JP Morgan, EPA, Workplace Rules, Insider Trading: Compliance

The U.S. Treasury Department announced an $88.3 million settlement with JPMorgan Chase & Co. for apparent violations of international sanctions programs, including Cuban assets control and anti-terrorism regulations.

The Treasury said that JPMorgan through its correspondent banks maintained prohibited financial transactions with sanctioned entities in countries including Cuba and Iran.

The JPMorgan payment agreed upon by the Office of Foreign Assets Control, known as OFAC, involves “egregious” violations for five years, according to a Treasury Department statement.

“The civil settlement resolves a number of OFAC allegations dating back to 2005, none of which involved any intent to violate OFAC regulations,” Jennifer R. Zuccarelli, a JPMorgan spokeswoman, said in a telephone interview. “These rare incidents were unrelated and isolated from each other. The firm screens hundreds of millions of transactions and customer records per day and annual error rates are a tiny fraction of a percent.”

The OFAC enforcement action covers actions from December 2005 to March 2011 involving multiple violations of sanctions programs, the Treasury said. The violations include processing 1,711 wire transfers totaling $178.5 million from December 2005 to March 2006 involving Cuban persons and a trade loan of $2.9 million with a blocked affiliate to the Islamic Republic of Iran Shipping Lines.

OFAC said the $88.3 million payment from JPMorgan is based on the bank’s cooperation, transaction review and the absence of an OFAC notice or finding of violation during the five years of the transactions.

Compliance Policy

EPA Delays Mandate to Report Products Leading to Carbon Releases

The Environmental Protection Agency said it would put off reporting requirements for manufacturers and power plants on the products they use that lead to greenhouse-gas emissions.

In a Federal Register notice yesterday, the EPA said that companies would have until at least 2013 to submit information about the raw materials. Representatives of chemical makers, oil refiners and other manufacturers have tried to scuttle the EPA’s proposal, saying it would force them to disclose confidential information.

The rules were set to take effect this year. The EPA proposed in December that they be deferred and yesterday’s notice makes that decision final. The rules will be delayed until March 31, 2013, for some substances and two years later for others.

Facilities that emit 25,000 metric tons or more a year of greenhouse gases, such as carbon dioxide, are required to submit annual reports to the EPA on those releases. On Aug. 22, the EPA started a new program that lets 7,000 power plants, refiners and other manufacturers file their emissions data electronically. The information must be submitted by the end of September.

Employers Must Tell Workers of Right to Unionize, NLRB Says

U.S. employers must post notices informing workers about their legal rights to form a union and bargain on contracts, the National Labor Relations Board said in a rule that may help efforts to organize employees.

Companies that use posters to tell employees about personnel rules or policies must add a notice about their collective bargaining rights, according to a statement yesterday from the NLRB. The posting must be completed Nov. 14.

“The notice does make it easier for labor to make inroads,” Doreen Davis, a partner in the labor and employment practice at Morgan, Lewis & Bockius LLP in New York and Philadelphia, said in an interview.

The board proposed the rule to spell out for employees their rights under federal laws that let workers choose to form and join a labor union. Business groups protested the proposal and said the rule shows that the agency favors unions.

“It’s arbitrary, it’s capricious,” Peter Schaumber, a former NLRB chairman appointed by Republican President George W. Bush, said in an interview. “It shows just how activist they’re prepared to be.”

“The NLRB rule simply brings the National Labor Relations Act in line with other workplace laws that require employers to post a notice in the workplace of their employees’ rights,” Peter Colavito, director of government relations at the 2.2 million-member Service Employees International Union, said in a statement.

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U.S. Banks Said to Seek Relief From Regulators as Deposits Swell

U.S. regulators have asked some banks to take more deposits from large investors even if it’s unprofitable, and lenders in return are seeking relief on insurance premiums and leverage ratios, according to six people with knowledge of the talks.

Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices. That forces lenders to raise capital for a growing balance sheet and saddles them with the higher deposit insurance payments. With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably.

Regulators have asked banks to take the deposits anyway, three people said, with one lender accepting $100 billion. The regulators want lenders to take the deposits because it improves the stability of the financial system, according to one of the people, who said U.S. banks are viewed as places of strength.

Some of the largest ones have talked with regulators about softening rules for ratios that measure capital and assets, according to the people, who declined to be identified because talks are private. At least one asked for a waiver on paying higher premiums to the Federal Deposit Insurance Corp., which is less likely to be granted, one of the people said.

“If the helicopter comes raining money on your bank and it’s only temporarily there, it could be excessively costly and disruptive,” said Robert Litan, a vice president of research and policy at the Kansas City, Missouri-based Kauffman Foundation, which promotes entrepreneurial business practices.

The extra deposits are problematic because they’re subject to withdrawal, so banks have to park the money in low-yielding short-term investments, Litan said. With few other choices available, banks have stashed their excess deposits at the Fed, which means the cash gets counted as assets.

This expands their balance sheets and thus pushes down their leverage ratio, which measures Tier 1 capital divided by adjusted average total assets; the lower the ratio, the weaker the bank, at least in theory. In reality, regulators regard U.S. lenders as relatively strong with sufficient capital cushions, the people said.

Lenders have held discussions with officials at the Fed, FDIC, Office of the Comptroller of the Currency and the Treasury Department, according to four of the people. Spokesmen for the four agencies declined to comment.

Shannon Bell, a Citigroup spokeswoman, Howard Opinsky at JPMorgan, Ancel Martinez at Wells Fargo and Bank of America’s Jerry Dubrowski declined to comment.

Relaxing the rules or enforcement could be a slippery slope, said Lou Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based unit of London-based ICAP Plc, the world’s largest inter-dealer broker.

“Asking for a free pass on the leverage ratio for bank deposits by itself isn’t something that regulators would consider,” Crandall said. “The question is whether banks should be able to exclude reserve balances since they are a risk-free asset.”

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Facebook Faces Confusion From Multiple Privacy Agencies, EU Says

Facebook Inc. and other Internet companies face legal confusion from local and national European regulators with different approaches to data protection, the European Commission said.

These differences “show the risk that the same company and services will be treated in an inconsistent manner by different authorities,” said Matthew Newman, a spokesman for the European Commission, in an e-mail. The Brussels-based regulator will propose draft rules later this year for all data protection agencies across the 27-nation bloc to follow.

Facebook’s like button and facial-recognition features were criticized by two German regional regulators this month, with officials in Schleswig-Holstein saying the like button may violate European Union and German data protection law while Hamburg’s data protection agency said the company may break privacy rules by recording biometric data.

Facebook is among U.S. companies that have faced scrutiny in the EU for possible privacy breaches. Google Inc., Microsoft Corp. and Yahoo! Inc. have been pushed by European data-protection officials to limit the amount of time they store online users’ search records. The group of regulators, known as the Article 29 Data Protection Working Party, has also criticized Facebook for policy changes that could harm users’ privacy.

Compliance Action

National Century’s Poulsen Conviction, 30-Year Term Upheld

A federal appeals court upheld the 30-year prison term of Lance Poulsen, founder of National Century Financial Enterprises Inc., as well as his convictions at separate trials on obstruction of justice and fraud charges.

Poulsen was found guilty by jurors in federal court in Columbus, Ohio, in October 2008 of fraud, conspiracy and money laundering for defrauding investors of $2.9 billion. Seven months earlier, a separate jury convicted him of trying to bribe the main witness against him. U.S. District Judge Algenon Marbley sentenced him to 30 years in the fraud case.

The 6th U.S. Circuit Court of Appeals in Cincinnati yesterday rejected Poulsen’s claims that Marbley made several improper rulings at each trial and that his prison term was too long. Poulsen had said he shouldn’t get a longer sentence than the chief executive officers of WorldCom Inc. and Enron Corp., who got 25 and 24 years, respectively.

“Poulsen cites a number of sentences given to those whom he refers to as ‘the most notorious financial fraudsters in corporate America,’” according to the opinion by a three-judge panel of the appeals court. “Poulsen presents no coherent argument as to why his sentence is substantively unreasonable.”

Poulsen, 68, is incarcerated at the Williamsburg Federal Correctional Institution in South Carolina, according to the U.S. Bureau of Prisons website. His release date is listed on the site as Dec. 4, 2033.

The appeals panel ruled that Marbley properly determined the loss to investors as $2.89 billion, even though prosecutors had said once to jurors that the loss was only “over $2 billion.”

Poulsen’s attorneys William Terpening and Peter Anderson didn’t immediately return a call seeking comment on the ruling.

Poulsen’s 30-year term for the fraud case is concurrent with his earlier 10-year term for the obstruction case.

The appeals are U.S. v. Poulsen, 08-4218 and 09-3658, 6th U.S. Circuit Court of Appeals (Cincinnati).

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Drimal Should Get 70- to 80-Month Prison Term, U.S. Says

Craig Drimal, the former Galleon Group LLC trader who pleaded guilty to insider-trading charges, should get a prison term of 70 to 80 months, which is within federal sentencing guidelines, the U.S. said in a memo.

Drimal pleaded guilty last month in federal court in New York charges of conspiracy and securities fraud. Drimal admitted that he and others at Galleon traded on inside information obtained from lawyers working on transactions involving 3Com Corp. and Axcan Pharma Inc. in 2007. Drimal said the information was obtained from Arthur Cutillo and Brien Santarlas, lawyers at Boston-based Ropes & Gray LLP.

Drimal has suggested that the court impose community service or home confinement in lieu of a “substantial” prison term, prosecutors said. The request should be denied in order to send a “strong message of deterrence to others in the hedge fund community” and because the “nature and extent of his criminal conduct doesn’t warrant community service,” prosecutors said.

Drimal is scheduled to be sentenced by U.S. District Judge Richard Sullivan on Aug. 31. Drimal’s attorney, Jane Anne Murray, said she filed a memorandum last week asking the judge to impose a sentence below the federal guidelines.

“We’re not surprised by their position; it’s been consistent,” Murray said in a telephone interview. “We disagree with the government on a number of issues including the applicable guidelines. And we’re seeking a sentence that is substantially lower than the one the government is seeking.”

Prosecutors also asked the court to obtain a judgment against Drimal to recover the amount of the proceeds of his crimes, which they said are at least $7 million.

The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).

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Fuld, Lehman Executives to Settle Lawsuit for $90 Million

Lehman Brothers Holdings Inc. executives including former Chairman Richard Fuld will settle an investor lawsuit using a $90 million payment from the defunct firm’s insurers, according to a court filing.

The investors blamed Lehman officers and directors for losses on Lehman stock and options from June 12, 2007, to Sept. 15, 2008, according to the filing in U.S. Bankruptcy Court in Manhattan. Fuld, 65, was chief executive officer of New York-based Lehman, once the fourth-largest U.S. investment bank, before its 2008 bankruptcy.

A bankruptcy examiner said Lehman foundered because of too much debt, which it tried to hide from investors, and risky real estate investments.

Patricia Hynes, a lawyer for Fuld, didn’t immediately respond to an e-mail seeking comment.

Lehman said in November that Fuld would get $10 million from insurers as part of an officers-and-directors program paying for the costs of lawsuits. It also said insurers would be asked to pay as much as $90 million in costs for unidentified defendants in civil, criminal and regulatory proceedings.

Lehman has asked the judge to modify bankruptcy law on nine previous occasions to tap its directors-and-officers insurance, according to the Aug. 24 filing.

The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Suits

Bank of America Depressed Libor Rates, Schwab Says in Suit

Charles Schwab Corp., the largest independent brokerage by client assets, sued Bank of America Corp., Citigroup Inc. and other banks claiming they manipulated the London interbank offered rate, or Libor, starting in 2007 in violation of U.S. antitrust law.

The lawsuit filed Aug. 23 in federal court in San Francisco, where Schwab is based, claims the banks conspired to depress Libor rates by understating their borrowing costs, thereby lowering their interest expenses on products tied to the rates. The banks “reaped hundreds of millions, if not billions, of dollars in ill-gotten gains,” Schwab wrote.

In separate suits in April, three European asset-management firms and the Carpenters Pension Fund of West Virginia sued the banks claiming they manipulated Libor. U.S. and U.K. officials are cooperating in a probe of possible Libor manipulation, a person close to the investigation said in March.

The Schwab suit seeks unspecified damages, which may be tripled under antitrust law. It also includes claims for racketeering and securities fraud.

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, and Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, didn’t immediately return calls for comment.

The case is Schwab Money Market Fund v. Bank of America Corp., 11-cv-4186, U.S. District Court, Northern District of California (San Francisco).

Guaranty Financial Trustee Suit Accuses KBW of Short Sales

The liquidation trustee for Guaranty Financial Group Inc. sued KBW Inc., claiming that the investment bank used inside information about the Texas lender to short its stock before KBW collapsed.

Kenneth Tepper, the trustee, is seeking to recover $20 million in fees KBW obtained as Guaranty Financial’s investment banker, profit it received from betting against the company’s shares and other damages, according to a suit filed Aug. 24 in New York State Supreme Court in Manhattan.

“KBW’s disregard of its contractual obligations and illegal and improper use of GFG’s and the bank’s material, non-public, confidential, inside information undermined GFG’s efforts to raise capital, one of the very purposes for which KBW had been engaged,” Tepper alleged.

Guaranty Financial, based in Austin, Texas, filed for bankruptcy protection in 2009.

Krista Eccleston, a spokeswoman for New York-based KBW, declined to comment.

The trustee on Aug. 22 sued cardboard-box maker Temple-Inland Inc., which spun off Guaranty Financial in 2007.

The case is Tepper v. Keefe, Bruyette & Woods Inc., 652349-2011, New York State Supreme Court, New York County (Manhattan).

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