Derivatives Bills, Greenlight Capital, Baer: Compliance

U.S. House lawmakers approved six bills to limit the reach of Dodd-Frank Act derivatives rules, including measures to define which firms are swap dealers, subjecting them to higher capital and margin requirements.

The House Agriculture Committee voted unanimously yesterday for two bills to limit the Commodity Futures Trading Commission’s definition of which firms can be designated as dealers, and two measures to limit application of margin on certain firms and bar regulators from dictating how many traders would have to compete in swap transactions.

The latter two bills, which would amend the 2010 regulatory law, were approved in November by the Financial Services Committee, which shares jurisdiction over the $708 trillion global over-the-counter swaps market.

The measures approved yesterday, stemming from Republican efforts to limit the reach of the CFTC rules, have little chance of winning congressional approval, said Representative Collin Peterson of Minnesota, the Agriculture Committee’s top Democrat.

Representative Randy Hultgren, an Illinois Republican, sponsored a measure to exempt from the swap-dealer designation institutions with outstanding swaps of less than $3 billion, as well as non-financial firms that use them to hedge or mitigate commercial risk. The panel adopted an amendment clarifying that the exemptions don’t apply to financial firms.

A second measure on the swap-dealer definition would exempt banks and farm credit lenders that can show their swaps activity allows them to increase lending.

The committee also approved by voice vote legislation to bar regulators from imposing margin requirements on commercial and manufacturing end-users of derivatives. The Coalition for Derivatives End-Users, which includes brewer MillerCoors LLC, has lobbied Congress and regulators to exempt end-users from collateral requirements.

The panel followed the House Financial Services Committee in unanimously approving a measure exempting swaps between subsidiaries of the same company from Dodd-Frank clearing and trading regulations.

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Compliance Action

Einhorn, Greenlight Fined $11 Million in U.K. for Punch Sale

David Einhorn and Greenlight Capital Inc. were fined 7.2 million pounds ($11.2 million) by the U.K.’s financial regulator for trading on inside information in Punch Taverns Plc in 2009.

Einhorn, Greenlight’s 43-year-old chairman, was told of Punch Taverns’s plan to sell equity by a broker representing the company, the Financial Services Authority said in an e-mailed statement yesterday. He then sold more than 11 million Punch Tavern shares over the following four days, avoiding losses of about 5.8 million pounds for the fund, the regulator said.

Greenlight said the market abuse was “inadvertent” and the regulator agreed it wasn’t deliberate or reckless. The fine won’t come out of Greenlight funds, the New York-based firm said in a statement.

The FSA is imposing stricter supervision after being criticized for failing to prevent the U.K.’s worst financial crisis since the World War II. The fine against Einhorn, 3.64 million pounds, is the second-largest civil penalty levied against an individual by the FSA.

“We believe that this action is unjust and inconsistent with the law and with prior FSA enforcement,” Einhorn said in the Greenlight statement. “However, rather than continue an arduous fight, we have decided to put this matter behind us.”

An outside spokeswoman for Punch declined to comment on the FSA fine and refused to provide her name citing company policy.

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Lima Stock Exchange Suspends Intercapital SAB Brokerage

The Lima Stock Exchange said it suspended brokerage Intercapital SAB from trading for lack of funds.

Lima-based Intercapital will have 90 days to show increased capital, the exchange said yesterday in a statement posted on its website.

Former Bank Indonesia Deputy Governor Named Suspect, Agency Says

A former Bank Indonesia deputy governor, identified under the initials MSG, has been named a suspect in the alleged bribery of lawmakers in the appointment of then deputy governor Miranda Goeltom, Johan Budi, a spokesman at the Indonesian anti-corruption agency, said, confirming a report by Metro TV today.

The government has issued a travel ban on the suspect, Budi said.


Stanford Told ‘Lie After Lie’ to Investors, U.S. Prosecutor Says

R. Allen Stanford engaged in a long-term fraud scheme and lied repeatedly to investors to “live the life of a billionaire,” a U.S. prosecutor told jurors as the financier’s criminal trial started in Houston.

Stanford, 61, was the ringleader of a $7 billion investment fraud, the U.S. said in a 14-count indictment accusing him of mail fraud and wire fraud, crimes that carry maximum sentences of 20 years in prison. He’s also charged with conspiracy to commit mail fraud and wire fraud and to obstruct a U.S. Securities and Exchange Commission probe.

“I plead not guilty to every count,” Stanford, wearing a light gray plaid suit and a white dress shirt and no necktie, told the jury yesterday.

Stanford has been in federal custody since being indicted in June 2009. His trial was postponed three times because of changes to his legal defense team, the after-effects of a jailhouse beating and a subsequent prescription-drug addiction.

In Washington yesterday, the SEC urged a judge to order the federal Securities Investor Protection Corp. to create a claims process for Stanford’s alleged victims.

Stanford stole from investors “so that he could live the lifestyle of a billionaire,” Assistant U.S. Attorney Gregg Costa said in his opening statement in the Houston courtroom. “He told them lie after lie after lie.”

Scardino and defense lawyer Ali Fazel have previously said they will use the records of Houston-based Stanford Group Co. and Antigua-based Stanford International Bank Ltd. to prove their client never intended to defraud anyone.

No investor lost money until the SEC sued Stanford and obtained a court order to take control of his businesses in February 2009, the defense has said.

“Mr. Stanford’s financial empire was real and did make a lot of money and did pay every penny of what was owed to depositors for 22 years,” Robert Scardino, one of Stanford’s court-appointed lawyers, told the jury in his own opening remarks.

The trial may last about six weeks, U.S. District Judge David Hittner said.

The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The civil case against Stanford is Securities and Exchange Commission v. Stanford International Bank Ltd., 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas). The SIPC case is Securities and Exchange Commission v. Securities Investor Protection Corp., 11-mc-00678, U.S. District Court, District of Columbia (Washington).

SEC Says Rakoff Erred on ‘Public Interest’ Test for Accords

U.S. Securities and Exchange Commission lawyers said U.S. District Judge Jed Rakoff erred in determining that courts must find its proposed settlements with companies to be “in the public interest” to win approval.

Courts must only find the accords to be “fair, adequate and reasonable,” SEC attorney Andrea Wood told a federal judge in Wisconsin in a filing defending the agency’s proposed settlement with Milwaukee-based Koss Corp., a manufacturer of stereo headphones sued for allegedly making materially inaccurate financial statements for fiscal years 2005 through 2009.

In November, Rakoff in Manhattan rejected Citigroup Inc.’s $285 million settlement with the SEC over claims the bank misled investors in collateralized debt obligations. He had criticized the SEC’s practice of letting financial institutions such as New York-based Citigroup settle without admitting or denying liability.

In the proposed Koss settlement, Koss and its chief executive officer didn’t admit or deny the SEC’s claims.

U.S. District Judge Rudolph T. Randa in Milwaukee had questioned the adequacy of the SEC-Koss settlement’s provision.

The case is SEC v. Koss, 11-991, U.S. District Court, Eastern District of Wisconsin (Milwaukee).

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MF Global Clients May Lose in $700 Million Bankruptcy Fight

MF Global Holding Ltd.’s clients may be the losers no matter who wins a $700 million dispute between bankruptcy administrators in London and New York that threatens the return of money locked in customer accounts.

The trustee of MF Global Inc., the New York brokerage unit, is seeking the return of money used as margin for American customers trading in Europe. It wants U.K. administrators KPMG LLP to tap into $1.2 billion it had set aside for customers with segregated accounts, which are supposed to be protected.

If successful, the trustee’s claim would significantly reduce KPMG’s client money pool and lower returns for U.K. customers, said two people with knowledge of the discussions who declined to be identified because they are confidential. Should KPMG win, U.S. customers will be treated as unsecured creditors and face a lengthy wait for any payout.

MF Global filed the fifth-largest bankruptcy for a financial company Oct. 31 after placing losing bets on European debt.

A dispute over client money held by Lehman Brothers International Europe is still being fought out in U.K. courts more than three years after the bank collapsed.

KPMG was appointed special administrator of MF Global’s U.K. unit on Oct. 31. While KPMG has found all the money in protected accounts, MF Global Inc.’s claim is the first serious threat to the return of customer funds in the U.K.

“We are aware of the trustee’s claim on the client money pool,” KPMG administrator Richard Heis said in a statement. “We do not agree with it but will continue to work constructively with his team to bring about an early resolution of the matter.”

In the U.S. bankruptcy, trustees said as much as $1.2 billion is missing from segregated accounts. Jon S. Corzine, MF Global’s former chief executive officer, has apologized to customers and employees affected by the collapse.

KPMG was forced to set aside funds pending the resolution of the dispute, which means it can’t return the majority of money it has recovered to customers, people with knowledge of the matter said. It wants the $700 million to be treated as an unsecured claim, which would be paid after clients get reimbursed from the customer money pool.

“The Trustee strongly believes these funds were segregated for U.S. customers who traded on foreign exchanges and, thus, should be returned to those customers,” Kent Jarrell, a spokesman for trustee James Gidden said. Giddens has hired law firm Slaughter and May to handle the dispute, according to New York court documents.

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 company’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Deutsche Bank’s Jain Says Investment Banks Face Mergers

Deutsche Bank AG’s Anshu Jain, who is taking over as co-chief executive officer at the end of May, talks about the outlook for consolidation among investment banks and the threat of regulation.

He speaks with Erik Schatzker on Bloomberg Television’s “The Pulse” at the World Economic Forum’s annual meeting in Davos, Switzerland.

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Morgan Stanley’s James Gorman Comments on Regulation at Davos

James Gorman, chairman and chief executive officer of Morgan Stanley, talked about global market conditions, the European sovereign-debt crisis and financial regulation. In particular, he discussed capital rules, the Dodd-Frank legislation and the Volcker Rule.

Gorman, who spoke with Bloomberg’s Erik Schatzker at the World Economic Forum’s annual meeting in Davos, Switzerland, also discussed Morgan Stanley’s compensation measures. They spoke on Bloomberg Television’s “InBusiness With Margaret Brennan.”

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Merkel Makes Davos Appeal for Time to Solve Debt Crisis

German Chancellor Angela Merkel spoke about the European sovereign-debt crisis, the size of the region’s rescue fund and its relationship with the U.S.

She spoke at the World Economic Forum’s annual meeting in Davos, Switzerland.

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Separately, Merkel said in an interview with European newspapers yesterday that joint euro-area debt is possible only if Europe becomes more like one country and warned that Germany won’t “promise ever more money” to stem the debt crisis.

Merkel said it’s too early to call the all-clear on the crisis and that Greece is a “special case” where efforts by international officials and the Greek government “haven’t succeeded in stabilizing the situation.” She defended her agenda of debt cuts and austerity to save the euro and renewed her opposition to “expensive” economic stimulus programs, while saying Germany is already showing “solidarity” by backing Europe’s rescue funds.

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Comings and Goings

Fortress Says CEO Daniel Mudd Resigns After SEC Lawsuit

Fortress Investment Group LLC said Daniel Mudd resigned as chief executive officer and a director of the New York-based hedge fund and private-equity firm after a leave of absence to respond to a government lawsuit.

Mudd said yesterday in a statement that he did not want the “uncertainty associated with a leave of absence” to become a distraction for the company or its investors.

Randal Nardone, Fortress principal and co-founder, will continue to serve as interim CEO, according to the statement.

Mudd, formerly CEO of Fannie Mae, took a leave from Fortress on Dec. 21 to respond to allegations by the Securities and Exchange Commission. He and former Freddie Mac CEO Richard Syron were sued for allegedly understating by hundreds of billions of dollars the subprime loans held by the government-owned mortgage finance companies. Mudd denied the claim, saying the U.S. government and investors were aware of “every piece of material data about loans held by Fannie Mae.”

Tom Green, Syron’s attorney at Sidley Austin LLP in Washington, said in December there was “no uniform definition” of subprime in 2007 and that Freddie Mac included in its disclosure tables information detailing credit risks.

Baer Said Under Review to Become New U.S. Antitrust Chief

William Baer, whose law firm championed AT&T Inc.’s failed bid to acquire T-Mobile USA Inc., is the top candidate to head the U.S. Justice Department’s antitrust division, two people familiar with the situation said.

Baer, 61, who leads the antitrust group at Arnold & Porter LLP in Washington, is the subject of a background investigation for job by the Federal Bureau of Investigation, said the people, who spoke on condition of anonymity because the process is confidential.

The White House is vetting Baer for the post after Sharis Pozen, acting chief of the Justice Department’s antitrust division, said Jan. 23 she will leave her position on April 30.

Baer and Gina Talamona, a Justice Department spokeswoman, declined to comment on the potential nomination in separate e-mails.

The Justice Department and FTC share responsibility for enforcing antitrust laws.

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