Bloomberg News

Apple, Bofa Settlement, Facebook, Cordray Speech: Compliance

April 11, 2012

Apple Inc. (AAPL:US) and the publisher Macmillan could be sued as soon as today by the U.S. Justice Department over alleged collusion in the pricing of e-books, according to two people familiar with the matter.

Apple and Macmillan, which have refused to engage in settlement talks with the Justice Department, deny they colluded to raise prices for digital books, the people said. In an antitrust case, they will argue that pricing agreements between Apple and publishers enhanced competition in the e-book industry, which was dominated by Amazon.com Inc. (AMZN:US)

The Justice Department is probing how Cupertino, California-based Apple changed the way publishers charged for e- books on the iPad, a person familiar with the matter said last month. The Justice Department’s antitrust division told Apple and five publishers that it’s preparing to sue them for allegedly fixing the prices of electronic books, a person familiar with the matter told Bloomberg News March 8.

CBS Corp. (CBS:US)’s Simon & Schuster, Lagardère SCA’s Hachette Book Group and News Corp. (NWSA:US)’s HarperCollins are seeking to avoid a costly legal battle and could reach a settlement as soon as today, two people familiar with the matter said.

The U.S. is still leaving the door open for last-minute settlement discussions this week, a person familiar with the situation said.

Gina Talamona, a spokeswoman for the Justice Department’s antitrust division, and representatives of Apple, Simon & Schuster, Hachette and Macmillan, which is a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, declined to comment on prospects for lawsuits or settlements. Erin Crum, a spokeswoman for HarperCollins didn’t immediately respond to an e-mail and phone call seeking comment.

In the Courts

N.Y. Renews Opposition to BofA $8.5 Billion Mortgage Accord

New York Attorney General Eric Schneiderman renewed his opposition to Bank of America Corp. (BAC:US)’s proposed $8.5 billion mortgage-bond settlement, saying the deal covers “a small fraction” of investor losses.

Schneiderman’s office asked a New York state judge yesterday to allow it to intervene in the case, saying in a court filing that there are “serious questions about the fairness and adequacy of the proposed settlement.”

“The proposed cash payment represents only a tiny percentage of the losses investors have faced and will continue to face,” the attorney general said.

Schneiderman’s request comes after litigation over the settlement was sent back to state court from federal court for consideration. He previously raised objections to the agreement and won approval from a federal judge to intervene and participate in the case.

The settlement would resolve claims from investors in Countrywide Financial Corp. (CFC:US) mortgage bonds. Bank of New York Mellon Corp. (BK:US), as trustee for investors, is seeking approval of the deal in state court.

In a letter yesterday to New York State Justice Barbara Kapnick, who is overseeing the case, the attorney general’s office said it has been unable to reach an agreement on the intervention with other parties in the case.

In its court filing, the attorney general removed claims first filed last year against BNY Mellon over its role as trustee and will no longer pursue them as part of the Countrywide settlement, Danny Kanner, a spokesman for Schneiderman, said.

“We have separated our affirmative claims from our intervention motion, and intend to aggressively pursue the state’s interest through every means available, including further investigation and litigation if necessary,” Kanner said.

Lawrence Grayson, a Bank of America spokesman, declined to comment on the attorney general’s filing. Kevin Heine, a spokesman for BNY Mellon, didn’t respond to an e-mail seeking comment.

The case is In the application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court (Manhattan).

Checking Facebook at Work Isn’t Crime, Appeals Court Rules

Employees who check Facebook, shop online or send personal e-mail from work in violation of their companies’ policies aren’t committing a crime under a federal computer fraud law, a U.S. appeals court said.

Yesterday’s decision came in a lawsuit in which federal prosecutors charged a former Korn/Ferry International (KFY:US) employee with trade secret theft and mail fraud and violations of the Computer Fraud and Abuse Act for getting information from the company’s database to start a competing business. Prosecutors appealed a district court ruling throwing out the computer fraud charges.

“Minds have wandered since the beginning of time and the computer gives employees new ways to procrastinate” though workers are rarely disciplined for such conduct, wrote Judge Alex Kozinski for a majority of appeals court judges in San Francisco. “Under a broad interpretation of the CFAA, such minor dalliances would become federal crimes.”

Kozinski cited a Florida case in which an employee suing her company for wrongful termination was countersued by the employer for violations of the CFAA because she checked Facebook and sent personal e-mails at work. The employee would have had to face the claims if the anti-hacker CFAA, which punishes an individual who “exceeds authorized access” on a computer for stealing, was construed to include violations of company computer use policies, Kozinski said.

A federal court had dismissed the company’s counterclaims in the Florida case.

Dan Gugler, a spokesman for Los Angeles-based Korn/Ferry, didn’t immediately return a voice-mail message seeking comment on yesterday’s ruling.

“The decision leaves intact the ability of the government to prosecute someone for getting into a computer they don’t have permission to get into,” said Dennis Riordan, an attorney for David Nosal, the Korn/Ferry employee. “What it prevents from happening is people getting prosecuted from watching March Madness at work.”

The case against the ex-Korn/Ferry worker is U.S. v Nosal, 10-10038, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

Compliance Policy

FTC Reveals Schedule For Reviewing Regulations and Guides

The Federal Trade Commission on April 6 unveiled its updated 10-year schedule for the systematic review of all current rules and guides, BNA reports. The commission last year accelerated its regulatory review program and under that schedule, more than one-third of its 65 rules and industry guides will undergo a review by the end of 2012. The FTC is reviewing 22 rules and guides, and will begin three more reviews this year to ensure that its rules and guides are timely, effective, and “not overly burdensome.”

The review program has been in place at the FTC since 1992. The agency stressed the importance of rules and guides in its consumer protection mission, but acknowledged the need for periodic review of the rules and guides.

For more, click here.

Compliance Action

Gupta Prosecutors Add One Alleged Tip Claim to Prosecution

Rajat Gupta, the former Goldman Sachs Group Inc. (GS:US) director charged with passing inside tips to convicted Galleon Group Inc. co-founder Raj Rajaratnam, faces a new claim involving a quarterly sales forecast for Procter & Gamble Co. (PG:US), U.S. prosecutors said in a court filing.

Prosecutors filed an amended bill of particulars yesterday providing details about the alleged tips they plan to prove Gupta provided in their case against him.

Gupta tipped Rajaratnam and their unnamed co-conspirators about “P&G’s organic sales growth forecast for the October- December quarter prior to P&G’s public announcement on or about Dec. 11, 2008,” according to the filing in federal court in Manhattan.

Gupta, the one-time McKinsey & Co. leader, was charged by Manhattan U.S. Attorney Preet Bharara’s office in October. He pleaded not guilty and is scheduled to go on trial May 21.

“As we have stated from the onset, the government’s allegations are totally baseless,” Gupta’s lawyer, Gary Naftalis, said in a statement yesterday. “The facts in this case demonstrate that Mr. Gupta is innocent of all of these charges, and that he has always acted with honesty and integrity.”

The case is U.S. v. Gupta, 11-907, U.S. District Court, U.S. District Court, Southern District of New York (Manhattan).

Speeches

Consumer Bureau Plans Broader Rules for Mortgage Servicers

The U.S. Consumer Financial Protection Bureau will propose rules for the mortgage servicing industry that go beyond the March 12 agreement among state and federal authorities and major banks.

The servicing settlement was “an important step forward on the road to renewal,” CFPB Director Richard Cordray said yesterday in a Washington speech. “But it was only a partial step, as it covered only certain financial institutions and only certain categories of the mortgage loans that they service.”

The consumer bureau would require servicers to disclose key information on monthly statements, give clear warnings before interest rates adjust, warn consumers before taking out hazard insurance on their homes, and credit payments immediately, the agency said in a fact sheet posted on its website. The rules will be formally proposed “this summer,” and completed by January, according to the fact sheet.

The $25 billion settlement with five banks, including Wells Fargo & Co. (WFC:US) and JPMorgan Chase & Co. (JPM:US), was filed in federal court in Washington on March 12. The agreement, which ended a joint federal-state investigation that began in 2010, doesn’t cover mortgage loans backed by government-sponsored enterprises, such as Fannie Mae and Freddie Mac.

Cordray, who was Ohio attorney general when the inquiry began, said the settlement didn’t cover “the many independent servicers that specialize in the servicing of subprime or delinquent loans.” Those servicers include companies such as Ocwen Financial Corp. (OCN:US)

The bureau will also propose regulations on mortgage servicing that go beyond the requirements in the Dodd-Frank law that created the agency, according to the fact sheet.

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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