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Computer Viruses, Liffe Review, Saudi Rules: Compliance

U.S. regulators may ask Internet-service providers such as AT&T Inc. and Comcast Corp. to adopt a voluntary standard for fighting computer viruses that might cost millions of dollars in network upgrades.

The Federal Communications Commission set up a working group last year to provide recommendations for securing residential broadband systems, and in December the panel issued a report identifying best practices for the industry. The agency is now weighing whether to ask companies to endorse those suggestions. The FCC’s authority over Internet access providers is being debated and hinges on the fate of rules governing Web access that it issued Dec. 21. House Republicans have said the private sector is better suited to setting rules for the Internet.

The debate over industry standards illustrates the tension between the need to protect against rising cybercrime and the potential cost for ISPs of bolstering network defenses.

Fifty percent of U.S. personal computers have been infected with viruses and malicious software, according to an industry report last month. Cybercrime costs large U.S. companies an average of $3.8 million each annually.

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Compliance Policy

NYSE Deputy Chief Expects ‘Intense’ Deutsche Boerse Review

NYSE Euronext expects an “intense” and lengthy European Union antitrust review of its proposed $9.53 billion takeover by Deutsche Boerse AG, a deal that would create the largest equities and derivatives markets owner, the company’s deputy chief executive officer said.

Dominique Cerutti told reporters in Brussels yesterday that it could take “maybe 12” months, or until February 2012, to win EU regulatory approval. U.S. and European financial markets supervisors aren’t expected to raise problems, he said.

The European Commission, the 27-nation EU’s executive arm, must rule on the takeover, which would combine NYSE Euronext’s Liffe and Eurex, the exchange jointly owned by Deutsche Boerse and the Swiss Stock Exchange. The deal would put more than 90 percent of the region’s exchange-traded derivatives market in the hands of one organization.

It is “likely” the commission will open an in-depth investigation, which usually takes as long as five months, Cerutti said, and extensions may prolong the review until next February, he said. The companies said last week they expected to win approvals from the various regulators by December.

The EU’s review may focus on the impact on derivatives markets and clearing systems, he said.

Amadeu Altafaj Tardio, a spokesman for the European Commission, declined to comment because the EU’s antitrust agency hasn’t yet been asked to examine the deal.

Saudi Arabia Approves Company Regulations Draft, SPA Reports

Saudi Arabia’s Shoura Council passed a draft of new company regulations outlining rules to start, run and close companies in the Arab world’s largest economy, the Saudi Press Agency reported.

The draft, which replaces rules issued in 1965, stipulates that the number of partners in a limited liabilities company shouldn’t exceed 50, otherwise it should turn into a joint stock company within a year, the news service said.

A pending article obliging joint stock company boards not to get more than 10 percent of a company’s net income in bonus payments will be discussed by officials later, SPA said, citing the council’s secretary-general Mohammed Bin Abdullah Al Ghamdi.

China May Force Banks to Set Up Crisis-Handling Procedures

China’s banking regulator plans to require lenders to set up procedures to allow them to restore their finances in the event of a crisis, a person with knowledge of the matter said.

Banks deemed systemically important, including Industrial & Commercial Bank of China Ltd., may have to sell debt convertible into equity, the person said, declining to be identified because the regulator’s deliberations are private. Regulators will also be given broader powers to supervise those lenders in an effort to discover risks early, the person said.

China is seeking to avoid a repeat of its last banking crisis, when the government spent more than $650 billion over a decade to bail out banks after years of state-directed lending. Concerns that a deterioration of lenders’ asset quality could derail the world’s fastest-growing major economy surfaced after credit expansion surged to a record 96 percent in 2009, prompting the banking regulator to tighten capital rules.

Chinese regulators will have the power to decide when a bank in trouble must activate its self-rescue mechanisms, the person said. The government may seek revisions to China’s Commercial Bank Law to accommodate the new requirements, according to the person.

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Separately, China may allow some retail investors to buy and sell shares on the nation’s over-the-counter stock market, the Shanghai Securities News reported Feb. 21, citing an unidentified person.

The over-the-counter market may be opened to retail investors with more than two years of trading experience and more than 500,000 yuan in their trading accounts, the Shanghai-based newspaper reported. Only institutional investors are currently allowed to trade on the over-the-counter market, according to the report.

Compliance Action

Former Deutsche Bank Mortgage Unit Fined on Customer Treatment

Deutsche Bank AG’s shuttered mortgage unit must pay 2.34 million pounds ($3.78 million) to customers and the U.K. finance regulator for irresponsible lending and unfair treatment of customers late on payments.

DB Mortgages was fined 840,000 pounds by the Financial Services Authority and ordered to pay back 1.5 million pounds to customers, the regulator said in a statement yesterday. The unit didn’t tell some customers whether cheaper mortgages were available and didn’t ensure clients could afford the loans after they retired, the FSA said. The company also failed to tell clients who were late on payments about all of their options and applied unfair charges.

The mortgage unit, which the bank closed in mid-2008, has established a customer redress program, Deutsche Bank spokesman Adrian Cox said in an e-mailed statement. The unit commissioned an external review into its lending and collection processes after the FSA identified issues in a mortgage-industry review started in 2008, Cox said.

The U.K.’s financial regulator is increasing its focus on consumer protection. DB Mortgages qualified for the FSA’s standard 30 percent discount for cooperating in the probe.

Deutsche Bank Banned From Derivatives Trading in South Korea

Deutsche Bank AG was banned from proprietary stock and derivatives trading for six months in South Korea after regulators blamed the firm for triggering a stocks rout that wiped out $26 billion in market value.

The Financial Services Commission will ask prosecutors to investigate five Deutsche Bank employees, Choi Kyu Yun, standing commissioner of the regulator, told reporters in Seoul today. Deutsche Bank is “disappointed” by the recommendations, and will cooperate with Korean authorities, it said in an e-mailed statement. The ban starts in April.

The slump in the benchmark Kospi index during the last minutes of trading on Nov. 11 prompted regulators to limit the number of equity derivative contracts investors can hold. The penalty against the local unit comes amid heightened scrutiny globally of equity-market swings since a 20-minute drop in U.S. equities on May 6 briefly erased $862 billion of market value.

“Penalties are quite natural if trades were made intentionally to distort markets,” said Im Jeong Jae, a fund manager in Seoul at Shinhan BNP Paribas Asset Management Co., which oversees $29 billion of assets. “As trading gets more complex, it’s almost impossible to have perfect rules and systems in place to regulate it.”

The regulator said it didn’t file a complaint with South Korean prosecutors against the Deutsche Bank parent company. Still, the FSC has notified South Korean prosecutors and the Federal Financial Supervisory Authority of Germany about potential misconduct by the parent company, it said.

The regulator didn’t name the five employees.

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Swedish Financial Firms Ignore EU Bonus Guidelines, FSA Says

Swedish financial-services companies are ignoring European Union guidelines on awarding bonuses, the country’s financial regulator said.

Most of the 41 companies surveyed failed to comply with guidelines effective since Jan. 1 last year requiring them to adopt EU recommendations, the Swedish Financial Supervisory Authority said in a statement published on its website.

The FSA will now start individual investigations into each of the companies that “displayed shortcomings,” it said.

The FSA said it will publish clearer rules on March 1 in an effort to prevent financial companies from finding loopholes.

Cantor Fitzgerald Fined $100,000 for Gasoline Wash Trades

The Commodity Futures Trading Commission said it fined Cantor Fitzgerald & Co. $100,000 for engaging in wash sales and non-competitive trades on gasoline futures.

“On one or more occasions from March through April 2007, a then-employee of Cantor simultaneously entered orders with certain floor brokers from two different floor brokerage operations to buy and sell” gasoline futures for the same quantity, price and contract month, the Washington-based CFTC said yesterday in a statement.

Cantor neither admitted nor denied the commission’s findings, according to the CFTC order. Robert Hubbell, a spokesman for the New York-based firm, declined to comment.

LCH.Clearnet U.S. Rate-Swap Clearing to Begin March 8

LCH.Clearnet Ltd., owner of the world’s largest interest-rate-swap clearinghouse, said its service for U.S. customers will begin March 8 to compete with CME Group Inc. in the $348 trillion market.

The London-based company had to configure its clearing service to comply with the Dodd-Frank Act by segregating customer money in separate accounts that will remain in the U.S., known as a futures commission merchant system, the company said in an e-mailed statement. The segregation protects money managers’ cash in case the bank they use to access the clearinghouse goes bankrupt.

Clearinghouses worldwide may earn about $1 billion in annual revenue from clearing over-the-counter trades starting next year, according to a Feb. 16 joint report by Morgan Stanley and Oliver Wyman. Interest-rate swaps account for the largest over-the-counter derivatives market, with $348 trillion in notional value outstanding as of June, according to the Bank for International Settlements.

The Commodity Futures Trading Commission and Securities and Exchange Commission are writing rules to govern processing swaps through clearinghouses. They have until July to finish developing regulations, after which there will be a period to implement them. CFTC Chairman Gary Gensler said earlier this month that implementation may be staggered to allow a smooth transition.

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South Korea FSC to Suspend Domin Mutual Savings for 6 Months

South Korea’s Financial Services Commission will suspend the operations of Domin Mutual Savings Bank for six months starting today because of a potential liquidity crunch resulting from excessive deposit withdrawals, the country’s financial regulator said in an e-mailed statement yesterday.

The savings bank earlier in the day yesterday notified customers it will voluntarily halt business for the time being, the FSC said.

Credit Suisse Employees Investigated by Dusseldorf Prosecutor

A local prosecutor in Dusseldorf, Germany is investigating four employees of Credit Suisse Group AG for allegedly assisting in tax evasion, bringing the total number of people under inquiry to nine.

“Offices and private rooms of the four employees have been searched by the police yesterday,” prosecutor Ralf Moellmann said by telephone today. The searches took place in the German cities of Hamburg, Hanover, Cologne and Frankfurt, as well as two other small towns he declined to identify.

This doubles the number of current Credit Suisse workers under investigation by the Dusseldorf prosecutor. A former employee of the bank is also under review, according to Moellmann. They are suspected of having helped German taxpayers avoid taxes by opening accounts outside the country.

Bjoern Korschinowski, a Credit Suisse spokesman, confirmed the searches and declined to make further comments on the inquiry in a telephone interview today.

The investigation began last year after German authorities obtained a disk whose data prompted probes against customers of the Zurich-based bank.

Zimbabwe’s Royal Bank Reopens After Six Years, Newsday Reports

Royal Bank of Zimbabwe Ltd. reopened yesterday after a six-year closure, Newsday reported, citing Chief Executive Officer Jeff Mzwimbi.

The closely held lender was closed by Zimbabwe’s central bank after failing to meet minimum capital requirements amid Zimbabwe’s decade-long economic crisis, the Harare-based newspaper said. Royal plans to lend primarily to farmers, Newsday reported.


Barclays Need Not Pay ‘Windfall’ to Lehman, U.S. Judge Says

Lehman Brothers Holdings Inc. lost a bid to recover an alleged $11 billion “windfall” from Barclays Plc’s purchase of its defunct brokerage unit when a judge ruled the transaction was fair.

Barclays stands to get at least $800 million of the $3 billion it wanted, and may get a similar amount later, according to a ruling yesterday by U.S. Bankruptcy Judge James Peck in Manhattan and previous court filings.

“In this very high-stakes dispute, Barclays was sure enough of its position that it was willing to bet the house on prevailing rather than entertaining settlement,” said George Kuney, a professor at the University of Tennessee College of Law in Knoxville who teaches bankruptcy and contract law.

The trustee liquidating the remnant of Lehman’s brokerage claimed London-based Barclays owed $7 billion. His claim also was denied by Peck.

The bankruptcy fight pitted the U.K.’s third-biggest bank against Lehman, whose creditors the company has said will get an average of 18.6 cents on the dollar, without lawsuit proceeds.

Peck said it was “especially” important that emergency sales in bankruptcy court should be final.

“The court concludes that the lapses in disclosure at the sale hearing did not affect the fairness or alter the outcome of the hearing and were not characterized by either the deliberate withholding of material information or willful misconduct,” as Lehman and the trustee had alleged, Peck wrote.

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Vivendi Wins Ruling Limiting Class-Action Fraud Verdict

Vivendi SA won a court ruling that limits an earlier class-action securities fraud verdict against the company to holders of its American depositary receipts.

A Manhattan jury in January 2010 found that Paris-based Vivendi misled shareholders about its financial health 57 times from 2000 to 2002, artificially inflating the value of its shares. Lawyers for the investors claimed that damages to the entire shareholders’ class totaled $9.3 billion.

U.S. District Judge Richard Holwell in a 122-page ruling released yesterday dismissed claims by holders of Vivendi’s ordinary shares from the suit. He applied a U.S. Supreme Court decision saying that U.S. securities laws don’t protect investors who buy foreign stocks on overseas exchanges.

The ruling eliminates more than 80 percent of the claimed damages in the case, according to Flavie Lemarchand-Wood, a spokeswoman for Vivendi, owner of the world’s biggest music and video-game companies.

“Vivendi will now analyze Judge Holwell’s decision in detail to determine its next steps,” Lemarchand-Wood said in a telephone interview.

Holwell relied on the Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which barred the U.S. court claims of a group of Australian citizens who bought shares of an Australian bank on foreign exchanges.

“Going forward, the class shall consist of all persons from the United States, France, England and the Netherlands who purchased or otherwise acquired American depositary shares of Vivendi between Oct. 30, 2000, and Aug. 14, 2002,” Holwell said in the written opinion, which was dated Feb. 17.

“While we are of course disappointed at the court’s application of the Morrison decision to this case, we are pleased that the court soundly rejected Vivendi’s many arguments challenging the jury verdict, and we will proceed vigorously to expedite procedures to allow class members to collect their damages,” Dan Fleshler, a spokesman for Milberg LLP, said in a statement.

Milberg is one of the law firms representing Vivendi investors in the case.

The case is In Re Vivendi Universal SA Securities Litigation, 02-cv-5571, U.S. District Court, Southern District of New York (Manhattan).

Citigroup Unit Sued Over Mortgage Modification Program

A class-action lawsuit filed yesterday in federal court in New York claims that a Citigroup Inc. mortgage unit didn’t honor agreements with borrowers to modify mortgages and prevent foreclosures as required by federal law.

CitiMortgage is accused of breaching a contract with homeowners after they “prequalified” for a program that reduced their mortgage payments, according to a filing yesterday in U.S. District Court in Manhattan.

“We cannot discuss the specifics of the case at this point other than to say it is under review,” Sean Kevelighan, a spokesman for New York-based Citigroup, said in an e-mailed statement.

Daniel and Brenda Seller of Mahopac, New York, who filed the complaint, seek to represent at least 100 members of the class. They said in the complaint that they qualified for a trial loan modification, which reduced their monthly payments. The bank has delayed making the modification permanent, the plaintiffs charge.

The case is Seller v. CitiMortgage Inc., 11-1196, U.S. District Court, Southern District of New York (Manhattan).

Alberto-Culver Wins Judge’s Approval to Settle Investor Suit

Alberto-Culver won a Delaware Chancery Court judge’s permission to settle a shareholder lawsuit challenging the beauty-products company’s planned $3.7 billion takeover by Unilever in exchange for more information on the buyout and $3 million in legal fees, according to court papers.


Warren Says Consumer Bureau’s Card Rules Cut Rates, Fees

Elizabeth Warren, the White House adviser in charge of setting up the Consumer Financial Protection Bureau, spoke about the impact of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, known as the Credit Card Act, which became effective a year ago. Warren discussed the goal of assessing which steps taken by the credit card industry in reforming its practices have been successful, and which require further study and work.

She spoke at a conference in Washington.

For the video, click here.

Comings and Goings

U.K. FSA’s Ross Wins European Union Market Regulator Post

European regulators voted to make Verena Ross, international director of the U.K.’s Financial Services Authority, the executive director of the European Securities and Markets Authority.

The European Parliament must confirm the appointment, ESMA said in an e-mailed statement yesterday. Ross faced competition from European Commission official Maria Velentza for the top administrator job, three people familiar with the selection process said before the vote.

EU nations and the parliament agreed last year to establish ESMA as one of three authorities in London, Paris and Frankfurt to regulate the banking, securities and insurance industries respectively.

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