Muni-Adviser Curbs, BlackRock Data, Amex: ComplianceCarla Main
U.S. securities regulators are moving to tighten standards governing the conduct of advisers to state and local governments on municipal bonds under a law approved by Congress in 2010.
Draft rules, released yesterday by the Municipal Securities Rulemaking Board, would bar firms from splitting fees with banks, reaping excessive compensation or recommending transactions at odds with clients’ interests.
The regulations, stemming from the Dodd-Frank Act, target companies that guide public officials as they raise money in the $3.7 trillion municipal bond market. The regulations are part of a broader push to protect state and local governments. The rules released yesterday are similar to those initially proposed in 2011 by the Alexandria, Virginia-based board, which later put them on hold until the U.S. Securities and Exchange Commission issued a legal definition establishing which firms would be covered. The SEC completed that step in September.
More than 900 companies providing financial advice to public officials would be covered by the additional regulations, from little-known regional firms to Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to registrations filed with the rulemaking board.
Such firms would be required to disclose conflicts of interest that could color their advice and would be barred from recommending transactions unless there’s a reasonable basis to believe they are in their clients’ best interests, according to the proposed rules.
The board typically revises its rules before submitting them to the Securities and Exchange Commission, which has to approve them before they can take effect. The rulemaking board is seeking public comment until March 10.
BlackRock to End Analyst Queries for Nonpublic Data in N.Y. Pact
BlackRock Inc., the world’s biggest money manager, agreed to end an analyst survey program that New York Attorney General Eric Schneiderman said could be used to execute trades based in part on nonpublic information.
BlackRock agreed to discontinue use of the analyst survey program worldwide. The program was developed by Scientific Active Equities, or SAE, an investment group within Barclays Global Investors, which BlackRock acquired in 2009, according to the agreement reached Jan. 8 with Schneiderman.
Schneiderman’s investigation found that the design of the survey program “allowed it to capture more than previously published analyst views, including nonpublic analyst sentiment that could be used to trade ahead of the market reaction to upcoming analyst reports,” according to the agreement.
BlackRock’s conduct, according to the agreement, violated New York’s Martin Act, an almost century-old law that gives the state’s attorney general broad powers to target financial fraud.
BlackRock agreed to pay the state $400,000 to cover the cost of the investigation, according to the settlement. New York-based BlackRock didn’t admit or deny the attorney general’s findings in the probe, according to a copy of the agreement provided by Schneiderman’s office.
“BlackRock is committed to operating with the highest ethical standards,” Brian Beades, a BlackRock spokesman, said in an e-mailed statement. “This survey was initiated by Barclays Global Investors prior to its acquisition by BlackRock. We have discontinued its use to avoid even the appearance of any impropriety.”
While BlackRock said it only used publicly available information in its surveys, the attorney general said the timing of the surveys and questions included gave it access to nonpublic analyst sentiment. BlackRock also leveraged its size to ensure analysts would respond, according to the agreement.
Schneiderman’s investigation concluded that brokerage firms responded to SAE’s requests while they might have been reluctant to assist retail or other small investors.
Japan Seeks Criminal Probe of Novartis Over Hypertension Drug
Japan’s health ministry filed a complaint with Tokyo prosecutors against Novartis AG, seeking a criminal investigation of the company for possibly breaching advertising rules with its Diovan hypertension drug.
The ministry accused Novartis of exaggerating Diovan’s effectiveness in marketing materials, according to a statement on the agency’s website. Novartis will fully cooperate with Japanese authorities, the Basel, Switzerland-based company said in a statement yesterday.
Novartis promoted Diovan as a treatment for cutting stroke risks without sufficient evidence, a breach that could lead to fines and jail terms, a government panel said in an interim report in September. Diovan is among Novartis’s best sellers with $4.4 billion in 2012 sales.
Some studies finding that the blood-pressure drug also cut the risk of stroke were later disputed.
Ex-SAC’s Martoma Harvard-Expulsion Disclosed as Trial Starts
Nine years before former SAC Capital Advisors LP fund manager Mathew Martoma engaged in what prosecutors claim was “the most lucrative insider trading scheme ever charged,” he was kicked out of Harvard Law School for faking his grades.
Martoma, 39, is charged with conspiracy and securities fraud for allegedly using inside information from two doctors supervising a clinical trial of a drug intended to treat Alzheimer’s disease to make $276 million for SAC in 2008. The jury of seven women and five men was selected yesterday and is scheduled to hear opening statements in the trial today.
U.S. District Judge Paul Gardephe in Manhattan yesterday unsealed court papers revealing a fierce battle by Martoma’s lawyers to keep from jurors and the public information they called “volcanic,” “grossly prejudicial” and intended to “paint Mr. Martoma as a liar in the eyes of the jury.”
Evidence of Martoma’s expulsion makes it unlikely he’ll testify in his own defense, said Glenn Gitomer, a lawyer following the case who isn’t involved in it. And it may weaken the potential threat he poses to SAC founder Steven Cohen, should Martoma decide to cooperate with the government and testify against his former boss.
In November, SAC agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of the government’s investigation of insider trading at the firm. Cohen hasn’t been charged.
The information threatens to unfairly distract attention from Martoma’s defense of the charges against him, said his lawyer, Richard Strassberg.
Gardephe yesterday ordered the court papers unsealed after a failed attempt by Martoma’s lawyers to get the U.S. Court of Appeals in New York to intervene. The papers include records from the Harvard Law School panel that recommended in 1999 that Martoma be expelled.
In December 1998, while at Harvard Law School, he created a phony transcript that inflated his first-year grades. They transcripts were used in applying for a federal clerkship positions, according to the Harvard administrative board’s findings.
Martoma claimed that he created the phony transcript only to make his parents think his grades were better than they actually were and did not intend for the faked transcripts to be sent out for clerkship applications.
In his efforts to remain at Harvard, Martoma hired a lawyer, took two polygraph tests and even submitted a report from a computer forensics firm prosecutors claim he created for the purpose.
During his defense against the Harvard charges, Martoma’s lawyer introduced him to a man named Stephen Chan, whom he said could help with technical issues, according to Strassberg.
Strassberg said Chan proposed they start a computer forensics company together that could help with Martoma’s Harvard appeal.
After leaving Harvard following disciplinary proceedings, Martoma spent a year volunteering, “as a form of personal rehabilitation,” Strassberg said in court papers. Martoma, who attended Harvard under a previous name, later changed his name and attended Stanford University Graduate School of Business.
The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).
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American Express to Appeal $5.7 Billion Settlement on Swipe Fees
American Express Co. said it’s appealing a federal judge’s order approving Visa Inc. and MasterCard Inc.’s $5.7 billion settlement that ended years of litigation with U.S. merchants over allegations that credit-card swipe fees are improperly fixed.
American Express, in a filing Jan. 8 in federal court in Brooklyn, New York, joined other retailers and trade associations that already filed notices of intent to appeal from the decision.
U.S. District Judge John Gleeson approved the accord on Dec. 13, saying he was satisfied with the settlement, which was estimated to be the largest-ever U.S. antitrust accord.
Marina Norville, a spokeswoman for New York-based American Express, had no immediate comment on the appeal.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).
Ablyazov Can Be Extradited on Fraud Charges, French Court Says
Mukhtar Ablyazov, the Kazakh banker at the center of a $6 billion fraud case, can be extradited to Russia and Ukraine to face trial, a French Court ruled yesterday.
An appeals court in the city of Aix-en-Provence gave priority to the Russian extradition request, according to a statement e-mailed by Peter Sahlas, who represents the Ablyazov family. Ablyazov will appeal the decision to the Cour de Cassation in Paris, France’s highest appeals court.
Prosecutors in Ukraine have charged him with perpetrating a $167 million fraud while chairman of Almaty, Kazakhstan-based BTA Bank JSC from 2005 to 2009. The 50-year-old Ablyazov says the charges are politically motivated because he is a long-time critic of Kazakh President Nursultan Nazarbayev.
“French justice joins British justice in recognizing the substance of the fraud and its existence,” Antonin Levy, BTA’s French lawyer, said by phone. The extradition ruling shows that charges against Ablyazov are “justified and credible,” Levy said.
Ablyazov testified in previous hearings in France that Kazakh prosecutors are working with their counterparts in Ukraine and Russia to persecute him because he co-founded a pro-democracy party in Kazakhstan. He said as a dissident he won’t receive a fair trial and may be unlawfully imprisoned or tortured in Ukraine.
‘This court wants to send Ablyazov, a refugee, straight to the very people he should be protected from,’’ Sahlas said in the statement.
Goldman Sachs Denies Singapore Stock Dump, Countersues Quah
A Goldman Sachs Group Inc. unit denied dumping a Singapore private wealth client’s shares it held as collateral and said it’s still owed money.
Quah Su Ling sued Goldman Sachs International in London, accusing it of breach of contract for selling her shares in Blumont Group Ltd., Asiasons Capital Ltd. and LionGold Corp. and depressing their prices. Goldman Sachs International countersued for $12.3 million it says it’s still owed.
Goldman Sachs International sold the shares in an “orderly and measured manner -- consistent with industry practice and accepted standards -- over the course of three weeks,” the bank said in court papers filed in London and made available this week. The lawsuit is Quah’s “attempt to delay or avoid repayment of debt.”
Quah, the chief executive officer of IPCO International Ltd., claimed Goldman Sachs demanded she repay $48 million within 1 1/2 hours on Oct. 2 and started selling her shares without previously informing her of a shortfall.
Edward Naylor, a Hong Kong-based spokesman for Goldman Sachs, declined to comment on the lawsuit. Quah didn’t respond to two e-mails or a call to her office.
The case is Quah Su Ling v Goldman Sachs International. HQ13X05341. High Court of Justice, Queen’s Bench Division.
Kanas Says Bank Valuations ‘Very High’ Right Now
John Kanas, chief executive officer of BankUnited Inc., talked about the impact of new banking regulations on strategy and industry expectations.
Kanas, who spoke with Betty Liu on Bloomberg Television’s “In the Loop,” also discussed the outlook for New York City Mayor Bill de Blasio.
For the video, click here.
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