Wegelin Guilty Plea, Basel ‘Babel,’ FTC Fine: Compliance

Wegelin & Co., the 270-year-old Swiss bank, pleaded guilty to helping U.S. taxpayers hide more than $1.2 billion from the Internal Revenue Service.

Otto Bruderer, an official at the St. Gallen-based bank, appeared in Manhattan federal court yesterday to enter a plea on the company’s behalf to a single count of conspiracy. Wegelin was indicted on Feb. 2, becoming the first Swiss lender charged in a U.S. crackdown on offshore firms suspected of helping Americans evade taxes.

Under a proposed plea agreement, the bank will pay $20 million in restitution to the U.S., forfeit $15.8 million, representing fees on undeclared accounts, and pay a fine of more than $22 million. The agreement requires the court approval. Sentencing is set for March 4.

Prosecutors said that from 2002 to 2011, more than 100 U.S. taxpayers conspired with Wegelin and bankers in Zurich. The bank held more than $1.2 billion in assets not declared to the IRS, according to the indictment.

The U.S. said Wegelin and the Zurich bankers wooed U.S. clients fleeing UBS AG, the largest Swiss bank. The effort to retain the UBS clients was backed by Wegelin’s senior management, according to the indictment.

The case is U.S. v. Wegelin, 12-00002, U.S. District Court, Southern District of New York (Manhattan).

Compliance Policy

Basel Becomes Babel as Conflicting Rules Undermine Bank Safety

The first Basel agreement on global banking regulation, adopted in 1988, was 30 pages long and relied on simple arithmetic. The latest update, known as Basel III, runs to 509 pages and includes 78 calculus equations.

The complexity is emblematic of what happened during the past four years as governments that injected $600 billion to rescue failing banks during the worst financial crisis since the Great Depression devised ways to make the global banking system safer. Those efforts have been stymied by conflicting laws, divergent accounting standards and clashing rules adopted by nations to protect their interests, all of which have created new risks.

While higher capital requirements, curbs on banks trading with their own money and other rules have reduced risk, they have magnified the complexity of supervision, according to two dozen regulators, bankers and analysts interviewed by Bloomberg News.

Risk has been reduced by a complex web of rules. Twenty-seven nations represented on the Basel Committee on Banking Supervision agreed in 2010 to require banks to hold more capital, or shareholders’ money, to absorb losses. Dozens of countries including the U.S. have issued other regulations or passed laws to curtail risk, and lenders on both continents have boosted capital and improved its quality since the crisis.

Trading of most derivatives, an opaque $639 trillion market, is being forced onto central clearinghouses, where transactions are backed by collateral. The Volcker rule, part of the 2010 Dodd-Frank Act, the U.K.’s proposed Vickers rule and a European Union version named for Bank of Finland Governor Erkki Liikanen seek to separate riskier trading from other businesses. Seven nations have created resolution mechanisms for an orderly shutdown of their biggest lenders if they fail, according to the Basel, Switzerland-based Financial Stability Board.

Still, the global financial system remains vulnerable. Only 11 of the more than 100 nations that vowed to adopt the latest Basel rules met a Jan. 1 deadline to start implementation. The U.S. and the EU, each of which drafted 700-page proposals, are still debating them, while banks work within their nations on capital standards.

For more, click here.

EU to Examine National Bank Rules as Germany Limits Capital Flow

The European Union is examining whether national banking regulators are hindering the free movement of capital after Germany limited the flow of funds from units of foreign lenders in the country to their parents.

Europe’s sovereign debt crisis has eroded cross-border lending to clients and prompted depositors to transfer funds to markets that are considered safe within the 17-member euro area. German financial regulator BaFin has curtailed the amount of funds foreign banks can pull out of the country on concern that it may leave their local units under-capitalized.

The European Commission and London-based European Banking Authority are conducting the examination, Stefaan De Rynck, spokesman for EU Financial Services Commissioner Michel Barnier, told reporters in Brussels today. The EBA can play a “mediating role” in the event of disagreements between national regulators, he said.

DeRynck also said there is a procedural requirement requiring different national supervisors “to cooperate with each other if they want to adopt certain measures.”

Sven Gebauer, a spokesman for Bonn-based BaFin, declined to comment on De Rynck’s comments when contacted by phone today.

Compliance Action

Google Probe by FTC Ends in Voluntary Changes, Patent Decree

Google Inc., avoiding a potentially costly legal battle with U.S. regulators, ended a 20-month antitrust probe by pledging to change some business practices and settling allegations it misused patents to thwart competitors in smartphone technology.

The Federal Trade Commission voted 5-0 to close its investigation into whether Google unfairly skewed its search results, with the company saying it would voluntarily remove restrictions on the use of its online search advertising platform and offer companies the option to keep their content out of Google’s search results.

A consent decree on patents curbs Google’s ability to seek court orders barring competitors’ products where the company has agreed to license the technology on reasonable terms.

The decision to close the probe of Google’s search practices without enforcement action is a blow to competitors including Microsoft Corp., Yelp Inc. and Expedia Inc. An alliance of such e-commerce and Web-search companies pressed the agency to bring a lawsuit, claiming Google’s dominance of Internet search, combined with favoring its own services in answers to queries, violates antitrust laws.

For more, see Interviews, below.

Egyptian Scholars to Consider Sukuk Ownership of State Assets

Officials of Egypt’s Finance Ministry will meet with scholars from al-Azhar next week to ensure that the country’s draft sukuk law is Shariah-compliant, according to e-mailed statement yesterday.

The meeting comes after reservations raised by scholars centering on the possibility that sukuk holders may own state assets. The law will be referred to the upper house of parliament after the consultation, according to the ministry.

Egypt needs to sell sukuk to secure foreign currencies and diversify funding sources, the ministry said.

The state-run Middle East News Agency reported Jan. 2 that President Mohamed Mursi referred the draft law to religious scholars to examine its compliance with Shariah law.

FSA Fines Co-Operative Bank $181,000 Over PPI Complaints

Co-Operative Bank Plc, a customer-owned lender, was fined 113,000 pounds ($181,300) by U.K. financial regulators over delays in handling complaints about sales of payment-protection insurance.

Co-Operative, based in Manchester, treated customers unfairly when they complained about so-called PPI during a period in 2011 when guidelines for handling such grievances were being challenged in court, the Financial Services Authority said today in a statement.

Tracey McDermott, the FSA’s director of enforcement and financial crime, said in the statement that while no one suffered financial loss, Co-Operative’s actions results in delays in the resolution of valid complaints for “no good reason.”

By last October, U.K. banks had already reserved more than 9 billion pounds to compensate clients who were forced to buy, or didn’t know they had bought PPI to cover repayments on mortgages, credit and other loans. Martin Wheatley, the U.K.’s chief markets regulator, said about 95 percent of PPI policies were sold inappropriately.

The bank, a unit of Co-Operative Group Ltd., which also runs grocery stores, received a 30 percent discount for settling the PPI dispute at an early stage, the FSA said.

Co-Operative “put some complaints on hold which were capable of being progressed without waiting for the judicial review to be concluded,” the bank said today in an e-mailed statement. “In this instance our procedures have fallen short of the high standards rightly expected of us.”

JPMorgan to BofA Get Delay on Rule Isolating Derivatives

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. won a delay of Dodd-Frank Act requirements that they wall off some derivatives trades from bank units backed by federal deposit insurance.

Commercial banks including the Wall Street firms may get as long as an additional two years -- until July 2015 -- to comply with the rules, the Office of the Comptroller of the Currency said in a notice yesterday. The provision was included in Dodd-Frank, the 2010 financial-regulation law, as a way to limit taxpayer support for risky derivatives trades.

The Commodity Futures Trading Commission and other regulators need to complete swap rules to allow “federal depository institutions to make well-informed determinations concerning business restructurings that may be necessary,” the OCC said in the notice. The so-called push-out provision of Dodd-Frank requires that equity, some commodity and non-cleared credit derivatives be moved -- or pushed out -- into separate affiliates without federal assistance.

In February, the U.S. House Financial Services Committee approved with bipartisan support legislation that would let banks keep commodity and equity derivatives in federally insured units by removing part of the push-out rule.

The OCC is prepared to “consider favorably” requests for transition, the regulator said in the six-page notice. The agency said delays could be extended for a third year based on consultations with other regulators.

For more, click here.

Berkshire Ex-Executive Sokol Won’t Face SEC Action, Lawyer Says

David Sokol, the executive who left Warren Buffett’s Berkshire Hathaway Inc. amid allegations he broke insider-trading rules, won’t face enforcement actions from the Securities and Exchange Commission, his lawyer said.

The U.S. agency ended its investigation of Sokol, attorney Barry Levine said yesterday in a phone interview after hearing from the SEC’s division of enforcement.

Sokol, who stepped down as chairman of Berkshire’s MidAmerican Energy Holdings Co. in April 2011, bought shares of Lubrizol Corp. in January of that year, less than three months before Berkshire announced a $9 billion acquisition of the company. Buffett was misled by Sokol about his dealings before the takeover, a Berkshire audit committee concluded. Levine has said Sokol never broke the law or violated Berkshire policies.

“They have intensely reviewed the facts, they’ve done it with uncommon care, and they have of course comprehensively reviewed the law,” said Levine, a partner at Dickstein Shapiro LLP in Washington. “Neither the law nor the facts suggest any impropriety.”

The SEC’s decision was reported earlier by the Wall Street Journal.

John Nester, an SEC spokesman, declined to comment. Buffett didn’t immediately respond to a request for comment e-mailed to an assistant outside normal business hours.


Ex-Broker Sentenced to 18 Months for Muni-Bond Bid-Rigging

Adrian Scott-Jones, a former broker for Tradition NA, was sentenced to 18 months in prison for his role in a municipal bond bid-rigging case. He was also fined $12,500.

Scott-Jones, of Morriston, Florida, pleaded guilty to conspiracy and wire fraud in 2010, agreeing to cooperate with a U.S. investigation of auction-fixing in the market for investments bought by states and local governments. He was sentenced yesterday in federal court in Manhattan.

Scott-Jones pleaded guilty to conspiring with former executives of General Electric Co. from as early as 1999 to 2006, the Justice Department said in the statement. He gave co-conspirators information about competitors’ bids, an illegal practice known as a “last look,” the government said.

The investigation has resulted in convictions and guilty pleas against 19 individuals and one company, the Justice Department said. One person is awaiting trial.

The case is U.S. v. Scott-Jones, 1:10-cr-00794, U.S. District Court, Southern District of New York (Manhattan).

Ex-SAC Manager Martoma Pleads Not Guilty to Insider Trading

Mathew Martoma, the former SAC Capital Advisors LP portfolio manager charged in what prosecutors called the biggest insider trading scheme in history, pleaded not guilty to criminal charges.

Martoma, 38, entered the pleas yesterday at his arraignment in Manhattan federal court to one count of conspiracy and two counts of securities fraud. Prosecutors say he used inside information about a clinical drug trial to help SAC make $276 million in profits and averted losses through trades in Elan Corp. and Wyeth LLC.

Assistant U.S. Attorney Arlo Devlin-Brown said in court that the government’s investigation is “ongoing” and the U.S. expects to produce more evidence.

Martoma isn’t discussing a plea deal with the government, his lawyer, Charles Stillman, said outside court.

Jonathan Gasthalter, a spokesman for Stamford, Connecticut-based SAC, has said Cohen and SAC acted appropriately in making the trades. Cohen hasn’t been charged criminally or sued by regulators in the case.

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).

Amazon.com, Macy’s, Sears Settle FTC Suits Over Mislabeling

Amazon.com Inc., Macy’s Inc. and Sears Holding Corp. agreed to settle U.S. Federal Trade Commission lawsuits over claims the companies misled consumers by selling rayon fabrics labeled as made from bamboo fiber.

The retailers, without admitting or denying the commission’s allegations, agreed to make payments to the government and to accept compliance monitoring and reporting, according to proposed settlements filed yesterday in federal court in Washington. Leon Max Inc. agreed to settle a similar suit.

The settlements need approval by a federal judge.

“We cooperated with the FTC in reaching this settlement in lieu of pursuing further litigation,” Howard Riefs, a spokesman for Sears, said in an e-mailed statement. “We continue to take these regulations seriously.”

A message left with Amazon.com’s media relations department seeking comment on the case wasn’t immediately answered. Jim Sluzewski, a spokesman for Macy’s, didn’t reply to an e-mail seeking comment on the settlement.

The cases are U.S. v. Amazon.com, 13-cv-00002; U.S. v. Macy’s Inc., 13-cv-00004; U.S. v. Sears, Roebuck and Co., 13-cv-00005; and U.S. v. Leon Max Inc., 13-cv-00003, U.S. District Court, District of Columbia (Washington).


Stiglitz Urges Greater Curbs on Risk-Taking by Banks

Nobel Prize-winning economist Joseph Stiglitz, a professor at Columbia University, discussed banking regulation and monetary policy during a speech in Mumbai.

Among other topics touched upon in the speech were Libor and central bank policy.

For the video, click here.

Leibowitz Says FTC’s Google Decision ‘Absolutely Right’

Jon Leibowitz, chairman of the U.S. Federal Trade Commission, talked about the agency’s decision to close its investigation into some of Google Inc.’s operational practices.

Google ended a 20-month antitrust probe by pledging to change some business practices and settling allegations it misused patents to thwart competitors in smartphone technology. Leibowitz spoke with Peter Cook on Bloomberg Television’s “Money Moves.”

For the video, click here.

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