Bloomberg News

Fund Research Costs, Infosys Fined, SAC Ex-Wife: Compliance

October 31, 2013

Asset managers may no longer be able to pass on the multibillion-dollar costs to clients of the research they buy from investment banks, the chief executive officer of the U.K. markets regulator said.

The Financial Conduct Authority is considering forcing global fund managers to pay for research instead of charging customers through trading commissions, Chief Executive Officer Martin Wheatley said in a speech yesterday in London. Investment banks spent $5 billion last year on equity research used by asset managers, according to a report by Frost Consulting & Advisory and Quark Software Inc.

The research is included in trading commissions paid to investment banks by fund managers, with the cost passed on to the customer. The regulator wrote to asset managers this year to say they were failing to control costs and need to regularly review whether services were eligible to be paid for using commissions.

The FCA will publish the consultation in November and a final decision will be made later. The watchdog is in discussions with European Union officials on implementing rule-changes across the 28-nation bloc on what can be considered commission charges, Wheatley said.

The move would mean fund managers must either pay for the research themselves or invest in creating their own reports.

The Investment Management Association, a London-based group representing the fund industry, will release a review on research in the next few months.

Compliance Action

Infosys Record Fine Targets Outsourcing, Immigration Abuses

A record fine against Infosys Ltd. (INFO) targets outsourcing companies and their alleged abuse of existing immigration laws to feed the insatiable desire for highly skilled engineers in the U.S.

Infosys has been sending employees to the U.S. with B-1 visitor visas, letting it sidestep caps on H1-Bs -- the permits designed for high-tech workers. To settle the case, the company agreed to pay a $34 million penalty to Homeland Security Investigations, the U.S. State Department and the U.S. Attorney’s Office for the Eastern District of Texas, according to a filing yesterday in federal court in Texas. The fine is the largest ever for the outsourcing industry, which manages tasks for customers using a mix of on- and offshore labor.

The move might also inject the use of visitor visas into the congressional debate over immigration reform.

While technology companies ranging from International Business Machines Corp. (IBM:US) to Microsoft Corp. (MSFT:US) to Facebook Inc. (FB:US) rely on temporary H-1B work visas to hire thousands of employees, outsourcing companies use a variety of tactics to bring staff into the U.S. on work permits -- whether for training, consulting projects or longer-range jobs.

Infosys said it agreed to yesterday’s settlement to “remove the uncertainty of prolonged litigation.” There were no criminal charges against the company, and it won’t be limited in applying for federal contracts or visa programs.

“Infosys denies and disputes any claims of systemic visa fraud, misuse of visas for competitive advantage, or immigration abuse,” the company said yesterday in a statement.

India is the biggest source of guest workers hired through H-1Bs, a nonimmigrant specialist visa that lasts three to six years.

For more, click here.

U.S. in Leading Role in Global Currency Rigging Probe

The U.S. Justice Department is taking a leading role in a global investigation into possible manipulation of the $5.3 trillion-a-day foreign exchange market, a department official said.

Mythili Raman, acting head of the criminal division, said in an interview Oct. 29 that the department’s criminal and antitrust divisions have an “active investigation” into possible manipulation of foreign exchange rates. She declined to name specific institutions under scrutiny or say when the probe began.

Bloomberg News reported Oct. 11 that the U.S. had begun a criminal investigation of currency-market rigging, according to a person familiar with the matter.

The U.S. is “taking a leading role” in the probe with respect to international enforcers scrutinizing possible exchange rate manipulation, Raman said.

European Union antitrust regulators, the U.K. Financial Conduct Authority, Switzerland’s Financial Market Supervisory Authority, or Finma, and the Swiss Competition Commission are also probing the foreign exchange market.

The regulators are reviewing alleged abuse of benchmarks used in markets from oil to interest-rate swaps by the firms that play a central role in setting them.

In the currency probe, regulators are examining an instant message group used by senior dealers at firms including Barclays Plc (BARC), Citigroup Inc. (C:US), Royal Bank of Scotland Group Plc and UBS AG (UBSN) to outline details of their positions and client orders, as well as make trades before key benchmarks were set, two people with knowledge of the discussions have said.

The FCA said in June it was reviewing potential manipulation of exchange rates. Swiss regulators said earlier this month they were authorities in other countries on probes including alleged manipulation of ISDAfix, a benchmark in the $379 trillion market for interest-rate swaps.

Exchange Failure Prompts India Commodity Bourse Audit

India’s commodities futures market regulator has sought an audit of the Multi Commodity Exchange of India Ltd. after a related spot bourse failed in August.

The Forward Markets Commission wants to examine large expenditures by the MCX and related-party transactions, Ramesh Abhishek, chairman of the regulator said in an interview. The MCX has set up a panel to run the bourse after the government in July ordered the National Spot Exchange Ltd., founded by MCX Vice Chairman Jignesh Shah, to halt trading.

Volume at MCX, India’s biggest platform for commodities which counts NYSE Euronext (NYX:US) and Fidelity International Ltd. as investors, is set to plummet to a five-year low this month as authorities widen their probe of the NSEL. The regulator has asked MCX’s largest investor, which is backed by Shah, to prove that it is qualified to operate the bourse. It also tightened rules for selecting directors for all futures exchanges.

Dilip Tambe, a spokesman for NSEL, declined to comment.


Cohen’s Ex-Wife Says Case Against SAC Is Proof She Is Victim

Patricia Cohen, the ex-wife of SAC Capital Advisors LP founder Steven Cohen, said the indictment and enforcement action by the U.S. against the hedge fund are proof she’s a victim of his fraud and a reason why her suit against him shouldn’t be dismissed.

Patricia Cohen filed suit against her ex-husband in 2009, claiming he ran the Stamford, Connecticut-based SAC Capital as a racketeering enterprise engaged in insider trading, bank fraud, money laundering and other acts in violation of the Racketeer Influenced and Corrupt Organizations Act.

SAC Capital was indicted in July by Manhattan U.S. Attorney Preet Bharara, accused of perpetrating what prosecutors called an unprecedented insider-trading scheme.

While Cohen wasn’t charged in the indictment, the U.S. alleged that “the fund owner” had “encouraged” the fund’s employees to traffic in inside information in an alleged scheme that went back as far as 1999. At least eight current or former SAC Capital employees have been charged with insider trading with six pleading guilty. The U.S. Securities and Exchange Commission has also filed a parallel civil action. SAC has pleaded not guilty to the charges.

The government’s recent actions against SAC have transformed Patricia Cohen’s case, “from a mostly private affair to one that justifies the extraordinary legislative response RICO provides,” her lawyers said.

The suit was dismissed in 2011 as untimely and reinstated by a federal appeals court, which said the case had been filed in time. Without ruling on the merits of her case, the appeals court also said she had validly asserted claims that her ex-husband violated the racketeering law, committed fraud and breached his fiduciary duty.

Martin Klotz, a lawyer for Cohen, said in court papers that her suit should be dismissed, arguing it was “legally defective” and said she had engaged in a “campaign of harassment and extortion against Steven Cohen.”

The case is Cohen v. Cohen, 09-cv-10230, U.S. District Court, Southern District of New York (Manhattan).

Twitter Sued for Fraud Over Failed Private Sale of Shares

Twitter Inc. (TWTR:US) was sued for $124 million by two financial firms that claim the Internet company engineered a failed private sale of its shares to pump up investor interest for its planned initial public offering.

The firms, Precedo Capital Group Inc. and Continental Advisors SA, sued yesterday in Manhattan federal court, claiming Twitter fraudulently used the aborted sale to set a $10 billion valuation for itself and a floor price for the IPO.

“Twitter never intended to complete the private sale of Twitter stock,” the firms said in their complaint. “Twitter’s intention was to induce Precedo Capital and Continental Advisors to create an artificial private market,” in which Twitter could set a price for the stock.

Gabriel Stricker, a Twitter spokesman, didn’t immediately respond to a request for comment sent before business hours.

The case is Precedo Capital Group Inc. v. Twitter Inc., 1:13-cv-07678, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this story: Michael Hytha at

Too Cool for Crisis Management

Companies Mentioned

  • IBM
    (International Business Machines Corp)
    • $162.08 USD
    • -0.10
    • -0.06%
  • MSFT
    (Microsoft Corp)
    • $46.13 USD
    • 1.11
    • 2.41%
Market data is delayed at least 15 minutes.
blog comments powered by Disqus