Oil Speculation, Insider Trading, JPMorgan, AT&T: Compliance

President Barack Obama said a Justice Department probe will examine the role of “traders and speculators” in oil markets and how they contribute to high gas prices.

“The attorney general’s putting together a team whose job it us to root out any cases of fraud or manipulation in the oil markets that might affect gas prices, and that includes the role of traders and speculators,” Obama said April 21 in Reno, Nevada. “We are going to make sure that no one is taking advantage of American consumers for their own short-term gain.”

The administration on April 21 created a working group to explore whether oil and gasoline prices are being driven higher by illegal manipulation.

The group, which includes representatives of federal agencies and state attorneys general, will check for fraud, collusion or misrepresentation at the retail and wholesale level, the Justice Department said in a statement last week. The group also will examine investor practices and the role of speculators and index traders in oil futures markets.

Obama faces political pressure over rising gasoline prices. Crude oil futures have increased 22 percent and gasoline surged 34 percent this year as Middle East unrest reduced supply and the global economic rebound bolstered fuel demand. Both futures contracts touched the highest levels this month since the records reached in 2008.

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Courts

JPMorgan to Settle Lehman Brokerage Claims for $800 Million

JPMorgan Chase & Co. agreed to return $800 million in cash and securities to settle claims against it brought by Lehman Brothers Holdings Inc. (LEHMQ)’s brokerage, according to court papers.

The defunct brokerage, Lehman Brothers Inc., will distribute the money to customers, according to a filing April 21 in U.S. Bankruptcy Court in Manhattan.

JPMorgan was the main clearing bank for the Lehman brokerage, processing billions of dollars of transactions and lending tens of billions of dollars daily to LBI, according to the filing. While some of the loans were secured by securities in the brokerage’s accounts, the bank didn’t have a valid lien on some customer property, which now is being returned, it said.

“The agreement will have no material financial impact on JPMorgan,” the bank said in an e-mailed statement.

Most of the assets were set aside to await a resolution of claims by the trustee who is liquidating the remnants of Lehman’s brokerage, it said.

Separately, JPMorgan, the second-biggest U.S. bank, is trying to get an $8.6 billion lawsuit by the Lehman parent dismissed.

The brokerage bankruptcy case is In re Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

JPMorgan Settles Military Mortgage Suits for $56 Million

JPMorgan Chase & Co. (JPM), one of the lenders criticized over improper foreclosures on military families’ homes, agreed to pay $56 million to settle claims it overcharged service members on their mortgages.

JPMorgan will pay $27 million in cash to about 6,000 active-duty military personnel who were overcharged on their mortgages, cut interest rates on soldiers’ home loans and return homes that were wrongfully foreclosed upon as part of the accord, according to filings in federal court in Beaufort, South Carolina.

JPMorgan officials said three months ago that one of the bank’s units had made errors in the handling of mortgages covered by the Servicemembers Civil Relief Act. That law was enacted in 1942 to shield deployed military personnel from financial stress.

“We are sorry and regret the mistakes our firm made on mortgages for members of the military,” Frank Bisignano, a JPMorgan official appointed to oversee the company’s home- lending unit in February, said in an e-mailed statement. “We hold ourselves accountable and responsible for these mistakes.”

Richard Harpootlian and William Harvey, two South Carolina lawyers who represented the soldiers who sued the bank, didn’t return calls for comment.

U.S. District Judge Margaret B. Seymour still must approve the class-action settlement before it becomes final.

The South Carolina case is Rowles v. Chase Home Finance LLC, 10-1756-MBS, U.S. District Court, District of South Carolina (Beaufort Division).

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U.S. Seeks Delay of Insider-Trading Case Against FDA Chemist

The U.S. asked a federal judge to delay its insider-trading case against a Food and Drug Administration chemist, claiming the government is trying to work out a potential resolution with the defendant.

Prosecutors, in a filing April 20 in federal court in Greenbelt, Maryland, said the defendant, Cheng Yi Liang, agreed to a 60-day delay of the case.

“The parties request additional time in order to discuss further steps and a potential resolution of this matter,” the government said.

Cheng Yi Liang, who worked for the FDA’s Center for Drug Evaluation and Research, and his son, Andrew Liang, are accused of reaping at least $3 million from trading on nonpublic information related to drug-approval applications.

The Liangs, who live in Gaithersburg, Maryland, were charged last month with conspiracy, wire fraud and securities fraud. The maximum penalty for the fraud charges is 20 years in prison.

The U.S. Securities and Exchange Commission, in a related civil lawsuit said the elder Liang made $3.6 million by trading shares of 19 firms before 27 FDA decisions since 2006.

An FDA employee since 1996, Liang had computer access to nonpublic records of the review process for each drug examined by the office, the U.S. said.

Liang traded in smaller developmental drug companies, where a government decision would be more likely to have a significant effect on the stock price, the SEC said. He gained more than $1 million trading stock of Vanda Pharmaceuticals Inc. (VNDA) a Rockville, Maryland, firm that rose more than 600 percent a day after the FDA cleared sales of its schizophrenia drug Fanapt in May 2009, according to the lawsuit.

He profited from share purchases ahead of 19 positive announcements and on short sales before six negative decisions, the SEC said. He also avoided losses by selling stock before two other negative decisions, the agency said. His average profit on each announcement was $135,015, according to the lawsuit.

Andrew Carter, Liang’s lawyer, declined to comment.

The cases are U.S. v. Chen Yi Liang, 8:11-mj-01236-WGC, and U.S. v. Andrew Liang, 8:11-mj-01237-WGC, U.S. District Court, District of Maryland (Greenbelt).

Rajaratnam Prosecutors Inhabit ‘Imaginary World,’ Dowd Says

Galleon Group LLC co-founder Raj Rajaratnam’s lawyer accused U.S. prosecutors of living in a “make-believe” and “imaginary world” where publicly available information about pending deals “didn’t exist.”

John Dowd, in the second day of closing arguments at Rajaratnam’s insider-trading trial on April 21, took jurors in Manhattan federal court through weeks of evidence to show that his client wasn’t guilty of conspiracy or securities fraud. His recurring theme was that information the government claimed was secret was actually public knowledge.

Dowd said Rajaratnam traded on information about a pending takeover of ATI Technologies Inc. by Advanced Micro Devices Inc. (AMD) because Hector Ruiz, the chief executive officer of AMD at the time, had told Wall Street analysts about it. Prosecutors say Rajaratnam was tipped by Anil Kumar, a former partner at McKinsey & Co., where AMD was a client.

Dowd’s summation came in the seventh week of a trial that might send Rajaratnam, 53, to prison for 20 years in the biggest U.S. crackdown on insider trading at hedge funds. Rajaratnam is accused of gaining $63.8 million from tips leaked by corporate insiders and hedge-fund traders about a dozen stocks, including Goldman Sachs Group Inc. (GS), Intel Corp. (INTC), Clearwire Corp. and Akamai Technologies Inc. (AKAM)

Dowd said another alleged leak from Kumar, that Abu Dhabi’s Mubadala Development Co. was investing in a 2008 spinoff of Sunnyvale, California-based AMD, was “public.”

Prosecutors said wiretaps of conversations between Kumar and Rajaratnam supported Kumar’s claim that he tipped Rajaratnam about rumored job cuts at EBay Inc. Dowd said the news had been widely reported beforehand in the media.

On rebuttal, Assistant U.S. Attorney Jonathan Streeter told jurors that Rajaratnam was the manager of a multibillion-dollar hedge fund and a graduate of a top U.S. business school, the Wharton School at the University of Pennsylvania. “Of course” Rajaratnam knew it was illegal to trade on advance word of a company’s earning, Streeter said.

The judge is likely to instruct jurors on the law today, and jurors will then begin deliberating.

Rajaratnam is charged with five counts of conspiracy and nine counts of securities fraud. The conspiracy counts each carry a maximum five-year prison sentence and the fraud counts each carry a maximum 20-year term.

The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

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New York Lawyer Pleads Guilty in Probe of Ex-Galleon Trader

A Brooklyn, New York, lawyer, who the U.S. said was a member of one of three Galleon Group LLC insider-trading rings, pleaded guilty to securities fraud charges in federal court in Manhattan.

Jason Goldfarb pleaded guilty April 21 to conspiracy and securities fraud before U.S. District Judge Richard Sullivan. Goldfarb was one of 14 people arrested in November 2009 by the FBI as part of the probe into the Galleon hedge fund.

“With great regret, I made a horrible mistake and agreed to participate in this scheme,” Goldfarb told the judge at the hearing. His lawyer, Michael Soshnick, declined to comment after the hearing.

As part of his plea agreement, Goldfarb won’t be prosecuted further by the U.S. Attorney’s Office for the Southern District of New York, except for any potential criminal tax violations, according to a copy of the accord.

The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).

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Compliance Action

America Movil Fine of 12 Billion Pesos Confirmed by Agency

Mexico’s antitrust agency said it levied a fine of 12 billion pesos ($1 billion) against the local unit of America Movil SAB, Latin America’s largest wireless provider, for charging competitors too much to connect to its network.

The fine is equal to 10 percent of the assets of America Movil’s local unit, or the maximum allowed by law, the Federal Competition Commission said in an e-mailed statement.

Telcel, as the unit is known, has 30 days to appeal or present a plan to comply with the ruling, the agency said.

China Orders Contractors to Give Workers Injury Insurance

China ordered contractors to offer injury insurance for workers and encouraged the companies to give workers who take dangerous assignments accident insurance in the nation’s amended construction law, the Xinhua News Agency reported.

Japan’s Financial Regulator to Extend Short-Sale Restrictions

Japan’s financial regulator plans to continue restricting naked short-selling and require investors to disclose short-sale positions, it said in a statement posted on its website.

An official extension until Oct. 31 will be announced by the end of this month, the agency said.

Ukraine’s Central Bank Extends Administration of Sotskombank

Ukraine’s central bank said it extended its administration of PAT KB Sotskombank for a second time.

The administration will run through July 21, the Kiev-based Natsionalnyi Bank Ukrainy said April 22 in a statement on its website. Nataliya Khorolenko will remain as an administrator in Rodovid, according to the statement.

AT&T Tells Regulators T-Mobile Deal Is a Win for Consumers

AT&T Inc. (T) formally asked regulators last week to approve its $39 billion purchase of T-Mobile USA Inc., saying the transaction to form the largest U.S. mobile phone company would benefit consumers.

The deal will help meet escalating demand for advanced wireless services and consumers will suffer fewer blocked calls, AT&T said in papers filed April 21 in Washington at the Federal Communications Commission, which will vet the transaction along with the Justice Department in a review that could take a year.

The purchase announced March 20 would combine the second- and fourth-largest U.S. wireless carriers into a new market leader, ahead of Verizon Wireless.

The merger would bring less competition and higher prices, according to critics including rival Sprint Nextel Corp. (S) and Consumers Union. Concentration has increased in the wireless industry, with Dallas-based AT&T and Verizon having 60 percent of both subscribers and revenue, the FCC concluded last year.

The wireless market would remain competitive after the merger, featuring strong competitors including Sprint, Clearwire Corp. (CLWR) and regional operators such as Cincinnati Bell Inc. (CBB), AT&T said in its filing at the FCC, which will judge if the deal is in the public interest. The agency began accepting comments April 14, ahead of the company’s filing.

AT&T filed earlier at the Justice Department, where antitrust experts will consider whether the combined company would improperly dominate markets.

The transaction needs three votes on the five-member FCC, which has a Democratic majority.

Commissioner Michael Copps, a Democrat, on March 31 said the merger faces “a very steep climb” to win his approval and Commissioner Mignon Clyburn, a Democrat, said April 8 the FCC needs to keep in mind the need to “encourage competition” as it weighs mergers. FCC Chairman Julius Genachowski, a Democrat, has declined to comment.

Morgan Stanley (MS) to Buy Back New Jersey Auction-Rate Debt

Morgan Stanley, operator of the world’s largest brokerage, agreed to buy back $323 million of auction-rate securities from New Jersey customers to settle state allegations that it misled investors.

The market for the securities collapsed during the financial crisis of 2008 when banks stopped using their own cash to support the market, leaving investors stuck with bonds they couldn’t sell. The securities were marketed to investors as a higher-yielding alternative to cash because, until the market froze, they could be sold at periodic auctions run by banks.

Banks have agreed to buy back securities from individual investors to settle state and federal regulatory inquiries into whether they misled investors about risks associated with the investments.

In 2008, Morgan Stanley agreed to repurchase $4.5 billion of the securities under a settlement with state regulators. The company neither admitted nor denied wrongdoing.

“This is nothing new,” Christy Pollak, a Morgan Stanley spokeswoman, said April 21. “It’s simply New Jersey’s portion of the settlement.”

Jeff Lamm, a spokesman for the New Jersey Attorney General’s office, didn’t return a message seeking comment.

Compliance Policy

SEC, CFTC to Consider Swap Definitions Required by Dodd-Frank

The U.S. Securities and Exchange Commission will meet this week to consider whether to propose joint rules with the Commodity Futures Trading Commission defining swaps, security- based swaps and security-based swap agreements as required by the Dodd-Frank Act.

Both agencies will consider the proposal at meetings on April 27, according to statements posted on their websites on April 21.

New Suits

US Airways Files Antitrust Suit Against Sabre Holdings

US Airways Group Inc. (LCC) said it filed a federal antitrust lawsuit against airline ticket reservation service Sabre Holdings Corp. to halt alleged anticompetitive and anticonsumer practices and recover monetary damages.

Sabre, the parent of Travelocity.com, “engaged in a pattern of exclusionary conduct to shut out competition, protect its monopoly pricing power and maintain its technologically- obsolete business model,” Tempe, Arizona-based US Airways said April 21 in a statement.

More than 35 percent of US Airways revenue is booked through Sabre and affiliated travel agents, the carrier said in a statement, or about $3.5 billion.

The lawsuit follows a new distribution agreement between Sabre and US Airways reached this year.

Industry tensions boiled over on Dec. 21 when AMR Corp. (AMR)’s American Airlines pulled fares from travel agent Orbitz.com as the carrier focuses on a proprietary computer system to share prices, bypassing distributors such as Sabre. American is in talks with Sabre to settle a lawsuit the airline filed Jan. 10.

Sabre is “reviewing the details of their legal claims,” Nancy St. Pierre, a spokeswoman for Southlake, Texas-based Sabre, said in an e-mail. “We will have further comment when appropriate.”

Bronco Drilling Sued by Investor Over Chesapeake Energy Bid

Bronco Drilling Co. was sued in Delaware Chancery Court by a stockholder seeking more than the $11 a share being offered for the company by Chesapeake Energy Corp. (CHK) The deal is currently valued at about $316 million.

Directors of Bronco, based in Edmond, Oklahoma, have a duty to get the best price for the company and have undervalued the stock, investor Sam Berlinberg said in a complaint filed April 20 in Wilmington.

“The proposed transaction offers Bronco shareholders a mere 6 percent premium,” and “analysts have set a target price for Bronco shares as high as $13.50,” the plaintiff’s lawyers said in court papers.

Bronco, which reported a $50.6 million net loss last year on $124.4 million in revenue, is 22 percent owned by Third Avenue Management LLC and 15 percent controlled by billionaire Carlos Slim.

“It is our policy to not comment on pending litigation,” Bob Jarvis, a Bronco spokesman, said in an e-mailed message.

The case is Sam Berlinberg v. Bronco Drilling Co., CA6398, Delaware Chancery Court (Wilmington).

Deals

NYSE Board Rejects Nasdaq-ICE Bid With Reverse Breakup Fee

NYSE Euronext (NYX) directors again rebuffed an $11.3 billion takeover offer from Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE), saying a proposed breakup fee to allay antitrust concerns doesn’t change their commitment to merging with Deutsche Boerse AG. (DB1)

Nasdaq OMX and ICE’s pledge to pay $350 million to the New York Stock Exchange owners should their bid be blocked by competition authorities didn’t improve the offer enough, the board said in a statement April 21 on the company’s website. Directors have twice deemed the Nasdaq OMX-ICE proposal inadequate, saying April 10 that “execution risk” and the threat of rising debt and layoffs were too high.

“This proposal is substantially the same as what was previously rejected,” NYSE Euronext chairman Jan-Michiel Hessels said in the release. “Consequently, our view has not changed. This proposal does not provide compelling value, has unacceptable execution risk and is therefore not in the best interests of NYSE Euronext shareholders.”

Nasdaq OMX Chief Executive Officer Robert Greifeld and ICE CEO Jeffrey Sprecher said last week that they are meeting with NYSE Euronext shareholders as they try to head off the $9.53 billion Deutsche Boerse agreement. Their offer is priced about 14 percent higher than the bid from Deutsche Boerse.

“Continually refusing to engage is starting to appear as if they are protecting their deal rather than acting in the best interest of their shareholders,” Greifeld said in a joint Nasdaq OMX-ICE statement after the rejection. “We will not be deterred by the board’s attempts to protect an inferior transaction.”

Deutsche Boerse is “pleased” with the decision and it plans to move forward with the merger agreement, according to an e-mailed statement April 21.

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Speeches/Interviews

FTC Might Stop Internet Firms From Dominating Multiple Markets

Timothy Wu, an information industries scholar hired by the U.S. Federal Trade Commission, said in his first interview since joining the regulator that dominant Internet companies should be barred from monopolizing more than one market.

“We just take it for granted the Internet is always going to be vibrant, always going to be moving,” Wu, who joined the FTC in February, said in an April 18 interview. “It may require some oversight and also may require that the government itself doesn’t become the guarantor of monopoly.”

People familiar with the agency have said it’s weighing a probe of Google Inc. (GOOG), owner of the world’s most popular Internet search engine. Wu said the FTC may consider how to prevent the more powerful Internet firms from gaining multiple monopolies, which would make them hard to displace.

He cited as an earlier example AT&T, which controlled local, long-distance and wireless telephone service and switching before it was broken up in 1984. International Business Machines Corp. (IBM), which dominated computer hardware, software, operating systems, accessories and repair businesses, is another example, Wu said, adding that his comments reflect his own views, not the commission’s.

Wu, 38, is on leave from Columbia University in New York, where he teaches telecommunications and copyright law. He is working on preliminary investigations and formal probes, and running a weekly internal discussion group that examines how companies come to dominate the Internet business.

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To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net; 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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