Bank of America, Foreclosure Accord, Card Access: Compliance

Bank of America Corp. won dismissal of claims by investors that it misled them about the liquidity of its auction-rate securities and manipulated the market for the investments.

U.S. District Judge Jeffrey White in San Francisco said in an order yesterday that investors could renew market-manipulation claims if they added more information to their complaints.

Investors who bought auction-rate securities from 2003 to 2008 sued Bank of America in 2009 on claims that the products were offered as safe, cash-like investments while the company hid their risks. Banks running periodic auctions abandoned the $330 billion market for the securities in 2008 amid the fallout from the subprime market slump and investors were stuck with them.

Bank of America, based in Charlotte, North Carolina, agreed in October 2008 to buy back $4.5 billion in auction-rate securities from investors and pay a $50 million fine in agreements with the U.S. Securities and Exchange Commission and then-New York Attorney General Andrew Cuomo.

Plaintiffs in the case pending in federal court in San Francisco haven’t benefited from the settlement and continue to hold the securities or sold them at a loss, according to White’s ruling.

Dan Girard, an attorney for investors, didn’t immediately return a voice-mail message seeking comment.

The case is Bondar v. Bank of America, 08-02599, U.S. District Court, Northern District of California (San Francisco).

Compliance Action

Regulators Said to Push $20 Billion Foreclosure Settlement

U.S. regulators probing flawed and illegal mortgage-foreclosure practices may try to extract $20 billion of penalties in a settlement with banks that serviced the loans, according to two people briefed on the talks.

Terms of the potential accord, from regulators led by the Treasury Department and the Department of Housing and Urban Development, haven’t been formally presented to banks, according to the people, who spoke on condition of anonymity because the discussions aren’t public. Lenders embroiled in the investigation include Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.

The government originally floated a $25 billion penalty, which banks rejected, one person said. Banks are resisting a large settlement because while regulators have found widespread flaws and violations in documents and procedures, the federal agencies said they so far have uncovered few examples of wrongful foreclosures.

Regulators are weighing whether the settlement should require servicers to write down mortgage principal that would lower home-loan payments for distressed borrowers, the person briefed on the talks said.

Details of the settlement talks were reported earlier in the Wall Street Journal.

Mortgage servicers drew scrutiny from federal bank and housing regulators and state attorneys general after evidence emerged in court cases that banks and their contractors submitted flawed or illegal paperwork in hundreds of thousands of foreclosure cases.

The so-called robo-signing scandal has slowed foreclosure and bankruptcy cases, clogged state courts and prompted a review of major financial companies.

Officials from HUD and the Office of the Comptroller of the Currency have said publicly that regulators may announce fines against servicers in the coming weeks.

SEC Lawyer’s Role in Madoff Case Questioned by Lawmakers

U.S. House Republicans asked Securities and Exchange Commission Chairman Mary Schapiro to disclose details of the participation of the agency’s chief lawyer in the investigation of Bernard Madoff’s Ponzi scheme.

The SEC said yesterday that the agency’s departing general counsel, David M. Becker, didn’t recuse himself from the Madoff probe after he and his brothers inherited about $2 million in 2004 from their mother’s investment with the jailed financier.

Becker sought an opinion from the SEC’s ethics office “shortly after his return to the agency in 2009” about the family Madoff account, John Nester, an SEC spokesman, said in a statement. The ethics office told Becker he didn’t need to disqualify himself from “participation in certain Madoff-related matters,” Nester said.

Becker said on Feb. 23 that he learned through a summons last week that he and his two brothers were sued in bankruptcy court in New York by Irving H. Picard, the trustee liquidating Madoff’s firm, who seeks to recover $1.5 million of the inheritance as a “fictitious” gain.

House Financial Services Chairman Spencer Bachus and three senior members of his panel sent Schapiro a letter yesterday requesting information on any meetings between Becker and Madoff, as well as whether he prepared “any legal memoranda, or provided counsel to any SEC employees about any matters” involving Madoff’s firm.

The lawmakers also asked for information and documentation about Becker’s involvement in the Madoff case, including “all meetings with the Department of Justice, the Securities Investor Protection Corporation, Mr. Irving Picard or any Madoff victims.”

Becker’s departure from the SEC isn’t connected to Picard’s lawsuit, Becker said Feb. 23. He declined to discuss his conversations with SEC officials about the matter.

Horizon to Pay $45 Million Fine in Price-Fixing Case

Horizon Lines Inc. will plead guilty and pay a $45 million fine for fixing freight rates, the U.S. Justice Department said.

Horizon, based in Charlotte, North Carolina, conspired to fix prices for shipping freight between the U.S. and Puerto Rico from May 2002 to April 2008, according to the department, citing a one-count felony charge filed yesterday in U.S. District Court in Puerto Rico.

The fine stems from an investigation the department’s Antitrust Division is conducting of the coastal water freight industry, according to the department. In 2008, five former executives pleaded guilty in the Horizon case.

Horizon executives met with co-conspirators to fix rates and surcharges and then make sure the plot was carried out, the department said.

Ex-Taylor, Bean Treasurer Admits Guilt in $1.9 Billion Fraud

The former treasurer of Taylor, Bean & Whitaker Mortgage Corp., once the 12th-largest mortgage lender in the U.S., admitted helping run a $1.9 billion fraud scheme that targeted the government’s Troubled Asset Relief Program and contributed to the failure of Colonial Bank.

Desiree Brown, 45, pleaded guilty in federal court in Alexandria, Virginia, to wire fraud, securities fraud, and conspiring to commit bank fraud, and agreed to cooperate with prosecutors bringing Lee Farkas, former chairman of Taylor, Bean, to trial on April 4. Brown also settled civil charges with the Securities and Exchange Commission, the SEC said.

Until yesterday’s charges, Farkas, 58, was the only person charged in what the government said was a massive scheme to deceive financial firms and TARP by covering up shortfalls at Taylor, Bean & Whitaker, once one of the largest privately held mortgage companies in the U.S., according to the SEC. Farkas was charged in a 16-count indictment in June and faces the possibility of spending the rest of his life in prison, according to court papers.

“Were there other people besides Mr. Farkas who were involved in this scheme,” U.S. District Judge Leonie M. Brinkema asked Brown at the plea hearing?

“Yes ma’am,” Brown answered.

Brown, of Hernando, Florida, faces a maximum penalty of 30 years in prison, a $250,000 fine and an order to pay restitution to more than 250 victims. She is to be sentenced on June 10.

The crime included conspiring to transfer funds between closely held Taylor Bean and Colonial Bank, a unit of Colonial BancGroup Inc., to hide overdrafts, prosecutors said. The bank was one of the 50 largest in the U.S., according to the government.

The SEC’s complaint alleges Brown violated antifraud, reporting, books and records and internal controls provisions of federal securities laws. She agreed to an injunction against future violations without admitting or denying the SEC’s allegations.

The Brown case is USA v. Brown, 1:11-cr-00084, and the Farkas case is USA v. Farkas, 1:10-cr-00200, U.S. District Court, Eastern District of Virginia (Alexandria).

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Swiss Bank Says It Hasn’t Received Inquiries in Tax Case

Maerki Baumann & Co., a Swiss private bank, said it hasn’t received any inquiries from the U.S. Justice Department after a former employee was charged with conspiring to help American clients evade taxes.

“The bank will fully cooperate with the American authorities as and if required,” the Zurich-based company said in an e-mailed statement yesterday. The bank “attaches great importance to adhering to regulatory guidelines in all of its business activities.”

Emanuel Agustoni, a Swiss citizen, worked for Maerki Baumann from March 2005 until November 2008 and his employment contract was terminated because of “differing views with regard to business practices,” the bank said.

Agustoni, who worked for Credit Suisse Group AG before joining Maerki Baumann, was one of four bankers charged Feb. 23 in the U.S. He traveled to the U.S. to help clients evade their taxes and continued doing so at two other private Swiss banks besides Credit Suisse, prosecutors charged.

Maerki Baumann said its board decided to cease all business with clients domiciled in the U.S. in May 2009 and implemented that step by the end of that year.

LG Display Appeals EU Penalty for Alleged Price-Fixing

LG Display Co., the world’s second-largest maker of liquid-crystal displays, appealed the European Union’s decision to fine the company for fixing prices.

LG filed an appeal on Feb. 23 asking for a reduced penalty, the Seoul-based company said in a regulatory filing today. The company was fined 215 million euros ($297 million) in December, along with Chi Mei Optoelectronics Corp. and four other display makers, the European Commission said.

The company reported its first quarterly loss in almost two years in January after it reflected the penalty.

Compliance Policy

Stay-Home Moms at Fed’s Door as Rule Tightens Card Access

Sometimes the best intentions can go awry. Just ask the Federal Reserve, which in its efforts to stop credit-card companies from preying on poor people and students has touched off a battle over stay-at-home moms.

Charged with writing rules implementing the 2009 law designed to curb credit-card abuses, the Fed late last year proposed that card companies consider “individual” rather than “household” income or assets when issuing cards. The change, say lawmakers who worked on the measure, is meant to prevent banks from issuing credit cards to college students who then run up thousands of dollars in debt and have no ability to pay.

The Fed, which has spent most of the financial crisis getting slammed for its lax oversight of consumer credit, took things a step further, interpreting the law to mean that it should keep credit cards out of the hands of anyone without a paycheck or ample personal savings. That, of course, includes spouses who don’t work -- husbands in some cases but most often wives, Bloomberg Businessweek reports in its Feb. 28 issue.

In its November proposal, the Fed said those without an income could get a credit card if a spouse co-signed the application. Some Fed critics say the proposal makes the central bank look like it is stuck in the 1950s, when women needed their husbands’ signatures even to open bank accounts.

“Women have worked hard over the course of my lifetime to establish financial independence,” said Representative Carolyn B. Maloney, a New York Democrat and one of the authors of the Credit Card Accountability, Responsibility, and Disclosure Act. “If a stay-at-home mom, who’s often the one who controls the family finances, cannot easily obtain a credit card in her own name, then that would be a step backward.”

Anne P. Fortney and Jean Noonan, partners in the Washington office of law firm Hudson Cook, wrote in a Dec. 20 letter: “The proposal undermines 35 years of progress for married women (and married men if they do not work outside the home).”

Policy specialists say fixing the mom flap won’t be easy, especially in the post-financial-crisis environment where regulatory zeal is the norm, even if it produces unintended consequences.

“This is how it’s going to be in Washington,” said Brandon Barford, a former Republican Senate Banking Committee aide who is now a vice president at ACG Analytics, an investment research firm. “Regulators need political cover to fix this, they need to look tough.”

Susan Stawick, a Fed spokeswoman, declined to comment on the central bank’s interpretation of the credit-card law and whether the regulator plans to change the proposal. The agency hasn’t set a deadline for issuing a final rule.


Beckman Coulter Sued by Investor Over $6 Billion Danaher Bid

Beckman Coulter Inc., the medical-diagnostic equipment maker being bought by microscope maker Danaher Corp. for $6.8 billion, was sued by a shareholder who says the company is worth more than the $83.50-a-share bid.

Directors of Brea, California-based Beckman Coulter didn’t meet their obligation to get the best price for shareholders in a sale, Yuri Levin said Feb. 23 in a complaint in Delaware Chancery Court in Wilmington.

The sale price “is unfair and grossly inadequate” considering the prospect for growth, and officials have a self-interest in selling the company because “the board and certain officers would receive an aggregate of approximately $42 million” by cashing out stock, Levin contends.

Danaher, based in Washington, said Feb. 7 it agreed to buy Beckman Coulter amid increased demand for medical tests from an aging population.

“As a matter of policy, we don’t comment on lawsuits,” Mary Luthy, a Beckman Coulter spokeswoman, said yesterday in a phone interview.

The case is Levin v. Beckman Coulter Inc., CA6213, Delaware Chancery Court (Wilmington).

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