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Swaps Rule Suit, U.K. Insiders, Levitt on Proxies: Compliance

December 06, 2013

Wall Street’s biggest lobbying groups banded together to sue the Commodity Futures Trading Commission, seeking to curb the overseas reach of its rules and rein in a regulatory barrage by its departing Chairman Gary Gensler.

The suit, filed Dec. 4 in federal court in Washington by the Securities Industry and Financial Markets Association and others, seeks to overturn guidance the CFTC approved in July. The trade associations, which represent Goldman Sachs Group Inc. (GS:US), JPMorgan Chase & Co., Deutsche Bank AG and other swap dealers, say the agency illegally set regulations by issuing guidance documents and staff advisories rather than formal commission-approved rules.

In their court papers and in interviews, the groups said they felt pushed to the edge by Gensler, who has spent the past five years grappling with banks over the parameters of a more public marketplace for financial products that helped ignite the 2008 credit crisis.

Gensler defended the CFTC’s policies, saying the overseas guidance was released appropriately, and attributing the challenge to the “money at stake.”

The lawsuit filed by Sifma along with the International Swaps and Derivatives Association and the Institute of International Bankers -- is the latest in a series of Wall Street challenges to U.S. efforts to reshape financial regulation after the worst economic collapse since the Great Depression. The 2010 Dodd-Frank Act gave the CFTC power to bring swaps, which have been traded behind closed doors for decades, under U.S. oversight for the first time.

The question of how to apply the new regulations overseas has been among the most contentious issues in the battle between the banks and Gensler.

Compliance Action

Fifth Third to Pay $6.5 Million Over SEC Accounting Allegations

Fifth Third Bancorp (FITB:US) agreed to pay $6.5 million to settle U.S. regulatory claims that it made improper disclosures about commercial real estate loans during the financial market turmoil of 2008.

Daniel Poston, who was Fifth Third’s chief financial officer at the time, agreed to pay $100,000 and to be suspended for one year from practicing as an accountant at a publicly-traded company, the Securities and Exchange Commission said in a statement yesterday.

Fifth Third experienced an increase in “non-performing assets” as the real estate market declined in 2007 and 2008, the SEC said. After deciding to sell the loans in the third quarter of 2008, the Cincinnati-based bank failed to classify them as “held for sale,” and instead continued to book them as investments, according to the agency.

Proper accounting would have increased Fifth Third’s pretax loss for the third quarter of 2008 by 132 percent, the SEC said. Poston failed to direct the bank to properly classify and value the loans and also made inaccurate statements to auditors, the agency said.

Fifth Third spokesman Larry Magnesen said in a telephone interview that the bank, which resolved the SEC claims without admitting or denying wrongdoing, is pleased to have finalized the settlement. Paul Schoeman, Poston’s attorney at Kramer Levin Naftalis & Frankel LLP, didn’t immediately return a phone call seeking comment.


Insider Trading Suspects’ Defense Stymied by U.K. Legal Aid Cuts

Four men charged with insider trading have lost their trial lawyers because of cuts to legal aid in the U.K., days before they were scheduled to enter pleas, according to four people with knowledge of the case.

The men, who include former Deutsche Bank AG managing director Martyn Dodgson, are among six defendants charged in the U.K.’s biggest insider-trading investigation, known as Operation Tabernula, who will appear in court in London today. The trial lawyers, known as barristers, withdrew because of cuts to government funding of legal cases that came into effect earlier this week, said the people, who asked not to be named because the matter is private.

The U.K. government overhauled legal aid as part of austerity measures to trim the deficit.

The cuts to legal aid include a 30 percent reduction in fees for lawyers in high-cost cases, such as Tabernula, that are expected to run for a long period of time and require a large number of lawyers.

Grant Harrison, a former managing director at Altium Capital Ltd., Iraj Parvizi, a former director at Aria Capital Ltd., Dodgson, and three other men are all scheduled to enter pleas today, though that may get pushed back because of the lack of barristers, the people said.

Parvizi and one of the other men, Benjamin Anderson, have kept their trial lawyers because they’re able to pay them, according to the people. All six still have solicitors, lawyers who don’t usually argue before courts in the U.K.

One of the people, a lawyer for one of the defendants, said they’ve asked about 60 barristers to take the case on the reduced legal-aid budget, without success.


Levitt Says SEC Should Not Focus on Proxy Disclosure

Arthur Levitt, former Securities and Exchange Commission chairman, said the SEC “has far more important issues” to consider rather that weighing whether regulators should impose rules to make proxy advisers more transparent. Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

The SEC is weighing whether proxy advisers have grown so influential in corporate elections that regulators should impose rules to make their business more transparent.

For the audio, click here, and for more, click here.

Lew Says Volcker Rule to Prevent Repeat of ‘London Whale’ Bets

Treasury Secretary Jacob J. Lew said the Volcker rule banning banks’ proprietary trading that regulators plan to vote on next week will prohibit transactions such as JPMorgan Chase & Co. (JPM:US)’s so-called London Whale and put more responsibility on top Wall Street executives.

“The rule prohibits risky trading bets like the ‘London Whale’ that are masked as risk-mitigating hedges,” Lew said in the prepared text of a speech yesterday in Washington. “And it puts in place strong compliance requirements that require those in charge of financial institutions to make sure that the ‘tone at the top’ sends the right signal to the whole firm.”

Lew is coordinating efforts by regulators to adopt rules intended to prevent a repeat of the 2007-08 financial crisis. The Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Commodity Futures Trading Commission plan to vote Dec. 10, and the Securities and Exchange Commission will act the same day.

For more, click here.

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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