Cobalt Wells Notice, FCA CoCos, Oil Futures: Compliance

Cobalt International Energy Inc. fell more than 10 percent after the global oil producer reported that a government corruption investigation into its Angola operations may lead to an enforcement action.

Cobalt, based in Houston, received a Wells notice from the U.S. Securities and Exchange Commission alleging violations of certain securities laws, the company said yesterday in a filing. The notice is part of an investigation dating to 2011 examining whether Cobalt may have violated the Foreign Corrupt Practices Act in Angola, one of its biggest regions for investment and exploration.

The company said it’s cooperating with the SEC and believes its activities in Angola have complied with all laws.

Cobalt Chairman Joseph Bryant declined to give specifics about the SEC’s allegations during a conference call with analysts yesterday, while saying they were directed at the company, not individuals.

“We understand due diligence,” Bryant said. “We have gone above and beyond in every case and we sit here today confident in our position.”

Compliance Policy

U.K.’s FCA to Restrict Sale of CoCos to Individual Investors

The U.K.’s Financial Conduct Authority will ban firms from selling contingent convertible bonds to individual investors, saying they’re too complex and risky for the mass retail market.

From Oct. 1, the FCA will limit sales of CoCos to institutional and professional investors and high-net-worth individuals for 12 months, the regulator said in a statement. The FCA will publish a consultation paper on a set of permanent rules for CoCos in September.

Under pressure from regulators to boost capital after the financial crisis of 2008, banks have been selling CoCos, a form of fixed-income security that automatically converts into ordinary shares if a firm’s capital falls below a predetermined level.


Citigroup Judge Warns of No Oversight While Approving SEC Accord

Citigroup Inc.’s $285 million mortgage-securities pact with the U.S. Securities and Exchange Commission was approved by U.S. District Judge Jed Rakoff in New York, whose earlier rejection of the accord was assailed by a federal appeals court.

Rakoff voiced his fear in a three-page opinion yesterday that the appeals court’s ruling means regulators’ future legal settlements “will in practice be subject to no meaningful oversight whatsoever.”

His decision resolves SEC claims the bank misled investors in a $1 billion financial product linked to risky mortgages, costing investors more than $600 million. In June, the federal appeals court in Manhattan called Rakoff’s 2011 rejection of the deal an “abuse of discretion” and returned the settlement to him for reconsideration.

“That court has now fixed the menu, leaving this court with nothing but sour grapes,” Rakoff wrote.

The settlement stems from SEC allegations that Citigroup structured and sold collateralized debt obligations in 2007 without telling investors that it helped pick about half the underlying assets, and that it was betting they would decline in value by taking a short position.

In 2011, Rakoff criticized the SEC’s practice of agreeing to accords that don’t require defendants to admit wrongdoing. He said the parties didn’t provide him with facts to determine whether the settlement was fair.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment on Rakoff’s latest decision.

The case is Securities and Exchange Commission v. Citigroup Global Markets Inc., 1:11-cv-07387, U.S. District Court for the Southern District of New York (Manhattan).

Parnon, Arcadia to Pay $13 Million in CFTC’s Price-Rigging Suit

Parnon Energy Inc., an oil logistics company, and the London-based oil trader Arcadia Petroleum Ltd. agreed to pay $13 million to settle a U.S. regulator’s claims they manipulated oil futures prices.

Parnon Energy will face limitations on its physical market trading for three years under the deal, the U.S. Commodity Futures Trading Commission said in a statement.

The accord, filed Aug. 4 in federal court in Manhattan, follows an unsuccessful attempt to dismiss the suit in 2011. The agency contended that the companies illegally made more than $50 million in 2008 by trading derivatives tied to the price of West Texas Intermediate crude.

“Beyond the terms of the order, my only comment on behalf of the defendants is that we are pleased to have resolved this matter with the CFTC,” Paul Adams, Parnon Energy’s chief executive officer, said Aug. 4 in an e-mail.

Parnon Energy, based in Rancho Santa Fe, California, and Arcadia Petroleum, are subsidiaries of Farahead Holdings Ltd., a closely held company based in Cyprus, according to Adams.

The case is U.S. Commodity Futures Trading Commission v. Parnon Energy Inc., 11-03543, U.S. District Court, Southern District of New York (Manhattan).


Volume of HFT Firms on IEX Is Misunderstood, CEO Katsuyama Says

Brad Katsuyama, chief executive officer of IEX Group Inc., talked about the volume of high-frequency trading on the company’s platform, saying the percentage is lower than commonly understood. He also addressed issues surrounding IEX’s ambitions to become a full exchange.

“There are a lot of people out there who don’t understand how trades are being executed,” Katsuyama said.

He spoke with Erik Schatzker and Alix Steel on Bloomberg Television’s “Market Makers.”

For the video, click here.

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