Teva Probe, Bank Capital Reserves, Swap Rules: Compliance

Updated on

Teva Pharmaceutical Industries Ltd., the world’s biggest maker of generic medicines, said the U.S. Justice Department informally requested documents in connection with a bribery investigation in Latin America.

The requests, received Oct. 10 and Oct. 26, were in addition to a July 9 subpoena the company received from the U.S. Securities and Exchange Commission, the Petach Tikva, Israel-based company said yesterday in a regulatory filing. Teva said it is cooperating with the government.

“These matters are in their early stages, and no conclusion can be drawn at this time as to any likely outcomes,” the company said in the filing.

Teva said it has hired independent counsel to assist in its own investigation of “certain business practices” which may have implications under the Foreign Corrupt Practices Act.

Denise Bradley, a U.S.-based spokeswoman for Teva, said the company didn’t have any comment beyond the filing.

U.S. law enforcement authorities have been probing other drugmakers over possible violations of the overseas anti-bribery law that bars employees or their agents from paying bribes to foreign government officials to obtain or retain business.

Compliance Action

Wells Fargo, Schilling Sued by Rhode Island Over 38 Studios

The Rhode Island Economic Development Corp. sued Wells Fargo & Co., Barclays Plc and Curt Schilling, the former chairman of video-game maker 38 Studios LLC, claiming that undisclosed risks led to the bankruptcy of the company.

The banks and Schilling, the former Boston Red Sox pitcher who founded 38 Studios, didn’t disclose to the state’s economic development organization the negative information about the company’s financial projections and business plan, according to a filing yesterday in Rhode Island Superior Court.

The EDC board in 2010 approved the issuance of $75 million in bonds to finance a loan to allow 38 Studios to move to Rhode Island from Massachusetts and complete a multiplayer online game called Copernicus. The board’s advisers mentioned the risks and the board concluded that the “merits and benefits of the transaction were sufficient” to justify taking them, the EDC said.

38 Studios filed for liquidation in U.S. Bankruptcy Court in Delaware in June. Wells Fargo and Barclays were the placement agents for the $75 million loan.

“We are reviewing this matter and have no comment at this time,” Dana Obrist, a spokeswoman for San Francisco-based Wells Fargo, said in an e-mail. Mark Lane, a spokesman for London-based Barclays, declined to comment.

For more, click here.

Compliance Policy

Banks Need More Capital to Protect Against Risks, FSB Says

Banks deemed to be too-big-to-fail should hold more capital reserves to protect against operational risks, such as rogue traders, regulatory fines and fraudulent employees, the Financial Stability Board said.

Supervisors found “real weaknesses in the assessment of capital for operational risk and in the models used and their assumptions,” the FSB, a group of global regulators, said in a report yesterday. The Basel Committee on Banking Supervision should update its capital guidelines to reflect the importance of the issue by the end of 2014, the FSB said.

Global regulators have observed mistakes and scandals at some of the world’s largest banks in just over the last year. JPMorgan Chase & Co. lost at least $6.2 billion this year after failing to manage flawed positions on synthetic credit securities, UBS AG lost $2.3 billion after an unauthorized trading scandal in London, and Barclays Plc was fined 290 million pounds ($468 million) in June over manipulations of interbank lending rates.

The capital surcharges for systemic banks come on top of agreements by the Basel committee to more than triple the core reserves that lenders have to hold against possible losses. The so-called Basel III rules are intended to apply fully starting in 2019 and are designed to protect taxpayer money from the types of bank bailouts seen after the 2008 collapse of Lehman Brothers Holdings Inc.

Large international lenders would have faced a 374.1 billion-euro ($484 billion) shortfall in the capital needed to meet Basel III had it been in force at the end of 2011, the Basel group said in September. The figure factors in the surcharges for globally systemic banks.

The FSB also recommended yesterday that regulators intensify oversight of banks deemed too-big-to-fail, and become more intrusive in how they assess lenders’ succession planning, risk culture and the effectiveness of their boards, the FSB said in a statement.

Global regulators yesterday trimmed their list of 29 banks that must hold additional capital down to 28. The list is published in advance of a Nov. 4 meeting in Mexico of finance officials from the world’s biggest economies.

Hurricane Delays Swap-Collateral Rules Until Nov. 13, CFTC Says

CME Group Inc., Intercontinental Exchange Inc. and LCH.Clearnet Group Ltd. clearinghouses for swaps will have a five-day delay to implement Dodd-Frank Act collateral protection rules because of disruptions from superstorm Sandy.

Brokers are focused on disaster recovery efforts and have been unable to test their systems to comply with the new rules intended to provide safeguards for customer funds, the U.S. Commodity Futures Trading Commission said in a letter dated Oct.

31. The rules were scheduled to take effect Nov. 8 and have been delayed until Nov. 13.

In the Courts

Visa, MasterCard Fee Deal Faces Opposition From 1,200 Businesses

Retailer groups opposed to Visa Inc. and MasterCard Inc.’s $7.25 billion settlement of a lawsuit over merchant credit-card fees said they have garnered support from about 1,200 businesses covered by the deal.

Trade associations including the National Association of Convenience Stores, the National Community Pharmacists Association and the National Restaurant Association urged U.S. District Judge John Gleeson in Brooklyn, New York, not to grant initial approval to the settlement, according to objection papers the parties are preparing to submit.

The settlement, estimated to cost the card companies and major banks as much as $7.25 billion, would cover about 7 million retailers nationwide. In an order filed Oct. 24, Gleeson said he will probably approve the deal. That could end about seven years of litigation over an alleged conspiracy by the card companies and banks to fix the so-called interchange fees that retailers are charged when customers pay with cards.

In a paper the opposition intends to submit, a lawyer for some of the objecting groups, Jeffrey Shinder, said the settlement “will neither introduce transparency nor give merchants the ability to inject competition in a market that has not functioned competitively for decades.”

The objection papers were provided to Bloomberg News by Shinder and representatives from some of the objecting groups. Technology difficulties at the federal court from Hurricane Sandy prevented them from filing the papers yesterday. Lawyers who are seeking to have the settlement approved, K. Craig Wildfang and Patrick Coughlin, confirmed that they have received the filing. They declined to make an immediate comment.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

Wells Fargo Says False Claims Suit Violates Foreclosure Deal

Wells Fargo & Co., the biggest U.S. home lender, asked a federal judge to rule that a false claims case filed by the U.S. violates the conditions of a settlement over foreclosure practices that was approved in April.

Wells Fargo, in a filing yesterday in federal court in Washington, said the U.S. breached the terms of the $5 billion deal by suing in federal court in New York for “hundreds of millions of dollars” based on conduct that the bank is no longer liable for.

“A comparison between the allegations in the N.Y. complaint and the conduct covered by the U.S. release demonstrates without any doubt that the United States is attempting to impose additional liability for the same conduct for which Wells Fargo obtained permanent peace through the very large settlement,” Douglas Baruch, a lawyer for San Francisco-based Wells Fargo, said in court papers.

Wells Fargo’s filing was submitted to U.S. District Judge Rosemary Collyer, who on April 4 approved a $25 billion agreement with five banks to settle U.S. and state probes into abusive foreclosure practices. On Oct. 9, the U.S. sued Wells Fargo in New York, claiming the bank made reckless mortgage loans that caused losses for a federal insurance program when they defaulted.

Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment on the filing.

The government’s New York lawsuit alleges misconduct spanning more than a decade related to the bank’s participation in a Federal Housing Administration program. The lawsuit is part of a larger effort by the U.S. to recoup losses from defaulted mortgages that were insured by the FHA.

The Washington case is U.S. v. Bank of America Corp., 12-cv-00361, U.S. District Court, District of Columbia (Washington). The New York case is U.S. v. Wells Fargo Bank N.A., 12-cv-7527, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Goldman Loses Bid to Avoid Trial Over Dragon Systems Sale

Goldman Sachs Group Inc. lost a bid to avoid trial in a lawsuit over the 2000 sale of Dragon Systems Inc., a pioneer in voice-recognition software, to a Belgian competitor that collapsed following an accounting scandal.

U.S. District Judge Patti Saris in Boston on Oct. 31 declined Goldman Sachs’s request to throw out claims by James and Janet Baker, Dragon System’s founders, that Goldman Sachs failed to provide adequate advice in the sale of their $600 million company for stock in Lernout & Hauspie Speech Products NV. Goldman Sachs was paid $5 million for advising Dragon.

The Bakers, who owned 51 percent of Dragon Systems at the time of the transaction, claim they lost about $300 million and the rights to patents they developed as voice-recognition researchers, when Lernout & Hauspie failed months after it was sold. The Belgian company filed for bankruptcy protection in November 2000 after public disclosure of improper accounting forced it to restate $373 million in earnings.

The Bakers claim Goldman should have warned Dragon about deficiencies in Lernout & Hauspie’s accounting. Saris’s ruling clears the way for a trial in the case, which is set to begin Dec. 10.

The U.S. Securities and Exchange Commission said that Lernout & Hauspie created bogus customers, booked circular transactions with shell companies and recorded loans as sales from 1996 to 2000.

“The court has denied all of Goldman Sachs’s efforts to prevent a trial,” said Alan Cotler, the Bakers’ lawyer.

Michael DuVally, a Goldman spokesman, declined to comment on the ruling.

The case is Baker v. Goldman Sachs & Co., 09-cv-10053, U.S. District Court, District of Massachusetts (Boston).

MF Global Inc. Loses U.K. Trial Over European Debt Trades

MF Global Holdings Ltd.’s U.K. administrators won the first round of a dispute with its New York brokerage arm over the value of internal trades used by the company to bet on distressed European sovereign debt.

James Giddens, the U.S. bankruptcy trustee for MF Global Inc., claimed the London-based subsidiary owes about 287 million pounds ($463.6 million) to settle internal repurchase agreements on Irish, Portuguese and Spanish bonds. KPMG LLP, which is winding up the U.K. unit, said it only owes about $60 million.

Judge David Richards ruled in a written decision handed down yesterday that the U.K. unit wasn’t in default and KPMG, its administrator, has the right to value the securities.

MF Global Holdings filed the eighth-largest U.S. bankruptcy on Oct. 31 after getting margin calls and bank demands for money at its brokerage following its investment in the debt of troubled European economies. Legal disputes between the U.K. and U.S. units have tied up assets worth more than $1 billion and hindered repayment of the brokerage’s clients and creditors.

Yesterday’s decision will likely reduce the value of Giddens’s claims to recover money from the U.K. unit for the trades, James Acheson-Gray, the trustee’s spokesman, said in an e-mailed statement. The trustee is considering an appeal, he said.

KPMG still needs to negotiate the close-out value of the RTM portfolio with MF Global Inc. before the matter can be resolved, KPMG partner Richard Heis said in an e-mailed statement yesterday.

MF Global’s investment in European debt, which the judge pegged at about $7 billion in October 2011, incurred significant losses, KPMG administrator Mike Pink said at a creditors meeting in London last night.

Ex-Credit Suisse Broker’s Wife Can’t Have Assets, Judge Says

The wife of former Credit Suisse Group AG broker Eric Butler, convicted in a $1 billion fraud case, can’t keep funds in the couple’s jointly used accounts, a Brooklyn, New York, federal judge ruled.

U.S. District Judge Jack Weinstein, in an order filed Oct. 31, agreed with a U.S. magistrate judge’s recommendation that Elizabeth Butler’s efforts to seek an injunction barring the government from taking all the assets be denied. The money in question totals $736,060, according to court records, and Butler had shown that she is struggling economically to support her child, Weinstein said.

Eric Butler was convicted by a federal jury in Brooklyn in August 2009 of intentionally misleading clients about their investments by telling them that securities they were buying were backed by federally guaranteed student loans when they were actually tied to the housing market. Victims’ losses were more than $1.1 billion, according to the government.

On Oct. 23, an appeals court affirmed Butler’s five-year prison sentence. The government is seeking the proceeds of the joint accounts to satisfy a $5 million fine and $250,000 forfeiture order.

The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE