Online Lenders, Nacchio Refund, FERC Nominee: Compliance

The Online Lenders Alliance wants the group that manages a U.S. payment system to clarify warnings on illegal use of the network by payday-loan firms, saying the message is posing a threat to legitimate business.

Nacha, which coordinates the Automated Clearing House network, should explain that legal online lending shouldn’t be blocked from its system, Lisa S. McGreevy, president and chief executive officer of the Online Lenders Alliance, wrote in a letter last week. Banks have gotten the wrong impression from Nacha based on its Aug. 8 letter calling on them to guard against acting as gateways for illicit loans, she wrote.

McGreevy wrote that banks, misinterpreting the Aug. 8 letter, have seen it as a directive to cut off processing for all online lenders.

Payday loans transacted on the Internet use the network for both the credits and debits involved in the loans, and the lenders must conduct them through banks. In its Aug. 8 letter, Nacha explained it was trying to stamp out network use for illegal ends and told the banks “it is imperative that you immediately review your origination activity for the payday lenders” and terminate originations that violate Nacha rules.

Nacha’s media office didn’t respond to messages seeking comment on the letter from Alexandria, Virginia-based OLA.

Regulators have pressured banks to cut ties with online lenders, and examiners from the Federal Deposit Insurance Corp. have audited banks to determine whether they work with some of the lenders, according to people briefed on their work who spoke on condition of anonymity because the regulator communications are confidential.

Compliance Policy

Mortgage Insurers Face Global Regulator Call for Capital Buffers

Companies that insure banks’ mortgage debt should undergo regular stress tests and build up bigger capital buffers to bolster their resilience to crises, global regulators said.

The Basel Committee on Banking Supervision, in tandem with global market and insurance regulators, said mortgage insurers should be required to build up long-term reserves that could be tapped when defaults peak, and should face tougher oversight.

The collapse of the subprime mortgage market was one of the major drivers of the global financial crisis in 2007. The turmoil prompted a push by regulators to make the market more robust and a series of probes into how banks constructed and sold securities underpinned by this debt.

Mortgage insurance is widely used in only a few nations, including the U.S., Canada, France and Australia, according to the report. In Canada and Hong Kong, insurance is mandatory on high loan-to-value mortgages, while in the U.S. Fannie Mae, Freddie Mac and other government-sponsored housing enterprises require it on loans they purchase with LTV above 80 percent, according to the report.

U.S.-based mortgage insurers include PMI Group Inc., Radian Group Inc. and MGIC Investment Corp.

Compliance Action

Everbright Proprietary Trading Head Suspended on Order Error

Everbright Securities Co. suspended its head of proprietary trading after an error sparked the wildest Chinese stock swings in four years and prompted a regulatory probe. The stock slumped to a six-week low.

Yang Jianbo, who oversees trading of Everbright’s own money as head of global markets, said by phone today he is assisting the investigation into the Aug. 16 incident. He was the only one of about 20 proprietary traders who was suspended, Yang said.

The mistake, described by the China Securities Regulatory Commission as the first of its kind in the nation, preceded a programming error at Goldman Sachs Group Inc. that caused unintended stock-option orders to flood American exchanges yesterday. Everbright drew a three-month ban on proprietary trading from the CSRC and announced a loss of 194 million yuan for its order misstep.

Everbright was suspended from underwriting debt sold by non-financial institutions on the nation’s interbank market, the broker said in a statement to the Shanghai stock exchange. Since the business started in November, it had brought in revenue of 540,000 yuan, the company said.

The National Association of Financial Market Institutional Investors asked Everbright to review and rectify its systems after the bad trades exposed “major problems” in internal controls, according to the statement. Everbright must submit a report to the association by Aug. 30.

The brokerage apologized in a statement three days ago and said it faced regulatory penalties.

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Sweden Hits EQT, Partners With $100 Million in Tax Charges

EQT Partners AB, a private equity investor, said it will appeal a decision by the Swedish tax authority to impose 647 million kronor ($100 million) in retroactive taxes on the company, its employees and partners.

Sweden’s tax authority has ruled that the return on certain investments in EQT funds should be taxed as income and not as capital gains in the years from 2007 to 2009, the Stockholm-based fund said in a statement.

“We’ve done this in exactly the same way for almost 20 years,” said Johan Bygge, chief operating officer at EQT Holdings AB. “The tax authority has now decided to make another interpretation and we think that’s very unfortunate because it creates great uncertainty for the company and the staff.”

The decision is the result of a review that started in 2007 on how private-equity companies and their employees and partners declare their income, said Helena Bigander, a project leader at the Swedish Tax Agency in Stockholm.

The ruling will impose extra taxes of 313 million kronor on income of 19 staff or partners at the company. EQT Partners will have to pay another 334 million kronor for the same period, in addition to the 100 million kronor it was told to pay for a similar decision relating to income from 2006.

Former KPMG Employee Reprimanded by Dutch Body Over Vestia Audit

A former KPMG NV accountant was censured for approving the 2010 accounts of Stichting Vestia Groep, a Dutch housing provider that required a bailout after falling interest rates triggered losses on derivatives.

The accountant “planned and executed the audit of the 2010 annual accounts with insufficient depth and an insufficiently professional and critical attitude,” the Dutch accounting disciplinary chamber said in an e-mailed statement from the city of Zwolle Aug. 19. “That led him to approve the accounts while no sound basis can be established for that.”

KPMG withdrew its approval for the 2010 annual accounts in April last year after a preliminary investigation raised doubt over whether Vestia’s derivatives had been processed properly. KPMG quit as Vestia’s accountants in October, saying ongoing procedures before the disciplinary chamber threatened its independence.

The name of the accountant and the firm he worked for at the time were blacked out in the ruling. KPMG took notice of the rulings and is studying them, said Eric Bouwmeester, a spokesman for the company. The accountant who was reprimanded no longer works for the firm, he said.

The disciplinary chamber said a reprimand was sufficient as the person involved no longer worked as an external auditor and suffered from publicity in the case.


Ex-Qwest Head Nacchio Seeks Tax Refund as His Prison Term Ends

Ex-Qwest Communications International Inc. chief Joseph Nacchio, finishing his insider-trading sentence in home confinement, argues that he deserves a refund of almost $18 million for taxes on illegal stock sales.

Judge Mary Ellen Coster Williams of the U.S. Court of Federal Claims in Washington was expected yesterday to hear Nacchio’s lawyers argue that $44.6 million he forfeited to the government from tainted stock transactions is deductible because it was used to compensate victims of his fraud.

Nacchio, 64, the former chairman and chief executive officer of Denver-based Qwest, was found guilty in 2007 of selling company stock based on warnings, withheld from other investors, that it would miss revenue targets. He’s set for release on Sept. 21, according to the Federal Bureau of Prisons website.

Nacchio and his wife sued the U.S. in January 2012 for a tax refund.

The U.S. asked Coster Williams to throw out the case, arguing in court papers that the decision by the U.S. attorney general, at his discretion, to use “Nacchio’s forfeiture to compensate victims of Nacchio’s fraud does not magically convert the criminal forfeiture into a compensatory fine.”

The case is Nacchio v. U.S., 12-00020, U.S. Court of Federal Claims (Washington).

Porsche Plaintiffs Lose Bids for Access to Prosecutors’ Files

A Merckle Group unit and two other companies were denied access to Stuttgart prosecutors’ files that might have helped their civil lawsuits against Porsche SE over the failed bid for Volkswagen AG.

The Stuttgart Higher Regional Court rebuffed an attempt to collect information from the investigation of former Porsche executives Wendelin Wiedeking and Holger Haerter, according to a judgment published in a database of court rulings. The Merckle unit, HWO GmbH, can’t be considered a victim of the alleged crimes, the judges said, because the rules protect only the public interest.

The ruling is a setback for plaintiffs in the German cases against Porsche, which are seeking more than 5 billion euros ($6.7 billion) combined. German law grants only limited access to information from parties to lawsuits.

The civil suits are part of a series of cases Porsche has faced.

HWO spokeswoman Vivien Kraft declined to comment yesterday.

Wiedeking, Porsche’s former chief executive officer, and Haerter, the former chief financial officer, were charged in December with market manipulation. Both deny the allegations.

The cases are OLG Stuttgart, 1 Ws 112/13, 1 Ws 149/13 and 1 Ws 150/13.

Ex-LinkBrokers Employee Pleads Guilty to Role in Stock Fraud

Marek Leszczynski, a former employee of LinkBrokers Derivatives Corp., a unit of London-based ICAP Plc, pleaded guilty to his role in a scheme that involved lying to clients about the prices of securities bought and sold for their accounts.

Leszczynski, 44, pleaded guilty to a single conspiracy count yesterday before U.S. District Judge John Keenan in Manhattan. Prosecutors claimed misrepresentations by Leszczynski and others garnered illegal profit and bonuses.

Benjamin Chouchane, a former broker for LinkBrokers, pleaded guilty in June to one count of conspiracy. A third man, Henry Condron, pleaded guilty in October to being part of the scheme.

Prosecutors claimed that, from 2005 to December 2008, the men secretly marked up the prices of securities purchased for institutional clients and marked down the prices of securities that were sold, resulting in millions of dollars in fraudulent profits. The employees all received inflated bonuses based on the phony profits, according to the government.

Keenan scheduled sentencing for Leszczynski, who faces as much as five years in prison, for Dec. 19. He faces possible deportation to the U.K. after serving his sentence, Keenan said.

Leszczynski agreed to forfeit $1.5 million. He may also be fined as much as $250,000.

The criminal cases is U.S. v. Leszczynski, 12-cr-00923, U.S. District Court, Southern District of New York (Manhattan). The SEC case is SEC v. Leszczynski, 12-cv-7488, U.S. District Court, Southern District of New York (Manhattan).


Letta Says 2014 to Be Historical Year for Europe

Italian Prime Minister Enrico Letta and Austrian Chancellor Werner Faymann spoke at a news conference in Vienna about euro-area unemployment, competitiveness and the creation of a banking union.

For the video, click here.

Comings and Goings

Jane Jarcho Named Head of SEC’s Investment Company Examinations

Jane Jarcho was named head of investment company examinations by the U.S. Securities and Exchange Commission, the agency said in a statement yesterday.

Jarcho will oversee a staff of 450 lawyers, accountants and examiners in the Office of Compliance Inspections and Examinations, which inspects U.S.-registered investment advisers and companies, according to the statement.

She held several positions in SEC enforcement before joining the OCIE in 2008, the SEC said.

Coal Foe Named to FERC Is Latest Obama Pick Drawing Industry Ire

President Barack Obama’s nomination of Ron Binz to be chairman of the U.S. Federal Energy Regulatory Commission has sparked the contentious debate over climate change.

Environmentalists have hired a public-relations firm to aid Binz’s Senate confirmation. He has drawn the ire of coal-industry interests for advocating policies that mining companies said encouraged the conversion of power plants to natural gas when he served as Colorado’s top utility regulator.

The Green Tech Action Fund, a San Francisco-based nonprofit that backs green energy technology, hired VennSquared Communications LLC, a Washington-based political consultancy, to advocate on Binz’s behalf.

His nomination is the latest flashpoint in the battle between fossil-fuel and clean-energy groups as Obama makes tackling climate change a key goal of his second term.

Binz declined an interview request, saying he hasn’t granted interviews since Obama announced his nomination June 27.

VennSquared’s support is an “insurance policy” so stories about Binz are accurate when “anybody with a blog can sit out there and make an assertion,” Michael Meehan, the firm’s president, said in an interview.

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