Nuclear Agency Meets, Dark Pool ‘Tuna,’ SEC-IBM: Compliance

U.S. nuclear regulators will meet in public this week to discuss the reactor crisis in Japan as President Barack Obama seeks a review of safety at domestic atomic plants.

The five-member U.S. Nuclear Regulatory Commission plans a briefing today on the “NRC response to recent nuclear events in Japan,” according to a notice posted March 18 on the agency’s website. Commissioners will meet at 9 a.m. at the agency’s headquarters in Rockville, Maryland, north of downtown Washington.

Japan is seeking to avert a meltdown at the Fukushima Dai-Ichi plant, which was damaged in the March 11 earthquake and tsunami.

Obama said March 17 he asked for a “comprehensive review” by the NRC of safety at U.S. reactors as more is learned about the stricken plant in Japan. U.S. plants already have undergone “exhaustive study” and been “declared safe for any number of extreme contingencies,” he said. The NRC has a yearly budget of about $1 billion and employs about 4,000 people, according to

Compliance Policy

Study Shows Too-Big-To-Fail U.S. Banks Grew After Crisis

The largest U.S. banks have grown larger since the financial crisis, and the number of “too-big-to-fail” banks will increase by 40 percent during the next 15 years, according to data compiled by Bloomberg.

The Dodd-Frank law would prohibit the largest banks from merging with one another. The law would not prevent the largest banks from growing in other ways, according to the Bloomberg Government Study, “Too-Big-to-Fail Banks Get Bigger After Dodd-Frank.” Bloomberg’s Lizzie O’Leary reported.

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Merger Fees Should Be Published, U.K. Takeover Panel Proposes

The U.K. merger regulator proposed changes to its rules that would seek to protect takeover targets from protracted bid periods and to make deal fees public to increase transparency.

U.K. merger rules should be altered to give takeover targets more control during deals, the Takeover Panel said in a statement today. The regulator also said that a buyer’s financial information and the financing of a bid should be disclosed.

The panel started a review of the nation’s takeover law last year after Kraft Foods Inc.’s acquisition of Cadbury Plc provoked an outcry from politicians. In October, the regulator said it had concluded that the rules should be altered to reduce the “tactical advantage” of hostile bidders for U.K. companies.

The London-based regulator also proposed banning measures in most circumstances that reduce the likelihood of a successful counterbid, such as so-called inducement fees.

Compliance Action

Fed Amends Credit-Card Rules on Income Requirements

The U.S. Federal Reserve approved a rule that would require credit-card issuers to consider consumers’ individual incomes before extending credit.

Credit-card applications generally can’t request “household income” because that term is too vague for issuers to evaluate whether customers will be able to make the required payments on the accounts, according to a statement from the Fed March 18. The rule is needed to prevent making credit available to consumers who lack the ability to pay, the Fed said.

The change is supposed to limit issuers from giving cards to college students, yet some lawmakers have been concerned that stay-at-home spouses will suffer.

Card issuers can allow spouses to apply jointly for credit, the Fed said. The Fed also specified that promotional programs that waive interest charges for a specific period of time are subject to the same protections as reduced rate programs.

Application fees that a consumer is required to pay are also covered by rules that apply to overall fees charged during the first year after the account is opened, the Fed said.

HSBC Was Told About Madoff ‘Fraud Risks’ in Two KPMG Reports

HSBC Holdings Plc, Europe’s biggest lender, was warned twice by auditors that entrusting as much as $8 billion in client funds to Bernard Madoff opened it up to “fraud and operational risks.”

KPMG LLP told the London-based bank about the risks in 2006 and 2008 reports. The firm was hired to review how Madoff invested and accounted for the funds, for which HSBC served as custodian. KPMG reported 25 such risks in 2006, and in 2008 found 28, according to copies of the reports obtained by Bloomberg News.

Irving H. Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, sued HSBC and a dozen feeder funds for $9 billion in December in U.S. Bankruptcy Court in Manhattan. The suit was partly based on the KPMG reports and alleges the bank knew of concerns Madoff’s business was a fraud and didn’t protect investors.

In the reports, KPMG didn’t present evidence the risks it identified had materialized or that it found signs of actual fraud, and said HSBC had told the firm “no allegations of fraud or misconduct have been raised.”

HSBC Spokesman Patrick Humphris, KPMG spokesman Mark Hamilton and Amanda Remus, a spokeswoman for Picard’s lawyers Baker & Hostetler LLP, all declined to confirm the authenticity of the reports obtained by Bloomberg.

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Fed Says Banks Can Restart Dividends After Stress Tests

The Federal Reserve said some of the 19 largest U.S. banks will be able to restart dividend payments, buy back shares or repay government capital after “significant improvement” in their capital positions and the economy. Peter Cook reported on Bloomberg Television’s “InBusiness With Margaret Brennan.”

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Credit Suisse Plans Trader Profiles in CrossFinder Dark Pool

Credit Suisse Group AG will begin a program next month to categorize customers of its dark pool based on trading strategies, part of an effort to help them restrict who they do business with.

Larry Tabb, founder of New York-based Tabb Group LLC, said a challenge faced by asset managers is lack of information about who they are trading against. “This is the next step. Credit Suisse is trying to give clients more flexibility and information on whether other clients are minnows, tuna or sharks so they can decide whether to trade with them.”

The Zurich-based broker created a methodology to give clients more information about their own transactions and what types of counterparties they may be interacting with in dark pools. The broker will divide clients of its electronic trading unit into three groups based on a short-term profile of their trading, said Robert Maher, a London-based managing director and head of sales for Credit Suisse’s advanced execution services. The data will be used to allow clients to avoid executions with firms whose profiles are different from their own, he said.

Dark pools, private platforms that allow stock trades without displaying bids and offers, have grown to handle more than 12 percent of U.S. equity volume, according to Rosenblatt Securities Inc. The expansion has raised questions among investment managers about who’s on the other side of their transactions after the explosion of high-frequency trading.

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EU Allows CO2 Registries in Four Countries to Reopen March 21

The European Union allowed carbon registries in Finland, Romania, Slovenia and Sweden to reopen on March 21, lifting a suspension imposed after computer-hacking attacks in January.

The four registries got approval to resume after they demonstrated that their systems are secure, the European Commission, the EU regulator, said in a statement March 18. The decision means that 19 out of 30 national registries in the region will be fully operational as of this week, and their users will have access to all transactions.

The commission shut all registries in the European emissions-trading system, the world’s largest, on Jan. 19 following a series of computer-hacking attacks.

During the suspension period, registries can’t record transactions except for the surrender and allocation of permits, effectively blocking spot trading. The closures didn’t affect trading of carbon futures.

The four registries will resume normal operations at 8 a.m. today, the commission said March 18.

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Google Fined by French Privacy Agency Over Street View

Google Inc. was fined a record 100,000 euros ($142,000) for violations of French privacy rules by its Street View mapping service, the country’s data protection regulator said.

Google’s infractions included collecting passwords and e-mails transferred wirelessly, the National Commission for Computing and Civil Liberties said today in a statement on its website. The fines are the highest the authority, known as CNIL, has levied, according to the agency’s website.

Google has been targeted by data-protection authorities in the European Union for its Street View program, which lets users click on maps to see photographs of roadsides. The European Commission, the EU’s executive agency, plans stricter and more harmonized data-protection rules across the 27-nation region. The U.S. Federal Trade Commission closed a probe in October after Mountain View, California-based Google said it would improve its safeguards.

Google is “profoundly sorry for having mistakenly collected payload data from unencrypted WiFi networks,” said Peter Fleischer, the company’s global privacy counsel, in an e-mailed statement. The company stopped collecting the data after it realized what happened and it contacted the authorities, he said in the statement.

Dubai Censures Saxo Bank for Breaching Money-Laundering Rules

The Dubai Financial Services Authority, the regulator of the Dubai International Financial Center business park, censured Saxo Bank Dubai Ltd. for breaching anti-money laundering rules and systems.

This “increased the risk of Saxo Bank’s DIFC business being used for the purposes of money laundering,” the Authority said in an e-mailed statement yesterday. “However, the DFSA found no evidence of any money laundering having taken place.”

Saxo Bank A/S admitted it had breached rules relating to taking on clients and DFSA’s anti-money laundering systems by failing to obtain sufficient and satisfactory verification of clients’ identities, permanent addresses and sources of wealth, and performing ongoing due diligence on clients, according to the statement.

The Danish provider of online currency and derivative and equity trading also failed to adequately monitor client transactions and to establish and maintain appropriate controls in relation to politically exposed persons, DFSA said.


IBM Said to Pay $10 Million to Settle SEC Bribery Claims

International Business Machines Corp. agreed to pay $10 million to settle accusations by the U.S. Securities and Exchange Commission that it gave cash and gifts to Chinese and South Korean officials in exchange for computer contracts, according to a person with direct knowledge of the settlement.

The company will pay $5.3 million in disgorgement, $2.7 million in interest and a penalty of $2 million to settle a lawsuit filed March 18 in federal court in Washington. The SEC alleged the bribes, which included travel and entertainment, occurred from 1998 through 2009 in violation of the Foreign Corrupt Practices Act.

IBM spokesman Ed Barbini said he couldn’t immediately comment on the lawsuit or settlement.

The case is SEC v. International Business Machines Corp., 11-cv-00563, U.S. District Court, District of Columbia (Washington).

Gupta Sues SEC, Says Insider Case Deprives Him of Rights

Ex-Goldman Sachs Group Inc. Director Rajat Gupta sued the U.S. Securities and Exchange Commission, claiming an administrative action for insider trading it filed bars him from a jury trial.

Gupta, 62, said the SEC should have filed a lawsuit in federal court instead. He denied the agency’s claims that he gave tips to Galleon Group LLC co-founder Raj Rajaratnam.

The SEC filed the action March 1, alleging Gupta tipped the hedge fund manager about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs, about the New York-based bank’s quarterly earnings and earnings at Procter & Gamble Co., where Gupta was also a director.

“Gupta denies all allegations of wrongdoing and stands ready to mount a defense against each and every one of the commission’s charges,” his lawyer, Gary Naftalis, said in the complaint filed March 18 in Manhattan federal court.

In filing his lawsuit, Gupta seeks a jury trial, to have the SEC barred from seeking civil penalties against him and a court order keeping it from pursuing administrative claims.

Under SEC rules, Gupta isn’t allowed a jury trial in an administrative action, or the right to use federal court rules on discovery, which require the exchange of evidence with the government, Naftalis said.

Florence Harmon, an SEC spokeswoman, declined to immediately comment.

The case is Gupta v. SEC, 11-cv-1900, U.S. District Court for the Southern District of New York (Manhattan).

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Congo Asks China to Rule on U.S. Vulture Fund’s Hong Kong Suit

China must approve a U.S. investment fund’s lawsuit in Hong Kong against the Democratic Republic of the Congo before it can proceed, the central African country’s lawyers said in a challenge to the Chinese region’s independent judiciary.

FG Hemisphere Associates LLC, a New York-based so-called vulture fund which buys distressed debt, has sued Congo in jurisdictions around the world seeking to seize assets to enforce two arbitration awards. In Hong Kong, its attempt to collect payments owed to Congo by state-owned China Railway Group Ltd. places the financial center’s judicial independence at stake.

China’s foreign ministry has filed three letters to Hong Kong’s judiciary in the case stating that no foreign government can be sued in the city’s courts.

Hong Kong’s Court of Appeal in February 2010 allowed FG Hemisphere’s lawsuit to proceed. Arbitrators in Zurich and Paris had ruled that Congo must repay a total of $34.25 million to Energoinvest d.d., an engineering company based in Sarajevo, Bosnia and Herzegovina, for construction projects in the 1980s. The debts, including interest, now amount to more than $100 million, according to the Hong Kong court judgment.

Apart from deciding whether the case should be referred to the Standing Committee of the National People’s Congress in Beijing, Hong Kong’s Court of Final Appeal could rule directly on whether Congo and other foreign states can be sued in Hong Kong.

The five judges also may decide whether governments relinquish any claims to sovereign immunity when they agree to arbitrate a dispute. The hearing is scheduled to take six days.

The National People’s Congress last reinterpreted the city’s constitution in 1999, overturning a Court of Final Appeal ruling that gave almost 2 million mainland people the right to live in Hong Kong. The reinterpretation, supported by Hong Kong’s then Chief Executive Tung Chee-hwa, raised doubts about the city’s judicial independence.

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ECB’s Mersch Says This Bank Stress Test Is a ‘Serious One’

European Central Bank council member Yves Mersch said this year’s bank stress tests will be tougher than last year’s.

“The next stress tests won’t be a test of the liquidity but of the banks’ solidity,” Mersch told reporters at a press conference in Luxembourg today. The tests will be “more severe” than the previous ones and “I hope that the markets will accept that this stress test is a serious one,” he said.

European Union regulators have yet to agree on which banks to test as part of annual examinations of capital, or what the passing grade will be, a month before an April deadline for disclosure of stress-test methodology. Last year’s stress tests were criticized for not being stringent enough because lenders in the 27-nation region were shown by regulators to need only 3.5 billion euros ($4.9 billion) of new capital, about a 10th of the lowest analyst estimate.

Comings and Goings

Oxley of Sarbanes-Oxley to Lobby for Financial Self-Regulator

Michael Oxley, the former congressman who co-wrote the Sarbanes-Oxley Act of 2002, has registered as a lobbyist for the Financial Industry Regulatory Authority to promote self-regulation of investment advisers.

Oxley, a partner at Baker Hostetler LLP in Washington, registered this week as a Finra lobbyist, saying he would work on securities regulation and the “harmonization of regulation of broker-dealers and investment advisers,” according to his registration form. Finra oversees about 4,560 brokerage firms and is interested in expanding to investment advisers.

Finra contends the U.S. Securities and Exchange Commission should use a self-regulatory organization, or SRO, to take over examinations of investment advisers from the agency. The creation of such an SRO was suggested in an SEC study.

Oxley, 67, didn’t immediately respond to a request for comment. Nancy Condon, a Finra spokeswoman, said the regulator had no comment on Oxley’s hire.

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