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JPMorgan Talks, Bank of America Bias, Libor Lawsuit: Compliance

September 25, 2013

JPMorgan Chase & Co. (JPM:US) resumed settlement talks with the U.S. as the government was preparing to sue the bank in California alleging it misrepresented the quality of mortgage-backed securities sold from 2005 to 2007, according to a person familiar with the matter.

The government informed JPMorgan it was ready to file a complaint yesterday in Sacramento, the person said. Shortly after, talks between the bank and Justice Department officials over a possible settlement restarted, said the person, who asked not to be identified because the matter isn’t public.

JPMorgan wanted to negotiate an accord resolving mortgage-bond investigations being conducted by federal and state authorities, including probes by the U.S. attorneys in Sacramento, Philadelphia and Washington, according to another person briefed on the effort.

The bank also tried to settle a $6 billion claim by the Federal Housing Finance Agency and an investigation by New York Attorney General Eric Schneiderman, who sued the company in October over mortgage bonds packaged by Bear Stearns Cos., which JPMorgan acquired in 2008, according to the person, who asked not to be identified because the talks are private.

The FHFA sued the bank and 17 other lenders two years ago over faulty mortgage bonds.

Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on settlement negotiations. Adora Andy Jenkins, a spokeswoman for the U.S. Justice Department, and Peter Garuccio, a spokesman for FHFA, also declined to comment.

Compliance Action

BofA Told to Pay $2.2 Million in Race Bias Case Spanning Decades

Bank of America Corp. (BAC:US) was ordered to pay $2.2 million to black job applicants who were unfairly rejected for teller and clerical positions in a case spanning almost two decades, according to the U.S. Department of Labor.

An administrative judge told the bank to pay $964,000 to more than 1,000 applicants from 1993 and $1.22 million to 113 people who were rejected from 2002 to 2005, the regulator said yesterday in a statement. The lender also was ordered to make job offers to 10 people. The firm settled separate claims of racial and gender bias at its Merrill Lynch unit in the past month.

The Labor Department complaint stems from a routine review of hiring practices at an office in the firm’s hometown of Charlotte, North Carolina, according to the statement. After talks broke down, the government filed an administrative complaint in 1997, asserting the federally insured bank was subject to laws covering U.S. contractors, the agency said. The firm challenged that authority, according to the statement.

Bank of America, the second-largest U.S. lender by assets, said it’s examining the recommended decision and order.

“Diversity and inclusion are part of our culture and core company values,” said Christopher Feeney, a company spokesman. “We actively promote an environment where all employees have the opportunity to succeed.”


JPMorgan Chase Said to Be Sued Over Libor With 12 Other Banks

JPMorgan Chase & Co., Barclays Plc (BARC), Credit Suisse Group AG (CSGN) and 10 other international lenders were sued by a U.S. credit union regulator alleging they illegally manipulated benchmark Libor interest rates.

The National Credit Union Administration, an Alexandria, Virginia-based regulator, said it sued the banks Sept. 23 at a U.S. court in Kansas. The filing couldn’t immediately be confirmed in court records.

Their alleged manipulation “resulted in a loss of income from investments and other assets held by five failed corporate credit unions: U.S. Central, WesCorp, Members United, Southwest and Constitution,” according to an NCUA statement.

The banks are accused of giving false information in response to a daily survey by the British Bankers’ Association, which asks lenders how much it would cost to borrow money from each other for various intervals in 10 different currencies.

Libor, the London interbank offered rate, is a key metric to set interest rates for trillions of dollars in financial instruments.

The misinformation allowed them to “benefit their investments that were tied to Libor, to reduce their borrowing costs, to deceive the marketplace as to the true state of their creditworthiness, and to deprive investors of the interest rate payments to which they were entitled,” according to the NCUA.

Kerrie Ann Cohen, a New York-based spokeswoman for Barclays, declined to comment on the allegations.

Brian Marchiony, a spokesman for New York-based JPMorgan, and Drew Benson, a spokesman for Credit Suisse, also declined to comment.

The case is National Credit Union Administration Board v. Credit Suisse Group AG, U.S. District Court, District of Kansas.

Ex-SAC Manager Martoma Has Assets Frozen in Insider Case

A judge in Manhattan yesterday froze the Florida home and other assets of former SAC Capital Advisors LP manager Mathew Martoma, who is charged in a $276 million insider trading case.

The U.S. claims the assets, including Martoma’s $1.9 million Boca Raton home and more than $4 million in accounts held by Martoma and his wife, were derived from the alleged crime. The government is seeking forfeiture if Martoma is convicted.

Prosecutors and lawyers representing Martoma agreed to the order, which bars him from transferring the property while the case against him goes forward.

The U.S. claims Martoma used inside information from two doctors who were involved in the clinical trial of the Alzheimer’s disease drug bapineuzumab, or “bapi,” to trade in shares of Elan Corp. (ELN) and Wyeth on behalf of SAC, the hedge fund company founded by Steven A. Cohen. The government has called it the biggest criminal insider-trading case against an individual in history.

Martoma was paid a $9.3 million bonus tied to the illegal trades, prosecutors claim. SAC, based in Stamford, Connecticut, was indicted in July, partly because of Martoma’s alleged illegal trading.

Martoma has pleaded not guilty. His trial is scheduled to begin Nov. 4. It may be delayed at his lawyer’s request and to accommodate court schedules.

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).

Bank of New York Mellon Wins Case Over Interest Deductions

Bank of New York Mellon Corp. (BK:US) is entitled to deduct interest on a loan linked to a transaction with a British bank that generated disallowed tax credits, a U.S. Tax Court judge ruled.

The loan “served a purpose beyond the creation of the tax benefits,” Judge Diane Kroupa wrote in an opinion released Sept. 23.

Kroupa’s decision grew out of her ruling earlier this year that BNY Mellon couldn’t claim $199 million of tax credits and related expense deductions for 2001 and 2002 from a series of transactions with London-based Barclays Plc (BCS:US) because they had no economic substance.

BNY Mellon didn’t challenge Kroupa’s ruling on the tax credits and instead argued that since she ruled that the loan proceeds could be used by the bank for business purposes, interest on them is deductible. Kroupa agreed with that analysis. The ruling didn’t indicate the amount of interest at stake.

Kevin Heine, a spokesman for BNY Mellon, declined to comment on the ruling.

The case is Bank of New York Mellon Corp. v. IRS, 09-26683, U.S. Tax Court (Washington).


SEC’s White Says Jury ‘Still Out’ on High-Speed Trading

U.S. Securities and Exchange Commission Chairman Mary Jo White talked about market regulations, banking rules and high-frequency trading.

In a wide-ranging discussion, White talked about acknowledgments of wrongdoing in SEC settlements, as well as rule-making topics such as crowd-funding, which she described as a “very high priority,” adding that she hopes to get those rules done this year.

White also vowed the agency would eventually adopt a June 5 proposal to add new restrictions to money-market mutual funds.

She spoke with Peter Cook at the Bloomberg Link Markets 50 Summit in New York.

For the video, click here.

U.S. Bank Agency Invites Foreign Regulators to Review Its Work

The regulator of U.S. national banks is inviting overseas counterparts to find flaws in its practices that may have caused the agency to miss early signs of the coming financial crisis more than five years ago.

Comptroller of the Currency Thomas Curry said he has asked regulators from Australia, Singapore and Canada to review his agency’s bank supervision methods even as the OCC conducts its own performance evaluation.

Curry made the comments in remarks prepared for delivery at an American Banker regulatory conference this week in Arlington, Virginia.

The OCC was among regulators criticized by lawmakers for missing early evidence that the financial system was under threat before the crisis, as well as for overlooking initial signs of money-laundering violations at HSBC Holdings Plc (HSBA) and trades at JPMorgan Chase & Co.

“We’ll be looking at everything from agency culture to our approach to risk identification,” Curry said in his remarks, “and we’ll be looking for gaps in the system that might have led us to miss problems in the past.”

Australia, Singapore and Canada were selected as countries that weathered the 2008 global credit crisis well, Curry said. They will conduct “an independent peer review of the process we use for the supervision of large banks and thrifts” -- an evaluation he said could be “frankly painful” for those at the OCC, Curry said.

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

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

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