Peregrine, CFTC, Boeing, Libor, Offshore: Compliance

Peregrine Financial Group Inc. Chief Executive Officer Russell Wasendorf Sr. said in a signed statement linked to his suicide attempt that he committed fraud for two decades at his Cedar Falls, Iowa-based company, according to a federal complaint.

U.S. prosecutors on Friday charged Wasendorf, 64, with making false statements to federal regulators.

In the signed statement -- a copy of which Wasendorf also left for his son at the company office before trying to kill himself -- Wasendorf said he had embezzled millions of dollars from customer accounts through a scheme of using false bank statements. He verified that he wrote the statement, according to the complaint.

Peregrine filed for bankruptcy on July 10, one day after the National Futures Association said it identified a shortfall of about $200 million in customer funds on deposit. Wasendorf told the Federal Bureau of Investigation that the estimated amount of loss from his fraud exceeded $100 million.

Its bankruptcy petition lists more than $500 million in assets and more than $100 million in liabilities. The broker estimates it has more than 10,000 creditors, according to the filing.

The criminal case is U.S. v. Wasendorf, 12mj131, U.S. District Court for the Northern District of Iowa (Cedar Rapids). The bankruptcy case is Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago). The regulatory case is U.S. Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).

Compliance Action

Boeing Fined $13.6 Million by U.S. for Tank Guidance Delays

The U.S. Federal Aviation Administration proposed to fine Boeing Co. $13.6 million, its second-largest penalty ever, for delays in telling airlines how to prevent fuel-tank explosions on 383 aircraft.

Boeing was given a Dec. 27, 2010, deadline to submit instructions on how to add explosion-prevention devices in its U.S.-registered 747 jumbo jets and 757 single-aisle planes, according an e-mailed statement Friday by the Federal Aviation Administration. The Chicago-based company missed the deadline for 747s by 301 days, and was 406 days late for 757s, according to the FAA release.

“We are committed to ensuring the safety of the flying public,” U.S. Transportation Secretary Ray LaHood said in the statement. “Manufacturers must provide the necessary instructions so the airlines can comply with this important safety regulation.”

The fine is the largest proposed by the FAA since it sought $24.2 million from AMR Corp.’s American Airlines in 2010 for maintenance lapses that grounded its fleet of Boeing MD-80s in 2008. Firms typically negotiate lower payments with the FAA.

The agency’s action stems from a regulation that requires airlines to install devices that blanket center fuel tanks with non-flammable nitrogen gas. The rule resulted from the explosion in a Trans World Airlines 747 off New York on July 17, 1996, that killed all 230 aboard.

Airbus SAS, Boeing’s main competitor for civilian aircraft, met the deadline, according to the statement.

The fuel-tank rule requires that airlines install the devices on half their fleets by 2014 and complete the effort by 2017.

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HSBC Senior Executives to Face U.S. Senate Panel on July 17

HSBC Holdings Plc’s North American head Irene Dorner and global legal chief Stuart Levey will face Senate investigators’ questions about the firm’s failure to protect against money laundering, according to a list of witnesses released Friday.

The Senate’s Permanent Subcommittee on Investigations will question Dorner, president and chief executive of HSBC North America Holdings Inc., and Levey, a former U.S. Treasury undersecretary hired by the London-based bank in January, at a July 17 hearing, according to the subcommittee’s list.

The panel, working from its own report of about 400 pages, will probe the bank’s dealings with embassy accounts, transactions with Iranian firms and risks of money laundering in its Mexican operations, according to a person briefed on the matter, who spoke on condition of anonymity because the report hasn’t been released.

During the hearing, senators will question a total of six current and former HSBC executives and five current and former government officials. The list includes U.S. Comptroller of the Currency Thomas Curry, Treasury Undersecretary for Terrorism and Financial Intelligence David S. Cohen and Leigh Winchell, an assistant director in the Homeland Security Investigations unit

HSBC’s North American units reached agreements in 2010 with the OCC and the Federal Reserve to fix “critical deficiencies” in its compliance programs for protecting against money laundering and terrorist financing.

U.S. Justice, Regulators Must Widen Libor Probe, 12 Senators Say

The U.S. Justice Department and a council of financial regulators should widen their investigation into possible manipulation of the London interbank offered rate, 12 Senate Democrats said July 12 following a $448 million settlement with Barclays Plc.

“This scandal calls into further question the integrity of many Wall Street banks and whether our prosecutors and regulators are up to the task of regulating them,” the senators said in letters to Eric Holder, U.S. attorney general, and members of the Financial Stability Oversight Council, which is led by Treasury Secretary Timothy F. Geithner and includes Federal Reserve Chairman Ben S. Bernanke. “Much more needs to be done.”

The letter was signed by Senators Carl Levin of Michigan, Jack Reed of Rhode Island, Dianne Feinstein of California, Tom Harkin of Iowa, Sherrod Brown of Ohio, Jeff Merkley of Oregon, Robert Menendez of New Jersey, Patrick Leahy of Vermont, Sheldon Whitehouse of Rhode Island, Frank Lautenberg of New Jersey, Daniel Akaka of Hawaii and Jeanne Shaheen of New Hampshire.

Barclays, the second-biggest U.K. bank, agreed last month to pay 290 million pounds ($448 million) in regulatory fines for rigging Libor, which spurred resignations of the chairman, the chief executive officer and its chief operating officer. The fines raised speculation about penalties that may be imposed on other banks involved and the cost of lawsuits that follow.

Axius CEO Kaufmann Pleads Not Guilty to Stock-Fraud Charges

Axius Inc. Chief Executive Officer Roland Kaufmann pleaded not guilty in federal court in Brooklyn, New York, to charges that he participated in a scheme to manipulate the share price of his Dubai-based company.

Jean-Pierre Neuhaus, a financial professional also charged in the alleged scheme, pleaded not guilty along with Kaufmann at a hearing on Friday before U.S. District Judge John Gleeson. The two men, who are Swiss citizens, are charged with conspiracy to commit securities fraud, wire fraud, money laundering and other crimes.

The men are accused of trying to artificially inflate the value of Axius stock by enlisting a person they believed would direct corrupt stock brokers to buy shares in exchange for kickbacks of as much as 28 percent. That individual was an undercover enforcement agent, the government said.

“I’m very confident in this judge and we’ll see how this is going to play out,” said Johanna S. Zapp, a lawyer for Neuhaus, after the hearing. A lawyer for Kaufmann, Eric J. Snyder, declined to comment.

The case is U.S. v. Neuhaus, 12-cr-00439, U.S. District Court, Eastern District of New York (Brooklyn).

Compliance Policy

MF Global, Peregrine Spur CFTC Call for Electronic Bank Access

U.S. regulators, seeking to bolster protection of futures customer funds after shortfalls at MF Global Holdings Ltd. and Peregrine Financial Group Inc., are seeking electronic access to banks’ accounts to monitor records.

“We need to ensure regulators have direct daily access to bank accounts and custodial accounts of the futures commission merchants,” Commodity Futures Trading Commission Chairman Gary Gensler said Friday in a telephone interview. “In addition, I think we need direct access to acknowledgment letters and confirmations, and that all of this should be 24 hours a day, 7 days. That means electronic access.”

The CFTC and the National Futures Association, an industry-funded self-regulator, are facing new scrutiny from lawmakers and market participants amid allegations of a $200 million shortfall in customer funds at Peregrine. The agency sued the brokerage over the alleged shortfall less than a year after being scolded for poor oversight following the collapse of MF Global, which left an estimated $1.6 billion fund gap.

The drive for electronic access to monitor customer funds has gained bipartisan support on the five-member CFTC. Scott O’Malia, a Republican commissioner, has called a July 26 meeting of the agency’s technology advisory committee to consider an industry-funded solution for electronic oversight.

Bart Chilton, a Democratic commissioner, said the agency needs “robust data dives” to protect customer funds.

“We shouldn’t take the word of a firm, but rely upon electronic banking with secure communications,” Chilton said in an e-mail.

The CFTC on Friday approved changes proposed by the NFA to require additional reporting by brokers about customer funds. The rules will bar futures brokers from using an alternative method for calculating how much margin to keep in accounts used for trading on foreign exchanges. In the U.S., brokers must keep funds sufficient to handle liquidation of an account.

IRS Ends Deals That Let U.S. Companies Skip Repatriation Tax

The U.S. Internal Revenue Service will prevent companies from entering into transactions that allow them to tap their offshore cash stockpiles without paying taxes, the government said.

“The IRS and the Treasury Department believe that these transactions raise significant policy concerns,” the agencies said in a notice Friday. The rules, once written, will be made effective as of July 13.

Companies owe U.S. taxes on income they earn around the world after receiving credits for foreign taxes paid. Under U.S. tax law, they must pay those taxes only when they repatriate the income.

That system has led companies including Google Inc., Microsoft Corp. and Pfizer Inc. to keep foreign profits outside the U.S. Data compiled by Bloomberg in March showed that 70 companies have $1.2 trillion in untaxed profits around the world, up 18.4 percent from a year earlier.

Those companies and others lobbied Congress unsuccessfully in 2011 for a temporary tax holiday on repatriated profits. Republicans including presidential candidate Mitt Romney favor changing the tax system permanently to allow companies to bring most overseas profits into this country without facing the residual U.S. tax.

The IRS notice describes two types of transactions it is trying to prevent and says the agency is “aware” that taxpayers are engaging in them. One involves selling a patent from a U.S. company to a foreign subsidiary without triggering an immediate U.S. tax.

In the other type of transaction, a company uses its offshore money to purchase a U.S. company and quickly reorganizes to move the purchased company outside the U.S.

In the Courts

Visa, MasterCard Settle Swipe-Fee Antitrust Suit With Merchants

Visa Inc., MasterCard Inc. and some of the biggest U.S. banks agreed to a settlement of at least $6.05 billion in a price-fixing case brought by retailers over credit-card swipe fees.

The total value of the settlement is $7.25 billion to a class of about 7 million merchants in the U.S. that accept Visa and MasterCard credit cards and debit cards, a law firm for the merchants, Robins Kaplan Miller & Ciresi LLP, said in a statement.

Visa, the world’s biggest payments network, said its share of the settlement filed July 13 in federal court in Brooklyn, New York, was about $4.4 billion. Visa said the proposed settlement payments, including costs incurred by MasterCard Inc. and card-issuing banks, would be about $6.6 billion. That amount would include about $525 million for individual claims.

“We believe settling this case is in the best interests of all parties,” Visa Chief Executive Officer Joseph W. Saunders said in a statement.

Noah Hanft, MasterCard’s general counsel, said in a statement that, “Our decision to settle is based on our belief that MasterCard and our stakeholders are best served by an amicable resolution.”

The agreement, which provides for a temporary reduction in rates for merchants and allows them to impose surcharges on customer purchases, follows a seven-year legal battle with U.S. retailers that accused the two largest payment networks of conspiring with banks to fix swipe fees, or interchange.

“It’s been an extraordinarily intense and difficult settlement to reach,” K. Craig Wildfang, a lead lawyer for the plaintiffs, said in a phone interview.

The dispute began in 2005, a year before MasterCard’s initial public offering and three years ahead of San Francisco-based Visa’s. Merchants alleged the companies violated antitrust law by fixing the swipe fees, which average about 2 percent of the purchase price. Proceeds generate more than $40 billion a year for U.S. banks.

The case had been set for trial in September before U.S. District Judge John Gleeson in Brooklyn.

The settlement includes a $6.05 billion cash payment, according to a July 13 filing. That amount would be reduced if some plaintiffs don’t agree to participate.

The settlement also provides for a temporary rebate of about one-tenth of a percentage point on the fees charged retailers, according to the filing. The agreement includes modifications in Visa and MasterCard rules to allow merchants to tack surcharges on to bills based on the fees.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

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Mortgage Database MERS Reaches Settlement With Delaware

Merscorp Holdings Inc., which operates a mortgage registry, settled a lawsuit brought by the Delaware Attorney General Beau Biden that accused the company of engaging in deceptive practices.

Merscorp Holdings agreed to conduct regular audits of its records for accuracy and maintain a database that allows homeowners to learn who owns their mortgage, Biden said July 13 in a statement.

The MERS system, which tracks ownership interests in mortgages and servicing rights, has been targeted in lawsuits by the attorneys general of New York and Massachusetts. Biden contended in his lawsuit in Delaware Chancery Court in Wilmington that the company’s records were inaccurate and that it impeded the ability of homeowners to fight foreclosures and obtain loan modifications from lenders.

Banks created MERS to reduce costs and speed up the process of bundling mortgages into securities, according to Biden. The company built “an unregulated shadow mortgage registry” that allows mortgage records to be changed without any oversight, Biden said in court papers.

Merscorp Holdings’ shareholders include Bank of America Corp., Wells Fargo & Co. and mortgage-finance companies Fannie Mae and Freddie Mac, according to its website. Bank of America and Wells Fargo were among five banks that reached a $25 billion settlement with state and federal officials this year over foreclosure practices.

Biden said his settlement will increase the transparency and accuracy of mortgage records.

The settlement agreement requires Merscorp Holdings to maintain a database accessible online and by phone that allows homeowners to see who owns their mortgage and services the loan, according to Biden’s office. Records of the MERS system must be audited, with the results reported to Biden’s office, the attorney general said.

Merscorp Holdings already has implemented the measures in the settlement nationally except the reports to Biden’s office, Jason Lobo, a company spokesman, said in a phone interview. The Reston, Virginia-based company didn’t admit to wrongdoing.

“We are pleased to have come to an agreement with the state of Delaware that both serves the best interests of Delaware homeowners and protects the value Merscorp Holdings brings to its members,” Chief Executive Officer Bill Beckmann said in an e-mailed statement.

The case is Delaware v. Merscorp Inc., CA6987, Delaware Chancery Court (Wilmington).

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