JPMorgan to Pay $920 Million, Ex-SAC Analyst: Compliance

JPMorgan Chase & Co., seeking to end probes of a $6.2 billion trading debacle, admitted to violating federal securities laws and agreed to pay about $920 million for failing to implement adequate controls and providing incomplete information to regulators and its board.

Senior management knew in April 2012 that the bank’s chief investment office in London, which was responsible for the loss, was using aggressive valuations that hid $750 million in losses, the U.S. Securities and Exchange Commission said yesterday in a statement. Some executives “expressed reservations” at signing off on JPMorgan’s first-quarter earnings filings last year as required under the Sarbanes-Oxley Act, the SEC said.

The settlement resolves claims by the SEC, the U.S. Office of the Comptroller of the Currency, Federal Reserve and the U.K. Financial Conduct Authority.

The company was fined 137.6 million pounds ($221.2 million) by U.K. regulators as part of a probe into last year’s record trading loss, the Financial Conduct Authority said on its website.

The Justice Department and Commodity Futures Trading Commission are among agencies still investigating the trading loss at the CIO, a unit of the New York-based bank that was supposed to help reduce risk and manage excess deposits. JPMorgan said yesterday that it was notified by the CFTC that its staff intends to recommend enforcement action.

The more than $6.2 billion in losses led to the indictment of two former traders this week, the departure of at least four senior managers and a blow to the reputation of Chief Executive Officer Jamie Dimon, 57, whose pay was cut in half.

JPMorgan restated results and its market value fell by almost $51 billion after disclosing errant bets made by Bruno Iksil, a trader who became known as the London Whale because his positions were so large.

The criminal case is U.S. v. Martin-Artajo, 13-cr-00707, U.S. District Court, Southern District of New York (Manhattan).

The SEC case is Securities and Exchange Commission v. Martin-Artajo, 13-cv-05677, U.S. District Court, Southern District of New York (Manhattan).

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Compliance Action

Insurers Agree to Audit Workplace Pension Plans in OFT Deal

U.K. insurers agreed to audit some pension plans as part of a settlement with regulators reviewing the 275 billion-pound ($442 billion) market for defined contribution workplace pensions.

Fees for the pension plans are too high and not always transparent to consumers, the Office of Fair Trading said in a report yesterday. The Association of British Insurers agreed to conduct an immediate audit of older and high-charging contract and bundled-trust schemes, containing about 30 billion pounds of savings, to ensure participants understand the plans.

The regulator began an investigation into defined contribution workplace pension plans in January.

“We agree with the OFT that it is important to review charges to ensure they represent good value for money for today’s employers and savers,” Otto Thoresen, the ABI’s director general, said in a statement. “Pension providers have agreed to an audit of all legacy and higher charging schemes to ensure any problems can be sorted out.”

The National Association of Pension Funds, which represents U.K. workplace pension plans and their members, said the report didn’t go far enough to give companies more choices of pension plans to offer their employees.


BMC Software Loses Repatriation Case in U.S. Tax Court

BMC Software Inc. faces a $12.9 million tax bill after the U.S. Tax Court upheld a finding by the Internal Revenue Service that some earnings repatriated in the mid-2000s were ineligible for a temporarily lower tax rate.

BMC, based in Houston, contended that accounts receivable on its books shouldn’t be counted as debt that would reduce the amount of money it could bring to the U.S. from foreign affiliates at the reduced tax rate.

Judge Diane Kroupa disagreed, ruling that the IRS’s “treatment of the accounts receivable are consistent with the dictionary definition” and “may constitute indebtedness” for purposes of calculating how much in earnings could be taxed at the lower rate in effect at the time.

Ann Duhon, a spokeswoman for BMC, said she hadn’t seen the ruling and had no immediate comment. Christine Vaughn, of Vinson & Elkins LLP, an attorney on the case for BMC, didn’t immediately reply to a phone message requesting comment.

The 2004 repatriation program permitted U.S. corporations to bring home income held outside the U.S. at an effective rate of 5.25 percent instead of the top 35 percent corporate income tax rate.

BMC claimed $709 million in earnings qualified for the tax holiday. The IRS ruled that $43 million was ineligible for taxation at the lower rate because it represented a foreign unit’s debt to BMC created by accounts receivable, according to court filings.

The case is BMC Software Inc. v. IRS, 15675-11, U.S. Tax Court (Washington).

Ex-SAC Analyst Dennis Called Uncharged Co-Conspirator by U.S.

Ron Dennis, a former SAC Capital Advisors LP analyst, is an uncharged co-conspirator in an insider-trading scheme involving SAC portfolio manager Michael Steinberg, U.S. prosecutors said.

Steinberg, the long-serving portfolio manager at the Stamford, Connecticut-based fund charged in the government’s probe of insider trading, was indicted by a grand jury in Manhattan, according to documents unsealed on March 29. He’s scheduled to go on trial Nov. 18.

The U.S. alleges Steinberg engaged in insider trading in Dell Inc. and Nvidia Corp. based on illicit tips provided to him by his analyst, Jon Horvath. The former analyst, who has pleaded guilty and is cooperating with the U.S., is scheduled to be a witness at Steinberg’s trial.

In a memo to Steinberg’s lawyers providing details on the alleged conspiracy, prosecutors in the office of Manhattan U.S. Attorney Preet Bharara said Horvath and Dennis were part of a group of six analysts who obtained and passed nonpublic information about stocks in at least 10 other technology companies including Volterra Semiconductor Corp. and PMCS Sierra Inc. Some of the tips were passed to former Diamondback Capital Management LLC analyst Jesse Tortora, according to prosecutors. Tortora has pleaded guilty to insider trading and is cooperating with the U.S.

Steinberg faces as long as 20 years in prison if convicted.

Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment on the government’s filing.

The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).

Cisco Officials Accused of Role in Falun Gong Monitoring

Chinese and U.S. citizens accusing Cisco Systems Inc. of conspiring with China’s government to monitor and torture members of Falun Gong, a religious practice, have now said officials at the company’s headquarters in San Jose, California, were directly involved with human rights abuses.

Cisco’s main office helped design the surveillance and internal security network known as “Golden Shield,” according to an amended lawsuit filed Sept. 18 in federal court in San Jose.

The revised complaint “more directly ties” Cisco and its San Jose headquarters to human rights abuses against Falun Gong, the plaintiffs said in a court filing.

In their suit against Cisco, the world’s biggest networking equipment maker, unidentified Chinese and U.S. citizens alleged that the company has collaborated with the Chinese Communist Party to intercept communications of Falun Gong believers, who were arrested, detained and tortured because of their religious beliefs. The claim was originally filed in 2011.

“Cisco continues to believe the entire case is without merit and will file a motion to dismiss the amended complaint,” spokeswoman Kristin Carvell said Sept. 18 in an e-mailed statement.

The plaintiffs have recycled previous allegations to try to overcome a Supreme Court decision that the claims can’t be brought in U.S. courts, Carvell said.

The case is Doe I v. Cisco Systems Inc., 11-cv-02449, U.S. District Court, Northern District of California (San Jose).


Underfunded CFTC Hasn’t Grown Much in 20 Years, Gensler Says

The U.S. Commodity Futures Trading Commission is underfunded and needs more money to be an effective regulator, Chairman Gary Gensler said.

The agency is “only slightly larger” than it was 20 years ago, he said. Gensler made the remarks at a conference yesterday in London.

“We didn’t oversee swaps 20 years ago, we didn’t have electronic trading,” Gensler said. “It’s critical for the public’s confidence in a market that a regulator is well-funded.”

Comings and Goings

ASX Board Members Resign After SEC Action Against Hedge Fund

Shane Finemore and Russell Aboud resigned from the board of ASX Ltd. after their hedge fund, Manikay Partners LLC, agreed to settle claims of improperly buying shares of companies they had bet against.

Aboud said by phone yesterday that he told ASX Chairman Rick Holliday Smith he would resign. New York-based Manikay agreed to pay $2.6 million to settle the action.

The hedge fund was sanctioned by the U.S. Securities and Exchange Commission as part of an enforcement against 23 firms, the agency said in a statement Sept. 17. Aboud, a member of the ASX board, is chairman of the fund.

He said while he doesn’t believe there are governance issues at ASX, “even a perception of an issue has the ability to damage” the company. Therefore, resigning was the right thing to do, he said. Aboud said the action stemmed from a Citigroup Inc. share sale in 2009.

ASX board member Finemore is the managing partner of Manikay. Finemore didn’t respond to e-mailed requests for comment. The company made no admission of guilt.

ASX confirmed the two resignations in a statement.

The firms cited in the cases allegedly bought shares from an underwriter, broker or dealer participating in a share sale after having sold short the same security during the restricted period, according to the SEC statement.

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