Bloomberg News

Warren’s Bank Trials, Visa Probe, Ratings Oligarchy: Compliance

May 15, 2013

U.S. Senator Elizabeth Warren has questioned three more federal agencies’ enforcement practices by asking if they’ve studied the costs of favoring settlements with big financial firms over taking them to trial.

Warren, a Massachusetts Democrat on the Senate Banking Committee, had earlier questioned Comptroller of the Currency Thomas Curry about why his agency doesn’t take wrongdoing financial firms to trial, such as in the money-laundering case of London-based HSBC Holdings Plc. (HSBA) She sent a similar query in a letter yesterday to Federal Reserve Board Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Jo White and Attorney General Eric Holder.

“If large financial institutions can break the law and accumulate millions in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law,” Warren said in the letter. She argued regulators have “a lot less leverage” if they show a continuing unwillingness to go to trial.

Curry said in a response to Warren last week that the OCC hasn’t conducted research on the benefits of settling without forcing admissions of guilt, according to the letter. Warren is putting the same question to Bernanke, White and Holder about whether they’ve conducted research on the trade-offs between settling and litigating.

White said in testimony before a House Appropriations subcommittee May 7 that the SEC is reviewing its practice of settling cases without requiring defendants to admit guilt.

The policy has benefited investors while saving SEC resources, White testified. The settlements leave no question “about what the conduct was,” she said.

Compliance Action

Visa Europe Offers to Cap Credit-Card Fees to End EU Probe

Visa Europe Ltd. plans to “significantly” reduce the fees it sets for processing cross-border credit-card payments in a bid to allay European Union competition concerns, the bloc’s antitrust watchdog said.

Visa Europe’s offer would bring its fees in line with those of its main competitor MasterCard Inc. (MA:US), the European Commission said yesterday. The operator of the EU’s largest payment-card network also committed to overhaul its rules so that banks will be able to apply a reduced cross-border interbank fee when they compete for clients cross-border.

Visa Europe proposed to reduce by 40 percent to 60 percent its so-called interbank fees for credit-card payments to a level of 0.3 percent of the value of the transaction for cross-border and domestic transactions, the commission said. The remedies would last for four years. Visa Europe was sent a formal complaint over the levies last year.

Joaquin Almunia, the EU’s antitrust commissioner, said in a video statement that antitrust officials will carry out a so-called market test with industry groups before deciding to make the commitments legally binding.

Visa Europe’s so-called multilateral interchange fees “harm competition between acquiring banks, inflate the cost of payment card acceptance for merchants and ultimately increase consumer prices,” the commission said yesterday.

“Today’s outcome is the result of constructive dialogue between Visa Europe and the European Commission and is in line with the level of 0.3 percent established in the industry,” Peter Ayliffe, Visa Europe’s chief executive officer, said in an e-mailed statement.

Cheung Kong Cancels Hotel-Room Sales After Regulator Probe

Cheung Kong Holdings Ltd. (1), the developer controlled by Asia’s richest man, is canceling the sale of HK$1.4 billion ($180 million) of hotel rooms after Hong Kong’s securities regulator began a probe into the transactions.

Cheung Kong, controlled by billionaire Li Ka-Shing, will return all deposits and part payments plus interest to all the buyers of the individual rooms at the Apex Horizon project in the city’s west, after being notified by the Securities and Futures Commission that the sales constitute a unauthorized “collective investment scheme,” the developer said in a statement to Hong Kong’s stock exchange May 13.

The sale of the 360 hotel rooms in February drew the government’s ire as it was seen as a means of skirting an increase in taxes on apartments that was aimed at cooling prices. Within days of the sale, the government extended the taxes to include hotels and other commercial property, and sent inspectors to check that Apex Horizon units weren’t being used as residences.

“We do not agree” with the SFC, Cheung Kong said in a separate e-mailed statement. The decision was made “as the difference in legal opinion may lead to legal uncertainty in respect of the sale and purchase of the hotel room units, which may affect the buyers’ ownership, mortgage arrangement or subsequent sale of the hotel room units,” the company said.

Hong Kong’s securities law requires the regulator’s authorization before a collective investment scheme can be marketed to the public, according to a statement on the SFC’s website yesterday.

The SFC intended to start legal proceedings seeking orders to unwind the sale, according to the statement. The agreement with Cheung Kong avoids court action at this stage, it said.

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EU Confirms Raids on Companies in Oil and Biofuels Sector

The European Commission said antitrust officials raided the premises of “several companies active in and providing services to the crude oil, refined oil products and biofuels sectors.”

These inspections took place in two European Union member states, the commission said in an e-mailed statement yesterday.

The raids took place over concerns the companies “may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products,” the commission said in the statement.

Inspections were also carried out on its behalf by the European Free Trade Association’s Surveillance Authority in one European Economic Area member state, the Brussels-based commission said.

Separately, EU Competition Commissioner Joaquin Almunia said officials carried out surprise inspections at “a number of producers of white sugar in several member states,” last month, without providing further details.

Courts

Ranbaxy to Pay $500 Million to Settle Criminal, Civil Cases

Ranbaxy Laboratories Ltd. (RBXY) agreed to pay $500 million to resolve fraud allegations made in a whistle-blower’s lawsuit and federal criminal charges that the company sold adulterated drugs while lying about it to U.S. regulators.

Ranbaxy, in papers filed in federal court in Baltimore May 13, admitted it sold batches of drugs that were improperly manufactured, stored and tested. The company, India’s biggest drugmaker, also pleaded guilty to making fraudulent statements to the Food and Drug Administration about how it tested drugs at two of its Indian plants.

The resolution of the lawsuits and the criminal charges filed yesterday caps allegations about Ranbaxy’s practices dating to 2003 when the company distributed a batch of acne medication it knew had failed a quality test, according to the criminal charges.

In January 2012, Ranbaxy settled an FDA lawsuit by agreeing to stop production of drugs for the U.S. market at the two plants until they met American standards. In 2007, the whistle-blower’s lawsuit, unsealed May 13, alleged the company defrauded public health-care programs.

The felony criminal charges included provision for the payment of a fine and forfeiture of funds. The false claims portion of the settlement directs the company to pay the U.S. and states, as well as the whistle-blower in the civil case, Dinesh Thakur, of Belle Mead, New Jersey, a former Ranbaxy executive.

“While we are disappointed by the conduct of the past that led to this investigation, we strongly believe that settling this matter now is in the best interest of all of Ranbaxy’s stakeholders,” Arun Sawhney, chief executive officer and managing director of Gurgaon, India-based Ranbaxy, said in a statement. “The conclusion of the DOJ investigation does not materially impact our current financial situation or performance.”

The company said in the settlement agreement to the lawsuit that it denies wrongdoing in the civil case.

The criminal case is U.S. v. Ranbaxy U.S.A., 13-cr-00238, U.S. District Court, Maryland (Baltimore). The civil case is Thakur v. Ranbaxy U.S.A. Inc., 07-cv-00962, U.S. District Court, Maryland (Baltimore).

Interviews/Panels

Credit-Ratings Industry Is Oligarchy to Be Broken, Franken Says

Senator Al Franken, a Democrat from Minnesota, said financial regulators must intervene in the credit ratings industry or risk another U.S. financial “catastrophe.”

“My plea today is that you take action,” Franken said at Securities and Exchange Commission credit ratings roundtable in Washington yesterday.

The ratings companies S&P (MHP:US) and Moody’s (MCO:US) didn’t give financial products “accurate, objective ratings,” Franken said.

Senator Roger Wicker, a Republican from Mississippi, urged the SEC to take the “next steps” to revamp industry.

Franken said his joint bill with Wicker would require the agency to name an independent board that would appoint different credit rating agencies to assign ratings based on an agency’s expertise and eventually its track record. Such a set-up would restore trust in the market and allow smaller agencies to break up the current “oligarchy,” Franken said.

SEC Commissioner Luis Aguilar, who also spoke at the roundtable, said “the past can’t be repeated.”

In November, the SEC said credit-ratings companies failed to follow their own standards, were late in downgrading deals, and delayed disclosure of methodology changes.

Dodd-Frank requires regulators to stop relying on ratings and increase oversight of companies that issue them.

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

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


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