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Sidestepping Rotation, Dodd-Frank, Sallie Mae: Compliance

May 8 (Bloomberg) -- Companies that issue securitized debt may have to change their credit-ratings provider at least every four years as part of a possible European Union compromise to promote competition in assessing such securities.

Businesses would be able to sidestep the rotation rule if they use at least four ratings suppliers at the same time, according to an EU document on the proposed measures obtained by Bloomberg News.

The rule, intended to “mitigate the risk of conflict of interest and to enhance competition,” would apply to securitized debt and other types of so-called structured finance instruments, according to the draft compromise drawn up by Denmark, which holds the EU’s presidency. “Smaller” credit-ratings companies would be exempt from the measure.

The Danish proposal would water down plans by Michel Barnier, the region’s financial services chief, that would have forced businesses to switch ratings company every three years. Barnier proposed that the measure should apply to all of a company’s debt issuance, not just structured finance.

The Danish plan, dated May 7, follows discussions with officials from the other 26 national governments in the region.

The credit-ratings law requires approval by national governments and by lawmakers in the European Parliament, before it can come into effect. Denmark is targeting a May 15 deal among ministers on the rules, which would also allow investors to sue ratings firms in cases of gross negligence or misconduct.

Compliance Policy

Counting Costs Slows Dodd-Frank Rules After Wall Street Lawsuits

Business lobbyists and Republican lawmakers who failed to stop the Dodd-Frank Act from becoming law have managed to put the brakes on many of its provisions a second way: cost-benefit analysis.

A series of legal challenges from business groups against the U.S. Securities and Exchange Commission ended in a federal court ruling last year that the agency didn’t adequately analyze the cost of a new rule. In the months since, the agency’s rule-making has ground to a near-halt, with just 24 SEC economists working full-time to provide cost-benefit analyses for dozens of proposed policies, including 28 unfinished Dodd-Frank rules.

Now lawmakers are trying to write the cost-benefit strategy into law. Representative Scott Garrett, a New Jersey Republican, said the goal is to save taxpayers money while also weakening the ability of regulators to implement Dodd-Frank.

The strategy has spread to target other federal agencies as well. In December, two groups representing Wall Street firms filed suit against the Commodity Futures Trading Commission, arguing that a rule to limit speculation used a flawed cost-benefit analysis. Last month, the U.S. Chamber of Commerce and the Investment Company Institute filed a similar lawsuit challenging a CFTC rule affecting mutual funds.

Roel Campos, a former SEC commissioner, said the court decision combined with pressure from Capitol Hill could prevent the SEC and other agencies from moving forward with a wide variety of rules, not just those required by Dodd-Frank.

For more, click here.

Compliance Action

Mitsui Sumitomo Insurance Fined $5.3 Million by U.K. FSA

Mitsui Sumitomo Insurance Co.’s European unit was fined 3.3 million pounds ($5.3 million) by U.K. financial regulators for serious corporate governance failings.

The unit’s former executive chairman, Yohichi Kumagai, was also fined 119,303 pounds and banned from working in the industry, the Financial Services Authority said in an e-mailed statement today. Kumagai failed to hire a chief underwriter to manage the expansion of the business in Europe and didn’t update its technology infrastructure, the FSA said.

The FSA is leading a crackdown on companies that have insufficient systems and controls to manage risk. Coutts & Co., a private bank owned by Royal Bank of Scotland Group Plc, was fined 8.75 million pounds in March for not having effective anti-money-laundering controls.

At Mitsui Sumitomo, the agency said that “despite receiving clear guidance from the FSA that the management structure and composition of the board was ineffective,” Kumagai “failed to take prompt action to remedy the situation.”

Mitsui Sumitomo “accepts the FSA’s final notice and takes this matter very seriously,” Duncan Gallagher, a spokesman for the company, said in an e-mailed statement. “The company is disappointed that during this period its corporate governance and controls were not up to the standards the company expects.”

Kumagai and Mitsui Sumitomo agreed to settle at an early stage and qualified for a 30 percent discount on their fines.

SEC Hiring Investigator to Review Complaints About Its Watchdog

The U.S. Securities and Exchange Commission is planning to hire an outside investigator to probe complaints about the agency’s internal watchdog unit after its top official stepped down amid complaints about his work.

“An individual has raised allegations of misconduct by former and current employees in the office of inspector general,” John Nester, an SEC spokesman, said yesterday in an e-mail. “The matter was promptly referred to the Council of Inspectors General on Integrity and Efficiency. We are also in the process of hiring an independent investigator to review the claims.”

Nester didn’t say whom the agency would hire or specify the allegations and targets they would pursue.

The SEC hasn’t had a permanent inspector general since January when H. David Kotz resigned after four years in the post. Kotz was lauded by lawmakers for his scrutiny of SEC missteps in overseeing financial firms. His decision last year to refer former SEC General Counsel David Becker to federal prosecutors for possible criminal ethics violations stemming from his work on policy related to Bernard Madoff’s Ponzi scheme helped spark the backlash.

The former SEC watchdog, who is now a managing director at Gryphon Strategies in Washington, declined to comment yesterday on the outside investigation.

Senator Charles Grassley, an Iowa Republican who defended Kotz during his time at the SEC, questioned whether the agency should pursue an investigation.

A spokesman for the Federal Bureau of Investigation didn’t respond to a telephone call after normal business hours for comment on behalf of the inspectors general panel.

Google Said to Be Under India Investigation in Antitrust Case

Google Inc. is under investigation by India after a dating website complained that the world’s biggest search engine violated the nation’s antitrust laws, a government official with direct knowledge of the matter said.

Consim Info Pvt., which operates, filed a case with the Competition Commission of India in February, and the probe may last six to 12 months, the official said, asking not to be identified citing policy. The Wall Street Journal first reported the case yesterday.

The Mountain View, California-based company is being investigated in India for the first time over charges that AdWords, Google’s advertising unit, profited by luring two Indian dating websites into a bidding war over keywords on the company’s online search engine, the person said.

Google’s local unit said in an e-mail statement that it hasn’t received any communication from India on the matter and was unable to comment. Consim’s media department in the southern city of Chennai didn’t respond to an e-mail.

Google has come under pressure from global antitrust agencies.

German Regulator Reviewing Rhoen Klinikum Derivatives Trading

Germany’s financial regulator is reviewing whether insider trading occurred in derivatives tied to Rhoen Klinikum AG’s shares before Fresenius SE announced a takeover offer for the German hospital operator on April 26, a spokeswoman said.

The regulator, known as BaFin, received tips about the trading, said Sabine Reimer, a BaFin spokeswoman, in a telephone interview. Such a review is standard in a takeover, she said. Dow Jones Newswires also reported the review yesterday.

Norway FSA Says Banks Adjusting to Stricter House Loan Rules

Norwegian banks have adjusted their mortgage lending policies to stricter guidelines established by the country’s financial watchdog in December, Norway’s Financial Supervisory Authority said in a statement yesterday.

Separately, Norwegian companies said prospects have improved “slightly” since January while output growth over the past three months has been “somewhat” stronger than expected, a central bank survey showed.

Sallie Mae to Compete With U.S. for Fixed-Rate Student Loans

SLM Corp., the student lender known as Sallie Mae, plans to offer its first fixed-rate private loans this month to compete with government-backed loans, which have more protection for borrowers.

Interest rates on the loans will range from 5.8 percent to 12.9 percent, depending on credit history and underwriting standards, Newark, Delaware-based SLM said yesterday in a statement. The rate on the government’s Stafford unsubsidized student loan, which is set by Congress, is 6.8 percent.

Outstanding education debt in the U.S. has reached about $1 trillion, according to the federal Consumer Financial Protection Bureau. The CFPB is looking into the private student-loan market and has begun accepting complaints about providers.

SLM expects to write $3.2 billion in private loans this year, according to an April 18 statement. Most private student loans offer variable rates. Unlike credit-card and other types of private-issued debt, private student-loan debt cannot be discharged in bankruptcy.

Facebook May Avoid $14 Billion in Corporate Tax, Telegraph Says

Facebook may avoid as much as $14 billion in corporate tax when it stages its initial public offering next week, the Daily Telegraph reported, citing filings.

A loophole in U.S. tax law means Facebook can claim a large tax credit when its staff, including founder Mark Zuckerberg, and early investors in the social network site take up hundreds of millions of share options, the newspaper reported.

Facebook said in a filing with the U.S. Securities and Exchange Commission that if all options were taken up before the end of 2012 a tax deduction of about $14 billion would be generated, according to the newspaper.


Harmed Investors Receive $44 Million From Nacchio Settlement

A Former Qwest Communications International Inc. CEO’s settlement with the U.S. Securities and Exchange Commission, has resulted in more than $44 million returned to investors harmed by fraud, the Justice Department said May 3, BNA reported.

Joseph Nacchio, who was CEO of Quest, harmed the company with other executives in a “massive financial fraud,” DoJ said.

The funds were returned pursuant to Nacchio’s settlement with the SEC, cleared by the court early last year. The money was dispersed to the 112,210 victims who incurred losses on Qwest securities they purchased during the fraud scheme.

Following his conviction, Nacchio was sentenced to 70 months in prison and he was ordered to forfeit the $44.6 million, which represented the net proceeds he received from the fraud scheme, DOJ said. He also was ordered to pay a $19 million fine, which was paid to a fund for victims of crime.

Nacchio falsely reported about $3 billion in revenues between 1999 and 2002.

The case is U.S. Securities and Exchange Commission v. Nacchio, 1:05-cv-00480, U.S. District Court, District of Colorado (Denver).

Stolen HSBC Data Allowed by Paris Court in Tax Probe, AFP Says

A Paris appeals court refused a bid by the heiress to fashion designer Nina Ricci to end a tax evasion investigation because it was based on account data stolen from HSBC Holdings Plc, Agence France-Presse said May 6, citing her lawyer.

Arlette Ricci disputed the validity of using the data, stolen by a former HSBC employee and seized from his home in 2009, in pursuing her for allegedly hiding wealth in HSBC accounts in Switzerland to evade taxes, AFP said, citing Jean-Marc Fedida, her lawyer.

Fedida didn’t immediately respond to calls by Bloomberg News for comment on the decision.


Germany’s Kampeter Says Markets Demand Budget Consolidation

Financial markets expect euro-area governments to adhere to their pledges to reduce debt and accept no alternative policy to that fiscal stance, German Deputy Finance Minister Steffen Kampeter said.

“There is no market-accepted alternative to budget consolidation, said Kampeter yesterday at an open hearing on the debt crisis in parliament in Berlin.

Following elections in France and Greece May 6, there is no reason to amend tighter budget practices enshrined in the as yet unratified Fiscal Compact treaty, Kampeter said. Greece must adhere to the terms of its bailout, he added.

The European Central Bank has indicated that it supports Germany’s demand that policy to spur economic growth in the euro-area be limited to boosting member states competitiveness, he said.

Comings and Goings

Finra Names Robert Colby Chief Legal Officer Effective June 18

The Financial Industry Regulatory Authority named Robert Colby as chief legal officer effective June 18, according to a statement on its website.

Colby is currently a partner in the Washington office of Davis Polk & Wardwell LLP.

FCC Nominees Blocked on LightSquared Handling Clear U.S. Senate

The U.S. Senate approved two Federal Communications Commission nominees who were held up by a Republican lawmaker challenging the agency’s handling of Philip Falcone’s LightSquared wireless venture.

Jessica Rosenworcel, a Democrat, and Ajit Pai, a Republican, will bring the commission to its full membership of five for the first time since a Republican commissioner left in June to join Comcast Corp. and a Democrat retired. The nominees cleared the Senate by unanimous consent.

The Senate Commerce Committee approved Rosenworcel and Pai in December to join the independent agency led by Chairman Julius Genachowski, a Democrat.

Senator Charles Grassley had prevented a vote by the full Senate because he said the FCC didn’t answer questions about whether it gave favorable treatment to LightSquared.

Blais May Be Chairman at Canada Broadcast Regulator, Globe Says

Canada’s Harper government, which is preparing to fill the post of chairman of the country’s federal Radio-television and Broadcast Regulator, may tap Jean-Pierre Blais for the post, the Globe and Mail reported, citing ‘‘industry players” it did not identify.

Blais would be “relatively compliant” with the policies of Prime Minister and Conservative Party leader Stephen Harper’s government, the Globe and Mail said, citing unnamed Telecom industry insiders. He also would try to keep the agency out of the news, the people said, according to the Globe and Mail.

Officials of the Harper government declined to comment on who they plan to appoint to the position, according to the newspaper.

To contact the reporter on this story: Carla Main in New Jersey at

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

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