Libor Charges, Online Poker, Par Pharmaceutical: Compliance

U.S. prosecutors are preparing to file charges this fall against traders from several banks involved in a bid-rigging scheme to manipulate Libor rates, not just Barclays Plc, according to a person familiar with the case.

The charges against individuals, which would probably be filed by October according to the person, center on alleged rate-fixing activity that goes beyond the conduct described in last month’s settlement between Barclays and regulators in the U.S. and U.K.

Barclays was fined $450 million in late June for submitting false Libor rates. The public and political reaction to the Barclays settlement generated requests by government agencies to be involved in any further Libor enforcement, altering U.S. plans to prosecute, said the person, who asked not to be identified because the matter is confidential.

The Justice Department investigation of criminal activity related to Libor is moving on a parallel course with civil probes of the banks being conducted by the U.S. Commodity Futures Trading Commission, the Securities and Exchange Commission and U.K. regulators, including the Serious Fraud Office.

Compliance Action

S&P in Talks With Regulators Over Structured-Finance Violations

Standard & Poor’s, the world’s largest credit-rating company, said it’s in discussions with U.S. regulators over potential violations related to structured-finance ratings.

The Department of Justice and the U.S. Securities and Exchange Commission are investigating possible civil violations related to S&P’s ratings of structured products, Harold “Terry” McGraw III, the chief executive officer of New York-based McGraw-Hill Cos., S&P’s owner, said yesterday on a conference call to discuss earnings.

S&P and other credit-rating companies were blamed for helping inflate the housing bubble by both the Financial Crisis Inquiry Commission and a Senate report last year. Investors lost billions on top-rated bonds after the companies lowered their standards in an effort to win more business from Wall Street banks, according to the panels.

S&P received a so-called Wells notice last year from the SEC indicating it could face claims over the top grade it gave in 2007 to a $1.6 billion collateralized debt obligation called Delphinus CDO 2007-1 that was downgraded six months later.

Illegal Hiring Found in Justice Department Management Unit

The management arm of the U.S. Justice Department conducted illegal hiring and is plagued by a “pattern of fundamental misconduct,” according to a report yesterday by the department’s inspector general.

Employees in the Justice Management Division including senior officials advocated for, and in some cases “undertook a sustained campaign,” to secure employment for family members inside the Justice Department, according to a report by Inspector General Michael Horowitz.

“Most of the misconduct described in this report -- the nepotism, the Prohibited Personnel Practices, the ethical lapses, the false and misleading statements -- was the result of bad behavior by individuals insufficiently impressed with the principles of fair and open competition,” according to the report.

The inspector general’s office began an investigation into the division’s hiring practices as a result of information provided by a former employee to Representative Frank Wolf, a Virginia Republican, the report said. It marks the third inspector general investigation into improper hiring practices at the division.

United Technologies Wins EU Approval for Goodrich Purchase

United Technologies Corp. won European Union approval to buy Goodrich Corp. for $16.5 billion, after it agreed to sell electrical power generation and small engine control units.

Rolls-Royce Holdings Plc must also be granted an option to buy Goodrich’s share of a joint venture to develop a lean-burn fuel nozzle for aircraft engines to eliminate regulators’ antitrust concerns over the deal, the European Commission said in an e-mailed statement yesterday.

The Goodrich deal is the largest aerospace acquisition on record, according to data compiled by Bloomberg, and adds the world’s largest maker of aircraft landing gear to United Technologies brands that include Pratt & Whitney jet engines and Sikorsky helicopters. The purchase has an enterprise value of $18.4 billion, including $1.9 billion in net debt, the companies said in a statement when they announced the deal in September.

United Technologies is required to sell Goodrich’s Electric Power Systems business, its Connecticut-based Pumps and Engine Controls business and its interest in Aero Engine Controls, a joint venture with Rolls-Royce, said John Moran, a spokesman for the Hartford, Connecticut-based company, in an e-mailed statement.

United Technologies said it expects to close the acquisition this week.

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New Century Hedge Fund’s Onsa Sentenced for Ponzi Scheme

Former hedge-fund manager Ward Onsa was sentenced to 6 1/2 years in prison for using his firm, New Century Investment Management LLC, to run a Ponzi scheme.

Onsa pleaded guilty yesterday in Brooklyn, New York, federal court to one count of securities fraud in December in connection with the scheme. Investors, primarily retirees, lost more than $3 million, according to the government.

Through New Century, Onsa made special arrangements with institutional money managers, including Charles Schwab & Co. and Millennium Trust Co., in order to facilitate the theft, the U.S. alleged. As part of his penalty, Onsa was also ordered to pay $3.1 million as restitution and to serve three years of supervised release.

Onsa launched New Century after his previous investment firm, Ward Onsa & Co., was bankrupted by trading losses and default judgments, the government alleged. He funneled money solicited from investors to himself and his defunct firm, the government said.

The case is U.S. v. Onsa, 10-cr-00730, U.S. District Court for the Eastern District of New York (Brooklyn).

Rubin Gets Three-Year Sentence in Online-Poker Payment Case

Ira Rubin, accused of helping process billions of dollars in payments for illegal online gambling businesses, was sentenced to three years in prison and ordered to forfeit $5 million.

Rubin, who pleaded guilty in January, was accused by federal prosecutors in New York of illegally processing payments for PokerStars, Full Tilt Poker and Absolute Poker, the leading online poker sites doing business with U.S. customers.

The government and Rubin’s defense attorney had recommended a sentence between 18 and 24 months, as specified in federal guidelines, which are advisory. U.S. District Judge Lewis Kaplan in Manhattan yesterday said such a sentence wouldn’t serve to discourage future crime.

Once he is out of prison, one of the conditions of Rubin’s release will be that he cannot participate in any business occupation related to payment processing or financial services, Kaplan said.

The case was U.S. v. Rubin, 10-CR-336, U.S. District Court, Southern District of New York (Manhattan).

New York Councilman Seabrook Convicted of Public Corruption

New York City Councilman Larry B. Seabrook was convicted of nine public corruption counts in a retrial in federal court in Manhattan.

Seabrook, a Democrat who represented part of the Bronx, was accused of laundering city money through nonprofit organizations he controlled. Jurors yesterday found him guilty of conspiracy and fraud charges after two days of deliberations. Another jury deadlocked on the charges in December, leading to a mistrial.

The trial began June 20. Sentencing is scheduled for January 8.

The case is U.S. v. Seabrook, 10-cr-87, U.S. District Court, Southern District of New York (Manhattan).

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Testimony and Interviews

Geithner Tells Senate He Was Concerned About Libor in 2008

Treasury Secretary Timothy F. Geithner, responding to a second day of questions by lawmakers, said he was concerned when he heard about potential weaknesses in the London interbank offered rate in 2008 and repeated that he moved quickly to alert regulators in the U.S. and U.K.

“I absolutely thought this was a problem,” Geithner told the Senate Banking Committee yesterday. Geithner, who was president of the Federal Reserve Bank of New York at the time, said he discussed Libor with officials at the Treasury Department, Securities and Exchange Commission and the Commodity Futures Trading Commission.

Confidence in Libor, a benchmark for securities worldwide, was hurt by Barclays Plc’s admission that it submitted false rates. A probe by U.K. and U.S. authorities cost the London-based bank a record 290 million-pound ($449 million) fine and led to the ouster of Chief Executive Officer Robert Diamond.

Geithner said he didn’t know whether the U.S. banks reporting Libor were involved in manipulation. Geithner also said he doesn’t yet know how Libor manipulation affected U.S. markets.

Geithner said he took the “necessary and appropriate” steps in responding to Libor concerns by notifying U.K. and U.S. regulators. His testimony follows a House Financial Services Committee hearing where lawmakers also pressed him about his role in the Libor investigation.

To hear Geithner’s testimony, click here.

French Market Regulator Chief Ready to Contribute to Libor Probe

France’s market regulator is ready to contribute to U.K. and U.S. investigations of interbank lending rate manipulation, said its new president Gerard Rameix.

“The prejudice is very important on the financial sector across the world. It’s not good for the image of London, but it goes far beyond,” Rameix, who yesterday took over as chief of the Autorite des Marches Financiers, said in a Paris interview with Bloomberg television. “We can contribute to investigations and we will fully collaborate.”

Confidence in the London interbank offered rate, a benchmark for $500 trillion of securities worldwide, was dented by Barclays Plc’s admission that it submitted false rates.

UBS AG, Citigroup Inc., JPMorgan Chase & Co. and Credit Suisse Group AG are among at least a dozen banks to disclose inquiries. Societe Generale SA said that while it’s cooperating with authorities investigating interbank rates, “there has been no allegation of wrongdoing against the bank from regulators.”

“Confidence, which is the basis of the well-functioning of the markets, no longer really exists on the markets because of the crisis and of the numerous frauds,” Rameix said.

France’s banking regulator ACP hasn’t opened an investigation, a Bank of France press officer, who asked not to be identified in line with the institution’s policy, said yesterday.

To hear the interview, click here.

In the Courts

Par Pharmaceutical Sued by Investor Over $1.9 Billion Buyout

Par Pharmaceutical Cos., the generic-drug maker being bought by TPG Capital for $1.9 billion, was sued by a shareholder who contends investors will be shortchanged in the deal.

Directors of Woodcliff Lake, New Jersey-based Par are duty-bound to enhance share value in a takeover and have avoided competitive bidding, Rena Nadoff contended in a July 24 complaint filed in Delaware Chancery Court in Wilmington.

“The long-term prospects for Par are great” and the sale price of $50 a share is too low, Nadoff said. Par “is in a position to see increased revenues with the implementation of the healthcare reform act,” as the law’s emphasis on cost control spurs increased use of generic drugs, Nadoff said.

Nadoff asked a judge to stop the transaction and award damages and legal fees. Par and TPG, a private-equity firm based in Fort Worth, Texas, said July 16 they agreed to the deal at a 37 percent premium, subject to a shareholder vote and regulatory approval.

Allison Wey, a Par spokeswoman, didn’t immediately reply to a voice-mail message seeking comment on the lawsuit.

The case is Nadoff v. Par Pharmaceutical Cos, CA7715, Delaware Chancery Court (Wilmington).

Federal Reserve Bank of N.Y. Seeks Starr AIG Lawsuit Dismissal

Starr International Co.’s lawsuit against the Federal Reserve Bank of New York over the government bailout of American International Group Inc. should be dismissed, a lawyer for the bank told a federal judge.

Starr, an AIG shareholder that is headed by AIG’s founder, Hank Greenberg, claims the government used its 2008 bailout of New York-based AIG to channel money improperly to the insurer’s trading partners.

John Kiernan, a lawyer for the New York Fed, yesterday told U.S. District Judge Paul Engelmayer in Manhattan that Starr failed to make a demand on AIG’s board before filing the suit and that the board’s decisions about terms of the bailout loans aren’t subject to court review under state law.

Starr sued the Federal Reserve Bank of New York in November, saying it breached its duty to AIG shareholders by loaning $85 billion at 14.5 percent while offering better terms to banks in a “backdoor bailout.” AIG almost collapsed in 2008 after bets tied to the housing market soured, and the bailout was revised at least four times before reaching $182 billion.

David Boies, a lawyer for Starr, said yesterday that Starr correctly seeks compensation for the New York Fed’s breaches of fiduciary duties it owed both to AIG and to AIG’s shareholders, including Starr.

Engelmayer questioned Boies on the timeliness of the filing of the suit and whether any statute of limitations had expired.

Starr filed a related complaint in November against the federal government in the U.S. Court of Federal Claims in Washington.

The New York case is Starr International Co. v. Federal Reserve Bank of New York, 11-8422, U.S. District Court, Southern District of New York (Manhattan).

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