Payday Lenders Seek U.S. Oversight to Avoid State Rules

The U.S. Securities and Exchange Commission may sue Miami over whether the city adequately disclosed financial information when it raised money from investors.

The SEC on Monday told Miami that its staff, after a more than two-year probe, plans to recommend that the agency’s commissioners bring civil fraud charges, the Florida city said in a disclosure to investors yesterday.

The SEC has been investigating the city since at least December 2009, when it sought information about the transfer of money for capital projects to the city’s general fund in 2007 and 2008. The transfers made the city’s finances appear stronger as it dealt with flagging property taxes and growing pension obligations.

The city said it plans to argue against a lawsuit.

“The city respectfully disagrees with the SEC staff’s position and intends to present information to the SEC’s commissioners demonstrating that such challenges are not warranted,” it said in the filing.

Compliance Action

Google Moves Toward Possible Antitrust-Case Settlement, EU Says

Google Inc. has reached a “good” understanding with European Union regulators working toward a possible settlement of an antitrust probe, an EU spokesman said.

“The commission considers Google’s proposals as a good basis for further talks and has reached a good level of understanding with Google,” Antoine Colombani, a spokesman for the European Commission, said in an e-mail from Brussels yesterday. “There will soon be discussions at technical level. We hope this process will lead to remedies addressing our concerns.”

EU Competition Commissioner Joaquin Almunia asked Google in May to make an offer to settle concerns that it promotes its own specialist search services, copies rivals’ travel and restaurant reviews, and that its agreements with websites and software developers stifle competition in the advertising industry.

Almunia told MLex in an interview earlier yesterday that regulators have been “exchanging views” during recent weeks of talks on a possible settlement of the EU’s investigation into allegations that the world’s largest search engine discriminates against rivals in search results.

Google, based in Mountain View, California, is under growing pressure from global regulators probing whether the company is thwarting competition in the market for Web searches. The U.S. Federal Trade Commission and antitrust agencies in Argentina and South Korea are also scrutinizing the company.

Al Verney, a spokesman for Google in Brussels, said the company continued to cooperate with regulators.

Regulators asked Google to extend an initial offer to modify its search engine to cover mobile applications for smartphones and tablet computers, two people familiar with the negotiations said last week.

Philips Gets Antitrust Immunity as EU Probes CD, DVD Drives

Royal Philips Electronics NV said it was granted immunity from fines after the European Union sent makers of CD and DVD drives formal antitrust complaints claiming they colluded globally to fix prices.

Philips won’t be punished by the European Commission on the condition it continues to cooperate with the investigation, according to an e-mailed statement from Joost Akkermans, a spokesman for the Amsterdam-based company.

Hitachi-LG Data Storage Inc. and Philips said they were among 13 companies sent statements of objections by the European Commission yesterday. The EU’s Brussels-based antitrust authority, said it charged the companies with colluding to rig bids for at least five years on optical disk drives sold to manufacturers of personal computers and servers. The EU didn’t identify the suppliers or the customers.

“The commission has concerns that those suppliers may have coordinated their behavior in bidding events organized by two major” manufacturers, the EU said in a statement. “This behavior, if established, may have ultimately affected customers that bought optical disk drives manufactured by the companies concerned.”

Hitachi-LG, a joint venture of Tokyo-based Hitachi Ltd. and Seoul-based LG Electronics Inc., received an EU complaint, according to an e-mailed statement from Hitachi. The company didn’t elaborate.

Hitachi-LG agreed last year to plead guilty and pay a $21.1 million fine after a U.S. antitrust investigation over collusion and price-fixing for optical drives to be sold to Dell Inc., Hewlett-Packard Co. and Microsoft Corp. In addition, Sony Corp. and Toshiba Corp. have said the U.S. Justice Department sought information from them over the drives.

Sony, Hitachi, Samsung Electronics Co., LG and Toshiba are being sued for compensation by purchasers in a U.S. lawsuit. A judge ruled in 2010 that the case could proceed while the U.S. government pursues its criminal probe. Toshiba Samsung Storage Technology Corp. and Hitachi-LG Data Storage Inc., both joint ventures, and Philips Lite-On Digital Solutions Corp. were also named in the court filings.

Beth Robins, a spokeswoman in LG’s U.K. press office and Sylvia Shin, a spokeswoman for Sony Europe, declined to immediately comment. Toshiba and Samsung didn’t immediately respond to an e-mail seeking comment.

Expert Networker John Kinnucan Said Ready to Enter Guilty Plea

Broadband Research LLC founder John Kinnucan, who was accused of insider-trading as part of a nationwide crackdown of illegal tipping at hedge funds and technology companies, will plead guilty today in New York federal court, a person familiar with the case said.

Kinnucan was indicted in February, accused of passing inside information to clients at two unidentified hedge funds about SanDisk Corp, F5 Networks Inc., OmniVision Technologies Inc. He was charged with two counts of conspiracy and two counts of securities fraud in a scheme to obtain nonpublic information about technology companies for his clients that operated from 2008 to 2010.

Prosecutors in the office of Manhattan U.S. Attorney Preet Bharara alleged that Kinnucan “befriended” employees of public technology companies, obtained nonpublic information from them and passed the information to his fund manager clients.

He paid his sources in a variety of ways, prosecutors said, “including paying for their meals at high-end restaurants and shipping them expensive food, providing them with confidential information about other technology companies and industry trends and providing them stock trading advice and tips.”

Ellen Davis, a spokeswoman for Bharara, declined to comment on a plea. Kinnucan’s lawyer, Jennifer Brown, didn’t immediately return calls seeking comment. Martin Feely, a supervisory special agent with the FBI’s New York office, didn’t immediately return a voice-mail message left at his office after business hours seeking comment on Kinnucan’s case.

For more, click here.

Ex-Carlyle Consultant Seeks Probation for Insider Trading

Former A.T. Kearney Inc. partner Sherif Mityas asked to be sentenced to only probation for trading on information he learned as a consultant to the Carlyle Group about the private equity firm’s 2010 purchase of vitamin maker NBTY Inc.

Mityas, who pleaded guilty in March to one count of securities fraud, filed a memorandum in Brooklyn, New York, federal court requesting that a judge impose a three-year term of probation. Federal guidelines point to a sentence of 10 to 16 months in prison, the filing said.

“Mr. Mityas’s history and characteristics along with the nature and circumstances of the offense paint a picture of a responsible, middle-aged family man whose mounting financial stressors led him to make this one foray into criminal conduct,” his attorney, Eric A. Chase, wrote in the memorandum.

Mityas realized a profit of $25,871 by trading on non-public information about the NBTY deal. He has agreed to forfeit that amount, the filing said.

The case is U.S. v. Mityas, 1:12-cr-00133, U.S. District Court for the Eastern District of New York (Brooklyn).

Compliance Policy

CFTC Proposes Clearing Determinations Under Dodd-Frank Act

The U.S. Commodity Futures Trading Commission proposed which interest-rate and credit-default swaps must be guaranteed by clearinghouses as soon as November to help reduce risk in the $648 trillion global market.

The proposal approved 5-0 by CFTC commissioners in a private vote, would require that four types of interest-rate swaps denominated in U.S. dollars, euros, British pounds and Japanese yen be settled at clearinghouses that stand between buyers and sellers, according to an agency statement released yesterday. The measure would govern swaps conducted by companies including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Cargill Inc. Credit swaps in two indexes would face clearing requirements under the proposal, the CFTC said.

“One of the primary benefits of swaps-market reform is that standard swaps between financial firms will move into central clearing, which will significantly lower the risks of the highly interconnected financial system,” CFTC Chairman Gary Gensler said in a statement.

The 2010 Dodd-Frank Act directed the CFTC and Securities and Exchange Commission to reduce risk in the market after largely unregulated swaps helped fuel the 2008 credit crisis that led to the collapse of Lehman Brothers Holdings Inc. and U.S. bailouts of companies including American International Group Inc. The agencies are striving to meet an end-of-year deadline set by Group of 20 member nations to bolster oversight.

The CFTC has 90 days to complete proposed determinations, which may lead the first swaps to face mandatory clearing in late October or early November. Clearinghouses operated by CME Group Inc., IntercontinentalExchange Inc. and LCH.Clearnet Group Ltd. guarantee swaps. The proposal will be open for 30 days of public comment.

The measure would require clearing of credit swaps tied to North American and European indexes. Clearing wouldn’t be required for tranches of credit indexes.

The CFTC may later decide to require clearing for energy, agricultural and equity indexes, the agency said.

In a separate 5-0 vote, CFTC commissioners approved a rule governing when banks and other firms must comply with clearing requirements. The rule requires swap dealers to be first among firms required under Dodd-Frank to clear swaps.

FDIC Issues Creditworthiness Rule for Savings Banks’ Investments

The U.S. Federal Deposit Insurance Corp. approved a final rule yesterday to put new risk limits on corporate bonds in which federal and state savings associations can invest.

A savings bank isn’t allowed to invest in a corporate bond when the issuer can’t show it’s able to meet financial commitments for the security’s projected life, according to the rule approved by FDIC directors in a written ballot. The new standard replaces the use of credit ratings, which were banned from federal regulations by the 2010 Dodd-Frank Act.

“The FDIC does not expect the final rule to change the scope of permissible corporate debt securities investments,” the agency said in guidance issued about the rule, which goes into effect Jan. 1. If a bond worked as an investment under the old system, “a bond with similar default probabilities will be permissible under this rule.”

On June 26, the Office of the Comptroller of the Currency approved a new standard for national banks that similarly jettisoned the use of credit ratings. Also by Jan. 1, OCC-regulated national banks will need to use a combination of internal analysis, third-party research and analytics that use external credit ratings in order to conclude a security is investment grade, the OCC said.

Overstated credit ratings contributed to the 2008 financial crisis, leading U.S. lawmakers to require regulators stop using them.

SEC Said Poised to Make Companies Report Business With Warlords

Companies would have to disclose whether they buy metals from central African warlords under a rule the U.S. Securities and Exchange Commission is poised to adopt next month, said a person with knowledge of the agency’s deliberations.

The so-called conflict minerals rule is opposed by the two Republicans on the five-member commission, according to the person, who spoke on condition of anonymity because the discussions leading up the Aug. 22 vote are private. The rule has sparked two years of debate since the 2010 Dodd-Frank Act mandated that the SEC impose the rule, with some business groups railing against the costs of tracking thousands of suppliers through every link of a chain that leads to their source mines.

Once the rule is in place, the agency estimates 6,000 publicly traded companies -- mostly manufacturers and retailers -- must report to the SEC where they get their tin, tantalum, tungsten or gold. The rule is meant to halt the flow of mining money to those committing atrocities in the Democratic Republic of Congo by pressuring manufacturers to protect their reputations -- not by issuing an outright ban on using the conflict metals.

The offices of Republican commissioners Troy Paredes and Daniel Gallagher, didn’t respond to messages seeking comment on the vote. John Nester, an SEC spokesman, declined to comment.

The metals are in virtually any device with an on-switch. Electronics firms such as Apple Inc. use most or all of the metals, and the rule would also affect jewelry makers such as Tiffany & Co., aerospace companies such as Boeing Co. and retailers including Wal-Mart Stores Inc. and American Apparel Inc. Since it was proposed by the SEC, the rule has drawn about 40,000 public comment letters.

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In the Courts

JPMorgan Agrees to Settle ‘Check Loan’ Contract Litigation

JPMorgan Chase & Co. agreed to pay $100 million to settle credit-card holder claims that the bank increased their required minimum payments after promising a fixed interest rate.

The accord resolves a class action, or group lawsuit, filed on behalf of 1 million cardholders pending in federal court in San Francisco. The $100 million settlement fund represents about one-half of the up-front transaction fees cardholders paid on their credit card loans, lawyers for customers said in a court filing Monday.

A trial in the case was scheduled to begin this month, according to the filing.

Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately respond to an e-mail seeking comment on the settlement.

The case is In Re: Chase Bank USA, N.A. “Check Loan” Contract Litigation, 09-2032, U.S. District Court, Northern District of California (San Francisco).

JPMorgan, Citigroup, Other Banks Can’t Move $2 Billion TMST Suit

Banks including JPMorgan Chase & Co. and Citigroup Inc., sued for $2 billion by Thornburg Mortgage Inc., lost a bid to move the case from bankruptcy court to district court.

The trustee for what is now TMST Inc. accused the banks last year of extracting more than $700 million of margin and interest payments from the former Thornburg by making “unjustified” margin calls. The banks, including Credit Suisse Group AG, Royal Bank of Scotland Plc and UBS AG, or their affiliates, said three of the 31 counts involved allegations of breach of contract and fraudulent conveyance, which a bankruptcy judge can’t rule on.

U.S. District Judge Benson Everett Legg told them in a written order on Monday that the bankruptcy judge can still uncover the facts and send his findings to a district judge, even if the banks are right in arguing that “that the bankruptcy court lacks final adjudicatory authority.”

The bankruptcy case is Thornburg Mortgage Inc., 09-17787, U.S. Bankruptcy Court, District of Maryland (Baltimore). The lawsuit in bankruptcy court is Joel Sher v. JP Morgan, 11-ap-00340, and the district court case is, 12-cv-00157.

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New Oriental Sued by Investors After SEC Investigation Disclosed

New Oriental Education & Technology Group Inc., China’s largest private-education provider, was sued by investors in its U.S. shares after the U.S. Securities and Exchange Commission began investigating the company.

The American depositary receipts fell 57 percent over two days after New Oriental said July 17 that the SEC was probing the consolidation of its units’ financial statements. The plunge capped nine consecutive trading days of declines, the ADRs’ longest losing streak since the Beijing-based company’s initial public offering in 2006.

Investors in the ADRs, led by Kin Shing Wong, are seeking compensatory damages for the stock losses and class, or group, status for the suit filed Monday in federal court in the Central District of California. The investors cited a July 18 research report alleging that New Oriental inflated cash balances to obtain approval from its auditor.

The report, by Muddy Waters LLC, also questioned whether New Oriental could consolidate its operations, because the Chinese schools conducting lessons are ultimately state-owned.

The case is Wong v. New Oriental Education & Technology Group Inc., 12-cv-06316, U.S. District Court, Central District of California.

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Ex-McKinsey Consultant Banki Won’t Serve More Prison Time

Mahmoud Reza Banki, the former McKinsey & Co. consultant whose conviction for violating a trade embargo with Iran was partly reversed, won’t serve any more time in prison.

Banki, who was confined for 22 months since his arrest in January 2010, was sentenced to no prison and no supervised release in a hearing yesterday before U.S. District Judge Paul Engelmayer in Manhattan. Engelmayer sentenced Banki on two counts of making false statements about money transfers he received from Iran. Banki was ordered to pay a $5,000 fine.

In an agreement reached with the U.S. last month, prosecutors agreed not to retry Banki on counts of violating the Iran trade embargo, operating an unlicensed money-transfer business and conspiracy to commit those crimes, which were reversed by the federal appeals court in New York.

Iran-born Banki, a naturalized U.S. citizen, was initially sentenced to 2 1/2 years in prison following a jury trial in New York. He was initially accused of running a “hawala,” or informal money transfer business, that moved money to and from Iran in violation of the U.S. embargo.

He received about $4.7 million from transfers and used the money to buy a $2.4 million condominium, invest in securities and pay bills, the government alleged.

As part of his deal with the government, he agreed to forfeit about $710,000.

The case is U.S. v. Banki, 10-cr-00008, U.S. District Court, Southern District of New York (Manhattan).

U.S. Says New York State Can’t Sue Over Fracking Regulations

The U.S. said a New York State lawsuit seeking fuller review of the effects of hydraulic fracturing on the state’s water supply should be dismissed because the multistate commission responsible for the watershed isn’t a U.S. agency.

The Delaware River Basin Commission, created in 1961 by New York and three other states and the federal government, is responsible for rules governing the natural gas-extraction process known as fracking. New York sued federal agencies in May 2011 to force a fuller assessment of the environmental impact that gas development could have its water supply.

Assistant U.S. Attorney Sandra Levy yesterday argued in federal court in Brooklyn, New York, that the Environmental Protection Agency and other federal parties sued by the state don’t have control over how the commission regulates fracking.

“The federal defendants didn’t cause the rules to be proposed and can’t stop them from being issued,” Levy said. She also told U.S. District Judge Nicholas G. Garaufis that the DRBC doesn’t have to comply with U.S. laws that require a fuller environmental review because it isn’t a federal agency.

New York, arguing that the DRBC is a federal agency, maintains that it does have a right to sue. The state seeks a ruling in its favor without a full trial.

The commission says it lacks funds for a full environmental review even if it was obliged to conduct one. The DRBC is a compact formed between Delaware, New Jersey, New York and Pennsylvania and tasked with protecting the water quality in the Delaware Basin.

The case is New York v. U.S. Army Corps of Engineers, 11-cv-2599, U.S. District Court, Eastern District of New York (Brooklyn).

For more, click here.

Moody’s Settles Lawsuits Over Structured-Finance Ratings

Moody’s Corp. said it reached a settlement with stockholders in lawsuits filed over structured-finance ratings.

Moody’s agreed to implement new governance procedures to settle with the Louisiana Municipal Police Employees Retirement System and other investors, according to a filing by the New York-based company yesterday with the U.S. Securities and Exchange Commission. The ratings company didn’t admit wrongdoing.

The Louisiana pension plan sued Moody’s Chief Executive Officer Raymond McDaniel and other officers in federal court in Manhattan in 2008, saying they ruined the company’s reputation by overstating grades for risky mortgage bonds. Moody’s, along with competitor Standard & Poor’s, were blamed for helping inflate the housing bubble by both the Financial Crisis Inquiry Commission and a Senate report last year.

None of the Moody’s executives agreed to pay investors any money in the settlement, according to the filing. Lawyers for the investors asked the court to approve $4.95 million in fees and expenses.

The case is Louisiana Municipal Police Employees Retirement System v. McDaniel, 08-09323, U.S. District Court, Southern District of New York (Manhattan).

Speeches, Interviews and Testimony

Turner Says BOE Governor Doesn’t Have to Be ‘God-Like’ Figure

Financial Services Authority Chairman Adair Turner, a potential candidate to run the Bank of England, said the institution doesn’t need a “God-like” governor as long as its policy committees function properly.

“I think we ought to see a lot of the decisions that will need to be made as coming out of those committees, and subject to the process of challenging within them, rather than depending on some sort of God-like, wise leader, whoever you might think that leader might be,” Turner said in an interview on Bloomberg Television in London yesterday.

Turner, who is one of the favorites to succeed Mervyn King as governor of the central bank, declined to say who would be the right person for the role. He said that keeping a check on the bank’s chief will be necessary given the expanded powers over financial regulation that King’s successor will wield.

For more, click here.

Cordray Testifies at Hearing About Access to Credit

U.S. Consumer Financial Protection Bureau Director Richard Cordray testified yesterday before a House Oversight and Government Reform subcommittee about access to credit and the role of the CFPB. He also said that the agency he heads was working on rules for each step of the mortgage process.

To see the testimony, click here.

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