Bloomberg News

SEC’s Owner Threshold, MF Global Hearing, Taxes: Compliance

February 03, 2012

(Updates with Qualcomm, Deloitte, JC Flowers former U.K. chief in Compliance Action; Deutsche Bank in Courts; Almunia in Interviews/Speeches.)

Feb. 2 (Bloomberg) -- The U.S. Securities and Exchange Commission should double the threshold of owners a company can have before being forced to register with the regulator, according to recommendations from the SEC’s small-business advisory group.

The committee voted yesterday in Washington to recommend the threshold be raised from 500 to 1,000. The group also recommended raising the dollar limit for so-called Regulation A public offerings from $5 million a year to $50 million before SEC registration is triggered. Though the committee also considered advising the SEC to consider allowing crowdfunding -- the soliciting and pooling of small investments, often online -- it postponed that vote because of concerns about limiting possible fraud.

After President Barack Obama directed federal agencies last year to ensure their rules promote economic growth while using the least burdensome tools to achieve regulatory ends, Schapiro asked her staff to review rules to relieve burdens on smaller companies. The House has passed parallel legislation, while senators have introduced similar measures and tried to attach them as amendments to bills on the Senate floor.

Compliance Policy

Portman Corporate Tax Plan to Include Low Repatriation Rate

A proposal allowing U.S. companies to pay a reduced tax rate on overseas profits they bring home will be included in corporate tax overhaul legislation that Senator Robert Portman, an Ohio Republican, said he plans to unveil soon.

Portman said the repatriation proposal, which he said would prompt as much as $1.8 trillion in annual corporate profits to be subject to taxation, should be included only as part of a shift to a territorial system in which U.S. companies’ overseas profits wouldn’t be taxed at the corporate rate.

The U.S. currently taxes worldwide income at a top rate of 35 percent. Most companies pay lower effective rates because they can claim credits for payments to other governments and defer taxation until bringing profits home.

Portman said he wants to introduce corporate tax overhaul legislation “early in this year.” His proposal would reduce the corporate rate to 25 percent.

House Ways and Means Chairman Dave Camp, a Michigan Republican, has proposed letting companies exempt 95 percent of their overseas earnings from U.S. taxation, putting him and Portman at odds with President Barack Obama, who supports a “basic minimum tax” on offshore profits.

The treatment of profits held overseas by U.S. companies would be a central element of a tax code overhaul that Obama and congressional Republicans say they want to pursue.

EU Regulator to Compile Annual Report on Financial Innovation

The European Banking Authority will publish an annual report on financial innovation which may recommend lawmakers propose new consumer protection rules.

The report will identify “areas of concern in both the consumer protection and financial innovation areas of the banking sector, as well as areas where these two intersect,” the EBA said in a statement on its website yesterday.

Compliance Action

Qualcomm Discloses Foreign Bribery Investigation by U.S.

Qualcomm Inc. said the U.S. Justice Department has started a preliminary probe into the chipmaker’s compliance with the Foreign Corrupt Practices Act, which bars U.S. companies and citizens from bribing foreign officials to win business.

The company said in regulatory filing yesterday it learned on Jan. 27 that the U.S. attorney’s office in San Diego had begun an investigation and that the Securities and Exchange Commission also has inquired about the topic. Qualcomm said in the filing that it believes it’s in compliance with the law and that it’s cooperating with both agencies.

Qualcomm Chief Executive Officer Paul Jacobs said yesterday on an earnings call that the company is in compliance.

Debra Hartman, a spokeswoman for the U.S. attorney in San Diego, declined to comment.

Christie Thoene, a spokeswoman for San Diego-based Qualcomm, didn’t immediately return a call for comment on the disclosure.

Deloitte to Face Tribunal Over Advice Before MG Rover Collapse

The U.K. accounting regulator issued a complaint against Deloitte LLP for failing to “consider the public interest” while advising on transactions involving the now defunct U.K. car company MG Rover Group Ltd.

The conduct of Deloitte, and a former partner, “fell short of the standards reasonably to be expected,” the Accountancy & Actuarial Discipline Board said in an e-mailed statement. The firm didn’t consider “the conflicts of interest and self- interest” in advising both the car company and its parent company, called Phoenix Venture Holdings. The matter was referred to an independent tribunal.

“We do not agree with the AADB and are confident that when all the evidence is considered, the tribunal will conclude that there is no justification for criticism of either Deloitte or our former partner,” Deloitte said in an e-mailed statement.

MG Rover went bankrupt in 2005 with 1.3 billion pounds ($2.1 billion) of debt and around 6,000 people lost their jobs. Nanjing Automobile Group Corp., a state-owned Chinese Company, bought the assets of MG Rover in July of that year for about $97 million.

JC Flowers Ex-U.K. Chief Won’t Be Investigated by London Police

London police chose not to investigate JC Flowers & Co.’s former chief executive after regulators fined him for faking invoices to take money from a company the private equity firm invested in.

City of London Police didn’t open a formal probe after JC Flowers declined to assist an informal inquiry and told them there was no actual victim in light of its reimbursement of the company’s losses, according to two people familiar with the matter who asked not to be identified because they weren’t authorized to speak.

The U.K. finance regulator Jan. 31 fined Ravi Shankar Sinha, JC Flowers’s former U.K. chief executive officer, 2.87 million pounds ($4.5 million) and banned him from working in finance in the country. Sinha defrauded a company in which New York-based JC Flowers invested of 1.37 million pounds by submitting falsified invoices, lying to the company CEO and saying the firm had authorized him to charge advisory fees, the FSA said.

FSA spokesman Joseph Eyre declined to comment.

JC Flowers, founded in 1998 by J. Christopher Flowers, 54, focuses on companies in the financial-services industry and has invested more than $5 billion in Europe.

For more, click here.

MF Global Cut European Exposure in August, Risk Officer Says

MF Global Holdings Ltd., the broker that filed for bankruptcy last year and saw as much as $1.2 billion in client funds go missing, began limiting its European debt positions three months before collapsing, according to Michael G. Stockman, the company’s former chief risk officer.

Stockman plans to tell a U.S. House panel at a hearing today that he warned MF Global’s board about risks related to the company’s bets on European sovereign debt. He alerted senior management in July and the board in August of higher default and liquidity risks, according to his prepared remarks.

The plan to cut MF Global’s European debt exposure came around the same time that regulators began to pressure the firm to raise capital. The Financial Industry Regulatory Authority in August told the company to add capital to its U.S. brokerage to back the trades.

By late October, Moody’s Investors Service downgraded MF Global to one level above junk status, citing its ongoing inability to meet earnings targets and concern that it wasn’t sufficiently managing risk.

MF Global sought bankruptcy protection less than a week after reporting a quarterly loss of $191.6 million for the three months through Sept. 30.

U.S. lawmakers who have been probing the bankruptcy are turning their attention to the risk-management practices of the firm.

For more, click here.

Courts/Commissions

Deutsche Bank Partly Loses Frankfurt Suit Over Currency Options

Deutsche Bank AG, Germany’s biggest bank, was ordered to pay 15 million euros in damages over a currency option product, a German court ruled.

The Frankfurt Regional Court today in part granted an action by German travel company Schauinsland-Reisen GmbH which had sought 30 million euros. The Duisburg, Germany-based company claimed the lender didn’t adequate advised it on the derivative it sold to hedge currency risks.

Ex-Credit Suisse Traders Plead Guilty to CDO Bonus-Scheme

Former Credit Suisse Group AG traders David Higgs and Salmaan Siddiqui pleaded guilty to falsifying prices tied to collateralized debt obligations to meet targets and boost year- end bonuses.

Switzerland’s second-largest bank said in 2008 it would take writedowns on asset-backed securities after finding “mismarkings” by a group of traders. The bank said it would write down $2.65 billion after a review found pricing errors on residential mortgage-backed bonds and CDOs made “by a small number” of traders who were subsequently fired or suspended.

Higgs and Siddiqui said yesterday in Manhattan federal court that they engaged in the scheme at the direction of their supervisor at the time, Kareem Serageldin. Serageldin, who the bank yesterday said was fired along with the two defendants in 2008, was global chief of synthetic CDOs at Credit Suisse.

Higgs and Siddiqui pleaded guilty to one count each of conspiracy to falsify books and records and commit wire fraud. The count carries a maximum five-year term and three years supervised release. They are both cooperating with the probe.

A person familiar with the case said yesterday that fewer than five people will be charged as part of the CDO scheme. The person declined to be identified because the investigation isn’t public. Credit Suisse won’t be prosecuted, the person said.

John Nester, an SEC spokesman, declined to comment yesterday on the case.

Higgs, Siddiqui and Serageldin haven’t worked for Credit Suisse since their employment was terminated in 2008, said Steven Vames, a spokesman for the bank in New York.

Serageldin couldn’t be immediately reached for comment on the allegations. He hasn’t been charged with any wrongdoing.

The cases are U.S. v. Higgs, U.S. v. Siddiqui, U.S. District Court for the Southern District of New York (Manhattan).

For more, click here.

BAA Loses Appeal Over Forced Sale of London Stansted Airport

BAA Ltd., the owner of London’s Heathrow airport, lost an appeal against the forced sale on antitrust grounds of the U.K. capital’s Stansted terminal and one of its two bases in central Scotland.

BAA’s case arguing that the U.K. airport market had become more competitive since the Competition Commission’s decision almost three years ago was unanimously dismissed, the Competition Appeal Tribunal in London said in a ruling yesterday.

“We are disappointed by the decision of the tribunal, which we will now carefully consider before making any further statements,” London-based BAA said in an e-mail. Stansted is the company’s second-busiest airport.

BAA was ordered to find buyers for Stansted and London Gatwick airport in March 2009, together with Edinburgh or Glasgow in Scotland. Gatwick was sold to Global Infrastructure Partners Ltd. for 1.51 billion pounds ($2.4 billion), but the other disposals were delayed after the tribunal upheld claims that an adviser to the regulator had a conflict of interest, before revisiting the issue and reaching the same conclusion.

The Competition Commission said in a statement it was pleased the decision had been upheld and that it’s now “surely time” for BAA to accept the ruling and complete the disposals.

Interviews/Speeches

EU Antitrust Chief Says He Will Block Deals ‘Whenever Necessary’

The day after blocking the merger of NYSE Euronext and Deutsche Boerse AG, the European Union’s antitrust chief vowed to veto other deals that hamper competition.

The EU will continue to block deals “whenever necessary,” Joaquin Almunia said in prepared remarks for a speech in Brussels today.

The deal to create the world’s largest exchange would have created a “near-monopoly” that could have increased trading fees and prevented investors switching from exchange-traded to over-the-counter derivatives, Almunia said.

Offers from the companies to soothe EU antitrust concerns were “too limited,” he said. “I rarely have to propose the prohibition of a merger,” said Almunia. “This means that I do not do so lightly; but I have done and will continue to do so whenever necessary.”

London’s Johnson to Lure French Banks as New Tax Looms

London Mayor Boris Johnson talked about French President Nicolas Sarkozy’s plans to unilaterally impose a tax on financial transactions, its potential impact on England’s capital and executive bonuses.

He spoke with Bloomberg Television’s Linzie Janis in London.

For more, click here.

Miller Says Fund Managers Must Be Transparent on Fees

Alan Miller, founder and chief investment officer at SCM Private, talked about the need for transparency of fees and fund portfolios, as well as the outlook for stocks and investment strategy.

He spoke with Andrea Catherwood on Bloomberg Television’s “Last Word.”

For the video, click here.

Shah Says Deutsche Boerse-NYSE Veto Appeal Unlikely

Sachin Shah, a special situations and merger arbitrage strategist at Tullett Prebon Plc, talked about a decision by European Union regulators to veto Deutsche Boerse AG and NYSE Euronext’s plan to create the world’s biggest exchange after concluding that the merger would hurt competition.

Shah spoke with Dominic Chu on Bloomberg Television’s “In Business with Margaret Brennan.”

For the video, click here.

Cameron Says Not Practical to Have Workers on Pay Panel

U.K. Prime Minister David Cameron answered questions from lawmakers about banking sector transparency, executive pay and bonuses, as well as overhauls within Britain’s National Health Service.

Cameron made the remarks speaking before the House of Commons in London.

For the video, click here.

Tucker Says Bank Credit Analysts to ‘Be Needed’ Under New Rules

Bank of England Deputy Governor Paul Tucker said new international rules on bank regulation will require closer monitoring of bank risks, creating a need for credit analysts.

“A measure of success of our reforms will be that some leading analysts will concentrate on debt rather than equity, on the downside risks: credit analysts,” Tucker said at an event in London yesterday. “They will be needed.”

Tucker also said officials’ work to prevent taxpayers from having to bail out risky banks will force other parts of the financial sector to “stand on their own feet,” implying that insurers will have to consider the implications of new rules. Though insurers largely didn’t receive state support during the crisis, those holding bank debt benefited from government bailouts of the financial system, he said.

Comings and Goings

Niederauer Keeps NYSE Board Support as Deutsche Boerse Backs CEO

Duncan Niederauer and Reto Francioni retained the backing of their boards even after regulators in Brussels put an end to their yearlong attempt to merge NYSE Euronext and Deutsche Boerse AG.

Directors of NYSE Euronext are “fully supportive” of Chief Executive Officer Niederauer, Jan-Michiel Hessels, the chairman, said in an e-mail. There are “no grounds for any fundamental shift” at Deutsche Boerse, wrote Manfred Gentz, chairman of the supervisory board. Alpine Woods Capital Investors LLC, Haverford Trust Co. and Cambiar Investors LLC said Niederauer would stay while the trade group for German investors praised Francioni.

Surviving the veto would mean Niederauer and Francioni were spared the fate of Werner Seifert, Francioni’s predecessor who was ousted by shareholders after he bid for London Stock Exchange Group Plc.

For more, click here.

--With assistance from Dakin Campbell and Ian King in San Francisco; Lindsay Fortado, Steve Rothwell, Nandini Sukumar and Jennifer Ryan in London; Patricia Hurtado, Nina Mehta and Whitney Kisling in New York; Kathleen Hunter, Jesse Hamilton, Silla Brush and Phil Mattingly in Washington; Aoife White and Ben Moshinsky in Brussels; Edvard Pettersson in Los Angeles; and Karin Matussek in Berlin. Editor: Glenn Holdcraft

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

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


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