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Stifel, Insider Trading, BofA, Swiss Tax Deal: Compliance

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Aug. 11 (Bloomberg) -- The U.S. Securities and Exchange Commission sued broker Stifel, Nicolaus & Co. for fraud, claiming it misled five Wisconsin school districts about the risks of complex investments that wiped out $200 million.

Stifel and David Noack, a former executive, masked the risks in persuading the schools to buy notes tied to synthetic collateralized debt obligations, or CDOs, a type of derivative linked to corporate bonds, the SEC said yesterday in a complaint brought against the two in U.S. District Court in Milwaukee.

While the schools lost their entire investment, Stifel and Noack, 48, received “significant fees,” the agency said in a statement. The districts used $37.3 million of their own cash and borrowed $162.7 million to invest in the securities in 2006, trying to produce earnings to help pay retiree health costs. The SEC said the firm and Noack misled officials about the risks of products typically sold to hedge funds, banks and insurers.

“Stifel and Noack abused their longstanding relationships of trust with the school districts by fraudulently peddling these inappropriate products to them,” Elaine Greenberg, head of the SEC’s unit that handles municipal bond cases, said in the statement. “They were clearly aware that the school districts could ill afford to bear the risk of catastrophic loss if these investments failed.”

Jeffrey Kalinowski, a Stifel lawyer, didn’t immediately respond to telephone calls seeking comment on the SEC’s claims, nor did Ron Kane, an attorney for Noack. A call to a telephone number listed in Noack’s name in Hartland, Wisconsin, went unanswered. Sarah Anderson, a Stifel spokeswoman, also didn’t immediately respond to messages asking for comment.

The SEC’s suit follows legal action by the school districts and a government initiative to crack down on municipal securities fraud. The agency has also brought other cases tied to CDOs, including suing Goldman Sachs Group Inc. last year.

Stifel and Noack persuaded the school districts to invest in notes linked to the performance of synthetic CDOs made up of credit-default swaps tied to corporate bonds. Such swap agreements pay off when bonds default, providing a kind of insurance on the assets.

The case is U.S. Securities and Exchange Commission v. Stifel, Nicolaus & Co., U.S. District Court, Eastern District of Wisconsin (Milwaukee).

Compliance Action

Former Marvell Technology Employee Charged in Insider Probe

Former Marvell Technology Group Ltd. employee Stanley Ng was charged with conspiracy by federal prosecutors as part of a nationwide probe of insider trading, according to court papers filed in Manhattan federal court.

Ng was arrested for his alleged role in an insider trading ring tied to so-called expert networking firms. Ng provided material non-public information to Winifred Jiau, a former consultant with expert-networking firm Primary Global Research LLC, according to a criminal information filed Aug. 5 and made public yesterday.

Ng appeared yesterday before U.S. Magistrate Judge Bernard Zimmerman in San Jose, California, according to a person familiar with the case. He was released on $50,000 bond secured by his home and is scheduled to appear in federal court in Manhattan Aug. 26, said the person, who was not authorized to speak publicly about the case and so declined to be identified.

Jiau was convicted earlier this year of one count each of conspiracy and securities fraud for passing earnings and other information about Nvidia Corp. and Marvell to hedge fund managers Noah Freeman, a former SAC Capital Advisors LP portfolio manager, and Samir Barai, founder of New York-based Barai Capital Management LP.

Ng was placed on administrative leave by Marvell in January after he refused to cooperate with an internal investigation, according to court records.

The case is U.S. v. Ng, 11-02096, U.S. District Court, Southern District of New York (Manhattan).

BofA Mortgage-Bond Deal Opposed by Delaware Attorney General

Bank of America Corp.’s $8.5 billion settlement with mortgage-bond investors drew more state opposition, as Delaware joined New York in challenging the agreement.

Delaware Attorney General Beau Biden said Aug. 9 he opposes the agreement and asked to intervene in the case to protect investors and preserve the state’s ability to pursue legal claims.

The settlement, which requires court approval, calls for Bank of America to pay $8.5 billion to resolve claims from investors in Countrywide Financial Corp. mortgage bonds. Charlotte, North Carolina-based Bank of America acquired Countrywide in 2008.

New York Attorney General Eric Schneiderman last week asked the New York state judge overseeing the case to reject the settlement, saying it was unfair to investors.

Bank of New York Mellon Corp. is the trustee for the mortgage-securitization trusts covered by the settlement. According to Biden, the bank, which reached the agreement on behalf of investors may have violated the Delaware securities act and the state’s deceptive trade practices act.

“We are confident that we have fulfilled in all respects our responsibilities as trustee,” Kevin Heine, a Bank of New York spokesman, said in a statement. “We believe the proposed settlement is reasonable and in the best interests of the trusts.”

Lawrence Grayson, a Bank of America spokesman, didn’t immediately respond to an e-mail seeking comment.

The case is In the matter of Bank of New York Mellon, 651786/2011, New York state Supreme Court, New York County (Manhattan).

SEC Reaches Agreement on Asset Freeze in Money Manager Suit

The U.S. Securities and Exchange Commission reached an agreement freezing assets connected to an investment manager suspected of swindling clients including college basketball coaches out of more than $50 million.

The manager, J. David Salinas, killed himself last month while federal agents investigated him and his companies for running a Ponzi scheme, allegedly selling investors bonds that didn’t exist. The SEC filed a fraud lawsuit Aug. 1 against Salinas’s estate, his companies including Select Asset Management and J. David Group, and Brian A. Bjork, chief investment officer of Select Asset.

U.S. District Judge Keith P. Ellison on Aug. 1 ordered a temporary hold on the assets of the Salinas estate, his companies and Bjork. The defendants agreed to accept the asset freeze while the lawsuit is pending, according to filings in federal court in Houston.

Bjork agreed to the preliminary asset freeze in exchange for the right to “keep assets valued at up to $10,000 to cover reasonable and ordinary household and living expenses,” Timothy McCole, an SEC attorney, said in a court filing. Bjork agreed to submit monthly bank records to Steven Harr, the court-appointed receiver in the case.

Bjork agreed to an order by Ellison yesterday prohibiting him from engaging in fraud or violating securities laws. He agreed to this “without admitting or denying the allegations contained in the complaint in this case,” Ellison said.

“Bjork and Salinas promised investors safe, fixed-income by investing in highly rated corporate and other bonds with annual yields up to 9 percent,” the SEC said. “In reality, the J. David Group corporate bond offering was bogus.”

Matt Hennessy, Bjork’s lawyer, said yesterday in a phone interview that his client wasn’t part of any fraud and is cooperating with the investigation into what happened to investors’ money. Salinas left a note before his death claiming sole responsibility for his actions and absolving Bjork and others, Hennessy said.

Kevin Callahan, an SEC spokesman, said the agency had no comment beyond its court filings.

The case is SEC v. Bjork, 11-cv-02830, U.S. District Court, Southern District of Texas (Houston).

Banks’ Online-Payment Program Probed by EU Antitrust Regulators

The European Union’s antitrust regulator is investigating a bank group whose members include HSBC Holdings Plc and Deutsche Bank AG after a German company said it was shut out of talks to set up an online-payment standard.

The European Payments Council must submit details to EU watchdogs “on the cooperation of banks and payment institutions for designing rules and standards for e-payment services,” the EPC, which encompasses lenders and money-transfer services such as Western Union Co., said on its website last month.

The European Central Bank and the European Commission have called for banks to accelerate adoption of common standards to ease payments made in euros. While regulators said this may boost trade between the 17 euro area nations as growth stumbles, antitrust officials have raised concerns over the fairness of parts of the process, which is led by the Brussels-based EPC.

A complaint from Payment Network AG, a Gauting, Germany-based online-payment provider, triggered the probe into standard-setting, according to Payment Network’s lawyer Ivo du Mont of Kapellmann & Partner. The company’s website lists customers including Dell Inc. and Dutch airline KLM.

The commission declined to comment on the investigation.

“There is no foreclosure” or attempt to shut out Payment Network, Gerard Hartsink, the EPC’s chairman, said in a phone interview. The EPC decided late last year to invite comments from other payment providers “and the door was open to anyone,” including Payment Network, Hartsink said. He declined to give details of the EPC’s discussions with the company.

The EPC is waiting for antitrust regulators to give their view on the online-payment standard before it formally seeks public comments on the plans, Hartsink said.

Swiss, Germany Agree to Settlement in Tax-Evasion Dispute

Switzerland and Germany completed an accord to end a dispute over tax evasion by wealthy Germans holding cross-border accounts with Swiss private banks.

As part of the settlement, Swiss banks will pay 2 billion Swiss francs ($2.8 billion) to the German government to cover the failure by their clients to disclose undeclared money in the past, the Swiss Finance Ministry said yesterday in a statement. That amount will later be reimbursed to the banks from taxes paid by their customers, the ministry said.

The tax treaty comes after Switzerland agreed in March 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. Relations between Germany and Switzerland soured early last year when German authorities began an investigation into tax evasion based on purchased CDs of stolen bank data.

“The times of illicit accounts in Switzerland are now over for good,” Klaus-Peter Flosbach, the financial-policy spokesman in parliament for Chancellor Angela Merkel’s bloc, said in a statement. “The agreement will lead to more tax fairness and strengthen the income basis of federal, state and municipal governments.”

While the agreement protects bank clients’ privacy, it also ensures the “implementation of legitimate tax claims,” the Swiss Finance Ministry said.

The settlement may trigger outflows by Europeans who question the value of cross-border accounts as Swiss banking secrecy crumbles. Switzerland’s commitment to tax compliance is putting pressure on the country’s banks as western European clients repatriate their wealth, Boston Consulting Group said in a May 31 report.

“The agreement draws a line under the German-Swiss discussions, but it may well affect assets under management held offshore,” said Michael Rohr, a Frankfurt-based analyst with Silvia Quandt. “There will be a move toward onshore.”

Going forward, Swiss banks will levy a 26.375 percent withholding tax on interest, dividends and capital gains earned by Germans with offshore accounts, yesterday’s statement said. Revenue generated will go to the German treasury while client identities remain secret.

“The tax agreement does not come without a price tag for the banks,” the Swiss Bankers Association said in a statement. “The implementation of the measures will cost the banks in Switzerland a mid-three-digit million Swiss franc amount.”

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U.K. Supermarket Fines Cut to $80 Million in Dairy Probe

J Sainsbury Plc and Wal-Mart Stores Inc.’s Asda chain were among a group of U.K. retailers and dairy producers whose civil fines in a price-fixing probe were lowered to a total of 49.5 million pounds ($80 million).

The reductions, from penalties of 70 million pounds issued in April 2010, were granted after the companies sought “early resolution” of the investigation of dairy product prices and cooperated, Britain’s Office of Fair Trading said yesterday in a statement. Tesco Plc’s fine of 10.4 million pounds was unchanged and the company has said it will challenge the antitrust watchdog.

The fines in the case, which started eight years ago, send a “strong signal” that the regulator will impose significant penalties “when it uncovers anti-competitive behavior aimed at increasing the prices paid by consumers,” OFT Chief Executive Officer John Fingleton said in the statement.

The supermarkets “indirectly” shared price plans for milk or cheese products through the dairy processors in 2002 and 2003, the OFT said. Asda, Sainsbury and processors including Dairy Crest Group Plc and Robert Wiseman Dairies Plc admitted liability.

The fines totaled 116 million pounds when they were first issued in 2007. They were lowered to 70 million pounds last year after the OFT dropped some allegations because of insufficient evidence. Sainsbury was fined 11 million pounds and Asda 9.4 million pounds. Dairy Crest was ordered to pay 7.1 million pounds and Wiseman 3.2 million pounds.

Tesco, based in Cheshunt, England, said the alleged violations followed lobbying by British dairy farmers for higher milk prices. In a statement yesterday, the company denied colluding with its competitors and said the fines are “without substance.”

Also named by the OFT were Lactalis McLelland, since acquired by Groupe Lactalis; the Cheese Co.; and Safeway, the supermarket chain acquired by William Morrison Supermarkets Plc in 2004. Arla Foods won full immunity from fines for alerting the OFT to possible violations.


Apple Accused in Suit of E-Book Price Fixing With Publishers

Apple Inc., in connection with last year’s introduction of the iPad, colluded with News Corp.’s HarperCollins Publishers unit and four other publishers to fix prices of electronic books, according to a lawsuit.

Apple, threatened by Inc.’s Kindle e-book reader and its potential to distribute other digital media, agreed with the publishers on or before January 2010 to announce a so-called agency model to “force the e-book sales model to be entirely restructured,” according to the complaint filed yesterday in federal court in Oakland, California.

The traditional “brick-and-mortar” publishers agreed to the price-fixing because they were threatened by Amazon’s “pro-consumer” e-book titles priced at $9.99, according to the suit.

A representative of Apple didn’t immediately return phone and e-mail messages seeking comment after regular business hours. Tina Andreadis, a HarperCollins spokeswoman, also didn’t immediately return a call seeking comment after regular business hours.

The other publishers named as defendants in the suit are Hachette Livre SA’s Hachette Book Group unit, U.K.-based MacMillan Publishers Ltd., Pearson Plc’s Penguin Group and CBS Corp.’s Simon & Schuster.

The case is Petru v. Apple Inc., 11-03892, U.S. District Court, Northern District of California (Oakland).

To contact the reporter on this story: Ellen Rosen in New York at

To contact the editor responsible for this report: Michael Hytha at

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