Bloomberg News

Energy-Mining Disclosure, RBS Probe, FDIC: Compliance

August 23, 2012

U.S.-listed energy and mining companies must report what they pay each country in which they tap resources in a rule adopted by the Securities and Exchange Commission.

SEC commissioners voted 2-1 yesterday to compel public disclosure of taxes, royalties and fees paid to any government, including the U.S., by so-called extractive industries companies for access to resources. SEC Chairman Mary Schapiro, who formerly served on the boards of Duke Energy Corp. (DUK:US) and Cinergy Corp., and Republican Commissioner Troy Paredes recused themselves from voting on the final rule.

The initial disclosures must be filed for fiscal years ending after Sept. 30, 2013.

For more, click here.

Separately, U.S. manufacturers and companies that contract with them must file reports starting in May 2014 identifying where they obtained any of four minerals associated with human- rights abuses in central Africa, according to an SEC rule.

SEC commissioners voted 3-2 yesterday to adopt a so-called conflict minerals rule requiring companies to make reasonable efforts to trace sources of tin, tantalum, tungsten and gold in their products and a deeper search if the metals may have come from mines that have helped fund armed groups in the Democratic Republic of Congo.

Metals certified as scrap or recycled would automatically be considered conflict-free under the SEC rule.

Compliance Policy

FSA Mulls Ban on Marketing Complex Products to Retail Consumers

The U.K. Financial Services Authority intends to ban the marketing of complex investment products involving assets such as wine, crops and timber to retail consumers.

The regulator found “high levels of unsuitable advice” and the “potential for customer detriment,” in a review into products known as Unregulated Collective Investment Schemes, the FSA said today. Around 85,000 retail investors already have direct holdings in UCIS, according to the agency.

The FSA has increased pressure on banks to be transparent in their dealings with retail customers.

SEC’s Schapiro Cancels Money-Fund Vote as Opposition Prevails

Mary Schapiro, chairman of the U.S. Securities and Exchange Commission, canceled a vote on a proposal to tighten money- market fund rules amid opposition from fellow commissioners and a lobbying campaign by fund companies.

Three of the five commissioners told her they wouldn’t support her proposal, Schapiro said in a statement yesterday. Other policy makers should address “one of the pieces of unfinished business from the financial crisis,” Schapiro said.

Schapiro, backed by the Federal Reserve, has worked to make money funds more stable since the collapse of the $62.5 billion Reserve Primary Fund in September 2008. Its closing triggered a wider run on money funds, helping to freeze global credit markets.

The announcement marks a victory for the mutual-fund industry, which has lobbied against the Schapiro proposal. The plan called for funds to abandon their traditional $1 share price, or to adopt capital buffers and redemption restrictions, changes executives said would destroy products that manage $2.6 trillion for U.S. companies and households.

A vote on the proposal was expected to happen as early as Aug. 29, though it hadn’t been formally scheduled. The New York Times reported Schapiro’s decision to cancel the vote earlier yesterday.

German Price Controls Cover EU Suppliers, High Court Rules

German price controls are binding for mail-order suppliers of prescription drugs from across the European Union, a German high court panel ruled yesterday.

A joint panel of Germany’s Federal Court of Justice, the country’s highest civil court, made the decision yesterday after a German pharmacy owner challenged a Dutch competitor who offered bonuses for prescription drugs by mail for German consumers, the court said in a statement.

Compliance Action

RBS Said to Be Probed by U.S. Regulators Over Iran Sanctions

Royal Bank of Scotland Group Plc, Britain’s biggest taxpayer-owned lender, is being probed by the Federal Reserve and Justice Department over whether it violated sanctions against Iran, two people briefed on the talks said.

The investigation was triggered after the bank disclosed information to the U.S. authorities following a review of the business Chief Executive Officer Stephen Hester started after he joined the Edinburgh-based bank in 2008, said the people, who asked not to be identified because the probe isn’t public. The Financial Times reported the negotiations earlier yesterday.

RBS opened “discussions with U.K. and U.S. authorities to discuss its historical compliance with applicable laws and regulations, including U.S. economic sanctions,” the bank said in an Aug. 3 filing that didn’t mention the regulators or Iran. “Although the group cannot currently determine when the review of its operations will be completed or what the outcome of its discussions with U.K. and U.S. authorities will be, the investigation costs, remediation required or liability incurred could have a material adverse effect.”

Standard Chartered Plc (STAN) paid $340 million this month to New York’s Department of Financial Services to settle claims it helped Iran launder about $250 billion in violation of federal laws. Regulators are investigating four European banks, including Deutsche Bank AG (DBK), for alleged violations involving oil trading and Iran, an attorney with knowledge of the matter said earlier this month.

Benjamin Lawsky, the DFS superintendent who investigated London-based Standard Chartered, isn’t looking into RBS, the people said. Barbara Hagenbaugh, a Fed spokeswoman, David Neustadt at the DFS and Gina Talamona, a spokeswoman for the Justice Department, declined to comment. Sarah Small, an RBS spokeswoman, declined to comment beyond the bank’s regulatory disclosure.

Courts

Ex-Polly Peck CEO Asil Nadir Gets 10 Years for Theft From Firm

Asil Nadir, the former Polly Peck International Plc chief executive officer, was sentenced to 10 years in jail by a London judge for stealing from the company.

Nadir fled the U.K. in 1993 for Northern Cyprus to avoid trial. He returned in 2010 to face the charges and was convicted this week of theft.

Nadir was convicted Aug. 20 on three counts of theft and cleared on one, Jina Roe, a spokeswoman for the U.K. Serious Fraud Office, which prosecuted the case, said in an e-mail. The 10-member jury was told to continue deliberating on nine further theft counts for which they hadn’t been able to reach a verdict, she said. Judge Timothy Holroyde said he would accept majority verdicts of nine-to-one on the remaining counts.

Nadir, who testified he fled Britain as a “broken man” with no hope of receiving a fair trial, returned to the country after prosecutors said he would be granted bail. He has been on trial since January. The jury deliberated for more than a week at London’s Central Criminal Court, known as the Old Bailey.

Prosecutors alleged that, between 1987 and 1990, Nadir and his associates withdrew money from the now-defunct food- packaging firm’s U.K. accounts, funneling it to Swiss and Bahamian firms. When London-based Polly Peck collapsed in 1990, administrators found more than 700 million pounds ($1.1 billion) owed to creditors was unrecoverable from units of the company, which Nadir built up during the 1980s by expanding into electronics and hotels and acquiring the Del Monte fruit brand.

Under Nadir’s leadership, Polly Peck loaned hundreds of millions of pounds to its subsidiaries in Turkey and Cyprus in the years before the company’s collapse. Nadir later said the money was for a capital expenditure program and advance payments to citrus growers, according to the SFO.

FDIC Sues Goldman, JPMorgan Over Mortgage-Backed Securities

Goldman Sachs & Co. and units of JPMorgan Chase & Co. (JPM:US) and Ally Financial Inc. overstated the quality of loans underlying mortgage-backed securities they sold to the failed Guaranty Bank in Austin, Texas, according to lawsuits brought by the FDIC as its receiver.

In three separate complaints filed in state court in Austin on Aug. 17, the Federal Deposit Insurance Corp. alleged those institutions and others sold about $5.4 billion worth of certificates to Guaranty Bank.

Guaranty Bank, which had 103 branches in Texas and 59 in California, was closed by the Office of Thrift Supervision three years ago yesterday. Its branches were acquired by BBVA Compass of Birmingham, Alabama, the FDIC said in a statement issued then.

BBVA Compass also acquired almost all of Guaranty’s $12 billion in deposits, the insurer said, while entering into a loss-share transaction with the FDIC on about $11 billion of the bank’s assets.

Claiming the certificate sellers breached Texas securities law by making misleading or untrue statements about loans backing those certificates, the FDIC said in one complaint that it seeks at least $900 million in damages from Goldman Sachs, Ally Financial’s Residential Funding Securities LLC and from units of Deutsche Bank AG and JPMorgan Chase.

A separate complaint seeks damages of more than $677 million in damages from JPMorgan Securities LLC, Bank of America (BAC:US) Corp.’s Merrill Lynch Pierce Fenner & Smith Inc. securities unit and a brokerage unit of Royal Bank of Scotland Group Plc.

Finally a third complaint seeks almost $560 million in damages from Bank of America (BAC:US), its Countrywide Securities unit and other defendants.

Thomas Kelly and David Wells, spokesmen for JPMorgan and Goldman Sachs, respectively, declined to comment. Shirley Norton, a spokeswoman Bank of America, and Gina Proia, a spokeswoman for Ally Financial, didn’t immediately reply to voice-mail and e-mail messages, respectively, seeking comment.

The cases are Federal Deposit Insurance Co. as receiver for Guaranty Bank v. Ally Securities LLC, D-1-GN-12-002522; FDIC v. Countrywide Securities Corp., D-1-GN-12-002516 and FDIC v. JPMorgan Securities Inc., D-1-GN-12-002517, Travis County, Texas, District Court (Austin).

Arizona Regulator Sues NMI Showing Watchdog Influence: Mortgages

NMI Holdings Inc., which raised $550 million in April to open a mortgage insurer, faces a lawsuit from an Arizona regulator, highlighting the role of state watchdogs as the industry seeks to recover from years of losses.

Arizona officials, acting as receivers for PMI Mortgage Insurance, which they seized last year, sued NMI and at least six of its employees on Aug. 8, saying some PMI workers stole information and did tasks for NMI over at least seven months before joining the upstart. Along with damages, the state wants NMI to be forced to withdraw any applications with insurance agencies and mortgage financiers Fannie Mae (FNMA:US) and Freddie Mac that relied even partly on material taken from PMI.

State commissioners have stopped PMI, Triad Guaranty Inc. (TGIC:US) and Old Republic International Corp. (ORI:US) from selling new mortgage insurance after claims costs drained funds. Some regulators, along with government-sponsored enterprises Fannie Mae and Freddie Mac, have pressured remaining companies to maintain capital standards. Upstarts such as NMI need the blessing of states and the GSEs as they seek to take market share.

Germaine Marks, the acting director of the Arizona Department of Insurance, declined to comment on regulatory approval of NMI. Wisconsin, where the insurer is domiciled, is in the process of reviewing the company.

“NMI denies that we have used any information over which PMI has any rights in any way whatsoever in connection with any application,” Glen Corso, NMI’s general counsel, said in an e- mail. The company is working toward completing regulatory approvals in the fourth quarter and “will not let this lawsuit distract us,” he said.

The case is Marks v. NMI Holdings, Inc., California Superior Court, RG12642872 (Alameda County).

For more, click here.

Interviews

Knight’s $440 Million Loss Spurs Questions on Trade Cancel Rules

Knight Capital Group Inc. (KCG:US)’s $440 million loss from a computer malfunction this month highlights the dangers of limiting human input in decisions about canceling trades, according to two industry executives.

Regulators should have discretion to reverse transactions when the outcome puts a firm’s survival at risk, said Neal Wolkoff, former chairman and chief executive officer of the American Stock Exchange and ex-head of ELX Futures LP. They should allow “do-overs” in extreme cases, said R. Cromwell Coulson, CEO of OTC Markets Group Inc. (OTCM:US) in New York in a phone interview.

Knight was forced to accept the loss on Aug. 1 when Chairman and CEO Thomas Joyce failed to persuade the U.S. Securities and Exchange Commission to let NYSE Euronext relax rules on voiding trades. While officials of the Securities Industry and Financial Markets Association and New York Stock Exchange said the regulations worked as planned, Coulson said there should be provisions for system breakdowns.

“We really need, as an industry, to have some points when the trade tape could be rolled back if something is going haywire and is not working right,” Coulson, whose firm operates marketplaces for equities not listed on U.S. exchanges, said. “This needs to be an option in the regulator’s toolbox to correct mistakes.”

For more, click here.

Carney Says Canada May Need Higher Rates Due to Demand

Bank of Canada Governor Mark Carney talked about the country’s economy, the central bank’s monetary policy and banking regulation.

He spoke to the Canadian Auto Workers union at the Constitutional and Collective Bargaining Convention in Toronto.

For the audio, click here.

Pandit Says Citi’s Exposure to Europe Banks Negligible

Citigroup Inc. (C:US) Chief Executive Officer Vikram Pandit spoke in Singapore about capital levels, global banking regulation and the impact of the European debt crisis on Citigroup.

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

  • DUK
    (Duke Energy Corp)
    • $82.85 USD
    • -0.16
    • -0.19%
  • JPM
    (JPMorgan Chase & Co)
    • $61.93 USD
    • 0.45
    • 0.73%
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