Senate’s Goldman Findings, Nordic Banks, Jefferies, TARP Fees: Compliance
Goldman Sachs Group Inc. (GS) misled clients and Congress about the firm’s bets on securities tied to the housing market, the chairman of the U.S. Senate panel that investigated the causes of the financial crisis said.
Senator Carl Levin, releasing the findings of a two-year inquiry yesterday, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm would benefit if they fell in value.
The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that Goldman Sachs took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.
Much of the blame for the 2008 market collapse belongs to banks that earned billions of dollars in profits creating and selling financial products that imploded along with the housing market, according to the report. The Levin-Coburn panel levied its harshest criticism at investment banks, in particular accusing Goldman Sachs and Deutsche Bank AG (DB) of selling collateralized debt obligations backed by risky loans that the banks’ own traders believed were likely to lose value.
In a statement, New York-based Goldman Sachs denied that it had misled anyone about its activities. “The testimony we gave was truthful and accurate and this is confirmed by the subcommittee’s own report,” Goldman Sachs spokesman Lucas van Praag said.
In a statement, Deutsche Bank spokeswoman Michele Allison said, “As the PSI report correctly states, there were divergent views within the bank about the U.S. housing market. Moreover, the bank’s views were fully communicated to the market through research reports, industry events, trading desk commentary and press coverage. Despite the bearish views held by some, Deutsche Bank was long the housing market and endured significant losses.”
Compliance Policy
Borg Seeks Nordic Accord on Capital as Nordea Threatens Move
Swedish Finance Minister Anders Borg said he will look at a common Nordic solution for capital standards after Nordea Bank AB (NDA) signaled that Sweden’s plans to implement the strictest rules could make it leave Stockholm.
Borg and other policy makers such as central bank Governor Stefan Ingves have argued that the largest Nordic economy should take the lead in tightening capital requirements as regulators globally seek to introduce measures to stabilize the banking system after the financial crisis. Sweden is home to four of the Nordic region’s six biggest banks.
Nordea Chairman Bjoern Wahlroos said the largest Nordic bank has a responsibility to its shareholders to seek the best solution, according to a report April 13 in Dagens Industri’s monthly magazine Dimension. Nordea is the product of mergers between banks in Finland, Norway, Sweden and Denmark.
Borg seeks to prevent future imbalances in its credit and property markets and wants banks to follow stricter standards than those set out by the Basel Committee on Banking Supervision. The Swedish Bankers’ Association has said it will fight rules that undermine competitiveness, while Nordea Chief Executive Officer Christian Clausen has called the plan “not realistic.”
For more, click here.
Commodity Trading Rules Targeted by Global Securities Watchdogs
International securities regulators will seek extra regulation for agricultural and other commodities markets, the International Organization of Securities Commissions said in an e-mailed statement.
IOSCO plans to extend its existing work on commodities beyond assessing the transparency and functioning of oil markets, the Madrid-based group of supervisors said.
“Other markets including agricultural markets are crucial for our economies,” IOSCO said. The “expanded focus” is “likely to lead to proposals to improve market transparency, oversight and anti market-abuse treatment for these commodities markets where necessary.”
European Union finance ministers on April 9 approved recommendations for stricter oversight of commodity-derivatives trading following concerns that speculation is driving up prices for raw materials.
IOSCO brings together securities regulators to set international standards for financial-market supervision.
Dodd-Frank Rule-Making Deadlines Slip, Delaying Dozens of Rules
Brokers anxious about facing stricter standards for handling clients’ accounts will have to wait at least three more months for new rules -- and possibly longer.
The U.S. Securities and Exchange Commission has delayed the timetable for setting a fiduciary standard for brokers -- just one of dozens of Dodd-Frank Act regulations whose timetable is slipping. Others include new rules for security-based swaps and credit ratings.
The SEC’s latest rule-making calendar, released last week, indicates that the agency will miss adoption deadlines on a long list of rules mandated by last year’s financial-regulatory overhaul. The Dodd-Frank Act assigned more work to the SEC than any other agency, and agency officials have admitted publicly that the act’s expectations can’t be met.
Financial firms that have opposed the changes welcome the postponements. For other firms, the delays prolong uncertainty in regulation of credit-rating firms, derivatives, executive pay and conflict-minerals disclosures.
The budget for the SEC, along with the rest of the federal government, has been held at 2010 funding levels this year. The squeeze will mostly affect how the agency will implement the rules, Shapiro said; the main problem delaying the rule-writing is the high volume.
For more, click here.
Compliance Action
Jefferies to Pay $2 Million for Disclosure Failure, Finra Says
Jefferies Group Inc. (JEF) agreed to pay about $2 million to resolve Financial Industry Regulatory Authority claims that three employees failed to disclose conflicts of interest while selling auction-rate securities.
Brokers for New York-based Jefferies bought and sold ARS for eight customers from August 2007 through March 2008 without telling them about additional compensation they would earn, Finra said in a statement. The brokers also didn’t tell the clients they could have purchased comparable or similar securities with higher yields, the regulator said.
Finra also filed a complaint against a third Jefferies broker for his role in the matter, according to the statement.
“We are pleased to have reached an agreement with Finra and to have this matter behind us,” Jefferies spokesman Tom Tarrant said in a statement.
Jefferies began repaying customers in July 2008 for commissions it received on ARS that froze, remitting about $868,000 as of October 2010.
Treasury Needs Better Review of TARP Legal Fees, Audit Says
The U.S. Treasury risks paying too much in legal fees related to bailouts because it isn’t adequately reviewing bills from law firms, a government watchdog said.
The Treasury office managing the Troubled Asset Relief Program needs to “improve controls over the review and payment of legal fee bills,” according to a report yesterday from the Office of the Special Inspector General for TARP. “Current contracts and fee-bill review practices create an unacceptable risk that Treasury, and therefore the American taxpayer, is overpaying for legal services.”
The special inspector general’s office, or SIGTARP, said it “found weaknesses” in the Treasury’s contract with law firm Venable LLP. The contract didn’t include sufficient detail on how Venable should prepare bills or how to describe tasks within each bill.
The Treasury “has already taken steps” to implement recommendations SIGTARP made to improve the review and payment of legal fees, Timothy Massad, acting assistant secretary for financial stability, said in a letter released with yesterday’s report. The department “has implemented strong and effective processes in regard to all its contracts, including those for legal services,” he wrote.
“Venable fully cooperated with SIGTARP’s review,” the law firm said in an e-mailed statement. “We have not had the opportunity to read the full report. However, we are confident that Treasury received fair value for the services that we provided.”
Courts
SEC Sues Subprime Auto-Loan Dealer for $110 Million Fraud
The U.S. Securities and Exchange Commission sued Inofin Inc., a Massachusetts-based subprime auto-loan provider, and five of its executives for illegally raising at least $110 million and then diverting investors’ money to businesses including car dealerships and real-estate developments.
Inofin executives Michael Cuomo, Kevin Mann and Melissa George raised the funds from hundreds of investors in 25 states through the sale of unregistered notes, the SEC said yesterday in a filing at U.S. District Court in Boston. They told investors they could expect returns of nine to 15 percent because their subprime borrowers typically paid 20 percent interest on average, the SEC said.
Inofin misrepresented the company’s financial performance from as early as 2006 through this year, the SEC said. The SEC also sued two sales agents, David Affeldt and Thomas Keough, for illegally offering to sell the securities without being registered as brokers, according to the complaint.
Phone calls to Inofin’s lawyer Mark DeGiacomo, Affeldt’s lawyer Thomas Affeldt, Cuomo’s attorney William Kettlewell, George’s lawyer Christopher Trombetta, Keough’s attorney Martin Auerbach, and Mann’s lawyer Raymond Ausrotas, weren’t immediately returned.
The case is Securities and Exchange Commission v. Inofin, 11-cv-10633, U.S. District Court, District of Massachusetts (Boston).
Kenneth Marsh Pleads Guilty in Gryphon Stock-Tip Fraud Case
Kenneth Marsh, who ran Gryphon Holdings Inc., pleaded guilty to charges that he misled investors into paying fees for phony stock tips and investment advice.
Marsh, 44, pleaded guilty yesterday to one count of securities fraud before U.S. District Judge Jack Weinstein in Brooklyn, New York. Marsh faces a prison sentence of as long as 14 years under federal sentencing guidelines, said Assistant U.S. Attorney Roger Burlingame.
Marsh is the 17th of 18 defendants, including members of Gryphon’s sales force, to plead guilty.
Alan Futerfas, Marsh’s lawyer, declined to comment after the sentencing.
Marsh was charged in April 2010. He was also sued by the U.S. Securities and Exchange Commission.
The criminal case is U.S. v. Marsh, 10-cr-00480, and the SEC case is SEC v. Gryphon Holdings Inc., 10-cv-01742, U.S. District Court, Eastern District of New York (Brooklyn).
Interviews
FCIC’s Angelides Says Financial Crisis Was Avoidable
Phil Angelides, chairman of the Federal Crisis Inquiry Commission, discussed the report by Senator Carl Levin, a Michigan Democrat, on the causes of financial crisis and what steps should be taken to prevent a second one from occurring.
Angelides spoke with Lisa Murphy on Bloomberg Television’s “Fast Forward.”
For the video, click here and for more, see top section, above.
Weild Urges Easing of Rules on Trading of Private Shares
David Weild, senior adviser at Grant Thornton LLP, talked about U.S. regulations on trading of shares in closely held firms such as Facebook Inc.
Weild spoke with Pimm Fox on Bloomberg Television’s “Taking Stock.”
For the video, click here.
Comings and Goings
Egypt’s Sharkawy Appointed Head of Finance Regulator
Ashraf El Sharkawy was confirmed by Egypt’s prime minister as chairman of the Egyptian Financial Services Authority, the market regulator, until June 2013, the EFSA said in an e-mailed statement yesterday.
El Sharkawy will head the organization’s eight-member board of directors, which includes Adel Abdel Hamid as deputy chairman and Hisham Ramez, who also serves as deputy governor of the central bank, it said.
To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.
To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.
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