Legg Mason (LM - Free Report) announced that it has entered into a non-prosecution agreement with the U.S. Department of Justice (“DOJ”) and has agreed to pay about $64 million for settlement of allegations related to Libyan bribery case.
Brief on the Fraud
In the period between 2004 and 2010, Legg Mason through its subsidiary, Permal Group Ltd., is said to have partnered with Societe Generale (SCGLY - Free Report) in order to obtain business in Libya. Both the companies paid bribes through a Libyan broker on the 14 investments made by the government entities, for which a commission of 1.5-3% of the nominal amount of the investments was paid to him.
Of the 14 cases, Legg Mason benefitted from seven such transactions, from which it earned profits of about $31.6 million. Middle and lower level employees of Permal are expected to have been involved in the fraud.
The regulator noted that the Legg Mason had no direct connection with the broker and pocketed much less profits compared with Societe Generale.
Legg Mason is expected to pay a penalty of $32.6 million within five days of agreement to the U.S. Treasury along with disgorgement of $31 million, which will be credited against disgorgement paid to other law enforcement authorities within the first year of the agreement.
As part of the non-prosecution agreement, Legg Mason has agreed to continue cooperating with the DOJ in any ongoing investigations and prosecutions. The company promised to develop its compliance program and to inform the regulator on the implementation of its enhanced compliance program.
The Maryland-based investment management firm expects the aggregate amount of settlements with the DOJ and the Securities and Exchange Commission to be nearly $71 million.
On the other hand, Societe Generale is expected to pay about $1.3 billion to resolve the allegations, as it gained the most from the scandal and was found responsible for originating and leading the fraud.
Legg Mason’s clean image remains at its advantage. Also, it remains committed to improving performance through inorganic growth strategies. Further, the company's focus on expanding product offerings for its customers bode well for the long term.
Shares of the company have lost around 6.4% over the past six months, compared with 1.8% decline recorded by the industry.
Legg Mason currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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