Swiss Bank Data, FSA Return-Estimates Rule, J&J: Compliance

Credit Suisse Group AG can’t disclose a client’s account data to U.S. tax authorities because a request for assistance last year addressed only tax evasion, which isn’t covered by a 1996 treaty, a Swiss court ruled.

The “search criteria” for the identification of bank clients “are formulated in terms encompassing above all mere tax evasion, for which administrative assistance cannot be granted,” the Federal Administrative Court said in a April 5 ruling published yesterday.

The court’s decision follows an appeal by a Credit Suisse client. That came after Switzerland’s second-biggest bank last November told some customers that the U.S. Internal Revenue Service had sent a request on Sept. 26, via the Swiss Federal Tax Administration, for the names of Americans with accounts owned through a “domiciliary company.”

Switzerland and the U.S. are holding talks to resolve an investigation involving 11 Swiss financial firms, including Credit Suisse, after the Department of Justice indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the IRS. Switzerland, the world’s biggest center for offshore wealth, is trying to shed its image as a haven for undeclared assets following a crackdown on tax evasion by U.S. authorities.

Beat Furrer, a spokesman for the Swiss Federal Tax Administration, declined to comment on the court ruling. Marc Dosch, a spokesman for Zurich-based Credit Suisse, declined to comment on the judgment or its possible impact.

For more, click here.

Compliance Policy

Pension, Insurance Firms Must Reduce Return Estimates, FSA Says

Firms selling pension and life insurance products must reduce the estimates of returns they use to market them by at least 0.5 percent, the U.K. financial services regulator said yesterday.

The London-based Financial Services Authority said firms must reduce average estimates of a 7 percent rate of return for investment products that are a mix of equities and bonds to between 5.5 percent and 6.5 percent, based on the results of a study by PricewaterhouseCoopers LLP. The projected returns are “reasonable central estimates over a 10-15 year time period,” the report said.

PwC carried out the last review of so-called projection rates in 2007, keeping them steady about a year before the collapse of Lehman Brothers Holdings Inc. and the start of a financial crisis that would plunge many Western countries into recession.

Rosengren Says U.S. Money Funds Threaten Financial Stability

Money-market funds in the U.S. may be taking excessive risks that pose a threat to financial stability by holding European debt whose value could decline if the region’s crisis worsened, said Federal Reserve Bank of Boston President Eric Rosengren.

“A significant source of the credit risk in many prime money market funds over the past year has been the large exposure to European banks,” Rosengren said at Stone Mountain, Georgia, yesterday. In evaluating “risk from unexpected problems in Europe, money-market funds remain an important potential transmission channel to the United States,” he said.

Rosengren presented the most detailed public argument yet by a Fed official on the need for new money fund rules, which regulators and executives have debated since Reserve Primary Fund’s collapse in 2008. He endorsed proposals by staff at the U.S. Securities and Exchange Commission to reduce risk by requiring firms to maintain capital buffers or to redeem shares at the market value of underlying assets rather than at a fixed price of $1. His comments echoed Chairman Ben S. Bernanke, who called this week for additional steps to curb “shadow banking” operating beyond standard oversight.

For more, click here, and see Interviews section, below.

U.S. Swap Regulators Said to Weigh Dealer Line Above $3 Billion

U.S. derivatives regulators are considering setting a threshold above $3 billion for determining which banks, hedge funds and energy firms are swap dealers under the Dodd-Frank Act, according to two people briefed on the rule.

The Securities and Exchange Commission and Commodity Futures Trading Commission are debating when the aggregate gross notional value of a company’s dealing business requires registration as a swap-dealer, according to the people who spoke on condition of anonymity because the rulemaking process isn’t public. The agencies first proposed a $100-million threshold in 2010, then considered this year setting a $3 billion rule and are debating a threshold as high as $8 billion, the people said.

The CFTC and SEC are required by Dodd-Frank, the 2010 regulatory overhaul, to determine when companies are dealers and should face the highest capital and collateral requirements. The law was intended to reduce risk and increase transparency in the $708 trillion global swaps market after largely unregulated trades helped fuel the 2008 credit crisis.

Shell Energy North America LP and Vitol Inc. are among energy companies that have told the CFTC the dealer rule is too broad and limits their ability to use derivatives to hedge risks tied to oil, natural gas and other underlying assets.

Judith Burns, an SEC spokeswoman, declined to comment. Steve Adamske, a spokesman for the CFTC, didn’t immediately respond to a telephone call seeking comment.

Swap-dealer regulation is among the most contentious measures required by Dodd-Frank, prompting hundreds of meetings and comment letters to the CFTC. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. control 95 percent of cash and derivatives trading for U.S. bank holding companies as of Dec. 31, according to the Office of the Comptroller of the Currency.

Japan’s Financial Agency to Revamp Bank Risk Regulations

Japan’s Financial Services Agency yesterday began debate on reduction of bank credit risk and how best to improve depositor protection, BNA reported.

The topics covered include a review of regulations on, credit extensions, foreign banks’ deposit insurance, and other rules affecting banks and insurance providers. Regulations impacting mergers and acquisitions will also be reviewed.

The first meeting to review new rules for banks and insurance providers was held by the FSA’s top policy commission, the Financial Study Council. Debate is expected to continue through the end of 2012 for drafting amendments to the Banking Law, the Insurance Law, and other related laws for submission to the 2013 regular parliament, known as the Diet.

For more, click here.

Compliance Action

Beltone Financial Unit Acquires U.K. Investment Advising License

Beltone Financial Holding, an Egyptian investment bank, said one of its units has acquired a license from the London-based Financial Services Authority, allowing it to advise investors in the U.K. and euro zone on investing in the Middle East.

The firm expects to finalize seven to eight merger and acquisition deals by the end of this year valued at $3 billion to $4 billion, Chairman Aladdin Saba said in an interview in Cairo yesterday.

Beltone Financial advanced to the highest intraday level in three weeks after the Egyptian investment bank said it will expand in Europe.

SEC Sues AutoChina International and 11 Investors

The U.S. Securities and Exchange Commission charged that AutoChina International Ltd. and 11 investors conducted a market manipulation scheme to create the false appearance of a liquid and active market for AutoChina’s stock.

AutoChina senior executive and director Hui Kai Yan, a former AutoChina manager, and others fraudulently traded AutoChina’s stock to boost its daily trading volume, the SEC said yesterday in a statement.

Japan’s SESC to Recommend Fine for Olympus, Yomiuri Reports

Japan’s Securities and Exchange Surveillance Commission plans to recommend Olympus pay a 200m yen ($2.4m) fine for falsifying financial statements, the Yomiuri newspaper reported, without citing a source for the information.

The commission plans to make a recommendation to the Financial Services Agency today.

Apple, Four Publishers Seek to Settle EU’s E-Book Probe

Apple Inc., the world’s biggest technology company, and four publishers may be able to settle a European Union probe into digital book sales similar to one that resulted in a U.S. lawsuit.

Apple, CBS Corp.’s Simon & Schuster, News Corp.’s Harper Collins, Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan unit and Lagardere SCA’s Hachette Livre sent “possible commitments” to the European Commission, EU Competition Commissioner Joaquin Almunia said in an e-mailed statement yesterday. The EU will review the offers with competitors to see if they would address antitrust issues.

The U.S. Department of Justice sued Apple, Macmillan and Pearson Plc’s Penguin in New York yesterday, claiming the publishers colluded to fix eBook prices. Simon & Schuster, Hachette and HarperCollins reached settlements with the DOJ.

The European Commission opened a probe into Cupertino, California-based Apple, the four publishers and Penguin in December to examine the iPad-maker’s deals with publishers and the publishers’ deals with retailers.

“We are in active and productive discussions” with the EU, Adam Rothberg, a spokesman for Simon & Schuster in New York, said in an e-mail. Siobhan Kenny, a spokeswoman for HarperCollins in London, declined to comment because the company is still negotiating details of the settlement with regulators.

Penguin wasn’t mentioned in the EU statement on the possible settlement. Charles Goldsmith, a spokesman for Pearson in London, declined to immediately comment.

Spokespersons for Apple and Verlagsgruppe Georg von Holtzbrinck declined to comment. Hachette didn’t immediately respond to phone calls and e-mails.


J&J’s Marketing of Risperdal Violated Law, Arkansas Jury Rules

Johnson & Johnson officials misled Arkansas doctors and patients about the risks of the antipsychotic drug Risperdal, and the company’s marketing campaign violated consumer-protection laws, a jury ruled.

Jurors in state court in Little Rock, Arkansas, April 10 found J&J and its Janssen unit engaged in “false or deceptive acts” by sending a 2003 letter touting Risperdal as safer than competing drugs to more than 6,000 doctors across the state. The state is seeking more than $1.25 billion in penalties over the Risperdal marketing campaign, and a judge will decide later whether to fine J&J.

It’s the third jury verdict against J&J, the second-biggest maker of health products, in cases where states alleged the drugmaker hid Risperdal’s risks and tricked Medicaid regulators into paying more than they should have for the medicine. Louisiana and South Carolina juries also found the company’s Risperdal marketing violated consumer-protection laws.

Teresa Mueller, a spokeswoman for J&J’s Janssen unit, said the drugmaker was disappointed with the Arkansas jury’s ruling.

“It is our position that an individual state should not penalize a pharmaceutical company for using an FDA-approved package insert or decide for itself whether a company complies with FDA rules,” Mueller said in an e-mailed statement.

The U.S. Justice Department is demanding that J&J pay about $1.8 billion to resolve the civil claims by federal regulators and some state attorneys general, people familiar with the settlement talks said this month.

The case is State of Arkansas v. Ortho-McNeil-Janssen Pharmaceuticals Inc., CV07-15345, Pulaski County Circuit Court (Little Rock) Arkansas.

For more, click here.

Madoff Trustee Pulls Appeal of $59 Billion UniCredit Ruling

The liquidator of Bernard Madoff’s firm withdrew a notice of appeal of a court ruling that tossed most of his $59 billion in claims against UniCredit SpA, Sonja Kohn and other defendants, leaving in place earlier appeals seeking to recover about $30 billion in damages from banks.

Madoff trustee Irving Picard gave notice to a U.S. appeals court in Manhattan last month that he might appeal U.S. District Judge Jed Rakoff’s February ruling in the case. Rakoff dismissed Picard’s claims under the racketeering statute, which allows for triple damages, saying he couldn’t prove his allegations.

Picard had $90 billion in claims before the appeals court, out of about $100 billion he had demanded in more than 1,000 suits to gather money for customers with Madoff Ponzi scheme losses. Rakoff and another district judge, Colleen McMahon, dismissed the claims in Picard’s suits against banks including JPMorgan Chase & Co., HSBC Holdings Plc, UBS AG and UniCredit, which is a defendant in the HSBC case as well as the Kohn suit.

Rakoff also dismissed common-law claims including unjust enrichment and conversion. He directed that the remaining claims be returned to bankruptcy court.

Marco Schnabl, a lawyer for UniCredit, didn’t immediately return a call seeking comment on the withdrawal of the appeal in the racketeering case. Picard spokeswoman Amanda Remus didn’t immediately respond to an e-mail seeking comment.

The case is Picard v. Kohn, 11-CV-1181, U.S. District Court, Southern District of New York (Manhattan).

Pennsylvania Man Gets 33 Years in Prison for Ponzi Scheme

Robert Stinson Jr., 56, who admitted his role in a $17.6 million Ponzi scheme that defrauded 260 investors, was sentenced to more than 33 years in prison by a federal judge.

Stinson, of Berwyn, Pennsylvania, pleaded guilty last year to 26 charges including wire and mail fraud, money laundering and bank fraud, according to U.S. Justice Department officials.

U.S. District Judge Michael Baylson April 10 also ordered Stinson to pay $14 million in restitution.

Officials said Stinson used some of the proceeds to buy two Mercedes-Benz sedans, and falsely told investors he was a graduate of Massachusetts Institute of Technology.

The case is U.S. v. Stinson, 10-cr-00724; a related lawsuit is Securities and Exchange Commission v. Stinson, 2:10-cv-3130, both in U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

Shadow Banking on Trial as China’s Rich Sister Faces Death

The death sentence imposed by a Chinese court on Wu Ying, known in China as “Rich Sister,” for taking $55.7 million from investors without paying them back, has sparked an unexpected firestorm drawing in China’s top leadership.

Wu was 28 when she was sentenced to death. Her crime involved a common, illegal practice in China: raising money from the public with promises to pay back high interest rates. Known as shadow banking, these underground lending and investing networks are estimated to total $1.3 trillion, according to Ren Xianfang, an economist with IHS Global Insight Ltd. in Beijing. That’s the size of the 2011 U.S. government deficit.

Operating outside the banking system or government regulation, the informal networks provide an important source of economic growth, capital for private companies and return for investors seeking to beat inflation. Premier Wen Jiabao, in an unusual move, weighed in on the Wu case at a March 14 news conference.

Wu’s lawyer says his client, now 30, did not commit fraud. The Supreme People’s Court is reviewing the 2009 verdict.

Shadow banking has been fueled by a two-year credit squeeze in China and by large, state-owned banks’ preference for lending to government-run companies rather than small businesses. At least 17 people, including Wu, now sit on death row after being sentenced for illegally raising funds from individuals, according to Chinese media reports compiled by Bloomberg since


For more, click here.


Lockhart Says Smart Regulation Is the ‘Holy Grail’

Federal Reserve Bank of Atlanta President Dennis Lockhart spoke about the need to work toward smarter regulation that reduces the risks to financial stability.

He spoke during closing remarks at an Atlanta Fed conference in Stone Mountain, Georgia.

For the audio, click here.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE