AIJ Falsified Reports, Tax Prosecutors, Swaps: Compliance

AIJ Investment Advisors Co. President Kazuhiko Asakawa said he ordered the falsification of fund performance reports in the hope the Japanese asset manager could recoup losses that may exceed $1 billion.

Admitting for the first time that AIJ had disguised losses, Asakawa told a Japanese parliamentary committee that he can’t explain how investor funds will be repaid. He apologized to clients and the securities investment community.

The losses have prompted the review of 265 asset managers nationwide, and last week AIJ’s offices were raided and its registration revoked. Securities regulators say Asakawa and Shigeko Takahashi, another director, conspired to conceal trading losses to attract pension funds, a scandal that has weakened confidence in corporate governance after camera maker Olympus Corp. admitted last year to a 13-year cover-up of losses.

Lawmakers called for further questioning of Asakawa in front of the country’s Diet, saying the answers provided weren’t sufficient. Asakawa had initially declined a request to appear before the parliamentary committee.

The firm oversaw 145.8 billion yen ($1.8 billion) of clients’ money and lost 109.2 billion yen from derivatives trades directed by Asakawa over nine years, the Securities and Exchange Surveillance Commission said last week. AIJ’s clients included 92 pension funds, according to the SESC. Most were small to mid-sized Japanese retirement plans that strived to close funding gaps created by low bond yields and two decades of slumping stocks.

Regulators on March 23 searched AIJ’s Tokyo headquarters and withdrew its registration.

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Compliance Policy

EU Lawmaker Bowles Says Parliament Supports Bank-Funding Rule

Sharon Bowles, chairwoman of the European Parliament’s committee that screens draft financial regulation, said that lawmakers supported imposing a minimum stable funding rule on lenders.

There is a “balance in parliament” in favor of the rule, known as a net stable funding ratio, Bowles told lawmakers in the committee. This is a point where parliament could be “strong,” she said.

The parliament is weighing how the EU should apply bank capital and liquidity rules agreed on in 2010 by the Basel Committee on Banking Supervision. The new rules shouldn’t be allowed to harm so-called trade finance activities by banks, Bowles said.

U.S. House Backs Exemptions to Swaps Rules in Bipartisan Vote

The U.S. House voted to exempt manufacturers and commercial swap-users from collateral requirements and ease regulations on inter-company trades in a bid to amend the Dodd-Frank Act financial overhaul.

The collateral measure, approved 370-24 in Washington, is designed to bar regulators from requiring so-called end-users to post margin. MillerCoors LLC has sought an exemption for swaps it uses to hedge the price of aluminum, while Baltimore-based Constellation Energy Group uses derivatives to hedge volatility in physical energy markets.

The two measures passed with bipartisan support and need Senate approval before heading to President Barack Obama for his signature. Republican and Democrat lawmakers have argued that regulators including the Federal Reserve and Federal Deposit Insurance Corp. have misinterpreted Dodd-Frank to lead some end-users to face margin requirements.

The Democrat-led Senate has yet to consider similar legislation and currently has no hearings or floor action scheduled on the bill.

A separate measure, approved on a 357-36 vote, would bar regulators from imposing clearing, trading and margin requirements on transactions between affiliates of a company that files consolidated financial statements.

The Institute of International Bankers and International Swaps and Derivatives Association Inc. have urged regulators to exempt inter-affiliate trades because they don’t present risks to the financial-system. Isda’s members included JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley.

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Taiwan FSC Lets Futures Brokerages Set Up Information Companies

Taiwan’s financial regulator will allow futures brokerages to invest as much as 10 percent of their net worth in information companies, the Financial Supervisory Commission said in a statement on its website.

Each futures brokerage will be allowed to own and set up one fully-owned information company to provide securities and futures related information, according to the statement.

Commodity Derivatives Rules May Be Toughened by EU Lawmakers

European Union lawmakers may seek to toughen planned curbs on speculation with commodity derivatives as part of an overhaul of financial-market rules.

Markus Ferber, the lawmaker leading work on the measures in the European Parliament, is proposing to force venues to limit the number of commodity-derivative contracts that traders can enter into, according to a report sent by his office. The requirement would go beyond a draft law published last year by Michel Barnier, the EU’s financial services chief.

Politicians including French President Nicolas Sarkozy have demanded restrictions on commodity derivatives speculation, which they blame for spikes in world food prices. The Institute of International Finance, an association representing global lenders, has said there is “little convincing evidence linking financial investment with trends in commodity prices and volatility.”

Barnier last year proposed an overhaul of the EU’s market legislation, known as Mifid, in a bid to plug regulatory gaps exposed by the financial crisis that followed Lehman Brothers Holdings Inc.’s 2008 collapse.

His draft law would require venues handling commodity derivatives to either cap the number of contracts that traders can enter into -- a so-called position limit -- or enforce “alternative arrangements.”

Such alternatives should be “an addition, not an alternative, to the use of position limits,” Ferber said in the report.

BOE’s FPC May Seek Powers Over U.K. Banks’ Liquidity Buffers

The Bank of England’s Financial Policy Committee said it may seek powers over liquidity buffers to manage risks across the banking system.

“A key risk faced by many financial institutions, and banks in particular, derives from the fact that they typically borrow funds on a short-term basis and lend over a longer term,” the FPC said in the record of its March 16 meeting, published in London today. It was “likely to be desirable, in due course, for the statutory FPC to have powers of direction over a liquidity instrument that would tackle the build up of such vulnerabilities.”

The FPC said it held off seeking such a power at the meeting as there is no “commonly accepted regulatory liquidity standard.” It will return to the liquidity issue once international standards have been agreed, it said.

The panel recommended earlier this month that Parliament give it tools in three areas: countercyclical capital buffers, sectoral capital requirements and leverage ratios.

Some FPC members said a leverage ratio would be a “crude backstop,” noting that banks could respond by shifting balance sheets into riskier assets while keeping the level of total assets unchanged.

Compliance Action

U.S. Tax-Evasion Probes Said to Slow as Prosecutors Transfer

The U.S. Justice Department has lost almost 30 percent of its tax prosecutors in the past month, slowing a U.S. crackdown on offshore banks that enabled tax evasion, according to four people familiar with the matter.

Twenty-five of the 95 prosecutors in the tax division left headquarters in Washington for six-month “details” with U.S. attorneys around the country, and another three took permanent assignments, according to the four people, who declined to be identified because they aren’t authorized to speak publicly.

Many of the lawyers handled cases involving foreign banks or financial advisers suspected of helping U.S. clients cheat on taxes, the people said. The transfers came amid criminal probes of at least 11 Swiss financial institutions, including Credit Suisse Group AG, with the tax division leading or assisting each prosecution.

Nathan Hochman, a former assistant attorney general who oversaw the tax division under President George W. Bush, said moving this number of people “will significantly compromise such enforcement at the very time it is needed” to deal with the volume of offshore cases.

The division also investigates identity theft, illegal tax shelters and other crimes, while approving every tax case filed by the 94 presidentially appointed U.S. attorneys serving the Justice Department around the country.

“Offshore non-compliance by U.S. taxpayers remains a top priority for the Justice Department’s Tax Division,” said Charles Miller, a Justice Department spokesman. “We will continue to pursue those cases vigorously.”

The offshore tax crackdown has expanded since 2007. Prosecutors have since filed criminal charges against at least 21 foreign bankers, advisers and attorneys and at least 40 U.S. taxpayers.

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Sony Offers Compromises to EU for $2.2 Billion EMI Deal

A Sony Corp.-led group offered compromises to European Union regulators examining its $2.2 billion purchase of EMI Group’s publishing unit to address antitrust concerns.

The European Commission extended its deadline to rule on the deal until April 19 after the companies made the offer, according to a filing on its website. It didn’t give any details of the proposed remedies.

The EU is probing the offer from the Sony-led group, which includes the Michael Jackson estate, Mubadala Development Co. and Blackstone Group. It is also conducting an in-depth probe of Universal Music Group’s offer to buy parts of the EMI record label.

The European Commission declined to comment. Sony/ATV spokesman Jimmy Asci didn’t immediately return a call seeking comment before regular business hours.

Vivendi SA’s Universal had said it expected an in-depth probe into its plan to buy EMI’s recorded-music business, which includes the Beatles albums. Sony has agreed to buy the publishing business, which owns copyrights to songs and represents songwriters, including Beyonce, Jay-Z and Tinie Tempah.

Iceland Central Bank, Special Prosecutor Search Samherji Offices

Iceland’s central bank and the Office of the Special Prosecutor yesterday carried out investigations of the offices of Samherji hf.

The search, which included office sites in Reykjavik and Akureyri, was conducted under the central bank’s mandated investigative role of the Foreign Exchange Act, the bank said in an e-mail.

United Technologies Faces Deeper EU Probe Over Goodrich Bid

United Technologies Corp. faces an in-depth probe by European Union regulators into its bid to buy Goodrich Corp. for $16.5 billion amid concerns the deal may harm competition for engine controls and AC power generators.

The European Commission extended its deadline to rule on the deal until Aug. 9 to examine it in greater detail, according to an e-mailed statement. The company said it remains confident the purchase will be completed by mid-year.

United Technologies, which has aviation brands including Sikorsky helicopters and Pratt & Whitney engines, agreed to buy Goodrich in September, adding a maker of aircraft landing gear and jet-turbine casings to take advantage of a record surge in commercial plane orders. The Hartford, Connecticut-based company is making its first big purchase since buying Sundstrand Corp. in 1999 for $4 billion.

“The phase II in the EU is not surprising, it is part of the normal regulator review process,” spokesman John Moran said by e-mail. “We continue to work with the EU and other regulatory authorities and continue to expect a mid-year closing.”

Bank Single Market Starting to Fragment in EU, Regulator Says

The single market for investment banking is starting to fragment across the European Union, the region’s top regulator warned.

Andrea Enria, chairman of the European Banking Authority, said there are “signs, unfortunately” that banks’ shedding of assets is making them less active in other EU nations. Cross-border lending is shrinking as companies strive to meet tougher capital rules, he said at an event in Brussels yesterday.

Officials from Austria’s central bank and financial regulators imposed tougher rules last year on loans to Eastern European countries, restricting their banks to lending no more than 110 percent of local deposits and funding raised by subsidiaries.

The EBA, set up last year to harmonize banking rules across the European Union, told banks to raise 114.7 billion euros ($153 billion) in fresh capital by the end of June as part of measures introduced to respond to the euro area’s sovereign-debt crisis.


Obama Health Law Seen in Jeopardy After Justices’ Questioning

U.S. Supreme Court justices voiced skepticism about President Barack Obama’s health-care law, hinting they might strike down his biggest domestic achievement just months before the election.

On the second of three days in the historic case, justices’ questions over the law’s requirement that Americans buy insurance or pay a penalty indicated they might split 5-to-4, with five Republican appointees banding together to topple the law. The Obama administration needs the vote of at least one of the five Republican appointees on the nine-member court to uphold the law.

The court probably will rule in late June.

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J&J’s $158 Million Settlement With Texas Approved by Court

Johnson & Johnson and the state of Texas won court approval of the company’s agreement to pay $158 million to settle claims that the drugmaker fraudulently marketed its Risperdal anti-psychotic drug.

J&J reached the settlement in January to resolve claims it defrauded the state’s Medicaid program by promoting Risperdal for uses not approved by U.S. regulators, including for children with psychiatric disorders. The state also claimed the New Brunswick, New Jersey-based drugmaker downplayed the health risk of Risperdal.

Travis County District Judge John Dietz in Austin, Texas, approved the settlement yesterday following a meeting in court with lawyers. J&J and its Janssen unit denied any wrongdoing in the final agreement.

“This settlement represents a resolution to claims brought by the State in 2004 for alleged Medicaid overpayment during the years 1994-2008, and will circumvent potentially lengthy and costly appellate activities,” Teresa Mueller, a company spokeswoman, said in an e-mail.

Under the agreement, J&J and Janssen will pay $158 million, with 40 percent going to the state, 31 percent to the U.S., 17 percent to whistle-blower Allen Jones, who brought the lawsuit, and the rest to his attorneys, Tommy Jacks, one of Jones’s lawyers, said in an interview.

Tom Kelley, spokesman for the Texas attorney general, declined to comment on the breakdown. The state is getting a larger share than initially expected, he said.

The Texas case is Texas v. Janssen LP, D-1GV-04-001288, District Court, Travis County, Texas (Austin).

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Dresner Sees Passage of Bill for Start-Up Funding

Steven Dresner, founder and president of Dealflow Media Inc., talks about prospects for legislation that would help start-up companies raise cash with “crowd funding” or the sale of small amounts of stock to many individuals.

Dresner talks with Sara Eisen on Bloomberg Television’s “Money Moves.”

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