Pruco Finra Fine, SAC-InterMune Panel, China: Compliance

Pruco Securities LLC, the brokerage run by Prudential Financial Inc., will pay customers at least $10.7 million to make up for delays in placing more than 850,000 mutual fund orders.

Trades were placed one to two days after the orders arrived by fax or mail, causing some customers to get inferior prices from late 2003 until June 2011, the Financial Industry Regulatory Authority said yesterday in a statement. Finra also fined Pruco $550,000 for the errors and oversight failures.

Companies must price mutual fund orders that arrive before 4 p.m. on the day they’re received, Finra said. Prudential, the second-largest U.S. life insurer, managed $132 billion for retail customers at its retirement division as of Sept. 30.

Prudential reported the errors to Finra after discovering them when looking into a delay in executing a faxed order.

“Once we did discover it, we moved as quickly as we could to make certain that we had notified Finra and took steps to prevent it from happening again,” said Bob DeFillippo, a spokesman for the Newark, New Jersey-based company. The company will “make certain” that anyone who was harmed receives “what they are entitled to plus interest,” he said.

The errors resulted in some customers receiving more favorable pricing, and those customers won’t see adjustments that cut the value of their accounts, DeFillippo said.

Compliance Policy

Philippines to Retain 10% Minimum Capital Ratio Under Basel III

Bangko Sentral ng Pilipinas will impose a minimum core equity Tier 1 ratio of six percent under the Basel III accord, up from five percent, Deputy Governor Nestor Espenilla told reporters in a briefing in Manila.

The minimum Tier 1 ratio will be 7.5 percent, with a conservation buffer of 2.5 percent, Espenilla said.

The new guidelines are to take effect Jan. 1, 2014, according to Espenilla.

Under Basel III, commercial and universal banks and units with less than 7.251 percent common equity Tier 1 capital are to be barred from distributing dividends. Those with as much as 8.5 percent may pay 50 percent of earnings as dividends and those exceeding 8.5 percent may approve dividends equivalent to 100 percent of earnings, Espenilla said.

China Scholars Demand Ruling Party Relax Its Grip on Government

A group of Chinese intellectuals wrote a letter demanding the Communist Party end Internet censorship and ease its grip on the courts, according to a copy posted on the blog of one of the signatories.

The letter, signed by 71 people and posted on the blog of Peking University law professor Zhang Qianfan, calls for the party to end its oversight of government personnel decisions, leave court decisions to judges and lawyers, and allow people to speak and assemble freely. Zhang, who helped draft the letter, confirmed in a brief phone call that the letter was genuine.

The document comes as the Communist Party’s new leaders, including General Secretary Xi Jinping, have demanded some reforms including a crackdown on corruption and a halt to extravagance by government officials.

The petition was reminiscent of Charter 08, a petition seeking similar reforms. One of its organizers, Liu Xiaobo, was sentenced to 11 years in prison for state subversion. He was awarded the Nobel Peace Prize in 2010 for his efforts to promote democracy and human rights.

Chinese Foreign Ministry spokeswoman Hua Chunying said she hadn’t seen the report and declined to comment.

Shanghai Ponders Blacklists of Food Producers, Xinhua Says

Food companies in Shanghai may face blacklists under a policy under consideration by the municipal government that would “impose harsh punishments” on producers violating food safety rules, Xinhua reported yesterday, citing a senior official without providing the person’s name.

The blacklisting mechanism would cover 11 types of misconduct, according to Vice Mayor Shen Xiaoming, the newspaper said. Company executives will be included in the blacklist.

Food companies that use banned drugs or other substances “that might be harmful to people” when planting or processing farm produce, or transporting it, may be blacklisted under the proposal, the paper reported.

Other banned activities include using banned food additives and recycling food as a raw material. Blacklisted companies will face restricted market access and their executives will be banned from operating food businesses in Shanghai, according to the Xinhua report.

Nigeria Stockbrokers Urge Funding Securities Agency, AAGM Says

The Association of Stockbroking Houses of Nigeria yesterday urged the federal government to resolve a conflict with the Securities and Exchange Commission relating to its funding, All Africa Global Media reported, citing a statement issued by ASHON President Emeka Madubuike, made available to journalists in Lagos.

Passage of the 2013 budget “without allocation of funds” to the SEC is a threat to recovery of the capital market and to Nigeria’s economic development, Madubuike said, according to AAGM.

The House of Representatives directed that the commission’s funding be withheld in an appropriation bill it passed on Dec. 20. The conflict “should be urgently resolved” to avoid jeopardizing the entire economy, Madubuike said, the AAGM reported.

Compliance Action

FDA Tipped Advisers on InterMune Rejection Tied to SAC Probe

Three members of an independent advisory panel said they received as much as a day’s notice in May 2010 before U.S. regulators rejected a drug from InterMune Inc., now tied to an insider trading probe of SAC Capital Advisors LP.

InterMune’s shares fell 5.4 percent the day before the company announced the rejection, at a time when the panel members knew the product was doomed. Others at the company and at the Food and Drug Administration were aware of the rejection too, and there’s no evidence the 11 panelists did anything wrong. The members reached by Bloomberg said they hadn’t been contacted by U.S. authorities and weren’t aware of a probe.

The information they received, though, demonstrates how broad the potential for leaks can be. Federal investigators are looking at trades in Intermune that SAC, the $14 billion hedge fund run by Steven A. Cohen, made in the first half of 2010, a person familiar with the matter has said. It shows more people beyond the company and the FDA had the information about the drug’s impending rejection.

Two months earlier, the advisory panel voted to support approval of Brisbane, California-based InterMune’s drug, a treatment called Esbriet developed to be used against idiopathic pulmonary fibrosis, a rare lung disease. The final FDA decision, announced by the company after the close of trading on May 4, 2010, overturned that recommendation. The panel members wouldn’t identify the FDA employee who called them. InterMune shares plunged 75 percent on May 5, 2010.

Erica Jefferson, an FDA spokeswoman, said the agency would have no comment on whether panel members got notice of the rejection. The FDA requires that advisory panel members adhere to confidentiality rules for market-sensitive information they get as part of their roles, she said.

The other panel members either didn’t return phone calls or e-mails, or couldn’t be reached.

Jonathan Gasthalter, a spokesman for SAC Capital, said on Dec. 10 that the firm wasn’t aware of any investigation involving trades of InterMune.

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Rajaratnam Agrees to Pay $1.5 Million to Settle SEC Civil Case

Galleon Group LLC co-founder Raj Rajaratnam, who is serving 11 years in prison for insider trading, agreed to pay $1.5 million to settle a civil case brought by the U.S. Securities and Exchange Commission.

Rajaratnam agreed to pay $1.3 million representing profits gained and losses avoided as a result of the conduct the SEC alleged in the case, according to a filing yesterday in federal court in New York. He will also pay $147,738 in interest.

Rajaratnam was convicted of directing the biggest hedge fund insider-trading scheme in U.S. history.

The agreement yesterday stems from a civil case in which Rajaratnam is a co-defendant with one of his alleged sources of illicit information, former Goldman Sachs Group Inc. director Rajat Gupta, who was sentenced to two years in prison for insider trading.

The $1.5 million total disgorgement is in a case separate from a lawsuit in which Rajaratnam is appealing a record $92.8 million penalty imposed by the SEC. In that case, Rajaratnam had argued that he shouldn’t have to pay a civil penalty because the judge in the criminal case ordered him to pay a $10 million fine and forfeit $53.8 million.

Gupta was convicted by a jury in June of one count of conspiracy and three counts of securities fraud involving passing illegal information to Rajaratnam. The SEC had argued that Gupta should be required to pay the maximum civil penalty and is seeking $15 million from him. Gupta has objected to paying that much.

The case is U.S. Securities and Exchange Commission v. Gupta, 11-07566, U.S. District Court, Southern District of New York (Manhattan).

Analyst Indicted in Insider-Trading Case Tied to IBM-SPSS Deal

Australian financial analyst Trent Martin was indicted in the U.S. on charges stemming from an alleged insider-trading scheme tied to International Business Machines Corp.’s $1.2 billion acquisition of SPSS Inc.

Martin was charged with conspiracy and securities fraud, federal prosecutors in Manhattan said yesterday in a statement. Martin also faces a civil suit over the alleged scheme filed by the U.S. Securities and Exchange Commission.

Prosecutors and the SEC didn’t identify where Martin, 33, worked when the alleged crimes occurred. Prosecutors said he learned confidential information from a corporate lawyer, not identified in court papers, who was working on the IBM deal and with whom he was close friends.

Martin bought SPSS stock based on the information in June 2009 and shared the tip with his Manhattan roommate, Thomas Conradt, who worked as a stock broker, who in turn tipped off his coworker and friend David Weishaus, who passed the information to two other unidentified brokers they worked with, prosecutors said.

Conradt and Weishaus were indicted on charges related to the alleged scheme on Nov. 29. They have pleaded not guilty to the charges. Martin was arrested in Hong Kong on Dec. 22 and remains in custody.

No information regarding a defense attorney for Martin was available in court records. A spokeswoman for the Manhattan U.S. Attorney’s office said the information for the defense counsel wasn’t yet available. The case was adjourned to Jan. 4 so he can obtain legal advice, the department said.

The case is U.S. v. Martin, 12-cr-887, U.S. District Court, Southern District of New York (Manhattan).


CBRC Official Says Banks to Face Capital Pressure, Daily Reports

China’s banking sector will face “relatively large” pressure to replenish capital in the next 10 years, Economic Information Daily reported, citing Du Jinfu, secretary of the discipline inspection commission at the China Banking Regulatory Commission, as saying.

The banking industry needs to focus on raising the proportion of non-credit assets to total assets, Du said, according to Daily’s report.

Lenders should switch their operational models to conserving capital, Du said.

Comings and Goings

Karen Solomon to Serve as Acting Chief Counsel of OCC

Karen Solomon will begin a three-month term as acting chief counsel of the Office of Comptroller of the Currency on Jan. 1 while the agency continues its search for a successor to Julie Williams, the OCC said in an e-mailed statement yesterday.

When Williams stepped down as chief counsel on Sept. 30, two deputy chief counsels asked to take turns serving in an acting capacity until a successor is named; deputy Dan Stipano is about to finish a three-month term.

The OCC, which administers national banks, is an independent bureau of the Treasury Department. The Comptroller also is a director of the Federal Deposit Insurance Corporation.

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