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Virtual Currency, EU Rulebook, U.K.-EU Clash: Compliance

June 18 (Bloomberg) -- Transactions within virtual economies or using virtual currencies may produce taxable income and the U.S. Internal Revenue Service should find low-cost ways to make taxpayers aware of compliance risks, according to a report by the Government Accountability Office.

The IRS has agreed with the recommendation, according to the GAO.

“Virtual economies and currencies pose various tax compliance risks, but the extent of actual tax noncompliance is unknown,” the GAO said in its report.

Compliance Policy

Relaxed Japan Short-Selling Rules to Be Permanent From November

Rules making it easier for investors to short Japanese stocks will become permanent in November, according to the nation’s markets regulator.

Investors selling borrowed securities in hopes of profiting by repurchasing them at a lower price and pocketing the difference will be allowed to make a trade at any price, unless the stock has fallen 10 percent from the previous close. Currently, short sellers aren’t allowed to accept bids or offer to sell shares below the lowest price offered by long investors. The law is part of a package that will for the first time explicitly include trades made on alternative platforms that display prices, known as proprietary trading systems.

The rule changes will replace a series of ad-hoc short-selling regulations that Japan’s Financial Services Agency has been periodically renewing, including a ban on short sales without holding the underlying security, known as a naked short, in place since October 2008. The announced rules, including the restriction on naked shorts, will become permanent in November, according to an April 23 statement from the regulator.

The regulator is still reviewing whether and how to widen the scope of trades that could be covered in regulations, according to the statement.

EU Nations Clinch Deal on Markets Law, Irish EU Presidency Says

European Union nations brokered a deal on a wide-ranging overhaul of the bloc’s financial market rulebook that seeks to prevent flash crashes and stop banks building up huge hidden risks.

Ambassadors from the EU’s 27 nations reached an agreement on the more-than 300-page rulebook at a meeting yesterday in Brussels, according to an e-mailed statement by Ireland, which holds the EU’s rotating presidency.

The plans, which must be agreed on with the European Parliament to take effect, would also toughen oversight of high-frequency trading, curb speculation with commodity derivatives, and push more transactions onto regulated platforms.

Separately, the U.K. said that giving a European Union agency emergency powers to ban some securities trades may be illegal -- in the country’s latest clash over EU decision-making after failing to derail curbs on banker bonuses.

Britain said draft EU rules that were endorsed by governments yesterday may cede too many powers to the European Securities and Markets Authority, according to a document setting out the U.K.’s stance, obtained by Bloomberg News.

Britain, which lacks a veto on financial laws, has often found itself on the defensive in EU discussions on financial regulation.

The latest clash concerns plans to revamp the EU’s Markets in Financial Instruments Directive, or Mifid. While the overhaul foresees giving broader powers to ESMA, the Paris-based agency could only use them as a last resort if there was a threat to the EU’s financial stability, and if national regulators were unwilling or unable to act.

Ambassadors for the EU’s 27 nations reached a deal on the Mifid law yesterday, setting up negotiations with the European Parliament on the final version of the text. Under yesterday’s deal, exchanges will be obliged to share their trade data with clearinghouses owned by other operators. The accord allows this access to be refused if there are signals that it could pose a threat to financial stability.

Lawmakers at the European Parliament must agree on the draft Mifid law before it can take effect.

EU Banks Face Targets for Loss-Absorbing Debt in U.K.-Dutch Plan

Large European Union banks would be forced to meet minimum targets for issuing debt and other liabilities that could be written down by regulators in a crisis, under a proposal by the U.K., Netherlands and Finland.

The three countries are urging other EU states to insert the minimum-target levels into draft rules for imposing losses on failing lenders’ creditors, according to a document obtained by Bloomberg News. The targets would apply to banks identified by regulators as systemically important, while minimum rules for smaller banks would be drawn up by national regulators.

Systemic banks should be forced to issue loss-absorbing securities whose value is either equivalent to 15 percent of their risk-weighted assets or 10 percent of their total capital and liabilities, according to the document, dated June 17. Regulators could choose which number to apply.

The EU’s 27 governments are racing to meet an end-June deadline to agree on the bank-failure plans, which leaders have said will be a first step toward more ambitious moves to centralize bank interventions in the 17-nation euro area.

Nations have clashed over key aspects of the law. Finance ministers will meet in Luxembourg on June 21 in a bid to thrash out a deal.

For more, click here.

Compliance Action

Ex-UBS Trader Hayes Charged in U.K. Libor Manipulation Probe

Tom Hayes, the former UBS AG and Citigroup Inc. derivatives trader, was charged as part of the U.K.’s investigation into manipulation of the London interbank offered rate.

Hayes, 33, was charged with eight counts of conspiracy to defraud at a central London police station today, the U.K. Serious Fraud Office said in a statement. He will appear at a London court on Thursday, said David Jones, an SFO spokesman.

Hayes, a British national who worked in Tokyo, was arrested in the U.K. probe on Dec. 11 and charged by the U.S. Justice Department the following day, along with one of his former co-workers from UBS. The U.S. charge was made public on Dec. 19, the same day UBS was fined by U.S., British and Swiss regulators for trying to rig Libor and similar benchmarks.

Two employees of the brokerage RP Martin Holdings Ltd. were arrested by City of London police in the same probe. Hayes, of Surrey, England, has been charged in the U.S. with wire fraud and antitrust violations.

Hayes joined UBS in 2006 and worked at the Swiss lender until 2009, when he joined Citigroup. He was dismissed by Citigroup less than a year later for involvement in suspected rate-rigging, a person with knowledge of the matter said in October. He worked at Edinburgh-based RBS from 2001 to 2003.

Hayes’s London lawyer, Lydia Jonson, didn’t immediately respond to a phone message and e-mail requesting comment.

For more, click here.

Courts

Tyco $13.1 Million SEC Settlement Approved by Federal Judge

Tyco International Ltd.’s $13.1 million settlement with the U.S. Securities and Exchange Commission over records concealing payments to foreign officials was approved by a federal judge.

U.S. District Judge Richard Leon in Washington yesterday gave a final sign-off on the agreement U.S. regulators reached with Schaffhausen, Switzerland-based Tyco in September. Tyco voluntarily disclosed the conduct that led to the SEC action, Matthew Greiner, an attorney for the agency, said yesterday during a hearing.

The judge said he expected that he wouldn’t see any “any issues or problems” in the annual reports Tyco must file with the court for the next two years on its compliance with the Foreign Corrupt Practices Act. Leon earlier had refused to approve a settlement without reporting requirements.

In a parallel criminal proceeding in September, a Tyco unit, Tyco Valves & Controls Middle East Inc., agreed to pay $13.7 million as part of a guilty plea to conspiring to violate the anti-bribery provisions of the FCPA.

The case is SEC v. Tyco International Ltd., 12-cv-01583, U.S. District Court (Washington). The criminal case is U.S. v. Tyco, 12-cr-00418, U.S. District Court, Eastern District of Virginia (Alexandria).

Interviews

Danske Bank CFO Says Considering Appeal on FSA Ruling

Danske Bank A/S Chief Financial Officer Henrik Ramlau-Hansen talked about the order to revise its internal rating model after Denmark’s Financial Supervisory Authority said the lender had underestimated its risky assets.

He spoke from Copenhagen with Anna Edwards on Bloomberg Television’s “The Pulse.”

For more, click here.

Levitt Says SEC Money Market Plan to ‘Scare Investors’

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said the agency’s plan to regulate money market funds will see investors “rush to the doors.” Levitt talked with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Comings and Goings

Liberty Mutual Hires Citigroup’s Dowling for Public Affairs

Liberty Mutual Holding Co., the third-largest seller of property-casualty coverage in the U.S., hired Colin Dowling to lead its public-affairs office in Washington as policymakers weigh capital standards and laws on terrorism protection.

Dowling joins from Citigroup Inc., where he was a managing director running state and local government-affairs programs, according to a Business Wire statement yesterday from Boston-based Liberty Mutual.

U.S. and international lawmakers are scrutinizing the balance sheets of the largest financial companies as they seek to avoid a repeat of the 2008 rescues required of banks and insurers. Policyholder-owned Liberty Mutual, which didn’t take a bailout from the U.S. Treasury Department, said its government-relations group is also evaluating possible changes in laws about taxes, trade and terrorism.

Mark Costiglio, a spokesman for New York-based Citigroup, declined to comment on the move.

Murton to Take Role of New FDIC Director of Complex Institutions

Arthur J. Murton will take over as director of the Office of Complex Financial Institutions at the Federal Deposit Insurance Corp. on July 28, the office said in the e-mailed statement.

Murton will replace James Wigand, who plans to retire, according to the statement. Wigand will serve in the office of the chairman as a senior adviser until Sept. 30.

The FDIC also appointed Diane Ellis as director of the Division of Insurance and Research. Her appointment also will become effective July 28. She’s currently deputy director for financial risk management and research in the Division of Insurance and Research.

Top Finra Regulator Resigns After Word of Bingo Fraud Is Leaked

A top official for the Financial Industry Regulatory Authority resigned after the agency was informed he was indicted for felony theft and charitable bingo fraud in 1993, the year he joined the agency.

Mitchell C. Atkins, a senior vice president who managed Finra’s work in 11 states, quit after spending 20 years with the brokerage industry self-regulator and its predecessor. A Wisconsin broker who was the target of enforcement actions overseen by Atkins wrote Finra about the indictment on May 21.

Nancy Condon, a Finra spokeswoman, confirmed that Atkins, 42, resigned. She declined to answer other questions, including when he resigned and whether the regulator knew about his indictment before he was hired. Atkins didn’t return a phone message seeking comment.

Atkins joined the National Association of Securities Dealers, Finra’s predecessor, in 1993, according to a statement released when he took over the organization’s Florida office. He oversaw a staff of 160 people regulating 850 brokerages, according to his Finra biography.

David Evansen, a Wisconsin-based broker who is appealing a Finra decision to bar him from the industry, said Atkins’s past probably would disqualify him from working in the brokerage industry.

Atkins and his father, Wilbur D. Atkins Jr., were indicted and charged with felony theft and charitable bingo fraud in March 1993 for misusing the proceeds of bingo games, according to a copy of the indictment obtained from the Supreme Court of Louisiana. He eventually pleaded guilty to a misdemeanor and did community service. His father was disbarred for his role in the matter, according to the Louisiana Attorney Disciplinary Board.

Evansen said he looked into Atkins’s past after he decided Atkins and his staff weren’t adequately considering a case against him. Finra banned Evansen from the industry, according to a record available on its website. Evansen, who was based in South Florida at the time, contends that the discipline was retaliation for a whistle-blower complaint he made about a large brokerage and clearing firm.

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

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

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