Health Care Rules, FBI Fund Raids, Ireland: Compliance

U.S. health insurers can include the cost of federal taxes in determining whether they spend enough on patient care, increasing the amount that can be kept for administration or profit under new rules. Company shares rose.

Health plans led by Indianapolis-based WellPoint Inc. (WLP) may also win delays from the spending requirements if individual states show the federal government that the so-called medical-ratio rules will destabilize insurance markets, the U.S. Health and Human Services Department said in a statement yesterday. The regulations are part of the U.S. health overhaul that President Barack Obama signed in March.

The tax decision may save the industry $313 million it would have had to rebate to consumers in 2011, Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, estimated in an October note. Under the rules, in effect next year, companies will have to meet a spending threshold of at least 80 percent for care they provide, or return the difference to customers.

The federal government expects as many as 9 million Americans will receive a total of $1.4 billion in rebates starting in 2012, the health department said in its statement.

The regulations require health insurers to spend at least 80 percent of premium revenue on patient care for small and individual plans, and 85 percent for large plans. Health insurers have lobbied the federal government to make the definition of “patient care” as broad as possible, to deduct taxes from the calculation, and to create waivers in cases where the rules would disrupt the insurance market.

For more, click here, and see Interviews section, below.

Compliance Policy

Tumpel-Gugerell Says BoE Would Have Same T2S Rights as ECB

European Central Bank Executive Board member Gertrude Tumpel-Gugerell promised the Bank of England equal governance rights over the planned Target2 Securities settlement platform if the U.K. were to join the project.

Tumpel-Gugerell made the remarks in response to questions from reporters about the progress of talks between the ECB and the Bank of England.

The Bank of England has in the past complained that the T2S system would cede too much control to the ECB and that it wasn’t clear that the costs of setting up the platform would be fully recovered. The settlements system for securities such as stocks and bonds is being set up by the Frankfurt-based ECB to consolidate the existing fragmented system in Europe.

The system is due to go operational in September 2014 and promises to cut cross-border settlement fees by about 90 percent.

Republicans Seek Information About New Consumer Finance Bureau

U.S. House Republicans are seeking information about the agenda and structure of a new bureau that will write and enforce regulations aimed at protecting consumers’ use of financial services in the nation.

Representatives Spencer Bachus and Judy Biggert sent a letter dated Nov. 22 to the inspectors-general of the Federal Reserve and the Treasury Department requesting “rigorous” oversight of the Bureau of Consumer Financial Protection, according to a copy obtained by Bloomberg News. They requested a response by Jan. 10.

Republicans, probably blocked by a Democratic Senate and White House from making major changes to the financial-regulation overhaul, are preparing procedural tactics to influence how the new law is applied. The Republicans, who will take power in the House in January, are seeking to ensure the final language meets their expectations.

President Barack Obama signed legislation in August that creates the bureau. He named Elizabeth Warren as a special adviser to Treasury Secretary Timothy Geithner and the White House to assist in setting up the agency. The bureau will be part of the Treasury until July 21, when it will be taken over by the Fed.

Compliance Action

FBI Hedge Fund Raids Said to Stem From Insider Probes

FBI raids seeking documents from three hedge funds are related to a series of insider trading investigations directed by the office of Manhattan U.S. Attorney Preet Bharara, according to a person familiar with the probes.

The offices of Level Global Investors LP and Diamondback Capital Management LLC, firms founded by alumni of SAC Capital Advisors LLC, were searched by Federal Bureau of Investigation agents, the FBI said yesterday. Agents also executed a search warrant at the offices of Loch Capital Management, according to another person familiar with the matter. Both declined to be identified because the probes are ongoing.

“The government has decided it needs to use force to obtain all the information that it needs,” said Jacob Frenkel, a former federal prosecutor and lawyer with the Securities and Exchange Commission. “It has opted not to issue grand jury subpoenas but instead use the search warrant process.”

Steve Bruce, a spokesman for Diamondback, declined to comment. Andy Merrill, a spokesman for Level Global, confirmed the FBI had searched the hedge fund’s offices. Timothy McSweeney of Loch Capital didn’t immediately respond to a phone message.

“We are cooperating fully with the authorities,” Merrill said in an e-mailed statement. Ellen Davis, a spokeswoman for Bharara, declined to comment.

Frenkel, the former prosecutor, said that it’s likely the government has cooperating witnesses providing information to help it obtain the warrants from federal judges, because the availability of those tools is “very fact and cooperator intensive.”

For more, click here, and see Interviews section, below.

Carbon-Storage Rules for U.S. Coal-Fired Plants Issued by EPA

The U.S. Environmental Protection Agency issued rules to protect drinking-water supplies from future efforts to bury pollution from coal-fired power plants.

The drinking-water regulation governs the way carbon-dioxide injection wells are located, built, tested, monitored and closed. A task force of 14 U.S. agencies said in August that carbon-capture technology is currently too expensive to be used without financial and regulatory support from the federal government.

Rules governing the “environmental soundness of injecting and storing carbon dioxide underground” must be part of a federal plan to “facilitate widespread cost-effective deployment” of the pollution-control technology after 2020, according to the task force.

A separate EPA rule also released yesterday deals with measuring the amount of carbon dioxide that’s captured and stored.

Special Section: Ireland Bank Bailout

Ireland Agrees to Accept Bailout, Protesters Demand Cowen Resign

Ireland agreed yesterday to seek aid from the European Union and International Monetary Fund to bail out it struggling banks. Irish Finance Minister Brian Lenihan declined to say how big the bailout will be -- only estimating it will be less than 100 billion euros. Goldman Sachs Group Inc. (GS) Chief European Economist Erik Nielsen said yesterday the government needs 65 billion euros to fund itself for the next three years and a further 30 billion euros for the lenders.

Protesters demanded the resignation of Irish Prime Minister Brian Cowen, angry over his handling of the economy and the decision to accept the bailout, which raised concerns for protesters about Irish independence. Irish police said they stopped a group of Sinn Fein protesters seeking to enter government buildings in Dublin.

For a report on the protest, click here.

Cowen was expected to meet last night with government ministers to discuss the political situation, Dublin-based RTE said without citing anybody.

“Providing assistance to Ireland is warranted to safeguard financial stability,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told the European Parliament yesterday in Strasbourg, France. He said the aid would be provided “under a program of rigorous policy conditionality” and would include “a fund for potential future capital needs of the banking sector.”

Irish banks forced the government to seek a bailout after bad loan losses surged following the collapse of the country’s decade-long real estate boom in 2008.

Lenihan needs to inject at least 5 billion euros ($6.8 billion) more cash into the country’s two biggest lenders immediately as part of Ireland’s international rescue, analysts said.

Lenihan should also break up the lenders in preparation for a sale and force further losses on subordinated bondholders of Allied Irish Banks Plc (ALBK), the nation’s second-biggest lender by market value, Bank of Ireland Plc, the largest, and Irish Life & Permanent Plc, the analysts said.

The government will start stress-testing the country’s lenders again in preparation for the bailout.

For more, click here.

Courts

Federal Reserve Hacking Suspect Pleads Not Guilty

Lin Mun Poo, 32, the Malaysian man accused of hacking the Federal Reserve’s computers and conducting a credit-card scheme, pleaded not guilty to the charges in federal court in Brooklyn, New York yesterday.

The computer network of the Federal Reserve Bank of Cleveland was hacked in June, resulting in thousands of dollars of damage, affecting 10 or more computers, according to court papers filed Nov. 18, the day Poo was charged in a four-count indictment. Poo has a history of compromising computer servers of financial institutions, U.S. Attorney Loretta Lynch in Brooklyn said in a Nov. 18 statement.

No Federal Reserve data or information was accessed or compromised, June Gates, a spokeswoman for the central bank, said Nov. 18.

Poo remains in custody, according to Kannan Sundaram, Poo’s lawyer at Federal Defenders of New York in Brooklyn. Sundaram declined to comment after the proceeding.

The case is U.S. v. Lin Mun Poo, 10-cr-891, U.S. District Court, Eastern District of New York (Brooklyn).

Interviews/Speeches

CFTC’s Gensler Says Derivatives Rules Must Address ‘New Risks’

Commodity Futures Trading Commission Chairman Gary Gensler said the agency’s new regulations for the derivatives market must cover banks, non-banks and parts of the financial system that “pose new risks.” He made the comments in prepared remarks for a conference at Princeton University in New Jersey.

The CFTC and the Securities and Exchange Commission are leading U.S. efforts to draft regulations for the $583 trillion over-the-counter derivatives market after largely unregulated trading complicated efforts to resolve the 2008 credit crisis. The new rules are required under the Dodd-Frank financial-regulation law enacted in July.

Gensler’s agency is planning three meetings in December to consider proposals for defining swaps dealers and other entities in swaps markets, he said on Nov. 19. The CFTC has already held five public meetings to consider and vote on proposed rules.

Angoff Says Health Insurers Fit to Comply With New Rules

Jay Angoff, director of consumer information and insurance oversight at the U.S. Department of Health & Human Services, talked with Bloomberg’s Megan Hughes about new medical-loss ratio (MLR) regulations.

As part of the Affordable Care Act, health-insurance companies will have to spend at least 80 percent of premium revenue on patient care for small and individual plans, and 85 percent for large plans, or return the difference to customers.

For the video, click here. For more, see top section, above.

Lawyer Frenkel, Analyst Whalen Discuss Insider Trading Focus

Jacob Frenkel, a partner at Shulman Rogers Gandal Pordy & Ecker, discussed insider trading and the focus he sees in the current investigation on “experts as advisers and expert networks,” he said. The question remains to be seen whether the cases that will emerge from these investigations will push the envelope as to what constitutes inside information, he said.

Frenkel spoke from Washington with Margaret Brennan on Bloomberg Television’s “InBusiness.”

Separately, Christopher Whalen, senior vice at Institutional Risk Analytics, discussed the renewed focus of the U.S. government on insider trading investigations. Whalen spoke with Mark Crumpton on Bloomberg Television’s “Bottom Line.” He is the author of the book, “Inflated: How Money and Debt Built the American Dream.”

FBI raids seeking documents from three hedge funds are related to a series of insider trading investigations directed by the office of Manhattan U.S. Attorney Preet Bharara, according to a person familiar with the probes.

For the Frenkel video, click here.

For the Whalen video, click here.

Cohen Says U.S. Insider Probe Timed for ‘Public Impact’

Joel Cohen, a partner at Gibson Dunn & Crutcher LLP, Katherine Schapiro, portfolio manager at Sentinel Asset Management, Michael Perino, a securities-law professor at St. John’s University, and Bloomberg Businessweek’s Roben Farzad and Sheelah Kolhatkar talked about a U.S. investigation into possible insider-trading networks.

FBI raids seeking documents from three investment firms are related to hedge fund insider trading probes directed by the office of Manhattan U.S. Attorney Preet Bharara, according to a person familiar with the investigation. They spoke with Jon Erlichman and Bloomberg Television contributing editor William Cohan on Bloomberg Television’s “Taking Stock.”

For the video, click here.

FSA’s Turner Testifies Before House of Commons on Bank Failure

Granting banks too-big-to-fail status gives them an unfair competitive edge with institutional investors, U.K. Financial Services Authority Chairman Adair Turner said in testimony before the U.K. House of Commons today.

Turner testified before the U.K. Treasury Select Committee of the House of Commons on topic of bank failures.

FSA Chief Executive Office Hector Sants is also testifying before the committee today.

For the video, click here.

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

To contact the editor responsible for this report: avid E. Rovella at drovella@bloomberg.net.

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