MetLife, Anglo Irish, United-Continental: Compliance

Regulators in three U.S. states have started or widened examinations of how life insurers pay beneficiaries after a federal judge described MetLife Inc.’s marketing of asset accounts as “inherently deceptive,” even as he dismissed the underlying suit against the company.

The Sept. 10 statement by U.S. District Judge Larry Hicks in Reno, Nevada, may prompt regulators in that state, California and Georgia to use their broad legal powers to impose changes on insurers’ marketing, disclosures and practices.

Hicks said MetLife, the biggest U.S. life insurer, gave consumers the misimpression that its Total Control Account Money Market Option account for death benefits was insured by the Federal Deposit Insurance Corp. Still, he threw out the suit, which claimed the insurer unfairly profited on the policy, saying the beneficiary had not lost money.

“This statement that the accounts are ‘inherently deceptive’ -- that’s something that raises great concern in my mind,” Nevada Insurance Commissioner Brett Barratt said in an interview. “They are strong words.”

The U.S. House Oversight and Reform Committee and New York Attorney General Andrew Cuomo previously started investigations of so-called retained-asset accounts after Bloomberg Markets magazine reported in July that carriers profit by holding and investing $28 billion owed to beneficiaries.

“An ordinary reasonable person, provided with the contracts at issue, would be under the impression that they were receiving either a money-market account or an account associated with money market protections,” Hicks wrote.

John Calagna, a spokesman for New York-based MetLife, said the company is cooperating with pending investigations and that the ruling dismissing the lawsuit was “completely” in the firm’s favor.

“Insurers have prevailed in almost all of these lawsuits,” Calagna said. “There’s a message there -- that these accounts provide a benefit.”

The account is now called a Total Control Account, without the words “money market,” Calagna said. Curtis Coulter, a lawyer for plaintiff Jamie Clark, said he’s appealing the dismissal.

The case is Clark v. Metropolitan Life Insurance Co., 08- cv-158, U.S. District Court, District of Nevada (Reno).

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Compliance Policy

Irish Foreign Minister Rules Out Activating Euro Bailout Fund

Irish Foreign Minister Micheal Martin “absolutely” ruled out activating the European bailout package for Ireland, saying markets will calm after the government clarifies bank-bailout costs and the budget outlook.

The government in Dublin will provide details of the bailout costs for Anglo Irish Bank Corp. by the end of the week and soothe bond investors after Standard & Poor’s said more than 35 billion euros ($47 billion) may be needed, Martin said. The budget is financed through the middle of next year and Ireland won’t need money from the euro fund, he said.

“By and large we are very confident we’ll come out of this,” Martin said in an interview yesterday in New York. “Clearly it’s challenging and so on, but there’s no necessity for the triggering of such a mechanism.”

Buyers of Irish debt reacted to concern about the bank bailout, pushing the extra yield investors demand to hold the country’s 10-year debt over German bunds to a record yesterday. Martin said he’s confident that calm will return when the cost for recapitalizing the state-owned lender is released this week and the government publishes its fiscal outlook in mid-October.

He also dismissed speculation about a default among holders of Anglo Irish’s senior debt, which was cut yesterday to the lowest investment grade rating by Moody’s Investors Service.

EU Plans Fines for Uncompetitive Euro-Area Economies

Euro countries would face fines for letting wages or house prices get out of hand under European Commission proposals to lessen the economic imbalances that played havoc with the 16- nation euro region this year.

Countries that ignore recommendations to strengthen their competitiveness could be fined as much as 0.1 percent of gross domestic product, a senior commission official told reporters in Brussels yesterday.

The penalties, which Ireland or Spain might have faced on the eve of the financial crisis, will be part of a “credible sanctions regime” to be proposed today, the official said on condition of anonymity.

Penalties for imbalances such as outsized current-account deficits would be imposed “asymmetrically” on weaker economies, such as Portugal or Greece, the official said. Germany, with its trade surpluses, wouldn’t be penalized for being too competitive.

The official didn’t spell out how imbalances would be judged. While house prices will be one component of a planned competitiveness scoreboard, Europe-wide property-price statistics are not yet reliable enough to be used for “legally binding purposes,” the official said.

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HFC Industrial Gases Need Control, UN Specialist Says

Emissions of hydrofluorocarbons need to be curbed and regulators must tighten controls over the “unwanted” HFC-23 greenhouse gas, according to the head of the ozone branch at the United Nations Environment Program.

Governments worldwide are considering phasing out production of hydrofluorocarbon-23 under the ozone-protection rules of the Montreal Protocol. Regulators of the UN carbon market are under scrutiny over allegations that some investors are profiting unduly from emission offset credits related to the gas. The warming potential per molecule of HFC is 11,700 times more powerful than carbon dioxide.

The European Union is working on a proposal to restrict some offsets linked to industrial gases that can be used for compliance in its own emissions trading system.

More than 190 states that ratified the Montreal Protocol agreed to a total phase-out of hydrochlorofluorocarbons, known as HCFCs, by 2030 in developed countries and by 2040 in developing nations. HCFCs gained favor in the early 1990s as an alternative to chlorofluorocarbons, which scientists linked to the depletion of the ozone layer.

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Australian Regulator to Publish Timetable for Rival Exchanges

Australia’s markets regulator expects to publish a new timeframe for the entry of additional stock-exchange operators after speaking to Prime Minister Julia Gillard’s government.

The Australian Securities and Investments Commission will unveil the timetable after determining how the government, re- elected last month, intends to proceed with plans to license new operators to rival the nation’s main exchange, run by ASX Ltd., ASIC Chairman Tony D’Aloisio told Bloomberg News in an interview yesterday at a conference in Kuala Lumpur.

ASIC took over oversight of real-time trading on domestic licensed markets from ASX on Aug. 1 as part of government attempts to pave the way for competitors that might help Australia attract more foreign investment. Chi-X Global Inc., an electronic-trading-platform, has won preliminary approval to become the first rival to the nation’s dominant exchange operator.

Compliance Action

China May Retaliate for Currency Measure, U.S. Businesses Say

China may retaliate against U.S. businesses operating in the country if Congress passes legislation intended to force a revaluation of the yuan, representatives of those companies said.

China “is looking for another bad guy” after decades of tension with Japan, Robert Roche, the chairman of the American Chamber of Commerce in Shanghai, said at a Sept. 27 briefing in Washington. “We are going to fit that bill.”

The House of Representatives is set to consider legislation this week that would let companies petition for higher duties on imports from China to compensate for the effects of a weak yuan.

The yuan has strengthened 1.9 percent against the dollar since June 19, when China’s central bank said it would pursue a more flexible exchange rate. That rate of gain is inadequate, Treasury Secretary Timothy F. Geithner told the Ways and Means Committee this month.

The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009.

Amedisys Is Probed by Justice Department on Medicare Claims

Amedisys Inc., the largest U.S. home-nursing provider, was asked by federal prosecutors for information related to Medicare reimbursements and billing claims by its 31 Alabama home-health operations.

The request was the latest in a line of legal difficulties for Baton Rouge, Louisiana-based Amedisys. Pomerantz Haudek Grossman & Gross LLP in New York filed an investor class-action suit in June accusing the company and Chief Executive Officer William Borne of fraudulently increasing Medicare reimbursements for home visits, according to a Pomerantz statement. Amedisys said in July that the Securities and Exchange Commission was investigating whether the company manipulated Medicare payments.

Amedisys’s next step is “to look through the civil investigative demand from the Justice Department and respond appropriately,” Jacqueline Chen Valencia, a company spokeswoman, said in a telephone interview. Amedisys is “working out” with the department when it needs to submit the information, she said.

The Justice Department demand involved “a wide range of documents and information,” Amedisys said in a statement. While the Alabama home-health business was specifically cited, the notification also requested documents for its corporate business operations and for other states, Chen Valencia said. It didn’t mention the company’s hospice businesses, she said.

Tokio Marine, MS&AD Said to Face Stricter Japanese Oversight

Japan’s financial regulator will increase oversight on nonlife insurers including Tokio Marine Holdings Inc. to limit risks associated with their overseas expansion, two people with direct knowledge of the matter said.

The Financial Services Agency will require insurers that have grown abroad through acquisitions or by opening regional offices to provide estimates for the maximum losses those operations may incur, the people said, speaking on condition of anonymity as no announcement has been made.

Japan’s three biggest casualty insurers -- MS&AD Insurance Group Holdings Inc., Tokio Marine and NKSJ Holdings Inc. -- are pushing into overseas markets as a stagnant economy and a shrinking population hurt profits at home. Tokio Marine paid $4.7 billion for Philadelphia Consolidated Holding Corp. in December 2008, the biggest overseas takeover by a Japanese insurer.

Insurers will also be required to state the maximum amount of losses they can withstand from their overseas operations before being forced to sell or close them, one of the people said.

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Green Mountain Revenue Recognition Probed by SEC

Green Mountain Coffee Roasters Inc., the seller of Keurig single-cup brewers, is being investigated by U.S. regulators for “certain revenue recognition practices” and the company’s relationship with one of its vendors.

The Securities and Exchange Commission’s enforcement division informed Green Mountain about the probe on Sept. 20, requesting documents and other information, the company said Sept. 27 in a regulatory filing.

In the preparation of its fourth-quarter financial results, the company discovered an “immaterial accounting error” related to its inventory at its Keurig unit, according to the filing. The error, which arose during fiscal year 2007, caused the consolidated inventory to be exaggerated and the cost of sales to be understated, the company said.

The company anticipates the cumulative amount of the accounting correction will be made in the quarter ended Sept. 25 and is cooperating fully with the SEC’s inquiry, according to the filing.

Iceland’s Haarde Indicted by Lawmakers Over Crisis

Iceland’s former Prime Minister Geir H. Haarde, who led the island from boom to bust two years ago, was indicted by lawmakers for his role in the economic collapse, the first time in the country’s history that such a case will be heard.

Parliament voted 33 to 30 to charge Haarde, 59, in Reykjavik yesterday. Lawmakers decided not to charge former Finance Minister Arni M. Mathiesen, former Business Minister Bjorgvin G. Sigurdsson and former Foreign Minister Ingibjorg Solrun Gisladottir. The indictment is the first time a special court set up in 1905 to hear such cases will be convened. The indictment relates to the collapse of three Iceland banks within weeks of each other in October 2008.

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United, Continental Defeat Effort to Block Merger

UAL Corp.’s merger with Continental Airlines Inc. won’t create a monopoly and shouldn’t be blocked on antitrust grounds, a federal judge ruled, helping to clear the way for the deal’s completion.

U.S. District Judge Richard Seeborg said Sept. 27 in San Francisco that the plaintiffs failed to argue adequately that the acquisition will substantially reduce competition in the airline industry, and declined to enjoin the pact.

Shareholders of Houston-based Continental and Chicago-based UAL on Sept. 17 approved the $3.22 billion all-stock merger that was announced in May. The airlines received regulatory approval from the Justice Department in July to merge, creating the world’s biggest airline company, surpassing Delta Air Lines Inc.. The merger is expected to close by Oct. 1.

“Unfortunately and disappointingly, the court did not take into account the Supreme Court decisions that would have prevented and stopped the merger,” Joseph Alioto, an attorney who filed the suit in June on behalf of consumers, said in a phone interview yesterday. Alioto said he will appeal Seeborg’s ruling.

“We are gratified by the court’s decision to deny the plaintiff’s motion,” Julie King, a spokeswoman for Continental, said in an e-mail yesterday. Jean Medina, a spokeswoman for United, said “we are pleased with the court’s decision, which is in keeping with the review by the Department of Justice,” by e-mail yesterday.

The case is Malaney v. UAL Corp., 10-02858, U.S. District Court, Northern District of California (San Francisco).

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Deep-Water Drilling Ban May End ‘Soon,’ U.S. Says

U.S. Interior Secretary Kenneth Salazar may lift the federal ban on deep-water oil drilling “soon,” now that the measure has met some of its goals, the government said in court papers.

Salazar imposed new rules on offshore drilling in waters deeper than 500 feet on July 12, after a New Orleans judge found an earlier moratorium too broad. The rules set multiple milestones to be reached before drilling may resume, said attorney Ignacia S. Moreno, in a court filing last night.

“Several of these milestones have been met or are likely to be reached in the coming days,” Moreno said in a request to delay a hearing in a lawsuit challenging the ban. “The secretary is likely to take action soon on whether and how he will lift the current deepwater drilling suspension.”

The U.S. asked District Judge Martin Feldman, who overturned the first moratorium, to postpone a hearing scheduled for today over this second challenge, while allowing the government to file a status report on regulators’ activities. The milestones that have been met include containment and killing of the BP well and completion of public hearings on the spill, Moreno said.

The case is Ensco Offshore Co. v. Salazar, 2:10-cv-01941, U.S. District Court, Eastern District of Louisiana (New Orleans).


Martin Promises ‘Clarity’ on Anglo Irish by Week’s End

Irish Foreign Affairs Minister Micheal Martin discusses the outlook for the government’s bailout of Anglo Irish Bank Corp. and the nation’s economic recovery.

The cost of insuring against default on Ireland’s government debt surged to a record as Standard & Poor’s said the price of rescuing nationalized lender Anglo Irish could exceed $47 billion. Martin spoke with Margaret Brennan on Bloomberg Television’s “InBusiness.”

To watch the interviews, click here and here.

Turner on Creditors Taking Losses, and Bonus Rules

Financial Services Authority Chairman Adair Turner said creditors should be forced to take losses in bank crises.

Lawmakers should create “mechanisms to impose losses on senior debt and subordinated debt holders” to pay for a bailout in the event of a bank crisis, Turner said in a speech in Brussels yesterday.

Turner also commented on bonus rules.

“In and of themselves, rules on bonuses are not enough to” avoid the buildup of risks in the financial system that may lead to another crisis, Turner said.

To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at

To contact the editor responsible for this report: David E. Rovella at

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