Muni-Bond Fraud, Yuan, Union Complaint: Compliance
A Florida man pleaded guilty to fraud in a bid-rigging conspiracy targeting U.S. state and local governments, the sixth to admit participating in arrangements designed to profit at taxpayers’ expense.
Adrian Scott-Jones of Morriston, Florida, who was an agent for an unidentified company that handled auctions of investments bought by municipalities with proceeds of bond sales, pleaded guilty to conspiracy and wire fraud, the U.S. Justice Department said. The government said Scott-Jones ran sham auctions allowing favored bidders to win deals at below-market rates.
The charges are the most recent to result from an antitrust investigation begun more than three years earlier into the way public officials invest the money they raise in the $2.8 trillion municipal-bond market. The probe has drawn in more than a dozen banks and financial services companies, including JPMorgan Chase & Co., Bank of America Corp. and UBS AG, according to court records and regulatory filings.
The conspiracy was “a scheme to deprive municipal issuers of money” by manipulating the rates they would receive on invested assets, the Justice Department said in a Sept. 8 statement about the case, brought in U.S. District Court in Manhattan. The scheme also defrauded the U.S. Internal Revenue Service, the department said.
The department said Scott-Jones engaged in conspiracies from at least August 1999 until November 2006 that gave co- conspirators information about competitors’ bids, a practice known as a “last look,” that helped unidentified co- conspirators win investment contracts at artificially set rates. Brokers and bidders are prohibited from sharing such information by U.S. Treasury regulations, the Justice department said.
Scott-Jones agreed to cooperate in the investigation, which is continuing, the agency said. Attempts to reach him were unsuccessful.
Adria Perez, of Kilpatrick Stockton LLP in Atlanta, identified by a Justice Department spokeswoman as a lawyer for Scott-Jones, didn’t immediately respond to a call for comment.
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To read about a former Bank of America Corp. executive who pleaded guilty to participating in a criminal conspiracy to rig the bidding on investments sold to state and local governments, click here.
Compliance Policy
Geithner Says China Needs to Let Market Drive Up Yuan
U.S. Treasury Secretary Timothy F. Geithner said China must let the yuan rise more quickly to show trading partners that it’s following through on its promises.
“They haven’t let the currency move very much so far,” Geithner said in a Sept. 8 interview on Bloomberg Television in Washington. “They know they’re just at the beginning of that process and I think we’d like to see them move more quickly.”
Premier Wen Jiabao’s government has limited the yuan’s gain to less than 1 percent versus the dollar since a June pledge for greater flexibility. With November elections approaching, U.S. legislators have planned hearings on the topic and may push a bill to let U.S. companies seek tariffs in compensation for an undervalued yuan that makes Chinese goods cheaper overseas.
The yuan, a denomination of China’s currency the renminbi, traded at 6.7870 per dollar as of 12:35 p.m. Hong Kong time yesterday, compared with the 6.83 peg that authorities maintained from July 2008 until June 2010. Non-deliverable yuan forwards indicate that gains may be limited to about 1.3 percent in 12 months.
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E-Cigarettes Violate Drug, Device Rules, FDA Says
Electronic cigarettes sold in the U.S. are being marketed illegally as smoking-cessation aids, the Food and Drug Administration said.
E-cigarettes and related products sold by five closely held companies are unapproved new drugs and devices because they’re promoted as a way to help smokers stop or reduce their use of regular cigarettes, the FDA said in warning letters posted yesterday on the agency’s website. To sell the products, companies must conduct animal and human studies, and submit an application to the FDA, the agency said in a separate letter to the Electronic Cigarette Association, a Washington-based industry group.
E-cigarettes, which mimic the appearance of traditional cigarettes, are metallic tubes filled with a vaporized liquid nicotine mixture. The FDA in February won a temporary delay of a U.S. judge’s ruling that the agency lacks authority to regulate the products as drug devices and must allow them to be imported. The case is scheduled for a Sept. 23 hearing.
Google Promises New France Investment After Regulatory Battles
Google Inc. will increase its investment in France and establish a research and development center in Paris, raising its profile in a country where it has clashed repeatedly with regulators.
In addition to the research center, Google will look to assist technology entrepreneurs and help build a “European cultural institute” in France, the company said in an e-mailed statement.
Google has attracted scrutiny from French politicians and regulators over its Street View map system, book-scanning, and advertising platform. In August, French government inspectors examined a Street View camera vehicle to verify that the company wasn’t collecting data from wireless Internet networks.
The owner of the world’s largest search engine “appreciates the engagement of the French government and the president in the development of the Internet in France,” Chief Executive Officer Eric Schmidt said in the statement. The company didn’t comment on the size of its planned investments.
China Bank Regulator Enhances Trusts’ Risk Management
China’s banking regulator said it started tougher risk management of net capital of trust firms in China to ensure financial asset safety and liquidity.
Trust firms should have a minimum of 200 million yuan ($29 million) as net capital, which should exceed 40 percent of net assets, the China Banking Regulatory Commission said in a statement on its Web site yesterday. Net capital is a company’s net worth minus assets that can’t be sold at full value.
China’s policy makers are grappling with the risk created by last year’s record $1.4 trillion credit boom that fueled the nation’s comeback from the global recession. China Banking Regulatory Commission Chairman Liu Mingkang said in a Sept. 8 statement that the banking system has weak risk management and is exposed to potential systemic risks that can’t be ignored.
Compliance Action
China Clean-Energy Aid Triggers Trade Complaint From Union
The United Steelworkers union filed a trade complaint with the U.S. government against renewable-energy products from China, urging an investigation of subsidies and preferences given by that nation.
Hundreds of billions of dollars in government support and preferences give Chinese producers an unfair advantage over competitors, the union said.
“Green jobs are key to our future,” Leo Gerard, the union’s president, said yesterday. “Right now, China is taking every possible step, many of them illegal under international trade laws, to ensure that it will control that sector.”
The complaint says that China’s aid, unlike that in the U.S., discriminates against foreign producers.
The Obama administration has 45 days to pursue an investigation, a deadline that would require a decision before the November congressional elections.
The U.S. trade office “will review the petition in accordance with established procedures,” Nefeterius McPherson, a USTR spokeswoman, said in an e-mail.
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U.K. Prosecutors Raid Homes, Cars in $100 Million Fraud Probe
U.K. prosecutors searched five homes in southeast England and several vehicles seeking to recover more than $100 million that British investors lost in an alleged investment fraud.
The raids were the first conducted by the Serious Fraud Office’s “proceeds of crime unit” seeking only to recover assets rather than also looking for evidence in the case, the agency said in a statement yesterday. The agency didn’t say what, if anything, the 40 investigators involved in the raids recovered.
The raids were related to the SFO’s prosecution of six people charged with conspiracy to defraud for conducting a boiler-room scheme from Spain that marketed shares to investors in the U.K., the agency said. Boiler-room frauds typically involve aggressive sales campaigns and the cold-calling of prospective investors touting worthless securities. The defendants are to be tried next year.
The companies involved, which marketed the shares between 2003 and 2007, operated under the names Tresaderns & Partners SL, Price Stone Group SL and Anderson McCormack SL, according to the SFO. All three are on the Financial Services Authority’s list of unauthorized overseas firms operating in the U.K.
China Commodity Prices Fall on Probe, Securities Times Says
Commodity prices in China slumped after the Securities Times said regulators are investigating large positions in natural rubber futures, spurring concern that some traders may be forced to sell.
Rubber prices on the Shanghai Futures Exchange plunged by the most in three months, with declines spilling over into copper, zinc, soybeans and sugar after the Securities Times report, which cited people it didn’t identify. An official at the Beijing-based China Securities Regulatory Commission, who didn’t wish to be identified, declined to comment. The Securities Times is affiliated with the state-run People’s Daily.
“The market was in turmoil on rumors that a brokerage based in Zhejiang province is under investigation by the securities regulator because of alleged manipulation of the natural rubber market,” said Tommy Xiao, analyst at Shanghai JC Intelligence Co., by phone from Shanghai.
Speculation of a probe also fueled a selloff in copper in Shanghai, with the December-delivery contract in tumbling as much as 4.4 percent.
HP Says SEC, DOJ Requested Information on Russia Transactions
Hewlett-Packard Co. said the U.S. Justice Department and the U.S. Securities and Exchange Commission are conducting an investigation into allegations that current and former HP employees engaged in bribery. The information was disclosed in a regulatory filing.
The disclosure refers to a German probe of allegations that HP, through a German unit, paid bribes in Russia to gain a 35 million-euro ($44.4 million) contract. The contract spanned 2001 to 2006 and was for the delivery and installation of an information technology network.
Virgin Blue, Air N.Z. Tie-Up Blocked by Regulator
Virgin Blue Holdings Ltd. and Air New Zealand Ltd. had their proposed alliance for flights across the Tasman Sea blocked by Australia’s antitrust regulator on concerns it may reduce competition.
Both carriers can provide more information by Sept. 24 before a final verdict, the Australian Competition and Consumer Commission said in a draft ruling today. The airlines had announced the tie-up for flights between Australia and New Zealand in May.
The companies wanted to collaborate on routes, product planning, code sharing and frequent flyer programs to enable them to compete with Qantas Airways Ltd. and its Jetstar budget unit. The ruling is Brisbane-based Virgin Blue’s second rejected collaboration with another airline in as many days after the U.S. Transportation Department yesterday blocked a tie-up across the Pacific Ocean with Delta Air Lines Inc.
Police Arrest Man in U.K. Regulator’s Insider-Trading Probe
London police arrested a man on suspicion of money laundering and providing false information as part of a Financial Services Authority investigation into insider trading where six have already been arrested.
The FSA didn’t identify the 64-year-old in a statement today announcing the arrest. Police also searched a location in Potters Bar, north of London, the regulator said.
The arrest was related to an ongoing insider-trading probe that led to the arrest of five men and a woman, age 27 to 34, in May last year after raids in London and Essex, England. The man, arrested yesterday, was released on bail after being interviewed. No one has been charged in the case.
The FSA, which has been increasing enforcement of market abuse after facing criticism it didn’t do enough to stop the crime, is currently prosecuting 11 people for insider trading. The regulator had never criminally prosecuted an insider trading case before 2008.
Courts
SEC Says Prince, Rubin Knew of Losses at Suit’s Focus
Charles O. “Chuck” Prince and Robert Rubin were among Citigroup Inc. officials who knew 2007 losses were mounting on mortgage assets that U.S. regulators have faulted the bank for not disclosing, a court filing shows.
Prince, the bank’s chief executive officer at the time, and Rubin, who was then chairman, knew the highest-rated segments of subprime mortgage-backed securities were the source of about $200 million in new losses in October 2007, the Securities and Exchange Commission said in a Sept. 8 filing in federal court in Washington. In July, the agency accused the bank and two other executives of failing to disclose $40 billion in subprime assets before losses surged. It didn’t target Prince and Rubin.
U.S. District Judge Ellen Huvelle asked the agency last month to explain what senior executives knew as she considers approving Citigroup’s $75 million settlement with the regulator.
SEC spokesman John Nester and Citigroup spokeswoman Shannon Bell declined to comment. Adam Miller, a spokesman for Rubin, 72, also declined to comment. Prince, 60, didn’t respond to e- mails and a message at his office.
The case is Securities and Exchange Commission v. Citigroup Inc., 10-cv-01277, U.S. District Court, District of Columbia (Washington).
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Stem-Cell Research Ban Suspended by Appeals Court
President Barack Obama’s administration can fund embryonic stem-cell research while it appeals a decision banning government support for any activity using cells taken from human embryos, an appeals court said.
The U.S. Court of Appeals in Washington yesterday put on hold a ruling by District Judge Royce Lamberth during its review of the ban.
Lifting the ban allows the government to temporarily continue funneling tens of millions of dollars to scientists seeking cures for diseases such as Parkinson’s, spinal cord injuries, and genetic conditions.
“The purpose of this administrative stay is to give the court sufficient opportunity to consider the merits of the emergency motion for stay and should not be construed in any way as a ruling on the merits of that motion,” the appeals court wrote in its decision.
The case is Sherley v. Sebelius, 10-5287, U.S. Court of Appeals for the District of Columbia (Washington).
Austria’s Curbs on Casinos Are Unlawful, Court Says
Austria’s state gambling monopoly breaches European Union law by blocking foreign casino companies, the EU’s highest court said.
“The categorical exclusion of operators whose seat is in another” EU nation “is disproportionate as it goes beyond what is necessary to combat crime,” the European Court of Justice in Luxembourg said yesterday. Austria has the choice of “various less restrictive measures” to monitor casino operators, the court said.
The case is the latest in a series brought by betting companies including Bwin Interactive Entertainment AG, Ladbrokes Plc and Betfair Ltd., disputing whether it is legal for state monopolies to block them from operating freely across the 27- nation union. The court said Sept. 8 Germany can’t block betting companies while allowing public monopolies to carry out “intensive” advertising campaigns to maximize lottery profits.
The case is C-64/08 Ernst Engelmann.
‘Don’t Ask, Don’t Tell’ Rule Violates Constitution, Judge Says
The “don’t ask, don’t tell” policy allowing gays and lesbians to serve in the U.S. military since 1993 violates constitutionally protected due process and free speech rights, a federal judge in California ruled.
U.S. District Judge Virginia A. Phillips in Riverside ruled yesterday that the policy allowing gays and lesbians to serve in the armed forces as long as they don’t reveal their sexual orientation is unconstitutional.
Log Cabin Republicans, the plaintiffs in the case, “demonstrated the Don’t Ask, Don’t Tell Act, on its face, violates the constitutional rights of its members,” Phillips wrote in her opinion. The group is entitled to “a judicial declaration to that effect and a permanent injunction barring further enforcement of the act.”
A Justice Department representative didn’t immediately return a call seeking comment after regular business hours yesterday.
The case is Log Cabin Republicans v. U.S., 04-8425, U.S. District Court, Central District of California (Riverside).
U.S. Sued by Alaska Over Ban on Offshore Oil Drilling
U.S. Interior Secretary Kenneth Salazar was sued by the state of Alaska over claims he improperly banned drilling off the state’s coast after BP Plc’s Gulf of Mexico oil spill.
The U.S. hasn’t issued drilling permits in the Arctic since the sinking of the Deepwater Horizon rig in April and Salazar has said that he won’t allow exploration plans to resume this year, according to the complaint filed yesterday by Alaska and its governor, Sean Parnell.
“Defendants have not issued a final, appealable decision on a moratorium for the Alaska region,” the state said in the complaint filed in federal court in Anchorage.
“There is no moratorium in Alaska and therefore nothing to sue on,” Kendra Barkoff, an Interior Department spokeswoman, said in an e-mail yesterday. “The moratorium is on deep-water drilling and there is no deep-water drilling in Alaska.”
U.S. regulators are “taking a cautious approach to offshore oil and gas development,” she said. “We need additional information about spill risks and spill response capabilities, which is why Secretary Salazar has delayed Shell’s request to drill in the Beaufort and Chukchi seas and canceled the remaining four lease sales in the Arctic.”
The case is State of Alaska v. Salazar, 3:10-cv-00205, U.S. District Court, District of Alaska (Anchorage).
Interviews
Geithner Discusses U.S. Economy, Obama Tax Policy
Treasury Secretary Timothy Geithner talked with Bloomberg’s Peter Cook about President Barack Obama’s initiatives to stimulate the U.S. economy and create jobs, and the outlook for the economy and tax policy.
To watch the video, click here.
Comings and Goings
Chote Named by Osborne to Head U.K. Budget Watchdog
Chancellor of the Exchequer George Osborne said Robert Chote, director of a research group that criticized Osborne’s first budget as “regressive,” will head the U.K.’s independent fiscal watchdog.
Chote, the director of the Institute for Fiscal Studies, will start work as head of the Office for Budget Responsibility “as soon as possible” following parliamentary approval, the chancellor said in a letter yesterday. Chote replaces interim chairman Alan Budd, who headed the OBR after its creation in May.
“I want there to be absolutely no doubt that the individual leading the OBR is independent and has the approval of the TSC,” Osborne said in the letter.
Aside from the OBR’s main job of providing the government with economic and fiscal forecasts, Chote will also scrutinize the costing of government policies and judge how those plans affect borrowing targets.
To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.
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