Archive for April, 2009

Regulators didn’t challenge Freddie’s accounting (AP)

Thursday, April 30th, 2009 | Finance News

WASHINGTON – An outside investigator early last year told regulators that Freddie Mac failed to properly document interest rate bets, but the government didn't challenge the mortgage finance company's accounting practices.

The Federal Housing Finance Agency confirmed that it did not request a change in accounting practices after receiving the report from investigator Kroll Inc. The report concluded that Freddie Mac "failed to satisfy certain documentation elements" of accounting rules relating to the derivative bets made from 2002 to 2004, the agency said in a statement.

The Wall Street Journal reported earlier Thursday that the FBI was examining the February 2008 report requested by the housing finance agency, which oversees Freddie Mac and sibling company Fannie Mae. An FBI spokeswoman declined to comment.

Freddie Mac and its auditors "strongly disagreed" with the report, and provided an analysis indicating that the interest rate bets were effective, the housing agency said. After that analysis, the agency says it did not protest McLean, Va.-based Freddie Mac's accounting.

Michael Cosgrove, a Freddie Mac spokesman, said the company's accounting "was appropriate and followed all the applicable guidance."

Meanwhile, federal prosecutors in Virginia and the Securities and Exchange Commission have been investigating Freddie Mac's accounting and disclosure practices, interviewing employees and reviewing company documents, Freddie Mac said in a SEC filing in March. The investigation started in September, when Fannie Mae and Freddie Mac were seized by government regulators amid mounting losses from the mortgage crisis.

Both Freddie Mac and Fannie Mae use derivatives — contracts whose value is determined based on the value of everything from stocks to interest rates to commodities — to manage, or hedge, their risk from large swings in interest rates. How to account for those derivatives has been a long-running issue.

The two companies, which own or guarantee about 31 million home loans, also have long been beset with controversy over their accounting practices.

Washington-based Fannie Mae and Freddie Mac were forced to restate billions in earnings after federal regulators discovered accounting irregularities at both companies that led to the replacement of top executives. Last fall the government appointed a new set of executives after concluding that losses from the mortgage crisis threatened the companies' financial health.


SEC charges former Citi banker with insider trading (Reuters)

Thursday, April 30th, 2009 | Finance News

WASHINGTON (Reuters) –
U.S. securities regulator charged a former Citigroup investment banker for allegedly tipping his brother about upcoming merger deals in an insider trading scheme that involved six other friends and family members, the U.S. Securities and Exchange Commission said on Thursday.

The SEC alleges that Maher Kara, a former director in Citigroup Global Markets' investment banking division in New York, repeatedly told his brother Michael Kara about upcoming deals in the healthcare industry from at least April 2004 through April 2007.

Michael Kara bought stock and options in companies that were the subject of Citigroup deals and passed tips to his friends and family members, who also traded the securities illegally, the SEC alleged.

The insider trading network, which spanned from New York to California and the Midwest, reaped more than $6 million in illicit profits, the SEC said. According to the complaint, the group made the most trading in stock and options of California-based medical testing company Biosite Inc, less than three days before a March 25, 2007 announcement that it would be acquired.

In total, Michael Kara made more than $1.5 million from the scheme and those he tipped made more than $4.5 million, the SEC said.

Maher Kara left Citigroup in April 2007 and joined another investment bank, the SEC said.

Two of Michael Kara's tippees, Nasser Mardini and Joseph Azar, have agreed to settle the SEC's charges without admitting or denying the allegations. Mardini has agreed to repay illegal profits, and Azar has agreed to repay illegal profits and pay a penalty. The SEC is seeking the repayment of ill-gotten profits and financial penalties from the others.

SEC v Maher F. Kara, Michael F. Kara, Emile Y. Jilwan, Zahi T. Haddad, Bassam Y. Salman, and Karim I. Bayyouk, U.S. District Court Northern District of California, No. CV-09-1880-PJH.

SEC v Joseph Azar, U.S. District Court Northern District of California, No. CV-09-1881-MHP.

SEC v Nasser Mardini, U.S. District Court Northern District of California, No. CV-09-1882-SI.

(Reporting by Rachelle Younglai; Editing by Richard Chang)


U.S. House approves credit card reform measure (Reuters)

Thursday, April 30th, 2009 | Finance News

WASHINGTON (Reuters) –
The U.S. House of Representatives overwhelmingly approved credit card legislation on Thursday aimed at protecting consumers from hidden fees and sudden interest rate hikes.

The chamber voted in support of the Credit Cardholders' Bill of Rights. Banks opposed to legislation have warned it could reduce the amount of credit available and make it more costly to use a credit card.

President Barack Obama, who backs congressional efforts to overhaul the industry, is expected to sign a bill into law by late May once the Senate considers its own version next week.

Citigroup Inc (C.N), Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Capital One Financial Corp (COF.N) had almost 77 percent of the credit card market at the end of 2007.

(Reporting by John Poirier)