JPMorgan Expanded Inquiry, Google, Nomura Ads: Compliance
JPMorgan Chase & Co. (JPM) is being investigated by at least 11 state, federal and international enforcement bodies as the bank struggles to contain damage from a botched derivatives trade that cost it at least $5.8 billion.
Authorities in Singapore, Germany and Japan have joined the list of agencies probing the largest U.S. bank’s trading errors, the company said in a regulatory filing yesterday. The U.S. Justice Department, Congress, Securities and Exchange Commission and U.K. Financial Services Authority are among those examining the bank, which could still lose as much as $1.7 billion more on its credit derivatives portfolio, the company said. The bungled trade may also make it more difficult to resolve other pending reviews, the company said.
“The firm expects heightened scrutiny by its regulators of its compliance with new and existing regulations,” the company said. Regulators will more frequently bring “formal enforcement actions for violations of law rather than resolving those violations through informal supervisory processes.”
The bank reiterated it found “material weakness” within its internal controls and financial reporting related to the trade and, as a result, its initial first-quarter results couldn’t be relied on.
Eight civil lawsuits have already been filed since the bank initially disclosed problems in its synthetic credit derivatives book on May 10, the bank said. The Justice Department and SEC are also among agencies investigating the bank’s possible role in an international bid-rigging scheme to manipulate the London interbank offered rate, or Libor, the bank said.
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Online Investors May Gain Protections From U.S. Muni Regulator
U.S. financial regulators, responding to the growth in trading securities over the Internet, want to bolster protections for investors buying municipal bonds through online brokers.
The Municipal Securities Rulemaking Board, which drafts regulations for the $3.7 trillion state-and-local bond market, said yesterday said it may place new requirements on online brokers, such as collecting information about investors, sending out educational material and drawing up procedures for meeting their obligations -- including those aimed at preventing overcharging.
The municipal market is dominated by individuals seeking tax breaks or safety of bonds sold by state and local governments, which rarely default. Other bonds also backed by specific revenue, including parking garage tickets or levies on new housing developments, pose more risks to investors.
The board said the new rules would help individual investors trading online understand the features and risks of municipal securities.
State Street Urges Futures Client Account Change After MF Global
U.S. futures regulators seeking to bolster protection of customer funds after the collapse of MF Global Holdings Ltd. (MFGLQ) and Peregrine Financial Group Inc. should allow clients to put collateral in separate accounts at custody banks, according to representatives of State Street Corp. (STT)
The U.S. Commodity Futures Trading Commission should revoke a policy enacted in 2005 that banned futures customers from using the accounts, State Street, the third largest custody bank, said in a presentation prepared for a discussion in Washington on possible new regulations. The agency should allow for so-called tri-party custody accounts between clients, brokers and custody banks, according to the presentation.
Allowing such accounts “would help protect customer margin monies from misuse or fraud by the futures broker, without impacting the clearinghouses’ access to necessary funds,” Charley Cooper, senior managing director of State Street Global Markets, said in a statement yesterday before the discussion. In tri-party accounts, futures brokers substitute their own collateral to fully fund the clearinghouse while client money remains at the custody bank.
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SMBC Nikko Ordered to Improve Compliance After Banker Charged
Sumitomo Mitsui Financial Group Inc. (8316)’s investment banking unit was ordered to improve operations by Japan’s financial regulator after a former banker was indicted for securities violations.
The Financial Services Agency told SMBC Nikko Securities Inc. to report on how it will bolster compliance by Aug. 17, the regulator said in a statement in Tokyo today. The firm lacked controls to monitor the executive’s actions during the time he allegedly breached securities laws, according to the FSA.
The order is the second for Tokyo-based SMBC Nikko in four months after it was told to beef up internal controls in April following tips staff gave to clients on a public stock offering. Japanese authorities are cracking down on insider trading after leaks at brokerages including Nomura Holdings Inc. (8604) eroded confidence in the nation’s capital markets.
Former SMBC Nikko executive Hiroyoshi Yoshioka and another individual were charged with violating the financial instruments and exchange law on July 15, said a Yokohama district court official, asking to speak anonymously in accordance with the court’s policy. Japan’s banking watchdog earlier recommended they be indicted for conspiring to buy shares of a company with insider knowledge that it was a takeover target.
SMBC Nikko said this week it will cut President Eiji Watanabe’s salary by 30 percent for four months in the wake of the latest probe. The company will increase employees’ liability for breaching compliance rules and boost monitoring of communication between staff and clients, SMBC Nikko said.
“We apologize for causing significant trouble to clients and stakeholders,” the firm said in a statement today. “We will carry out the improvement measures announced.”
Standard Chartered Fitness Key Shutdown Grounds in N.Y. Law
New York’s financial-services regulator has grounds to shut Standard Chartered Plc (STAN) in the state even if he accepts the firm’s argument that it illegally laundered only a fraction of the $250 billion he claims.
As the state’s top banking regulator, Benjamin Lawsky has power to act in his discretion against any financial institution he deems untrustworthy, according to the charter of his year-old department.
Penalties he could impose include fines and the revocation of the bank’s license to operate in the state. Lawsky is said to be considering a settlement figure as high as $700 million, according to person familiar with the case. That would match the amount HSBC Holdings Plc set aside last month to resolve allegations of similar behavior.
Since the Aug. 6 issuance of an order from Lawsky’s Department of Financial Services threatened to revoke Standard Chartered’s license, the bank has focused its defense on the amount it laundered, saying it involved less than 1 percent of the 60,000 Iranian wire transfers asserted by Lawsky.
Even if Standard Chartered’s position is legally sound, the order’s disclosure of internal e-mails suggesting a conspiracy to hide the identity of Iranian clients from regulators has given Lawsky grounds to act when the two sides face off at an administrative hearing Aug. 15, according to experts on both sides of the Atlantic.
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Google Agrees to Pay $22.5 Million for Apple Browser Breach
The fine, the largest ever the FTC has levied against a company, represents the first by the agency for a violation of Internet privacy as the agency steps up enforcement of consumers’ online rights.
The FTC alleged that Mountain View, California-based Google deceived consumers and violated terms of a consent decree signed with the commission last year when it planted so-called cookies on Safari, bypassing Apple software’s privacy settings, to track users’ Internet browsing behavior.
Google has drawn regulatory scrutiny and pressure from consumer advocates for the way it handles personal information. The operator of the world’s largest search engine signed a consent decree with the FTC last year to settle allegations that it used deceptive tactics and violated its own privacy policies in introducing the Buzz social-networking service in 2010.
Nagai Vows to Put Insider Scandal Behind Nomura in Newspaper Ads
Nomura Holdings Inc. Chief Executive Officer Koji Nagai pledged in newspaper advertisements to avoid a repeat of the leaks that led Japan’s biggest brokerage to lose underwriting deals and cost his predecessor his job.
“Nomura will make efforts to prevent a recurrence and to strengthen internal controls further by carrying out improvement measures thoroughly,” Nagai said in the advertisement published in nine major Japanese newspapers this morning. “We will seek to restore confidence by working together.”
Nagai took office on Aug. 1 after Kenichi Watanabe resigned to take responsibility for failing to prevent employees from giving tips to traders on share sales the firm managed in 2010. Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. were among 12 securities firms operating in Japan that this week pledged to improve how they guard client information.
“We take this matter seriously and the entire firm is working to regain the trust of the public,” said Keiko Sugai, a spokeswoman for Tokyo-based Nomura.
Nomura submitted a report to the Financial Services Agency yesterday showing its progress on improving compliance, two days before the deadline. The regulator penalized domestic brokerage unit Nomura Securities Co. on Aug. 3.
Goldman Says SEC Closed Probe of Firm After Threatening Case
Goldman Sachs Group Inc. said U.S. regulators ended an investigation of its role in selling $1.3 billion of mortgage- backed securities and won’t sue the firm, reversing course after investigators warned in February that they intended to recommend legal action.
Securities and Exchange Commission lawyers told Goldman Sachs on Aug. 6 that they no longer planned to pursue claims against the bank, the New York-based company said yesterday in a regulatory filing. The regulator had sent Goldman Sachs a so- called Wells notice in February, which typically gives recipients a chance to dissuade investigators from recommending the agency authorize enforcement action.
The SEC’s investigation looked at disclosures during the late-2006 offering of subprime residential mortgage-backed securities underwritten by Goldman Sachs, according to the firm’s filing. It didn’t elaborate on the SEC’s decisions. David Wells, a spokesman for the firm, declined to comment on the filing.
EADS Unit Probed by U.K. Prosecutors Over Saudi Bribery Claims
A European Aeronautic, Defence & Space Co. (EAD) unit in Britain is being probed by U.K. prosecutors over allegations it paid bribes to win a telecommunications deal with Saudi Arabia’s royal family.
The investigation involves suspected payments to Saudi officials from EADS’s GPT Special Project Management unit, David Jones, a spokesman for the U.K.’s Serious Fraud Office in London, said yesterday in a phone interview.
The contract was valued at 2 billion pounds ($3.13 billion), the Telegraph newspaper reported in May 2011, citing statements to investigators by a former GPT employee.
“Certain allegations have been made and these are being properly addressed with our full and constructive engagement,” an EADS spokesman, who declined to be cited by name, said in a statement.
Leoni, Wire Harness Makers Probed by EU Over Antitrust Cartels
Leoni AG and other makers of automotive wire harnesses are being probed by the European Union for possible collusion in multiple cartels.
The wiring unit of German wire and cable-maker Leoni is cooperating with the European Commission, the company said yesterday. The antitrust investigation, announced by the regulator, is part of a crackdown on price fixing in the auto- parts industry. The commission didn’t name the companies it is probing.
Leoni will cooperate with the EU probe and provide information and documents to clarify the issue, Bernd Buhmann, a spokesman for the Nuremberg-based company, said in a telephone interview.
“We have not made any provisions for a possible fine,” he said. “There were several inspections at our premises since February 2010 and we do not know if they will continue or intensify or are already completed.”
Cargill Must Pay Former Singapore Trader’s Bonus, Judges Say
Cargill Inc., the biggest agricultural company in the U.S., must pay a former Singapore-based trader $1.74 million in deferred bonuses, the appeals court in the Asian city ruled in a 49-page decision received yesterday.
Mano Vikrant Singh, who left Cargill in 2008, sued the company claiming his bonus was wrongly forfeited. Singh, who was paid a monthly salary of S$25,000 ($20,054), had a bonus of $3.2 million for the 2008 financial year, according to the ruling.
Cargill, which forbade some staff that left from continuing a career within the financial or commodity-trading industries for two years, sought to stifle competition with its restrictions, Singh had said in his complaint.
Cargill, based in Minneapolis, Minnesota, had demanded that Singh return confidential information he took from the firm, and said he breached his contract by setting up Xangbo Global Markets Pte.
The company said in a statement today it will abide by the decision.
Philip Jeyaretnam, Singh’s lawyer, said the judgment established that the restraint of trade doctrine doesn’t only apply to outright prohibition of post-employment competition.
The case is: Singapore High Court and Mano Vikrant Singh v Cargill TSF Asia Pte. OS103/2011. Singapore Court of Appeal.
FSA’s Wheatley Supports ‘More Scientific’ Libor Process
Martin Wheatley, the managing director of the Financial Services Authority, discusses regulating the Libor interest rate, the manipulation of key benchmarks and the role of the British Bankers’ Association.
He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.”
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High-Frequency Trading Is Like ‘Video Game,’ Arnuk Says
Sal Arnuk, a partner at Themis Trading LLC, talked about the implications of high-frequency trading for financial markets and the Aug. 1 software malfunction that caused Knight Capital Group Inc. (KCG) to suffer a $440 million dollar trading loss.
Knight Capital will resume its duties as a designated market maker on the New York Stock Exchange on Aug. 13, the exchange said Aug. 8. Arnuk spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers.”
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Levitt Says Standard Chartered Allegations Go Deeper
Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission and senior adviser to Goldman Sachs, said allegations that Standard Chartered Plc processed $250 billion of deals with Iranian banks subject to sanctions “are something with much deeper depth.” Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”
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