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RBS to Settle Libor, Nomura Insider Trading: Compliance

Royal Bank of Scotland Group Plc, Britain’s biggest taxpayer-owned lender, said it expects to pay a fine in the coming months to settle regulators’ probes into allegations the lender tried to manipulate Libor.

Whether the penalty exceeds the record 290 million pounds ($467 million) Barclays Plc paid in June or not “it will still be a miserable day in RBS’s history,” Chief Executive Officer Stephen Hester told reporters on a call Nov. 2 as the bank posted third-quarter operating profit that beat analyst estimates.

RBS is one of more than a dozen banks worldwide facing regulatory probes into allegations that they manipulated the London interbank offered rate, the benchmark for more than $300 trillion of securities. The Edinburgh-based lender has fired at least four traders following an internal probe, and last month suspended its head of rates trading for Europe and the Asia- Pacific region, the first senior manager to be put on leave.

Libor is the biggest regulatory obstacle to overshadow Hester’s attempts to overhaul the company after it received the biggest banking bailout in history in 2008. RBS said Nov. 2 it would set aside a further 400 million pounds to compensate clients wrongly sold loan insurance and derivatives, bringing the total the bank has earmarked to 1.7 billion pounds.

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Compliance Action

Nomura Embroiled in Insider Trading of Elpida Shares in 2011

Nomura Holdings Inc. (8604), Japan’s largest brokerage, was found by the country’s securities watchdog to have been involved in an insider-trading incident last year.

A Nomura employee tipped off staff from Japan Advisory Ltd., a hedge fund advisory firm, about a share sale it managed for Elpida Memory Inc. in 2011, an official from the Securities and Exchange Surveillance Commission said at a news briefing Nov. 2, speaking anonymously in accordance with the agency’s policy. Japan Advisory then traded Elpida shares, the SESC said.

Nomura has been embroiled in four of six cases unveiled this year as authorities crack down on trading based on tips provided by underwriters about clients’ equity offerings. The latest revelations underscore the task Chief Executive Officer Koji Nagai faces in proving to investors that internal controls have been tightened after the scandal cost it investment banking mandates and prompted his predecessor to resign.

The SESC’s findings were helped by an internal probe conducted by Tokyo-based Nomura, the official said.

“During one of our voluntary investigations we learned of circumstances with a strong possibility of being related to this incident and we reported our findings to the commission,” Nomura said in a statement Nov. 2.

“Nomura has implemented a series of improvement measures and has continued to conduct voluntary inspections and investigations in relation to internal controls for corporate- related information,” the bank said in the statement.

Ex-Head of Anglo Irish Bank Gets Jail Time for Contempt of Court

Bankrupt Irish businessman Sean Quinn, once the country’s richest man, was sentenced to nine weeks in jail by a Dublin court.

Judge Elizabeth Dunne made the ruling in Dublin Nov. 2 after a contempt-of-court hearing related to efforts to move some of his family’s property beyond the grasp of Irish Bank Resolution Corp., formerly known as Anglo Irish Bank Corp. Quinn began serving his sentence while pursuing an appeal in the Supreme Court, his lawyer Eugene Grant said.

“It is not disputed that significant assets worth millions of euros have been put beyond the reach of the bank,” the judge said Nov. 2. Moving the assets is “nothing short of outrageous -- it is a serious contempt of court.”

Quinn gave his backing to efforts of placing assets outside the reach of nationalized IBRC, Dunne said, a matter for which she found him, his son, who is also named Sean, and his nephew Peter Darragh Quinn in contempt in June. Based on the evidence, Dunne said she had no choice but to sentence the elder Quinn to prison, even after taking his charitable work and medical condition into account.

The former cement-to-insurance empire tycoon was declared bankrupt in January, two months after a court ruled Quinn owed IBRC 2.16 billion euros ($2.78 billion). Quinn was worth about $6 billion in 2008, according to Forbes magazine.

Quinn said he wanted to “get on” with his prison term before being taken into custody.

“I did stupid things,” Quinn told reporters, saying that IBRC “took my companies, my reputation and they put me in jail.”

Ex-Polly Peck CEO Ordered to Pay $8 Million for Theft Conviction

Asil Nadir, the former Polly Peck International Plc chief executive officer, was ordered to pay 5 million pounds ($8 million) to compensate victims after he was found guilty of stealing from the company.

Nadir, who built Polly Peck from a textile company in London’s East End to a FTSE 100 firm, must pay within two years or he will face another 72 months in prison, Judge Timothy Holroyde ruled Nov. 2, according to David Jones, a spokesman for the Serious Fraud Office, which prosecuted the case.

Nadir fled the U.K. in 1993 for Northern Cyprus to avoid trial after the company collapsed and returned 17 years later to face the charges. He was found guilty by a London jury in August of stealing nearly 29 million pounds from the company and sentenced to 10 years in prison.

Nadir’s lawyer, Giles Bark-Jones, didn’t immediately respond to a call seeking comment about last week’s ruling.

Orthofix Will Pay U.S. $30 Million to Settle Kickbacks

Orthofix International NV, (OFIX) a maker of spinal implants, agreed to pay the U.S. $30 million to settle claims that a subsidiary paid illegal kickbacks and provided prostitutes to doctors in return for orders.

The subsidiary, Blackstone Medical Inc., paid kickbacks to spinal surgeons in the form of phony consulting and royalty agreements and travel and entertainment, the U.S. Justice Department said in a statement Nov. 2.

The allegations in this case arose from a whistle-blower lawsuit filed under the False Claims Act. Susan Hutcheson, the whistle-blower, will get $8 million out of the settlement, according to the statement.

The settlement’s approval comes after Orthofix officials agreed to pay $42 million to resolve a separate whistle-blower suit and a criminal probe of allegations it paid kickbacks to doctors who used its bone-growth stimulators.

“I am very pleased with the final resolution of this matter,” Robert Vaters, the chief executive of Orthofix, said in a statement. “Orthofix has made a significant improvement to its compliance practices.”

The case is U.S. ex rel Hutcheson and Brown v. Blackstone Medical Inc. and Orthofix International NV, 06-11771, U.S. District Court, District of Massachusetts (Boston).

Compliance Policy

Volcker Rule Splits Regional U.S. Banks From Wall Street Agenda

Midsized banks that mostly let Wall Street and small firms speak for the industry during the debate over the Dodd-Frank Act have decided it’s time to carve out their own agenda in Washington.

Companies including U.S. Bancorp (USB), SunTrust Banks Inc. (STI), PNC Financial Services Group Inc. (PNC) and Regions Financial Corp. (RF) are opening their own lobbying shops and staffing them with seasoned Washington hands. Regulators and lawmakers have begun to pay attention as the banks argue for changes in how they’re affected by Dodd-Frank rules including the so-called Volcker ban on proprietary trading and procedures for unwinding failed banks.

Executives and lobbyists for regional banks say they should be treated differently by agencies implementing the new regulations, because they focus on traditional deposits and lending rather than the higher-risk activities of firms such as JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS)

“We are not Wall Street banks but we face the same regulatory regime as a Wall Street bank,” said Mark Oesterle, a lobbyist for SunTrust who formerly served as an aide to Senator Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.

Regional banks tend to have more than $50 billion in assets, mostly in commercial and retail loans rather than complex investment banking products. Their size is well short of a Wells Fargo & Co. (WFC), which is 20 times larger with assets of more than $1 trillion. Most have a distinct geographical footprint, like Regions in the South. There are about a dozen such firms in the U.S. who have become active in Washington.

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Union Busting Through Non-Profit Actions May Violate Tax Rules

When Smithfield Foods Inc. (SFD) was trying to fend off a union organizing drive at its largest meat-processing plant, it hired public relations executive Rick Berman. They discussed “preparing the nuclear strike,” according to e-mail records.

Soon after, a non-profit called the Center for Union Facts began running television ads slamming the “union bosses” who were trying to organize Smithfield’s plant in Tar Heel, North Carolina. That was no coincidence: Berman also runs the center.

According to Mark Drajem and Brian Wingfield of Bloomberg News, Berman operates five such non-profit groups from the offices of his for-profit Washington public relations firm. Those five organizations paid his firm $15 million from 2008 to 2010 for its work, tax records show.

Tax lawyers say this arrangement may violate Internal Revenue Service rules that prohibit executives from profiting off the tax-exempt entities they run. IRS rules also require charities to have a public purpose.

The IRS is being urged to revoke the groups’ exempt status and impose penalties. The Humane Society of the U.S. filed a complaint with the IRS in June, saying the non-profit groups allow companies to fund anonymous corporate campaigns under a charitable cover, and for Berman to unjustly profit.

Anthony Burke, a spokesman for the IRS, said the agency is prohibited by law from discussing any investigation, or even confirming if an inquiry is under way. Such complaints can be filed by anyone and the IRS doesn’t have to pursue them, according to IRS rules. Past complaints against Berman’s organization haven’t resulted in adverse judgments.

Berman didn’t return telephone messages left at his office. Alan Dye, a lawyer for Berman’s groups, didn’t return telephone and e-mail messages. Sarah Longwell, a vice president of communications at Richard Berman and Company Inc., declined by e-mail to comment. She provided a Web link to a fact sheet that says the groups Berman manages adhere to IRS standards. The IRS examined their structures in the past, and hasn’t sanctioned or altered their tax status, it said.

Bloomberg obtained the IRS complaint from the Humane Society and independently reviewed tax documents, legal filings and other public information about Berman’s groups. Five independent outside experts contacted by Bloomberg said the allegations warrant an IRS review.

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In the Courts

Solyndra Judge’s Approval of Bankruptcy Plan Faces Appeal by IRS

The Internal Revenue Service appealed a bankruptcy judge’s approval of Solyndra LLC’s plan to exit court protection and requested an immediate stay to keep the plan from being implemented.

Under the plan, Solyndra, the failed solar-panel maker that received a $535 million U.S. Energy Department loan guarantee before going bankrupt, will be liquidated.

The agency notified U.S. Bankruptcy Judge Mary Walrath in Wilmington, Delaware, of its appeal to the U.S. District Court of Delaware in a court filing Nov. 1. The IRS asked for an immediate stay while the court considers its request to delay the plan approval during its appeal.

The government said in court papers “irreparable harm will result from denial of the stay” because Solyndra could take actions to implement the plan which would essentially make its appeal moot.

Walrath approved the plan last month over the government’s objection that the principle purpose of the plan was to allow Argonaut Ventures I LLC and Madrone Partners LP, Solyndra’s plan sponsors and indirect owners, to avoid taxes.

Solyndra had agreed to extend the 10-day stay that Walrath put in effect until today because of Hurricane Sandy, but the company’s lawyers objected to the IRS’s request to hold up the plan further saying that an “interim stay is not warranted.”

The case is In re Solyndra LLC, 11-12799, U.S. Bankruptcy Court, District of Delaware (Wilmington). The appeal is In re USA v. Solyndra LLC, 12-cv-01380, U.S. District Court, District of Delaware (Wilmington).

Speeches and Interviews

Regulators Need to Consider Cocktail of Policies, Turner Says

Global regulators and central bankers may need to consider “innovative and unconventional combinations” of policies to prevent deflation, Financial Services Authority Chairman Adair Turner said in a speech in South Africa last week.

Turner said “the deflationary impact on economic growth could extend for many years ahead” if the policy response to the 2008 financial crisis wasn’t carefully designed.

The Bank of England’s policy of quantitative easing “may be subject to declining marginal impact,” Turner said, causing “a liquidity trap in which replacing private sector holdings of bonds with private sector holdings of money has little impact on behavior and thus on demand.”

Turner has overseen a loosening in FSA requirements for banks’ to hold capital and liquidity buffers since June. The FSA relaxed the amount of funds U.K. banks must hold against domestic lending last month. The regulator has also said it would include BOE liquidity measures in calculating banks’ liquid asset buffers, giving lenders room to dip into reserves.

UPS-TNT, Hutchison-Orange Need Antitrust Remedies, EU Says

United Parcel Service Inc. (UPS)’s bid for TNT Express NV (TNTE) and Hutchison Whampoa Ltd. (13)’s pending purchase of Orange Austria Telecommunications GmbH require “substantial remedies” to resolve antitrust concerns, the European Union’s top competition official said.

“Our preliminary view is that serious competition concerns would arise in both cases, and substantial remedies are needed,” Joaquin Almunia said in prepared remarks for a speech Nov. 2 in Cernobbio, Italy.

UPS, the world’s largest package-delivery company, received antitrust objections from regulators last month listing possible issues with the takeover of Hoofddorp, Netherlands-based TNT --a 5.16 billion-euro ($6.62 billion) deal announced in March that would double its size in Europe.

“We are committed to the transaction and look forward to the confidential discussions with the EU over the coming weeks to address the concerns,” Peggy Gardner, a spokeswoman for Atlanta-based UPS, said Nov. 2 in an e-mail.

A TNT spokesman, Cyrille Gibot, said he was unable to comment until he had seen the full content of the speech. The Dutch company and UPS remain in conversation with competition authorities.

Hutchison, based in Hong Kong, has made additional concessions over its bid for mobile-phone operator Orange Austria in an attempt to soothe European Commission concerns on the deal.

The EU’s merger review can require companies to divest businesses or change the way they do business to eliminate concerns a combined firm could unfairly squeeze rivals or increase prices.

The EU plans to simplify merger filings in uncomplicated transactions next year, Almunia said. The revised rules may also see regulators examine non-controlling minority stakes for the first time, he said.

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net

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

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