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Duke Settles Probe, Principal Eyes Exits, RBS: Compliance

Duke Energy Corp. Chairman and Chief Executive Officer Jim Rogers must step down by the end of next year as part of a settlement with North Carolina regulators stunned by a July boardroom coup.

The settlement, which lays out a series of executive changes and employment and financial concessions, represents a rebuke to the largest U.S. utility owner by market value.

Approval by the North Carolina Utilities Commission would end its investigation into the ouster of former Progress Energy CEO Bill Johnson and reinstatement of Rogers hours after the company closed its $17.8 billion takeover of Progress. Commissioners had just approved the merger and accused Duke of misleading them with the CEO switch.

“This settlement agreement is an important step forward for the company because it resolves one of our key near-term priorities: bringing closure to the NCUC merger review process,” Rogers said in a statement released after the close of trading in New York Nov. 29.

Duke will create a special committee of the board comprised equally of pre-merger Duke and Progress directors to choose a successor for Rogers, according to a filing Nov. 29 with the U.S. Securities and Exchange Commission. The committee “will make its best effort” to have a new chairman, president and CEO of Duke in place by July 1, and no later than Dec. 31, 2013, according to the settlement.

The agreement doesn’t affect a separate investigation by North Carolina Attorney General Roy Cooper into whether Duke’s actions violated state law,” Sam Watson, general counsel for the commission, said in a telephone interview.

Johnson was named Nov. 5 to become CEO of the Tennessee Valley Authority, a federal power agency.

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Compliance Policy

O’Malia Says CFTC to Vote on Swap Execution Facilities Dec. 12

Commodity Futures Trading Commissioner Scott D. O’Malia said a vote on swap execution facilities is expected at a rule-making open meeting planned for Dec. 12.

O’Malia made the comment in remarks prepared for a speech at the Securities Industry and Financial Markets Association conference in New York.

Commissioner O’Malia, a Republican, also foresees action on the cross-border impact of Dodd-Frank Act derivatives rules that will focus on delayed compliance, according to his remarks at the Sifma conference.

Fed, Treasury Seeking Comments on Bank Fund Transfer Definitions

The U.S. Treasury and Federal Reserve said Nov. 29 they are requesting comments on proposed changes to the definitions of “funds transfer” and “transmittal of funds” under the Bank Secrecy Act.

The changes are needed to update the definitions of transfers and transmittals to comply with the Dodd-Frank Act, the Fed and Treasury’s Financial Crimes Enforcement Network said in a joint statement. Comments are due Jan. 25.

Bank Regulations Harming Credit Flow to Business, A&O Says

Tighter financial regulation around the world is constraining bank lending to businesses, according to research published today by Allen & Overy LLP, which polled its regulatory and finance lawyers.

The Basel Committee on Banking Supervision’s incoming rules and U.K. recommendations from the Independent Commission on Banking may “have much wider economic impacts” than the changes intend, including stifling credit, A&O said.

The law firm asked its employees whether new regulations were having a positive, neutral or negative impact on the availability of credit across 11 separate areas of finance, including corporate lending, bonds and trade finance, in 13 countries.

The so-called Basel III rules would more than triple the core capital that banks must hold as a buffer against insolvency, while the U.K. recommendations suggest placing firebreaks around British banks’ retail operations.

Compliance Action

Principal Weighs Leaving Savings and Loan Status

Principal Financial Group Inc., the seller of life insurance and retirement products, is weighing an exit from its status as a savings and loan holding company to limit U.S. oversight.

The insurer filed a draft application to change its status to avoid Federal Reserve regulation that may limit investing and require the Des Moines, Iowa-based company to hold additional capital. The company may operate its Principal Bank as a limited purpose trust institution, which would still hold savings products in individual retirement accounts and be supervised by the Office of the Comptroller of the Currency, Principal said.

The bank operates online with no physical branches and Principal isn’t now seeking a buyer for the unit, said Susan Houser, a company spokeswoman.

“Some of the Dodd-Frank provisions, such as the Volcker rule, along with the unknowns of new capital requirements, could have an outsized impact on Principal relative to any benefit of Fed regulation,” Chief Executive Officer Larry Zimpleman said on a Nov. 27 conference call with analysts.

Principal follows MetLife Inc., the largest U.S. life insurer, in moving to limit oversight. American International Group Inc. is weighing a similar move, and Ameriprise Financial Inc., Hartford Financial Services Group Inc., and Allstate Corp. have all retreated from the banking business.

“Principal will reduce the potential for restrictive regulatory oversight as a bank and may free up some capital over time,” Edward Shields, an analyst at Sandler O’Neill & Partners LP, wrote in a research note.

Under the Dodd-Frank Act, insurers with thrifts are subject to federal supervision -- including new capital standards -- that firms including MetLife have said are not suited to the industry. The Volcker rule limits proprietary trading and investing in private equity or hedge funds.

The rules are intended to prevent a repeat of the 2008 bailouts that the U.S. undertook as collapsing financial firms threatened the global economy.

Fed regulation may have led to “reduced flexibility for our other asset-accumulation, mutual fund and asset management businesses,” Zimpleman said on the call.

Principal’s bank had about $2.2 billion in deposits as of June 30 and 91 employees, according to Federal Deposit Insurance Corp. data. The bank expects to hold about 85 percent of that sum after a change in status, Principal said.

Filing a draft application will allow the insurer to work with the Fed to understand requirements for deregistering as a savings and loan holding company, Houser said. If the draft application is on track, Principal will file a formal application, she added.

Principal embraced the bank in June when the company said it benefits from the ability to hold customers’ government-insured deposits as the clients develop retirement plans.

The deregistration process can take as little as a month or as long as a year, depending on the complexity, said Kevin L. Petrasic, a partner with law firm Paul Hastings LLP.

MetLife, regulated as a bank-holding company, reached a deal last year to sell deposits to a unit of General Electric Co. to exit banking. The deal is still awaiting regulatory approval. The Fed has blocked MetLife’s plan to increase its dividend or resume share buybacks.

Insurers “are very unhappy with being subject at a corporate level to bank-type capital regulations, including potential application of Basel III,” said Scott Harrington, director of the Risk and Insurance Program at the University of Pennsylvania’s Wharton School.

“You have insurers that have invested significant resources in building these businesses, and now, if they sell off to a non-insurance entity, you have to presume they’re going to take a loss,” Harrington said.

Compass Group’s Massoud to Pay $1.4 Million in SEC Insider Case

A Connecticut-based investment manager will pay more than $1.4 million to settle regulatory claims that he illegally profited from inside information while working on the 2009 sale of Patriot Capital Funding Group.

Compass Group Management Managing Partner Joseph Massoud, whose firm was involved in the bidding process, made about $676,000 on Patriot Capital shares he bought after gaining access to an online data room for bidders, the Securities and Exchange Commission said in a statement Nov. 30. Massoud, 44, also agreed to be barred from the securities industry or serve as a public-company officer or director, the SEC said.

Massoud bought 322,216 shares of Patriot Capital in transactions spread across 15 trading days from May to July of 2009, the SEC said. After the firm was acquired and the share price rose, Massoud sold all of the stock.

“Mr. Massoud is pleased to have been able to resolve this personal trading matter,” Robert Anello, an attorney for Massoud, said in a statement. “He has helped build significant value for shareholders and investors over the last 15 years and looks forward to future endeavors.”

ASX Offers Customers Trading, Clearing Revenue Rebate From 2013

ASX Ltd., the operator of Australia’s main stock exchange, will share with its customers 50 percent of revenue growth from trading in cash equities and clearing starting Jan. 1 in a bid to maintain market share.

ASX revenue growth through the end of June 2014 will be shared 50-50 with customers and will be proportionate to each of its customers contribution, according to a letter dated Nov. 28 from ASX Chief Executive Officer Elmer Funke Kupper and sent to clients. All participants are eligible for rebates and the threshold will be reviewed after 2014, the letter said.

Traditional exchanges worldwide are losing market share to so called dark pools and other alternative trading venues, such as Chi-X Australia Pty, which last year started operating as Australia’s sole stock-exchange competitor. As part of the Australian government’s attempt to increase its presence as a financial hub by opening up Asia-Pacific’s fourth-largest equity market, the country is considering whether or not to allow ASX to maintain its monopoly over the clearing and settlement of trades.

The offer will operate for at least the coming three to five years, Funke Kupper wrote.

RBS to Close Indian Division After Sale to HSBC Collapses

Royal Bank of Scotland Group Plc, Britain’s biggest taxpayer-owned lender, said the sale of its Indian consumer and commercial-banking operations to HSBC Holdings Plc collapsed.

RBS will wind down the unit, the 81 percent taxpayer-owned bank said in a statement Nov. 30. RBS announced the sale to London-based HSBC for an undisclosed sum in July 2010.

Bank of England Governor Mervyn King is pressuring U.K. banks to raise capital levels by selling assets to guard against loan losses. Banks are struggling to find buyers for assets: in October, Banco Santander SA walked away from buying 316 branches that RBS has to sell by 2014 to comply with a European Union state-aid ruling after being bailed out by U.K. taxpayers.

Chief Executive Officer Stephen Hester has cut assets by more than 800 billion pounds ($1.28 trillion), eliminated 36,000 jobs and scaled back RBS’s securities and Irish units since 2008. RBS’s Indian unit has about 190 million pounds of assets, 31 branches and serves 400,000 customers, the bank said.

HSBC said in a separate statement that it remained committed to the Indian market and would expand there through its existing operations.

UBS Said to Be Close to Reaching a Settlement Over Libor-Rigging

UBS AG, Switzerland’s biggest lender, is close to agreements with regulators to pay more than 290 million pounds ($465 million) to settle allegations traders tried to rig global interest rates, a person with knowledge of the talks said.

An announcement may come as soon as next week, said the person, who declined to be identified because the talks are private. More than 25 people have already left UBS after the lender’s own internal probe, another person said last month.

Global authorities are investigating claims that more than a dozen banks altered submissions used to set benchmark such as the London interbank offered rate to profit from bets on interest-rate derivatives or make the lenders’ finances appear healthier.

“UBS has been cooperating fully with the regulatory and enforcement authorities in connection with Libor investigations,” Mark Panday, a Hong Kong-based spokesman at the Zurich-based lender, said in an e-mail, declining to comment further because of ongoing discussions with authorities.

Regulators are focusing on whether UBS traders colluded with other banks to influence rates in an effort to increase profit, the person said.

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EU Says It Won’t Meet January Deadline to Implement Basel III

The European Union won’t be ready to legally implement Basel III bank rules by the start of the year, Stefaan De Rynck, a spokesman for the European Commission, said in Brussels today.

“The legal entry into force of CRD IV is no longer realistic for January 2013,” he said, referring to the EU’s draft law to apply the Basel capital and liquidity rules. Any delay should be as “short as possible,” he said.

FBI Informant Led Agents on Insider Chase From Galleon to SAC

David Slaine, a former Morgan Stanley managing director and ex-partner at the Galleon Group LLC hedge fund, told the FBI that a money manager he knew paid off people to find out who used Teterboro airport in New Jersey.

The small New Jersey airport is located close to many of the world’s biggest drug companies. The trader was using the information to profit quietly on trades of health-care stocks.

The bribed tipsters were watching for bankers who “were coming in and out of Teterboro Airport,” agent David Makol wrote in a summary of Slaine’s Aug. 18, 2007, conversation with the Federal Bureau of Investigation, one of more than 200 they had with him. “All the major players involved in the pharmaceutical industry would come in and out of that airport.”

During the U.S. crackdown on insider trading over the past five years, Slaine, 53, became a tip-mining machine as he worked undercover, often wired for sound under FBI orders, from mid-2007 until at least June 2009.

The government’s most productive informant in a broad investigation of Wall Street insider trading, he was also among the first to cooperate. His work led directly to the conviction of 12 people and indirectly to a half-dozen more. His leads helped prosecutors win judicial permission to wiretap the mobile phone of Galleon Group co-founder Raj Rajaratnam, who was later convicted.

U.S. agents used evidence he gathered to build cases leading to executives at expert-networking firm Primary Global Research LLC. He passed information about Steven A. Cohen’s SAC Capital Advisors LP, and he took the witness stand to tell jurors about secret recordings he made of traders now in prison.

An examination of Slaine’s work with the FBI, based on hundreds of documents never before revealed, shows how the bureau turned Slaine, how his cooperation deepened, how his information created a domino effect of new investigations and new informants, and how the case took a personal toll on Slaine.

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Societe Generale’s Lyxor Said to Seek Fund Withdrawal From SAC

Societe Generale SA’s Lyxor Asset Management unit has asked to withdraw its clients’ funds from Steven A. Cohen’s SAC Capital Advisors LP, a person with knowledge of the situation said.

Lyxor’s investments with SAC are very limited, said the person, who asked not to be identified because the matter is confidential. Officials for Lyxor and Societe Generale in Paris declined to comment, while a spokesman for Stamford, Connecticut-based SAC didn’t answer the phone outside of business hours. The Wall Street Journal reported on Lyxor’s plans late yesterday.

The U.S. Securities and Exchange Commission told SAC that it is considering suing the $14 billion hedge fund for fraud involving alleged insider trading by former portfolio manager Mathew Martoma, who was arrested in November, three people with knowledge of the matter said last month.

SAC received the warning in November, Tom Conheeney, the firm’s president, told investors on a Nov. 28 conference call during which the firm discussed Martoma’s arrest. Cohen, who spoke briefly during the call, said he acted appropriately when he traded shares of two drugmakers four years ago on recommendations from Martoma, according to two of the people.

“Mr. Cohen and SAC are confident that they have acted appropriately and will continue to cooperate with the government’s inquiry,” a spokesman for SAC Capital said last month in an e-mailed statement. Cohen hasn’t been accused of any wrongdoing.

Martoma’s lawyer, Charles Stillman, said in an e-mailed statement last month that he expected Martoma to be fully exonerated.


SEC Claims Chicago Private Equity Fund Manager Misled Investors

The U.S. Securities and Exchange Commission sued Resources Planning Group, a Chicago-based investment adviser, and one of its owners, over claims they raised money for a failing private-equity fund to pay off existing clients.

Joseph Hennessy collected more than $1.3 million from 2007 to 2010 on false claims that a fund he helped run was viable, the SEC said in a lawsuit filed last week at U.S. District Court in Illinois. Hennessy used at least $641,000 to make partial payments to customers holding promissory notes that he had personally guaranteed, the SEC said.

James Kopecky, a lawyer for RPG, said in an interview that the firm will fight the SEC’s claims.

“Resources Planning Group is a clean shop with no disciplinary history, and they cater to investors who know what they’re doing,” Kopecky said.

The SEC has stepped up its scrutiny of the private-equity business following the 2008 financial market turmoil which forced firms to write down the value of their holdings. After the 2010 Dodd-Frank Act authorized greater oversight of money managers, the agency initiated a broad review of practices at private-equity and hedge funds, including how assets are valued and claims of unusually high performance.

Kevin Flynn, an attorney for Hennessy, didn’t immediately return a phone call seeking comment on the allegations.

The case is Securities and Exchange Commission v. Resources Planning Group, Inc., 12-cv-09509, U.S. District Court, Northern District of Illinois (Chicago).

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