SAC Case Delay, Fannie Mae Risk, Bank Size: Compliance

The exchange of evidence in the government’s forfeiture lawsuit against SAC Capital Advisors LP was delayed by a judge until Jan. 6 while the U.S. pursues insider trading prosecutions tied to the hedge fund.

A postponement of the case is warranted until insider trading cases against the company, as well as SAC fund manager Michael Steinberg and former SAC portfolio manager Mathew Martoma, are concluded, Assistant U.S. Attorney Micah Smith told U.S. District Judge Richard Sullivan yesterday in Manhattan federal court. Steinberg and Martoma face separate trials in November.

A federal grand jury in July indicted the Stamford, Connecticut-based hedge fund owned by Steven A. Cohen. The government also filed a related money laundering lawsuit seeking forfeiture of ill-gotten gains. The delay of civil cases while related prosecutions proceed is a standard government request.

Cohen has denied any wrongdoing.

Smith cited a concern that defendants would want to depose government witnesses who might not have testified yet at trial. He also said the stay could be in place until after the Martoma and Steinberg trials are concluded.

Michael Schachter, a lawyer for the hedge fund, said yesterday that the defendants didn’t oppose the request for a stay. He said that the government had already produced “multiple terrabytes” of information.

The judge granted the request saying that by Jan. 6 he expected to receive a letter from the parties about the status of the SAC criminal cases as well as if lawyers in this case believed discovery could begin.

The cases are U.S. v. SAC Capital Advisors LP, 13-cr-00541; U.S. v. SAC Capital Advisors LP 13-cv-05182, U.S. District Court, Southern District of New York (Manhattan).

Compliance Policy

Equifax, TransUnion, Experian Put on Notice by CFPB Over Reports

U.S. Consumer Financial Protection Bureau put credit reporting companies on notice about their responsibility to investigate consumer credit report disputes, the agency said in a bulletin posted on its website.

The Consumer Bureau said Equifax Inc. (EFX), TransUnion Corp. and Experian Plc (EXPGY) must also report the results of investigations to the consumer reporting company that sent the original dispute. In addition each company must also correct inaccurate information.

If the Consumer Bureau determines a company has violated the law, it will take proper enforcement actions and possibly seek restitution to harmed consumers.

Compliance Action

Fannie Mae Prepares Investors for Mortgage Risk-Sharing Bonds

Fannie Mae (FNMA), the government-controlled mortgage-finance company, is starting to prepare investors for the first transaction in which the firm would share the risk of homeowner defaults with bond buyers.

Executives at Washington-based Fannie Mae, which bought or guaranteed $468 billion of residential mortgages in the first half of the year, was expected to discuss its credit-risk management practices on an invitation-only Web conference for investors yesterday, according to an online posting.

Competitor Freddie Mac sold risk-sharing bonds in July tied to almost $23 billion of home loans being held by the typical securities it guarantees, as regulators seek to reduce the role of the two firms in the market and assess whether they are charging enough for the insurance.

The Federal Housing Finance Agency has overseen Fannie Mae and Freddie Mac since they were seized in 2008 amid the worst housing slump since the Great Depression. With government-backed mortgages accounting for more than 85 percent of new lending, the FHFA has been directing the companies to raise how much they charge to guarantee their traditional mortgage bonds and asked each to attempt to share risk on $30 billion of home loans this year.

“We are working with FHFA to meet the goals of the Conservatorship Scorecard for 2013,” Callie Dosberg, a Fannie Mae spokeswoman, said in an e-mail.

The company has hired Bank of America Corp. to manage the transaction, said Zia Ahmed, a spokesman for the Charlotte, North Carolina-based lender.


Commerzbank’s Hypothekenbank Sued in U.S. for Trust Payments

A unit of Commerzbank AG (CBK), Germany’s second-biggest bank, was sued in a U.S. court by investor Ocampo International SA for more than 50 million euros ($65.8 million) in missed payments since 2010 from trust securities.

The unit, Hypothekenbank Frankfurt AG, formerly Eurohypo AG, set up two Delaware trusts to raise capital from international investors, and stopped making payments in 2009, British Virgin Islands-based Ocampo said in a Delaware Chancery Court complaint filed Sept. 3 in Wilmington.

“Due to the actions of its ultimate parent, Commerzbank, the bank has ceased to be a profit-maximizing business” and “it is now impossible for the bank to record a balance sheet profit,” according to court papers.

Germany’s top civil court, the Federal Court of Justice, ruled May 28 that Eurohypo wrongly stopped payouts on the securities and that Frankfurt-based Commerzbank must continue to pay interest.

Commerzbank spokeswoman Margarita Thiel wasn’t immediately available to comment on the lawsuit at her Frankfurt office.

The case is Ocampo International SA v. Eurohypo Capital Funding LLC I, CA8863, Delaware Chancery Court (Wilmington).

Morgan Stanley Ordered to Pay Fired Commodity Trader $8 Million

Morgan Stanley (MS) must pay $8.01 million in deferred compensation to an energy trader the firm fired for not meeting with government investigators in 2009, a Financial Industry Regulatory Authority arbitration panel ruled.

Amit Gupta was awarded $4.7 million of stock units he was promised from 2006 to 2008 and a deferred-cash award of $1.84 million from 2008, plus interest, according to the panel’s Aug. 29 ruling. Gupta, who earned more than $64 million in pay during his time at Morgan Stanley, also sought as much as $14.2 million in lost earnings from 2010 to 2012, the ruling shows.

Morgan Stanley didn’t consider “mitigating circumstances” and follow contractual obligations when it chose to fire Gupta for cause after he refused to meet in 2009 with the Manhattan District Attorney’s office, which was investigating a trade, arbitrators wrote without elaborating on the probe. No charges were ultimately brought against Gupta.

“The decision to terminate him ‘for cause’ was so flawed that it does not constitute valid action by Morgan Stanley,” the arbitrators wrote in the ruling.

Morgan Stanley is among Wall Street firms that have increased pay deferrals and strengthened clawback provisions to recoup compensation from employees fired for cause in the wake of the financial crisis.

One of the three arbitrators, John Martin, dissented. Gupta knew at the time that Morgan Stanley policy required he cooperate with the inquiry, Martin wrote.

Mark Lake, a spokesman for New York-based Morgan Stanley, declined to comment. Eric Seiler, an attorney for Gupta, said he was pleased with the ruling and that it speaks for itself. Reuters reported the decision earlier.


Jain, Oudea Defend Bank Size Against European Regulatory Excess

The chief executive officers of three of Europe’s largest banks defended themselves against criticism they’re too big, saying the region needs lenders with scale to support clients around the world.

At a conference in Frankfurt yesterday, Frederic Oudea, who heads Societe Generale SA (GLE), cited the need for lenders to be able to fund billion-dollar deals, while Deutsche Bank AG (DBK) co-CEO Anshu Jain said clients want banks that can provide an array of financial services. Federico Ghizzoni, CEO of Italy’s UniCredit SpA (UCG), said growth of companies outside their domestic market will require banks able to make investments in their infrastructure.

Global leaders have ordered banks to raise capital to avoid a repeat of the taxpayer-funded rescues after the 2008 collapse of Lehman Brothers Holdings Inc. sparked a global financial turmoil. While the CEOs voiced support for the rules designed to bolster the financial health of their firms, they warned European regulators against overreach that could put them at a disadvantage to competitors in the U.S. and elsewhere.

“Size matters, there’s no discussion,” said Ghizzoni, who leads Italy’s largest bank. Even while there is a “more stringent liquidity ratio,” and “we’re under pressure on revenues,” there is “a huge need for investment,” he said.

There are “a few banks that will be big by nature in order to compete with the large universal banks in the U.S.,” said Oudea, who heads France’s second-largest bank based in Paris.

Some speakers at the conference organized by Euroforum and Handelsblatt newspaper signaled concerns.

Georg Fahrenschon, president of the DSGV association of German savings banks, said small lenders can’t be liable for large ones, potentially guaranteeing the existence of “systemically relevant institutions.”

Scott Skyrm Sees No Paper Trail Leading to Corzine

Author Scott Skyrm discussed his book, “The Money Noose: Jon Corzine and the collapse of MF Global.” Skyrm talked with Bloomberg’s Pimm Fox and Carol Massar on Bloomberg Radio’s “Taking Stock” on Sept. 3.

For the audio, click here.

Comings and Goings

CFPB Bank Supervision Chief Antonakes Named Cordray’s Top Deputy

Steven Antonakes, the former Massachusetts regulator who started the U.S. Consumer Financial Protection Bureau’s bank supervision unit, has been named deputy director of the federal agency.

The promotion for Antonakes, who has been acting deputy since January after Raj Date stepped down, was announced by the bureau in a statement yesterday. He will continue as head of bank supervision, enforcement and fair lending in his new role.

Antonakes, who joined the bureau in 2010, previously was the Massachusetts Commissioner of Banks.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this story: Michael Hytha at

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