A former Goldman Sachs Group Inc. (GS)
trader and his father were accused by U.S. regulators of making
illegal trades based on confidential information related to the
Wall Street firm’s exchange-traded fund investments.
Spencer Mindlin, 33, and Alfred Mindlin, 68, reaped at
least $57,000 in illicit profits by trading in December 2007 and
March 2008 “with knowledge of massive, market-moving trades”
that Goldman Sachs planned to execute in four securities, the
Securities and Exchange Commission said yesterday in a
statement. The claims were outlined in an administrative
proceeding filed by the SEC’s enforcement unit.
The younger Mindlin, who worked on Goldman Sachs’s ETF
desk, learned of the firm’s plans to buy and sell large amounts
of securities underlying an exchange traded fund, or ETF, known
as SPDR S&P Retail ETF, according to the order. He tipped his
father, and the two took long and short positions depending on
whether Goldman Sachs intended to buy or sell, the order said.
The insider-trading claims are the SEC’s first involving ETFs,
the SEC said. The agency is seeking disgorgement of ill-gotten
gains and unspecified penalties.
Robert Knuts, an attorney for the Mindlins at Park & Jensen
LLP, didn’t immediately return a call for comment on the claims.
Goldman Sachs spokeswoman Andrea Raphael said in an e-
mailed statement that the firm “fully cooperated” with the
SEC’s investigation.
“All of the trading was conducted in private, undisclosed
accounts held outside of Goldman Sachs and none of the trading
involved client information,” Raphael said.
Spencer Mindlin left Goldman Sachs in 2009, according to
the administrative order.
Compliance Policy
Failing Banks’ Derivative Trades May Face EU Write Downs
European Union regulators may write down the value of
outstanding derivatives contracts issued by banks in crisis as
part of broader plans to protect taxpayers from having to bail
out failing lenders.
Bank supervisors should be given power to impose losses on
“as wide a range of the unsecured liabilities of a failing
institution as possible,” to help cover winding-up costs,
according to a draft EU document outlining the plans. This may
include liabilities from “derivatives that are not fully
secured by collateral,” as well as unsecured senior bonds,
according to the document obtained by Bloomberg News.
Unsecured derivatives “should, in principle, be within the
scope of the debt write down powers,” the document said.
Exceptions could apply if imposing losses would have a negative
impact on the banking system, adversely affect counterparties or
harm clearinghouses, according to the EU document.
The European Commission delayed publishing the plans this
month because of concerns the measures may spook investors at a
time of market turbulence and that they need more work,
according to two people familiar with the situation. The final
proposals may be released next month.
Derivatives are financial instruments derived from stocks,
bonds, loans, currencies and commodities, or linked to specific
events like changes in interest rates.
Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s
financial services chief, declined to immediately comment.
ESRB Says Risks to Financial System Increased ‘Considerably’
The European Systemic Risk Board said risks to Europe’s
financial system have increased “considerably” as the
sovereign debt crisis weakens economic growth and pressures
banks.
“Key risks stem from potential further adverse feedback
effects between sovereign risks, funding vulnerabilities within
the European Union banking sector, and a weakening of growth
outlooks both at global and EU levels,” the ESRB, hosted by the
Frankfurt-based European Central Bank, said yesterday in a
statement. “Decisive and swift action is required from all
authorities,” it said, urging a full and rapid implementation
of measures agreed at a leaders’ summit on July 21.
“Authorities must act in unison with a total commitment to
safeguard financial stability.”
The ESRB said supervisors should coordinate efforts to
strengthen bank capital. “If necessary, this could benefit from
the possibility for the European Financial Stability Facility to
lend to governments in order to recapitalize banks, including in
non-program countries,” it said.
Compliance Action
Google Ad Rate for Microsoft Said to Be Investigated by U.S.
U.S. antitrust enforcers are investigating whether Google
Inc. (GOOG) illegally increased advertising rates 50-fold for rival
Microsoft Corp. (MSFT), according to a person familiar with the matter.
The Federal Trade Commission is probing the increase, along
with other allegations against Google related to advertising, as
a result of complaints from Microsoft, according to the person,
who wasn’t authorized to publicly comment. The complaints are
being examined as part of a larger antitrust probe into Google
that began earlier this year, the person said.
If true, the Microsoft allegations could be used to help
the FTC build a case showing that Google abused its power as the
owner of the world’s most popular search engine, violating the
Sherman Act and other antitrust laws, said Andre Barlow, an
antitrust lawyer at Doyle, Barlow & Mazard PLLC in Washington.
When investigating the ad complaint, the FTC will consider
the motives for the accusations by Microsoft, the world’s
largest software maker and one of Google’s biggest competitors,
said Barlow.
Adam Kovacevich, a spokesman for Mountain View, California-
based Google, said that while company officials didn’t know the
details of Microsoft’s allegations about ads, rates are usually
determined in part by how closely related an ad is to a user’s
search.
Jack Evans, a spokesman for Redmond, Washington-based
Microsoft, confirmed the company had made advertising complaints
against Google and declined to discuss specifics. Cecelia
Prewett, an FTC spokeswoman, declined to comment on her agency’s
investigation.
For more, click here.
IRS Lets Employers Come Clean on Contractor Payroll Taxes
The Internal Revenue Service is giving companies that have
been misclassifying employees as independent contractors a
chance to pay a fraction of back taxes to avoid interest,
penalties and audits for previous years.
Under the program announced yesterday by IRS Commissioner
Douglas Shulman, U.S. companies would have to agree to treat the
workers as employees going forward and pay 10 percent of the
previous year’s payroll taxes. The program is open to employers
of all sizes, though Shulman said he is trying to encourage
smaller businesses to participate.
Worker misclassification is a particularly complex area of
the tax code without clear rules to guide businesses, Shulman
said. Since 1978, Congress has prohibited the IRS from issuing
general clarifying regulations.
Employers are responsible for paying part of the payroll
tax as well as paying federal unemployment taxes for their
workers. Independent contractors pay both the employee and
employer shares of the payroll tax.
Shulman said he didn’t have estimates of how many employers
would join the voluntary compliance program or how much money it
would generate. The program has no deadline.
Gruebel Meets With UBS Board After Singapore Expresses ‘Concern’
Oswald Gruebel, chief executive officer of UBS AG (UBSN), may face
pressure to cut risk and shrink the investment bank as the board
meets in Singapore, less than a week after a $2.3 billion loss
from unauthorized trading.
The CEO met Sept.20 with members of senior management of
the Government of Singapore Investment Corp., the company’s
biggest investor, which “expressed disappointment and concern
about the lapses and urged UBS to take firm action to restore
confidence in the bank,” according to a statement from the
sovereign wealth fund after the meeting with Gruebel.
The encounter marks a shift for the 67-year-old Gruebel,
brought in 2 1/2 years ago to rebuild Zurich-based UBS after
record losses on U.S. subprime mortgage securities led to a
state rescue. Gruebel earned the moniker “Saint Ossie” in
Switzerland for helping to restore Credit Suisse Group AG (CSGN)’s
profits and reputation in his previous CEO role, and for a
trading acumen that included spotting the subprime debacle
early.
Gruebel, reached by phone, confirmed that the company’s
executive board met yesterday and declined to comment further.
The meeting continues in Singapore today. Tatiana Togni, a bank
spokeswoman, said she wouldn’t comment on “speculation”
regarding succession at UBS when asked about Gruebel’s position.
Chairman Kaspar Villiger, speaking to reporters in
Singapore yesterday, said it will be a “normal” board meeting.
When asked whether there has been any pressure from investors
following disclosure of the trading loss, he said “thankfully,
no.” The bank is “solid,” he said.
For more, click here.
Courts
Texas Sues U.S. to Block EPA’s Power Plant Pollution Rules
Texas, the second-most populous U.S. state, sued the U.S.
Environmental Protection Agency, seeking to block rules aimed at
curbing air pollution.
State Attorney General Greg Abbott’s office yesterday filed
a petition for review of the regulation at the U.S. Court of
Appeals in Washington. A request to bar its enforcement was
expected to be filed late in the day yesterday, a spokeswoman
for the attorney general, Lauren Bean, said yesterday in a
telephone interview.
Abbott “is deeply concerned about these new federal
regulations’ impact on the State of Texas, its electric grid and
the Texans whose access to something as basic as electricity is
threatened,” the attorney general said in an e-mailed
statement.
The regulation has been challenged in a lawsuit by Luminant
Generation Co., an Energy Future Holdings Corp. unit, which
claims the measure will cost it $1.5 billion through 2020 and
force it to eliminate at least 500 jobs.
Wyn Hornbuckle, a spokesman for the U.S. Justice
Department, declined to comment on yesterday’s filing.
The case is State of Texas v. U.S. Environmental Protection
Agency, 11-1338, U.S. Court of Appeals for the District of
Columbia (Washington).
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