Swipe-Fee Appeal, Basel Bond Math, U.K. Whale: Compliance

The U.S. Federal Reserve will appeal a judge’s decision that its rules on debit-card transaction fees were illegal, a lawyer for the central bank said during a court hearing in Washington.

The general counsel for the bank, Scott Alvarez, told U.S. District Judge Richard Leon that the bank would file its appeal yesterday.

The hearing came after retailers battling banks over debit-card transaction costs were handed a victory by Leon, who said merchants were overcharged billions of dollars under an unlawful swipe fee set by the Fed.

The decision, unless overturned on appeal, will force regulators to revisit rules that bankers said will cost them 45 percent of their swipe-fee revenue. Lenders collected about $16 billion annually from those fees before the Fed’s regulation. The ruling also threatens to erode Visa’s dominance of the U.S. debit-card market and benefit smaller rival MasterCard Inc. as merchants would have more say about how transactions are processed.

In his July 31 ruling, Leon said the Fed considered data it wasn’t allowed to use under the Dodd-Frank law in setting the cap on the so-called swipe fees at 21 cents, and neglected to bolster competition in card networks.

The case is NACS v. Board of Governors of the Federal Reserve System, 11-cv-02075, U.S. District Court, District of Columbia (Washington).

Compliance Policy

Banks Crafting Bonds for Basel Face Math Snag Nykredit Sees

As bankers in the world’s biggest mortgage market per capita design debt to meet funding rules set by the Basel Committee on Banking Supervision, Denmark’s largest home-loan provider says the exercise may be a waste of time.

The math behind Basel’s net stable funding ratio suggests even three-year bonds may not be long enough to keep an issuer above water if markets really were to shut down for 12 months, said Soeren Holm, chief financial officer at Copenhagen-based Nykredit Realkredit A/S, Europe’s biggest issuer of mortgage-backed covered bonds.

Using “very strict Basel math, you have to have quite a long maturity of five or seven years,” Holm said.

Banks in Denmark’s $500 billion mortgage bond market have been rushing to adapt to Basel’s funding requirement. The rule threatens to wipe out one of Denmark’s most popular home finance constructions, in which one-year bonds are rolled over annually to fund 30-year mortgages.

The home-loan arm of Danske Bank A/S, Denmark’s biggest bank, has responded by designing a three-year bond with an interest rate that adjusts every six months. Yet according to Holm, whose bank competes with Danske for mortgage clients, swapping one-year bonds for three-year securities will still leave lenders facing a funding gap.

Denmark’s mortgage banks are now split over how to tackle new funding rules. Standard & Poor’s and Denmark’s committee on too-big-to-fail banks also have singled out the nation’s one-year mortgage bonds as a risk.

The panel recommended enforcing a national funding rule next year, four years before Basel’s net stable funding requirement is due to take effect.

For more, click here.

Swiss Still Deliberating Deal With U.S. on Untaxed Assets

The government of Switzerland continues to deliberate with the U.S. on untaxed assets, Swiss spokesman Andre Simonazzi said after the government’s weekly meeting in Bern.

He said more information would be provided at the conclusion of deliberations, declining to say when that may be.

Switzerland is in talks with the U.S. to shield banks from being charged for allegedly aiding U.S. tax evaders after Wegelin & Co. pleaded guilty and closed its doors.

Credit Suisse is among a dozen financial institutions subject to the U.S. probe.

Parliament in June rejected a bill that would have enabled the transfer of client data and established legal protection for bank employees. Switzerland is now negotiating an alternative with the U.S.

Compliance Action

U.K. Prosecutors Join U.S. Probe of JPMorgan London Whale Loss

U.K. prosecutors are working with U.S. authorities and British financial regulators as part of an investigation into a $6.2 billion loss on derivatives at JPMorgan Chase & Co.

The Serious Fraud Office, which is in charge of most U.K. white-collar crime enforcement, is “liaising with our U.S. counterparts” and the Financial Conduct Authority, spokeswoman Jina Roe said in an e-mail yesterday.

U.S. prosecutors unsealed charges against London-based JPMorgan traders Javier Martin-Artajo and Julien Grout last week for allegedly attempting to hide trading losses caused by Bruno Iksil, the Frenchman known as the “London Whale” because his portfolio was so large.

Manhattan U.S. Attorney Preet Bharara said Aug. 14 that he was “hopeful” the men, neither of whom are in the U.S., would return to face the charges. Grout’s lawyers have said he’s in France, and Martin-Artajo’s have said he is away from his home in the U.K. on vacation.

The U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, and the U.K. FCA are also probing the losses.

FBI Said to Hunt for Criminal Acts in JPMorgan Energy Inquiry

A Justice Department probe of JPMorgan Chase & Co.’s energy-trading practices is examining whether criminal laws were violated by individuals, a person briefed on the matter said.

The Federal Bureau of Investigation is working with U.S. Attorney Preet Bharara, said the person, who asked not to be named because the review isn’t public. Bharara’s inquiry, reported by the Wall Street Journal and Bloomberg News earlier this week, focuses on conduct outlined last month in the bank’s $410 million civil settlement with the Federal Energy Regulatory Commission. The FERC had accused the bank of manipulating power markets in California and the Midwest.

JPMorgan’s energy-trading unit, which is overseen by commodities chief Blythe Masters, engaged in 12 bidding strategies in wholesale energy markets from September 2010 to November 2012 that resulted in tens of millions of dollars in overpayments from grid operators, the FERC said while announcing the settlement on July 29.

Jennifer Queliz, a spokeswoman for Bharara, and Kelly Langmesser, a spokeswoman for the FBI’s New York office, declined to comment on the bureau’s probe. Brian Marchiony at JPMorgan declined to comment on behalf of the bank and Masters.

JPMorgan accepted the facts in the FERC settlement without admitting or denying wrongdoing, the agency said.

The regulator decided not to pursue claims against the employees after they explained that their conduct was lawful and that they wouldn’t agree to any settlement that suggested otherwise, their lawyers wrote in a statement last month.

Microsoft Says Bribery Investigation Includes Russia, Pakistan

Microsoft Corp., the world’s largest software maker, said it’s cooperating with federal authorities investigating possible illegal activity by employees and business partners in Russia and Pakistan.

The company takes every allegation seriously and will cooperate fully with any government inquiries, John Frank, Microsoft’s deputy general counsel, wrote in a blog posting yesterday. Mark Murray, a spokesman for Microsoft, confirmed that the software maker’s activities in Russia and Pakistan are now part of an investigation.

The statement followed a Wall Street Journal report that federal regulators are extending their examination of the company’s relations with business partners that allegedly bribed foreign officials for contracts. The investigation had earlier looked into allegations made by a former Microsoft representative in China, and the company’s relationships with resellers and consultants in Romania and Italy, the newspaper said.

John Nester, a spokesman for the U.S. Securities and Exchange Commission, and Michael Passman, a Justice Department spokesman, didn’t immediately return e-mails seeking comment on the probe.

Colombia Probes Cemargos for Fixing Cement Price With Rivals

Cementos Argos SA, Colombia’s largest cement maker, faces a probe of allegations it conspired with rivals to fix prices over the past three years, the country’s industry regulator said yesterday.

The Superintendency of Industry and Commerce has opened an investigation of five cement companies including Medellin-based Cemargos for “an alleged agreement to fix prices and divide up the market,” according to an e-mailed statement from the regulator. Colombia has been monitoring “sustained and unjustified” increases in cement prices since 2010, the superintendency said.

Cemex Colombia, a unit of Bogota-based Cemex Latam Holdings SA, is included in the probe, as are Holcim (Colombia) SA, Cementos Tequendama SAS and Cementos San Marcos SA, according to the statement. The companies may face a fine of 59 billion pesos ($31 million) if found guilty of violating free competition, the statement says.

Jorge Perez, a spokesman for Cemex in Monterrey, Mexico, declined to comment. A Cemargos press official declined to comment. A press official at Holcim and an official at San Marcos didn’t immediately answer a phone call and an e-mail requesting comment. A request for comment sent through Tequendama’s website wasn’t immediately answered.

The regulator will examine whether 14 people including Cemargos Chief Executive Officer Jorge Mario Velasquez and Cemex Latam’s Carlos Jacks collaborated on, facilitated, authorized or implemented anti-competitive practices, according to the statement.


ThinkStrategy’s Kapur Avoids Prison in Fraud Case Sentence

ThinkStrategy Capital Management LLC’s Chetan Kapur, who initially was accused of deceiving investors about returns in his hedge funds, avoided prison when he was sentenced to time served for failing to keep adequate records.

Kapur, 38, was sentenced yesterday by U.S. District Judge John F. Keenan in federal court in Manhattan to the 12 1/2 months he already spent in custody. Kapur was charged in July 2012 with securities fraud, investor adviser fraud and wire fraud in connection with losses at his funds from 2002 to 2010.

The former hedge fund manager contended that he lost money along with other investors and tried to salvage their holdings. He pleaded guilty last month to one count of failing to keep adequate records. Prosecutors dropped the other charges.

In November 2011, the U.S. Securities and Exchange Commission alleged that Kapur misled investors about his funds’ track records and invested with fraudulent funds including Arthur Nadel’s Valhalla and Victory funds and Samuel Israel’s Bayou Superfund. The SEC, which said ThinkStrategy had $520 million in assets at its peak in 2008, settled its case against Kapur that same month.

Nadel, who pleaded guilty in 2010 to defrauding investors of $168 million, died in prison. Israel, Bayou’s co-founder, is serving a 22-year prison term after admitting to hiding millions of dollars in losses.

Kapur has been free on bail since last month, said his attorney, Daniel Arshack.

In a statement to the judge, Kapur said he is “personally and professionally very upset about the losses we experienced” and that he lost much of his own savings in the funds.

Julie Bolcer, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment on the case.

The criminal case is U.S. v. Kapur, 1:12-cr-00535, U.S. District Court, Southern District of New York (Manhattan).

Diamond Foods to Pay $11 Million to Settle Investor Lawsuit

Diamond Foods Inc. agreed to pay $11 million in cash to settle a class-action lawsuit over accounting errors that led to earnings restatements and ended its bid for the Pringles potato-chip brand.

Diamond also will issue 4.45 million common shares to a settlement fund to resolve claims on behalf of investors who bought stock from Oct. 5, 2010, to Feb. 8, 2012, the San Francisco-based company said today in a statement. Diamond denied all claims of wrongdoing or liability in the suit, which targeted the snack-and-nut company and two former officers.

“We believe this proposed settlement eliminates the burden of further time, expense and risk related to the class action,” Chief Executive Officer Brian J. Driscoll said in the statement. The accord is valued at $96.1 million based on Diamond’s closing share price Aug. 20, according to court documents filed yesterday.

In February, a Delaware judge threw out an investor suit against the company brought by a retirement fund for Hialeah, Florida, employees, saying their claims should be decided by a court overseeing a similar case in California.

A portion of the $11 million settlement announced today will be funded by Diamond’s insurers, the company said. The accord is subject to court approval.

The case is In Re Diamond Foods Inc. Securities Litigation, 11-cv-05386, U.S. District Court, Northern District of California (San Francisco).


Bair Warns on Politically Motivated Actions Over Banks

Former Federal Deposit Insurance Corp. Chairman Sheila Bair, Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian and Stanford University economics professor John Taylor participated in a panel discussion about the U.S. economy, Federal Reserve policy and financial industry.

Journalist Jennifer Schonberger moderated the panel at the National Press Club in Washington.

For the video, click here.

Comings and Goings

Aveng CEO Quits After ‘Taxing’ Collusion Investigation

Aveng Ltd., South Africa’s second-biggest builder, said Chief Executive Officer Roger Jardine will leave at the end of the month after a regulatory investigation into collusion in the industry.

“The Competition Commission’s investigation process has been personally very taxing, particularly as I have had to deal with matters that occurred before my appointment and of which I had no personal knowledge,” Jardine, who was CEO for five years, said in a statement from the company yesterday.

Aveng accepted a 307-million rand ($30 million) fine in June after admitting collusion to fix contract prices to build stadiums for the 2010 Soccer World Cup. It was one of 15 companies to reach an agreement with the commission.

While the South African construction business has been “a major disappointment,” the rest of the group’s business “is holding its own under very difficult market conditions,” Jardine said in the statement.

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