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BofA Probes, Deutsche Bank Platform, BNY Mellon: Compliance

October 23, 2013

Bank of America Corp. (BAC:US), sued by U.S. attorneys in August over an $850 million mortgage bond, faces three more Justice Department civil probes over mortgage-backed securities, according to two people with direct knowledge of the situation.

U.S. attorneys offices in Georgia and California are examining potential violations tied to Countrywide Financial Corp., the subprime lender Bank of America bought in 2008, said the people, who asked not to be identified because the inquiries aren’t public. U.S. attorneys in New Jersey are looking into deals involving Merrill Lynch & Co., purchased by the firm in 2009, the people said.

If claims are brought, Bank of America would join JPMorgan Chase & Co. (JPM:US) in dealing with government demands that it resolve liabilities inherited after buying weakened rivals at the government’s urging during the credit crisis. JPMorgan, the biggest U.S. bank, reached a tentative $13 billion agreement last week to end civil claims over mortgage-bond sales.

Bank of America is being scrutinized for violations of the Financial Institution Reform, Recovery and Enforcement Act of 1989, or FIRREA, an outgrowth of the savings-and-loan crisis, according to the people. The Justice Department cited that statute in its August lawsuit against the firm, which is the nation’s second-largest lender after JPMorgan.

The law allows the government to sue an individual or group for fraud that affects a federally insured financial institution. It carries a 10-year statute of limitations.

Bill Halldin, a spokesman for Bank of America, declined to comment on the pending inquiries. Spokesmen for the three U.S. attorneys offices and the Justice Department declined to comment or didn’t immediately respond to telephone calls and e-mails.

The lender wrote in an Aug. 1 regulatory filing that it’s cooperating with state and federal probes into how home loans were bought, bundled and then sold to investors.

The Justice Department’s August case is U.S. v. Bank of America Corp. (BAC:US), 13-cv-00446, U.S. District Court, Western District of North Carolina (Charlotte).

For more, click here.

Compliance Policy

Health-Care False Claims Cases Reap $18.3 Billion, Report Shows

Federal and state governments recovered $18.3 billion between 2008 and 2012 from lawsuits and criminal cases claiming health-care companies overbilled, according to an advocacy group that encourages whistle-blowers.

Taxpayers Against Fraud, a Washington-based group, released a study showing total health-care recoveries, excluding whistle-blower payments, rose to $5.8 billion last year from $1.5 billion in 2008. Those totals include criminal fines and state false claims recoveries, two figures not normally tallied.

The health-care recoveries involve dozens of companies, including Pfizer Inc. (PFE:US), the world’s biggest drugmaker; GlaxoSmithKline Plc (GSK), the biggest U.K. drugmaker; Merck & Co. (MRK:US), the second-biggest U.S. drugmaker by sales; and McKesson Corp. (MCK:US), the largest U.S. pharmaceutical distributor. Many of the settlements involve corporate integrity agreements pledging compliance with the law.

Most cases were filed under the federal False Claims Act, which lets citizens sue on behalf of the government and share in any recovery. Twenty-nine states have similar laws. Most of the recoveries by the U.S. between 1987 and 2012 were in health-care cases, where the government recovered $24.1 billion, according to Justice Department statistics.

Whistle-blowing is increasing in other sectors, including finance and taxation.

EU Creates Expert Group to Study How to Tax Digital Companies

European Union experts will study how to tax “the digital economy” and recommend next steps for making sure technology companies pay their fair share, the European Commission said.

A high-level expert group will be assembled to identify problems and recommend solutions. The Brussels-based commission then will make proposals on how to implement the recommendations.

EU leaders meeting in Brussels this week will seek to coordinate views on efforts to tackle tax avoidance and tax base erosion. According to draft conclusions for the Oct. 24-25 summit, the EU is considering action on issues specific to the digital economy, like different tax rates for physical and electronic products.

The commission said the expert panel will be comprised of up to seven members, who will be “internationally renowned experts” on taxes and on the technology and online sales sectors. The group “will be chaired by a person of political profile with relevant background,” the EU said.

Compliance Action

Fed Terminates Enforcement Action Against BNY Mellon Collateral

The Federal Reserve terminated an enforcement action against Bank of New York Mellon Corp. (BK:US) initiated last year after the world’s largest custody bank misstated collateral pledged to a government lending program.

The action, which included a $6 million fine, was terminated effective Oct. 16, the central bank said in a statement issued yesterday in Washington.

Some collateral the bank pledged to the Federal Reserve Bank of Boston in 2008 was ineligible for the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, a program set up to help ease the credit squeeze during the financial crisis, the Fed said in an April 2012 statement. As a result, BNY Mellon received more in loans than it should have, the Fed said.

The bank agreed to submit a plan to the Fed to improve its procedures and employee training, the Fed said last year.

Deutsche Bank Starts Electronic Trading System for U.S. Options

Deutsche Bank AG (DBK) is introducing an electronic platform for investors to trade options on single stocks, equity indexes and exchange-traded funds across U.S. derivatives exchanges.

The system will give clients access to automated trading across all 12 American options venues, including exchanges operated by CBOE Holdings Inc. (CBOE:US), NYSE Euronext (NYX:US), Nasdaq OMX Group Inc. (NDAQ:US) and Bats Global Markets Inc., according to a statement from Germany’s biggest bank. The system will be part of Deutsche Bank’s Autobahn platform that includes tools for transactions in stocks, bonds, commodities and foreign exchange.

Deutsche Bank’s expansion into electronic options trading shows the bank is seeking to tap into growing demand for options at a time when U.S. equity volume declines for a fourth straight year. Options volume in the U.S. has surged fivefold in the last decade.

Four UBS Employees Are Suspects in German Tax Evasion Probe

Prosecutors in Mannheim, Germany, said four UBS AG (UBSN) employees are now suspects in a probe of whether the bank helped clients evade taxes by sending money to Switzerland.

The probe has been pending since 2012 and investigators are now targeting four employees, according to Mannheim prosecutors’ spokesman Peter Lintz, who commented by phone.

Prosecutors raided employees’ homes Oct. 8 and UBS Frankfurt offices from Oct. 8 to Oct. 17. More raids took place earlier this year, Lintz said.

The probe also targets a dozen clients. Some have turned themselves in to get leniency, Lintz said.

UBS is fully cooperating with the authorities, the company said in a statement. Internal investigations regarding the probe’s allegations haven’t revealed any evidence of misconduct at UBS’s German unit, it said in the statement. The company doesn’t support clients in activities that could circumvent tax obligations, UBS said.


White Urges CEOs and Boards to Bolster SEC’s Compliance Efforts

The U.S. Securities and Exchange Commission is calling on corporate executives and boards to strengthen internal compliance programs as funding constraints limit the agency’s reach, SEC Chairman Mary Jo White said.

White made the remarks yesterday in a speech at a National Society of Compliance Professionals conference in Washington.

SEC officials are meeting with chief executive officers, senior business managers, heads of compliance, and chairmen of audit and risk committees to assess whether the “tone at the top” of companies discourages wrongdoing, White said in prepared remarks. Agency officials evaluate whether compliance personnel have the standing, authority and resources to do their jobs.

White’s remarks come about a month after the SEC leveled a $200 million penalty against JPMorgan & Chase Co. to resolve claims the New York-based bank had inadequate internal controls related to the London Whale trading that led to $6.2 billion in losses last year. The penalty was the biggest the agency has imposed related to internal controls.

The SEC issued guidance to compliance officials last month to allay concerns that they could be subject to enforcement action for giving legal advice on how to deal with misconduct internally at their companies. Inspectors who conduct routine examinations of investment advisers are working more closely with the SEC enforcement unit, White said.

“We do not want you to be concerned that by engaging, you will somehow be arbitrarily construed to be a supervisor, and expose yourselves to potential supervisory liability,” she said.

Consob Chief Vegas Says Tobin Tax Discourages Investments

The domestic tax on currency trades that cross borders, known as the Tobin Tax, discourages investments, Italian market regulator Consob’s Chief Giuseppe Vegas said.

He made the remarks in front of the Chamber of Deputies’ finance committee.

Vegas said research conducted abroad shows the Tobin Tax is harmful for investments if similar laws are not applied at the same time in other countries.

He also commented on the Italian banking system, saying it was hurt by the debt crisis. There’s a need to remove obstacles that stop companies from obtaining access to capital markets, he said.

International investors are returning to peripheral markets, Vegas said. Italian banks’ close links to companies can hurt efficient credit allocation and foreign investments, according to Vegas.

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

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

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