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U.S. Currency Probe, N.Y. Fed, AlphaMetrix: Compliance

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The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said.

The Federal Bureau of Investigation, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential.

The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it was reviewing potential manipulation of exchange rates. That month, allegations that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates were reported by Bloomberg News. Regulators are probing the alleged abuse of financial benchmarks used in markets from oil to interest rate swaps by the firms that play a central role in setting them.

Swiss regulators last week said they were “coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.”

The person familiar with the U.S. currency market probe didn’t say which banks may be under scrutiny. Gina Talamona, a spokeswoman for the U.S. Justice Department, didn’t immediately return calls seeking comment on the probe.

Last week, European Union antitrust regulators said they were examining the possible manipulation of currency rates by the financial industry, while Switzerland’s Financial Market Supervisory Authority, or Finma, and the nation’s competition commission said they were probing similar potential wrongdoing.

The U.S. Commodity Futures Trading Commission has also been reviewing possible currency market rigging, said a separate person with knowledge of the matter.

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Compliance Policy

German Banks Warn ECB Against Stricter Rules in Asset Review

Germany’s two main banking associations said the European Central Bank should refrain from imposing stricter rules on bad loans and capital buffers in its planned review of banks’ asset quality.

The ECB should rely on existing accounting rules to measure capital, non-performing loans, and the provisions to cover them when it probes banks’ assets in the assessment, the Bundesverband Deutscher Banken and the Bundesverband Oeffentlicher Banken said in a paper last month obtained by Bloomberg. The paper was addressed to the ECB, the German Bundesbank and the country’s banking regulator Bafin.

Applying other rules may unjustifiably lower values for assets or capital and raise buffer requirements, the groups said in the paper.

The ECB is slated to take over supervision of euro-area banks next year, after a transition period in which it will assess the quality of banks’ assets and their resilience to shocks. The bank reviews are the final opportunity to restore confidence in the region’s financial system, ECB Executive Board member Joerg Asmussen said last month.

Europe’s lenders have undergone two stress tests since 2010, with eight banks failing the last round conducted by the European Banking Authority in 2011 with a combined capital shortfall of 2.5 billion euros ($3.4 billion).

The ECB should abandon plans to unify bad-debt rules in line with a proposal made by the European Banking Authority, the associations say in the document.

RBI May Allow Foreign Banks to Buy Indian Lenders, PTI Says

Foreign banks forming wholly owned subsidiaries in India will be given “near national treatment,” the Press Trust of India reported, citing Reserve Bank of India Governor Raghuram Rajan.

The policy framework for the wholly owned subsidiary route for foreign banks is to be unveiled in the next few weeks.

Under the plan, the foreign lender’s country should reciprocate, according to Rajan.

Compliance Action

Mizuho Crime-Related Loans Probed by Tokyo Police, Asahi Reports

The Tokyo Metropolitan Police are investigating about 230 loans made by Mizuho Financial Group Inc. through Orient Corp. to establish whether fraud charges can be made against members of gang groups who received the loans, Asahi newspaper reported Oct. 12.

Mizuho briefed the police regarding the loans and handed over documents related to borrowers days after Japan’s Financial Services Agency ordered the bank to improve its operations, Asahi reported.

Masako Shiono, spokeswoman for Mizuho in Tokyo, declined to comment to Bloomberg News about the investigation. Calls to Orient seeking comment outside of regular business hours were diverted to an automated voice message.

The FSA on Sept. 27 issued a business improvement order to Mizuho after finding the bank made about 200 million yen ($2 million) in auto loans to an “antisocial” group.

Dimon Exceeds Mentor Sandy Weill in Legal Costs at Biggest Bank

A decade after Sanford “Sandy” Weill stepped down as Citigroup Inc.’s chief executive officer amid a cascade of regulatory investigations and lawsuits, JPMorgan Chase & Co. CEO Jamie Dimon’s legal expenses are surpassing those of his one-time mentor.

Facing probes into mortgage bonds, energy trading and hiring practices in Asia, JPMorgan took a $7.2 billion charge on Oct. 11 for expenses tied to regulatory matters and litigation, bringing the total the bank has set aside or spent since the start of 2010 to $28 billion. Weill’s tenure at Citigroup ended up leaving the bank with at least $5.5 billion in legal costs, then the most in history for a Wall Street firm.

Dimon’s reputation, burnished by more than $100 billion in profits and the rescue of failing lenders Bear Stearns Cos. and Washington Mutual Inc., has so far endured a $6.2 billion trading loss and accusations the firm manipulated U.S. power markets. Until his departure, Weill’s image also seemed to be immune to a series of scandals, according to Peter Henning, a law professor at Wayne State University in Detroit.

The jump in legal expenses forced Dimon last week to report the bank’s only quarterly loss on his watch. The third-quarter deficit amounted to $380 million, compared with a profit of $5.71 billion a year earlier. The last time New York-based JPMorgan failed to report a profit was the second quarter of 2004, when William Harrison was CEO.

Dimon still has the support of board members such as Laban P. Jackson, the audit committee chairman who moved to JPMorgan with Dimon when Bank One Corp. combined with JPMorgan in 2004.

Under Dimon, JPMorgan has overtaken Citigroup as the top corporate bond underwriter and Goldman Sachs Group Inc. as the biggest bank in debt-trading revenue. The company has set profit records in each of the past three years and among the six biggest U.S. banks only Wells Fargo & Co. has exceeded the stock’s 40 percent total return, which includes price gains and reinvested dividends, since Oct. 12, 2010.

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Goldman Sachs Policy Lapse Spurred Fed Firing, Examiner Claims

A former senior bank examiner for the Federal Reserve Bank of New York sued her ex-employer, claiming she was fired because she refused to change her findings that Goldman Sachs Group Inc. lacked a firmwide conflict-of-interest policy.

Carmen Segarra, 41, said in a lawsuit filed Oct. 10 in Manhattan federal court that she examined the legal and compliance divisions of Goldman Sachs in late 2011 and early 2012 and found that they lacked a policy that conformed with federal banking regulations. She alleges she was fired because she refused to withdraw her findings.

Michael Silva, who is named as a defendant, was the New York Fed’s relationship manager for Goldman Sachs, according to Segarra. In a meeting, he said the Fed “possessed information about Goldman that could cause Goldman to ‘explode,’” Segarra said in her complaint, which also named two other New York Fed employees.

In the filing, Segarra cites e-mails with Silva in which she argued that Goldman Sachs doesn’t have a firmwide policy that met requirements while Silva accuses her of telling him the bank didn’t have a policy at all. She also cited exchanges that could undercut the thrust of her complaint, including claims by superiors that her analysis was incorrect and questioning her judgment.

Jack Gutt, a spokesman for the New York Fed, declined to comment on the case, saying only that “The New York Fed provides multiple venues and layers of recourse for its employees to freely express concerns about the institutions it supervises,” and that “such concerns are treated seriously and investigated appropriately with a high degree of independence.”

Andrew Williams, a spokesman for New York-based Goldman Sachs, said in an e-mail that the company has no knowledge of internal Fed discussions or the matters raised by Segarra.

“Goldman Sachs has a comprehensive approach to addressing conflicts through firmwide and divisional policies and infrastructure,” Williams said.

Segarra’s lawyer, Linda Stengle, said Oct. 10 in a phone interview that her client was one of a group of bank examiners hired by the New York Fed in 2011 under the Dodd-Frank Act.

Segarra claims the defendants harmed her career and reputation by firing her for cause.

The case is Segarra v. Federal Reserve Bank of New York, 13-cv-07173, U.S. District Court, Southern District of New York (Manhattan).

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El-Erian, Ingves, Moynihan on Regulation and Economy

Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., Sveriges Riksbank Governor Stefan Ingves and Brian Moynihan, chief executive officer of Bank of America Co., talked about the impact of the overhaul of financial regulation on the real economy.

Nouriel Roubini, a professor of economics and international business at New York University, moderated the panel sponsored by the Bertelsmann Foundation in Washington.

For the video, click here.

NYSE Open to Major Changes in Market Structure Debate, CEO Says

NYSE Euronext, the biggest U.S. stock exchange owner, is willing to consider major changes to how it does business as part of a discussion on reworking the structure of American markets, according to Chief Executive Officer Duncan Niederauer.

NYSE would review issues such as its status as a self-regulator of customers and its practice of giving rebates to high-volume users of its markets as part of industrywide talks, Niederauer said. He didn’t say what concessions he expected from other market participants beyond a willingness to compromise.

“A lot of people want to make it like it’s a fist fight or a food fight,” Niederauer said during a speech at an Investment Company Institute conference in New York last week. “It doesn’t have to be.”

Niederauer spoke as his company’s acquisition by IntercontinentalExchange Inc. nears a projected Nov. 4 completion date and amid pressure from U.S. Securities and Exchange Commission Chairman Mary Jo White to prevent the technology breakdowns that are plaguing American markets. Niederauer was among bourse executives who met with White on Sept. 12, months after NYSE officials went to Washington to discuss restrictions on private trading venues including dark pools that compete with the New York Stock Exchange.

Comings and Goings

AlphaMetrix Terminates CFO as Cash Shortfall Hits Commodity Fund

AlphaMetrix Group LLC, which connects investors with hedge fund managers and futures traders, said it’s experiencing “significant cash flow issues” and fired its chief financial officer.

The Chicago-based company runs a business known as a commodity pool operator, AlphaMetrix LLC, which lets customers invest in futures accounts managed by professional traders. The parent company told clients in a letter Oct. 10 that both its liabilities and those of the commodity pool operator “greatly exceed” liquid assets and that the net asset values of some pools may be affected.

The revelations are another blow to confidence in the futures industry after it suffered two of its largest failures with the collapse of MF Global Holdings Ltd. in 2011 and Peregrine Financial Group Inc. a year later. In both cases, client money went missing.

Reuters reported earlier on the details of the letter AlphaMetrix Group sent clients.

The National Futures Association, an industry-funded regulator that monitors compliance with U.S. Commodity Futures Trading Commission rules related to protection of customer money and fraud, said it hasn’t uncovered evidence that customer money at AlphaMetrix is missing and confirmed that no enforcement action has been taken against the company.

AlphaMetrix Group “has recently encountered significant cash flow issues and is working to strengthen its current financial position and continued operations,” Aleks Kins, the chief executive officer, told clients in a letter Oct. 10.

The document also announced that the company’s CFO had been terminated and that Arthur F. Bell Jr. & Associates LLC, an accounting firm, was hired to review AlphaMetrix’s internal controls and recordkeeping.

For more, click here.

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