Investor Advisory Committee, JPMorgan, Icahn: Compliance

The U.S. Securities and Exchange Commission announced formation of a new investor advisory committee. The committee, required by the Dodd-Frank Act, has 21 members and will, according to the statement, advise on regulations, trading and the effectiveness of disclosure, as well as other issues.

Among the members are Joseph Grundfest, a former SEC commissioner who is now a professor at Stanford Law School; Joseph Dear, the chief investment officer at the California Public Employees Retirement System; and Ann Yerger, the executive director of the Council of Institutional Investors.

For a complete list of the members of the new committee, click here.

Compliance Policy

JPMorgan’s Iksil Fuels Prop-Trading Debate With Swaps Bets

JPMorgan Chase & Co. trader Bruno Iksil’s outsized bets in credit derivatives are drawing attention to a little-known division that invests the company’s reserves and fueling a debate over whether banks are taking excessive risks with federally insured and subsidized money.

Iksil’s influence in the market has spurred some counterparts to dub him Voldemort, after the Harry Potter villain. He works in London in the bank’s chief investment office, which has assembled traders from across Wall Street to its staff of 400 who help oversee $350 billion in investments. While the firm describes the unit’s main task as hedging risks and investing excess cash, four hedge-fund managers and dealers say the trades are big enough to move indexes and resemble proprietary bets, or wagers made with the bank’s own money.

The trades, first reported by Bloomberg News April 5, stirred debate among U.S. policy makers over the Easter-holiday weekend as they wrangle over this year’s implementation of the so-called Volcker rule, the portion of the Dodd-Frank Act that sets limits on risk-taking by banks with government backing. The law passed after the collapse of the subprime mortgage market triggered the worst financial crisis since the Great Depression.

“I wouldn’t be surprised if the pro-Volcker folks used this as a test case,” said Douglas Landy, a partner at law firm Allen & Overy LLP who is representing Canadian banks in opposing a current draft of the rule.

Senator Jeff Merkley criticized the transactions in a statement that called for the rule’s prompt implementation, while Representative Brad Miller said they show why related U.S. laws should apply internationally.

Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on Iksil’s specific transactions, and Iksil didn’t respond to phone messages and e-mails seeking comment. Neither Iksil nor JPMorgan have been accused of wrongdoing, and the full extent of his trading and the bank’s total risk of loss, or total gain, on his investments isn’t known.

Authorities will need more information from JPMorgan, the biggest U.S. bank by assets, to discern the precise purpose of Iksil’s transactions, said Clifford Rossi, an executive-in-residence at the University of Maryland’s Robert H. Smith School of Business.

“It clearly calls attention to the Volcker issue,” said Rossi, who previously was a managing director at Citigroup Inc.

For more, click here.

Compliance Action

Rothstein Lawyer Charged With Illegal McCain Campaign Gifts

A former associate of convicted Ponzi schemer Scott Rothstein was charged with illegally helping their law firm become the largest contributor to the presidential campaign of Republican John McCain in 2008.

Attorney Steven Lippman, 49, was charged with conspiring to help Rothstein’s defunct law firm, Rothstein, Rosenfeldt & Adler, illegally “bundle” contributions to McCain’s losing campaign against President Barack Obama. He’s also accused of conspiring to draw checks on accounts with insufficient funds and to evade taxes.

Lippman is the eighth person accused of helping Rothstein, a disbarred attorney serving 50 years in prison for the $1.2 billion Ponzi scheme he ran out of his law firm in Fort Lauderdale, Florida. Rothstein pleaded guilty to racketeering, money laundering and wire fraud in federal court in Fort Lauderdale, where Lippman and the others were also charged.

“The breadth, scope, and sheer complexity of Rothstein’s $1.2 billion Ponzi scheme is mind-boggling,” U.S. Attorney Wifredo Ferrer said yesterday in a statement.

Prosecutors charged Lippman, a shareholder at RRA with no equity stake, with helping to “dramatically increase the political influence and power” of the firm by serving as a straw donor who was illegally reimbursed for his contribution.

“The charges speak for themselves,” Lippman’s attorney, Bruce Zimet, said in a phone interview. “All of these acts do not relate to the Ponzi scheme. Though they may have had some effect on it, he was not a participant in the Ponzi scheme.”

In February, Toronto Dominion Bank agreed to settle a lawsuit with investors who claimed it aided in the Ponzi scheme. Barron’s and the Miami Herald reported that TD Bank would pay $170 million.

The case is U.S. v. Lippman, 12-cr-60078, U.S. District Court, Southern District of Florida (Fort Lauderdale).

Royal Bank Chooses Court Battle With CFTC Over Wash Trades

Royal Bank of Canada has chosen to challenge the Commodity Futures Trading Commission in court instead of settling over allegations it engaged in illegal futures trades because it said it didn’t break any rules.

“It was a conscious decision to defend ourselves vigorously and we made that decision because we believe we didn’t do anything wrong,” said Arthur Hahn, a Chicago-based lawyer defending Canada’s biggest bank.

Royal Bank is being sued by the regulator over claims it engaged in illegal futures trades worth hundreds of millions of dollars to garner tax benefits tied to equities. The Toronto-based lender made false and misleading statements about “wash trades” from 2007 to 2010 in which affiliates traded among themselves in a way that undermined competition and price discovery on the OneChicago LLC exchange, the CFTC said in a complaint filed April 2 in Manhattan federal court.

“All of the transactions in question here were within standard rules and the guidances put out by the commission,” Hahn said in an interview. “We don’t think we did anything wrong, it’s that simple.”

Royal Bank enlisted affiliates to help carry out hundreds of futures transactions done off-exchange and then reported to OneChicago as block trades between independent affiliates, according to the CFTC.

“These were legitimate block trades, these were legitimate trades between affiliates,” said Hahn, a partner with Katten Muchin Rosenman LLP.

Julie Dickson, who heads Canada’s Office of the Superintendent of Financial Institutions, which is monitoring the RBC case, declined to comment.

“The only thing I’ll say about the Royal Bank case is, when you look at the press releases, both sides are pretty convinced that they’re right, so we’ll see how that plays out in court,” Dickson told reporters after giving a speech in Toronto April 5.

She said while solvency regulators such as OSFI cooperate and communicate with one another, securities regulators such as the CFTC operate differently.

“In my experience, you don’t get warning,” Dickson said. “If you do get advance notification, it’s virtually close to the hour when something’s being announced. And that’s not unusual. Securities regulators operate under a different framework.”

Royal Bank has 60 days to file its statement of defense in the U.S. court.

For more, click here.

In the Courts

Icahn Sues Amylin Pharmaceuticals Over Board Election Rule

Amylin Pharmaceuticals Inc. was sued by billionaire investor Carl Icahn over a corporate bylaw that hamstrings investors from pursuing a proxy fight over a rejected a $22-per-share takeover offer by Bristol-Myers Squibb Co.

Icahn contends that Amylin’s directors should be barred from enforcing a rule requiring advance notice of candidates for board seats since the drugmaker failed to make Bristol-Myers’s bid public before the filing deadline. Amylin officials turned down the $3.5 billion offer in February, two people familiar with the bid told Bloomberg News on March 28. The company has never confirmed the offer.

Amylin directors have unfairly “rejected a request to reopen the time for stockholders to provide notice” that they seek to nominate candidates for board seats, Icahn, Amylin’s third-largest shareholder, said in the lawsuit filed yesterday in Delaware Chancery Court.

Icahn, who has targeted at least seven drug companies in the past five years, threatened to start a proxy fight over the Amylin board’s rejection of the Bristol-Myers offer and urged the drugmaker to pursue a sale.

“We believe Mr. Icahn’s lawsuit is without merit,” Alice Izzo, an Amylin spokeswoman, said in an e-mailed statement. “Amylin’s board is fully aware of its fiduciary duties and is committed to always acting in the best interests of all stockholders.”

The case is Icahn Partners LP v. Amylin Pharmaceuticals Inc., CA 7404, Delaware Chancery Court (Wilmington).

For more, click here.

UBS Likely to Win Ouster of Billionaire’s Suit, Judge Says

UBS AG will probably win dismissal of a lawsuit by billionaire Igor Olenicoff over his claim that the bank bears blame for his failure to declare $200 million in offshore accounts on U.S. tax returns, a judge said.

U.S. District Judge Andrew Guilford in Santa Ana, California, yesterday issued a “tentative” opinion rejecting Olenicoff’s lawsuit against Zurich-based UBS, the largest Swiss bank. Olenicoff claimed it traded excessively in his accounts, engaged in racketeering and committed fraud by not telling him he owed U.S. taxes. He sought as much as $1.7 billion in damages.

“Olenicoff’s claim that he justifiably relied on UBS tax advice is entirely inconsistent with his plea agreement,” Guilford wrote in a 28-page opinion. “The tension between these two inconsistent statements can be felt throughout Olenicoff’s case.”

Olenicoff pleaded guilty in 2007 to filing a false tax return, admitting he didn’t tell the Internal Revenue Service about his offshore accounts for seven years. He was sentenced to two years’ probation and ordered to pay $52 million in back taxes, fines and penalties.

Guilford said at a hearing yesterday that he expected to issue a final ruling after considering further arguments from Olenicoff’s attorney, Thomas Newmeyer. After the hearing, Newmeyer declined to comment.

The case is Olenicoff v. UBS AG, 08-cv-1029, U.S. District Court, Central District of California (Santa Ana).


Bernanke Calls on Regulators to Limit Risks of Shadow Banking

Federal Reserve Chairman Ben S. Bernanke called for new steps to curb “shadow banking” operating beyond standard oversight while saying the economy has far to go before fully recovering from the credit crisis.

“The heavy human and economic costs of the crisis underscore the importance of taking all necessary steps to avoid a repeat of the events of the past few years,” Bernanke said yesterday in a speech in Stone Mountain, Georgia.

Bernanke supported efforts to increase the “resiliency” of money market funds, referring to Securities and Exchange Commission proposals to require firms to maintain capital buffers or to redeem shares at the market value of underlying assets rather than at a fixed price of $1. He also called for efforts to monitor financial innovation and backed curbs on intraday credit in tri-party repo markets.

An average of more than $2.8 trillion in securities was financed during the market peak in 2008 through tri-party transactions, many of which had short-term maturities. During the first quarter of 2010, the value of securities financed by tri-party repo had fallen to an average of $1.7 trillion, according to New York Fed calculations based on Bank of New York and JPMorgan Chase & Co. data and cited in a May 2010 Fed paper.

Following the bankruptcy of Lehman Brothers Holdings Inc. in 2008, Bernanke flooded the financial system with liquidity by opening facilities that provided credit to money market funds, primary dealers, commercial paper markets, banks and other borrowers.

“About three and a half years have passed since the darkest days of the financial crisis, but our economy is still far from having fully recovered from its effects,” Bernanke said in his only reference to the economy’s current condition. He didn’t refer to current monetary policy.

For more on Bernanke’s speech, click here.

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