Airline Cartel, ECB, ‘F-cubed’ Suits: Compliance

AMR Corp.’s American Airlines agreed to give evidence against other carriers and pay $5 million to a group of freight shippers to settle a New York class-action lawsuit over its role in a global price-fixing cartel.

Under the deal, American will provide witnesses, documents and electronic data to help shippers in similar cases in Canada, Australia, South Korea and other countries, the group’s lawyer, Michael Hausfeld of Hausfeld & Co. LLP, said in a statement in London yesterday. The agreement, filed July 26 in federal court in Brooklyn, New York, is the first by an airline to help prosecute the cartel claims outside the U.S., he said.

The industry’s freight services have been probed by the U.S. and the European Union since 2006, leading to settlements, fines and plea deals by airlines and executives.

The case is In re Air Cargo Shipping Services Antitrust Litigation, 1:06-md-01775, U.S. District Court, Eastern District of New York (Brooklyn).

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Compliance Policy

ECB Says New Premiums Won’t Unduly Limit Banks’ Collateral

The European Central Bank said a new range of premiums on the assets it accepts against loans won’t unduly limit the collateral banks can pledge.

The ECB yesterday published a new set of so-called “haircuts” it will apply when accepting assets as security in its refinancing operations, according to a statement issued by the bank. The schedule shows the ECB will increase the haircuts applied to asset-backed securities to 16 percent from 12 percent and that it will apply specific haircuts on bonds rated BBB+ to BBB-. The changes will take effect Jan. 1, 2011.

Higher haircuts make it more expensive for banks to borrow from the ECB. A 10 percent haircut on an asset means the central bank would lend commercial banks 90 percent of its value.

The new framework differentiates collateral according to factors such as maturity and credit quality. It was published after a study by the ECB on the risk exposure of its balance sheet. The ECB is trying to reduce the risk it takes in lending to banks even as it provides them with as much cash as they want to see them through the financial and sovereign debt crises.

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BP, Vivendi Among Companies That May Save Billions From Ruling

A U.S. Supreme Court ruling last month may translate into billions of dollars in litigation savings for foreign-based companies including Vivendi SA, Infineon Technologies AG, Societe Generale and BP Plc, as court decisions this week have shown.

In the June 24 ruling in Morrison v. National Australia Bank, the court said federal securities laws don’t let non-Americans sue in U.S. courts over shares of a foreign company that are listed only on an overseas exchange. The justices unanimously threw out a fraud lawsuit by three Australian shareholders against Melbourne-based National Australia Bank Ltd.

The dispute centered on a class of cases known colloquially as foreign-cubed or F-cubed suits because they involve foreign corporations, shareholders and exchanges.

Companies are already benefiting. A federal judge in New York on July 27 trimmed a suit against Credit Suisse Group AG, ruling that the decision barred claims by American purchasers of the Zurich-based company on the Swiss stock exchange. A judge this week heard Vivendi’s bid to throw out most of a jury verdict in an investor suit that seeks $9 billion. And lawyers suing Societe Generale and Infineon agreed to scale back their lawsuits.

Lawyers differ on how wide the scope of the decision will be in eliminating claims.

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Measure Legalizing Some Online Gambling Passes U.S. House Panel

A House committee yesterday approved legislation that would legalize some Internet gambling, allowing U.S. residents to place online wagers with companies the Treasury Department has licensed.

The measure, sponsored by Representative Barney Frank, chairman of the House Financial Services Committee, would roll back a law designed to block such betting. That four-year-old law, which took effect in June, bars banks from processing payments to offshore gambling websites. Frank described the regulation as “intrusive” and a “problem for the financial institutions.”

Frank and other proponents, such as the Poker Players Alliance, say licensing and regulating online gambling will protect consumers who are placing a growing number of bets with offshore operators.

A separate measure that depends on full House passage of Frank’s plan would impose taxes on online poker and other Internet gambling.

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Banks Laud Basel Capital Compromise; Germany Has Concerns

Banks worldwide applauded changes to proposed capital and liquidity standards that relaxed aspects of the rules and gave lenders as much as eight years to comply.

Lobbying groups in Europe and the U.S. praised the changes announced July 26 by the Basel Committee on Banking Supervision as steps in the right direction, while firms including Deutsche Bank AG and UBS AG welcomed the softening of rules proposed by the committee in December.

The Basel committee agreed to continue allowing some assets, including banks’ minority stakes in other financial firms, to count in part as capital, reversing its initial stance, as well as expanding the definition of liquid assets and giving banks until 2018 to comply with a new leverage ratio designed to rein in risk-taking.

Separately, Jochen Sanio, the president of BaFin, Germany’s financial regulator, said Germany won’t block the new Basel accord, Boersen-Zeitung reported, citing an interview.

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Compliance Action

FSA Bans Simply Trading Directors for Posing Risk to Clients

Britain’s financial regulator banned three directors of stockbroker Simply Trading Group Ltd. from holding senior management positions for failures that posed a “serious risk” to customers.

Stephen Coles, Luke Ryan and Michael Yamoah failed to ensure the closely held company met rules such as capital resource requirements, the Financial Services Authority said yesterday in a statement. The trio also failed to use phone-monitoring equipment to observe representatives and relied too heavily on external compliance consultants for business advice.

The case is the ninth completed enforcement action stemming from the FSA’s probe of selling practices used by small firms when they recommend higher-risk shares.

A message left for Coles, Ryan and Yamoah at Simply Trading’s office wasn’t immediately returned. The FSA said the men weren’t represented by lawyers.

Veterans Agency to Probe Insurer Handling Soldiers’ Benefits

The U.S. Department of Veterans Affairs is investigating life insurance companies’ practice of putting veterans’ death benefits in corporate accounts and keeping most of the investment profits instead of paying the survivors. Mike Walcoff, acting undersecretary for the agency’s Veterans Benefit Administration, said yesterday in a statement announcing the investigation that it would be “completely unacceptable” for insurers to profit from such practices.

Bloomberg Markets magazine reported what has become a standard practice for life insurance policies issued by companies including Prudential Financial Inc. and MetLife Inc. Prudential.

In addition to the VA inquiry, the New York State Insurance Department will review the legality of the practice, Deputy Superintendent Matthew Gaul said yesterday. Pentagon spokesman Geoff Morrell said yesterday he had no comment.

The American Council of Life Insurers released a statement saying retained-asset accounts help survivors.

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BlackBerry Said to Face Possible Restriction in India

Research In Motion Ltd.’s BlackBerry service may be banned in India unless the Canadian company agrees to resolve security concerns, according to a government official with direct knowledge of the matter.

India has told Research In Motion to set up a proxy server in the country for government monitoring of e-mail traffic, according to three government officials, who declined to be identified as the information is confidential.

Research In Motion faces increased competition from smartphones in India, the world’s second-biggest mobile-phone market. The BlackBerry maker had some services blocked in neighboring Pakistan this year, and the United Arab Emirates is considering tightening security.

The Waterloo, Ontario-based company has assured the Indian government that it will address the nation’s security concerns, U.K. Bansal, a special secretary in the home ministry, tasked with domestic security, said today.

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Visa Says Justice Department Is Considering Antitrust Lawsuit

Visa Inc., the world’s biggest payments network, said the U.S. Department of Justice may sue the company over a policy that bars merchants from charging extra to customers who pay with credit cards, Chief Executive Officer Joseph W. Saunders said yesterday in a conference call with analysts after San Francisco-based Visa reported fiscal third-quarter results.

Visa, American Express Co. and Purchase, New York-based MasterCard Inc. disclosed in 2008 that the Justice Department was investigating the companies over so-called anti-surcharging policies and rules prohibiting merchants from “steering” customers to other forms of payment.

The recently passed Dodd-Frank Act addresses some of the Justice Department’s antitrust concerns.

MasterCard, which is scheduled to report second-quarter results on Aug. 3, didn’t address Visa’s comments. Joanna Lambert of New York-based American Express declined to comment.

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BP Spill Thwarts Shell, Statoil in Arctic Oil Delay; BP Shares

BP Plc’s disaster in the Gulf of Mexico will keep the planet’s biggest pot of untapped oil and gas under the Arctic ice for now as regulators toughen drilling rules and demand better ways to handle spills.

Royal Dutch Shell Plc has had plans to explore off Alaska halted by both U.S. authorities and a federal court ruling last week. Norway’s Statoil ASA faces government restrictions on drilling in Arctic waters, while BP has put off developing its Liberty prospect in the Beaufort Sea until 2011.

The delays come as the Organization of Petroleum Exporting Countries restricts access to reserves, energy demand rises and easy-to-reach fields are depleted. Arctic waters, where countries including Norway, Canada, Iceland, the U.S. and Russia claim territorial rights, may hold 90 billion barrels of crude.

Separately, the U.S. Securities and Exchange Commission will focus on whether third parties traded shares of BP Plc with inside knowledge as the company worked to bring the Macondo oil well under control, CNBC’s Kate Kelly said, citing people familiar with the situation.

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IBM Probes Show EU Keeps ‘Tough Stance’ on Technology

The European Union’s probes into International Business Machines Corp. show that Competition Commissioner Joaquin Almunia may continue his predecessor’s penchant for going after technology companies.

Investigations under former EU antitrust commissioner Neelie Kroes resulted in 1.68 billion euros ($2.2 billion) in fines against Microsoft Corp. and a record 1.06 billion euro penalty against Intel Corp. Almunia is likely to maintain an aggressive approach, lawyers said.

Companies can be fined as much as 10 percent of annual sales for violating EU antitrust rules. IBM’s sales last year were $95.76 billion.

The European Commission, the antitrust regulator for the 27-nation EU, said the in-depth investigations would look at whether Armonk, New York-based IBM is abusing its dominant position in the market for mainframe computers.

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Hedge Fund Manager Greenwood Pleads Guilty to Fraud, Conspiracy

Hedge fund manager Paul Greenwood, the general partner of WG Trading Co., pleaded guilty to six federal charges including conspiracy and securities fraud.

Greenwood and Steven Walsh, his fellow manager of WG Trading and WG Investors, were indicted last July on charges that they conspired to defraud investors of $554 million, and pleaded not guilty at that time. Prosecutors said the fraud went on for 13 years and cost investors from $800 million to $900 million.

The U.S. Securities and Exchange Commission, which sued the men, described WG Trading Investors as an unregistered investment vehicle. The Commodities Futures Trading Commission also sued Greenwood and Walsh.

WG Trading had offices in New York, Connecticut and New Jersey.

The criminal case is U.S. v. Greenwood, 09-cr-722, U.S. District Court, Southern District of New York (Manhattan).

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Google Sued Over Claims Street View Invades Privacy

Google Inc. was sued over claims its collection of data via Wi-Fi networks for the company’s Street View program violates federal wiretapping and California privacy laws. The suit seeks class-action, or group, status.

The lawsuit was filed July 27 in San Jose, California, on behalf of Rick Benitti, who argues that Google intercepted business and personal information from his home wireless network when he lived in San Francisco from 2005 to this year.

Google said in May it mistakenly gathered information from open wireless networks while it was capturing images for its Street View service, a product that lets users view photographs of an area online.

A Google representative didn’t immediately return a phone call and e-mail message seeking comment.

The case is Benitti v. Google, 10-3297, U.S. District Court, Northern District of California (San Jose). The Oregon case is Vicki Van Valin v. Google, 10-00557, U.S. District Court, District of Oregon (Portland).

BP Fights U.S., Oil Spill Victims Over Venue for Gulf Lawsuits

BP Plc, the U.S. and plaintiffs who filed hundreds of lawsuits seeking billions of dollars for damages stemming from the April explosion of the Deepwater Horizon rig are fighting over where the cases should be heard first.

A panel of federal judges in Boise, Idaho, will hear arguments today on which city will host spill suits. The suits include wrongful-death claims by families of workers killed in the explosion, losses of revenue by Gulf Coast businesses, and securities claims by holders of U.S. shares in the London-based energy company. The federal government wants the cases consolidated in federal court in New Orleans, while BP said it prefers Houston.

The seven-judge panel, appointed by the chief justice of the U.S. Supreme Court, meets periodically in locations around the country. The judge they choose to preside over the BP cases will make crucial legal rulings on what evidence can be used and which laws applied.

The main MDL case is In Re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, MDL Docket No. 2179.

Ex-New Star Fund Manager Can Sue Over ‘Bullying,’ Court Says

Patrick Evershed, a former New Star Asset Management Holdings Inc. fund manager, can proceed with a lawsuit over claims he was bullied by company founder John Duffield, a London court said.

Evershed, 69, can pursue whistleblowing and unfair dismissal claims against the fund, a London appeals court ruled today. New Star had sought to dismiss the whistleblowing claim, which allows him to seek unlimited damages. Most unfair dismissal claims are capped at about 65,000 pounds ($101,000) in the U.K.

Evershed was suspended by the fund shortly after writing a letter to New Star human resources department complaining of Duffield’s conduct in October 2008, according to the judgment. He claims in the suit that Duffield bullied him into reopening his fund, which “destroyed” the fund’s performance and Evershed’s reputation.

New Star has denied the allegations and said that Evershed resigned, according to the judgment. New Star’s lawyer, Melanie Lane, didn’t immediately respond to a phone call after the ruling.

Enron’s Skilling Seeks Bail While Appealing Fraud Convictions

Convicted ex-Enron Corp. Chief Executive Officer Jeffrey Skilling, claiming a June U.S. Supreme Court ruling entitles him to a new trial, asked an appeals court to release him from prison on bail while he pursues an appeal, according to a bail request filed yesterday with the U.S. Court of Appeals in New Orleans.

Skilling, 56, is serving a 24-year sentence after a Houston jury convicted him for leading what prosecutors said was a widespread accounting fraud that deceived investors about Enron’s true financial condition. In June, the high court ruled in Skilling’s favor, saying he was prosecuted under a law barring honest services fraud that doesn’t apply to his case.

Skilling also asked that his convictions be reversed and he be retried. Tracy Schmaler, a spokeswoman for the Justice Department, said after the Supreme Court ruling that the government “will vigorously defend” the Skilling case when it returns to the New Orleans appeals court.

The case is U.S. v. Skilling, 06-20885, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

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Blinder, Zandi Say U.S. Bailouts Likely Averted a Depression

The U.S. response to the financial crisis probably prevented a depression, slowed a decline in gross domestic product and saved about 8.5 million jobs, economists Alan Blinder and Mark Zandi said.

Policies including the government fiscal stimulus, bailouts of financial companies, bank stress tests and the Federal Reserve’s purchase of mortgage-backed securities to lower interest rates “probably averted what could have been called Great Depression 2.0,” Blinder and Zandi said in a report dated yesterday. Without those measures, the U.S. would have deflation, they said.

Lawmakers are debating the costs and benefits of rescue measures including the 2008 taxpayer bailouts of Citigroup Inc. and Bank of America Corp.

Blinder, 64, a former Fed vice chairman, is a Princeton University economics professor and vice chairman at Promontory Interfinancial Network LLC, a Washington-based banking consultant. Zandi, 51, is chief economist at New York-based Moody’s Analytics Inc.

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Ace’s Greenberg Says Regulators Probably Can’t Handle Reforms

Ace Ltd. Chief Executive Officer Evan Greenberg said he doubts the biggest rewrite of U.S. financial rules since the Great Depression will halt industry excess because regulators botched their jobs in the credit crunch.

Looking back on the crisis and the role that current regulators “played or didn’t play in recognizing accumulations of risk and bad underwriting in the credit business, it doesn’t give me a whole lot of encouragement about how regulators will behave in the future,” Greenberg said yesterday in a conference call.

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