
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Lost production and other costs related to the UAW strike dented GM’s quarterly profit by $1 billion. PHOTO: BILL PUGLIANO/GETTY IMAGES
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General Motors lowered its full-year profit outlook, saying the 40-day strike at its U.S. factories wiped out nearly all its free cash flow for the year and will cost the Detroit auto maker close to $3 billion in lost earnings. The move came as the car company posted third-quarter results that easily surpassed analysts’ forecasts. GM shares rose 4.3% on Tuesday, a sign investors are looking past the strike to the potential for strong earnings in 2020 underpinned by a refreshed line of pickup trucks, the company’s biggest moneymakers.
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Embattled e-cigarette maker Juul Labs appointed a new chief financial officer amid a wider management shuffle. Guy Cartwright succeeds Tim Danaher, who had asked to leave the company, according to a statement issued by Juul. The change follows the hiring last month of a new chief executive, K.C. Crosthwaite. The company is preparing to cut hundreds of jobs, The Wall Street Journal previously reported, amid an investigation by the Federal Trade Commission into its marketing and a proposed U.S. ban on flavors that comprise a majority of its sales.
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Deutsche Bank's global overhaul has taken another big bite, with the German lender reporting a second consecutive quarterly loss and broad revenue declines as it exits businesses and absorbs restructuring costs. Shares in the bank were down 6.8% in Wednesday morning trading, making it the weakest performer in the Stoxx Europe 600 index. The bank reported a €832 million ($924 million) third-quarter net loss, including a €1 billion pretax loss in the new division where it has stashed businesses and positions it is selling or winding down, called the Capital Release Unit.
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