The U.S. government urged General Motors Co. (GM:US) to improve pensions of some Delphi Automotive Plc (DLPH:US) union retirees while cutting those of salaried workers to help ensure a speedy emergence from a GM bankruptcy, the watchdog of the Troubled Asset Relief Program said.
As part of the bailout of GM and Chrysler Group LLC in 2009, the Treasury Department used some money for a so-called top-off of pensions for hourly employees at auto-parts supplier Delphi, which GM spun off in 1999. Salaried Delphi retirees had their pensions cut as part of the agreement.
Demands from the United Auto Workers representing the retirees threatened to stall GM’s bankruptcy, according to a report yesterday from the TARP’s special inspector general. As a result, government officials led by Steven Rattner pressed the Detroit-based automaker to reach an agreement on the pension liabilities before the bankruptcy, the report said.
The Treasury’s auto team “made it clear to GM that they wanted an agreement with the UAW prior to bankruptcy and the auto team actively negotiated and made the overall deal,” according to the report. “Treasury’s auto team and GM did not agree to top up the pensions of other former GM employees at Delphi, which did not have active employees at GM, and therefore had no leverage to hold up GM’s bankruptcy.”
The TARP special inspector general said in the report that it made no recommendation after a review of the Delphi pension issue.
GM was facing default when the government, concerned about the effects on the automaker’s supply chain and the U.S. economy, agreed to step in late 2008.
CFPB Releases Update of Exam Procedures for Mortgage Rules
The U.S. Consumer Finance Protection Bureau released its second update of exam procedures for mortgage rules first issued in January, according to a statement by the agency.
The rules cover ability-to-repay/qualified mortgages, high-cost mortgages, appraisals for higher-priced mortgage loans, new amendments related to the escrows rule, and recent changes to credit card rules, the Consumer Bureau said in yesterday’s statement.
The release of the exam procedures will help financial institutions and mortgage companies understand and prepare for examinations by the Consumer Bureau, it said in the statement.
Cohen’s SAC Reduces U.S. Stock Holdings by $2 Billion Amid Probe
Billionaire Steven A. Cohen’s SAC Capital Advisors LP, the hedge-fund firm facing federal insider-trading charges and client defections, cut its U.S. stock-listed holdings by about $2 billion in the second quarter.
SAC held $16.2 billion of U.S.-listed stocks as of June 30, according to a filing Aug. 14 with the U.S. Securities and Exchange Commission. The biggest decreases in its holdings were in EQT Corp. (EQT:US), which fell in value by $213.8 million as SAC sold 3.32 million shares, and Sirius XM Radio Inc. (SIRI:US), which shrank by $163.7 million as the firm sold 53.2 million shares.
SAC, based in Stamford, Connecticut, was accused by the U.S. government in a July 25 indictment of engaging in an unprecedented insider-trading scheme lasting more than a decade. In an administrative action last month, regulators said Cohen failed to supervise two employees who have been charged with insider trading.
Cohen, 57, has vowed to keep SAC open for business as investors pulled billions of dollars from its funds this year. Remaining clients have until today to ask to redeem their money for the third quarter. Executives at SAC, which oversaw about $14 billion in net assets at the start of July, expect to end the year with about $9 billion, a person with knowledge of the matter said earlier this week.
SAC was granted approval by a judge last week to continue operating until the insider-trading cases are resolved. The approved plan requires that SAC maintain at least 85 percent of the “aggregate value” of assets owned by the firm’s “entity defendants” as of July 1, and in exchange, allows for the fund to continue its lawful operations. If the assets fall below the specified level in a given month, the fund is required to “replenish” the monies, according to the Aug. 9 order.
Separately, SAC has refused clients’ requests that the firm speed up payouts on the billions of dollars earmarked for withdrawals, according to three people familiar with the discussions.
SAC, which faces a midnight deadline for redemption requests from investors who want to pull money from the firm, has told clients that final payments will be made at the end of the year. Some investors have pushed Cohen to give clients their money back before then, fearing that the government could freeze the funds’ assets, said the people, who asked not to be identified because SAC is private. The government has said it doesn’t plan on restraining assets.
SAC started the year with $15 billion of assets, about $6 billion of which belonged to outsiders. As insider-trading probe against the firm intensified, clients redeemed more than $3 billion in the first half of 2013, which is being returned over the course of this year. SAC’s executives have said they expect the firm to start 2014 with about $9 billion in assets and that virtually all outside investors will be gone by then, according to people familiar with the firm.
Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment on either the filing or redemptions.
Aluminum Premium Trading Rises as Regulators Focus on Waits
Trading in aluminum premiums is climbing as regulators focus on long lines for metal from warehouses that buyers say boosted their costs.
More over-the-counter swaps changed hands since the London Metal Exchange, or LME, proposed rules last month to cut waiting times for metal at warehouses, according to Credit Suisse Group AG, a provider of the products. CME Group Inc. reported the first trade in aluminum premium futures last week. Premiums are falling at the fastest pace in 20 months and may drop another 25 percent by the end of 2013, according to Barclays Plc.
Consumers led by brewer MillerCoors LLC told a U.S. Senate hearing last month that banks and other warehouse owners are using “unfair” LME rules to slow deliveries. The LME, which oversees more than 700 warehouses, proposed changes to the rules on July 1. The Commodity Futures Trading Commission subpoenaed Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM:US) and Glencore Xstrata Plc for documents related to their warehouses, according to three people with knowledge of the matter.
The LME proposed obliging warehouses where withdrawals take more than 100 days to deliver out more metal than they take in. Detroit, New Orleans, the Dutch port of Vlissingen, the Belgian city of Antwerp and Malaysia’s Johor have waits for metal exceeding 100 days, according to Barclays.
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BHP Says May Face Regulator Sanctions in Anti-Corruption Probe
BHP Billiton Ltd. (BHP), the world’s biggest mining company, may face enforcement actions by U.S. regulators in relation to possible breaches of anti-corruption laws linked to the Beijing Olympics and terminated projects.
The U.S. Securities and Exchange Commission and Department of Justice recently notified the company of “the issues they consider could form the basis of enforcement actions and discussions are continuing,” Melbourne-based BHP said today in a statement. They “relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the company’s sponsorship of the 2008 Beijing Olympics,” it said.
BHP is the subject of U.S. and Australian inquiries into its dealings with foreign officials, including Chinese dignitaries, under a multimillion-dollar hospitality and sponsorship program at the 2008 Olympics, the Age reported in June. The company is also conducting an internal inquiry that stems from a 2009 probe by the SEC.
In June, BHP said it had disclosed to relevant authorities evidence that it uncovered regarding possible violations of anti-corruption laws involving interactions with government officials. BHP provided the information to authorities, including the U.S. Justice Department, it said today.
Fiona Hadley, a spokeswoman for BHP, declined to elaborate on the nature of the enforcement actions the company may face.
“In light of the continuing nature of the investigations it is not appropriate at this stage for BHP Billiton to comment further or to predict outcomes,” the company said, according to the statement.
Vitesse Officials Plead Guilty to Backdating After Mistrials
Vitesse Semiconductor Corp. (VTSS:US) co-founder and former Chief Executive Officer Louis Tomasetta and ex-finance chief Eugene Hovanec pleaded guilty after two mistrials to scheming to destroy documents sought by the U.S. as part of a federal probe into options backdating.
Tomasetta, 64, and Hovanec, 61, earlier this year asked the court to dismiss charges that they conspired to inflate earnings after both trials ended with deadlocked juries. They entered the pleas yesterday before U.S. District Judge Jed Rakoff in Manhattan.
Each pleaded guilty to a single count of conspiracy to falsify company records in an effort to impede an investigation by the U.S. Securities and Exchange Commission. Under a plea agreement with the U.S. Attorney’s Office, they face 12 to 18 months in prison under federal guidelines when they are sentenced Nov. 4, Rakoff said.
The men were set to be retried for a third time on that date.
The case is U.S. v. Tomasetta, 10-mj-01205, U.S. District Court, Southern District of New York (Manhattan).
FBI Hells Angels Probe Not an ‘Official Proceeding,’ Court Says
The U.S. appeals court in San Francisco reversed the convictions of two people for obstruction of justice, saying an FBI investigation of a Hells Angels chapter wasn’t an “official proceeding” under the federal statute.
Gary Ermoian and Stephen Johnson were accused of helping pass along confidential information during a 2006 investigation of a local chapter of the Hells Angels motorcycle club in the Modesto, California, area by the Federal Bureau of Investigation and related law enforcement groups.
At trial, the district court “instructed the jury that an ‘official proceeding’ includes an investigation by the FBI,” the court wrote in its decision. That instruction, the court decided Aug. 14, “was legally erroneous.”
The appellate court’s ruling could have implications for white-collar cases because the panel examined the meaning of “official proceeding” in the federal statute and declined to expand it.
The panel concluded that interference with an investigation alone, as opposed to “business conducted by a court or official body,” isn’t a violation of that phrase in the statute. The panel wrote that the statute elsewhere provides for obstruction of justice charges for actions taken, specifically, during an investigation.
“If we were to read the phrase ‘official proceeding’ to include an FBI investigation, as the government urges us to do, this subsection of the statute would work to criminalize actions taken” even before an investigation begins, the court wrote.
Calls to Jerald Brainin, Johnson’s lawyer, and John Balazs, Ermoian’s attorney, weren’t immediately returned. Mark Cullers, chief assistant U.S. attorney in Fresno, California, didn’t immediately respond to a message left at his office.
The case is U.S. vs. Ermoian, 11-10124, and U.S. vs. Johnson, 11-10388, U.S. Court of Appeals for the Ninth Circuit (San Francisco).
Wheeler Says London Whale Probe Will ‘Haunt’ JPMorgan
Christopher Wheeler, an analyst at Mediobanca SpA, talked about the reputational damage to JPMorgan Chase & Co. from last year’s $6.2 billion trading loss, caused by former trader Bruno Iksil, the Frenchman who became known as the London Whale.
Wheeler spoke with Guy Johnson and Francine Lacqua on Bloomberg Television’s “The Pulse.”
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Comings and Goings
SEC Names Eun Ah Choi to Manage Investment Division
Eun Ah Choi was named by the U.S. Securities and Exchange Commission to be the managing executive of its investment management division, according to an e-mailed statement by the agency.
The division works to “protect investors, promote informed investment decisions, and facilitate appropriate innovation in investment products and services through regulation of the asset management industry,” the SEC said in the statement.
Choi will join the SEC from Hogan Lovells, where she is a partner in the firm’s Washington office.
Salzgitter to Cut Board, Split Unit, Sueddeutsche Zeitung Says
Salzgitter AG (SZG), the German steel producer and trader, will cut its board and split a unit, Sueddeutsche Zeitung reported.
The company plans to reduce its management board from six members to just its chief executive officer, chief financial officer and human resource executive, the newspaper reported, without saying where it got the information. Two board members will retire while a third position is currently vacant.
Salzgitter will split a steel unit into flat steel and profile steel sections, according to the newspaper.
The company’s press office didn’t immediately reply to an e-mail seeking comment sent outside office hours.
Last week, Salzgitter predicted a loss for 2013 amid waning demand in Europe. It plans to cut more than 1,500 jobs as it seeks to save more than 200 million euros ($265 million) a year.
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