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UBS, Deutsche Bank, Muni Fees, Insider Trading: Compliance

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Aug. 24 (Bloomberg) -- UBS AG, Switzerland’s largest bank, agreed to pay $1 million to settle allegations by the state of New Hampshire that it misled investors when selling structured products backed by Lehman Brothers Holdings Inc.

UBS will pay $700,000 in restitution as well as $300,000 in fines and costs, the New Hampshire Bureau of Securities Regulation said yesterday on its website. The agency had alleged in 2009 that the Zurich-based bank’s brokers misled clients who bought “100% Principal-Protection Notes,” which became almost worthless when Lehman filed for bankruptcy in September 2008.

UBS has faced regulatory investigations, arbitrations and lawsuits over the Lehman notes, which allowed investors to earn money when certain stocks rose without suffering losses when they fell, as long as the issuer stayed solvent. UBS brokers didn’t warn some clients in New Hampshire as Lehman’s financial situation worsened, according to Jeff Spill, deputy director of the Bureau of Securities Regulation.

“When the company realized that the creditworthiness of Lehman was deteriorating and the Lehman risks were greater, that information should have been communicated from the top down and it wasn’t,” Spill said yesterday in a telephone interview.

Karina Byrne, a UBS spokesman, said in an e-mail that the company decided to settle the case to avoid litigation and that the “vast majority” of the firm’s sales of the investments were “conducted properly.”

Compliance Action

New York Removed From Group Working on Foreclosure Deal

New York Attorney General Eric Schneiderman was removed from a state group working on a nationwide foreclosure settlement with U.S. banks because his office “actively worked to undermine” its efforts, the Iowa official leading the talks for the states said.

Schneiderman, who doesn’t want a settlement to block state investigations, was removed from the executive committee of state officials working on the deal, Iowa Attorney General Tom Miller said yesterday in a statement.

“New York has actively worked to undermine the very same multistate group that it had spent the previous nine months working very closely with,” Miller said. For a member of the executive committee, that “simply doesn’t make sense, is unprecedented and is unacceptable,” Miller said.

Attorneys general from all 50 states last year announced their investigation into bank foreclosure practices after reports that faulty documents were being used to seize homes. Since then, a group of attorneys general and officials from federal agencies, including the Justice Department, have been negotiating a settlement with the five largest mortgage servicers in the U.S.

Government officials are seeking an agreement that provides funding for writedowns on mortgage loans for borrowers and sets standards for how the banks service loans, interact with borrowers and conduct foreclosures, according to terms proposed in March.

An executive committee of 13 attorneys general, not including Schneiderman, and two state banking regulators is leading negotiations on behalf of all 50 states, said Geoff Greenwood, Miller’s spokesman. The executive committee has a smaller committee that negotiates directly with the banks, he said.

Several attorneys general, including Schneiderman, have criticized any possible settlement that would protect banks from state investigations by providing the lenders with broad releases from liability. Those probes include the bundling of mortgage loans into securities.

The attorneys general who want to continue their own probes after an agreement include Martha Coakley in Massachusetts, Delaware’s Beau Biden and Catherine Cortez Masto in Nevada. Delaware is also a member of the executive committee.

The companies involved in the talks are Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc.

“Ongoing investigations by attorneys general cannot be shut down by efforts to settle quickly and those responsible must be held accountable,” Schneiderman’s spokesman Danny Kanner said in an e-mailed statement. “While it is Attorney General Miller’s prerogative to remove us from the executive committee, we will continue to be an active voice on these issues as a part of the 50-state coalition and in other forums.”

Deutsche Bank May Have to Repay Tax Refund Over Carbon Fraud

Deutsche Bank AG, Germany’s biggest lender, may have to cover part of the 250 million euros ($362 million) in taxes that prosecutors said was lost to the country in a carbon-emissions certificate trading fraud scheme.

Prosecutors in Frankfurt are trying six managers of trading companies in what they call an international scheme to evade value added tax when trading the certificates.

Because Deutsche Bank bought the certificates, the government may attempt to recover the lost taxes by reclaiming VAT refunds it granted the lender, said Martin Wulf, a tax attorney at law firm Streck Mack Schwedhelm in Berlin. Prosecutors are probing 170 suspects, including seven Deutsche Bank employees.

“If the tax authorities can get a company like Deutsche Bank to pick up the tab, they shout ‘hurray,’” said Wulf, who isn’t involved in the case. “They couldn’t care less about the little perpetrators who started the whole thing but mostly either have no money left or brought it out of reach.”

Deutsche Bank expects that its employees will be cleared, said Christian Streckert, a spokesman for the Frankfurt-based lender. The bank hired Clifford Chance LLP to review the issue and the law firm hasn’t yet found any indications of misconduct by the bank or its employees, he said. The bank still expects that it can keep VAT deductions made after buying certificates, he said.

Courts have allowed authorities to seek the return of tax deductions from the last company that bought goods in a trading chain, provided it knew or should have known that at some point tax fraud happened, said Wulf.

Martin Bach, the presiding judge at the Frankfurt trial, has offered defendants leniency if they confess and said that sentences may be further reduced if Deutsche Bank has to make up for the damage.

Joachim Aue, a spokesman for tax authorities in Frankfurt, where Deutsche Bank is based, declined to comment, citing tax secrecy rules.

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Ex-Mizuho Banker Faces November Trial in Insider-Trading Case

Thomas Ammann, a former Mizuho International Plc banker charged with insider trading, faces a November trial along with two associates, a court in London ruled yesterday.

The U.K. Financial Services Authority charged Ammann, 38,with three counts of insider dealing in connection with sales of OCE NV shares in 2009 before Japan’s Canon Inc. bought the company.

Canon, known for cameras and photocopiers, agreed to buy OCE in a 730 million-euro ($1.1 billion) deal in November 2009. The charges relate to trades made as long as nine months before the sale, the FSA said earlier this month.

Also charged were Jessica Mang, a 28-year-old London chiropractor, and Christina Weckwerth, a 42-year-old student in Germany.

Ammann encouraged Mang and Weckwerth to trade using non-public information, according to the charges filed by the FSA. They used accounts at Morgan Stanley and Halifax Share Dealing Ltd. to make the trades.

Ammann’s lawyer, Shaul Brazil, declined to comment. Mang’s lawyer, Romana Khan, didn’t immediately respond to a phone call seeking comment. A lawyer representing Weckwerth at Addleshaw Goddard LLP couldn’t be immediately reached to comment.


Primary Global CEO ‘Co-Conspirator’ in Scheme, U.S. Alleges

Unni Narayanan, the chief executive officer of Primary Global Research LLC, an expert networking firm, was a “co-conspirator” in an insider-trading scheme, prosecutors claimed in court papers.

The government’s allegation was made public yesterday in a filing by a defense attorney for James Fleishman, a former Primary Global sales manager facing an Aug. 29 insider-trading trial in Manhattan federal court. The defense lawyer, Ethan Balogh, attached a July 15 letter from prosecutors that listed the “identity of co-conspirators” as Narayanan, Chief Operating Officer Phani Saripella and other Primary Global employees.

The government identified the individuals in response to a defense request for the names of people allegedly involved in the insider scheme.

Primary Global, based in Mountain View, California, is at the center of a nationwide probe of insider trading at hedge funds, technology companies, banks and consulting firms.

The firm connects investors with employees of public companies who purportedly provide them with insight into specific markets.

Winifred Jiau, a consultant for Primary Global, was convicted of leaking insider information in June.

Neither Narayanan nor Saripella has been criminally charged with wrongdoing.

Dan Charnas, a spokesman for Primary Global, declined to comment. Reached at his home in California, Narayanan also declined to comment, as did Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in New York.

The case is U.S. v. Fleishman, 11-cr-32, U.S. District Court, Southern District of New York (Manhattan).

Compliance Policy

U.S. Municipal Advisers Face Fee Limits in Dodd-Frank Rules

Financial advisers to U.S. state and local governments would be banned from splitting fees with banks or receiving “excessive compensation” under rules proposed by the regulator of the $2.9 trillion municipal bond industry.

The rules advanced yesterday by the Municipal Securities Rulemaking Board for the first time spell out the codes of conduct that will apply to financial advisers under the Dodd-Frank law passed by Congress a year ago. The act gave the board sway over advisers, which previously operated without oversight.

Financial advisers have come under scrutiny since the 2008 credit crisis, when complex, derivative-laden bond deals they encouraged public officials to enter hit taxpayers with unexpected costs. A series of Justice Department criminal cases have also shed light on how advisers received kickbacks in return for letting banks overcharge clients on investment deals.

“We are proposing that municipal advisers be required to put the interests of state and local governments first,” Lynnette Hotchkiss, the executive director of the board, said in a statement yesterday.

More than 1,000 firms provide financial advice to public officials, from little-known regional outfits to Wall Street banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to registrations made with the Securities and Exchange Commission since last year. Others include First Southwest Co., Public Financial Management Inc. and Piper Jaffray Cos.

Until passage of Dodd-Frank, firms that operated only as financial advisers were largely exempt from federal regulations. The MSRB is working to fill that gap with new strictures on firms aimed at protecting government officials.

The rules proposed yesterday would require advisers to act in the best interests of their clients. Among them are bans on splitting fees with investment banks who also work with their clients as well as on reaping “excessive compensation.”

The new regulations would also force advisers to disclose conflicts of interest.

In some cases, advisers were hired on the recommendations of investment banks whose deals they were brought in to evaluate, which may have given them an incentive to sign off on the transaction. The proposed regulations also address that by requiring advisers to investigate whether their clients would be better served by different types of financings, unless those clients explicitly tell them not to do so.

The board’s proposed rules are subject to approval by the SEC. Last week, the board also proposed regulations that would prevent financial advisers from using campaign donations to land work, as bond underwriters are currently enjoined from doing.

EPA Says Electronic Submissions Will Cut Burden on Companies

The Environmental Protection Agency said it will let companies file reports electronically and provide more pollution information as part of the Obama administration’s bid to ease regulatory burdens.

Increasing public disclosure of pollution information will “level the playing field by helping facilities, governments and the public know what is being accomplished,” the EPA said in a report published yesterday by the White House.

The EPA also pledged to improve estimates for the cost of proposed rules, as a way to determine if the work is biased. The proposed changes and actions already completed will save as much as $1.5 billion in the next five years, the agency said in its report.

A lobbying group for the oil and gas industry contrasted the steps EPA is taking with a proposal to tighten ozone standards, which the agency estimates may cost industry as much as $90 billion.

The ozone rule “makes a mockery of the administration’s program to eliminate or modify rules that are unnecessarily costly or burdensome,” Howard Feldman, director of regulatory and scientific policy at the American Petroleum Institute in Washington, said on a conference call yesterday with reporters.

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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