Military-Member Mortgages, IOSCO Study, BofA: Compliance

U.S. regulators released rules for mortgage servicers that are designed to help members of the military get information needed to sell their homes or modify loans when they are forced to relocate.

The guidance from the Consumer Financial Protection Bureau, Federal Reserve, Federal Deposit Insurance Corp., National Credit Union Administration and Office of the Comptroller of the Currency affects service members who get “permanent change in station” orders that can’t be appealed and must be followed on a short timetable.

The goal of the guidance is to ensure that members of the military who must move are getting “clear, accurate, and timely information about available options such as loan modification or short sale,” the CFPB said in a statement.

A regulator will take “appropriate enforcement action” if it determines the mortgage servicer has engaged in unfair or abusive practices, the CFPB said.

Mortgage servicers are responsible for collecting monthly payments, acting as escrow agent for taxes and insurance, and handling foreclosures when borrowers are seriously delinquent. The five largest U.S. servicers -- Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- reached a settlement with federal agencies and 49 states over claims of abusive foreclosure practices.

Under the new policy, Fannie Mae and Freddie Mac won’t seek court judgments that force people to pay the difference between the mortgage balance and a home’s sale price for any property purchased on or before June 30, according to the Federal Housing Financial Administration, which oversees the government-owned finance companies.

Members of the military who get so-called PCS orders will automatically be eligible for a short sale of their homes, FHFA said. The rule follows one last year that opened government foreclosure programs to service members who get the orders.

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Compliance Policy

SEC’s Schapiro Says IOSCO Money Market Proposal Was a ‘Screwup’

U.S. Securities and Exchange Commission Chairman Mary Schapiro said the International Organization of Securities Commissions prematurely released a study of potential changes to money-market fund regulation in April.

The study’s release, which drew objections from three of the SEC’s five commissioners, was a “genuine screw-up,” Schapiro said at a Senate Banking Committee hearing yesterday in Washington. IOSCO, based in Madrid, is an international organization of securities regulators, including the SEC.

Options in the study included changing the money-market fund industry’s stable net asset value. The two Republican members of the SEC, Troy Parades and Daniel Gallagher, joined Commissioner Luis Aguilar, a Democrat, in issuing a rare statement on May 11 saying IOSCO’s report “does not reflect the views and input of a majority of the Commission.”

U.S., Switzerland Agree to Pursue FATCA Implementation

The U.S. and Switzerland agreed to work toward implementing the Foreign Account Tax Compliance Act. The nations also will seek to improve international tax compliance based on the bilateral tax treaty between U.S. and Switzerland, the Treasury Department said in statement.

The Foreign Account Tax Compliance Act requires foreign financial institutions to report to the Internal Revenue Service about financial accounts held by U.S. taxpayers.

U.S. Approves Rule Helping to Add Wind Power to Power Grids

The Federal Energy Regulatory Commission approved a rule designed to improve the transmission of wind and solar power in the U.S.

The rule requires generators to share weather and operating information to help transmission networks manage wind and solar power, the agency said in a statement yesterday.

Germany Seeks Consensus on EU Transaction Tax for Some Nations

Germany is seeking support to pursue a financial-transaction tax in a smaller group of European Union countries now that negotiations among all 27 members have foundered, the German Finance Ministry said in a letter to EU institutions and governments.

There is an “urgent need” to coordinate efforts to impose such a tax because individual countries are moving ahead in the absence of EU-wide progress, according to the letter. If countries press ahead with national legislation on their own, it could create economic and financial distortions, the ministry said in the letter, which was prepared in advance of today’s meeting of EU finance ministers in Luxembourg.

“Germany would therefore greatly welcome the formation of a general consensus on this issue at the session on 22 June,” according to the letter, which was obtained by Bloomberg News.

The European Commission last year proposed a broad-based transaction tax with support from France and Germany. The plan has been opposed by nations including the U.K., the Netherlands and Ireland.

German Chancellor Angela Merkel has bowed to demands to speed up efforts to introduce a tax on share and bond transactions, overcoming a hurdle that has held up German ratification of the euro area’s new budget rules and sealing the country’s contribution to a new rescue fund.

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Compliance Action

Liquidnet Faces SEC Investigation Over Dark-Pool Disclosures

The U.S. Securities and Exchange Commission is investigating Liquidnet Holdings Inc. for shortcomings in how the dark-pool owner guarded information about firms using its platform, according to a letter the company sent clients yesterday.

SEC staff have requested information about Liquidnet’s equity capital markets business, the operator of two stock trading venues said in an e-mail obtained by Bloomberg News. Liquidnet said it corrected the issues the SEC identified and no longer provides “descriptive characteristics” about member firms to corporations using its services.

Federal regulators have stepped up scrutiny of stock trading practices that gained dominance in the past decade amid a shift to automation, Daniel Hawke, head of the market-abuse unit in the agency’s enforcement division, said in February.

Liquidnet traded 23 million U.S. shares a day on average through its two dark pools in April, according to data compiled by Rosenblatt Securities Inc.

Dark pools, broker-operated private venues that don’t display quotes publicly, rose to prominence as a way for institutions to buy and sell without moving share prices. More than 40 such pools now exist to trade U.S. equities.

Melissa Kanter, a Liquidnet spokeswoman, confirmed that Chief Executive Officer Seth Merrin sent the message to clients yesterday.

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BofA Fined $2.8 Million for Overbilling 95,000 Customer Accounts

Bank of America Corp.’s Merrill Lynch wealth-management unit was fined $2.8 million by the Financial Industry Regulatory Authority for overbilling customers by $32.2 million during an eight-year period.

Merrill Lynch charged the fees to about 95,000 accounts between April 2003 and December 2011, Finra said in a statement yesterday. New York-based Merrill Lynch, which was acquired by Bank of America in 2009, lacked an adequate supervisory system to ensure that customers were billed in accordance with their contracts and disclosure documents, the regulator said.

Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, said the charges were largely “the result of improper coding of accounts,” which the firm discovered on its own.

“We have improved our systems to address these issues and we have reimbursed affected clients,” he said in a telephone interview.

EU Plan to Delay Carbon Sales Violates Rules, Law Firm Says

A European Commission plan to temporarily delay carbon permits sales starting next year is in breach of the law, said Luther Rechtsanwaltsgesellschaft mbH, a German law firm representing energy-intensive industries.

Stefan Altenschmidt, head of the environment, planning and regulatory practice group in Dusseldorf, said the emissions-trading directive “only grants the European Union commission the right to interfere with the market in case of CO2 prices that are too high, to reduce the burden on businesses.”

The directive “does not allow the commission to work towards a price increase in case of CO2 rates that are too low,” Altenschmidt said.

He made the remarks in a statement on the firm’s website.

The opinion was commissioned by lobby groups, including from the steel, cement, glass and paper industries, as they attempt to head off higher carbon prices. Permits have jumped 17 percent this month as the European Commission considers temporarily reducing supply in the market in response to record low prices.

The commission yesterday declined by e-mail to comment on Luther’s statement.

Canada’s Flaherty Tightens Mortgage Rules to Avert Bubble

Canadian Finance Minister Jim Flaherty said he will tighten mortgage terms as the Group of Seven country with the soundest government finances tries to avert a household debt crisis.

The government will shorten the maximum amortization period on mortgages the government insures to 25 years from 30 years, and reduce the maximum amount homeowners can borrow against the value of their homes to 80 percent from 85 percent, Flaherty said in a statement delivered in Ottawa.

Flaherty has been relying on regulatory steps to rein in mortgage borrowing, as concerns about a deepening debt crisis in Europe handicaps Bank of Canada Governor Mark Carney’s ability to raise historically low interest rates at home. The government has already reduced amortization limits twice since 2008, cutting them from 40 years.

Canada will also cap mortgage debt payments at 39 percent of income and limit government mortgage insurance to homes worth less than C$1 million, Flaherty said.

The changes take effect July 9.

Holcim Says Its Indian Units Contest Antitrust Body’s Fines

Holcim Ltd. said its units ACC and Ambuja Cements, which were fined about 194 million francs ($203 million) and 196 million francs respectively by India’s competition commission, will contest the allegations against them.

The companies will pursue “all available legal steps to defend their respective position,” Holcim said in an e-mailed statement yesterday.


Stanford’s Pendergest Holt Pleads Guilty to Obstructing SEC

Laura Pendergest Holt, the former chief investment officer for Stanford Financial Group, pleaded guilty to a single count of obstructing a U.S. Securities and Exchange Commission investigation.

The plea was made to U.S. District Judge David Hittner yesterday in federal court in Houston. He told her that while he finds her guilty, he’s deferring acceptance of her agreement with prosecutors, which calls for a three-year prison sentence.

Hittner scheduled sentencing for Sept. 13.

Chris Flood, an attorney for Pendergest Holt, declined to comment on the judge’s deferment after yesterday’s hearing, citing a court-imposed order not to speak publicly about the case.

Stanford was convicted in March on 13 charges, including five counts of mail fraud and four of wire fraud in connection with the sale of certificates of deposit issued by his Antigua-based Stanford International Bank Ltd. and sold by Houston-based Stanford Group Co. He was sentenced to 110 years in prison on June 14.

Stanford is appealing the verdict and the punishment.

Pendergest Holt, 38, the third-highest-ranking officer in Stanford’s company, was accused of lying to investors and to the firm’s financial advisers, claiming she oversaw a stable of international money managers who invested the bulk of the bank’s assets in conservative, liquid assets, according to court filings.

She was scheduled to go on trial in September on 21 counts similar to those Stanford originally faced.

The case is U.S. v. Stanford, 4:09-cr-0342, U.S. District Court, Southern District of Texas (Houston).

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Failed Bankas Snoras Sues Ex-Owners in U.K. for $621 Million

Bankas Snoras AB, the failed Lithuanian lender that was seized by the government in November, sued former owners Vladimir Antonov and Raimondas Baranauskas in Britain for 395.5 million pounds ($621.8 million).

Antonov and Baranauskas breached their duties to Snoras and misappropriated or misused its assets, the bank said in a lawsuit filed May 18 in London and made public yesterday. The men were arrested by British police and freed on bail in November after Lithuania issued a European arrest warrant and sought their extradition to face a parallel criminal case alleging fraud and embezzlement. Both men have denied the claims.

The Lithuanian government took over Snoras, the Baltic country’s third-biggest lender by deposits, on Nov. 16 after the central bank said it couldn’t account for some of its reported assets. Snoras’s missing property may be in Austria, the Cayman Islands, France and Luxembourg, among other countries, the central bank has said.

Antonov told a U.K. judge in December the case is a politically motivated “campaign of revenge.”

Snoras’s lawyer, Greg Reid of Linklaters, didn’t immediately return a call for comment. Kevin Gold, the former owner’s lawyer with Mishcon de Reya in London, also didn’t return a call.

Some of Antonov’s assets have been frozen.


CFTC’s Gensler Says Swaps Rule May Be Finalized Shortly

U.S. Commodity Futures Trading Commission Chairman Gary Gensler spoke about Dodd-Frank Act rules on swaps and derivatives.

He spoke with Bloomberg reporters and editors in Washington.

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Restoy Says Spain’s Banks May Need Up to $78 Billion

Bank of Spain Deputy Governor Fernando Restoy and Spanish Deputy Economy Minister Fernando Jimenez Latorre spoke at a news conference in Madrid about the results of bank-stress tests carried out by independent consultants.

Oliver Wyman Ltd. estimated banks would need as much as 62 billion euros ($78 billion) in capital to withstand a worst-case economic scenario.

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SEC’s Schapiro Faces Bipartisan Criticism on Money Fund Rule

U.S. Securities and Exchange Commission Chairman Mary Schapiro faced skeptical lawmakers from both parties yesterday as she defended her campaign to overhaul the regulation of money-market funds.

In an appearance before the Senate Banking Committee that lasted just under an hour, Schapiro told lawmakers that while most funds are “well and responsibly managed,” they are susceptible to the types of runs that helped freeze credit markets in 2008. Schapiro hasn’t been able to persuade a majority on her five-member commission to support a proposal to rewrite money-market rules and yesterday’s hearing demonstrated the difficult task she faces on Capitol Hill as well.

She said her goal is not to “demonize an industry.” She is proposing that money market funds either allow their net asset values to float or hold more capital and prevent customers from withdrawing all their funds at once.

Senator Robert Menendez, a New Jersey Democrat, said he was concerned about the idea of requiring money funds to float their share prices.

Such a proposal would follow rules the SEC adopted in 2010 that introduced liquidity minimums, average maturity limits and new disclosure requirements. Schapiro told the Senate panel that since those rules took effect, three money-market funds have required their sponsors to step in and support them to avoid their net asset value falling below $1 a share.

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Levitt Weighs In Against Return to Stock Fractions

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission and senior adviser to Goldman Sachs Group Inc., said a push by some in Congress to go back to fractions on stock quotes would be a “ripoff” of investors.

Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

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Pandit Says Citigroup Committed to Resolving Pay Issue

Citigroup Inc. Chief Executive Officer Vikram Pandit talked about the bank’s capital plan, his compensation and the European sovereign-debt crisis.

He spoke with Bloomberg Television’s Ryan Chilcote on the sidelines of the St. Petersburg International Economic Forum.

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Comings and Goings

AIG’s Courpron Has Pay Cut After Probe in Latest ILFC Setback

American International Group Inc.’s punishment of its plane-leasing chief executive officer for a relationship with an employee is the latest setback for the insurer as it seeks to take the unit public.

AIG named ex-Boeing Co. executive Laurette Koellner to oversee International Lease Finance Corp., putting her in charge of CEO Henri Courpron and cutting his pay after he had a personal relationship with an employee, AIG said yesterday.

AIG is seeking to prepare Los Angeles-based ILFC for an initial public offering as the insurer works to raise funds to repay a U.S. bailout that swelled to $182.3 billion. Courpron, 49, a former Airbus SAS manager, was named to lead ILFC in 2010.

Courpron’s stock salary was cut by $1 million to $3.43 million after his conduct was found to be “contrary to AIG’s expectations,” the company said. Courpron and the employee acknowledged a voluntary relationship that had ended, according to New York-based AIG.

“I apologize for my mistake,” Courpron said in the statement. “I am committed to keep moving forward with the ILFC team and Laurette.”

The Courpron probe followed an anonymous complaint that also alleged that the relationship involved improper use of company assets and inappropriate personnel decisions, according to AIG. Those claims were found to be unsubstantiated after a review conducted with outside counsel, the insurer said.

Jim Ankner, an AIG spokesman, declined to comment on the IPO prospects.

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O’Neill Says He Would Consider Replacing BOE’s King If Asked

Goldman Sachs Asset Management Chairman Jim O’Neill said he would consider replacing Mervyn King as governor of the Bank of England if asked.

“If I was approached, it would be very flattering and something that I would have to think about,” O’Neill, 55, said in an interview with Bloomberg Television’s Ryan Chilcote today in St. Petersburg, Russia. “Nobody’s asked me anything yet. What I think happens is that one has to formally apply when it’s going to be advertised.”

King is scheduled to leave the bank in June 2013 after serving the maximum two five-year terms allowed. Speculation in the press on potential successors has intensified in recent months to include the former chief of the U.K. civil service, Gus O’Donnell, and Mark Carney, head of Canada’s central bank and a former employee of New York-based Goldman Sachs.

When asked in September 2007 if he would be interested in the role at a time when the government was considering whether to reappoint King, O’Neill said he couldn’t imagine that “anyone would be daft enough to offer it to me.” He added that he very much enjoyed his then job as head of global economic research at Goldman Sachs.

Chancellor of the Exchequer George Osborne has said there will be a “proper process” to appoint a new governor and that he’ll start the formal search in the autumn.

Goldman Sachs has historically been a breeding ground for central bank chiefs.

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