Bloomberg News

United Commercial Bank, Hedge Funds, EU Rules: Compliance

October 21, 2011

(Updates Deutsche Boerse in Compliance Action section and adds Bank of America in Compliance Action and Card Fees in Speeches and Interviews.)

Oct. 21 (Bloomberg) -- JPMorgan Chase & Co. disclosed $1.3 billion of new expenses tied to faulty mortgages and foreclosures in its third quarter, pushing the bill for the five biggest home lenders since 2007 to almost $69 billion.

JPMorgan, the biggest U.S. bank by assets, set aside $314 million for buying back defective loans and incurred $1 billion in litigation costs caused mostly by mortgages, according to its Oct. 13 report. That brought the New York-based bank’s total to at least $17.6 billion, according to data compiled by Bloomberg.

Cost are mounting as borrowers, investors and states accuse banks of sloppy lending and improper foreclosures. The total may top $120 billion because mortgage buyers such as Fannie Mae are becoming more aggressive, said Paul Miller, the FBR Capital Markets & Co. analyst, and claims are spreading to loans written after banks said they reformed their practices.

“This is still far from over,” said Neil Barofsky, former inspector general for the U.S. Troubled Asset Relief Program. “These numbers are very high to begin with, but this is now an enormous overhang on the industry, and it’s well deserved. Sooner or later the banks will pay the price for their behavior.”

For more, click here.

Compliance Action

Failed Bank’s Shabudin, Yu Plead Not Guilty in Fraud Case

Former United Commercial Bank executives Ebrahim Shabudin and Thomas Yu pleaded not guilty to hiding loan losses from auditors and investors in the failed San Francisco-based bank.

Federal prosecutors had charged Shabudin, a former chief credit officer, and Yu, a former credit risk manager, with six counts on Sept. 15. The U.S. Securities and Exchange Commission also sued the pair, along with Thomas Wu, the bank’s former chief executive officer, accusing them of hiding $65 million in loan losses before the bank collapsed.

Shabudin and Yu were the first senior bank officials charged with fraud at a financial institution that got money from the government’s Troubled Assets Relief Program, known as TARP. United Commercial received $298 million from TARP in November 2008.

According to the government, in September 2008 Yu and Shabudin began manipulating books and records to conceal nonperforming loans and avoid publicly reporting losses from bad loans. The executives hid the fact that loan collateral and repossessed property had declined in value, the government said. Their conduct allegedly caused the bank to issue false and misleading information through a press release, an earnings call and its annual report in early 2009.

The bank failed in November 2009 and the failure is estimated to have cost the Federal Deposit Insurance Corp.’s insurance fund $2.5 billion, the SEC said in its complaint. No TARP funds have been repaid.

United Commercial was one of the 10 biggest bank failures to result from the 2008 credit crisis, the SEC said.

Shabudin and Yu were released yesterday after the judge ordered them each to post a $500,000 property bond. The next court hearing is scheduled for Nov. 4.

The criminal case is U.S. v Shabudin, 3:11-cr-00664, U.S. District Court, Northern District of California (San Francisco). The SEC case is Securities and Exchange Commission v. Wu, 4:11- cv-04988, U.S. District Court, Northern District of California (Oakland).

SAC Says Cougar Investment Was Based on Public Information

SAC Capital Advisors LP, the $14 billion hedge fund run by Steven A. Cohen reportedly under investigation for insider trading, said its investment in Cougar Biotechnology Inc. before Johnson & Johnson bought the company in 2009 was “perfectly reasonable” and based on publicly available information.

“We have not been contacted by any regulatory authority related to this matter, but we would of course cooperate should there be an inquiry,” Jonathan Gasthalter, a spokesman for the Stamford, Connecticut-based firm, said in an e-mailed statement yesterday.

The U.S. Securities and Exchange Commission is examining trades in Cougar by SAC and other hedge funds to determine if they profited from inside information of the takeover, the Wall Street Journal reported yesterday, citing people familiar with the matter.

SAC Capital, which hasn’t been charged with any wrongdoing, bought 400 shares in Los Angeles-based Cougar in the fourth quarter of 2007 and built up its stake to 632,291 shares by the first quarter of 2009, according to government filings. Cougar was bought by New Brunswick, New Jersey-based J&J in July of that year.

Cougar was subject to speculation that it would be a takeover target since at least November 2008 when Merger Market, a Web-based news service, said that it may be bought.

The SEC is investigating whether Leerink Swann LLC, a Boston-based investment bank that runs an expert-network consulting firm, leaked nonpublic information to traders, the Journal said. Such firms connect investors with industry professionals. Joseph Gentile, a spokesman for Leerink, wasn’t immediately available for comment.

Ex-UBS Trader Falsified ETF Transactions, Prosecutor Says

Kweku Adoboli, the trader accused of costing UBS AG $2.3 billion by making unauthorized trades, falsified records on exchange-traded-fund transactions, prosecutors said.

Prosecutors amended two of the four charges against Adoboli to indicate that records he allegedly falsified were on ETF trades. A London magistrates court yesterday transferred the case against the 31-year-old to a criminal court where he will be expected to enter a plea on the accusations at a Nov. 22 hearing.

The charges, which also include two counts of fraud and date back to 2008, cover “a large number of transactions,” prosecutor David Williams said at the hearing yesterday. “He exposed the bank to risk of large losses.”

Adoboli has been in custody since his arrest on Sept. 15, when UBS asked the City of London police to detain him after he reported the losses. He was charged two days later with fraud and false accounting. The trading loss prosecutors claim he was responsible for led to the departures of Chief Executive Officer Oswald Gruebel and the co-heads of the Swiss bank’s global equities business. Adoboli was fired by the bank on Sept. 17, Williams said.

ETFs are exchange-listed products that mirror indexes, commodities, bonds and currencies and allow investors to buy and sell them like stocks.

Adoboli, who holds a Ghanaian passport, appeared before a panel of three judges yesterday and his lawyer Patrick Gibbs said he wouldn’t indicate how his client planned to plead. He said through his lawyer at a hearing last month he was “sorry beyond words” for his “disastrous miscalculations.”

The bank said earlier this month that it expects a “modest” third-quarter profit as gains from wider credit spreads and the sale of bonds helped cushion the $2.3 billion loss. UBS had said last month it may be unprofitable after discovering the unauthorized trades. The bank is due to report third-quarter earnings on Oct. 25.

For more, click here.

Ex-Louis Berger Group President Charged With False Claims

The former president and chief executive officer of Louis Berger Group Inc., a New Jersey engineering consulting firm, was charged with overbilling the U.S. government on overseas reconstruction projects.

Derish Wolff, 76, was accused of conspiring to defraud the U.S. Agency for International Development by inflating overhead and other indirect costs over almost two decades on hundreds of millions of dollars in contracts in Iraq and Afghanistan. He surrendered yesterday to the Federal Bureau of Investigation in Newark, New Jersey.

“During decades at the helm of a company entrusted with the rebuilding of battle-scarred nations Derish Wolff focused on profits over progress,” U.S. Attorney Paul Fishman said in a statement. “Wolff allegedly used his position to lead others in the scheme, setting targets that could be reached only through fraud.”

The indictment follows an agreement by the company last November to pay $69.3 million to resolve criminal and civil probes related to overbilling for reconstruction contracts in Iraq and Afghanistan and other work. Two former executives also pleaded guilty at that time in federal court in Newark.

Wolff was charged with conspiring with Salvatore Pepe, the former chief financial officer, and Precy Pellettieri, the former controller, who admitted to conspiring to defraud USAID. The Wolff indictment, unsealed yesterday, doesn’t specify a specific amount of loss by the government.

Wolff, a resident of Miami and Bernardsville, New Jersey, appeared in federal court in Newark, where he was released on $1 million bail. He faces as long as 10 years in prison on the conspiracy charge and five years on each of five counts of filing false claims.

“Mr. Wolff intends to plead not guilty because he is not guilty, and he looks forward to establishing it in court,” his attorney, Herbert Stern, said in a phone interview.

The case is U.S. v. Wolff, U.S. District Court, District of New Jersey (Newark).

Ex-Le-Nature’s Chief Executive Officer Sentenced to 20 Years

Former Le-Nature’s Inc. Chief Executive Officer Gregory J. Podlucky was sentenced to 20 years in prison for fraud, tax evasion and money-laundering related to the 2006 collapse of the bottled-water company.

Podlucky was the mastermind behind a scheme that cost lenders, shareholders and others, $684.5 million, Assistant U.S. Attorney James Y. Garrett said in court papers filed yesterday. Podlucky was sentenced yesterday in U.S. District Court in Pittsburgh to the maximum allowed under a plea agreement, Garrett said in an interview.

“Whether or not defendant’s conduct should be deplored as evil, the ingenuity, industry and magnitude of his extraordinary crimes are plain to see,” Garrett said in court papers.

Podlucky’s brother Jonathan and at least three other Le- Nature’s employees also pleaded guilty to charges related to the fraud, according to court papers.

Alexander H. Lindsay Jr., Podlucky’s attorney, didn’t immediately return a call for comment on the sentence.

Some of the money was used to buy gems, watches and toy trains, which investigators found in a secret room at the company’s Latrobe, Pennsylvania, bottling plant, according to court records.

Le-Nature’s filed for bankruptcy in 2006 and was liquidated.

The case is U.S. v. Podlucky, 2:09-cr-00279, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

New York Man Admits to Running $6 Million Boiler-Room Scheme

A New York man pleaded guilty to running a boiler-room operation in Brooklyn that swindled customers out of more than $6 million.

Alan Labiner, also known as Alan Labineri and David Alan Labiner, entered his plea yesterday before U.S. District Judge Brian M. Cogan in Brooklyn. He previously pleaded not guilty.

Labiner, 52, and Ahmed Awan, 38, controlled a supposed public-relations firm that marketed fraudulent securities in nonpublic companies over the phone, according to the indictment. Two men who worked for them, Khurram Tanwir and Christopher Posteraro, were also charged in the case. Tanwir, 34, pleaded guilty in March. Awan and Posteraro, 42, are scheduled to change their not-guilty pleas next week.

“The offering memoranda contained numerous misstatements about the entities and their business,” Labiner told Cogan.

His lawyer, Michael Rosen, declined to comment after the hearing.

The case is U.S. v. Labiner, 09-cv-807, U.S. District Court, Eastern District of New York (Brooklyn).

Bats Merger With Chi-X Wins Provisional U.K. Antitrust Clearance

Bats Global Markets Inc.’s acquisition of Chi-X Europe Ltd., the region’s biggest alternative trading system, was provisionally cleared by U.K. antitrust regulators, who said sufficient competition remains.

Customers of both exchanges will still have the power to prevent the merged companies from raising trading fees by threatening to take their business to competitors, the U.K. Competition Commission said yesterday.

“The customers of both these exchanges are in a particularly powerful position to combat any attempt by the merged company to raise trading fees, reduce service quality or otherwise exploit any loss of competition,” said Malcolm Nicholson, chairman of the regulator’s inquiry group.

Chi-X Europe, founded in March 2007 and owned by banks and brokers, has been in talks to be acquired by Bats, the operator of the second-largest alternative trading system in Europe. The merger was referred to the Competition Commission in June and the regulator is due to issue a final report by Dec. 2. It was the first alternative trading platform in Europe to compete with traditional exchanges such as LSE and Deutsche Boerse by offering lower fees and faster trading.

The trading platform is partly owned by Instinet LLC, a New York-based unit of Nomura Holdings Inc., and by investment banks and traders including Credit Suisse Group AG, Getco LLC, Bank of America Corp., Citigroup Inc. and Morgan Stanley. Bats is owned by Bank of America, Citigroup, Getco, Credit Suisse and Morgan Stanley, among others.

Deutsche Boerse Says It Requested Extension of EU Review

Deutsche Boerse AG sought an extension of the European Union’s review of its plan to combine with NYSE Euronext in order to better respond to regulators’ competition objections to the deal.

Deutsche Boerse said it needed more time to analyze the European Commission’s charge sheet, or statement of objections, and prepare a response. The commission, the 27-nation EU’s antitrust regulator, set a new deadline of Dec. 22 to complete its review of the deal, according to its website today.

“Given the complex issues involved and our desire to provide a full and comprehensive response to the commission, we have asked for and received seven additional working days to provide our submission,” Frank Herkenhoff, a spokesman for Deutsche Boerse, said in a phone interview today.

The request comes with Deutsche Boerse and NYSE Euronext scheduled to give reasons why their deal should be completed at an EU hearing on Oct. 27 and 28 in Brussels, according to two people, who declined to be identified because the hearing is private. The companies will address allegations listed in an EU statement of objections this month that the merger would harm competition for derivatives trading, clearing and index licensing, three people familiar with the review said last week.

EU regulators are probing the merger, which would put more than 90 percent of the region’s exchange-traded-derivatives market and about 30 percent of European stock trading in the hands of one organization. The regulator has cited concerns over reduced innovation in derivatives products and technology.

Herkenhoff declined to comment on the hearing dates. Amelia Torres, a spokeswoman for the commission, declined to comment on the review process.

The European Commission can require companies to change their behavior or to sell off units to eliminate possible competition concerns.

BofA Said to Get Subpoena From California’s Attorney General

Bank of America Corp. was given a subpoena by California’s attorney general for information related to the packaging and sale of mortgage-backed securities, a person familiar with the matter said.

The subpoena, delivered Oct. 18, involves mortgage securitization by the Charlotte, North Carolina-based bank and its Countrywide Financial unit, said the person, who wasn’t authorized to speak and didn’t want to be identified

The subpoena follows a decision by California Attorney General Kamala Harris to withdraw from talks among state officials, the U.S. Justice Department and the five largest mortgage servicers.

The attorneys general of all 50 states last year announced they were investigating the foreclosure practices of banks following disclosures that faulty documents were being used to seize homes. A group of attorneys general and federal officials are negotiating a settlement with the lenders, which also include JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc.

Several attorneys general are conducting their own investigations of bank mortgage practices and have raised concerns about the scope of the releases that would be included in any agreement.

Shum Preston, a spokesman for Harris, declined to comment yesterday on the subpoena. Lawrence Grayson, a Bank of America spokesman, also declined to comment on it. News about the subpoena was first reported in the Los Angeles Times.

Compliance Policy

U.S. Should Ease Compliance Rules to Boost IPOs, Task Force Says

U.S. regulators should ease disclosure requirements for smaller companies attempting initial public offerings to reduce the cost of going public and encourage more IPOs, an independent task force said.

Allowing companies with annual revenue of less than $1 billion to reach compliance gradually could reduce their costs by as much as half, said the group, which has briefed the U.S. Treasury Department, Securities and Exchange Commission, and Congress.

The group, which includes venture capitalists, entrepreneurs, attorneys, investors and investment bankers, is proposing regulatory changes it says will decrease company costs and encourage more transparency. The number of IPOs raising less than $50 million has decreased dramatically since 1999 because the costs of compliance discourage small companies from going public and a lack of equity research discourages buyers, said Kate Mitchell, the task force’s chairman.

“Emerging growth companies have really been squeezed out of the IPO market,” Mitchell, a managing director at Foster City, California-based Scale Venture Partners, said Oct. 19 on a conference call with reporters. “CEOs hesitate to invest this kind of money in the face of uncertain success.”

The average cost of going public for a company is $2.5 million, with an additional annual cost of $1.5 million to meet compliance requirements for staying public, Mitchell said.

Members of the task force include Paul Deninger, senior managing director at Evercore Partners Inc.; Karey Barker, a managing director at Wasatch Advisors Inc.; and Magid Abraham, chief executive officer of ComScore Inc.

EU Weighs Credit-Ratings Bans for Nations Getting Bailouts

The European Union may ban credit-ratings companies from making assessments of nations receiving European or international bailouts as part of plans for tougher regulation of the industry.

“We are actively considering suspending or banning ratings” in cases where nations are making “full efforts” to implement assistance programs, Michel Barnier, the EU’s financial services commissioner, told reporters in Brussels yesterday. The measure may be included in a draft law that Barnier will present in November.

The EU may also force the companies to disclose the internal analyses they use when they decide to cut a government’s rating, according to Barnier, who said that he wanted to ensure “there is a clear method” behind such downgrades.

EU governments have criticized decisions by ratings companies to downgrade Greek, Irish and Portuguese sovereign debt even though the countries are receiving international assistance, saying that the decisions are unjustified and exacerbate the region’s fiscal crisis.

The European Commission said that a four-level cut of Portugal’s credit rating in July by Moody’s Investors Service added “an additional element of uncertainty” to the country’s situation.

“Based on news reports” the commission’s planned measures “appear to include allowing regulators to interfere with credit-rating agencies’ views and even forbidding CRAs to publish sovereign ratings,” Daniel Piels, a spokesman for Moody’s said in a phone interview.

“Proposals such as these will undermine investors’ confidence in European credits, disrupt access to capital markets for sovereign and corporate issuers and increase volatility in the European credit market,” Piels said.

Barnier said yesterday the plans “are not final” and that a decision still has to be taken on them by the commission. They would then need to be approved by national governments in the EU and the European Parliament before they can take effect.

Barnier said last week the measures are likely to include ways to increase diversity in the ratings market without creating a new European ratings company.

EU Targets Commodities, High-Frequency Trading in Market Law

The European Union is seeking limits on commodities derivatives and curbs on high-frequency trading as part of proposals to overhaul the region’s financial-market rules.

The plans, announced yesterday, are aimed at reducing market volatility, increasing regulatory oversight and promoting competition. Specific measures include requiring trading venues to either cap the number of commodity-derivative contracts that traders can enter into, or enforce “alternative arrangements” with the same effect. The plans also include a crackdown on so- called dark pools.

“The crisis serves as a grim reminder of how complex and opaque some financial activities and products have become,” Michel Barnier, the European commissioner responsible for the proposals, said in an e-mailed statement from Brussels yesterday. The plans “will help lead to better, safer and more open financial markets.”

French President Nicolas Sarkozy has demanded steps to curb commodity derivatives speculation, which he blames for driving up world food prices. He has made the issue a priority of France’s presidency this year of the Group of 20 nations. The Institute of International Finance, an association representing global lenders, said last month that there was “little convincing evidence linking financial investment with trends in commodity prices and volatility.”

For more, click here.

Health Rules Prod U.S. Hospitals to Form Networks for Care

Hospital chains such as Community Health Systems Inc. may get as much as $1.9 billion in bonuses by forming joint ventures to improve care and cut medical costs under regulations released by the Obama administration.

The U.S. Department of Health and Human Services issued final rules yesterday for so-called accountable care organizations for the elderly and disabled, a centerpiece of the health-care law designed to save as much as $940 million in three years. Savings would be shared between providers and the government.

Participants can keep more savings after reaching targets, and will need to meet about half as many quality measures as first outlined in March. The delayed rule marks a victory for hospitals, clinics and large doctors’ practices that have lobbied to alter draft regulations they viewed as too burdensome and financially risky.

“We heard loud and clear that the proposed rules didn’t create a strong business case, and we felt those comments were credible,” said Jonathan Blum, director of Medicare. “We’ve worked hard to adjust the financial model.”

The government projected as many as 270 organizations would participate in the program aiming to coordinate care for large groups of Medicare patients. The government said in its regulatory filing that it “made significant modifications to reduce burden and cost” for participants, including increased potential bonuses and letting hospitals and doctors participate without risk of financial loss.

“The new rule is an easier pill to swallow, but still difficult for most systems to fully digest,” said Dan Mendelson, chief executive officer of Avalere Health LLC. “ACOs will get to keep more of the upside profits from effective cost control -- including savings from reduced re-hospitalizations -- and there are fewer quality metrics and many of the industry’s legal concerns appear to have been addressed.”

Taxpayers may lose money on the program. The government said in its regulatory filing that in “extreme scenarios,” the effort could cost Medicare as much as $1.1 billion in its first three years, or yield as much as $2 billion in savings.

Physician-owned groups and rural providers will also be able to get $3.5 million in financial support to make upfront investments in information technology and staff. The payments would be recovered from any future savings the organization achieves.

Separately, the U.S. Federal Trade Commission and the Justice Department completed an agreement to share responsibility for antitrust reviews of proposals to form networks under the health-care overhaul law enacted last year, the agencies said yesterday in a statement.

For more, click here.

U.S. FERC Approves Rule to Benefit Energy-Storage Providers

The U.S. Federal Energy Regulatory Commission unanimously approved a rule that may increase payments from electric-grid operators to companies that help keep energy supply and demand in balance on the grid.

Among companies that may benefit are developers of battery storage for the grid and Beacon Power Corp., a Tyngsboro, Massachusetts-based maker of flywheels that store energy. Beacon received a $43 million federal loan guarantee in August 2010.

“This is a very important rule” to increase grid efficiency, FERC Chairman Jon Wellinghoff said at yesterday’s meeting.

FERC took action to remedy what the commission saw as practices that may not adequately benefit technologies designed to quickly adjust electricity imbalances on the grid.

The rule will allow grid operators to pay companies a market-based rate in addition to a fixed payment for helping to balance electricity flows. The rule will take effect 60 days after publication in the Federal Register.

Beacon’s backing came from a U.S. Energy Department clean- energy program that also supported Solyndra LLC, a failed solar- panel manufacturing company that had received a $535 million loan guarantee.

Speeches and Interviews

SEC to Weigh Hedge Fund Rule for Gathering Systemic Risk Data

Hedge funds and private-equity funds will be asked to deliver “extraordinary amounts” of new data to the U.S. Securities and Exchange Commission under a rule set for a vote next week, said SEC Chairman Mary Schapiro.

Under the version of the rule proposed by the SEC on Jan. 26, firms managing more than $1 billion would have to file quarterly information on fund assets, leverage, investment positions, valuation and trading practices on a new Form PF. That added oversight would also come with routine inspections.

“We have high hopes for the Form PF data,” Schapiro said yesterday at a Managed Funds Association meeting in New York. The form was a requirement in last year’s Dodd-Frank Act, and Schapiro said the information will help her agency and the Financial Stability Oversight Council “understand where the risks are in the financial system.”

The January proposal described how the regulators will use the new data to assess whether a firm threatens to destabilize the financial system, as in the 1998 collapse of Long Term Capital Management LP. The SEC is set to vote on the final version of the Form PF rule Oct. 26.

Separately, Dodd-Frank requires the SEC to set up registration rules for private fund advisers. The registration, adopted in June, requires the reporting of “census-like data” on employees, investors and assets they manage. Unlike the registration data, the Form PF information wouldn’t be public.

Schapiro also said that the SEC wouldn’t consider short- selling bans such as those being weighed in Europe. So-called naked short selling, in which traders bet on an investment’s decline but don’t borrow shares as in regular shorting, was temporarily limited by the SEC in the 2008 credit crisis.

“I can’t envision the SEC doing another short-selling ban,” she said.

Schapiro also cautioned hedge funds to make sure they have “robust compliance policies” in light of recent insider- trading cases involving funds’ dealings with expert networks.

She said there is a “pretty bright line” between legitimate research and insider information and crossing it “absolutely undermines confidence in the integrity of our marketplace.”

Lawsky Juggles Conflicting Roles as Financial Cop in N.Y.

Ben Lawsky, the first person to head New York’s newly established Financial Services Department, said he’ll be juggling conflicting roles of enforcer and promoter as he oversees the state’s banks and insurance companies.

“Being a better consumer-protection agency and fraud detector, while keeping New York the financial center of the world, aren’t necessarily contradictory,” Lawsky, 41, said during an interview in his office in lower Manhattan. “But doing this well requires a delicate balance that’s hard to achieve.”

New York Governor Andrew Cuomo initially proposed investing Lawsky’s department with powers comparable to those of the state attorney general. The idea got scaled back, though the legislature did give Lawsky oversight of new financial products that fall outside the jurisdiction of existing regulations. That was designed to counter what Lawsky called Wall Street’s history of devising products that circumvent regulation.

“This is designed for the future,” Lawsky said. “We will have oversight of products intentionally designed to be neither fish nor fowl, where they’re not a commodity, not a security and not insurance -- products designed to fall into regulatory gaps.”

Lawsky, who will monitor about 4,400 financial companies managing more than $6.2 trillion in assets, is “a prosecutor at heart” who will take an aggressive approach, said Neil Barofsky, the former special inspector general for the Troubled Assets Relief Program and an ex-colleague.

A former assistant U.S. attorney, Lawsky also spent four years as the top financial crimes prosecutor for then-New York Attorney General Cuomo, and was in the thick of Cuomo’s effort to force banks that received taxpayer bailouts to disclose sensitive information about bonus payments.

Lawsky led the probe into $3.6 billion in bonuses Merrill Lynch & Co. gave executives as Bank of America Corp. acquired the company. As Cuomo’s special assistant, he was the prime mover behind the ongoing lawsuit filed in early 2010 accusing former Bank of America Chief Executive Officer Ken Lewis of misleading shareholders and government officials about Merrill’s financial condition.

“I am aware of the difference between regulation and prosecution because I’ve been a prosecutor,” said Lawsky, a graduate of Columbia University and its law school. “Part of this job is not to cause banks that are doing honest business to suffer because of damage done by a few.”

Several former chiefs of New York’s insurance and banking departments said they believe Lawsky will strike the right balance. Lawsky “has a holistic view of government that’s not just enforcement-oriented,” said Eric Dinallo, an attorney at Debevoise & Plimpton LLP, a former state prosecutor who was New York’s chief insurance regulator.

For more, click here.

Treasury’s Wolin Says Card-Fee Caps Don’t Hurt U.S. Economy

U.S. Deputy Treasury Secretary Neal Wolin said caps on debit-card “swipe” fees mandated by the Dodd-Frank financial overhaul law don’t hurt the economy.

“There is no evidence” the rules have “any real effect on the macroeconomy,” Wolin said in an interview with CNBC yesterday. “It is one provision among many.”

The Federal Reserve imposed rules Oct. 1 limiting the fees card networks charge merchants to 21 cents per transaction, about half what retailers had been paying. In response, lenders including Bank of America Corp. and Wells Fargo & Co. have been rolling out new charges for debit customers to make up some of the $8 billion the largest banks may lose under the rules.

--With assistance from Greg Farrell, David McLaughlin, Saijel Kishan, Lee Spears, James Sterngold and Thom Weidlich in New York; Jesse Hamilton, Carol Eisenberg, Ian Katz, Alex Wayne and Brian Wingfield in Washington; David Voreacos in Newark, New Jersey; Karen Gullo and Pamela MacLean in San Francisco; Steven Church in Wilmington, Delaware; Lindsay Fortado and Nandini Sukumar in London; Jim Brunsden and Aoife White in Brussels; and Stephanie Bodoni in Luxembourg. Editor: Fred Strasser

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.

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


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