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Dodd-Frank, Cybersecurity, Tax Holiday, Finra: Compliance

Oct. 6 (Bloomberg) -- U.S. regulators should publish a schedule for when all Dodd-Frank Act rules will take effect to smooth a “haphazard implementation process” that is hurting the economy by perpetuating uncertainty, Representative Scott Garrett said in a letter.

Garrett, a New Jersey Republican, made the comments in a letter to Treasury Secretary Timothy F. Geithner that was released yesterday.

A member of the House Financial Services Committee, Garrett said the Financial Stability Oversight Council led by Geithner should publish an implementation schedule by Nov. 15 to address “grave concerns about the lack of direction that U.S. financial regulators have provided thus far.”

Geithner is scheduled to testify today before the Financial Services Committee and the Senate Banking Committee to discuss the first annual report from FSOC, a 10-member council of regulators created by Dodd-Frank, the financial-rules overhaul enacted last year.

Compliance Policy

House Republicans Cybersecurity Plan Calls for Limited Rules

Congress should seek to strengthen computer defenses at U.S. power, water and telecommunications companies with voluntary standards and limited regulation, according to a House Republican task force on cybersecurity.

Lawmakers also should authorize an organization outside the government to act as a clearinghouse of information on cyber attacks, to allow U.S. agencies and companies that operate the nation’s critical infrastructure to share real-time data about hacker threats, the task force said in a report released yesterday.

The report came on the same day as a hacker threat against the New York Stock Exchange. Anonymous, a group of self-styled hacker-activists behind attacks on corporate and government websites, vowed to support the Occupy Wall Street protests by erasing the New York Stock Exchange “from the Internet” on Oct. 10.

The group posted a video message on YouTube declaring war on the world’s largest stock exchange in retaliation for the mass arrests of Wall Street protesters. The two-minute message didn’t elaborate on the threat or whether it referred only to an attack on the NYSE website, which would have no effect on trading.

Richard Adamonis, a spokesman for NYSE Euronext, which operates the exchange, said the company doesn’t comment on rumors or security matters.

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Repatriation Tax Holiday to Be Proposed by Hagan, McCain

U.S. Senate Majority Leader Harry Reid said a corporate-profit repatriation proposal by Senators Kay Hagan and John McCain won’t pass the Senate as a stand-alone bill and needs to be coupled with infrastructure improvement efforts.

McCain and Hagan said they would introduce the legislation today.

New York Senator Charles Schumer, the chamber’s No. 3 Democrat, said in June that Senate Democrats might be open to using the short-term revenue provided by a corporate tax holiday to finance an infrastructure bank.

Hagan, a Democrat from North Carolina, and McCain, an Arizona Republican, said yesterday they will sponsor a bill to let U.S. companies bring home as much as $1.4 trillion of overseas profits at a reduced tax rate.

Large multinational companies including Pfizer Inc., Apple Inc. and Cisco Systems Inc. have been lobbying Congress to let them return overseas profits to the U.S. at a lower rate. The companies say the infusion of cash would boost the economy and lead to increased employment. Corporate profits now are taxed at a top rate of 35 percent.

Linking repatriation to infrastructure would address a concern of congressional Democrats that the tax break should promote job creation.

Companies advocating repatriation have mounted an intensive lobbying campaign.

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Finra Backs Bachus on Regulating Advisers, Luparello Says

Legislation authorizing one or more self-regulatory organizations to oversee registered investment advisers has been endorsed by an official of the Financial Industry Regulatory Authority.

Stephen Luparello, vice chairman of the Finra, described the draft bill circulated by Representative Spencer Bachus, an Alabama Republican, as “directionally, exactly what we want.”

He made the remarks at a Financial Services Institute Inc. conference in Washington yesterday.

Much of the costs of assuming oversight of investment advisers as a self regulator are already embedded in Finra’s infrastructure, according to Luparello, who oversees regulatory operations for Finra, which is funded by the brokers it regulates.

Congress is considering whether to name a self regulator for registered investment advisers. Richard Ketchum, chairman and chief executive officer of Finra, told a subcommittee of the House Financial Services Committee Sept. 13 that his group was “uniquely positioned” to handle the job.

Bachus, who leads the full committee, proposed draft legislation last month that would charge one or more self-regulatory groups, under the authority of the U.S. Securities and Exchange Commission, with overseeing registered investment advisers. The proposal didn’t specify whether the self regulator should be Finra or another group.

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House Panel Backs Bill Boosting Nonpublic-Firm Shareholder Limit

A U.S. House panel approved measures that would let closely held firms attract more investors without going public as part of a slate of Republican-backed legislation aimed at spurring economic growth.

The House Financial Services Capital Markets subcommittee gave bipartisan support yesterday to a bill that would increase to 1,000 from 500 the number of shareholders a nonpublic company can have without an initial public offering.

House Republicans are pushing legislation to help startups and smaller firms raise money amid regulatory hurdles and tighter lending standards following the 2008 credit crisis. Shares of such companies are being traded on secondary markets that have emerged since the Sarbanes-Oxley Act of 2002 and last year’s Dodd-Frank Act increased the cost of going public.

The panel also approved a measure that would exempt companies with a public float, or shares available to investors, of as much as $350 million from the audit requirement in Sarbanes-Oxley. Companies with less than $75 million are currently exempt from the requirement.

Separately, the panel approved by voice vote a bill that would boost the Securities and Exchange Commission threshold to 2,000 for banks. That bill, known as H.R. 1965, would broaden private-bank shareholder limits and require the SEC to undertake a study of private-firm shareholders that would include a cost-benefit analysis of shareholder registration thresholds.

Volcker Rule Draft Puts Short-Term Trades Under More Scrutiny

U.S. banks seeking to gain from or hedge against short-term price movements in securities and derivatives markets would face restrictions under a proprietary-trading ban, according to a draft of the so-called Volcker rule.

The 205-page document, dated Sept. 30 and obtained yesterday by Bloomberg News, is the latest version of the rule to emerge as it’s being written by four federal banking regulators and is scheduled to be released on Oct. 11 by the Federal Deposit Insurance Corp.

The financial regulators didn’t define short-term in the draft, writing that “it is often difficult to clearly identify the purpose for which a position is acquired or taken and whether that purpose is short-term in nature.”

The Volcker rule, which is named for its original champion, former Federal Reserve Chairman Paul Volcker, is intended to reduce the chance that banks will make risky investments with their own capital that put their deposits at risk. The provision was part of the Dodd-Frank financial overhaul enacted last year, and policy makers are drafting regulations to enforce it.

Banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley have shut or made plans to spin off stand-alone proprietary-trading groups to prepare for the rule.

Foreign banks would be covered by the rule if they have U.S.-based staff involved in the restricted trades, according to the draft.

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Massachusetts Attorney General Says She May Sue Big Banks

Massachusetts Attorney General Martha Coakley said she may sue major banks after she “lost confidence” that they will reach an agreement that adequately resolves foreclosure disputes.

Attorneys general from all 50 states last year announced they would probe the foreclosure practices of banks following reports of faulty documents being used to seize homes. Since then, a group of attorneys general and federal officials have been negotiating a settlement with the five largest mortgage servicers in the U.S. -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc.

Coakley said in a statement yesterday that she has lost confidence the banks “will bring to the table an agreement that properly holds them accountable for wrongful foreclosures.” Her office has therefore begun preparing for litigation, which would include claims over the filing of false or misleading documents, she said.

Coakley didn’t disclose when or which banks would be sued.

‘Lord’ Davenport, Five Others Convicted in Fraud, SFO Says

Six men were convicted over a 4 million-pound ($6.2 million) fraud in which a London company charged fees for commercial loans it never provided.

Edward Davenport, 45, who described himself as an English Lord while having no official title, was the ringmaster of a “sophisticated criminal enterprise,” the U.K. Serious Fraud Office said in an e-mailed statement.

Davenport and Peter Riley, 64, directors of the company Gresham Ltd., were sentenced to seven years in prison last month and banned from acting as company directors for 10 years. Another director, Borge Andersen, was sentenced to three years. David McHugh, Richard Stephens and David Horsfall, who posed as advisers to Gresham, are to be sentenced Nov. 10.

Gresham claimed to offer commercial funding or venture capital for construction projects in the U.K., Europe, the U.S., India and the Caribbean. It took millions in “deposits” or “verification” fees, the SFO said. None of the victims received any money.

Davenport said he was “shocked and dismayed” at his sentence, according to an e-mailed statement from his lawyer. He has filed an appeal at London’s High Court and wants to clear his name, he said in the statement.

Lone Star Found Guilty of Stock Manipulation by Seoul Court

Lone Star Funds was found guilty of stock-price manipulation and the former head of its South Korean unit was jailed after a five-year legal dispute that stalled the U.S. buyout fund’s efforts to sell Korea Exchange Bank.

Paul Yoo was sentenced to three years in prison by Judge Cho Kyung Ran today. Korea Exchange Bank was found not guilty, Cho said after presiding over a retrial ordered by the Supreme Court this year following their acquittal in June 2008.

The verdict may remove the final barrier to Lone Star’s sale of Korea Exchange to Hana Financial Group Inc., after the litigation delayed its plan to offload the 51 percent stake and derailed two earlier attempts. A public backlash over Lone Star’s legal woes and profit on its eight-year investment may deter foreign takeovers, impeding the government’s plans to sell state assets such as Woori Finance Holdings Co.

Lone Star was fined 25 billion won ($21 million) by the court.

Korea Exchange Bank spokesman Lee Sun Hwan said the company respects the court’s decision to clear it of the manipulation charge. He declined to comment on the FSC’s remark that it may order Lone Star to sell its stake.

Jed Repko, a spokesman for Lone Star in New York, didn’t immediately respond to phone calls or reply to an e-mail sent after regular office hours.

For more, click here.

Soros Loses Case Against French Insider-Trading Conviction

Billionaire investor George Soros lost a challenge to his 2002 insider-trading conviction, with the European Court of Human Rights saying French market regulations were clear enough to hold him responsible.

France didn’t violate Soros’s rights in punishing him criminally for trading on inside information about Societe Generale SA in spite of the market regulator’s conclusion that its rules were unclear, the Strasbourg, France-based court said.

Soros, 81, was convicted in 2002 of insider trading and ordered to repay 2.2 million euros ($2.9 million) he’d made from the share purchase and subsequent sale after a Paris court found he’d acted with the knowledge that the bank might be a takeover target. While prosecutors filed criminal charges, French stock market regulators didn’t pursue Soros, saying insider-trading laws were too vague to determine whether he’d broken them.

“It is inconceivable to expect that the citizen has a better understanding of the law than the authority in charge” of market regulation, Ron Soffer, Soros’s lawyer, said. “The opinion of the regulatory authority is an irrebuttable presumption as to the lack of clarity of the law.”

Soros will appeal the four-to-three ruling to the court’s Grand Chamber, Soffer said.


Czech Government Opposes Financial Transaction Tax, Necas Says

The Czech government opposes introduction of a financial transaction tax and issuance of joint euro-area bonds, Prime Minister Petr Necas said.

Necas was speaking to reporters yesterday after the weekly Cabinet meeting in Prague.

ECB’s Liikanen Says It’s Important to Focus on Systemic Risks

European Central Bank Governing Council member Erkki Liikanen said policy makers should learn from past experience and focus on systemic risk.

He made the remarks at a conference in Kiel, Germany, yesterday.

“This big financial crisis follows the same sequence of events” as previous crises, including high leverage, bursting bubbles, a financial crisis, recession and sovereign debt crises, Liikanen said.

“It is extremely important that we never neglect history the way we did a few years ago. If the financial sector grows out of proportion it’s always associated with risks,” Liikanen added.

IASB Chief Urges U.S. to Adopt International Accounting Rules

U.S. regulators should adopt international accounting rules, known as IFRS, to improve transparency, the chairman of the International Accounting Standards Board said yesterday.

Adopting the standards would give U.S. companies “the same financial reporting language for both internal management reporting and external financial reporting on a worldwide consolidated basis,” Hans Hoogervorst, IASB chairman, said in a speech in Boston.

Hoogervorst this week criticized U.S. accounting rules that differ from standards set by the IASB during a hearing in the European Parliament. Banks don’t need to show all their derivatives exposure on their balance sheet under U.S. rules, known as Generally Accepted Accounting Principles or GAAP, he said.

Comings and Goings

JPMorgan Derivatives-Risk Assessor Pugachevsky Joins Quantifi

JPMorgan Chase & Co.’s Dmitry Pugachevsky, who oversaw analysis of some of the bank’s derivatives risks, joined Quantifi Inc. to run the research division.

Pugachevsky was the head of counterparty credit modeling at New York-based JPMorgan. Before that, he was the global head of credit analytics at Bear Stearns Cos.

Changes to derivatives regulation in the U.S. and new international capital rules for banks “have brought a heightened focus on counterparty risk and highlight the need for firms to adopt active counterparty risk-management systems,” Pugachevsky said in a statement released by Summit, New Jersey-based Quantifi yesterday.

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

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

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