Sovereign Bonds, Libyan Fund, HerbaLife Hire: Compliance

The International Monetary Fund is proposing changes to international sovereign bond contracts to help avoid a repeat of the legal battle between Argentina and minority creditors that pushed the country into its second default in 13 years.

The Washington-based IMF recommended modifying a provision known as “pari passu,” a clause that led New York judges to rule that Argentina can’t make payments to holders of its restructured debt as long as it refuses to pay holders of defaulted debt from 2001 in full. The country went into default in July after settlement talks failed.

New terms backed by the IMF would clarify that a country doesn’t need to pay creditors on an equal basis, it said.

Argentina’s legal dispute stems from its record $95 billion default in 2001. While 92 percent of creditors accepted discounts of 70 percent in restructurings in 2005 and 2010, hedge funds sued for better terms, eventually winning a ruling to be paid in full.

The fund also said it will push for more stringent collective action clauses, a system designed to make a debt exchange accepted by a qualified majority of bond holders binding to all.

Courts

First U.K. Guilty Plea Secured From Banker in Libor Case

A senior banker from a leading British bank pleaded guilty to conspiring to manipulate London interbank offered rates in a U.K. court last week.

The individual, who can’t be identified by order of the judge today, is the first to plead guilty in the U.K. Serious Fraud Office’s interest-rate rigging investigation. Twelve have been charged in connection to the U.K. case.

The SFO released a statement today confirming the plea and saying it couldn’t comment further on the matter for legal reasons.

Authorities around the world have been investigating the rigging of interbank offered rates, benchmarks used to calculate more than $300 trillion of securities, including mortgages, credit cards, student loans and other consumer lending products. Two individuals have pleaded guilty this year to Libor-manipulation charges in the U.S.

The first trial for an individual trader in the global probes is set to take place in London next year. The banker who pleaded guilty in the U.K. will be sentenced later.

The guilty plea is a positive development for the SFO, which is fighting critics for its survival after some government ministers tried to combine it with other agencies in 2011. A new government report -- part of a review into British policing of bribery and white-collar crime -- assessing the various U.K. prosecution bodies is expected to be published in the coming months. The SFO said yesterday there’s no indication splitting it up “would be more effective.”

Goldman Sachs Relationship With Libyan Fund ‘Shocked’ Lawyer

A London lawyer who worked at the Libyan Investment Authority in 2008 was “shocked” by the fund’s inappropriate relationship with Goldman Sachs Group Inc., according to the fund’s court documents.

Catherine McDougall, then a lawyer at Allen & Overy LLP who was assigned to work at the fund, said in a witness statement cited at a London court hearing yesterday by a lawyer for LIA, that the line between friendship and arms-length commercial dealings “had clearly been blurred.”

LIA employees told her about a “lavish” trip to Morocco and that “there was heavy drinking and girls involved,” paid for by a Goldman Sachs banker on his company credit card, McDougall said in the witness statement.

Libya’s sovereign wealth fund sued Goldman Sachs for about $1 billion over money-losing investments made in 2008, saying the bank exploited the LIA’s inexperience to sell risky derivatives.

The LIA asked to schedule the lawsuit for a 30-day trial in January 2016.

Fiona Laffan, a spokeswoman for Goldman Sachs in London, didn’t immediately respond to an e-mail seeking comment on the hearing. Goldman said in its court documents that McDougall arrived at the LIA after the disputed trades had been agreed on.

The case is The Libyan Investment Authority v. Goldman Sachs International, case no. 14-310, High Court of Justice, Chancery Division.

Comings and Goings

Herbalife Names Compliance Head Amid Fight With Bill Ackman

Herbalife Ltd., the nutrition company that’s being probed by the Federal Trade Commission over allegations it runs a pyramid scheme, appointed a former official from the agency to the new role of head of compliance.

Pamela Jones Harbour, who served as an FTC commissioner from 2003 to 2010, will lead a global compliance team covering 91 markets, Herbalife said in a statement yesterday. Most recently she was a partner helping head the privacy and data-protection team at BakerHostetler and also was a prosecutor in the New York State attorney general’s office for 12 years.

Herbalife Chief Executive Officer Michael Johnson has made multiple changes in response to a two-year assault by billionaire hedge-fund manager Bill Ackman, who has waged a battle to shut down Herbalife since December 2012, saying it misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices.

U.S. regulators and law enforcement also are investigating the allegations.

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