EEOC, BofA, Ebix, Zimbabwe, BNY Mellon, Munis: Compliance

The U.S. Equal Employment Opportunity Commission must pay $4.6 million in attorneys’ fees and expenses to CRST, an Iowa trucking company, because of a sexual harassment and discrimination suit that was thrown out.

The award, considered to be the biggest of its kind in an EEOC case, is a “rare occurrence,” according to Gerald L. Maatman, Jr., an employment lawyer at Seyfarth Shaw LLP who isn’t involved in the case. “You read decisions every day, but this is stunning in terms of its significance,” he said yesterday in a phone interview.

The EEOC originally sued the trucking company in 2007 claiming that its female employees were subject to sexual harassment and a hostile work environment.

Almost one year later, the agency still hadn’t identified the total number of individuals in the class. In a series of rulings in 2009, Linda R. Reade, the chief judge of the U.S. District Court for the Northern District of Iowa, dismissed the EEOC claims asserting a “pattern or practice” of harassment and ultimately barred the agency from “pursuing relief on behalf of all 255 allegedly aggrieved individuals the EEOC had identified.”

The court at the time also held that the EEOC had “wholly abandoned its statutory duties” because it failed to investigate some of the individual claims until after it had filed its complaint.’’

While the U.S. Court of Appeals for the Eighth Circuit had upheld part of her decision, the appellate court remanded the case to adjudicate two of the individual claims.

On remand, the court reiterated that the potential class action couldn’t survive. Because CRST was the prevailing party, it was entitled to attorneys’ fees and expenses.

Maatman said that “the test to award fees against the government is quite high. The fact that the judge said CRST had proved its right to fees, shows that the EEOC should never have brought this case.”

CRST was represented by Jenner & Block LLP. While the court included most of the hours worked in determining the fee, it didn’t, however, use Jenner’s actual rates to calculate the fee award.

Instead, said John H. Mathias, Jr., the lead attorney from Jenner, “The rates were local Cedar Rapids rates. They happen to be about half what our actual rates in Chicago were.”

Mathias said in an e-mail that in the fee petition, “we asked for fees based upon local rates, as this was consistent with what the judge ruled in granting our first fee petition.”

The EEOC said it hasn’t decided whether it will appeal. EEOC spokeswoman Christine Nazer said in an e-mail that “we are deeply disappointed in the decision and are considering next steps.”

The case is Equal Employment Opportunity Commission v. CRST Van Expedited Inc., 1:07-cv-00095, U.S. District Court, Northern District of Iowa (Cedar Rapids).

Compliance Action

Bank of America Sued by U.S. Over Mortgage Securitization

Bank of America Corp., the second-biggest U.S. lender, was sued by the Justice Department over allegations that it lied to investors about the riskiness of the loans backing a 2008 mortgage deal.

The Charlotte, North Carolina-based bank misled investors about the loans in a securitization of more than $850 million in residential mortgage-backed securities, the Justice Department said yesterday in a statement on the civil claims. The Securities and Exchange Commission filed a parallel case yesterday at federal court in North Carolina.

“As we proceed with this case, and pursue additional investigations, we will continue to use every tool, resource and appropriate authority to ensure stability, accountability and -- above all -- justice for those who have been victimized,” Attorney General Eric Holder said yesterday in the statement.

The Justice Department estimated that investors in the securitization deal would sustain losses that would exceed more than $100 million.

“These were prime mortgages sold to sophisticated investors who had ample access to the underlying data,” said Bill Halldin, a Bank of America spokesman, in an e-mail statement. “The loans in this pool performed better than loans with similar characteristics originated and securitized at the same time by other financial institutions.”

Bank of America, led by Chief Executive Officer Brian T. Moynihan, has spent more than $45 billion on litigation, settlements and refunds to investors as part of the fallout from the 2008 credit crisis and the purchases of Countrywide Financial Corp. and Merrill Lynch & Co.

The bank said last week it had received subpoenas and information requests regarding mortgage securities and collateralized debt obligations created during the housing boom.

UBS to Pay $50 Million to Settle SEC Claim of Misleading CDO

UBS AG, Switzerland’s largest bank, will pay almost $50 million to settle U.S. regulatory claims that a brokerage unit improperly retained millions of dollars of upfront cash it received while acquiring collateral for a financial product.

The Zurich-based bank’s UBS Securities unit failed to tell investors in 2007 that it was keeping $23.6 million in payments rather than transferring it to the collateralized debt obligation, the Securities and Exchange Commission said in an administrative order that was filed yesterday.

The upfront payments “under the terms of the deal should have gone to the CDO for the benefit of its investors,” George S. Canellos, co-director of the SEC enforcement unit, said in a statement. “UBS misrepresented the nature of the CDO’s collateral and rendered false the disclosures about how that collateral was acquired.”

The settlement comes as the SEC wraps up its investigation of conduct and financial products that helped fuel the financial market turmoil of 2008. Probes of how banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. structured and sold CDOs linked to souring mortgages were the centerpiece of the agency’s investigation of the credit crisis.

In mid-2007, UBS structured the CDO known as ACA ABS 2007-2, the collateral for which was primarily credit default swaps on subprime residential mortgage-backed securities, the SEC said. Instead of passing the upfront payments to the CDO as was standard industry practice, UBS retained them as an extra fee, according to the order.

In the settlement, UBS agreed to disgorge the $23.6 million in upfront payments and the disclosed fee of about $10.8 million, as well as paying prejudgment interest of approximately $9.7 million and a $5.7 million penalty, the SEC said. The company agreed to settle the agency’s claims without admitting or denying wrongdoing.

“UBS is pleased to put this investigation behind us, which involved a legacy business that was closed almost five years ago,” Megan Stinson, a UBS spokeswoman, said in an e-mail. “We believe this settlement marks the conclusion of all SEC investigations relating to UBS’s structuring and marketing of CDOs backed by residential mortgage-backed securities.”

Ebix Said to Face U.S. Review for Possible Money Laundering

Federal investigators are reviewing Ebix Inc.’s cross-border financial transactions to see whether the Atlanta-based software company engaged in money laundering, according to three people with knowledge of the matter.

As reported by Bloomberg’s Greg Farrell, the focus on the company’s wire transfers around the globe follows the June disclosure by Ebix that the U.S. Attorney’s Office in Atlanta had begun an investigation into “allegations of intentional misconduct.”

The U.S. Attorney’s investigation upended a plan by Ebix Chief Executive Officer Robin Raina to take the company private. Ebix, which sells management software to insurance companies, had proposed a $820-million deal financed by Goldman Sachs Group Inc. In May, Ebix had disclosed that the U.S. Securities and Exchange Commission was investigating its accounting practices.

Tim Lynch, a spokesman for Ebix who works for the communications firm Joele Frank, said any allegations of money laundering are “false, inaccurate and likely to cause significant financial harm to Ebix shareholders.”

Robert Page, a spokesman for the U.S. Attorney’s office in Atlanta, declined to comment, as did Judith Burns, an SEC spokeswoman.

One of the people familiar with the probe is a former Ebix executive who was contacted by FBI agents. Federal Bureau of Investigation agents asked him about the company’s wiring of funds to operations in locations such as India, Sweden and Singapore, the person said.

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U.S. Charges Two Men With Illegal Lobbying for Robert Mugabe

President Robert Mugabe of Zimbabwe allegedly hired two Chicago men to lobby U.S. officials to lift economic sanctions against him in violation of federal law, according to a criminal complaint unsealed yesterday.

In exchange for those services rendered in 2008 and 2009, the men were to be paid $3.4 million, acting Chicago U.S. Attorney Gary S. Shapiro said in a statement yesterday.

While Mugabe wasn’t charged, Prince Asiel Ben Israel, 72, and C. Gregory Turner, 71, were accused of violating the International Emergency Economic Powers Act. Ben Israel appeared yesterday before U.S. Magistrate Judge Arlander Keys in Chicago, who released him on $4,500 bond. A warrant has been issued for Turner’s arrest.

“Ben Israel and Turner allegedly agreed to engage in public relations, political consulting and lobbying to have sanctions removed by meeting with and attempting to persuade U.S. federal and state government officials” to oppose them, Shapiro said.

Mugabe has led the southern African nation since 1980 and was re-elected last week. Challenger Morgan Tsvangirai, who was credited with winning 34 percent of the July 31 vote, has disputed the result. The U.S. has called the election “deeply flawed.”

Sanctions against Mugabe and other Zimbabweans were imposed in 2003 by U.S. President George W. Bush, a Republican, and were continued under President Barack Obama, a Democrat.

While the sanctions do not ban travel to the nation or prohibit public officials from meeting with “specially designated nationals,” they do prohibit lobbying, public relations and media consulting services for the Zimbabweans.

Ben Israel’s attorney, Viviana Ramirez, declined to comment after the hearing.

The case is U.S. v. Ben Israel, U.S. District Court, Northern District of Illinois (Chicago).

SAC Insider Trading Investigation Ongoing, Bharara Says

The U.S. probe of SAC Capital Advisors LP and its founder Steven A. Cohen is “ongoing” and the indictment of the fund addresses “pervasive” criminal conduct there, Manhattan U.S. Attorney Preet Bharara said.

SAC Capital was indicted July 25 in what Bharara called an unprecedented, decade-long insider trading scheme that helped the Stamford, Connecticut-based fund earn hundreds of millions of dollars in illicit profits. Prosecutors cited separate alleged insider-trading schemes by at least eight current and former fund managers and analysts.

In an interview yesterday on “CBS This Morning,” television news program host Charlie Rose asked Bharara if his office didn’t have enough evidence to charge Cohen.

“As I said when we announced the charges, the investigation is ongoing, it is not closed,” Bharara said. “And at this point, we indicted the hedge fund as I said, at the time that we announced the case, because of the degree and nature and scope of the misconduct that had gone on there for a number of years as laid out in great detail.”

While Cohen, 57, wasn’t charged, prosecutors described him in the indictment as “the fund owner” and said he “encouraged” SAC employees to obtain trading information from company insiders while ignoring indications that it was illegal. Bharara’s office also filed a related money-laundering suit against the fund on July 25. Cohen has denied any wrongdoing.

The cases are U.S. v. SAC Capital Advisors LP, 13-cr-00541 and U.S. v. SAC Capital Advisors LP, 13-cv-05182, both U.S. District Court, Southern District of New York (Manhattan).

Libor Settlements Said to Ease CFTC’s Path in Rate-Swaps Probe

The $2.5 billion of settlements reached in the London interbank offered rate rigging scandal are compelling banks to hand over information in the probe of a separate financial benchmark tied to interest-rate derivatives.

Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc, the lenders fined in the Libor case, risk criminal prosecution in the U.S. under the settlement agreements if they’re seen as withholding evidence related to potential manipulation of the benchmark known as ISDAfix, according to a person with knowledge of the matter, who asked not to be identified because details of the investigation aren’t public.

“Those banks have to cooperate at the risk of blowing whatever agreements they have,” Peter Henning, a Wayne State University law professor in Detroit and a former U.S. Justice Department prosecutor, said in a telephone interview.

The Justice Department deferred prosecution against the three banks as part of the Libor-rigging settlements and the Commodity Futures Trading Commission, the primary investigator in the ISDAfix probe, will keep it “apprised of what’s going on,” Henning said. Barclays has turned over recorded telephone calls of its traders to the CFTC, Bloomberg News reported last week.

Kerrie Cohen, a spokeswoman for Barclays, declined to comment, as did Megan Stinson at UBS and Ed Canaday at RBS. Steve Adamske, a spokesman for the CFTC in Washington, also declined to comment.

Regulators are probing manipulation of key financial gauges in world markets on everything from interest rates to currencies to commodities.

In their five-year settlement agreements with the CFTC, Barclays, RBS, and UBS said they would “cooperate fully and expeditiously with the commission” and any other governmental agency related to Libor or “any investigation, civil litigation, or administrative matter related to the subject matter of this action or any current or future commission investigation.”

U.S. investigators used such sweeping language to aid probes of other benchmarks, Henning said.

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Compliance Policy

Muni-Bond Regulator Considers Broker Rules on Customers’ Trades

The regulator of the $3.7 trillion U.S. municipal-bond market is considering rules on brokerage firms to ensure investors receive fair prices when buying and selling state and local government bonds.

The Municipal Securities Rulemaking Board, the Alexandria, Virginia-based agency that oversees the market, yesterday solicited comments on whether to impose stricter guidelines on how brokers set prices when trading with customers.

If the rules are changed, they would be similar to those that apply to trading in corporate bond and equity markets. The Securities and Exchange Commission recommended such a change last year, saying the lack of standards in the municipal market may give investors the impression they aren’t receiving the best prices possible.

The request for comment is an initial step toward developing a new regulation, which would be drafted once investors and brokers weigh in. The board would need to approve a new rule, along with the SEC.

In the Courts

BNY Mellon Must Face New York Fraud Case on Currency Trades

Bank of New York Mellon Corp. must face a lawsuit by the New York Attorney General that accuses the world’s largest custody bank of defrauding clients in foreign-exchange transactions.

Justice Marcy Friedman of New York state Supreme Court in in Manhattan ruled fraud claims brought by the state Attorney General Eric Schneiderman can proceed, according to a decision dated Aug. 5.

BNY Mellon was sued in 2011 by Schneiderman, who accused the bank of a 10-year fraud through the pricing of foreign-exchange transactions for private and government clients.

Manhattan U.S. Attorney Preet Bharara also has a lawsuit pending against the bank over the same issue, claiming it defrauded clients of more than $1.5 billion, according to court papers.

Friedman dismissed some claims at issue in the state case, including those for violations of state and city false claims laws.

“We continue to believe the remaining claims are unwarranted, and we will vigorously defend against them,” BNY Mellon spokesman Kevin Heine said in a statement.

Melissa Grace, a spokeswoman for Schneiderman, declined to immediately comment on the judge’s ruling.

The case is People of the State of New York v. Bank of New York Mellon Corp., 114735-2009, New York state Supreme Court (Manhattan).

Wells Fargo Program Didn’t Cheat Investors, Lawyer Says

Wells Fargo & Co. didn’t withhold material information about its securities-lending program from institutional investors and isn’t liable for any losses, a lawyer for the bank said at the end of a trial.

Blue Cross Blue Shield of Minnesota and 11 other plaintiffs sued Wells Fargo in 2011, alleging the company marketed a risky program as safe and cost investors millions of dollars. Wells Fargo has denied misleading the investors and blamed any losses on the financial crisis.

“Nothing Wells Fargo did or did not do harmed investors in this case,” Bart Williams, an attorney for the bank, said in closing arguments yesterday in federal court in St. Paul, Minnesota. “You can find yourself in a position, as Wells Fargo did, where all of a sudden your securities are illiquid, you can’t sell them.”

Wells Fargo misrepresented the risk and breached its fiduciary duty to the institutional investors, causing $8.2 million in losses, Mike Ciresi, an attorney for the plaintiffs, said in his closing argument yesterday.

“These are nonprofits who have missions and $8 million is an enormous loss,” he said. Wells Fargo “put its own interest ahead of the plaintiffs,” Ciresi said.

The jury is set to begin deliberating today. A separate phase on punitive damages will follow if the jury finds against Wells Fargo on the claims of breach of fiduciary duty, fraud or deceptive trade practices.

The case is Blue Cross Blue Shield of Minnesota v. Wells Fargo Bank, 11-cv-02529, U.S. District Court, District of Minnesota (St. Paul).

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