Bloomberg News

Canada Wheat Monopoly, Software Piracy, Swaps: Compliance

October 19, 2011

(Updates with commodity speculation rule in Compliance Policy; Erste, Basel Group and EU bank raid in Compliance Action; Liang and Temme in Courts; and Chilton in Interviews.)

Carla Main

Oct. 19 (Bloomberg) -- The Canadian government has given the country’s Wheat Board four years to come up with a plan to become a private company or cooperative under legislation that would end the board’s monopoly on marketing wheat and barley.

Agriculture Minister Gerry Ritz introduced the bill in Canada’s House of Commons yesterday and said the government wants it passed by the end of the year.

Since 1942, western Canadian farmers have been required to sell all their grain for human consumption to the board, under a system the government created to stabilize prices. The bill would remove that requirement by no later than Aug. 1, 2012, enabling producers to sell next year’s crops on the open market.

The Wheat Board intends to fight the government’s plans, according to Chairman Allen Oberg.

Once the bill is passed, farmers can enter into forward contracts to sell their grain to any buyer, provided the contract comes due after the monopoly ends on Aug. 1, according to an official at Agriculture and Agri-Food Canada who briefed reporters on condition of anonymity because he’s not authorized to speak publicly on the legislation.

The law requires the Wheat Board to submit a plan to the government within four years to turn itself into a corporation, co-operative or not-for-profit organization. If they fail to do so, the government can wind down the board in five years.

For more, click here.

Compliance Policy

CFTC Approves Limits on Commodity Speculation by 3-2 Vote

The Commodity Futures Trading Commission votes 3-2 to curb trading in oil, wheat, gold and other commodities after a boom in raw-material speculation, record-high prices and years of debate and delay.

The rule has been among the most controversial provisions of the Dodd-Frank financial overhaul, enacted last year, which gave the CFTC the authority to limit trading in over-the-counter commodity swaps as well as exchange-traded futures. The rule will limit the number of contracts a single firm can hold.

For the video, click here.

Losing $13.5 Billion to Piracy Spurs Europe Law Reformers

Microsoft Corp. and Adobe Systems Inc. are among software companies that lost $13.5 billion to program pirates and counterfeiters in Europe last year. They are urging lawmakers to create heavier penalties for software thieves.

As the European Union considers changes to its intellectual property rules, it needs to make sure that higher damage payments deter pirates, who often benefit because of insufficient fines, said Warren Weertman, manager of legal affairs for Washington-based Business Software Alliance. The group’s members include Microsoft, Adobe, Apple Inc. and Siemens AG.

In Europe, about 35 percent of software deployed on personal computers was pirated every year since 2007, compared with 20 percent in the U.S., according to a May study by BSA and researcher IDC.

Ben Allgrove, a partner at law firm Baker & McKenzie LLP in London, said the gap is a result of the legal challenges for copyright owners. Most EU countries lack statutory damages, which means rights holders must prove actual losses, Allgrove said in an interview.

Last year, France lost $2.6 billion in pirated software, while Germany lost $2.1 billion, Italy $1.9 billion and the U.K. $1.8 billion. The four nations were among the 10 most pirated worldwide. Across the EU, Bulgaria recorded the highest rate of software piracy in 2010 at 65 percent, while Luxembourg had the lowest at 20 percent, according to BSA.

The European Commission may make proposals on how to change the current law in the first half of 2012, said Chantal Hughes, a spokeswoman for EU Internal Markets Commissioner Michel Barnier said.

For more, click here.

CFTC Approves Rule Expanding Access to Swaps Clearinghouses

Swaps clearinghouses will be required to open access to companies with at least $50 million in capital under Dodd-Frank Act rules completed by the U.S. Commodity Futures Trading Commission.

The rule was hailed by CFTC chairman Gary Gensler as “one of the most significant rulemakings to lower risk in the financial system.”

CFTC commissioners voted 3-2 yesterday to implement governance of member-funded clearinghouses that will guarantee trades between buyers and sellers in the $601 trillion swaps market. Dodd-Frank, the financial-regulation overhaul enacted last year, included the rulemaking in the agency’s mandate after largely unregulated trades helped fuel the 2008 credit crisis.

The rules will govern clearinghouses that develop plans to cover a default by their largest member. The CFTC and other regulators may adopt separate rules for clearinghouses deemed systemically important, which would have to create plans to cover the possible default of the two largest members.

For more, click here.

EU Gets Deal on Naked Sovereign CDS Curbs, Short-Selling

The European Union reached a deal as part of a short- selling law that will pave the way for an optional ban on naked credit-default swaps on sovereign debt.

Poland, which holds the rotating presidency of the EU, and lawmakers from the European Parliament, reached the accord at a meeting in Brussels, EU spokeswoman Chantal Hughes said.

Under yesterday’s deal, traders may be prevented from buying CDS on government bonds unless they either own the sovereign debt or other assets whose price moves in tandem with it. Nations will have the right to opt out of the measure if they detect signs that it may affect their borrowing costs.

Yesterday’s deal will allow national regulators to suspend the CDS ban in their territory at the first signs that it may harm their sovereign debt market.

The opt-out clause won over some critics of possible bans.

The European Securities and Markets Authority, which coordinates national market regulators in the EU, will give a non-binding opinion on whether a national regulators’ decision to drop the ban makes sense.

While the suspensions will in theory be temporary, regulators will be able to renew them indefinitely.

For more, click here.

Compliance Action

Erste’s Treichl Probed by FMA on Swap Accounting, Guidance

Erste Group Bank AG and Chief Executive Officer Andreas Treichl are being probed by Austria’s financial supervisor over derivatives accounting and because the bank said it will post a loss less than two weeks after Treichl publicly forecast a profit.

The national supervisor is examining if the lender broke Austria’s banking law in the past by accounting for credit default Swaps off-balance sheet and at purchase prices, Klaus Grubelnik, spokesman of the watchdog agency Finanzmarktaufsicht authority, or FMA, said in a telephone interview.

The other probe concerns suspicions that Treichl manipulated markets when he said he expected a profit in an interview with Reuters on Sept. 29, Grubelnik said. Erste on Oct. 10 signaled it would report a loss this year.

Erste spokesman Michael Mauritz said the bank received questions from the FMA on the CDS accounting, adding he couldn’t confirm the other probe.

For more, click here.

Basel Group to Probe Divergent Implementations of Rule Book

The Basel Committee on Banking Supervision said it will examine possible differences in the way nations apply its capital rules.

The study, starting in early 2012, will target differences that “could raise prudential or level playing-field concerns,” the Basel group said on its website yesterday. The study will also review the measurement of risk-weighted assets “in both the banking book and the trading book to ensure consistency in practice across banks and jurisdictions.”

The committee yesterday published a report on its website showing nations’ progress toward implementing bank capital rules approved since 2004.

Banks Raided in EU Antitrust Probe Over Euribor Derivatives

European Union regulators raided banks that offer financial derivatives linked to the euro interbank offered rate, saying they were investigating possible collusion.

The European Commission said it had “concerns that the companies concerned may have violated EU antitrust rules that prohibit cartels and restrictive business practices.” It didn’t name the businesses involved.

The EU probe adds to earlier inquiries by the commission, U.K. and U.S. financial regulators into the possible breach of rules governing the Libor benchmark borrowing rate.

For more, click here.

Courts

Barclays Loses Appeal Ruling in FSA Probe of Miner’s Share Fraud

Barclays Plc failed to persuade a London court to hold Britain’s financial regulator liable for losses suffered when a gold-mining company accused of fraud had its assets at the bank frozen.

Judges at the U.K.’s Court of Appeal yesterday refused to grant an order saying the Financial Services Authority should pay for all losses resulting from an injunction freezing the Barclays accounts of Sinaloa Gold Plc.

The U.K.’s second-largest bank had argued the FSA should pay for all costs resulting from its enforcement actions, not just the expense of finding and freezing the assets. Judge Nicholas Patten disagreed, saying in a written verdict this type of order would be “a kind of blank cheque.”

The FSA is investigating Sinaloa, which explores for gold in Mexico, and trading company PH Capital Invest over the alleged sale of “worthless” shares in a boiler-room fraud, according to the appeal court judgment.

In December 2010, the FSA won an order prohibiting the sale of Sinaloa stock and freezing assets with a value of as much as 858,267 pounds ($1.3 million).

The FSA and Barclays didn’t immediately respond to requests for comment.

Hedge Fund 3 Degrees Asked to Wind Down on Diverted Assets Claim

3 Degrees Asset Management, a hedge fund that helps manage $215 million, was asked by Singapore’s central bank to shutter its operations following allegations that founder Moe Ibrahim diverted assets.

3 Degrees is trying to overturn a decision by the Monetary Authority of Singapore and the Finance Minister to withdraw its exempt fund manager status effective Nov. 9 and ask it to wind down, according to a lawsuit filed with the Singapore High Court this month. A closed hearing is scheduled for Oct. 20.

The MAS probed the Singapore-based manager after one of its funds sued Indonesian-born Agus Anwar in 2008 to recover at least $40 million in debt. Anwar then claimed that Ibrahim diverted $6.7 million from the fund to 3 Degrees, which is wholly owned by Ibrahim. 3 Degrees, which focuses on distressed debt, denied the allegations in its lawsuit.

Even if there was such a transaction, it was neither “illegal or improper,” 3 Degrees said in its court filings. The hedge fund manager said a fine would have been an appropriate punishment.

Ibrahim declined to comment on the lawsuit or the status of 3 Degrees on Oct. 17. The fund has also asked the court to prevent the announcement of the regulator’s decision, according to the lawsuit.

Attempts by Bloomberg News to reach Anwar weren’t successful.

The case is 3 Degrees Asset Management Pte v. Attorney General and Monetary Authority of Singapore, OS874/2011, Singapore High Court.

For more, click here.

FDA Chemist Liang Pleads Guilty to Insider-Trading Scheme

U.S. Food and Drug Administration chemist Cheng Yi Liang admitted using his access to the agency’s drug-approval process to make $3.8 million in an insider-trading scheme.

Liang, who worked for the FDA’s Center for Drug Evaluation and Research, pleaded guilty yesterday in federal court in Greenbelt, Maryland, to one count of securities fraud and one count of making false statements. He faces a maximum penalty on the insider-trading charge of 20 years in prison and a $5 million fine when he is sentenced on Jan. 9.

The Securities and Exchange Commission brought a parallel civil lawsuit against Liang in Greenbelt.

Liang and his son Andrew were initially charged in March with conspiracy, wire fraud and securities fraud. Andrew Liang pleaded guilty last month to possession of child pornography found in the course of the fraud investigation. He will be sentenced in December. The securities case against him was dismissed at the request of prosecutors.

Liang declined to comment after the hearing.

Liang’s lawyer, Andrew Carter, said in an interview that his client submitted a resignation letter to the FDA. Erica Jefferson, a spokeswoman for the agency, said the letter was received Sept. 9 and became effective that day.

“The FDA fully cooperated with the investigation and has begun taking steps to prevent this type of activity from happening again,” Jefferson said in an e-mailed statement.

The cases are U.S. v. Chen Yi Liang, 11-cr-0530, and U.S. v. Andrew Liang, 11-cr-00501, U.S. District Court, District of Maryland (Greenbelt).

For more, click here.

SEC Wins Asset Freeze in Alleged Mortgage Restructuring Scheme

The U.S. Securities and Exchange Commission won a court order to freeze the assets of a Texas man and his company, claiming he raised at least $35 million by falsely telling investors he was using their money to buy and restructure pools of non-performing home mortgages.

James G. Temme, who raised the money since 2008 through his firm Stewardship Fund LP, created false documents, made unauthorized financial transactions and used new customers’ funds to pay off earlier investors, the SEC said in an complaint unsealed yesterday in federal court in Texas.

Temme has been the subject of at least one state court asset freeze and private lawsuits by investor groups, the SEC said.

John Helms Jr., Temme’s attorney, said he is reviewing the SEC’s filing, and that “the SEC did not give us any notice of the motion or the hearing, so we had no opportunity to participate whatsoever.”

The SEC is seeking unspecified financial penalties and disgorgement of ill-gotten profits.

Interviews/Speeches

Reckers Says German Banks Can Boost Capital if Needed

Hans Reckers, managing director of Germany’s association of public banks, talked about capital requirements and the sovereign-debt crisis.

He spoke from Berlin with Bloomberg’s Poppy Trowbridge.

For the video, click here.

Position Limit Needed to Curb Manipulation, CFTC’s Chilton Says

Limits on the proportion of a market commodities traders can control are necessary to prevent price manipulation, Bart Chilton, a commissioner of the Commodity Futures Trading Commission, said.

“I’ve seen the manipulation of markets before,” Chilton said in an interview with Bloomberg Television yesterday.

--With assistance from Kit Chellel and Katie Linsell in London, Andrea Tan in Singapore, Andrew Mayeda in Ottawa , Jim Brunsden, Aoife White and Ben Moshinsky in Brussels, Boris Groendahl in Vienna, Silla Brush, Tom Schoenberg and Joshua Gallu in Washington and Matthew Leising in New York. Editor: Stephen Farr

To contact the reporter on this story: Carla Main in New York at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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