Trading Halts, TruPS Pullback, UBS Vote: Compliance

U.S. Securities and Exchange Commission Chairman Mary Schapiro, speaking at a Business Roundtable event in Washington, said the agency will expand a proposal that would halt trading of stocks after they have risen or fallen 10 percent during a five-minute period.

The SEC intends to add “thousands” of companies to a plan that would initially affect companies listed on the Standard & Poor’s 500 Index, Schapiro said yesterday. Trading curbs are being proposed in response to the May 6 stock plunge, which erased $862 billion from U.S. equities in 20 minutes and drove the Dow Jones Industrial Average down 1,000 points.

Separately, a former SEC economist said regulators should guard against a repeat of the May 6 selloff by imposing limits on how far shares can fall instead of halting trading.

Lawrence Harris and investors Hudson River Trading LLC, Quantlab Financial LLC and Credit Suisse Group AG said in comments posted on the SEC’s website that circuit breakers proposed last month risk making equity plunges worse. They recommended a system used on futures markets such as the Chicago Mercantile Exchange that subject rapidly falling securities to what are known as limit-down restrictions.

Twenty-six letters have been posted to the SEC’s website addressing a plan to impose trading halts on stocks that rise or fall 10 percent over five minutes, a pilot program that may begin next week.

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Compliance Policy

Collins Pulls Back on Proposal to Ban TruPS Capital

In the face of opposition from bankers, U.S. Senator Susan Collins agreed to ratchet back a proposal that would prevent banks from using so-called trust-preferred securities, or TruPS, to appear better capitalized.

TruPS allow banks to invest in each others’ notes. U.S. banks are fighting to preserve the use of the securities, even as their investments in each others’ notes perpetuate what one regulator calls a “downward spiral” of losses. Lobbyists for the Independent Community Bankers of America have met with key lawmakers in recent weeks to discuss the capital issue.

The cross-ownership, largely unnoticed by bank supervisors who generally discourage the practice, was made possible by a Wall Street innovation like the ones that allowed subprime mortgages to flourish.

Diluting the measure would be a setback for the Federal Deposit Insurance Corp., which helped craft the language before Collins inserted it in the Senate’s financial-overhaul bill last month, according to a person close to the discussions who spoke on condition of anonymity. As originally introduced by Collins, the provision would ban banks from counting TruPS as Tier 1 capital, a regulatory gauge of a lender’s ability to withstand losses.

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Swiss Upper House Backs UBS Treaty With U.S. in Second Vote

Switzerland’s upper house of parliament backed an accord with the U.S. over suspected tax evasion by as many as 4,450 UBS AG clients in a second vote, sending it to the lower house for another debate.

Today’s ballot was part of a reconciliation procedure between the two houses of the Swiss legislature, triggered by yesterday’s rejection of the treaty in the National Council, or lower house.

That chamber is now expected to discuss the treaty on Monday or Tuesday, parliamentary spokesman Mark Stucki said by telephone from the capital, Bern. A final vote is likely by June 18, the last day of parliament’s three-week session.

The accord’s ultimate approval hinges on support by the right-wing Swiss People’s Party, also known by its initials of SVP, which so far has opposed it along with the Social Democrats.

Canada Must Rethink Phone Regulation, Commission Says

Canada has to reconsider how it regulates broadcasting and telecommunications as the two converge, the country’s main regulator of those industries said.

Under Canada’s system, there are regulatory schemes based on three acts, “with different objectives and different mechanisms,” Konrad von Finckenstein, chairman of the Canadian Radio-television and Telecommunications Commission, said yesterday at the Canadian Telecom Summit in Toronto. The result is inefficiency, he said.

Canada’s government said yesterday that the country’s large phone companies such as BCE Inc. and Rogers Communications Inc. may be covered by new rules that will make it easier for foreigners to invest in Canada.

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Investors Back Obama Bill Without Ban on Proprietary Trading

Global investors support U.S. legislation that would raise capital requirements for banks and strengthen consumer financial protection, even as they oppose the so-called Volcker Rule to ban proprietary trading by financial institutions, a Bloomberg News survey shows.

Seven out of 10 investors support moving trades of standardized derivatives to exchanges while slightly more than half reject a rule that would force financial companies to separate their swaps desk from commercial banking, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers.

Regional differences, such as those between Asia and the U.S., were pronounced on the swaps-desk and consumer-protection provisions.

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Democrats Propose Trimming Tax Increase on Fund Managers

Senate Democrats proposed trimming a House-approved tax increase on investment managers and quintupling a per-barrel tax on oil as part of a jobs measure.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, announced plans to reduce a proposed tax increase on fund managers’ share of profits to $14.4 billion over 10 years rather than the $17.7 billion increase approved last month by the House.

Democrats would quintuple, from 8 cents to 41 cents, a per-barrel tax charged to oil companies to help pay for the offshore spill fund. That would generate $15 billion over 10 years. The House plan would raise the tax to 34 cents.

New York Senator Charles Schumer, a Democrat, said senate lawmakers aim to pass a bill based on the senate plan, which “strikes the right balance,” by early next week. The House has passed a $115 billion version of the measure.

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New SEC Rules May Cut ‘Ratings Shopping’ in Securitized Grades

New credit-ratings rules may reduce pressure by issuers to inflate rankings on securitized debt, industry professionals said at the American Securitization Forum’s annual conference yesterday.

Under U.S. Securities and Exchange Commission rules that took effect June 2, ratings firms hired by sellers of debt such as mortgage- and asset-backed securities must require issuers to post to websites the information they use to determine creditworthiness, allowing for unsolicited grades.

The rule “can help mitigate ratings shopping,” Michael Binz, a managing director at New York-based Standard & Poor’s, a unit of McGraw-Hill Cos., said during a panel discussion.

The SEC, Federal Deposit Insurance Corp. and Congress have sought to adjust ratings regulations after S&P, Moody’s Investors Service and Fitch Ratings assigned top grades to U.S. mortgage bonds just before they collapsed in 2007. The SEC’s amendment to its “Rule 17g-5” comes with securitized-debt issuance growing again in several markets after freezing in


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Compliance Action

Build America Withholding Risk ‘Manageable,’ Cross Says

Municipal borrowers in the U.S. face a “manageable” risk that they won’t get the full 35 percent interest-rate subsidy from the Build America Bond program, said John Cross, associate tax legislative counsel for the U.S. Treasury.

The U.S. Internal Revenue Service withheld less than 2 percent of subsidy payments as a result of unpaid payroll taxes in the federal program’s first year, Cross said yesterday at a Government Finance Officers Association conference in Atlanta.

Ben Watkins, who oversees bond sales for Florida, said last month the state was permanently suspending Build America offerings until the federal government guarantees the full subsidy.

Build America securities, introduced last year as part of the American Recovery and Reinvestment Act, are the fastest-growing part of the $2.8 trillion municipal market. Congress is considering extending the program.

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City, Adusbef Can Seek Damages for Milan Derivatives

The City of Milan and Italian consumer group Adusbef can seek damages from the four banks on trial for fraud over the sale of derivatives to the municipality, Judge Oscar Magi said in court today.

The judge rejected requests from other consumer groups, including Altroconsumo and Adusbef Lombardia, because they were formed after June 2005, when the banks first sold derivatives to the city.

Deutsche Bank AG, Depfa Bank Plc, JPMorgan Chase & Co. and UBS AG are on trial in Milan in the first criminal case in which investment banks are being accused of deliberately misleading cities on swaps. The firms and 11 bankers are charged with fraud. The banks are accused of earning 101 million euros ($120 million) by misleading Milan, Italy’s business capital. Two former city officials are on trial for collusion.

The judge adjourned the trial to June 23.

Walgreen Suit Over San Francisco Tobacco Ban Revived

Walgreen Co., the largest U.S. drugstore chain, can proceed with a lawsuit challenging San Francisco’s first-in-the-nation law banning sales of tobacco products in some pharmacies, a California appeals court ruled.

The ordinance, passed in 2008 on the premise that drugstore cigarette sales convey tacit approval of smoking, barred tobacco sales at drugstores. The law doesn’t apply to grocery and warehouse stores, including Safeway Inc. and Costco Wholesale Corp., which also have pharmacies.

Yesterday’s ruling reversed a San Francisco judge’s decision to dismiss Walgreen’s case.

Walgreen claims the city’s law is anticompetitive.

The case is Walgreen v. City and County of San Francisco, A123891, California Court of Appeal (San Francisco).

Former Duane Reade Chief Cuti Convicted of Securities Fraud

Former Duane Reade Inc. Chief Executive Officer Anthony Cuti was convicted of conspiracy and securities fraud for falsely inflating income at the drugstore chain and misleading investors.

Cuti and former Duane Reade Chief Financial Officer William Tennant, who was also convicted, were charged with engaging in a scheme to falsely increase revenue and lower expenses from 2000 to 2005. Cuti was convicted yesterday of both counts while Tennant was found guilty of securities fraud. The jury heard opening arguments on April 7.

Lawyers for both defendants have 30 days to file motions seeking to set aside the verdict.

Reid Weingarten, a lawyer for Cuti, and John Kenney, a lawyer for Tennant, both declined comment on the verdict.

Batts set Cuti’s sentencing for Nov. 15 and Tennant’s for Dec. 6. They are free on bond while they await sentencing.

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J&J Urges Judge to Dismiss U.S. Kickback Lawsuit

Johnson & Johnson asked a judge to dismiss a U.S. lawsuit claiming the company paid kickbacks to Omnicare Inc. to push prescriptions, arguing that the government seeks to brand allowable rebates as illegal.

The U.S. sued J&J and two units on Jan. 15, claiming they paid millions of dollars to induce Omnicare, the largest U.S. pharmacy for nursing-home patients, to buy and recommend J&J drugs including its antipsychotic Risperdal. J&J filed its first detailed response yesterday, arguing it didn’t violate the False Claims Act or Anti-Kickback Statute, as the government claims.

J&J’s lawyers wrote in a memorandum that the case is a “remarkable attempt” to attack common discounting arrangements that are “expressly protected” under federal and state law.

Court records show that several states have joined the U.S. case against J&J, including Massachusetts, Virginia, California, Kentucky and Indiana.

The case is U.S. ex re. Lisitza and Kammerer v. Johnson & Johnson, 07-10288, 05-11518, U.S. District Court, District of Massachusetts (Boston).

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Vodafone, Telefonica Lose Challenge to EU Roaming Cap

Vodafone Group Plc, Telefonica SA’s O2 and other mobile-phone companies lost a challenge at the European Union’s highest court to legislation that forced them to cut international roaming rates.

EU authorities had the right to impose EU-wide caps on the prices charged by mobile-phone operators for roaming calls to allow for a “smooth functioning” of the market, the European Court of Justice in Luxembourg said yesterday. The legislation was proportionate because it was designed to protect consumers and was limited to a fixed time period, a 13-judge panel of the court ruled.

Companies, including Deutsche Telekom AG’s T-Mobile unit and France Telecom SA’s Orange, challenged the EU law that capped the rates they can charge customers for calls made while abroad. The regulation was adopted in June 2007.

The case is C-58/08, Vodafone Ltd. v. Secretary of State for Business, Enterprise and Regulatory Reform.

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Cuomo’s Lawsuit Against First American Can Go Forward

New York’s lawsuit against title insurer First American Corp. can proceed, a state appeals court ruled.

Neither federal law nor rules of the Office of Thrift Supervision bar the New York attorney general from suing First American and its EAppraiseIT unit, the state appeals court in Manhattan ruled yesterday.

Attorney General Andrew M. Cuomo sued in 2007, accusing First American of inflating home values under pressure from Washington Mutual Inc.

The case is New York v. First American Corp., 406796/2007, New York State Supreme Court, New York County (Manhattan).

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Axel Springer Loses ProSiebenSat.1 Merger Veto Case

Axel Springer AG, Europe’s largest newspaper publisher, lost a German appeals case seeking to overturn a regulator’s veto of its 2005 planned purchase of broadcaster ProSiebenSat.1 Media AG.

The Federal Court of Justice in Karlsruhe yesterday rejected Springer’s bid to overturn an antitrust regulator’s decision to block the 4.2 billion-euro ($5 billion) acquisition. The country’s top civil court upheld a lower court ruling in favor of the regulator.

Axel Springer has said that it would reconsider a bid for the company if it prevailed in the suit. The transaction was abandoned in 2006 after the Federal Cartel Office said it might harm competition.

Axel Springer will analyze the written judgment before it will comment, said Christian Garrels, a spokesman for the Berlin-based company.

The case is BGH, KVR 4/09.

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EU Debt Unlikely to Ignite Bank Crisis, Ingves Says

Europe’s sovereign debt woes probably won’t trigger a banking crisis similar to the one that erupted in 2008 because policy makers now are more alert to risks and have experience dealing with bank problems, Riksbank Governor Stefan Ingves said yesterday in an interview in Stockholm.

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Frank Says House-Senate Financial Bill Talks Set for June 10

U.S. Representative Barney Frank said the House and Senate will begin negotiations on financial reform legislation on June 10, according to CNBC. Frank hopes to conclude the negotiations by June 26, CNBC reported.

Bove, Pitt Comment on Goldman Probe, Reputation Poll

Richard Bove, an analyst at Rochdale Securities, talked with Bloomberg’s Betty Liu about the outlook for Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein following the U.S. probe into the firm’s business practices.

Bove also discussed the Financial Crisis Inquiry Commission’s subpoena of Goldman Sachs and the company’s share price.

Separately, former U.S. Securities and Exchange Commission Chairman Harvey Pitt spoke with Bloomberg’s Erik Schatzker about the impact regulatory lawsuits against Goldman Sachs may have on the firm.

For the Bove video, click here.

For the Pitt video, click here.

Comings and Goings

Securitization Group Hires Former Fannie Mae Regulator Falcon

Armando Falcon, the former regulator of Fannie Mae and Freddie Mac, was hired as a senior policy adviser by the American Securitization Forum trade group.

Falcon will advise on issues “including reform of the U.S. housing finance system, government sponsored enterprises, and regulatory policy affecting securitization markets,” the New York-based ASF said yesterday in an e-mailed statement.

Falcon, the chairman and chief executive officer of Falcon Capital Advisors, was the head of the Office of Federal Housing Enterprise Oversight from 1999 to 2005, as it was known at the time. It has since merged with the Federal Housing Finance Agency.

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