The top U.S. derivatives regulator subpoenaed Goldman Sachs Group Inc. and JPMorgan Chase & Co. for documents relating to their warehouses for aluminum and other metals, Bloomberg News reported yesterday. The Commodity Futures Trading Commission has requested documents dating to the start of 2010 about the banks’ commodity warehouses. Glencore Xstrata Plc, which owns warehousing business Pacorini, also received a subpoena. MillerCoors LLC, Encore Wire Corp. and other metal users have complained about long queues and artificially high prices at the warehouses, particularly for copper and aluminum.
The criminal investigation of JPMorgan Chase & Co.’s mortgage-backed securities practice is evidence a U.S. Justice Department task force set up to investigate causes of the financial crisis is finally getting some traction against banks blamed for ruining the economy, Bloomberg News reported yesterday. The probe, disclosed this week in the bank’s quarterly filing, is the latest enforcement effort to emerge from the Residential Mortgage Backed Securities Working Group. It was set up last year on orders of President Barack Obama to coordinate prosecutions of fraudulent underwriting activity by banks that contributed to the financial crisis. In February, as the government’s financial fraud task force started what would become a series of financial crisis-related cases, the Justice Department filed a civil suit against Standard & Poor’s, a ratings company, alleging that the firm committed fraud by blessing a series of mortgage-backed securities with top-quality ratings in 2007. Federal and state investigators alleged S&P should have known that the securities were well below investment grade. The government has asked the firm to repay $5 billion in losses.
SAC Capital Advisors LP and prosecutors asked a federal judge to approve an agreement that would allow the hedge-fund giant to maintain business operations but restrict its ability to move assets elsewhere while facing criminal insider-trading charges, the Wall Street Journal reported today. The terms proposed by SAC and the Manhattan U.S. Attorney’s Office would require the firm to maintain at least 85 percent of the “aggregate value” of assets owned by the firm’s “entity defendants” as of July 1, in exchange for its continuing ability to engage in lawful operations, according to the filings. If the assets fell below the specified level in a given month, it would be required to “replenish” them within five days after the end of that month, according to the filings.
A U.S. appeals court ruled that Wells Fargo & Co. must face lawsuits by home loan borrowers over claims the bank refused to offer them permanent mortgage modifications for which they assert they qualified, Bloomberg News reported yesterday. The federal government’s 2009 Home Affordable Modification Program requires the bank to offer permanent adjustments to homeowners who met the terms of a trial-period modification, a three-judge panel of the U.S. Court of Appeals in San Francisco ruled. Reversing a lower-court dismissal of two separate lawsuits, the panel rejected the conclusion Wells Fargo was only bound if it had actually offered the borrowers a fully-executed copy of a modification agreement. The terms of the trial period plan “cannot convert a purported agreement setting forth clear obligations into a decision left to the unfettered discretion of the loan servicer,” the panel said.
Pacific Investment Management Co. and BlackRock Inc. are among bond investors seeking a court order blocking Richmond, Calif., and Mortgage Resolution Partners LLC from seizing mortgages through eminent domain, saying the initiative would hurt savers and retirees, Bloomberg News reported yesterday. The city’s plan is unconstitutional, according to a complaint filed yesterday by mortgage-bond trustees in federal court in San Francisco. The trustees, Wells Fargo & Co. and Deutsche Bank AG, were directed to take the action by investors in the debt that also include Jeffrey Gundlach’s DoubleLine Capital LP, said John Ertman, a partner at Ropes & Gray LLP. The plan advanced last month with Richmond backing offers to buy 624 loans, making it the first city to push the idea so far forward. Those offers would need to be refused before the city could follow through with its mayor’s vow to invoke its potential powers to force sales of the mostly non-delinquent loans, so that homeowners could get their debt balances cut to less than the current values of their properties. The program would harm owners of mortgage bonds by paying them too little for loans, as well as damage communities by drying up lending, at least 18 trade groups representing asset managers, bankers, real-estate firms and builders have said in past statements. Costs to investors could exceed $200 million just on loans in Richmond, according to the complaint.
The money-laundering complaint U.S. Attorney Preet Bharara filed against Steven Cohen’s SAC Capital Advisors LP raised the prospect that the hedge fund’s $14 billion in assets may be subject to forfeiture, Bloomberg News reported yesterday. Bharara seeks forfeiture of “all right, title and interest” in all of SAC’s assets should he prove his money-laundering case. Rulings interpreting the statute, however, suggest a less drastic outcome is possible for the Stamford, Connecticut-based hedge fund and Cohen, its founder. Bharara wouldn’t say exactly how much he wanted to recover when he announced the lawsuit and SAC’s parallel indictment for insider trading last week. The law underlying the civil case states that any property involved in money-laundering activities, or traceable to them, can be forfeited. Judges have approved forfeiture of illegal profits from a crime plus money derived from those profits, including appropriate interest, according to lawyers who have dealt with the money-laundering law. Bharara said that criminal conduct at the fund had resulted in “hundreds of millions of dollars of illegal profits.”
Regulators are taking a closer look at whether high-frequency trading firms might represent a threat to the stability of financial markets, the New York Times DealBook blog reported yesterday. The Financial Industry Regulatory Authority (FINRA), an industry-financed regulator, sent letters to 10 high-speed trading firms this week, asking them for more information about their trading programs and the steps they have in place to avert “market disruptions.” The letter sent out this week is focused primarily on the steps the firms take to test their programs, or algorithms, before they begin trading with them, and the preparations they take to deal with unexpected trading problems. Regulators have been focused on these issues since one trading firm, Knight Capital, lost nearly $500 million, and nearly went bankrupt, after its trading programs went haywire last August.
Barclays Plc and four former traders must pay a combined $487.9 million in fines and penalties, the U.S. Federal Energy Regulatory Commission said in an order tied to an investigation of alleged manipulation of energy markets, Bloomberg News reported yesterday. The agency directed the company and traders to pay $453 million in civil penalties to the U.S. Treasury within 30 days, according to the order issued yesterday. The London-based bank also must surrender $34.9 million in profits, to be distributed to programs that help low-income homeowners pay energy bills in California, Arizona, Oregon and Washington, the FERC said.
U.S. stock-market regulators approved a plan for new rules requiring private trading venues such as "dark pools" to disclose and detail trading activity on their platforms, the Wall Street Journal reported on Saturday. The move would give market authorities their clearest view yet into private markets that claim a growing slice of daily stock dealing and would help police potentially abusive trading practices, according to regulators. The Financial Industry Regulatory Authority's (FINRA) staff are expected to propose the new regulations in the coming weeks, and the Securities and Exchange Commission will need to approve them. The report came after the Washington, D.C.-based regulator's board of governors earlier in the day approved plans for rules that will require alternative trading systems like dark pools to report trading activity on a stock-by-stock basis to FINRA each week, which will be published on a FINRA website.
The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors, Bloomberg News reported yesterday. The eight largest firms, including JPMorgan Chase & Co. and Morgan Stanley, would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed yesterday. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply. The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say that this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.
