SEC Nasdaq-Facebook, Liberty Reserve, Total: ComplianceCarla Main
May 30 (Bloomberg) -- Nasdaq OMX Group Inc. agreed to pay $10 million to settle Securities and Exchange Commission charges that its mishandling of Facebook Inc.’s initial public offering last year was a violation of securities laws.
Regulators cited the second-largest operator of U.S. equity markets for its “poor systems and decision-making” during the IPO in May 2012 that was delayed by a computer malfunction. Nasdaq agreed to the settlement without admitting or denying the SEC’s findings, according to a statement released yesterday. The settlement is the largest with an American exchange, which enjoy legal protections because of their self-regulating role.
Brokers handling Facebook orders in the May 2012 IPO claimed they lost hundreds of millions of dollars after a design flaw in Nasdaq’s software delayed the stock’s open and left them confused about whether or not they owned shares. Yesterday’s settlement is in addition to Nasdaq’s proposal to pay $62 million to compensate member firms for losses.
The SEC penalty was imposed because Nasdaq failed in its obligation to ensure that systems, processes and contingency planning are robust and adequate to manage an IPO without disruption to the market, the agency said.
“The settlement is another important step forward,” said Nasdaq Chief Executive Officer Robert Greifeld in an open letter e-mailed to Bloomberg News. “We have put in place innovative safeguards and taken a number of steps to help ensure that Nasdaq continues to deliver the world’s best trading technology.”
Greifeld said in the letter that Nasdaq has made staff and operational changes to improve compliance.
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EU Urges U.S. Swaps-Rule Delay to Give Banks Breathing Space
The European Union is urging the U.S. to allow time for international talks before it imposes swaps rules on EU lenders, saying that the current timetable would lead to the banks facing extra costs.
The European Commission wrote to Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, urging him to extend a temporary exemption for overseas banks, which is scheduled to expire on July 12, according to a copy of the letter obtained by Bloomberg News.
The EU wants the exemption to be maintained until “international principles on cross-border swap rules have been agreed by G-20 leaders and implemented in our respective jurisdictions,” according to the letter from Jonathan Faull, the commission’s director general for internal market and services, and Steven Maijoor, chairman of the European Securities and Markets Authority.
An extension is needed to “avoid any possible legal uncertainty and unintended consequences” from overlapping national rules, they wrote. “EU firms would face huge legal and operational uncertainty.”
Michel Barnier, the EU’s financial services chief, said earlier this week that he will travel to the U.S. in mid-July for talks with regulators.
The international reach of CFTC swap trading requirements has been one of the most controversial elements of the agency’s Dodd-Frank Act rules, prompting opposition from financial companies including Goldman Sachs Group Inc. and Barclays Plc.
The CFTC has also faced criticism from European and Asian regulators over the reach of a rule requiring trades to be guaranteed at clearinghouses and traded on exchanges or other platforms, with nations warning of overlapping requirements and extra costs for their banks.
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ASIC Scraps Minimum-Resting-Time Plan for Equity Trade Orders
Australia’s securities regulator said it will not proceed with a proposal to impose a minimum time period that small equity trade orders must remain on order books before they can be withdrawn.
Greg Medcraft, chairman of the Australian Securities and Investments Commission, announced the decision at a conference in Sydney yesterday. ASIC had included the measure as part of proposals to improve liquidity for investors.
Regulators in countries from Australia to Singapore and Hong Kong have weighed proposals to limit trading practices that reduce fund managers’ ability to trade in and out of stocks. ASIC said its investigations have found that concern from so-called high frequency trading strategies were overstated.
SEC to Vote Next Week on Floating Share for Riskier Money Funds
The U.S. Securities and Exchange Commission will vote next week on a proposal that would require a floating-share value for the riskiest type of money-market mutual funds, two people briefed on the matter said.
The proposal, which commissioners will consider on June 5, would apply only to funds that buy corporate debt and cater to institutional clients, another person said on May 10. Money funds, which hold $2.6 trillion in assets, are now allowed to keep a stable value of $1 a share, which makes them appealing to investors and companies that use them like cash accounts.
SEC Chairman Mary Jo White declined to confirm a date for the vote, telling reporters in Washington yesterday only that commissioners will vote on the issue in the “very near future.”
The proposal is the SEC’s long-awaited response to the role that money funds played in the 2008 financial crisis, when investors fled from so-called “prime” funds, whose holdings include short-term corporate debt such as commercial paper. The failure of the $62.5 billion Reserve Primary Fund, caused by losses on debt issued by Lehman Brothers Holdings Inc., triggered a wider run on money funds that helped freeze global credit markets.
Supporters of a floating-share price for money funds say it would limit investor runs, while the money-fund industry has said a floating-share price would destroy the funds’ appeal.
The proposal appears to have support among commissioners.
FDIC Board to Meet on Non-Bank Resolution Authority
The board of the Federal Deposit Insurance Corp. will meet June 4 to consider a final rule laying out a definition for which non-banks would be subject to the agency’s orderly resolution authority in the event of a collapse, the agency said in a statement.
If a resolution situation occurred, the FDIC would act as receiver for such companies and oversee the unwinding in place of a traditional bankruptcy process.
Japanese Investors File Criminal Complaint Against U.S.’s MRI
Japanese clients of MRI International Inc., the U.S. investment company suspected of mismanaging assets, filed a complaint to Tokyo prosecutors and police alleging fraud.
The complaint against Edwin Fujinaga, president of Las Vegas-based MRI, was filed with the Tokyo District Public Prosecutor’s Office and Tokyo Metropolitan Police Department today, a group of 60 lawyers led by Hiroshi Yamaguchi said in a statement distributed at a news briefing.
Japanese regulators last month stripped MRI of its registration to operate in the country after finding that it failed to properly manage assets and falsified business reports. As much as 130 billion yen ($1.3 billion) of clients’ funds may be missing, the Nikkei newspaper reported last month.
The lawyers representing 1,472 Japanese clients of MRI also asked Tokyo investigators to examine whether the U.S. asset manager and Fujinaga violated Japan’s financial products laws, Yamaguchi said. Some 523 of the clients had invested at least 14.8 billion yen in MRI’s products, according to the statement.
A phone call made to MRI in Las Vegas outside of office hours reached an answering machine. A call to MRI’s Tokyo office reached a recorded message that referred inquiries to an external call center which was unable to comment on the case.
MRI has sold investment products that are related to the rights to collect medical service fees, its website shows.
Total Agrees to Pay $398 Million to Settle U.S. Bribe Probe
Total SA, France’s largest oil producer, agreed to pay $398 million to settle U.S. allegations it made illegal payments to an Iranian official to win oil and gas contracts, according to the Justice Department.
Total, in filings yesterday in federal court in Alexandria, Virginia, was charged with three counts of violating the Foreign Corrupt Practices Act as part of a deferred-prosecution agreement. Those charges will be dismissed after three years if the company abides by the terms of the agreement, which includes hiring an independent compliance monitor.
The company also resolved related allegations with the Securities and Exchange Commission in an administrative case while French authorities referred the company and Chief Executive Officer Christophe de Margerie for criminal prosecution.
The $245.2 million criminal penalty is the fourth-largest obtained by the U.S. under the anti-bribery law, according to Peter Carr, a Justice Department spokesman. The settlement with the SEC includes disgorgement of $153 million.
The Paris-based company said in its latest annual report that provisions for a $398 million settlement were made in June 2012.
From 1995 to 2004, Total made about $60 million in bribe payments to an Iranian official in order to obtain oil rights in three oil and gas fields, according to the deferred prosecution agreement.
Anastasia Zhivulina, a Total spokeswoman, didn’t immediately respond to a phone message seeking comment on the settlement.
FDIC’s Gruenberg Warns Banks on Cuts That Gave Record Profit
Federal Deposit Insurance Corp. Chairman Martin Gruenberg warned banks that additional reductions of bad-loan reserves that have helped them post record earnings will warrant regulator scrutiny.
U.S. banks reported net income of $40.3 billion for the first three months of 2013 as they cut expenses, which offset declining interest income, the FDIC said yesterday in its Quarterly Banking Profile. On the heels of the second-most profitable year in industry history, the main driver of earnings has been cutting the reserves for failed loans, according to the report.
Lenders set aside $11 billion for bad loans -- a 23 percent reduction from a year earlier and the lowest level since 2007 -- as the quality of their assets improved, the FDIC said in its report. The quarterly loss from loans was $16 billion, which is the lowest hit since the 2008 credit crisis.
Industry profits were widespread with more than 90 percent of banks reporting positive income in the quarter, according to the agency’s report.
CFTC Orders FCStone to Pay a $1.5m Penalty Over Risk Controls
New York-based futures commission merchant FCStone LLC, a unit of INTL FCStone Inc., has been ordered to pay a $1.5m penalty for failing to have risk controls, the Commodity Futures Trading Commission said yesterday in a statement.
FCStone LLC failed to implement adequate customer credit and concentration risk policies and controls in 2008 and part of 2009, allowing one account to acquire a massive options position that it could not afford to maintain, the CFTC said.
Under the agreement with Commission, FCStone neither admitted nor denied wrongdoing.
“We are fully committed to working within a risk and compliance framework that protects our customers’ and our firm’s assets,” Sean O’Connor, INTL FCStone Inc.’s Chief Executive Officer, said in a statement.
Ultimately, FCStone LLC was forced to take over the account, and lost about $127 million, the CFTC said.
Joe Bogus Account Said to Show Liberty Reserve’s Evasive Design
Liberty Reserve SA, whose operators are charged with running a scheme that masked more than $6 billion of criminal proceeds, was designed to help users evade scrutiny, U.S. prosecutors said.
The digital currency company, unlike traditional banks or legitimate online payment processors, didn’t require users to validate their identity and allowed accounts to be opened under fictitious names, according to prosecutors.
An undercover agent was able to establish a Liberty Reserve account using the alias “Joe Bogus,” listing his address as “123 Fake Main Street,” said Manhattan U.S. Attorney Preet Bharara. He said the prosecution is believed to be the largest money-laundering case brought by the U.S.
Liberty Reserve, incorporated in Costa Rica in 2006, operated as “essentially a black-market bank,” and facilitated global criminal conduct, Bharara said May 28 at a news conference announcing the unsealing of an indictment against the company and seven principals.
The company was shut by the U.S. through criminal and civil enforcement actions. It had helped users launder illegal proceeds of crimes such as identity theft, credit card fraud, computer hacking prosecutors said.
The U.S. charged seven people. Five people tied to the case have been arrested; two remain at large.
The case is U.S. v. Kats, 13-cr-00368, U.S. District Court, Southern District of New York (Manhattan).
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States Join Retailer Fight Against Credit-Card Fee Deal
A group of 48 states and District of Columbia joined about 40 major retailers in opposing a $7.25 billion antitrust settlement with Visa Inc. and MasterCard Inc. over merchant fees, saying the deal infringes on state legal powers.
The states said in a brief filed late in the day on May 28 in Brooklyn, New York, federal court that the accord contains overbroad legal releases protecting credit card firms that could “undermine law enforcement authority, both now and as to future claims.”
Along with the states, more than 500 merchants filed notices opposing the settlement by yesterday’s deadline. Among those were about 40 of the 100 largest publicly traded retailers by sales, including Wal-Mart Stores Inc., Amazon.com Inc., Costco Wholesale Corp. and Home Depot Inc.
Estimated by the plaintiffs to be the largest in an antitrust case, the deal has been criticized by major retailers and trade associations who argue it’s not nearly big enough to make up for the fees and allows the card firms to continue to fix the charges in the future.
In the states’ brief, nine said they formally objected to the settlement. The rest said they supported the other states’ arguments.
Visa and MasterCard say they anticipate the settlement will ultimately be approved.
In November, U.S. District Judge John Gleeson in Brooklyn gave tentative approval to the deal.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).
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