Debit-Fee Review, ‘Swipe’ Suit, MF Global: Compliance

The U.S. Justice Department is conducting an antitrust review of statements and actions by banks and their trade associations about imposing fees on customers who use debit cards.

Assistant Attorney General Ronald Weich described the review in a letter released yesterday by U.S. Representative Peter Welch, a Democrat from Vermont, who had requested an investigation.

Welch was among five House Democrats who last month asked Attorney General Eric Holder to investigate whether U.S. banks and their trade groups colluded on whether to impose fees in response to caps on what they can charge for using debit cards.

The Federal Reserve, acting on a provision of the 2010 Dodd-Frank Act, imposed rules on Oct. 1 limiting fees card networks charge merchants to 21 cents a transaction, about half what retailers had been paying. In response, lenders considered new charges for debit customers to make up some of the $8 billion the largest banks may lose under the rules, causing a backlash among customers.

Bank executives and the trade groups representing the industry said during debate over the fee caps that lenders would need to raise other charges on debit-card users.

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Compliance Policy

Dodd-Frank Law May Hinder Crisis Response by Policy Makers

Federal Reserve Chairman Ben S. Bernanke and fellow U.S. policy makers may find themselves hampered in restoring financial stability should the European debt crisis spread to America.

The Dodd-Frank legislation passed last year prohibits the Fed from engaging in rescues of individual financial firms, such as it did with Bear Stearns Cos. and American International Group Inc. during the 2008 financial crisis. Lawmakers also banned the Treasury Department from again using an emergency reserve program to backstop money market funds. The Federal Deposit Insurance Corp. now has to get congressional approval before it can guarantee senior debt issued by banks.

In passing Dodd-Frank, lawmakers sought to end government bailouts of financial institutions deemed to be too big to fail. They beefed up regulation of the industry, required banks to hold more capital and sought to discourage excessive risk-taking by curbing the ability of the federal government to rescue them from their mistakes.

The danger is that the legislation may have gone too far in limiting the leeway of the central bank and other policy makers to act in a financial meltdown, said Donald Kohn, a senior economic strategist for Potomac Research Group in Washington. The result is that while crises may be less frequent than before, they may be harder to contain once they occur.

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IMF Revamps Credit Lines to Lure Nations Facing Shocks

The International Monetary Fund revamped its credit line program to encourage countries facing outside shocks to turn to the fund with few conditions attached, as European leaders fail to end their debt turmoil.

The Washington-based IMF said yesterday that the new instrument, the Precautionary and Liquidity Line, can be tapped by countries with strong economies currently facing short-term liquidity needs. Funding available will be capped at a percentage of countries’ contributions to the fund, limiting the role the instrument can play in preventing the debt crisis from spreading in Europe.

The changes, which enable countries that pre-qualify to request IMF funds without having to make as many policy changes as with traditional loans, come as Europe’s crisis threatens to spread to France and Spain. The IMF is co-financing bailouts in Greece, Portugal and Ireland and is preparing to send a team to Italy for an unprecedented audit of that country’s efforts to cut its debt.

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Compliance Action

House Panel to Examine MF Global Collapse in December Hearing

A U.S. House of Representatives subcommittee plans to hold a hearing on Dec. 15 to investigate the collapse of MF Global Holdings Ltd.

The House Financial Services Committee’s Oversight and Investigations subcommittee will examine “every aspect” of the brokerage’s failure, Alison Mills, a spokeswoman for Michael Capuano, the panel’s ranking Democrat, said yesterday in an e-mail. The role of the credit-rating companies will be discussed, said a staffer for another representative on the panel, who asked not to be identified as plans haven’t been completed.

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, the three largest credit-rating companies, all rated MF Global investment grade a week before its bankruptcy. David Wargin, a spokesman for S&P, declined to comment, as did Michael Adler of Moody’s and Daniel Noonan for Fitch.

S&P gave MF Global a BBB- grade until the brokerage then run by former New Jersey Governor and U.S. Senator Jon Corzine filed for bankruptcy on Oct. 31. Moody’s and Fitch downgraded MF Global to junk four days before the company’s failure.

Diana DeSocio, an MF Global spokeswoman, didn’t respond to requests for comment.

Whistle-Blowers Seek SEC Bounties at a Rate of Seven a Day

Bounty-hunting corporate tipsters are filing reports of potential wrongdoing with the U.S. Securities and Exchange Commission at a rate of about seven a day, according to the first progress report from the agency’s new whistle-blower program.

The public snapshot released last week counted 334 tips in the first 50 days after the program -- revamped under the Dodd-Frank Act -- became fully operational on Aug. 12.

The program gives whistle-blowers a share of proceeds if their tips lead to more than $1 million in penalties. So far, the top three categories of tips are those alleging market manipulation, problems with public disclosure or fraud in offerings.

Gregory Keating, co-chair of the whistle-blowing practice group at Littler Mendelson PC in Boston said he expects the next reports to show an “exponentially” higher tip rate, and said such claims “can impact stock price.

Congress expanded the SEC’s whistle-blower provisions after the agency failed to act on tips it received about Bernard Madoff’s multibillion-dollar fraud. Companies that opposed the program said offering bounties could undermine internal programs set up to collect and address employee concerns -- expensive systems the companies are legally required to operate.

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Focus Media Denies Short Seller’s Report After 39% Decline

Focus Media Holding Ltd. denied allegations from short seller Carson Block, saying a report that drove the shares down 39 percent Nov. 21 reflects a misunderstanding of the company’s business.

Muddy Waters LLC, Block’s firm, said Nov. 21 that Shanghai-based Focus Media overstated the number of television screens in its ad network and may have overpaid for takeovers to mask losses. Focus Media said in a statement yesterday that Muddy Waters is attributing “motives to management that are based on innuendo” and that the LCD screen allegations are unfounded.

Focus Media said it “denies the allegations entirely.”

More than $1.36 billion of Focus Media’s value was wiped out Nov. 21, the biggest erosion of market capitalization following a Muddy Waters report since June, when it said Toronto-traded timber producer Sino-Forest Corp. was misleading investors. Analysts from at least 10 firms including Bank of America Corp. and Goldman Sachs Group Inc. had “buy” ratings before the report, Bloomberg data show.

Chinese stocks trading in the U.S. have faced investor scrutiny this year after companies disclosed financial irregularities or auditor resignations.

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Two Arrests Made in FSA Probe Into Unauthorized Advisers

The U.K. Financial Services Authority said it arrested two people and searched three premises in the West Midlands region of England as part of an investigation into unauthorized financial advisers.

The agency hasn’t charged anyone and the investigation is ongoing, according to the statement on the FSA website.

Alstom to Pay $42.7 Million to Settle Swiss Corruption Case

Alstom SA was fined 38.9 million Swiss francs ($42.7 million) by the Attorney General’s office in Switzerland because of bribes paid in Latvia, Malaysia and Tunisia.

The French maker of trains and turbines didn’t take “all necessary and reasonable organizational precautions to prevent bribery of foreign public officials” after the law changed in 2003, the Attorney General’s office said yesterday in a statement. The manufacturer must pay a fine of 2.5 million Swiss francs and 36.4 million Swiss francs in a penalty linked to estimated profit.

Alstom employees probably benefited from kickbacks, “enriching themselves at the expense of the company,” in two of the three cases, the Levallois-Perret, France-based manufacturer said yesterday in a statement. In the third one, Alstom acted as a subcontractor.

Alstom “notes with satisfaction that, after thorough investigations, the Office of Attorney General has concluded the absence of any system or so-called slush funds used for bribery of civil servants to illegally obtain contracts,” the company said.

The company is also the subject of corruption investigations in the U.K. and Brazil. A French inquiry was closed in 2009 after investigating judges found no grounds to proceed, said Stephane Farhi, an Alstom spokesman.

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Retail Groups Sue Fed Over New Debit Card Rules for Banks

The Federal Reserve was sued by retailer groups over new regulations governing so-called swipe fees, claiming the Fed disregarded the law when deciding how much banks can charge merchants for debit-card transactions.

The groups, in a lawsuit filed yesterday in U.S. District Court in Washington, said retail merchants will be “substantially harmed” by the fee limits set by the Fed in response to the Durbin Amendment, a provision of the Dodd-Frank legislation passed last year.

The rule went into effect on Oct. 1.

The case was filed by the National Retail Federation, the Food Marketing Institute and NACS, which was formerly the National Association of Convenience Stories. Miller Oil Co., a residential energy supplier based in Norfolk, Virginia, and Boscov’s Department Store LLC, based in Reading, Pennsylvania, also joined in the complaint.

The case is NACS v. Board of Governors of the Federal Reserve System, 11-02075, U.S. District Court, District of Columbia (Washington).

Mortgage Servicers Make Progress to Fix Flawed Foreclosures

Banks and mortgage servicers are making progress in improving their processes and reaching out to homeowners hurt by invalid or flawed foreclosures, the Office of the U.S. Comptroller of the Currency reported.

The regulator released an interim report yesterday on actions taken by 12 banks and servicers to comply with a set of April consent orders that require them to correct deficient and unsound foreclosure practices.

The consent decrees require the banks to hire consultants to identify borrowers who improperly lost their homes, failed to get loans rewritten or were forced into court in 2009 and 2010 because of mistakes made by mortgage servicers or their vendors. Banks and their consultants, under the OCC’s oversight, will determine who was harmed, the extent of any financial injury and the amount of compensation.

The move is part of a settlement between the biggest mortgage-servicing firms, the OCC, the Federal Reserve and the Office of Thrift Supervision.

Citigroup May Need to Pay More to Keep SEC Deal, Lawyers Say

Citigroup Inc., whose $285 million settlement with U.S. regulators over a collapsed collateralized debt obligation was faulted by a federal judge as too lenient, may have to pay more money to avoid admitting it did anything wrong, said lawyers following the case.

Citigroup, the third-biggest U.S. lender, agreed last month to settle a claim by the Securities and Exchange Commission that it misled investors in a $1 billion CDO linked to subprime residential mortgage securities. Investors lost about $700 million, according to the agency.

The case is the latest in which U.S. District Judge Jed Rakoff, who must approve the agreement for it to take effect, has criticized the SEC’s practice of allowing defendants to settle enforcement suits without admitting or denying fault. While he may not be able to compel New York-based Citigroup to acknowledge it did what the SEC claims, he may push the SEC and the bank to renegotiate a costlier deal.

Rakoff, 68, hasn’t said when he will rule. SEC spokesman John Nester and Citigroup spokeswoman Danielle Romero-Apsilos declined to comment on the approval process.

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).

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Koutoulas Discusses Recouping Funds From MF Global

James Koutoulas, chief executive officer at Typhon Capital Management, talked about recouping client funds from MF Global Holdings Inc.

Koutoulas, the co-founder of the Commodity Customer Coalition, spoke on Bloomberg Television’s “InBusiness With Margaret Brennan.”

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Comings and Goings

Pamela Olson to Join PricewaterhouseCoopers, Firm Says

Pamela Olson, a partner at Skadden, Arps, Slate, Meagher & Flom LLP, will join PricewaterhouseCoopers LLC as a deputy tax leader and leader of the firm’s Washington National Tax Services practice, according to a statement by the tax firm yesterday.

Olson will begin her new role Jan. 1, 2012, when she retires as head of the Washington office tax group at Skadden Arps. In her new position, she will lead a team of former senior government officials and policy advisers, PricewaterhouseCoopers said in the statement.

Olson has represented clients in a range of tax policy and administration matters, including regulatory guidance and congressional investigations, PricewaterhouseCoopers said.

FSA Appoints Nicholas Montagu to Head Financial Ombudsman

Nicholas Montagu was named the chairman of the U.K. Financial Ombudsman Service, which settles complaints between consumers and financial services providers, the Financial Services Authority said.

Montagu is currently the chairman of the Aviva UK Life With-Profits Committee and a director of the Pension Corporation, and is a former chairman of the Board of Inland Revenue, the FSA said in a statement.

SEC Deputy Enforcement Head Said to Leave for Justice Job

Lorin Reisner, the U.S. Securities and Exchange Commission’s deputy head of enforcement, is leaving the agency to take a job as a top federal prosecutor in New York, two people with knowledge of the matter said.

Reisner will become the chief of the criminal division for the U.S. Attorney’s Office for the Southern District of New York, the people said, speaking on condition of anonymity because the decision isn’t yet public. He’s expected to start the job early next year pending routine background checks, the people said.

U.S. Attorney Preet Bharara sent an e-mail to staff yesterday announcing Reisner’s appointment, one person said.

A phone call to Reisner wasn’t immediately returned. Carly Sullivan, a spokeswoman for the U.S. Attorney’s office, declined to comment.

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