Bitcoin Meeting, OTC Derivatives, Trump U: Compliance

Aug. 27 (Bloomberg) -- A Bitcoin trade group met yesterday with the U.S. Treasury Department’s Financial Crimes Enforcement Network and an array of law-enforcement officials and regulators to discuss oversight of the digital currency.

Members of the Bitcoin Foundation will brief representatives of federal agencies including the FBI, IRS, Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Secret Service on the nature of the virtual currency, created four years ago.

“It’s a kickoff of engagement,” said Peter Vessenes, chairman of the foundation’s board, who said yesterday that the meeting will be “standing-room only,” because of the high interest among government officials. “Right now, law enforcement would read a salacious story, and not know what’s going on. We can help them understand what’s going on.”

It will be a “routine” meeting, said Stephen Hudak, a spokesman for FinCEN, which released guidance in March saying digital-currency administrators and exchangers are considered money-services business subject to regulations and anti-money-laundering controls.

Bitcoin Foundation, a Seattle-based group that promotes the currency, seeks to improve standardization and security for the “non-political online money,” according to its website. Vessenes described the meeting as an “educational meet-and-greet.”

The group is “coming in to talk to regulators, law enforcement and Treasury officials this afternoon as part of our ongoing dialogue with virtual currency providers,” said John Sullivan, a Treasury Department spokesman, in a telephone interview.

New York’s top banking regulator, Benjamin Lawsky, sent subpoenas to 22 digital-currency companies, including BitInstant LLC and Dwolla Corp., to determine whether new regulations should be adopted to govern the emerging industry, according to a person familiar with the matter.

Compliance Policy

OTC Derivatives Rules’ Benefits Outweigh Costs, Basel Group Says

Tougher rules for trading in over-the-counter derivatives will deliver economic benefits that outweigh the costs they impose on banks, a study found.

A group of supervisors and central bankers set up by the Bank for International Settlements estimated that when regulators have stricter standards in place, they will boost global economic output by 0.12 percent per year and the potential for financial crises will be reduced.

Regulators and banks should try to have the largest number of derivatives trades as possible pass though clearinghouses, the group said in a statement yesterday. The market for OTC derivatives, which are traded away from exchanges and other regulated venues, should be based around a “modest number” of clearinghouses, the Basel, Switzerland-based group said.

Nations are trying to bolster and align their rules for the $633 trillion market for swaps and other OTC derivatives, which became a target for reinforced oversight after the 2008 collapse of Lehman Brothers Holdings Inc. and the rescue of American International Group Inc., two of the largest traders in credit-default swaps. Global regulatory plans include boosting the use of clearinghouses, pushing activity onto regulated markets and requiring banks to put up more collateral against their trades.

Sweden May Raise Bank Capital Rules Further, Norman Says

Swedish banks, already subject to some of the world’s toughest capital rules, may face even higher requirements as the government tries to protect the economy and public finances from future crises.

Financial Markets Minister Peter Norman yesterday proposed a raft of measures aimed at strengthening bank industry stability in the largest Nordic economy. Steps include giving the Financial Supervisory Authority more tools and putting the regulator in charge of oversight, according to an e-mailed statement.

“In addition to these measures to form a stricter framework and tougher rules for the banks, the development and the risks that are tied to it means it may be necessary to sharpen the requirements on the financial sector further in the future,” Norman wrote in an opinion piece in Dagens Nyheter newspaper yesterday. “That could, for example, include higher capital rules for banks.”

Sweden’s four biggest banks already face stricter capital requirements than standards targeted elsewhere. Nordea Bank AB, Swedbank AB, Svenska Handelsbanken AB and SEB AB must hold at least 10 percent core Tier 1 capital of their risk-weighted assets this year, and no less than 12 percent by 2015. The Basel Committee on Banking Supervision, headed by Swedish central bank Governor Stefan Ingves, sets a 7 percent minimum from 2019.

The central bank and the financial regulator have clashed openly over which body should have the main responsibility for limiting systemic risk in Sweden. The proposal from the government marks a defeat for Ingves, who had argued that the central bank is best suited to handle macro-prudential supervision.

Basel Can’t Match Markets in Assessing Bond Risk, Denmark Says

Denmark’s new minister in charge of bank legislation says the market should be left to itself to decide the fate of one-year mortgage bonds under threat from the Basel Committee on Banking Supervision.

The bonds are at the center of a debate in Denmark on how to treat one of the most popular home-loan products in the nation’s $500 billion mortgage bond market, the world’s biggest per capita. The central bank and rating companies have criticized the bonds, which are used to finance mortgages as long as 30 years, arguing the funding mismatch is too risky. The model is also at odds with Basel’s proposed stable funding requirement, under which banks need to be able to survive at least 12 months without tapping markets.

“I’m not going to speculate on how the bond market will look in a few years, but it will be, as it is today, the market that decides,” Henrik Sass Larsen, who took over as business minister this month, said in an e-mail yesterday.

Denmark’s mortgage banks, which collectively fought to prevent Basel’s liquidity coverage ratio from destroying their home-loan model, are now split over how to tackle the new funding rules. The nation’s committee on too-big-to-fail banks has also singled out one-year mortgage bonds as a risk. Danske Bank A/S has said clear rules from regulators may be necessary as competitive pressures prevent the industry from taking the necessary steps on its own initiative.

European Union’s Banker Pay Rules Face Regulator Criticism

European Union banker pay rules were criticized by officials in several countries on concerns they will drive up fixed salaries and complicate internal operations at banks.

The Financial Stability Board said authorities in some non-European nations had warned that the rules, which will ban bonuses more than twice as large as fixed pay, “may have unintended consequences” and raised “level playing field” issues. The FSB didn’t identify the nations.

The board, which brings together central bankers, regulators and finance ministry officials from the Group of 20 nations, called on supervisors and banks to accelerate efforts to apply internationally agreed-to pay standards. These include a requirement that awards can be retroactively canceled, and recovered, if a bank’s finances are less healthy than previously stated.

The EU earlier this year overrode opposition from the U.K. to bolster its bonus rules, already among the toughest in the world. The ban on awards worth more than twice fixed pay will apply for the first time to bonuses awarded in 2015.

Europe’s Single Bank Rule Book Falls Apart as North Races Ahead

The goal of a single rule book for Europe’s banks is splintering even before it’s implemented as northern countries move ahead with tougher requirements to ward off the next boom-to-bust cycle.

Sweden’s too-big-to-fail banks, which already face stricter capital rules than their competitors elsewhere, may be told to hold even larger reserves, Financial Markets Minister Peter Norman said yesterday. In Denmark, Business Minister Henrik Sass Larsen said he can’t wait for southern Europe to regulate its systemically important financial institutions. He backs the swift passage of national capital laws to curb bank risks.

As Europe struggles to stimulate growth without stoking a new credit bubble, the specter of swelling private debt is prompting regulators from Sweden to the Netherlands to curb borrowing. The measures go beyond new capital rules approved earlier this year by the European Union and set to become law by Jan. 1.

In addition to steps advanced by Sweden and Denmark, the Netherlands proposed last week that its banks face a leverage ratio -- a measure of capital against total assets -- of at least 4 percent. The Basel Committee on Banking Supervision recommends a 3 percent threshold. Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of 17 euro finance chiefs, recommended governments be allowed to impose tougher ratios unilaterally if a common framework can’t be agreed upon.

According to Larsen, countries can’t risk holding themselves and their financial systems’ integrity hostage to developments in regions still struggling under a sovereign debt crisis. Recommendations by a Danish government-backed Sifi committee for as much as 5 percent additional capital “are balanced,” he said. Europe has yet to complete its too-big-to-fail bank proposal.

The rift over bank regulation mirrors a similar division among central bankers after the euro area surfaced from its longest recession on record.

Compliance Action

Former JPMorgan Trader Martin-Artajo Arrested in Madrid

Former JPMorgan Chase & Co. trader Javier Martin-Artajo was arrested in Madrid as part of a probe into last year’s $6.2 billion trading loss.

He turned himself in this morning after being contacted by investigators, a Spanish police official said today. Police have passed his case to the National Court in Madrid.

“The arrested person is presumed responsible for manipulating and inflating the value of positions in the synthetic credit portfolio of his firm with the aim of achieving specific objectives of daily losses and gains,” police said in a statement.

The U.S. earlier this month charged Martin-Artajo, a Spanish citizen, and Julien Grout, a French citizen, with trying to hide losses that ultimately cost JPMorgan more than $6.2 billion last year. Both men face as long as 20 years in prison if convicted of the most serious counts, including conspiracy and wire fraud.

Martin-Artajo’s lawyer, Lista Cannon, didn’t immediately respond to a telephone call seeking comment. Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan declined to comment.

Rheinmetall, Atlas Raided in Germany in Submarine Bribe Probe

Rheinmetall AG and Atlas Elektronik GmbH, a unit jointly owned by ThyssenKrupp AG and European Aeronautic Defence and Space Co., were raided as part of a German probe into allegations of bribery by employees.

The suspects are being investigated over payments to Greek officials from 1998 to 2011 to win contracts for submarine equipment, Frank Passade, a spokesman for the prosecutors’ office in Bremen, Germany, said in an interview yesterday. Atlas, a naval electronics manufacturer, allegedly paid 8.5 million euros ($11.4 million) in bribes and Dusseldorf-based Rheinmetall, an armored vehicle maker, paid 9.1 million euros, Passade said.

“Atlas informed us in 2010 about the matter, but at the time the facts indicated that we didn’t have jurisdiction since everything happened abroad,” Passade said. “Tax investigators inspecting Rheinmetall’s books last year brought new aspects to light prompting us to open a probe.”

The companies confirmed the raids. Oliver Hoffmann, a spokesman for Rheinmetall, said the allegations are baseless. Atlas, based in Bremen, is cooperating with the probe, said Steffen Leuthold, a spokesman for the company.

UBS to Pay $4.6 Million to Settle Over Unregistered Assistants

UBS AG, Switzerland’s largest bank, will pay $4.58 million to settle an investigation by regulators into whether its sales assistants were licensed in states where they did business.

UBS’s “client service associates” took orders without having the required state registrations, according to a statement yesterday by the New Jersey Bureau of Securities, which said it led the case. The Zurich-based bank didn’t admit or deny the allegations.

“Over a six-year period, UBS failed to recognize a flaw in its order entry systems that allowed unregistered persons to accept customer orders,” Abbe R. Tiger, the New Jersey agency’s chief, said in the statement.

UBS’s sales assistants also weren’t adequately supervised, New Jersey regulators said. Bank of America Corp.’s Merrill Lynch brokerage settled a similar state investigation in 2009.

“UBS is pleased to have resolved this legacy registration issue which involved unsolicited orders,” Gregg Rosenberg, a UBS spokesman, said in an e-mailed statement.


Christanto Cooperating With Australia in Banknotes Bribery Case

Radius Christanto, an Indonesian businessman accused of conspiracy to bribe foreign officials, is cooperating with Australian authorities and may be a witness for them, his lawyer said.

“He’s an extremely valuable witness or a star witness,” Christanto’s lawyer Hamidul Haq told a Singapore subordinate court today that agreed the Indonesian, who isn’t challenging his extradition to Australia, be surrendered.

At least nine former managers and employees at Note Printing Australia Ltd, the money-printing unit of the country’s central bank, and Securency International Pty, the unit it formerly part owned, were charged in relation to the bribing of officials in Malaysia, Indonesia, Nepal and Vietnam from 1999 to 2004 to win banknote printing contracts.

Australian authorities have acknowledged that statements Christanto gave them have been very helpful, Haq told the Singapore court today. Christanto, 64, has lived in Singapore since 1989.

The Singapore case is Public Prosecutor v Christanto Radius W/APP 5/2012. Singapore Subordinate Courts.

Trump’s Institute Accused of Fraud by N.Y. Attorney General

Donald Trump was sued by New York Attorney General Eric Schneiderman over claims the billionaire operated a fraudulent online educational institute that swindled students out of $40 million.

Trump University, now known as the Trump Entrepreneur Initiative, operated as an unlicensed educational institution and misled students with promises that they would gain real estate investing expertise, according a copy of the petition provided by Schneiderman’s office. The Aug. 24 filing wasn’t immediately available from New York Supreme Court in Manhattan.

Students paid as much as $35,000 for the institute’s programs, purportedly taught by experts “handpicked” by Trump, according to the petition. After being told that they would recoup the cost of the programs within a few months, many students were unable to conclude even one real estate deal.

“Mr. Trump used his celebrity status and personally appeared in commercials making false promises to convince people to spend tens of thousands of dollars they couldn’t afford for lessons they never got,” Schneiderman said in an Aug. 25 statement.

Trump, the New York-based Trump Organization Inc. and a former president of the institute are accused of running an unlicensed educational institution from 2005 through 2011. More than 5,000 students, including 600 in New York, paid for the educational programs, according to petition.

Amanda Miller, a Trump Organization spokeswoman, referred questions to, a website devoted to criticism of the attorney general.

The case is Schneiderman v. The Trump Entrepreneur Initiative LLC, 400965-2012, Supreme Court of the State of New York, County of New York (Manhattan).

Bo Remains Defiant at Trial End as China Heralds Graft Crackdown

Ousted Politburo member Bo Xilai remained defiant as his corruption trial ended with prosecutors calling for a severe punishment, in a case the Communist Party called proof of its determination to target high-level graft.

Bo accused his former police chief, who testified at the trial in the eastern Chinese city of Jinan, of being in love with his wife as he again asserted his innocence of the bribery, embezzlement and power-abuse charges against him. The bribery claim was something “even the lousiest TV drama scriptwriter wouldn’t create,” he said.

Bo’s rebuttals concluded a five-day trial, in which the court posted transcripts online, an unprecedented move that state media called evidence of the proceedings’ transparency.

Bo, a former commerce minister, governor and mayor, was accused of taking more than 21 million yuan ($3.4 million), embezzling 5 million yuan and covering up his wife Gu Kalai’s role in the murder of British businessman Neil Heywood. Once a rising political star, Bo’s downfall in March last year posed the biggest crisis to the Communist Party since the 1989 Tiananmen Square protests.

Bo insisted during his trial that while he made mistakes in his career, he didn’t commit any crimes, according to transcripts released by the court in Jinan.

He sought to discredit those who testified against him, calling his wife crazy, comparing a former businessman in Dalian to a wild biting dog and saying his former police chief in the city of Chongqing, Wang Lijun, had lied.

Prosecutors said the facts are clear and the evidence is sufficient that Bo is guilty of all charges, according to a posting on the court’s microblog.

The official Xinhua News Agency said the verdict would be announced at a date still to be decided.

Three Men Charged With Stealing Flow Traders Trading Software

Two men who were employed by Flow Traders were charged in New York with stealing the firm’s electronic trading software by e-mailing it to themselves from their work accounts.

Glen Cressman, a trader at the New York office of the Amsterdam-based company, sent e-mails to himself in December 2012 with trading strategies and valuation algorithms, according to the complaint in state Supreme Court in Manhattan. He is charged with two counts each of unlawful duplication of computer related material and unauthorized use of secret scientific material, according to copies of a complaint brought by the Manhattan District Attorney’s office.

Jason Vuu, a Flow Traders employee until his resignation in March, was charged with 20 counts of the same offenses. His e-mails were sent from August 2011 to August 2012, and he sometimes changed the file format of the attachments to make it difficult to recognize their contents, according to the complaint.

Vuu is accused by prosecutors of sharing the software code with Simon Lu, who wasn’t a Flow Traders employee, to create their own trading company. Lu is charged with three counts each of unlawful duplication of computer related material and unauthorized use of secret scientific material.

“I’m confident that when the DA’s office has completed their investigation they will find Flow Traders did not suffer any economic loss,” Jeremy Saland, a lawyer for Vuu, said in an Aug. 25 e-mail. “Their algorithms and code weren’t taken or used in any malicious way that damaged or compromised their financial security.”

Charles Ross, a lawyer for Cressman, Paul Shechtman, a lawyer for Lu, and Joseph DeMarco, a lawyer for Flow Traders, didn’t immediately return phone and e-mail messages.

Sierra Leonean to Face Florida Charges in Iran Uranium Sting

A Sierra Leonean arrested at New York’s John F. Kennedy International Airport in an undercover probe of illegal uranium sales will be taken to Florida to face charges, according to court documents.

Patrick Campbell, 33, who appeared before U.S. Magistrate Judge Vera M. Scanlon Aug. 22 in Brooklyn, New York, consented to the transfer, according to court records made public the following day.

Campbell was arrested on Aug. 21 at the airport on his way to Miami to meet with an undercover agent posing as a dealer planning to send the uranium to Iran, the government said in a criminal complaint.

He admitted he had a plan for selling uranium and showed the agents samples of raw uranium ore he had concealed in his luggage, the government alleged.

Campbell also had a thumb drive containing a contract for sale and delivery of uranium 308 and a PowerPoint presentation about the product he had discussed with the undercover agent, the government claimed. Uranium 308 is also known as “yellowcake” uranium and can be used in nuclear fuel or nuclear weapons when further processed, according to the complaint.

Robert Nardoza, a spokesman for Brooklyn U.S. Attorney Loretta Lynch, declined to comment on the case. A lawyer for Campbell, Chase Scolnick, also declined to comment.

The case is U.S. v. Campbell, 1:13-mj-00733, U.S. District Court, Eastern District of New York (Brooklyn).


Levitt Says High Frequency Trades Blameless At Nasdaq

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, says high frequency trading “had nothing” to do with last week’s Nasdaq “breakdown.” Levitt talks with Bloomberg’s Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

To listen to the interview, click here.

Comings and Goings

Greenwich Hires BlackRock’s McPartland for Market Structure

Greenwich Associates has hired Kevin McPartland, formerly a director at BlackRock Inc., as a principal in its market structure and technology advisory service.

McPartland, 35, will research derivatives and the financial technology sector and how regulatory changes around the globe are affecting those industries, he said in a telephone interview last week. Previously a senior analyst in New York at consultancy Tabb Group, McPartland said he wanted to get back to analyzing the challenges Wall Street faces.

Firms from the world’s largest banks to small hedge funds and institutional money managers are relying more on consultancies and researchers such as Greenwich and Tabb to understand the effect of regulatory change in the U.S. and Europe as markets face new rules following the worst financial crisis since the Great Depression.

The Dodd-Frank Act, signed into law by President Barack Obama in July 2010, expanded the Federal Reserve’s power to oversee the largest financial institutions and gave regulators new tools aimed at preventing a repeat of the 2007-2009 financial crisis. It imposed new rules on derivatives, for mortgages and limits the ability of banks to trade on their own account.

Obama met with Federal Reserve Chairman Ben S. Bernanke and other financial regulators Aug. 19 to urge quicker progress on implementing Dodd-Frank. The closed-door meeting at the White House also included Treasury Secretary Jacob J. Lew and Gary Gensler, chairman of the Commodity Futures Trading Commission.

To contact the reporters on this story: Michael Bathon in Wilmington, Delaware, at; Carla Main in New Jersey at

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

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