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Battery Bill, Hedge Monitor, Comverse Settlement: Compliance

Companies led by Apple Inc., Panasonic Corp. and Samsung Electronics Co. would save $1.13 billion under U.S. legislation barring limits on air shipments of lithium batteries that go beyond international standards.

The legislation, approved by the House legislation April 1, prevents President Barack Obama’s administration from enacting a proposed rule that treats billions of batteries shipped or packed into laptop computers, cellular phones and digital cameras as hazardous materials. The rule would trigger packaging, training and handling requirements for manufacturers, retailers and airlines.

U.S. regulators, backed by pilot unions and congressional Democrats, say they want to limit shipments because lithium batteries may overheat and ignite. The rule by the Pipeline and Hazardous Materials Safety Administration, part of the Transportation Department, would cost $1.13 billion the first year in packaging, transportation, logistical and training costs, according to an analysis commissioned by the Washington-based battery association.

The differing bills regarding the treatment of batteries will be reconciled in a House-Senate conference committee in coming weeks. Spokesmen for Jay Rockefeller, a West Virginia Democrat who chairs the Senate Commerce, Science and Transportation Committee, declined to comment pending the start of conference committee talks.

Julia Valentine, a spokeswoman for the Transportation Department’s hazardous materials agency, said she couldn’t comment on a pending rulemaking.

For more, click here.

Compliance Policy

For-Profit Colleges Face State Crackdowns as U.S. Rules Delayed

For-profit colleges, criticized by the U.S. for their recruitment practices, are facing increased state regulations as the government weighs measures to tighten access to federal student aid.

At least 16 states have proposed or enacted laws affecting for-profit colleges this year, according to the National Conference of State Legislatures in Denver. States impatient for federal rules are taking action, said Kentucky State Representative Reginald Meeks.

The Education Department delayed plans to restrict for-profit colleges’ access to $30 billion in U.S. funds last year after the industry doubled spending on lobbying. The Education Department said last year that it will release regulations in early 2011 that will tie for-profit colleges’ eligibility for federal funds to graduates’ incomes and loan repayment rates.

Restrictions on student aid that single out for-profit colleges are unfair, said Harris Miller, president of the Association of Private Sector Colleges and Universities, a Washington-based trade group.

For more, click here.

Stress Tests Must Focus on High-Quality Capital, Enria Says

European Union regulators should only allow the capital that can best absorb banks’ possible losses when they conduct the latest round of stress tests, the region’s top bank supervisor said.

Andrea Enria, chairman of the European Banking Authority made the remarks concerning how to define capital in EU stress tests to journalists in Vienna April 6.

The EBA will announce today which types of capital it will accept and how much a bank must hold to pass the test, Enria said. The definition may exclude a form of non-voting capital known as silent participation that is common among German state-owned banks, two people familiar with the talks have said.

Last year’s EU 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 ($5 billion) of new capital, about a 10th of the lowest analyst estimate. Those tests were based on a definition of capital known as Tier 1, which includes some hybrid instruments such as preference shares.

Enria said the 2011 tests will use a definition of core capital that may be tougher than a standard drawn up at international level by the Basel Committee on Banking Supervision that will apply in 2013.

For more, click here.

Banks May Raise Rates to Cope With Capital Rules, EU Says

Banks may raise interest rates for borrowers and lower deposit rates to cope with increased capital requirements, the European Commission said.

“While higher capital standards make banks more resilient in times of asset losses, this comes possibly at the price of on average higher lending rates if regulation imposes higher funding costs on banks,” the Brussels-based commission, the European Union’s executive, said yesterday in a quarterly report on the euro area.

Banks across Europe are increasing reserves as regulators tighten capital requirements. New rules from the Basel Committee on Banking Supervision, which brings together authorities from 27 countries, will require banks to more than double the reserves they hold by 2019.

In its report, the commission said the current economic recovery remains on track “but is nonetheless associated with comparatively weak and unbalanced” growth of gross domestic product, or GDP.

Commodity Derivative Traders May Face EU Transparency Overhaul

Traders in commodity derivatives may face tougher transparency rules under proposals being considered by European Union governments.

Necessary improvements would include extending requirements on traders to report their positions to regulators, according to a draft EU statement obtained by Bloomberg News. The statement was drawn up by officials from finance ministries of the 27-nation EU.

French President Nicolas Sarkozy has blamed speculation for driving up world food prices and made regulation of commodity trading one of his priorities during France’s leadership of the Group of 20 countries in 2011.

Michel Barnier, the EU’s financial services commissioner and a former minister of Sarkozy’s, called in February for restrictions on traders, including position limits.

Hungary, which holds the six-month rotating presidency of the EU, is aiming for the statement to be formally endorsed by EU finance ministers in May, said Marton Hajdu, a government spokesman. It may also be discussed at an informal meeting of finance ministers that starts tomorrow, he said.

EU Considers Overhaul to State-Aid Rules for Airports, Airlines

The European Commission said it’s seeking views on possible changes to state-aid rules for airlines and airports.

The European Union antitrust regulator said it’s reviewing the way it examines subsidies earmarked for airports and start-up aid to airlines from regional airports.

Rules on social and restructuring aid for airlines are also part of the information-gathering exercise, the commission said in an e-mailed statement from Brussels yesterday. The agency said it will make a proposal by 2012, if it concludes changes are needed.

Japan May Require Financial Firms to Save Power, FSA’s Jimi Says

Japan’s Financial Services Minister Shozaburo Jimi said his agency is in discussions with the nation’s financial industry to reduce power use as part of the government’s energy-saving plan after the March 11 earthquake.

The minister also said he wants to review the law on special measures for strengthening financial functions to aid regional lenders in the quake-affected areas during the current Diet session. Jimi was speaking to the press in Tokyo.

Compliance Action

Comverse to Pay $2.8 Million to Settle Bribery Allegations

Comverse Technology Inc., a maker of voice-mail software, agreed to pay a total of $2.8 million in settlements for violations of the Foreign Corrupt Practices Act.

The company, based in New York, settled with the Securities and Exchange Commission for $1.6 million and with the U.S. Justice Department for $1.2 million, according to separate statements by the government.

The agreement recognizes the company’s “self-examination” and voluntary disclosure and “full cooperation,” the Justice Department said in its statement.

Comverse said last month that Chief Executive Officer Andre Dahan will depart, citing the need for new leadership.

Paul D. Baker, a spokesman for Comverse, declined to comment.

The SEC case is Securities and Exchange Commission v. Comverse Technology Inc., 11-cv-01704, U.S. District Court, Eastern District of New York (Brooklyn).

Rajaratnam Case Spurs Monitoring, Workshops at Hedge Funds

Since the October 2009 arrest of Raj Rajaratnam, the fund manager on trial in New York for insider trading, hedge funds have engaged private investigators to monitor traders’ personal lives.

They have also held workshops on securities law and offered whistle-blower hot lines as they seek to avoid the fate of five funds that have liquidated since Rajaratnam’s arrest. Federal authorities raided four funds as part of their investigation and subpoenaed at least five others. In all, investors have withdrawn at least $9 billion from the funds. The FBI said in February that the probe isn’t over and that there will be more arrests.

In January, the Regulatory Compliance Association hosted a seminar on insider trading that drew 3,800 people, said Walter Zebrowski, chairman of the New York-based non-profit group. Six months after Rajaratnam’s arrest, New York-based Millennium Management LLC formed an independent Regulatory and Compliance Advisory Council, which included Harvey Pitt, the former chairman of the U.S. Securities and Exchange Commission, according to an April 2010 letter sent to investors. Pitt also has held workshops with SAC Capital Advisors LP employees about complying with government rules.

Corporate Resolutions Inc., a consulting and investigative firm in New York, last month started an employee hot line to help hedge funds deter possible illegal trading. The service enables employees to anonymously report suspected wrongdoing at their firms.

As many as 50 private-equity clients had signed up for the service, according to Joelle Scott, director of business intelligence at the investigations firm.

For more, click here. Hercules Reports Probes by U.S. SEC, Justice Department

Hercules Offshore Inc., the largest supplier of shallow-water rigs in the Gulf of Mexico, said it was subpoenaed by the U.S. Securities and Exchange Commission as part of a probe into possible violations of the Foreign Corrupt Practices Act.

The commission is requesting documents about “certain international jurisdictions where we conduct operations,” the Houston-based drilling contractor said yesterday in a federal filing. The Justice Department is also investigating the company, according to the filing.

The probes may be related to Hercules’s so-called lift boat business in West Africa, said Luke Lemoine, an analyst at Capital One Southcoast in New Orleans.

Hercules is the world’s largest provider of lift boats, with 65 on three continents. Lift boats provide extra surface space adjacent to shallow-water rigs and platforms.

Hercules Chief Financial Officer Stephen Butz declined to comment.

For more, click here and see Kroll interview in Interviews section, below.


SEC, Companies Clash in Court on Rule Boosting Investors Powers

A Securities and Exchange Commission rule making it easier for shareholders to oust board members was based on “serious error” in assessing its cost to companies, a lawyer for business groups told a U.S. appeals court.

The U.S. Chamber of Commerce and the Business Roundtable yesterday asked the U.S. Court of Appeals in Washington to overturn the proxy access rule, which was mandated by the Dodd-Frank financial-regulatory overhaul enacted last year.

Eugene Scalia, a lawyer at Gibson, Dunn & Crutcher LLP in Washington who represents the business groups, said the commission failed to study the cost of fighting a challenge from shareholders. The rule would allow investors or shareholder groups that own at least 3 percent stock for three years to put their own board nominees on proxy statements.

The SEC’s assistant general counsel, Randall Quinn, said the potential costs are reasonable because not every board will oppose a candidate put forward by a shareholder.

The measure is on hold pending the outcome of the business groups’ suit.

The case is Business Roundtable v. Securities and Exchange Commission, 10-1305, U.S. Court of Appeals, District of Columbia (Washington).

U.K. Management Consultant Sidhu Denies Insider-Trading Charges

Rupinder Sidhu, a management consultant, pleaded not guilty to 23 counts of insider trading and one count of money laundering at a London court.

U.K. market regulator the Financial Services Authority brought the case.

Sidhu is charged with dealing in securities of companies such as Julius Baer Group Ltd., Swatch Group AG, Reed Elsevier Plc and Michael Page International Plc, while knowing London hedge fund AKO Capital LLP, planned transactions in the same shares, according to the indictment. The trades took place in 2008 and 2009.

Judge Nicholas Loraine-Smith said the trial should take place in November.


Burns Says Kluger Case Uses ‘After-the-Fact’ Recordings

Douglas Burns, a former federal prosecutor, talked about the insider-trading case involving Matthew Kluger, a former attorney at Wilson Sonsini Goodrich & Rosati PC.

Kluger stole non-public data on companies including Sun Microsystems Inc., 3Com Corp. and Acxiom Corp., according to a Federal Bureau of Investigation arrest complaint. Kluger passed tips to a middleman who gave them to Garrett Bauer, a stock trader who was arrested April 6, according to the complaint. Burns spoke with Erik Schatzker on Bloomberg Television’s “InsideTrack.”

For the video, click here.

House’s Frank Says Republican Budget Would Undermine Regulators

Republican efforts to roll back federal spending to 2008 levels would force the Commodity Futures Trading Commission to cut two-thirds of its staff and put the Securities and Exchange Commission in the position of subsidizing the government, Representative Barney Frank said.

The fiscal 2012 budget proposed by House Republicans would be a “serious threat” to the financial-industry regulators, said Frank, the Massachusetts lawmaker who is the top Democrat on the House Financial Services Committee, at a news conference in Washington yesterday.

Funding for the SEC and the CFTC, which received expanded authority under the regulatory overhaul that bears Frank’s name, is less than the cost of a week’s worth of munitions in the fighting in Libya, the lawmaker said. He also noted that since the SEC collects fees from regulated entities, its funding doesn’t have to be cut in the name of deficit-reduction.

K2’s Kroll Says Insider Trading Now an ‘Enterprise Risk’

Jeremy Kroll, co-founder of K2 Global Consulting LLC, talked about hedge funds’ efforts to detect and thwart possible misuse of confidential information.

Kroll has created software that allows hedge funds to scrutinize the personal, social and business relationships of their traders and analysts. He spokes with Pimm Fox on Bloomberg Television’s “Taking Stock.”

For the video, click here and see hedge fund story in Compliance Action section, above.

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