Rabobank Libor, 5-Year Bonus Bump, Deloitte: Compliance

Rabobank Groep, the Netherlands’ biggest mortgage lender, will pay about $1 billion to resolve regulators’ claims that it tried to manipulate benchmark interest rates, two people with knowledge of the matter said.

The settlement, which could be announced as soon as next week, will resolve complaints from the U.S. Commodity Futures Trading Commission and Justice Department, the U.K.’s Financial Conduct Authority and Dutch regulators, said the people, who asked not to be identified because the agreement isn’t public.

Rabobank would join financial firms including Barclays Plc and Royal Bank of Scotland Group Plc that have paid a total of about $2.6 billion in penalties over accusations that traders attempted to rig the London interbank offered rate. In December, UBS AG reached a $1.5 billion settlement, the largest to stem from the investigation, with authorities in the U.S., U.K. and Switzerland. Rabobank’s penalty would be the second-biggest.

The firm’s pact would resolve claims related to attempts to manipulate a benchmark rate for Japanese yen, one of the people said. The settlement was delayed because of the U.S. government shutdown this month that limited support staff available to work on the deal, according to the one of the people.

Regulators around the world are examining alleged abuses of financial benchmarks by companies that play a central role in setting them.

Rabobank, a co-operative bank formed in 1898 to lend to Dutch farmers, was fined 150,000 euros ($206,460) in 2010 after Dutch financial-markets regulator AFM found flaws in its interpretation of the rules for home lending advice. The company is the only one of the four biggest Dutch banks that hasn’t needed state aid.

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Compliance Policy

Bankers Waiting Five Years May Get Relief From EU Bonus Cap

Bankers may get some relief from European Union bonus caps if they are willing to wait at least five years to get a portion of their compensation.

How much relief they get from the EU rules that limit banker bonuses to twice fixed salary is more complicated and involves calculations on inflation rates and sovereign debt yields. In brief, the longer bankers defer part of their bonus, the more they can receive on top of the cap.

A maximum of 25 percent of the value of the part of the bonus paid in securities such as debt or equity in the bank can be discounted, allowing bankers to beat the two-to-one cap on bonuses-to-salaries if they are prepared to wait longer than five years, the European Banking Authority said in a report published on its website yesterday.

Regulators have targeted banker pay since the 2008 financial crisis, with the EU adopting the two-to-one cap this year. The EBA has defined anyone earning more than 500,000 euros ($690,000) as a risk-taker subject to the cap. About 35,000 bankers are caught by rules globally, according to the British Bankers’ Association.

Rates of inflation and interest on EU government bonds will be taken into account in calculating the final bonus discount rate incentives to defer pay for longer than five years, as high as 25 percent, the EBA said.

The EBA is seeking industry comments on the proposals through January.

SEC Approves Crowdfunding Plan Allowing Internet Stock Sales

Startups and small businesses could sell ownership stakes in their companies by soliciting investors over the Internet under a proposal advanced by the Securities and Exchange Commission.

The plan would set rules for equity crowdfunding, which lawmakers said would spur growth by easing financing when they mandated it in the 2012 Jumpstart Our Business Startups Act. The rules, which the SEC voted 5-0 to release for public comment yesterday, may boost the nascent crowdfunding movement and help the agency through its backlog of regulations required by the JOBS Act and Dodd-Frank law.

Businesses and startups too small or risky to attract funding from banks or venture capitalists are expected to use equity crowdfunding. Regulators say they tried to address concerns that such fundraising will create a channel for fraud by allowing upstart companies to issue illiquid shares to retail investors.

The SEC’s proposal, open for public comment for 90 days, becomes the second regulation from the JOBS Act advanced under Chairman Mary Jo White. In July the agency approved a rule lifting the ban on advertising for investors outside of a public offering, which eased the ability to market directly to investors considered sophisticated and wealthy enough to understand the risks of investing and withstand a loss.

Crowdfunding has drawn wide interest because it will be open to any investor regardless of their income or net worth. While the proposal contains limits on amounts to be raised and incomes, it doesn’t require businesses or funding portals engaged in crowdfunding to verify compliance with those restrictions. Instead, a crowdfunding portal must ask investors to disclose their income or net worth as a means of determining compliance.

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EU Parliament Seeks Power Over Euro Area’s ESM Firewall Fund

The European Parliament appealed for the right to act as a check on the euro area’s firewall fund, saying rescues of governments and banks need more democratic accountability.

The European Union assembly requested the expanded role over the 500 billion-euro ($689 billion) European Stability Mechanism, the region’s main tool for stemming a debt crisis that forced five nations to seek emergency aid since early 2010. The 28-nation legislature asked the European Commission, the EU’s executive arm, to propose legal changes that would give lawmakers a formal channel for overseeing ESM activities.

The proposal was announced by the 766-seat assembly in a non-binding resolution yesterday in Strasbourg, France.

The call is part of a goal by the EU Parliament, the bloc’s only directly elected institution, to gain greater oversight of decision-making in the 17-nation euro zone as it centralizes economic and financial powers to defend the single currency.

In September, the Parliament reached an agreement with the European Central Bank on access by lawmakers to the minutes of the ECB’s bank-oversight board, clearing an obstacle to the next step in Europe’s planned banking union.

If given a formal role in the oversight of the ESM, the European Parliament would have an equal say with national governments over changes made to the working of the fund. The ESM’s chief, Klaus Regling of Germany, would also become more accountable to the Parliament.

Compliance Action

Deloitte to Pay Record-Matching $2 Million Penalty in PCAOB Case

Deloitte & Touche LLP, one of the global auditors known as the Big Four, agreed to pay a record $2 million penalty for allowing a former partner to continue work under a suspension order.

The firm let a suspended auditor keep working as a salaried director, allowing the unnamed employee to review public-company audits and help develop firm-wide policies, the Public Company Accounting Oversight Board said Oct. 22 in a statement. The civil penalty matches the highest ever imposed by the board, the industry-funded auditing watchdog overseen by the U.S. Securities and Exchange Commission.

Deloitte neither admitted nor denied wrongdoing in the settlement, which also demands it take internal actions to make sure there is no repeat of the situation, the PCAOB said.

“Deloitte took several significant actions to restrict the deployment of this individual,” said Jonathan Gandal, a spokesman for the firm, in an e-mailed statement. “We recognize more could have been done at that time to monitor compliance with the restrictions we put in place. The robust policies and monitoring procedures we have since instituted fully address the issue.”

Ethanol Traders Renew Complaints About Platts Prices Amid Probe

Ethanol traders revived complaints about prices assessed by Platts five months after the energy news and price publisher was raided by European antitrust officials probing potential manipulation in oil markets.

Platts ethanol prices aren’t reflective of the market and changes to its methodology are contributing to price fluctuations and disrupting shipping schedules, some traders said at a forum organized by Platts at its offices in London Oct. 22, which was attended by about 38 people. The publisher, a unit of New York-based McGraw Hill Financial Inc., said its assessments reflect market conditions.

EU antitrust authorities raided the offices of Platts, Statoil ASA, BP Plc, Royal Dutch Shell Plc and Argos Energies in May on allegations of collusion in setting prices of crude, refined products and biofuels. The authorities have yet to announce their findings or charge anyone following the investigations.

Europe’s ethanol market is illiquid, and with a limited number of trades considered in the Platts assessment process, prices don’t reflect fair value, according to the traders.

Changes to the Platts methodology have contributed to large price swings and shipping issues since they came into effect Aug. 1, traders said at the meeting.

Platts said the market is “operating effectively” and no shipping disruptions have been reported. The new guidelines “have not exacerbated or caused volatility in the market, rather we believe any moves in price to be a result of market conditions,” Simon Thorne, Platts’s global editorial director of agriculture and chemicals, said in an e-mailed response to questions.

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LinkedIn to Disclose Details on Mobile, Foreign Businesses

LinkedIn Corp. will start to disclose new details about its mobile and non-U.S. businesses as soon as next week after the Securities and Exchange Commission told the professional network the information was “material” to investors.

LinkedIn, after resisting the SEC’s demands in June, agreed by August to give investors some data related to key areas of prospective growth, according to correspondence between the company and the agency made public yesterday.

There may be tools in place to disclose membership by region in its regulatory filing of third-quarter results due Oct. 29, Mountain View, California-based LinkedIn told the SEC on Aug. 29. Also “in response to the staff’s comment” about the materiality of the data, the company said it expects to be able to report revenue by product in and outside the U.S. in its earnings filing for the quarter ending March 31, 2014.

LinkedIn told the SEC it’s also seeking to “refine” its methodology enough by the March 31 quarter to be able to report mobile unique visitors as a percentage of total unique visitors.

The company currently doesn’t have a reliable way of tracking such users, as there are no industry standards and “mobile engagement across the Internet remains in its infancy,” according to the August letter.

Coincidentally, Silicon Valley-based LinkedIn yesterday held a “mobile day” to promote its growth among such users. Management presentation slides were uploaded into an SEC filing.

The exchange of letters between LinkedIn and the SEC shows how companies in the nascent business of online networks are still learning how to count mobile users and explain to investors why revenue may be lower from mobile or overseas members.

Hani Durzy, a LinkedIn spokesman, declined to comment on the company’s communications with the SEC.

Japan to Inspect Megabanks’ Compliance on Loans, Yomiuri Says

Japan’s Financial Services Agency will inspect as early as this year whether Mizuho, SMBC and Mitsubishi UFJ made loans to crime groups, Yomiuri newspaper reported, without attribution.

The FSA said last month Mizuho failed to take steps to end for more than two years after becoming aware of them.

Singapore in Talks With Foreign Regulators on Currency Rigging

Singapore, Asia’s biggest foreign-exchange center, said it’s in discussions with foreign regulators following probes of currency-rate rigging in the U.S., U.K. and Switzerland.

The Monetary Authority of Singapore “has been in touch with foreign regulators on the issue of alleged manipulation in the WM/Reuters foreign exchange benchmark rates,” the central bank said in an e-mailed statement today in response to queries, saying it stands “ready to assist” in investigations.

Regulators in the U.S., U.K., European Union and Switzerland are probing rigging allegations in the $5.3 trillion global foreign-exchange trading market. Traders at some banks may have pooled information about their positions through instant messages and used client orders to move benchmark currency rates, Bloomberg News reported in June.

Singapore overtook Japan as Asia’s biggest foreign-exchange center after the average daily volume surged 44 percent to $383 billion as of April from the same month in 2010, the city’s central bank said in September, citing a survey by the Bank for International Settlements.

Le-Anne Lim, a spokeswoman at the Competition Commission of Singapore, had said it’s the antitrust regulator’s policy not to comment on whether it’s investigating any case.

The Monetary Authority of Singapore in June censured 20 banks for trying to rig interest rates and currency benchmarks, ordering them to set aside as much as S$12 billion ($9.7 billion) and to boost internal controls. Singapore is also making rigging financial benchmarks a criminal offense.

Courts

Omnicare Agrees to Pay $120 Million to Settle Kickback Claim

Omnicare Inc. agreed to pay $120 million to settle a whistle-blower lawsuit claiming it violated the U.S. anti-kickback law by giving discounts on certain Medicare services to nursing homes.

Donald Gale, a former Omnicare pharmacist, accused the company in the lawsuit of providing the discounts in exchange for referrals of patients with government-reimbursable drug costs. The case, filed in 2010, was set to begin trial next week in federal court in Cleveland.

The company will pay $120 million, plus attorneys’ fees, to settle Gale’s allegations, as well as certain claims raised in another case filed in New Jersey, Omnicare said yesterday in a regulatory filing. The settlement was reached Oct. 22, the company said.

“The company reached an agreement in principle, without admitting liability,” according to the filing. The settlement requires approval from the U.S. Justice Department.

The lawsuit is one of multiple whistle-blower complaints alleging kickback violations against the Covington, Kentucky-based company, which provides drugs to nursing home patients.

The case is U.S. ex rel. Gale v. Omnicare Inc., 10-cv-00127, U.S. District Court, Northern District of Ohio (Cleveland.)

Interviews

Ace Ltd. CEO Says Accounting Change Serves Bunch of Academics

Ace Ltd. Chief Executive Officer Evan Greenberg said the push for new U.S. accounting standards may distract investors from the most useful metrics in gauging insurers’ financial status.

Greenberg said yesterday on a conference call that the changes ultimately benefit “a bunch of academics.”

The Financial Accounting Standards Board proposed in June to revise how insurers measure liabilities as part of a push toward a “converged international standard.” Zurich-based Ace operates in more than 50 nations and counts North America as its largest market.

“The insurance accounting as it stands today has been around a long time and it’s been tested through all kinds of environments, and it’s reasonable,” Greenberg said yesterday. “And I don’t know what kind of problem we’re trying to chase here by making changes.”

Greenberg’s critique was welcomed by Paul Newsome, an analyst with Sandler O’Neill & Partners LP, who said on the call that changes in accounting could create a “train wreck.”

Under the proposed standards, market fluctuations such as changes in interest rates could play a greater role in quantifying book value, a measure of assets minus liabilities, Newsome said in an interview after the call. The approach could amplify negative results and make it harder for regulators to weigh a company’s financial strength, he said.

Greenberg said that operating income is a favored metric among investors even though it doesn’t comply with generally accepted accounting principles. Warren Buffett, whose Berkshire Hathaway Inc. competes with Ace in selling insurance, has also said that accounting conventions provide an incomplete picture of a company’s health.

Comings and Goings

Wells Fargo Elects Ex-Deloitte Partner Quigley to Board

Wells Fargo & Co., the largest U.S. mortgage lender, elected James H. Quigley to its board, bringing total membership to 15.

Quigley, a former partner at Deloitte LLP, will join the board immediately, San Francisco-based Wells Fargo said yesterday in a statement. Quigley, 61, will serve on the audit and examination committee, Wells Fargo said.

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