Nigerian Bourse, Nomura-JFSA, Amazon Taxes: Compliance

The Nigerian Stock Exchange said it plans to ban directors and controlling shareholders from voting in transactions such as takeovers to protect minority investors.

The proposal is part of measures to strengthen corporate governance and will be introduced “as soon as possible,” Tinuade Awe, the head of the Lagos-based exchange’s legal and regulation division, said in an e-mailed response to questions on Nov. 29. The recommendation has been released for public comment and is subject to the approval of the Securities and Exchange Commission, she said.

The NSE is working to strengthen corporate governance as it targets a market capitalization of $1 trillion by 2016 from its current $75.7 billion. Nigeria ranks 139th out of 174 in Transparency International’s Corruption Perceptions Index, where lower scores signal increased graft. The Lagos bourse initiated a corporate governance index of 10 companies this year and plans to extend it to others in 2014, Chief Executive Officer Oscar Onyema said Oct 25.

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Compliance Policy

Germany, Netherlands Urge Limited Backstop for Non-Euro Nations

The European Union is weighing a stripped-down addition to the emergency aid available for non-euro nations, after Germany, the U.K. and the Netherlands opposed adding a financial-sector tool to the rescue program.

EU finance ministers may discuss the 50 billion-euro ($68 billion) balance-of-payments fund at their Dec. 10 meeting, according to a Nov. 25 draft agenda.

Current proposals, published on the EU’s website, call for adding precautionary credit lines to the fund’s toolbox and don’t mention a previously proposed bank recapitalization fund.

If EU ministers approve the current plan, it would give the balance-of-payments fund fewer tools than the European Stability Mechanism, the euro zone’s 500 billion-euro firewall fund. The ESM has the ability to grant financial-sector bailouts, and ministers also are developing guidelines for direct aid to banks, bypassing governments.

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Compliance Action

Sovereign Debt Ratings Fall Short of EU Standards, ESMA Says

The European Union regulator that oversees Moody’s Investors Services, Standard & Poor’s and Fitch Ratings said credit-rating companies aren’t meeting standards when they grade sovereign debt.

Firms failed to keep ratings decisions secret before publishing them, breached guidelines on conflicts of interest and gave too much responsibility to junior staff members when deciding on the creditworthiness of Europe’s governments, the Paris-based European Securities and Markets Authority said in a statement yesterday.

ESMA, which hasn’t fined a credit-rating firm since it was created in 2011, said in March that the methodology the firms used to evaluate EU banks wasn’t accurate.

Moody’s, S&P and Fitch registered with ESMA in 2011, becoming directly supervised by a single EU regulator for the first time. The findings come from a six-month investigation, which may result in fines if the firms don’t improve, ESMA said. The regulator found “several instances” of unauthorized disclosures to third parties.

Spokesmen for the three firms said they are committed to complying with the regulations.

Nomura to Punish Tipsters as Japan FSA Signals End to Crackdown

Nomura Holdings Inc. said employees who leaked insider information on client transactions three years ago will be punished as the regulator signals an end to a crackdown that roiled Japan’s largest brokerage last year.

Nomura will take “strict action” against the two employees who gave confidential data to three asset management firms, Kenji Yamashita, a spokesman in Tokyo, said Dec. 1, without giving details. Japan’s securities watchdog recommended fining the funds, including a unit of Nippon Life Insurance Co., for trading on the tips.

The Financial Services Agency ordered Nomura to improve compliance last year and the bank’s top two executives resigned after staff leaked information on share sales it managed. The scandal prompted the FSA to propose stiffer penalties for tipsters, including prison, to restore confidence in local markets that have rebounded this year.

The findings close the chapter on the regulator’s probe into insider trading connected to public share offerings, an FSA official said at a news briefing Dec. 1, asking not to be named in accordance with the agency’s policy. The FSA ordered Nomura to submit a report by early next month on the effectiveness of measures the firm has implemented since 2012 to prevent further leaks, the official said.

Nomura penalized 17 employees for information leaks last year and will act against the two employees in accordance with its internal rules, Yamashita said.

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SAC’s Cohen Didn’t Know About Source of Dirty Tips, Analyst Says

SAC Capital Advisors LP fund manager Michael Steinberg told the analyst who gave him inside tips on Dell Inc. that the fund’s founder, Steven A. Cohen, wasn’t aware they were obtained illegally.

Steinberg concealed the true source of the tips, Jon Horvath, the former SAC analyst who worked for him, told jurors in the federal insider-trading trial in Manhattan. Horvath said Steinberg told him at SAC’s Sigma Capital Management offices in Midtown Manhattan that he had told Cohen that the trading recommendations were based on “industry contacts” and “supply chain checks.”

Steinberg, 41, who is charged with conspiracy and four counts of securities fraud, is the first of eight current or former SAC employees charged by the U.S. to go to trial. He is accused of earning more than $1.4 million in illegal profits in Dell and Nvidia Corp. by trading on tips Horvath got from a group of friends from 2007 to 2009.

While there’s no evidence Cohen knew the trade was based on nonpublic information obtained by Horvath, Horvath and Steinberg rushed to provide him with information on Dell to ensure he didn’t lose money on the trade, according to Horvath.

Horvath, who pleaded guilty last year to conspiracy and two counts of securities fraud, is scheduled to testify further today. Steinberg, who is charged with conspiracy and four counts of securities fraud, has pleaded not guilty.

Cohen hasn’t been charged with a crime.

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

S&P Says U.S. Fraud Lawsuit Over Ratings Is Too Broad for Trial

McGraw Hill Financial Inc.’s Standard & Poor’s unit said the U.S. government has broadened the securities covered in its fraud lawsuit against the ratings company so that the case would be unmanageable at trial.

The Justice Department has selected 56 residential mortgage-backed securities and 107 collateralized-debt obligations rated by S&P that will form the basis for its claims at trial that S&P defrauded investors, according to a joint filing yesterday in federal court in Santa Ana, California.

U.S. District Judge David Carter has set a Dec. 16 scheduling conference to help determine how big a case the government can bring before a jury and how long both sides will have to get ready for trial.

The Justice Department said in yesterday’s filing that S&P’s contention of overexpansion of the case is “flawed” because it’s neither improper nor unusual for the allegations to involve more securities than the 26 CDOs referred to by name in the complaint.

The case is U.S. v. McGraw-Hill Cos., 13-cv-00779 U.S. District Court, Central District of California (Santa Ana).

Amazon Rejected by U.S. Supreme Court on New York Sales Tax

The U.S. Supreme Court stayed out of the multibillion-dollar fight over Internet sales taxes, leaving intact a New York law that forces Inc. to collect money from customers in that state.

The justices, without comment, yesterday rejected appeals by Amazon and another Internet retailer, Inc., which said New York is violating the Constitution by demanding tax collection from companies that don’t have facilities in the state. New York’s top court upheld the state law.

States lose an estimated $23 billion a year in uncollected sales taxes from web retailers. Although Amazon has agreed to collect taxes in some states as it sets up distribution centers around the country, it has resisted efforts by others to impose sales taxes unilaterally. New York’s measure is among a handful that have been dubbed “Amazon laws” because they affect only the largest online sellers.

Amazon argued in its appeal that the New York law subjects Internet retailers to “significant burdens.” Amazon, the world’s biggest online retailer, now collects taxes in 16 states.

The company supports proposed federal legislation that would let states collect taxes from online retailers with at least $1 million in annual out-of-state sales.

The cases are v. New York State Department of Taxation, 13-252, and v. New York State Department of Taxation, 12-259.


Levitt Says Banks ‘Battling’ Volcker Rule, Dodd-Frank

Arthur Levitt, former Securities and Exchange Commission chairman, said the banking industry is lobbying hard to reduce the impact of regulations. Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

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