Bloomberg News

E-Books, Credit Cards, Ahold, Cordray Nomination: Compliance

December 09, 2011

(Updates with Ahold, P&G and Colgate in Compliance Action.)

Dec. 8 (Bloomberg) -- The U.S. is probing the possibility of anticompetitive practices in the e-book industry, Sharis Pozen, the acting chief of the U.S. Justice Department’s antitrust division told a House committee in Washington yesterday.

European antitrust regulators are probing whether Apple Inc.’s pricing deals with publishers restrict competition, according to a statement from the European Union on Dec. 6. They are investigating arrangements with five e-book publishers and publishers’ deals with retailers, the commission said.

The publishers are Lagardere SCA’s Hachette Livre, News Corp.’s HarperCollins, CBS Corp.’s Simon & Schuster, Pearson Plc’s Penguin and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan division.

Hachette’s e-book pricing method “not only better serves our authors and customers, it has also helped to increase competition and consumer choice,” said Sophie Cottrell, a company spokeswoman, in an e-mail.

Adam Rothberg, a spokesman for Simon & Schuster, and Erin Crum, a Harper Collins spokeswoman, said their companies are cooperating with the Justice Department investigation.

Wendy Spiegel, a spokeswoman for Pearson North America, didn’t immediately return a call seeking comment. Macmillan USA officials didn’t respond immediately to an e-mail seeking comment. Apple spokesman Steve Dowling declined to comment on Pozen’s remarks.

EU Competition Commissioner Joaquin Almunia said last month that he wanted to fight “artificial restrictions imposed by some companies to cross-border trade” and was examining the way e-books are distributed.

Compliance Policy

U.S. Consumer Bureau Proposes Simplified Credit-Card Form

The U.S. Consumer Financial Protection Bureau announced plans for a simplified credit-card agreement that spells out the cost of using credit cards in easy-to-understand English.

The standardized, two-page card agreement outlines prices, risks and terms that are shorter and more concise than conventional agreements, augmented by an online glossary to aid consumers on such items as billing disputes, privacy, rights, interest-rate calculations and the consequences of late payments.

“Credit cards can be complicated,” Raj Date, a special adviser to the Treasury secretary, said in a statement. “With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make decisions that are right for them.”

The agency is seeking public comment on the prototype at its website. It is testing the prototype with the Pentagon Federal Credit Union, which has more than 1 million members and about 350,000 cardholders.

Use of the documents would be voluntary for credit card issuers. Major card issuers such as JPMorgan Chase & Co., Discover Financial Services and Bank of America Corp. generally support improved disclosure, though they have expressed concern that standardized forms can restrict the range of financial products, said Kenneth Clayton, chief counsel to the American Bankers Association.

Consumers hold about 514 million credit cards and used them to spend about $1.9 trillion last year, with credit card debt estimated at $700 billion, the agency said in a statement.

The agency is acting under a credit card law adopted more than two years ago. The goal of that law was to make credit card costs more predictable, reducing the risk of surprise on interest rates or other charges.

The proposals, the first on credit cards by the consumer bureau, follow the Credit Card Accountability Responsibility and Disclosure Act of 2009, which imposed consumer-protection rules on issuers.

The initiative on credit cards follows similar projects, dubbed “Know Before You Owe,” that the consumer bureau has undertaken on mortgages and student loans.

Web-Name Expansion Could Be ‘Disaster,’ FTC Chairman Says

A plan to add hundreds of Internet domain names beyond .com and .net may be a “disaster,” U.S. Federal Trade Commission Chairman Jon Leibowitz told a House Judiciary subcommittee.

The program is more costly than necessary for businesses and could facilitate fraudulent websites, Leibowitz said yesterday in a hearing of the House Subcommittee on Intellectual Property, Competition and the Internet.

The domain-name system expansion, authorized by the Internet Corporation for Assigned Names and Numbers, “could be very harmful,” Leibowitz said. “We see enormous cost to consumers and businesses and not a lot of benefit.”

Icann, a non-profit that manages the Web’s address system under a U.S. Commerce Department contract, approved a plan in June to expand the number of top-level domains beyond the commonly used .com, .net and .org in a move to spur online innovation.

The group will start accepting applications for Web suffixes including company and brand names, cities and words like .book or .shopping, starting Jan. 12 for a three-month window. Applications will cost $185,000 for each domain.

General Electric Co., Johnson & Johnson and Coca-Cola Co. are among more than 40 companies that last month joined with the Association of National Advertisers to oppose the expansion, saying it will increase costs for companies, confuse customers and create new risks of Internet fraud.

“We appreciate the concerns raised by Chairman Leibowitz,” Brad White, a spokesman in Washington for Marina del Ray, California-based Icann, said in an e-mail.

“Icann has already committed to vigilantly monitor for abuses” to the new domain program, White said. “If and when any program abuses arise, there are mechanisms in place to address them.”

The Commerce Department is “sensitive to the concerns being raised by some companies” about the introduction of the new top-level domains, Assistant Secretary of Commerce Lawrence Strickling said in an e-mail yesterday.

FDIC Seeks Comment on Alternatives to Ratings for Debt

The Federal Deposit Insurance Corp. is seeking comment on proposals for meeting a Dodd-Frank Act requirement that banks use an alternative to credit ratings for valuing debt in their trading books.

FDIC board members voted 3-0 at a meeting in Washington yesterday to propose three methods for replacing ratings in a proposal devised with the Federal Reserve and the Office of the Comptroller of the Currency. The proposals, which would affect how much capital a bank has to reserve against potential losses, would change valuation methods while maintaining ratios required under existing international rules, the FDIC said.

“The agencies have developed credit ratings replacement alternatives that use readily available and objective data,” acting FDIC chairman Martin Gruenberg said in a statement.

Dodd-Frank, the regulatory overhaul enacted last year, called for federal agencies to find alternative measures of creditworthiness after lawmakers faulted ratings firms such as Moody’s Corp. and McGraw-Hill Cos.’ Standard & Poor’s unit over grades on securitized debt before the subprime mortgage market collapsed. The proposal approved yesterday by the FDIC would affect only assets in bank trading books.

The rule would affect fewer than 20 banks, “a select few of the largest institutions,” according to Bobby Bean, the FDIC’s associate director in the division of risk management and supervision. Those lenders have more than $1 billion in trading assets and liabilities or more than 10 percent of their total assets in trading liabilities, Bean said.

Hugh Carney, senior counsel at the American Bankers Association said the rule may affect smaller banks as well.

Euro Zone Developments

EU Regulators to Release Bank Capital Shortfalls Amid Criticism

The European Banking Authority will publish its review of how much capital lenders should raise to absorb losses from euro-area bonds amid criticism from German and Italian banks on the test methods and timing.

The results of the updated stress tests will be released at 6 p.m. central European time today, the regulator said in a statement on its website. The publication will coincide with the start of a European Union summit in Brussels to tackle the region’s sovereign-debt problems.

“The EBA risks adding more tension in a delicate moment,” Gregorio De Felice, Intesa Sanpaolo SpA’s chief economist, said in an interview. “Europe is moving in the right direction and these measures are rowing against that tide.”

The EBA estimated in October that the region’s financial institutions need 106 billion euros ($142 billion) to reach a goal of holding 9 percent of so-called core Tier 1 capital by mid-2012, after marking their sovereign debt to market prices. European leaders are demanding banks increase capital after financial firms agreed to accept losses on Greek government bonds.

For more, click here.

Merkel, Sarkozy Propose Tighter Budget Rules in EU Overhaul

French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed amending European treaties to tighten rules on deficit spending and water down provisions demanding investor losses.

In a joint letter to European Union President Herman Van Rompuy, the French and German leaders said they want a decision at the EU summit starting today so that the measures can be ready by March 2012.

The new treaty should call for “automatic consequences” for euro-zone members with deficits over 3 percent of their economic output. The treaty should “make clear that Greece required a unique and exceptional solution” and that other euro-area members “reaffirm their inflexible determination to honor fully their own individual sovereign signature.”

ECB Said to Consider More Measures to Stimulate Bank Lending

The European Central Bank may announce a range of measures today to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations.

Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans to ease the flow of credit to the economy, said the officials, who spoke on condition of anonymity because the discussions are private. Two said an interest rate cut is likely, with only the size of the reduction to be determined for the monthly decision today.

The ECB is focusing on getting banks lending again rather than increasing its government bond purchases to fight Europe’s debt crisis. The central bank’s insistence that governments take measures to restore investor confidence appears to have paid dividends, with Italian and Spanish yields plunging after Germany and France agreed to move the 17-nation euro area toward a fiscal union, a stance they reiterated yesterday.

Today’s meeting is the ECB’s last scheduled opportunity to take policy action this year. It will be accompanied by publication of the central bank’s latest projections, including a 2013 inflation forecast that may justify further monetary stimulus.

For more, click here.

Compliance Action

Merrill Lynch Fined $350,000 Over Cotton Trading Limits

Merrill Lynch Commodities Inc. agreed to pay a $350,000 fine to settle charges that it exceeded speculative position limits in cotton futures, the U.S. Commodity Futures Trading Commission said.

The violations occurred from Jan. 31 to Feb. 3, the CFTC said yesterday in an e-mailed statement. Merrill’s net short positions of 5,502 contracts on Jan. 31 and 6,059 on Feb. 1 surpassed the 5,000-contract limit for all months, the CFTC said. A net short position in March 2011 futures was 227 above the 3,500-contract maximum for any single month.

Cotton futures on ICE Futures U.S. in New York rose 4.3 percent during the four-day period.

“We’re pleased to resolve this matter,” said Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America Corp., which purchased Merrill Lynch & Co. in 2009. “This was unintentional, and to prevent a recurrence in the future we have strengthened our position-limit monitoring system,” Halldin said in a telephone interview.

Ex-Marvell Accountant Ng Pleads Guilty in Insider Probe

Stanley Ng, a former Marvell Technology Group Ltd. accountant, pleaded guilty to his role in an insider-trading scheme involving so-called expert networking firms.

Ng yesterday admitted passing information about Marvell’s earnings in 2007 and 2008 to two members of an “investment club” that prosecutors said was set up to trade illegal stock tips. The government said Ng was recruited into the group by Winifred Jiau, a former consultant with expert-networking firm Primary Global Research LLC who was convicted in June.

“I provided material, nonpublic information to Winifred Jiau and Sonny Nguyen about Marvell’s quarterly financial results before those results were made public,” Ng told U.S. District Judge Jed S. Rakoff in Manhattan. “In exchange I received similar stock tips from my co-conspirators.”

Ng pleaded guilty to a single count of conspiracy to commit securities fraud and wire fraud, punishable by as much as five years in prison, according to Rakoff. A plea agreement between Ng and the government states that federal sentencing guidelines call for him to get six months to one year, Rakoff said.

The case is U.S. v. Ng, 11-02096, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

IBM Said to Settle European Union Antitrust Probe Next Week

International Business Machines Corp. will reach a settlement with European Union antitrust regulators next week to end a probe into mainframe software, according to two people familiar with the matter.

The European Commission intends to accept an offer made by IBM in September to resolve a dispute over anti-competitive behavior that may have blocked rival mainframe software makers, said the people who couldn’t be identified because the talks are private.

Regulators have sought comments from rivals and customers on IBM’s commitments to ensure the availability of certain spare parts and technical information. The Brussels-based regulator closed a separate probe over IBM’s mainframe computers after three competitors dropped complaints.

The commission in 2010 opened investigations into Armonk, New York-based IBM over possible anti-competitive behavior that may have blocked competitors in mainframe software and maintenance contracts by “restricting or delaying access to spare parts.”

Joe Hanley, a spokesman for IBM in London, declined to comment. Amelia Torres, a spokeswoman for the commission, didn’t immediately respond to a call and e-mail seeking comment.

Reuters first reported the settlement.

Olympus Vows to Probe 70 Executives as Another Director Quits

Olympus Corp. President Shuichi Takayama acknowledged Michael Woodford, the chief executive officer he helped fire, for exposing a cover-up of losses at the camera maker and announced a probe of about 70 executives that may have been involved.

Committees set up by the company will report next month on current and former executives as well as outside auditors, Takayama said. A separate group will advise on revamping management, and shareholders will vote on a new board at a meeting in late February at the earliest, Takayama told reporters in Tokyo yesterday.

Takayama is struggling to regain investor trust in Olympus after admitting that the company lied to investors and auditors about $1.5 billion of losses and as a fourth director quit over the scandal. Shareholders may vote to reinstate Woodford, who was dismissed Oct. 14 by a unanimous board vote as Olympus’s first foreign CEO after he challenged the company’s accounting, Takayama said.

The company may press criminal charges against those involved in wrongdoing, Takayama said. The company would also decide on whether to take action against auditors at KPMG LLP and Ernst & Young LLP’s Japanese affiliates by Jan. 17, Takayama said.

For more, click here.

P&G, Colgate Fined by France in $484 Million Detergent Cartel

Procter & Gamble Co., Colgate-Palmolive Co. and Henkel KGaA were fined 361.3 million euros ($464 million) by French antitrust regulators for fixing the price of laundry soap.

P&G was fined 233.6 million euros and Colgate was fined 35.4 million euros for colluding with others to set prices for detergent from 1997-2004, the French regulator said in a statement on its website. Henkel, the German maker of Persil, was fined 92.3 million euros. Unilever wasn’t fined because it was the first company to supply evidence to the French regulators.

The fine is the largest imposed by the French competition authority this year in light of “the particular seriousness” and the “undoubted” harm to the economy, the regulator said today. It is the third-biggest fine total in the agency’s history, behind 534 million euros in fines against mobile-phone operators in 2005 and last year’s 384.9 million-euro package of fines for banks over check-processing fees.

The French directors for the manufacturers, known by code names like Hugues, Pierre, Louis and Christian, met as many as four times a year at Paris-area hotels and restaurants to agree on the prices and promotions they would offer retailers, the regulator said today.

P&G and Colgate weren’t immediately available for comment. Henkel will appeal the ruling and said it cooperated with the French investigation and the facts of the case were covered by the European Union decision in April, according to a statement today. Henkel said the fine will have no impact on its financial targets for 2012 or on this year’s guidance.

Antitrust agencies across Europe have been investigating cosmetics and detergent manufacturers over deals to fix or increase prices. Unilever and P&G agreed in April to pay 315.2 million euros in fines to settle a European Union probe over an agreement not to reduce prices when they reduced the size of packaging for laundry detergent. In that case, Henkel was the first to come forward and had its fine waived.

Ex-Ahold Official Sentenced to 46 Months in Prison for Fraud

The ex-marketing chief of Koninklijke Ahold NV’s former U.S. Foodservice unit, Mark Kaiser, was sentenced to three years and 10 months in prison for securities fraud.

“The details are of serious fraud involving many different aspects and activities involving hundreds of millions of dollars,” U.S. District Judge Thomas Griesa said in court yesterday in Manhattan before imposing the sentence. “I really feel that I must impose a sentence which gives due regard for the extent of that criminal conduct.”

Kaiser pleaded guilty in August to one count of conspiracy to commit securities fraud in connection with a scheme to inflate U.S. Foodservice’s financial results by about $800 million from 2000 to 2003 by booking promotional rebates as income. The higher profit earned Kaiser and others “substantial year-end bonuses,” the prosecutors said.

The federal sentencing guidelines in his plea agreement called for prison time from 46 months to 57 months. Dan Brown, Kaiser’s lawyer, asked the judge to issue a probationary sentence.

“I hope you will agree the past bad decisions that bring me before you today are in my past,” Kaiser told the judge yesterday.

Kaiser was convicted in 2006. After that trial, Griesa sentenced him to seven years in prison.

In 2010, the U.S. Court of Appeals in New York threw out his conviction and ordered a new trial because the lower-court judge had allowed some improper evidence to come into the case. Kaiser entered his plea on Aug. 15.

The case is U.S. v. Kaiser, 04-cr-00733, U.S. District Court, Southern District of New York (Manhattan).

Congress

Cordray Nomination Gets White House Push Before Senate Vote

The Obama administration pressed the Senate for confirmation of Richard Cordray to head the new Consumer Financial Protection Bureau as Republicans said they had enough votes to block the nomination.

Republicans had the chance to raise concerns when the law creating the bureau was being written and “the Senate should get on” with the task of confirming Cordray, Deputy Treasury Secretary Neal Wolin said at the White House briefing.

Today’s vote on President Barack Obama’s nomination of Cordray is a top priority for the administration. The consumer bureau “without its full authorities is hamstrung in its ability to help level the playing field between small banks and nonbank financial service providers,” the White House said in a statement yesterday.

Obama has touted the standalone bureau, which would oversee and regulate consumer financial products, as one of the hallmarks of last year’s Dodd-Frank overhaul of Washington’s rules for Wall Street.

House and Senate Republicans say the agency wouldn’t have enough accountability and have pushed for legislative changes that would place the bureau under the congressional appropriations process and replace the director position with a five-member board. Senate Republicans have vowed to block any nominee without the structural changes.

Congressional Insider-Trading Ban Gains Bipartisan Support

Bipartisan support is growing in the U.S. Congress for new rules banning insider trading by lawmakers amid concerns about waning trust among the public.

The number of co-sponsors for a measure explicitly banning such trading has grown from nine last month to 171 “and counting,” Representative Louise Slaughter, a New York Democrat, told the House Financial Services Committee Dec. 6. She first introduced similar legislation five years ago and never garnered more than 14 co-sponsors.

The issue took on new urgency after the CBS News program “60 Minutes” reported last month that members of Congress bought stock in companies during debates on legislation that might affect the businesses. None of the questioned investments was illegal, the report said.

“This is about restoring faith,” said Representative Tim Walz, a Minnesota Democrat, who is sponsoring the legislation Slaughter supports. “If you think 9 percent approval rating is bad, don’t do anything, drag it out and watch what happens,” he said, referring to polling on Americans’ approval of Congress.

There is a public perception that lawmakers are benefiting from nonpublic information whether they are or not, he said.

The chairman of the House Financial Services Committee, Representative Spencer Bachus, an Alabama Republican, said his panel would vote on legislation next week. A Senate committee also aims to vote on a similar bill before the end of the year.

For more, click here.

In the Courts

MF Global Judge Tells Trustee to Disclose More JPMorgan Work

MF Global Inc. brokerage trustee James Giddens must disclose more details of his work for JPMorgan Chase & Co. and PricewaterhouseCoopers LLP before a judge determines whether he can handle the case disinterestedly.

U.S. Bankruptcy Judge Martin Glenn in a court order yesterday told the trustee to say whether PwC or JPMorgan, agent for a $300 million loan to MF Global’s parent, or any of the company’s other lenders are currently clients of Giddens’s law firm, Hughes Hubbard & Reed LLP, and if so, the fees billed or collected.

Glenn, in Manhattan, also wants to know whether any of the law firm’s other current clients are creditors of the brokerage and how much they have paid in fees. In addition, he asked whether JPMorgan was a creditor of the brokerage, and whether Giddens could sue the bank if necessary. The information must be in the judge’s hands by 5 p.m. on Dec. 12, Glenn said.

“The status of an entity as a current client (as opposed to a former client) can make an important difference in evaluating conflicts and disinterestedness,” the judge said in the order.

Glenn directed Giddens to disclose his business ties to New York-based JPMorgan after two brokerage customers said the trustee’s links to the parent company’s lender might influence his treatment of the brokerage’s customers. Giddens’s initial disclosure failed to give details of his firm’s current work for JPMorgan, the judge said.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Raj Rajaratnam Appeals Record $92.8 Million SEC Penalty

Raj Rajaratnam, the former hedge fund manager serving 11 years in prison for insider trading, appealed the record $92.8 million penalty imposed by the U.S. Securities and Exchange Commission in its civil case against him.

Rajaratnam notified a federal court in Manhattan yesterday that he is asking a federal appeals court to review the decision imposing the fine, which was entered by U.S. District Judge Jed Rakoff on Nov. 8.

Rajaratnam, 54, had argued that he shouldn’t have to pay a civil penalty in the SEC case because the judge in the criminal case ordered him to pay a $10 million fine and forfeit $53.8 million.

A co-founder of Galleon Group LLC, Rajaratnam reported to Federal Medical Center Devens in Ayer, Massachusetts, on Dec. 5 to begin his prison sentence. He was convicted by a federal jury in May of 14 counts of conspiracy and securities fraud for trading on inside information.

The SEC penalty is the largest ever assessed against a person in an insider trading case, Robert Khuzami, the SEC’s director of enforcement, has said.

The case is SEC v. Rajaratnam, 09-cv-8811, U.S. District Court, Southern District of New York (Manhattan).

Interclick Investors File Settlement Plan Over Yahoo Buyout

Investors in Interclick Inc., a provider of marketing advice based on consumers’ online behavior, filed a tentative settlement of lawsuits over a planned $270 million buyout by Yahoo! Inc.

Yahoo on Nov. 1 agreed to acquire New York-based Interclick for $9 a share, a 22 percent premium at the time. Some shareholders sued Interclick directors in Delaware Chancery Court and state court in New York, saying the price was too low.

“As part of the settlement, all of the defendants deny all allegations of wrongdoing,” according to a Dec. 5 report to the U.S. Securities and Exchange Commission.

The parties signed a memorandum of understanding Dec. 4 to settle the cases in exchange for “certain supplemental disclosures” about the buyout process, according to court papers. The accord requires approval from a Delaware judge.

“The settlement will not affect the amount of consideration to be paid” in the deal, Yahoo told the SEC.

Yahoo, based in Sunnyvale, California, began a cash tender offer for Interclick’s stock last month. Absent an extension, the offer will expire Dec. 13, the buyer said in a statement.

The lead Delaware case is Whaley v. Brauser and Interclick Inc., CA7038-VCG, Delaware Chancery Court (Wilmington).

--With assistance from Don Jeffrey, Joe Richter, Linda Sandler and Bob Van Voris in New York; Jeff Bliss, Catherine Dodge, Carter Dougherty, Eric Engleman, Sara Forden, Roger Runningen and Hans Nichols in Washington; Phil Milford in Wilmington, Delaware; Ben Moshinsky and Gabi Thesing in London; Simone Meier in Zurich; Heather Smith and Gregory Viscusi in Paris; Mariko Yasu and Takashi Amano in Tokyo; and Aoife White in Brussels. Editor: Glenn Holdcraft

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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