EU Weighs ESMA, Fracking Disclosures, MF Global: Compliance

European Union lawmakers and officials will meet on Dec. 19 in an attempt to reach a deal on rules for clearing of over-the-counter derivatives, a member of the European Parliament said.

Werner Langen, the sponsor of the bill in the EU’s parliament, said in an e-mail that the “most important” question to be resolved concerns the powers to be given to the European Securities and Markets Authority over clearinghouses.

The success of the negotiations “depends on the willingness” of national governments “to move toward a compromise, especially on the role of ESMA,” Langen said.

The U.K. government has said that some powers proposed by the EU for ESMA may go beyond what is allowed under the region’s treaties. Its concerns include that ESMA may be given responsibilities for clearinghouses that lead to them being pressured to relocate to the euro area.

Compliance Policy

Twitter, Gilt CEOs Fight SEC’s 500-Shareholder Rule for Startups

Twitter Inc., Gilt Groupe Inc. and other Internet startups urged Congress to pass legislation easing financial-reporting rules for closely held companies.

Twitter Chief Executive Officer Dick Costolo and Gilt CEO Kevin Ryan, along with 36 other executives and investors, oppose a restriction that requires closely held companies to disclose financial data when they have 500 or more shareholders. The group made its position known in a letter this week to members of Congress, calling the 500 shareholder rule “outdated, overly restrictive” and saying it limits job creation and U.S. competitiveness.

The startups are seeking to generate support for legislation proposed earlier this year that would increase the limit to at least 1,000 shareholders. Because young companies hire rapidly and try to lure new employees with stock options, the current rules can force startups to go public too soon, said Gilt Groupe’s Ryan. Businesses in that situation may not be ready for public scrutiny, he said.

While companies with 500 or more shareholders aren’t required to file for an initial public offering, they have less incentive to stay private at that point, because they would have to disclose financial information to the U.S. Securities and Exchange Commission either way. The new 1,000-shareholder legislation, introduced in June by Representative David Schweikert of Arizona, would exclude employees and accredited investors from the rules, giving startups even more flexibility.

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Texas Drillers to Disclose Chemicals Used in Fracturing

Texas will require oil and natural-gas operators to report the chemical ingredients used in new hydraulically fractured wells beginning next year.

The Texas Railroad Commission, which oversees the industry in the state, said any well receiving an initial drilling permit beginning Feb. 1 will be subject to the new chemical-disclosure rules, according to an e-mailed statement yesterday. The ingredients, which combined with water and sand are pumped underground to crack dense rock and release hydrocarbons, will be reported to the public website FracFocus.org.

Before the rule passed, operators in Texas were voluntarily reporting chemicals to the website for about half of all wells being completed with the so-called fracking technique, according to the statement.

Environmental groups have said the technique has tainted drinking water.

The railroad commission was directed to establish a disclosure process in a May 29 bill. Other gas-producing states including Wyoming, Colorado, Arkansas and Michigan also require companies to unveil some of the materials used in fracking.

Special Section: MF Global

Corzine, Abelow Testify on Collapse of MF Global

Jon S. Corzine, former chairman and chief executive officer of MF Global Holdings Ltd., Bradley Abelow, chief operating officer and Henri Steenkamp, chief financial officer, testified before the Senate Agriculture Committee in Washington on the collapse of the New York-based brokerage.

Corzine told lawmakers at the hearing that he “never gave any instructions to misuse customer funds” and didn’t give orders that could be misconstrued.

In his comments, he aimed to elaborate on remarks at a House Agriculture Committee hearing last week. At the earlier hearing before the House panel, Corzine left open the possibility that transfers of funds out of client accounts might have been a misinterpretation of his intent by company officials.

Yesterday, Corzine said he had never said anything regarding the use of customer funds that could be misunderstood.

Corzine also testified that JPMorgan Chase & Co. contacted him about an overdraft of funds before the New York-based broker filed for bankruptcy. (LEHMQ) He said he had “no personal knowledge” of the overdraft issue when JPMorgan contacted MF Global on Oct. 28. MF Global filed for bankruptcy protection on Oct. 31.

For more, click here, and for the video, click here.

MF Global Customers Testify to Senate Committee

Roger Hupfer, a grain elevator operator from Freeland, Michigan; Jeffrey Hainline, president for Advanced Trading Inc.; Dean Tofteland, a farmer from Luverne, Minnesota; and C.J. Blew, a farmer and chairman for Mid Kansas Cooperative Association; spoke before the Senate Agriculture Committee about the collapse of MF Global Holdings Ltd. and the impact missing customer funds have had on their businesses.

For the video, click here.

JPMorgan Actions as MF Global Lender Likely to Be Probed

The liquidator of the MF Global Inc. brokerage said that “certain” actions of JPMorgan Chase & Co. (JPM), a lender to the broker-dealer’s parent, “are likely to be the subject of investigation.”

The bankruptcy trustee, James Giddens, said he would “act with the respect to” those actions to recover money for brokerage customers if necessary. If the bank received so-called preferential payments before the brokerage went into liquidation, or other payments, he would deal “appropriately” with the transfers or other issues, he said.

For more, click here.

MF Global Probe, Margin Funds, General Creditors, Preferences

Regulators are investigating whether MF Global Holdings Ltd. intentionally used customer funds to cover the bankrupt firm’s margin payments on European government bond trades, bolstering their ability to retrieve the missing money, people with knowledge of the probe said.

Investigators including the Securities and Exchange Commission, the Justice Department, the Commodity Futures Trading Commission and the bankruptcy trustee are reviewing the brokerage’s accounts seeking proof of fraud, which would allow them to recover some of the lost $1.2 billion, said the people, who declined to be identified because the probe is ongoing. Unless regulators find illegal activity, margin payments on repurchase trades can’t be returned under bankruptcy law, said Lauren Teigland-Hunt, a lawyer who has represented money managers in the Lehman Brothers Holdings Inc. bankruptcy.

James Giddens, the bankruptcy trustee, is looking at all activity in the final days of MF Global to locate the missing money. He found “suspicious transactions” in the days before the Oct. 31 filing, James Kobak, a lawyer for the trustee, told the presiding judge in the case last week. Even if all the available money at U.S. depositories is recovered, there will still be “a significant shortfall” of as much as $1.2 billion, Kobak said on Dec. 8 at the House hearing.

For more, click here.

Separately, MF Global Inc.’s customers will be refunded from the failed brokerage’s general creditors’ estate if necessary, said James Giddens, trustee for the liquidating brokerage, in a prepared statement to the U.S. Senate.

“If commodity customer claims are not satisfied from the segregated commodity account estate, the remaining claim will automatically go against the general creditors’ estate,” Giddens said in the statement.

Separately, MF Global customers can’t expect to get much money from lawsuits seeking to recoup payments by the brokerage to lenders such JPMorgan Chase & Co., the trustee said.

The brokerage paid out an estimated $62 million within 90 days of the start of the liquidation, Giddens told a New York bankruptcy judge Dec. 12. Those so-called preference payments, which a bankruptcy trustee can try to reverse, wouldn’t bring “a material amount” to MF Global’s large liquidation, he said in a court filing.

For more, click here.

Compliance Action

Ex-Washington Mutual Officers Reach $64 Million FDIC Settlement

Three former executives of Washington Mutual, Inc. (WAMUQ) agreed to a $64 million settlement of a lawsuit brought by the Federal Deposit Insurance Corp. over the bank’s failure in September 2008, according to FDIC officials.

Former chief executive Kerry Killinger, former chief operating officer Stephen Rotella and the former top lending official David Schneider had faced claims from the FDIC that they pay $900 million.

The FDIC values the settlement at $64 million, according to the officials, who briefed reporters on the condition of anonymity yesterday.

WaMu failed after depositors withdrew money and a years- long focus on subprime mortgages took its toll, and its holding company has since been the subject of litigation by shareholders, noteholders, officers and regulators. Its deposits, assets and certain liabilities were immediately sold to JPMorgan Chase & Co. after its regulator, the now-defunct Office of Thrift Supervision, closed the Seattle-based bank.

The settlement will be formalized in the next day and made public within a week, the officials said.

Thomson Reuters Offers to Settle EU Antitrust Case Over Data

Thomson Reuters Corp. (TRI), the financial news and information provider, offered to settle a European Union antitrust probe by making it easier for customers to switch suppliers of financial market data.

The European Commission said Thomson Reuters’s commitments would help customers who wanted to use the company’s securities identification codes with competing data feeds, according to a notice published in the EU’s Official Journal today.

Thomson Reuters is offering licenses that would allow customers to use Reuters Instrument Codes to retrieve data from rival suppliers and supply them with “all necessary information” for customers’ computer systems to link the codes with those used by other suppliers.

The European Commission opened an investigation into the Thomson Reuters codes in 2009, saying customers may potentially be locked-in to working with the company because replacing the codes required “a long and costly procedure” to rewrite or reconfigure software applications.

The company’s rivals and customers are asked to respond to the company’s offer and its proposed license fees before they can become final. Regulators can then make the offer binding and drop their antitrust investigation.

Bloomberg LP, the parent of Bloomberg News, competes with New York-based Thomson Reuters in selling financial and legal information and trading systems.

Courts

Commerzbank’s Eurohypo Ordered to Pay on Profit Certificates

Commerzbank AG’s Eurohypo must pay interest to holders of profit certificates, a German appeals court ruled in a case brought by private-equity firm Crown Ocean Capital Ltd. (OCE)

The Frankfurt Higher Regional Court yesterday overturned a lower court ruling from last year that Eurohypo, Commerzbank’s real estate arm, could stop payments for 2009 after recording a loss. The certificates were originally issued by Rheinhyp AG, which later became part of Eurohypo.

QVT Financial LP, a New York hedge fund, won a ruling in Frankfurt earlier this year over the issue in a separate suit. QVT has also sued in Delaware, claiming Eurohypo owes $68 million for profit-dependant payments on hybrid capital investments. Commerzbank is trying to raise 5.3 billion euros ($7 billion) in capital by mid-2012.

Commerzbank, which agreed to buy Eurohypo in 2005, will analyze the ruling and may appeal, company spokesman Maximilian Bicker said in an e-mailed statement. Eurohypo can appeal the decision to Germany’s top civil court.

Klaus Steiner, Crown Ocean’s lawyer, said the ruling clarifies “for the first time” how banks have to indemnify profit certificate investors in a takeover. The court reasoned, he said, “that you have to grant them protection similar to shareholders in that situation under German law.”

The case is OLG Frankfurt am Main, 5 U 56/11.

Ex-Siemens Executives Charged in Argentine ID Bribery Scheme

Eight former executives at Siemens AG, Europe’s largest engineering company, were charged by the U.S. with conspiring to bribe Argentine government officials to land a $1 billion contract to make national identity cards.

The U.S. said the former executives ran a decade-long scheme to pay more than $100 million in bribes to officials including cabinet ministers and presidents to win the contract, and to cover their tracks so the fraud wouldn’t be exposed. The crimes they are charged with include conspiracy to violate the Foreign Corrupt Practices Act and money laundering conspiracy and wire fraud, according to an indictment unsealed yesterday in Manhattan federal court.

The defendants in the criminal case are Uriel Sharef, 67, a former member of the managing board of Munich-based Siemens; Herbert Steffen, 74, Andres Truppel, 57, Ulrich Bock, 68, Eberhard Reichert, 74, Stephan Signer, 51, Carlos Sergi, 78, and Miguel Czysch, 79.

A ninth executive was named in a related complaint filed yesterday by the U.S. Securities and Exchange Commission and not charged with a crime. None of them are in U.S. custody.

Alexander Becker, a Siemens spokesman, said the company “is not indicted” and could not comment “on proceedings against individuals.”

Steffen’s attorney, Steffen Ufer, said that his client denies wrongdoing and that he settled an investigation of the same issues with prosecutors in Munich. Sharef’s lawyer, Heiko Lesch, and Hans Dieter Gross, who represents Bock, declined to comment.

Jan Olaf Leisner, who represents Truppel, and Eberhard Zeeb, Signer’s lawyer, didn’t immediately reply to e-mails seeking comment.

The criminal case is U.S. v. Sharef, 11-01056, U.S. District Court, Southern District of New York (Manhattan). The civil case is U.S. Securities and Exchange Commission v. Sharef, 11-CV-9073, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Interviews/Speeches

Coordination Needed in Stock, Futures Oversight, Gira Says

Consolidating oversight of equities, options and futures markets would help regulators deter trading aimed at defrauding investors or manipulating markets, said Thomas Gira, a Financial Industry Regulatory Authority executive.

Gira, executive vice president for market regulation at Finra, made the remarks at a meeting sponsored by the Commodity Futures Trading Commission yesterday in Washington. More coordination is needed because strategies designed to deceive may operate across asset classes, he said at the meeting.

“That means having all the equities markets” in the surveillance program, Gira said at the meeting. “It also means having all the options markets. At some point, I think, it would make sense for futures to be in there as well because this type of activity is going across products and it’s important for regulators to have a holistic view.”

U.S. regulators are seeking ways to improve supervision in faster-paced, automated markets where firms may employ tactics that disperse orders across stock venues and exchanges handling related products.

For more, click here.

Comings and Goings

Goldman Sachs Recruits Markets Regulator From U.K. Bank Watchdog

Goldman Sachs Group Inc. (GS)’s U.K. arm hired a markets regulator from the U.K. Financial Services Authority in the wake of a series of departures from the watchdog.

The bank hired Martine Doyon, a specialist in European markets rules and an international strategist for the regulator, an FSA spokesman said in a telephone interview. She becomes at least the ninth senior official to leave the regulator since the government said in 2010 it would abolish the agency.

The hire comes after the regulator lost Alan Cathcart, a senior official who worked on banking stress tests, to HSBC Holdings Plc. (HSBA) The FSA has restructured into two divisions to prepare for a government-mandated handover of lender supervision to the Bank of England and the creation of the Financial Conduct Authority.

A spokeswoman for Goldman Sachs declined to comment.

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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