Bloomberg Anywhere Remote Login Bloomberg Terminal Request a Demo

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

Bloomberg’s Morning Report on Securities Regulation, Compliance

By Lisa Brennan Aug. 28 (Bloomberg) James M. Davis, chief financial officer of Stanford Financial Group Co., pleaded guilty to helping R. Allen Stanford in a $7 billion Ponzi scheme and prosecutors said he will testify against his former colleagues. Davis, 60, admitted three felony counts yesterday before U.S. District Judge David Hittner in Houston and agreed to forfeit $1 billion. Davis has been “cooperating like crazy” with authorities investigating the company, said his defense attorney, David Finn of Dallas. “Mr. Davis knows he’s looking at very, very stiff punishment down the road,” Finn said after the plea hearing. “Probation is out of the question in this case.” The Justice Department will request leniency in Davis’s sentencing if it deems his cooperation “sufficient,” Assistant U.S. Attorney Paul Pelletier told Hittner. Davis has met for hundreds of hours with federal investigators, helping them find hundreds of millions of dollars that he claimed Stanford stashed in European banks, Finn said. “You’ll see just how far back this goes,” Finn said of the alleged fraud. “This didn’t get cooked up overnight.” Stanford, the company founder who is being held without bail, was to appear before Hittner yesterday for a hearing on his legal defense. Instead, he was taken to a medical center with what a court aide said was an elevated pulse rate. “I think it had everything to do with my client and Hittner and the government getting together in court today,” Finn said of Stanford’s health emergency. “You could call it serendipity, but what are the odds?” Stanford’s assets were frozen by the court at the U.S. Securities and Exchange Commission’s request and his current lawyer has asked to leave the case, saying he might not get paid. A U.S. grand jury indicted Stanford and Chief Investment Officer Laura Pendergest-Holt for fraud in June. Davis waived indictment and was charged separately with conspiracy to commit mail, wire and securities fraud, as well as mail fraud and conspiracy to obstruct an SEC investigation. The SEC in a civil suit accused Stanford, Davis and Pendergest-Holt of running a fraud scheme centered on the sale of certificates of deposit by Antigua-based Stanford International Bank Ltd. Stanford and Davis promised “improbable if not impossible” returns on the CDs, the SEC said. Finn told reporters Davis’s cooperation included a visit to his family farm in rural Mississippi, where he helped a government dive team search for evidence in tanks and ponds. For more, click here. Ex-ISE Vice Chairman Marshall Settles SEC Insider-Trading Case Former International Securities Exchange Holdings Vice Chairman John F. Marshall agreed to settle a U.S. regulatory lawsuit claiming he leaked information about the options exchange’s 2007 merger with Eurex to associates who reaped more than $1.8 million through insider trades. Marshall, who was sentenced in December to 18 months in prison in a related criminal case, agreed to pay $35,500 to resolve the Securities and Exchange Commission’s lawsuit, the regulator said in a statement yesterday. He also consented to an order barring him from serving as an officer or director of a publicly traded company, the agency said. Two traders who acted on the tips also agreed to settle the SEC’s claims, the agency said. They and Marshall didn’t admit or deny wrongdoing under the accords, which still require a judge’s approval, it said. For more, click here. Merrill Bad Blood Over Sontag Treatment in Krawcheck Hiring When Daniel Sontag left Bank of America Corp., where he ran the Merrill Lynch wealth management unit, on Aug. 4, a day after the lender said it hired Sallie Krawcheck for the position, Danny Sarch, president of Leitner Sarch Consultants in White Plains, New York, said his exit would be a “big blow” to the firm where he’d spent the last 31 years. “With all due respect to Ms. Krawcheck, she doesn’t have nearly the depth of experience in terms of nuts and bolts and retail,” Sarch said then. Two weeks later, Merrill veterans are saying their boss was poorly treated by Bank of America executives who hired Krawcheck, Business Insider’s Clusterstock blogger John Carney reported, citing unnamed sources within the bank. Sontag didn’t confirm his account. Sontag learned from bank President Brian Moynihan only moments before BofA’s Aug. 4 public announcement that Krawcheck was being brought in to run his division, Carney said. The ill will now stems from a feeling that the Sontag family deserved better, as he worked at Merrill for 31 years, his father was a Merrill trader and his son is one as well, Carney reported. Sontag, who’d expanded his staff just two months earlier, may have expected to be consulted about potential new hires, Carney said. Since he left, Sontag has only spoken positively about the bank. Others are criticizing the way he was treated. Carney said he was told by one source that Sontag doesn’t want to publicly criticize Bank of America. Carney reported on Aug. 26 that Anne Finucane, Bank of America’s chief marketing officer, urged Chief Executive Officer Ken Lewis to hire Krawcheck. Krawcheck, 44, and Sontag, 53, held a conference call with employees on Aug. 4 to announce his exit. Krawcheck, who stepped down in September as head of Smith Barney, spent much of her first day meeting Merrill employees, David Mildenberg reported. Sontag oversaw 15,000 financial advisers. He joins more than three dozen senior Merrill executives who have departed since the company’s Jan. 1 acquisition by Bank of America. For more from David Mildenberg, click here. For Carney on Finucane’s role, click here. For Carney on Sontag’s treatment, click here. GE, AmEx, Nissan Lead TALF Sales, SEC Approves Broker Expansion American Express Co., Bank of America Corp. and Nissan Motor Co. are lining up debt sales for the seventh round of a Federal Reserve program to jump-start credit markets. Investors have until Sept. 3 to take out Fed loans to purchase the debt through the Term Asset-Backed Securities Loan Facility. Dow Jones reported yesterday that the Securities and Exchange Commission approved a request by the Fed to boost participation in the program by expanding the pool of brokers who will be allowed to extend credit to purchasers. The SEC’s nod was disclosed in a letter last week, Dow Jones reported. The Fed started TALF in March to revive the market for securities backed by consumer and small-business loans. Sales of securities backed by auto loans, credit cards and student loans plunged 42 percent last year to $135 billion as the recession sapped demand for the debt and choked off funding for lenders, according to data compiled by Bloomberg. For more, click here. FDIC’s ‘Problem Bank’ List Surges, Putting Fund at Risk The U.S. added 111 lenders to its list of “problem banks,” a jump that suggests rising bank failures may force the Federal Deposit Insurance Corp. to deplete a reserve fund that shrank 40 percent this year. A total of 416 banks with combined assets of $299.8 billion failed the FDIC’s grading system for asset quality, liquidity and earnings in the second quarter, the most since June 1994, the Washington-based FDIC said yesterday in a report. Regulators didn’t identify companies deemed “problem” lenders. The U.S. has taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama, amid the worst financial crisis since the Great Depression. The surge forced regulators to charge banks an emergency fee to raise $5.6 billion for its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. The total was the lowest since the savings-and-loan crisis in 1993. An $11.6 billion increase in loss provisions for bank failures caused the decline in the reserve fund, the FDIC said. If the fund is drained, the FDIC has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010. The agency doesn’t expect to use the Treasury line, FDIC Chairman Sheila Bair said in a news conference releasing the data. More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival, according to data compiled by Bloomberg. The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound. The agency this week approved new guidelines for private- equity firms that invest in failed banks to increase the pool of buyers beyond traditional lenders and reduce costs to the banking industry and taxpayers. For more from Alison Vekshin, click here. For new FDIC bank buyout rules, click here and here. Regulators May Weigh ‘Phase-In’ of Higher Capital Requirements U.S. regulators may consider giving banks a reprieve from capital requirements that could rise under an accounting rule forcing companies to add billions of dollars of assets and liabilities to their balance sheets next year, Bloomberg’s Ian Katz reports. “Banking organizations affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements,” regulators including the Federal Reserve and the Federal Deposit Insurance Corp. said yesterday in a statement. “The agencies’ proposal seeks comments and supporting data on whether a phase-in of the increase in capital requirements is needed.” Companies have 30 days to comment. The U.S. Financial Accounting Standards Board in May approved the rule, which covers banks including Citigroup Inc. and JPMorgan Chase & Co. The FASB rule eliminated the Qualifying Special Purpose Entity, a type of trust that was exempt from balance-sheet treatment. Courts SEC Fines Las Vegas Accounting Firm for Using Untrained Auditors A Las Vegas-based accountant will pay more than $319,000 to resolve U.S. regulatory claims that he and his firm issued false audit reports for more than 300 companies, some of them prepared by high school graduates with little or no training as auditors. The Securities and Exchange Commission announced the case against Michael J. Moore and Moore & Associates Chartered in a news release yesterday. Moore and the firm agreed to settle SEC and Public Company Accounting Oversight Board claims without admitting or denying wrongdoing, according to the SEC statement. Sunwest Seeks Court Approval of Plan to Pay Creditors Sunwest Management Inc., the U.S. retirement-home operator sued for fraud by the Securities and Exchange Commission, asked a federal judge to approve a plan for repaying creditors owed about $2 billion. The plan would allow Sunwest, based in Salem, Oregon, to consolidate about 150 profit-generating facilities into a new company, sell as many as 100 other properties and pave the way for a possible merger or initial public offering, the company said yesterday on its Web site. If the plan is approved, Sunwest will file for bankruptcy with a so-called prepackaged Chapter 11 reorganization plan for paying creditors with revenue from the new company and proceeds from asset sales, according to papers filed Aug. 25 in federal court in Eugene, Oregon. “The level of cooperation and agreement among the various stakeholders is remarkable considering the emotions this case has spurred and the potential for conflict,” said Michael Grassmueck, Sunwest’s receiver, in a statement on the Web site. The SEC, which sued Sunwest in March, claims the company and founder Jon Harder sold stakes in specific retirement homes without telling buyers the money would help pay expenses for other properties, many of which were losing money. Sunwest devolved almost into a Ponzi scheme, the agency said. Harder, who was once chief executive officer, and two other principals may collectively hold a stake of 5 percent to 25 percent in the new company after investors and creditors have received $500 million to $1 billion in cash or shares, according to the statement. For more, click here. Company News, SEC Filings, Interviews Tribune Bondholders, Creditors Seek Probe of $8.3 Billion LBO Bondholders of Tribune Co., owner of the Chicago Tribune and Los Angeles Times, asked a bankruptcy judge for permission to investigate billionaire Sam Zell’s $8.3 billion takeover of the media company. The leveraged buyout and “the unsustainable debt burden imposed on a business already in a secular decline undoubtedly caused” Chicago-based Tribune’s bankruptcy, the bondholders, who said they hold 18 percent of the bonds outstanding, alleged yesterday in a court filing in Wilmington, Delaware. The bondholders filed their motion Aug. 26, two weeks after the company’s creditors’ committee sought permission to hire a law firm to investigate the transaction. The bondholders asked Chief U.S. Bankruptcy Judge Kevin J. Carey to let them review e- mails and other documents or to appoint an examiner to do the investigation. Proof of improper transactions could spark litigation to increase creditor payouts. “I’m surprised we haven’t seen more of these,” said Charles Tatelbaum, a bankruptcy lawyer at Adorno & Yoss in Fort Lauderdale, Florida, and former editor of the American Bankruptcy Institute Journal. “This is what happens when you have a leveraged buyout, and when it fails there is always a good possibility of a subsequent investigation and litigation.” For more, click here. Comings and Goings UBP to Cut 10% of Workforce This Year as Client Assets Decline Union Bancaire Privee, the Swiss hedge-fund investor whose clients lost about $700 million with Bernard Madoff, plans to cut 10 percent of its workforce this year after assets under management declined. “UBP should reduce its staff by 10 percent over the course of the year, from a headcount of 1,372 at the end of December, through redundancies, early retirements and not filling vacant positions,” said Jerome Koechlin, spokesman for the Geneva- based firm. For more, click here. U.K. FSA Names Julian Adams as Its New Retail Firms Director About 900 U.K. lenders and fund managers have a new regulatory director at the Financial Services Authority. The FSA named Julian Adams as director of retail firms in a statement yesterday. Adams takes over from Sheila Nicoll, who becomes director of conduct policy. Adams’s group supervises 900 small lenders, building societies, medium-sized insurers and fund managers, the FSA said. “Julian has been outstanding in dealing with some of the issues that the banking sector has faced in the last couple of years and has played a key role in implementing our more intensive supervision model for major firms,” said FSA Retail Managing Director Jon Pain, in the statement. Adams will head a team that’s central to FSA supervision at a time when the regulator is being tested. The FSA has pledged to be more intrusive with the firms it oversees, becoming more involved with the business decisions they make, and enforcing tougher measures -- including higher fines -- when FSA rules are breached. Adams moves from the group that supervises major British banks. He joined the FSA from the Bank of England in 1998. Opposition Conservative lawmakers have pledged to abolish the FSA, created by Labour in 1997, and return lender supervision to the Bank of England should they win the next election, which must be held by May. The Conservative’s plans have already made recruiting new officials “challenging,” FSA Chief Executive Officer Hector Sants said last month. For more from Caroline Binham, click here. International Japan Considers Credit-Default Swap Clearinghouses, Nikkei Says Japan’s Financial Services Agency may require credit default swaps be conducted through clearinghouses to improve transparency, Nikkei English News said, without saying where it got the information. The derivatives, which have been blamed for setting off the global financial crisis, now are mostly settled by financial institutions. The Japanese agency wants to consolidate settlement at approved clearinghouses being considered by entities including the Tokyo Stock Exchange and Tokyo Financial Exchange. For Related News and Information: On compliance: NI COMPLIANCE Bloomberg monthly compliance and risk report: RCLR Bloomberg securities law reports: SCLR Previous compliance reports: NI COMPRPT Bloomberg legal resources: BLAW Top legal stories: TLAW Bloomberg broker-dealer compliance menu: BDCP --With assistance from Laurel Brubaker Calkins in Houston; Andrew M. Harris in Chicago; David Scheer, Erik Larson, Sarah Mulholland, Michael J. Moore, Shannon Harrington and Bradley Keoun in New York; David Mildenberg in Charlotte, North Carolina; Phil Milford in Wilmington, Delaware; Alison Vekshin, Gregory Mott, Jesse Westbrook and Joshua Gallu in Washington; and Chanyaporn Chanjaroen and Caroline Binham in London. Editor: Stephen West. To contact the reporter responsible for this report: Lisa Brennan in New York at +1-973-698-6217 or lbrennan1@bloomberg.net. To contact the editor responsible for this report: David E. Rovella at +1-212-617-1092 or drovella@bloomberg.net.

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.