April 20, 2021

Ex-JPMorgan Employee Arrested Over ‘London Whale’ Charges

The arrest came after the United States charged Spaniard Martin-Artajo and a junior colleague, Frenchman Julien Grout, with wire fraud and conspiracy to falsify books and records related to the trading losses, which were executed by Bruno Iksil.

Iksil, who was nicknamed the “London Whale” for his large bets on derivatives markets, is cooperating with U.S. prosecutors and has not been charged.

Martin-Artajo was released on condition he stays in Spain and checks in regularly with a court. A judicial source said on Tuesday he had told a Spanish court he is unwilling to be sent to the United States to face the charges.

Martin-Artajo, who handed himself in at a Madrid police station after being contacted by police, is accused of trying to inflate the value of trading positions held on his group’s books. The mismarking allegedly took place as the traders tried to hide mounting losses in an illiquid derivatives market, where they had made outsized bets.

Martin-Artajo was Iksil’s supervisor at JP Morgan’s Chief Investment Office in London.

JPMorgan is battling to salvage its corporate image amid a swirl of litigation and investigations in the wake of the financial crisis, including a federal bribery investigation into whether it hired the children of key Chinese officials to help it win business.

The bank’s boss Jamie Dimon attempted to dismiss the London Whale losses as a “tempest in a teapot” but this remark has come back to haunt him.

Martin-Artajo previously said through lawyers that he expects to be cleared of any wrongdoing and that he had cooperated with regulators.

His lawyer in London could not immediately be reached for further comment.

EXTRADITION

Meanwhile Spain’s High Court has taken on his case and will decide whether he should be extradited, although Spain’s cabinet has its say too. The United States has 40 days after his arrest to present its full extradition request to Spanish courts, according to the usual procedure.

Extraditions from Spain to the United States are rare and Madrid has tended to shun requests to send its citizens to be tried there.

“Spain does not extradite its citizens,” a police source said, explaining that it was one of the reasons Martin-Artajo was not directly arrested but asked to present himself to police, after he was found, identified and deemed not to be a flight risk.

But one extradition lawyer who declined to be named said Martin-Artajo’s alleged offence would in principle be considered extraditable, as it is punishable in both countries. Either way, administrative and judicial procedures can take many months.

Martin-Artajo handed himself in to police after they found him and got in touch with him, the authorities said, without detailing where they had tracked him down.

Former JPMorgan colleague Julien Grout, now living in his native France, has not yet been arrested, his lawyer said.

“No, they have not arrested Julien, nor would they because France does not extradite their own citizens,” said Grout’s U.S. lawyer Edward Little at Hughes Hubbard Reed. “We are in discussions with the U.S. prosecutors about how we will proceed, but no decision has been made yet.”

Grout, who reported to Iksil and is the lowest-ranked person so far targeted in the investigation, is in his mid-thirties and is married to an American. His lawyer previously said he had moved to France several months ago and was not fleeing anything.

A source with knowledge of the matter has said Grout would offer to face the charges in the United States on condition he is granted bail. Grout himself declined to answer questions from a Reuters reporter at his parent’s holiday home in southern France earlier this month.

(Additional reporting by Clare Hutchison in London, Catherine Bremer in Paris and Blanca Rodriguez in Madrid; Editing by Louise Heavens and David Holmes)

Article source: http://www.nytimes.com/reuters/2013/08/27/business/27reuters-jpmorgan-whale.html?partner=rss&emc=rss

DealBook: Barclays Vows to Fight Energy Trading Fine

The Federal Energy Regulatory Commission contends that Barclays’ employees made trades that were intended to alter electricity prices to benefit their own positions.Chris Helgren/ReutersThe Federal Energy Regulatory Commission contends that Barclays employees made trades that were intended to alter electricity prices to benefit their own positions.

LONDON – Barclays vowed on Wednesday to fight a demand by United States regulators that it pay a record $470 million penalty for suspected manipulation of energy markets in California and other Western states by some of its traders.

The action, announced late on Tuesday by the Federal Energy Regulatory Commission, the government watchdog that oversees the oil, natural gas and electricity industries, comes after months of wrangling with the bank.

The ruling also comes a year after Barclays was required to pay about $450 million for its role in a rate-rigging scandal after some of its traders tried to manipulate the London interbank offered rate, or Libor, for their own financial gain.

In its ruling, the commission said Barclays employees made trades from 2006 to 2008 that were intended to alter electricity prices to benefit their own trading positions.

It included several extracts from internal e-mails that outlined the activities of some of the bank’s traders, who openly discussed how they could lower prices in one electricity market by weighing down another. Barclays employees also discussed how to prop up certain indexes by taking short-term losses in other power markets, according to the ruling.

‘‘F.E.R.C. finds that their actions demonstrate an affirmative, coordinated and intentional effort to carry out a manipulative scheme,’’ the commission said in a statement.

The agency said Barclays must pay a $435 million fine and forfeit $35 million in profit gained from the illegal activity. The combined penalty dwarfs the commission’s previous record fine of $135 million against Constellation Energy last year.

Four former Barclays traders will also have to pay a combined $18 million for their roles in the wrongdoing, according to the statement from the commission.

The commission initially brought the case against Barclays in October. The bank said at the time that it would contest the accusations.

Barclays said it still disagreed with the regulator’s ruling and would continue to fight it. Barclays has 30 days to pay the total penalty or must defend itself against the ruling in Federal District Court.

“We believe that our trading was legitimate and in compliance with applicable law,” the bank said in a statement on Tuesday. “We intend to vigorously defend this matter.”

Barclays is the latest bank to experience the growing assertiveness of the commission, which has the authority to seek a penalty of up to $1 million for each day in which there is a violation of the rules intended to prevent manipulation of the energy market.

In January, Deutsche Bank agreed to pay a $1.5 million fine and surrender about $170,000 in profit related to charges that it manipulated California’s energy markets in 2010. JPMorgan Chase is also under investigation by the regulator for potential wrongdoing in certain U.S. power markets.

The commission has gained increasing power since a law was passed in the aftermath of the Enron scandal that created an enforcement branch at the agency with the authority to impose large fines.

The agency has turned its sights on Wall Street after several large banks created energy trading desks to fill the void left by Enron.

Article source: http://dealbook.nytimes.com/2013/07/17/barclays-vows-to-fight-energy-trading-fine/?partner=rss&emc=rss

China Accuses GlaxoSmithKline of Corruption

The Ministry of Public Security said people working for the drug maker had bribed doctors, hospitals and government officials and funneled illicit payoffs through travel agencies, pharmaceutical industry associations and project funding.

The government did not name any executives or give detailed figures. But it said the case involved “huge amounts of money.”

The investigation appears to be part of a broad government crackdown on fraud and corruption involving foreign companies.

The announcement came about a week after the authorities raided offices and detained people working for GlaxoSmithKline in three different cities, including Shanghai, according to the state-run news media.

The government findings released Thursday were unexpected because executives at GlaxoSmithKline had said just last week that an internal investigation of its China operations found no evidence of bribery or corrupt activities.

A spokesman for the company said last week that the company had initiated its own investigation after a whistle-blower at the company came forward this year with allegations of wrongdoing in the China operation.

On Thursday, a spokesman for GlaxoSmithKline said that the company was willing to cooperate with the investigation and that the Chinese announcement represented the first details of the case the company had been informed about.

The company also released a statement saying: “We take all allegations of bribery and corruption seriously. We continuously monitor our businesses to ensure they meet our strict compliance procedures. We have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it.”

Earlier this year, The Wall Street Journal reported that a whistle-blower had shared some information with the newspaper and claimed that executives at the company had bribed doctors and hospitals. It is unclear whether the investigation by the Ministry of Public Security is linked to the whistle-blower.

The allegations against GlaxoSmithKline come at a time when regulators in China are reviewing the prices and production costs of major Chinese and global drug companies in what appears to be an effort to lower drug prices.

Feng Zhanchun, who specializes in public health at Huazhong University of Science and Technology in Wuhan, China, said that the Chinese pharmaceutical market was struggling to adapt to market forces.

“Economic crimes, including commercial bribery and kickbacks, are one of the negative results generated in the transitional period in China,” he said in a telephone interview. “In the midst of a transition from a planned economy to a market economy, laws and regulations are not fully in place, and medical institutions have no perfect operational mechanisms.”

China is one of the world’s fastest-growing markets for pharmaceutical products, but the government has long held tight control over pricing of certain drugs.

Still, in a country where kickbacks are common and the sales channels for many products are swayed by bribery, travel vouchers and payoffs, it is not unusual for major corporations to come under scrutiny from Chinese or Western regulators.

In 2012, the American drug maker Eli Lilly agreed to pay $29 million to settle allegations of making improper payments to government officials and physicians in Brazil, China, Poland and Russia.

In the Eli Lilly case, the United States government said employees from the company’s China subsidiary had “falsified expense reports in order to provide gifts and cash payments to government-employed physicians.”

Among other things, the company’s sales representatives used reimbursements to provide doctors with meals, card games and “visits to bath houses.”

In recent years, the U.S. Department of Justice has scrutinized the world’s biggest drug companies to determine whether they have made improper payments to doctors and hospitals around the world in order to increase sales of their drugs.

In the case of GlaxoSmithKline, Chinese investigators seemed to have moved with lightning speed, detaining workers, raiding offices in various cities and then publicizing their findings Thursday.

The authorities said that in order to “open the sales channel and increase prices” in China, GlaxoSmithKline, also called GSK, had bribed or paid off a wide range of people who could aid the company’s sales operations.

Among other things, the China subsidiary of GlaxoSmithKline “committed crimes” by writing special bills related to the value-added tax and issued fake invoices through travel agencies, officials said. The government said there was “ample evidence to show that some senior executives at GSK and certain travel agencies committed several commercial bribery and tax-related crimes.”

The government also said the company’s senior executives had confessed to many of the crimes, including taking kickbacks from business meetings and accepting commission fees through travel agencies.

GlaxoSmithKline’s problems in China deepened earlier this month when the company fired the head of its research and development center in Shanghai for misrepresenting data in a paper he co-wrote.

Stephanie Yifan Yang contributed research.

Article source: http://www.nytimes.com/2013/07/12/business/global/china-accuses-glaxosmithkline-of-corruption.html?partner=rss&emc=rss

British TV Personality Pleads Guilty to Sex Abuse of Girls

Mr. Hall, a familiar figure on radio and television in a career spanning five decades, was first arrested in December and questioned as part of Operation Yewtree, a far-reaching criminal investigation into allegations of sexual abuse from as long as 50 years ago. He initially denied the charges, calling them “pernicious, callous, cruel and, above all, spurious.”

His crimes, prosecutors say, took place between 1967 and 1986 and included putting his hands under the clothes of a 9-year-old girl, groping a 16-year-old girl’s breasts, and kissing a 13-year-old girl on the lips while telling her it was a way to “show thanks.”

Mr. Hall had also been charged with raping a 22-year-old woman in 1976, and was to have faced a separate trial. But after he pleaded guilty to the other charges, prosecutors said Thursday, the rape charge was withdrawn when the complainant in the case decided she did not want to give evidence in court.

A dozen well-known figures from the entertainment world, mostly men in their 70s and 80s, have been identified as suspects in Yewtree. Mr. Hall, known mainly as the host of the game show “It’s a Knockout” and as a witty sports commentator, is the first to admit any wrongdoing. Two of the other suspects have been formally charged with crimes; the rest are facing further questioning while prosecutors decide whether to charge them.

It is notoriously hard to secure convictions in sexual assault cases, particularly ones that took place long ago. Nazir Afzal, chief crown prosecutor for the North West, said Thursday that in Mr. Hall’s case, a number of women came forward with similar accusations, establishing a pattern of behavior.

“His victims did not know each other, and almost two decades separated the first and last assaults, but almost all of the victims, including one who was only nine at the time of the assault, provided strikingly similar accounts,” Mr. Afzal told reporters after Thursday’s hearing, in Preston Crown Court.

“Whether in public or private, Hall would first approach under friendly pretenses and then bide his time until the victim was isolated,” Mr. Afzal said. “He can only be described as an opportunistic predator.”

Operation Yewtree began after it emerged that the popular television personality Jimmy Savile, who died in 2011, had been a serial sex abuser with scores of victims over four decades. Stung by charges that they had done little to investigate numerous contemporaneous complaints against Mr. Savile, the police are now encouraging victims of sexual abuse to come forward, no matter when the abuse took place.

“The fact that these convictions have come a long time after they were committed shows that we will always take any allegations of sexual abuse extremely seriously,” Det. Chief Inspector Neil Esseen, who led the investigation for the Lancashire police department, said.

Article source: http://www.nytimes.com/2013/05/03/world/europe/british-tv-personality-pleads-guilty-to-sex-abuse-of-girls.html?partner=rss&emc=rss

DealBook: Prosecutors, Shifting Strategy, Build New Wall Street Cases

Lanny A. Breuer, the head of the Justice Department's criminal division.Richard Drew/Associated PressLanny A. Breuer, the head of the Justice Department’s criminal division.

Criticized for letting Wall Street off the hook after the financial crisis, the Justice Department is building a new model for prosecuting big banks.

In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and reforms. Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations.

Lawyers for several big banks, who spoke on the condition of anonymity, said they were already adjusting their defenses and urging banks to fire employees suspected of wrongdoing in the hope of appeasing authorities.

But critics question whether the new strategy amounts to a symbolic reprimand rather than a sweeping rebuke. So far, the Justice Department has extracted guilty pleas only from remote subsidiaries of big foreign banks, a move that has inflicted reputational damage but little else.

The new strategy first materialized in recent settlements with UBS and the Royal Bank of Scotland, which were accused of manipulating interest rates to bolster profit. As part of a broader deal, the banks’ Japanese subsidiaries pleaded guilty to felony wire fraud.

Senator Carl Levin of Michigan has criticized prosecutors for not doing more to hold banks accountable for their actions.J. Scott Applewhite/Associated PressSenator Carl Levin of Michigan has criticized prosecutors for not doing more to hold banks accountable for their actions.

The settlements present a significant shift. Authorities have long avoided guilty pleas over fears they will destroy the banks and imperil the broader economy. By going after a subsidiary, prosecutors shield the parent company from losing its license, but still send a warning to the financial industry.

The Justice Department plans to continue the campaign as it pursues guilty pleas from other bank subsidiaries suspected of reporting false interest rates, according to the prosecutors and the lawyers who requested anonymity to discuss the cases. Authorities are scrutinizing Citigroup, whose Japanese unit is suspected of rate manipulation, and prosecutors recently accused one former trader there of colluding with other banks in a vast rate-rigging conspiracy.

Prosecutors want the rate-rigging investigation to serve as a template for other financial fraud cases. Two officials, who spoke on condition of anonymity, described a plan to eventually wring an admission of guilt from an entire bank.

“This Department of Justice will continue to hold financial institutions that break the law criminally responsible,” Lanny A. Breuer, the departing head of the agency’s criminal division, said in an interview.

The strategy will face significant roadblocks.

For one, banking regulators are likely to sound alarms about the economy. HSBC avoided charges in a money laundering case last year after concerns arose that an indictment could put the bank out of business. In the first interest rate-rigging case, prosecutors briefly considered criminal charges against an arm of Barclays, but they hesitated given the bank’s cooperation and its importance to the financial system, two people close to the case said.

The Justice Department will also face resistance from Wall Street. In meetings with authorities, banks are trying to distinguish their activities from the bad behavior at UBS and Barclays, according to the industry lawyers. One lawyer who represents Deutsche Bank acknowledged that Wall Street was girding for battle over the push for guilty pleas.

Some lawyers posit that the new approach amounts to a government shakedown, because institutions may plead guilty to dodge an indictment. “I think it’s a step in the wrong direction,” said James R. Copland, the director of the Center for Legal Policy at the Manhattan Institute.

Complicating matters, lawmakers and consumer advocates will continue to complain that banks get off too easily. In the rate manipulation cases, critics have clamored for more potent penalties, seeking convictions against parent companies.

The problems “should provide motivation to prosecutors, regulators and Congress to do more to ensure that this type of behavior is stopped, and that banks and their executives who manipulate markets are held accountable,” said Senator Carl Levin, Democrat of Michigan.

Critics point to the UBS case. Before UBS signed the deal, Japanese authorities assured the bank that a guilty plea would not cost the subsidiary its license, a person involved in the case said. While the case has weighed on the stock price, the subsidiary is operating normally and clients have stayed put, according to people with direct knowledge of the case.

Prosecutors defend their effort, saying it was born from painful experiences over the last decade.

After Arthur Andersen was convicted in 2002, the accounting firm went out of business, taking 28,000 jobs with it. The Supreme Court later overturned the case, prompting the government to alter its approach.

Prosecutors then turned to deferred-prosecution agreements, which suspend charges against corporations in exchange for certain concessions and a promise to behave. But the Justice Department took heat for prosecuting few top bank executives after the financial crisis. A recent “Frontline” documentary portrayed prosecutors as Wall Street apologists.

So the government is seeking a balanced approach, aiming to hold banks accountable without shutting them down. Prosecutors consulted federal policies that required them to weigh action with “collateral consequences” like job losses. Mr. Breuer also collected input from staff, including the head of his fraud unit, Denis J. McInerney, a former defense lawyer who represented Arthur Andersen.

Mr. Breuer eventually deployed a strategy built on guilty pleas for subsidiaries. He imported the model, in part, from his foreign bribery actions and pharmaceutical cases.

“Extracting a guilty plea from a wholly owned subsidiary finally enables the Justice Department to look tough on financial institutions while sparing them from the corporate death penalty,” said Evan T. Barr, a former federal prosecutor who now defends white-collar cases as a partner at Steptoe Johnson.

As the Arthur Andersen cases fades from memory, some prosecutors say their new approach will lay the groundwork for parent companies to plead guilty.

But first, officials say, they are testing the strategy in the interest rate-rigging case. Authorities suspect that more than a dozen banks falsified reports to influence benchmark interest rates like the London interbank offered rate, or Libor, which underpins the costs for trillions of dollars in financial products like mortgages and credit cards.

Prosecutors focused on Japanese units because e-mail traffic exposed how traders there had routinely manipulated rates to increase profits, officials say. The units also have few ties to American arms of the banks, containing any threat to the economy.

After the Barclays case, authorities shifted to UBS, given the scope of the evidence and the bank’s past brushes with authorities, according to officials. The bank’s Japanese subsidiary was also a hub of rate-rigging activity. “The Justice Department had a clear view on the past of this institution,” said one executive who met with government officials.

Along with paying $1.5 billion in fines, the bank agreed to bolster its controls and have its Japanese unit plead guilty. It was the first big global bank subsidiary to plead guilty in more than two decades.

The Royal Bank of Scotland met a similar fate. The bank’s conduct was less severe than the actions of UBS, but it too had a rogue Japanese subsidiary. The bank announced a $612 million settlement with authorities this month, including a guilty plea in Japan.

Using the settlements as a template, prosecutors are building cases against other banks ensnared in the investigation, people involved in the case said, and guilty pleas are likely. Deutsche Bank is expected to settle with authorities by late 2013, the people said.

Citigroup and JPMorgan Chase, two American banks under scrutiny, pose a thornier challenge. So far, authorities have flexed their newfound muscle with foreign banks.

American regulators may warn that extending the campaign to Citigroup would threaten the company’s stock and prompt an exodus of clients. Japan’s regulators, some feeling upstaged by the recent actions, might raise similar concerns. Citigroup’s lawyers will also push back, people involved in the case said, citing the bank’s cooperation with investigators and emphasizing that wrongdoing never reached upper levels of management. The bank fired the trader recently charged by the Justice Department.

Authorities could counter that Citigroup’s Japanese unit is a repeat offender. It butted heads with Japanese regulators three times over the last decade.

“This is hard-nosed negotiation,” said Samuel W. Buell, a former prosecutor who is now a professor at Duke Law School. “It’s a game of chicken.”

Mark Scott contributed reporting from London and Hiroko Tabuchi from Tokyo.

A version of this article appeared in print on 02/19/2013, on page B1 of the NewYork edition with the headline: Prosecutors, Shifting Strategy, Build New Wall Street Cases.

Article source: http://dealbook.nytimes.com/2013/02/18/prosecutors-build-a-better-strategy-to-go-after-wall-street/?partner=rss&emc=rss

DealBook: Former SAC Trader Is Indicted

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Federal agents had asked Mathew Martoma to help build a case against Steven A. Cohen of SAC.Andrew Gombert/European Pressphoto AgencyFederal agents had asked Mathew Martoma to help build a case against Steven A. Cohen of SAC.

6:23 p.m. | Updated

A former SAC Capital Advisors portfolio manager was indicted on Friday on securities fraud and conspiracy charges in a case that federal prosecutors have called the most lucrative insider trading scheme ever uncovered.

A federal grand jury in Manhattan indicted the former portfolio manager, Mathew Martoma, a month after the government arrested him on charges that he used inside tips about a clinical drug trial to help SAC earn profits and avoid losses. Prosecutors said the total benefit to SAC was $276 million.

SAC, based in Stamford, Conn., has been touched by several insider trading cases in recent years, but there is heightened attention surrounding the Martoma prosecution. For the first time, the government has tied questionable trades to Steven A. Cohen, the billionaire owner of SAC.

“Though disappointing, today’s events come as no surprise,” Mr. Martoma’s lawyer, Charles A. Stillman, said in a statement. “The simple fact is that Mathew Martoma did not trade on inside information, is innocent of all these charges, and we look forward to his ultimate vindication.”

Before Friday’s indictment, there had been speculation that the government, before formally presenting evidence to a grand jury, was trying to gain Mr. Martoma’s cooperation in building a case against Mr. Cohen. Mr. Martoma has rebuffed several earlier efforts by the authorities to enter into plea talks and implicate his boss.

Mr. Cohen has not been charged with any wrongdoing, and a spokesman for SAC has said that he thinks that he and SAC have acted appropriately at all times. The Securities and Exchange Commission, which brought a parallel civil action against Mr. Martoma, has warned SAC that it is likely to file a fraud lawsuit against the firm related to the Martoma case.

Mr. Martoma, 38, is set to appear in Federal District Court in Manhattan for his arraignment on Jan. 3, when he will enter a plea. The case was assigned to Judge Paul G. Gardephe, a former federal prosecutor who assumed his seat on the bench in 2008 after an appointment by President George W. Bush.

Hedge Fund Inquiry

The government says that Mr. Martoma obtained secret, negative information from a doctor about clinical trials of an Alzheimer’s drug being developed by the pharmaceutical companies Elan and Wyeth. He then had a 20-minute telephone conversation with Mr. Cohen, prosecutors say.

A day after the phone call, SAC sold $700 million in Elan and Wyeth stock and made a large negative bet on the companies. The companies’ shares plummeted after they announced the disappointing trial results, and SAC booked big profits.

The doctor, Sidney Gilman, is cooperating with prosecutors and has agreed to testify against Mr. Martoma. The government gave Dr. Gilman a nonprosecution agreement, meaning it will not bring criminal charges against him. Such an agreement is highly unusual, legal experts say, and is being used as a pressure point on Mr. Martoma in an effort to get him to “flip” against Mr. Cohen.

Before coming to New York for his arraignment, Mr. Martoma will be spending the holidays with his wife and three young children at home, in Boca Raton, Fla.

Article source: http://dealbook.nytimes.com/2012/12/21/former-sac-trader-is-indicted/?partner=rss&emc=rss

Former Top Banker Testifies in Spain

MADRID — Rodrigo Rato, a former top banking official in Spain and former managing director of the International Monetary Fund, on Thursday became the most prominent banker to appear in a Spanish court since the start of the country’s financial crisis.

Mr. Rato was called to answer claims that he and fellow directors at Bankia presented misleading accounts for the lender. He testified behind closed doors for nearly three hours and did not make a public statement afterward.

Mr. Rato, the former executive chairman of Bankia, and 32 other former executives and board members were named in a criminal investigation that was ordered this year by a judge from the National Court.

Neither Mr. Rato nor the other executives have been formally charged with any crime. But prosecutors have accused Mr. Rato and the others of presenting inaccurate accounts when Bankia was listed as a public company in July 2011.

In his court appearance, Mr. Rato denied any wrongdoing and instead argued that Bankia was put under pressure to proceed with the stock listing by both the government and the central bank, according to a person familiar with the testimony who requested anonymity because of the confidential nature of the proceedings.

Mr. Rato, who is also a former finance minister, appeared before Parliament in July of this year to answer similar accusations. At the time, he rejected any suggestion that he or other directors had ignored or hidden Bankia’s pile of bad loans.

The government of Prime Minister Mariano Rajoy nationalized Bankia in early May, two days after Mr. Rato resigned from the bank. A month later, after Bankia’s new management announced that the lender needed €19 billion, or $25 billion, in additional capital, Madrid negotiated a €100 billion E.U. rescue package for the country’s troubled banking sector.

That rescue operation is still under way. On Thursday, the European Commission cleared the restructuring plans of four smaller lenders — Banco Mare Nostrum, Caja España-Caja Duero, Caja3 and Liberbank — that were also left with an unsustainable burden of bad property loans after Spain’s construction bubble burst.

The commission has been reviewing the bailouts of the ailing banks to ensure the government aid does not distort competition in the financial sector. As part of the process, the commission has demanded that the banks make significant cuts.

Spanish banks are set to receive €39 billion of the €100 billion authorized. The banks have already received a total of €13 billion of Spanish government aid since 2010 to help them stay afloat.

Shareholders have watched Bankia’s stock price sink since the initial public offering. Many other investors have also incurred losses on preference shares, a type of convertible debt that Bankia and other banks sold mainly to their retail clients. Mr. Rato was confronted by a large group of protesters Thursday, some of whom screamed insults at him as he made his way into the courthouse.

Bankia’s collapse has had political repercussions because the lender has longstanding ties to Mr. Rajoy’s governing Popular Party. Mr. Rato was finance minister in a previous conservative administration, alongside Mr. Rajoy, who was then the interior minister.

Bankia was the product of a merger of seven cajas, or savings banks, that was engineered as part of a government-directed consolidation of the sector.

Bankia’s initial offering had been hailed in Spain as proof that the financial sector could overcome the consequences of a decade of reckless property lending. Instead, Bankia ended up reporting a loss of almost €4.5 billion in the first half of this year, a record for a Spanish bank.

Article source: http://www.nytimes.com/2012/12/21/business/global/former-top-banker-testifies-in-spain.html?partner=rss&emc=rss

DealBook: As Unit Pleads Guilty, UBS Pays $1.5 Billion Over Rate Rigging

UBS, the Swiss banking giant, announced a record settlement with global authorities on Wednesday, agreeing to a combined $1.5 billion in fines for its role in a multiyear scheme to manipulate interest rates.

In a sign that officials are increasingly taking a hard line against financial wrongdoing, the Justice Department also secured a guilty plea from the bank’s Japanese subsidiary, sending a warning shot to other big banks suspected of rate rigging. The UBS subsidiary, which agreed to plead to a single count of wire fraud, is the first unit of a big bank to agree to criminal charges in more than a decade.

The cash penalties represented the largest fines to date related to the rate-rigging inquiry. The fine is also one of the biggest sanctions that American and British authorities have ever levied against a financial institution, falling just short of the $1.9 billion payout that HSBC made last week over money laundering accusations.

The severity of the UBS penalties, authorities said, reflected the extent of the problems. The government complaints laid bare a scheme that spanned from 2005 to 2010, describing how the bank reported false rates to squeeze out extra profits and deflect concerns about its health during the financial crisis.

“The findings we have set out in our notice today do not make for pretty reading,” Tracey McDermott, the enforcement director for the Financial Services Authority of Britain, said in a statement. “The integrity of benchmarks,” she said, “are of fundamental importance to both U.K. and international financial markets. UBS traders and managers ignored this.”

The UBS case reflects a pattern of abuse that authorities have uncovered as part of a multi-year investigation into rate-rigging. The inquiry, which has ensnared more than a dozen big banks, is focused on key benchmarks like the London interbank offered rate, or Libor. Such rates are used to help determine the borrowing rates for trillions of dollars of financial products like corporate loans, mortgages and credit cards.

In the UBS matter, the wrongdoing occurred largely within the Japanese unit, where traders colluded with other banks and brokerage firms to tinker with Yen denominated Libor and bolster their returns. During the 2008 financial crisis, UBS managers also “inappropriately gave guidance to those employees charged with submitting interest rates, the purpose being to positively influence the perception of UBS’s creditworthiness,” according to authorities.

In a series of colorful e-mails and phone calls, traders tried to influence the rate-setting process. “I need you to keep it as low as possible,” one UBS trader said to an employee at another brokerage firm in September 2008, according to the complaint filed by the Financial Services Authority. “If you do that,” the trader promised to pay “whatever you want. I’m a man of my word.”

As the employees carried out the alleged manipulation, they also celebrated the efforts, with one trader referring to a partner in the scheme as “superman.” “Be a hero today,” he urged, according the complaint by regulators.

The British and Swiss authorities released their complaints on Wednesday before the bank’s shares began trading in Switzerland. American authorities are expected to release their own complaints later Wednesday in Washington.

In a statement, UBS highlighted its cooperation with the investigation. The firm previously stated that it made provisions of 897 million Swiss francs ($975 million) to cover potential legal and regulatory fines.

“We discovered behavior of certain employees that is unacceptable,” the chief executive of UBS, Sergio P. Ermotti, said in the statement. “We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity.”

The UBS case provides a lens to view broader problems in the rate-setting process, which affects how consumers and companies borrow money around the world. In June, authorities scored their first Libor settlement, securing a
$450 million payout from Barclays, the big British bank.

The UBS case — the product of cross-border collaboration among regulators and federal prosecutors – is more than triple the earlier fine.

The Commodity Futures Trading Commission and the Justice Department leveled about $1.2 billion in combined fines. The Financial Services Authority of Britain fined the bank $260 million. The Swiss Financial Market Supervisory Authority, which does not have the power to fine, recovered $65 million in the bank’s supposed ill-gotten gains.

The Justice Department’s criminal division, which arranged the guilty plea with the Japanese subsidiary, also struck a non-prosecution agreement with the parent company. The exact total of the penalties was unclear, because the department has not yet released its settlement documents.

The Justice Department’s case is also expected to take aim at some of the bank’s traders, including 33-year-old Thomas Hayes. The Justice Department plans to announce charges against Mr. Hayes, the former UBS and Citigroup trader, who featured prominently in the investigation, according to people with knowledge of the matter. He was arrested in London last week and later released on bail. Other UBS employees have been suspended or fired following an internal investigation.

The fallout from the UBS case is expected to ratchet up the pressure on some of the world’s largest financial institutions and spur settlement talks across the banking industry.

The Royal Bank of Scotland has said it expects to pay fines before its next earnings statement in February, while Deutsche Bank has set aside an undisclosed amount to cover potential penalties. Some American institutions, including Citigroup and JPMorgan Chase, also remain in regulators’ crosshairs.

Article source: http://dealbook.nytimes.com/2012/12/19/as-unit-pleads-guilty-ubs-pays-1-5-billion-in-fines-over-rate-rigging/?partner=rss&emc=rss

Wealth Matters: Armstrong’s Fortune Likely to Withstand Doping Charges

But he is still a rich man, with an estimated net worth of $125 million. Independent advisers and lawyers say he is likely to hold on to most of that wealth — though he may have to give up an estimated $3.9 million in prize money he won in the Tour and pay some hefty legal bills.

Most of Mr. Armstrong’s money came from his sponsors: Nike, Anheuser-Busch and smaller brands like FRS, an energy supplement, and Honey Stinger, a maker of organic waffles. They have all dropped him, but it remains to be seen what damage, if any, the brands will suffer, particularly the smaller ones.

Then there is the United States Postal Service, which paid tens of millions of dollars to sponsor Mr. Armstrong’s team for six of its seven Tour de France titles and now looks naïve, at best, for continuing to finance his racing while accusations of doping swirled around him.

Still, it is generally the case that no amount of wrongdoing by athletes will force them to forfeit the money they were paid by sponsors. The worst that typically happens is that their contracts are voided.

David B. Newman, a partner in the law firm Day Pitney, said it was rare for a sponsor to try to get back money from an athlete who had violated the terms of a contract. Most contracts include a provision barring the use of performance-enhancing drugs.

Mr. Newman said that a sponsor who wanted to test the contract could demand its money back, but that Mr. Armstrong, who has vehemently denied doping, could simply refuse and argue that none of the accusations against him had been proved. “They’d have to spend a lot of money to prove these allegations,” Mr. Newman said. “From a return on investment, you’d spend a lot of money on lawyers and lawsuits, and more publicity can’t help your product.”

He added, “They don’t walk away happy, but they’ll say, better to cut our losses now.”

When asked what Mr. Armstrong would do if his sponsors sued him for damages, Tim Herman, one of his lawyers, said, “We don’t have a plan for that, because I do not expect that to happen.”

For a big company like Nike, which has weathered plenty of controversy with its athletes — it dropped the quarterback Michael Vick after he accepted responsibility for his role in a dogfighting ring and pleaded guilty to federal conspiracy charges in 2007, but re-signed him last year, and it kept Tiger Woods on after his marital scandal in 2009 — the loss of Mr. Armstrong is no big deal. But I expected more anger from smaller companies like FRS, which makes an energy drink that was closely associated with Mr. Armstrong. Mr. Armstrong’s image, until recently, was featured prominently in the company’s advertising.

“It’s awfully difficult to not be very disappointed, having believed in all aspects of the relationship,” said Carl Sweat, chief executive of FRS. “Two years ago, before any of this was out, it would have been a different conversation. He helped us build our brand.”

In other words, the negative publicity is hurtful because the brand is well known now, but the company realizes how much Mr. Armstrong, who resigned from FRS’s board but continues to have an equity stake, helped it get there. Mr. Sweat said the company was now using Tim Tebow, the New York Jets quarterback with a squeaky-clean reputation, as its main pitchman.

There are two areas, though, where Mr. Armstrong is at risk of losing a little or a lot of money.

The case against him that is getting the most attention is being pursued by SCA Promotions, a company in Dallas that insures potentially costly but unlikely events, like a prize for a hole in one in a golf tournament. In 2004, Mr. Armstrong sued the company for not paying him a $5 million bonus for winning his sixth Tour de France title. SCA said it would not pay because of accusations of doping that had come out in a book by two sports reporters.

In 2006, though, the company settled the suit and paid Mr. Armstrong $7.5 million, including interest and fees.

“There is no revisiting that,” Mr. Herman said. “If everyone who had settled a case finds out something later on and they want to renegotiate or relitigate, the system would break down. The point is, the agreement is unequivocal. There is no going back.”

Still, SCA said it intended to do just that. Jeffrey Dorough, SCA’s corporate counsel, said the firm was sending a letter to Mr. Armstrong demanding that he return $12 million — the $7.5 million and an additional $4.5 million it paid for a previous victory.

Article source: http://www.nytimes.com/2012/10/27/your-money/lance-armstrong-wealth-likely-to-withstand-doping-charges.html?partner=rss&emc=rss

DealBook: Deutsche Bank Chiefs Outline Overhaul Plan

Jürgen Fitschen, left, and Anshu Jain, the co-chief executives of Deutsche Bank, spoke in Frankfurt on Tuesday.Daniel Roland/Agence France-Presse — Getty ImagesJürgen Fitschen, left, and Anshu Jain, the co-chief executives of Deutsche Bank, spoke in Frankfurt on Tuesday.

The new chief executives of Deutsche Bank acknowledged on Tuesday that the bank was weighed down by relatively weak capital reserves, excessive dependence on investment banking and a tarnished reputation as they announced an overhaul to address these flaws.

Three months after taking over from Josef Ackermann, the bank’s longtime chief executive, Jürgen Fitschen and Anshu Jain, who are sharing the top job, moved to put their mark on the largest German bank.

They presented an unusually frank assessment of Deutsche Bank’s shortcomings and promised to take remedial steps, including delaying bonuses for top managers.

They also said the bank planned to cut costs by 4.5 billion euros ($5.8 billion) a year by 2015.

“Tremendous mistakes have been made,” Mr. Jain said at a news conference in Frankfurt. “We can see times have changed and we need to change and change rapidly.”

The presentation came a day before the European Commission was scheduled to present a proposal for a banking union that would shift supervision of institutions like Deutsche Bank from German regulators to the European Central Bank.

The plan presented by Mr. Jain and Mr. Fitschen on Tuesday was partly a response to the pressure banks were experiencing from tougher regulations, as well as from investigations into manipulation of money-market rates and other wrongdoing.

Mr. Jain and Mr. Fitschen vowed to push through a change in Deutsche Bank culture that would include tougher sanctions for wrongdoing. “We’re in an industry where a small group of people can do irreparable damage,” Mr. Jain said. “We will not stand by and let that happen.”

Deutsche Bank is among the banks accused of manipulating the London interbank offered rate, or Libor, which is used to set rates on trillions of dollars of financial contracts.

Mr. Jain said the bank was taking the investigation into Libor rate-fixing very seriously, but repeated previous assertions that any wrongdoing was the work of a small group of people and that no members of the management board were implicated.

Mr. Jain, former chief of Deutsche Bank’s investment bank, said the business was simply not as profitable as it once was and that highly paid employees would have to accept more modest compensation.

The top 150 managers are to receive no bonuses at all for five years, he said, to encourage them to avoid taking excessive risks in the name of short-term gains. They would lose their bonuses if profits fell or they committed wrongdoing.

Addressing a common criticism of the bank, Mr. Jain said that Deutsche Bank’s capital reserves, while within regulatory limits, were lower than those of competitors. He vowed to raise the buffers to the same level as rivals by early next year and significantly higher by 2015.

The banking industry has shrunk since the beginning of the financial crisis and will shrink further, Mr. Fitschen said, requiring Deutsche Bank to cut costs and reduce the amount of money it has at risk. The bank had previously announced the elimination of 900 jobs, mostly in investment banking. On Tuesday the bank said it would set up a unit for noncore assets that would be sold.

Mr. Jain said that, while he was convinced the euro would survive, the economy in the euro zone was likely to grow slowly in the next several years. The bank will seek growth in Asia and the United States, he said.

Mr. Fitschen added: “We can’t deny that in the course of the crisis margins have fallen and funding has become more expensive. That demands answers on our part that sometimes will be painful.”

Article source: http://dealbook.nytimes.com/2012/09/11/deutsche-bank-chiefs-outline-overhaul/?partner=rss&emc=rss