CFTC Letters, Tokyo Probe, Shrinking Swaps: Compliance

Forged comment letters purportedly from an H.J. Heinz Co. executive, a Burger King Co. franchise and at least five other Arkansas-based officials or businesses were sent to the Commodity Futures Trading Commission.

Some of the letters to the agency, which is writing rules for derivatives trading, contain identical passages criticizing banks for their “cartel-like control” of the $583 trillion swaps market. They include signatures from a circuit court judge, a county sheriff and a mental health counselor. All were forgeries, according to interviews conducted by Bloomberg News.

The letters were among 152 formal comments received by the CFTC on a proposed rule that would limit the ownership of banks and other financial firms in clearinghouses meant to reduce risk in the over-the-counter swaps market. The proposal stems from the Dodd-Frank finance-regulatory overhaul enacted in July.

The letters, which were posted on the CFTC’s website, carry no clues about their true origin. In response to questions from Bloomberg News, a commission spokesman said yesterday that the agency had removed at least one letter and was checking the authenticity of others.

Political campaigns, public relations firms and consultants sometimes use form letters to generate apparent grass-roots support for their points of view from individuals, small businesses and citizen groups.

The derivatives rule in question was proposed in October by CFTC commissioners, who requested public comments by Nov. 17. The CFTC must complete a rulemaking by Jan. 14.

The Dodd-Frank law aims to move over-the-counter swaps trades to clearinghouses, in order to reduce risk in the financial system by requiring parties to post collateral. The law directs regulators to write rules for the clearinghouses to limit conflicts of interest.

The CFTC’s proposed regulation would allow clearinghouses to choose between two types of ownership restrictions. The seven forged public comment letters identified by Bloomberg News oppose the part of the proposal that would impose a 5 percent cap on the ownership stake in derivatives and control any clearinghouse member or non-member could have and would not impose an aggregate cap.

For more, click here.

Compliance Policy

China Steps Up Efforts to Allow Stock Sales by Foreign Firms

Chinese officials signaled the country is getting closer to establishing a legal framework for an international board that would allow foreign companies sell shares on the nation’s exchanges.

The securities regulator is “actively studying” the introduction of an international board, People’s Bank of China Deputy Governor Ma Delun said yesterday at a conference in Beijing. He couldn’t say when it will go forward.

Regulators are stepping up efforts to resolve legal hurdles for an international board, Yao Gang, vice chairman of China Securities Regulatory Commission, said Nov. 27, according to the official Shanghai Securities News.

China is the world’s busiest market for initial public offerings this year, with 307 deals worth a combined $64 billion, data compiled by Bloomberg show.

In June, Yao told a forum in Shanghai that the international board “faces legal and jurisdictional issues” and “no timetable has been set” for introducing it.

Wall Street Shrinks From Credit Default Swaps Before Rules Hit

Trading in credit default swaps, Wall Street’s fastest- growing business before the credit crisis, has tumbled 40 percent to 60 percent from three years ago as banks prepare for new regulation of derivatives.

The declines estimated by executives at four of the biggest dealers of swaps means lower profits at firms that used to get as much as two-thirds of credit-market trading revenue from the derivatives. Moody’s Investors Service says pending rules may translate into job cuts of as much as 50 percent in groups that trade the contracts.

Investors are avoiding strategies that contributed to $1.82 trillion in writedowns and losses amid the worst financial crisis since the Great Depression. The net amount of credit swaps outstanding globally has fallen 20 percent from October 2008, the earliest figures disclosed by the Depository Trust & Clearing Corp. in New York.

The Dodd-Frank financial overhaul, signed by President Barack Obama in July, is intended partly to curb risks to the economy from swaps. It will require most trades to go through clearinghouses that are capitalized by the banks and demand uniform amounts of collateral backing the trades.

To reduce opacity that Commodity Futures Trading Commission Chairman Gary Gensler says gives banks an information advantage, trades will have to be done on systems that make dealers compete over pricing and may automate some transactions now done by phone. The deals also will be reported publicly.

For more, click here.

Finnish SMS Lender Registration Starts Dec. 1, Authorities Say

Finnish consumer credit providers, including the so-called SMS lenders that use a text message application, must register with Finnish authorities, according to an official e-mailed statement yesterday.

Registrations must be completed by May 31, the office said.

Turkey to Increase Penalties for Insider Trading, Haberturk Says

Turkey’s market regulator will increase fines and jail sentences for share manipulation and insider trading on the Istanbul Stock Exchange, Haberturk reported, citing Capital Markets Board Chairman Vedat Akgiray.

Akgiray said gains from such crimes will also be confiscated through changes the regulator will make in the capital markets law, according to the Istanbul-based newspaper. The current law orders two- to five-year jail sentences for those convicted of manipulation and insider trading, it said.

Akgiray also said partners and senior executives won’t be able to sell shares of their company before three months from the date of purchase, Haberturk reported.

Special Section: Ireland

Ireland’s Second NAMA Round Approved, Allied Irish Name to End

Ireland won European Union approval for a second transfer of assets from Irish banks to the country’s so-called bad bank, the National Asset Management Agency, or NAMA.

The decision is unrelated to Ireland’s 85 billion-euro ($112 billion) bailout, the European Commission said in an e- mailed statement. The EU’s executive arm also extended its approval of Spain’s bank-guarantee program until June 30, 2011.

The valuation of NAMA’s purchase of loans from Anglo Irish Bank Corp., Bank of Ireland Plc, Allied Irish Banks Plc with a nominal worth of 6.75 billion euros earlier this year “complies with the requirements of the commission’s guidance,” the regulator said yesterday.

Ireland set up NAMA in 2009 to purge lenders’ toxic debts after a decade-long property boom ended and real-estate prices fell by 50 percent. The agency was created to buy 81 billion euros of property loans from five Irish lenders, and so far the banks have sold these at an average discount of 52 percent.

Separately, Irish Central Bank Governor Patrick Honohan said all bank deposits in Ireland are “guaranteed.”

More decisive action will be taken on Anglo Irish Bank Corp. and deposits at Irish Nationwide will be moved to another company, he said yesterday in an interview with Dublin-based broadcaster RTE.

Anglo Irish Bank Corp. will cease to exist in name within months as the lender is wound down over “a multiyear period.”

The nationalized bank’s “nameplate” will be removed in early 2011, Honohan said in the radio interview, as the lender’s deposits are given a “comfortable home.”

The government said in September it planned to split Anglo Irish, nationalized in January 2009, into a so-called asset recovery bank and a funding bank.

The central bank yesterday issued a statement saying it’s working with other authorities on a new restructuring plan, which will be filed to the European Commission by the end of January.

For more about Anglo Irish, click here.

Separately, the idea of making some non-guaranteed senior bondholders at Irish banks share a part of Ireland’s bailout cost was “floated,” and later “taken off the table,” Honohan said.

The idea was rejected because of concerns that such an action would be destabilizing in the current state of Europe’s banking market.

For more, click here and click here.

Compliance Action

Tokyo Exchange Turns Over Trading Probe to Watchdog

The Tokyo Stock Exchange has passed its inspections of possible insider trading to the Financial Services Agency, Atsushi Saito, president of the bourse, said.

The exchange has received complaints from long-term stock investors in Europe about trading irregularities of companies that announced capital-raising plans in Japan, Saito said at the Europlace Financial Forum in Tokyo yesterday. The bourse has looked into it and now the investigation has been handed over to government authorities, he said.

The exchange began investigating suspicious trading of shares that fell before companies announced capital-raising plans, Naoya Takahashi, a spokesman at the TSE, said on Oct. 29.

The bourse will urge regulators to shorten the time between a company’s announcement and pricing of share sales, Saito said in an interview on Nov. 18. Japanese regulators are studying whether to revise rules to implement stricter oversight on trading before and during share sales.

China Faces 5-Year EU Taxes on Yarn Used by Automotive Industry

The European Union imposed five-year tariffs on yarn from China used by the automotive industry, dismissing the risk of cost increases for companies such as Michelin & Cie. and Continental AG.

The duties, as high as 9.8 percent, punish Chinese exporters of high-tenacity, or high-strength, polyester yarn for selling it in the 27-nation EU below cost, a practice known as dumping. The material, made in Europe by companies including Belgium’s Siren Industries NV, is used for tire reinforcement and seatbelts as well as such items as conveyor belts and nets.

European producers suffered “material injury” as a result of dumped imports from China, the EU said in a decision yesterday in Brussels that ended the threat of similar levies against South Korea and Taiwan. The levies, due to take effect by Dec. 3 against Chinese exporters including Wuxi Taiga Industry Co., follow provisional measures as high as 9.3 percent introduced in June.

Mutual Fund Ties to Insider Probe May Prolong Withdrawals

Mutual funds’ ties to so-called expert networks that have been probed as part of an insider-trading investigation may undermine efforts by the industry to stem three years of client withdrawals from stock funds.

Janus Capital Group Inc. and Wellington Management Co. were among firms that received requests for information last week as part of an insider trading investigation involving hedge funds as well as mutual funds. None of the companies has been accused of wrongdoing.

The probe hits firms as they try to reverse $90 billion in withdrawals from U.S. stock funds since the beginning of 2009. Damage from the industry’s last run-in with regulators, a series of trading scandals in 2003 and 2004, took years to repair and led to more than $3 billion in fines against more than two dozen firms.

U.S. Attorney General Eric Holder confirmed yesterday that the Justice Department is conducting a criminal investigation related to trading on Wall Street.

For more on the statement by Holder, click here.

Mutual funds were unscathed by the probes until last week, when Janus and Wellington were among a number of asset managers to receive information requests. Hedge funds Level Global Investors LP, Diamondback Capital Management LLC and Loch Capital Management had their offices raided by U.S. officials. They have not been accused of wrongdoing.

The mutual-fund companies that were contacted by federal prosecutors declined to comment when called by Bloomberg News on whether they use expert networks and what information they were asked to provide.

For more, click here.

French Regulator to Study Mobile Contracts of 6 or 12 Months

France’s Arced telecommunications regulator will study the impact of cutting the maximum length of mobile-phone contracts to six or 12 months, it said in a consultation document received by e-mail.

Google Investigated by EU Over Online Ads, Search

Google Inc. is being probed by European Union antitrust regulators for allegedly discriminating against competing services in its search results and for stopping some websites accepting rival ads.

The European Commission will check whether Google “imposes exclusivity obligations on advertising partners, preventing them from placing certain types of competing ads on their websites, as well as on computer and software vendors, with the aim of shutting out competing search tools,” it said in an e-mailed statement today.

The probe adds to separate criticism from French, German and U.K. data protection regulators over Google’s StreetView service that collects data from private homes.

Antitrust regulators have power to impose fines of up to 10 percent of revenue for monopoly abuses.

“There’s always going to be room for improvement and so we’ll be working with the commission to address any concerns,” Google said in an e-mailed statement.

For more, click here.

Level Global Hedge Fund Says It Isn’t Probe Target

Level Global Investors LP told clients yesterday that the government said it wasn’t a target of its insider-trading probe, nor has it been alleged to have engaged in any misconduct.

The hedge fund’s offices were raided by the Federal Bureau of Investigation Nov. 22.

The firm, with offices in New York and Greenwich, Connecticut, said in the letter it received a search warrant and subpoena last week and met with the U.S. Attorney’s Office on Nov. 23. Investigators confirmed yesterday it wasn’t a target of the investigation, according to a letter sent to investors.

Diamondback Capital Management LLC, a hedge fund whose offices were also raided on Nov. 22, told clients yesterday that the government was examining one of its portfolio managers who was put on leave. The Stamford, Connecticut-based firm said it received a grand jury subpoena and was told by the government that it isn’t the target of the probe.

Bank of America Bailout Weighed by SEC, Report Says

Bank of America Corp. obtained “favorable” terms to resolve disclosure violations related to its purchase of Merrill Lynch & Co. because the bank had received billions of dollars of bailout funds, a report said.

U.S. Securities and Exchange Commission Inspector General H. David Kotz, in a report to Congress yesterday, said the agency waived a penalty because the bank had received taxpayer funds and the action could have hurt markets. The waiver was part of a $33 million settlement a federal judge rejected in September 2009 before approving a $150 million accord that didn’t include a waiver.

SEC spokesman John Nester declined to comment.

Bank of America, the biggest U.S. bank by assets, repaid $45 billion in bailout funds to the Troubled Asset Relief Program in December 2009.

Bank of America spokesman Scott Silvestri declined to comment.

For more, click here.

Comings and Goings

Justice Department Watchdog Glenn Fine to Step Down in January

Glenn Fine, the U.S. Justice Department’s chief internal watchdog, is stepping down at the end of January, the department announced.

“Through our audits, investigations, inspections and special reviews, we have sought to improve the department’s performance, promote economy and efficiency in its programs and detect and deter waste,” Fine, the inspector general, wrote in a letter yesterday to Attorney General Eric Holder.

To contact the reporter on this story: Carla Main in New Jersey at

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

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