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Audit Partners, Regulatory Surge, Japan Watchdog

Dec. 5 (Bloomberg) -- Accounting firms would have to disclose the name of the partner in charge of a public-company audit as well as all outside firms that worked on the report under a proposal approved by the industry’s regulator.

The Public Company Accounting Oversight Board’s proposal is intended to provide investors with more information about the entities that provide opinions on companies’ financial statements. The firm issuing an audit report may be only one of several entities that performed the work, according to the PCAOB, which advanced the proposal yesterday with 5-0 vote.

Supporters of the change say it will help investors examine the track record of an auditor and determine if portions of the audit were performed by overseas firms that can’t be inspected by the PCAOB. The disclosure of an audit’s lead partner is required in the European Union and Australia, PCAOB officials said.

Yesterday’s vote opens the proposal for public comment for 60 days. The PCAOB first proposed naming an audit’s so-called engagement partner in Oct. 2011. The rewritten proposal raises the threshold for disclosure of participants in the audit, from 3 percent of total audit hours to 5 percent, according to a fact sheet issued yesterday.

Compliance Policy

SEC to Consider Volcker Rule Dec. 10 With Paper-Ballot Process

The U.S. Securities and Exchange Commission plans to consider on Dec. 10 whether to pass the Volcker rule, the regulation that prohibits banks from making speculative bets with their own money.

The five-member commission won’t vote at a public meeting to adopt the rule, said John Nester, a spokesman for the regulator. The agency instead will use a process known as seriatim that calls for commissioners to weigh in on paper.

The Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Commodity Futures Trading Commission also will act on that date, according to notices from the regulators.

Named for former Federal Reserve Chairman Paul Volcker, the rule is a key part of the Dodd-Frank Act, the U.S. government’s response to the 2008 financial crisis. The regulation is intended to block federally insured banks with access to the central bank’s discount window from speculative trading.

The Obama administration has pressed to adopt the rule by year’s end. The rule will contain exemptions for underwriting, market-making activity and trades intended to hedge other risk.

Compliance Action

Deutsche Securities Said to Face Japan Penalties; Arrest Made

Deutsche Bank AG’s Japanese brokerage unit will probably be penalized by local regulators for breaching rules over excessive spending to entertain clients, two people with knowledge of the matter said.

An employee of Deutsche Bank AG’s Japanese brokerage unit was arrested today on suspicion of bribery as the securities watchdog recommended penalties against the firm for excessive entertainment spending.

Shigeru Echigo, a director of Deutsche Securities Inc.’s pension solution sales department, is suspected of entertaining a client at a Mitsui & Co. unit in exchange for purchases of investment products, a Tokyo Metropolitan Police official said, asking not to be named in accordance with its policy. A former Mitsui pension executive was also detained, the official said.

The unit of Germany’s biggest bank broke Japanese rules by providing special benefits to three pensions, the Securities and Exchange Surveillance Commission said in a statement in Tokyo today, without naming the funds.

The Securities and Exchange Surveillance Commission, Japan’s securities watchdog, was poised to recommend that the nation’s Financial Services Agency take administrative action against Deutsche Securities Inc., one of the people said, asking not to be identified because the matter is confidential. The FSA may order the brokerage to improve compliance and internal controls, the people said.

The potential punishment would add to the German bank’s regulatory woes after it set aside a further 1.2 billion euros ($1.6 billion) to cover legal costs amid global probes into interbank rate rigging and lawsuits relating to the U.S. housing market. Japan’s regulator has been beefing up oversight of the pension industry.

Employees of Deutsche Securities probably spent too much entertaining managers at Japanese pension funds in order to win investments in products the brokerage sold, the people said. The firm may have spent about 6 million yen ($59,000) to 9 million yen on executives tied to three pension funds from 2010 to 2012, Nikkei newspaper reported earlier yesterday.

Takayuki Inoue, a Tokyo-based spokesman at Deutsche Securities, declined to comment, as did Kotoku Watanabe, a spokesman for the FSA.

The SESC oversees the securities industry to ensure the integrity of Japan’s capital markets and protect investors, and makes recommendations to the FSA on any disciplinary action against firms.

For more, click here.

SEC Considers More Oversight as Proxy Advisers’ Influence Grows

The U.S. Securities and Exchange Commission is weighing whether proxy advisers have grown so influential in corporate elections that regulators should impose rules to make their business more transparent.

The roles of Institutional Shareholder Services Inc. and Glass Lewis & Co. in shareholder voting will be debated by institutional investors, brokers, business groups and unions tomorrow at a meeting hosted by the SEC. ISS and Glass Lewis dominate the market for providing recommendations for votes on topics such as executive pay, nominees for boards of directors, and corporate mergers.

ISS and Glass Lewis have already agreed with the European Union’s securities regulator to follow a voluntary code of conduct to manage conflicts of interest and disclose how they make recommendations. The U.S. Chamber of Commerce and Business Roundtable have pressed the SEC to require more disclosures by proxy advisers, including conflicts of interest and their method for grading company policies such as executive pay.

Demand for proxy research has grown as institutional investors’ portion of voting shares has risen to more than 50 percent in recent years, according to Conference Board research. Institutional investors, including pension and mutual funds, are the traditional clients of proxy advisers, while ISS also provides consulting services to companies seeking to improve their corporate governance ratings.

For more, click here.


Goldman Sachs Sued by Singapore Client Over $34 Million Loss

Goldman Sachs Group Inc. was sued by Singaporean wealth-management client Oei Hong Leong over a $34.3 million loss on Brazilian real-yen options trades he said it misled him into making.

Oei accused the New York-based bank of fraudulent misrepresentation, breach of fiduciary duty, fraudulent inducement and unjust enrichment in papers filed yesterday in New York state court.

Goldman Sachs rejected allegations that it acted improperly or cheated him, according to a letter it wrote to Oei in July and filed in a Singapore court, where the businessman is suing a unit of the bank over the same loss. The bank said it will defend that lawsuit, which it is seeking to halt in favor of private and confidential arbitration.

Michael DuVally, a spokesman for Goldman Sachs in New York, didn’t immediately respond to an e-mail seeking comment on the lawsuit.

Oei in 2009 settled a claim against Citigroup Inc. over S$1 billion ($797 million) in trading losses.

The case is Oei v. Goldman Sachs Group Inc., 161176/2013, New York State Supreme Court, New York County (Manhattan).


E-Cigarettes to Fracking Rules Seen in 2014 Regulatory Surge

Over the next 12 months, the Obama administration is due to issue regulations governing everything from e-cigarettes to smokestack emissions in what experts predict will be a second-term rush to put rules in place before leaving office.

It’s all part of what U.S. Chamber of Commerce President Thomas Donohue yesterday called a flood of regulations that the business lobby intends to fight. “There is no such thing as a lame-duck president when it comes to regulations,” he said.

Donahue made the remarks in a speech in Washington.

President Barack Obama’s administration has approved 240 economically significant rules -- those that have an annual economic impact of more than $100 million -- since taking office. That compares with 191 for the administration of President George W. Bush and 188 for President Bill Clinton over the same period of time, according to an Office of Management and Budget database.

A semiannual summary of regulatory actions in the works, published last week by the OMB, shows a full agenda. The White House since October has been reviewing proposed Food and Drug Administration regulations for electronic cigarettes. U.S. banking regulators this month plan to vote on the so-called Volcker rule to prohibit banks from using their own money to make speculative bets.

Donohue said the chamber will use all of its resources to scale back what it views as regulatory overreach, including filing lawsuits and lobbying.

For more, click here.

Libor Rate Fines on Banks Are Meaningful, Serra Says

Davide Serra, founding partner and portfolio manager at Algebris Investments, talked about record fines totaling 1.7 billion euros ($2.3 billion) levied by the European Union against six companies for rigging rates linked to Libor, the London interbank offered rate.

Serra, who spoke with Erik Schatzker on Bloomberg Television’s “Market Makers,” also discussed the outlook for financial regulation.

For the video, click here.

To contact the reporter on this story: Carla Main in New York at

To contact the editor responsible for this story: Michael Hytha at

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