EU Markets Law, EU Bank Supervisor, SEC: Compliance

April 19 (Bloomberg) -- European Union nations must resume talks on a draft law to overhaul the bloc’s financial market rules, after ambassadors failed to resolve a clash between the U.K. and Germany on competition in derivatives clearing.

Ireland, which holds the EU’s rotating presidency, will seek to broker compromises on the measures, which would toughen oversight of high-frequency trading, and impose limits on traders’ positions in commodity derivatives markets, according to three European officials who aren’t authorized to be cited by name, in line with policy.

Michel Barnier, the EU’s financial services chief, proposed overhauling the EU’s Markets in Financial Instruments Directive, or Mifid, to counter “speculative trading activities” and implement agreements reached by the Group of 20 nations. His plans would also boost competition by forcing exchanges to hand over trade data to rival clearinghouses, so that they can compete in processing derivatives transactions.

The data-access plans are supported by the U.K. government, which says that greater competition will reduce costs for investors. Germany has resisted, arguing that the move would fragment markets and harm financial stability. Ireland’s EU presidency will continue efforts to reach consensus on the draft law, said a spokeswoman, who also couldn’t be named, in line with government policy. She said Ireland also aims to start negotiations with the European Parliament on the measures.

Compliance Policy

ECB to Take Bank Supervisor Role Next Year After EU Approves Law

The European Central Bank is set to take on oversight powers next year over all euro area banks after the legislation underpinning the supervisory system was signed off yesterday in Brussels.

“This agreement on the single banking supervisor is a major step towards banking union,” Irish Finance Minister Michael Noonan said in an e-mailed statement. “We need to build on this momentum to make progress on the next building blocks: bank resolution and deposit guarantees,” Noonan said.

Ireland holds the rotating presidency of the 27-nation EU.

Separately, the euro zone’s move toward common bank oversight must be accompanied by a common process for handling failing banks, European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday.

The European Commission remains on track to unveil its proposal for a single resolution mechanism “before the summer,” Rehn said. He said further moves toward banking union are needed to prevent a recurrence of the sovereign debt and banking crisis that has so far forced five of the euro zone’s 17 nations to seek aid.

Compliance Action

SEC to Move Past Financial Crisis Cases Under Chairman White

Mary Jo White, the first former prosecutor to serve as chairman of the U.S. Securities and Exchange Commission, has pledged to run a “bold and unrelenting” enforcement program at the agency charged with regulating Wall Street.

With financial crisis cases mostly done and some of the biggest insider-trading cases in history closed, White will have to chart a course into new areas to keep that pledge.

White, who was sworn in last week, has provided a few signals about what that might be. During her Senate confirmation hearing, she said she intends to focus on high-frequency and automated trading. She has also raised questions about a drop in the number of accounting fraud cases.

One of her first steps, said four people familiar with her plans, will be to put the mission in the hands of a trusted lieutenant, Andrew Ceresney, who was a prosecutor under White when she served as U.S. Attorney for the Southern District of New York. He doesn’t have any experience working inside the SEC and will probably share the top role with George Canellos, the current SEC acting chief of enforcement, the people said.

The SEC hasn’t completely finished its probe of misconduct tied to the financial crisis. Investigators have signed so-called tolling agreements with executives and banks to extend the five-year statute of limitations on those cases. Also, the SEC has said its investigation into insider trading at hedge funds is continuing.

All the same, the number of such cases still in the pipeline has dwindled, and in recent months, the enforcement staff has formed teams to re-evaluate how they are organized and what kinds of misconduct are most ripe for investigation.

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Glaxo Gets OFT Complaint for Paying to Delay Seroxat Copies

GlaxoSmithKline Plc was sent an antitrust complaint by U.K. regulators who say the company may have colluded with generic-drug makers to keep copies of its Seroxat antidepressant off the market.

Glaxo, the U.K.’s biggest drugmaker, may have paid Alpharma Ltd., Generics (U.K.) Ltd. and a unit of Teva Pharmaceutical Industries Ltd. to delay the release of cheaper, copycat versions of the drug, the U.K. Office of Fair Trading said on its website. Seroxat was one of Glaxo’s best-selling drugs from 2002 through 2004, when the agreements were in place, the OFT said.

Antitrust regulators on both sides of the Atlantic are focusing on how settlements between companies that make branded medicines and generics producers might harm consumers. Les Laboratoires Servier, H. Lundbeck A/S and Teva, the world’s largest generic-drug maker, were sent statements of objections last year by the European Union’s antitrust watchdog over possible delays for generic drugs.

The OFT probe covers matters already examined by the EU without subsequent sanctions, David Daley, a spokesman for the London-based company, said by e-mail.

Glaxo “supports fair competition and we very strongly believe that we acted within the law, as the holder of valid patents for paroxetine, in entering the agreements under investigation,” Daley said in an e-mail, referring to the active ingredient in Seroxat. “These arrangements actually resulted in generic versions of paroxetine entering the market before GSK’s patents had expired.”

Glaxo and the generic companies were sent so-called statements of objections, the OFT said. Daley said the company will need time to review the documents before considering any further action.

Denise Bradley, a spokeswoman for Teva based in the U.S., didn’t immediately return an e-mail seeking comment outside of office hours. A spokesperson for Mylan Inc., which owns Generics U.K., didn’t immediately return a phone call asking for comment. David Belian, a spokesman for Actavis, which owns Alpharma and is based in the U.S., didn’t immediately respond to an e-mail seeking comment.

Santander UK to Contact More Than 270,000 Borrowers, FCA Says

The U.K. Financial Conduct Authority said it reached an agreement with Santander UK Ltd. to contact about 270,000 mortgage customers about unclear information it gave before increasing the cap on its mortgage standard variable rate in 2008.

The FCA “supervises the conduct of 26,000 financial firms and regulates the prudential standards of 23,000 of those,” according to a statement on the agency’s website.


Banker Groups Sue Treasury, IRS Over Account Reporting Rule

Two banker groups sued the U.S. challenging rules that require financial institutions to report information on accounts held by nonresident aliens that may be shared with 72 foreign governments.

The Texas Bankers Association and the Florida Bankers Association, in a lawsuit filed yesterday against the Treasury Department and the Internal Revenue Service in federal court in Washington, said the rules are discouraging investment in the U.S. by nonresidents who fear their information may be shared with the governments of countries including Egypt, Pakistan and Venezuela.

The regulations, which took effect in January, are part of the government’s efforts to work with other countries on tax evasion. Treasury and the IRS say the U.S. should ask its banks to report information just as it is requiring overseas banks to provide information on U.S. account holders.

In the regulations, the IRS wrote that it will exchange information only with countries that protect confidentiality and use the data solely for tax purposes.

The banking groups, in the lawsuit, said the Treasury and the IRS failed to properly assess the costs and economic impact of the rule on non-resident deposits held in the U.S. banking system, which they claim is estimated to be $400 billion. The group’s members have reported “substantial deposit outflows and shifting of accounts” to non-interest bearing ones since the rule was adopted last year, according to the complaint.

Sabrina Siddiqui, a Treasury Department spokeswoman, declined to immediately comment on the lawsuit. Dean Patterson, an IRS spokesman, didn’t immediately respond to an e-mail message seeking comment.

The case is Florida Bankers Association v. U.S. Department of Treasury, 13-cv-00529, U.S. District Court, District of Columbia (Washington).

SEC Sues Schottenfeld Trader Mancuso Over Goffer Insider Tips

The U.S. Securities and Exchange Commission sued Joseph Mancuso, a former trader at Schottenfeld Group LLC, accusing him of making about $350,000 on a series of illegal tips from Zvi Goffer, a former Galleon Group LLC trader.

Mancuso, 36, of Manhattan, worked with Goffer when both men were at Schottenfeld, and was described by regulators as Mancuso’s “good friend and colleague.” Goffer shared tips with him about nonpublic information concerning the acquisition of Avaya Inc., 3Com Corp., Axcan Pharma Inc., Hilton Hotels Corp. and Kronos Inc., the SEC said in a complaint filed April 17 in federal court in Manhattan.

Mancuso obtained tips from Goffer through his “close, personal and professional relationship” with him, according to the complaint. The two met in college in the 1990s, the SEC said.

Goffer obtained the information leaked by two Ropes & Gray LLC lawyers, Brien Santarlas and Arthur Cutillo, about the firm’s clients, which he passed on to his friends, the SEC said. Goffer also paid kickbacks to the two lawyers in exchange for the inside information. Prosecutors said Goffer and others to whom he passed the information earned $10 million.

Goffer is serving a 10-year prison term after being convicted in 2011 of 14 counts of conspiracy and securities fraud. Santarlas was sentenced to six months in prison while Cutillo received a 30-month sentence.

The case is SEC v. Mancuso, 13-cv-02555, U.S. District Court, Southern District of New York (Manhattan).

Schindler Should Lose Cartel Fine Appeal, EU Court Aide Says

Schindler Holding AG should lose a final appeal against a 143.7 million-euro ($187.5 million) cartel fine for colluding with competitors in the markets for elevators and escalators, an adviser to the European Union’s highest court said.

The appeal should be dismissed in its entirety, Advocate General Juliane Kokott of the EU Court of Justice said in a non-binding opinion yesterday. The Luxembourg-based court follows such advice in most cases.

The European Commission fined five companies 992.3 million euros in February 2007 for their roles in the elevator cartel. ThyssenKrupp AG two years ago won a first court appeal to slice 159.9 million euros off a 479.7 million-euro antitrust fine for carving up the markets for elevators and escalators.

Schindler is appealing a 2011 ruling by the EU General Court, the bloc’s second-highest tribunal, to uphold its penalty and is calling for a decision that overturns the EU regulator’s original order.

“At the time of the infringements Schindler Holding had -- as expressly acknowledged by the General Court -- done its utmost to prevent its subsidiaries from violating EU competition law through a state-of-the-art compliance program,” Barbara Schmidhauser, a spokeswoman for the company, said by e-mail. If the top EU court follows Kokott’s advice, the incentive to use such compliance programs “would be rather low.”

The elevator companies were accused of setting prices in northern European countries between at least 1995 and 2004.

The case is: C-501/11 P, Schindler Holding Ltd., Schindler Management AG, Schindler SA, Schindler Sarl, Schindler Liften BV and Schindler Deutschland Holding GmbH v. European Commission.

Chicago Investment Firm Lied to Calpers to Raise Funds, SEC Says

An investment adviser will pay more than $120,000 to resolve U.S. regulatory claims that he lied to the California Public Employees’ Retirement System and other clients about the amount of money his firm managed.

Umesh Tandon, 37, falsely told Calpers in May 2008 that his Chicago-based firm Simran Capital Management LLC met the retirement fund’s minimum requirement of having at least $200 million of assets under management, the Securities and Exchange Commission said yesterday in an administrative order. Simran managed about $80 million at the time.

The firm’s assets were falsely inflated on more than a dozen occasions from 2008 to 2011, the SEC said.

Tandon also “used his association with Calpers to lure other public institutional investors under false pretenses,” Merri Jo Gillette, director of the SEC’s Chicago office, said in a statement.

Tandon, who also agreed to be barred from the securities industry, didn’t admit or deny the allegations in settling the claims. A phone call to Tandon’s attorney wasn’t immediately returned.


Lawsky Reviews Private Equity’s ‘Troubling’ Insurance Role

New York’s financial regulator is scrutinizing what he called the “troubling role” of private-equity firms as they expand into the insurance industry through acquisitions, according to a speech yesterday.

The remarks were made by New York Department of Financial Services Superintendent Benjamin Lawsky as part of a prepared speech.

Private-equity firms “may not be long-term players in the insurance industry and their short-term focus may result in an incentive to increase investment risk and leverage in order to boost short-term returns,” Lawsky said.

“This type of business model isn’t necessarily a natural fit for the insurance business, where a failure can put policyholders at significant risk,” he said.

Leon Black’s Apollo Global Management LLC has agreed to buy four insurers since 2008, including a $1.8 billion deal in December for Aviva Plc’s U.S. life and annuity business. A firm owned by Guggenheim Partners LLC shareholders agreed the same month to buy a variable-annuity unit from Sun Life Financial Inc. for $1.35 billion.

Fed’s Tarullo Cites Progress, ‘Ways to Go’ for Banks

Federal Reserve Governor Daniel Tarullo said “too-big-to-fail” banks have made “a good deal of progress” but have a “ways to go.” Tarullo talked with Bloomberg’s Sara Eisen on the sidelines of the International Monetary Fund and World Bank meetings in Washington on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Comings and Goings

Carney’s BOE Consensus Pledge Welcomed in Lawmaker Endorsement

Bank of England Governor-designate Mark Carney’s commitment to transform the central bank and base decisions on consensus will be a “highly significant development,” U.K. lawmakers said.

“If these commitments result in meaningful change to the current hierarchical decision-making processes and culture of the bank, this will be a highly significant development,” Parliament’s Treasury Committee, which scrutinizes the BOE, said in a report in London today.

Carney, the current chief of the Bank of Canada, will succeed Mervyn King at the U.K. central bank on July 1, taking over an institution endowed with new responsibilities for financial regulation as well as monetary policy. King has been criticized for wielding too much power at the bank and promoting “group think.” Carney testified at the committee in February, after which they formally approved his appointment.

The committee also said it would prefer if the BOE’s new unit, the Prudential Regulation Authority, had a secondary objective to promote competition in banking.

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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