The U.S. Securities and Exchange Commission was presented with a 337-page staff proposal to require the $2.5 trillion money-market fund industry to float share prices or hold more capital and curb redemptions, according to a person familiar with the proposal.
The proposal may put the SEC on course for a clash among commissioners and with the industry. The plan won’t advance if the three commissioners who have already raised concerns about its impact on money funds hold firm. If SEC Chairman Mary Schapiro wins enough support to release the proposal for public comment, the agency will face renewed opposition from the U.S. Chamber of Commerce and Federated Investors Inc. Chief Executive Christopher Donahue, who has threatened to sue if a rule is ultimately adopted.
SEC staff delivered the measure to the five commissioners on June 25, two people said. It tracks with provisions Schapiro outlined in testimony last week before the Senate Banking Committee and includes multiple questions for the public, the people said. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy F. Geithner have sided with Schapiro in her bid to rewrite money-fund rules.
The two Republican commissioners, Troy Parades and Daniel Gallagher, are opposed to additional regulation for money-market funds and Luis Aguilar, a Democrat, has expressed concern about the impact on the industry of changes in money-market fund rules.
John Nester, an SEC spokesman, declined to comment on the proposal.
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Special Section: Libor Probe
Osborne Says Diamond Has ‘Serious Questions’ to Answer
U.K. Chancellor of the Exchequer George Osborne speaks in the House of Commons in London about the international investigation into manipulation of the London interbank offered rate.
Barclays Plc Chief Executive Officer Bob Diamond has “serious questions” to answer about the bank’s role in falsifying Libor rate submissions, said Osborne.
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Barclays Fines May Be ‘Tip of the Iceberg,’ Pitt Says
Former U.S. Securities and Exchange Commission Chairman Harvey Pitt talked about record fines imposed by U.S. and U.K. regulators against Barclays Plc after the bank admitted it submitted false London and euro interbank offered rates.
He spoke with Cory Johnson and Peter Cook on Bloomberg Television’s “Taking Stock.”
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Barclays $451 Million Libor Fine Paves Way for Competitors
Barclays Plc’s record $451 million settlement offers a road map for how U.S. and U.K. authorities will pursue sanctions in a global investigation of interest rate manipulation that has ensnared more than a dozen banks.
Barclays traders routinely coordinated with counterparts from at least four other banks in an attempt to move interest rate benchmarks, according to documents released yesterday by the U.S. Commodity Futures Trading Commission, the U.S. Justice Department and the U.K. Financial Services Authority. The benchmarks included the London interbank offered rate, or Libor, and Euribor, a related euro-denominated rate. In both cases, the goal was to generate profits on derivatives held by the banks, the agencies said.
The settlement puts “a great deal of pressure” on other banks to settle because it creates a precedent, said banks to settle because somebody has set a precedent,’’ said Jerry W. Markham, a law professor at Florida International University.
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Barclays CEO Under Pressure to Resign From U.K. Lawmakers
Barclays Plc Chief Executive Officer Bob Diamond is under pressure from U.K. lawmakers to resign after the bank was fined $451 million for attempting to manipulate the inter-bank lending rate, known as Libor.
Prime Minister David Cameron said today the bank has questions to answer, while Ed Miliband, leader of the opposition Labour Party, demanded a criminal investigation into the matter. That call was echoed by London Mayor Boris Johnson.
Barclays, the U.K.’s second-largest bank by assets, said yesterday that Diamond and three other executives will forgo their bonuses this year. Investigators concluded that traders at Barclays lied to make the bank appear secure during the financial turmoil of 2008 and to make a profit, sometimes colluding with workers in at least four other banks.
Diamond, who earned as much as 6.3 million pounds in salary, bonuses and stock awards for 2011 as well as a 5.75 million-pound ($8.9 million) contribution toward his personal tax bill, used a BBC speech last year to call for banks to be “better citizens.”
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U.K. Chancellor of the Exchequer George Osborne said to parliament that the Libor probe showed systemic failures at the heart of the system.
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Barclays Fine Shows Need to Fund U.S. Regulators, Wolin Says
The Barclays Plc settlements on interbank rates shows the need for the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission to be “appropriately funded,” the Treasury Department’s No. 2 official said.
“When they’re not funded appropriately, there aren’t the right number of people policing these markets, which need, of course, to be policed,” Deputy Treasury Secretary Neal Wolin said yesterday in an interview on CNBC television.
Barclays was fined 290 million pounds ($451.4 million) after admitting it submitted false London and euro interbank offered rates. The settlements were reached with the U.K.’s Financial Services Authority, the CFTC and the U.S. Department of Justice.
House Republicans are seeking to cut the CFTC’s fiscal 2013 budget, while Senate Democrats seek to increase it.
Trade Groups Set Up Regulation Handbook for Banks, Utilities
Banks including Barclays Plc and Morgan Stanley and utilities such as RWE AG and EON AG will have access to a financial market regulation handbook by the end of July, a group of four European trade associations said.
The pan-European manual will set out guidelines for implementation of four European Union financial trading regulations in asset classes including energy, Anthony Belchambers, chief executive officer of the Futures and Options Association, said yesterday at a press conference in London.
The global credit freeze and record oil prices of 2008 prompted regulators around the world to bring bilateral over-the-counter derivatives trading onto transparent platforms such as the ICE Futures Europe and Nord Pool Spot AS exchanges that require data disclosure before and after a trade takes place.
The manual will have guidance for implementation of the Markets in Financial Instruments Directive, known as MiFID, the Market Abuse Directive, or MAD, the European Market Infrastructure Regulation, or EMIR, and some aspects of the Regulation for Energy Market Integrity and Transparency, or Remit.
The manual is being set up by the Futures and Options Association, the European Federation of Energy Traders, the Wholesale Market Brokers Association and the Association of Private Client and Investment Managers.
EU Plans Illegal Online Gambling Crackdown, Rules on Legal Sites
The European Union will publish an action plan later this year to rein in illegal and “unregulated” online gambling.
The paper will include measures to clamp down “on the many illegal websites, often hosted in offshore havens,” that offer gambling services, Michel Barnier, the EU internal market chief, said in a speech in Brussels yesterday.
The European Commission will also propose measures to regulate and supervise legal gaming sites, Barnier said. The action plan will be published this fall, he said.
State Regulators in U.S. Examine Structured Note Sales Practices
A group of U.S. state securities regulators is seeking information on the sales practices of 10 structured-note issuers after a similar request from the Securities and Exchange Commission.
The regulators sent letters to the issuers this month, said Ronak Patel, co-head of the group for the North American Securities Administrators Association. Patel, who is also deputy securities commissioner of Texas, declined to elaborate since it is the policy of some states not to confirm or deny ongoing investigations, he said.
The U.S. structured-note industry, which sells bank bonds bundled with derivatives for customized bets, has come under scrutiny from regulators for the securities’ complexity and lack of transparency. The SEC asked banks that issue the securities to boost disclosures to investors in April, including the banks’ own estimates for the securities’ market value at the time of sale. Some individual states have started investigations. Florida, Massachusetts and Georgia opened examinations of the products last year.
State Shuts U.S. College Lead-Generator Aimed at Military
Kentucky Attorney General Jack Conway announced a multistate settlement to shut down a website called GIBill.com that drives business to for-profit colleges.
The military-themed website, operated by a Foster City, California-based company, QuinStreet Inc., will be turned over to the government as part of the deal. The company will also pay a $2.5 million fine.
Conway said in a news release that the company “preyed on our veterans.”
QuinStreet, in a statement filed with the Securities and Exchange Commission yesterday, said it “does not engage in deceptive marketing practices and does not believe that its websites were misleading prior to the agreement.”
Other states participating in the agreement are Alabama, Arizona, Arkansas, Delaware, Florida, Idaho, Illinois, Iowa, Kentucky, Massachusetts, Mississippi, Missouri, New York, Nevada, North Carolina, Ohio, Oregon, South Carolina, Tennessee and West Virginia, according to Conway’s announcement.
Falcone Sued by SEC Over Personal Loan, Market Manipulation
Philip Falcone, the founder of hedge fund Harbinger Capital Partners LLC, was sued by the U.S. Securities and Exchange Commission, a move that could end his plan to run a Berkshire Hathaway Inc.-style holding company if the regulator wins the case.
Falcone misappropriated client assets, favored selected investors and manipulated bond prices, the SEC said in its lawsuit.
The SEC is seeking disgorgement of ill-gotten gains, unspecified financial penalties and a bar prohibiting Falcone, 49, from serving as an officer or director of any public company, according to a statement by the agency.
Lew Phelps, a spokesman for New York-based Harbinger, said he had no immediate comment. Matthew Dontzin, an attorney for Falcone, said this week that Falcone would contest an SEC lawsuit involving the allegations.
The SEC action is the second blow in less than two months for Falcone, a former Harvard hockey center who built a $26 billion hedge fund by 2008 with a successful bet against subprime mortgages. Having suffered $23 billion in losses and withdrawals from the peak, Falcone is now fighting to keep control of his empire. LightSquared Inc., Harbinger Capital’s biggest investment, filed for bankruptcy in May.
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Bollore Loses Court Challenge Over 21 Million-Euro EU Fine
Bollore SA, an investment company controlled by French billionaire Vincent Bollore, lost a court challenge to a 21 million-euro ($26.2 million) European Union antitrust fine for fixing the prices on some paper products.
The EU’s General Court rejected the company’s arguments that the fine should be canceled or reduced because regulators didn’t respect Bollore’s defense rights in fining its former Copigraph unit, the Luxembourg-based tribunal said June 26.
Bollore will appeal the ruling to the EU’s highest court, the European Court of Justice, Michel Calzaroni, an external spokesman for the company in Paris, said in an e-mail.
France’s Bollore, Papierfabrik August Koehler AG and Distribuidora Vizcaina de Papeles, known as Divipa, were among 10 companies the European Commission fined a combined 314 million euros in 2001 for rigging prices in the 850 million-euro market for carbonless paper from 1992 to 1995.
The case is T-372/10 Bollore v Commission.
Hoenig Says Glass-Steagall Revival Necessary
Thomas Hoenig, a Federal Deposit Insurance Corporation board member, who retired as president of the Federal Reserve Bank of Kansas City before joining the FDIC in April, said a reinstatement of the Glass-Steagall Act will “prevent another catastrophe of Fannie Mae and Freddie Mac.”
Hoenig talked to Kathleen Hays and Vonnie Quinn on “The Hays Advantage” on Bloomberg Radio on June 26, 2012.
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Rehn Says EU Is Seeking to Break Link Between Banks, Governments
European Union Economic and Monetary Affairs Commissioner Olli Rehn said officials in the EU are seeking to break a “negative spiral” caused by links between distressed euro-area governments and banks.
Rehn made the remarks at a conference yesterday in Brussels.
He spoke after finance ministers held a conference call on Spain and Cyprus, the fourth and fifth euro nations to seek emergency aid following 386 billion euros ($481 billion) in rescue pledges to Greece, Ireland and Portugal. EU leaders meet today, their 19th gathering to tackle the debt crisis.
Rehn said European policy makers must examine short-term actions including steps to ease the connection between governments and banks.
“We need to be ready to consider more immediate measures to stabilize financial markets, especially government bond markets,” he said. “The weakening of the negative links between the sovereigns and the banks is a key issue in this respect because, for the moment, we are in a situation where we have a negative spiral between banking problems and the sovereign-debt crisis.”
Rehn said debt sharing, an idea supported by distressed euro governments and opposed by German Chancellor Angela Merkel, may take years because it would require deeper economic integration.
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Comings and Goings
NRC Chief Failed to Collaborate, Didn’t Break Rules, Report Says
Nuclear Regulatory Commission Chairman Gregory Jaczko didn’t exceed his authority during the Japan nuclear crisis though he had frequently intimidated staff who disagreed with him, the agency’s watchdog said.
Senior executives and commissioners described to the watchdog instances where “bullying tactics” caused them to side with Jaczko over their own judgments, according to the agency’s inspector general in a report released yesterday.
Jaczko, 41, who announced his resignation May 21, has been criticized by lawmakers, colleagues and watchdog Hubert T. Bell for bullying employees and mistreating female staff. President Barack Obama nominated Allison Macfarlane, a geologist and expert on atomic waste, to replace him.
“I have felt confident all along that my actions have been consistent with my responsibilities and authorities as chairman, and certainly that there was no wrongdoing,” Jaczko said in an e-mailed statement yesterday. “The report raises nothing new of substance.”
The report found that Jaczko didn’t violate internal procedures when he asked the staff to retract a report about the Japanese accident, and that his November testimony to Congress was inconsistent with statements delivered to the inspector general by the NRC staff.
The Senate’s vote on Macfarlane, a geologist and professor at George Mason University, may come later this week.