Healthcare Appeal, Cuban, Iceland Bank Aid, Amazon: Compliance
Virginia can proceed with its lawsuit challenging the health-care overhaul signed by President Barack Obama in March, a federal judge said.
U.S. District Judge Henry E. Hudson in Richmond, Virginia, denied a U.S. Justice Department request yesterday to throw out the suit, rejecting arguments that the state had no right to sue. Virginia said the U.S. Congress had unconstitutionally exceeded its powers in requiring individuals to buy insurance.
“While this case raises a host of complex constitutional issues, all seem to distill to the single question of whether or not Congress has the power to regulate -- and tax -- a citizen’s decision not to participate in interstate commerce,” Hudson wrote in his 32-page ruling.
Neither the U.S. Supreme Court nor any other federal appeals court has squarely addressed the issue, for which there is “some authority arguably supporting the theory underlying each side’s position,” the judge said.
Virginia filed suit within minutes of Obama signing the bill on March 23. The following day, Governor Bob McDonnell signed legislation clashing with the federal law.
“We remain confident that the case is solid and that there’s a full constitutional case for the passage of the Affordable Care Act,” U.S. Health and Human Services Secretary Kathleen Sebelius told reporters in a conference call after Hudson handed down his ruling.
Virginia’s lawsuit was filed by state Attorney General Kenneth Cuccinelli. His spokesman, Brian Gottstein, didn’t immediately reply to an e-mailed request for comment. McDonnell, the state’s Republican governor, applauded Hudson’s decision.
“The requirement that all Americans must purchase health insurance or face a penalty is not permitted under the Commerce Clause of the United States Constitution,” McDonnell said in a statement. “I look forward to the full hearing this fall.”
The case is Commonwealth of Virginia v. Sebelius, 10-cv- 00188, U.S. District Court, Eastern District of Virginia (Richmond).
Compliance Policy
Comcast-NBC Deal Should Be Approved With Limits, Boucher Says
Comcast Corp.’s proposed takeover of General Electric Co.’s NBC Universal should be approved by U.S. regulators after setting requirements to avoid harming viewers, the chairman of a House panel on communications said.
The Federal Communications Commission and Justice Department should ensure consumers who aren’t Comcast subscribers retain access to programming they received before the merger, Representative Rick Boucher, a Virginia Democrat, said in letters to the agencies released by his office yesterday.
“I have some concerns about the potential for consumer harm,” Boucher wrote to FCC Chairman Julius Genachowski. He urged approval after requiring the companies to prevent a reduction in consumer choice and competition. Boucher sent a similar letter to Christine Varney, assistant attorney general for antitrust who is heading a review of the $28 billion deal.
The proposed takeover would give Comcast, the largest U.S. cable company, control of NBC’s television network; broadcast stations in markets including New York, Los Angeles and Miami; cable channels such as USA Network and Bravo, and a library of more than 4,000 movies.
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Huntington Says Regulation May Affect $180 Million in Revenue
Huntington Bancshares, the year’s fourth-best performing stock in the Standard & Poor’s 500 Index, said regulatory changes may crimp earnings from businesses that provide $180 million in annual revenue.
The bank is taking steps to mitigate the cost of rules announced by the Federal Reserve last year affecting about $90 million in overdraft fees collected annually, Chief Executive Officer Stephen Steinour said in a letter to shareholders that was filed with regulators yesterday. It’s still trying to gauge the impact of the Dodd-Frank Act, passed last month, on $90 million in annual debit-card interchange fees, he wrote.
“How much of this may be in jeopardy, cannot be estimated at this time,” he wrote of interchange, or “swipe” fees, charged to merchants on debit transactions.
The Fed said Nov. 12 it will prohibit banks from charging overdraft fees on automated teller machines or debit cards, unless a customer has agreed to pay extra charges for exceeding account balances. The Columbus, Ohio-based lender, seeking to offset the ban, is asking customers whether they want to keep overdraft protection, Steinour wrote.
Iceland’s Parliament Rejects Bank Aid as Losses Loom
Iceland’s parliament may block any government attempt to recapitalize the island’s banks after a court ruling threatened to leave some lenders insolvent, opposition party leaders and coalition members said.
Thirty-five lawmakers in the 63-seat Reykjavik-based assembly plan to vote against any government proposal to rescue lenders, according to all opposition party heads and six members of the coalition contacted by Bloomberg. The government, which can’t bail out the banks for a second time in as many years without parliamentary backing, may need to support the industry after a June 16 court ruling made them liable for currency losses on as much as $28 billion in loans.
Iceland’s government debt, which had Moody’s Investors Service top Aaa grade until May 2008, will reach 150 percent of gross domestic product this year, the rating company estimates. Moody’s said last week it may cut Iceland’s credit grade to junk if the state is forced to increase its debt burden to generate cash for the banks. The June court ruling may cost the island’s banks between $1.1 billion and $4.3 billion, the government and the country’s financial regulator estimate.
“I wouldn’t support” a recapitalization, said Gudfridur Lilja Gretarsdottir, a lawmaker in the junior coalition partner the Left Greens, in an interview. “Enough money has been pumped into the banks; the financial system is much too large.”
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Funds Provide Inadequate Disclosure on Derivatives, SEC Says
U.S. regulators said mutual funds aren’t telling investors enough about why they use derivatives, with some funds providing “generic” disclosures and others failing to explain how the products affect performance.
Regulators said they are concerned that the use of derivatives has increased in the mutual-fund industry without shareholders comprehending the risks or investment strategies. Some funds offer information that “may not be consistent with the intent” of required registration forms, the Securities and Exchange Commission wrote in a July 30 letter to the Investment Company Institute.
As a result of the inadequate disclosures, investors may not know which products are used to generate profits, Miller said in the letter. He advised all funds that use derivatives to “assess the accuracy and completeness” of their disclosures.
Washington-based ICI, the mutual-fund industry’s biggest trade group, had no immediate comment.
Geithner Says U.S. to Move ‘Quickly’ to Set Up Financial Rules
Treasury Secretary Timothy F. Geithner said the U.S. government will move swiftly to carry out the mandate of legislation designed to overhaul financial regulation.
“We will move as quickly as possible to bring clarity to the new rules of finance,” Geithner said according to excerpts from a speech he was scheduled to give in New York yesterday. “The rule-writing process traditionally has moved at a frustrating, glacial pace. We must change that.”
The new law, signed last month by President Barack Obama, creates a Treasury-led council of regulators to monitor systemic risk. It also creates a consumer protection bureau at the Federal Reserve and gives regulators new tools to dismantle a firm whose collapse could threaten global markets.
The new financial regulations ought to be set up in a way that helps the U.S. economy recover from the financial crisis and recession, Geithner said. He said the new framework should strike a balance that allows “freedom, competition and innovation” while barring the laxity that enabled “predation, abuse and excess risk” in the past.
Compliance Action
U.S. Cuts Mexico Air Safety Rating, Citing Inspectors
The U.S. Federal Aviation Administration reduced Mexico’s air safety rating because of a shortage of flight inspectors, barring new routes into the country from Mexican carriers.
Mexico’s airlines can maintain their current routes under the Category 2 rating, the U.S. agency said in a July 30 statement. Mexico’s government is working to train more inspectors to restore its Category 1 rating “in the short term,” Mexico Transportation Undersecretary Humberto Trevino said.
The Communications and Transportation Ministry currently employs 14 flight inspectors and is training an additional 20. Trevino said that should be enough to meet U.S. requirements.
Mexican airlines flew 4.93 million passengers to and from the U.S. last year, according to government statistics. Two- thirds of those flyers were on Mexico’s largest airline by passengers, closely held Grupo Mexicana de Aviacion, which said it’s facing a “critical” financial situation and is negotiating with labor unions to restructure its operations.
Mexico’s civil aviation agency is making progress on complying with the standards sought by the U.S., the FAA said.
Recticel Raided by EU Officials in Polyurethane-Foam Probe
Recticel SA, the Belgian maker of foam, car-interior trim and Lattoflex mattresses, said European Union antitrust officials searched its premises in Belgium, the U.K. and Austria last week as part of an investigation into producers of polyurethane foam, according to a statement published on its website. Recticel is cooperating fully with the European Commission’s investigation.
Courts
Cuban Fights Effort to Revive Insider Trading Case
Mark Cuban, the billionaire owner of the Dallas Mavericks, should face insider trading allegations that were dismissed last year by a lower-court judge, securities regulators told an appeals court.
U.S. Securities and Exchange Commission sued Cuban in 2008 for allegedly trading on confidential information when he sold his stake in Mamma.com Inc., a Canadian internet search company, just before the firm announced a private placement. U.S. District Judge Sidney A. Fitzwater in Dallas threw out the case in July 2009, finding flaws in the government’s claim.
Cuban, who announced plans to bid on the Texas Rangers baseball team last month, has denied any wrongdoing. He claims he had no legal obligation to refrain from selling stock after the head of Mamma.com informed him of the upcoming private offering in a 2004 telephone call. Cuban sold in advance of the private investment in public equity deal, known as a PIPE, which diluted the company’s shares by 8.5 percent.
“The district court was not correct and should be reversed,” Randall Quinn, the SEC’s lawyer, told a three-judge panel in oral arguments yesterday at the U.S. Court of Appeals in New Orleans. The judge didn’t give “proper weight” to an agreement by Cuban not to sell stock after receiving confidential information, he said.
Cuban avoided $750,000 in losses by ordering the sale of his 6.3 percent stake in the Montreal-based company now called Copernic Inc. within hours of talking to Guy Faure, then Mamma.com’s chief executive, the SEC alleged.
The case is SEC v. Cuban, 09-10996, 5th U.S. Circuit Court of Appeals (New Orleans).
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Bank of America, KPMG Win Approval of Lawsuit Accord
Bank of America Corp. and KPMG LLP’s won initial court approval of their $624 million settlement with Countrywide Financial Corp. investors led by New York pension funds.
U.S. District Judge Mariana Pfaelzer in Los Angeles ruled yesterday on the accord. A fairness hearing will be held on final approval for the settlement, first announced in May.
The New York State Common Retirement Fund and five New York City pension funds claimed former Countrywide Chief Executive Officer Angelo Mozilo and other executives hid the fact that the company was fueling its growth by letting underwriting standards deteriorate. Bank of America acquired Calabasas, California- based Countrywide, the biggest U.S. home lender, in July 2008.
Bank of America, based in Charlotte, North Carolina, is responsible for $600 million of the settlement, with New York- based KPMG responsible for the remaining $24 million.
The case is In re Countrywide Financial Corp. Securities Litigation, 07-05295, U.S. District Court, Central District of California (Los Angeles).
BP Ex-Employees Deny Wrongdoing in Singapore Lawsuit
Quek Chin Thean, a former BP Plc head of commodities trading who’s being sued for misusing confidential information to help rival Shenzhen Brightoil Group, has denied any wrongdoing in papers filed at a Singapore court.
“I have never at any time during my employment with BP compromised BP’s interests,” Quek said in the papers filed with the Singapore High Court on July 29.
BP claimed in a July 5 lawsuit Quek and five others breached their obligations by misusing confidential information and accepting a sign-on fee from Brightoil. Quek and legal manager Simon Cheong also lured another 14 BP colleagues to quit en masse and “actively assisted” Brightoil in setting up a competing business, BP said.
Quek denied engineering the mass departures from BP. The London-based company changed the way bonuses were paid from 2007, causing “unhappiness and distrust” among the traders, he said.
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Interviews
Blumenthal Says E-Book Contracts May Be Anticompetitive
Connecticut Attorney General Richard Blumenthal talks with Bloomberg’s Lori Rothman about his office’s investigation into agreements between the country’s largest e-book publishers and Amazon.com Inc. and Apple Inc. that may block competitors from offering cheaper e-book prices.
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Comings and Goings
BRE Bank Appoints Stypulkowski as CEO; Reports $41 Million Net
BRE Bank SA, the Polish unit of Commerzbank AG, appointed Cezary Stypulkowski as chief executive officer, after dismissing Mariusz Grendowicz yesterday. The bank said the change is not related to its second-quarter results.
Commerzbank’s unit didn’t give a reason for Grendowicz’s dismissal. BRE had net income of 124.3 million zloty ($41.1 million) in the three months ended June 30, a 7.7 percent increase from the first quarter, it said in a regulatory statement yesterday.
Stypulkowski, a former managing director for central and eastern Europe at JPMorgan Chase & Co., will take over as BRE’s CEO on Oct. 1. Until then, Deputy CEO Wieslaw Thor will act as the chief executive, the Warsaw-based bank said in a separate statement yesterday.
To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.
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