SEC Chairman, File ‘Purge,’ U.K. Pensions: Compliance

Mary Jo White, the former U.S. attorney in Manhattan, is under consideration to become the next chairman of the Securities and Exchange Commission, three people with knowledge of the matter said.

White, now a partner at law firm Debevoise & Plimpton LLP in New York, would succeed Elisse Walter, who took over as SEC chairman last month, said the people, who asked not to be named because the matter isn’t public.

The choice of White, who was known as a no-nonsense prosecutor, would be a departure for the agency which has tended to be run by lawyers steeped in financial policymaking and the securities industry. Her relative inexperience in those areas, along with her work defending corporate clients in her years in private practice, is likely to draw fire from some lawmakers and advocates for investors.

As U.S. attorney for the Southern District of New York from 1993 to 2002, White became a leading terrorism prosecutor. White has also served on the board of the Nasdaq Stock Market.

SEC spokesman John Nester declined to comment on her possible nomination. White didn’t respond to an e-mail seeking comment.

In recent years, the SEC has been faulted by lawmakers, judges and investors for failing to bring more cases related to the financial market turmoil of 2008. White said last year that prosecutors shouldn’t allow public anger to influence investigations.

For more, click here.

Compliance Policy

Dual-Track Foreclosures Limited Under U.S. Consumer Bureau Rules

Mortgage servicers will face greater limits on their ability to foreclose on a borrower while simultaneously negotiating a loan modification under new rules issued by the U.S. Consumer Financial Protection Bureau.

The rules, some of which are required under the 2010 Dodd-Frank law that created the agency, go further than the bureau’s initial proposal in limiting the practice, known as dual-tracking. They will apply to major banks including Wells Fargo & Co. and Bank of America Corp. as well as non-bank servicers including Ocwen Financial Corp.

The CFPB’s rule against simultaneous foreclosures and modifications is a turnaround from the bureau’s initial proposal, issued Aug. 10, which didn’t directly address dual-tracking, according to a senior CFPB official who briefed reporters in advance of the release and asked not to be named.

Americans for Financial Reform, an umbrella group of consumer groups, civil rights organizations and labor unions, asked the agency to scrap the proposal, in part over the dual-tracking issue.

Finra Clarifies Rules for Submitting Structured Note Materials

The Financial Industry Regulatory Authority clarified a new communications rule for broker-dealers selling structured notes.

Under its rule 2210, published in June and set to go into effect on Feb. 4, brokers have 30 calendar days to send Finra copies of any written correspondence that goes out to 25 or more individual investors. Copies don’t also need to be sent to the U.S. Securities and Exchange Commission, the self-regulatory trade group said on Jan. 7 on its website.

Small Bankers Back Call to Restructure ‘Too-Big-To-Fail’ Banks

The Independent Community Bankers of America “strongly supports” the call by Federal Reserve Bank of Dallas President Richard Fisher for restructuring too-big-to-fail banks, the group said in an e-mailed statement.

“Policymakers need to act now to address the too-big-to-fail problem because we can’t afford to continue this government backstop for systemically dangerous institutions,” Fisher said in the statement.

Fisher, who spoke in Washington Jan. 16, said too-big-to-fail financial firms should be “restructured into multiple business entities.”

HKMA to Consult Banks on Revised Basel Liquidity Coverage Ratio

The Hong Kong Monetary Authority plans to resume consultation following changes on the liquidity coverage ratio requirement announced by the Basel Committee on Banking Supervision, the authority said in a letter to the city’s banks published on its website yesterday.

The Authority aims to reach conclusion on major policy issues within the year in order to get ready for implementation of policies on Jan. 1, 2015.

Office of Fair Trading to Study Fees in U.K. Workplace Pensions

The U.K. Office of Fair Trading will study competition among providers of workplace pensions, including the question of whether there’s enough pressure among them to keep charges low and whether savers receive enough information. The regulator will also look at the barriers to switching between pension plans. The OFT is to work with the Pensions Regulator and Financial Services Authority and will seek input from pension providers, employers, and employees in its inquiry.

About four million Britons save in defined-contribution plans. That number will rise with auto-enrollment plans that require employees to opt out rather than opt in, according to the regulator.

FSA in Negotiations With BBA on PPI Time Limits

The Financial Services Authority said it has been approached by the British Bankers’ Association to discuss the potential for introducing a time limit for Payment Protection Insurance complaints.

The U.K. financial regulator said in an e-mailed statement it has entered discussions on the issue and the key consideration is how to get compensation to consumers more quickly.


SEC Purge of Madoff, Goldman Probe Files Upheld by Judge

The U.S. Securities and Exchange Commission doesn’t have to restore purged files on Bernard Madoff and Goldman Sachs Group Inc. that were sought by a government watchdog group, a federal judge ruled.

Citizens for Responsibility and Ethics in Washington sued the agency, alleging it violated federal records law by refusing to recover investigative files that had been destroyed. U.S. District Judge James Boasberg in Washington ruled yesterday that the government was only required to seek recovery of records that were physically removed from the agency’s custody rather than those that were done away with.

The lawsuit sought records of so-called Matters Under Investigation, which under a policy dating back to 1998 weren’t stored as official files of the SEC, according to a Sept. 14, 2011, letter to Congress from then-SEC enforcement director Robert Khuzami.

CREW, as the group is known, sued for materials related to the SEC’s initial probes of Madoff’s Ponzi scheme, Goldman Sachs’s trades of American International Group Inc. credit-default swaps in 2009, and other topics related to the financial world.

The case is Citizens for Responsibility and Ethics in Washington v. U.S. Securities and Exchange Commission, 11-cv-01732, U.S. District Court, District of Columbia (Washington).

For more, click here.

Ex-BAE Lobbyist Cleared of Money Laundering Charges in Austria

A former BAE Systems Plc lobbyist was cleared by a Vienna court on money laundering charges tied to allegations he bribed officials in eastern and central Europe for weapons contracts.

Prosecutors didn’t present enough facts to convict Alfons Mensdorff-Pouilly of money laundering, criminal-court spokeswoman Christina Salzborn said yesterday by telephone.

Mensdorff-Pouilly was found guilty on a lesser charge of evidence tampering, which carries a conditional two-month sentence that may be voided on appeal, Salzborn said.

U.K. prosecutors dropped similar charges against Mensdorff-Pouilly in 2010 in a joint U.K. and U.S. settlement ending a six-year-old bribery and fraud investigation against the company.

Harald Schuster, a lawyer for Mensdorff-Pouilly, wasn’t immediately available at his office for a call for comment.

Barclays Is Sued in Germany Over Kiener’s K1 Fund Ponzi-Scheme

Barclays Plc was sued in Germany by investors who lost money in the 345-million euro ($460 million) Ponzi-scheme fraud by Helmut Kiener’s K1 hedge fund.

About 150 suits over so-called X1 and K1 certificates were filed at courts in Frankfurt and Munich, Klaus Nieding, a lawyer for the plaintiffs, said in an e-mailed statement yesterday. When issuing certificates on the underlying Kiener indexes, Barclays failed to properly review the K1 products, said Andreas Tilp, another lawyer working on the cases.

K1 Group founder Helmut Kiener was convicted in 2011 of defrauding investors and sentenced to 10 years and eight months in prison after confessing to using new investors’ money to make up for losses in the wake of the financial crisis. Barclays and BNP Paribas SA lost a combined 223 million euros and private investors lost about 122 million euros, German prosecutors said at the time.

Germany’s Manager Magazin reported the suits earlier in the day yesterday.

Jon Laycock, a spokesman for London-based Barclays said the claims in the lawsuits are “wholly without merit.”

“The German courts have found in Barclays’ favor in all decisions to date with a recognition that Barclays is also a victim of the Kiener fraud,” Laycock said in an e-mailed statement.

K1’s funds are being liquidated in the British Virgin Islands. Kiener’s personal assets were placed in insolvency proceedings in Germany. X1 Fund Allocation GmbH, a Hamburg-based K1 company, was put under administration in 2009. Barclays issued notes in 2005 and 2007 with X1 Fund Allocation as the investment manager.

The Frankfurt court was asked to bundle the suits under a procedure that allows handling them as a single case.

Goldman Sachs Says It Was Scapegoated in Dragon Founders’ Suit

A Goldman Sachs Group Inc. lawyer argued to jurors that the founders of speech-recognition pioneer Dragon Systems Inc. are scapegoating the investment bank for their own mistakes in a $580 million all-stock sale rendered worthless when the buyer was exposed as a fraud.

In closing arguments yesterday in Boston federal court in a lawsuit accusing Goldman Sachs of negligence, the attorney, John Donovan Jr., said Dragon co-founder Janet Baker and Chief Financial Officer Ellen Chamberlain ignored the bank’s advice to hire accountants to further vet Belgium-based suitor Lernout & Hauspie Speech Products NV and rushed the deal amid Dragon’s cash-flow problems in 2000.

Donovan blamed Baker, also Dragon’s former chief executive officer, for negotiating a change from a half-cash/half-stock deal to an all-stock deal without consulting the banking team.

Lawyers for Dragon argued New York-based Goldman Sachs committed gross negligence, committed misrepresentation through key omissions and should have stopped the deal because of unanswered questions about Lernout & Hauspie’s revenue.

Alan Cotler, a lawyer for Janet Baker and her husband, Jim, told the jury the blame lay with Goldman, which considered the deal to be “small potatoes.” The Goldman team, which included a 22-year-old banker and a 25-year-old, was inexperienced, unsupervised and unfocused on a small client such as Dragon, Cotler said.

Dragon paid Goldman Sachs $5 million.

Goldman Sachs intentionally misrepresented that the bank had an analyst monitoring Lernout & Hauspie’s earnings when it had stopped covering the company at the end of 1999, Cotler said. L&H posted a suspicious 1,500 percent increase in Asian revenue in February 2000.

He said Janet Baker, who with her husband developed the technology that started the company in their suburban Boston home in 1982, and Chamberlain became frustrated with the Goldman Sachs team for not doing due diligence in the deal.

Dragon has already collected $70 million in settlements with other companies involved in the deal. If the jury finds Goldman negligent and awards damages, $70 million will be deducted from the total.

The case is Baker v. Goldman Sachs & Co., 09-cv-10053, U.S. District Court, District of Massachusetts (Boston).

For more, click here.


Duffy, Meyer, O’Brien, Standish on Financial Regulation

Terrence Duffy, president and executive chairman of CME Group Inc., Laurence Meyer, co-founder and senior managing director at Macroeconomic Advisers LLC and a former Federal Reserve Board governor, William O’Brien, chief executive officer of Direct Edge Holdings LLC, and Mark Standish, co-chief executive officer of RBC Capital Markets, participated in a panel discussion about U.S. financial industry regulation.

Bloomberg’s Robert Friedman moderated the panel at the Bloomberg Link Global Markets Summit in New York.

For the panel video, click here.

Separately, Duffy sat down with Stephanie Ruhle on Bloomberg Television’s “Lunch Money,” and talked about the impact of U.S. debt-ceiling negotiations on financial markets and the outlook for implementation of the Dodd-Frank bank regulations.

For the Duffy video, click here.

Comings and Goings

Juncker Says Decision on Eurogroup Chief to Be Made Jan. 21

Luxembourg Prime Minister Jean-Claude Juncker said the Eurogroup will choose a new president when it meets in Brussels on Jan. 21.

Dutch Finance Minister Jeroen Dijsselbloem presented his candidacy during a meeting in Luxembourg today, Juncker told reporters.

Juncker said last month that he has “reasons to believe” the Dutchman could be his successor at the eurogroup. Juncker, 58, has led meetings of the euro finance ministers since 2005 and is stepping down from the post.

U.K. FSA’s Successor Must Be Radically Different, Panel Says

The successor to the Financial Services Authority needs to take a “radically different” path to make sure consumers receive stronger protection and major financial failings are discovered earlier, a U.K. Parliamentary committee said.

The FSA “failed consumers badly” and the new agency must take a different approach “to the widely discredited box-ticking practices undertaken by the FSA,” Andrew Tyrie, the chairman of the committee, said in an e-mailed statement.

The Financial Conduct Authority will take over as soon as April from the FSA, which is being abolished as part of a supervisory overhaul in the wake of the financial crisis that saw the nationalization of Northern Rock Plc and bank bailouts. The FCA will take on oversight of consumer protection, while the Prudential Regulation Authority, which will become a unit of the Bank of England, will keep watch on systemic financial issues.

John Griffith-Jones, the former U.K. head of accounting firm KPMG LLP, will be the incoming chairman of the FCA.

Both Griffith-Jones and the Treasury must take more aggressive oversight of the regulator to ensure that the board challenges the executive leadership of the FCA, the report said.

Before it's here, it's on the Bloomberg Terminal.