Barclays Plc won a judge’s approval of its $298 million settlement with the U.S. over dealings with nations including Sudan, Libya and Iran, a day after he delayed the accord.
U.S. District Judge Emmet Sullivan in Washington on Aug. 17 requested more information about the settlement, which he called a “sweetheart deal.”
During an hourlong hearing yesterday, Sullivan criticized the accord for not going after individuals who perpetuated the crime, and for punishing shareholders.
“Why do the shareholders have to pay for this venture?” Sullivan asked. “If I own stock, why do I have to pay?”
Although the judge said he still had “concerns,” Sullivan approved the deal yesterday. London-based Barclays will pay $149 million each to the U.S. and New York state, according to a deferred-prosecution agreement.
The case is U.S. v. Barclays Bank Plc, 10-cr-218, U.S. District Court, District of Columbia (Washington).
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New Jersey Settles SEC Fraud Claims Over $26 Billion in Bonds
New Jersey settled claims that it fraudulently misled municipal-bond investors while underfunding the state’s two biggest pension plans in the first U.S. Securities and Exchange Commission case to target a state.
The state settled the case without admitting or denying the agency’s claims and without any penalty.
Documents for 79 bond offerings from 2001 to 2007 “created the false impression” that the Teachers’ Pension and Annuity Fund and the Public Employees’ Retirement System were adequately funded, without disclosing that the state couldn’t make contributions without raising taxes or cutting services, the SEC said in a statement.
“This is an area of concern,” Elaine Greenberg, head of the SEC’s municipal securities and public pension fund unit, said in a telephone interview. “We hope to alert other states and municipalities of their disclosure obligations under the federal securities laws as it pertains specifically to their pension fund liabilities.”
The case is a harbinger of further action against states and municipalities, said Steve Scholes, a former SEC enforcement attorney who now heads the group at McDermott Will & Emery LLP that defends cases before the commission. “The market is mammoth,” said Scholes, who is based in Chicago. “It has been growing over time and has really never been subject to any sort of significant, comprehensive SEC scrutiny in the past as it is undergoing today.”
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Finra Says Merrill Lynch Fined $500,000 Over UIT Sales
The Financial Industry Regulatory Authority said it fined Bank of America Corp.’s Merrill Lynch unit $500,000 for failing to provide sales charge discounts to customers on eligible purchases of Unit Investment Trusts.
FINRA said it also found that Merrill Lynch didn’t have an “adequate supervisory system in place” to ensure customers received appropriate UIT discounts. Merrill Lynch agreed to provide remediation of “more than $2 million” to affected customers, Finra said on its website.
U.S. SEC Says Gansman, Murdoch Settle Insider Trading Suit
The U.S. Securities and Exchange Commission said it settled an insider trading lawsuit with former Ernst & Young LLP partner James E. Gansman and stockbroker Donna B. Murdoch. The final judgment to which Gansman consented ordered him to pay disgorgement of $233,385 while Murdoch consented to disgorgement of $339,110, according to an e-mailed statement.
Fed Expands Reverse Repo Counterparties by 14 Firms
The Federal Reserve Bank of New York expanded its list of counterparties used for reverse repurchase agreements to add money market funds managed by 14 firms including Fidelity Investments and Goldman Sachs Group Inc.
The New York Fed said in March that it would use the additional firms “to enhance the capacity of such operations to drain reserves beyond what could likely be conducted through” the use of the central bank’s 18 primary dealers. Inclusion in the New York Fed’s counterparty list doesn’t mean firms are eligible for participation in other programs, the bank said in a statement.
Reverse repurchase agreements are one of the tools being prepared for an eventual withdrawal of monetary stimulus. Fed Chairman Ben S. Bernanke has said officials may use reverse repos, pay interest on excess reserves and sell securities to investors to withdraw or neutralize cash in the banking system.
In a reverse repo, the Fed lends securities for a set period, draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to the counterparty.
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OMV Chief May Be Charged With Insider Trading, Presse Reports
OMV AG Chief Executive Officer Wolfgang Ruttenstorfer may be charged with insider trading, Die Presse reported, citing a report from the Austrian Financial Markets Authority that was sent to the Austrian prosecutor.
“All investigations, including the latest, have shown that Mr. Ruttenstorfer has always acted in a completely correct way,” Michaela Huber, a spokeswoman for OMV, said in a phone interview from Vienna. “Expert opinions from the leading Austrian authorities in the area of capital market law confirm that Mr. Ruttenstorfer’s actions were completely in line with legal regulations.”
A spokesman for the FMA declined to comment, Vienna-based Presse said. The prosecutor confirmed that a final report had been filed and declined to comment on its contents, the newspaper said.
The decision whether Ruttenstorfer will be charged won’t be made before September or October, Presse said.
OMV, central Europe’s biggest oil company, said last year that the FMA had asked for information from Ruttenstorfer after he bought 26,500 shares in the company on March 23, 2009, a week before announcing the sale of Vienna-based OMV’s stake in Mol Nyrt.
SEC to Vote on Rules That May Make It Easier to Oust Directors
The U.S. Securities and Exchange Commission will meet Aug. 25 to consider rules that may make it easier for shareholders to oust corporate directors, after investor groups said boards picked by management failed to rein in executive pay and risky lending before the financial crisis.
Commissioners will vote on whether to let investors nominate board members on company ballots mailed to shareholders before director elections, the SEC said in a statement yesterday.
The agency may require that investors or groups hold a 3 percent stake in a company for at least three years to qualify, a change from earlier discussions that would have let shareholders recommend candidates after meeting the threshold for two years, according to people with knowledge of the SEC’s plans.
The SEC has considered permitting so-called proxy access since 2003, only to back away in the face of opposition from companies. Public pension funds, including the California Public Employees’ Retirement System, say the change is needed to make directors more accountable to investors rather than rubber stamps for management.
The process of nominating directors now requires that shareholders mail out a separate ballot with the names of dissident candidates and persuade other investors to vote along with them. Shareholder groups have argued that the process is time-consuming and prohibitively expensive.
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Basel Committee Says Rules Will Have ‘Modest’ Impact
The Basel Committee on Banking Supervision rebuffed complaints from banks that proposed regulations would damage economic growth, saying the impact would be “modest.”
The committee estimated in a report released yesterday that the new rules would trim 0.38 percent from gross domestic product in the U.S., euro area and Japan after 4 1/2 years. That’s about an eighth of the 3.1 percent reduction foreseen by the Institute of International Finance, an industry group, over five years.
The study follows suggestions from banks including Deutsche Bank AG and Bank of America Corp. that a rush to regulate may force them to cut lending, jeopardizing the economic recovery. The committee is seeking to frame the debate as the Group of 20 nations face a November deadline for outlining new rules after the worst financial crisis since the 1930s.
“This fits into the ongoing discussion between regulators on the one hand and private sector banks on the other about the macroeconomic impact of reform,” said Luis Maglanoc, head of credit research at UniCredit SpA in Munich. “At the end of the day it depends on the different assumptions each side is making. That is not going to change.”
Over a longer time span, the positive effects of rules requiring banks to raise the quality and quantity of capital and liquidity reserves will outweigh the costs by increasing the soundness of the financial system and reducing the probability of another banking crisis, the committee said.
“The economic benefits of the proposed reforms are substantial and need to be considered alongside the analysis of the costs,” Nout Wellink, the chairman of the Basel Committee, said in the statement. “These benefits result not only from a stronger banking system in the long run, but also from greater confidence in the stability of the financial system.”
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New Rules to Boost Canada Economy Over Time, Central Bank Says
Canada’s economy will benefit from new proposed banking regulations as the reduced likelihood and impact of future crises offset the impact of higher borrowing costs, the Bank of Canada said in a report yesterday.
The central bank estimated the country’s gross domestic product would be initially cut by a maximum 0.3 percent if capital ratios were increased by 1 percentage point over a four- year transition period. That drop in output would be 0.5 percent under a two-year phase-in period, it said.
These costs would be outweighed by the long-term benefits of avoiding future crises, according to the report. A two- percentage point increase in capital ratios would cost 8.6 percent of GDP, compared with long-run benefits of 21.6 percent. That would leave a long-term net benefit of C$200 billion ($194 billion) for Canada, it said.
The report assumes the Bank of Canada would offset the impact of higher borrowing costs for lenders to keep inflation on target, it said.
It is “clearly in Canada’s interest to work with other countries to develop stronger international capital and liquidity standards,” Governor Mark Carney said in a statement from Ottawa. “This will improve the robustness of our own banking system, and contribute to the promotion of global financial stability.”
The Bank of Canada estimates that a 2 percentage-point increase in capital requirements, coupled with new liquidity standards, would prompt banks to raise Canadian lending spreads by about 42 basis points.
Mexico Seeks New Rules for Specialized Lenders, Expansion Says
Mexico’s government plans to propose legislation to congress that would impose additional regulations on specialized lenders after their delinquency rate rose, magazine CNN Expansion reported.
The new rules would seek to prevent the lenders, known as sofoles, from posing a risk to the country’s markets, Expansion said, citing an interview with Guillermo Zamarripa, director of the Finance Ministry’s banking and savings unit.
A rise in unemployment caused by last year’s recession led to a higher delinquency rate at the sofoles, which fund their operations partly through sales of asset-backed securities.
EU Should Push for Derivatives Reform, Hedge-Fund Group Says
The largest trade group representing hedge funds called on the European Union to move ahead with reforms of the over-the- counter derivatives market saying “the benefits will outweigh increased costs.”
Hedge fund managers support them in spite of “significant costs associated with administrative and operational changes the reforms would require,” The Alternative Investment Management Association said. The Group of 20 proposals to report OTC derivative contracts to trade repositories and clear trades of standard contracts through central clearinghouses would reduce systemic risk, the trade group said.
“Managers recognize the need for such reforms,” Andrew Baker, chief executive officer of AIMA, said in a statement. They will “work closely with policy makers to ensure that reforms and new regulations are well thought-out, coordinated and give due consideration to all the parties active in the OTC derivatives market.”
Clearinghouses, capitalized by their members, are intended to lessen the effects of a bank default by guaranteeing counterparty payment. Regulators in the U.S. and Europe are pushing swaps users to process standardized contracts through clearinghouses after the unregulated market complicated efforts to resolve the financial crisis when it couldn’t easily be determined how interconnected banks had become.
AIMA’s members include futures-market and clearinghouse operator CME Group Inc., fund-of-hedge-funds firm Fauchier Partners, and Man Group Plc, the biggest publicly traded hedge- fund firm. Its comments were in response to a European Commission consultation document on Derivatives and Market Infrastructures.
The U.S. Congress has completed negotiations to regulate the $615 trillion over-the-counter derivatives market for the first time in its 30-year history.
Paychecks to Shrink Because of Higher Health Premiums
Workers will pay more for their health care next year as U.S. companies prepare for provisions of the overhaul signed into law by President Barack Obama, according to a survey released yesterday.
About 63 percent of businesses plan to make employees pay a higher percentage of their premium costs in 2011, said the Washington-based National Business Group on Health, which surveyed 72 companies that employ more than 3.7 million people. The survey showed 46 percent plan to raise the maximum level of out-of-pocket costs that workers must bear.
The companies surveyed expect their costs of health-care benefits to rise an average of 8.9 percent next year. The legislation Obama signed in March will contribute an estimated 1 percentage point to the higher expense, Helen Darling, the business group’s president, said at a press conference in Washington today. Employee-paid portions may see small increases, she said.
“They’re usually very small increments,” Darling said. “It could be as little as 1 percent.”
Employers may be using the health-care law as cover for changes they already planned to make to their benefits, said Igor Volsky, a health-care researcher at the Washington-based Center for American Progress, which supported the overhaul.
The companies, each of which has at least 5,000 workers on its payroll, said they expected their health-benefit costs to rise 7 percent this year, half a percentage point higher than employers estimated in a separate survey released by the National Business Group on Health and the consulting firm Towers Watson & Co. in March.
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U.S. Safety Agency Moves Closer to Cadmium Ban in Toy Jewelry
The U.S. Consumer Product Safety Commission, responding to a request from four groups led by the Sierra Club, moved a step closer to banning cadmium from children’s products, especially toy metal jewelry.
The agency is seeking comment on a petition asking for rules that would declare cadmium to be a hazardous substance, according to a filing to be published today in the Federal Register. The groups want the agency to ban cadmium using the same rules applied to lead, unless a safe level for the metal can be established.
Retailers such as Dress Barn Inc. and Claire’s Boutiques Inc. have recalled necklaces, earrings and bracelets this year after finding cadmium in the products. McDonald’s Corp. offered $3 refunds in June to customers who bought “Shrek” drinking glasses with high levels of cadmium in the paint.
“We are experiencing a rising tide of cadmium in children’s products,” the four groups said in their May request. “Like lead, it is starting with toy metal jewelry, most likely as a cheap, unregulated alternative to lead.”
Cadmium, typically used in batteries and metal coatings, can cause lung disease through brief inhalation of high concentrations, according to the Agency for Toxic Substances and Disease Registry.
The groups in addition to the Sierra Club are the Empire State Consumer Project, the Center for Environmental Health and Rochesterians Against the Misuse of Pesticides. They cited concern that children can ingest the toxic metal.
Glaxo Ads for Anti-Smoking Drug Breached U.K. Industry Rules
GlaxoSmithKline Plc made “misleading” claims in advertisements for the U.K. drugmaker’s anti-smoking drug NiQuitin, according to the watchdog of the Association of the British Pharmaceutical Industry.
The consumer unit of the nation’s largest drug company made “claims about NiQuitin that were misleading and did not comply with previous undertakings,” the Prescription Medicines Code of Practice Authority said in an e-mailed statement yesterday. The group cited Glaxo for “bringing discredit upon and reducing confidence in the pharmaceutical industry.” The group’s code of practice relates to advertisements “in the medical, pharmaceutical and nursing press.”
Companies that breach the code are “required to issue a corrective statement or are the subject of a public reprimand,” the authority said.
“We did not intend to mislead and apologize for any confusion caused in the presentation of our materials,” Glaxo spokeswoman Alex Harrison said in an e-mail.
Glaxo’s smoking-control medicines, including NiQuitin, brought in 339 million pounds ($529 million) for the London- based company in 2009.
Johnson & Johnson, the New Brunswick, New Jersey-based maker of the Nicorette smoking-cessation products, complained about Glaxo’s advertisement, which claimed that the NiQuitin 21- milligram Clear Patch “delivers more nicotine faster than any other therapeutic nicotine patch.”