The U.S. government and MetLife Inc announced yesterday that they would jointly seek to dismiss an appeal over whether the insurance company should face stricter oversight as a key part of the financial system. MetLife and the Financial Stability Oversight Council (FSOC), a top federal panel of financial regulators, filed a joint motion to dismiss an earlier FSOC appeal, the company announced in a statement. Backers of tougher rules established after the 2007-2009 financial crisis insist allowing regulators to identify specific firms for stricter scrutiny as key cogs of the financial system is a critical tool. But conservative critics argued the FSOC applied the power in an inconsistent and opaque fashion. In November, the Treasury Department recommended the FSOC shift away from singling out specific companies, and instead focus on broader risks facing the financial system.
New York Governor Andrew Cuomo announced plans yesterday to target a tax break for investment fund managers in his state, Bloomberg News reported. The proposal would impose a 17 percent “Fairness Fix” tax on hedge fund and private equity managers’ compensation — reflecting the difference between a 20 percent federal rate that such earnings often qualify for and the top 37 percent rate it would face if it were treated as ordinary income, according to Abbey Fashouer, a Cuomo spokeswoman. The “fix” would apply to those managers working in New York state, including those living outside the state, according to a statement from Cuomo. The statement says the change “could raise $1.1 billion annually.” The measure would take effect only if Connecticut, New Jersey, Massachusetts and Pennsylvania enact similar legislation, according to the statement.
A Colorado pension fund is suing Canada’s top six banks and three other lenders for allegedly manipulating a key Canadian lending rate, the Wall Street Journal reported. The Fire & Pension Association of Colorado filed the lawsuit in U.S. District Court in Manhattan on Friday and alleged that the banks engaged in an “unlawful conspiracy” to boost their derivatives trading businesses by manipulating the Canadian dealer offered rate (CDOR) between 2007 and 2014. The lawsuit names Canada’s largest banks, Bank of Montreal, the Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank, along with Bank of America Merrill Lynch, Deutsche Bank AG and HSBC Holdings PLC. The CDOR is a benchmark rate that aims to reflect the cost of borrowing funds in Canada and is used to calculate interest on several financial instruments, including interest-rate swaps, forward contracts and other derivatives. It is calculated each business day by Thomson Reuters based on submissions from banks of rates at which they would be willing to lend. In the lawsuit, the Colorado pension fund noted that BofA, Deutsche Bank and HSBC “have collectively paid approximately $4.4 billion in fines to multiple government regulators for manipulating at least 11 benchmarks...” The suit alleges that their attempts to suppress CDOR are “part of a broader pattern of price fixing and collusion intended to benefit defendants’ trading businesses at the expense of investors.”
Goldman Sachs Group Inc. plans to lend $4 million to bankrupt Real Industry Inc. and to eventually spend about $10 million to buy common stock in the publicly traded company, which is sitting on almost $1 billion in potential tax benefits, WSJ Pro Bankruptcy reported. Real Industry filed for chapter 11 in November with $913.5 million in net operating losses — potentially valuable because they can be used to offset future earnings — and said that it needs the Goldman Sachs loan to stay afloat in bankruptcy, including to preserve the value of those tax deductions. The Beachwood, Ohio-based holding company, which acquires undervalued businesses and takes advantage of net operating losses, said it has no access to the $365 million in financing that its operating unit, aluminum recycler Real Alloy, had in hand from Bank of America and others when it, too, filed for bankruptcy in November.
The Securities and Exchange Commission is accelerating work on its own version of the “fiduciary rule,” a regulation issued by the Labor Department that put restraints on brokers handling retirement accounts, the Wall Street Journal reported. The SEC’s effort would affect all brokerage accounts — not just those for retirement funds — and could ban brokers from calling themselves financial advisers unless they accept a strict duty of loyalty to clients. The SEC hopes to vote to propose its rules by the second quarter of 2018, according to people familiar with the matter. That would be a first step toward creating consistent federal standards for all brokerage accounts, since the Labor Department’s rules only covered 401(k)s and individual retirement accounts, or IRAs.
The Securities and Exchange Commission has added its voice to a call from creditors to appoint a bankruptcy trustee for Woodbridge Group, a real-estate firm that raised more than $1 billion from investors in what regulators are calling a Ponzi scheme, WSJ Pro Bankruptcy reported. A judge could say as early as Jan. 10 who will run the embattled company: the restructuring team chosen by departed chief executive and accused Ponzi mastermind Robert Shapiro, or a court-appointed trustee. The company opposes appointing a trustee. “We believe the time-tested Chapter 11 process, paired with the business expertise of the new independent management team, best protects the interests of creditors, offers them a voice in the process and will maximize recovery,” Woodbridge said in a statement. The company filed for bankruptcy protection Dec. 4, shortly after Shapiro handed the reins to a restructuring team, and shortly before the SEC closed in.
A New York federal judge absolved financier Lynn Tilton of a $1 billion racketeering lawsuit brought by managers of the Zohar investment funds who want her ousted from some troubled companies she has been running, WSJ Pro Bankruptcy reported. The Friday ruling by U.S. District Judge William H. Pauley III in New York dispensed with part of a legal campaign being waged by the Zohar collateralized loan obligation funds and their manager Alvarez & Marsal against Tilton, their founder. The funds, dubbed Zohar I, II and III, accused Tilton of pillaging money from their investors and the underlying portfolio of distressed companies under her control. The judge’s decision found those allegations to be outside the scope of federal racketeering law, which he said doesn’t allow for claims surrounding the purchase or sale of securities.
Archview Investment Group LP became the latest distressed-debt hedge fund to close its doors, Bloomberg News reported. The firm founded by former heads of Citigroup Inc.’s distressed-debt team will start returning money to investors after the end of the year, the people said, asking not to be identified because the information isn’t public. Archview, which counts Blackstone Group LP among its bigger investors, posted gains of 5.3 percent this year with assets of about $650 million, one of the people said. Jeff Jacob, one of Archview’s founders, will be joining Marathon Asset Management LP, where he’ll co-head the $14 billion hedge-fund firm’s opportunistic credit strategies.