Credit Suisse, Madoff, Cable Fees, Mortgages: Compliance

Four bankers who worked at Credit Suisse Group AG were charged with conspiring to help U.S. clients evade taxes through secret bank accounts, according to an indictment yesterday and people familiar with the matter.

Marco Parenti Adami, Emanuel Agustoni, Michele Bergantino and Roger Schaerer conspired with clients at “one of the biggest banks in Switzerland,” according to an indictment in federal court in Alexandria, Virginia. Zurich-based Credit Suisse, the second-biggest bank in Switzerland, is the bank, according to the people who requested anonymity because they aren’t authorized to speak publicly about the indictment.

The bank’s managers in its cross-border business “knew and should have known that they were aiding and abetting U.S. customers in evading their U.S. income taxes,” according to the indictment. In the fall of 2008, the bank had “thousands” of accounts with $3 billion in assets not declared to the U.S. Internal Revenue Service, according to the indictment.

The scheme included setting up undeclared accounts protected by Swiss bank secrecy, providing banking and investment services in New York to holders of those accounts, and having bankers provide unlicensed banking services to customers they visited in the U.S., according to the indictment.

“The conspiracy dates back to 1953 and involved two generations of U.S. tax evaders including U.S. customers who inherited secret accounts,” according to a Justice Department statement.

“We are cooperating with the authorities in their investigation against these four individuals,” Marc Dosch, a bank spokesman in Zurich, said in a statement.

The case is U.S. v. Marco Parenti Adami, 11-cr-95, U.S. District Court, Eastern District of Virginia (Alexandria).

For more, click here.

Compliance Action

SEC’s Top Lawyer Becker Sued for Inheriting Madoff Ponzi Profits

David M. Becker, the departing chief lawyer at the U.S. Securities and Exchange Commission, said he had no detailed knowledge of how his parents came to earn $1.5 million from an investment in Bernard Madoff’s Ponzi scheme.

Becker and his brothers, who inherited the money upon his mother’s death in 2004, were sued in bankruptcy court in New York by the trustee liquidating Madoff’s firm, Irving H. Picard, who seeks to recover the funds as a fictitious gain.

“It is true that my brothers and I were designated as co-executors of my mother’s will, and it is also true that we were the residual beneficiaries of my mother’s estate,” Becker, 63, said yesterday in an e-mail. “I have no direct knowledge of any of the other facts -- how and when the Madoff account was opened, what was invested, and what was in the account when it was liquidated.”

Becker, who had been the SEC’s general counsel from 1999 to 2002, returned to that role in 2009. At the time, the agency was reeling from its failure to uncover the Madoff scandal before it unraveled in 2008. Asked whether he disclosed his family’s investment with Madoff when he rejoined the SEC, he said, “I can’t discuss internal discussions.”

Becker is finishing his last week as general counsel and senior policy adviser at the agency. A Feb. 1 announcement of his pending departure from the SEC came eight days before the date on a pretrial summons from Picard that was served to Becker and his brothers, William and Daniel.

Picard’s lawsuit against the Beckers earlier was reported by the New York Daily News.

EPA Overhauls Boiler Rules After Complaints About Cost

The Obama administration issued pollution rules for industrial boilers that it said are 50 percent less expensive than regulations proposed last year that drew industry opposition.

The Environmental Protection Agency’s rules for boilers and incinerators will provide health benefits while reducing costs from last year’s proposal, the EPA said yesterday in a statement.

The EPA lost a bid last month to postpone the rules by 15 months when a federal judge ordered action within 30 days. Companies and business groups such as the Council of Industrial Boiler Owners in Burke, Virginia, said the previous version may cost $20 billion and kill 300,000 jobs. EPA Administrator Lisa Jackson has said the agency will reconsider the rules issued yesterday and make any necessary changes.

The American Petroleum Institute, the biggest U.S. lobbying group for the oil and gas industry and a critic of the 2010 proposed boiler rules, said it welcomes EPA’s effort to change the regulations.

“API is committed to work with the agency during its reconsideration period to ensure that the final rule protects the environment while allowing businesses to create jobs and get Americans back to work,” Howard Feldman, director of science and regulatory policy at Washington-based API, said in a statement yesterday before release of the rules.

U.S. Agriculture Secretary Tom Vilsack praised the EPA for revising the rule to ease requirements for biomass alternative-fuel producers.

The EPA is “retaining important energy choices such as biomass that provide heat and power to rural hospitals and schools,” Vilsack said in a statement.

Visa Europe May Face Another EU Credit-Card Fee Complaint

Visa Europe Ltd., operator of the largest payment-card network in the 27-nation European Union, may receive a second EU antitrust complaint on credit-card transaction fees later this year, regulators said.

The fees Visa charges for cross-border credit-card and deferred-debit transactions are being investigated by the European Commission, the EU executive branch, after retailers said they unfairly raised their costs. Visa reduced similar fees for debit cards last year to settle an EU complaint from 2009.

“It is intended to issue a supplementary statement of objections later this year,” EU Competition Commissioner Joaquin Almunia said in a letter to a Dutch lawmaker in the European Parliament. “The case will continue to be handled with priority.”

Visa Europe split from Visa Inc. before the U.S. card company’s initial public offering in early 2008. Amanda Kamin, a spokeswoman at Visa Europe, said the company was aware and didn’t “have anything further to share at this time.”

MasterCard also settled a similar case by the commission in 2009, agreeing to cut interchange fees to 0.3 percent of a transaction’s cost for credit cards and 0.2 percent for debit cards.

SEC Probes Potential Conflicts in Private-Share Trades, WSJ Says

The U.S. Securities and Exchange Commission is examining potential conflicts of interest in the market for shares of private companies such as Facebook Inc. and Twitter Inc., the Wall Street Journal reported, citing unidentified people familiar with the matter.

The regulator is concerned about the “middleman” role played by market-makers such as SecondMarket Inc. and SharesPost Inc. that specialize in privately held shares, the newspaper said.

SEC officials believe the “middleman” role might cause conflicts of interest, in view of the difficulty of ascribing a fair value to privately traded shares; they take the view that some of the firms promoting the buying and selling of shares in private companies should be registered as broker-dealer operations, the Journal said.

Porsche Says Investigation May Delay VW Merger; Shares Plunge

Porsche SE’s planned merger with Volkswagen AG will probably be delayed into next year because of German legal obstacles. As a result, Porsche shares plunged the most in 19 months.

An ongoing probe by Stuttgart prosecutors into allegations of share-price manipulation by two former board members will likely push the deal’s completion into 2012, Porsche said, adding it believes the combination will go ahead.

Volkswagen said last year that the transaction, originally planned to close in the second half, was also being held up by U.S. lawsuits and German tax disputes. Porsche and VW, whose headquarters are in Wolfsburg, Germany, agreed to combine in August 2009 following a failed attempt by the Stuttgart-based sports-car maker to acquire its larger rival.

“Legal proceedings are proving to be more complex,” said Arndt Ellinghorst, a London-based Credit Suisse analyst with “outperform” ratings on VW and Porsche. “It’s very likely that it will happen next year because financial risks will then be more calculable.”

Investigators have expanded the scope of their probe into former Porsche Chief Executive Officer Wendelin Wiedeking and former Chief Financial Officer Holger Haerter to include allegations they may have taken risks endangering the carmaker’s existence, the Stuttgart prosecutors said in a statement today.

For more, click here.

Compliance Policy

SEC Pressed to Give Local Board Members Pass From Adviser Rules

State and city officials are pressing the Securities and Exchange Commission to scrap a proposed rule that would subject members of local-government boards to new federal oversight.

The proposed SEC rule is part of the agency’s move to craft regulations for the financial advisers that work for localities as they sell bonds or invest money, a result of the regulatory overhaul passed by Congress last year. The rule would cause people appointed to local boards to be considered advisers, a step that would subject them to SEC rules.

The proposal drew dozens of letters from local government officials who said it would place a burden on those who volunteer to work for boards and be an unnecessary intrusion into their affairs. The Municipal Securities Rulemaking Board, which is tasked with drawing up regulations for advisers, said the SEC should exempt board members from such rules, as it does elected officials and government employees.

The regulations “will have a chilling effect on the ability of local governments to obtain the highest-quality volunteer participation for municipal authorities,” Donald Borut, the executive director of the National League of Cities, wrote in a letter to the SEC Feb. 22.

The SEC proposal is an early move in the effort to regulate the firms and individuals who sell advice to local officials as they raise money in the $2.9 trillion municipal-bond market.

The Dodd-Frank law requires such advisers to register with the SEC and subjects them to regulations drawn up by the Municipal Securities Rulemaking Board, the self-regulatory organization whose rules are reviewed by the SEC.

Frank Urges CFTC, SEC to Reconcile Swaps-Trading Regulations

The U.S. Commodity Futures Trading Commission and Securities and Exchange Commission should reconcile differences in how the agencies would oversee new swaps-trading platforms under the Dodd-Frank Act, U.S. Representative Barney Frank said.

“Differences in the rules that are not required by differences between various financial products will only serve to drive up the cost of implementation, without improving the regulatory structure,” Frank said in a Feb. 18 letter to CFTC chairman Gary Gensler and SEC chairman Mary Schapiro.

The financial-overhaul law enacted in July requires the two agencies to define swap-execution facilities as an alternative to exchanges for the trading of interest rate, credit and other swaps.

The CFTC proposed a rule in December that would allow participants in the trading facilities to request price quotes from a minimum of five possible sellers. The SEC on Feb. 2 proposed a rule that would allow swap buyers to request a quote from a single seller.

Frank, from Massachusetts, is the highest-ranking Democrat on the House Financial Services Committee. He was co-sponsor of the financial overhaul law known as the Dodd-Frank Act.

The CFTC and SEC proposals are open to public comment before they are completed. The CFTC comment period ends March 8; the SEC comment period ends April 4.

The CFTC has authority under the law to write new regulations for most of the swaps market, including interest-rate transactions, while the SEC has authority over swaps tied to securities or narrow indexes of securities.

Derivatives, including swaps, are financial contracts tied to stocks, bonds, interest rates or events, such as the potential for a company to default.

Fannie, Freddie Preparing Penalties for Mortgage Servicers

Fannie Mae and Freddie Mac will announce penalties within weeks on mortgage servicers that submitted flawed paperwork in foreclosure cases, the companies’ top regulator said.

Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said the government-owned mortgage companies also are strengthening standards for loan servicers.

“The enterprises will be moving forward with servicer penalties for last year in the coming weeks,” DeMarco said in a speech yesterday at a meeting of the Mortgage Bankers Association in Dallas. “Our goal is to announce the new set of requirements, timelines, incentives and penalties by the end of the first quarter of this year.”

Mortgage servicers drew scrutiny last year after evidence emerged in court cases that employees and contractors were providing flawed paperwork in hundreds of thousands of foreclosure cases. The Financial Fraud Enforcement Task Force in Washington and all 50 state attorneys general are investigating the so-called robo-signing scandal.

Task force members, including banking and housing regulators, launched a review of foreclosure procedures and loan servicers, including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., PNC Financial Services Group Inc., U.S. Bancorp and HSBC Holdings Plc.

For more, click here.

BlackRock, Futures Exchanges Balk at CFTC Block Trading Limit

BlackRock Inc., CME Group Inc. and Intercontinental Exchange Inc. are pressing the Commodity Futures Trading Commission to lower a proposed threshold for transactions that occur on centralized futures markets.

The CFTC proposed that 85 percent of all transactions in a futures contract must be done through a market’s central limit order book system, with the remaining 15 percent allowed to be done off-exchange in block trades. If a contract fails to meet the threshold it would have to be taken off the exchange. The proposal is meant to protect price discovery for futures by limiting non-public block trading, according to the CFTC.

“The minimum trading threshold set by the Commission would allow only the most liquid contracts to remain as futures,” Audrey Hirschfeld, general counsel for Atlanta-based Intercontinental Exchange, wrote in a letter to the CFTC dated Feb. 22.

BlackRock, the world’s largest asset management firm, suggested the CFTC lower the threshold to 75 percent in a Feb. 22 letter. Intercontinental agreed that a threshold of 75 percent would be more reasonable, according to its letter.

For more, click here.

Cablevision May Fall Short in Bid for U.S. Help in Fee Spats

Cablevision Systems Corp. and Time Warner Cable Inc. may not gain the leverage they seek in fee fights with broadcasters like the dispute with Fox that blocked World Series baseball games from New York-area homes last fall.

The Federal Communications Commission is considering rules that would leave out two provisions sought by cable companies: mandatory binding arbitration of fee disputes and language requiring broadcasters to keep airing programs on pay-TV systems during negotiations. The proposed rules, which face an initial vote next week, were described by two agency officials who spoke anonymously because the proposal hasn’t been made public.

Cable companies and satellite TV providers Dish Network Corp. and DirecTV want federal help after a year in which TV blackouts reached the highest level in at least a decade, according to data compiled by Bloomberg. Three million viewers in the New York and Philadelphia markets missed World Series games during a two-week dispute between Cablevision and News Corp.’s Fox.

Broadcasters led by Fox, CBS Corp., Walt Disney Co.’s ABC and Comcast Corp.’s NBC are set to increase the programming fees they charge pay-television providers to $1.63 billion by 2015, from $214.6 million in 2006, according to a study conducted for satellite companies and for the National Cable & Telecommunications Association. The Washington-based trade group’s members include Comcast, the largest U.S. cable company.

For more, click here.

Boutiques Set to Capitalize on Del Monte ‘Slap’ at Wall Street

A Delaware judge’s public rebuke of Barclays Plc over conflicts of interest in the sale of Del Monte Foods Co. may become a calling card for boutique advisory firms such as Rothschild and Greenhill & Co.

Barclays, which represented the fruit-juice and pet-food company on its $5.3 billion sale to a KKR & Co.-led group, deceived its client by failing to disclose until late in the process plans to provide financing for the purchaser, Chancery Court Judge J. Travis Laster said in a Feb. 14 opinion. Del Monte would probably have hired another bank if it knew Barclays, the U.K.’s third-largest bank, planned to “double-dip” for fees by working for the buyers, he wrote.

Wall Street’s independent advisory firms may seize on the judge’s conclusions, which Barclays denies, to woo clients from the larger banks that advise on, structure and finance takeovers. Laster’s opinion will probably spur company boards to hire independent advisers earlier in the sale process and could make it more difficult for banks that try to work for both buyers and sellers, academics and dealmakers said.

“This is a real slap in the face for the industry,” said Roy Smith, a finance professor at New York University’s Stern School of Business in Manhattan. “It says the directors need to ask more about what their bankers are doing than in the past.”

Lazard Ltd., Greenhill & Co., and Evercore Partners Inc. are the largest publicly traded advisory firms that don’t have big businesses underwriting stocks and bonds or lending money. Closely held rivals include Rothschild North America Inc., Perella Weinberg Partners LP, and Moelis & Co. The firms are all based in New York.

For more, click here.

In the Courts

Winifred Jiau Pleads Not Guilty to Insider-Trading Charges

Winifred Jiau, a former consultant to Primary Global Research LLC, pleaded not guilty to conspiracy and securities-fraud charges as part of an insider-trading investigation.

Jiau, 43, passed inside information on to an unnamed hedge fund portfolio manager and to Noah Freeman, the Boston hedge fund manager who pleaded guilty Feb. 7 to securities fraud, prosecutors said in an indictment made public yesterday in federal court in New York.

Jiau passed tips on Nvidia Corp. and Marvell Technology Group Ltd. to the two men, according to the indictment. She was paid as much as $10,000 a month in return. Jiau, who is being held in a federal jail in Manhattan, was originally charged Dec. 29 in a criminal complaint.

Her lawyer, Frederick Hafetz, declined to comment on the indictment.

The case is U.S. v. Jiau, 10-mj-02900, U.S. District Court, Southern District of New York (Manhattan).

MERS Can Foreclose in California, State Appeals Court Rules

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has the right to foreclose on defaulted borrowers in California, a state appeals court ruled.

U.S. courts have differed in recent years on whether Merscorp’s Mortgage Electronic Registration Systems, or MERS, unit has the right to bring a foreclosure action.

“Under California law MERS may initiate a foreclosure as the nominee, or agent, of the noteholder,” California Court of Appeal Justice Joan K. Irion in San Diego wrote in a Feb. 18 ruling.

Merscorp, based in Reston, Virginia, and owned by Fannie Mae, Freddie Mac, JPMorgan Chase & Co. and other mortgage-industry companies, said in a Feb. 16 announcement that it will propose a rule change to stop members from foreclosing in its name.

“It’s incorrect,” Ehud Gersten, the San Diego lawyer who brought the suit on behalf of the borrower, Jose Gomes, said of the ruling in a phone interview yesterday. “I disagree with it completely.”

Gersten said he will appeal the decision.

The case is Gomes v. Countrywide Home Loans Inc., D057005, California Court of Appeal (San Diego).

For more, click here.

Appeals Court Upholds Lower Court Ruling on Finra Damage Suits

An appeals court ruled that the Financial Industry Regulatory Authority and present and former officers including Securities and Exchange Commission chairman Mary Schapiro are immune from lawsuits in connection with the creation of the brokerage industry regulatory body.

The 2nd Circuit Court of Appeals let stand a district court ruling related to the consolidation in 2007 of the National Association of Securities Dealers Inc. with the regulatory arm of the New York Stock Exchange to form Finra, according to a decision filed Feb. 22 in Manhattan.

Standard Investment Chartered Inc. had appealed the lower-court ruling, charging that officers of the NASD, of which it was a member, had made misstatements related to a proxy solicitation in 2006. NASD was amending its bylaws at the time to make them conform with the New York Stock Exchange’s. Standard claimed that the defendants misrepresented on the proxy solicitation that a payment of no more than $35,000 could be given to each member.

“We are pleased with the decision,” Nancy Condon, a spokeswoman for Finra, said in an e-mail.

George Hill, chief executive of Costa Mesa, California-based Standard Investment, didn’t immediately respond to messages seeking comment.

The district court dismissed the lawsuit last March, ruling that the defendants as “quasi-governmental organizations” and their officers were entitled to immunity relating to the proxy.

Defendants in the suit included the NASD, the NYSE, Finra, Schapiro, Richard Brueckner, chairman of Pershing LLC, and Howard Schloss, a senior vice president at Finra. Schapiro was CEO of the NASD in 2006 when it combined with the NYSE’s regulatory body.

The case is Standard Investment Chartered Inc. v. NASD, 10-945, 2nd U.S. Circuit Court of Appeals (Manhattan).

Bank of America Sued by Investors Seeking to Unload Loans

Bank of America Corp., the biggest U.S. bank by assets, was sued by investors in mortgage-backed bonds who are seeking to force the bank to buy back loans underlying their securities.

Bank of America’s Countrywide Financial unit breached representations and warranties about the loans, which it originated, the investors said in the complaint filed yesterday in New York State Supreme Court in Manhattan.

“Each of these breaches of representations and warranties materially and adversely affected the interests of both the trust and plaintiffs in those mortgage loans,” they said.

Defaults on mortgage loans have soared and mortgage investors have demanded that banks buy back poorly performing loans. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan bond analysts said in an October report.

A separate group of mortgage-bond investors is fighting with Bank of America over $47 billion of securities. The group, which includes Pacific Investment Management Co., MetLife Inc. and the Federal Reserve Bank of New York, said in October it was considering declaring Bank of America in default of its loan-servicing duties.

“There hasn’t been a lot of repurchase activity recently in terms of lawsuits being filed but there’s been a lot more activity going on behind the scenes with loan files being turned over and looked through,” Isaac Gradman, a San Francisco-based consultant and formerly a lawyer at Howard Rice Nemerovski Canady Falk & Rabkin, said yesterday.

Kevin Heine, a BNY Mellon spokesman, declined to comment immediately. Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America, didn’t return a call seeking comment. Bank of America acquired Countrywide in 2008.

The case is Walnut Place LLC v. Countrywide Home Loans Inc., 650497-2011, New York State Supreme Court (Manhattan).

LaBranche Shareholders Sue to Stop Sale to Cowen Group

LaBranche & Co. shareholders sued to stop the market-maker’s planned sale to financial services firm Cowen Group Inc., saying they’re not getting fair value.

The deal is structured to deter competing bids and will result in LaBranche stockholders ceding control for less than the company’s true value, the investors said in a complaint filed yesterday in New York State Supreme Court.

“The proposed transaction is the product of a flawed process that is designed to ensure the sale of LaBranche to Cowen on terms preferential to Cowen, but detrimental” to LaBranche shareholders, Stanley and Barbara Moskal said in their complaint, which seeks class-action status.

Under the proposed deal announced Feb. 17, Cowen will acquire LaBranche in an all-stock transaction. LaBranche shareholders will receive 0.998 share of Cowen common stock for each LaBranche share. LaBranche is a market-maker in options, exchange-traded funds and futures.

Jeffrey McCutcheon, LaBranche’s chief financial officer, didn’t immediately return a call seeking comment. Dan Gagnier, a Cowen spokesman, declined to immediately comment. Both companies, which are based in New York, were sued.

The case is Stanley Moskal v. LaBranche & Co. Inc., 650472-2011, New York state Supreme Court (Manhattan).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE