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The probe of SAC Capital Advisors LP, which has led to insider-trading charges against the hedge fund and eight SAC employees, has snared an outside analyst who is accused of giving illegal tips to a former SAC manager, Bloomberg News reported yesterday. SAC Capital, owned by billionaire Steven Cohen, last week was indicted in what prosecutors called an unprecedented insider trading scheme stemming from the government’s six-year crackdown on Wall Street crime. While Cohen wasn’t charged, the U.S. indicted the fund he founded, saying that it had become “a magnet for market cheaters.” The U.S. alleged there had been a “failure by the fund owner and others” at SAC, and described separate insider trading schemes by eight SAC fund managers and analysts, including Noah Freeman, Donald Longueuil, Jon Horvath, Wesley Wang, Mathew Martoma, Richard Choo-Beng Lee, Michael Steinberg and Richard Lee. Steinberg and Martoma have pleaded not guilty and both are scheduled to go to trial in November. The other six have pleaded guilty and are cooperating with the U.S.

American International Group Inc. will return funds to customers at its banking unit and shut their accounts amid a retreat from deposit-taking as the Dodd-Frank Act places limits on insurers, Bloomberg News reported yesterday. AIG Federal Savings Bank “will no longer be servicing retail deposit accounts as of Sept. 30,” according to a letter to customers. “All accounts will be automatically closed as of that date and any funds, including all interest due on your accounts, will be returned.” AIG is joining Principal Financial Group Inc. in narrowing its focus ahead of rules that limit proprietary trading and investments in private-equity or hedge funds by insurers with deposit-taking banks. MetLife Inc., Hartford Financial Services Group Inc. and Allstate Corp. have sold deposits or retreated from banking as regulators increase oversight.

Bank of America Corp., agent for a loan to a failed casino development by Fontainebleau Las Vegas LLC, was sent back to district court to resolve claims that it acted negligently under the loan agreement, Bloomberg News reported yesterday. Bank of America was responsible for paying lenders’ money to Fontainebleau for a project at the north end of the Las Vegas Strip with an initial budget of $2.9 billion. In its July 26 decision, the U.S. Court of Appeals in Atlanta examined whether the bank was right to disburse some funds after the financial crisis began in 2008. The lenders said Bank of America’s payment to Fontainebleau in March 2009, amid a credit crunch spurred by Lehman Brothers Holdings Inc.’s bankruptcy, was “untimely,” as the borrower had failed to disclose anticipated project costs and some lenders had dropped out. They challenged a U.S. district judge’s decision that the bank acted in keeping with its agreements.

Residential Capital LLC’s unsecured creditors’ committee says that a request by dissident bondholders to disqualify “conflicted” attorneys from a fight over interest payments is driven by “a desire to create maximum disruption,” Dow Jones Daily Bankruptcy Review reported today. ResCap creditors said in a court filing on Friday that the company’s junior bondholders stand to be treated well under the company’s creditor payback plan but still want to “threaten the estates with a doomsday scenario.”

U.S. banks’ ownership and trading of physical commodities will face further scrutiny today when the heads of the Commodity Futures Trading Commission and Securities and Exchange Commission testify before the Senate Banking Committee today, Bloomberg News reported today. Sen. Sherrod Brown (D-Ohio), who led a hearing on the issue last week, said that he plans to question the CFTC’s Gary Gensler and the SEC’s Mary Jo White on their oversight when the two chairman appear before the chamber’s Banking Committee on implementation of Dodd-Frank Act reforms. JPMorgan Chase & Co. is among lenders facing political pressure after the Federal Reserve said this month that it will review a decade-old decision letting them trade commodities regarded as complementary to banking. JPMorgan, which was accused yesterday by the Federal Energy Regulatory Commission of manipulating power markets in 2010 and 2011, said on July 26 that it plans to sell or spin off holdings including warehouses, stakes in power plants and traders of gas, power and coal.
http://www.bloomberg.com/news/print/2013-07-29/regulators-face-scrutiny…

To view the prepared hearing testimony from today’s Senate Banking Committee hearing titled “Mitigating Systemic Risk in Financial Markets through Wall Street Reforms,” please click here:
http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hear…

Federal Reserve Chairman Ben S. Bernanke will have to give testimony in a lawsuit against the U.S. brought by Maurice “Hank” Greenberg over the government’s bailout of American International Group Inc., Bloomberg News reported yesterday. Greenberg’s Starr International Co. sued the U.S. for $25 billion in 2011, claiming the assumption of 80 percent of AIG’s stock by the Federal Reserve Bank of New York in September 2008 was an unconstitutional seizure of property that violated shareholders’ rights to due process and equal protection of the law. Switzerland-based Starr contended Bernanke’s role in the transaction made his testimony critical. “The court is persuaded that Mr. Bernanke is a key witness in this case and that his testimony will be highly relevant to the issues presented,” Judge Thomas Wheeler of the U.S. Court of Federal Claims wrote in the ruling yesterday. “Because of Mr. Bernanke’s personal involvement in the decision-making process to bail out AIG, it is improbable that the plaintiff would be able to obtain the same testimony or evidence from other persons or sources.” Judge Wheeler, who said he will attend the deposition to provide judicial oversight, said obtaining testimony from high-level U.S. officials has been a “relatively routine practice” in claims court when the individual has personal knowledge of relevant information.

Lehman Brothers Holdings Inc. said in filings it expects to collect another $3.2 billion from the workout of its derivatives book through 2015, of which $2.3 billion should come in the remainder of 2013, Dow Jones Newswires reported on Saturday. The failed investment banking powerhouse, which filed for bankruptcy in September 2008, is still negotiating with 1,000 of the 6,500 counterparties it had on the original derivatives portfolio, which had a $39 trillion notional value. Since 2008, the firm has recovered more than $15 billion from those derivatives. What remains is a fraction of the original face value, and the counterparties range from large, sophisticated financial institutions and hedge funds to municipalities and nonprofits.

A judge signed off Friday on Residential Capital LLC’s deal with the Federal Reserve Board to set aside $230 million for borrowers who may have had their homes improperly foreclosed upon, Dow Jones Daily Bankruptcy Review reported today. The deal approved by Bankruptcy Judge Martin Glenn replaces a costly and drawn-out review process that sent millions to the professionals investigating the foreclosed loans and little or nothing to most borrowers who may have been wronged.

Steven Cohen used to woo potential investors to his hedge fund, SAC Capital Advisors LP, by promising in marketing materials to give them an “edge,” Bloomberg News reported on Saturday. Now that four-letter word, used 14 times in the insider-trading indictment of the $14 billion hedge fund he founded, has come back to haunt him. In the 41-page indictment filed on July 25, prosecutors alleged that Cohen and his top managers sought to hire traders and analysts who had the ability to deliver any kind of “edge” over the market. The case is U.S. v. SAC Capital Advisors LP, 13-00541, U.S. District Court for the Southern District of New York (Manhattan).

UBS AG, Switzerland’s largest bank, agreed to pay $885 million to Fannie Mae and Freddie Mac to settle claims that it improperly sold them mortgage-backed securities during the housing bubble, Bloomberg News reported yesterday. The Federal Housing Finance Agency claimed Zurich-based UBS misrepresented the quality of loans underlying billions of dollars in residential mortgage-backed securities purchased by Fannie Mae and Freddie Mac. The firms have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency. UBS disclosed earlier this week that it had reached an agreement in principle to settle the suit. The FHFA sued UBS in 2011 over $4.5 billion in residential mortgage-backed securities that UBS sponsored and $1.8 billion of third-party RMBS sold to Fannie Mae and Freddie Mac. The suits alleged losses of at least $1.2 billion plus interest. Fifteen other banks still need to resolve such lawsuits.