Tourre Trial, MF Global CDS Suit, Insider: Compliance

Former Goldman Sachs Group Inc. (GS) Vice President Fabrice Tourre, accused of fraud for his role in a failed $1 billion investment tied to the housing market collapse, perpetrated a “very simple” scheme aimed at feeding “Wall Street greed,” a government lawyer told jurors yesterday.

The Securities and Exchange Commission sued Tourre, 34, alleging he intentionally misled participants in a 2007 deal known as Abacus about the role played by John Paulson’s hedge fund, Paulson & Co. The SEC claimed Tourre hid that Paulson helped choose the portfolio of subprime mortgage-backed securities underlying Abacus and made a billion-dollar bet it would fail.

SEC lawyer Matthew Martens said yesterday in his closing arguments that while collateralized debt obligations are complicated, “the fraud here was very simple.”

Tourre rested his defense July 29 without calling any witnesses, shortly after the SEC concluded its case following two weeks of presenting evidence.

Tourre’s lawyer John “Sean” Coffey told jurors at the start of his closing argument that Tourre, a French citizen, is “a remarkable young man” entrusting his case to a U.S. jury. He said Tourre “knows he did nothing wrong.”

Coffey attacked the government for failing to show that any claimed misrepresentations by Tourre made a difference to ACA or to investors in the deal, and argued that ACA knew Paulson planned to short Abacus and wasn’t misled.

The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Compliance Policy

Iosco Recommends Supervisory Group for Global Credit Raters

The International Organization of Securities Commissions recommended that regulators of credit-rating firms improve how they share information through the creation of a college to enhance oversight.

The international policy forum for regulators advocates that supervisors share information, including how credit graders comply with local laws, manage conflicts of interest and operate their methodologies, Madrid-based Iosco said yesterday in a statement on its website. The group’s membership regulates more than 95 percent of the world’s securities markets.

U.S. lawmakers targeted the credit-grading business with the 2010 Dodd-Frank Act after the collapse of top-ranked mortgage-backed securities contributed to $2.1 trillion in losses at the world’s largest banks, leading to the longest recession since the 1930s.

Philippine SEC Says It May Ease ETF Rules in Case of Demand

Exchange-traded funds are now limited to passively managed funds, Philippine Securities and Exchange Commissioner Juanita Cueto said in a speech in Manila.

Cueto said there is room for amending the rule to accommodate “other ETF types.”

Philippine SEC rules provide more flexibility for ETF investments, Cueto said. ETFs not subject to maximum or minimum investment limitations, and the funds also are exempted from the mandatory tender offer rule, she said.

Compliance Action

Barclays Says Contesting Regulator’s Findings in Qatar Probe

Barclays Plc (BARC), Britain’s second-biggest bank by assets, said it’s contesting a regulator’s findings in a probe into fees the bank paid Qatar during a 2008 fundraising that helped it avoid a bailout.

The Financial Conduct Authority sent Barclays on June 27 its preliminary findings over the fees and the involvement of four current and former employees including Finance Director Chris Lucas, the London-based lender said in a statement yesterday.

The FCA’s enforcement unit typically gives companies early notification when it expects to levy fines or other penalties. The regulator is probing if Barclays properly disclosed fees paid to the Qatar Investment Authority as part of a 7 billion-pound ($10.7 billion) fundraising during the financial crisis, a move that helped the lender avoid taking state aid unlike Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc.

“Barclays expects further developments in the near-term,” it said in a statement. On a conference call with reporters yesterday, Barclays Chief Executive Officer Antony Jenkins declined to answer any questions on Qatar, citing the investigation.

CFTC Charges AmeriFirst With Fraud on Precious-Metals Marketing

AmeriFirst Management LLC, based in Fort Lauderdale, Florida, charged finance and storage fees for loans and metals that were never delivered to customers, the U.S. Commodity Futures Trading Commission said yesterday in a statement on its website.

AmeriFirst solicited customers to invest in financed precious-metals transactions, according to the commission. The company marketed itself as a precious-metals wholesaler and clearing firm, operating through a network of more than 30 precious metals dealers, the commission said.

Calls to AmeriFirst seeking comment weren’t unanswered.

Lawsky Says New York Boosting Scrutiny of Public Pension Funds

New York regulators are increasing scrutiny of public pension funds, the head of the state’s Department of Financial Services said.

Superintendent Benjamin Lawsky, speaking yesterday at an event sponsored by Crain’s New York Business, said that the public would shortly “see some of the audits we’ve been conducting.”

Lawsky said he may propose new regulations on the funds to increase transparency and accountability after the audits. The Department of Financial Services oversees New York-based banks and insurers, as well as public funds that pay benefits to retirees.

Courts

SAC Capital Probe Yields New Arrest Tied to Insider Trading

The insider trading investigation of SAC Capital Advisors LP has resulted in the arrest of Sandeep Aggarwal, an analyst charged with providing illegal tips to convicted former SAC fund manager Richard Lee.

Aggarwal, 40, was arrested July 29 by agents with the Federal Bureau of Investigation in San Jose, California, as part of the government’s six-year initiative against insider trading at hedge funds, said Peter Donald, an FBI spokesman in New York.

He’s charged with one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud, Manhattan U.S. Attorney Preet Bharara’s office said. Aggarwal formerly worked at Collins Stewart LLC in San Francisco, said a person familiar with the situation, who requested anonymity because the matter wasn’t public.

Aggarwal provided material nonpublic information about a strategic partnership in Internet search and advertising between Microsoft Corp. and Yahoo! Inc. (YHOO) to two different hedge funds, including SAC, the U.S. alleged in a criminal complaint unsealed yesterday. Lee pleaded guilty on July 23 to trading on information provided by a source at Yahoo and is cooperating with the U.S.

Aggarwal made an initial appearance yesterday before U.S. Magistrate Judge Nandor Vadas in federal court in San Francisco. He was released on a $500,000 personal recognizance bond and ordered to appear in federal court in New York on Aug. 2.

“He’s willingly returning to New York,” said Sam Braverman, a lawyer in New York who’s representing Aggarwal.

Bharara’s office last week indicted Stamford, Connecticut-based SAC on charges of insider trading. As part of his announcement, prosecutors added Lee to the list of at least eight former analysts and portfolio managers who have been charged with insider trading by the U.S.

The case is U.S. v. Aggarwal, 13-MAG-1877; the SEC case is SEC v. Lee, 13-CV-5185; the SAC case is U.S. v. SAC Capital Advisors LP, 13-00541, U.S. District Court, Southern District of New York (Manhattan).

MF Global Unit Sues 11 Banks Over Credit-Default Swaps Market

MF Global Capital LLC sued Bank of America Corp., Citigroup Inc. (C) and nine other financial companies, claiming they were part of a plot to unlawfully restrict the market for trading credit-default swaps.

The complaint, filed by a unit of bankrupt MF Global Holdings Ltd. July 29 in federal court in Chicago, is at least the fourth such suit accusing swaps dealers of conspiring to control the market for information about the instruments and their trading, in violation of federal antitrust laws.

The defendants’ actions forced customers “to pay inflated bid/ask spreads, which cushion the profits of the defendants while harming their CDS customers,” according to the complaint.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.

Damages sustained by the MF Global unit and other members of a proposed class of individuals and entities that bought or sold swaps from the defendants since October 2008 are estimated to be in the tens of billions of dollars, according to the filing.

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, said she couldn’t immediately comment on the allegations. Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, didn’t immediately respond to a voice-mail message seeking comment.

The case is MF Global Capital LLC v. Bank of America Corp. (BAC), 13-cv-05417, U.S. District Court, Northern District of Illinois (Chicago).

Interviews/Hearings

SEC’s White Says CEO Pay Disclosure Rule Coming Soon

U.S. Securities and Exchange Commission Chairman Mary Jo White and Commodity Futures Trading Commission Chairman Gary Gensler spoke about systemic risk in the U.S. financial system and implementation of the Dodd-Frank Act.

They testified before the Senate Banking Committee in Washington.

White said CEO pay disclosure rules are coming in the next month or two. She reiterated that completion of JOBS Act rules and the more than 90 Dodd-Frank rulemakings under SEC jurisdiction remains her highest priority.

White also told the panel that the SEC is working hard on the qualified residential mortgage, or QRM, rule and the expectation is that regulatory action will be taken in “very near term.”

The SEC is among six federal regulators working on the rule. The agencies plan in the next few weeks to ask for public feedback on the QRM regulation mandated by the Dodd-Frank Act.

For the video, click here.

SEC Can Win Tourre Case on Negligence, Sporkin Says

Thomas Sporkin, a partner at BuckleySandler LLP, talked about the trial of Fabrice Tourre, the ex-Goldman Sachs Group Inc. vice president facing civil fraud claims for his role in a failed $1 billion investment tied to the housing market collapse.

Sporkin spoke with Sara Eisen and Erik Schatzker on Bloomberg Television’s “Market Makers.”

For the video, click here.

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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