Astroturfers Settle, SAC Explores Settling: Compliance

Charges related to JPMorgan Chase & Co.’s sales of mortgage-backed securities could be filed as early as today by federal prosecutors in California who have been investigating the bank, a person familiar with the matter said.

The bank said last month in a regulatory filing that the U.S. Attorney’s office in Sacramento had parallel civil and criminal investigations under way. Investigators already have concluded that it broke civil laws and were examining whether criminal laws were broken, according to the filing.

“In May 2013, the firm received a notice from Civil Division stating that it has preliminarily concluded that the firm violated certain federal securities laws in connection with its subprime and Alt-A residential MBS offerings during 2005 to 2007,” the bank said in the filing.

JPMorgan last week admitted to violating federal securities laws and agreed to pay about $920 million in connection with more than $6.2 billion in trading losses at its London offices. The U.S. Securities and Exchange Commission said senior managers at the bank knew in April 2012 that the bank’s chief investment office in London was using aggressive valuations that hid losses.

The U.S. Justice Department is still investigating the trading loss. Alt-A refers to home loans that typically didn’t require documentation such as proof of income.

The probe of the New York-based bank’s securities sales stems from the work of an Obama administration task force set up to investigate causes of the financial crisis. The group includes U.S. Attorney Ben Wagner in Sacramento and New York Attorney General Eric Schneiderman.

Adora Andy, a spokeswoman for the U.S. Justice Department, and Brian Marchiony, a spokesman for JPMorgan, declined to comment on the federal probe.

The person who said prosecutors will file charges asked not to be identified because the matter isn’t public. The U.S. is investigating JPMorgan under the Financial Institutions Reform, Recovery and Enforcement Act, according to another person. FIRREA allows the Justice Department to pursue civil remedies.

Compliance Policy

Airlines Face Carbon Verdict on $708 Billion Industry

Nations from the U.S. to Russia and the European Union are set for the final showdown over the first-ever global commitment to designing an emissions-reduction market tool for the $708 billion airline industry.

Negotiators from more than 190 countries in the United Nations’ International Civil Aviation Organization will decide at a meeting starting today whether to back a pledge on a market-based measure for the sector, which is responsible for about 2 percent of greenhouse gases globally. Details of the program, a precedent for a single industry worldwide, would be decided in 2016 and the market would start by 2020.

In exchange, the EU would narrow down the scope of the world’s biggest emissions-trading system, limiting carbon curbs on carriers to its own airspace and cutting compliance costs for airlines including Delta Air Lines Inc. and OAO Aeroflot. That would help avoid tensions with non-EU nations and a trade war with China.

Support for the draft ICAO agreement “should not be taken for granted,” according to a note sent by the EU’s regulatory arm to governments. The draft resolution is a good basis for discussion, according to a State Department official, who asked not to be identified, quoting policy. Countries including Brazil, Russia, India, China, Cuba and Saudi Arabia are against national or regional carbon markets before a global deal is enacted, according to the EU note.

It is crucial for Europe to win ICAO approval for the continuation of the bloc’s carbon program in its own airspace.

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Compliance Action

Monte Paschi Seen Boosting Cost Goals to Meet EU Demands

Banca Monte dei Paschi di Siena SpA, the bailed-out bank embroiled in a fraud probe, may approve tougher cost-cutting measures to win European regulators’ support for state aid and attract new investors.

Monte Paschi’s board will meet today to revise its reorganization plan, which may include more asset sales, branch closings and savings than originally announced. The bank needs to comply with the European antitrust regulator’s requirements for a 4.1 billion-euro ($5.5 billion) bailout this year.

Undisclosed losses from financings carried out in previous years forced Chief Executive Officer Fabrizio Viola, 55, and Chairman Alessandro Profumo, 56, to seek additional state aid and prompted demands from regulators for a deeper reorganization of the world’s oldest bank. The pair, appointed last year to turn the company around, must convince investors they can meet the goal, which includes luring buyers to a 2.5 billion-euro stock sale over the next year, an amount that’s similar to Paschi’s current market value.

Civil and criminal trials related to the hidden losses, first reported by Bloomberg News in January, start in London and Siena this week.

Monte Paschi agreed with authorities earlier this month to more than double the amount of capital it must raise to repay state aid. The European Union resisted Italy’s original bailout blueprint and insisted in recent months on changes. In a July letter sent to Italian Finance Minister Fabrizio Saccomanni, the regulator recommended executive pay caps, lower costs and cutting Italian sovereign-debt holdings and trading activities.

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Fake Online Review Firms Reach Settlement With New York

More than a dozen firms that produce fake online reviews of businesses agreed to stop the practice under a settlement with New York Attorney General Eric T. Schneiderman, who called the scam “Astroturfing.”

The attorney general’s office said yesterday that 19 companies involved in producing bogus reviews will also pay $350,000 in penalties. An undercover probe dubbed “Operation Clean Turf” turned up evidence that the companies were paid by local businesses to flood the Internet with comments on websites including Yelp, Google Local and CitySearch, the office said.

“‘Astroturfing’ is the 21st century’s version of false advertising, and prosecutors have many tools at their disposal to put an end to it,” Schneiderman said in a statement.

The companies were also accused of violating state laws against deceptive business practices. Online reviews can have a dramatic effect on local businesses, University of California, Berkeley economists found in a 2011 study.

The companies subject to yesterday’s settlement offered to provide fake reviews by freelance writers from places including the Philippines, Bangladesh and Eastern Europe, the office said.

Somalia Asks Barclays to Review Closing Money-Transfer Account

Somali Prime Minister Abdi Farah Shirdon Saaid asked Barclays Plc to reconsider its decision to close the accounts of the nation’s money-transfer services.

Shirdon wrote in the letter to Barclays Chief Executive Officer Antony Jenkins yesterday that the decision will affect millions of Somalis for whom the remittances from overseas are “absolutely vital” to sustain their families.

Barclays said in May it would close the account Dahabshiil Holdings Ltd. uses to send money back to Somalia, citing the lack of “strong anti-laundering governance structures.” That date was moved from July 10 to Aug. 12 and then to Sept. 30, after British lawmakers lobbied the London-based lender.

The Central Bank of Somalia estimates that remittances account for 60 percent of the Horn of Africa nation’s foreign-exchange earnings. The appeal by Shirdon comes as at least 69 people were killed in a shopping mall in the Kenyan capital Nairobi by al-Qaeda-linked gunmen from Al-Shabaab, the Somali Islamist militant group. While acknowledging Barclays’s “legitimate concerns” over money-laundering and terrorism, Shirdon said the bank’s decision will exacerbate the situation “by damaging Somali economic activity and forcing unemployed youth” into consorting with al-Qaeda-linked groups.

Barclays said it has been engaging with the British government and the remittance industry over its provision of banking services and has provided customers with additional time to find alternatives.

“As a global bank, we must comply with the rules and regulations in all the jurisdictions in which we operate,” Barclays said in an e-mailed statement yesterday. “We remain happy to serve companies who, in our opinion, have sufficiently strong anti-financial crime controls and who meet our amended eligibility criteria.”

Barclays said of the four remittance companies for Somalia it had asked to find another bank, at least one had already done so.

Automakers’ Lending Practices Probed by U.S. Agencies for Bias

The Consumer Financial Protection Bureau and the Department of Justice are examining the lending operations of major auto manufacturers for possible discrimination in lending, according to regulatory filings and three people briefed on the inquiry.

Toyota Motor Credit Corp., a financing arm of Japan’s Toyota Motor Corp., said in a Sept. 13 regulatory filing that the CFPB and Justice sought information from it “and other auto finance providers” about pricing practices for loans that the company funds for auto dealers.

If the agencies find that Toyota violated the Equal Credit Opportunity Act, a 1974 law barring discrimination in lending, the company could face unspecified legal action, it said.

American Honda Finance Corp., a unit of Honda Motor Co. Ltd, reported the same request, and added that enforcement action is possible. “Although neither the CFPB nor the U.S. Department of Justice has alleged any wrongdoing on our part, we cannot predict the outcome of the inquiry,” Honda said in an Aug. 19 regulatory filing.

As many as five other auto lenders affiliated with manufacturers have received similar requests for data that may be related to the borrowers’ racial background, according to the people, who spoke on condition of anonymity.

Sam Gilford, a spokesman for the CFPB, and Dena Iverson, a spokeswoman for Justice, declined to comment.

In March, the consumer bureau cautioned banks under its supervision that they face enforcement action if they fund discriminatory vehicle loans made by dealers. The warning drew extensive criticism from auto dealers, who were explicitly carved out of the 2010 Dodd-Frank law that created CFPB.

GM Agrees to Buy Back $3.2 Billion of Trust Preferred Shares

General Motors Co. agreed to purchase almost half of the United Auto Workers retiree health care trust’s preferred shares in the automaker for $3.2 billion while Moody’s Investors service raised GM to investment grade.

The UAW trust deal is contingent upon GM closing an offering of senior unsecured notes that it was expected to start yesterday, the Detroit-based automaker said in a statement. The preferred shares deal, along with U.S. and Canadian governments’ efforts to reduce their stakes in the automaker, marks the latest step in unwinding ownerships stakes that resulted from the 2009 bailout of GM.

The trust currently holds 260 million of the shares. The Voluntary Employee Beneficiary Association, known as VEBA, acquired the shares as part of the 2009 bailout.

The U.S. Treasury Department has reduced its stake in the automaker to 7.3 percent as part of a program to sell all of its shares as soon as this year. The Treasury’s stake is down from 32 percent in December. The U.S. said last week in a report it had recovered $35.4 billion of $51 billion invested in GM. With the remaining stake worth about $3.8 billion, the U.S. would probably lose about $11.8 billion.

Canada is also looking to exit its ownership in GM.

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SAC Said to Seek Settlement of U.S. Insider-Trading Cases

Lawyers for hedge fund SAC Capital Advisors LP reached out to prosecutors in New York last week to say that founder Steven Cohen is interested in settling the civil case against him and criminal charges against his company, according to people familiar with the matter.

The settlement of the criminal case against the firm would probably involve a substantial fine, the people said, and the current number being discussed is close to $1 billion. One of the factors being considered in determining financial penalties is the desire to punish Cohen personally without damaging other parties, such as his investors, one of the people said.

Cohen, 57, has denied the charges and said he and his firm behaved appropriately. Through a spokesman, Cohen declined to comment for this story.

The SEC has also filed a civil administrative proceeding against Cohen, accusing him of failing to supervise two senior SAC employees who engaged in insider trading. One of the potential remedies in that case, which has been put on hold pending the criminal proceedings, is a bar from the securities industry.

The SEC previously reached a settlement with SAC for more than $600 million over some of the trades.

Two related criminal cases of SAC portfolio manager Michael Steinberg portfolio manager Mathew Martoma are scheduled to begin, separately, in November.

TD Bank Agrees to Pay $52.5 Million Over Ponzi Scheme Accounts

Toronto-Dominion Bank’s U.S. unit will pay $52.5 million to settle regulatory claims related to accounts held by a Florida man who is serving a 50-year prison sentence for running a Ponzi scheme.

TD Bank, a subsidiary of Canada’s second-biggest lender by assets, will pay the Securities and Exchange Commission $15 million and the Office of the Comptroller of the Currency $37.5 million to resolve complaints stemming from its ties to Scott Rothstein’s fraud, according to statements from the two agencies yesterday.

Frank Spinosa, a former TD Bank regional vice president who was sued by the SEC, falsely represented to investors in 2009 that the lender had restricted the movement of funds in accounts held by Rothstein, whose fraud unraveled later that year, regulators said.

Samuel Rabin Jr., an attorney for Spinosa, declined immediate comment. A phone call to Ali Duncan Martin, a spokeswoman for the bank, wasn’t immediately returned.

Commerzbank Settles With Employee Fired for Suing Deutsche Bank

Commerzbank AG settled a lawsuit filed by an employee it fired after discovering she had sued her previous employer, Deutsche Bank AG, for sexual discrimination.

While neither side released terms of the settlement following a four-hour closed appeal hearing in London yesterday, Latifa Bouabdillah had been seeking as much as 13 million pounds ($21 million) in the case.

Bouabdillah, Commerzbank’s former head of product engineering, was fired in 2012 when managers read a Bloomberg News story about the Deutsche Bank case. Judge Alexandra Davidson in an April ruling against the bank said Commerzbank “had a knee-jerk reaction to the information” about the lawsuit.

Commerzbank has been plagued by legal disputes with its U.K. employees. In May, the bank accepted defeat in a four-year court battle with 104 bankers at its Dresdner unit who said their bonuses were cut illegally.

A statement released by both sides after the court hearing yesterday said that Frankfurt-based Commerzbank would drop its appeal and Bouabdillah would withdraw her complaint.

Commerzbank spokeswoman Margarita Thiel declined to comment when reached by phone. Harini Iyengar, a lawyer for Bouabdillah, declined to comment after the hearing.

Ally Says Santander Stole Trade Secrets for Chrysler Finance Job

A joint venture of a Banco Santander SA unit and Chrysler Group LLC was accused in a lawsuit by Ally Financial Inc. of violating a copyright on loan forms to avoid a $150 million accounting penalty.

Ally, the Detroit-based auto lender, sued Santander Consumer USA Inc. in federal court in Detroit, claiming copyright infringement and misappropriation of trade secrets. Santander took “a short cut” rather than developing a “comprehensive, foundational auto finance platform” to service the Chrysler dealerships and consumers,’’ Ally said in the complaint filed Sept. 13 in federal court in Detroit.

Chrysler Capital, which began operating May 1, finances car and light-truck purchases and provides dealers with wholesale loans for buying vehicles from the manufacturer. Chrysler allowed its agreement with Ally to expire at the end of April.

Michael Palese, a Chrysler Group spokesman, declined to comment on the lawsuit. Laurie Kight, a spokeswoman for Santander Consumer USA, didn’t immediately return a voice-mail message yesterday seeking comment on the complaint.

The case is Ally Financial Inc. v. Santander Consumer USA Inc., 13-cv-13929, U.S. District Court, Eastern District of Michigan (Detroit).

Comings and Goings

New York Life Fires Private-Equity Loan CEO, Promotes Wade

New York Life Insurance Co., the largest U.S. life insurer owned by policyholders, fired Trevor Clark, the chief executive officer of the Madison Capital Funding LLC unit, for violating policies tied to personal investments.

Hugh Wade, 52, a co-founder of Madison Capital, was named acting CEO, the New York-based insurer said yesterday in an e-mailed statement. New York Life also fired Christopher Williams, a senior managing director at the unit, the insurer said.

The dismissals, effective yesterday, were for “violating company policies pertaining to personal investments and personal business activities,” William Werfelman, a New York Life spokesman, said in the statement. “Our company’s rules are strict with regard to these disclosures and activities so we can continue to maintain the highest integrity and performance.”

Clark and Williams had been suspended amid a company probe, a person familiar with the matter said last week. Attempts to reach the men weren’t immediately successful through phone numbers and e-mails obtained in a public-records search.

The men in 2001 helped found Chicago-based Madison Capital, which provides financing to private-equity firms, according to New York Life’s website.

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