Proxy Access, Deere-FCPA, Basel Capital Rules: Compliance

The U.S. Securities and Exchange Commission spent $2.5 million on a court-rejected rule aimed at making it easier for shareholders to put board nominees on corporate ballots, according to the agency’s top official.

The SEC used about 21,000 staff hours -- valued at $2.2 million -- writing the so-called proxy access rule and needed $315,000 to defend it against a court challenge by the U.S. Chamber of Commerce and the Business Roundtable, SEC Chairman Mary Schapiro said in a letter to House lawmakers dated Aug. 5, according to a copy obtained by Bloomberg News. The letter’s contents were confirmed by John Nester, an SEC spokesman.

Schapiro was responding to Republican Representatives Randy Neugebauer and Jeb Hensarling of Texas and Scott Garrett of New Jersey, who sought an accounting after the U.S. Court of Appeals in Washington decided in favor of the business groups on July 22. The lawmakers said the ruling that the SEC failed to properly study the rule’s impact on companies raised “fundamental questions” about the agency’s work and spending on such efforts reflects “serious mismanagement.”

In her letter, Schapiro defended the spending, noting that it represented less than a tenth of a percent of the agency’s budget during that time.

“Writing rules to effectuate free and fair markets is a time-consuming, resource-intensive effort for the SEC,” she wrote. “The proxy access proposal was just one of more than 100 rulemakings the SEC has proposed or adopted over the past two years.”

Compliance Action

Deere Says SEC Is Investigating Possible Violation of FCPA

Deere & Co. (DE), the world’s largest farm-equipment maker, said the U.S. Securities and Exchange Commission requested documents related to Russia and a possible violation of the Foreign Corrupt Practices Act.

The request was received July 25 and Deere is cooperating, Ken Golden, a spokesman for the Moline, Illinois-based company, said Aug. 10 in an e-mail to Bloomberg News.

“The SEC has informed Deere that this is a non-public fact-finding inquiry to determine whether there have been any violations of the federal securities laws, and that the inquiry and document request do not mean that the SEC has concluded that Deere has broken the law,” Golden said.

Russia is one of the countries where Deere Chief Executive Officer Samuel Allen is expanding operations as part of a goal to almost double sales to $50 billion by 2018. Deere, which first sold products in Russia 100 years ago, has plants in Domodedovo and Orenburg, offices in St. Petersburg and Moscow, and several sales and service locations around the country, the company said in a statement last year.

John Nester, an SEC spokesman, declined to comment. Laura Sweeney, a Justice Department spokeswoman, declined to comment.

The SEC request was reported earlier by the Wall Street Journal.

SEC Says Man Abused Girlfriend’s Trust to Profit on Marvel

The U.S. Securities and Exchange Commission sued a California man, accusing him of using inside information obtained from a girlfriend to profit from Walt Disney Co. (DIS)’s acquisition of Marvel Entertainment LLC.

Toby Scammell made more than $192,000 on $5,400 worth of call options purchased in the weeks before Disney’s Aug. 31, 2009, announcement that it would pay $50 a share for the publisher of Spider-Man and X-Men comic books, the SEC said yesterday in a lawsuit filed in U.S. District Court in California.

Scammell, who was 24 years old at the time, learned about Disney’s planned offer from a girlfriend who worked on the deal during a six-month externship at Burbank, California-based Disney, the SEC said. He never told the girlfriend about his trades, which he financed in part using money from accounts he controlled for his brother, who had served with the U.S. Army in Iraq, the agency said.

“Scammell exploited his romantic relationship for a financial windfall,” Rosalind Tyson, head of the SEC’s Los Angeles regional office, said in a statement. “His misuse of confidential information gave him an unfair and illegal edge over other traders in the markets.”

Neither Scammell’s brother nor his girlfriend were accused of wrongdoing, the SEC said. The agency wants Scammell to disgorge ill-gotten gains and pay a fine.

Disney completed the Marvel acquisition in January 2010.

A phone call to Miles Ehrlich, an attorney for Scammell at Ramsey & Ehrlich LLP, wasn’t immediately returned.

Compania Internacional Financiera Denies Claims in SEC Suit

Compania Internacional Financiera SA denied claims by the U.S. Securities and Exchange Commission that the firm profited from insider trading in Arch Chemicals Inc. (ARJ) shares.

The SEC, in a lawsuit filed July 15 in Manhattan federal court, said Compania Internacional Financiera and two other firms -- Coudree Capital Gestion SA and Chartwell Asset Management Services -- made millions of dollars by buying Arch Chemical shares in the days before a July 11 announcement that Basel, Switzerland-based Lonza Group Ltd. planned to buy the specialty chemicals maker for $1.2 billion.

Compania Internacional Financiera and Coudree Capital Gestion, in a response filed Aug. 10, admitted they bought shares of Arch Chemical in the days leading up to the announcement, and began selling the shares on or about that day, making about $7.3 million in trading profits.

The companies “deny that their purchases of the securities of Arch Chemicals Inc. were ‘suspicious,’” their lawyers said in the filing.

Chartwell, a Geneva-based investment adviser, also denied violating the law in a court filing.

The SEC said in the complaint that Compania Internacional and Coudree are controlled by Yomi Rodrig, a Turkish trader living in Geneva. The firms said in their response that Compania Internacional is controlled and owned by Rodrig, while denying that Coudree is.

The SEC won a temporary asset freeze in the case on the same day it filed the suit.

The case is U.S. Securities & Exchange Commission vs. Compania Internacional Financiera SA, 11-cv-04904, U.S. District Court, Southern District of New York (Manhattan.)

Compliance Policy

Fed Said to Track Basel Capital Rules for Biggest U.S. Banks

Federal Reserve officials are drawing up rules for the largest U.S. banks that won’t be more stringent than global capital standards agreed to in Basel, Switzerland, according to a person familiar with the discussions.

Federal Reserve Governor Daniel Tarullo cited a “goal of congruence” between the Basel standards and the Fed’s work on rules under the Dodd-Frank Act, which overhauls banking regulation, in a June 3 speech. The central bank hasn’t veered from that, according to the person, who declined to be identified because the rules are still being drafted.

The Basel Committee on Banking Supervision, which includes regulators from the U.S. and Europe, set an additional capital buffer standard for the largest international banks in June that will range from 1 percentage point to 2.5 percentage points of risk-weighted assets. That comes on top of a requirement of 7 percent of common equity for all banks.

“I have always thought it was very important to try to preserve the level playing field for internationally active banks, and those are the key terms in Basel,” said Ernest Patrikis, partner at law firm White & Case LLC and a former general counsel at the Federal Reserve Bank of New York. “There will be a sigh of relief” among bank executives that the Fed is staying within the Basel framework, he said.

Regulators worldwide are trying to curb the risk the largest banks pose to taxpayers and the financial system. The rule-making comes as bank stocks worldwide have plunged on forecasts for lower economic growth. Higher capital levels could have crimped bank returns even more, posing greater risk to a flagging U.S. recovery.

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France, Spain, Italy, Belgium Ban Short Sales to Halt Rout

France, Spain, Italy and Belgium imposed bans on short- selling to stabilize markets after European banks including Societe Generale (GLE) SA hit their lowest level since the credit crisis.

“While short-selling can be a valid trading strategy, when used in combination with spreading false market rumors this is clearly abusive,” the European Securities and Markets Authority, which coordinates the work of national regulators in the 27-nation European Union, said in a statement. National regulators will impose the bans “to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field.”

The watchdogs are trying to stem a rout that sent European bank stocks to their lowest in almost 2 1/2 years and quell concern that European lenders may be struggling to fund themselves. Banks’ overnight borrowings from the European Central Bank jumped to the highest in three months yesterday, a sign some lenders may have need for emergency cash. Regulators imposed similar limits on short sales in September 2008 following the collapse of Lehman Brothers Holdings Inc.

Market turbulence has already led Turkey to curb short sales and threaten “severe” penalties for manipulation, following nations including Greece and South Korea. Britain, the first to impose a temporary ban in September 2008, lifted its restrictions in January 2009. The Financial Services Authority said yesterday it has no plans to reintroduce a ban.

Short-sellers sell borrowed shares with plans to buy them back later at a lower price, a practice politicians and some investors blame for roiling markets.

“EU policy makers don’t seem to understand the law of unintended consequences,” Jim Chanos, the short seller known for predicting Enron Corp.’s collapse, said by e-mail. “The vast majority of short-selling financial shares is by other financial institutions, hedging their counterparty risks, not speculators. The interbank lending market froze up completely in October to December 2008 -- after the short-selling bans.”

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Lawsuits

Abu Dhabi Investment Authority Sued by Madoff Firm Trustee

The trustee for Bernard L. Madoff’s firm sued the Abu Dhabi Investment Authority, seeking to recover $300 million for victims of Madoff’s Ponzi scheme.

Irving Picard said the sovereign wealth fund withdrew the money from Fairfield Sentry, a so-called feeder fund to Madoff’s fraud, in a complaint filed yesterday in U.S. Bankruptcy Court in Manhattan.

Picard said he has the authority to take back the transfers made to the Abu Dhabi authority as he works to recover money for Madoff customers. Madoff is serving a 150-year sentence in a prison in North Carolina.

Erik Portanger, a spokesman for Abu Dhabi Investment Authority, didn’t immediately respond to an e-mail seeking comment.

The case is Picard v. Abu Dhabi Investment Authority, 11- 02493, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Validus Sues Transatlantic Seeking to Force Merger Talks

Validus Holdings Ltd. (VR) sued Transatlantic Holdings Inc. in a Delaware court seeking an order to force the company to consider its buyout offer over a deal with Allied World Assurance Company Holdings AG.

Transatlantic directors are “arbitrarily” refusing to enter into discussions with Validus even though its offer has a greater market value than Allied’s, lawyers for Validus said Aug. 10 in a complaint in Delaware Chancery Court in Wilmington.

The New York-based reinsurer, which has also received an offer from Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), failed to conduct a good-faith investigation of Validus’s proposal, the Bermuda-based company said.

Transatlantic said this week it would ask Berkshire’s National Indemnity Co. to improve its $3.25 billion unsolicited bid. The Berkshire unit submitted its offer Aug. 5 to buy Transatlantic for $52 a share.

The Allied and Validus deals were valued at about $3.2 billion and $3.5 billion when the bids were announced.

Steve Frankel, a spokesman for Transatlantic, declined to comment immediately on the Validus complaint.

Transatlantic sued Validus last month in federal court in Delaware over claims it was attempting to mislead shareholders into tendering their shares in violation of securities laws. That case is pending.

The case is Validus Holdings Ltd. v. Transatlantic Holdings Inc. (TRH), CA6776, Delaware Chancery Court (Wilmington).

Sabre Resubmits Motion to Dismiss US Airways Antitrust Suit

Sabre Holdings Corp., embroiled in a dispute with airlines over fare and flight data distributed to travel agents, reinstated its request to dismiss an antitrust lawsuit brought by US Airways Group Inc. (LCC)

The complaint fails to identify any illegal anticompetitive acts, Sabre said in a filing yesterday in federal court in Manhattan. It called the suit, filed in April, “US Airways’ attempt to renegotiate the three-year contract” under which Sabre distributes the airline’s fares and schedules to travel agents.

Sabre, based in Southlake, Texas, on June 30 asked a Manhattan judge to dismiss the case. Sabre later withdrew the request as part of an agreement between the parties, which called for Sabre to resubmit it yesterday. US Airways is due to respond to the motion today.

US Airways followed AMR Corp. (AMR)’s American Airlines in suing Sabre, the largest U.S.-based so-called global distribution system, as the carriers seek more control over dissemination and sale of their products.

More than 35 percent of US Airways’ annual revenue is booked through Sabre or Sabre-affiliated travel agents, the Tempe, Arizona-based airline said in April. Sabre collects and shares flight data, and owns travel website Travelocity.com.

In its suit, US Airways claimed that Sabre “engaged in a pattern of exclusionary conduct to shut out competition, protect its monopoly pricing power and maintain its technologically obsolete business model.”

The case is U.S. Airways Inc. v. Sabre Holdings Corp., 11- cv-02725, U.S. District Court, Southern District of New York (Manhattan).

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

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.

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