Bloomberg News

Tobacco Packaging, Stock-Cost Rule, Bunge: Compliance

April 17, 2012

The U.K. government called for reactions to plans for standardized packaging for tobacco products as part of a drive to discourage smoking.

The Department of Health in London said in a statement on its website yesterday it wants interested parties to express their views on proposals for packs that might carry no branding, be a single color and carry a standard text in a uniform font. The department also said it wants to know about any possible effect on the illicit tobacco market.

Legislation banning the promotion and display of tobacco products in supermarkets and other large stores came into force in England earlier this month. That ban will be extended to all stores by April 2015.

A move by the U.K. to standardized packaging would echo policy in Australia, where cigarettes will have to be sold in dark brown packets as of Dec. 1, with no symbols or images and the same font for all brands.

Philip Morris International Inc. (PM:US), Imperial Tobacco Group Plc (IMT), British American Tobacco Plc (BATS) and Japan Tobacco Inc. (2914) are challenging the Australian law and will present their arguments against it in Canberra beginning tomorrow. Honduras complained about the measure at the World Trade Organization earlier this month.

Separately, tobacco companies’ claims that Australia was illegally seizing their trademarks with a law requiring cigarettes to be sold in plain packages was questioned by judges who said companies would still retain their brand names on the new packs.

British American Tobacco Plc, Europe’s biggest cigarette maker, and Japan Tobacco Inc. were joined by Philip Morris International Inc., the largest publicly traded tobacco manufacturer, and Imperial Tobacco Group Plc, maker of Gauloises Blondes, in a challenge to the Australian ban on logos.

The Australian ban, the first of its kind in the world, is being watched by governments around the globe. A High Court ruling upholding the law, which is due to go into effect Dec. 1, might prompt other countries to follow suit, further eroding the value of the tobacco companies’ brands.

Several judges questioned the benefit the government receives from appropriating space on cigarette packages now reserved for the companies’ logos and trademarks. To win, the tobacco companies must persuade the judges the government benefits from the prohibition on the use of the trademarks and as a result would have to compensate them.

The case is British American Tobacco Australia Ltd. v the Commonwealth of Australia. S389/2011. High Court of Australia (Canberra).

For more, click here.

Compliance Policy

Dimon Widens Gap With JPMorgan Bankers as Wall Street Pay Slides

Jamie Dimon, awarded $23 million for running JPMorgan Chase & Co. (JPM:US) last year, earned 67 times the average amount set aside for his investment bankers and traders, the widest gap among firms that report divisional pay.

Dimon, 56, chief executive officer of the New York-based lender, was one of the few bank CEOs who avoided a pay cut for 2011. The ratio of his compensation to the average for all employees at JPMorgan’s investment bank (JPM:US) increased from 62 times the previous year.

CEO pay in banking has dropped since peaking before the financial crisis, bringing the ratio at most firms to between 18-to-1 and 50-to-1 from some that topped 100-to-1 in 2006 and 2007.

The ratio gives a picture of the rebound in CEO compensation from 2008, when most leaders didn’t take bonuses amid losses and government bailouts. That comes as lawmakers and regulators increase attention on the pay disparity between top executives and workers, and the Occupy Wall Street protests targeted income inequality.

The U.S. Securities and Exchange Commission is drafting a rule, mandated by the Dodd-Frank Act, that would force public companies to disclose the ratio of CEO compensation to median pay, the level at which half the employees are above and half below. The rule was pushed to address concerns about rising executive pay and income inequality.

Jennifer Zuccarelli, a spokeswoman for JPMorgan in New York, declined to comment.

For more, click here.

Fed Releases Principles on Financial Market Infrastructures

U.S. regulators published a final report on principles for financial market infrastructures aimed at strengthening risk management for payments systems and central counterparties.

The principles, released today by the Federal Reserve, Commodity Futures Trading Commission and Securities and Exchange Commission, also set standards for central securities depositories, securities settlement systems, and trade repositories, according to a joint statement by the regulators.

According to a statement by William C. Dudley, president of the Federal Reserve Bank of New York, the standards are designed to make the financial systems more resilient to financial crises.

Senate Blocks Buffett Rule 30% Minimum Tax Rate for Top Earners

The U.S. Senate blocked the proposed Buffett rule that would set a minimum 30 percent federal tax rate for the highest earners, stopping the legislation for now while an election-year debate on tax policy and income inequality continues.

The 51-45 vote yesterday in Washington fell short of the 60 needed to advance the measure, and Republicans derided the Buffett rule as a political stunt. President Barack Obama has been campaigning for the legislation across the country, maintaining that it’s unfair that some high-income taxpayers use deductions and preferential tax treatment of investment income to pay lower rates than many middle-income wage earners do.

The Republican roadblock of the measure may intensify partisan wrangling as Democrats seek to take advantage of public support for the idea. A Gallup poll last week showed about six in 10 voters favor the idea.

Senator Charles Schumer of New York said his fellow Democrats will return to the issue repeatedly and propose the minimum tax to pay for such items as a research and development tax credit or spending for college aid.

In a statement released after the vote, Obama criticized Republicans for blocking what he called a “common sense” idea.

For more, click here, click here, and see Interviews section, below.

Compliance Action

OptionsXpress Accused by SEC of Skirting Naked Short-Sale Rules

The U.S. Securities and Exchange Commission accused an online brokerage firm and four of its executives of engaging in naked short-selling in violation of securities laws from at least October 2008 to March 2010.

OptionsXpress Holdings Inc. conducted a series of sham “reset” transactions designed to give the illusion that the firm had purchased securities to comply with obligations associated with short sales, the SEC said in a statement yesterday. The agency also accused an OptionsXpress customer of taking part in the alleged scheme, which it said violated Regulation SHO requirements.

The firm and the customer “used sham reset transactions to avoid, sometimes for months, compliance with Reg. SHO’s stock delivery requirements,” SEC Enforcement Director Robert Khuzami said in the agency’s statement.

In September, Chicago-based OptionsXpress became a wholly owned subsidiary of Charles Schwab Corp. (SCHW:US)

Taxpayers Dealing With U.S. Stock-Cost Rule Seek Extensions

Taxpayers and accountants rushing to meet today’s tax- filing deadline are struggling to adjust to a new law requiring brokers to report to the Internal Revenue Service what their clients paid for stocks.

The so-called cost basis reporting requirement, which in this tax-filing season applies only to stocks bought and sold in 2011, comes with new forms and tricky calculations causing some taxpayers to file for extensions so they can get the math right. Congress required brokers to report the basis so that taxpayers don’t underreport their gains or overreport their losses.

Cost basis reporting will become more complicated for taxpayers and accountants for at least two years as additional types of assets fall under the rules. The requirement will cover mutual funds and most exchange-traded funds starting in 2012 and fixed-income instruments and options beginning in 2013.

Brokers, accountants and taxpayers are still getting used to the rules, which will eventually simplify and standardize basis reporting, said Stevie Conlon, senior director and tax counsel at Wolters Kluwer Financial Services. The firm provides software to brokers that calculates cost basis.

Congress created the cost basis requirement in 2008 in the same law that authorized the Troubled Asset Relief Program. The requirement is part of the government’s effort to reduce the estimated $385 billion annual net gap between taxes owed and taxes paid.

Trickier cases involve so-called wash sales, when taxpayers sell shares at a loss and buy within 30 days on either side of the transaction. In those instances, the loss is generally disallowed by the IRS and added to the cost basis of the repurchased shares.

For more, click here.

Argentina Suspends Bunge From Grain Registry Over Taxes

Bunge Ltd. (BG:US)’s Argentine unit was suspended from the country’s grain exporters’ registry by the local tax agency, saying it avoided 435 million pesos ($99 million) of payments.

Bunge evaded taxes between 2006 and 2007, the agency, known as AFIP, said in an e-mailed statement. The White Plains, New York-based company had previously been suspended from the registry in March 2011 as part of a separate tax probe.

Argentina is the world’s largest exporter of soy-oil, the second-largest of corn and the third-largest of soybeans. Bunge is among the country’s five biggest exporters of the products.

The suspension from the registry means Bunge will lose certain tax advantages for sales within Argentina and will have limited access to permits required to transport grains.

Following the previous suspension, an appeals-court ordered that Bunge be returned to the registry because AFIP hadn’t given the company enough time to defend itself, according to the ruling.

Bunge spokesman Stewart Lindsay didn’t immediately return a call seeking comment.

German Bank Levy Revenue to Decline This Year, Handelsblatt Says

German Finance Minister Wolfgang Schaeuble expects the bank levy introduced in 2011 to generate less in 2012 than it did last year, Handelsblatt reported, citing a letter to lawmakers.

Revenue from the levy probably will drop to 500 million euros ($657 million) in 2012 from 590 million euros a year earlier because of weaker economic growth as a result of the region’s debt crisis and banks’ writedowns on their exposure to Greece, Handelsblatt said.

The government forecast in 2010 that the levy would produce 1.3 billion euros in revenue annually, the newspaper said.

Courts/Tribunals

Ex-GE Bankers Defrauded Cities in Bid-Rigging Scam, U.S. Says

Three former General Electric Co. (GE:US) bankers defrauded cities and the Internal Revenue Service in a bid-rigging scheme involving municipal bonds, a prosecutor told jurors yesterday at the start of a fraud trial in Manhattan federal court.

Dominick Carollo, Steven Goldberg and Peter Grimm face charges of conspiracy to commit fraud by manipulating auctions for municipal bonds. The government claims that between August 1999 and November 2006 the men gave kickbacks to brokers hired by local governments to solicit bids, to win auctions and increase their profits.

The charges grew out of a five-year investigation by federal antitrust prosecutors into the $3.7 trillion municipal bond market. In December, GE agreed to pay $70.4 million to resolve its part of the investigation. The defendants deny any wrongdoing. Bank of America Corp., (BAC:US) JPMorgan Chase & Co., UBS AG (UBSN) and Wells Fargo & Co. (WFC:US) have acknowledged illegal activities by former employees and paid more than $670 million in restitution and penalties.

The case is focused on guaranteed investment contracts, or GICs, which cities buy with the money raised from selling bonds.

Prosecutors said they intend to introduce recorded telephone calls made by the defendants as evidence of the scheme, Waszmer said. Defense lawyers welcomed the introduction of the tapes, saying they will show that legitimate business was being transacted.

The case is U.S. v. Carollo, 10-cr-00654, U.S. District Court, Southern District of New York (Manhattan).

Clay Capital’s Turner Gets Year in Prison in Insider Case

James F. Turner II, chief investment officer of the hedge fund Clay Capital Management LLC, was sentenced to one year in prison for insider trading that prosecutors said made more than $2.5 million.

Turner, 45, was sentenced yesterday in federal court in Newark, New Jersey, where he admitted Dec. 19 that he illegally traded in shares of Autodesk Inc. (ADSK:US), Moldflow Corp. and Salesforce.com Inc. (CRM:US), U.S. Attorney Paul Fishman said in a statement. U.S. District Judge Dennis Cavanaugh also imposed a $25,000 fine.

Clay Capital ran the Clay Fund from 2007 to 2010, the U.S. Securities and Exchange Commission said in a parallel civil suit. Turner admitted he got tips from Scott Vollmar, his brother-in-law and a director of business development at Autodesk, and from Scott Robarge, a college friend and manager at Salesforce.com.

Turner, of Traverse City, Michigan, pleaded guilty to one count of securities fraud. He faced as many as 20 years in prison. Joseph Bush, his attorney, didn’t immediately return a call seeking comment.

Vollmar, of Florence, Oregon, and Robarge, of Louisville, Colorado, pleaded guilty to conspiracy to commit securities fraud. They are to be sentenced May 14. Turner, Vollmar and Robarge were sued Aug. 31 by the SEC over the scheme.

While the investments of Turner and his partners remain in the Clay Fund, its other assets were liquidated and distributed in December 2010, the SEC said.

The criminal case is U.S. v. Turner, 2:11-cr-00868, U.S. District Court, District of New Jersey (Newark).

Ex-Cantor Fitzgerald Traders Fighting FSA’s Market-Abuse Fines

Two former Cantor Fitzgerald Europe traders accused of committing market abuse are challenging the U.K. finance regulator’s decision to fine them and ban them from working in the industry.

The trial focuses on stock trades on Dec. 31, 2007 and Jan. 31, 2008, by Cantor Fitzgerald Europe traders including Cheickh Tidiane Diallo and Patrick Sejean, according to papers filed by the Financial Services Authority for a trial that began today in London. They were trading on the instructions of Stefan Chaligne, an equity-fund investment manager.

Chaligne “instructed CFE to buy stock with the goal of raising the price” of a company in which the fund already held shares, the FSA said in the court papers. The trades were done “on those particular dates,” because they were the days on which performance fees for Chaligne were decided, based on the fund’s value, according to the agency.

Diallo worked for Cantor Fitzgerald from 2006 until April 16, 2011, in a customer trading role, according to the FSA register. Sejean worked for the firm from 2002 until March 16, 2011.

Interviews

Levitt Says Mandate on Chairmen and CEOs Is Wrong

Arthur Levitt, the former chairman of the U.S. Securities and Exchange Commission, said a mandate to separate the positions of chairman and chief executive officer at U.S. companies “will have unintended consequences.”

Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Benenson Says He Supports Obama’s Buffett Rule

Lawrence Benenson, partner at Benenson Capital Co., talked about his support for the Obama administration’s efforts to increase taxes on top U.S. earners.

Benenson, who met with President Barack Obama last week, spoke on Bloomberg Television’s “InBusiness with Margaret Brennan.”

For the video, click here.

Heritage Foundation’s Fraser Discusses Tax Increases

Alison Fraser, director for the Roe Institute for economic policy at the Heritage Foundation, discussed proposed tax increases. Fraser explained what would happen to the tax rules if Congress “does nothing on any tax policy” before Jan. 1, 2013.

Fraser talked with Bloomberg’s Pimm Fox and Courtney Donohoe on Bloomberg Radio’s “Taking Stock.”

For the audio, click here.

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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Companies Mentioned

  • PM
    (Philip Morris International Inc)
    • $88.06 USD
    • 0.44
    • 0.5%
  • JPM
    (JPMorgan Chase & Co)
    • $58.74 USD
    • 0.68
    • 1.16%
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