SEC Oil Rule, Basel Impact, Vatican Bank: Compliance

July 3 (Bloomberg) -- A U.S. Securities and Exchange Commission rule mandating disclosure of payments by oil and mining companies to foreign governments was thrown out by a federal judge in Washington who said the agency misread the law.

U.S. District Judge John Bates in Washington yesterday ruled in favor of the American Petroleum Institute, the U.S. Chamber of Commerce and two other trade groups that argued the regulation would hobble companies’ competitiveness by forcing them to publicly disclose information that could be used to influence political events in other countries.

“The commission offers no persuasive arguments that the statute unambiguously requires public disclosure of the full reports,” Bates said in his 30-page opinion. He said the SEC’s rejection of an exemption for countries that prohibit payment disclosure was arbitrary and capricious. China, Qatar, Angola and Cameroon bar disclosure of payments.

The rule, issued under the 2010 Dodd-Frank financial reform law, covers about 1,100 public companies engaged in oil, natural gas or mineral extraction. It was aimed at increasing transparency and thwarting corruption by giving citizens of resource-rich countries information about their governments’ oil and mineral revenue.

The SEC estimated the rule could cost the companies as much as $1 billion and required natural-resource companies such as Exxon Mobil Corp., BP Plc and BHP Billiton Ltd. to disclose how they pay governments -- including the U.S. -- to tap their resources.

John Nester, an SEC spokesman, said in a phone interview that the agency was reviewing the decision.

The case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-cv-01668, U.S. District Court, District of Columbia (Washington).

Special Section: Basel III Impact

U.S. Prepares to Impose Stricter Rules on Eight Largest Banks

JPMorgan Chase & Co., Wells Fargo & Co. and Goldman Sachs Group Inc. are among eight U.S. banks facing a new round of domestic rules on capital and debt that would be even stricter than global standards approved yesterday.

Regulators will push banks to maintain a leverage ratio of capital to assets that exceeds the 3 percent minimum set by the Basel Committee on Banking Supervision, Federal Reserve Governor Daniel Tarullo said, and the Federal Deposit Insurance Corp. said a proposal may be published next week. Another measure “in the next few months” would compel banks to hold a set amount of equity and long-term debt to help regulators dismantle failing lenders, Tarullo said.

The remarks show U.S. regulators plan to ratchet up demands for bigger buffers against losses to prevent a repeat of the 2008 credit crisis, brushing aside protests from bankers who say lending and profit will be hurt. The Fed’s board unanimously approved new global rules known as Basel III yesterday even as Tarullo said key parts are too weak.

People with knowledge of the matter have said U.S. regulators may want to double Basel’s 3 percent capital threshold, known as the leverage ratio.

The measures under consideration would affect the eight U.S. institutions already tagged as being “of global systemic importance,” according to Tarullo. The Financial Stability Board has identified those as JPMorgan, Wells Fargo, Goldman Sachs, Bank of America Corp., Citigroup Inc., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp.

When finalizing the rule, the U.S. eased requirements for some of the smallest firms while tightening for the biggest ones. Bankers have argued that new regulations and capital ratios will inhibit lending and erode profit.

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Fed Approves New Capital Standards in Line With Basel

Federal Reserve Chairman Ben S. Bernanke, Fed Governors Daniel Tarullo and Elizabeth Duke, Michael Gibson, director of the Fed’s Division of Banking Supervision and Regulation, and Ann Lee Hewko, a deputy assistant director, spoke at a Fed meeting in Washington about a proposed leverage ratio minimum for banks that would exceed the 3 percent requirement set by the Basel Committee on Banking Supervision.

For the video, click here.

During the hearing, Tarullo said the U.S. is “very close” to proposing a leverage ratio minimum that will exceed the 3 percent requirement set by the Basel Committee on Banking Supervision.

For the video, click here.

FDIC to Vote Next Week on Leverage Rule That Goes Beyond Basel

U.S. banks may face capital requirements that exceed the so-called Basel III minimum when the Federal Deposit Insurance Corp. considers a new proposal next week.

The FDIC -- one of three agencies that must approve the rules cleared yesterday by the Federal Reserve -- added a vote on “enhanced supplementary leverage ratio standards” to its July 9 meeting agenda.

Andrew Gray, an FDIC spokesman, declined to comment on the details of the proposal. FDIC Vice Chairman Thomas Hoenig has repeatedly called for a ratio of 10 percent tangible equity to tangible assets.

The FDIC will consider Basel III as an “interim final rule” rather than as a final rule as the Fed did, according to the agenda.

Compliance Policy

Biggest U.S. Exchanges Said to Seek Delay for Volatility Curbs

The biggest U.S. equity exchange operators and an industry trade group plan to ask the Securities and Exchange Commission to delay the final phase of a marketwide program aimed at curbing sudden stock swings, according to three people with direct knowledge of the matter.

NYSE Euronext, Nasdaq OMX Group Inc. and the Securities Industry and Financial Markets Association plan to seek more time to consider how the program known as limit-up/limit-down will work in the final minutes of trading, according to the people, who asked not to be named because the talks are private.

Regulators have been fine-tuning systems for curbing volatility since the so-called flash crash of May 2010 briefly erased $862 billion from equity markets. The limit-up/limit-down initiative replaces a system of share halts known as circuit breakers and has been phased-in gradually since April.

Sifma spokeswoman Liz Pierce, Nasdaq spokesman Joseph Christinat and NYSE spokesman Rich Adamonis declined to comment on the exchanges’ intention.

The program is scheduled to be extended to 9:30 a.m. to 4 p.m. on Aug. 1. Sifma and the trading venues plan to argue that there’s not enough time to resolve the issue of enabling the program during the last half hour of the day, and ask that the extension to the final half-hour be pushed back, according to two of the people. The exchanges and Sifma don’t object to the curbs being implemented in the first 15 minutes for most stocks starting Aug. 1, the people said.

The securities industry previously voiced its concern about the impact of the new rule at the market close.

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Bonus Curb for UCITS Managers Rejected by EU Lawmakers in Vote

The European Parliament rejected proposals from some members of the assembly to ban UCITS fund managers from receiving bonuses worth more than their fixed pay.

Lawmakers in Strasbourg, France, defeated the proposal after some legislators warned that the measure went too far and could hamper pension funds. The proposed curbs were blocked by a margin of seven votes out of 695 cast.

The draft rules for fund managers would have gone beyond planned EU limits on banker pay that will allow bonuses of twice fixed salary. European asset-management firms were concerned the proposal, which may affect two-thirds of senior fund managers, will lead to a bidding war for their top traders, increasing fixed costs and making the industry more vulnerable to market downturns.

Legislators also narrowly rejected planned restrictions on performance fees charged by funds.

UCITS, or Undertakings for Collective Investment in Transferable Securities, had more than 6 trillion euros ($7.8 trillion) under management as of April 2012, according to the European Commission. The parliament was weighing whether to add the bonus rules, as well as curbs on payment of performance fees, to a draft law intended to toughen UCITS regulation.

Basel Group Refines Calculation Method for Global Systemic Banks

The Basel Committee on Banking Supervision said that it has “made refinements” to its method for identifying globally systemic banks, in a bid to ensure the rules are up to date.

Today’s changes update the committee’s technical guidance for measuring a bank’s systemic importance based on criteria such as size and interconnectedness with other lenders, the Basel group said on its website.

The Group of 20 nations agreed in 2011 on a system of capital surcharges that should be applied to banks whose failure would roil the global economy. The surcharges, set in half-percentage-point increments ranging from 1 percent to 2.5 percent, come on top of basic capital rules for international lenders set by the Basel Committee.

SEC Creates Task Forces to Detect Accounting and Microcap Fraud

The U.S. Securities and Exchange Commission has formed two enforcement task forces aimed at rooting out improper accounting and fraud at small companies, the agency said.

The SEC’s enforcement division also created a Center for Risk and Quantitative Analytics to identify risks and threats that could harm investors, the agency said in a statement yesterday.

The financial reporting task force will concentrate on publicly filed statements, issuer reporting and audit failures, the SEC said. The group, which will also focus on a review of financial restatements and revisions, will be led by David Woodcock, head of the SEC’s regional office in Fort Worth, Texas.

Compliance Action

Russia Claims First Insider Trading Case in Unilever’s Kalina

Russia’s market regulator said it’s identified the country’s first case of insider trading in Unilever’s 2011 acquisition of skincare maker Kalina.

Several people involved in the deal, including a Kalina executive who purchased shares in his own name, bought stock before the acquisition, Dmitry Pankin, head of Russia’s financial markets regulator, said in a blog post. Kalina shares surged 75 percent to 2,198 rubles in the three weeks before the announcement, which Pankin said triggered the investigation.

While Russia’s federal law on insider information and market manipulation came into force in January 2011, those who violate the legislation can only be criminally prosecuted from July 27. Unilever, the world’s second-biggest consumer goods company, agreed to acquire 82 percent of Kalina, a maker of beauty products, in a deal valuing the company at 21.5 billion rubles ($694 million).

Unilever’s Moscow press service didn’t immediately respond to calls and e-mailed requests for comment. The case materials will be sent to the police in the “near future,” Pankin said.


Ex-Olympus Chairman Gets Suspended Sentence for Fraud

Former Olympus Corp. Chairman Tsuyoshi Kikukawa received a suspended sentence for his role in a $1.7 billion accounting fraud that caused the Japanese camera maker’s market value to plunge 80 percent.

Olympus itself, also the world’s largest maker of endoscopes, was ordered to pay 700 million yen ($7 million) in fines by Tokyo District Judge Hiroaki Saito today. Former Olympus Executive Vice President Hisashi Mori and Hideo Yamada, a former auditing officer, also got suspended sentences.

Saito’s decision comes almost two years after revelations that the company had falsified financial reports to conceal losses on investments. The sentences reflect the defendants’ claims that former Olympus presidents Masatoshi Kishimoto and Toshiro Shimoyama made the decision to hide losses, while he inherited the aftermath.

The camera maker still faces lawsuits by investors including State Street Bank and Trust & Co. and Government of Singapore Investment Corporation Pte Ltd. in a joint complaint seeking 19.1 billion yen in damages.

The fraud, “destroyed the image of Japanese companies internationally,” Kikukawa told the court in September when pleading guilty along with the other executives.

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Ex-Tyco CEO Dennis Kozlowski Denied New Hearing on Parole

Former Tyco International Ltd. Chief Executive Officer L. Dennis Kozlowski was denied a new parole hearing by a New York state appeals court in a reversal of a lower court’s ruling.

Kozlowski was sentenced to 8 1/3 to 25 years in prison in 2005 after a jury trial in Manhattan. He began serving his sentence in September of that year. The parole board denied Kozlowski’s request for parole in April 2012 “due to concern for the public safety and welfare.”

Kozlowski sued and was granted a new hearing. The state appealed, saying his crimes were too serious to allow his release from prison yet. The decision granting a new hearing was overturned by a New York appellate court, which said the denial of parole was “rational.”

Alan Lewis, an attorney with Carter Ledyard & Milburn LLP representing Kozlowski, declined to comment on the decision in a telephone interview. The state attorney general’s office, which represented the parole board, didn’t respond to an e-mail seeking comment.

Kozlowski became the face of corporate greed when the government pointed to luxuries paid for with Tyco funds that included a $30 million Fifth Avenue apartment and museum-quality paintings.

A jury in New York State Supreme Court in Manhattan found that Kozlowski and ex-Chief Financial Officer Mark Swartz stole about $137 million from Tyco in unauthorized compensation and made $410 million from the sale of inflated stock.

The case is Kozlowski v. New York State Board of Parole, 104097/2012, New York State Supreme Court, New York County (Manhattan).

Sprint Must Face New York’s $300 Million Alleged Tax Fraud Suit

Sprint-Nextel Corp. must face a lawsuit for $300 million brought by the New York attorney general claiming the third-largest U.S. wireless carrier deliberately failed to pay sales taxes.

New York Supreme Court Judge O. Peter Sherwood denied Sprint-Nextel’s bid to dismiss the case in a ruling dated June 27. The complaint “satisfactorily alleges that Sprint knowingly submitted false monthly tax statements,” Sherwood wrote.

Attorney General Eric Schneiderman last year took over the whistle-blower lawsuit filed in New York in 2011, claiming Sprint didn’t collect and pay some sales taxes on flat-rate access charges for wireless calling plans, costing state and local governments more than $100 million.

“Sprint is disappointed in the court’s decision, and we intend to file an appeal shortly,” John Taylor, a spokesman for Overland Park, Kansas-based Sprint, said in an e-mailed statement. “With this lawsuit, the Attorney General’s office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more. As we have in the past, we will continue to stand up for New York consumers’ rights and fight this suit.”

The attorney general seeks three times Sprint’s alleged underpayment of more than $100 million plus penalties under the state’s false claims act.

New York v. Spring Nextel, 103917-2011, New York Supreme Court (Manhattan).

Comings and Goings

Vatican Bank Managers Quit Amid Broadening Financial Scandal

The director and deputy director of the Vatican bank resigned yesterday, the latest management shake-up at the Church’s financial arm amid a series of corruption investigations.

Paolo Cipriani and his deputy Massimo Tulli stepped down “in the best interest of the institute and the Holy See,” the Vatican said in a statement late in the day on July 1. Ernst von Freyberg, the bank’s president appointed last February, will take over as interim director general and a new position of chief risk officer will be created. “It is clear today that we need new leadership to increase the pace of this transformation process,” von Freyberg said in the statement.

The resignations come three days after senior Vatican cleric Monsignor Nunzio Scarano was arrested by Italian authorities along with an Italian secret service agent and a financial broker as part of a fraud probe. The three are accused of plotting to bring 20 million euros ($26 million) into Italy from Switzerland in a private jet, according Rome prosecutor Nello Rossi. Scarano has denied the accusations.

The Vatican bank, whose formal name is the Institute for the Works of Religion, or IOR, is increasingly in the spotlight of investigations as Pope Francis works to bring it in line with international standards. The IOR oversees about 7.1 billion euros in assets, mostly in bonds and cash.

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

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

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