SEC Fraud Actions Lag, Currency, EU Cartels: Compliance

Feb. 28 (Bloomberg) -- The Securities and Exchange Commission must move more quickly in pressing some fraud lawsuits, the U.S. Supreme Court ruled in a decision that may affect agencies across the government.

The justices unanimously ruled in favor of two Gabelli Funds LLC officials seeking to block SEC claims that they improperly let a client engage in market timing, a practice of making frequent, short-term trades at the expense of other investors. Chief Justice John Roberts wrote the court’s opinion.

Marc J. Gabelli and Bruce Alpert contended that the SEC sued after the five-year window for seeking penalties had expired. A federal appeals court in New York said the suit could go forward because the window doesn’t open in fraud cases until the SEC has reason to know a violation has occurred.

The case raised issues similar to those addressed by the Supreme Court in 2010, when it ruled that the two-year period for shareholder fraud suits doesn’t begin until investors have indications of intentional company wrongdoing. The new case concerns SEC enforcement actions, rather than private suits.

At the time of the alleged wrongdoing -- from 1999 to 2002 -- Gabelli was the portfolio manager for the Gabelli Global Growth Fund and Alpert was chief operating officer of Gabelli Funds. The SEC filed its complaint in 2008.

The SEC and the Obama administration argued that the court has repeatedly endorsed the so-called discovery rule in fraud cases.

The case is Gabelli v. SEC, 11-1274.

Compliance Policy

U.K. FSA Doesn’t Want Power to Prosecute CEOs of Failed Banks

The U.K. finance regulator doesn’t need the power to prosecute executives at banks that fail or take bailouts because such matters are unlikely to be criminal, the agency told lawmakers.

Bank failures are most often due to mismanagement rather than deliberate wrongdoing, the Financial Services Authority said in a written response to questions from the Parliamentary Commission on Banking Standards, published yesterday.

“The causes of a major bank failure are always likely to be complex and include a combination of decisions made within the bank and inextricably linked to external events,” the FSA said.

The regulator is “not convinced” that bankers would act more cautiously in taking risk or that the public would have greater confidence in authorities’ ability to take action against mismanagement if it had the power to criminally prosecute them because it would rarely be used.

Instead, the FSA said it would prefer stronger regulatory powers. In September, it told the committee it would like an extension of the three-year statute of limitations on probes and the ability to temporarily ban senior managers from their jobs while they’re under investigation.

CFTC to Take Up Uncleared Swaps Rule in Second Half: Gensler

The Commodity Futures Trading Commission, in consultation with European regulators, probably will “take up” final margin rules for uncleared swaps, and related rules on capital, in the year’s second half, Chairman Gary Gensler said in prepared testimony for an oversight hearing by the Senate Agriculture Committee.

The commission’s proposed margin rules excluded non-financial end-users from margin requirements for uncleared swaps.

Separately, the committee will seek public comment by May 1 on reauthorization of CFTC, Senator Debbie Stabenow, a Democrat from Michigan, said in a statement.

The CFTC was last renewed in 2007. The agency’s five-year authorization expires this fiscal year.

Payday Loans Get U.S. Consumer Bureau Scrutiny as ‘Debt Traps’

The U.S. Consumer Financial Protection Bureau is considering action to limit the impact of payday and other short-term loans that can become “debt traps” for borrowers, said Director Richard Cordray.

Tougher rules on short-term credit could crimp revenue at banks such as Wells Fargo & Co. and Regions Financial Corp. that offer such loans. CFPB action could also affect non-bank firms that engage in payday lending, such as Cash America International Inc., EZCORP Inc. and DFC Global Corp.

The remarks by Cordray may mark the beginning of additional efforts by the agency to address potential abuses in the area of short-term lending, especially so-called payday loans.

The agency plans to extend its consumer complaint system to include short-term credit in the third quarter of this year, according to two people briefed on the bureau’s plans. Before that, it plans to issue a report on the repeated use of payday loans and short-term bank credit often referred to as deposit advance products, the people said.

Consumer groups use the phrase to describe the downside of payday loans, a type of loan in which borrowers provide as collateral a postdated check for the amount of the loan plus a fee. Many of the transactions are now made online, with borrowers authorizing lenders to debit their account electronically when the payments fall due.

In his remarks, Cordray didn’t refer to directly to payday lending, but expressed concern about frequent users of short-term credit.

The payday lending lobby has sought to defuse this criticism by emphasizing that they compete with other de facto lending products, such as checking overdraft fees.

Jamie Fulmer, senior vice president of public affairs for Advance America Cash Advance Centers Inc., a payday lender, said his company’s customers typically get eight loans a year. The company also offers customers in some states the ability to extend their loan terms. Advance America was acquired by Grupo Elektra SAB last year.

“We work with each customer to ensure they understand the terms of their loan and can repay it,” Fulmer said by e-mail.

Sam Olens, the attorney general of Georgia, said attorneys general would welcome federal action to limit the ability of lenders to affiliate with Native American tribes.

Japan Exchange to Set Up Asia High-Speed Links, Bourse Says

Japan Exchange’s high-speed links with Hong Kong, Singapore, Australia and other access points in Asia will expand high-speed trading from March, bourse spokesman Naoya Takahashi said.

The Tokyo Stock Exchange will use NTT Communications’ network for the connections. The connections will allow overseas investors to manage trading and system changes remotely.

Nikkei reported the plan yesterday.

Compliance Action

EU Regulators Warn Rookie Traders Over Contracts for Difference

The European Union’s top banking and markets regulators warned inexperienced investors that they may lose more money than they expect when trading contracts for difference.

Volatile markets, combined with extra leverage, “can result in rapid changes to your overall investment position,” the European Banking Authority and European Securities and Markets Authority said in a joint statement on the EBA’s website.

The contracts are only appropriate for people who have “extensive experience in trading, in particular during volatile markets, and can afford any losses,” the EBA said.

A contract for difference is an agreement between a buyer and a seller to exchange the difference between the current price of an asset such as shares, currencies or commodities, and its price when the contract is closed.

Russian Banks to Gain From Currency Swap Auctions

The start of currency swap auctions by the Russian central bank will smooth rates on the interbank market and decrease the cost of funding, BCS Financial Group’s fixed-income strategist Dmitry Dorofeev said in a note to clients.

Banks with a high utilization rate of repo collateral or with no access to Bank Rossii’s repo auctions will benefit the most, according to BCS Financial Group.

The volumes of currency swap auctions may reach 100b-200b rubles if rate declines are closer to the repo auction rate of 5.5 percent, BCS Financial Group said.

The current fixed currency swap rate is 6.5 percent.

Bank Rossii and the Moscow Exchange plan to start currency swap auctions this year, central bank Deputy Chairman Sergey Shvetsov said on Feb. 26.

SEC Said to Probe Milken’s Guggenheim Ties for Ban Violation

The U.S. Securities and Exchange Commission is investigating whether former junk-bond pioneer Michael Milken acted as an adviser to Guggenheim Partners LLC in violation of a lifetime ban from the securities industry, a person with knowledge of the matter said.

Investigators are reviewing whether Milken, an investor in the $170 billion asset-management firm, has in effect managed other clients’ money by playing an active advisory role to the firm, said the person, who asked not to be named because the matter isn’t public. Neither Milken nor Guggenheim has been accused of wrongdoing.

Milken, the former head of junk-bond trading at Drexel Burnham Lambert Inc. in the 1980s, served 22 months in prison and after pleading guilty to securities fraud in 1990 and was permanently barred from serving as a broker or investment adviser. In 1998, Milken agreed to pay $47 million to settle SEC claims he had violated the ban; he didn’t admit or deny wrongdoing.

According to Fortune magazine, which reported the investigation earlier yesterday, the firm has handed over documents including trading records and emails in response to an SEC subpoena. Investigators are reviewing transactions that Milken has done jointly with Guggenheim, Fortune said.

Torie von Alt, director of public relations at Guggenheim, declined to comment. SEC spokesman John Nester also declined to comment.

In response to a request for comment, Geoffrey Moore, a senior adviser to Milken, provided a link to a statement given to Fortune. In that statement, Milken said he discusses his and his family’s investments with advisers and money managers from time to time, but only as an investor. He has had no desire to be in the securities business in any capacity and has strictly avoided doing anything that could be interpreted otherwise, according to the statement.

GLG Partners’s Esprey Said to Be Among People Arrested by FSA

Carl Esprey, who has worked as a portfolio manager at GLG Partners Inc., was one of the three employees arrested yesterday in London on suspicion of insider trading, according to a person with knowledge of the matter.

Esprey, 33, was detained and questioned about trades he made as a private individual, said the person, who asked not to be identified because the information hasn’t been publicly disclosed. He joined Man Group Plc’s GLG unit in January 2008 as a portfolio manager for its European Long-Short Fund, according to a July 2012 press release issued by the company.

The investigation is part of the push by the Financial Services Authority to crack down on insider trading by employees at London’s biggest financial companies after previously targeting lower-profile individuals.

Esprey didn’t respond to e-mails sent to his GLG address and he couldn’t be reached on his mobile phone. FSA spokesman Joseph Eyre declined to comment on the identity of the three people arrested. Man Group Chief Executive Emmanuel Roman also declined to comment, when asked about the investigation of the employee on a conference call with reporters today.

Esprey is now listed as “inactive” on the FSA register of people approved to hold positions in the finance industry after being shown as “active” as recently as yesterday. Before joining GLG in London, he worked in the corporate-finance department of BHP Billiton Ltd., the world’s biggest mining company, the GLG statement showed.

GLG last year appointed Esprey to a team of traders focused on investing in Asia, the statement said. Esprey was identified as the team’s “materials specialist.”

Man Group confirmed that one of its employees had been arrested by the FSA in an e-mail sent yesterday. The investigation regards the person’s “actions as a private individual and not as an employee of Man Group or GLG,” it said. Man Group said it suspended the employee and had cooperated with the FSA’s probe.


Telekom Austria Ex-Managers Given Jail for Share Manipulation

Telekom Austria AG’s former finance chief and an ex-board member were found guilty of manipulating the share price in 2004 to trigger bonus payments for themselves and other employees. The two were sentenced to jail.

Former Chief Financial Officer Stefano Colombo was sentenced to 42 months in jail by a Vienna Criminal Court jury led by Judge Michael Tolstiuk. Rudolf Fischer, a former deputy chief executive officer, was given a three-year sentence. Another employee was given jail time, while former CEO Heinz Sundt was acquitted. Lawyers for Colombo and Fischer didn’t immediately say whether they plan to appeal.

The three people found guilty were ordered to pay 9.9 million euros ($13 million) sought by the company as compensation.

The trial that began Feb. 11 was the first to result from multiple corruption probes into the Vienna-based company.

Fischer admitted during the trial that he approved a payment to the broker who bought Telekom Austria stock to lift the price. While Colombo repaid his bonus, he rejected all charges and said he hadn’t known some of the facts that surfaced in court. Sundt said he didn’t know about any manipulation.

Philips, LG, Samsung Appeal Shares of EU’s Record Cartel Fines

Royal Philips Electronics NV, LG Electronics Inc. and a Samsung Electronics Co. unit appealed their shares of record European Union antitrust fines for plotting to fix prices of cathode-ray tubes used in TV screens and computer displays.

The trio, which were among the electronic companies ordered in December to pay 1.47 billion euros ($1.93 billion), filed appeals with the EU General Court in Luxembourg, the bloc’s second-highest tribunal. The appeals were confirmed by officials in the court’s press service, who aren’t allowed to be quoted by name, in line with its policy. Toshiba Corp. separately said it also appealed.

Philips was fined 313.4 million euros, LG 295.6 million euros, plus a joint fine for both companies of 391.9 million euros. Samsung SDI Co. Ltd., an affiliate of Samsung Electronics Co., lodged an appeal against its 150.8 million-euro fine on Dec. 14, according to court filings.

Joost Akkermans, a spokesman for Amsterdam-based Philips, confirmed the appeal at the EU’s second highest court, declining to comment further. Samsung and LG representatives didn’t immediately respond to calls or e-mails seeking comment. Toshiba said in an e-mailed statement that it filed its appeal Feb. 20, declining to comment further.

Chunghwa Picture Tubes Ltd. escaped a fine because it was the first to inform regulators of the cartel.

The cases are: T-92/13, Philips v. Commission; T-91/13, LG Electronics v. Commission; T-104/13, Toshiba v. Commission; T-84/13, Samsung SDI v. Commission.


Barnier Says Bank Bonuses Will Still Be ‘Quite Substantial’

Michel Barnier, the European Union’s financial services chief, said that banker bonuses “will still remain quite substantial” after a deal today to curb variable pay.

European Parliament lawmakers and national government officials agreed to ban bonuses that are more than twice bankers’ fixed pay, in a tentative deal that may end more than 18 months of wrangling over how the EU will apply global bank rules drawn up by the Basel Committee on Banking Supervision.

The bonus restrictions were included in a draft deal reached by officials and lawmakers on a Basel bank capital law.

For more, click here.

Banks Entering U.K. Won’t Need Systemic Buffer, Turner Says

Banks entering the U.K. market will be allowed to run on less capital than more established banks because they are less likely to be systemically important to the country’s financial system, Adair Turner, chairman of the U.K. Financial Services Authority, told lawmakers in London yesterday.

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

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

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