Merrill Fined, Repsol Probe Request, Fannie Mae: Compliance

Bank of America Corp.’s Merrill Lynch unit will pay $1 million to resolve claims that supervisory failures enabled a Texas-based representative to operate a Ponzi scheme using a company account.

Bruce Hammonds, who worked for Merrill Lynch in San Antonio, persuaded 11 people to invest more than $1 million in a fraud he created and ran as B&J Partnership for more than 10 months, the Financial Industry Regulatory Authority said yesterday in a statement.

Finra, the Washington-based brokerage regulator, permanently barred Hammonds from the securities industry in December 2009, according to the statement. Merrill Lynch reimbursed all harmed investors, Finra said.

The brokerage firm failed to capture accounts opened by employees if their Social Security number wasn’t the primary account number, Finra said. As a result, Merrill Lynch failed to monitor 40,000 accounts associated with employees from 2006 to 2010, Finra said.

“The firm detected the irregularities with the accounts, terminated Mr. Hammonds, alerted the authorities and compensated affected clients,” Bill Halldin, a spokesman for Bank of America, said in an e-mailed statement. “We have extensive monitoring in place today and continually take steps to enhance our monitoring systems.”

Merrill Lynch, which was acquired by Charlotte, North Carolina-based Bank of America in 2009, resolved the claims without admitting or denying wrongdoing, Finra said.

Compliance Policy

EU Makes Deal on Derivatives Proposal to Bridge Gap With U.K.

European Union finance ministers reached an agreement on how to move forward with derivatives legislation in a way that satisfies the concerns of the U.K.

The agreement doesn’t widen the scope of the current derivatives legislation, as the U.K. had sought. Instead, it provides for an EU declaration that forthcoming financial market legislation will cover any derivatives that aren’t forced into central clearing by the proposal.

Finance ministers agreed to restore a provision that would allow “open access” to clearinghouses for all trades, which had been removed from earlier drafts. Blocking an action by an EU country would require the support of the other 26 member states.

The Group of 20 nations is encouraging greater use of central clearing in a bid to cut some of the risks attached to derivatives trading. The Financial Stability Board has said that clearinghouses should in turn face tougher regulation because a crisis at one of them could threaten the global financial system.

Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.

The EU is developing draft rules to mandate what types of derivatives should be centrally cleared. The final version of the law will need to be completed in negotiations with the European Parliament. Yesterday’s agreement means the current legislation will cover a broad swath of over-the-counter derivatives, which the EU estimates includes 90 percent of all derivatives trades.

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Special Section: European Parliament

Leaders Discuss Credit Ratings, Bank Capitalization, Dexia

In Brussels yesterday, Steven Maijoor, chairman of the European Securities and Markets Authority, told the European Parliament that credit-ratings companies have been slower to register with the agency than he had hoped.

The agency will manage inspections at credit-ratings companies registered in the region.

“We’re looking forward to starting our inspections; we can only start when they are registered,” he said at the parliament yesterday. The checks will include the way the companies conduct ratings of sovereign debt.

Maijoor also said the agency will publish guidelines on exchange-traded funds by the end of the year.

Separately, Andrea Enria, chairman of the European Banking Authority, said yesterday that bank-capitalization issues will be the “main course” at today’s meeting of the agency.

“We are in a really dangerous interconnection between sovereigns and the banks,” he said at the European Parliament.

Enria also said the agency will discuss the situation at Dexia SA in a confidential meeting today.

It’s important that Dexia’s funding problems are fixed as soon as possible, otherwise they “could spread to other banks,” he said at the parliament in Brussels yesterday. The meeting will discuss plans of French and Belgian regulators, he said.

Compliance Action

Repsol Said to Ask Spain Market Regulator to Probe Trading

Repsol YPF SA asked Spain’s stock market regulator to investigate trading in the oil company’s shares during the past two months, according to a person familiar with the situation.

Repsol asked the regulator to investigate “abnormal or unusual movements” in its shares in August and September, the person said, citing the letter from Repsol’s audit committee dated Oct. 3. It argues that volumes were higher than usual as were the number of Repsol shares being lent, said the person, who declined to be identified as the letter isn’t public.

Repsol Chairman and Chief Executive Officer Antonio Brufau is seeking ways to stall Petroleos Mexicanos and Sacyr Vallehermoso SA, who agreed Aug. 29 to pool their votes and push for Repsol to appoint a separate CEO.

A spokeswoman for the regulator, who asked not to be named in line with official practice, said the agency received a letter from Repsol yesterday asking it to look into share movements. A spokeswoman for Sacyr declined to comment, and no one was immediately available at Pemex.

Fannie Mae Delayed Acting on Paperwork Abuse, Watchdog Says

Fannie Mae waited for two years before acting on a tip from one of its shareholders about abuses by lawyers handling the mortgage firm’s foreclosures, a government watchdog reported.

The inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, released a report yesterday on outside law firms hired by the government-sponsored firm to handle mortgage defaults.

Among other things, the report said, Fannie Mae didn’t act on the December 2003 allegation from an unidentified shareholder until it hired a law firm two years later to look into the matter. In May 2006, the law firm reported to Fannie Mae that Florida-based foreclosure attorneys were “routinely filing false pleadings and affidavits.” Fannie Mae didn’t notify its regulator of the findings, according to the inspector general.

State attorneys general and federal regulators have been investigating whether banks and mortgage servicers used false documents and signatures, a practice known as robo-signing, to justify foreclosures as they coped with millions of defaults in

2008. Settlement talks among the states, the Justice Department and banks have been under way for most of the year.

The inspector general’s report was prompted by a request from Congress.

Fannie Mae spokeswoman Amy Bonitatibus declined to comment on the IG report. She said that Fannie Mae’s internal 2006 report “identified a specific issue with the practice of filing lost note affidavits, which was immediately addressed.”

Argentina Keeps Bond Sale Option Open in 2012, Statement Says

Argentina may issue bonds next year to finance obligations, according to a filing to the U.S. Securities and Exchange Commission.

In 2012, the government “is planning to finance debt services with a variety of sources” that include primary surplus, new debt from multilateral organizations and new debt issuances aimed at alleviating debt services, according to the Sept. 30 filing, known as an 18-K.

The government made a similar statement last year and hasn’t sold bonds since.

Argentina has been blocked from international debt markets since its record $95 billion default in 2001. The government’s SEC filing doesn’t specify whether it would issue debt locally or in international markets.

The government will have to pay 44.8 billion pesos ($10.7 billion) in interest payments for bonds issued in the 2005 restructuring next year, while 176.4 billion pesos of principal payments are due, according to the statement.


Premier League, Pubs Get Split EU Court Ruling on TV Rights

The Premier League’s geographic restrictions on broadcasters such as British Sky Broadcasting Group Plc showing its soccer matches breach European Union antitrust rules, the bloc’s highest court said in a ruling that may still limit what pub and bar owners can show customers.

The EU Court of Justice in Luxembourg ruled that territorial licenses are “contrary” to competition law “if the license agreements prohibit the supply of decoder cards to television viewers who wish to watch the broadcasts.” While the court said anyone can watch such broadcasts, pubs can’t show the feeds via foreign decoder cards without the permission of the copyright owner, such as the broadcasters and the league.

The Premier League, home to some of Europe’s most successful clubs including Manchester United and Liverpool, started a three-year 1.8 billion-pound ($2.8 billion) U.K. television contract in August 2010, and receives a further 1.4 billion pounds from the sale of international broadcast rights. The ruling offers something for the league and the U.K. pub owner who tried to show local matches from a Greek provider.

BSkyB spokesman Robert Fraser declined to immediately comment.

The cases are C-403/08, Football Association Premier League Ltd, v. QC Leisure and C-429/08, Karen Murphy v. Media Protection Services Limited.

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Chicago Lawyer Agrees With U.S. to Stop Touting Tax Shelters

John E. Rogers, a Chicago tax attorney, consented to a court order barring him from promoting tax shelters that the U.S. claimed were phony.

He agreed to the entry of orders against him and two businesses, Sugarloaf Fund LLC and Jetstream Business Ltd., without admitting to allegations made in a federal complaint filed last year in federal court in Chicago.

The U.S. Justice Department accused Rogers of using distressed Brazilian debt to improperly reduce his customers’ reported income, leading to more than $370 million in deductions. U.S. District Judge Samuel Der Yeghiayan signed the orders on Sept. 30.

Rogers, reached by phone at his Chicago law office, declined to comment on the court orders.

The case is U.S. v. Rogers, 10-cv-07068, U.S. District Court, Northern District of Illinois (Chicago).

S&P Rating Based on ‘Imagined Events,’ Australia Lawyer Says

Standard & Poor’s, under investigation by U.S. over the nation’s credit downgrade, gave its highest rating to notes whose value was dictated by “imagined events,” a lawyer for a group of Australian investors told a court.

Two Australian towns and an insurer sued the U.K. arm of S&P’s owner McGraw-Hill Cos. and financial-services firms, including Royal Bank of Scotland’s Australian unit, which were involved in the sale of AAA-rated securities that plummeted in value during the global financial crisis in 2008.

Noel Hutley, lawyer for the plaintiffs, told Federal Court Justice Jayne Jagot yesterday in Sydney at the start of a scheduled 10-week trial that the note was “just a series of rules,” which were supposed to be affected by external events, yet were “akin to a game” with “imagined events” dictating the outcome, Hutley said.

Bathurst regional council and Corowa Shire Council seek to recoup losses of more than A$900,000 ($847,000) they incurred from the purchase of securities in 2006, according to the statement of claim.

The case is Bathurst Regional Council v. Local Government Financial Services Ltd., NSD936/2009, Federal Court of Australia (Sydney).

BNY Sued by U.S., New York Over Foreign Currency Trading

Bank of New York Mellon Corp. was sued by the U.S. Attorney’s Office in Manhattan and the New York attorney general for allegedly defrauding clients in foreign-currency trades.

The bank earned $2 billion through a 10-year fraud in which it misrepresented to customers its pricing practices, according to a complaint by New York Attorney General Eric Schneiderman and the City of New York. The U.S. Attorney’s Office filed a separate suit in federal court.

The two filings couldn’t immediately be confirmed in online court records.

The bank’s scheme defrauded thousands of clients nationwide, according to the New York complaint. Victims included public and private pension funds and federally insured financial institutions, officials said in court papers and in statements. New York City pension funds, including the Teachers’ Retirement System of the City of New York, lost tens of millions of dollars, they said.

The lawsuits come after attorneys general in Florida and Virginia sued BNY Mellon in August. Like New York, those states allege the bank overcharged public retirement funds in foreign exchange transactions. The New York complaint supersedes, or replaces, a whistleblower lawsuit filed in 2009, Schneiderman’s office said in a statement.

BNY Mellon will fight the lawsuits, said Kevin Heine, a spokesman for the bank. The complaints are based on the same “flawed analysis” and a misunderstanding of the global foreign-exchange market, he said in an e-mail, describing the suits as “prosecutorial overreach.”

The lawsuits may add to legal expenses at BNY Mellon, which is already suffering from rising costs.

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Madoff Trustee to Begin Distributions to Victims Today

The trustee liquidating Bernard Madoff’s firm said he will start distributing money today, starting with $312 million to go to victims of the fraud who have approved claims.

The trustee, Irving Picard, said yesterday in a statement that he will begin paying the money to the holders of 1,230 Madoff accounts, reimbursing 4.6 percent of the money they lost in Madoff’s Ponzi scheme.

This will be an “initial distribution” to Madoff’s defrauded customers, Picard said in the statement. Additional funds are currently unavailable “due primarily to appeals,” Picard said.

Picard has filed more than 1,000 suits against banks, feeder funds, former Madoff investors and others he claims profited from the fraud. He said he has recovered about $8.7 billion, or about half the $17.3 billion in principal he claims was lost.

The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).


EU Finance Tax Could Cut High-Frequency Trading, Bergmann Says

A proposed European tax on financial transactions could cut high-frequency trading by as much as 90 percent “in some market segments,” Manfred Bergmann, a European Commission official, said in a speech in Oxford, England, yesterday.

The tax could “re-establish a link with the non-financial economy and consolidate inflated volumes,” Bergmann said, citing a commission study.

Comings and Goings

SEC Names Conley Deputy General Counsel on Litigation, Appeals

The U.S. Securities and Exchange Commission named Michael Conley, an 11-year veteran of the agency, deputy general counsel for enforcement matters, appellate cases and adjudication.

Conley, 48, is taking over the position from Anne Small, who left the SEC to take a position at the White House, the agency said yesterday in a statement. He was promoted from deputy solicitor, a position he has held since 2009.

Conley, who will be one of two deputies reporting to General Counsel Mark Cahn, will work on litigation of enforcement matters, challenges to agency rules and appeals of sanctions meted out by self-regulatory organizations, including the Financial Industry Regulatory Authority, the SEC said.

While serving as deputy solicitor, Conley was involved with the SEC’s positions regarding bankruptcies, including that of Bernard Madoff’s firm, and the Securities Investor Protection Corp., the federally chartered nonprofit that works to restore funds to customers when brokerages collapse.

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