RBS 2008 Collapse Review, Wells Fargo Settles, Avon Probe: Compliance
David Walker, former chairman of Morgan Stanley (MS) International, and lawyer Bill Knight will examine the FSA’s study, the regulator and the Treasury Committee of the House of Commons said in separate statements. The FSA said it cleared RBS and former executives including ex-Chief Executive Officer Fred Goodwin after the report was completed in December.
The FSA has come under pressure from U.K lawmakers to publish the findings of its probe. Edinburgh-based RBS posted the largest loss in corporate history in 2008 and required the biggest bank bailout in the world following its acquisition of ABN Amro Holding NV.
The duo will ensure the report is “seen as a rigorous and transparent account of the different factors which contributed to RBS’s failure,” the FSA said in a statement on its website.
A spokeswoman for RBS wasn’t immediately available to comment.
The FSA report won’t satisfy public demand for answers because of confidentiality rules, lawyers say. The FSA can’t reveal information obtained during an investigation without permission from all parties involved under U.K. and European financial rules, hampering the regulator’s attempts to publish a definitive account.
The FSA had been scheduled to release the RBS report at the end of March. A legal dispute over confidentiality had already delayed publication, two people with knowledge of the negotiations said last month.
“You can’t simply blank out the names, you have to step in so it’s not clear which individual said what,” Lindsay Thomas, a former FSA director and now an adviser at risk management company Sustainable Risks, said in a telephone interview in London. “I suspect they’ve taken so much out of the report now that people might question whether it’s a rather hollow document.”
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CFTC Promises Stepped-Up Enforcement Under New Authority
The U.S. Commodity Futures Trading Commission, flexing its new authority under the financial-regulation overhaul, aims to pursue more high-impact cases against market manipulation and disruptive trading.
“The Dodd-Frank Act has broadened our horizons,” David Meister, head of the agency’s enforcement division, said yesterday at a conference held in Maryland by the Futures Industry Association. Meister said the division is interested in “broader industry” and “more cutting-edge, high-impact cases.”
The CFTC has proposed new rules targeting manipulative and disruptive trading practices. Dodd-Frank, enacted last year, gave the agency new authorities over the $583 trillion global swaps market after largely unregulated trades helped fuel the 2008 credit crisis. The agency has proposed rules to reduce risk in the market through central clearinghouses and to increase transparency through exchanges or other trading platforms.
Meister started as the head of enforcement in January.
EU States May Opt Out of Short-Sale Curbs on Sovereign Debt
National regulators may be able to temporarily opt out of planned European Union rules on naked short-selling under a Hungarian compromise designed to lessen worries about bond- market liquidity.
National officials at a meeting in Brussels yesterday said the Hungarian measures “adequately” resolve concerns that draft rules may prompt investors to shun government bond markets, said Marton Hajdu, a spokesman for the country, which holds the rotating EU presidency.
Finance ministers including Italy’s Giulio Tremonti criticized the European Commission’s original September proposals, saying they might disrupt sovereign debt markets by reducing trading volume. Michel Barnier, the EU’s financial services chief, and Christine Lagarde, France’s finance minister, have warned that the EU shouldn’t delay adoption of the law, which is intended to prevent short-selling from harming financial stability.
Under the Hungarian plan, regulators “would be able to temporarily suspend the planned restrictions on naked short- selling of sovereign debt, if the liquidity of that market has fallen below a certain level,” Hajdu said in an e-mail. “Details of how this will work will be determined at a later stage.”
Governments and lawmakers in the European Parliament must agree on the draft law before it can enter into force. EU finance ministers are scheduled to discuss the short-selling proposals in Brussels on May 17.
SEC Rules on Private Trading Targeted by U.S. House Panel
Lawmakers will press U.S. Securities and Exchange Commission Chairman Mary Schapiro to ease rules on trading of shares in closely held firms such as Facebook Inc. and Twitter Inc.
Schapiro, who has said the agency is in the early stages of reviewing the rules, will testify next week at a hearing of the U.S. House Oversight and Government Reform Committee. Also scheduled to appear is Barry Silbert, the founder and chief executive officer of SecondMarket Inc., one of the firms that facilitates the buying and selling of private shares.
Lawmakers and regulators focused on the business after Goldman Sachs Group Inc. (GS) halted a planned offering of as much as $1.5 billion in Facebook shares to U.S. investors. Goldman Sachs said on Jan. 17 it halted the offer because of concern that “immense media attention” could violate SEC rules limiting marketing of private securities.
Wells Fargo to Pay $1 Million Over Late Prospectuses
Wells Fargo & Co. (WFC) will pay $1 million to resolve Financial Industry Regulatory Authority claims that its St. Louis-based brokerage didn’t give investment information in a timely manner to clients who bought mutual funds in 2009.
Wells Fargo Advisers violated securities laws by failing to deliver prospectuses within three days of the purchases, Finra said yesterday in a statement. The firm took as long as 153 days to provide prospectuses and also failed to report information including arbitrations and complaints involving some of its representatives, Finra said.
The San Francisco-based company failed to take corrective action after getting reports from a firm contracted to mail the prospectuses that as many as 9 percent of customers hadn’t received the information within three days, Finra said.
Wells Fargo, the fourth-biggest U.S. bank by assets, resolved the claims without admitting or denying wrongdoing, Washington-based Finra said.
“Wells Fargo Advisors has reached an agreed resolution with Finra and is pleased to put this matter behind us,” Tony Mattera, a company spokesman, said in the statement. “Wells Fargo Advisors has taken steps to review and modify procedures where appropriate.”
WestLB Boards Pursue Plan to Become Lender for Savings Banks
WestLB AG’s management and supervisory boards are pushing ahead with a plan to shrink the company into a regionally focused lender that serves savings banks as it seeks approval from the European Commission.
WestLB, which provides lending, structured and real-estate finance, capital markets and transaction services, needed financial aid from its owners and Germany’s Soffin bank-rescue fund after running up losses during the financial crisis. The lender needs the European Commission to accept restructuring plans to get approval for the state aid.
The Dusseldorf-based lender, which has about 4,500 employees, must agree with the EU on the details of WestLB’s proposal “in the coming weeks,” supervisory board Chairman Michael Breuer said yesterday. The EU sees that the ongoing sales process for the bank may help with the implementation of the Verbundbank model, the bank said. Regional savings banks and the state of North-Rhine Westphalia own WestLB.
Avon Says It Probes Possible Corruption After Firing Four
Avon Products Inc. (AVP), the world’s largest door-to-door cosmetics merchant, is probing possible corruption in other countries after firing four executives over bribes to officials in China, it said in a regulatory filing.
The company suspended the four in April 2010 as part of an internal investigation into its compliance with the U.S. Foreign Corrupt Practices Act.
Claudius O. Sokenu, a lawyer at Arnold & Porter LLP in New York, said May 4 in a phone interview that he is conducting the internal investigation. He declined to comment further.
Avon said in a Feb. 24 SEC filing that it previously hired outside counsel to conduct the internal probe and compliance reviews. “The investigation is ongoing,” Jennifer Vargas, an Avon spokeswoman, said yesterday in an e-mailed statement. She declined to comment further.
Laura Sweeney, a Justice Department spokeswoman, declined to comment.
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Errors in Credit Reports Rare, Study Funded By Industry Says
Less than 1 percent of consumer credit reports contain errors that lead to a significant change in the score, according to a study commissioned by the three largest credit-reporting companies.
Durham, North Carolina-based Policy and Economic Research Council, which conducted the study, said it surveyed 2,338 people from February to May 2010 and examined their credit reports. David Musto, a professor of finance at the Wharton School of the University of Pennsylvania who was hired by the council to review the examination, called it “a well-executed study, in that the sample is large and appears to be representative.”
The U.S. credit reporting business is dominated by Equifax Inc. (EFX) of Atlanta, Chicago-based TransUnion LLC and Dublin-based Experian Plc.
The Consumer Financial Protection Bureau, which is scheduled to begin work on July 21, will have jurisdiction over consumer credit firms. Under the law that created it, the bureau has to produce a study by then on the differences between reports provided to creditors and those given to consumers who are the subject of the reports.
Consumer groups have long criticized credit firms over alleged errors in reports that lead to loan denials for affected consumers.
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Picard’s $6.4 Billion JPMorgan Suit Goes to New Court
A U.S. judge granted JPMorgan Chase & Co.’s request to decide whether the trustee liquidating Bernard Madoff’s firm has the right to sue the bank for $6.4 billion, alleging it aided the confidence man’s fraud.
U.S. District Judge Colleen McMahon in New York set a briefing schedule for JPMorgan’s argument that the case should be dismissed, saying she will write an opinion explaining her decision, according to a court filing May 4. The bank will ask her to dismiss the case next month.
JPMorgan “no doubt hopes to distance itself both from the thousands of victims of that scheme and from other alleged wrongdoers” by going to district court, trustee Irving Picard said in a March court filing.
Amanda Remus, a Picard spokeswoman, declined to comment.
Madoff, 72, pleaded guilty to orchestrating the biggest Ponzi scheme in history. He’s serving a 150-year sentence in federal prison in North Carolina.
The case is Picard v. JPMorgan Chase & Co. (JPM), 1:11-cv-00913, U.S. District Court, Southern District of New York (Manhattan).
Allen Stanford Indicted Again With 7 of 21 Charges Dropped
R. Allen Stanford, the Texas financier accused by U.S. prosecutors of leading a $7 billion investor fraud scheme, was indicted again and accused of 14 criminal counts-- seven fewer counts than the 21 contained in the original indictment.
Prosecutors filed a revised charging document May 4 in U.S. District Court in Houston. Stanford, who has denied all allegations of wrongdoing, has been in federal custody since June 2009 awaiting trial.
Stanford is accused of defrauding investors who bought certificates of deposit issued by his Antigua-based Stanford International Bank Ltd. by misleading them about the nature of the investments and their regulatory oversight.
“The original indictment was such a mess, I think prosecutors were just trying to clean up the charges,” Ali Fazel, one of Stanford’s criminal-defense lawyers, said in a telephone interview yesterday.
Laura Sweeney, a spokeswoman for the U.S. Justice Department, declined to immediately comment on the revamped indictment, citing a judicial gag order in the case.
Stanford’s trial, previously scheduled for Jan. 24, was postponed pending the results of his treatment for drug dependency.
The case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston).
Bernanke Urges Avoiding ‘Burdensome’ Financial Regulations
Federal Reserve Chairman Ben S. Bernanke said the government must avoid imposing burdensome rules on financial companies as it carries out the biggest regulatory overhaul in seven decades.
“No one’s interests are served by the imposition of ineffective or burdensome rules that lead to excessive increases in costs or unnecessary restrictions in the supply of credit,” Bernanke said yesterday in a speech in Chicago. “Regulators must aim to avoid stifling reasonable risk-taking and innovation in financial markets, as these factors play an important role in fostering broader productivity gains, economic growth, and job creation.”
Bernanke and Fed officials are trying to balance the need to reduce the risk of repeating the 2007-2008 financial crisis with the aim of reviving the U.S. economy after the financial crisis. The central bank, under last year’s Dodd-Frank Act, was given the job of overseeing the biggest financial companies.
Bernanke, 57, has backed a so-called macroprudential approach to supervision that looks at patterns and risks across different companies and markets and not just at how individual firms are performing.
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Comings and Goings
U.K.’s Cable Names Witcomb to Chair Competition Commission
U.K. Business Secretary Vince Cable named Roger Witcomb as chair of the Competition Commission ahead of a planned merger with the Office of Fair Trading.
Witcomb’s appointment is on an interim basis for a term of two years, according to a website statement. He will succeed current chair Peter Freeman, whose term ends today.
Cable said in the statement that Witcomb, previously the deputy chair of the competition authority, would head the commission through a “time of uncertainty.”
In its biggest shakeup of competition law since 1973, the U.K. in October said it would merge the OFT and the Competition Commission to create the Competition and Markets Authority. The government is seeking comments on the agency combination.
To contact the editor responsible for this report: Michael Hytha at email@example.com.