INTL FCStone 2012 Annual Report Download - page 100
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Please find page 100 of the 2012 INTL FCStone annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.INTL FCSTONE INC.Form10K84
PART II
ITEM 8 Financial Statements and Supplementary Data
In August2008, a shareholder derivative action was led against
FCStone and certain directors of FCStone in the Circuit Court
of Platte County, Missouri, alleging breaches of duciary duties,
waste of corporate assets and unjust enrichment. An amended
complaint was subsequently led in May2009 to add claims
based upon the losses sustained by FCStone arising out of a
customer’s energy trading account. On July7, 2009, the same
plainti led a motion for leave to amend the existing case to
add a purported class action claim on behalf of the holders of
FCStone common stock.
On July8, 2009, a purported shareholder class action complaint
was led against FCStone and its directors, as well as the Company
in the Circuit Court of Clay County, Missouri. e complaint
alleged that FCStone and its directors breached their duciary
duties by failing to maximize stockholder value in connection
with the contemplated acquisition of FCStone by the Company.
is complaint was subsequently consolidated with the complaint
led in the Circuit Court of Platte County, Missouri. e
plainti s subsequently led an amended consolidated complaint
which does not assert any claims against the Company. is
complaint purports to be led derivatively on FCStone and
the Company’s behalf and against certain of FCStone current
and former directors and o cers and directly against the same
individuals. e Company, FCStone, and the defendants led
motions to dismiss on multiple grounds. e parties to the
litigation reached an agreement in principle to settle this matter
during October2012. e proposed settlement will result in the
Company incurring a legal cost of $250,000 after consideration
of insurance, and is subject to approval by the court.
As previously disclosed, the Sta of the Fort Worth Regional
O ce of the Securities and Exchange Commission (the “SEC”)
had conducted a formal investigation of FCStone’s disclosures
and accounting for losses associated with the energy trading
account, which occurred prior to the Company’s acquisition of
FCStone on September30, 2009. e Company cooperated
fully with the SEC Sta in its investigation. During the quarter
ended March31, 2012, the Company was informed that the
Sta of the SEC had closed its investigation of FCStone, and
was not taking enforcement action against FCStone or any of
its current or former o cers.
In February2011, the Company’s Board of Directors formed a
special committee to conduct an independent investigation of
FCStone’s disclosures and accounting for losses associated with
the energy trading account. e Company’s Board of Directors
determined that it would be appropriate and consistent with
its governance and oversight responsibilities to form the special
committee to investigate these matters as they pertain to the
private litigation and the SEC investigation described above. e
special committee, which was comprised solely of independent
directors of the Company who were not formerly directors of
FCStone, retained an independent law rm to represent and assist
it in its investigation. e special committee was disbanded at the
Company’s November2012 meeting of the Board of Directors,
having completed its task.
In November2011, the CFTC Division of Enforcement
Sta (“Sta ”) requested the Company to voluntarily produce
speci ed documents to the Sta in connection with its then
informal investigation of the losses that occurred in the energy
trading account. On September20, 2012, the Sta provided the
Company with a Wells Notice, indicating the Sta ’s intention
to recommend that the CFTC bring certain charges against
FCStone LLC. e Company believes that the recommended
charges are not warranted, and in response to the Sta ’s Wells
Notice, the Company led its Wells Submission with the Sta
in October2012. At this time, the Company cannot predict
whether the CFTC will accept the Sta ’s recommendations
with respect to the proposed charges. e Company likewise
cannot predict the continued scope, duration or outcome of
this matter, including the amount of monetary penalty or ne,
if any, that would be assessed if the CFTC elected to pursue
enforcement action and prevailed against the Company in a
contested proceeding.
Convertible Note Holder Litigation
In November2009, an investor holding $3.7 million of the
Company’s senior subordinated convertible notes due 2011 (the
“Notes”) led a notice of motion for summary judgment on the
Company, claiming that the FCStone transaction resulted in a
change of control as de ned in the Notes; and that, as a result,
the Company should have a orded the investor the opportunity
to have the Notes redeemed at a 15% premium. e investor
also claimed default interest at the rate of 15% per annum
established in the Notes. e investor’s motion was denied in
March2010, and the investor led an amended complaint in
April2010. e remaining three holders of the Notes, holding
Notes in an aggregate amount of $13.0 million, led a similar
lawsuit on the Company in October2010.
During the year ended September30, 2011, all of the remaining
holders of the Notes converted the principal amount and
accrued interest into shares of common stock of the Company.
Subsequent to conversion, two holders of the Notes, each a
holder of $4.0 million in principal amount of the convertible
notes as of September30, 2009, persisted in their claims against
the Company. During March2012, the Company entered
into a settlement agreement with the two holders of the Notes,
pursuant to which the Company paid the plainti s the amount
of $200,000 in settlement of all claims.
Sentinel Litigation
e Company’s subsidiary, FCStone, LLC, had a portion of
its excess segregated funds invested with Sentinel Management
Group Inc. (“Sentinel”), a registered FCM and an Illinois-based
money manager that provided cash management services to other
FCMs. In August2007, Sentinel halted redemptions to customers
and sold certain of the assets it managed to an una liated third
party at a signi cant discount. On August17, 2007, subsequent