Bloomberg News

Carbon Disclosure, Deutsche Bahn Sale, Madoff: Compliance

December 30, 2011

(Updates with insider-trading case dismissed in Courts section.)

Dec. 29 (Bloomberg) -- The European Investment Bank, which may have started selling 2013 carbon allowances in a 1.8 billion-euro ($2.4-billion) program, may strive for more timely market disclosure, said a trader at Standard Bank Plc.

Geoff Sinclair, London-based head of carbon trading at Standard Bank, said by e-mail on Dec. 21 that the U.S. government’s practice of announcing up to a month in advance when it intends to lend volume from the strategic reserve and exactly what volume will be lent in the oil market is an “appropriate level of transparency.”

The EIB received the permits from the European Commission, the regulator of the world’s largest emissions market, at the beginning of December and has to sell them within 10 months. Prices fell to a record 12 days later amid uncertainty about whether the sales had started. EIB spokesmen including Nick Antonovics didn’t immediately reply to e-mails and calls.

Companies buying 2013 European Union carbon permits directly from the EIB may have “privileged” information that other traders don’t have, according to an emissions trading lobby group. The lack of public information about the commencement of the sales means that “if you are a recipient of a large volume you are in a privileged position,” Simone Ruiz, Brussels-based European policy director at the International Emissions Trading Association, said Dec. 16.

The EIB’s over-the-counter transactions “will be structured in a way to ensure best competition and limit any information advantage to the amount executed with each market counterpart,” the bank said in a statement on its website updated Dec. 2.

For more, click here.

Compliance Policy

Bernanke Drive for Openness May Include More Briefings

Federal Reserve Chairman Ben S. Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates will stay near zero longer, economists said.

Boosting the frequency of press conferences would give Bernanke more opportunities to explain shifts in policy and the Fed’s outlook for the economy. The Standard & Poor’s 500 Index fell 6 percent over two days following the Fed’s statement in September that the economy faced “significant downside risks,” an assessment that wasn’t followed by a more detailed explanation.

Fed policy makers may decide on changes as soon as their two-day meeting ending Jan. 25, the first of the year, when Bernanke gives a press conference a few weeks ahead of his semiannual testimony to Congress.

While adding press conferences isn’t one of the options mentioned in minutes of Fed discussions of the new communications strategy since September, Diane Swonk, chief economist in Chicago at Mesirow Financial Inc., said she wouldn’t be surprised if policy makers took such a step.

Fed policy makers meet eight times a year. The Fed announced last March that Bernanke, 58, would hold press conferences four times, following each two-day meeting, where governors and regional presidents present revised projections for economic growth, inflation and unemployment.

Bernanke and his colleagues are trying to protect the U.S. from fallout from the European debt crisis.

For more, click here.

China Plans Rules to Curb Illegal Foreign Workers, Xinhua Says

China is reviewing amendments to its immigration laws that would make it more difficult for foreign workers to find jobs in the world’s second-biggest economy without government approval.

A draft of the amendments would require foreign nationals to obtain work permits, the official Xinhua News Agency reported. Foreign nationals suspected of having entered the country without authorization, of having overstayed visas or of working illegally may be detained, repatriated and barred from returning to China for five years, according to the Dec. 26 report.

Lawmakers conducted their first review of the amendments to the laws governing entry by foreigners and departures of Chinese nationals on Dec. 26, according to Xinhua. It didn’t say when the changes might be passed into law.

China Stops Encouraging Foreign Investment in Auto Manufacturing

China will stop encouraging foreign investment in car manufacturing to allow for “healthy development” of a market that saw sales growth plummet to a tenth of last year’s pace.

The change ends seven years of foreign-investor benefits including reduced tariffs on imported plant equipment, said Jenny Gu, a senior market analyst at LMC Automotive in Shanghai. Foreign investment in more fuel-efficient vehicles will still be encouraged, the National Development and Reform Commission and the Ministry of Commerce said in a statement.

The country needs to focus on nurturing strategic new industries to make its manufacturing more sophisticated and be more competitive globally, the National Development and Reform Commission in the statement.

For more, click here.

Backtracking Lawmakers Expand U.S. Government Role in Mortgages

Washington lawmakers, who began 2011 with sweeping plans to shrink the U.S. government’s role in mortgage finance, are heading into 2012 after enacting policies that expand it.

An 11th-hour payroll tax cut extension signed into law last week would for the first time divert funds directly from Fannie Mae and Freddie Mac, the two mortgage-finance companies under U.S. conservatorship, to pay for general government expenses.

That move came after two others that also are expected to increase government involvement: Lawmakers allowed a tax break on private mortgage insurance to expire and raised loan limits for mortgages insured by the Federal Housing Administration. Advocates of private mortgage finance say they are concerned that using fees from Fannie Mae and Freddie Mac is setting a precedent that will keep the government in the mortgage business for a decade or more.

Fannie Mae, Freddie Mac and the FHA currently back more than 90 percent of loan originations, about double what they did during the subprime lending boom, according to Inside Mortgage Finance, a trade publication.

For more, click here.

Compliance Action

Lukoil Fined More Than $19 Million for Diesel Fuel Price-Fixing

OAO Lukoil was fined more than 600 million rubles ($19 million) for “abusing its monopoly position” on the domestic market for diesel fuel in the fourth quarter of last year and January 2011, Russia’s Federal Anti-Monopoly Service said yesterday on its website.


Deutsche Bahn Can Sell Assets Without Parliamentary Consent

Deutsche Bahn AG, Germany’s state-owned railway, doesn’t need lawmakers’ approval to sell assets, the country’s top constitutional court ruled.

The constitution doesn’t require parliament to clear such a transaction, the Federal Constitutional Court in Karlsruhe, Germany, said in an e-mailed statement yesterday. The judges rejected the suit, brought by an opposition political party, because its claim could “under no perceivable aspect” be considered valid.

Parliament “has done its part by passing legislation” governing the railway, the judges said. “Additional rights to participate in Deutsche Bahn’s business decisions would gravely impair the company to take actions according to a market economy rationale, which the constitution wants it to do.”

Germany changed its constitution to allow privatization of its railway system in the 1990s. Plans to have Deutsche Bahn sell shares to the public were postponed in 2008 in the wake of the financial crisis that froze credit markets. The government has said it may sell assets as an alternative to an initial public offering.

The suit, over Deutsche Bahn’s 2007 sale of a real-estate unit, was filed after a six-month deadline and needed to be rejected for that reason also, the court said.

The case is BVerfG 2 BvE 3/08.

Madoff Son Must Face $198 Million Suit in Bankruptcy Court

Bernard Madoff’s son Andrew must submit to a bankruptcy judge’s decision to permit a $198 million lawsuit to go forward because he sought that court’s protection when he filed a claim against his father’s estate, a federal judge said.

U.S. District Judge William Pauley in Manhattan last week declined to hear an appeal of the September decision in favor of Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, in his claim against Madoff family members including Andrew Madoff and the estate of Mark Madoff, who committed suicide in December 2010. Pauley’s written opinion was filed yesterday in U.S. Bankruptcy Court in Manhattan.

“Because Mark and Andrew invoked the aid of the bankruptcy court by offering a proof of claim and demanding its allowance, they must abide by the consequences of that procedure,” Pauley said in his Dec. 22 decision, citing a U.S. Supreme Court ruling that also described limits to the power of bankruptcy judges.

In court papers filed in his own behalf and as executor of his late brother’s estate, Andrew Madoff said the judge’s decision would result in a “massive expansion of liability” for managers of banks and large corporations for the wrongs of individual units.

Picard’s lawsuit is “wholly without merit,” Martin Flumenbaum, a lawyer for Andrew Madoff and Mark Madoff’s estate, said in an e-mail yesterday. He said the brothers had “no prior knowledge” of their father’s crimes and contacted authorities immediately after he told them of the fraud.

U.S. District Judge Jed Rakoff took a different view from Pauley last month when he began reviewing five so-called clawback lawsuits brought by Picard, faulting him for trying to keep the cases in bankruptcy court on the basis that the defendants had filed claims against the estate.

The case is Picard v. Estate of Mark Madoff, 11-Misc-379, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Sanchez Wins Dismissal of Potash Trading Case, Reuters Says

Luis Martin Caro Sanchez won dismissal of a U.S. Securities and Exchange Commission lawsuit alleging he traded on inside information in Potash Corp. of Saskatchewan Inc., Reuters reported.

Sanchez, 37, made the trades before the Canadian fertilizer company became the target of a $38.6 billion unsolicited takeover bid by BHP Billiton Ltd., the SEC said in the complaint.

The SEC failed to show that Sanchez had any direct link to an insider or that his discarded laptop computer contained relevant information about his trades, U.S. District Judge Marvin Aspen in Chicago said yesterday, according to Reuters.

The SEC in August 2010 accused Sanchez and former Banco Santander SA research analyst Juan Jose Fernandez Garcia of using material non-public information in buying Potash call options before the company revealed that it had received and rejected the BHP bid, Reuters said.

Garcia agreed in April to pay more than $625,000 to settle U.S. regulatory claims. Santander was an adviser on the bid to BHP, the world’s largest mining company.

China Textile Machinery’s Stake in Jingwei Textile Frozen

China Textile Machinery’s 34 percent stake in Jingwei Textile Machinery was frozen by a Chinese court, Jingwei Textile said yesterday.

The Shanghai No. 1 Intermediate People’s Court froze the shares on Dec. 21 for two years, the company said in a filing to the Hong Kong stock exchange.

The judicial freezing follows an action brought to the court by China Construction Bank Corp. in July 2011 concerning a 49 million renminbi loan guarantee contract it entered into with China Worldbest Group Co., according to the statement.

Allen Stanford’s Bid to Delay His January Fraud Trial Denied

R. Allen Stanford’s request for more time to prepare to face charges he led a $7 billion investment fraud scheme was denied by the judge who declared him mentally fit for trial.

Jury selection will begin in Houston federal court on Jan. 23.

“This case needs to be tried,” U.S. District Judge David Hittner said in an eight-page ruling yesterday. “This trial will decide not just whether Stanford is guilty of the criminal charges, but also whether hundreds of millions of dollars of investor funds currently frozen may be forfeited and returned to his alleged victims.”

Hittner ruled Dec. 22 that Stanford has sufficiently recovered from a head injury suffered in a jailhouse assault and an addiction to anxiety medications prescribed to him by prison doctors after the attack.

The judge delayed Stanford’s original trial date last January and ordered him into a prison rehabilitation program after finding Stanford’s medical conditions had made him incompetent to understand the proceedings or assist his defense team.     “Our ability to defend our client has been consistently limited by matters the court is well aware of,” Ali Fazel, Stanford’s lead lawyer, said in an e-mailed statement yesterday about the ruling. “We are now reviewing our options.”


Blanchflower Says Central Banks Can ‘Do More QE’

David Blanchflower, a professor at Dartmouth College and a Bloomberg Television contributing editor, talked about the need for more quantitative easing by central banks and the outlook for emerging-market economies.

Blanchflower spoke with Sara Eisen and Scarlet Fu on Bloomberg Television’s “InsideTrack.”

For the video, click here.

Comings and Goings

Obama Plans Nominations of Powell, Stein for Fed Board

President Barack Obama said he will nominate two former U.S. Treasury Department officials for the Federal Reserve Board, including one who served in a Republican administration.

Jerome Powell, an attorney who was a Treasury undersecretary for former President George H.W. Bush, and Jeremy Stein, a Harvard University economist who has advised the current administration, are Obama’s picks.

Pairing candidates who served under both parties may help ease approval by a Senate where the Democrats’ majority narrowed last year, letting Republicans block administration nominees. The Fed’s seven-member Board of Governors has two vacancies. While the term of Elizabeth Duke, an appointee of President George W. Bush, expires Jan. 31, she can continue to serve until a successor is appointed.

Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, said in an e-mailed statement that he plans to move the nominations “in a timely manner” and wants to schedule a hearing soon after lawmakers reconvene in Washington. Senators plan to return to business Jan. 23.

--With assistance from Mathew Carr in London, Stephen Bierman in Moscow, Benjamin Garvey in Hong Kong, Karin Matussek in Berlin, Clea Benson, Lorraine Woellert, Roger Runningen and Scott Lanman in Washington and Linda Sandler and Bob Van Voris in New York. Editor: Stephen Farr

To contact the reporter on this story: Carla Main in New York at

To contact the editor responsible for this story: Michael Hytha at

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