Skowron, Liquor Tax, Credit Suisse, Pfizer-Teva: Compliance

Ex-FrontPoint Partners LLC hedge fund manager Joseph F. “Chip” Skowron pleaded guilty in a U.S. insider-trading case.

Skowron, a medical doctor, pleaded guilty yesterday to one count of conspiring to commit securities fraud and to obstruct a Securities and Exchange Commission investigation for trading on inside information about Human Genome Science Inc. and then lying to investigators.

“I knew my actions were wrong and I deeply regret my participation in these activities,” Skowron told U.S. District Judge Denise Cote in Manhattan yesterday. He faces as much as five years in prison when he’s sentenced Nov. 18.

“Dr. Skowron lied to and misled FrontPoint’s internal compliance team, the external counsel hired to independently investigate his actions, and the federal government,” FrontPoint said in a statement yesterday. “FrontPoint was never accused of any wrongdoing and has fully resolved this matter with the government.”

The government claimed that Skowron obtained nonpublic information from Yves Benhamou, an expert in hepatitis drugs and a former adviser for Human Genome Sciences. The tips, concerning hepatitis C drug trials, let Greenwich, Connecticut-based FrontPoint avoid more than $30 million in losses, the U.S. said.

Prosecutors claimed Skowron gave Benhamou more than $14,600 in cash and paid for hotel rooms and expenses. Benhamou has pleaded guilty.

As part of the plea agreement Skowron agreed to forfeit $5 million to the government.

The criminal case is U.S. v. Skowron, 11-MAG-00997; the civil case is Securities and Exchange Commission v. Benhamou, 10-cv-8266, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Compliance Policy

Lockhart Says Fed ‘Not Out of Bullets’ If Economy Slows

Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank could purchase more Treasuries or alter its balance sheet if the U.S. economy were to slow further.

“If additional actions are required, I can assure you the Federal Reserve is not out of bullets,” Lockhart said in a speech yesterday in Florence, Alabama. “Expansion of the balance sheet or changes in the composition of the Fed’s asset portfolio are available, in my view. These could be quite effective, particularly if done in sufficient size, in the event that the economy retreats back into contractionary territory.”

The Federal Open Market Committee lowered its economic assessment, saying it now “expects a somewhat slower pace of recovery over the coming quarters.” It left the door open for more action, saying it discussed “the range of policy tools available to promote a stronger economic recovery.”

“I’m currently cautious about further monetary action,” Lockhart said in the speech to the Rotary Club of Florence. “I still maintain that a resumption of growth is the most likely case. But if that assessment proves to be wrong, I believe we do have tools to address whatever circumstances arise.”

For more, click here.

Philippine Liquor Tax Illegal, WTO Says, Backing U.S., EU

Philippine taxes on imports of distilled spirits made by companies including Pernod Ricard SA and Brown-Forman Corp. are illegal, the World Trade Organization said yesterday, backing U.S. and the European Union complaints.

The ruling may help European and U.S. companies boost their share of the Philippines’ $3 billion liquor market. WTO judges in Geneva rejected the Philippines’ argument that imported liquor such as Jim Beam whiskey, Brandy de Jerez and Southern Comfort don’t compete with locally made distilled spirits and that different taxes based on the raw material used to make the liquor should be legal.

The Philippines applies a lower tax rate on sugar and palm- based drinks produced within the country. Levies on foreign spirits are in some cases almost 50 times higher than those on domestic liquor, according to the EU. The Philippines should bring its measure into conformity with its obligations, WTO judges said in their ruling, posted on the trade arbiter’s website.

“The discriminatory taxation system has led to a decline of overall consumption of imported spirits of 1 percent since 2005, while consumption of local spirits has grown over 8 percent in the same period,” according to the European Commission in Brussels.

Compliance Action

Credit Suisse Likely to Settle Criminal Tax Probe, Lawyers Say

Credit Suisse Group AG, the Swiss bank facing possible U.S. indictment for aiding tax evasion, will likely settle with prosecutors by admitting wrongdoing and paying a penalty that may exceed $1 billion, tax lawyers said.

Credit Suisse, the second-largest Swiss bank, has too much to lose by fighting the Justice Department and risking indictment, said lawyers not involved in the case. Prosecutors told the bank last month that it’s a target of a probe into its former cross-border banking services to U.S. customers.

The lawyers expect Credit Suisse to reach an agreement like that of UBS AG (UBSN), which was charged in 2009 with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.

“The UBS deferred-prosecution agreement is going to be a template for what happens with Credit Suisse,” said tax attorney Bryan Skarlatos. “It’s very likely that they’ll reach an agreement with the U.S. government, pay a fine, and possibly turn over names.”

Victoria Harmon, a spokeswoman for Zurich-based Credit Suisse, declined to comment, referring to a July 21 statement. Seven Credit Suisse bankers, including the former head of North American offshore banking, Markus Walder, were indicted that day in federal court in Alexandria, Virginia, on a charge of helping U.S. clients evade taxes through secret accounts.

“Credit Suisse is committed to a fully compliant cross- border business,” the bank said in that statement. “Subject to our Swiss legal obligations and throughout this process we will continue to cooperate with the U.S. authorities in an effort to resolve these matters.”

PwC Faulted by U.K. Regulator Probing JPMorgan Client Assets

PricewaterhouseCoopers LLP failed to properly report on JPMorgan Chase & Co. (JPM)’s compliance with U.K. rules to protect client money, Britain’s accounting regulator said following a 10-month probe.

An independent tribunal will decide on any sanctions after considering a formal complaint filed by the Financial Reporting Council, according to a statement on its website yesterday. The company cooperated in the probe, according to the regulator.

“PwC did not carry out its professional work in relation to these reports with due skill, care and diligence and with proper regard for the applicable technical and professional standards expected of it,” the regulator said.

The FRC investigated reports by PwC’s London unit covering JPMorgan’s observance of the Financial Services Authority’s client-asset rules, which are intended to segregate customer assets from those of the company to protect them during a liquidation.

“It is naturally a matter of regret that, in respect of one aspect of our work, we did not meet our normal high standards,” a PwC spokesman said yesterday in an e-mailed statement.

Mercurius Capital Chief Fined $3.3 Million by U.K. Regulator

Michiel Weiger Visser, the chief executive officer of Mercurius Capital Management Ltd., was fined 2 million pounds ($3.3 million) and banned by U.K. regulators from working in the industry for market abuse and deceiving investors.

The hedge fund’s chief financial officer and head of compliance, Oluwole Fagbulu, was fined 100,000 pounds and also banned for disguising the financial performance of one of its funds, which collapsed in 2008, the Financial Services Authority said in a statement yesterday. The 20 investors in Mercurius’s International Fund haven’t recovered any of the 35 million euros ($50 million) it had under management, the regulator said.

Visser hid his investment decisions for over a year, allowing the fund to raise 8 million euros of new capital in the three months before it collapsed, the FSA said.

Visser and Fagbulu “engaged in a sustained and deliberate course of deception to present a picture of the fund’s performance that was entirely false,” said Tracey McDermott, the acting director of enforcement and financial crime at the FSA.

Courts

Pfizer Wins Viagra Patent-Infringement Case Against Teva

Pfizer Inc. (PFE) won a patent-infringement case that prevents Teva Pharmaceutical Industries Ltd. (TEVA) from marketing a generic version of the impotence drug Viagra until 2019.

U.S. District Judge Rebecca Beach Smith in Norfolk, Virginia, ruled Aug. 12 against Petach Tikva, Israel-based Teva, which claimed the patent wasn’t valid and couldn’t be enforced.

“Teva has not shown by clear and convincing evidence that the patent is invalid,” Smith said in a 110-page opinion. In addition, “there is utterly no evidence” to support Teva’s claim that that Pfizer intentionally withheld documents from the U.S. Patent and Trademark Office, Smith wrote.

“Protecting the intellectual property rights of our innovative core is critical,” Amy Schulman, Pfizer’s general counsel, said in a statement. “Friday’s court decision acknowledges Teva’s clear violation of our patent rights.”

Denise Bradley, a Teva spokeswoman, declined to comment on the ruling.

“While we expect Teva to appeal, the ruling represents a clear positive for Pfizer,” said Christopher Schott, a New York-based analyst for JPMorgan Chase & Co., in a note to clients yesterday. He said the ruling is worth about 3 cents to Pfizer’s 2012 earnings per share and about 6 cents to annual earnings per share through 2019.

The case is Pfizer v. Teva, 10-cv-128, U.S. District Court, Eastern District of Virginia (Norfolk).

Ex-Optionable Chief Admits to Scheme to Hide Bank Losses

Former Optionable Inc. (OPBL) Chief Executive Officer Kevin Cassidy pleaded guilty to his role in a scheme to hide millions of dollars in losses at the Bank of Montreal. (BMO)

Cassidy, 52, pleaded guilty yesterday in Manhattan federal court to one count of conspiracy to commit wire fraud. The judge set a Dec. 15 sentencing date.

The case stems from C$680 million ($690.5 million) of pretax commodity-trading losses the bank announced in April 2007. Those losses grew to C$853 million for the fiscal year, paring profit by C$440 million. Cassidy was charged with fraud in 2008 for helping a former trader at the bank conceal the losses.

Cassidy, an ex-convict who hid his criminal record, helped former trader David Lee hide commodity losses from the bank to win business for Optionable, a brokerage firm focusing on energy derivatives, according to prosecutors.

Cassidy was sentenced to 30 months in prison for credit- card fraud in 1997 and six months for income-tax evasion in 1993, court records show.

The case is U.S. v. Cassidy, 08-CR-1101, U.S. District Court, Southern District of New York (Manhattan).

Renesas Complaint Seeks to Bar U.S. Imports of Vizio TVs

Renesas Electronics Corp. (6723), the world’s biggest maker of microcontrollers used in cars and appliances, filed patent- infringement complaints seeking to block Vizio Inc. televisions from the U.S.

Renesas accused Vizio of violating rights on two patents in an Aug. 12 filing with the U.S. International Trade Commission in Washington. The Japanese company also sued closely held Vizio in a federal court in Marshall, Texas.

One patent covers an arrangement of connections on the surface of the circuit, while the second is for a manufacturing process that reduces corrosion, according to the ITC complaint. Kawasaki, Japan-based Renesas contends that circuits in Vizio’s digital televisions are made using these patented inventions.

Vizio, based in Irvine, California, has its own patent- infringement case pending against Renesas at the ITC that was instituted last month.

Renesas, formed in 2003 from the semiconductor divisions of Hitachi Ltd. (6501) and Mitsubishi Electric Corp. (6503), is owned by those two companies and NEC Corp., according to the ITC complaint.

The civil case is Renesas Electronics Corp. v. Vizio Inc., 11cv356, U.S. District Court for the Eastern District of Texas (Marshall). The ITC case is In the Matter of Digital Televisions Containing Integrated Circuit Devices, Complaint No. 2840, U.S. International Trade Commission (Washington).

The Vizio case against Renesas is In the Matter of Digital Televisions and Components Thereof, 337-789, U.S. International Trade Commission (Washington).

Ex-Ahold Executive Kaiser to Plead Guilty in Fraud Case

The former marketing chief of Dutch grocer Royal Ahold NV’s U.S. unit, who was sentenced to seven years in prison for overstating earnings only to have his conviction thrown out, pleaded guilty in a Manhattan court.

Former U.S. Foodservice Inc. executive Mark Kaiser entered a plea yesterday to charges he participated in an $800 million securities fraud. He was convicted in 2006 of helping the subsidiary inflate profits from 2000 to 2003 by wrongly recording promotional rebates as income.

Prosecutors alleged Kaiser made fraudulent representations about U.S. Foodservice’s financial condition in a bid to burnish his resume for a promotion at the Columbia, Maryland-based unit.

In July 2010, the U.S. Court of Appeals in New York threw out his convictions for securities fraud, conspiracy and four counts of making false filings with the U.S. Securities and Exchange Commission.

The appeals court said he was entitled to a new trial because the lower court judge erred by admitting into evidence the statement of the unit’s general counsel.

The case is U.S. v. Kaiser, 04-cr-733, U.S. District Court, Southern District of New York (Manhattan).

Ex-Brocade Chief Reyes Agrees to Pay $845,000 in SEC Case

Former Brocade Communications Systems Inc. (BRCD) Chief Executive Officer Greg Reyes, convicted of securities fraud for backdating employee stock-option grants, agreed to pay $845,251 to resolve a regulator’s lawsuit.

The settlement with the U.S. Securities and Exchange Commission, if approved by a judge, would resolve the agency’s case “in its entirety,” SEC Assistant Regional Director Robert Leach said in a filing yesterday in San Francisco federal court.

The amount includes a $550,000 fine and $295,251 in disgorgement and interest, the filing said. Reyes also agreed not to violate securities laws, according to a filing signed by his attorney Neal Stephens.

Reyes was found guilty of securities fraud and other charges last year at his second trial stemming from stock- options manipulation at San Jose, California-based Brocade, the biggest maker of switches for data-storage networks. He was sentenced to 18 months in prison.

The case is SEC v. Reyes, 06-4435, U.S. District Court, Northern District of California (San Francisco).

Pennsylvania Man Admits to Role in $18 Million Ponzi Scheme

A Pennsylvania man admitted to his role in a $17.6 million Ponzi scheme that defrauded more than 260 investors.

Robert Stinson Jr., 56, of Berwyn, pleaded guilty yesterday in federal court in Philadelphia to 26 charges, including wire fraud, mail fraud, money laundering and bank fraud, the Justice Department said in a statement. There was no plea agreement, according to the plea memorandum.

Stinson was charged in November, accused of lying about his education and promising returns of 10 percent to 16 percent from real estate hedge funds. He allegedly told investors that the funds made short-term commercial mortgage loans, while he used the money to pay himself and relatives and to buy expensive cars and vacations, according to an indictment.

The charges carry a maximum penalty of 329 years in prison and a $6.8 million fine. His sentencing is scheduled for Dec. 13.

The case is U.S. vs. Stinson, 10-cr-00724; a related lawsuit is Securities and Exchange Commission v. Stinson, 2:10- cv-3130, both in U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

Goldman Sachs Sued Over ‘Junk’ Mortgage Securities by Allstate

Goldman Sachs Group Inc. (GS) was sued by Allstate Insurance Co. over the sale of more than $100 million worth of residential mortgage-backed securities that the insurer claims the bank itself called “junk” and “lemons.”

Allstate asked for damages including the lost market value of the securities, plus principal and interest payments in the complaint filed yesterday in New York state Supreme Court in Manhattan.

The insurer, based in Northbrook, Illinois, has filed similar suits against JPMorgan Chase & Co. over $700 million of mortgage-backed securities the bank sold the insurer; Credit Suisse Group AG (CSGN) units for more than $231 million of the securities; Bank of America Corp.’s Merrill Lynch unit over some $167 million; Citigroup Inc. (C), for more than $200 million; and Deutsche Bank AG (DBK), over about $185 million. Allstate said the banks misrepresented underwriting standards, owner occupancy data and loan-to-value ratios.

Goldman Sachs knew these types of securities were “junk,” “dogs,” “crap” and “lemons,” according to the complaint. Allstate claims the words are Goldman Sachs’s own, recently revealed in governmental investigations, to describe them.

The case is Allstate Insurance Co. v. Goldman Sachs & Co., 652273/2011, New York state Supreme Court (Manhattan).

Interviews

Greece, Portugal Should Leave the Euro, Soros Says in Spiegel

A “regulated” exit for Greece and Portugal from the single currency may be the best path, George Soros, the billionaire investor, said in an interview with Der Spiegel.

“The European Union and the euro would survive it,” the German magazine quoted him as saying. Soros said that the immediate introduction of euro bonds is the only way out of Europe’s debt crisis, according to Der Spiegel.

Pitt Says ‘Impossible’ for SEC to Dictate Credit Ratings: Video

Harvey Pitt, chief executive officer of Kalorama Partners LLC and former chairman of the U.S. Securities and Exchange Commission, talks about a possible SEC review into the method Standard & Poor’s used to cut the U.S.’s credit rating and whether the firm properly protected the confidential decision.

Pitt spoke with Erik Schatzker yesterday on Bloomberg Television’s “InsideTrack.”]

To watch the video, click here.

Comings and Goings

Italy May Name Saccomanni Central Bank Governor, Repubblica Says

Italy’s Prime Minister Silvio Berlusconi reached an agreement with Bank of Italy Governor Mario Draghi to name Fabrizio Saccomanni as his successor to lead the central bank, La Repubblica reported, without saying how it obtained the information.

Saccomanni, director general at the Bank of Italy, would replace Draghi in November when he becomes head of the European Central Bank, the newspaper said. Spokesmen at the bank and the government press office didn’t answer calls for comment yesterday, a holiday in Italy.

To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.

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

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