Archive for June, 2009

Administration sends Congress consumer legislation (AP)

Tuesday, June 30th, 2009 | Finance News

WASHINGTON – President Barack Obama asked Congress on Tuesday to create a new agency to police the fine print on credit card bills and mortgage documents and determine what fees, penalties and interest rates are fair.

The Consumer Financial Protection Agency would be in charge of regulating credit cards, savings accounts and mortgages in the same way other government agencies regulate the safety of drugs, food and toys.

Obama said Americans are demanding it.

"Those ridiculous contracts with pages of fine print that no one can figure out — those things will be a thing of the past," the president said in a statement accompanying the 152-page draft bill. "And enforcement will be the rule, not the exception."

Republicans and bankers, however, already are balking and gearing up for a fight.

Part of the agency's mission would be to implement new restrictions on credit card companies passed by Congress this spring. That law prohibited arbitrary rate hikes and limited access to cards by minors.

The consumer protection agency also would regulate high-rate "payday loans" and the terms on savings, checking and debit card accounts, including overdraft charges.

Under the plan, lenders would be required to be up front about their products, potentially applying warning labels to risky products like mortgage payments that balloon in the future.

The agency's creation would extend federal oversight to a market that so far has mostly escaped it. Confusing and risky mortgages are blamed for contributing to the housing crisis that roiled Wall Street and resulted in a $700 billion taxpayer bailout for banks.

Democrats in Congress have embraced the idea of a consumer financial watchdog as a way of showing voters they are on their side during tough economic times.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, called the proposal one of his highest priorities and said his panel would consider it in July as part of a broader effort to overhaul federal regulations on the entire financial industry.

Sen. Christopher Dodd, who faces a tough re-election fight next year, also vowed to steer the proposal through the Senate Banking Committee he chairs despite staunch opposition from the banking industry. "It is unbelievable that some of the same irresponsible actors that helped create the current financial mess would argue that we are doing too much for consumers," said Dodd, D-Conn.

Republicans and financial executives counter that setting strict rules on the consumer market will limit options for buyers and potentially increase the cost of financial products as banks try to make up for lost revenue.

Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, said the bill could give consumers a false sense of security when it comes to selecting financial products.

"The proposed CFPA appears to be premised on the idea that Washington is better at making financial decisions for all Americans than leaving that choice up to individual Americans," he said.

Steve Bartlett, president of the Financial Services Roundtable, said the new agency would end up increasing the costs of financial products, reduce consumer choices and "stifle innovation and increase confusion" on the part of consumers.

Proponents of the agency say its creation doesn't have to mean fewer products on the market.

Elizabeth Warren, a Harvard University professor who long has advocated creation of a consumer-protection agency, said she envisions a system that would allow products to remain available as long as lenders are up front and concise about their terms.

For example, the agency could allow banks to offer mortgages with ballooning monthly payments as long as lenders compare their terms to a traditional fixed-rate mortgage.

Warren said she thinks most consumers would have stayed away from many of the risky mortgages that contributed to the housing crisis had they understood them better.

"Most of the bad products were marketed by trickery," she said.

Likewise, Treasury Department officials said the agency's goal wouldn't necessarily be to lay a heavy hand on industry. The legislation explicitly requires the CFPA to consider the burden any new rule would place on a financial institution and whether it would restrict consumer access to credit.

Compliance would be enforced through penalties, but the CFPA also would require an annual operating budget, which has yet to be disclosed. The agency would be independent of other government agencies that now share those oversight duties and take away some power from some, most notably the Federal Reserve.

The agency would be run by a five-member board with four members nominated by the president and confirmed by the Senate. The fifth member would be the director of the new National Bank Supervisor, the merged agency the administration is proposing to create to take over bank regulation duties.

The proposal is part of broader plan by Obama to increase oversight of the financial industry and eliminate regulatory gaps believed to have contributed to the economic crisis. The plan would be the most sweeping rewrite of the government rule book since the 1930s, although lawmakers are split on whether it does enough to streamline the complex system.

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Associated Press writer Martin Crutsinger contributed to this report.

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Judge orders Allen Stanford jailed until trial (Reuters)

Tuesday, June 30th, 2009 | Finance News

HOUSTON (Reuters) –
A federal judge on Tuesday ordered Texas financier Allen Stanford, accused of a $7 billion fraud, held without bail until trial.

U.S. prosecutors had argued that Stanford, who faces life in prison if convicted on all charges contained in a 21-count indictment, had the means and motive to flee.

"The court determines that Stanford is a serious flight risk and there is no condition or combination of conditions or pretrial release that would reasonably assure his appearance," U.S. District Judge David Hittner said in an order that revokes a $500,000 bond that a magistrate had granted Stanford on Thursday.

Stanford, who spent the last 15 years living in the Caribbean where he was knighted by the Antiguan government, had a network of wealthy associates and had at least two passports, prosecutors told Hittner at hearing on Monday.

"We are very disappointed and we are going to appeal to the 5th Circuit," Dick DeGuerin, Stanford's lawyer said in a statement.

The billionaire, who is more accustomed to jetting around the globe in private aircraft, has been in custody since his arrest on June 18 in Virginia. He is currently being held in a federal detention center 40 miles north of Houston.

Hittner has recent experience with a white-collar criminal jumping bond. Harris "Butch" Ballow, who pleaded guilty after being charged with fraud in 2002, failed to show for sentencing. Hittner held a status conference on Ballow's whereabouts in April, court records show.

The judge's decision to detain Stanford was characterized as unusual, lawyers said.

"In the federal judicial system, it's standard for white- collar crime defendants to be released on bond," said Houston attorney Chris Bebel, a former federal prosecutor who has done white collar criminal defense work and specializes in securities law.

MINDFUL OF MADOFF

Another attorney said he would not be surprised to see the 5th Circuit Court of Appeals in New Orleans overturn Hittner's ruling. Still, Jacob Frenkel, a former federal prosecutor said the appeals court is "fully mindful of the public outrage that attached to Bernard Madoff receiving bail."

Madoff, who was sentenced to 150 years in prison for a $65 billion investment fraud on Monday, was initially granted bail, but was unable to post it. He ended up under house arrest in his penthouse apartment.

DeGuerin had argued that a court-ordered freeze of Stanford's assets had left his client broke, with no funds for an escape. He also told the court Stanford tried to surrender to authorities three times, proof he was willing to stand trial on the government's charges.

The start of Stanford's trial is tentatively scheduled for August 25, but that date likely will be changed. DeGuerin told a judge last week it would take at least a year to prepare for the trial, which involves documents and investors in the United States, Europe, the Caribbean and Latin America.

The government accuses Stanford of leading a massive Ponzi scheme using the investor funds from certificates of deposit issued by his bank in Antigua.

Stanford sought to avoid detection by creating false accounting records, lying to investors and bribing a regulatory official in Antigua, according to prosecutors.

"It's appropriate, it's very much appropriate given the severity of the charges," said Angela Shaw, who says her family lost $2 million in Stanford investments. Shaw heads up a coalition of 2,500 Stanford clients who lost money.

Also on Tuesday, Britain froze $100 million linked to Stanford within five hours of a request from the United States Department of Justice, Britain's Serious Fraud Office said [nLU701899].

The case, filed in federal court in Houston, is United States of America v. Robert Allen Stanford H-09-342.

(Reporting by Eileen O'Grady and Bruce Nichols; additional reporting by Erwin Seba in Houston; writing by Anna Driver; editing by Gary Hill and Andre Grenon)

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SEC may tighten executive pay rules: sources (Reuters)

Tuesday, June 30th, 2009 | Finance News

WASHINGTON/NEW YORK (Reuters) –
U.S. securities regulators are considering changing how companies are required to disclose stock options awarded to executives, people familiar with the Securities and Exchange Commission's thinking told Reuters on Tuesday.

At an SEC meeting on Wednesday, the commissioners also will propose giving investors a greater voice in setting executive pay at companies that were given taxpayer funds under the U.S. government's Troubled Asset Relief Program.

Among the possible changes is a revision to how companies value equity awards in the "summary compensation table" for top executives that they file with the commission each year.

The SEC is considering requiring companies to include the estimated value for stock options granted during the year, the people said. The sources requested anonymity because the proposal is still being crafted and may change.

The table now includes the value of option grants that vested, or became eligible to be exercised, during the year. Many compensation experts consider this an imperfect way to value options, and believe options should be valued as of the date they are granted.

A change in how companies report the value of stock options could profoundly affect the reporting of executive pay.

Citigroup Inc (C.N), for example, reported $10.8 million of compensation for Chief Executive Vikram Pandit in 2008, according to a proxy filing. Had the bank valued Pandit's stock and option grants as of the date they were granted, his reported compensation would have been $38.2 million.

Pandit was awarded much of his 2008 compensation on January 22 of that year, when Citigroup shares closed at $24.42. The stock closed Tuesday at $2.97, and Pandit's awards are now either under water or show paper losses.

OBAMA PUSHES CHANGE

The Obama administration has sought to rein in excessive executive pay amid outrage from lawmakers and the public that some executives, including some at insurer American International Group Inc (AIG.N), were copping big pay packages even as the government propped up their companies.

The administration has urged Congress to give the SEC authority to require publicly traded companies to give shareholders a nonbinding vote on pay for top executives.

It also wants the SEC to have power to insure that corporate pay committees are sufficiently independent from management.

The SEC may propose requiring companies to disclose more information about compensation consultants who also perform other work for the company, the sources said.

For example, if a consultant provided compensation advice and other services, the company would be required to disclose their fees and the other work being performed.

Governance activists charge that consulting firms face conflicts of interest because of their dual role in advising companies on human resources as well as executive pay.

OTHER CHANGES

The SEC may also expand the so-called compensation, discussion and analysis (CD&A) section of the proxy statement, to require companies to address how they set compensation for regular employees, as well as top executives.

The regulator also is mulling further disclosures about the experience and qualification of director candidates, as well as why a company adopts a particular leadership structure, such as separating the chairman and CEO roles.

In addition, it may also consider requiring companies to expand discussion of material risks to its business.

Some of the changes under consideration are similar to proposals outlined this year by Chairman Mary Schapiro.

"The current rules only require a very brief description of a candidate's business experience over the past five years," Schapiro said in April. "That may not be sufficient in today's complex business environment."

(Reporting by Rachelle Younglai and Jonathan Stempel; editing by Carol Bishopric and Matthew Lewis)

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