Bank Currency Risk, Peregrine Plea, Turkey: Compliance

Banks are underestimating the risk that their trading partners on the foreign exchange market may fail to honor commitments, global regulators said.

The Basel Committee on Banking Supervision issued draft guidance to lenders to bolster safeguards against the possibility that trades may break down before they are settled.

Banks should set binding limits on the amount of settlement risk they take onto their books, and restrict the amount of business they do with any single counterparty.

Transactions worth $4 trillion a day take place on global currency markets, according to figures from the Bank of International Settlements published in December 2010. The market grew by 20 percent from 2007 to 2010, the BIS said.

The draft rules tackle so-called Herstatt risk, namely the possibility that a bank can be left facing large losses if it moves first to honor its side of a currency transaction, while its trading partner goes bust before fulfilling its obligations. The global financial system was faced with such difficulties when Bankhaus Herstatt failed in 1974, an event that influenced regulators to set up the Basel Committee.

While banks and other institutions active in the currency markets have taken steps to make trading more robust, rapid growth means that “substantial” settlement risks remain, the group said.

The plans update guidance adopted by the Basel group in 2000. The committee will seek views on the proposals until Oct. 12.

Compliance Policy

Securitization Lobby Seeks Exemption From CFTC Registration Rule

U.S. regulators should exempt securitization vehicles from Dodd-Frank Act rules slated to take effect this year to avoid hampering the market for asset-backed securities, according to an industry lobby group.

Commodity Futures Trading Commission rules may lead securitization vehicles to register as so-called commodity pools because they often use interest-rate swaps to hedge risks, Tom Deutsch, executive director of the American Securitization Forum said Aug. 17 in a letter to the agency. That shift may restrict bank investments because of limits under Dodd-Frank’s Volcker rule, said Tom Deutsch, Executive Director of the American Securitization Forum.

The securitization group, which represents Bank of America Corp. and Bank of New York Mellon Corp. among hundreds of investors, issuers and trustees, wants an exclusion this year before the rules take effect. The CFTC and the Securities and Exchange Commission are required by Dodd-Frank to complete regulations reducing risk and increasing transparency in the swaps market after unregulated trades helped fuel the 2008 credit crisis.

The Volcker rule was included in the regulatory overhaul to restrict banks’ proprietary trading and investment in private equity and hedge funds. The CFTC and other regulators are working to complete the measure after missing the July 21 deadline for implementation.

Steve Adamske, CFTC spokesman, didn’t immediately respond to a request for comment.

ECB to Supervise Smaller Euro-Zone Banks, Handelsblatt Says

The European Central Bank intends to supervise smaller banks in the euro-zone, according to a report by the Handelsblatt.

German savings and cooperative banks are included, the newspaper said, citing the draft of a European Union bank regulation law to be presented on Sept. 11.

German Chancellor Angela Merkel had signaled that only the 25 biggest institutions were to be included, the paper reported.

Outside the euro area, banks will continue to be controlled by the national supervision bodies, the Handelsblatt said.

Senior German Christian Democrat lawmaker Michael Meister says he opposes the proposal commission to include oversight of savings banks in a “banking union”, the newspaper reported.

Deputy floor leader Meister said in a pre-released interview that a singular European Union bank regulator should confine its oversight activities to international banks with cross-border business and not regulate locally-active banks.

BOE Was Naive on Libor and King Overstepped Power, Lawmakers Say

The Bank of England’s handling of questions about the rigging of the London interbank offered rate was naive and lacked urgency, a U.K. panel of lawmakers said.

The House of Commons Treasury Committee also criticized Governor Mervyn King for his part in the effective ousting of Barclays Plc Chief Executive Officer Robert Diamond last month, saying it was “difficult to justify” and that greater checks on his power were needed.

The committee made the remarks in preliminary findings into the scandal that were published in London Aug. 17.

Barclays was fined a record 290 million pounds ($455 million) in June for attempting to manipulate Libor, prompting the resignation of Diamond as well as the bank’s chairman and chief operating officer. The central bank became embroiled after Barclays released a memo of a 2008 phone call between Diamond and Deputy Governor Paul Tucker. The note suggested Tucker might have hinted Barclays could lowball its Libor submissions.

In its report, the Treasury Committee downplayed the role of that conversation, saying it may have been used to distract lawmakers from other issues. The finding may provide relief to Tucker as he tries to stay in contention to for the central bank’s top job next year. Still, the panel criticized the central bank for not keeping its own record of the call.

Lawmakers stopped short of accusing the central bank of misconduct over its failures on Libor and said the shortcomings of the Financial Services Authority as the prudential regulator were “far more serious.” In a statement, the Bank of England said it welcomes the conclusion that it “did not have any regulatory responsibilities for Libor during the relevant period.”

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India to Allow Foreign Retail Chains in September, Standard Says

India will allow multibrand retail chains with 51 percent foreign ownership to conduct business in the country, according to the Business Standard.

States will have the choice whether to implement the rule, Business Standard reported, citing an official it didn’t identify.

The rule change will be notified after the monsoon session of parliament ends in September, the newspaper reported.

Compliance Action

Turkey Antitrust Board to Probe Three Industrial Gas Sellers

Turkey’s antitrust regulator will investigate allegations of violation of the competition law in industrial gas sales by Linde AG’s Turkish unit Linde Gaz AS, Yalizlar Sinai & Tibbi Gazlar and Orsez Sinai Tibbi Gazlar.

The regulator in Ankara will investigate whether the three companies shared information on prices and customers and refrained from competitive bidding, the Competition Authority said on its website Aug. 17.

EU Sets 30-Day Deadline for Comment on Charleroi, Ryanair Probe

European Union antitrust authorities will seek comments on whether an airport used by Ryanair Holdings Plc in Belgium received government aid that may have benefited some budget carriers over competitors.

The European Commission in March extended an investigation into government support for Belgium’s state-owned Charleroi airport to examine changes to Ryanair’s contracts on airport access and aid from the local Walloon regional government.

The Brussels-based regulator is inviting interested parties to contact them about the case as part of its efforts to establish whether Belgium broke the bloc’s state aid rules, according to a statement published on the EU’s website.


SEC Wins Asset Freeze to Halt $600 Million Internet Ponzi Scheme

A North Carolina man agreed to pay $4 million to settle U.S. regulatory claims that he cheated more than 1 million Internet customers in a pyramid and Ponzi scheme operated through the website.

Paul Burks, an online marketer who operated Rex Venture Group LLC, lured customers through his site’s rewards program, which involved the sale of unregistered securities, the Securities and Exchange Commission said Aug. 17 in a statement announcing a complaint filed in federal court in North Carolina. The SEC obtained an asset freeze against the company and Burks, 65, who agreed to settle without admitting or denying wrongdoing.

The agency moved to freeze the assets to help customers recover money and avoid losses from the program, which was falsely portrayed on the website as extremely profitable, the SEC said. In reality, most ZeekRewards profits consisted of funds received from new investors.

ZeekRewards has paid out almost $375 million to investors and holds about $225 million in investor funds, which will be frozen under the court order, according to the SEC.

Burks, who is accused of siphoning several million dollars of investors’ funds and distributing at least $1 million to family members, agreed to cooperate with a court-appointed receiver, the agency said.

Noell Tin, Burks’s lawyer in Charlotte, North Carolina, declined to comment on the SEC’s actions.

The case is Securities and Exchange Commission v. Rex Venture Group LLC, 12-cv-00519, U.S. District Court, Western District of North Carolina (Charlotte).

Hall of Famer Eddie Murray Settles Inside Trading Case With SEC

Baseball Hall of Famer Eddie Murray agreed to pay $358,151 to resolve U.S. claims that he profited from an insider-trading tip provided by former Baltimore Orioles teammate Doug DeCinces.

Murray made $235,314 on the $1.36 billion acquisition of Advanced Medical Optics Inc. by Abbott Laboratories Inc. in 2009 when given advance information about the deal, alongside others who have settled with the Securities and Exchange Commission or face claims, the agency said in a statement Aug. 17. DeCinces and three others agreed to pay $3.3 million last year to settle SEC claims they reaped a total of $1.7 million, the agency said.

DeCinces’s neighbor, James Mazzo, then-chairman and chief executive officer of Santa Ana, California-based Advanced Medical Optics, told DeCinces that Abbott was making a tender offer for his firm, the SEC alleged.

Mazzo, 55, and another friend of DeCinces, David L. Parker, 60, who lives in Provo, Utah, and is a managing partner at an Irvine, California-based private-equity firm, face insider-trading claims filed by the SEC Aug. 17 in federal court in California.

Murray logged the most career RBIs among switch hitters during his 20-year career, according to the National Baseball Hall of Fame website. He was inducted into the Hall of Fame in 2003 as only the third player to collect both 3,000 hits and 500 home runs.

The former first baseman maintained a close friendship with DeCinces, 61, after they stopped playing together in 1981, the SEC said.

“Eddie Murray is admitting no wrongdoing at all in this matter,” Michael Proctor, Murray’s lawyer in Los Angeles, said in an e-mail, adding that he settled in order to put the matter behind him and move on with his life.

“Mr. Mazzo flatly and unequivocally denies the SEC’s allegations,” said Richard Marmaro, his Los Angeles lawyer, in an e-mailed statement. James Sanders, a Los Angeles lawyer for Parker, declined to comment on the accusations that Parker pocketed $347,920 from the tips.

Peregrine’s Wasendorf Pleads Not Guilty to Lying to CFTC

Russell Wasendorf Sr., the Peregrine Financial Group Inc. founder, pleaded not guilty to 31 counts of lying to U.S. regulators about the value of customer funds held by his now-bankrupt commodities firm.

Wasendorf, wearing leg irons and handcuffs and dressed in an orange prison uniform, appeared in court Aug. 17 in Cedar Rapids, Iowa, where federal public defender Jane Kelly entered the plea on his behalf.

Wasendorf, 64, told Magistrate Judge Jon Scoles that he understood the indictment. Scoles set a tentative trial date for Oct. 15 in a hearing that lasted less than five minutes.

Wasendorf was indicted by a federal grand jury on Aug. 13. He’s accused of making false statements to the U.S. Commodity Futures Trading Commission in the firm’s monthly and annual reports to the agency from February 2010 through June 2012.

The charges against him carry a maximum punishment of 155 years in prison and a $7.75 million fine.

The CFTC sued Peregrine and Wasendorf on July 10, accusing them of misappropriating at least $200 million in customer funds. Wasendorf has been in federal custody since his arrest.

The Cedar Falls, Iowa-based firm filed for bankruptcy court liquidation in Chicago later that day.

Before a failed suicide attempt on July 9, Wasendorf wrote a confession in which he said he had been embezzling from Peregrine for almost 20 years, according to an FBI agent’s affidavit filed with the Cedar Rapids federal court on July 11 and unsealed upon his arrest two days later. While hospitalized after the suicide attempt, the CEO admitted to stealing at least $100 million from Peregrine, Langdon said.

The criminal case is U.S. v. Wasendorf, 12cr2021, U.S. District Court for the Northern District of Iowa (Waterloo).

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

The regulatory case is Commodity Futures Trading Commission v. Peregrine Financial Group Inc., 12-cv-5383, U.S. District Court, Northern District of Illinois (Chicago).

Ex-Morgan Stanley Executive Gets Nine Months in China Case

Ex-Morgan Stanley & Co. real estate executive Garth R. Peterson was sentenced to nine months in prison for transferring multi-million dollar interests in a Shanghai building from his employer to himself and a Chinese official.

Peterson, 43, was sentenced Aug. 16 by U.S. District Judge Jack B. Weinstein in Brooklyn, New York, for conspiring to circumvent internal bank controls required under the Foreign Corrupt Practices Act. He faced as long as five years in prison.

A former managing director at the bank’s Shanghai real-estate office, Peterson in 2006 arranged to sell an interest in a building held by Morgan Stanley to a shell company owned by him, a Chinese official and a Canadian lawyer, the government alleged.

Peterson told the bank the shell company was affiliated with a state-owned development firm, Shanghai Yongye Enterprise (Group) Co., the government said.

Illegal gains from the scheme totaled $5.39 million for all three conspirators, prosecutors said Aug. 13 in court papers. They urged that he be sentenced to at least four years and three months in prison.

Peterson’s attorneys, Abigail E. Rosen and Frank H. Wohl, asked for a sentence of “no or minimal incarceration,” citing his cooperation with authorities and the probable harm to his children from his imprisonment.

He pleaded guilty to the conspiracy charge in April. His alleged co-conspirators haven’t been identified in the case.

The criminal case is U.S. v. Peterson, 12-cr-00224, U.S. District Court, Eastern District of New York (Brooklyn). The civil case is Securities and Exchange Commission v. Peterson, 12-cv-02033, U.S. District Court, Eastern District of New York (Brooklyn).

Ex-Dresdner Banker, Wife to Pay $2.5 Million for Insider Trades

A former Dresdner Kleinwort banker and his wife must pay 1.6 million pounds ($2.5 million) to the U.K.’s finance regulator after they were found guilty of insider trading.

Christian Littlewood, who is serving a 40-month jail sentence after he pleaded guilty last year to eight counts of insider trading, and his wife, Angie, agreed with the Financial Services Authority to forfeit the amount they profited. They owe 800,000 pounds each, including proceeds from the crimes and legal costs, according to the settlement announced in a London criminal court today.

Littlewood admitted to passing information on confidential deals to his wife, who relayed it to an accomplice, Helmy Omar Sa’aid, who traded securities using the information. Angie Littlewood and Sa’aid invested about 5.5 million pounds over 10 years, the FSA said.

The FSA “took the view that the total benefit” by the three defendants in the case is 2.3 million pounds, which they planned to split three ways, Nicholas Dean, a lawyer for the regulator, told Judge Anthony Leonard.

The couple have six months in which to pay the FSA or face three years in prison, Leonard ruled.

Angie Littlewood received a suspended 12-month sentence and isn’t serving a jail term. Christian Littlewood’s sentence was the longest prison term for the crime in an FSA prosecution at the time.

After the Littlewoods were charged, Sa’aid was found the following year in Mayotte, a French island off the coast of Africa, and was extradited back to the U.K. to face the charges.


Wheeler Says Deutsche Bank Probe May End in Settlement

Christopher Wheeler, a banking analyst at Mediobanca SpA, discusses the outlook for Deutsche Bank AG, one of four European banks being investigated by U.S. authorities for alleged violations involving oil trading and Iran.

Wheeler talks with Francine Lacqua on Bloomberg Television’s “On the Move.”

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Comings and Goings

Sri Lanka Securities Regulator Resigns, Reuters Says

Tilak Karunaratne, the head of the Sri Lanka Securities and Exchange Commission, resigned Aug. 17, according to a report by Reuters.

Karunaratne said he submitted a letter of resignation on Aug. 17. The regulator said he resigned because he “came under pressure from stock market players under investigation for stock manipulation making false allegations against him,” Reuters reported him as saying, without identifying the people making the allegations.

Karunaratne was pursuing investigations of improper practices in the stock market, including so-called pump-and-dump schemes, Reuters reported.

The Sri Lanka Finance Ministry had not yet accepted the resignation, according to the Reuters report.

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