Goldman Pay-to-Play, Libor Probe, U.A.E. Bank: Compliance

Goldman Sachs Group Inc. (GS) will pay $14.4 million to resolve regulatory claims that a former banker made improper campaign contributions to the treasurer of Massachusetts while seeking underwriting business.

Neil Morrison, who was a vice president in Goldman Sachs’s Boston office, worked for Treasurer Timothy P. Cahill’s unsuccessful gubernatorial campaign from November 2008 to October 2010, sometimes during his office hours, the U.S. Securities and Exchange Commission said in a statement yesterday. That constituted in-kind contributions and broke pay- to-play rules, the SEC said.

The settlement, which includes $4.6 million paid to Massachusetts, is the SEC’s first involving noncash contributions and is the latest since the agency began bolstering oversight of the $3.7 trillion municipal-bond market in 2010. At that time, SEC Enforcement Director Robert Khuzami set up a task force to investigate bid-rigging for municipal- investment contracts. The agency is looking into banks, local governments that don’t disclose their true financial condition, and public officials who hire advisers based on political contributions.

The campaign work by Morrison, 38, disqualified Goldman Sachs from underwriting bonds for Massachusetts and its agencies for two years after the contributions, the SEC said. Nevertheless, the New York-based firm participated in 30 prohibited underwritings, earning more than $7.5 million in improper fees, according to the agency.

Goldman Sachs didn’t admit or deny wrongdoing. A telephone call to Thomas Kiley, Morrison’s lawyer, wasn’t immediately returned.

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Compliance Policy

FSA to Oversee Libor in Streamlining of Tarnished Benchmark

Oversight of Libor will be handed to the U.K.’s financial regulator, and dozens of the currencies and maturities that make up the benchmark axed, under proposals designed to revive confidence in a rate tarnished by scandal.

The British Bankers’ Association should be stripped of the responsibility for managing the rate and other organizations invited to replace it, Financial Services Authority Managing Director Martin Wheatley said in London today. More than 100 Libor rates tied to currencies and maturities where there isn’t enough trading data to set them properly should be scrapped, and a code of conduct introduced for how lenders contribute to the benchmark backed by criminal penalties, he added.

Wheatley began his review at the request of Chancellor of the Exchequer George Osborne after Barclays Plc (BARC), Britain’s second-biggest lender, paid a record 290 million-pound ($470 million) fine in June for manipulating the London interbank offered rate, used to set rates for more than $300 trillion of securities.

The FSA should receive greater powers to vet bankers who contribute to the rate, according to Wheatley, who will become the chief executive officer of the Financial Conduct Authority when the FSA splits into two agencies next year.

He stopped short of advocating scrapping Libor, saying that would be too disruptive to borrowers whose existing contracts reference the rate.

Separately, Financial Secretary to the Treasury Greg Clark said the U.K. government will move at the “maximum possible pace” to implement a proposed overhaul of the oversight of Libor and will give a formal response in the week beginning Oct. 15.

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APRA Releases Final Basel III Capital Reform Package

The Australian Prudential Regulation Authority commented in a statement on its website about the key features to be included in a new definition of regulatory capital, under which common equity is the predominant form of Tier 1 capital.

Under the new definition, common equity Tier 1 capital must be at least 4.5 percent of risk-weighted assets and the Tier 1 capital ratio at least 6 percent, according to the statement.

A new 2.5 percent capital conservation buffer will place constraints on capital distributions, the authority said. In addition, a countercyclical buffer of as much as 2.5 percent will apply when excessive credit growth points to a system-wide build-up of risk, the authority said in the statement.

Authority Chairman John Laker said reforms will lead to a stronger Australian banking system, as well as make banks well placed to meet Basel III timetable.

Network Operators Submit Power-Trading Rules to EU Regulators

European electricity-network operators submitted rules for power trading that will help the bloc to achieve its goal of a single market by 2014 to European Union regulators.

The capacity-allocation and congestion-management code contains rules for day-ahead and intraday markets and the calculation of capacity as well as defining bidding zones, Entsoe, a Brussels-based body that represents national operators, said yesterday in an e-mailed statement.

The Agency for the Cooperation of Energy Regulators has three months to assess the code and if approved, it will become law, Entsoe said.

Compliance Action

SEC Issues Report to Help Brokers Safeguard Confidential Info

The U.S. Securities and Exchange Commission issued a staff report for broker-dealers to help them determine the effectiveness of their controls over sensitive information, the SEC said in e-mailed statement.

The Report by the Office of Compliance Inspections and Examinations addresses the prevention of insider trading and details appropriate controls over matters such as e-mail, information given to external parties, and disposal of confidential documents.

The report also describes various methods that broker- dealers use to manage conflicts.

U.S. Criminal Libor Probe Said to Seek London Trader Interviews

U.S. investigators conducting a criminal probe of interest- rate manipulation have asked their British counterparts for permission to interview London traders, two people familiar with the investigation said.

The U.S. Justice Department filed a request with the U.K. Home Office for access to dozens of bankers in conjunction with British prosecutors who are also investigating the rate rigging, said one of the people, who declined to be identified because the proceedings haven’t been made public.

The move may indicate the U.S. wants to pursue criminal charges against individuals in the U.K. that may lead to extradition, said Bradley Simon, a former federal prosecutor in Brooklyn, New York.

Regulators from Tokyo to London to New York are probing how derivatives traders and bankers who submitted interest-rate data colluded to rig benchmarks including the London Interbank Offered Rate. Royal Bank of Scotland Group Plc, UBS AG (UBSN) and Deutsche Bank AG (DBK) are among lenders awaiting information about their fate. The Justice Department’s criminal probe is running in parallel with civil investigations being conducted by its fraud division, the U.S. Commodity Futures Trading Commission and the U.K. Financial Services Authority.

The U.K. Serious Fraud Office opened its criminal case in July at the request of British politicians after Barclays Plc was fined a record 290 million pounds ($470 million) for rate manipulation. The agency previously declined to get involved in the case, according to the FSA. Barclays Chief Executive Officer Robert Diamond and Chairman Marcus Agius resigned following the fine.

A Home Office spokesman declined to comment on any cooperation request. A spokesperson for the U.S. Justice Department didn’t immediately respond to a request seeking comment on cooperation with U.K. authorities.

Blocking Identity Theft Is U.S. Goal Ahead of Tax Filing

The U.S. Justice Department and the Internal Revenue Service are working to head off identity theft aimed at stealing people’s tax refunds when the filing season begins in January, the government’s top tax prosecutor said.

The Justice Department will draw information from local prosecutions to identify patterns in the cases and help the IRS create computerized filters to block potentially fraudulent refunds. They peak each year in the first few weeks of the filing season as criminals try to get refunds under legitimate taxpayers’ names before those people file their own returns.

In a typical case, criminals steal or illegally purchase taxpayers’ identifying information from hospitals, medical offices, prisons and other places that have the data. They then file false tax returns, claim a refund and have the money deposited on a prepaid debit card.

In a Sept. 15 speech in Boston, IRS Commissioner Douglas Shulman said his agency this year stopped more than 3 million tax returns and determined that 90 percent of them were “bad.”

CFTC Orders ANZ to Pay $350,000 for Violating Position Limits

The Commodity Futures Trading Commission ordered Australia & New Zealand Banking Group Ltd. (ANZ) to pay $350,000 for exceeding speculative-position limits in wheat and cotton futures traded on the Chicago Board of Trade and ICE Futures U.S. in New York.

The bank violated CBOT wheat limits in August 2010, and held a net-short position that was greater than allowed for ICE cotton contracts in February 2011, the CFTC said in a statement yesterday.

BofA Expects U.A.E. Central Bank to Extend New Lending Rules

The United Arab Emirates’ central bank may extend a deadline by six months for banks to comply with new rules that limit lending to governments and their entities, Bank of America Corp.’s Merrill Lynch unit said.

The U.A.E. central bank said April 4 that banks in the U.A.E. must not lend more than 100 percent of their capital to local governments and the same to government-related entities known as GREs to help reduce risk. Banks had until Sept. 30 to comply. There was no limit under previous rules.

The U.A.E. central bank is holding separate discussions with each bank about the rules, a spokesman for Emirates NBD PJSC (EMIRATES), who declined to be identified because of company policy, said. The Emirates Banks Association, a body representing U.A.E. banks, led discussions with the central bank earlier, although talks are being held separately with each bank about the rules because of differences with each bank’s portfolio, he said.

The exposure of Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, to sovereign and quasi-sovereign clients is 192 percent of regulatory capital, while that of National Bank of Abu Dhabi PJSC and Abu Dhabi Commercial Bank PJSC (ADCB), the second- and third-biggest U.A.E. lenders, are 199 percent and 108 percent, according to Deutsche Bank AG estimates in April.

SEC Review Finds Gaps on Insider Trading at U.S. Broker-Dealers

Traders at broker-dealers often interact with bankers who know confidential information, raising concerns about undetected insider trading, the U.S. Securities and Exchange Commission said.

Senior executives at some broker-dealers are allowed access to non-public information from one group while overseeing employees who could benefit from it, the SEC’s Office of Compliance Inspections and Examinations said yesterday in a report. Allowing some supervisors to be “above the wall” dividing traders from those with the information may facilitate insider trading, according to the report, which didn’t name any firms where such practices exist.

The SEC’s review of secrecy procedures at broker-dealers follows a nationwide crackdown on insider trading by the Federal Bureau of Investigation in New York and prosecutors in the office of Manhattan U.S. Attorney Preet Bharara that began five years ago.

Courts

Ex-Credit Suisse CDO Boss Won’t Go to U.S. Before Plea Deal

Kareem Serageldin, the ex-global head of Credit Suisse Group AG (CSGN)’s CDO business charged in a bonus-boosting fraud tied to a $5.35 billion trading book, will fight extradition to the U.S. until he reaches a plea deal.

Serageldin’s lawyer told a London court yesterday that his client’s arrest Sept. 26 outside the U.S. Embassy was a result of “miscommunication.” Ben Brandon said Serageldin was negotiating a plea bargain with U.S. prosecutors before the arrest. He was released on a 150,000-pound ($243,000) security until a Nov. 28 court hearing.

“Serageldin has absolutely no intention of whatsoever of fleeing,” Brandon said yesterday.

Serageldin, a U.S. citizen who lives in England, was charged in February with masterminding a scheme to fake collateralized debt obligations. In February, when he was first charged in Manhattan federal court, Serageldin said through his lawyers that he was surprised since he had been cooperating with U.S. investigators for four years.

Serageldin was named in an indictment unsealed in February accusing him of conspiracy, falsification of books and records and wire fraud. The conspiracy charge carries a maximum five- year prison term on conviction. The other counts are punishable by as many as 20 years. The case is being investigated by agents of the Federal Bureau of Investigation in New York.

Judge Michael Snow, who said the allegations are “very serious,” told Serageldin he must not leave his home between 11 p.m. and 6 a.m., and must wear an electronic tag.

Serageldin, who was born in Egypt, wants to renounce his U.S citizenship and serve part of any sentence in the U.K., Brandon said.

The U.S. criminal cases are U.S. v. Higgs, 12-cr-00088, and U.S. v. Siddiqui, 12-cr-00089, U.S. District Court, Southern District of New York (Manhattan). The SEC case is U.S. Securities and Exchange Commission v. Serageldin, 12-cv-00796, U.S. District Court, Southern District of New York (Manhattan).

Interviews

SEC’s Gallagher Calls for Floating Price for Money Funds

U.S. Securities and Exchange Commission member Daniel Gallagher, who helped derail efforts to tighten rules for money- market mutual funds, said he would probably support a measure forcing the industry to abandon its marquee $1 share price.

Requiring money funds to have a fluctuating share price “is an attractive option that I am likely to support,” Gallagher, a Republican, said in an interview.

The remarks may help revive the debate at the SEC and offer a path toward compromise for SEC Chairman Mary Schapiro, whose proposal ran aground last month.

Gallagher said he couldn’t vote for Schapiro’s plan because its centerpiece was to make the funds hold extra capital. The cushion was too small to protect investors, Gallagher said, leading him to believe the money would be used as collateral in case the funds needed to borrow from the Federal Reserve.

“I could not be complicit in a rulemaking that purported to eliminate bailouts but would actually do the opposite,” Gallagher said.

SEC spokeswoman Judith Burns declined to comment.

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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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