Basel Rifts, Overseas Swaps, Tax-Shelter Plea: Compliance

Global banking regulators need further talks to overhaul a liquidity rule for lenders after failing to overcome divisions on the standard during three days of meetings in Istanbul, according to two people familiar with the discussions.

The split centers on how far to expand the range of assets that banks can use to meet the liquidity coverage ratio, or LCR, said the people, who declined to be identified because the talks are private.

The Basel Committee on Banking Supervision is racing to meet its end-of-the-year deadline for reviewing the LCR, as lenders and some regulators, including the European Central Bank, warn that the measure risks curtailing loans to businesses. Central bank chiefs set the deadline earlier this year to provide certainty to markets.

Basel Committee Chairman Stefan Ingves said in a post- meeting speech that while the global standard is “much debated,” a review of the draft is “on track” to be completed in time.

The LCR standard, which is scheduled to take effect in 2015, is designed to force lenders to hold enough easy-to-sell assets to survive a 30-day credit squeeze.

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Compliance Policy

U.S. Must Respect Overseas Swaps Rules, CFTC’s Wetjen Says

The U.S. Commodity Futures Trading Commission, facing concerns from European and Asian regulators about the scope of new swaps rules, should rely on overseas authorities when possible, Commissioner Mark P. Wetjen said, citing the commission’s “limited resources.”

Photographer: Linus Hook/Bloomberg

Basel Committee Chairman Stefan Ingves said in a post- meeting speech that while the global standard is “much debated,” a review of the draft is “on track” to be completed in time. Close

Basel Committee Chairman Stefan Ingves said in a post- meeting speech that while the... Read More

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Photographer: Linus Hook/Bloomberg

Basel Committee Chairman Stefan Ingves said in a post- meeting speech that while the global standard is “much debated,” a review of the draft is “on track” to be completed in time.

Wetjen, one of three Democrats on the five-member CFTC, made the comments yesterday in remarks prepared for delivery at an International Swaps and Derivatives Association Inc. conference in New York.

The CFTC’s proposal for the international reach of its Dodd-Frank Act rules needs more clarity, and it is “critically important” that the agency rely on a process of letting firms comply with new rules by substituting adherence to regulations enacted abroad, he said.

Along with the Securities and Exchange Commission, the CFTC has been crafting swaps market rules imposed by Dodd-Frank after unregulated trades helped fuel the 2008 credit crisis. The rules’ scope has prompted opposition from overseas regulators and companies such as JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Bank of America Corp. and Societe Generale SA. (GLE)

CFTC Chairman Gary Gensler urged support for a June proposal, citing the need to protect taxpayers from rescuing companies whose overseas trades lead to their downfall.

The CFTC’s interpretive guidance allowed for so-called substituted compliance for branches, subsidiaries and other overseas affiliates of U.S. banks when foreign jurisdictions have comparable rules.

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U.S. Financial Rules Panel Should Improve Transparency, GAO Says

A panel of U.S. regulators created to monitor financial stability faces challenges in achieving its mission of identifying risks and should improve its transparency, according to a report by the Government Accountability Office.

The Dodd-Frank law created the Financial Stability Oversight Council to highlight systemic risk to the economy and enhance cooperation among its 10 voting regulatory members. The law also created the Office of Financial Research to aid the panel, known as FSOC, with data to carry out its risk monitoring.

The government audit group said cooperation among FSOC’s members remains challenging with each representing independent agencies. The GAO recommended that FSOC and the research arm strengthen transparency and accountability by collecting and sharing financial risk indicators, keeping detailed records of closed-door sessions, and developing forward-looking plans to help “prioritize the threats.”

Agency and congressional members responded to the report by letters pledging cooperation.

Compliance Action

ASIC, CBA Reach Storm Financial Settlement, Regulator Says

The Commonwealth Bank of Australia agreed with the Australian Securities and Investments Commission to make available as much as A$136 million ($144 million) as compensation for losses suffered on investments made through Storm Financial, the agency said in e-mailed statement.

The sum of A$136 million is in addition to payments of about A$132 million and other benefits that Commonwealth Bank already provided to Storm Financial investors, ASIC said in the statement.

Subject to the court dismissing ASIC’s claim against Commonwealth Bank, the agreement will bring to a close the legal action against the bank concerning claims of an unregistered managed investment scheme. The proceedings were brought in Federal Court of Australia in Brisbane in December 2010.

ASIC will continue the proceedings against Storm Financial, Bank of Queensland and Macquarie, which are scheduled to start on Sept. 17.

Cordray Says Credit Cards Yield Fewer Complaints Than Expected

The U.S. Consumer Financial Protection Bureau hasn’t fielded as many complaints about credit cards as it anticipated when it began operating last year, its director said.

The CFPB’s director, Richard Cordray, made the remarks yesterday at a hearing of the Senate Banking Committee, where he presented the bureau’s semi-annual report to Congress.

The CFPB started a consumer response system on July 21, 2011, and began by taking complaints on credit cards. It subsequently expanded the system to include mortgages on Dec. 1, then bank accounts and services, private student loans, and consumer loans on March 1.

Cordray attributed the lower-than-expected volume of complaints on credit cards to the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which banned a number of practices that Congress deemed abusive, and to the industry’s efforts to improve customer service.

Turkey to Set Standards for Bank Fees, Regulator Chief Says

Turkey’s banking regulator will set standards for the fees banks in the country charge, Mukim Oztekin, chief of the regulator, said in Istanbul yesterday.

Oztekin, who is chairman of the Banking Regulation & Supervision Agency, earlier pledged to work with the industry to introduce a standard for credit card fees as part of efforts to protect consumer rights.

Fees charged on credit cards and bank accounts shouldn’t be “inflated” and customers should be informed about it, Oztekin told reporters in Ankara July 18.

Courts

Ex-Lawyer Donna Guerin Pleads Guilty in Tax-Shelter Case

Donna Guerin, a former partner in the defunct law firm Jenkens & Gilchrist, pleaded guilty in what the trial judge has called the biggest U.S. tax-fraud prosecution in history.

Guerin was initially convicted by a jury in May 2011 with three other defendants of running a 10-year tax shelter scheme that created more than $1 billion in phony losses. Three of the convictions, including Guerin’s, were overturned in June after U.S. District Judge William Pauley found that a juror in the case lied about her past, including that she was an alcoholic and a suspended attorney.

Guerin, 52, pleaded guilty yesterday in Manhattan federal court to one count of conspiracy and one count of tax evasion. Her plea comes as prosecutors are preparing to retry the defendants whose convictions were overturned based on the misconduct of the juror.

“I came to believe that many clients engaged in the transactions solely because they wanted to eliminate or reduce tax liability,” Guerin said yesterday in court. She admitted to helping advise clients on how to conduct complex transactions that allowed them to wipe out financial gains. Guerin said she also provided opinion letters to her clients helping them assert that the deals were legitimate.

Guerin faces a maximum of 10 years in prison on both counts, the judge said during the hearing. Sentencing is scheduled for Jan. 11. She has agreed to pay $1.6 million in penalties.

Her defense lawyer, Mark Rotert, declined to comment after the proceeding.

The case is U.S. v. Daugerdas, 09-CR-581, U.S. District Court, Southern District of New York (Manhattan).

Stanford’s Ex-Investment Chief Pendergest Holt Gets Three Years

Laura Pendergest Holt, the former chief investment officer for Stanford Financial Group Co., was sentenced to three years in prison for obstructing a U.S. Securities and Exchange Commission probe of a $7 billion Ponzi scheme at the company.

Pendergest Holt, 39, was sentenced yesterday by U.S. District Judge David Hittner in Houston. She was the third- highest-ranking executive in the financial services firm that Texas financier R. Allen Stanford built on what the U.S. said was a fraud based on bogus offshore bank certificates.

Jury selection in the trial of two more defendants in the case, Stanford ex-Chief Accounting Officer Gilbert Lopez and ex- Comptroller Mark Kuhrt, is scheduled for Sept. 28.

The case is U.S. v. Stanford, 09-cr-0342, U.S. District Court, Southern District of Texas (Houston).

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Adoboli’s Losses Could Have Reached $12 Billion, Prosecutor Says

Kweku Adoboli, the former UBS AG (UBSN) trader, could have lost the bank as much as $12 billion in unauthorized, “unhedged investments,” prosecutor Sasha Wass said.

“The scale of Mr. Adoboli’s gambling was so large and so unchecked he could have quite easily approached and even exceeded the limits of the bank’s resources,” Wass told the 12- person jury at the beginning of a London criminal trial today.

Adoboli, 32, exceeded his trading limits and invented “fictitious deals,” to conceal losses of $2.3 billion from his managers, Wass said. Adoboli’s “motive was to increase his bonus, his status within the bank, his job prospects and his ego.” His total pay rose from 40,500 pounds to 360,000 pounds between 2005 and 2010, Wass said.

The former trader is charged with falsifying records on exchange-traded fund transactions and other documents needed for accounting purposes as early as October 2008, according to his indictment. Prosecutors also charged him with fraud for abusing his senior trader position “by causing or exposing UBS Bank to losses intending thereby to make a gain for himself.” Adoboli has denied the charges.

In the U.K., fraud charges carry a maximum sentence of 10 years in jail, and seven years for false accounting. Adoboli is facing two counts of each.

The loss, which came from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures, didn’t affect any client positions, according to UBS.

Held in Wandsworth prison in southwest London after his arrest on Sept. 15, Adoboli was granted bail and released June 13. He is staying with a friend in the British capital and observes a curfew, his lawyer has said.

Siemens Is Sued by Argentine in U.S. for Rights Violations

Siemens AG (SIE), Europe’s largest engineering company, was sued by an ex-investigator for Argentina’s government who claimed the company had a former employee beat him after he uncovered corruption in a government contract.

Carlos Moran filed his lawsuit Sept. 12 in federal court in Miami. Moran, who worked as an investigator for an Argentine government agency, claimed the Munich-based company and its Argentine unit were responsible for attacks he suffered after discovering alleged bribes and kickbacks in a $1 billion contract Siemens won to produce a national identity card.

Alexander Becker, a spokesman for Siemens, didn’t immediately return an e-mail after business hours seeking comment on the lawsuit. Another Siemens spokesman, Philipp Encz, didn’t return a telephone call after business hours seeking comment.

The suit was brought under the U.S. Alien Tort Claims Act and seeks $100 million in damages.

The civil lawsuit is Moran v. Siemens, 12-cv-23334, U.S. District Court, Southern District of Florida (Miami).

Interviews/Panels

Bharara Sees Schemes Grow as White-Collar Unit Marks 50 Years

Manhattan U.S. Attorney Preet Bharara, whose office has charged 72 people in a nationwide crackdown on insider trading, said he anticipates more work for his securities-fraud unit, the oldest in the country.

At the Bloomberg Markets 50 Summit in New York yesterday, Bharara said the securities-fraud cases his prosecutors and federal agents are now seeing are more complex than in the past.

The unit recently marked 50 years fighting white-collar crime. Insider-trading schemes have grown in scope, said Bharara, 43.

The new breed of securities-fraud defendants “engage in insider trading on the kind of scale that I don’t think we’ve seen in public prosecutions that have been brought,” said Bharara, speaking with Bloomberg News Editor-in-Chief Matt Winkler before a gathering of fund managers and members of the financial community in New York.

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Bove, Breeden, Dorgan, Krawcheck on Banking Industry

Richard Bove, an analyst at Rochdale Securities; Richard Breeden, chief executive officer at Breeden Capital Management LLC; Byron Dorgan, senior policy adviser for Arent Fox LLP; and Sallie Krawcheck, former head of Bank of America Corp.’s wealth- management division, participated in a panel discussion about the state of the banking industry and outlook for regulation.

Bloomberg’s Robert Friedman moderated the panel at the Bloomberg Markets 50 Summit in New York.

For the video, click here.

SocGen’s Oudea Sees ‘Perhaps’ Volcker-Type Rule in Europe

Societe Generale SA Chief Executive Officer Frederic Oudea said that “perhaps a Volcker rule” could be applied to the European universal banking model, which is “the right one” for the region.

Splitting retail-banking and capital-market activities might create “specialized banks” probably unable to act as counterparts for corporate needs “in the current environment in Europe,” Oudea said at the Bloomberg Markets conference in New York yesterday.

The Volcker rule, part of the Dodd-Frank financial overhaul law, is intended to limit transactions that put deposits insured by the U.S. government at risk.

Comings and Goings

Tucker Favorite to Succeed King at BOE, William Hill Odds Show

Bank of England Deputy Governor Paul Tucker is the favorite to succeed Mervyn King at the helm of the central bank, according to odds published by William Hill Plc (WMH) as the government begins its formal search.

Tucker’s odds are at 7/4, meaning a successful 4-pound ($6.50) bet would win a 7-pound profit, the London-based bookmaker said today.

Chancellor of the Exchequer George Osborne began the search for a successor today, promising a fair and open process. The Treasury placed an advertisement in the Economist magazine beginning a three-month recruitment process. Applicants have until Oct. 8 to apply.

Osborne’s task to replace King when he retires at the end of June has been complicated after the Libor scandal embroiled several potential candidates, including Tucker. King, 64, is retiring after completing the maximum tenure of two five-year terms. His successor will serve a single eight-year term.

Wheatley, Gensler to Head IOSCO Task Force on Benchmark Rates

The International Organization of Securities Commissions, which represents regulators in more than 100 countries, started a task force to investigate benchmarks such as Libor after allegations banks rigged the rate.

Financial Services Authority Managing Director Martin Wheatley and U.S. Commodity Futures Trading Commission Chairman Gary Gensler will oversee the group, which will develop global policy guidance and principles for the setting of such rates, Madrid-based IOSCO said in an e-mailed statement today.

U.S. and European regulators are probing more than a dozen banks worldwide over allegations they manipulated the London interbank offered rate as well as its European and Japanese counterparts. Investigators are examining whether traders colluded to rig the rates for profit and whether banks understated their borrowing costs to appear healthier than they were.

Schaeuble Signals He’s Open to Another Term as Finance Minister

German Finance Minister Wolfgang Schaeuble signaled he’s willing to serve another term if voters re-elect Chancellor Angela Merkel’s government in next year’s federal election.

Schaeuble said in an interview in Berlin yesterday that while he was ill two years ago he feels well enough to serve. He added that he enjoys a particularly “close relationship of trust” with Merkel after three years of their joint battle to save the 17-nation euro. Such personal ties are “a necessity in these difficult times,” he said.

Schaeuble, who will be 70 on Sept. 18, said he’s prepared to stand again in elections due in the fall of 2013 for the Bundestag, the lower house of parliament, where he has served as a member of the Christian Democratic Union party since 1972.

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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