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Barclays Deferred Prosecution, EU, BofA: Compliance

December 05, 2012

Barclays Plc (BARC)’s deferred prosecution for improper dealings with sanctioned countries ended after the judge overseeing the U.S. case weighed whether the bank’s admissions in a probe involving manipulation of the London interbank offered rate should affect the deal.

U.S. District Judge Emmet Sullivan, in a decision made public yesterday, granted a request by the U.S. Justice Department to dismiss the criminal charges pending under the agreement in Washington since 2010. His one-page order offers no explanation.

Sullivan’s ruling comes almost five months after Barclays and prosecutors said in a court filing that the bank’s June 27 settlement of allegations involving Libor has “no effect” on the two-year deferred-prosecution agreement requiring the bank to stay out of criminal trouble.

The judge on June 28 ordered the parties to explain how the Libor settlement affected the 2010 agreement, which involves a $298 million settlement with the U.S. over illegal dealings with such nations as Sudan and Iran.

Barclays, Britain’s second-biggest bank by assets, was fined 290 million pounds ($467 million), after admitting it submitted false London and euro interbank offered rates. Part of that fine went to the Justice Department, which agreed not to prosecute the bank for what it called “illegal conduct.”

Mark Lane, a spokesman for London-based Barclays, declined to comment on the dismissal.

The case is U.S. v. Barclays Bank Plc, 10-cr-00218, U.S. District Court, District of Columbia (Washington).

Compliance Policy

EU Finance Chiefs to Meet Next Week as Banking Talks Bog Down

European Union finance ministers called an emergency meeting next week in Brussels on establishing a banking supervisor as disagreements reduced the chance of meeting a year-end deadline.

Talks bogged down in a gathering yesterday in Brussels over how much power to give the European Central Bank. Germany, the biggest European economy, sought to shield its small banks and demand more proof that monetary policy will be walled off from financial supervision.

“Of course we have difficult decisions to make, otherwise we wouldn’t have to meet again,” German Finance Minister Wolfgang Schaeuble said yesterday. “But the number of open points is being reduced.”

Governments are racing to meet a year-end deadline to set up a single bank supervisor at the Frankfurt-based ECB, which would be mandatory for the 17 euro-zone nations and optional for other EU members.

ECB oversight is a required first step before banks can directly tap the currency area’s firewall fund.

Loans from the firewall fund, such as for Spain’s financial-sector rescue, now must pass through national authorities. In addition to helping establish the new supervisor, finance ministers must design guidelines for how the 500 billion-euro ($653 billion) European Stability Mechanism could provide direct aid to banks and what conditions would apply.

The new supervisor would oversee all banks in its coverage area by Jan. 1, 2014, according to documents obtained by Bloomberg News. It would be phased in over the course of 2013, and the ECB would have until July 2013 to design how it will work with national regulators. The dates are provisional and could change.

For more, click here.

SEC Auditor Case Seen Jeopardizing Chinese Firms’ U.S. Listings

U.S. regulators, in a move to sanction auditors for blocking investigations at China-based companies, have set a course that jeopardizes the listing of more than 100 stocks from the world’s most populous nation.

In an enforcement action against the China-based affiliates of the Big Four accounting firms Dec. 3, the U.S. Securities and Exchange Commission escalated a three-year impasse between the two nations over whether auditors can share work documents with regulators investigating possible accounting fraud at companies selling securities in the U.S.

“Chinese companies that are listed on U.S. exchanges are being held captive in a sovereignty dispute,” Jim Feltman, senior managing director at Mesirow Financial Consulting in New York. “This is a step in the process to deregister companies that can’t comply with U.S. audit rules. They’ll have to leave the U.S. marketplace if their auditors cannot or will not be responsive to the SEC.”

Of about 400 Chinese companies that trade in the U.S., at least 115 have been audited by the domestic subsidiaries of the Big Four accounting firms, according to data on stocks with market values of at least $5 million compiled by Bloomberg. More than half are audited by units of Deloitte, Ernst & Young, KPMG or PricewaterhouseCoopers.

The auditors say Chinese law prevents them from complying with the SEC’s demands, hindering U.S. efforts to probe allegations of fraud that have wiped 61 percent from a gauge of Chinese and Hong Kong stocks traded in North America since January 2011.

For more, click here.

Compliance Action

Ex-Rochdale Trader Arrested in $1 Billion Apple Stock Case

A former Rochdale Securities LLC trader was arrested on wire fraud charges in connection with an unauthorized $1 billion purchase of Apple Inc. (AAPL:US) stock that backfired, costing his company $5 million, the U.S. said.

David Miller, 40, appeared before U.S. Magistrate Judge Holly Fitzsimmons in Bridgeport, Connecticut, yesterday after surrendering to the Federal Bureau of Investigation, prosecutors said. He was released on $300,000 bail, they said.

The Stamford, Connecticut-based brokerage has been struggling to survive and hold on to its staff after Miller’s trade, made about the time of the Cupertino, California-based technology company’s October earnings release.

Kenneth “Casey” Murphy, Miller’s lawyer at Simon & Partners LLP, declined to comment in an e-mail.

The case is U.S. v. Miller, 3:12-mj-288, U.S. District Court, District of Connecticut (Bridgeport).

Ex-Federal Reserve Programmer Gets Home Confinement in Theft

A computer programmer who worked for a contractor at the Federal Reserve Bank of New York was sentenced to six months of home confinement for stealing U.S. Treasury Department software used to track federal collections and payments.

Bo Zhang, a 33-year-old Chinese citizen, was sentenced yesterday in federal court in Manhattan. Zhang pleaded guilty in May to one count of theft of government property and one count of immigration fraud for lying to immigration authorities in support of other people’s visas.

The software, which cost millions of dollars to develop, wasn’t given to anyone else and is still used by the government, U.S. District Judge Paul Gardephe said in court yesterday.

Zhang was sentenced three years of supervised release along with home confinement. Defense lawyer Jeffrey Lichtman said during the hearing that Zhang, who was in the U.S. on a work visa, probably will be deported.

The case is U.S. v. Zhang, 1:12-cr-00390, U.S. District Court, Southern District of New York (Manhattan).

Philips Among the Companies Fined by EU for Antitrust Violations

Royal Philips Electronics NV (PHIA) and LG Electronics Inc. (066570) are among the companies fined a record 1.47 billion euros ($1.9 billion) by European Union antitrust regulators over price- fixing agreements of now-obsolete cathode-ray tubes used in televisions and computer monitors.

Philips was fined 313.4 million euros while LG faces a 295.6 million-euro penalty, the European Commission said in a statement today. Philips and LG also share a fine of 391.9 million euros for a unit they jointly owned. Panasonic Corp. (6752) was fined 157.5 million euros and shares an 86.7 million-euro punishment with Toshiba Corp. and MTPD, a Panasonic unit. Panasonic and MTPD also share a 7.9 million-euro fine.

“Cathode-ray tubes were a very important component in the making of television and computer screens. They accounted for 50 to 70 percent of the price of a screen,” said EU Competition Commissioner Joaquin Almunia in the statement.

Sales of cathode-ray tubes used in televisions and computer monitors fell after customers switched to slimmer liquid-crystal and plasma display sets. Philips and Technicolor, previously known as Thomson SA, received objections in the EU probe in 2009. Antitrust watchdogs in the EU, Japan and South Korea raided companies in 2007 over concerns they colluded to fix prices.

Joost Akkermans, a spokesman for Amsterdam-based Philips, said the fine was “disproportionate and unjustified” and related to a unit it divested in 2001. Philips will appeal the EU decision, he said in a telephone interview.

For more, click here.

In the Courts

Merrill Derivative Suit Dismissal Upheld by Appeals Court

Bank of America Corp. (BAC:US) won a federal appeals court ruling upholding the dismissal of so-called double derivative lawsuits over the lender’s 2009 merger with Merrill Lynch & Co.

The lawsuits sought to hold Merrill responsible for losses on allegedly risky investments in collateralized debt obligations and mortgage-backed securities before it was acquired by the bank, according to a March 2011 opinion by U.S. District Judge Jed Rakoff in Manhattan throwing out the cases.

A panel of the U.S. Court of Appeals in New York yesterday agreed with Rakoff that plaintiffs in the two lawsuits either initially failed to demand that the bank’s directors pursue claims against former Merrill officers, or couldn’t “show that the board had wrongfully refused” requests to pursue the claims, according to the decision.

Rakoff said in his opinion that if the allegations in the complaints were true, they describe “the kind of risky behavior by high-ranking financiers that helped create the economic crisis from which so many Americans continue to suffer.”

“The district court was well within its discretion” in concluding that a plaintiff “failed to demonstrate that the board acted in bad faith or conducted an unreasonable investigation,” the appeals court said in yesterday’s ruling.

“We are pleased with the court’s decision,” Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in an e-mailed message.

The cases are In Re: Merrill Lynch & Co. Securities Litigation, 07-cv-09633, and N.A. Lambrecht v. O’Neal , 09- cv-08259, U.S. District Court, Southern District of New York (Manhattan).

Argentina Not Required to Post $250 Million Appeal Bond

Argentina won’t have to post at least $250 million as security while a U.S. court considers its appeal of rulings requiring that holders of its defaulted bonds be paid when payments are made on its restructured debt.

Holders of the defaulted bonds, which include Paul Singer’s NML Capital Ltd. and Aurelius Capital Management, asked the U.S. Court of Appeals in New York to order that Argentina put up the money to ensure they’ll be paid if the nation loses its appeal. The court denied the request yesterday in a two-sentence order.

U.S. District Judge Thomas Griesa in Manhattan ruled Nov. 21 that Argentina had to pay $1.3 billion claimed by holders of the defaulted debt into an escrow account by Dec. 15 if it made about $3 billion in scheduled payments on the restructured debt this month. The rulings sparked a rout in Argentine bonds and caused Fitch to cut ratings on the country’s debt.

Argentina is appealing Griesa’s decisions, supported by investors who participated in two debt restructurings. Bank of New York Mellon Corp., the trustee for the restructured bonds, Dec. 3 asked the court for permission to participate in the appeal.

The appeals court last week delayed the effect of Griesa’s orders and set Feb. 27 for oral argument in the case.

The case is NML Capital Ltd. v. Republic of Argentina, 12-105, U.S. Court of Appeals for the Second Circuit (Manhattan).

Gupta Can Remain Free Pending Insider Appeal, Court Says

Former Goldman Sachs Group Inc. (GS:US) director Rajat Gupta can remain free while he fights his insider-trading conviction, a federal appeals court ruled.

Gupta, 64, was challenging an order to report to prison in January and begin serving a two-year sentence. His wife, Anita, burst into tears yesterday when U.S. Circuit Judge Jose Cabranes in Manhattan granted the request.

Gupta was convicted by a jury in June of one count of conspiracy and three counts of securities fraud. He was accused of passing illegal information about New York-based Goldman Sachs to Raj Rajaratnam, his friend and business partner.

Gupta and his lawyer, Seth Waxman, declined to comment after Cabranes announced the decision.

U.S. District Judge Jed Rakoff in Manhattan had rejected Gupta’s request to remain free pending appeal. Gupta, who is out on $10 million bond, has argued that he is likely to win a reversal of his conviction.

The case is U.S. v. Gupta, 12-4448, U.S. Court of Appeals for the Second Circuit (Manhattan).

Comings and Goings

Elizabeth Warren Said to Head to Senate Banking Committee

U.S. Senator-elect Elizabeth Warren, the Harvard University law professor and critic of Wall Street, is poised to join the Senate Banking Committee after she’s sworn into office in January.

Two Democratic aides briefed on the matter said Senate leaders intend to assign Warren to the Banking Committee, although a final decision on committee assignments will not be made until the new session of Congress convenes.

The aides spoke on condition of anonymity because assignments are not yet official.

Warren, 63, had been floated as a likely candidate for the committee seat, which would give her a role in writing banking legislation including revisions to the Dodd-Frank Act. The financial services industry and Warren have had a combative relationship since her calls for the creation of a consumer protection bureau.

Warren defeated incumbent Republican Scott Brown by a margin of 54 percent to 46 percent in November to become the first woman senator from Massachusetts and heir to the seat held for 47 years by Democratic icon Edward Kennedy.

Warren ran for the Senate after President Barack Obama decided not to nominate her as director of the Consumer Financial Protection Bureau, a Dodd-Frank centerpiece designed to help protect ordinary Americans from shoddy financial products. Warren championed the idea as a lawyer and helped build the bureau as an Obama administration adviser.

The banking and financial services industry opposed establishment of the bureau and Senate Republicans banded together to block her nomination as director.

Senator Joe Manchin, a West Virginia Democrat, is also expected to receive a seat on the Banking Committee, according to one of the Democratic aides. Manchin acknowledged he was pushing to get a seat on the committee.

SEC’s Disclosure Chief Cross to Step Down This Month

Meredith Cross, director of the U.S. Securities and Exchange Commission division that oversees public company disclosures, initial public offerings and private-fund registrations is leaving the agency.

Cross will step down as head of the Corporation Finance division this month after guiding the unit through a prominent role in SEC rulemaking under the Dodd-Frank Act, according to a statement released by the agency yesterday.

“Because of the efforts of Meredith and her staff, investors today get better, more meaningful information about the companies they invest in,” SEC Chairman Mary Schapiro said in the agency’s statement.

The impending departure of Schapiro, who is leaving on Dec. 14, may prompt others among her top aides to follow Cross in announcing they will step down, according to people briefed on the matter who asked not to be identified because the plans aren’t public.

Among the rules Cross has been overseeing this year are elements of the Jumpstart Our Business Startups Act that lifts restrictions on companies going public. The agency also approved Dodd-Frank rules in August requiring U.S.-listed companies to disclose whether they use so-called conflict minerals in their manufacturing and what payments they make to foreign governments to extract oil and gas.

Many of the rules required by Dodd-Frank, which were meant to strengthen oversight of financial institutions after the 2008 financial crisis, remain unwritten as the agency has struggled against legal challenges to its efforts.

Cross, whose husband, John Cross, was named director of the SEC’s Office of Municipal Securities in August, was a partner at law firm Wilmer Cutler Pickering Hale & Dorr LLP in Washington, before joining the SEC in 2009. She had worked at the agency in the 1990s before joining WilmerHale.

The SEC statement didn’t indicate what Cross plans to do after her departure from the agency.

To contact the reporter on this story: Ellen Rosen in New York at

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

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