U.S. Health Grant, Greece Rescue, Goldman Subpoena, Evonik: Compliance

The U.S. will give states $250 million in grants over five years to strengthen their ability to review premiums, starting with $51 million this year, said Kathleen Sebelius, the federal health secretary, in a statement yesterday. The program, announced by the White House yesterday, expands funding for states to scrutinize “unreasonable” rate increases.

Insurers led by UnitedHealth Group Inc. and WellPoint Inc. risk losing access to as many as 24 million customers a year under the plan. UnitedHealth, WellPoint and Aetna Inc., the largest U.S. insurers, urged regulators in letters delivered last month to limit the new rate-review plans or risk driving insurers out of some markets.

Along with more state funding, the health overhaul passed by Congress in March allows states to bar plans from the online insurance exchanges where the U.S. estimates 24 million people will buy coverage by 2019.

States will have to strike a balance between protecting consumers and ensuring the solvency of health plans, said Sandy Praeger, the Kansas insurance commissioner and past president of the National Association of Insurance Commissioners in Kansas City, Missouri.

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Compliance Policy

Euro-Area Ministers Seal Rescue-Fund Deal to Stem Debt Crisis

European finance ministers put the finishing touches on a rescue fund being backed by 440 billion euros ($526 billion) in national guarantees, seeking to halt the spread of Greece’s debt crisis.

The European Financial Stability Facility would sell bonds backed by the guarantees and use the money it raises to make loans to euro-area nations in need, the finance ministers decided today in Luxembourg. The new mechanism would sell debt for lending only after an aid request is made by a country.

The ministers aim for ratings companies to assign a AAA rating to the facility, whose bonds would be eligible for European Central Bank refinancing operations.

The fund, being created for three years, is the main part of a 750 billion-euro aid package that European Union finance ministers hammered out a month ago to combat a sovereign debt crisis. Another 60 billion euros will come from the European Commission and 250 billion euros from the International Monetary Fund.

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Rome Plans Hotel Tax as Credit Rating Under Siege

Rome is considering a hotel tax on the 9 million visitors to the Eternal City each year, a revenue-raising measure that may hurt tourism in the Italian capital and put further pressure on its credit rating.

Prime Minister Silvio Berlusconi’s government proposed the levy. Italy authorized the initiative in its budget-cutting plan, prompting Standard & Poor’s on May 27 to change the outlook on Rome to negative. The ratings company said the government was scaling back its commitment to bolster the city’s finances.

Bernabo Bocca, president of hotel trade association Federalberghi, called the tax “utterly stupid” in an interview. Berlusconi said the decision “will only be taken after a long discussion” with the trade association.

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Compliance Action

FCIC Subpoenas Goldman Sachs, Seeking Documents

Goldman Sachs Group Inc., the most profitable firm in Wall Street history, was subpoenaed by the Financial Crisis Inquiry Commission, a U.S. panel investigating the financial crisis, after allegedly failing to hand over documents in a “timely manner.”

The request for information shows the FCIC is turning attention to Goldman Sachs after investigating credit-rating companies and banks such as Citigroup Inc. and Bear Stearns Cos. The company has already drawn scrutiny from regulators and lawmakers for packaging mortgages into securities that triggered losses for investors when the housing market collapsed in 2007.

Goldman Sachs said in an e-mailed statement that it is committed to providing the FCIC with the requested information.

Goldman Sachs was sued April 16 by the U.S. Securities and Exchange Commission in claims related to a collateralized debt obligation. The firm has said the suit is “unfounded in law and fact.” Federal prosecutors in New York are also investigating transactions by Goldman Sachs, people familiar with the matter said April 29. The firm hasn’t been accused of criminal misconduct.

J&J Misses Deadline for Lawmakers’ Document Request

Johnson & Johnson failed to meet yesterday’s deadline to provide U.S. House lawmakers with documents on the company’s 2008 recall of defective Motrin tablets from stores, a House committee aide said.

Lawmakers, who asked J&J to submit the documents by 4 p.m. New York time, hadn’t received any records as of 6:15 p.m., Jenny Rosenberg, a spokeswoman for the House Oversight and Government Reform Committee, said in an e-mail. Rosenberg said further action will be taken if necessary “to ensure cooperation with the committee’s investigation.”

The panel began investigating J&J after the company on April 30 recalled 40 types of children’s medicines. Lawmakers learned during their inquiry that J&J in 2008 removed Motrin from the market without regulators’ knowledge.

J&J produced the records for the committee, Bonnie Jacobs, a company spokeswoman, said in an e-mail.

China Approves 5 Brokerages for Margin Trading, China News Says

China’s securities regulator has approved five brokerages to trial margin trading, the China News Service reported, citing an unidentified official from the body

The China Securities Regulatory Commission also plans to lower the entry requirements for brokerages to take part in margin trading trials, the report said.

Separately, China’s government has revised its regulations for financial institutions to report their international payments, according to a statement today by the State Administration of Foreign Exchange.

Goldman Deserves Regulatory Probe in Bloomberg Poll

Goldman Sachs Group Inc. is being “legitimately scrutinized” by regulators who sued the firm for fraud based on conduct that many in the industry consider to be common practice, according to a Bloomberg survey.

The most profitable securities firm in Wall Street history has suffered the worst decline in reputation among its largest competitors, according to the global quarterly poll of 1,001 investors and analysts who are Bloomberg subscribers. Eighty- three percent of respondents said Goldman Sachs’s stature diminished in the past six months; the next closest were UBS AG, with 27 percent, and Citigroup Inc., at 26 percent.

Goldman Sachs was sued April 16 by the Securities and Exchange Commission, which said the New York-based company failed to inform investors about the role hedge fund Paulson & Co. played in both helping to select contracts underlying a mortgage-linked investment and betting against it. Goldman Sachs has said it did nothing wrong and is fighting the case.

Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the poll.

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Separately, Bloomberg’s Jon Erlichman and Erik Schatzker reported about the survey concerning Goldman Sachs, as well as a separate poll that showed the U.S. has supplanted China and Brazil as the most attractive market for investors.

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Jyske Reported to Police by FSA for Not Reporting Transactions

Jyske Bank A/S was reported to the police by the Danish FSA for failing to report transactions in listed securities, the Danish agency said today on its website.

The FSA also reported Skaelskoer Bank, Etrade Bank and BankInvest to the police for similar offenses. BankInvest said a computer error was to blame for the missing transaction reports over five months in 2009 and that it risked a fine.

Officials at the other three companies were not immediately available for comment.

Courts

Evonik Sued by Vion Over Cartel for Feed Additive

Evonik Industries AG was sued in London by Vion NV, a Dutch meat processor, over claims that one of its units charged too much for a chicken-feed additive during a 13-year price-fixing cartel.

Vion and its U.K. producers sued Evonik on May 21, claiming they were overcharged as a result of the scheme to set price targets and share sales data from 1986 to 1999, according to filings at the Competition Appeal Tribunal in London.

The European Union in 2002 fined Evonik 118 million euros ($141 million) for fixing the price of methionine, an amino acid added to most animal feed and to all chicken feed. The market for the additive, also used to improve cow fertility, was worth about 260 million euros a year in Europe when the cartel operated, according to the EU.

The unit involved in the case, Dusseldorf-based Evonik Degussa GmbH, postponed a hearing scheduled for today at the tribunal in London while it seeks to add Sanofi-Aventis SA as a co-defendant in the case.

Aventis SA, now part of Paris-based Sanofi-Aventis, and another unit were also part of the cartel. Aventis won immunity from fines in the case by revealing the cartel to authorities and cooperating with the investigation.

Geoffroy Bessaud, a Sanofi-Aventis spokesman, didn’t immediately return a call.

Catriona Munro, Vion’s lawyer with the firm Maclay Murray & Spens LLP in Glasgow, declined to say how much money her client is seeking. The case was filed by U.K. companies including Grampian Country Food Group Ltd. that were acquired by Vion, Munro said.

Standard & Poor’s Sued in Frankfurt Court Over Lehman Ratings

Standard & Poor’s Financial Services LLC, a unit of McGraw- Hill Cos., was sued in a Frankfurt court over its ratings of Lehman Brothers Holdings Inc. before the bank’s collapse in 2008, a lawyer said.

A German pensioner who owned Lehman certificates is seeking compensation for 30,000 euros ($35,790) lost when the investment bank filed bankruptcy, his lawyer Jens-Peter Gieschen said in an e-mailed statement yesterday. The suit was filed June 3, he said, declining to identify the plaintiff.

Meinrad Woesthoff, the spokesman for the Frankfurt court, said he wasn’t immediately able to confirm the suit, which claims the A+ rating for Lehman in May 2008 on which the investor relied was misleading.

Doris Keicher, a spokeswoman for S&P in Frankfurt, declined to comment.

Rating companies have come under fire for their alleged failure to foresee the financial crisis and for granting top rankings to mortgage bonds.

Separately, Standard & Poor’s withdrew its ratings on 2,427 interest-only slices of U.S. residential mortgage-backed securities issued from 1991 to 2010, citing changes to its methodology.

The suspended grades involved pieces of 831 transactions, New York-based S&P said yesterday in a statement. Nine of the rankings were under review for downgrades.

Court Gives First Jail Terms for 1984 Bhopal Disaster

An Indian court sentenced seven former senior employees of Union Carbide Corp.’s local unit to two years each in jail for causing death by negligence, after the first ever convictions related to the deadly 1984 leak of toxic gas in Bhopal.

Those given prison terms include the former chairman of Union Carbide India Ltd., Keshub Mahindra, one of eight charged with causing death by negligence, the Press Trust of India news agency reported.

Union Carbide said yesterday that the plant was owned and operated by Union Carbide India Ltd. and the Indian courts have no jurisdiction over the company.

An explosion at the Union Carbide pesticide plant on Dec. 3, 1984, released methyl isocyanate gas into the streets of Bhopal, the capital of Madhya Pradesh state in central India. After the explosion, 7,000 perished within days, and another 15,000 later died from exposure to the gas, according to a study by human rights group Amnesty International. Union Carbide estimated that 3,800 people were killed by the leak.

Dow Chemical Co., which acquired Union Carbide in 1999, said it settled all liabilities relating to Bohpal in 1989.

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BASF Sued By Petroleos Mexicanos Over Oil Trade Claim

Petroleos Mexicanos, the state-owned oil company, sued companies including BASF SE’s U.S. unit over allegations tied to the illegal trade of oil products.

Mexico’s attorney general and federal police have been investigating fuel theft for the past three years. As of August 2009, Petroleas Mexicanos, or Pemex, as the Mexico City-based company is known, had filed 1,587 police reports over fuel thefts, and none of the cases have led to a conviction in Mexico, according to Reforma newspaper.

The case is Pemex Exploracion Y Produccion v. BASF Corp., 10-01997, U.S. District Court for the Southern District of Texas (Houston).

Starr Judge Names Receiver, Bars Payments to Clients

U.S. District Judge Sidney Stein in Manhattan yesterday appointed attorney Aurora Cassirer to take temporary control of Starr Investment Advisors LLC and Starr & Co. Stein barred Cassirer from making payments to Starr’s clients, meaning “clients can’t get their money,” the judge said at a hearing.

The companies are money-management firms of jailed financial adviser Kenneth Ira Starr, 66, who was arrested and charged May 27 with fraud.

The U.S. Securities and Exchange Commission sued Starr and his wife, Diane Passage, winning a court order freezing Starr- related bank accounts and now having the firm, which catered to celebrities, controlled by a receiver.

The civil suit is SEC v. Starr, 1:10-cv-04270, and the criminal case is U.S. v. Starr, 1:10-mj-01135, U.S. District Court, Southern District of New York (Manhattan).

Axel Springer Asks Court to Overturn Veto of ProSieben Takeover

Axel Springer AG, Europe’s largest newspaper publisher, asked a German top court to overturn the veto of its 2005 bid for broadcaster ProSiebenSat.1 Media AG, arguing the merger won’t curb competition.

Axel Springer’s position in print advertising via its tabloid Bild Zeitung wouldn’t increase ProSieben’s dominance in television, Dirk Schroder, a lawyer for the publisher, told the Federal Court of Justice in Karlsruhe today. A merger would instead help ProSieben challenge Bertelsmann AG’s RTL group than decrease competition, Schroeder said.

Axel Springer has said that it may reconsider a bid for the company if it prevails in the suit. The transaction was abandoned in 2006 after the Federal Cartel Office said it would harm competition.

The case is BGH, KVR 4/09.

Kerviel Seeks to Show at Trial That SocGen Knew of His Trading

The trial of Jerome Kerviel, beginning more than two years after Societe Generale SA accused him of losing 4.9 billion euros ($5.8 billion) on unauthorized market bets, may turn on whether the trader can show the bank knew what he was doing.

Societe Generale initiated the probe by filing a criminal complaint; the company seeks to recoup its losses.

Kerviel is charged with abuse of trust, faking documents and computer hacking. The Paris trial, which started yesterday, has resulted in more foreign press accreditation requests to the court than at any time in a decade.

Kerviel, 33, who has said he is innocent of the charges, claimed the bank knew of his activities. He became a popular figure in France as stories of his small-town upbringing and education outside the elite French “Grandes Ecoles” system contrasted his background with that of the bank’s leaders.

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Interviews

Carney Says World Financial System Is More Stable

Bank of Canada Governor Mark Carney said the global financial system has become more stable, and the risks to the Canadian and world economies have shifted more toward how fast governments narrow budget deficits and business investment accelerates.

Carney, 45, met with his Group of 20 colleagues in South Korea last weekend to discuss rules to prevent another credit crunch, and when governments should pare back deficits after last year’s global recession.

FDIC’s Bair Says U.S. Needs ‘Better Balance’ in Housing Policy

Federal Deposit Insurance Corp. Chairman Sheila Bair said the U.S. needs “better balance” in its housing policy, with affordable rental housing playing a more prominent role for people who cannot afford to own homes.

Bair’s remarks were prepared for a Housing Association of Non-Profit Developers meeting in Tysons Corner, Virginia yesterday. Under current law, “taxpayer subsidies for homeowners are about three times the size of all rental subsidies and tax incentives combined,” Bair said. Ownership subsidies should not be pursued “to excess” when there are other “equally worthy” solutions to help people meet housing needs.

European Crisis Requires G-20 Action, Sanio Says

Recent events, including the European sovereign-debt crisis, require an “immediate” regulatory response on a global level from the Group of 20 nations, said Jochen Sanio, head of BaFin, Germany’s financial regulator.

Sanio, who said the regulatory system “failed miserably,” made the remarks before participants today at the Conference of Montreal.

It will probably only be “a matter of months” before “creative” traders find a way of circumventing the short- selling ban introduced by Germany. Therefore other measures are needed to halt “excessive” speculation, Sanio said.

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

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