Bank Secrecy, Hong Kong Probe, OCC Scrutiny: Compliance

Group of Eight leaders agreed to work for “a new global standard” to stamp out bank secrecy and pledged to deter multinational companies’ tax-avoidance strategies, according to a draft joint statement.

On the second day of talks in Enniskillen, Northern Ireland, G-8 nations yesterday adopted a common approach to standards for cross-border disclosure and tax-data sharing among authorities, saying they “commit to establish the automatic exchange of information between tax authorities” to shine a light on how companies and individuals are meeting tax requirements.

“We will work to create a common template for multinationals to report to tax authorities where they make their profits and pay their taxes across the world,” according to the draft distributed yesterday after a night of bargaining by aides to the eight heads of state and government.

G-8 countries agreed to publish “national action plans to make information on who really owns and profits from companies and trusts available to tax collection and law enforcement agencies, for example, through central registries of company beneficial ownership,” according to the draft.

Governments’ efforts to close down avenues for multinationals to channel profits through the lowest-tax locations and to crack down on tax evasion reflect a push to secure revenue amid financial turmoil and sluggish growth.

European nations are moving toward a common standard on tax-data reporting in response to new requirements for doing business with the U.S.

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Compliance Policy

Sudden Stock Crashes Mostly Show Human Error, SEC’s Berman Says

Concern that American stock markets have become more susceptible to split-second crashes due to computerization isn’t supported by the data, a Securities and Exchange Commission official said.

Most “mini-flash crashes,” a term sometimes applied when an individual U.S. stock briefly surges or plunges for no obvious reason, are the result of human errors, not broken software, said Gregg Berman, head of the SEC’s Office of Analytics and Research.

Scrutiny of market disruptions increased in the wake of malfunctions including the flash crash of May 2010, when the Dow Jones Industrial Average fell almost 1,000 points in minutes before rebounding. In September, the Senate Subcommittee on Securities, Insurance and Investment held hearings on the impact of computerized trading amid concern algorithmic and high-frequency strategies are contributing to investor uncertainty.

SEC staff found that swings in individual stocks are more often caused by human mistakes such as “fat finger” trades -- when a person enters the wrong number of shares to trade or some other typographical error -- or incorrectly entered limit orders, Berman said. While the errors reflect sloppiness and highlight a lack of checks, they can be fixed by better risk management and oversight, he said.

Sudden stock swings have spurred fluctuations in the paper value of some of America’s biggest companies.

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Compliance Action

Hong Kong Expands Benchmark Rate-Manipulation Probe to HSBC

Hong Kong’s central bank has expanded an investigation into possible misconduct linked to the city’s benchmark rates to HSBC Holdings Plc and other lenders following crackdowns from the U.S. to U.K., Japan and Singapore.

The Hong Kong Monetary Authority’s probe, which started with UBS AG in December and has since been widened to “a number” of banks, is continuing, it said in an e-mailed statement yesterday. London-based HSBC, whose shares are listed in Hong Kong, has been asked to “promptly implement” remedial measures required by Singapore’s central bank last week following a similar investigation in the city-state, HKMA said.

The review into the submission of data by banks for setting the Hong Kong Interbank Offered Rate and other benchmarks comes amid increased global scrutiny. Singapore last week censured 20 banks for attempts to rig its rates and asked them to set aside as much as $9.6 billion pending steps to improve controls, while Britain’s market regulator began looking into the currency market after Bloomberg News reported that traders had manipulated key rates.

The HKMA’s review has included “millions of communication messages records” so far, according to yesterday’s statement, which signaled that the probe may take a year because of the number of documents. The regulator will also consider whether any potential misconduct may have had a material impact on the rate, it had said in December.

Adam Harper, a spokesman for HSBC in Hong Kong, declined to comment on the HKMA statement.

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U.S. Bank Regulator Says Firms Taking More Risks Chasing Returns

As U.S. banks take more risks hunting higher returns, regulators are keeping a close watch on the safety of new strategies and products, according to an Office of the Comptroller of the Currency report.

In the effort to maintain record profits, banks may take excessive risks in the sluggish economy, also facing the chance that an increase in the unusually low interest rates could make them vulnerable to capital erosion, the OCC said in its twice-yearly report on industry hazards. It also noted growth in other dangers to banks, such as from computer hackers and increasingly sophisticated money laundering.

“Large banks are grappling with the need for fundamental changes to their business models as a result of weakening revenue growth, including shifts in trading, securitization, and consumer fee income,” according to the OCC’s Semiannual Risk Perspective. “OCC supervisory staff will focus on strategic business and new product planning to determine whether adequate consideration of safe and sound business practices is evident.”

The agency is taking lessons from the banks’ mortgage-servicing faults during the 2008 credit crisis, according to the report, and staff will look at high-volume, rapid-growth revenue activities to find potential weaknesses.

As investors chase more yield, the agency has also seen greater demand for high-yield products such as collateralized loan obligations, and the OCC said the surge will produce “greater quantities of weakly underwritten loans.”

Deloitte to Pay New York State $10 Million Penalty, Halt Service

Deloitte Financial Advisory Services LLP agreed to pay $10 million to New York State regulators and halt consulting services for state-regulated financial institutions for one year.

Regulators found “misconduct, violations of law and lack of autonomy” in Deloitte FAS’s consulting work with Standard Chartered Plc, the state’s Department of Financial Services said in a statement yesterday. Standard Chartered hired Deloitte FAS, a unit of Deloitte LLP, in 2004 to review anti-money laundering controls at the bank, according to the regulator.

“We are pleased that, as the agreement states, a thorough investigation by the Department of Financial Services found no evidence that Deloitte FAS knew of, or aided, abetted or concealed any alleged violation by Standard Chartered Bank,” Deloitte LLP said in a statement yesterday.

Japan Regulator Recommends Meiji Machine Pay 82.7 Million Yen

Japan’s Securities and Exchange Surveillance Commission recommended Meiji Machine Co. pay a fine of 82.7 million yen ($870,000) for falsifying securities reports, according to a statement distributed to reporters in Tokyo.

Meiji Machine manufactures sorting and separating machines used in the food-processing industry. The company also produces environment-related machinery such as air purifiers and dustless transport equipment.

Lundbeck Fined $125.6 Million in EU Probe of Generic Delays

H. Lundbeck A/S, the Nordic region’s second-largest drugmaker, was fined 93.8 million euros ($125.6 million) by the European Union in its first case over pay-for-delay deals that held back sales of cheaper generic drugs.

The European Commission, the EU’s antitrust regulator, also fined a group of generic-drug makers a total of 52.2 million euros today in Brussels. The companies reached agreements that may have slowed the availability of generic versions of Lundbeck’s antidepressant citalopram, marketed as Celexa, according to the regulator.

“Instead of competing, the generic producers agreed with Lundbeck in 2002 not to enter the market in return for substantial payments and other inducements from Lundbeck amounting to tens of millions of euros,” the commission said in a statement. “Internal documents refer to a ‘club’ being formed and ‘a pile of $$$’ to be shared among the participants.”

“It is wrong and extremely misleading” of the commission “to claim that these agreements have delayed the marketing of citalopram copies and thereby violated competition laws,” said Ulf Wiinberg, chief executive officer of Copenhagen-based Lundbeck. The agreements were meant to protect against patent infringements by the generic companies, he said.

“We are surprised and disappointed that the EU commission has reached this erroneous conclusion, which we totally disagree with, and it is therefore our intention to appeal,” Wiinberg said.

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China to Resume IPOs After Rules Take Effect, Official Says

China will allow initial public offerings only after new rules aimed at boosting protection for investors go into effect, a China Securities Regulatory Commission official with knowledge of the matter said.

Companies that have already been cleared by the regulator in a listing hearing will be allowed to proceed with their share sales if they fulfill the new requirements, said the official, who asked not to be identified because he wasn’t authorized to speak publicly about the matter. The regulator is seeking public feedback on the proposed rules until June 21.

Chairman Xiao Gang, who took the helm at the regulator in March, is extending predecessor Guo Shuqing’s measures to combat fraud in capital markets by cracking down on brokerages that fail to properly review clients’ filings. The CSRC has also been auditing offer documents since December after initially stopping IPO approvals in October as the benchmark stock index fell more than 5 percent in the first nine months of 2012.

The CSRC will probably resume approving IPOs at the end of July, Reuters reported earlier yesterday, citing unidentified people present at an industry meeting with the regulator.


Belo Sued by Investor Over $1.5 Billion Gannett Takeover

Belo Corp., the TV station operator, was sued by an investor seeking to block a $1.5 billion takeover by USA Today publisher Gannett Co. because the $13.75-a-share bid is too low.

The International Brotherhood of Electrical Workers Local 363 pension fund sued Dallas-based Belo in Delaware Chancery Court, saying company directors are obligated to get the best price and agreed to an inadequate offer, according to filings made public yesterday in Wilmington.

The fund asks a judge to stop the deal under its present terms and to award unspecified legal fees and expenses.

Meghan Gavigan, a Belo spokeswoman with Sard Verbinnen & Co., said Belo had no comment on the lawsuit.

Belo operates 20 TV stations, reaching more than 14 percent of households in 15 major markets, the companies said in a June 13 joint statement. Gannett, based in McLean, Virginia, owns 82 newspapers and 23 TV stations.

The case is IBEW Local 363 Pension Trust Fund v. Belo Corp., CA8649, Delaware Chancery Court (Wilmington).

Former Systemax Unit President Indicted in Bribery Case

The former president of a technology sales unit of Systemax Inc. was indicted for a scheme to steer more than $230 million in business to suppliers in exchange for bribes.

Carl Fiorentino, 56, took more than $7 million in bribes from companies in Taiwan and California from January 2003 to April 2011, the government alleged in a seven-count indictment unsealed yesterday in federal court in Central Islip, New York. Fiorentino used the money to pay for an $8 million home in Coral Gables, Florida, services of a hip hop music promotions company and tennis lessons for his son, the U.S. alleged.

Fiorentino, who was president of Port Washington, New York-based Systemax’s TigerDirect unit, is charged with mail fraud, wire fraud, money laundering conspiracy and conspiracy to commit mail and wire fraud. He faces a maximum sentence of 20 years in prison for each charge, according to prosecutors.

Fiorentino was arrested in Coral Gables and was expected to appear yesterday in a Florida federal court, prosecutors said.

The case is U.S. v. Fiorentino, 13-cr-000338, U.S. District Court, Eastern District of New York (Central Islip).


SEC Will Seek Admission of Wrongdoing in More Cases, White Says

The U.S. Securities and Exchange Commission will seek more admissions of wrongdoing from defendants as a condition of settling enforcement cases, the agency’s chairman said.

SEC Chairman Mary Jo White said the change in policy would probably apply to cases in which investors were significantly harmed and the alleged fraud was egregious. The former federal prosecutor said last month she was reviewing the practice of settling cases without requiring defendants to admit misconduct.

“We are going to in certain cases be seeking admissions going forward,” White said yesterday at a Wall Street Journal CFO Network event in Washington. “To some degree, it can turn on how much harm has been done to investors, how egregious is the fraud. So I think you will see going forward some change in that space.”

The SEC’s practice of settling cases without requiring admissions has been criticized by lawmakers, consumer groups and jurists including U.S. District Judge Jed Rakoff, who in November 2011 rejected a proposed $285 million settlement with Citigroup Inc.

Rakoff cited the public interest in learning the truth about SEC allegations that Citigroup misled investors in a $1 billion collateralized debt obligation linked to risky mortgages. In 2009, Rakoff rejected a $33 million agreement between the SEC and Bank of America Corp.

White said her announcement isn’t intended as a criticism of past SEC practices. The option to settle without admissions of misconduct will remain a “major, major tool in the arsenal,” White said.

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