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Warren’s Bank Trials, Visa Probe, Ratings: Compliance

May 15 (Bloomberg) -- U.S. Senator Elizabeth Warren has questioned three more federal agencies’ enforcement practices by asking if they’ve studied the costs of favoring settlements with big financial firms over taking them to trial.

Warren, a Massachusetts Democrat on the Senate Banking Committee, had earlier questioned Comptroller of the Currency Thomas Curry about why his agency doesn’t take wrongdoing financial firms to trial, such as in the money-laundering case of London-based HSBC Holdings Plc. She sent a similar query in a letter yesterday to Federal Reserve Board Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Jo White and Attorney General Eric Holder.

“If large financial institutions can break the law and accumulate millions in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law,” Warren said in the letter. She argued regulators have “a lot less leverage” if they show a continuing unwillingness to go to trial.

Curry said in a response to Warren last week that the OCC hasn’t conducted research on the benefits of settling without forcing admissions of guilt, according to the letter. Warren is putting the same question to Bernanke, White and Holder about whether they’ve conducted research on the trade-offs between settling and litigating.

White said in testimony before a House Appropriations subcommittee May 7 that the SEC is reviewing its practice of settling cases without requiring defendants to admit guilt.

The policy has benefited investors while saving SEC resources, White testified. The settlements leave no question “about what the conduct was,” she said.

Compliance Action

Wal-Mart to Inspect Bangladesh Factories, Won’t Sign Safety Pact

Wal-Mart Stores Inc. said it won’t accept an agreement “at this time” to improve fire and building safety in Bangladesh that’s supported by labor monitoring groups and was signed by several retailers this week.

Instead, in the wake of the deadly Rana Plaza building collapse, the world’s largest retailer announced it would make public safety inspections at all of its suppliers’ authorized factories in Bangladesh. Labor groups say that measure falls short of what’s necessary to ensure worker safety.

The reviews of the 279 supplier plants will be completed within six months, and the factory names and inspection information will be posted on Wal-Mart’s website, the Bentonville, Arkansas-based company said yesterday in a statement. The company said it expects the costs of “appropriate remediation and ongoing safety investments to be appropriately reflected in its costs of goods purchased.”

Kevin Gardner, a company spokesman, declined to comment on how the costs of increased monitoring efforts would affect prices paid by consumers.

For more, click here.

ICAP CEO Says No Inappropriate Conduct Found in ISDAFix

ICAP Plc Chief Executive Officer Michael Spencer said an internal probe into allegations brokers manipulated ISDAFix, the benchmark for the $379 trillion swaps market, found no evidence of wrongdoing.

The Commodity Futures Trading Commission is investigating employees at ICAP’s U.S. interest-rate swap desk as well as at least 15 banks over allegations they colluded to create inaccurate quotes to a computer screen used by the industry to price swaps to inflate bank profits, Bloomberg reported April 8.

“So far, nothing that we have discovered in our internal investigations gives me sleepless nights, and nothing that I’ve heard externally suggests ISDAFix has been tampered with,” Spencer told reporters on a conference call as the London-based inter-dealer broker reported full-year earnings today. “We have adhered to our procedures, so I would refute, at this moment, that there has been any misconduct by ICAP brokers.”

ISDAFix is based on submissions made to ICAP’s New Jersey office each day and displayed on an electronic screen known as 19901, which is used by corporate treasurers, asset managers and other market participants as a measure of wholesale funding costs. Regulators are investigating potential abuse of financial benchmarks after Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc were fined a combined $2.5 billion for rigging the London and euro interbank offered rates.

“We think it is not analogous at all to the situation as regards Libor,” said Spencer, 57. “We have very strict rules for our staff” involved in the “monitoring and management of our screen. From all our investigations so far we don’t believe there’s been any failure with regards to those procedures.”

For more, click here.

Visa Europe Offers to Cap Credit-Card Fees to End EU Probe

Visa Europe Ltd. plans to “significantly” reduce the fees it sets for processing cross-border credit-card payments in a bid to allay European Union competition concerns, the bloc’s antitrust watchdog said.

Visa Europe’s offer would bring its fees in line with those of its main competitor MasterCard Inc., the European Commission said yesterday. The operator of the EU’s largest payment-card network also committed to overhaul its rules so that banks will be able to apply a reduced cross-border interbank fee when they compete for clients cross-border.

Visa Europe proposed to reduce by 40 percent to 60 percent its so-called interbank fees for credit-card payments to a level of 0.3 percent of the value of the transaction for cross-border and domestic transactions, the commission said. The remedies would last for four years. Visa Europe was sent a formal complaint over the levies last year.

Joaquin Almunia, the EU’s antitrust commissioner, said in a video statement that antitrust officials will carry out a so-called market test with industry groups before deciding to make the commitments legally binding.

Visa Europe’s so-called multilateral interchange fees “harm competition between acquiring banks, inflate the cost of payment card acceptance for merchants and ultimately increase consumer prices,” the commission said yesterday.

“Today’s outcome is the result of constructive dialogue between Visa Europe and the European Commission and is in line with the level of 0.3 percent established in the industry,” Peter Ayliffe, Visa Europe’s chief executive officer, said in an e-mailed statement.

Cheung Kong Cancels Hotel-Room Sales After Regulator Probe

Cheung Kong Holdings Ltd., the developer controlled by Asia’s richest man, is canceling the sale of HK$1.4 billion ($180 million) of hotel rooms after Hong Kong’s securities regulator began a probe into the transactions.

Cheung Kong, controlled by billionaire Li Ka-Shing, will return all deposits and part payments plus interest to all the buyers of the individual rooms at the Apex Horizon project in the city’s west, after being notified by the Securities and Futures Commission that the sales constitute a unauthorized “collective investment scheme,” the developer said in a statement to Hong Kong’s stock exchange May 13.

The sale of the 360 hotel rooms in February drew the government’s ire as it was seen as a means of skirting an increase in taxes on apartments that was aimed at cooling prices. Within days of the sale, the government extended the taxes to include hotels and other commercial property, and sent inspectors to check that Apex Horizon units weren’t being used as residences.

“We do not agree” with the SFC, Cheung Kong said in a separate e-mailed statement. The decision was made “as the difference in legal opinion may lead to legal uncertainty in respect of the sale and purchase of the hotel room units, which may affect the buyers’ ownership, mortgage arrangement or subsequent sale of the hotel room units,” the company said.

Hong Kong’s securities law requires the regulator’s authorization before a collective investment scheme can be marketed to the public, according to a statement on the SFC’s website yesterday.

The SFC intended to start legal proceedings seeking orders to unwind the sale, according to the statement. The agreement with Cheung Kong avoids court action at this stage, it said.

For more, click here.

EU Confirms Raids on Companies in Oil and Biofuels Sector

The European Commission said antitrust officials raided the premises of “several companies active in and providing services to the crude oil, refined oil products and biofuels sectors.”

These inspections took place in two European Union member states, the commission said in an e-mailed statement yesterday.

The raids took place over concerns the companies “may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products,” the commission said in the statement.

Inspections were also carried out on its behalf by the European Free Trade Association’s Surveillance Authority in one European Economic Area member state, the Brussels-based commission said.

Separately, Suedzucker AG and Nordzucker AG, Europe’s biggest sugar producers, were among makers of the sweetener visited by EU antitrust officials.

Officials from the 27-nation bloc were at Suedzucker’s offices at the end of April and it doesn’t expect “any implications” from the visit, Nikolai Baltruschat, managing director of investor relations, said by phone from Mannheim, Germany. Nordzucker was also visited, said Klaus D. Schumacher, a spokesman for the Braunschweig, Germany-based company.

The EU’s antitrust commissioner Joaquin Almunia said EU officials carried out “surprise inspections” last month at white sugar producers in several member states. Baltruschat and Schumacher declined to provide details of the visit.

Sugar producers in the EU have been linking up as the bloc cut production quotas, with France’s Cristal Union buying Groupe Vermandoise last year, Nordzucker acquiring Danisco Sugar AS in 2009 and British Sugar Plc buying the sugar unit of Ebro Foods SA in 2008. British Sugar is owned by Associated British Foods Plc in London.

Tate & Lyle Sugars wasn’t visited by EU officials, according to Gerald Mason, vice president of EU affairs at the refining company, owned by American Sugar Refining Inc.

Courts

Ranbaxy to Pay $500 Million to Settle Criminal, Civil Cases

Ranbaxy Laboratories Ltd. agreed to pay $500 million to resolve fraud allegations made in a whistle-blower’s lawsuit and federal criminal charges that the company sold adulterated drugs while lying about it to U.S. regulators.

Ranbaxy, in papers filed in federal court in Baltimore May 13, admitted it sold batches of drugs that were improperly manufactured, stored and tested. The company, India’s biggest drugmaker, also pleaded guilty to making fraudulent statements to the Food and Drug Administration about how it tested drugs at two of its Indian plants.

The resolution of the lawsuits and the criminal charges filed yesterday caps allegations about Ranbaxy’s practices dating to 2003 when the company distributed a batch of acne medication it knew had failed a quality test, according to the criminal charges.

In January 2012, Ranbaxy settled an FDA lawsuit by agreeing to stop production of drugs for the U.S. market at the two plants until they met American standards. In 2007, the whistle-blower’s lawsuit, unsealed May 13, alleged the company defrauded public health-care programs.

The felony criminal charges included provision for the payment of a fine and forfeiture of funds. The false claims portion of the settlement directs the company to pay the U.S. and states, as well as the whistle-blower in the civil case, Dinesh Thakur, of Belle Mead, New Jersey, a former Ranbaxy executive.

“While we are disappointed by the conduct of the past that led to this investigation, we strongly believe that settling this matter now is in the best interest of all of Ranbaxy’s stakeholders,” Arun Sawhney, chief executive officer and managing director of Gurgaon, India-based Ranbaxy, said in a statement. “The conclusion of the DOJ investigation does not materially impact our current financial situation or performance.”

The company said in the settlement agreement to the lawsuit that it denies wrongdoing in the civil case.

The criminal case is U.S. v. Ranbaxy U.S.A., 13-cr-00238, U.S. District Court, Maryland (Baltimore). The civil case is Thakur v. Ranbaxy U.S.A. Inc., 07-cv-00962, U.S. District Court, Maryland (Baltimore).

Interviews/Panels

Borg Says May Need to Curb Banks’ Use of FX Financing

Swedish Finance Minister Anders Borg talked with Bloomberg’s Rebecca Christie about efforts to stimulate European economies, the proposed banking union and measures to curb banks’ use of foreign-exchange financing.

They spoke yesterday in Brussels.

For the audio, click here.

Levitt Says Falcone’s SEC Settlement Is ‘Unfortunate’

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said the SEC’s decision to settle with Harbinger Group Chief Executive Officer Philip Falcone “sends the wrong message.” Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Campos Says SEC-Endorsed Ratings Would Distort Market

Roel Campos, a partner at Locke Lord Bissell & Liddell LLP and a former commissioner at the U.S. Securities and Exchange Commission, talked about regulation of the credit-ratings industry and U.S. Senator Al Franken’s plan to create an SEC board to select which firms grade asset-backed bonds, rather than leaving it to the banks that pay the raters.

He spoke with Erik Schatzker and Trish Regan on Bloomberg Television’s “Market Makers.”

For the video, click here, and for more, see panel discussion, below.

Credit-Ratings Industry Is Oligarchy to Be Broken, Franken Says

Senator Al Franken, a Democrat from Minnesota, said financial regulators must intervene in the credit ratings industry or risk another U.S. financial “catastrophe.”

“My plea today is that you take action,” Franken said at Securities and Exchange Commission credit ratings roundtable in Washington yesterday.

The ratings companies Standard & Poor’s and Moody’s Investors Service didn’t give financial products “accurate, objective ratings,” Franken said.

Senator Roger Wicker, a Republican from Mississippi, urged the SEC to take the “next steps” to revamp the industry.

Franken said his joint bill with Wicker would require the agency to name an independent board that would appoint different credit rating agencies to assign ratings based on an agency’s expertise and eventually its track record. Such a set-up would restore trust in the market and allow smaller agencies to break up the current “oligarchy,” Franken said.

SEC Commissioner Luis Aguilar, who also spoke at the roundtable, said “the past can’t be repeated.”

Jules Kroll, a former private investigator who started a bond-rating company after the financial crisis, said the largest credit-rating firms are again putting profits ahead of accuracy amid record demand for corporate debt.

He made the remarks yesterday at the U.S. Securities and Exchange Commission roundtable in Washington.

Douglas Peterson, president of Standard & Poor’s Ratings Services, said that plan would introduce “new conflicts” and would be slow to implement.

“A government assignment system could create uncertainty, could slow down markets, and disrupt capital flows at a time when we could least afford it,” he told the group.

Franken pressed the SEC to change the system, noting his plan had bipartisan support in the Senate before it was watered down in a conference committee. He blamed the ratings companies for not doing their jobs, contributing to a housing crash that caused millions of Americans to lose their employment.

Kermit Roosevelt, a professor of constitutional law at the University of Pennsylvania, said a system that strictly forbid bond issuers from picking and paying a company to rate the securities could be unconstitutional.

“That is a prohibition on speech, and that I think is more constitutionally vulnerable,” Roosevelt said.

In November, the SEC said credit-ratings companies failed to follow their own standards, were late in downgrading deals, and delayed disclosure of methodology changes.

Dodd-Frank requires regulators to stop relying on ratings and increase oversight of companies that issue them.

For more, click here.

To contact the reporter on this story: Carla Main in New York at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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