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Regulators have stepped up their scrutiny of the booming bond markets, launching an inquiry into Wall Street banks' trading profits and expanding a probe into how new offerings are doled out to investors, the Wall Street Journal reported today. The Financial Industry Regulatory Authority (Finra), a Wall Street self-regulator, is taking a broad look at the trading profits of banks and other middlemen in some bond transactions. Finra is crunching through reams of trading data, looking for instances in which the middlemen have earned unusually large profits on bond deals, officials said. The inquiry could lead to a regulatory instruction to the banks to reduce the spreads between buying and selling prices they charge on certain trades, or even to enforcement action.

Bonds of Energy Future Holdings Corp.’s regulated unit jumped 9 cents on the dollar this week as the power producer negotiates a pre-arranged bankruptcy plan with its creditors, Bloomberg News reported yesterday. Energy Future Intermediate Holding’s $1.57 billion of 11.25 percent notes due December 2018 rose 1.94 cents on the dollar to 81.6 cents at 11 a.m. in New York, according to prices compiled by Bloomberg. Those bonds were quoted at 72.4 cents April 4. A plan is being discussed by Energy Future’s owners, the company’s management and holders of the electricity provider’s $45.6 billion of debt. The proposal would reduce the amount of time it takes to restructure in chapter 11, limit the chaos of a free-for-all filing and allow the company to avoid a tax bill that could exceed $7 billion.

SAC Capital Advisors LP’s landmark $1.8 billion settlement of a U.S. government insider-trading probe stretching back to 2007 was approved by a federal judge, bringing to an end the hedge fund’s role as a money manager and capping a decade of insider-trading cases, Bloomberg News reported yesterday. SAC Capital, which this week changed its name to Point72 Asset Management LP, pleaded guilty to reaping hundreds of millions of dollars in illegal profits and fostering a culture of criminality that encouraged brazen insider trading by its employees. Though never able to charge or even sue founder Steven A. Cohen, the government managed to snare eight current or former employees through guilty pleas and trial convictions. Cohen, who has consistently denied wrongdoing, is the subject of an administrative proceeding by the Securities and Exchange Commission, which claims the billionaire failed to supervise employees to ensure they complied with securities laws.

Allstate Corp. and Bank of America Corp.’s Merrill Lynch unit agreed to end a lawsuit by the insurer over $167 million in mortgage-backed securities as the second-largest U.S. lender continues to resolve litigation tied to the financial crisis, Bloomberg News reported yesterday. The parties agreed to end the suit, filed in New York State Supreme Court in Manhattan in March 2011, according to a court filing dated yesterday. Terms weren’t revealed. Allstate, based in Northbrook, Ill., accused Merrill Lynch of selling it mortgage bonds that were riskier than promised.

Moody’s Investors Service Inc. says that the California Public Employees Retirement System can’t blame it for almost $800 million in losses on top-rated investments that later collapsed because its assessments are opinions and not guarantees or facts, Bloomberg News reported yesterday. Moody’s and McGraw Hill Financial Inc.’s Standard & Poor’s unit accuse CalPERS, the largest U.S. pension fund, of trying to shift responsibility for losses that occurred after it outsourced investment decisions to money managers who put $1.3 billion into three vehicles backed by subprime mortgages in 2006 and 2007. The investments crumbled amid the housing crisis. CalPERS sued the ratings companies in 2009.

The biggest U.S. bank holding companies will need to round up as much as $68 billion more in loss-absorbing capital under supplemental leverage ratio rules adopted by regulators yesterday, Bloomberg News reported. Eight lenders, including JPMorgan Chase & Co. and Bank of America Corp., face greater restrictions on borrowing power than their overseas competitors as they meet a demand to hold capital equal to at least 5 percent of total assets. The rules designed to curtail financial-system risk surpass the 3 percent minimum set in a global agreement by the Basel Committee on Banking Supervision. The leverage rule, which also affects Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley, Bank of New York Mellon Corp. and State Street Corp., is meant to work alongside risk-based capital standards approved by U.S. regulators last year and a pending rule that would require banks to keep a high level of ready-to-sell assets to weather a crisis. The rule was approved by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.

Citigroup Inc. agreed to pay $1.13 billion to settle claims from mortgage-bond investors as it seeks to curb liabilities tied to the financial crisis, Bloomberg News reported yesterday. The 68 securitization trusts covered by the settlement issued a combined $59.4 billion in mortgage-backed securities from 2005 to 2008, the New York-based bank said yesterday. The agreement covers 18 investors represented by Gibbs & Bruns LLP and trustees have until June 30 to accept the deal, the law firm said in a separate statement. The accord must be approved by the Federal Housing Finance Agency. Citigroup, the third-biggest U.S. bank, is resolving a portion of liabilities tied to mortgages it packaged and sold to investors in the run-up to the 2008 crisis. JPMorgan Chase & Co. and Bank of America Corp., the two largest U.S. lenders, previously agreed to multibillion-dollar settlements with Gibbs & Bruns clients.

Reports on the death of community banks have been exaggerated, according to a new regulatory study that suggests small U.S. firms are plugging along despite explosive growth by large banks, the Wall Street Journal reported today. The Federal Deposit Insurance Corp. found there are more banks with assets between $100 million and $1 billion today than there were in 1985, according to a study to be released Wednesday. That's despite the plummeting total count of U.S. banks, from more than 18,000 in 1985 to less than 7,000 today. Most of that decline can be attributed to banks under $100 million. But the study also found that — more often than not — community lenders giving up their charters have been purchased by other banks with similar business models, suggesting local lenders are growing slightly larger rather than disappearing altogether.

A lawsuit has been unsealed accusing OneWest Bank FSB, a lender once known as IndyMac Bancorp Inc., of causing the U.S. government to improperly pay out $206 million under a federal program to help struggling homeowners avoid foreclosure, Reuters reported yesterday. According to a whistleblower complaint made public yesterday, OneWest violated the 2009 Home Affordable Modification Program (HAMP) by routinely tacking on thousands of dollars of debt to borrowers' principal balances, without providing required disclosures of terms such as payment amounts, interest rates, finance charges and late payment policies. The complaint said that OneWest would "virtually always" loan new amounts of principal, averaging $17,000 per contract, and fail to itemize as required under the federal Truth in Lending Act, making it impossible to tell whether the sums were proper. As a result, the lawsuit says the government paid $206 million of incentives under HAMP to help homeowners avoid foreclosure because of OneWest's false statements, including $58.3 million to OneWest.

SAC Capital Advisors LP’s plea agreement to pay a $900 million penalty should be accepted, U.S. prosecutors told a judge as they seek the biggest criminal fine ever imposed for insider trading following a six-year probe of the firm, Bloomberg News reported on Friday. U.S. Attorney Preet Bharara’s office on Thursday asked U.S. District Judge Laura Taylor Swain to approve the agreement as part of a record $1.8 billion settlement that also calls for the hedge fund to close its investment advisory business. Judge Swain is set to decide April 10 whether she will accept the guilty plea and sentence the Stamford, Connecticut-based firm founded by billionaire Steven A. Cohen.