Bloomberg News

Mortgage Accord, Foreign Bribes, Municipal Bonds: Compliance

February 01, 2012

(Updates with UBS, Samsung and Symmetry in Compliance Action; Iran Disclosures in Compliance Policy.)

Jan. 31 (Bloomberg) -- States have until Feb. 3 to decide whether to accept a proposed nationwide settlement of a foreclosure probe with banks including JPMorgan Chase & Co. and Citigroup Inc. that may total as much as $25 billion.

State and federal officials have been negotiating an agreement with the largest mortgage servicers that would set standards for how banks conduct home foreclosures while providing mortgage relief to borrowers. Any accord would be separate from a state-federal probe of mortgage securitization announced last week.

All 50 states announced an investigation into bank foreclosure practices in 2010 following disclosures that companies were using flawed documents in seizing homes. A group of state attorneys general and federal officials have since negotiated terms of a proposed settlement.

States are now considering whether to sign on the agreement and discussed the terms last week. At a meeting in Chicago with officials from Democratic attorney general offices, Iowa Attorney General Tom Miller, who is helping to lead the negotiations, declined to comment about whether there’s a deadline for states to accept the deal.

Nevada Attorney General Catherine Cortez Masto last week wrote to the U.S. Justice Department, the Department of Housing and Urban Development and Miller seeking more details on the deal. Masto said she needs answers quickly to 38 questions to evaluate the agreement because the sign-on deadline is Feb. 3.

“We, along with our federal partners, are responding directly to Attorney General Masto to try to address her concerns,” Geoff Greenwood, a spokesman for Miller’s office, said in an e-mail yesterday. Greenwood confirmed the Feb. 3 deadline.

Delaware Attorney General Beau Biden has said he won’t sign onto the deal as drafted. California Attorney General Kamala Harris’s office last week called it “inadequate for California.”

New York attorney general Eric Schneiderman, who’s joining federal agencies to investigate the bundling of mortgage loans into securities sold to investors, said in an interview last week that the releases in the proposed foreclosure settlement will allow that probe to proceed.

Compliance Action

Asset Acceptance Unit to Pay $2.5 Million in FTC Settlement

Asset Acceptance Capital Corp. agreed to pay a civil penalty of $2.5 million to settle U.S. Federal Trade Commission charges it deceived consumers while trying to collect old debts.

The company’s Asset Acceptance LLC unit agreed to tell consumers with debts too old to be legally enforceable that it won’t sue to collect them, the FTC said yesterday in an e-mailed statement.

Under the proposed settlement order, Asset Acceptance must also investigate disputed debts and ensure it has a reasonable basis for claiming that the consumer owes the money before continuing collection efforts, the agency said.

Asset Acceptance, based in Warren, Michigan, pays pennies on the dollar for debts owed to credit card companies, health clubs and telecommunications and utilities providers, as well as other debt buyers, according to the FTC. It has bought tens of millions of consumer accounts, targeting those more than a year past due that other collectors have pursued. Some of this debt is too old to be legally enforceable under state statutes, the FTC said.

Asset Acceptance said the settlement won’t have a “material adverse effect” on its business and doesn’t represent any admission of the FTC’s claims, according to a statement posted on Business Wire. The company said it agreed to “undertake industry-leading consumer protection practices” under the accord.

The case is U.S. v. Asset Acceptance LLC, 12-cv-182, U.S. District Court, Middle District of Florida (Tampa).

Yazaki, Denso Agree to Price-Fixing Conspiracy Guilty Plea

Yazaki Corp. and Denso Corp. agreed to plead guilty and pay a total of $548 million in criminal fines for their role in a price-fixing and bid-rigging conspiracy involving sales of auto parts in the U.S., the Justice Department said.

Four Yazaki executives, all Japanese, also agreed to serve prison sentences in the U.S. ranging from 15 months to two years, the department said yesterday in an e-mailed statement.

Yazaki, a closely held company based in Tokyo, agreed to pay a $470 million fine, the second-largest criminal fine for a violation of the Sherman Act antitrust law, the department said. Aichi, Japan-based Denso agreed to pay a $78 million fine.

The conspiracy to rig bids and fix prices of auto parts, including instrument panels and fuel sensors, had been going on for as long as a decade, according to court documents filed by the Justice Department yesterday in federal court in Detroit.

“The antitrust division will continue to work with the FBI and our law enforcement counterparts to root out this kind of pernicious cartel conduct that results in higher prices to American consumers and businesses,” Sharis Pozen, the division’s acting head, said in the statement.

The investigation into the auto parts price-rigging scheme is “ongoing,” and the executives who agreed to plead guilty also agreed to cooperate with the investigation, according to the statement.

Ex-Secret Service Official Acquitted of Foreign Bribes

A former deputy assistant director of the U.S. Secret Service, R. Patrick Caldwell, was one of two security-industry executives acquitted by a federal jury in a foreign bribery case in Washington.

Caldwell, who is also a former chief executive officer of Protective Products of America Inc., and John “Greg” Godsey yesterday were found not guilty of agreeing to make payments to a federal agent posing as a representative of the west African country of Gabon.

Both men faced as long as five years in prison had they been convicted. U.S. District Judge Richard Leon told the jury, which has been deliberating for eight days, to continue considering charges pending against three other defendants.

“Justice was done, but it cost Greg Godsey two years of his life in a case that should never have been brought,” Godsey’s lawyer, Michael Madigan of Orrick, Herrington & Sutcliffe LLP, said yesterday in an interview.

“We are very grateful for the verdict,” Caldwell’s lawyer, Eric Dubelier of Reed Smith LLP in Washington, said in an e-mail.

The trial is the second in a 22-defendant kickback conspiracy case stemming from a fake $15 million weapons deal. It’s the biggest prosecution of individuals accused of violating the Foreign Corrupt Practices Act. A trial of four others arrested in the sting ended in a mistrial in July after a jury failed to agree on a verdict.

Laura Sweeney, a Justice Department spokeswoman, declined to comment on the verdict, saying the jury is still deliberating.

The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).

Three UBS Clients Charged With Hiding Money in Offshore Accounts

Three ex-UBS AG clients, including two who ran venture capital firms, were indicted on charges of hiding millions of dollars in assets from U.S. tax authorities through the use of secret offshore accounts.

Stephen M. Kerr and Michael Quiel, who separately ran venture capital firms, were charged in an indictment made public yesterday in federal court in Phoenix. A former San Diego attorney, Christopher M. Rusch, was arrested Jan. 29 in Miami after being expelled from Panama at the request of the U.S. government.

Kerr, who ran CCN Worldwide Inc., had accounts worth more than $5.6 million in 2007 that he failed to report to the Internal Revenue Service, according to a Justice Department statement and the Dec. 8 indictment.

Quiel, who ran Legend Advisory Corp., had accounts valued at more than $2.6 million in 2007 that he also failed to report to the IRS, according to prosecutors and the indictment. He was arrested in the Phoenix area.

Rusch had signature authority over secret accounts held by Kerr and Quiel, and helped facilitate their transactions, prosecutors said. Rusch also had secret offshore accounts in the names of others at UBS and a Panamanian bank, prosecutors said.

Kerr, Quiel and Rusch were charged with conspiring to defraud the IRS. Kerr and Quiel were charged with filing false tax returns in 2007 and 2008 and with failing to file Reports of Foreign Bank and Financial Accounts for those years.

The case is United States v. Stephen Kerr, 11-cr-02385, U.S. District Court, District of Arizona (Phoenix).

Samsung Probed by EU Antitrust Regulator Over Mobile Patents

Samsung Electronics Co. is being probed by European Union antitrust regulators over licensing of patents to other mobile- phone manufacturers.

The European Commission in a statement today said it will investigate whether Samsung broke a 1998 commitment to license any standard essential patents for phones on “fair, reasonable and non-discriminatory terms.” It acted after Samsung claimed last year in European courts that rivals infringed its patents, the EU said in a statement.

Regulators have increased scrutiny of intellectual property rights, with EU antitrust chief Joaquin Almunia saying last month that he wanted to ensure patents weren’t used to block rivals’ expansion. He is also probing Honeywell International Inc. and DuPont Co. over chemical patents and is looking into standards in the banking industry.

James Chung, a spokesman for Samsung in Seoul, Korea, declined to immediately comment.

The EU said in November that it was quizzing Samsung and rival Apple Inc. over the use of patents. Both companies were sent requests for information about “the enforcement of standards-essential patents in the mobile-telephony sector,” the EU said at the time.

Alan Hely, a spokesman for Apple in London, declined to comment. Cupertino, California-based Apple said in a U.S. court filing in October that Samsung faced an EU probe into its “egregious” misuse of patents.

Apple and Samsung have filed intellectual property lawsuits against each other in at least 10 countries, according to Samsung. The legal battle between Apple and Samsung, its closest competitor in tablet computers, has intensified as consumers use devices such as tablets and smartphones to surf websites, play games and download music.

Samsung today lost a bid to overturn a German sales ban on its Galaxy 10.1 tablet computers obtained by Apple in an intellectual property dispute.

Symmetry Ex-CEO Moore to Return $450,000 in SEC Clawback Suit

Symmetry Medical Inc.’s former chief executive officer will return $450,000 in pay and stock proceeds to resolve U.S. Securities and Exchange Commission claims that he profited from accounting fraud by a U.K. unit.

Brian S. Moore benefited from a scheme in which employees inflated financial results in 2005 and 2006 “by systematically understating expenses and overstating assets and revenues” at Symmetry’s Thornton Precision Components Ltd. subsidiary, the SEC said in a complaint filed yesterday in federal court in South Bend, Indiana. The agency also settled claims against Symmetry Chief Financial Officer Fred L. Hite, who will pay $210,000.

The SEC recovered compensation from Moore and Hite under a provision in the Sarbanes-Oxley Act that gives the agency authority to seize payouts to CEOs and CFOs at companies that restate earnings “as a result of misconduct.” The law doesn’t specify whether the executives must be involved in wrongdoing.

“It is important to emphasize that the SEC did not accuse Mr. Moore of any wrongdoing,” Russell G. Ryan, an attorney for Moore at King & Spaulding LLP, said in an e-mail statement. “He is glad to have put the matter behind him.” A lawyer for Hite didn’t respond to a request for comment.

Moore and Hite resolved the SEC claims without admitting or denying wrongdoing.

Symmetry, a South Bend-based firm that designs, develops and manufactures surgical instruments, discovered “accounting irregularities” in 2007 and has “cooperated with the SEC since then,” president and CEO Thomas J. Sullivan said in a telephone interview. The company wasn’t accused sanctioned.

Compliance Policy

U.S. Municipal-Bond Regulator Seeks Rules to Stem Overcharging

The regulator of the $3.7 trillion U.S. municipal-bond market is seeking rules to prevent overcharging by firms that resell debt for brokers and to ensure that individual investors have access to new securities.

The Municipal Securities Rulemaking Board, which crafts regulations for state and local governments, also wants to force better disclosure of pricings in bond offerings, Alan Polsky, a vice president with Dougherty & Co. and the chairman of the MSRB, told reporters on a conference call yesterday. The board approved the steps during its meeting last week, he said.

The MSRB rules are subject to the approval of the Securities and Exchange Commission.

Wireless Companies to Face New U.S. Disclosure Rules in Bill

Mobile carriers such as AT&T Inc. and makers of wireless devices including HTC Corp. would be required to disclose when phones contain monitoring software under draft legislation in the U.S. House.

The proposed measure released yesterday responds to concerns of lawmakers who learned last year that mobile-phone software provider Carrier IQ Inc. gathered data on wireless phone users.

“Consumers have the right to know and to say no to the presence of software on their mobile devices that can collect and transmit their personal and sensitive information,” Representative Ed Markey, a Democrat from Massachusetts who wrote the bill, said in a statement.

Carrier IQ, based in Mountain View, California, sparked a debate on the collection of mobile-phone user data and consumer privacy. European regulators started investigating the company’s software after a security researcher posted a 17-minute YouTube video Nov. 28 detailing data logs collected by Carrier IQ.

The disclosure requirements in Markey’s draft bill would apply to companies that make or sell mobile phones, providers of telecommunications services and businesses that let consumers download software with monitoring capabilities.

For more, click here.

Senate Bill Would Force SEC Disclosure of Iran-Related Business

Senate Banking Committee leaders circulated draft legislation that would tighten sanctions on Iran over its nuclear program and its human-rights record.

Committee Chairman Tim Johnson, a South Dakota Democrat, and senior Republican Richard Shelby of Alabama released a proposal yesterday that would require companies traded on U.S. stock exchanges to disclose any Iran-related business to the Securities and Exchange Commission.

The proposed sanctions come on top of an array of new penalties imposed on Iran by the U.S. and the European Union over the past three months. The senators said they plan to seek a committee vote on their bill Feb. 2.

The measure would also extend U.S. sanctions to firms involved in joint ventures with Iran anywhere in the world involving uranium mining or new energy projects. The objective is to ratchet up the pressure on Iran’s leaders to “abandon their illicit nuclear program and support for international terrorism,” according to a statement from their offices.

The Johnson-Shelby plan also would penalize U.S. parent firms for certain Iran-related activities of their foreign subsidiaries, expand sanctions on Iran’s energy and petrochemical sectors, and mandate sanctions on those who supply Iran with weapons and other technologies used to commit human rights abuses.

Last week, the EU announced an oil embargo on to the 27- nation bloc effective July 1; banned trade in gold, precious metals, diamonds and petrochemical products from Iran; and imposed an asset freeze on Iranian banks and port operators that will make tens of billions of euros in annual trade with Iran almost impossible.

On Dec. 31, President Barack Obama signed into law congressional sanctions on Iran’s central bank aimed at complicating payments for Iranian oil by refiners in any country. On Nov. 21, the U.S., U.K. and Canada took coordinated action targeting Iran’s financial sector, with implications for any entities that do business with both Iran and Western nations.

Courts

MF Global Judge Picks Law Firm for Class Action Over Pay

The judge handling the MF Global Holdings Ltd. bankruptcy appointed an interim law firm for a potential group lawsuit over back pay, saying he expected the firm to coordinate with lawyers working on other cases against the defunct company.

Outten & Golden LLP, the New York firm named as interim lead counsel, has been advising Todd Thielmann and Pierre-Yvan Desparois, who sued MF Global in November to recover 60 days’ wages and benefits for themselves and other employees. They joined with plaintiffs in two other would-be class-action suits, asking the judge to pick a lead law firm and dismiss a fourth suit filed after theirs. The judge agreed to their requests in a court order signed yesterday.

The suits were filed after the liquidator of broker-dealer MF Global Inc. dismissed 1,066 employees as part of the shutdown of the firm. Employees didn’t get 60 days’ advance written notice of the firings, as required by the Worker Adjustment and Retraining Notification Act, according to filings in Manhattan bankruptcy court. Under bankruptcy law, wage claims may get priority status, with a possibility of being paid in full.

Explaining his order, U.S. Bankruptcy Judge Martin Glenn wrote that lawyers for the four sets of plaintiffs “are engaged in a vitriolic battle about which cases will proceed forward and who will serve as interim counsel” while they seek approval for class-action status.

Outten has fought about 50 so-called WARN Act cases and has a website dedicated to such litigation, Glenn said in the order. The interim appointment doesn’t mean Outten will lead a class action, if the case is certified as such, he said.

The MF Global parent filed for bankruptcy with almost $40 billion in debt on Oct. 31 after making bets on European sovereign debt and getting margin calls.

The employee suit is Thielmann v. MF Global Finance USA, 11-02880, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Comings and Goings

Christie Says Top N.J. Bank Regulator Considine to Step Down

Thomas B. Considine, New Jersey’s top banking and insurance regulator, will return to private industry, Governor Chris Christie said.

Considine will leave in February to join MagnaCare Inc., a New York health-plan services company, as chief operating officer, Christie said. The governor nominated Ken Kobylowski, Considine’s chief of staff, to succeed him.

Christie, 49, said he expected Considine to leave at some point during his administration. Under Considine, 59 insurers entered the New Jersey market, 64 others expanded operations and the department intensified fraud prevention, Christie said.

Kobylowski said the biggest issue facing his department is creation of the federal Consumer Financial Protection Bureau with authority over large financial institutions.

“The question really is going to be: How broad does the CFPB view their authority in terms of regulations from the largest institutions to the smallest institutions,” Kobylowski said. “We have state-chartered banks in New Jersey that run the gamut from $50 million in assets all the way up to $10 billion.”

Considine has been head of banking and insurance since Christie took office in January 2010.

--With assistance from David McLaughlin and Linda Sandler in New York; Sara Forden, Jesse Hamilton, Indira A.R. Lakshmanan, Tom Schoenberg, William Selway and Chris Strohm in Washington; David Voreacos in Newark, New Jersey; Terrence Dopp in Trenton, New Jersey; and Aoife White in Brussels. Editors: Glenn Holdcraft, 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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