Bloomberg the Company & Products

Bloomberg Anywhere Login


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Offshore Banks, FCC ‘Kids’ Rule, Naked CDS Law: Compliance

Sept. 21 (Bloomberg) -- Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by U.S. citizens as part of a probe the Justice Department said has dealt “fabled Swiss bank secrecy a devastating blow.”

The department disclosed the probes on a section of its website detailing the Tax Division’s Offshore Compliance Initiative. In 2009, prosecutors charged UBS AG, the largest Swiss bank, with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.

Prosecutors opened 150 grand jury investigations of offshore-banking clients, charging 30 people, and indicting 13 other people who facilitated the hiding of assets offshore, according to the website.

“In addition, grand jury investigations have been opened into eight additional offshore banks across the world,” according to the website. “The outcome cannot be measured in litigation results alone. This enforcement effort has dealt fabled Swiss bank secrecy a devastating blow.”

The Justice Department, which didn’t identify the eight banks, hadn’t previously said how many were under investigation. Charles Miller, a spokesman for the department, declined to comment yesterday.

For more, click here.

Compliance Policy

EU Lawmakers, Governments Fail to Reach Deal on Naked CDS Law

European Union governments and lawmakers failed to reach an agreement on a law to curb sales of so-called naked credit-default swaps for sovereign debt at a two-hour meeting yesterday.

Negotiations will continue to bridge the gap between the European Parliament and governments, Sharon Bowles, chairwoman of the parliament’s economic and monetary affairs committee, said in a telephone interview. The next meeting hasn’t been scheduled, she said.

The curbs are part of a broader draft EU law that would also limit naked short-selling of stocks and government bonds.

German Finance Minister Wolfgang Schaeuble and lawmakers in the European Parliament have called for the EU to ban naked CDS on sovereign debt over concerns the securities fueled the euro zone’s debt crisis. Germany already has restrictions on using swaps to bet on sovereign defaults.

Michel Barnier, the EU’s financial services chief, has called on governments and lawmakers to complete negotiations on the law by the end of this month.

A naked CDS trade is when a trader buys the derivative as insurance against default on debt he doesn’t actually own. Doing so allows the trader to effectively bet on the borrowers’ default.

Swiss Regulator Finma Rejects Capital Models of Four Insurers

The Swiss Financial Markets Supervisory Authority rejected the method used by four insurers to calculate their solvency.

Finma initially tested the models of those insurers “whose solvency requires heightened attention,” and will also review the rest, according to a session of the lower house of the Swiss parliament published on its website.

The solvency test introduced in January requires insurers to provide a mark-to-market valuation of assets and liabilities that for the first time takes into account their investments. Half of Switzerland’s 140 insurers that need to apply the new capital rules have adopted Finma’s standard model to calculate their solvency levels, while the others used provisionally approved internal models.

Kids’ Online-Privacy Rules Pose Trade-Off for Web Advertisers

Online advertising companies looking to cash in on the burgeoning youth Internet market object to a U.S. proposal to protect children’s privacy at their own peril, privacy advocates said.

The Federal Trade Commission on Sept. 15 proposed expanding online-privacy rules for children under 13 to require parental consent to collect location data from smartphones and use tracking software to deliver targeted ads. The proposal drew complaints from industry groups representing companies including Google Inc. and Facebook Inc. that said the changes would be costly and technically daunting.

The FTC proposal seeks to update rules under the Children’s Online Privacy Protection Act of 1998, which requires websites to obtain parental consent before collecting, using or disclosing personal data from children under age 13.

The changes, which were prompted by the increased used by children of mobile devices, online social networking and interactive gaming, are drawing criticism from the Direct Marketing Association, which represents 2,000 companies in the retail, airline, pharmaceutical and other industries.

The Interactive Advertising Bureau which represents 500 media and technology companies is reviewing the proposal. Facebook, which is also reviewing the proposal, supports the agency’s efforts “to improve protections for young people online while helping them benefit from new services and technologies,” spokesman Andrew Noyes said in an e-mail.

For more, click here.

UN Carbon Board May Impose Additional Liability on Projects

The regulatory board governing the world’s biggest emissions-offsetting market may seek to impose additional liability on investors in greenhouse-gas reduction projects, according to a United Nations document.

Mistakes or misrepresentations in audits and reports that result in the supply of “excess” UN emission credits already can require the cancellation of credits equal to the exaggerated supply. This penalty may be extended, according to the document published yesterday for consideration by the Clean Development Mechanism executive board, which has a meeting planned for next week in Quito, Ecuador.

“The board may wish to consider and provide guidance on what, if any, additional consequences may be imposed on the CDM stakeholders who have been found responsible of the significant deficiencies,” according to the document.

The UN regulator may not be able to penalize projects directly because it has a contract with the audit firm, not the project, said Gareth Phillips, chief climate change officer at Singapore-based Sindicatum Sustainable Resources Group Ltd.

Any penalties on projects and their investors for providing false information, for instance, may need to be imposed by national regulators, he said. The new measures should only be used when there’s evidence of fraud or gross negligence, Phillips said yesterday by phone.

Compliance Action

SEC Said to Subpoena Firms Over Trades Before U.S. Rating Cut

The U.S. Securities and Exchange Commission has sent subpoenas to hedge funds as part of an investigation into whether some investors traded on confidential tips ahead of Standard & Poor’s decision to cut the U.S. credit rating last month, a person briefed on the matter said.

The SEC’s probe is in its early stages and will likely focus on firms that made unusually large bets that markets would decline ahead of the rating company’s Aug. 5 announcement, according to the person, who spoke on condition of anonymity because the investigation isn’t public.

SEC inspectors have been scrutinizing S&P’s methods for making the downgrade and whether the firm followed its own procedures for keeping the information secret, according to another person with direct knowledge of the matter.

The subpoenas were also reported yesterday by the Wall Street Journal.

S&P lowered the nation’s AAA grade to AA+ last month after warning on July 14 that it would reduce the ranking in the absence of a credible plan to decrease deficits. The decision contributed to a global equity rout beginning Aug. 8, the first day of trading after S&P’s announcement.

U.S. officials have said the downgrade was based on a flawed analysis that overstated the nation’s debt by about $2 trillion, while S&P said the discrepancy doesn’t change projections that the U.S. debt-to-gross domestic product ratio will probably continue to rise in the next decade. S&P’s decision was at odds with the other two main ratings companies, Moody’s Investors Service and Fitch Ratings.

“We have longstanding policies and procedures regarding the appropriate handling, use and protection of confidential information,” said Edward Sweeney, a spokesman for S&P.

SEC Ex-Counsel Referred to Justice Department Over Madoff Work

The U.S. Justice Department should consider whether a former Securities and Exchange Commission general counsel violated criminal law by working on policy related to Bernard Madoff’s fraud when he had a financial interest in the outcome, the SEC’s internal watchdog said.

In a 119-page report sent to Capitol Hill yesterday, SEC inspector general H. David Kotz said he is referring the conflict-of-interest allegations against David Becker to prosecutors after receiving guidance from the U.S. Office of Government Ethics. He also urged the SEC to overhaul its procedures for providing ethics advice to agency officials.

Becker, who inherited profits from the Madoff fraud, “participated personally and substantially in particular matters in which he had a personal financial interest,” Kotz wrote. The issues Becker worked on “could have directly impacted his financial position,” Kotz said in the report.

Kotz opened his probe in March after Becker and his brothers were sued by the court-appointed trustee in the Madoff bankruptcy case to recover $1.5 million in what he termed fictitious profits. When he joined the agency in 2009, Becker told Chairman Mary Schapiro and William Lenox, then the agency’s ethics counsel, about his family’s Madoff investment. Lenox told Becker in May 2009 that he didn’t have a financial conflict of interest and could work on the policy.

A phone call to William Baker III, Becker’s attorney at Latham & Watkins LLP, wasn’t immediately returned.

For more, click here.

UBS Moved Executive Facing FSA Risk-Management Fine to Zurich

A UBS AG executive accused of risk-management failures and facing a potential fine by the U.K. finance regulator was moved as early as 2008 from London to Zurich by Switzerland’s biggest bank.

John Pottage, the former chief executive officer of UBS’s wealth-management division in London, will challenge the Financial Services Authority at a court hearing in November over their attempt to fine him for not ensuring the unit had controls to prevent unauthorized trades that began in 2006, according to three people familiar with the case.

The FSA fined UBS 8 million pounds ($12.5 million) in 2009, at the time the third-largest penalty ever imposed by the regulator, for failing to prevent employees in its international wealth-management business from making as many as 50 unauthorized trades a day with funds from at least 39 customer accounts.

Pottage was authorized by the FSA until Dec. 15, 2008, according to the watchdog’s website. He had authorization for roles including chief executive, significant management, director, apportionment and oversight, investment adviser and insurance mediator.

He declined to comment when reached at a UBS number in Zurich. Yves Kaufmann, a UBS spokesman in Zurich, also declined to comment.

UBS trader Kweku Adoboli was charged with fraud and false accounting last week after the bank discovered unauthorized trades that it said caused $2.3 billion in losses. The risk of the trades was masked by fictitious positions, UBS said. The company said no client positions were affected.

The FSA and the Swiss Financial Market Supervisory Authority opened a joint investigation into control failures at UBS that allowed the trades to go undetected.

Chris Hamilton, an FSA spokesman, declined to comment. Tobias Lux, a spokesman at the Swiss regulator, declined to comment on the case. Pottage’s lawyer, John Fordham, also declined to comment.

For more, click here.


Expert-Networking Executive Convicted at Insider Trial

A former executive at expert-networking firm Primary Global Research LLC, James Fleishman, was convicted at trial of helping pass confidential information to fund managers as part of an insider-trading scheme.

Fleishman, of Santa Clara, California, was found guilty yesterday by a Manhattan federal jury of conspiracy to commit securities fraud and conspiracy to commit wire fraud. The jury deliberated for about six hours before reaching a verdict.

U.S. District Judge Jed Rakoff set sentencing for Dec. 21. Fleishman remains free on bond. He and his lawyer, Ethan Balogh, declined to comment as they left the courthouse.

Since November, 15 people have been charged by federal prosecutors in the office of Manhattan U.S. Attorney Preet Bharara in a probe of expert networkers and hedge fund managers. Twelve have pleaded guilty, including Noah Freeman, a former portfolio manager with SAC Capital Advisors LP, and Samir Barai, the founder of Barai Capital Management LP.

Prosecutors said Fleishman obtained and passed confidential data from technology company employees who were moonlighting as consultants for Mountain View, California-based Primary Global. The secret tips were given to fund managers who paid Primary Global for consultation calls, prosecutors said. said.

Balogh said his client relied on the expert networkers’ own representations about their ability to do consulting outside their companies, citing an agreement the consultants signed confirming they had permission and agreeing not to pass confidential information.

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

For more, click here.


Consumer Bureau’s Date Says Mortgage Safeguards Coming in 2012

The Consumer Financial Protection Bureau will complete work on a rule aimed at ensuring borrowers have the ability to repay their mortgages early by next year, according to Raj Date, the former banker running the new agency.

The agency plans to issue a final rule early next year “in order to provide clarity to the market as quickly as we can, without sacrificing the quality of our analysis,” Date said yesterday at a Washington conference sponsored by American Banker, a print and online publication covering the financial-services industry.

The rule, required under the Dodd-Frank Act, was issued by the Federal Reserve in April and has been taken over by the consumer bureau, which began work in July. The measure includes underwriting standards aimed at preventing abusive lending practices that lawmakers and regulators say led to record foreclosures in the wake of the 2008 credit crisis.

Date is a former executive with Capital One Financial Corp. and Deutsche Bank AG who joined the consumer bureau in February as associate director for research, markets and regulation. He took over as special adviser to the Treasury secretary overseeing the agency on Aug. 1 when Elizabeth Warren stepped down.

Richard Cordray, who is serving as the consumer bureau’s enforcement chief, is awaiting Senate confirmation to become its first director.

More Banks May Need Recapitalization, EU’s Almunia Says

European governments may have to inject funds into more banks if they’re unable to get the region’s sovereign-debt crisis under control, European Union Competition Commissioner Joaquin Almunia said.

“More banks may need to be recapitalized,” Almunia said yesterday at a press conference in Brussels. “That’s why it’s so important to solve the sovereign-debt crisis without a delay,” or “the bill will only grow bigger,” he said.

European politicians have failed to stem concern that contagion from Greece’s fiscal woes will engulf Spain and Italy and hurt French banks. Investors see a 94 percent chance Greece will default on its debt in the next five years, according to CMA, which compiles credit-default swap prices.

Lenders should seek to finance themselves and consider selling subsidiaries and cutting dividends before resorting to public backstops, Almunia said. EU stress tests released in July indicated France’s four largest banks had enough capital, though eight lenders elsewhere in the euro region had a shortfall.

To contact the reporter on this story: Carla Main in New Jersey at

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

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.