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Among the far-flung feeder funds, brokerage houses and institutions interconnected in the vast Ponzi scheme perpetuated by Bernard L. Madoff, one little-known local bank is now in the spotlight, the New York Times DealBook blog reported yesterday. Westport National Bank and its parent company, Connecticut Community Bank, is a basic community bank. It has one main office and nine affiliated branches, all within a small radius stretching from Fairfield to Greenwich, Conn. But to more than 200 individual investors, it was the bank that should have stood sentry over their money. A lawsuit brought by investors who lost a combined $60 million in the Madoff Ponzi scheme seeks to show that the bank failed at its job as the custodial bank in charge of their money.

SAC Capital Advisors LP founder Steven Cohen will remain under federal investigation even if prosecutors miss a late July deadline for charging him in the largest insider-trading case in history, Bloomberg News reported yesterday. Cohen probably won’t face charges over July 2008 trades triggered by his then-portfolio manager Mathew Martoma. Martoma is accused of recommending that SAC sell shares of two drug companies, based on an illegal inside tip he received. The five-year statute of limitations deadline for prosecutors to bring charges against Cohen for a series of trades sparked by Martoma’s tip expires July 29 at the latest. Cohen, whose Stamford, Conn.-based firm manages $15 billion, isn’t out of the woods legally should Martoma not say he has evidence against his former boss or investigators not find something incriminating by the end of the month.

Residential Capital LLC, the mortgage lending unit of U.S. government-owned Ally Financial Inc., has filed a bankruptcy reorganization plan that calls for unsecured creditors to recover 36.3 cents on the dollar, Reuters reported on Friday. ResCap described the payout in a disclosure statement filed in bankruptcy court. Unsecured creditors would recover roughly $779 million of the $2.15 billion they are owed, and junior secured noteholders would recover the $2.22 billion they are owed, the filing said. Paulson & Co., the hedge fund firm run by billionaire John Paulson, is among the larger unsecured creditors. It is unclear what the firm paid for its claims. The proposed payouts are based on a May 13 global settlement among ResCap, Ally and various creditors, some of which blamed both entities for ResCap's bankruptcy.

Hedge fund firm Perry Capital LLC sued the U.S. Treasury Department claiming the government’s seizure of all profits from Fannie Mae and Freddie Mac is illegal and has destroyed shareholders’ holdings, Bloomberg News reported yesterday. Perry Capital, which seeks to represent investment funds in the litigation, said that it wants to stop the U.S. Treasury from enforcing a so-called third amendment to preferred stock purchase agreements, according to court papers. Perry Capital and hedge funds including Paulson & Co. have been lobbying Congress to consider allowing Fannie Mae and Freddie Mac to become independent again. Republican and Democratic lawmakers, along with President Barack Obama, have called for both mortgage finance companies to be liquidated, with the U.S. Treasury forecasting to collect more than $200 billion of profit from the agencies over the next decade.

U.S. prosecutors have concluded that they don't have enough evidence against hedge-fund billionaire Steven A. Cohen to file criminal insider-trading charges against him before a July deadline, the Wall Street Journal reported today. Investigators probing the biggest alleged insider-trading scheme in history have been eyeing the Cohen and his namesake SAC Capital Advisors LP hedge-fund firm for a decade, suspicious that some of its trading profits were too good to be legitimate. Prosecutors filed criminal charges last November against a portfolio manager at an SAC affiliate who was close to Cohen—and kept trying to work their way to the top. But this month's deadline is likely to come and go without any action against Cohen. The deadline is tied to a five-year statute of limitations to file criminal charges related to his trading activity with the portfolio manager, Mathew Martoma.

Fitch Ratings said that U.S. banks, spurred by a federal regulatory change, will be encouraged to buy the riskiest pieces of a type of structured credit product or exit the investments altogether, Bloomberg News reported on Wednesday. JPMorgan Chase & Co. and Wells Fargo & Co. are among the biggest investors in collateralized loan obligations (CLOs), which bundle speculative-grade loans into securities of varying risk. Since April 1, the Federal Deposit Insurance Corp.’s method for calculating premiums has assigned a higher cost to all CLO investments, from the safest to the riskiest. Banks are grappling with the change in how the FDIC calculates their deposit insurance premiums, funds that are used to repay account holders if a lender fails. Banks that choose to keep investing in CLOs may stick to the riskier slices instead of the AAA-rated portions because they offer greater returns, Fitch said in a statement.

Customers of MF Global's failed broker-dealer unit and the trustee overseeing its liquidation won court approval on Wednesday for a $546 million settlement with JPMorgan Chase & Co., Reuters reported. The settlement, announced in March, resolved claims levied by James Giddens, the trustee winding down MF's broker-dealer unit MF Global Inc., and by the broker's former customers, who are pursuing a federal class action over MF Global's collapse in 2011. MF Global, the commodities brokerage headed by ex-New Jersey Governor Jon Corzine, filed for bankruptcy amid concerns by investors about its exposure to $6.3 billion in sovereign debt. Approval of the JPMorgan settlement comes a week after the Commodity Futures Trading Commission sued Corzine over the collapse and announced a $100 million settlement with MF's broker-dealer.

Wall Street lobbyists, seeking to delay a July 12 deadline for rules that would rein in lucrative trading by banks overseas, pressed their case before the Commodity Futures Trading Commission (CFTC), the New York Times DealBook blog reported yesterday. While chairman CFTC Gary Gensler is looking to go forward with the deadline, a few of his colleagues are still fighting his plan to extend the agency’s reach beyond American borders, an issue that emerged during the 2008 financial crisis. Mark Wetjen, a Democratic CFTC commissioner recently called the deadline “arbitrary.” As the deadline nears, the plan to regulate trading by American banks in London and beyond has set off a dispute at the agency. During the financial crisis, trades by the American International Group in London nearly brought the insurance giant and its Wall Street clients to their knees. JPMorgan Chase’s $6 billion trading loss at a London unit last year further highlighted how risk-taking can come crashing back to American shores. The blowups spurred a federal crackdown on the $700 trillion marketplace for financial contracts known as derivatives—contracts that derive their value from an underlying asset like a bond or an interest rate. Even today, banks continue to book much of their derivatives trading overseas. Wall Street’s biggest banks, regulators say, have more than 2,000 legal entities spread internationally.

HSBC Holdings Plc’s $1.9 billion agreement with the U.S. to resolve charges it enabled Latin American drug cartels to launder billions of dollars was approved by a federal judge, Bloomberg News reported yesterday. U.S. District Judge John Gleeson in Brooklyn, New York, signed off on July 1 on a deferred-prosecution agreement, a critical component of the London-based bank’s settlement. The order was filed more than six months after the government announced reaching an accord with the bank. Both sides argued that Judge Gleeson didn’t have the power to approve or reject the terms they came to, the judge said in his order. “A pending criminal case is not window dressing” Judge Gleeson wrote. “Nor is the court, to borrow a famous phrase, a potted plant. By placing a criminal matter on the docket of a federal court, the parties have subjected their DPA to the legitimate exercise of the court’s authority.”

Big U.S. banks are working behind the scenes to ease tensions with a new federal consumer regulator whose approach to policing the financial sector has triggered industry criticism, the Wall Street Journal reported today. Top compliance executives from more than 20 banks, including Bank of America Corp. and Citigroup Inc., have met privately in recent months with senior officials from the Consumer Financial Protection Bureau (CFPB) to convey their concerns, including that companies weren't getting much credit for cooperating with investigations. Last week, the CFPB gave the industry some relief when it published "responsible conduct" guidelines detailing how financial firms can help with the agency's investigations in exchange for smaller penalties. Later in the week, the CFPB rewarded the cooperation of U.S. Bancorp by not fining the Minneapolis bank in an auto-lending settlement. The bank didn't admit or deny wrongdoing.