INTL FCStone 2012 Annual Report Download - page 40
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Please find page 40 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.Form10K24
PART I
ITEM 3 Legal Proceedings
On July 8, 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’s 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 October 2012. 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 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 September 30, 2009. e Company
cooperated fully with the SEC Sta in its investigation. During
the quarter ended March 31, 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 February 2011, 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 November 2012 meeting of the Board of Directors,
having completed its task.
In November 2011, the Commodity Futures Trading Commission
(“ 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 September 20,
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 October 2012. 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 November 2009, 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
March 2010, and the investor led an amended complaint in
April 2010. 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 October 2010.
During the year ended September 30, 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 September 30, 2009, persisted in their claims against
the Company. During March 2012, 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 August 2007, 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 August 17, 2007, subsequent
to Sentinel’s sale of certain assets, Sentinel led for bankruptcy
protection and $15.5 million of FCStone, LLC’s $21.9 million
in invested funds were returned to it.
In August 2008, the bankruptcy trustee of Sentinel led adversary
proceedings against FCStone, LLC, and a number of other FCMs
in the Bankruptcy Court for the Northern District of Illinois.
e case was subsequently reassigned to the United States District
Court, for the Northern District of Illinois. In the complaint, the
trustee is seeking avoidance of alleged transfers or withdrawals of
funds received by FCStone, LLC and other FCMs within 90 days