April 17, 2024

U.S. Subpoenas Goldman in Inquiry of Aluminum Warehouses

The Commodity Futures Trading Commission has issued subpoenas to Goldman and owners of other major warehouses as part of its inquiry into irregularities in the aluminum market that are believed to have cost consumers billions of dollars since 2010.

The subpoenas seek all internal documents, e-mails, correspondence, voice recordings and other records concerning the warehouse operations dating back to January 2010, according to two people familiar with the documents. The subpoenas also demand documents and correspondence regarding the London Metals Exchange, a private trade association that regulates warehousing. The subpoenas indicate that the federal inquiry has 30 “areas of interest.”

Goldman bought Metropolitan International Trade Services, a string of Detroit-area metals warehouses, in 2010 and soon afterward beverage makers and manufacturers began complaining that the company was restricting the outflow of metal, causing lengthy delays in delivery. Those waits, which grew from six weeks in 2010 to around 16 months now, mean higher storage costs for metal owners, who are charged rent by the day.

Because of a quirk in the formula used to set the price of aluminum on the spot market, the delays also increase the prices nearly all manufacturers pay for aluminum even when they buy metal that was not stored in a warehouse.

Industry analysts and beverage makers estimate that long queues cost manufacturers and consumers more than $5 billion.

Federal regulators began examining the metals warehouses last month, after The New York Times reported that Metropolitan had been paying metal owners an incentive to move their aluminum from one warehouse to another, which contributed to the delays.

Michael DuVally, a Goldman spokesman, declined to comment on the subpoenas. But during the last month, Gary D. Cohn, Goldman’s president, has said that the company’s warehouse subsidiary never violated any laws or regulations, moved metal only when its customers requested it and never sought to inflate aluminum prices.

Other major metal warehouses in the United States are owned by Glencore Xstrata and Noble, but it was unclear whether those companies had also received subpoenas.

Dennis W. Holden, a spokesman for the C.F.T.C., declined to comment on the issuance of the subpoenas, which was first reported by Reuters.

The investigation by federal regulators is part of a of a wave of scrutiny Goldman is now under for its dealings in the commodities markets.

Beverage manufacturers and the aluminum sheet supply company Novelis have asked the Justice Department to look into whether the warehouse operations violated antitrust laws, but it is unclear whether a formal inquiry has been started.

Some aluminum owners have filed class-action suits against Goldman. The Federal Reserve is also reviewing whether Goldman and Morgan Stanley have complied with an exemption to the merchant banking law that allows them to own warehouses, refineries, pipelines and other facilities used to store and transport commodities.

Article source: http://www.nytimes.com/2013/08/13/business/us-subpoenas-goldman-in-inquiry-of-aluminum-warehouses.html?partner=rss&emc=rss

DealBook: Former Goldman Trader Surrenders to F.B.I.

The headquarters of Goldman Sachs in New York.Mark Lennihan/Associated PressThe headquarters of Goldman Sachs in Manhattan.

A former Goldman Sachs trader suspected of fabricating huge positions at the bank surrendered to the F.B.I. on Wednesday morning, escalating a case that until now has produced only civil charges.

Matthew Taylor, whose trading caused unexpected losses for Goldman, is expected to plead guilty to fraud, according to a person briefed on the matter. Mr. Taylor, who more recently worked for Morgan Stanley, will likely admit to entering fabricated trades that concealed an $8.3 billion position.

His lawyer, Ross B. Intelisano of Rich, Intelisano Katz, could not be reached immediately for comment on Wednesday. Previously, he has said that Mr. Taylor denies all the charges.

The surrender comes as a surprise development in a case that seemed limited to regulatory actions. Last year, the Commodity Futures Trading Commission accused Mr. Taylor of defrauding Goldman. Mr. Taylor, the agency said, bypassed Goldman’s internal controls and manually entered his “fabricated” futures trades so they did not register on the radar screen of the CME Group, the giant exchange. The trading, which occurred in late 2007, prompted about $120 million in losses for Goldman.

The blowup also created a regulatory headache for the bank. The trading commission last year sanctioned Goldman for failing to supervise Mr. Taylor. In December, Goldman paid $1.5 million to settle the case.

At the time, Goldman noted that the trades had no impact on customer money. “Since these events, we have enhanced our controls,” the bank said, adding that “Taylor admitted his conduct following market close and was subsequently terminated.”

Despite the stain on his record, Mr. Taylor was hired by Morgan Stanley. He has since left the firm.

Article source: http://dealbook.nytimes.com/2013/04/03/former-goldman-trader-surrenders-to-f-b-i/?partner=rss&emc=rss

DealBook: R.B.S. Expects Fine Over Libor Investigation

The Royal Bank of ScotlandJeff J. Mitchell/Getty ImagesThe Royal Bank of Scotland said that it expected to enter into negotiations with authorities soon about a potential settlement .

8:53 a.m. | Updated

LONDON — Royal Bank of Scotland said on Friday that it would probably face financial penalties connected to the broad rate-rigging inquiry, as the British bank reported a net loss in the third quarter of the year.

The bank, which is 81 percent owned by the British government after receiving a bailout during the recent financial crisis, is the latest British firm to unveil legal troubles this week.

On Wednesday, the U.S. Federal Energy Regulatory Commission recommended a $470 million fine against Barclays related to past energy trading activity in the firm’s North American operations. The bank said it would defend itself against the allegations. Barclays and local rival Lloyds Banking Group also disclosed that they had set aside additional money to compensate clients who had been inappropriately sold insurance.

R.B.S.’ legal woes relate to a broad industry investigation into potential rate rigging.

The Commodity Futures Trading Commission, the Department of Justice and other authorities around the world are looking into whether big banks tried to influence key benchmarks, including the London interbank offered rate, or Libor. In June, Barclays agreed to pay $450 million to settle charges that it attempted to manipulate Libor to improve profits and make its financial position look stronger.

R.B.S., which is based in Edinburgh, said on Friday that it expected to enter into negotiations with authorities about a potential settlement in the near future. The firm’s chief executive, Stephen Hester, declined to say when those talks might begin or how big the potential fine could be. Mr. Hester said the that bank would likely make an announcement over the matter before reporting its next earnings on Feb. 28.

“We have to dance to the tune of the relevant regulators,” Mr. Hester said on a conference call with journalists.

R.B.S. faces a broader set of troubles.

On Friday, the bank said it posted a net loss of £1.4 billion, or $2.3 billion, in the three months through Sept. 30 after setting aside more money to compensate customers who were inappropriately sold insurance and taking a charge on its own debt. The bank reported a £1.2 billion net profit in the same period last year after it benefited from a financial gain on its own debt.

Without the adjustments, its pretax profit in the third quarter rose to just over £1 billion, compared with £2 million in the same period last year.

Analysts said R.B.S. had made great strides to reduce its exposure to risky assets and pare back its balance sheet since the financial crisis began. Yet continued weak underlying performance, coupled with expected future losses in the fourth quarter of the year related to one-off charges like a potential Libor fine, remains a concern.

“The management has made good progress,” said Ian Gordon, a banking analyst at Investec Securities in London. “But for me, the bank’s earnings outlook hasn’t improved.”

Royal Bank of Scotland shares fell 1 percent in morning trading in London. Stock in the bank has risen almost 22 percent so far this year.

The British bank said it had made a new provision of £400 million to reimburse clients who were sold payment protection insurance, which covered customers if they were laid off or became ill. Many customers did not know they had been sold the insurance when they took out loans or mortgages. Others have found it difficult to make claims on the policies, which often paid out only small amounts.

In total, the bank said it had now set aside a combined £1.7 billion to compensate customers. Britain’s banks, including Barclays and HSBC, have made total provisions worth almost £11 billion to reimburse clients, and analysts say that figure may rise to £15 billion.

“All of the banks have been guilty of underestimating the response rate,” to payment protection insurance, Bruce Van Saun, chief financial officer of R.B.S., told reporters on Friday.

In an effort to repay the British government’s bailout, the bank has been trying to sell assets and raise additional cash. Last month, the firm earned £787 million through the initial public offering of its insurance unit Direct Line. The bank failed to sell a number of its branches in Britain for around £1.7 billion, however, after Banco Santander of Spain backed out of the deal.

Despite the tough economic conditions across Europe, the bank said pretax profit in its investment banking unit reached £295 million in the third quarter, compared with a £348 million net loss during the same period last year. The bank has been scaling bank its risky trading activities through actions like closing or selling its cash equities unit and spinning off of its advisory business.

The number of employees in the investment banking division fell 5 percent, to 11,900, during the three months through Sept. 30. Earlier this year, the bank said it planned to layoff around 3,500 people in the unit.

The bank’s retail and commercial banking unit continued to suffer from weak consumer confidence related to the European debt crisis. Pretax profit in the division fell 7 percent, to £1.1 billion, during the third quarter.

This post has been revised to reflect the following correction:

Correction: November 2, 2012

An earlier version of the story incorrectly state that Barclays settled over the rate-rigging investigation in July. It settled the matter in June.

Article source: http://dealbook.nytimes.com/2012/11/02/r-b-s-expects-libor-fine-amid-third-quarter-loss/?partner=rss&emc=rss

DealBook: 4 Years After Lehman’s Demise, Regulators Debate Overhaul

Gary Gensler, chairman of the Commodity Futures Trading Commission, has imposed checks on derivatives trading.Andrew Harrer/Bloomberg NewsGary Gensler, chairman of the Commodity Futures Trading Commission, has imposed checks on derivatives trading.

Four years after Wall Street teetered on the brink of collapse, regulators are struggling to rein in foreign risk-taking that imperils American banks.

On Thursday, a member of the Commodity Futures Trading Commission, which regulates the $700 trillion derivatives business, outlined the risks that remain. In a speech to the International Swaps and Derivatives Association, a financial industry trade group, the commissioner, Mark Wetjen, highlighted “the very real danger that risks undertaken abroad can seriously impact the health of financial institutions, and the broader economy, here at home.”

Although the agency has imposed checks on derivatives trading in the United States, just how to crack down on foreign trading is still being debated.

In June, the agency took a first step, introducing a plan to oversee Wall Street banks that ship derivatives trading overseas. The agency’s draft proposal, stemming from the Dodd-Frank financial regulatory law, would apply new derivatives rules to American banks that have foreign units and foreign banks that conduct significant trading in the United States.

Mr. Wetjen, a Democratic commissioner at the C.F.T.C., highlighted the agency’s plan to rein in overseas derivatives trading. But in the speech, delivered on the eve of the four-year anniversary of Lehman Brothers‘ demise, he also sounded a note of skepticism on certain details.

Mark P. Wetjen of the Commodity Futures Trading Commission.Commodity Futures Trading CommissionMark P. Wetjen of the Commodity Futures Trading Commission.

“I continue to have concerns, however, about the clarity, scope, and workability of the proposals in certain areas,” he said.

Gary Gensler, the agency’s Democratic chairman and the architect of the plan, has cited the recent multibillion-dollar trading loss at JPMorgan Chase as a “stark reminder” of how overseas trading can reverberate in the United States.

But the plan is far from a done deal. The agency has spent weeks hashing out internal disputes, and a final decision is not expected until later this year.

Mr. Wetjen is playing a crucial role in the negotiations. A former aide to Harry Reid, the Senate majority leader, he is the newest member of the five-person commission leadership. Mr. Wetjen has sided with his fellow Democrats on every Dodd-Frank rule while positioning himself as a more independent voice from Mr. Gensler.

When the agency was readying the cross-border proposal in June, Mr. Wetjen pushed for more flexibility. He also suggested that the financial industry have additional time to comply.

He reiterated some concerns on Thursday, saying the agency may not have provided sufficient “clarity” about the timing and scope of the plan. “The commission must do better,” he said.

Mr. Wetjen, who has called for the agency to complete the plan as “interpretive guidance” rather than a formal rule-making, also advocated so-called substituted compliance. Under such a plan, banks based overseas can seek an exemption if they face similar rules from foreign regulators.

“In light of the commission’s limited resources, efficient regulation through deference to comparable regulation just makes sense,” he said.

Despite his concerns, Mr. Wetjen underscored his support for the the broader regulatory overhaul, noting that his speech came nearly four years to the day that firms like the American International Group nearly collapsed. Foreign derivatives contracts written by A.I.G., the giant insurance company, which received a $182 billion federal lifeline, brought American firms to their knees.

“Regulation will not prevent every risk from materializing at a financial firm in any given jurisdiction,” he said, while adding that “we must do what we can to prevent such risks from damaging our economy.”

Article source: http://dealbook.nytimes.com/2012/09/13/4-years-after-lehmans-demise-regulators-debate-overhaul/?partner=rss&emc=rss

DealBook: Libor Case Energizes Gensler and the C.F.T.C.

Gary Gensler, the chairman of the Commodity Futures Trading Commission, in his office in Washington.Peter W. Stevenson for The New York TimesGary Gensler, the chairman of the Commodity Futures Trading Commission, in his office in Washington.

Months after he arrived in Washington in 2009, Gary Gensler knew he had a big case.

Huddled around his assistant’s desk with a colleague, Mr. Gensler, then Wall Street’s newest regulator, listened to a taped telephone call of two Barclays employees discussing plans to report false interest rates. When the brief recording ended, Mr. Gensler realized the gravity of the wrongdoing.

“We need to make this case even more of a priority,” he told his colleague at the Commodity Futures Trading Commission, Stephen Obie, who already had been investigating Barclays for more than a year.

The Barclays case has now thrust Mr. Gensler — and his once-obscure agency — into the spotlight.

In June, the commission reached a settlement with Barclays in the rate-manipulation case, which produced the largest fine in the agency’s nearly 40-year history. The deal is expected to be the first of many, as Mr. Gensler’s team leads a global investigation into rate-rigging at more than a dozen big banks.

It is a new role for the agency, the industry’s smallest regulator. For years, it was viewed as the Rodney Dangerfield of the regulatory world, with a light touch and little respect.

When the agency first opened the rate investigation in 2008, some banks dismissed the regulator, telling it to narrow the focus to a particular time period or trading desk. Barclays questioned whether the American regulator had the authority to examine a British bank, according to people with knowledge of the matter.

Now, Wall Street is taking the commission more seriously.

Along with the inquiry into rate manipulation, the agency is playing a central part in several prominent investigations, examining the blowup of MF Global and the multibillion-dollar trading loss at JPMorgan Chase. Mr. Gensler has also aggressively — some say obsessively — pushed the agency to adopt dozens of new rules under the Dodd-Frank law, the financial regulatory overhaul.

“The change is night and day,” said Representative Barney Frank, Democrat of Massachusetts, the co-author of the sweeping law that bears his name.

“It was a toothless agency,” he said, but when “Gary became chairman, he was very aggressive.”

The agency’s revival stems from the wave of new regulation. Dodd-Frank, passed in 2010, greatly expanded the responsibility of the agency, stretching its reach to the dark corners of the $300 trillion derivatives market. Before that, the agency oversaw the $40 trillion futures business.

Mr. Gensler has positioned himself as a chief advocate of the law, initially lobbying lawmakers to close loopholes and now overseeing the flurry of rule-making at his agency. After a long career at Goldman Sachs and a stint in the Wall Street-friendly Clinton administration, the job has given Mr. Gensler a shot at redemption.

But Mr. Gensler and his agency have faced a steep learning curve with the bureaucratic and political ways of Washington.

To win support from fellow regulators, Mr. Gensler has agreed to dial back some rules. And while the agency’s rule-writing has outpaced other financial regulators, the trading commission has missed multiple deadlines for completing the crackdown on derivatives, a central cause of the 2008 crisis.

Mr. Gensler has also drawn the ire of Congressional Republicans, who say his commission is overstepping its authority. Some bankers have taken aim at the agency, saying its rules threaten profits.

“No one likes their regulator right now, however good they are, and Gary is good,” said Eugene Ludwig, head of the Promontory Financial Group and a former bank regulator who knew Mr. Gensler from their days in the Clinton administration.

The new identity of the agency reflects the personal evolution of its leader.

A math whiz who grew up in a working-class Baltimore neighborhood, Mr. Gensler attended the Wharton School at the University of Pennsylvania. After an 18-year career at Goldman Sachs as a mergers and acquisitions banker and later an executive, he joined the Treasury Department.

At the time, the department oversaw the broad deregulation of the same markets Mr. Gensler now oversees. In 2009, some liberal lawmakers stalled Mr. Gensler’s nomination to the commission, fearing that he remained a banker at heart.

Mr. Gensler, a father of three daughters, agrees that he has yet to shake his penchant for deal-making. When negotiating over the wording of a rule, he still props up his socked feet on an employee’s desk, a habit common to bankers. His efforts now, however, are directed at reforming the industry that once made him millions.

“I think what we’re trying to do is bring common-sense rules of the road to this really important marketplace,” he said in an interview.

As Congress debated Dodd-Frank, Mr. Gensler was a ubiquitous presence on Capitol Hill, pressuring lawmakers to beef up the details. The day the law became final, he stayed past 4 a.m. with Blanche Lincoln, then a senator from Arkansas, putting the finishing touches on several provisions.

“I told him that Dodd-Frank was his baby because he labored with it for at least nine months,” said Michael Dunn, a former C.F.T.C. commissioner who works at Patton Boggs.

With the intensity of a longtime banker, Mr. Gensler has pushed his staff to finish the rules promptly. He is an avid reader of the “Dodd-Frank Progress Report,” from the law firm Davis Polk Wardwell, a publication that tracks rule-writing. Once, when he mistakenly thought the publication failed to count a C.F.T.C. rule, Mr. Gensler phoned a lawyer at the firm to request a correction.

A marathon runner and mountain climber, his fixation with speed has made him a brusque taskmaster at times.

Last year, when a small earthquake forced the agency to evacuate its offices, Mr. Gensler arranged a staff meeting at a cafe in the building’s lobby. The employees, he said, could not afford to lose an afternoon of work.

Despite his demanding pace, colleagues say he is quick to compromise. When Scott O’Malia, a Republican commissioner of the agency, urged Mr. Gensler to tweak a complex derivatives rule, they convened the so-called Meiwah summit, referring to the Chinese restaurant in Washington where they completed a deal.

Mr. Gensler has also built relationships with other agencies, as they collaborate on Dodd-Frank. Mr. Gensler was a mock senator when Mary L. Schapiro, the head of the Securities and Exchange Commission, prepared for her confirmation hearing. Ms. Schapiro once baked cupcakes for Mr. Gensler’s birthday.

“Together we can make this the most successful partnership in government,” she wrote in his copy of the Dodd-Frank law.

Even so, some industry players paint Mr. Gensler as a stubborn negotiator with a knack for haranguing Wall Street. He was a co-author of a book, “The Great Mutual Fund Trap,” that criticized the industry in which his twin brother, Robert, works.

And after two Wall Street trade groups sued the agency over a rule curbing speculative trading, Mr. Gensler took a harsh tone with one executive who came to the commission to lobby on the issue. “You sued us, so it’s clear what you think about the rule,” he said, dismissing the executive’s concerns, said a person briefed on the meeting.

Bristling at the sometimes-abrasive approach, Republican lawmakers have fought to freeze or depress the commission’s $205 million budget.

While the figure is a fraction of other regulatory budgets, lawmakers and lobbyists say Mr. Gensler could cut costs by tempering his ambitions.

“I wonder if Mr. Gensler is more focused on building a personal legacy and expanding his agency’s powers than making the economy stronger and safer,” said Steven Lofchie, a partner at the law firm Cadwalader, Wickersham Taft.

Others, however, have praised Mr. Gensler for marshaling resources and stepping up the agency’s game. Mr. Gensler has sharply increased his staff to more than 700 employees. He also hired a former federal prosecutor, David Meister, as the head of enforcement.

The agency, which has previously had big cases against energy companies, brought a record number of enforcement actions last year, notably against Wall Street firms.

“We’ve come into our own as a regulator to be reckoned with, out there doing our best to protect investors and consumers every day,” said Bart Chilton, a Democratic commissioner.

The rate-rigging case is the commission’s biggest investigation yet. The case centers on how banks set a key benchmark, the London interbank offered rate, or Libor, which affects the cost of borrowing for consumers and corporations.

The investigation heated up after Mr. Gensler heard the Barclays recording. As the examination broadened, the agency assigned additional employees to the case, nearly 15 enforcement lawyers, up from three.

Mr. Gensler also championed measures to prevent Barclays from repeating its mistakes. The new controls forced the bank to report rates based on actual transactions when possible and to prevent conflicts of interest.

After more than four years of investigating, the agency filed its action against the bank on June 27. For Mr. Gensler, it was a bittersweet day. While it was the biggest moment in his regulatory career, it also was the sixth anniversary of his wife’s death from breast cancer.

Publicly, he has focused on the win. “It’s about the integrity of the market,” Mr. Gensler said. “This agency stood up for the public and said that rates have to be based on honest figures.”

A version of this article appeared in print on 08/13/2012, on page B1 of the NewYork edition with the headline: Libor Case Energizes a Wall Street Watchdog.

Article source: http://dealbook.nytimes.com/2012/08/12/libor-case-energizes-gensler-and-the-c-f-t-c/?partner=rss&emc=rss

DealBook: Scrutiny Intensifies on Collusion in Rate Manipulation Inquiry

Mervyn King, of the Bank of England, told Parliament he was not informed that Barclays' bankers might be breaking the law.ReutersMervyn King, of the Bank of England, told Parliament he was not informed that Barclays‘ bankers might be breaking the law.

While much of the scrutiny surrounding interest rate manipulation has centered on Barclays, regulators have said that traders at the big British bank colluded with rivals to influence a key benchmark.

As part of a three-year scheme, a senior Barclays trader in Europe worked with counterparts at Crédit Agricole, HSBC, Deutsche Bank and Société Générale, according to people with knowledge of the matter who could not speak publicly because of the investigation. Regulators are examining whether at least one other bank was involved, one of the people said.

In an effort to bolster their profits, the traders collaborated to push interest rates up or down, according to regulatory documents. By doing so, they aimed to eke out extra gains on their trades or limit losses. In its complaint against Barclays, the Commodity Futures Trading Commission described the bank’s trader as having “orchestrated an effort to align trading strategies among traders at multiple banks” to profit on their portfolios.

In June, Barclays paid $450 million to settle its case with the commission, the Justice Department and the Financial Services Authority of Britain. British and American authorities accused the bank of submitting false rates from 2005 through 2009. Regulators have also conducted investigations of others involved in the scheme.

As the rate-manipulation scandal spreads to other banks, the fallout could have major ramifications for the financial industry. Civil and criminal authorities around the world are investigating, and lawmakers in the United States have started their own inquiries. The civil and criminal actions, as well as private lawsuits, could cost the banks tens of billions of dollars.

The Barclays case centers on key benchmarks, including the London interbank offered rate, or Libor, and the Euro interbank offered rate, or Euribor. Such rates are used to determine the borrowing costs for consumers and corporations. The senior trader at Barclays who worked with the four European banks specifically tried to manipulate Euribor, according to regulators.

The Barclays case was the first to emerge from the multiyear investigation, which has also touched some of the biggest banks on Wall Street. Authorities in the United States, Britain, Japan and elsewhere are also looking into the potential involvement of JPMorgan Chase, Citigroup and UBS. The Financial Times previously reported the names of the four European banks that worked with the Barclays trader.

The broad investigation has prompted outrage from lawmakers in Washington and London. In recent weeks, British central bankers and regulators testified to Parliament about their role in the rate-manipulation scandal. In the United States, politicians are asking why regulators did not stop the illegal activities, even though regulators knew about potential problems as far back as 2007.

In 2008, the Federal Reserve Bank of New York suggested changes to the process, after learning that Barclays reported artificially low rates, according to documents. The regulator then shared those recommendations with the Bank of England, the British central bank. But the New York Fed did not end the rate manipulation at Barclays.

Top central bank officials are now signaling a willingness to change the system.

On Wednesday, Mark Carney, the governor of the Bank of Canada, said he and other central bank chiefs would discuss ways of improving Libor, or even replacing it, when they are scheduled to meet on Sept. 17.

“In terms of alternatives, there is an attraction to moving toward, obviously, market-based rates if possible,” Mr. Carney said at a news conference. Mr. Carney currently heads the Financial Stability Board, a body consisting of central banks and finance ministries that was set up in 2009 to coordinate global financial regulation.

Mervyn A. King, governor of the Bank of England, sent a letter on Wednesday to central bank chiefs inviting them to discuss Libor reforms at another meeting scheduled for September. The Bank of England did not respond to a request for comment. Jeremy Harrison, a Bank of Canada spokesman, confirmed the existence of Mr. King’s letter and its purpose.

The United States Congress is also delving into the matter, as lawmakers question why the rate-setting process was not better policed.

Representative Randy Neugebauer, the Republican chairman of the House Financial Services subcommittee investigating Libor, is seeking documents from the New York Fed about JPMorgan Chase, Citigroup and Bank of America, the three American banks involved in setting the rate. Last week, Mr. Neugebauer collected transcripts from at least a dozen phone calls in 2007 and 2008 between New York Fed officials and executives at Barclays.

The House committee has also homed in on Barclays. On Monday, Congressional staff will receive a briefing about Libor from the general counsel of Barclays in America and its chief lobbyist, according to a government official.

Peter Eavis contributed reporting.

Article source: http://dealbook.nytimes.com/2012/07/18/rate-inquiry-focus-turns-to-possible-collusion/?partner=rss&emc=rss

DealBook: Lawmakers Clash on Regulation at JPMorgan Hearing

Jamie Dimon and his regulators visited Capitol Hill on Tuesday for another round of scrutiny for a recent multibillion-dollar trading loss at JPMorgan Chase.

But before Mr. Dimon faced the firing line, lawmakers sparred with each other.

“I am a little surprised by all of the hemming and hawing by my colleagues on the other side of aisle over a private business losing private money when the federal government continues to lose billions of taxpayer dollars every day,” Representative Scott Garrett, Republican of New Jersey, said in an opening statement for the hearing before the House Financial Services Committee.

Michael Capuano, Democrat of Massachusetts, hurled blame at Republicans for introducing legislation to weaken new rules for Wall Street. In a tirade against Republican lawmakers, he argued that JPMorgan’s trading blowup raises broader questions about the safety of Wall Street.

“I’m not outraged by this particular loss,” he said, pushing regulators to say whether other big banks could take on similarly risky bets.

The hearing on Tuesday was the final in a string of inquiries planned for JPMorgan’s loss, which has grown to at least $3 billion. It was also the second opportunity for lawmakers to quiz Mr. Dimon on the losses, which were tied to a soured bet on credit derivatives.

A panel of regulators served as the opening act. In the opening panel, the House committee heard testimony from officials at five federal agencies, including the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and Commodity Futures Trading Commission.

But the comptroller of the currency, Thomas J. Curry, and the general counsel of the Federal Reserve, Scott Alvarez, faced the toughest inquiries. The regulators are under fire for failing to catch the risky trades.

Under questioning from Representative Randy Neugebauer, Republican of Texas, each of the five regulators acknowledged that their agencies were unaware of the losses until media reports emerged in early April.

“I’m wondering how this was missed,” said Representative Shelley Moore Capito, Republican of West Virginia. “Even with the matrix of communication, no one was catching it. Is the communication really working?”

In reply, Mr. Curry explained that “we were initially relying on the information available to the bank.”

Mr. Alzarez concurred. “We have to rely on information we get from the organization itself,” he said. “If that’s flawed,” he added, then regulators will have a problem.

In questioning, the House panel focused mainly a series of new rules that would rein in Wall Street risk-taking. The hearing often devolved into partisan squabbles over the rules, which stem from the Dodd-Frank financial regulatory law.

Democrats who support the overhaul highlighted how new oversight would rein in the risky derivatives trading that prompted the blowup at JPMorgan.

“The question is: Does this not argue against the proposal to deregulate derivatives?” said Representative Barney Frank, the Massachusetts Democrat who co-authored the law. “To me, this is not a hearing about JPMorgan Chase. They are an example of the larger issues.”

While Mr. Dimon has argued that the trading losses have only nicked the bank’s “fortress balance sheet,” Mr. Frank noted that other banks were not healthy. “Some have a picket fence balance sheet or a chain link balance sheet,” said Mr. Frank, the ranking Democrat on the committee.

Mr. Frank and Republicans traded barbs over Dodd-Frank throughout the hearing, with some Republicans blaming the law for allowing trading losses like that at JPMorgan.

“You can see we’re not ready to break into a ‘Kumbaya’,” Spencer Bachus, a Texas Republican and the committee’s chairman, told the regulators in a moment of levity. “Welcome to the serenity of the financial services committee.”

Article source: http://dealbook.nytimes.com/2012/06/19/lawmakers-clash-on-regulation-at-jpmorgan-hearing/?partner=rss&emc=rss

DealBook: Commodity Traders’ Complaint Is to Be Heard by a Lower Court

Wall Street’s legal challenge to a regulatory crackdown met a procedural obstacle last week, when a federal appeals court dismissed the case.

The lawsuit, directed at the Commodity Futures Trading Commission’s new restrictions on speculative trading, will now move to a lower-level court, delaying a decision on the legitimacy of the regulatory overhaul.

At issue is a rule intended to curb speculative commodities trading, which some consumer advocates have blamed for inflating prices at the gas pump and the grocery store.

But Wall Street says the rule will crimp legitimate trading while doing little to subdue volatile energy costs.

In December, the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association filed a lawsuit challenging the so-called position limits rule, which would cap the number of contracts a trader can hold on 28 commodities, including oil and wheat. The influential Wall Street trade groups filed the lawsuits in two federal courts — the United States Court of Appeals for the District of Columbia Circuit and a lower-level district court in Washington.

But the appeals court late Friday said it lacked authority to hear the case.

“There is no express Congressional authorization of direct appellate review applicable to the petition for review in this case,” three appellate court judges said in a two-page order.

The court also rejected a bid by the trade groups to halt the enforcement of the position limits rule while the case winds through the courts. This month, the Commodity Futures Trading Commission also rebuffed a request to stay the rule.

While the appellate court ruling amounts to a symbolic setback for the trade groups, it will not necessarily affect the success of their legal challenge. The appellate court, often seen as friendly turf for corporate America and Wall Street when they skirmish with regulators, may hear the case after the lower court has ruled.

“The court’s ruling is entirely procedural, and was not a decision about the merits of our challenge or of our request for a stay,” Ira Hammerman, the securities association’s general counsel, said in a statement.

But Bart Chilton, a commissioner, said of the case, “The agency took a lot of time and care coming up with a sensible rule that I don’t believe can be successfully challenged.”

The agency’s position limits rule has emerged as one of the most contentious new policies stemming from the Dodd-Frank regulatory overhaul law, passed in response to the financial crisis. The agency was split, 3-2, when it approved the rule in October.

In the suit, the two groups accused the Commodity Futures Trading Commission of failing to adequately assess the economic effects of the rule. They also argued that the agency “grossly misinterpreted” its authority under Dodd-Frank.

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DealBook: Regulator Calls for New Steps After Collapse of MF Global

A Republican regulator on Wednesday called for new measures to restore public confidence in the futures industry after $600 million went missing from MF Global, the bankrupt brokerage firm.

Scott D. O’Malia, a Republican member of the Commodity Futures Trading Commission, said on Wednesday that the agency should revisit certain regulations, enact new transparency measures and keep a closer eye on futures firms to ensure that customer funds are kept separate from company money.

MF Global customers still cannot access much of their money, highlighting the need for a quick regulatory response, Mr. O’Malia said.

“The inability of MF Global customers as a whole to access their funds has affected trading in futures markets, and has shaken public confidence in our customer protection regime,” he said in a statement. “To renew public confidence in segregation and to assure the public that MF Global is an isolated incident, the commission should immediately take action.”

Last week, the commission ordered an audit of every American futures trading firm to verify that customer money was protected. Now Mr. O’Malia wants to go further, saying the agency should create a “random spot check.” If a firm fails to prove that its customer cash is safe, then regulators might sanction the firm, Mr. O’Malia said.

He also said the commission should review its rules that set minimum capital levels for brokerage firms that belong to futures clearinghouses. Earlier this year, MF Global had lobbied the agency to lower the required amount of capital a firm had to hold to become a so-called clearing member.

“Many have said that the failure of MF Global was not systemic and that we are lucky,” Mr. O’Malia said.

“I don’t view it in the same light,” he added. “I am certain that the thousands of individuals who have lost money or can’t get access to their rightful property don’t share that sentiment either.”

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DealBook: As Regulators Pressed Changes, Corzine Pushed Back, and Won

Jon Corzine, a former governor and senator, attended a dinner with his wife, Sharon, at the White House in June. Before MF Global’s collapse, Mr. Corzine was influential in Washington.Manuel Balce Ceneta/Associated PressJon Corzine, a former governor and senator, attended a dinner with his wife, Sharon, at the White House in June. Before MF Global’s collapse, Mr. Corzine was influential in Washington.

Months before MF Global teetered on the brink, federal regulators were seeking to rein in the types of risky trades that contributed to the firm’s collapse. But they faced opposition from an influential opponent: Jon S. Corzine, the head of the then little-known brokerage firm.

As a former United States senator and a former governor of New Jersey, as well as the leader of Goldman Sachs in the 1990s, Mr. Corzine carried significant weight in the worlds of Washington and Wall Street. While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans.

The agency proposing the rule, the Commodity Futures Trading Commission, relented. Wall Street, which has been working to curb many financial regulations, won another battle.

Yet with MF Global in bankruptcy and regulators scrambling to find $630 million in missing customer funds, Mr. Corzine’s effort may come back to haunt him.

The proposed rule would have restricted a complicated transaction that allowed MF Global in essence to borrow money from its own customers. Brokerage firms are allowed to use customers’ money to earn interest, not unlike banks, but this rule would have outlawed using customer funds for a loan to the firm itself.

While such financing is not unknown on Wall Street, it carries substantial risk. An outside lender would require a firm like MF Global to produce strict accounting for a loan. Without that oversight, regulators worried that firms could use such internal customer money inappropriately, including bolstering the business in hard times. The proposed rule would have affected several dozen other financial firms.

Regulators are now examining whether these transactions explain the missing money at MF Global, according to people briefed on the investigation.

The C.F.T.C. has issued subpoenas to MF Global’s auditor, PricewaterhouseCoopers, and the Securities and Exchange Commission is also conducting an inquiry. The Federal Bureau of Investigation is also looking into the missing money, although there is no indication that criminal laws were broken.

Still, Mr. Corzine has hired a prominent criminal defense lawyer, Andrew J. Levander, a partner at Dechert, according to people briefed on the matter.

Mr. Levander represented a number of Wall Street executives after the financial crisis of 2008, including the independent directors of Lehman Brothers and John A. Thain, the former chief executive of Merrill Lynch.

Neither Mr. Corzine nor MF Global has been accused of wrongdoing. MF Global declined to comment and Mr. Corzine did not respond to a request for comment.

Just three months ago, Mr. Corzine’s firm assured regulators that the proposed rule could cripple the futures brokerage industry by hurting their profitability. In a letter, MF Global told regulators that they were trying to “fix something that is not broken,” adding that the firm was not aware of any brokerage firm like itself that was unable to “provide to their customers upon request any segregated funds.”

MF Global’s clients, including hedge funds, individual investors and agricultural firms, now know a different reality, as the clients struggle to locate their missing funds. And regulators are pushing to again move forward on the rule. But for MF Global, the rule will come too late.

The trades at the center of MF Global’s downfall — big bets on the debt of five European countries — may yet prove profitable. But they raise questions about why the firm escalated its risk-taking under Mr. Corzine, leading to a crisis of confidence among rating agencies, creditors and regulators.

As a former sovereign debt trader at Goldman Sachs, Mr. Corzine wagered that the European regulators would backstop any default. So even as dark clouds circled over Europe, he sensed an opportunity. Starting in late 2010, MF Global began to accumulate short-term sovereign debt of countries like Italy, Spain and Portugal.

MF Global financed these purchases through complex transactions known as repurchase agreements. In these, the bonds themselves were used as collateral for a loan to purchase them. The interest paid on that loan was less than the interest the bonds paid out, earning the firm a profit from the spread.

While that practice is quite common, the C.F.T.C. wanted to crack down on such lending in those instances when customer funds were used. The C.F.T.C. proposal would have also banned the use of client funds to buy foreign sovereign debt.

It is unclear whether the firm used client funds to purchase the risky bonds of Italy, Spain, and other debt-laden European nations, but experts say it is not unusual for such transactions to be paid for with customer money.

A person close to MF Global said the firm did not use client funds to finance these trades.

Leading the government’s effort to curtail these arcane practices was Gary Gensler, the chairman of C.F.T.C., who had worked for Mr. Corzine at Goldman Sachs. Mr. Gensler pushed for the proposed change in October 2010, and planned to bring it to a vote this summer.

MF Global has four outside lobbyists in Washington, tiny by Wall Street standards. But it was Mr. Corzine who marshaled the firm’s response to the proposal, lobbying most of the agency’s five commissioners directly. One commissioner said he visited with Mr. Corzine in MF Global’s headquarters, and acknowledged being impressed by the Wall Street titan, said a person with direct knowledge of the meeting who asked for anonymity because the meeting was private.

The C.F.T.C. polices the markets for futures trades. Staff members there often do not have a Wall Street pedigree.

Mr. Corzine’s background in finance made him highly credible, agency officials said.

Mr. Corzine’s efforts culminated on July 20, as the agency was preparing for a vote on the proposal. That day, MF Global executives were on four different calls with the agency’s staff. Mr. Corzine himself was on two of those calls.

One of the calls was with Mr. Gensler. Both men are active Democrats, and served on financial panels together recently.

Shortly after the calls, Mr. Gensler, aware that he could not push the vote through, decided to delay the proposal indefinitely.

But after MF Global’s blowup and the ensuing fallout from the missing funds, regulators said they were considering pushing again on the rule.

“I think it’s time to move ahead — expeditiously — and make that rule tighter, cleaner, and ultimately safer, for customers,” Bart Chilton, a Democratic member of the C.F.T.C., said in a statement.

Mr. Chilton also wants the agency to require firms to produce detailed documentation “to ensure that the funds are really there.”

Internal repurchase agreements emerged on Wall Street in 2005. At the time, the transactions were off limits to banks and brokerage firms. But at the urging of Lehman Brothers, the C.F.T.C. blessed the new approach to getting financing.

In September 2008, Lehman collapsed amid a global financial crisis. It later was disclosed that Lehman’s use of another little-known repurchase agreement allowed it to temporarily obscure billions of dollars in losses.

Michael J. de la Merced, Andrew Ross Sorkin and Peter Lattman contributed reporting.

Article source: http://dealbook.nytimes.com/2011/11/03/as-regulators-pressed-changes-corzine-pushed-back-and-won/?partner=rss&emc=rss