CFPB-Arbitration Clauses, Swap Rules, Bonus Bonds: Compliance

The U.S. Consumer Financial Protection Bureau is seeking comment on the use of clauses that require consumers to resolve disputes with companies through arbitration rather than through the court system.

CFPB Director Richard Cordray said yesterday in an e-mail statement announcing the request that the bureau wants to assess whether rules are needed with respect to arbitration clauses. Comments are due to the agency by June 23.

Mandatory arbitration clauses are used for products including credit cards, checking accounts and payday loans.

The bureau didn’t say when it would complete its study, which is required under the Dodd-Frank Act. Under the 2010 law, the consumer bureau can ban or condition the use of mandatory arbitration in financial-services contracts, consistent with the results of the study.

Compliance Policy

CFTC May Vote on Swap Rule Delay Provision Through December

The U.S. Commodity Futures Trading Commission may vote to delay some Dodd-Frank Act derivatives regulations from taking effect until as late as the end of the year, a person briefed on the matter said.

The agency’s commissioners may consider an order providing temporary relief from provisions scheduled to take effect July 16, according to the person, who spoke on condition of anonymity because the process is private. The order would be open to public comment before completion.

The agency has previously provided relief from provisions that were set to take effect in July 2011 to give commissioners more time to consider rules. The new order may provide relief from the provisions through December unless the provisions are effective earlier, the person said.

The CFTC is preparing to complete regulations governing capital and margin requirements in non-cleared trades as well as the international reach of regulations. Commissioners may decide to limit the reach of Dodd-Frank swap rules to allow U.S. regulators more time to determine the comparability of overseas regulations, the person said.

The Washington-based agency that is writing derivatives regulations is also considering a proposal that would include a phased-in compliance system. JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and other banks have said U.S. regulators will hurt their ability to compete with overseas rivals if the rules apply to foreign-based subsidiaries.

Compliance Action

Wal-Mart Bribery Probe Seen as Examining Coverup Claims

Wal-Mart Stores Inc. (WMT) may spend hundreds of millions of dollars investigating $24 million in alleged Mexican bribes as the U.S. government weighs whether the company or executives also broke the law by covering up an internal probe, former federal prosecutors said.

The company said it’s aiding U.S. probes of payments detailed April 21 in the New York Times. The newspaper said Wal- Mart de Mexico failed to fully investigate the bribe claims as well as well as $16 million in “donations” to Mexican local governments to fuel store expansion in the country up to 2005.

Wal-Mart disclosed the payments to the Justice Department and U.S. Securities and Exchange Commission, according to a December 2011 regulatory filing, and said its outside advisers are briefing the agencies on its own probe. Prosecutors will want to know why Wal-Mart didn’t fully examine claims in 2005 by a company lawyer that he funneled bribes to Mexican officials, said Paul Pelletier, a former federal prosecutor.

The Justice Department is investigating potential criminal charges under the U.S. Foreign Corrupt Practices Act, according to a person familiar with the probe who wasn’t authorized to speak publicly. The FCPA bans payments by companies or their agents to foreign governments to obtain or retain business.

The company said it created a new position to monitor global compliance with the FCPA.

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Credit Suisse Bonus Bonds Lead Embrace of ‘Capital Relief’

Credit Suisse Group AG (CSGN)’s $750 million in bonuses given this year in the form of bonds, while compensating employees, also played a role in shifting risk in derivatives trading.

The securities shielded the Zurich-based bank from potential losses on $16 billion of derivatives trades -- and reduced its capital needs -- by shifting some of the risk onto employees, people with knowledge of the matter said. Instead of the company bearing the full brunt of any trades where customers failed to pay up, bonus recipients will share the cost.

The bonds are part of a resurgence in “regulatory capital relief transactions,” created by bankers looking to cut risk and build cushions against losses without diluting shareholders, selling assets or scaling back trades and loans. Some of Europe’s biggest banks including Barclays Plc (BARC), Standard Chartered Plc (STAN) and Commerzbank AG are paying investors and employees interest rates as high as 15 percent in return for agreeing to share losses on at least $30 billion of assets.

Using techniques similar to the ones that packaged mortgages into bonds, lenders are turning holdings of corporate loans, export-import credit or derivatives-trading gains into triple-A securities.

The practice has drawn scrutiny from regulators in the U.K.

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Courts

Indian Court Delays Cancellation of Phone Licenses by 3 Months

India’s Supreme Court postponed by three months the deadline for cancellation of 122 mobile-phone licenses to Sept. 7 and said the government must complete its auction of the wireless airwaves within that time.

Supreme Court Judge G.S. Singhvi rejected the government’s request for a 400-day window to complete the auction of the canceled airwaves permits. The court had earlier set a four- month deadline for the completion of the auction.

Companies including Norway’s Telenor ASA (TEL), Russia’s AFK Sistema (AFKS) and Emirates Telecommunications Corp. (ETISALAT), or Etisalat, will now gain an extra three months to continue providing services to their Indian subscribers, while considering their options. Yesterday’s decision comes almost a month before the Supreme Court’s June 2 auction deadline, set in February.

Telenor spokesman Glenn Mandelid didn’t answer two calls to his mobile phone.

Goldman Sachs Wins Dismissal of Claim in ACA Financial Suit

Goldman Sachs Group Inc. won the dismissal of a claim in a lawsuit brought by ACA Financial Guaranty Corp. over a mortgage- based investment that led to a settlement with the U.S. Securities and Exchange Commission.

ACA Financial sued Goldman Sachs in New York State Supreme Court in January 2011 in connection with a collateralized debt obligation known as Abacus.

Justice Barbara Kapnick threw out one of the claims in an order dated yesterday, saying that the plaintiffs failed to establish that Goldman Sachs was unjustly enriched at ACA Financial’s expense. Kapnick declined to dismiss the other two claims in the complaint, which allege fraudulent concealment and fraudulent concealment.

Goldman Sachs, based in New York, agreed in July 2010 to pay $550 million, the largest penalty ever assessed by the agency against a Wall Street firm, to settle allegations against it involving Abacus.

The case is ACA Financial v. Goldman Sachs & Co., 650027/2011, New York state Supreme Court (Manhattan).

Interviews/Hearings

MF Global Executives Will Not Receive Bonus Money, Trustee Says

Senior MF Global Holdings Ltd. (MFGLQ) executives still working at the bankrupt firm will not receive bonuses, the company’s trustee told lawmakers at a hearing on Capitol Hill.

Louis Freeh, the former Federal Bureau of Investigation director serving as trustee for the New York-based firm, committed to lawmakers that he wouldn’t award bonuses to current or former employees in the wake of reports that compensation packages for Chief Operating Officer Bradley Abelow, General Counsel Laurie Ferber and Chief Financial Officer Henri J. Steenkamp were being prepared.

“It was never my intention” to pay out bonus money to executives from the firm, Freeh told members of the Senate Banking Committee at a hearing today. Freeh committed to lawmakers that he would not distribute bonus money to current or former MF Global employees.

MF Global Holdings, once run by Jon S. Corzine, a Democrat who served in the Senate before serving as New Jersey’s governor, filed the eighth-largest U.S. bankruptcy on Oct. 31 after getting margin calls and bank demands for money at its brokerage unit, MF Global Inc. While the holding company is returning funds to creditors under Freeh in a Chapter 11 bankruptcy, the brokerage unit is returning funds to customers.

U.S. lawmakers seized on the bonus issue last month. The Senate adopted a non-binding resolution objecting to the distribution of bonus money.

Rewrite Dated U.S. Telecommunications Law, Diller Urges Senate

IAC/Interactive Corp. (IACI) Chairman Barry Diller, who’s distributing television channels online, urged U.S. legislators to rewrite communications laws to reflect blurring lines between Internet, cable and broadcast providers.

“You’ve got to rewrite the communications act” of 1996, Diller, whose company has invested in a service that lets users watch broadcast TV on mobile devices, said at a hearing yesterday before the Senate Commerce Committee. “It’s overdue given the Internet.”

Diller was among witnesses called to a hearing to examine how new Internet-driven technology is changing television viewing. Also asked to appear were executives from Microsoft Corp. (MSFT), whose Xbox gaming platform can be used to watch movies and TV shows, and Amazon.com Inc. (AMZN), which offers online video for purchase or rent.

Jay Rockefeller, the West Virginia Democrat who is chairman of the committee, told reporters after the hearing that the rapidly evolving communications landscape “will require legislation.” No telecommunications update will pass this year, Rockefeller said, because it is “not a simple business” and it “raises a lot of questions” that can’t be answered legislatively at this point.

To contact the reporter on this story: Carla Main in New York at cmain2@bloomberg.net

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

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