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Munis, Swap-Trading, Barclays, UBS Trader: Compliance

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U.S. state- and local-government bond underwriters may have to disclose more information about donations to election campaigns backing new debt sales, under a proposal by the Municipal Securities Rulemaking Board.

The MSRB, which writes regulations for the $3.7 trillion market, will ask the Securities and Exchange Commission to approve its plan which could help reveal whether securities deals are being steered to contributors.

The new regulations address concerns that state and local government officials are awarding underwriting businesses in return for contributions to ballot campaigns, the board said yesterday. That could cost taxpayers if banks recoup the donations through higher fees.

“The award of municipal securities underwriting business tied to dealer contributions to campaigns that secure voter approval for taxpayer-funded public projects can give rise to real or perceived conflicts or related concerns that can adversely affect the integrity of the municipal market,” the board said in a statement yesterday.

While underwriters are barred from giving to local government officials who award them work, there is no such ban on donating to campaigns supporting new bond issues, such as those proposed by local school boards.

Banks are required to report contributions to campaigns. The board has said, however, that the information isn’t detailed enough to draw conclusions about how large a role they play in determining which underwriter is later hired.

The Alexandria, Virginia-based regulator is proposing that underwriters also disclose the date of the contributions, which bonds it underwrote following such donations, and the name of the state or local government associated with bond campaigns.

Compliance Policy

Swap-Trading Rules Won’t Be Finished by November, O’Malia Says

Swap-trading rules governing firms such as CME Group Inc. and ICAP Plc won’t be completed by mid-November at the main U.S. derivatives regulator, according to Commodity Futures Trading Commissioner Scott O’Malia.

The CFTC plans to first finish separate rules to ensure interest-rate and credit swaps are backed by clearinghouses that collect collateral from buyers and sellers, O’Malia said yesterday at a Futures Industry Association conference in Chicago.

“I don’t think we are going to be able to get through this” by the CFTC meeting set for Nov. 15, because “there is a lot to be negotiated,” he said. “That’s way too soon.”

The CFTC and Securities and Exchange Commission are required by the Dodd-Frank Act to increase transparency in the swaps market after unregulated trades helped fuel the 2008 credit crisis. The law calls for measures requiring trades to be executed on exchanges or so-called swap-execution facilities.

Firms that have said they want to create swap execution facilities include inter-dealer brokers, Phoenix Partners Group LP, Javelin Capital Markets LLC, Tradeweb LLC and Bloomberg LP, the parent company of Bloomberg News.

The CFTC has other rulemakings to complete in November and December, O’Malia said, and swap-dealers are expected to register by the end of the year.

Banks Violating Card, Mortgage Rules, Consumer Bureau Reports

U.S. banks violated credit-card rules by failing to get co-signers’ consent before boosting younger borrowers’ credit limits, the Consumer Financial Protection Bureau said in findings released yesterday.

The bureau, in issuing its first supervisory report, also found that some mortgage lenders failed to comply with the Truth in Lending Act and the Real Estate Settlement Procedures Act, which require disclosures to consumers about the terms of their loans. The agency also said some companies failed to adequately train employees in complying with the Fair Credit Reporting Act, which governs how information is handled.

Congress created the consumer bureau as part of the Dodd-Frank Act of 2010 in response to complaints that financial firms took unfair advantage of borrowers before credit markets collapsed in 2008. The law gives the agency supervisory power over banks with assets above $10 billion for compliance with federal laws on consumer protection in finance.

The supervisory process, in which examiners directly scrutinize books and practices, can result in remedial action short of formal enforcement actions that result in fines. The report released yesterday, doesn’t name banks nor specify what companies had to do to comply with consumer-protection laws.

Compliance Action

Barclays Says It Will Fight FERC Penalty Over Energy Trading

Barclays Plc said it will contest the U.S. Federal Energy Regulatory Commission’s accusation that the company manipulated electricity trading in the western U.S. from late 2006 to 2008.

“Barclays intends to vigorously defend this matter,” the London-based bank said yesterday in a statement.

The regulatory agency notified Barclays on Oct. 25 that it had approved a show-cause order, according to the company statement. The agency’s staff in a notice issued April 5 said four Barclays energy traders coordinated to manipulate day-ahead electricity markets at various times from November 2006 through December 2008.

FERC officials declined to comment on the investigation, Mary O’Driscoll, a FERC spokeswoman, said yesterday in an e-mail.

The agency this year has increased its policing of energy markets, and on Sept. 20 it ordered a unit of JPMorgan Chase & Co. to show that it didn’t violate agency rules governing energy trading.

Since January 2011, the FERC has announced more than 10 probes of alleged manipulation in electricity and natural-gas markets. The agency this year reached a record $245 million settlement with Constellation Energy Group Inc.

Separately, Barclays said the U.S. Department of Justice and the U.S. Securities and Exchange Commission are probing whether the group’s relationships with third parties who assist the bank to win or retain business are compliant with the U.S. Foreign Corrupt Practices Act.

Barclays is investigating and is co-operating with the U.S. authorities, the company said yesterday in a statement.

In the Courts

Adoboli Says UBS Didn’t Question Trades Until He Lost Money

Kweku Adoboli, the former UBS AG trader on trial over a $2.3 billion loss, said that no one at the bank questioned the exchange-traded funds desk’s trading mechanisms until they were losing money.

Adoboli, 32, admitted lying to at least eight people at the bank shortly before he confessed to causing the losses in September of last year. He lied because he wanted to “buy time” to give him the chance to recoup the losses.

“It is a long list of people who only asked questions after our trading methodologies were loss-making,” Adoboli told a London court on his fourth day of testimony. “When that trading was profitable, no one asked questions.”

The former trader is charged with falsifying records on ETF transactions and other documents as early as October 2008. Adoboli has pleaded not guilty to two counts of fraud and four counts of false accounting.

He testified yesterday his intentions were never dishonest because senior management at UBS’s investment bank were telling traders to “push the boundaries” to generate more profits.

He also said yesterday that he hasn’t been able to find any current or former UBS employees to testify on his behalf because they fear the bank.

For more, click here.

London Whale’s Boss Martin-Artajo Sued by JPMorgan in U.K.

JPMorgan Chase & Co. sued the executive responsible for supervising Bruno Iksil, the trader nicknamed the London Whale for market-moving wagers at the division responsible for a $6.2 billion trading loss.

Javier Martin-Artajo, Iksil’s boss in the chief investment office, is a defendant in a London lawsuit filed Oct. 22 by the bank and made public yesterday. The court filings didn’t reveal any details of the complaint. Both men have left the bank.

JPMorgan disclosed trading losses in May after what Chief Executive Officer Jamie Dimon said were “egregious” failures to manage flawed positions on synthetic credit securities. The bank is still recovering from those bets, the losses on which had risen to $6.2 billion through the first nine months of 2012 and may increase, the bank has said.

Martin-Artajo hasn’t been served with the lawsuit and hasn’t seen the bank’s evidence against him, according to his lawyer Greg Campbell. His client is “deeply disappointed by the bank’s unjustified assertion that he may have attempted to conceal the losses,” and is confident he’ll be cleared of any wrongdoing, Campbell said in an e-mail.

JPMorgan ousted managers responsible for the group’s loss and said it would claw back their pay after an internal probe found traders may have intentionally tried to hide the problem. The company didn’t name the managers. Iksil, Martin-Artajo and former Europe CIO head Achilles Macris were responsible for overseeing the trades.

Kate Haywood, a spokeswoman for the New York-based bank, declined to comment on the litigation by e-mail.

The case is JPMorgan Chase & Co. v. Martin-Artajo, HQ12X04391, High Court of Justice, Queen’s Bench Division.

Fannie, Freddie Sued in South Florida Over Unpaid Transfer Taxes

Fannie Mae and Freddie Mac, the home mortgage-finance companies now under government control, were accused by Miami-Dade County, Florida, of failing to pay transfer taxes when they took ownership and sold thousands of foreclosed properties.

Harvey Ruvin, clerk of the courts for Miami-Dade County, sued the mortgage finance companies in federal court in Miami Oct. 29 alleging Fannie Mae and Freddie Mac improperly claimed they’re exempt from paying the tax, which amounts to 60 cents per $100 of the value of single-family residences.

“Fannie Mae and Freddie Mac are parties to thousands of real estate transactions, particularly here in South Florida, and they are shirking their responsibility to pay their fair share of transfer taxes,” Adam M. Schachter, a lawyer for the county, said in an e-mailed statement.

The Miami-Dade lawsuit is the latest jurisdiction to sue the companies seeking to recoup transfer taxes. Bridgeport, Connecticut, and Montgomery County, Ohio, have similar lawsuits pending in federal courts. Hernando County, Florida, sued the companies in federal court in Tampa in June.

Miami-Dade claims that tax exemptions for federal agencies don’t apply to Fannie Mae and Freddie Mac because, while federally chartered, “they are private corporations and not government entities,” according to the lawsuit.

Brad German, a spokesman for Freddie Mac, and Andrew Wilson, a spokesman for Fannie Mae, didn’t respond to e-mail messages seeking comment on the lawsuit.

The case is Ruvin v. Federal National Mortgage Association, 12-cv-23917, U.S. District Court, Southern District of Florida (Miami).

AMR’s American Airlines Settles Litigation With Sabre

AMR Corp.’s American Airlines settled litigation with Sabre Holdings Inc., the flight data and reservation business that American spun off in 2000 and later accused of trying to crush competition from its former parent.

The companies renewed their current distribution agreement for multiple years, according to a jointly issued statement yesterday. The airline will also receive an unspecified sum of money from Sabre.

The settlement comes one week into the Fort Worth, Texas, state court jury trial of a lawsuit in which American claimed Sabre units doubled fees for displaying the airline’s data on its system, suppressed that data and organized a boycott to punish the carrier for trying to develop a new data and reservation system.

The settlement requires approval from the judge overseeing that case, according to yesterday’s statement.

The case is American Airlines Inc. v. Sabre Inc., 067-249214-10, Tarrant County, Texas, District Court for the 67th Judicial District.

Green Mountain Investors Claim in Suit Keurig Demand Inflated

Green Mountain Coffee Roasters Inc. investors alleged in a consolidated securities lawsuit that the maker of Keurig coffee brewers misled them about the demand for Keurig and K-Cup products.

“Unbeknownst to investors, and contrary to defendants’ statements that they were barely able to ship orders as they came in, Green Mountain Coffee Roaster’s warehouses were overflowing with unused and expiring coffee products that were not being sold to consumers,” according to the complaint filed Oct. 29 in federal court in Burlington, Vermont.

A group of pension funds, including the Louisiana Municipal Police Employees’ Retirement System, accuse the Waterbury, Vermont-based company of violating U.S. securities law. They seek to represent all investors who bought Green Mountain shares from Feb. 2, 2011, to Nov. 9, 2011, and request unspecified damages.

Green Mountain shares plunged 34 percent Nov. 9, 2011, erasing $3.1 billion in market value, after fourth-quarter sales fell short of analyst’s estimates. The Louisiana retirement fund sued the same month, accusing the company of overstating revenue “based on falsified sales orders” and using a fulfillment vendor to store overproduced, unsold products.

Katie Gilroy, a company spokeswoman, didn’t immediately return a call to her office for comment on the consolidated complaint after regular business hours Oct. 30.

Green Mountain is the subject of a U.S. Securities and Exchange Commission inquiry, disclosed in September 2010. Two months later, the company restated earnings for years dating back to 2007 because of issues with K-Cup coffee-pod revenue and royalties, according to a statement.

The company is also a defendant in a consolidated shareholders lawsuit in Vermont federal court by investors who bought the stock from July 28, 2010, to Sept. 28, 2010, the day the company announced the SEC inquiry. A third series of shareholder suits was filed in May, after Green Mountain said its second-quarter result fell short of its previous guidance.

The case is Louisiana Municipal Police Employees’ Retirement System v. Green Mountain Coffee Roasters, 11-00289, U.S. District Court, District of Vermont (Burlington.)

Manhattan Court’s Storm Closing Pushes Back Insider Trial

The U.S. District Court in lower Manhattan, the primary venue for major financial litigation with jurisdiction over the New York Stock Exchange and bank headquarters, will be closed for the week as a result of the superstorm that pummeled the region.

The closing has delayed jury selection for the insider-trading trial of Todd Newman, a former Diamondback Capital Management LLC portfolio manager, and Level Global Investors LP co-founder Anthony Chiasson, who were to go on trial Oct. 29.

Prosecutors alleged Chiasson, Newman and a group of analysts, fund managers and insiders at technology companies swapped illegal tips on Dell Inc. and Nvidia Corp., earning more than $67 million. The storm interrupted the trial of Bruce Bent, co-founder of the Reserve Funds, in a suit by the Securities and Exchange Commission over the failure of the money market fund in the wake of Lehman Brothers Holdings Inc.’s 2008 collapse.

The New York court near Foley Square is operating on emergency generator power, Edward Friedland, the district executive of the U.S. Southern District of New York, said yesterday in an e-mail. The district’s satellite courts in White Plains and Middletown, north of New York City, are open, he said.

The cases are U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan); SEC v. Reserve Management Co., 09-cv-04346, U.S. District Court, Southern District of New York (Manhattan).

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