Libor Criminal Probe, CFTC Exemptions, Canada: Compliance

The U.K. Serious Fraud Office opened a criminal probe into the attempted rigging of interest rates that led to a record fine against Barclays Plc, adding to pressure on banks already under investigation by regulators around the globe.

SFO Director David Green said he had decided to “accept the Libor matter for investigation” in an e-mailed statement July 6.

Politicians including Chancellor of the Exchequer George Osborne and Opposition Labour leader Ed Miliband called for a criminal probe after Britain’s second-biggest bank was fined $451 million two weeks ago in the U.K. and U.S. for submitting false Libor rates. Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier resigned over the scandal.

Barclays spokesman Giles Croot didn’t immediately respond to a voice-mail seeking comment.

The SFO joins the U.S. Department of Justice in criminally investigating how derivatives traders and rate submitters colluded to rig interbank offered rates. The U.K. Financial Services Authority is seeking civil penalties against banks and has said its criminal powers don’t include Libor rigging.

As part of the U.S. and U.K. settlements, Barclays admitted rigging the London interbank offered rate, or Libor, as well as Euribor, its equivalent in euros, as early as 2005. In testimony to Parliament last week, Diamond apologized and said 14 Barclays traders were involved.

Citigroup Inc., Royal Bank of Scotland Group Plc, UBS AG, ICAP Plc, Lloyds Banking Group Plc and Deutsche Bank AG are among the firms regulators are investigating. About 18 banks are surveyed as part of the process of determining Libor rates.

Osborne told lawmakers last week that the FSA was in touch with the SFO about a criminal investigation. FSA Chairman Adair Turner said this week that its probes will result in more settlements “before the end of the year.”

For more, click here.

Separately, Royal Bank of Canada, the country’s largest lender by assets, said it didn’t collude with other banks in setting the London interbank offered rate, distancing itself from probes on whether banks rigged benchmark rates.

Katherine Gay, a spokeswoman for the Toronto-based bank, made the remarks July 6 in an e-mailed statement.

Compliance Policy

CFTC Said to Exempt Banks Under $10 Billion From Clearing

The U.S. Commodity Futures Trading Commission is poised to exempt banks with assets of less than $10 billion from Dodd-Frank Act requirements to guarantee swap trades at clearinghouses, two people briefed on the matter said.

The CFTC is scheduled to consider a final rule tomorrow allowing those banks and other companies an exception from the 2010 law’s clearing mandate designed to limit risk in trades, the people said on condition of anonymity because the plan hasn’t been made public. The agency’s five commissioners are also scheduled to propose an exemption for farm credit banks and other cooperatives, the people said. The rules could change before the vote.

Banks with as much as $50 billion in assets have urged the CFTC to exempt them from the clearing requirement, saying that their trades don’t pose the financial-system risk the law meant to reduce.

Steven Adamske, spokesman for the CFTC, declined to comment on the exceptions July 5.

Lenders including Los Angeles-based City National Bank, San Antonio-based Frost National Bank and Susquehanna Bancshares Inc. of Lititz, Pennsylvania, have told regulators they should be considered swaps end-users, which rely on the products to hedge or mitigate their commercial risks.

JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Morgan Stanley controlled 96 percent of cash and derivatives trading for U.S. bank holding companies as of March 31, according to the Office of the Comptroller of the Currency.

Dodd-Frank calls for most derivatives trades to be moved into clearinghouses.

The CFTC is also scheduled to hold a final vote tomorrow on a joint rule determining which derivatives are considered swaps and are subject to new Dodd-Frank rules.

Canada Tightens Oversight of Consumer Complaints Against Banks

Canadian Finance Minister Jim Flaherty said the government will give regulators more power to monitor complaints by consumers against banks.

The government will enact regulations requiring banks to belong to federally approved external complaints bodies, and giving the Financial Consumer Agency of Canada the authority to monitor and enforce compliance, the Department of Finance said in a statement on its website.

The rules will set requirements for the complaints bodies in terms of independence, timeliness and transparency, according to the statement. The regulations will be published July 13 for a 30-day comment period.

Compliance Action

Euribor Board to Hold Conference After Interbank Fraud Reports

The board of Euribor will hold a conference call today in response to the recent revelations concerning fraudulent reporting of inter-bank lending rates, a spokeswoman for Euribor-EBF said in a telephone interview.

The board is made up of the national banking associations of euro area countries.

Euribor-EBF is an association in charge of the development and management of Euribor, the Euro Interbank Offered Rate, which is the money market reference rate for the euro.

For more on inter-bank lending, see top section, above.

Gafisa Responds to U.S. SEC Subpoena for Financial Records

Gafisa SA, the Brazilian homebuilder that said it breached bond covenants in April, sent the U.S. Securities and Exchange Commission documents after receiving a subpoena from the regulator.

Gafisa filed its 2010 and 2011 annual reports with the U.S., and posted the documents on its website, the company said July 6 in a Brazilian regulatory filing. Regulators from the SEC’s division of enforcement asked the Sao Paulo-based homebuilder on June 14 to deliver all documents it used to prepare its financial statements as far back as Jan. 1, 2010, according to a U.S. regulatory filing made earlier in the day on July 6.

Gafisa has complied with the SEC’s requirements, according to an e-mailed statement from a communications firm representing the company. The company said in the filing that the subpoena “does not specify any charges” or make clear what action, if any, the SEC intends to take’’ with the information it gathers.

The homebuilder failed to satisfy some of the clauses of its 2018 real-denominated floating-rate bond, according to an April 10 filing.

Suzlon Plans Turbine-Parts Plant in Brazil as Wind Loans Blocked

Suzlon Energy Ltd., India’s biggest wind-turbine maker, agreed to build a components factory in Brazil as the country’s state development bank suspended loans to developers buying the machines from foreign companies.

Suzlon “has decided to have local manufacturing facilities based on the requirements,” the Pune-based producer said in its annual report. The company will do the same in South Africa for similar reasons, it said.

State bank BNDES, Brazil’s main lender to wind farms, this month halted loans to developers seeking to buy turbines from overseas companies, including Suzlon, while it verifies whether the manufacturers are getting 40 percent of their components in Brazil, as required.

Suzlon, negotiating orders with potential clients in the country, is diversifying sales as demand is forecast to slow in China and the U.S., the two largest wind markets. Brazil was the fastest-growing major wind market in 2011, boosting installed capacity by 63 percent, Global Wind Energy Council data show.

BNDES is deciding whether to make the ban official. Brazil plans to raise the local content requirement to 60 percent eventually. Suzlon has been buying blades in the country from local manufacturer Aeris Energy, and hasn’t built its own plant yet, it said July 6 in an e-mailed response to queries.

German Regulator Checks Bank Controls Amid Libor Spat, FTD Says

Germany’s financial watchdog Bafin is investigating whether the country’s banks have controls in place that would prevent manipulation of the kind that affected Libor, Financial Times Deutschland reported, citing Benjamin Fischer, a spokesman for Bafin.

Bafin, which doesn’t have the legal mandate to start a criminal investigation, is working closely with the relevant authorities, Fischer told FTD.

Lawsuits and Settlements

AIG Sues U.S. Over Alleged $30.2 Million Tax Overpayment

American International Group Inc., which was taken over by the federal government in 2008, sued the U.S. seeking $30.2 million for an alleged overpayment of taxes for 1991.

The lawsuit, filed July 5 in the U.S. Court of Federal Claims in Washington, said that the insurance company is attempting to resolve underpayments and overpayments of taxes through 1999. The refund request has been pending before the Internal Revenue Service since 2007, according to the complaint.

“AIG is bringing this action to protect itself against the running of the six-year statute of limitations on suing for additional overpayment interest before final resolution of its tax liabilities for 1997, 1998 and 1999,” Charles Ruchelman, a lawyer for AIG, wrote in the complaint.

The U.S. has a 61 percent stake in AIG, down from more than 90 percent, after a 2008 rescue that swelled to $182.3 billion.

The case is American International Group Inc. v. U.S., 12-00437, U.S. Court of Federal Claims (Washington).

TD Ameritrade Reaches Agreement in State Antitrust Probe

TD Ameritrade Holding Corp. will cooperate in a multistate investigation into potential violations of antitrust law in the retail brokerage industry.

The company also agreed to implement an antitrust compliance policy and training for employees, Connecticut Attorney General George Jepsen said in a statement on July 6.

The investigation focuses on possibly collusive conduct by several retail securities brokers and firms that help them execute orders, Jepsen said. Scottrade Inc. reached a similar agreement in March.

Kim Hillyer, a spokeswoman for Omaha-based TD Ameritrade, confirmed the agreement and said the investigation resulted in no findings of wrongdoing by the company. TD Ameritrade reached the accord with Connecticut, Missouri and Iowa, according to a letter posted on the attorney general’s website.


Author Patterson Says ‘Exchanges Becoming More Toxic’

Author Scott Patterson discussed his book, “Dark Pools: High Speed Traders, A.I. Bandits, and the Threat to the Global Financial System.” Patterson talked with Bloomberg’s Pimm Fox and Courtney Donohoe on Bloomberg Radio’s “Taking Stock” about the current state of high speed trading and dark pools.

For the audio, click here.

Barnier to Widen EU Market-Abuse Rules to Include Libor

European Union Financial Services Commissioner Michel Barnier said he plans to widen EU rules on market abuse to outlaw the manipulation of the London interbank offered rate.

“I’ll propose to widen the field of application to effectively cover the manipulation of indexes, which includes Libor,” Barnier said yesterday in an interview in Aix-en-Provence, France.

Barclays Plc, the U.K.’s second-largest bank by assets, was fined 290 million pounds ($449.3 million) on June 27 for rigging Libor, a global benchmark, for profit. Chairman Marcus Agius, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier subsequently resigned.

“Anyone thinking of manipulating markets needs to know they’ll face sanctions, including possibly criminal ones,” Barnier said.

Arlene McCarthy, the lawmaker leading work in the EU parliament on the draft law on market abuse, said last week she and Barnier discussed how the bloc’s rules should be extended to ensure that manipulation of interbank lending rates is treated as a criminal offense.

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