Discriminatory Lending, B&N, John Thomas CEO: Compliance

Citigroup Inc. and Wells Fargo & Co. were accused of discriminatory mortgage lending by the city of Los Angeles, which seeks damages for reduced property tax revenue and the costs of maintaining foreclosed properties.

The city filed complaints against both banks Dec. 5 in federal court in Los Angeles. Citigroup and Wells Fargo have been engaged in discriminatory lending to minority borrowers since at least 2004, which placed the borrowers in loans they couldn’t afford and caused a high number of foreclosures in minority neighborhoods, Los Angeles said.

Liz Fogarty, a spokeswoman for New York-based Citigroup, said the lawsuit is without merit.

“Citi is proud of our efforts to make sure our lending standards are fair to all of our customers,” Fogarty said in an e-mailed statement. “Citi considers each applicant by the same objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis.”

Tom Goyda, a spokesman for San Francisco-based Wells Fargo, said the accusations are baseless.

“Wells Fargo is deeply disappointed by the city attorney’s decision to file a meritless lawsuit rather than collaborate together to help borrowers and home owners in Los Angeles,” Goyda said in an e-mailed statement. “Wells Fargo has been a part of Southern California for over a century and we are proud of our record as a fair and responsible lender.”

The cases are City of Los Angeles v. Wells Fargo & Co., 13-cv-09007, and City of Los Angeles v. Citigroup Inc., 13-cv-09009, U.S. District Court, Central District of California (Los Angeles).

Compliance Policy

Swiss Authorities Press Banks to Meet U.S. Disclosure Deadline

Swiss authorities are urging banks to quash their doubts and enter a U.S. voluntary disclosure program aimed at uncovering American tax evaders.

The Swiss financial watchdog Finma asked banks to decide by today whether they will join the first stage of the U.S. Justice Department program by applying for non-prosecution agreements by the end of 2013. Swiss Finance Minister Eveline Widmer-Schlumpf is scheduled today to respond to lawmaker complaints that the government failed to resolve the tax dispute in 2 1/2 years of talks with U.S. authorities.

The program, open to about 300 firms that aren’t already part of a U.S. tax probe, has already forced banks to spend millions of dollars on legal and administrative fees to analyze accounts. While the Swiss government has called the measure the best way to avoid indictments, the Justice Department said last month that other U.S. authorities may still be able to impose penalties, prompting some banks to reconsider their participation. The U.S. has said it will continue criminal probes of 14 banks.

Compliance Action

Barnes & Noble Slumps After Disclosing SEC Accounting Probe

Barnes & Noble Inc. tumbled as much as 11 percent after disclosing an investigation by the U.S. Securities and Exchange Commission into its restatement of earnings and a former employee’s allegation of improper accounting.

The New York regional office of the SEC notified the company that it had begun a probe on Oct. 16, according to a filing Dec. 5. Barnes & Noble, the largest U.S. bookstore chain, restated its earnings for the 26 weeks ended Oct. 27, 2012, because of “inadequate controls,” according to the filing.

The company, based in New York, said it’s cooperating with the SEC, including responding to requests for documents.

Mary Ellen Keating, a Barnes & Noble spokeswoman, didn’t immediately respond to a request for further comment.

SEC Questioned Twitter About User Growth Slowdown Before IPO

Twitter Inc., leading up to its Nov. 6 initial public offering, faced questions from the U.S. Securities and Exchange Commission about slowing user growth and whether people were losing interest in viewing ads -- the company’s main source of revenue.

The SEC called for details on how the microblogging website planned to deliver on its promises of fast growth, according to filings released Dec. 6. Though Twitter’s revenue had more than doubled over the past year, increases in users had slowed and there was no clear path to making a profit.

In its response, Twitter said its revenue growth would become increasingly dependent on its current users becoming more engaged -- as measured by how often they view their timelines -- since it expected the addition of new accounts to slow. Algorithms to target ads to users with related interests will be used to make them more effective and valuable to marketers, the San Francisco-based company said.

The SEC also asked for translations of some of Twitter’s lingo, such as its claim of a “virtuous cycle of value creation.” Twitter’s patent policy also was questioned by the SEC.

Twitter still needs to deliver on its business model. Its loss widened to $64.6 million in the September quarter from $21.6 million a year earlier, and it’s unlikely to be profitable until at least 2015, according to the estimates of analysts compiled by Bloomberg.

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J.C. Penney Discloses SEC Inquiry Into Finances, Offering

J.C. Penney Co. disclosed that the U.S. Securities and Exchange Commission asked for information about the retailer’s finances, including a stock sale in September that it’s using to fund an attempted turnaround.

A letter from the SEC on Oct. 7 requested “information regarding the company’s liquidity, cash position, and debt and equity financing, as well as the company’s underwritten public offering of common stock,” Plano, Texas-based J.C. Penney said Dec. 5 in a quarterly filing.

The company said it’s cooperating with the SEC and providing the requested material. On Sept. 26, J.C. Penney announced an offering to sell as much as $932 million of new shares amid a turnaround effort.

J.C. Penney raised the ire of investors when it unveiled the September offering, which diluted them by 38 percent, because earlier that day the company said it was “pleased” with the turnaround. Since then, shareholders have filed several lawsuits related to the matter.

Kristin Hays, a spokeswoman for J.C. Penney, declined to comment.


Ex-Deutsche Bank Trader Gets 7 Years Jail for Taking Bribes

Ma Sin-chi, a former Deutsche Bank AG managing director in Hong Kong, was sentenced to seven years in jail for accepting HK$24.8 million ($3.2 million) in bribes.

Ma accepted the payments in exchange for information on derivative warrants issued by the bank, Hong Kong High Court Judge Patrick Li said. Li also ordered Ma to pay HK$24.8 million to the German lender.

Ma, 39, was convicted by a jury Dec. 6 of four bribery charges. Ha But-yee, 62, one of the investors, was convicted of offering the bribes to Ma, who also served as Deutsche Bank’s chief warrant trader. Ha’s two sons and younger sister were acquitted of involvement in the bribery, which occurred between January 2007 and May 2008.

Ma will appeal his conviction,said his lawyer Adrian Bell, who had argued there was no evidence that Ma provided any confidential or improper information.

Ha, who was sentenced to seven years in jail, will also appeal his conviction, his lawyer Joseph Tse said.

Deutsche Bank Hong Kong spokesman Michael West said the case is a personal matter for Ma, who hasn’t been employed by the bank since January 2012.

The case is Hong Kong SAR v Ma Sin-chi, HCCC323/2012, Hong Kong Court of First Instance.

Comings and Goings

John Thomas CEO Belesis Agrees to Wall Street Ban in SEC Deal

Anastasios “Tommy” Belesis, the founder of John Thomas Financial Inc., agreed to be banned from the securities industry in a settlement with U.S. regulators who had accused him of defrauding investors in two hedge funds.

Belesis, 38, “exercised undisclosed influence” on the funds’ adviser to steer fees to his brokerage, the Securities and Exchange Commission said in an administrative order. The agency barred Belesis from working with brokers or penny-stock offerings and ordered him and John Thomas to pay $500,000 each. InvestmentNews reported on the settlement Dec. 5.

John Thomas still faces allegations of penny-stock fraud by the Financial Industry Regulatory Authority.

Belesis, who was John Thomas’s chief executive officer, didn’t admit or deny the claims and the SEC didn’t find that he engaged in fraud, said Ira Sorkin, his lawyer at Lowenstein Sandler LLP. Belesis can apply for the securities industry ban to be lifted after a year, the SEC said.

Volcker-Rule Critic Raskin to Amplify Consumer Voice at Treasury

Federal Reserve governor Sarah Bloom could be alone in opposition to the Volcker rule when the regulators vote this week on the ban on banks’ proprietary trading.

In 2011 she said the rule wasn’t tough enough. The final version of the rule to be voted on this week is likely to be stricter than the original proposal. Later this month, the Senate may decide whether to confirm her as the Treasury Department’s No. 2 official and its highest-ranking woman ever.

Raskin, a Harvard Law School graduate, has criticized the speculative bets banks make with their own capital as an “activity of low or no real economic value.” As Maryland’s top financial regulator from 2007 to 2010, she took on payday lenders and helped write legislation giving homeowners more time to avoid foreclosure. That record suggests that at Treasury she’ll be hard on the financial industry and protective of consumers.

Raskin, 52, is in line for a job whose responsibilities have varied depending on the priorities of the Treasury secretary. Her resume suggests she will have a role coordinating implementation of the Dodd-Frank Act of 2010.

Raskin declined to be interviewed during the congressional approval process, a Treasury spokeswoman said.

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