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Falcone Ban, Markit Group, Barclays, Bonuses: Compliance

Billionaire Philip Falcone was banned by New York state’s top financial watchdog from being an officer or director of Fidelity & Guaranty Life for seven years for using his hedge funds’ money for his personal taxes.

Falcone, 51, is also barred from “direct or indirect control over the management, policies, operations” and investment funds of Fidelity’s New York unit, the state’s Department of Financial Services said yesterday in a statement. The ban also applies to employees of his hedge fund, Harbinger Capital Partners LLC, which controls the insurance company.

The ban stems from Falcone’s accord in August with the U.S. Securities and Exchange Commission, which had sued him over the same allegations and banned him from the securities industry for five years. In that case, Falcone admitted to improperly borrowing $113.2 million from the fund and giving preferential treatment to some clients when returning their money.

Falcone, who became a billionaire by betting against the U.S. housing market in 2006, was approached by the office of DFS Superintendent Benjamin Lawsky, following his settlement with the SEC, Matthew Anderson, a spokesman for the New York Department of Financial Services, said in a phone interview yesterday. Lawsky regulates banks and insurers operating in New York.

Fidelity’s New York unit agreed to put in place new policyholder protections under yesterday’s agreement, including setting aside $18.5 million in a trust account to replenish its risk-based capital levels to protect consumers from unexpected losses, Lawsky said.

The New York ban comes as Fidelity is seeking a valuation of at least $1 billion in its initial public offering, according to two people involved in the planning.

Eric Goldstein, a lawyer representing Harbinger Capital, didn’t immediately return a call for comment on the DFS ban.

Compliance Policy

U.K. Watchdog Has Power to Take Back Bonuses From Market Abusers

The U.K.’s banking watchdog said it has the authority to claw back bonuses from insider traders and market manipulators without needing beefed-up enforcement powers.

The Prudential Regulation Authority’s “powers are sufficient” to recover “vested remuneration in the cases of individuals who have been the subject of successful enforcement action,” the Bank of England said in response to a June report from the Parliamentary Committee on Banking Standards.

Bonus clawbacks are part of a program of sweeping change proposed by the cross-party panel of lawmakers set up by the U.K. government last year to reform the industry in the wake of the Libor manipulation scandal. The committee also said that parts of bonuses should be deferred for as long as 10 years and that “reckless” management of lenders should be made a crime.

The Bank of England said in a statement on its website that it generally welcomes the report and intends to take forward its recommendations.

The Financial Conduct Authority, which polices financial markets from its headquarters in London, also responded to the committee’s report yesterday saying it agreed with the “wider recommendations on remuneration,” according to a statement published on its website.

Earlier, the FRC said it may propose changes to the U.K. Corporate Governance Code, which include looking at bonus clawback arrangements.

Compliance Action

Mizuho’s Ex-Banking Unit Chief Knew of Loans to Crime Groups

Mizuho Financial Group Inc.’s loan scandal deepened after the Japanese bank said a former top executive knew it was lending money to crime groups.

Satoru Nishibori, who was president of Mizuho Bank Ltd. at the time, knew of the loans to “antisocial” groups, President Yasuhiro Sato said at a news briefing in Tokyo today. The company issued a statement saying top management were aware, contrary to earlier comments and findings by Japan’s financial regulator that only the “executive in charge” had knowledge.

The scandal underscores the ties between yakuza gangs and the Japanese financial industry six years after the Financial Services Agency punished Mitsubishi UFJ Financial Group Inc. for doing business with the groups for decades. Sato apologized today, saying he bears responsibility even though he was only made aware of the loans in March during the FSA’s probe.

The FSA said it’s “extremely regrettable” that Mizuho gave incorrect information. It will take appropriate action after the bank and an independent panel complete investigations, the agency said in a faxed statement today.

The regulator ordered Mizuho to improve compliance on Sept. 27, saying the Tokyo-based lender failed to take steps to end loans to crime groups for more than two years after becoming aware of them. The bank made 230 loans, mostly for automobiles, valued at about 200 million yen ($2 million), through its Orient Corp. consumer credit affiliate.

Sato, 61, said he was in a position where he could have found out about the loans in July 2011, when reports mentioning the transactions were distributed at a board meeting.

Nishibori, 60, who was president of Mizuho Bank for about two years until June 2011, is now an adviser to the financial group. Mizuho declined to make him available for comment.

The revelation that Nishibori was aware of the transactions is at odds with earlier statements by the bank. Deputy President Toshitsugu Okabe told reporters on Oct. 4 that four senior executives responsible for compliance at the time knew about the loans and didn’t inform superiors.

Mizuho has set up an internal committee and a panel of three outside experts to improve compliance.

Markit Group Said to Avoid U.S. Antitrust Claims as EU Proceeds

Markit Group Ltd., the data provider controlled by Wall Street firms including JPMorgan Chase & Co. and Bank of America Corp., probably won’t face U.S. sanctions for impeding competition in the $22 trillion credit-derivatives market, according to two people with direct knowledge of the four-year investigation.

The Justice Department’s antitrust division isn’t planning to press London-based Markit to alter business practices because investigators’ concerns are being addressed by the 2010 Dodd-Frank Act, the people said. The European Commission is still preparing penalties in a parallel probe, said the people, who asked not to be identified because the reviews aren’t public.

Markit provides customers with derivative and bond data and sells licenses to companies seeking to offer clients its credit-swap indexes, the most actively traded contracts. Authorities have been examining whether banks controlling the firm colluded to withhold that information to block the development of exchange trading, a shift that could have crimped their profits from handling client transactions. Dodd-Frank is opening the swaps market to competition and making it easier for new users to participate.

The Justice Department examined whether banks conspired to use Markit to maintain their dominance in credit-default swaps and prevent new players from gaining a foothold, said the people. It was a civil, not criminal, probe, according to one of the people.

The Justice Department hasn’t ended its probe, is monitoring Europe’s push for sanctions and could reverse its position on whether U.S. intervention is needed, the people said.

Adora Jenkins, a Justice Department spokeswoman, and Alex Paidas at Markit declined to comment on the Justice Department’s plans. Bloomberg LP, the parent of Bloomberg News, competes with Markit in selling information to the financial-services industry.

For more, click here.

Barclays-Qatar Probe to Have Progress in 2014, SFO’s Green Says

U.K. fraud prosecutors’ will announce significant developments next year in a probe into fees paid by Barclays Plc to Qatar’s sovereign-wealth fund for a 2008 fundraising that helped the bank avoid a bailout.

David Green, director of the U.K. Serious Fraud Office, said in an interview yesterday, the agency would progress its year-old investigation in early 2014. He also said there would be new information in a separate probe into rigging of benchmark interest rates in “due course.”

The Barclays probe centers on fees paid by the London-based bank to the Qatar Investment Authority as part of a 7 billion-pound ($11.26 billion) fundraising during the financial crisis, a move that helped the lender avoid taking government money. The U.K. markets regulator, the Financial Conduct Authority, said last month in a warning notice that it is considering fining the bank 50 million pounds over the issue.

Four current and former Barclays employees, including former Chief Financial Officer Chris Lucas, are being investigated as part of the FCA probe. Lucas, who resigned from the bank in August, didn’t respond to an e-mail seeking comment.

Phillippa-Jane Vermoter, a spokeswoman for Barclays, declined to comment on Green’s comments. Barclays said last month that it would contest the FCA fine.

EU Regulators Start Inquiry Into Currency Rate-Manipulation

European Union antitrust regulators are examining the possible manipulation of currency rates, following a Swiss probe into whether banks colluded to manipulate the $5.3 trillion-a-day foreign exchange market.

Joaquin Almunia, the EU’s competition commissioner, said he learned in the last few days of activities that “could mean violation of competition rules around the possible manipulation of types of exchange rates,” according to a live chat on the EU’s website yesterday.

Almunia said the commission is in a “very, very preliminary phase.” His spokesman declined to comment further.

The probes come after Bloomberg News reported in June that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates. Britain’s Financial Conduct Authority said that month it was reviewing the allegations.

Switzerland’s Financial Market Supervisory Authority, Finma, and the competition commission last week said they were probing the potential manipulation of some foreign-exchange rates. The U.S. Commodity Futures Trading Commission has been also reviewing possible legal violations in foreign currency markets, according to a person familiar with the matter who asked not to be identified because the matter is private.

Finma said last week it was “coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.” Separately, the competition commission said it had opened a preliminary probe on Sept. 30 after receiving allegations of collusion among banks to manipulate some foreign-exchange rates. Neither agency identified which firms are being probed.

Xerox Says SEC Has Probed Accounting Practices of ACS Division

Xerox Corp. said the U.S. Securities and Exchange Commission has been probing the accounting practices of Affiliated Computer Services Inc., an outsourcing company it acquired in 2010.

The SEC focused on whether revenue from ACS equipment and resale transactions should have been recorded on a net rather than gross basis, Norwalk, Connecticut-based Xerox said today in a regulatory filing. The transactions weren’t material to Xerox’s earnings and they mostly occurred before ACS was acquired, the company said. The SEC staff has advised against bringing charges against Xerox, according to the filing.

Chief Executive Officer Ursula Burns, who took the helm in 2009, acquired ACS in one of her first major moves as head of the company.

As part of the SEC investigation, Xerox Executive Vice President Lynn Blodgett and two other people -- a current employee and a former one -- received a Wells notice from the SEC. That means the commission is considering bringing civil enforcement against them. Blodgett joined Xerox in 2010 after serving as CEO of ACS.


Former Flow Traders Employees Indicted for Software Theft

Three men accused of stealing software from Dutch trading house Flow Traders were indicted on related charges by a grand jury in New York, Manhattan District Attorney Cyrus Vance Jr. said.

Jason Vuu, 26, of San Jose, California, Glen Cressman, 26, of Fort Lauderdale, Florida, and Simon Lu, 25, of Pittsburgh were indicted on charges of unlawful duplication of computer-related material and unlawful use of secret scientific material, Vance’s office said yesterday in statement.

Vuu and Cressman worked as traders at the Amsterdam-based Flow Traders’ Manhattan office before resigning in March, according to the statement. Vuu is accused of e-mailing himself trading strategies for several of the company’s trading desks and computer code for its proprietary trading platform from August 2011 to August 2012, Vance’s office said.

Vuu then worked with Lu to create a trading platform for a company they planned to form, Vance said. Cressman e-mailed himself proprietary trading strategies on two occasions in December 2012, Vance’s office said.

In yesterday’s announcement, Vance called on the state Legislature to adopt recommendations of a task force on white-collar crime and “protect intellectual property as rigorously as physical property.”

Vuu and Lu pleaded not guilty at an arraignment yesterday morning in Manhattan and were released on bail, according to Vance’s office. Cressman is scheduled to be arraigned Oct. 15. They face as long as four years in prison on each count if convicted.

Vance’s office announced charges against the three men in August.

Cuban Wraps Up Testimony Defending Himself in SEC Insider Case

Billionaire Mark Cuban vowed that he wouldn’t be pushed around by the U.S. Securities and Exchange Commission as he finished two days of testimony in the regulator’s insider-trading case against him.

The owner of pro basketball’s Dallas Mavericks franchise told a jury yesterday in federal court in Dallas that he did nothing wrong and refuses “to be bullied.”

The SEC has accused Cuban of selling about $7.9 million in stock in a Canadian Internet company in 2004 to avoid a $750,000 loss after learning non-public information about a private placement plan that would dilute his shares.

Cuban, 55, who has been a contestant on television’s “Dancing With the Stars” and is a regular on the investment-themed TV show “Shark Tank,” has denied the commission’s allegations, claiming he never agreed to keep the private placement information confidential and that that wasn’t his sole reason to sell.

As the SEC closed its case, U.S. District Judge Sidney A. Fitzwater denied a defense request that he throw out the case, leaving it up to Cuban’s lawyers to call their first witness.

The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).

For more, click here.


Markets Will ‘Get Through’ Debt Debate, Holland Says

Michael Holland, chairman of Holland & Co., talked about the outlook for U.S. markets, financials and investment strategy.

Holland spoke with Tom Keene, Sara Eisen and Michael McKee on Bloomberg Television’s “Surveillance.”

For the video, click here.

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