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IMF’s Lipsky, EU Naked-CDS Ban, Irish Banks: Compliance

As International Monetary Fund chief Dominique Strauss-Kahn awaits his first court appearance on attempted rape charges in New York, the IMF has called on John Lipsky, who it named acting director yesterday, to guide it through its own crisis.

Strauss-Kahn gave police permission to examine him for physical evidence of scratches and DNA from his accuser. The alleged attack on a 32-year-old female maid at a Sofitel hotel in midtown Manhattan occurred May 14, according to the New York Police Department. Strauss-Kahn, who was taken into custody aboard an Air France flight at John F. Kennedy International Airport as it prepared to depart, also was charged with unlawful imprisonment and a criminal sex act. He remains in custody until an 11 a.m. hearing in Manhattan criminal court.

A potential candidate for the French presidency, Strauss-Kahn, 62, has denied the charges and will plead not guilty, his lawyer Benjamin Brafman said. The IMF chief was picked out of a lineup yesterday by the maid, police said. His arraignment, during which bail terms may be set, had been scheduled for yesterday and was delayed after investigators sought a warrant for a physical examination of Strauss-Kahn.

The IMF “remains fully functioning and operational” following Strauss-Kahn’s arrest, the Washington-based organization said in a statement yesterday.

Lipsky, 64, was named acting managing director yesterday after Strauss-Kahn was charged criminally. Lipsky, who has been first deputy managing director since 2006, takes temporary leadership of the Washington-based IMF as it tries to stem the European sovereign-debt crisis and deal with Greece’s request for a bigger financial lifeline.

Lipsky, who once served as chief economist at JPMorgan Chase & Co. and Salomon Brothers Inc. in New York and represented the IMF in Chile, is described by colleagues as a steady hand who can give the fund some stability in the aftermath of Strauss-Kahn’s arrest. His promotion came three days after the IMF said he would be leaving when his term as the No. 2 official ends on Aug. 31.

European finance ministers will tackle Greece’s financing needs at meetings in Brussels today. Also on the agenda are the approval of 78 billion euros ($110 billion) in aid for Portugal and the nomination of Bank of Italy Governor Mario Draghi to be the next president of the European Central Bank.

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Compliance Policy

Schaeuble Said to Push for Ban on Naked Credit-Default Swaps

German Finance Minister Wolfgang Schaeuble plans to urge European Union governments to consider a ban on trading of naked credit-default swaps on sovereign debt, two people familiar with the discussions said.

Schaeuble will seek an EU-wide ban to be included in draft EU rules on short selling, said the people who declined to be identified because the discussions aren’t yet public. He will raise the issue when finance ministers discuss a possible deal on the short-selling curbs at a meeting in Brussels on May 17.

Germany’s move is “part of a wider dirigiste effort to re-regulate, really micro manage, markets in a way that buries bad news,” Bob Penn, financial regulation partner at law firm Allen & Overy LLP in London, said, referring to centrally controlled economic measures. “There’s something terribly Big-Brotherish about the whole thing.”

Politicians including German Chancellor Angela Merkel and French President Nicolas Sarkozy have called for the EU to curb naked CDS on sovereign debt, as well as naked short-sales of certain stocks and bonds, because of concerns that such activities were fuelling the eurozone’s debt crisis. Germany already has restrictions on using swaps to bet on sovereign defaults.

Germany’s finance ministry declined to comment, as did Marton Hajdu, a spokesman for Hungary, which holds the EU’s rotating presidency.

Michel Barnier, the EU’s financial services commissioner, proposed the short-selling law in September. While the plans allowed for emergency CDS bans if financial stability is at risk, they don’t seek permanent curbs. Governments have so far refrained from going further in their work to amend the proposals.

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Banks Push Consumer Bureau to Keep U.S. Complaint Line Private

The new U.S. consumer agency, which has yet to begin formal operations or write a rule, is already being squeezed between banks and advocacy groups over how to set up a complaint hotline.

Under the Dodd-Frank regulatory overhaul, the Consumer Financial Protection Bureau must establish a way for banking customers to submit reports about their problems with products and services. At issue is what happens after they’re filed.

Nonprofit groups such as Consumers Union and the Sunlight Foundation are pushing for an open system that would allow anyone to scan the raw submissions. Industry groups including the American Bankers Association argue that making them public could allow frivolous complaints to damage reputable brands.

The hotline has become a focal point of a philosophical debate about the bureau’s role -- whether it should aim to improve consumer financial products primarily by working directly with companies or by bringing public attention to unfair practices.

Bureau officials plan to open the hotline by accepting consumer complaints about credit cards starting on July 21, according to a person involved in the work.

Dodd-Frank requires the bureau to log complaints in a database and route them to the appropriate federal or state agency. A separate provision says the bureau and other regulators must create procedures to ensure that financial firms provide “a timely response” to consumers.

The agency is working with five of the largest credit-card issuers -- JPMorgan Chase & Co., American Express Co., Discover Financial Services, Capital One Financial Corp. and Bank of America Corp. -- to make certain they can begin receiving complaint referrals in July, said the person, who spoke on condition of anonymity because the process isn’t public.

Leslie Sutton, a spokeswoman for Discover, and Leah Gerstner, a spokeswoman for American Express, said they welcomed the chance to work with the consumer bureau. Spokesmen for Bank of America and Capital One didn’t respond to requests for comment.

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Dodd-Frank Consumer Bureau Changes Approved by House Panel

Republicans on the House Financial Services Committee advanced three bills May 13 to reshape the Consumer Financial Protection Bureau, or CFPB, turning the tables on Democrats who approved the agency in party-line votes last year.

Lawmakers led by Representative Spencer Bachus, the Alabama Republican who leads the panel, are pushing changes to the Dodd-Frank Act, the regulatory overhaul they’ve targeted since taking control of the House in January. The Republicans have proposed about a dozen bills to revise the new rules, which they were nearly unanimous in opposing when Dodd-Frank was passed in July.

After more than 10 hours of debate May 12 over the CFPB measures and a bill to re-authorize the National Flood Insurance Program, Bachus put off until May 24 consideration of an 18-month delay of derivatives rules mandated by Dodd-Frank. The bill would push implementation of rules for the $583 trillion over-the-counter swaps market -- many of them due by July -- to December 2012.

The Republican measures, even if they are approved by the full House, are likely to face opposition from the Senate, which remains in Democratic hands, and from President Barack Obama, who initiated the regulatory overhaul in response to the financial crisis.

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Compliance Action

Irish Central Bank Reliance Falls as State Deposits Increase

Irish lenders’ reliance on central bank funding plunged as much as 21.1 billion euros ($30.2 billion) in April, as the country’s National Treasury Management Agency injected deposits into the financial system.

Irish lenders may have cut their reliance on emergency liquidity assistance from the country’s central bank by as much as 12.7 billion euros to 54.1 billion euros, according to figures published on the Dublin-based bank’s website May 13. Borrowings from the European Central Bank fell to 106.1 billion euros on April 29 from 114.5 billion euros at the end of March.

Part of the decline was due to the NTMA placing money on deposits with the state-guaranteed banks. The agency said an aggregate of 19 billion euros was placed with the Irish banks, pending their recapitalization at the end of July. The central bank in March ordered four lenders to raise 24 billion euros in new capital.

“On or before July 31, the deposits will be returned to the state to provide the funds necessary for the recapitalizations,” the Dublin-based agency said in an e-mailed response to questions. “It should be noted that the deposits have no unusual features and are not restricted in any way.”

Thor Industries to Pay $1 Million to Settle SEC Allegations

Thor Industries Inc., the biggest U.S. maker of recreational vehicles, agreed to pay $1 million to settle a U.S. Securities and Exchange Commission lawsuit claiming one of its executives underreported company costs.

The proposed settlement was filed in federal court in Washington May 12 along with a complaint that alleges Mark Schwartzhoff, the vice president of finance at Thor’s Dutchmen Manufacturing Inc., “engaged in a fraudulent accounting scheme to understate Dutchmen’s cost of goods sold.”

Schwartzhoff, who was fired in 2007, overstated Dutchmen’s pretax income by almost $27 million from fiscal year 2003 to the second quarter of fiscal 2007, according to the SEC.

Without admitting or denying the allegations, Thor Industries agreed to hire an SEC-approved independent consultant to evaluate its internal accounting controls at its headquarters in Jackson Center, Ohio, and at its other units. The agreement requires court approval.

Chief Executive Officer Peter Orthwein didn’t immediately return a telephone message seeking comment.

The case is SEC v. Thor Industries, 11-cv-00889, U.S. District Court, District of Columbia (Washington).

Rambus Is Latest U.S. Stock Halted by Circuit Breakers

Rambus Inc., the designer, licensor and marketer of high-speed chip-to-chip interface technology for computers and other electronic equipment, had its stock halted May 13 by U.S. circuit breakers.

The curbs were created after the 20-minute rout on May 6, 2010, erased $862 billion from the value of U.S. shares before prices rebounded. The pause lasts five minutes for Standard & Poor’s 500 Index and Russell 1000 Index companies as well as more than 300 exchange-traded funds when they rise or fall at least 10 percent within five minutes.

For a list of securities that have been halted by U.S. circuit breakers since they were implemented in June 2010, according to data compiled by Bloomberg, click here.

Almunia Says EU to Probe Control of Financial-Market Data

European Union regulators, who are investigating 16 investment banks over the swaps market, will examine the “control and dissemination” of financial-market data for possible antitrust abuses.

The European Commission will investigate whether data providers are engaging in abusive behavior by “attempting to leverage privileged access to information,” Joaquin Almunia, the EU’s competition commissioner, said in a London speech today. “I also intend to discuss the legitimate scope of intellectual property rights claims on such data,” he said.

Almunia is increasing the EU regulator’s scrutiny of financial markets. Last month, he announced a probe into whether 16 banks, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., colluded by giving market information to Markit, a financial-information provider. The commission is also checking whether nine of the banks struck deals with ICE Clear Europe, a clearinghouse for derivatives, that prevent other clearinghouses from entering the market.

Almunia, who is set to examine separate bids for NYSE Euronext, said he is also opposed to “essential” market infrastructure being controlled by a small number of companies.

For more, click here.

Carbon Traders Urge EU to Delay Vote on Trade Security Rules

The International Emissions Trading Association urged the European Union to postpone a vote on a draft proposal to better protect the bloc’s carbon-registry system from fraud to June from May.

The EU Climate Change Committee, composed of national government representatives, is scheduled to vote on May 19 on the EU common registry regulation presented by the European Commission, the 27-nation bloc’s regulatory arm.

“IETA is content with the level of security envisaged and welcomes the Commission’s proposal,” it said in a letter to the commission and member states. “Some modifications are needed in order to be fully effective and avoid unintended consequences. We therefore urge the Climate Change Committee to postpone the vote to the June session.”


AIG Fights Swaps-Unit Disclosure in Sex-Discrimination Case

American International Group Inc., citing abuse directed against traders who got bonuses after the company’s bailout, is fighting to keep pay records private from ex-employees seeking the data in a sex-discrimination lawsuit.

“Previous disclosures” of such information “resulted not only in the personal harassment of employees and their families at their homes, but also threats of physical violence,” lawyers for AIG said in a filing at U.S. District Court in New Haven, Connecticut, dated April 29.

Susan Potter, 58, and Deonna Taylor, 63, ex-vice presidents at AIG Financial Products, sued the company last year claiming the firm discriminated against older women. Their lawyer is demanding to know the salary, bonus and deferred compensation for each AIG FP employee since 2000, according to court filings last month.

AIG executives received death threats after the firm doled out $165 million in bonuses following a federal bailout in 2008, according to testimony at a March 2009 congressional hearing.

Deborah McKenna, an attorney for Potter and Taylor, declined to comment, as did AIG spokesman Mark Herr.

The plaintiffs’ requests go too far, AIG said in the April 29 filing. The company has already produced a “substantial amount” of information and has offered to provide additional data on an “attorneys’ and experts’ eyes only” basis, according to AIG’s court filing.

The case is Potter v. AIG Financial Products Corp., 3:10-cv-00250, U.S. District Court, District of Connecticut (New Haven).


IMF Says Spain Has Reassured Investors With Policy Overhaul

Spain is less likely to become engulfed in the euro area’s sovereign-debt crisis after the government implemented policies to reassure investors it’s serious about strengthening the economy, the International Monetary Fund said.

“A year ago you saw Spain moving very much in sync with Greece, Portugal or Ireland, with market concerns about Spain very similar to that for the other countries,” IMF European Director Antonio Borges told a news conference in Warsaw May 13. “Today we see very strong decoupling on the part of Spain relative to the other countries, because the Spaniards have put in place a whole series of measures which have convinced the markets they are in a much stronger position than before.”

Spanish economic growth accelerated to 0.3 percent in the first quarter. The government is overhauling labor and pension rules to help cut unemployment and counting on higher foreign sales to counter a drop in consumer spending.

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