Peregrine, Madoff, Comerica, Doral Financial: Compliance

The trustee liquidating Peregrine Financial Group Inc., who is seeking to return “specifically identifiable property” to customers, said only about 11 of 24,000 futures clients have such property eligible to be returned, according to a filing in bankruptcy court.

Peregrine’s founder, Russell R. Wasendorf Sr., 64, admitted stealing at least $100 million from the Cedar Falls, Iowa-based firm, according to an FBI affidavit accompanying a criminal complaint unsealed upon his July 13 arrest. The National Futures Association reported July 9 that Peregrine appeared to be missing at least $200 million in client funds. Wasendorf attempted suicide outside the firm’s headquarters that day.

Wasendorf established the firm as Wasendorf & Son Inc. in 1980, renamed it Peregrine 10 years later and opened a Chicago office, according to its website. It filed for Chapter 7 bankruptcy protection in that city on July 10.

The trustee, Ira Bodenstein, said the assets he is seeking to return are defined as securities, warehouse receipts, cash and other assets that are registered in the name of that customer and are not transferable.

The 11 eligible customers are mostly holding warehouse receipts for precious metals, he said.

Customers of the futures brokerage who have a right to return of property won’t necessarily get 100 percent of their assets, as bankruptcy rules for liquidating the brokerage require him to distribute property pro rata to each class of customer accounts, Bodenstein said.

Customers with returnable metals warehouse receipts may have to post a deposit in order to receive the receipts, he said. Notice requirements letting eligible customers know they must request return of property will be sent in writing to those customers, he said.

The bankruptcy case is In re Peregrine Financial Group Inc., 12-27488, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).

Compliance Action

Ex-JPMorgan Banker Wright Pleads Guilty in Muni Bond Probe

Former JPMorgan Chase & Co. banker Alexander Wright pleaded guilty to conspiring with a former UBS AG broker in 2002 to rig bids on a bond deal involving a New Jersey hospital.

Wright, 45, pleaded guilty to a single count of conspiring to commit wire fraud in a hearing before U.S. Magistrate Judge Frank Maas in federal court in Manhattan yesterday. Rebecca Meiklejohn, a lawyer with the Justice Department’s Antitrust Division, told Maas that Wright will testify in the criminal trial of three former UBS bankers, including Gary Heinz, whom Wright identified as his partner in the conspiracy.

Wright told Maas that in June 2002 he and Heinz agreed to fix the bidding for a transaction involving a New Jersey hospital, which he didn’t name. Wright submitted a low bid, then raised the bid to a price suggested by Heinz, so he would win on behalf of JPMorgan.

“I knew at the time that my actions were wrong and against the law,” Wright told Maas.

Wright will pay $29,600 in victim restitution under the terms of his plea agreement with prosecutors. He faces as long as five years in prison when he’s sentenced.

Peter Ghavami, former co-head of UBS’s municipal derivatives group, Heinz and Michael Welty are scheduled to be tried July 30 on bid-rigging charges.

Wright was released on $100,000 bond.

Sinaloa Gold Must Pay Over 1 Million Pounds to U.K. Regulator

Sinaloa Gold Plc was ordered to pay more than 1 million pounds ($1.56 million) to the U.K. financial regulator after a London judge said it sold millions of worthless shares through a so-called boiler room.

Sinaloa Gold, a Utah-based miner, sold 1 penny shares to investors at prices between 70 and 85 pence. More than 1 million pounds was invested in the company by U.K. businesses, the Financial Services Authority said in court documents.

“Sinaloa was a sham operation that was being operated in breach of a number of regulations,” Judge John Jarvis said in court yesterday.

Boiler rooms are operations without regulatory approval that promote and sell stock through cold calls, mail and the Internet. The shares that are sold aren’t necessarily listed on a recognized stock exchange, so investors have difficulty selling the shares.

A phone number for Sinaloa Gold in London was disconnected and the company’s website was no longer in operation. The FSA said it will distribute any money recovered to investors.

The company, which searched for gold in Mexico, was founded in Layton, Utah, incorporated in London in May 2010 and later listed in Frankfurt, according to its website in January 2011.

Sinaloa’s assets were frozen in 2011 by a U.K. judge.

What investors bought “was just paper,” James Purchas, a lawyer for the FSA, said at a hearing yesterday. “The entire scheme is fraudulent, and it has been designed in order to persuade individuals to pay far more for the Sinaloa shares than what those shares are in fact worth.”

Sinaloa wasn’t represented in court following a December hearing when it was banned from defending itself when it failed to comply with a court order.

Glenn Hoover, a director of Sinaloa, earned 188,486 pounds from selling the shares, the FSA said in court documents. Jarvis ordered Sinaloa and Hoover to repay the full amount lost by investors to the FSA.

The case is The Financial Services Authority v. Sinaloa Gold Plc and Glen Lawrence Hoover, High Court of Justice, Chancery Division, HC10C04532.

SEC Says Mizuho Securities to Pay $127.5 Million in Settlement

The Securities and Exchange Commission said the U.S. investment banking subsidiary of Japan-based Mizuho Financial Group agreed to pay $127.5 million to settle claims that it misled investors by obtaining false crediting ratings for collateralized debt obligation.

The SEC claims that Mizuho Securities USA Inc. and three former employees misled investors in a collateralized debt obligation by using “dummy assets” to inflate the deal’s credit ratings. The three ex-workers also agreed to settle the SEC’s actions against them, the agency said.

Deutsche Bank and HSBC Traders Probed for Rate Collusion

Traders at Deutsche Bank AG, HSBC Holdings Plc, Societe Generale SA and Credit Agricole SA are under investigation for interest-rate manipulation in a global probe that led to a record fine for Barclays Plc last month, a person with knowledge of the matter said.

Investigators are focusing on their links to Philippe Moryoussef, an ex-trader at Barclays, which was fined $451 million for rigging the euro and London interbank offered rates, the person said.

Barclays employees tried to manipulate Euribor and Libor for profit, while managers instructed rate-setters to make artificially low submissions to avoid the perception the lender was under stress amid turmoil in credit markets in 2007 and 2008. At least a dozen banks are being probed by regulators worldwide for rigging the rate, and regulators from Stockholm to Seoul are re-examining how benchmark rates are set amid concern they are just as vulnerable to manipulation as Libor.

At least 34 traders have been caught up in the scandal, either being fired or suspended by their employers or put under investigation by U.K. or U.S. authorities. That includes employees from Lloyds Banking Group Plc, Mitsubishi UFJ Financial Group Inc., Royal Bank of Scotland Group Plc, UBS AG, Citigroup Inc., Barclays and JPMorgan Chase & Co.

The Libor scandal has also ensnared officials from the Bank of England, who have been accused of encouraging banks to communicate about their rates. Three top Barclays executives -- Chairman Marcus Agius, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier -- have resigned following pressure from regulators and Parliament.

Stibor, Sweden’s main interbank rate, and Tibor in Japan are among rates facing renewed scrutiny because, like Libor, they are based on banks’ estimated borrowing costs rather than real trades. The Japanese Bankers Association yesterday asked the 16 banks that contribute to the rate answer questions on how they make their submissions.

Compliance Policy

EU Lawmakers Target Libor Fixing With Market-Abuse Amendments

Manipulating interbank lending rates like Libor may be made a criminal offense across the European Union under draft proposals published by EU lawmakers.

The European Parliament proposed that anyone who gave “false or misleading information on the value of interest rates, currencies or indexes” would be punished for market manipulation, according to a document published on its website.

Members of the parliament’s economic and monetary affairs committee intend to add the measure to a draft law against market abuse published last year by European Union Financial Services Commissioner Michel Barnier. The move would ensure regulators can seek jail sentences and other criminal sanctions for people found guilty of rigging interbank lending rates.

Barclays Plc, the U.K.’s second-largest bank by assets, was fined 290 million pounds ($452 million) on June 27 for rigging the London interbank offered rate, a global benchmark, for profit. Chairman Marcus Agius, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier subsequently resigned.

The record fine provoked renewed calls for tougher oversight of the financial system and pushed regulatory probes into interbank lending rates to the top of the political agenda.

Barnier backs the plans to amend his proposals in light of the scandal, he said July 8. Draft laws proposed by the commission must be approved by the parliament and by national governments before they can take effect.

In the Courts

Madoff Trustee, California’s Harris to Hold Talks on Suit

California Attorney General Kamala Harris and the liquidator of Bernard Madoff’s defunct firm will hold talks seeking to end a deadlock over Harris’s $270 million lawsuit against an alleged beneficiary of the Ponzi scheme.

The two sides will use mediation to pursue a settlement, U.S. Bankruptcy Judge Burton Lifland said yesterday at a hearing in Manhattan. Madoff trustee Irving Picard had asked Lifland to stop Harris’s suit against Stanley Chais’s estate, saying only the trustee can collect money for Madoff’s Ponzi victims. Harris contends her suit can proceed because she’s using her state policing power to protect consumers from fraud.

The combatants portray their fight in court filings as a clash between federal bankruptcy law, which describes a trustee’s powers in fraud cases, and state law, governing a state’s top law enforcer. Picard didn’t publicly protest in June when, in New York, Attorney General Eric Schneiderman struck a $410 million settlement with Madoff feeder fund operator Ezra Merkin.

Picard declined to explain why he sued Harris and not Schneiderman. “We don’t talk publicly about our strategy,” he said in an interview.

Shum Preston, a spokesman for Harris, said he couldn’t immediately comment.

The Harris case is Picard v. Hall, 12-01001, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The brokerage liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Comerica Customers May Sue Bank as Class for Overdraft Fees

Comerica Inc. customers may sue the bank as a class over claims that banks wrongly charged overdraft fees, a federal judge ruled.

More than 30 banks have been sued by customers claiming the banks reordered their overdrafts to maximize the fees they paid. Comerica is the seventh bank to lose a bid to force the customers to pursue their claims individually.

“Surely you’re not saying the bank would welcome 50,000 cases in small claims court,” U.S. District Judge James Lawrence King told the attorney for Dallas-based Comerica yesterday in Miami federal court. “This is a question of whether there’s a suit or none at all.”

The judge added that “there wouldn’t be lawyers to take the cases and it would just go away.”

Several banks have already agreed to settle the claims, with Bank of America Corp. agreeing to pay $410 million, the highest settlement. The cases have been consolidated in Miami for pretrial proceedings.

Comerica spokesman Wayne J. Mielke said the bank anticipated the ruling and will continue fighting the lawsuit.

The case is In re Checking Account Overdraft Litigation, 09-md-02036, U.S. District Court, Southern District of Florida (Miami).

Doral Financial’s Levis Wins Reversal of One Criminal Count

Mario “Sammy” Levis, a member of the family that founded Puerto Rican bank-holding company Doral Financial Corp., won reversal of one of three criminal convictions.

Levis, formerly Doral’s treasurer, was convicted in 2010 of two counts of wire fraud and one count of securities fraud for lying to investors about the value of mortgage-related securities held by the company. He was sentenced to five years in prison.

A federal appeals court in New York yesterday threw out one of the wire fraud charges, ruling that the trial judge should have let Levis argue that Doral used a hedging strategy that he reasonably believed limited Doral’s financial risks.

Prosecutors claimed Levis manipulated the value of mortgage-related assets to inflate the price of Doral stock. In March 2005, the Levis family owned 8.2 percent of the company’s shares, prosecutors said.

Doral, based in San Juan, Puerto Rico, said in September 2005 that it would restate its finances to the end of 2004 and cut shareholder equity by $720 million because of overvalued assets. The company eventually paid $129 million to settle an investor lawsuit and a $25 million fine to the U.S. Securities and Exchange Commission.

The case is U.S. v. Levis, 10-CR-4819, Second U.S. Circuit Court of Appeals (Manhattan).

Interviews and Speeches

FDIC’s Norton Says U.S. Regulators Miscalibrated Rules for Banks

Jeremiah O. Norton, a U.S. Federal Deposit Insurance Corp. director, said the government may have saddled the financial industry with overly burdensome regulations that don’t work well with each other.

“I’m not sure that we calibrated that right as a government,” Norton said in remarks at his first public event since starting the job in April. “It worries me that we’re not seeing the whole picture as a government.”

Banks are experiencing a “profitability challenge,” squeezed by “regulatory headwinds” from the 2010 Dodd-Frank Act and Federal Reserve indications that interest rates will stay low, Norton said yesterday at a meeting of the Exchequer Club in Washington.

Norton is a former JPMorgan Chase & Co. banker and deputy assistant Treasury secretary who was sworn in as one of two Republicans on the five-member FDIC. The other Republican is Thomas Hoenig, who is awaiting confirmation as the board’s vice chairman and has drawn attention for pushing a return to Glass-Steagall Act separations of banking functions. Norton declined to comment on Hoenig’s proposals.

The bank regulator said that working out the international cooperation for his agency’s Dodd-Frank authority to dismantle systemically significant firms is a “vital, critical element.” He also said that so-called living wills required from the big banks “could become a very expensive exercise” if they don’t prove useful in helping regulators dismantle large banks in case of bankruptcy.

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