AU Optronics Fine, Facebook’s Faces, Divorces: Compliance

AU Optronics Corp., Taiwan’s second-largest maker of liquid crystal display screens used in electronic devices, was ordered to pay $500 million for colluding with rivals to fix prices on the screens.

U.S. District Judge Susan Illston in San Francisco sentenced AU Optronics Sept. 20. A jury in March found the company guilty of a price-fixing conspiracy based on charges filed by the U.S. Justice Department in 2009.

Illston said the $1 billion fine sought by the government was excessive. AUO had said it should pay no more than $285 million. The judge said she would allow the company to pay the fine over three years.

Executives of Hsinchu, Taiwan-based AUO secretly met with counterparts at other panel makers in hotel rooms, karaoke bars and tea rooms at so-called crystal meetings around Taiwan from 2001 to 2006 to set prices as an oversupply was pushing prices down 40 percent, federal prosecutors told jurors during the eight-week trial.

Illston also sentenced AUO Vice Chairman H.B. Chen, formerly the company’s chief executive officer, and former executive Hui Hsiung to three years in prison and ordered each to pay a $200,000 fine.

AUO was the only LCD maker charged with price-fixing by the U.S. to take its case to trial. Since 2008, rivals including LG Display Co., Chunghwa Picture Tubes, Chi Mei Optoelectronics Corp. and Sharp Corp. agreed to plead guilty and pay a total of more than $890 million in fines.

Dennis Riordan, a lawyer for AUO, told Illston the company had set aside $277 million to cover potential liability for the case. Illston granted his request to allow AUO to pay in installments.

The AUO fine is tied with one by Swiss pharmaceutical company F. Hoffmann-La Roche Ltd. for the highest paid by a company in a Justice Department antitrust case, according to agency data.

Chen and Hsiung were ordered to surrender by Nov. 30 to begin serving their prison terms. Illston rejected requests to delay their sentences during an appeal.

The case is U.S. v. Lin, 3:09-cr-00110, U.S. District Court, Northern District of California (San Francisco).

Compliance Policy

EU Lawmakers Ask Why Banks’ Rate-Rigging Culture Was Unchecked

A panel of European Union lawmakers will ask regulators from three continents today why authorities failed to crack down on a culture of rigging interest rates.

Michel Barnier, the EU’s financial services chief, will testify to a European Parliament panel along with Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, and Masamichi Kono, board chairman of the International Organization of Securities Commissions, in Brussels today.

Confidence in Libor, the benchmark interest rate for more than $500 trillion of securities, plummeted following Barclays Plc’s admission in June that it submitted false rates. The revelations provoked renewed calls for tougher oversight of the financial system and pushed regulatory and criminal probes of interbank lending rates to the top of the political agenda.

The EU session will be followed later this week by a report from Martin Wheatley, managing director of the FSA, on a regulatory overhaul of Libor.

Rate-riggers face harsher punishments in the EU in the wake of the revelations. The parliament’s economic and monetary affairs committee is preparing to vote on Oct. 8 to boost the bloc’s sanctions against market abuse, including jail sentences for bank staff found guilty of collusion to fix inter-bank lending benchmarks.

The EU plans would also set financial penalties for attempted manipulation of rates. The commission is also seeking views on possible rules to overhaul Libor, Euribor and other market benchmarks.

British Banks Say Regulation Sufficient, Focus on Culture

U.K. banks said regulation already being considered by government will be sufficient to restore trust in the industry and suggested plans to foster a more honest culture.

“The changes already in place and in contemplation are comprehensive and well designed,” said HSBC Holdings Plc, Europe’s biggest bank, in evidence to Parliamentary Commission on Banking Standards, published Sept. 21.

The inquiry in the wake of the Libor scandal comes after banks set aside at least 9 billion pounds ($14.7 billion) to redress customers who were mis-sold loan insurance and interest-rate swaps. The U.K. Financial Conduct Authority, which starts regulating next year, will crack down on bank incentives that encourage the improper sale of products, Martin Wheatley, its chief executive officer-designate, said this month.

The banks agreed cultural change was necessary, though offered different routes to get there. Barclays Plc proposed the creation of a professional code of conduct to be policed by an independent body, while HSBC proposed “behavioral monitoring audits.”

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Compliance Action

Facebook Agrees to Delete EU Users’ Facial-Recognition Data

Facebook Inc. agreed to delete data collected from users within the European Union for its facial-recognition feature by Oct. 15, the Irish privacy regulator said.

The owner of the biggest social-networking site has faced several European reviews over concerns a facial-recognition program that automatically suggests people’s names to tag in pictures breaches privacy rights.

Facebook Ireland “agreed to delete collected templates for EU users by Oct. 15” and to seek regulator consent “if it chooses to provide the feature to EU users again,” the Irish Office of the Data Protection Commissioner said in the conclusions to a review Sept. 21.

Data-protection regulators from the 27-nation EU have been looking into Facebook’s facial-recognition feature. Norway’s data-protection regulator said in August it was reviewing how the feature worked and what information Facebook was storing. Earlier this year, a group of regulators known as the EU’s Article 29 Data-Protection Working Party, said people must consent to the use of their images.

The Irish audit “is part of an ongoing process of oversight, and we are pleased that, as the data-protection commissioner said, the latest announcement is confirmation that we are not only compliant with European data-protection law, but we have gone beyond some of their initial recommendations,” Facebook said in an e-mailed statement.

The Irish agency Sept. 21 said Facebook had demonstrated “a constructive approach” in responding to its recommendations.

A separate probe in Germany is ongoing.

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SEC Said to Scrutinize Private Equity on Share of Fund Profits

The U.S. Securities and Exchange Commission is seeking to determine whether some private-equity firms are taking more profits from investments than they should under agreements with fund clients, according to two people with knowledge of the matter.

The SEC, pursuing a review of the industry begun after passage of the Dodd-Frank Act in 2010, is examining how buyout funds ensure that payouts follow the sequence set out in partnership documents, said the people, who asked not to be identified because the matter isn’t public. Regulators are looking for deviations from the distribution process, or waterfall, which usually calls for clients to receive some gains on investments before the fund manager.

The SEC stepped up its scrutiny of the private-equity business following the 2008 collapse of Lehman Brothers Holdings Inc., which accelerated a financial crisis that froze deal-making and forced firms to write down the value of their holdings. After Dodd-Frank authorized greater oversight of money managers, the agency initiated its broad review of practices at private-equity and hedge funds.

The SEC has implemented examinations to police the industry. In connection with regular inspections, the SEC is also looking into how buyout firms allocate expenses among investors, including those incurred for deals that are pursued but not completed.

When a buyout fund exits a holding, investors often get their investment back first, plus a certain percentage of the profits, known as the hurdle. Once the hurdle has been paid, the fund manager can begin collecting carried interest.

Investment agreements aren’t uniform among funds.

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Goodrich Petroleum Says SEC Probe Recommends No Further Action

The U.S. Securities and Exchange Commission has completed its investigation of Goodrich Petroleum Corp. regarding a July 2011 subpoena, according to a company statement.

The subpoena related to Haynesville Shale gas wells, reserves. No enforcement action was recommended, Goodrich Petroleum said in the statement.

Goodrich Petroleum received subpoenas on shale gas wells Aug. 18, the company said in a statement at the time.


Lehman Unit Held Liable for Failed CDOs Sold to Australian Towns

Lehman Brothers Holdings Inc.’s Australian unit must repay three towns that invested in failed securities backed by U.S. subprime mortgages, a judge ruled. The lawsuit’s sponsor said the case is the first of its kind to complete a trial.

Lehman’s unit “engaged in misleading and deceptive conduct,” Federal Court Justice Steven Rares said. The unit “is liable to compensate the councils for their losses,” he said in issuing the decision in Sydney Sept. 21, more than a year after the trail’s conclusion.

Grange Securities Ltd., which was bought by Lehman, invested the towns’ money in securities whose value collapsed along with the U.S. housing market. The collateralized debt obligations in 2008 played a role in the worst financial crisis since the Great Depression, as world-wide credit froze and the $330 billion market for auction-rate securities collapsed.

The three Australian towns that invested A$37.3 million ($39 million) in securities sold by Grange sued in 2009 to recover their losses. The Sept. 21 decision signals that about 70 councils, church groups and charities in Australia which made similar investments may be more likely to recover about A$200 million.

The towns and organizations have claimed the securities were sold with the safest credit rating, AAA, which didn’t reflect their actual risk.

The case is Between Wingecarribee Shire Council and Lehman Brothers Australia Ltd. NSD 2492/2007. Federal Court of Australia (Sydney).

Oklahoma, South Carolina, Michigan Join Suit Over Dodd-Frank

Oklahoma, along with South Carolina and Michigan, joined a lawsuit challenging the constitutionality of the 2010 Dodd-Frank Act that overhauled financial regulation and created the Consumer Financial Protection Bureau.

The states, in an amended complaint filed Sept. 20 in federal court in Washington, said they’re only challenging the portion of the Dodd-Frank law that empowers the Treasury Secretary to order a liquidation of a financial company whose collapse may threaten the stability of the banking system.

The law “denies the subject company and its creditors constitutionally required notice and a meaningful opportunity to be heard before their property is taken,” the states said in the complaint.

The lawsuit was filed in June by a small bank in Texas and the Competitive Enterprise Institute, a group that advocates for limited government, alleging that the law setting up the CFPB violates the U.S. Constitution because Congress doesn’t appropriate its budget, the president has limited ability to remove its director and the courts face restrictions in reviewing its actions.

Charles Miller, a Justice Department spokesman, declined to comment on the filing. The government has until Oct. 26 to respond to the original complaint, according to court records.

Oklahoma and South Carolina are among a group of Republican state attorneys general that declined to sign cooperation agreements with the consumer bureau.

The case is State National Bank of Big Spring v. Geithner, 12-cv-01032, U.S. District Court, District of Columbia (Washington).

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Attorney Nadel Discusses SEC Scrutiny of Private Equity

Steven Nadel, a partner at the law firm of Seward & Kissel LLP in New York, talked about the U.S. Securities and Exchange Commission’s review of the private-equity industry.

The SEC is seeking to determine whether some private-equity firms are taking more profits from investments than they should under agreements with fund clients, according to two people with knowledge of the matter. Nadel spoke with Deirdre Bolton on Bloomberg Television’s “Money Moves.”

For the video, click here.

Comings and Goings

Banker Breakups Seen Spurring Revisions of U.K. Divorce Laws

Wealthy Britons going through a divorce may benefit from a review of U.K. court standards that some lawyers argue promote unfairly generous rulings in favor of less well-off spouses.

An inquiry announced last week by the Law Commission, an advisory body sponsored by the Ministry of Justice, is the first step toward reversing a trend that’s made Britain the “divorce capital of the world,” said Louise Spitz, an attorney with Manches LLP in London. The commission may submit a draft statute to Parliament next year.

A lack of judicial standards and the arbitrary nature of divorce cases stem from a 12-year-old court ruling, lawyers said. The commission’s review also comes six months after an appeals court ruling in the high-profile case of JPMorgan Chase & Co. equity analyst Peter Lawrence. He won a decision cutting by 9 percent to 1.37 million pounds ($2.22 million) a payout to his civil partner of 11 years, former “Priscilla Queen of the Desert” star Donald Gallagher.

Divorce judges may have an easier time resolving cases if the law included a clear definition of “needs” in relation to a spouse’s living requirements, the commission said in a Sept. 11 statement.

The review of U.K. divorce law was triggered in part by the case of German heiress Katrin Radmacher and ex-JPMorgan investment banker Nicolas Granatino, lawyers said. In October 2010, the U.K. Supreme Court ruled for the first time that a U.S.-style pre-nuptial agreement on asset-division, reached before marriage, should be decisive.

The commission started a probe of U.K. pre-nuptial accords in January 2011, three months after the Radmacher judgment. The announcement Sept. 11 expanded the study to review support payments and division of non-marital assets -- assets belonging to one spouse, often from before a marriage. Such assets are generally not the subject of division in a divorce.

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