Credit Suisse Group AG (CSGN), the second- biggest Swiss bank, is a target of an investigation by the Department of Justice over former cross-border private banking services to U.S. customers.
“Subject to our Swiss legal obligations, we will continue to cooperate with the U.S. authorities in an effort to resolve these matters,” the Zurich-based bank said in an e-mailed statement July 15. The bank, which was informed of the probe July 14, has already been responding to requests for information, including subpoenas, from the Department of Justice, it said.
Four bankers who worked at Credit Suisse were charged with conspiring to help clients in the U.S. evade taxes through secret bank accounts, according to an indictment from earlier this year. In the fall of 2008, when the bank began closing its cross-border business with U.S. clients, it had “thousands” of accounts with $3 billion in assets not declared to the U.S. Internal Revenue Service, according to the indictment.
Credit Suisse said July 15 “it has been reported that the U.S. authorities are conducting a broader industry inquiry.” The Swiss government is in talks with authorities in the U.S. to resolve the issue of untaxed assets held by U.S. citizens in Swiss bank accounts, a government official said last month.
“Currently it is difficult to say whether this will lead to a legal case and a fine against Credit Suisse,” Teresa Nielsen, an analyst at Vontobel with a “hold” rating said in a note. “We expect Switzerland and the U.S. to continue negotiations.” Daniel Saameli, a spokesman for Switzerland’s finance ministry, said the government “acknowledges the developments,” while declining to comment further. News Corp. (NWSA) Phone-Hacking Accusations Probed by the FBI News Corp. Chief Executive Officer Rupert Murdoch defended his handling of the phone-hacking crisis as the FBI began a probe whether employees tried to hack into the phones of victims of the Sept. 11 terrorist attacks.
“We’re aware of certain allegations pertaining to a possible hacking by News Corp. personnel and we’re looking into those charges,” Jim Margolin, a spokesman for the Federal Bureau of Investigation’s New York office, said in a phone interview July 14.
Murdoch, in an interview with the News Corp.-owned Wall Street Journal, said an independent committee led by a “distinguished non-employee” will investigate the phone- hacking allegations. The company has handled the crisis “extremely well,” while there were “minor mistakes,” he said.
The scandal led News Corp. to abandon its $12.6 billion (7.8 billion-pound) bid for full control of British Sky Broadcasting Group Plc. (BSY) It closed the 168-year-old News of the World tabloid, whose employees are accused of hacking voice- mails, including those of murder victims, and bribing police for stories.
Former News of the World editor Rebekah Brooks resigned July 15 from her post as chief executive officer of News International, which publishes News Corp. newspapers in the U.K.
Murdoch, 80, and his son James Murdoch, the company’s deputy chief operating officer, are scheduled to testify about the phone-hacking scandal before the U.K. Parliament on July 19. Brooks too is to testify.
U.S. Representative Peter King, the Republican chairman of the House Committee on Homeland Security, asked FBI Director Robert Mueller in a July 13 letter to investigate whether employees of News Corp.’s News of the World tried to access voice mails belonging to victims of the 2001 terrorist attacks through bribery and illegal wiretapping.
Julie Henderson, a News Corp. spokeswoman, didn’t return a voice-mail message seeking comment July 14.
Lawsuits/Pretrial
Swiss Banks Said to Be Near Settlement in German Tax Dispute
Swiss banks may initially pay at least 4 billion Swiss francs ($4.9 billion) to settle a dispute over tax evasion by wealthy German clients, two people familiar with the matter said.
The payment would be part of a larger sum covering the failure by customers to disclose undeclared money over the past 10 years, said the people, who declined to be identified because the negotiations between Switzerland and Germany are private and no final agreement has been reached.
The outlay for the past is part of Swiss talks with Germany and the U.K. over a proposed withholding tax on clients with offshore bank accounts. While part, or all, of the amount would later be “reimbursed” to the banks from taxes paid by their clients, according to the Swiss finance ministry, the settlement may trigger outflows by Europeans who question the value of cross-border accounts as secrecy crumbles.
“I expect major withdrawals by clients from Germany and the U.K. as they are disgruntled by the retroactive effect of the agreement,” said Daniel Fischer, the founder of Zurich- based AFP Fischer & Partner, which specializes in banking law. “Clients are so angry that Swiss banks may not be able to recoup the full upfront payment.”
While the size of the initial payment and the formula used to determine back taxes owed by German and British clients haven’t been disclosed, Switzerland has reached a solution on a “political level,” Finance Minister Eveline Widmer-Schlumpf told NZZ am Sonntag on July 3.
The agreement may be announced after the Swiss government’s summer recess, said Mario Tuor, a spokesman for Switzerland’s State Secretariat for International Financial Matters. Germany’s finance ministry declined to comment because the negotiations are still continuing.
UBS AG (UBSN), Switzerland’s largest bank, will analyze the treaty when it’s announced, said spokesman Dominique Gerster.
Julius Baer Group Ltd. (BAER), which agreed in April to pay German authorities 50 million euros ($71 million) to end a separate investigation over undeclared client assets, declined to comment. Marc Dosch, spokesman for Credit Suisse Group AG, Switzerland’s second-biggest bank, also declined to comment.
New Suits
Apollo’s Trilegiant Unit Sued Over Charges for Consumer Clubs
Apollo Global Management LLC’s Trilegiant unit was sued by an Arizona man over claims it conspired to defraud consumers with charges for product loyalty services and membership clubs.
Juan M. Restrepo said in a complaint in federal court in Tucson, Arizona, that he was unaware that Trilegiant charged $10.99 to his Chase MasterCard account each month from May 2007 through to May 2011. Restrepo noticed the monthly charges in April and claims he never authorized the charges, according to the complaint filed July 13.
“The charges were virtually unnoticeable because it was embedded in all other ordinary charges that normally escape close scrutiny of the ordinary consumer,” according to the complaint, which seeks to represent other customers in a class action, or group lawsuit. Chase Bank USA is also a defendant in the case.
The companies are accused in the lawsuit of racketeering, violating electronic communications privacy laws, violating unfair trade laws and unjustly enriching themselves. Restrepo is seeking a court order barring the companies from continuing the alleged scheme plus unspecified damages.
Mike Bush, a spokesman for Trilegiant, didn’t return a call seeking comment after regular business hours July 14.
Tom Kelly, a spokesman for JPMorgan Chase & Co. (JPM), declined to comment. New York-based JPMorgan is the parent of Chase Bank USA.
The case is Restrepo v. Chase Bank USA NA, 11-cv-00423, U.S. District Court, District of Arizona (Tucson).
For the latest new suits news, click here. For copies of recent civil complaints, click here.
Verdicts/Settlement
UBS Data Disclosure on 255 U.S. Clients Was Legal, Court Says
UBS AG’s disclosure of account data on 255 clients to the U.S. authorities, ordered by the Swiss financial regulator in 2009, was “lawful,” the Swiss Federal Supreme Court ruled.
The Swiss Financial Market Supervisory Authority, or Finma, “proceeded on the assumption that if this data hadn’t been disclosed, the U.S. Department of Justice would have filed an indictment against UBS, which would arguably have caused the bank’s ruin and consequently have had serious repercussions for the Swiss economy,” the Lausanne-based court said July 15 in an e-mailed statement.
The court reversed a ruling in January 2010 by the Federal Administrative Court, which handled a complaint from UBS clients. The administrative court ruled that the regulator exceeded its authority in telling UBS, Switzerland’s biggest bank, to hand over data to the U.S. as part of a deferred prosecution agreement. The Department of Justice accused UBS of conspiring to defraud the U.S. by helping Americans hide accounts from the Internal Revenue Service.
While the emergency-action provisions in the Swiss Banking Act don’t provide “sufficient legal grounds for encroaching on banking secrecy,” government authorities, including Finma, may take steps to “avert serious imminent risks” even in the absence of a specific legal foundation, the court said.
Airport Body Scanners Improperly Adopted by U.S., Court Says
Airport body scanners using advanced imaging technology were improperly adopted by the U.S. as a primary passenger- screening tool, a federal appeals court ruled, while allowing their use to continue.
The U.S. Transportation Security Administration should have sought public comment before deciding that the scanners, first deployed in 2007, would be used “everywhere for primary screening,” the court said July 15.
“Due to the obvious need for the TSA to continue its airport security operations without interruption, we remand the rule to the TSA but do not vacate it,” the court said in its ruling.
By the end of 2010, the TSA was operating 486 scanners in 78 airports with plans to add 500 more scanners by the end of this year, according to the court.
Greg Soule, a spokesman for the TSA, didn’t return a phone message seeking comment.
The case is Electronic Privacy Information Center v. U.S. Department of Homeland Security, 10-1157, U.S. Court of Appeals for the District of Columbia (Washington).
For the latest verdict and settlement news, click here.
Court Filings
Wells Fargo $125 Million Settlement Makes Docket Most Popular
Wells Fargo & Co. (WFC), which agreed July 6 to pay $125 million to settle accusations by investors that the bank misled them about the risks of mortgage-backed securities it sold, had the most-read litigation docket on the Bloomberg Law system last week.
The plaintiffs in the consolidated group case, or class action, include the General Retirement System of Detroit, New Orleans Employees’ Retirement System and other public pensions, according to the proposed settlement filed in federal court in San Jose, California.
Wells Fargo, the largest U.S. home lender, and several investment banks that underwrote the securities were sued in 2009 over alleged violations of securities laws in connection with sales of $36 billion in mortgage pass-through certificates in 2005 and 2006.
The bank and the underwriters deny wrongdoing, according to the proposed accord, which is subject to a judge’s approval.
“The proposed settlement agreement is a negotiated resolution as to all named defendants and is intended to avoid the distraction and expense of litigation,” Ancel Martinez, a Wells Fargo spokesman, said in a telephone interview. The bank still faces claims in state courts in California, Illinois and Indiana filed by individual investors and federal home loan banks seeking to rescind billions of dollars of mortgage-backed securities purchases. “It’s a very favorable outcome and will be significant for investors,” David Stickney, a lawyer for the plaintiffs, said in a phone interview.
The case is In re Wells Fargo Mortgage-Backed Certificates Litigation, 09-1376, U.S. District Court, Northern District of California (San Jose).
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