Real Estate Crowdfunding, Mortgage Rule: Complaince

New U.S. securities laws intended to help startup companies raise money are poised to benefit real estate investors as well, allowing individuals to buy stakes in offices and other commercial buildings once off limits to them.

The Jumpstart Our Business Startups Act will ease restrictions on investments in closely held companies, including those set up to own commercial property, by people making less than $200,000 a year and with a net worth of less than $1 million. Before the law’s passage, such firms could market and sell shares to individuals who exceed those levels, known as accredited investors.

The JOBS Act probably will lead to more property-investing programs like those being pioneered by Fundrise LLC, a startup that recently raised $325,000 from 175 people, giving them a 28 percent stake in a two-story building that the firm bought in its home city of Washington. Because Fundrise began soliciting investors before the law’s change, the company had to get permission from the U.S. Securities and Exchange Commission.

The law, which changed parts of the Securities Act of 1933, will allow non-accredited investors to put $2,000 a year or 5 percent of their income or net worth -- whatever amount is greatest -- into closely held ventures. While the law went into effect in April 2012, property investors aren’t able to take advantage of it yet because proposed investor-safeguard rules are still being worked on by the SEC. The commission missed its own end-of-the-year deadline for drafting the regulations.

A full implementation of the JOBS Act will help companies that currently solicit money from non-accredited investors only if they’re residents of states where the offering is registered. Once the JOBS Act rules are in place, the company and other firms will be able to sell equity to investors throughout the U.S.

Raising large amounts of money through small, individual contributions, a process known as crowdfunding, is nothing new and has been used in causes such as presidential campaigns. Before the JOBS Act, such contributions were either donations or payment for a product or service and not in exchange for equity in a business venture.

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Compliance Policy

Housing Industry Awaits U.S. Mortgage Rule on Down Payment Size

As bankers, real estate agents and others in the housing industry absorb thousands of pages of mortgage rules issued in the past week, they’re still waiting to see if U.S. regulators will set a minimum down payment for home loans.

Regulators including the Federal Deposit Insurance Corp. and the Federal Reserve drew protests in 2011 when they proposed a rule requiring lenders to keep a stake in mortgages with down payments of less than 20 percent. Bankers and consumer groups said such a requirement would shut creditworthy borrowers out of the market.

Now, regulators say they expect to release a final version of that so-called Qualified Residential Mortgage rule in the next few months. Together, the QRM rule and additional measures governing underwriting and servicing released by the Consumer Financial Protection Bureau in the past week will fundamentally reshape who can lend and who can borrow because banks will probably make only those loans that conform to the new standards.

The so-called Qualified Mortgage rule issued by the CFPB Jan. 10, weighing in at 804 pages, requires lenders to verify borrowers’ ability to repay their loans and offers legal safe harbor for lenders who follow guidelines for safe mortgages.

The CFPB offered legal protection for loans on which borrowers’ debt payments are no more than 43 percent of their income. Points and fees for such mortgages can’t be more than 3 percent of the total loan amount. Loans backed by the government automatically qualify for legal protection for the next seven years.

The CFPB stopped short of adding a requirement for a minimum down payment. Now the six regulators drafting the separate QRM rule must decide whether to include such a requirement -- and whether to make it less than the 20 percent they originally proposed.

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Retirement Savings Accounts Draw U.S. Consumer Bureau Attention

The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.

The bureau’s core concern is that many Americans, notably those from the retiring Baby Boom generation, may fall prey to financial scams, according to three people briefed on the CFPB’s deliberations who asked not to be named because the matter is still under discussion.

The retirement savings business in the U.S. is dominated by a group of companies that handle record-keeping and management of investments in tax-advantaged vehicles like 401(k) plans and individual retirement accounts. The group includes Fidelity Investments, JPMorgan Chase & Co. (JPM), Charles Schwab Corp. (SCHW) and T. Rowe Price Group Inc. (TROW) Americans held $19.4 trillion in retirement assets as of Sept. 30, 2012, according to the Investment Company Institute, an industry association; about $3.5 trillion of that was in 401(k) plans.

The Securities and Exchange Commission and the Department of Labor are the main regulators of U.S. retirement savings vehicles and funds. However, the consumer bureau -- established by the 2010 Dodd-Frank Act -- sees itself as a potential catalyst for promoting a coherent policy across the government, the people said.

With large numbers of Americans heading toward retirement in the coming decade, the CFPB has referred internally to this concept as “the rollover moment,” the people said.

Pay Rules for U.S. Mortgage Brokers Issued by Consumer Bureau

Loan officers will face restrictions on their ability to give borrowers high-cost mortgages under a new rule issued by the Consumer Financial Protection Bureau.

The new rule issued Jan. 18 prohibits compensation that varies with the loan terms, so that an originator cannot earn more by getting a consumer into a loan with a higher interest rate, a prepayment penalty or higher fees.

It also bans so-called dual compensation, in which loan originators get paid by both the consumer and another entity, such as the creditor. It outlines eligibility requirements for loan officers, including character fitness, background checks and training requirements.

The CFPB decided not to proceed with an Aug. 17 proposal that would have required loan originators to offer a mortgage with no up-front discount points or origination fees. Instead, it will first take stock of how the various rules required under Dodd-Frank affect consumer understanding of mortgages, according to an e-mailed statement.

The rule is one in a series the bureau has written in an effort to revamp mortgage lending practices.

For an audio report, click here.

Courts

Barclays Employees’ Request for Anonymity in Libor Case Rejected

A group of Barclays Plc (BARC) employees had a request to prevent their names from being published ahead of the U.K.’s first trial related to manipulation of the London interbank offered rate rejected by a Judge Julian Flaux, who said he did not see “any sufficient case of prejudice” to the trial.

Affiliates of Guardian Care Homes Ltd. sued Barclays over an interest-rate swap tied to Libor and argued the benchmark was manipulated. The swap resulted in a loss for the Wolverhampton, England-based Guardian and Barclays was ordered to give the company’s lawyers the identities and e-mails of bank staff that were included in disclosures to British and American regulators during a probe into interest-rate manipulation.

Barclays was fined 290 million pounds ($459 million) over its traders trying to manipulate Libor and other interest rates for profit, while UBS AG (UBSN) was fined $1.5 billion in December for rate-rigging. More than a dozen banks are being investigated in worldwide probes into whether they profited from abusing the process used to set Libor, the baseline for more than $300 trillion of financial contracts globally.

David Pannick, a lawyer for 24 Barclays workers, had argued that it was unfair for the employees to be identified when they weren’t parties to the lawsuit and could face serious allegations.

Barclays said the case was without merit and the names shouldn’t be released.

The names of any Barclays traders or executives won’t necessarily be published before the trial, Flaux said. Anything the bank discloses is still subject to confidentiality under court rules, unless it is mentioned in a pretrial hearing.

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Ex-Goldman Sachs Programmer Seeks Dismissal of N.Y. Charges

A former Goldman Sachs Group Inc. (GS) programmer who successfully challenged a federal conviction for stealing internal code from the bank asked a judge to dismiss state charges filed against him for the same allegations.

Sergey Aleynikov was charged in August by the Manhattan District Attorney’s Office and indicted the following month on two counts of unlawful use of scientific material and one count of unlawful duplication of computer-related material. He has pleaded not guilty.

Aleynikov, a naturalized U.S. citizen born in Russia, was freed from federal prison in New Jersey in February after a U.S. appeals court reversed his December 2010 conviction for stealing the bank’s trading code, saying that the two laws that prosecutors used to charge Aleynikov -- the National Stolen Property Act and the Economic Espionage Act -- didn’t apply to his case.

Aleynikov has filed a lawsuit against Goldman Sachs in federal court in New Jersey seeking payment of more than $2.4 million in legal fees, saying he’s entitled to indemnification because he was employed as an officer of the company.

The criminal case is New York v. Aleynikov, 04447-2012, New York State Supreme Court (Manhattan). The New Jersey case is Aleynikov v. Goldman Sachs Group Inc., 12-cv-05994, U.S. District Court, District of New Jersey (Newark).

Mark Cuban Asks Judge to End SEC Insider Trading Case Again

Mark Cuban, the Texas billionaire and pro basketball team owner, went to the federal courthouse in Dallas Jan. 18, seeking to persuade a judge to throw out for a second time a U.S. lawsuit accusing him of insider trading.

The SEC sued Cuban in 2008. The agency accused him of making illegal trades in shares of Internet search company Mamma.com Inc. in June 2004 based on inside information from its then-chief executive officer, Guy Faure.

Cuban claims what Faure told him wasn’t secret.

“After years of the SEC’s investigation of Mr. Cuban and discovery in this case, there is not a shred of evidence of a confidentiality agreement between Mr. Cuban and Mamma,” defense lawyers argued in a court filing on July 13.

The SEC claims Cuban, upset upon learning of the company’s imminent plans for a below-market private placement, sold his 6.3 percent stake for about $7.9 million within hours of talking to Faure.

The case is Securities and Exchange Commission v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas)

Interviews/Hearings

Banks Should Defer Bonuses for 10 Years, BOE’s Haldane Says

Banks should defer bonus payouts for staff for as long as 10 years to improve “prudence” in remuneration, said Andrew Haldane, executive director for financial stability at the Bank of England.

The current window is “far too short to capture the cycle in credit” and a period of five to 10 years would be better, Haldane said at a hearing of the Parliamentary Commission on Banking Standards in London yesterday. “We had roughly a 20- year boom in the run-up to this crisis, so measuring performance only over a three or five-year window is far too short.”

European regulators agreed on tougher bonus rules in 2011, including minimum three-year deferrals, blaming large cash payouts for encouraging the type of risk-taking that led to the 2008 collapse of Lehman Brothers Holdings Inc. and the subsequent financial crisis. Haldane, who is also a member of the Bank of England’s Financial Policy Committee, said there’s a case to lengthen that deferral period further.

Haldane praised the pay model at HSBC (HSBA) Holdings Plc, the U.K.’s largest bank, where employees “are locked in until retirement or resignation.”

Comings and Goings

ICIS Dismisses Gas-Pricer Freedman After Manipulation Claims

ICIS Heren, the energy price-reporting agency, fired Seth Freedman two months after he went to regulators and the press with allegations of attempted price manipulation by natural-gas traders.

Freedman’s contract as a reporter in London was terminated on Dec. 28, according to a letter obtained by Bloomberg News that was sent to him by Graeme Roy, Reed Business Information Ltd.’s human resources director. Freedman was offered three other roles within the company on the same terms and conditions, which he turned down, RBI said Jan. 18 in a statement.

He was fired because it was no longer practicable for him to work within the price-reporting team after covertly recording them and making derogatory comments about them in the press, according to the letter. Paul Abrahams, a London-based spokesman for RBI, declined to give any further details when contacted by telephone. ICIS Heren is a unit of RBI.

“It beggars belief that RBI have deigned to dismiss the very person who raised issues of alleged wrongdoing,” Shah Qureshi, Freedman’s legal representative at Bindmans LLP in London, said Jan. 18 by phone. “It appears he has been made a sacrificial lamb as a result of this.” Freedman’s dismissal is subject to an appeal, Qureshi said.

ICIS reported the case to the Office of the Gas and Electricity Markets, saying there had been “a series of deals done below the prevailing market trend,” according to a Nov. 12 statement.

Ofgem, as the regulator is known, said in a Nov. 13 statement it was investigating. The Financial Services Authority, or FSA, also said Nov. 12 it had received the information.

HSBC Names KPMG’s Horgan as Group Head Regulatory Compliance

HSBC named Ruth Horgan as global head of regulatory compliance and a group general manager, according to an e-mailed statement from the company.

She will begin the role April 2.

Horgan joins the bank from KPMG where she was Europe, Middle East, and Africa regional audit partner for Credit Suisse Group. She will be based in London and will report to Marc Moses, group chief risk officer.

Horgan be the principal point of contact with the Financial Services Authority on regulatory compliance.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net

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

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