Hedge Fund Advertising, Bankers, Barclays: Compliance
Hedge funds may go from soliciting individual investors behind closed doors to conducting wide advertising campaigns without restriction under a rule proposed yesterday by the U.S. Securities and Exchange Commission.
SEC commissioners voted 4-1 to invite public comment on a proposal for how to end decades of limits on the pursuit of investors by private funds and startups.
The Jumpstart Our Business Startups Act, signed into law by President Barack Obama in April, ended the ban as part of a wider effort to expand funding options for fledgling companies. The shift drew criticism from investor-protection groups and the mutual-fund industry, including the Washington-based Investment Company Institute, which have said that lifting the ban without restrictions may expose investors to misleading advertisements by some private funds.
In the past, securities laws allowed firms to market non- publicly traded securities only to so-called accredited investors with whom they have an existing relationship, usually meaning frequent, wealthy investors. The solicitation rules were designed to protect retail investors from inappropriate risks.
Even as future offerings are marketed to the general public, the new rule would limit participants to those with more than $1 million in assets, excluding primary residences, or those earning more than $200,000 a year. The SEC’s proposal doesn’t include restrictions for how offers are advertised, nor does it establish a system for verifying accredited investors -- only that firms must take “reasonable steps” to check.
“This is a huge disappointment,” Barbara Roper, director of investor protection for the Washington-based Consumer Federation of America, said in a phone interview after the meeting. “It appears that none of the investor protections that we or others have advocated are included in this proposal.”
Luis Aguilar, a Democratic SEC commissioner, dissented, citing his concerns about investor vulnerability.
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Banker Bonuses at Risk as EU Lawmakers Fight Barnier Plans
European Union lawmakers said they will fight proposals from EU Financial Services Commissioner Michel Barnier that would water down legislation capping banker bonuses.
European Parliament members have until the end of the week to respond to Barnier’s compromises, which would weaken a ban they approved in May on bonuses larger than bankers (SX7P)’ fixed pay, Sharon Bowles, chairwoman of the assembly’s economic and monetary affairs committee, said in an interview.
“I’m not expecting there has been a big change of views” on the need for the curbs, Bowles said. Philippe Lamberts, the lawmaker leading the work on the measures for the parliament’s Green group, said in an Aug. 27 interview that he would be “amazed” if the assembly backed down.
Bankers are facing a backlash from EU lawmakers determined to cut variable pay as part of a quest to reshape lenders as utilities rather than money-making machines. The regulatory push comes as public outrage and shareholder rebellions this year forced some banks, including Citigroup Inc. (C) and Barclays Plc (BARC), to retreat from their initial pay plans.
The cap, part of draft legislation implementing capital levels called for by the Basel Committee on Banking Supervision, has become a sticking point in the assembly’s negotiations with national governments ahead of global regulators’ deadline of Jan. 1 to implement the rules.
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SEC Accuses Two Miami Brokers of Defrauding Brazil Pension Funds
U.S. regulators accused two former Miami brokers of overcharging two Brazilian public pension funds and a Colombian institutional investor by $36 million through hidden fees on structured notes they sold.
Fabrizio Neves and Jose Luna, who worked at now-defunct LatAm Investments LLC, defrauded clients with excessive markups from 2006 to 2009, the Securities and Exchange Commission said yesterday in a complaint filed in federal court in Florida. Luna, who settled without admitting or denying wrongdoing, will pay more than $1 million and be banned from working in the brokerage industry, the SEC said.
To conceal the fees, Neves directed Luna to alter term sheets either by whiting-out or electronically editing markup amounts and trade information before sending documents to customers, the agency said. They tried to hide the markups by purchasing the notes through accounts they controlled in the British Virgin Islands, according to the complaint.
A phone call to Ronald Shindler, an attorney for Luna, wasn’t immediately returned. No defense counsel or contact details were listed for Neves, who hasn’t agreed to settle. The SEC wants Neves to disgorge ill-gotten gains and pay fines, according to the agency’s statement.
Barclays Said to Face Possible SFO Probe Over Qatar Fees
U.K. fraud prosecutors may open a criminal probe as soon as this week into payments Barclays Plc made in 2008 to Qatar’s sovereign wealth fund as the bank sought to raise money, according to two people familiar with the case.
The Serious Fraud Office, which prosecutes bribery and white-collar crime, may inform the London-based bank about its decision on a probe this week, according to the people, who declined to be identified because the discussions are private. Prosecutors are working with the U.K. Financial Services Authority, Britain’s finance regulator, which is conducting a civil investigation into whether the bank adequately disclosed fees it agreed to pay the Qatar Investment Authority.
The investigation would be another legal pitfall for Britain’s second-biggest lender by assets after it paid U.S. and U.K. authorities a record 290 million pounds ($459 million) in June for manipulating the London interbank offered rate, or Libor, and related interest benchmarks. The case led to the resignations of three top Barclays executives, including Chief Executive Officer Robert Diamond.
SFO spokesman David Jones, Barclays spokesman John McGuinness and a spokesman for the QIA declined to comment.
Barclays disclosed the FSA probe into the payments last month and said that four current and former senior employees, were being investigated by the regulator.
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IRS Increases Audits of Municipal Bonds, Treasury Report Finds
The U.S. Internal Revenue Service stepped up examinations of municipal bond deals in 2010, more than doubling audits of the $3.7 trillion state and local government debt market, a Treasury Department report found.
The IRS, which monitors whether the securities offerings comply with tax law, completed 915 examinations in fiscal year 2010, about twice as many as done during any of the previous five years, according to a report released yesterday by the Treasury Inspector General for Tax Administration. The IRS also cut the amount of time spent on examinations to an average of 8 days, down from 100 in 2002.
The increase in reviews came as the agency added staff to oversee the Build America Bond program, which in 2009 and 2010 provided state and local governments with federal funds to cover some of the interest bills on debt that financed public works projects. The IRS also audits traditional municipal bonds, which provide tax-free returns to investors as long as the deals comply with tax rules.
Most examinations found no wrongdoing. In the six years through fiscal year 2010, an average of 58 percent of the bond deals examined by the agency were sold in accordance with U.S. tax law, the report found. Over that time, the IRS assessed more than $84 million of sanctions against deals that ran afoul of the law.
Swiss Watchdog Asks Banks to Halt Employee Data Delivery to U.S.
Switzerland’s data protection commissioner asked HSBC Holdings Plc (HSBA)’s Swiss unit, Credit Suisse Group AG (CSGN) and other banks to suspend delivery of employee details to the U.S. while he probes the legality of the transfer.
“The fact-finding procedure was initiated to determine whether the delivery of staff data took place within the law,” Francis Meier, a spokesman for the office of commissioner, Hanspeter Thuer, said yesterday in an e-mailed statement.
Credit Suisse and Julius Baer Group Ltd. (BAER), which earlier this month said they were authorized by the Swiss government to turn over staff names to U.S. authorities, declined to comment on the commissioner’s intervention. HSBC, which has also delivered documents, is studying the request, said Medard Schoenmaeckers, a Zurich-based spokesman for the bank.
Swiss banks want to settle a U.S. tax-evasion probe after the Department of Justice indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the Internal Revenue Service. The handover of employee names is illegal, according to lawyers representing current and former bank staff.
The 11 banks under investigation have agreed not to deliver any more employee data as long as its legality is being discussed, Zurich-based newspaper Tages-Anzeiger first reported, citing Thuer.
Zuercher Kantonalbank is in talks with Thuer, said Igor Moser, a spokesman for the regional bank, adding that company believes that employee data delivery is lawful.
Banks involved in the DoJ investigation can’t deliver data until the commissioner has concluded the inquiry started on Aug. 17, Meier said.
“The transfer of details is reserved for legal and administrative assistance procedures,” he said.
Ryanair Faces Extended EU Antitrust Probe of Aer Lingus Bid (2)
Ryanair Holdings Plc (RYA)’s 694 million-euro ($871 million) takeover bid for Aer Lingus Group Plc (AERL) faces an extended review by European Union regulators, five years after they blocked an earlier takeover over competition concerns.
Ryanair said the European Commission’s move forces its offer to lapse and that it plans to re-bid if the EU eventually approves the deal. Europe’s biggest discount airline, which owns 29.8 percent of Aer Lingus, in June renewed its pursuit of the rest of the company to bolster its operations in Ireland.
The bid has also drawn opposition from Aer Lingus management and Irish politicians. The commission’s initial investigation showed the two Irish airlines are direct rivals on a large number of European routes, regulators said in an e- mailed statement yesterday. They set a Jan. 14 deadline to rule on the transaction.
“Many of these routes are currently only served by the two airlines,” the commission said. “The takeover could therefore lead to the elimination of actual and potential competition on a large number of these routes.”
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FTC Said Poised to Finish Google Antitrust Probe Within Weeks
The U.S. Federal Trade Commission is pushing to conclude its antitrust investigation of Google Inc. (GOOG) in the coming weeks, four people familiar with the matter said.
The agency’s staff will present its findings to the FTC’s five commissioners by mid-September and probably recommend whether to sue the company for hurting competition through its Internet dominance or suggest a basis for settlement, said the people, who spoke on the condition of anonymity because the progress of the probe is confidential.
Google, the operator of the world’s largest search engine, has been engaged in talks with the European Commission since May when Chief Competition Officer Joaquin Almunia asked the company to propose solutions to the commission’s concerns. Competitors have complained that Google promotes its own specialist search services, copies rivals’ travel and restaurant reviews, and stifles competition in the advertising industry through its agreements with websites and software developers.
Details of what Google has proposed to the EU haven’t been disclosed, but the FTC is aware of what Google has proposed to its European counterparts, three of the people said. The agency would regard a Google proposal, or even overtures to open talks, as premature until it has decided whether the company has violated the law, the people said.
Jill Hazelbaker, a spokeswoman for Mountain View, California-based Google, didn’t respond to e-mails and a phone call seeking comment on the status of the FTC probe. Cecelia Prewett, an FTC spokeswoman, declined to comment.
Google has come under growing pressure from global regulators examining whether the company is thwarting competition in the market for web searches. In addition to the FTC and EU probes, antitrust agencies in Argentina and South Korea are also scrutinizing the company.
FTC Chairman Jon Leibowitz said in an interview in June that he expects to resolve the Google antitrust investigation “certainly by the end of the year.”
Separately, a public interest group won the right to oppose a $22.5 million consumer lawsuit settlement between the U.S. Federal Trade Commission and Google over a privacy breach of Apple Inc. (AAPL)’s Safari browser.
U.S. District Judge Susan Illston in San Francisco on Tuesday gave attorneys for Consumer Watchdog until Sept. 21 to file a brief opposing the settlement, which was announced Aug. 9 and needs court approval.
Consumer Watchdog, a Santa Monica, California-based advocacy group, opposes the agreement because it didn’t include an admission of wrongdoing by Google, echoing a dissenting view on the deal by FTC Commissioner Thomas Rosch. The group has frequently criticized privacy practices of Google and Facebook Inc.
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 bypassed Apple’s software’s privacy settings to plant so-called cookies on Safari that tracked users’ Internet browsing. The $22.5 million fine was the largest the agency had ever levied.
“We are confident that there is no basis for this challenge,” said Nadja Blagojevic, a Google spokeswoman.
Claudia Bourne Farrell, an FTC spokeswoman, declined to comment. Both the FTC and Google filed motions with the court taking no position on Consumer Watchdog’s request to oppose the settlement.
The case is U.S. v. Google Inc., 3:12-cv-04177, U.S. District Court, Northern District of California (San Francisco.)
In the Courts
Citigroup, Investors Reach $590 Million Accord in CDO Suit
Citigroup Inc. agreed to pay $590 million in cash to settle a lawsuit by investors alleging the bank hid risks tied to toxic assets, the plaintiffs said.
Citigroup, the third-biggest U.S. bank by assets, was accused by investors of repackaging unmarketable collateralized debt obligations and reselling them to itself to hide its exposure to the securities.
“Citi will be pleased to put this matter behind us,” the bank said in a statement. “This settlement is a significant step toward resolving our exposure to claims arising from the period of the financial crisis.”
Citigroup began using the “CDO-related quasi-Ponzi scheme” in 2006 to give the appearance that it had a healthy asset base, investors alleged in court documents. The plaintiffs alleged Citigroup, including some of its former senior officers and directors, “materially misrepresented” its exposure to CDOs and were both aware of the size of Citigroup’s holdings and their impairment before they were disclosed to the public.
The class-action, or group, suit was brought on behalf of investors who purchased Citigroup common stock during the period Feb. 26, 2007, through April 18, 2008.
The plaintiffs alleged in an amended complaint that Citigroup told investors it had sold billions of dollars worth of CDOs and no longer faced a risk. The bank didn’t reveal that it had guaranteed the securities if they suffered losses, according to the complaint. Citigroup transferred the guarantees to entities it set up to hide the risks, the investors alleged.
Citigroup denies the allegations and said it is entering into this settlement solely to eliminate the uncertainties, burden and expense of further protracted litigation. The amount to be paid under the proposed settlement is covered by Citigroup’s existing litigation reserves.
“Citi is fundamentally a different company today than at the beginning of the financial crisis,” the bank said in the statement. “Citi has overhauled risk management, reduced risk exposures and through our core businesses in Citicorp, we are focused on the basics of banking, leveraging our unique presence throughout the emerging and developed markets to serve our clients and the real economy.”
The case is In re Citigroup Inc. Securities Litigation, 07- cv-9901, U.S. District Court, Southern District of New York (Manhattan).
Ohio, Texas, Maryland Reach $69 Million E-Books Settlement
States including Maryland, Ohio and Texas said they reached a $69 million settlement with three U.S. publishers over alleged price-fixing for electronic books.
The agreements were made with Hachette Book Group, HarperCollins Publishers LLC and Simon & Schuster Inc., according to statements from attorneys general in states also including Colorado and Florida. The settlement, which must be approved by a federal judge in New York, couldn’t be confirmed in court records.
“Unlawful collusion and price-fixing not only violates antitrust laws, it is anti-competitive and inconsistent with the free market approach that is critical to our economy,” Texas Attorney General Greg Abbott said in a statement yesterday. “Today’s settlements provide refunds to customers who paid artificially inflated prices for e-books.”
The U.S. sued Apple Inc. and the five publishers in April, charging that the defendants conspired to limit e-book price competition. The government said that the defendants sought to raise e-book prices “significantly higher” than the $9.99 level at which they were selling.
The publishers viewed online retailer Amazon.com’s (AMZN) discounted prices on e-books a “substantial challenge to their traditional business model,” according to the complaint. At that time, Apple was preparing to introduce its iPad electronic tablet and considering whether to sell e-books for the device, the U.S. said in its court filing.
Florida Attorney General Pam Bondi said in a statement that the settlement “will repay consumers affected by price-fixing scheme and will restore competition in the electronic book market.”
In addition to Florida, 54 attorneys general in other states, districts and U.S. territories joined in the settlement.
The lawsuit against Apple and the publishers Macmillan and Penguin Group remains in effect, according to the statement from Texas.
The case is U.S. v. Apple, 12-cv-02826, U.S. District Court, Southern District of New York (Manhattan).
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