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Harbinger Capital-SEC, Day Traders, MF Global: Compliance

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Dec. 12 (Bloomberg) -- Billionaire Philip Falcone’s hedge fund, Harbinger Capital Partners LLC, was told it may be sued by federal regulators for securities-law violations and said it plans to halt investor withdrawals at year-end.

Falcone, 49, and other Harbinger employees, including Omar Asali and Robin Roger, the general counsel, also received Wells Notices from the staff of the U.S. Securities and Exchange Commission, Harbinger said in a filing Dec. 9.

A lawsuit would add to the woes of Falcone as assets at his $5.7 billion hedge fund have slumped from a peak of $26 billion three years ago and a wireless technology venture he’s backing faces regulatory and political hurdles. Harbinger is being investigated by the SEC and the U.S. Attorney’s office over a $113 million loan Falcone took from one of his funds to pay personal taxes, according to a July filing.

The SEC’s notices relate to alleged “violations of the federal securities laws’ anti-fraud provisions in connection with matters previously disclosed and an additional matter regarding the circumstances and disclosure related to agreements with certain fund investors,” the New York-based hedge fund said.

Harbinger told clients in April that the government was also looking into whether it had engaged in market manipulation in its trading of the debt securities of an undisclosed firm from 2006 and 2008.

“Harbinger and its affiliates are disappointed that the staff issued Wells Notices,” the firm said in Friday’s filing. “If the SEC decides to bring an enforcement action,” they “intend to vigorously defend against it.”

John Nester, a spokesman for the SEC in Washington, declined to comment.

For more, click here.

Compliance Action

Ex-Day Trader Bouchareb Gets 30 Months in Insider Case

Former day trader Jamil Bouchareb was sentenced to 30 months in prison for trading on stock tips gleaned from the wife of a former Lehman Brothers Holdings Inc. salesman.

Bouchareb’s partner, Daniel Corbin, was sentenced to six months immediately after U.S. District Judge Victor Marrero imposed Bouchareb’s sentence Dec. 9 in federal court in Manhattan.

Bouchareb and Corbin were indicted in December 2008. Bouchareb pleaded guilty to conspiracy and securities fraud in May 2009, agreeing to forfeit $1.58 million.

“I made a stupid mistake,” Bouchareb told Marrero at Friday’s hearing. “If you could allow me a second chance, I’d appreciate it.”

“I truly am sorry for everything that has happened here,” Corbin said before he was sentenced.

The Lehman salesman, Matthew Devlin, admitted to his role in the scheme in December 2008 and agreed to cooperate with prosecutors, according to a court document. He is scheduled to be sentenced March 2, the U.S. Attorney’s Office said. His wife was not charged with wrongdoing.

The case is U.S. v. Bouchareb, 08-mj-2777, U.S. District Judge, Southern District of New York (Manhattan).

Zvi Goffer in Settlement of SEC Insider Trading Claims

Zvi Goffer was ordered to pay $325,273.89 as part of a settlement of a suit over claims of insider trading by the Securities and Exchange Commission, according to a statement on the agency’s website.

Goffer was previously found guilty in a criminal case, according to the statement.

Brian Kim Offered 6- to 18-Year Term in Alleged Ponzi Scheme

Brian Kim, a former hedge-fund manager accused of running a $6 million Ponzi scheme, was offered six to 18 years in prison by prosecutors in exchange for a guilty plea to grand larceny and related charges.

Kim was taken into custody this year by authorities in Hong Kong, where he had fled before a U.S. trial scheduled to begin in January on charges that he stole $430,000 from a Manhattan condominium complex where he lived.

He was indicted again in February and charged with running a Ponzi scheme at his firm, Liquid Capital Management LLC, from January 2003 to January 2011. He returned to the U.S. in October and pleaded not guilty to grand larceny and bail jumping.

Kim hasn’t decided whether to accept the Manhattan district attorney’s offer, which would resolve all three of the state cases against him, his lawyer, Justin Levine, said Friday after a hearing before Justice Charles Solomon of the New York State Supreme Court Judge. His client may face as long as 45 years in prison if convicted of all the charges, Levine said.

The state case is People v. Kim, 2011/86, New York State Supreme Court, New York County (Manhattan). The CFTC suit is U.S. Commodity Futures Trading Commission v. Kim, 11-cv-01013, and the federal criminal case is U.S. v. Kim, 11-cr-00642, U.S. District Court, Southern District of New York (Manhattan.)

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RBS Examined for Overstating Cash Held Before Crisis, FSA Says

Royal Bank of Scotland Group Plc was investigated by the Financial Services Authority before its bailout after wrongly telling regulators it held more cash to cover client withdrawals than the required minimum.

RBS overstated its Sterling Stock Liquidity Ratio, a measure of a bank’s ability to withstand customer withdrawals without access to wholesale funding, between March 2006 and July 2007, the FSA said in a report today into the bank’s near collapse. RBS’s ratio averaged 69 percent, below the 100 percent minimum, the FSA said.

RBS told the FSA and the Bank of England on July 9, 2007, that it had incorrectly reported non-sterling assets as sterling holdings and that it “did not impact RBS’s overall liquidity,” the FSA said. The regulator accepted RBS’s assurances it would fix the underlying reasons for the misreporting.

RBS was bailed out in 2008 following its takeover of ABN Amro Holding NV, and needed a 45.5 billion-pound ($70.8 billion) capital injection from taxpayers. The bank went on to report a 24.1 billion-pound loss for 2008, the largest in U.K. corporate history. The FSA provided a flawed supervisory approach that failed to adequately challenge the judgments and risk assessments of the RBS management, the report said.

A spokesman for Edinburgh-based RBS declined to comment.

For more, click here.

Compliance Policy

Merkel Adviser Franz Says Summit Deal a Step in Right Direction

Wolfgang Franz, who heads German Chancellor Angela Merkel’s council of economic advisers, said last week’s summit to forge closer fiscal ties in Europe is a “step in the right direction” and the effort will help ease tension on financial markets.

“Basically the principles are right but the details are missing,” Franz said in an interview on Bloomberg Television today. “A significant step has been made in the right direction.”

“I am convinced the specialists on this area will work out details that will convince financial markets and they will get at least less nervous,” he said.

Separately, European Union Economic and Monetary Commissioner Olli Rehn said he will “fully use” new powers to crack down on excessive budget deficits.

Rules taking effect tomorrow will “radically change the economic and fiscal surveillance of all 27 member states,” Rehn told reporters in Brussels today. “I’m determined to fully use this powerful set of tools from day one.”

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Court Blocks EPA Cement Plant Rules on Concrete Ingredient

Environmental Protection Agency rules controlling cement plants’ storage of a substance used in making concrete were temporarily blocked by a federal appeals court.

The Portland Cement Association, an industry trade group, in October argued before the Washington court that new emissions standards are arbitrary and that their adoption violates the federal Clean Air Act.

A three-judge panel on Dec. 9 agreed in part, issuing an order blocking rules governing the storage of a cement ingredient known as “clinker” pending further EPA review. While the agency previously conceded it hadn’t given enough notice of the new standards, it refused to delay enforcement, the court said. Other rules were left in place by the judges.

“Because EPA will now be receiving comments for the first time, the standards could likely change substantially,” the panel said. “Thus, industry should not have to build expensive new containment structures until the standard is finally determined.”

The rules, intended to reduce mercury emissions and other cement plant-generated air pollutants, are to be enforced starting in 2013. Industry advocates claim compliance with the regulations may cost $3.4 billion and result in the closure of some facilities.

The EPA has said the cost wouldn’t exceed $950 million.

In its ruling, the appellate panel rejected the industry association’s contention that the EPA failed to consider the effect of its standards on older cement kilns, calling it an “eminently reasonable decision based on the facts the EPA had before it,” which show that older kilns are already being replaced.

Carter Phillips, the attorney who argued the case for the Portland Cement Association, didn’t immediately respond to a telephone message seeking comment on the court’s order. Wyn Hornbuckle, a spokesman for the Justice Department, also didn’t immediately reply to a phone message seeking comment.

The case is Portland Cement Association v. Environmental Protection Agency, 10-1358 and 10-1359, U.S. Court of Appeals, District of Columbia Circuit (Washington).

In the Courts

AT&T Judge Will Weigh Shutting Down T-Mobile Antitrust Trial

The judge in a lawsuit to block AT&T Inc.’s purchase of T-Mobile USA Inc. said she will consider a U.S. request to postpone or dismiss the case, saying the “landscape” changed when AT&T withdrew its bid for regulatory approval of the $39 billion deal.

U.S. District Judge Ellen Segal Huvelle in Washington on Friday scheduled a hearing for Dec. 15 to weigh arguments by the government that AT&T’s decision to withdraw its merger application with the Federal Communications Commission means that closing the deal is no longer possible and the lawsuit is moot.

“We don’t have any confidence that we are spending all this time and effort and the taxpayers money and that we’re not being spun,” Huvelle said. “The landscape has changed,” she said, pressing AT&T’s lawyers on whether getting the deal done by the contractual deadline of Sept. 12 is still realistic.

AT&T’s lawyer, Mark Hansen, told Huvelle that the company “wants its day in court.” The only way to get the deal done is to go back to the FCC with a court victory that finds the merger is not anticompetitive, Hansen said.

“Then we’ll have a fair chance before the FCC,” he said.

Justice Department lawyer Joseph Wayland said the government will seek to “withdraw without prejudice” or “to stay” the federal lawsuit because AT&T withdrew its FCC merger application. FCC approval is required to complete the transaction, he said.

AT&T appeared in court Friday for the first time since it pulled the FCC application. The company abandoned the FCC bid after the agency signaled it might try to block the merger. AT&T said it planned to focus on winning clearance from the Justice Department first or revising its proposal.

The Justice Department sued Dallas-based AT&T and Deutsche Telekom AG’s T-Mobile unit on Aug. 31, saying a combination of the two companies would “substantially” reduce competition. Seven states and Puerto Rico joined the effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.

Sprint, the third-biggest U.S. wireless carrier, filed its antitrust lawsuit on Sept. 6, saying the proposed merger would weaken its ability to compete with AT&T, the second-biggest, and Verizon Communications Inc., the market leader.

Cellular South, based in Ridgeland, Mississippi, sued on Sept. 19, claiming the merger threatened to “substantially” cut competition.

The government’s case is U.S. v. AT&T Inc., 1:11-cv-01560; Sprint’s case is Sprint Nextel Corp. v. AT&T Inc., 11-cv-01600; and Cellular South’s case is Cellular South Inc. v. AT&T Inc., 1:11-cv-01690, U.S. District Court, District of Columbia (Washington).

HSBC Sues MF Global Brokerage Over $850,000 Worth of Gold

HSBC Holdings Plc sued the MF Global Inc. brokerage trustee to establish whether he or another person is the rightful owner of gold bars worth about $850,000 and silver bars underlying contracts between the brokerage and a client.

Five gold bars and 15 silver bars underlie eight Comex contracts between the brokerage and its client Jason Fane of Ithaca, New York, London-based HSBC said in a court filing Dec. 8. Both parties have asserted claims to the bars, creating difficulties for HSBC, which is storing them, the bank said. HSBC asked a judge to decide who the rightful owner is.

“HSBC has received conflicting instructions regarding ownership and disposition of the property,” it said. “Accordingly, HSBC is exposed to multiple liabilities with respect to the disposition of the properties.”

Bullion is selling for about $1,717 an ounce on the Comex in New York, up about 21 percent this year, as investors bought the metal to protect their wealth from Europe’s escalating debt crisis, and reached a record $1,923.70 in September. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.

“These bars are mine,” Fane said in an e-mail Friday. “We had a letter from HSBC that they were on the loading dock to be shipped to our warehouse contractor when there was some action taken by a third party to stop or delay shipment.”

The trustee, James Giddens, expects this “relatively minor and not unusual dispute” to be successfully resolved, his spokesman, Kent Jarrell, said in an e-mail.

Fane wrote HSBC after the bankruptcy, asking the bank to transfer the bars to his account at Brink’s, according to a copy of his letter filed in court. The trustee wrote HSBC saying the gold and silver was “customer property,” and the bank shouldn’t turn it over to Fane, HSBC said in the filing. Brink’s provides vaults and other services for the safekeeping of valuables.

The judge handling the bankruptcy said Friday that in January he would address the matter of distributing physical goods, such as gold and silver bars, after lawyers for some customers said they couldn’t get their share of the payouts because bars can’t be broken into pieces.

According to Fane’s letter, the five Comex gold contracts are for an average of 99 ounces of each.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Sabre Seeks to Pursue Antitrust Claims Against American

Sabre Holdings Corp. asked a judge to modify the so-called automatic stay in American Airlines’ bankruptcy so it can pursue counterclaims against the carrier in an antitrust dispute.

Sabre said in its filing in U.S. Bankruptcy Court in New York that AMR Corp.’s American doesn’t oppose the request.

American sued Travelport Ltd. and Orbitz Worldwide Inc., the operators of electronic reservations systems, in April accusing them of monopolizing the distribution of fare and flight data to travel agents. Sabre, the largest U.S.-based global fare data distribution system, was added as a defendant in June.

Trials had already been scheduled by the state and federal courts for next year in the antitrust lawsuits when American filed for Chapter 11 bankruptcy last month. Sabre, based in Southlake, Texas, filed antitrust counterclaims before the bankruptcy.

Although American is permitted under bankruptcy law to continue pursuing its affirmative claims, the automatic stay precludes Sabre from going ahead with its counterclaims.

AMR, based in Fort Worth, Texas, filed for Chapter 11 reorganization on Nov. 29, listing assets of $24.7 billion and debt totaling $29.6 billion.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Ellen Rosen in New York at

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

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