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While private equity firms often operate like such broker-dealer firms as Morgan Stanley or Goldman Sachs, they are not uniformly subject to the same Securities and Exchange Commission regulations aimed at reining in excesses and requiring that the advice they provide is appropriate, according to a New York Times analysis today. Nor has the SEC clamped down on buyout firms for marketing private equity funds to endowments, pension funds and wealthy investors. These activities, too, are usually the purview of broker-dealers. “There appears to be growing confusion among private equity firms, the legal community and perhaps even among SEC staff as to conduct by private equity firms and their consultants and employees that subjects them to broker-dealer registration requirements,” said Marlon Q. Paz, a partner at the Locke Lord law firm and a former senior SEC official, who has advised his private equity clients to become broker-dealers. How the agency resolves this issue could have costly implications for private equity firms that have collected billions of dollars in fees without registering as broker-dealers. Clearer rules, too, would cast a spotlight on potential conflicts of interest inherent in private equity deal-making. And documents show that investors in many private equity firms’ funds may not be receiving a complete picture of the risks posed by the firms’ financial advice.

Private equity firm KKR & Co. LP said on Friday that its special situations fund would lead an investment of more than $680 million in Preferred Sands, keeping one of North America's largest producers of sand for oil and gas producers in business, Reuters reported on Saturday. Headquartered in Radnor, Pa., privately held Preferred Sands produces and distributes frac sand and proppant materials used predominantly in oil and gas shale drilling. Its network of mines have the capacity to produce more than 9 billion pounds of sand every year. Preferred Sands tapped restructuring advisors last September after it failed to make timely payments on its bank loans, according to Moody's Investors Service Inc. The ratings service has attributed the company's woes to competition in the frac sand industry, its lack of high-quality sand reserves, and a less developed logistical network relative to its major rivals. KKR said that it had agreed to refinance the company through equity and debt of more than $680 million. A new first lien credit facility has been underwritten by KKR's capital markets arm and investment bank Jefferies Group LLC.

Dollar Tree Inc. agreed to acquire Family Dollar Stores Inc. in a cash-and-stock deal that values the struggling discount retailer at about $8.5 billion, the Wall Street Journal reported today. The agreement, which provides Family Dollar with a roughly 23 percent premium over the company's closing stock price on Friday, comes as activist investor Carl Icahn has been pushing for a sale of Family Dollar and threatening to replace the discount retailer's board. Icahn has amassed a nearly 9.4 percent stake in Family Dollar, according to a recent regulatory filing. Dollar stores have been altering their merchandise lineups to hang on to customers they gained during the recession, as well as to continue to attract those struggling in the current economic environment. The retailers also are facing growing competition from Wal-Mart Stores Inc., which is opening smaller locations.

CitiMortgage is suing two Chicago bankers, Steve and John Calk, alleging that a mortgage bank that the brothers once operated had provided inaccurate residential loan underwriting documents, The St. Louis Post-Dispatch reported on Monday. O’Fallon, Mo.-based CitiMortgage is seeking more than $4.5 million in damages in its breach-of-contract lawsuit, which was filed in U.S. District Court in St. Louis Monday. Since 2004, CitiMortgage has purchased 4,790 loans from Chicago Bancorp, which was once one of the largest privately held retail mortgage banks in the country before it was dissolved in 2012, according to court documents. Eighteen loans Chicago Bancorp sold to CitiMortgage over the last decade contained inaccurate information or material misrepresentations that included misrepresenting a borrower’s income, employment or debt, according to the lawsuit. The new lawsuit isn’t the first time the parties have litigated over home loans. CitiMortgage sued Chicago Bancorp, the Calks, the Federal Savings Bank, and National Bancorp Holdings in February 2012 in federal court alleging that 11 loans contained inaccuracies, and CitiMortgage sought more than $2 million in damages in that case.

CIT Group Inc. announced that it has agreed to buy OneWest Bank NA's parent company for $3.4 billion in the largest full-bank acquisition announced since 2012, The Wall Street Journal reported yesterday. CIT’s shares rose 11 percent in afternoon trading as investors cheered the cash-and-stock purchase, which will add deposits, a presence in California retail branch banking and a stable source of funding. The takeover of IMB Holdco LLC, OneWest's parent company, will bump CIT's assets up to $67 billion, making the bank large enough to be considered "systemically important" by regulators. With Tuesday's transaction, CIT will get more deposits and will pick up 73 retail branches in Southern California from OneWest. Following the deal's close, CIT said that the combination of CIT's banking subsidiary and OneWest Bank under the name CIT Bank will have $28 billion in deposits. The takeover is also a major milestone for OneWest, which has virtually come back from the dead. The Pasadena, Calif., bank was formerly IndyMac Bank, which collapsed as customers concerned about its soured mortgages withdrew deposits fast in the summer of 2008.

Barclays and Deutsche Bank helped more than a dozen hedge funds avoid paying more than $6 billion in taxes on securities trades through the use of structured financial products, The Washington Post reported yesterday. The report from the Senate Permanent Subcommittee on Investigations, due to be released today, arrives as the Obama administration is urging lawmakers to take action to stop American companies from reincorporating overseas in order to lower their tax bills, a practice known as tax inversion. The report shows that a number of firms are also relying on Wall Street banks to execute transactions in a way that allows them to circumvent federal taxes. At the heart of the report is the use of “basket options,” derivatives with a payoff that is tied to a pool of assets such as stocks, commodities or securities. The findings of the investigation will be the subject of a Senate panel hearing Tuesday, where senior executives from Barclays and Deutsche Bank are scheduled to testify. According to the report, the options structure also allowed hedge funds to borrow larger amounts of money to trade and exceed the federal leverage limits.

Regulators have closed a small lender in Georgia, bringing U.S. bank failures this year to 13 following 24 closures in all of 2013, The Associated Press reported Friday. The Federal Deposit Insurance Corp. said that it has taken over Eastside Commercial Bank, based in Conyers, Ga. The bank, which operated two branches, had about $169 million in assets and $161.6 million in deposits as of March 31. Community & Southern Bank, based in Atlanta, has agreed to assume all of the failed bank's deposits. The failure of Eastside Commercial Bank is expected to cost the deposit insurance fund $33.9 million.

Credit Suisse Group AG is poised to report its biggest quarterly loss since the collapse of Lehman Brothers Holdings Inc. after being fined $2.6 billion for helping American clients evade taxes, Bloomberg reported yesterday. The bank will post a loss of 701 million Swiss francs ($781 million) on Monday, hurt by a 1.6 billion-franc charge linked to the fine, according to the average estimate of seven analysts surveyed by Bloomberg. By contrast, larger competitor UBS AG may log an 812 million franc quarterly profit next week. Credit Suisse’s loss would be the biggest since the fourth quarter of 2008. Uncertainty surrounding the outcome of the litigation and the bank’s guilty plea to criminal charges slowed the flow of client money into the wealth management unit. Both Zurich-based firms have sought to expand in that area as stiffer regulatory requirements introduced in the wake of Lehman’s collapse erode returns from investment banking. Credit Suisse has fallen 4.9 percent in Zurich trading this year, compared with UBS’s 2.8 percent decline. The Bloomberg European Banks Index fell 2.1 percent during the period.

As the Dodd-Frank Act nears its fourth anniversary, Securities and Exchange Commission Chair Mary Jo White said yesterday that although her agency has done much to implement the controversial law, much more needs to be done, the Wall Street Journal reported today. “In my first year as Chair of the SEC, the Commission has made significant progress in putting to work the tools provided by the Dodd-Frank Act,” White said. The agency has implemented restrictions on the proprietary activities of financial institutions through the Volcker Rule, created a new regulatory framework for municipal advisors and enacted controls on broker-dealers that hold customer assets, she said. Dodd-Frank, which marks its fourth anniversary on Monday, reduced reliance on credit ratings and led to new laws governing previously unregulated derivatives, White said. “We have also advanced significant new standards for the clearing agencies that stand at the center of our financial system,” she said. “And, I expect the Commission will soon implement critical Dodd-Frank Act rules for credit rating agencies and securitization, in addition to finalizing important new rules for money market funds.

Argentina creditors asked a U.S. judge to allow intermediaries to identify restructured debt holders, so the South American nation can seek their waiver of a clause that may scuttle any deal with holders of defaulted bonds, Bloomberg News reported yesterday. While Argentina has said that it’s seeking to negotiate with holdouts, the nation may be constrained by a “rights against future offers” clause that obliges it to extend any improved offer on defaulted bonds to holders of restructured debt. Since restructured debt holders settled for about 30 cents on the dollar, they could cite the clause to demand equal treatment if a better offer is made. Holdouts argued that the move may be a ruse to circumvent the court and pay restructured debt holders. U.S. District Judge Thomas Griesa in Manhattan last month blocked trustee Bank of New York Mellon Corp. from paying restructured bondholders $539 million it got from Argentina. The nation was barred by the judge from making those payments unless it pays defaulted bondholders in full. Judge Griesa set July 22 as the next hearing in the bond battle, when he will rule on motions by both sides just one week before restructured holders must be paid, or Argentina faces its second default in 13 years.
http://www.bloomberg.com/news/2014-07-16/argentine-creditors-seek-names…

In related news, the Wall Street Journal today reported that if Argentinian President Cristina Kirchner opts to settle with two New York hedge funds that have won court-ordered awards of more than $1.5 billion, economists say that it will most certainly lead to additional claims that will cost Argentina's government about $13 billion. Kirchner and her top economic aides have fought against paying out the full value on bonds the hedge funds bought cheap, mostly after Argentina's massive 2001 default. Calling the creditors "vultures" and their demands "extortion," the Argentine government says that paying the hedge funds would open the floodgates to myriad suits costing $120 billion and drive the country into bankruptcy. But economists and former policy makers in Kirchner's government said that while Kirchner is right about Argentina facing a hefty bill, the cost is likely to be far less than what Argentine officials have claimed. And they say that the government could soften the blow by negotiating a payment schedule and offering compensation in bonds. (Subscription required.)
http://online.wsj.com/articles/if-argentina-settles-debt-dispute-more-c…