SEC Sued, MF Global, JPMorgan Suspended: Compliance

David Weber, a former U.S. Securities and Exchange Commission internal investigator fired for allegedly carrying a firearm while on duty, sued the agency for wrongful termination.

Weber, who was chief investigator in the SEC’s inspector general’s office, is asking for $40 million in damages. His suit, filed yesterday in federal court in Washington, argues that he was terminated as part of a campaign to “cover up” and “whitewash” disclosures of wrongdoing he was investigating.

Weber was placed on paid leave by the SEC in May, shortly after he raised allegations that ex-inspector general H. David Kotz may have had personal relationships that tainted probes on the SEC’s handling of the Bernard Madoff and R. Allen Stanford Ponzi schemes. Weber was fired on Oct. 31.

The lawsuit called the gun allegations “baseless” and said he kept a legally registered firearm in his car.

Chairman Mary Schapiro was named as a defendant in the suit.

John Nester, an SEC spokesman, declined to comment immediately on the case and said the agency would respond in court.

The 75-page lawsuit alleges that people involved in firing Weber had conflicts of interest because they were subjects of investigations being supervised by Weber. The court filing contains extensive detail on the probes that Weber was pursuing in his job.

The case is Weber v. U.S. Securities and Exchange Commission, 12-cv-01850, U.S. District Court, District of Columbia (Washington).

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Compliance Action

Rating Companies Disregard Own Rules, Delay Disclosure, SEC Says

Credit-rating companies failed to follow their own standards, were late to downgrade deals and delayed disclosure of methodology changes this year, according to the U.S. Securities and Exchange Commission.

The watchdog didn’t name specific companies, separating them as either “larger firms,” including McGraw-Hill Co.’s Standard & Poor’s, Moody’s Corp.’s Moody’s Investors Service and Fitch Ratings, and six others, such as Kroll Bond Rating Agency Inc. and DBRS Inc. as “smaller firms.”

The three larger firms as well as two smaller companies failed to follow their own methodologies in determining ratings, the Office of Credit Ratings said yesterday in its annual report on Nationally Recognized Statistical Rating Organizations or NRSROs, which is required by the Dodd-Frank financial reform act.

After inflated credit ratings for risky mortgage bonds were blamed for helping cause the worst financial crisis since the Great Depression, policy makers have been searching for a way to ensure the grades are accurate. Dodd-Frank instructed regulators to stop relying on ratings and increase oversight of the companies that issue them.

French Trading Tax Misses Mark as Speculators Find Loopholes

As France begins collecting its financial-transactions tax this month, it is becoming evident that President Francois Hollande’s levy is hitting small investors rather than speculators, its intended target.

Hollande, who called finance his “main adversary” during his election campaign, pushed through in August a 0.2 percent transaction tax on share purchases, making France the first and only country so far in Europe to have such a levy. Many investors have been escaping the tax using so-called contracts for difference, or CFDs, offered by prime brokers that let them bet on a stock’s gain or loss without owning the shares.

On Nov. 1, the state started collecting the levy on the purchase of 109 French stocks with market values of more than 1 billion euros ($1.2 billion), including Sanofi SA and Vivendi SA. While the government expects the tax to add 530 million euros to its budget in 2012 and 1.6 billion euros next year, the finance ministry says it’s too early to say if these estimates are realistic.

The ministry concurred with traders’ and analysts’ assessment that market players will use a range of derivatives to skirt the tax, leaving small investors bearing the burden.

Hollande himself this week conceded that the tax was only a “modest” blow to the finance sector.

His other plan to fight “speculators” includes splitting French banks’ retail and investment activities and increasing taxes on lenders’ salaries and speculative operations. A bank bill will be unveiled on Dec. 19, Hollande said last week. He expects 11 other European countries to join France in imposing the tax.

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JPMorgan Power-Trading Authority Suspended 6 Months by Regulator

The U.S. Federal Energy Regulatory Commission Nov. 14 suspended a JPMorgan Chase & Co. unit’s electrical-trading authority, saying it filed false information to regulators.

The action, part of a more aggressive effort by the commission to monitor U.S. power markets, prohibits J.P. Morgan Ventures Energy Corp. from selling electricity at market-based rates for six months starting April 1.

The FERC said the company made “factual misrepresentations” and omitted material information in communications with the California Independent System Operator, or Caiso, and in filings to the commission. Caiso operates the state’s power grid.

FERC said in the order that the JPMorgan unit will essentially be allowed to participate as a bystander in wholesale power markets, granting it the ability to offer electricity into the market without a price attached. This will ensure that utilities have the ability to obtain enough power to serve the demand from customers. JPMorgan would still be able to trade derivatives under the order.

“This is a novel use of FERC’s authority over market-based rates and is unsupported by FERC’s own regulations,” Jennifer Zuccarelli, a JPMorgan spokeswoman, said in an e-mail. The bank is reviewing the decision and its next steps, she said.

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SEC, CFTC Should Merge, House Panel Investigating MF Global Says

The Commodity Futures Trading Commission didn’t give the Securities and Exchange Commission full information about MF Global Holdings Ltd., leaving the agency with incomplete knowledge of the company’s liquidity, the House Financial Services panel said in a report on MF Global’s collapse.

“There is no record of meaningful communication between the SEC and the CFTC until the week before the company’s bankruptcy. When these regulators finally tried to coordinate, it was disorganized and haphazard,” the CFTC said in the report.

The House panel recommended that the SEC and the CFTC streamline operations “or merge into a single financial regulatory agency that would have oversight of the entire capital markets.”

The panel Nov. 14 released results of a yearlong investigation into the futures brokerage’s path to bankruptcy. It found that MF Global collapsed last year because of mistakes made by the former chairman and chief executive officer Jon S. Corzine, according to the report.

“Mr. Corzine acted in good faith and did what he believed was necessary to turn around MF Global,” Steven Goldberg, a spokesman for Corzine, said in an e-mail statement.

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Bachus Says He Has Been Notified That FHA Will Need a Bailout

The Federal Housing Administration is running out of money for first time in its history, House Financial Services Committee Chairman Spencer Bachus, a Republican from Alabama, said in Washington.

Bachus said he will work with Democrats to address FHA problems.

The FHA’s capital reserves have fallen “deep into negative territory,” the New York Times reported earlier, citing unidentified people.


BP Agrees to $4.5 Billion in Penalties Over 2010 Gulf Oil Spill

BP Plc reached a settlement with the U.S. government for $4.5 billion that will end all criminal charges and resolve securities claims relating to the worst U.S. offshore oil spill.

Two well-site managers were charged with involuntary manslaughter and a former executive was charged with obstruction and false statements.

The London-based company announced a $4 billion settlement yesterday with the U.S. Justice Department that includes a record $1.26 billion criminal fine, which would be paid over five years. The company agreed to five years’ probation and also will pay $525 million to settle Securities and Exchange Commission claims, according to a press release.

BP said it agreed to plead guilty to 11 felony counts of misconduct or neglect of ships officers related to the 11 deaths that occurred when their oil drilling rig exploded, one misdemeanor count under the Clean Water Act, one misdemeanor count under the Migratory Bird Treaty Act and one felony count of obstruction of justice.

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region,” BP Chief Executive Officer Bob Dudley said in a statement. “We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.”

The government case is U.S. v. BP Exploration & Production Inc., 2:10-cv-04536, U.S. District Court, Eastern District of Louisiana (New Orleans). The lawsuit is part of In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

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Separately, the company still faces claims seeking billions of dollars more for the catastrophe relating to environmental violations.

Yesterday’s $4.5 billion agreement left the company at risk for as much as $17.6 billion in potential fines from alleged violations of the Clean Water Act and demands by the U.S. and Gulf states for enough money to restore the region’s coastline and waters to their condition before the spill.

Europe’s second-biggest oil company will face resistance from both state and federal authorities in trying to resolve the remaining pollution violations and natural resource damages claims, said Garret Graves, chairman of Louisiana’s Coastal Protection and Restoration Authority. Both sets of claims will “easily be in the tens of billions of dollars,” Graves said in a phone interview.

Still, BP may escape a federal contracting ban as it tries to rebuild its reputation. The company, the Pentagon’s biggest fuel supplier with awards valued at about $1.35 billion in 2011, said it hasn’t been informed about a so-called contracting death sentence.

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Wal-Mart Starts Corruption Inquiries in Brazil, China, India

Wal-Mart Stores Inc. started inquiries into potential violations of the Foreign Corrupt Practices Act at operations in Brazil, India and China, adding to its probe of bribery allegations in Mexico.

The board’s audit committee and the company identified or became aware of the possible FCPA violations since starting a global review of its compliance programs, Bentonville, Arkansas-based Wal-Mart said yesterday in a filing with the U.S. Securities and Exchange Commission. The new inquiries aren’t limited to those countries, Wal-Mart said.

The new probes come as the U.S. Department of Justice and the SEC investigate allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country. Investigations by Mexican government agencies are also pending. Wal-Mart said in yesterday’s filing that it is cooperating with the probes.

Wal-Mart said the costs of responding to investigations by the DOJ and SEC as well as defending itself from shareholder lawsuits and conducting its own probe were $99 million in the nine months ended Oct. 31.

Ex-Mizuho Banker’s Girlfriends Not Guilty of Insider Trading

Two girlfriends of former Mizuho International Plc investment banker Thomas Ammann were found not guilty of illegally trading on tips from him about Canon Inc.’s acquisition of OCE NV.

The women nearly doubled the amount they invested and then paid half of their profits to Ammann, the U.K. Financial Services Authority, which prosecuted the case, had said during the trial in London. Neither woman knew Ammann was dating the other simultaneously.

Jessica Mang, a 30-year-old British chiropractor, and Christina Weckwerth, 44, were both cleared yesterday by the jury after a four-week trial. Both cried when the verdicts were returned and declined to comment afterward.

Ammann, a German national who worked on the Mizuho mergers and acquisitions team that advised Canon on the OCE deal, pleaded guilty earlier this year to insider trading and encouraging Mang and Weckwerth to commit insider trading. Canon, the Tokyo-based maker of cameras and photocopiers, agreed to buy OCE in a 730 million-euro ($931.8 million) deal in November 2009.

The FSA said that Ammann tried to avoid being caught by having his girlfriends make the trades.

Needham & Co. Ex-Finance Chief Charged in $1 Million Theft

Glen W. Albanese, a former chief financial officer at brokerage firm Needham & Co., was arrested by the FBI and charged with stealing $1 million through a false invoicing scheme.

Albanese, 41, stole from the New York-based company from 2000 to December 2010 by directing certain vendors to submit phony invoices, according to a Federal Bureau of Investigation arrest complaint. He told one vendor to give him envelopes of cash, while others paid his personal expenses, according to the FBI.

Albanese, a resident of Manalapan, New Jersey, used the proceeds to pay for personal luxuries and travel expenses, according to the complaint. He was scheduled to appear yesterday in federal court in Newark, New Jersey.

A spokeswoman for Needham, Ingrid Thoonen, didn’t immediately return a call seeking comment on his arrest.

The case is U.S. v. Albanese, 12-cr-7289, U.S. District Court, District of New Jersey (Newark).

CFTC to Appeal Ruling Rejecting Dodd-Frank Trading Limits

The U.S. Commodity Futures Trading Commission will appeal a judge’s ruling that rejected efforts to curb speculative derivatives trading after the 2008 financial crisis.

The commission filed a notice of appeal yesterday in federal court in Washington, seeking to ask a three-judge panel to reverse a ruling by U.S. District Judge Robert Wilkins that said the CFTC failed to assess whether limiting the number of contracts a trader can have in oil, natural gas or other commodities was necessary and appropriate.

The decision, which blocked rules scheduled to take effect Oct. 12, was a victory for two Wall Street groups that challenged the constraints imposed under the 2010 Dodd-Frank Act. The Securities Industry and Financial Markets Association and International Swaps and Derivatives Association Inc., in one of the financial industry’s highest-profile efforts to weaken Dodd-Frank, sued in two federal courts in Washington in December.

The case is one of several brought by the financial industry as it pushes back against tighter regulations passed after the 2008 credit crisis.

The associations that sued represent JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and other banks and energy-trading firms.

The case is International Swaps and Derivatives Association v. U.S. Commodity Futures Trading Commission, 11-02146, U.S. District Court, District of Columbia (Washington).


AMF’s Rameix Says Transaction Tax Needs More Adoption

Gerard Rameix, president of the Autorite des Marches Financiers, discussed a proposal by French Finance Minister Pierre Moscovici to force banks to isolate in separate subsidiaries activities that engage in risky trading. He also discussed the financial-transaction tax.

Rameix spoke in Paris with Bloomberg Television’s David Tweed.

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