Muni-Bond Settlement, Empire State, CFTC Rule: Compliance

Citigroup Inc. and Bank of America Corp.’s Merrill Lynch are among five firms that will pay $4.48 million to settle regulatory claims they used funds from municipal and state bond deals to pay lobbyists.

Local authorities were unfairly asked to reimburse payments that the firms made over five years to a California lobbying group to help them influence the state, the Financial Industry Regulatory Authority said yesterday in a statement. The firms inadequately described the fees, wrapping them into bond-underwriting expenses, Finra said.

The banks, also including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, agreed to pay $3.35 million in fines and reimburse certain California bond issuers $1.13 million, according to the statement. Citigroup’s $1.28 million in sanctions were the largest, followed by Merrill’s $1.07 million.

The lobbying payments spanned 2006 through 2010, according to Finra. The companies didn’t admit or deny wrongdoing.

Goldman Sachs “discontinued the longstanding industrywide practice of seeking reimbursement for such fees” in California last year, the bank said in a statement. It also refunded the lobby-group fees that had been charged on state-level issuances in which the firm was lead underwriter.

Spokesmen for New York-based Citigroup and Charlotte, North Carolina-based Bank of America said the firms are pleased to have resolved the matter. Spokesmen for New York-based JPMorgan and Morgan Stanley didn’t immediately respond to messages seeking comment.

Compliance Policy

China Passes Law Requiring People Identify Themselves Online

China passed rules today requiring people to identify themselves when signing up for Internet and phone services, as the Communist Party tightens control over the world’s largest population of web users.

The law, ratified by the Standing Committee of the National People’s Congress, will enhance protection of personal information online and “safeguard public interests,” the official Xinhua News Agency said. China, home to 550 million web users, censors the Internet by blocking access to websites with pornography, gambling and content critical of the Communist Party’s rule.

The rules may give the party greater control over mobile phone users, as well as microblogs and websites that have become platforms for people to air dissent, rumor and claims of corruption not tolerated in print media. The party’s image was damaged after online activists exposed officials who maintained extramarital affairs, snapped up property and luxury items and covered up allegations of wrongdoing by family members.

Under the law, people must give their real names when they sign up for Internet, fixed phone line or mobile phone services. Providers must also require people’s names when allowing them to post information publicly, it said.

One of the proposals under discussion for carrying out the new law is to require users to give their identification-card numbers when they sign up for Internet and mobile-phone services, according to a ministry official who declined to be identified because the information hasn’t been released.

An editorial in the state-run People’s Daily on Dec. 24 said online freedom must not impinge on the freedoms of others.

For more, click here.

China May Allow Securities Fund Sales on E-Commerce Websites

China may allow asset management companies to sell securities fund products on third-party e-commerce websites to boost sales, according to a statement posted on the China Securities Regulatory Commission’s website yesterday.

The regulator issued a draft regulation to seek public feedback yesterday, the statement says.

Compliance Action

Empire State Building IPO Vote Can Proceed, Regulators Say

The company that controls the Empire State Building can go ahead with a vote to allow the iconic New York skyscraper to be included in a proposed real estate investment trust.

The U.S. Securities and Exchange Commission issued a “notice of effectiveness” yesterday for the plan to ask about 2,800 co-investors in the tower to approve the conversion of their interests into units of Empire State Realty Trust Inc., a REIT proposed by Peter Malkin and his son Anthony. Empire State Realty filed in February to raise as much as $1 billion in an initial public offering.

The determination means the SEC believes the offering document contains enough information for the investors to make an informed decision, said Thomas Voekler, an attorney at Richmond, Virginia-based Kaplan Voekler Cunningham & Frank Plc, who specializes in real estate public offerings. A group of investors whose parents and grandparents bought shares in the tower in the early 1960s have challenged the Malkins, saying the offering shortchanges them.

While yesterday’s filing says nothing about the merits of the proposed offering, “it’s a very important step,” Voekler said in a telephone interview. After months of amendments, “the disclosure document is set where it’s going to be set.”

The Malkins want to consolidate the tower and 18 other properties they control into a publicly traded company. Malkin Holdings LLC confirmed that the SEC declared the offering statement, known as an S-4, effective.

The company “will commence its solicitation of investors in due course,” Hugh Burns, a spokesman, said in an e-mail.

Empire State Realty hasn’t specified the number of shares it plans to sell or the price range. The $1 billion is a placeholder amount used to calculate fees and may change when the terms are set.

The Malkins need 80 percent approval from the 3,300 units held by the co-investors to include the skyscraper in the IPO. Unitholders of companies that control 1 Grand Central Place, formerly known as the Lincoln Building, and the Fisk Building at 250 West 57th St. also must approve the plan.

A separate set of investors agreed in September to settle a class-action lawsuit challenging the proposed offering.

Hewlett-Packard Says Justice Department Opened Autonomy Probe

The U.S. Justice Department opened an investigation relating to Autonomy Corp. after Hewlett-Packard Co. accused the software company of misrepresenting its performance before being bought last year.

Justice Department representatives informed the company on Nov. 21 of the probe, Hewlett-Packard said yesterday in its annual 10-K regulatory filing. The computer maker booked an $8.8 billion writedown related to Autonomy last month after finding that some revenue had been recorded prematurely or improperly.

Hewlett-Packard is cooperating with authorities while Chief Executive Officer Meg Whitman works to turn around the company after years of strategic missteps. Palo Alto, California-based Hewlett-Packard also said it’s providing information to U.S. and U.K. regulators.

Former Autonomy CEO Mike Lynch, who left Hewlett-Packard in May, struck a $10.3 billion deal last year with Whitman’s predecessor, Leo Apotheker, to sell the company he co-founded.

Yesterday’s filing didn’t include any additional details behind Hewlett-Packard’s claims of accounting errors, which made up $5 billion of the writedown.

Michael Thacker, a spokesman for Hewlett-Packard, declined to comment yesterday beyond details in the filing.

“It is extremely disappointing that HP has again failed to provide a detailed calculation of its $5 billion writedown of Autonomy, or publish any explanation of the serious allegations it has made against the former management team, in its annual report filing,” Lynch wrote in a statement yesterday, in which he pledged full cooperation with any investigation.

“We continue to reject these allegations in the strongest possible terms,” he said in the statement.

For more, click here.


Wells Fargo Wins Order Reversing Decision on Overdraft Fees

Wells Fargo & Co. won its bid to throw out a judge’s order that it pay California customers $203 million for manipulating debit-card transactions to boost overdraft fees.

The decision, issued Dec. 26 by the U.S. Court of Appeals in San Francisco, reverses a lower-court order requiring Wells Fargo to cease its practice of charging overdraft fees based on its posting in high-to-low order customers’ debit-card transactions. The bank’s practice is a “federally authorized pricing decision,” the appeals court ruled.

The three-judge panel also returned the case to the district court, finding that Wells Fargo is liable for fraud violations of California’s unfair competition law. The lower court was directed to determine what damages, if any, Wells Fargo must pay.

Customers alleged in the 2007 complaint that San Francisco-based Wells Fargo changed the way it treated daily debit transactions and cash withdrawals in 1999 so that transactions with the highest dollar amount posted first, rather than in the order they occurred.

The practice, which customers alleged was intended to boost revenue from overdraft fees, led to account holders overdrawing funds by small amounts multiple times a day, according to the complaint.

Wells Fargo, the biggest U.S. bank by market value, had argued to the appeals court that customers were warned about the practice, which was stated in account agreements and allowed by the Federal Reserve and other national bank regulators.

The decision “largely reaffirms Wells Fargo’s position,” bank spokesman Ancel Martinez said in an e-mailed statement. “We look forward to resolving the remaining issues,” he said.

Michael Sobol, a lawyer representing plaintiffs in the case, didn’t immediately return a phone call seeking comment.

The case is Gutierrez v. Wells Fargo, 10-16959, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

CFTC Mutual Fund Rule Appeal Sought by Chamber of Commerce

The U.S. Chamber of Commerce is seeking to appeal a judge’s decision to uphold a rule by the Commodity Futures Trading Commission requiring mutual funds with commodities investments to register with the agency.

The Chamber of Commerce and the Investment Company Institute filed a notice of appeal yesterday in federal court in Washington, seeking to ask an appeals court to reverse a Dec. 12 ruling by U.S. District Judge Beryl Howell that the CFTC acted properly and within its authority when it issued the rule.

Howell, writing in a 93-page opinion, rejected arguments by the chamber of commerce and the institute that the rule is unnecessary, and that the commission didn’t properly assess the costs and benefits when it approved the regulation in February.

David Hirschmann, president and chief executive officer of the chamber’s Center for Capital Markets Competitiveness, said in an e-mailed statement that the District Court’s decision fell short of well-established D.C. Circuit precedent requiring agencies to “adequately measure the costs imposed by capital markets regulations on businesses, investors and the economy.”

Under the rule, funds would have to file reports with the CFTC about their use of leverage, exposure to risk from counterparties and other investment trading data. The groups argued the measure isn’t needed because mutual funds are already overseen by the Securities and Exchange Commission.

Stephanie Allen, a CFTC spokeswoman, declined to comment on the notice of appeal.

The case is Investment Company Institute v. U.S. Commodity Futures Trading Commission, 1:12-cv-00612, U.S. District Court, District of Columbia (Washington).


Rosner Says Big Banks Becoming ‘GSEs of Next Decade’

Joshua Rosner, an analyst at Graham Fisher & Co., talked about the outlook for U.S. banks, financial regulation and the residential housing market.

Rosner spoke with Sara Eisen and Alix Steel on Bloomberg Television’s “Surveillance.” Neil Barofsky, former special inspector for the U.S. Treasury’s Troubled Asset Relief Program and a Bloomberg Television contributing editor, also spoke.

For the video, click here.

U.K. Bank Group Plans Consumer Panel, Advisory Council, FT Says

Banks have become “detached from the rest of the country,” and need to “get reintegrated,” British Bankers’ Association Chief Executive Officer Anthony Browne told the Financial Times in an interview.

Bank chairmen “realize that banks need to have a wider social purpose beyond generating return on equity,” Browne said. The BBA will write to members to tell them it’s setting up panel and council, FT reported.

BankUnited CEO Says Volcker Rule Has Bankers’ ‘Hair on Fire’

The Volcker rule, which began as a simple concept, has morphed into “one of the more complex issues in banking,” BankUnited Chief Executive Officer John Kanas told CNBC.

“Bankers didn’t figure it would affect smaller institutions, but now it affects institutions all the way down to $50 million community banks and it’s got people running around with their hair on fire trying to figure out how to implement” the rule, he said.

The pending rule on so-called qualified mortgages has the “potential to become a serious impediment in the mortgage” industry, Kanas added.

He predicted more firings and consolidation in the banking industry. Kanas noted that smaller banks already are “quietly having to shrink down.”

BankUnited will look to buy underperforming small banks “when we can buy them at the right price,” Kanas said.

Comings and Goings

EPA Administrator Lisa Jackson to Leave Agency Early Next Year

Lisa Jackson said she will step down as head of the Environmental Protection Agency after four years during which she oversaw the first efforts to curb carbon-dioxide emissions to combat global-warming risks.

Jackson, 50, made the announcement today in a statement released by the agency. Her plan is to leave after the president’s State of the Union speech next month.

Under Jackson the EPA negotiated fuel-efficiency standards with automakers and set the first-ever rules for mercury pollution from coal-fired power plants.

Health and environmental groups have praised Jackson for taking up rules that were delayed or weakened under the previous administration, while Republicans in Congress complained that the EPA’s efforts were choking off the still-struggling U.S. economy.

(Corrects item under Compliance Action to remove error originally reported in a story on Empire State on Dec. 26, removing reference to dissident investor.)
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