Bloomberg News

Aluminum Bribes, SEC-Muni Fine, HSBC-Euribor: Compliance (1)

November 06, 2013

British Businessman Victor Dahdaleh

British businessman Victor Dahdaleh, right, arrives to attend a hearing at Southwark Crown Court in London. Photographer: Chris Ratcliffe/Bloomberg

British businessman Victor Dahdaleh paid about 40 million pounds ($64 million) in bribes to the former chairman and chief executive officer of Bahrain’s state-owned aluminum producer, a prosecutor said.

Dahdaleh made payments to Bruce Hall, the former CEO of Aluminium Bahrain BSC, known as Alba, and to then-Chairman Sheikh Isa Bin Ali Al Khalifa to win contracts for companies he was acting for, Philip Shears, a prosecutor for the U.K. Serious Fraud Office, said yesterday on the first day of a trial in London.

Dahdaleh, a British and Canadian citizen who lives in London, had connections to about 15 companies that were international suppliers to Alba, Shears told jurors.

He had means “to generate funds from these contracts,” Shears said. “The rewards to Mr. Dahdaleh were enormous.”

Dahdaleh is charged with paying about $7.75 million in bribes to officials between 1998 and 2006. He faces six corruption charges, one count of conspiracy to corrupt and one of transferring criminal property, the SFO said in an indictment.

Hall has pleaded guilty to conspiring to corrupt and is cooperating with the SFO, Shears said. He is expected to testify today.

Compliance Policy

EU Deal on Licensing Rules to Open Access to Online Music Stores

The European Union backed a provisional deal to revamp existing licensing rules to let Internet music stores such as Apple Inc.’s iTunes sell digital music across the 28-nation EU.

The draft law, which still needs the formal approval of the European Parliament and EU ministers, will allow online music stores to get licenses from royalty-collecting societies across Europe instead of the current system where music copyright licenses are granted on a national basis.

The provisional deal was struck by the bloc’s lawmakers and government representatives late in the day on Nov. 4.

U.S., European Authorities Seek Uniform Derivatives Language

U.S. and European authorities, in a letter to the International Swaps and Derivatives Association, encouraged adoption of language in derivatives contracts that would delay early termination of those instruments “in the event of the resolution of a global systemically important financial institution.”

The letter expresses support for changes to the association’s standard documentation to provide for short-term suspension of early termination rights, as well as other remedies in event of resolution, according to a statement released yesterday.

The authorities that signed on to the letter were the U.S. Federal Deposit Insurance Corp., the Bank of England, the German Federal Financial Supervisory Authority and the Swiss Financial Market Supervisory Authority.

EU Split on Euro-Area Bank-Failure Plan as Deadline Looms

European Union nations remain split over whether a planned euro-area system for handling failing lenders should cover all banks in the currency bloc and whether it should be backed by a central fund, with less than two months until their deadline for reaching a common position.

Governments are also divided over whether the European Commission, the bloc’s executive and regulatory arm, should play a decisive role in the Single Resolution Mechanism, according to a draft document prepared by Lithuania, which holds the EU’s rotating presidency.

Concerns have been raised about “a potential conflict” inherent in the commission if it is granted discretionary powers in the SRM context, according to the note, prepared for a Nov. 7 meeting of national ambassadors and obtained by Bloomberg News.

The bank-failure plan is part of a euro-area effort to break the financial links between sovereigns and banks by centralizing oversight and crisis management of failing lenders. The blueprint has met with a barrage of complaints from governments, with Germany among those to have expressed the strongest concerns.

Still, EU leaders reaffirmed last month that nations should agree on a common stance on the plans by year-end. The SRM is designed to complement the European Central Bank’s supervision of euro-area lenders, which begins in full in one year. Policy makers are racing to reach a deal before European Parliament elections in May. The assembly’s approval is needed for the bill to become law.

BlackRock, Fidelity Face Initial Risk Study by U.S. Regulators

BlackRock Inc. (BLK:US) and Fidelity Investments will be studied by U.S. regulators who are in the early stages of reviewing whether asset managers pose a potential risk to the financial system, two people with knowledge of the matter said.

The Financial Stability Oversight Council’s discussion Oct. 31 and agreement to review New York-based BlackRock and Boston-based Fidelity don’t necessarily mean the companies will be designated systemically important by the council, according to the people, who requested anonymity because the meeting was closed to the public. The panel didn’t take any formal action regarding the companies.

FSOC’s preliminary talks may presage months of wrangling between the industry and officials charged with trying to prevent a repeat of the 2008 financial crisis. Asset managers are among non-bank financial companies that the council is empowered by law to evaluate to determine whether their failure could threaten the entire system and thus require Federal Reserve oversight. BlackRock, Fidelity and the mutual-fund industry’s trade group have said money managers aren’t a threat.

“We continue to believe that the asset-management industry, and mutual funds in particular, do not present the types of risk that the FSOC was designed to address,” Vincent Loporchio, a spokesman for Fidelity, said in an e-mail in response to a question about the FSOC meeting. BlackRock spokesman Brian Beades said the company “doesn’t comment on rumor or speculation.”

Treasury Secretary Jacob J. Lew is the council’s chairman. Treasury spokeswoman Suzanne Elio declined to comment. In a statement after last week’s meeting, Elio said the council “held an initial discussion on asset management,” and she didn’t identify any companies. The FSOC’s rules state that it doesn’t intend to disclose names of firms before “a final determination.”

The oversight council is authorized under the Dodd-Frank Act of 2010 to identify companies that could threaten stability.

For more, click here.

Compliance Action

HSBC Said to Reject Euribor Probe Settlement as EU Readies Fines

HSBC Holdings Plc (HSBA) dropped out of talks to settle a European Union antitrust probe into rigging of Euribor lending rates, according to a person familiar with the investigation, as regulators prepare to hand out fines to settling banks as soon as next month.

HSBC pulled out of the negotiations, according to the person, who asked not to be identified because the talks are confidential. The discussions stumbled over the possible size of a fine and liability issues, according to a second person, who also asked not be named.

Barclays Plc (BARC), Credit Agricole SA (ACA), Deutsche Bank AG (DBK), JPMorgan Chase & Co. (JPM:US), Royal Bank of Scotland Group Plc and Societe Generale SA (GLE) also entered into settlement talks with the European Commission, and at least one of those may have also pulled out of the discussions, the person said.

Regulators around the world are investigating whether more than a dozen firms, including Deutsche Bank, colluded to rig various benchmark interest rates to mask their true cost of borrowing. Refusal to settle means giving up a 10 percent discount in fines in return for admitting to collusion.

Banks settling with the EU may face fines as early as December, one of the people said. HSBC, and others that reject a settlement, would be separately sent a formal statement of objections.

Antoine Colombani, a spokesman for the European Commission in Brussels, declined to comment on the case. Brendan McNamara, a spokesman for HSBC in London, declined to comment.

Representatives of JPMorgan, Credit Agricole, Deutsche Bank, Barclays, RBS and Societe Generale all also declined to comment.

Washington Agency Receives First SEC Fine for Misleading Public

A public agency in Washington’s Wenatchee Valley region that defaulted on its debt will pay $20,000 to the U.S. Securities and Exchange Commission, the first municipal issuer fined for misleading investors.

The Greater Wenatchee Regional Events Center Public Facilities District, which financed an events center and ice-hockey arena, defaulted in 2011 on notes issued in 2008. The SEC said yesterday in a release that the district in an official statement claimed there were no independent reviews of the center’s financial projections even though a consultant twice raised questions about its viability.

Minneapolis-based Piper Jaffray Cos. (PJC:US), whose subsidiary underwrote the $42 million note deal, will pay a $300,000 fine. The lead investment banker on the offering, Jane Towery, will incur a $25,000 penalty, according to an SEC statement.

The documents also omitted information about Wenatchee’s limited debt capacity, the SEC said. Standard & Poor’s cut the city’s general obligations two levels to BBB in December 2011 for failing to step in and help the district make payments.

The SEC said this is the first time it has fined a municipal-bond issuer. The Wenatchee agency, the company and Towery neither admitted nor denied the findings, according to the statement.

Pamela Steensland, a spokeswoman for Piper Jaffray, didn’t immediately respond to a voice-mail message seeking comment on the fine.

The Facilities District was formed by nine Washington cities and counties, according to the SEC’s statement.

Wells Fargo Said Among Banks Facing U.S. Mortgage-Bond Probes

Wells Fargo & Co. (WFC:US) is among firms facing federal scrutiny of mortgage-bond sales under a 1989 law the government is using to extend probes of banks’ roles in the credit crisis, two people with knowledge of the matter said.

U.S. attorneys in San Francisco have been examining Wells Fargo, the nation’s largest mortgage lender, for more than a year, said one of the people, who asked not to be named because the inquiry isn’t public. Authorities are investigating whether the firm violated the Financial Institution Reform and Recovery Act. The law, known as FIRREA, carries a 10-year statute of limitations and allows the government to sue for fraud affecting a federally insured financial institution.

President Barack Obama set up a task force last year that’s making use of the law, which stems from the savings-and-loan crisis of the 1980s, while examining mortgage-bond underwriting that fueled investor losses and prompted unprecedented government bailouts of banks in 2008. The task force, comprising state and federal agencies, is focusing on about eight banks, a person familiar with the matter said in October.

Oscar Suris, a spokesman for San Francisco-based Wells Fargo, and Josh Eaton, a spokesman for U.S. Attorney Melinda Haag, declined to comment.

Interviews

Arthur Levitt Says ‘Saga’ Has Not Ended for SAC’s Cohen

Arthur Levitt, the former chairman of the U.S. Securities and Exchange Commission, talked about the agreement by billionaire Steven A. Cohen’s hedge fund SAC Capital Advisors LP to plead guilty to securities and wire fraud. Levitt talked with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Comings and Goings

CFTC Commissioner Chilton Says He Will Step Down

U.S. Commodity Futures Trading Commissioner Bart Chilton, said he will step down from the agency in the “not too distant future.”

His announcement, during an agency meeting in Washington yesterday, came less than two months before CFTC Chairman Gary Gensler, an ally and fellow Democrat, is to leave the agency.

Chilton joined the commission in August 2007. With one seat on the five-member commission already vacant, the departure of Chilton, a Democrat, will leave as current commissioners fellow Democrat Mark Wetjen and Scott O’Malia, a Republican.

“I wrote to the President early this morning and said I’ll be leaving in the not-too-distant future,” said Chilton, whose term as a commissioner expired in April, although he could continue to serve until December 2014 or a successor is confirmed.

Four Fired Deutsche Bank Rate Traders Said to Return to Work

Four Deutsche Bank AG traders who were fired in February as part of the lender’s probe into manipulation of benchmark interest rates have returned to work, two people familiar with the matter said.

The men won reinstatement of their jobs in September after they sued Deutsche Bank at the Frankfurt Labor Court. A spokesman for the lender confirmed that the traders returned to work Nov. 4 and declined to comment further.

Regulators around the world are investigating whether more than a dozen firms, including Deutsche Bank, colluded to rig benchmark interest rates for their own profit or to mask their true cost of borrowing.

Deutsche Bank had argued at the Frankfurt court that the four men, who made submissions for Euribor and Swiss franc Libor, exchanged improper instant messages with derivatives traders about what data to submit to help increase their profit.

The bank didn’t have processes in place to prevent conflicts of interest when submitting data to calculate interest-rate benchmarks, the court said.

Fifth Third Names Finance Chief as SEC Seeks Ban on Predecessor

Fifth Third Bancorp (FITB:US) said the U.S. is seeking to ban former interim finance chief Daniel T. Poston from practicing before securities regulators for one year after finding accounting irregularities tied to commercial loans.

The dispute concerns how Fifth Third, Ohio’s biggest bank, accounted for certain loans in 2008, the company said yesterday in a statement. Former Treasurer Tayfun Tuzun was appointed chief financial officer, effective Oct. 31, and Poston was named chief strategy and administrative officer, the lender said.

“This is obviously an agreement in principle that we hope to achieve closure to as soon as possible,” Larry Magnesen, a bank spokesman, said in a phone interview. Poston’s role change is “not a demotion” and he will continue reporting to Chief Executive Officer Kevin Kabat, Magnesen said.

Poston is in discussions that would require him, “without admitting or denying any factual allegations,” to agree to a cease-and-desist order, a civil money penalty, and a one-year ban from practicing before the SEC, according to the statement. Under such a ban, Poston would no longer represent the company in any interactions with the SEC.

Fifth Third, also without admitting or denying any factual allegations, would consent to a finding that the company didn’t properly account for a portion of its commercial real estate loan portfolio and pay a penalty. The amount, which wasn’t specified, would be covered by reserves, the lender said.

Magnesen said Poston had no comment, and Poston didn’t respond to an e-mailed request for an interview. John Nester, an SEC spokesman, declined to comment.

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

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


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Companies Mentioned

  • BLK
    (BlackRock Inc)
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    • -0.29
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  • JPM
    (JPMorgan Chase & Co)
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