Friday, March 30, 2012

Reuters: Regulatory News: UPDATE 4-Security breach hits U.S. card processors, banks

Reuters: Regulatory News
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UPDATE 4-Security breach hits U.S. card processors, banks
Mar 31st 2012, 01:27

Fri Mar 30, 2012 9:27pm EDT

* Visa, MasterCard, American Express, Discover hit

* Breach stems from third-party Global Payments

* Unclear how many accounts affected

By Lauren Tara LaCapra and Carrick Mollenkamp

March 30 (Reuters) - The U.S. Secret Service is investigating a major cyber intrusion at an Atlanta-based payment processor that could expose millions of Ma sterCard, Visa, American Express and Discover cardholders to fraudulent charges.

Processor Global Payments Inc said on Friday it had found "unauthorized access" into its system early in March and notified law enforcement and financial institutions.

Payment network operators MasterCard Inc, Visa Inc , American Express Co and Discover Financial Services confirmed they were affected, along with banks and other franchises that issue cards bearing their logos.

A spokesman for the Secret Service said the agency is leading investigations into the case but declined to give any details.

Though Global Payments is far from a household name, middlemen s uch as the company a re p rized targets f or hackers because of the vast amount of sensitive financial information they handle.

The company's stock fell more than 9 percent on the news before trading was halted. It said it would discuss the breach in a phone call for investors on Monday.

It was not immediately clear how Global Payments was penetrated or how many accounts were exposed. Consumers who detect fraud usually can be reimbursed. That leaves merchants on the hook financially, though they could file claims against Global Payments.

Analyst s said MasterCard and Visa are unlikely to face costs from the breach, but MasterCard shares fell 1.8 percent to close at $420.54 and Visa shares dropped 0.8 percent to $118.

The security breach is just the latest in a long string of incidents that have put the personal information of millions of credit and debit cardholders at risk.

Individual banks and processors said they had not yet determined the full extent of the breach, but the blog Krebs on Security, which first reported the breach, said it was "massive" and could affect more than 10 million cardholders.

Some industry experts suggested the figure might be much lower, perhaps on the order of tens of thousands. Bernstein Research analyst Rod Bourgeois noted that Global Payments is a relatively small player in the transactions services industry, servicing 800,000 merchants with a 3.5 percent market share. By contrast, the largest competitor, First Data, services millions of merchants, with 22.6 percent of the market.

JPMorgan Chase & Co, as well as American Express and Discover, which issue their own cards, said they are monitoring customers' accounts and would issue new cards to anyone whose information may have been compromised.

Citigroup Inc said it has been notified by processors of the breach. Bank of America Corp declined to comment on the matter and Wells Fargo & Co said it was too early to comment on the impact.

Banks and processors emphasized customers would not be held liable for any fraudulent charges that may occur.

Michael Simonsen, chief executive of real-estate research company Altos Research, said he may have been a victim.

Simonsen said he was contacted by Bank of America last week about his Visa card. Although there were no unauthorized transactions, the representative told him a vendor or law enforcement agency had flagged his account as compromised and so he would receive a new one.

"It was very unusual," he said.

PROCESSING PIPELINE

Global Payments, which has about 3,700 employees, was spun off from information-services firm National Data Corp in 2001. For the fiscal year ended May 31, Global Payment reported revenue of $1.9 billion, up 13 percent from the year-earlier period. According to a company presentation in January, it es timated fisca l 2012 revenue at ab out $2.15 billion.

Global Payments is scheduled to report fiscal third-quarter results on Wednesday and a n improvement is expected. On Wednesday, Sterner Agee raised its st ock p rice target for Global Payments to $65 from $58.

Global Payments is one of dozens of companies that operate along the payment-processing chain, between the time a person swipes a card to pay and the time the payment is delivered.

The account number, expiration date and possibly the cardholder's name is sent from the point of payment to a processor, which then connects to Visa, MasterCard, American Express or Discover. Information is then sent to the card issuer - often a bank - which ultimately authorizes the transaction.

The actual transfer of money occurs later.

Processing companies, which perform millions of authorizations each day, are supposed to encrypt card information. But a breach could occur if someone gains access to the system and identifies a gap in the encryption.

The information that was likely collected illegally from Global Payments is called Track 1 and Track 2 data. A person improperly using the information can transfer the account number and expiration date to a magnetic strip on a card and then try to use the card on a website.

Thousands of U.S. banks that issue credit and debit cards receive daily alerts regarding breaches, said Thomas McCrohan, an analyst with Jane Capital Markets.

The illegal use of the data could be stymied if an online merchant asks for the three or four digits printed on a card known as the "CV code."

"The systems can all be made tighter, but if they're too tight no transactions would ever be approved," said Edward Lawrence, a director at Auriemma Consulting Group, a payment systems consultant. "You still have to allow commerce to occur."

Rep. Mary Bono, a California Republican who chairs the House Subcommittee on Commerce, Manufacturing and Trade, condemned the Global Payments breach and urged Congress to adopt stronger data-security legislation this year.

"You shouldn't have to cross your fingers and whisper a prayer when you type in a credit card number on your computer and hit 'enter,'" she said in a statement.

RIPPLE EFFECTS

The breach is the first major instance this year of consumer information put at risk by technological flaws or hacking, but there are plenty of examples of massive data breaches in recent years affecting banks, retailers, technology companies and payment processors.

Last June, Citigroup said computer hackers breached the bank's network and accessed data of about 200,000 cardholders in North America.

Sony Corp also reported several recent attacks, including one last year in which hackers accessed the personal information on 77 million PlayStation Network accounts.

Google Inc suffered a major attack on its Gmail accounts in 2011 that it said appeared to originate in China. Attacks against Gmail users involved direct attempts to compromise accounts by tricking users into revealing information - so-called "phishing" - or by gathering their passwords from other websites, rather than compromising Google systems, according to the company.

Separately, TJX Co Inc and Heartland Payment Systems Inc have had their systems compromised.

On Friday, retailers were already beginning to look for fraudulent purchases from the compromised card accounts stemming from the Global Payments breach. They will bear the financial brunt of those crimes under rules worked out with the card associations and issuers, analysts said.

"Our merchant community is sitting here girding itself and looking at their own fraud-prevention strategies and bracing for the influx of bad transactions," said Tom Donlea, managing director for the Americas at the nonprofit Merchant Risk Council. "After Heartland and after the Sony breach, there was an increase in fraud activity."

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Reuters: Regulatory News: UPDATE 1-Lawsuit says Simply Orange juice not so simple

Reuters: Regulatory News
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UPDATE 1-Lawsuit says Simply Orange juice not so simple
Mar 30th 2012, 23:50

Fri Mar 30, 2012 7:50pm EDT

* Simply Orange depends on added aroma, flavoring - lawsuit

* Coca-Cola says product properly labeled

By Dan Levine

March 30 (Reuters) - Coca-Cola Co's Simply Orange juice brand isn't simply orange juice, according to a lawsuit filed against the beverage company on Friday.

Instead, the lawsuit in an Illinois federal court claims that the product undergoes extensive processing, and is dependent upon added aroma and flavoring in a way not found in nature. The plaintiff, a consumer, accuses Coca-Cola of fraud, and seeks class action status.

The consumer, Randall Davis, had bought the product - whose label says "100% Pure Squeezed Orange Juice" - at stores "for personal, family, or household purposes," the lawsuit said.

Coca-Cola spokeswoman Susan Stribling said the company's Simply and Minute Maid juices are properly labeled in full accordance with FDA regulations.

"This lawsuit has nothing to do with misleading consumers and everything to do with lining class action lawyers' pockets," Stribling said. "It is a meritless case against which we will vigorously defend ourselves."

Lawsuits against food and beverage companies over alleged misleading marketing have drawn more attention, with sometimes dubious results for the plaintiffs.

A suit accusing Taco Bell of misrepresenting the amount of beef in its products received national headlines last year. But Taco Bell vehemently disputed the claims, which were soon voluntarily withdrawn by the plaintiff.

The latest lawsuit said that chemically engineered "flavor packs" are added to Simply Orange, in order to mimic the flavor of natural orange juice. Consumers are willing to pay a premium price for Simply Orange, due in part to their false belief in the freshness of the product, the lawsuit said.

"Coca-Cola misrepresented that Simply Orange was 100% pure and natural orange juice when in fact it was not," the lawsuit said.

The case in U.S. District Court, Northern District of Illinois is Randall Davis, on behalf of himself and all others similarly situated, v. The Coca-Cola Company, 12-cv-02391.

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Reuters: Regulatory News: State regulator closes Michigan bank

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State regulator closes Michigan bank
Mar 31st 2012, 00:06

WASHINGTON, March 30 | Fri Mar 30, 2012 8:06pm EDT

WASHINGTON, March 30 (Reuters) - A state regulator on Friday closed one bank in Michigan, bringing the total number of bank failures this year to 16.

The Federal Deposit Insurance Corporation, which was appointed receiver, said Fidelity Bank of Dearborn, Michigan, was closed on Friday. The bank's 15 branches will reopen Saturday as part of the Huntington National Bank, Columbus, Ohio.

Fidelity Bank had about $818.2 million in total assets and $747.6 million in total deposits.

The pace of bank failures has slowed as the economy and the financial industry recover from the 2007-2009 financial crisis.

Most recent closures have been smaller banks, particularly those with less than $1 billion in assets.

In 2010 157 banks with $92.1 billion in total assets failed while 92 institutions with $34.9 billion in total assets were closed in 2011.

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Reuters: Regulatory News: UPDATE 1-Corning says target of DOJ antitrust probe

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UPDATE 1-Corning says target of DOJ antitrust probe
Mar 30th 2012, 22:26

Fri Mar 30, 2012 6:26pm EDT

MARCH 30 - Corning Inc said on Friday it received a subpoena from the Department of Justice for documents related to automotive parts for which it manufacturers components.

Corning said it received a grand jury subpoena requesting information as part of an investigation into possible antitrust law violations.

The subpoena, issued in the United States District Court for the Eastern District of Michigan, requests information regarding numerous parts installed in automobiles, including catalytic converter substrates and diesel particulate filters for automobiles.

Corning makes ceramic substrates at the heart of catalytic converters in diesel and gasoline-powered engines. The company said it cannot estimate the financial impact of the investigation, but said antitrust investigations can lead to significant penalties.

The company will cooperate with the investigation, but "will not speculate on the cause of the investigation," Corning spokeswoman Beth Dann said in a statement.

Corning shares were flat in after-hours trading at $14.08.

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Reuters: Regulatory News: UPDATE 1-Westlake Chemicals to take $5-$7 mln hit from plant fire

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UPDATE 1-Westlake Chemicals to take $5-$7 mln hit from plant fire
Mar 30th 2012, 22:28

March 30 | Fri Mar 30, 2012 6:28pm EDT

March 30 (Reuters) - Westlake Chemical Corp said it will incur between $5 million and $7 million in lost production and repair costs after a fire broke out at its Louisiana plant last week.

The fire damaged a part of the site that produces vinyl chloride monomer (VCM), an intermediate product used in the production of polyvinyl chloride (PVC).

PVC is a common material used for a variety of building products such as pipe, siding, windows and fence.

Westlake said it has started repair work at the facility, aiming to return to normal operations by mid-May, while some sections, including the PVC plant, may resume earlier.

The company is conducting an investigation into the cause of the fire, which broke out on March 22, Westlake said in a statement.

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Reuters: Regulatory News: Lawsuit says Simply Orange juice not so simple

Reuters: Regulatory News
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Lawsuit says Simply Orange juice not so simple
Mar 30th 2012, 23:10

By Dan Levine

March 30 | Fri Mar 30, 2012 7:10pm EDT

March 30 (Reuters) - Coca-Cola Co's Simply Orange juice brand isn't simply orange juice, according to a lawsuit filed against the beverage company on Friday.

Instead, the lawsuit in an Illinois federal court claims that t he product u ndergoes extensive processing, and is dependent upon added aroma and flavoring in a way not found in nature. The plaintiff, a c onsumer, a ccuses Coca-Cola of fraud, and seeks class action status.

The consumer, Randall Davis, had bought the product - whose label says "100% Pure Squeezed Orange Juice" - at stores "for personal, family, or household purposes," the lawsuit said.

A Coca-Cola representative could not immediately be reached for comment.

Lawsuits against food and beverage companies over alleged misleading marketing have drawn more attention, with sometimes dubious results for the plaintiffs.

A suit accusing Taco Bell of misrepresenting the amount of beef in its products received national headlines last year. But Taco Bell vehemently disputed the claims, which were soon voluntarily withdrawn by the plaintiff.

The latest lawsuit said that chemically engineered "flavor packs" are added to Simply Orange, in order to mimic the flavor of natural orange juice. Consumers are willing to pay a premium price for Simply Orange, due in part to their false belief in the freshness of the product, the lawsuit said.

"Coca-Cola misrepresented that Simply Orange was 100% pure and natural orange juice when in fact it was not," the lawsuit said.

The case in U.S. District Court, Northern District of Illinois is Randall Davis, on behalf of himself and all others similarly situated, v. The Coca-Cola Company, 12-cv-02391.

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Reuters: Regulatory News: UPDATE 2-US FDA denies petition to ban common chemical BPA

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UPDATE 2-US FDA denies petition to ban common chemical BPA
Mar 30th 2012, 21:37

Fri Mar 30, 2012 5:37pm EDT

* BPA used to harden plastic, line tin cans

* Chemical may be harmful to babies, children, groups say

* FDA says will provide new safety review of BPA later

WASHINGTON, March 30 (Reuters) - U.S. health regulators denied a request to ban a chemical used in water bottles, soup cans and other food and drink packaging, saying there is not enough scientific evidence it may cause harm.

The U.S. Food and Drug Administration denied the petition from an environmental group to ban the chemical bisphenol A, or BPA, which has been used for decades to harden plastic or make the epoxy resin that lines tin cans.

But BPA can also leach into food and water from these protective coatings, and environmental and consumer groups argue it can interfere with hormones in humans and cause health problems.

U.S. regulators said studies showing harm have been inconclusive so far, although they continue to review the evidence. The FDA said it would provide an updated safety review of BPA later this year, based on further analysis and government studies.

"I cannot stress enough that this is not a final safety determination on BPA," said Douglas Karas, an FDA spokesman.

The FDA agreed to rule on whether to ban BPA use in food and beverage packaging as part of the settlement of a lawsuit with the Natural Resources Defense Council (NRDC).

The NRDC said studies show long-term exposure to BPA is harmful, especially in fetuses, babies and young children.

"BPA is a toxic chemical that has no place in our food supply. We believe FDA made the wrong call," said Dr. Sarah Janssen, senior scientist at NRDC.

"The FDA is out-of-step with scientific and medical research. This illustrates the need for a major overhaul of how the government protects us against dangerous chemicals."

Consumer concern has already led to discontinuation of BPA use in the production of baby bottles and sippy cups in the United States, the NRDC has said. A sippy cup, which has a lid and spout, allows children to drink without spilling.

In response to further scientific studies, Canada declared BPA a toxic substance in 2010. Both Canada and Europe have already banned it in the production of baby bottles, and France banned it in food packaging.

But use of the chemical remains widespread in food packaging in the United States. BPA is the key compound in epoxy resin linings in cans that keep food fresher longer and prevents it from interacting with metal and altering the taste.

CONFLICTING STUDIES

Human exposure to the chemical has been found to be widespread, although it has not been definitively shown to cause harm to adults. Babies and young children do not metabolize and excrete the chemical as quickly as adults, which some believe may put them at greater risk.

The environmental groups point to studies that show the chemical can interfere with how the body absorbs the hormone estrogen, leading to behavioral problems in girls, a hormonal syndrome in women, and a variety of physiological effects in animals.

It has also been linked in some studies of rats and mice to cancer, obesity, diabetes and heart disease.

But whether BPA is actually to blame for these health problems is still a matter of debate.

In 2008, NRDC filed a petition with the FDA requesting a ban on BPA in food packaging, food containers and any material likely to come in contact with food.

When the FDA did not respond to the petition, NRDC sued in 2010 asking the court to require the agency to respond. The settlement of a case brought before the U.S. District Court for the Southern District of New York required the FDA to make a decision on BPA use by March 31.

The FDA has previously acknowledged it had concerns about the chemical's effects on the brain, behavior and prostate glands in fetuses, infants and young children.

However, in the statement on Friday, the FDA said recent studies have shown exposure to the chemical in infants is much less than previously estimated.

Trade groups for chemical and can manufacturers say they stand behind the chemical, and point to some studies from governmental health agencies that deem BPA safe and effective for food contact. They also note that its use has substantially reduced deaths from food poisoning.

"Instead of bowing to pressure from activist groups, the agency is relying on science to set public health policy," said Dr. John Rost, chairman of the North American Metal Packaging Alliance, a trade group for canned food and beverage makers.

"A ban without conclusive scientific evidence of risk would compromise the safety of canned foods and beverages enjoyed by millions of Americans everyday," he said in a statement.

Unlike the case with plastic used in baby bottles and sippy cups, there are few economically viable alternatives to the chemical in epoxy resins right now.

Some companies such as Campbell Soup Co said they have been researching alternatives to BPA, and are planning to phase it out.

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Reuters: Regulatory News: CORRECTED-US public pension finances rebound slightly-Census

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CORRECTED-US public pension finances rebound slightly-Census
Mar 30th 2012, 20:41

Fri Mar 30, 2012 4:41pm EDT

 By Lisa Lambert         WASHINGTON, March 29 (Reuters) - The finances of public pensions rebounded in the final quarter of 2011 from the quarter before, but the cash and security holdings were still below end-of-2010 levels, according to U.S. Census data released on Thursday.            Gains in stocks and international securities lifted holdings 3.2 percent from the third quarter to $2.61 trillion, slightly less than the $2.64 trillion in the fourth quarter of 2010.          "The public pension funds, in the main, last year went about sideways, said Keith Brainard, research director for the National Association of State Retirement Administrators, adding that the median investment return was around 1 or 2 percent. "And the fourth quarter was strong after that very difficult third quarter that included the market losses."       The 100 largest state and local government employee retirement systems earned $97.1 billion on their investments in the fourth quarter, compared to the $198.8 billion loss they suffered in the third quarter, which was the first loss in more than a year and the largest in more than five years.         "In the middle of the year we're seeing three things," said Hank Kim, executive director of the National Conference on Public Employee Retirement Systems. "First, the ripple effects in the supply chain from the tsunami and nuclear disaster, I think, impacted some of the economic growth and the market. Second, you had the whole silliness with the raising of the debt ceiling. And in Europe you had the crisis."          Last summer the U.S. Congress and President Barack Obama agreed to a plan to start cutting $1.2 trillion in spending in 2013 after a long stand-off over the country's $1.3 trillion deficit and $15 trillion debt.       "The first quarter of 2012 should be good," Kim said. "If you look at the broader markets, I think they came to life since Jan. 1. Hopefully when the market closes on Friday, we can capture that."       Meanwhile, employees pitched $9.2 billion into the retirement systems over the quarter, slightly down from the $9.5 billion they contributed during the same period a year ago.          Government contributions, essentially the taxpayer tab, also dipped, to $21.5 billion from $22.4 billion the year before.         Still, total contributions grew throughout 2010 and 2011, and the total $33.4 billion that governments and employees put in during the second quarter of 2011 was the highest in more than five years.             Typically, when investment returns are low, governments increase contributions. But during some of the worst budget crises in recent memory, state and local governments cut back just as the stock market plunged.            With recent retirement breakdowns in Rhode Island and the threats of further fiscal stress in other places, states are worried about how to fund future retiree benefits without cutting spending on other vital programs. Most states are in the thick of budget negotiations for the upcoming fiscal year, and many are bound by their constitutions to pay retiree pension benefits.           Almost everyone agrees pension funds can pay for current retirees but are short on future obligations. Estimates of the shortfall range from just under $700 billion to $3 trillion, based on how investment returns are forecast. The systems prefer using historical averages, while critics say they cannot bank on achieving the return highs they experienced before the crisis.       California's pension fund for public employees made international headlines earlier this month when it lowered its assumed rate of return to 7.5 percent from 7.75 percent.             The financial crisis caused the earnings on public pensions investments, the funds' largest sources of revenue, to plummet for three quarters in a row from the end of 2008 to the beginning of 2009. The value of their holdings scraped the bottom at $2.09 trillion in the first quarter of 2009.       Since then, they have slowly inched closer to the $2.93 t rillion they reached in the final quarter of 2007, before the recession devastated their balance sheets.           "Public pension funds keep a long-term perspective, and it has been a strong few years since the bottom of the market in 2009," Brainard said. 
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Reuters: Regulatory News: UPDATE 1-Burger King to incur charge on Carrols deal

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UPDATE 1-Burger King to incur charge on Carrols deal
Mar 30th 2012, 21:21

March 30 | Fri Mar 30, 2012 5:21pm EDT

March 30 (Reuters) - Burger King Corp said it will take an impairment charge as a result of its previously announced sale of 278 of its outlets to C a rrols Restaurant Group Inc.

Last week, Carrols agreed to buy the Burger King restaurants in a cash-and-stock deal that will make it the biggest Burger King franchisee in the world.

Burger King, now the third-largest U.S. hamburger chain, also said it is evaluating the accounting implications of the sale and is unable to estimate the amount or the range of amount of the charge the company might take.

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Reuters: Regulatory News: UPDATE 3-Obama says enough world oil to crack down on Iran sales

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UPDATE 3-Obama says enough world oil to crack down on Iran sales
Mar 30th 2012, 19:53

Fri Mar 30, 2012 3:53pm EDT

* Oil market tight; disruptions seen in several regions

* Added production, strategic reserves will offset Iran sales

* Talks ongoing with S. Korea, China, India on cutting imports

By Jeff Mason and Roberta Rampton

BURLINGTON, Vt./WASHINGTON, March 30 (Reuters) - President Barack Obama vowed on Friday to forge ahead with tough sanctions on Iran, saying there was enough oil in the world market - including emergency stockpiles - to allow countries to cut Iranian imports.

In his decision, required by a sanctions law he signed in December, Obama said increased production by some countries as well as "the existence of strategic reserves" helped him come to the conclusion that sanctions can advance.

"I will closely monitor this situation to assure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran," he said in a statement.

Obama had been expected to press on with the sanctions to pressure Iran to curb its nuclear program, which the West suspects is a cover to develop atomic weapons but which Iran says is purely civilian.

The overt mention of government-controlled stockpiles may further stoke speculation that major consumer nations are preparing to tap their emergency stores later this year.

Oil markets remain tight, the White House said. Surging gasoline prices have become a major issue in the presidential election campaign.

"A series of production disruptions in South Sudan, Syria, Yemen, Nigeria, and the North Sea have removed oil from the market," the White House said in a statement.

France is in talks with the United States and Britain on a possible release of strategic oil stocks to push fuel prices lower, French ministers said on Wednesday.

Senior Obama administration officials told reporters that the United States views releasing emergency stocks as an option, but said no decision has been made on specific actions.

Oil prices briefly rallied by about 70 cents on the announcement, but later reversed gains to end almost flat as traders turned mindful of the possible use of reserves.

"There's been a shift from focus on a threat (by Iran) to close the Strait of Hormuz to whether or not reserves are going to be released," said Dominick Caglioti, a broker at Frontier Trading Co. in New York.

PUTS IMPORTERS ON NOTICE

Obama is required by law to determine by March 30, and every six months after that, whether the price and supply of non-Iranian oil are sufficient to allow consumers to "significantly" cut their purchases from Iran.

The law allows Obama, after June 28, to sanction foreign banks that carry out oil-related transactions with Iran's central bank and effectively cut them off from the U.S. financial system.

"Today, we put on notice all nations that continue to import petroleum or petroleum products from Iran that they have three months to significantly reduce those purchases or risk the imposition of severe sanctions on their financial institutions," said Senator Robert Menendez, co-author of the sanctions law.

Obama can offer exemptions to countries that show they have "significantly" cut their purchases from Iran.

Washington recently exempted Japan and 10 EU countries from the sanctions because they have cut Iranian oil purchases.

A senior administration official told reporters that talks continue with China, India, South Korea and other importers of Iranian oil to reduce their shipments.

NEW SANCTIONS IN THE WORKS

Obama faces a delicate balancing act on Iran, leading up to November U.S. elections. On the one hand, he must show voters he is being tough on the Islamic state.

But with oil and gasoline prices surging in response to geopolitical risks, he must also avoid steps that would unduly rattle oil markets. That could threaten the global economy and hurt voters already angered by the rising cost of fuel.

Obama also faces pressure from some in Congress who want to make sanctions on Iran even tighter. The House of Representatives has already passed additional sanctions, and a bill is pending in the Senate.

"We welcome the president's determination and applaud the administration's faithful implementation of the Menendez-Kirk amendment," said a spokesman for Senator Mark Kirk, a Republican who has pushed for additional measures.

"To build on this momentum, we hope the Senate will consider amendments to the pending Iran sanctions bill that would continue to increase the economic pressure on the Iranian regime," Kirk's spokesman said.

Senior administration officials briefing reporters declined comment on the proposed new sanctions.

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Reuters: Regulatory News: Lawsuits test UBS advice on offshore bank accounts

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Lawsuits test UBS advice on offshore bank accounts
Mar 30th 2012, 19:37

Fri Mar 30, 2012 3:37pm EDT

* US clients allege Swiss bank failed to advise properly

* Lawsuits charge asset bankers have legal obligation to clients

By Lynnley Browning

March 30 (Reuters) - The case of a wealthy U.S. businessman who pleaded guilty to evading taxes but then sued the Swiss bank where he hid his money is scheduled to go to trial on May 8, the first major test of civil legal challenges to Swiss banks that sold offshore private banking services to help Americans evade taxes.

The civil suit, filed against UBS AG in federal court in Santa Ana, California - and another filed against UBS in federal court in Chicago - will probe whether clients can legally rely on their private bankers' assertions there is no need to disclose the accounts on their tax returns or sign required disclosures.

Tax lawyers describe the suits, emerging from a crackdown by federal authorities on Swiss banks, as the first of their kind in the United States to assert that Swiss bankers made improper assertions to their U.S. clients about the tax implications of their offshore accounts.

In the California case filed in 2008, Russia-born American billionaire Igor Olenicoff accuses UBS of fraud in handling some $200 million he kept in offshore accounts and wrongfully advising him he did not have to report them to the tax-collecting IRS. Olenicoff pleaded guilty to tax evasion in 2007 and to lying on his tax returns by failing to disclose his offshore accounts, and paid $52 million in back taxes. His suit seeks $500 million in damages.

The Chicago case, which seeks class-action status, was filed in June 2011 on behalf of former UBS clients Matthew Thomas of California and Himanshu Patel of Arizona. Thomas and Patel previously paid back taxes, interest and penalties to the IRS related to their Swiss accounts. They accuse UBS of fraud and breach of fiduciary duty for allegedly telling them that their accounts, opened when the two worked overseas during the last two decades, did not have to be disclosed to the IRS.

UBS argues in both cases that its clients have a duty to know what to declare on their U.S. tax returns. A UBS spokeswoman in New York, Karina Byrne, declined to comment specifically on the lawsuits, but said the bank "does not give any tax advice to our clients, and we encourage clients to seek third-party tax advice."

U.S. INVESTIGATION UNDER WAY

The two cases are unfolding at a time when U.S. authorities are conducting a major investigation into the Swiss banking industry. The U.S. Justice Department has indicted one Swiss private bank, Wegelin, and charged scores of Swiss bankers and their American clients with tax evasion.

In 2009, UBS averted indictment and paid a $780 million fine to the U.S. Justice Department as part of a deferred-prosecution agreement in which it admitted to fraud and conspiracy in helping about 19,000 wealthy Americans hide up to $20 billion in secret bank accounts.

Olenicoff's name had been provided to the U.S. Justice Department earlier. The other two plaintiffs came forward to the IRS through voluntary disclosure programs, created in the wake of the UBS probe, that drew in 33,000 U.S. taxpayers with unreported accounts in Switzerland and elsewhere.

It is legal for U.S. residents to hold offshore bank accounts, but the IRS requires taxpayers to disclose the accounts on their tax returns as well as to sign special disclosures provided by the banks, known as W9 forms.

Under a U.S. Treasury program known as qualified intermediary, banks are required to collect the W9 forms and withhold taxes - typically 28 percent to 31 percent - on proceeds from U.S. securities held in client accounts and to send that money to the IRS.

If clients refuse to sign the disclosures, the banks must sell any U.S. securities held in the offshore accounts, a process that triggers a tax bill for the client and a requirement that the bank report the sale and the client's identity to the IRS.

UBS admitted as part of its agreement in 2009 that it did not collect or require clients to sign the forms, while concealing their identities from the IRS under Swiss bank secrecy laws. Olenicoff, a property developer whose wealth was estimated by Forbes in March 2012 at $2.6 billion, argues in part that UBS told him he did not have to sign the disclosures and that the investment accounts he was in complied with U.S. tax laws.

FIDUCIARY DUTY

In March 2010, the judge in Olenicoff's case rejected UBS's motion to dismiss the case, noting that "while banks typically do not owe fiduciary duty to their depositors, there are some situations where a fiduciary duty is owed."

Thomas and Patel allege that UBS never told them they had to sign W9s and failed to withhold required taxes on U.S. securities in their accounts.

David Deary, a Dallas-based lawyer for Thomas and Patel, said the potential number of plaintiffs in his case, which would cover American customers of UBS from 2002-2008 who entered voluntary disclosure programs with the IRS, could reach 25,000.

"Our clients simply followed UBS's advice that they did not have to declare and pay taxes on the investment income," he said.

Some tax experts, including Jay Soled, an accounting professor specializing in tax at Rutgers University, say potential plaintiffs might not come forward for fear of airing dirty laundry about their own taxes.

The cases against UBS may differ in one key way from the fraud and breach of fiduciary duty claims filed in recent years against some accounting, auditing and law firms by wealthy Americans who had bought tax shelters. Plaintiffs in those civil cases, which resulted in hefty settlements, were bolstered by legal opinions from the law firms blessing their invalid shelters - something the UBS clients lack, tax lawyers said.

Larry Campagna, a tax lawyer at Chamberlain Hrdlicka in Houston, said most juries would be unsympathetic to a wealthy U.S. resident who relied on a foreign banker for tax advice.

But Jonathan Strouse, a tax lawyer at Holland & Knight in Chicago, said that even if Swiss bank clients had a duty to know they should have reported the secret accounts on their tax returns, they could still have "false representation" cases against banks which gave them improper information. "A lot of the clients had huge tax bills, and they're going to be looking to get back anything they can from the banks," Strouse said.

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Reuters: Regulatory News: UPDATE 1-US House Republicans discuss reviving earmarks

Reuters: Regulatory News
Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com
UPDATE 1-US House Republicans discuss reviving earmarks
Mar 30th 2012, 19:39

Fri Mar 30, 2012 3:39pm EDT

* Congress searching for ways to pass bills

* Special interest projects offered legislative "grease"

By Richard Cowan

WASHINGTON, March 30 (Reuters) - The huge federal transportation bill was in tatters in early March when U.S. Representative Mike Rogers of Alabama posed a heretical idea for breaking through gridlock in the House.

In a closed-door meeting with fellow Republicans, Rogers recommended reviving a proven legislative sweetener that became politically toxic a year ago.

Bring back earmarks, Rogers, who was first elected to Congress in 2002, told his colleagues.

Few members of Congress have been bold enough to use the "e" word since both the House and Senate temporarily banned the practice last year after public outcries about Alaska's "Bridge to Nowhere" and other pork barrel projects.

But as lawmakers wrestle with legislative paralysis, there are signs that earmarks - special interest projects that used to be tacked onto major bills - could make a comeback.

"I just got up ... and did it because I was mad because they were talking about how we can't get 218 votes," Rogers told Reuters, referring to the minimum of 218 votes needed to pass legislation in the 435-member House.

"There was a lot of applause when I made my comments. I had a few freshmen boo me, but that's okay. By and large it was very well embraced," he added.

New Republican members backed by the Tea Party movement have railed against earmarks as a symbol of out-of-control government spending and unaccountable lawmakers.

Congress has another nine months to operate under an earmark ban, so discussions on lifting the ban are in their early stages, members and aides say.

But on the House side, where a splintered Republican majority is struggling to muster enough votes to pass bills, second thoughts about the earmark ban are "pretty pervasive," said a senior aide.

Rogers' remarks in the closed caucus meeting in early March were echoed by two other Republican lawmakers, Representatives Louie Gohmert and Kay Granger, according to some at the meeting.

House Speaker John Boehner, who pushed for the earmark ban, is considering forming a committee to study earmarks reforms, according to Rogers. Other sources also said that during the closed meeting, the speaker said he would consider reforms, and other leading Republicans did not shoot down the idea.

Boehner has acknowledged that the ban makes his job more difficult. In past years, one reason the sprawling transportation bill could move through Congress with bipartisan support was because thousands of lawmakers' pet projects were tacked onto the bill, he has said.

But reviving earmarks is still so controversial that Boehner and other leaders are unlikely to publicly discuss it in an election year in which pork barrel spending is still under attack. The discussions so far appear to be among Republicans.

"The House did the right thing in instituting an earmark ban, and the American people strongly support it," a Boehner spokesman said in response to questions.

In the Senate, Thad Cochran, the senior Republican on the Appropriations Committee - an earmark gateway in the old days - told Reuters: "At some point there will surely be conversations about alternatives" to the earmark ban. He was quick to add that he has not tried to initiate the conversation.

Democrats agreed to banning earmarks after suffering big defeats in 2010 congressional elections and after President Barack Obama warned he would veto bills containing them.

But like Republicans, Democrats have differing views on keeping the ban. Senate Majority Leader Harry Reid is on record defending earmarks, saying elected representatives are more in touch with local needs than executive branch bureaucrats.

Steve Ellis, vice president of Taxpayers for Common Sense, a non-partisan budget watchdog group, said discussions about reviving earmarks suggest the desperation of a Congress in which stalled legislation is now routine.

The difficulties in passing bills are leading lawmakers to conclude the only answer is to "bring the political grease back into the system," Ellis said.

BRING BACK THE GREASE

Political analysts have long referred to earmarks, or "member-directed funding" as it is sometimes known, as the grease enabling legislation to move through Congress.

Republican Representative Steven LaTourette, an 18-year House veteran, said the earmark ban "has affected discipline" within the party. "You can't get 218 votes (out of 242 Republican House members) and part of that has to be if you can't give people anything (earmarks), you can't take anything away from them."

If a member of Congress agrees with 90 percent of a pending bill but is "uncomfortable" with the other 10 percent, "Sometimes taking care of your district (with earmarks) made up for that 10 percent," he said.

Some believe earmarks got a bad rap.

Public outrage focused on projects like the notorious "Bridge to Nowhere" connecting the Alaskan mainland with an isolated island, or a teapot museum in North Carolina.

Other earmarks have funded crucial projects, proponents say. One example is the "Predator" drone, the unmanned military aircraft used in Afghanistan and other hot-spots to target militants without jeopardizing U.S. soldiers' lives, that came from a lawmaker's request.

Both sides in the debate agree that before earmarks resurface, reforms are essential.

Earmarking was long controversial because many of the projects showed up in the fine print of legislation without warning and with little or no public debate.

Congressman Gohmert believes the solution is rules to keep spending on specific companies and projects from being "air dropped" into bills without oversight.

"We can be specific without having it be crony capitalism, monuments to me, bridges to nowhere," Gohmert said.

Others propose limiting earmarks so that they only go to local or state government-backed projects or universities. And reforms should also break the links between campaign contributions and earmarked projects, members say.

In pitching earmarks, Gohmert and other Republican lawmakers and aides lament that the ban has been a boon to Democratic President Barack Obama, whose administration can still dole out projects as it sees fit.

"I think there's a way that it can be done that we take back the purse strings that the Constitution gives us without just handing sacks of money to the president," Gohmert said.

But even if momentum grows for an earmark revival, some members are unlikely to join in.

Representative Jim Jordan, who heads a conservative coalition in the House, told Reuters: "My read is that the ban on earmarks is where it needs to be."

And Senator Tom Coburn, a conservative Republican who wants a permanent ban, said earmarks should not be a tool for buying votes on important bills.

Pork barrel spending was "the bane of the American taxpayers' existence." he said.

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Reuters: Regulatory News: UPDATE 1-U.S. swaps pushout rule to kick in July 2013

Reuters: Regulatory News
Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com
UPDATE 1-U.S. swaps pushout rule to kick in July 2013
Mar 30th 2012, 19:33

Fri Mar 30, 2012 3:33pm EDT

WASHINGTON, March 30 (Reuters) - U.S. banking regulators said on Friday that the controversial rule requiring banks to spin off some of their swap trading into affiliates will not take effect until July 16, 2013.

The rule was mandated by the 2010 Dodd Frank Wall Street reform and seeks to prevent banks that receive government backstops like deposit insurance from taking big risks on swaps.

The measure was tucked into the Dodd-Frank law by then-Senator Blanche Lincoln and was widely opposed by the financial industry and even some fellow Democrats.

The so-called Lincoln provision requires banks to spin off certain kinds of swap trading into affiliated entities, including uncleared credit-default swaps and energy and metal swaps, among others.

The rule was already slated to go into effect in 2013, but confusing language in the law led some market participants to fear the provision would kick in this year.

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Reuters: Regulatory News: U.S. Supreme Court takes up healthcare in secrecy

Reuters: Regulatory News
Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com
U.S. Supreme Court takes up healthcare in secrecy
Mar 30th 2012, 19:59

Fri Mar 30, 2012 3:59pm EDT

* Private conferences held with only justices attending

* Confidentiality drilled into clerks "from day one"

* No leaks of Supreme Court rulings in recent decades

By James Vicini

WASHINGTON, March 30 (Reuters) - U.S. Supreme Court justices on Friday held closed-door deliberations on President Barack Obama's healthcare overhaul law, likely casting preliminary votes on how they will eventually rule on their highest-profile case in years.

In an institution known for keeping its secrets, no leaks are likely before formal opinions have been written and announced from the bench. That is not expected to occur until late June, when the court is set to go on its regular summer recess.

The justices' private conference, a meeting in which they typically discuss and vote on cases heard earlier in the week, came after three days of historic arguments over the healthcare law that ended on Wednesday.

Legal experts said only a handful of people - mainly consisting of the nine justices and their law clerks - know about the outcomes of these conferences, and they do not talk about it. Law clerks are sworn to secrecy.

"Confidentiality is drilled into clerks from day one," said University of Richmond associate law professor Kevin Walsh, a law clerk to Justice Antonin Scalia in the court's 2003-04 term.

"The rules and warnings only heightened the obligation we already felt to maintain confidentiality born out of our respect for the Supreme Court and our desire to protect it," he said.

"And it's not like working for the CIA, where you may take secrets to the grave. The big news of any given term - what the court has decided - all comes out into the open by the end of June," Walsh said.

The Supreme Court's private conferences are held with only the justices attending. The meeting room, located on the second floor, is relatively small, oak-paneled and with a fireplace and a rectangular table. It is just off the chambers of Chief Justice John Roberts.

"WE SHOULD REPORT IT"

In recent decades there have been no leaks of Supreme Court rulings, including the momentous 2000 decision that stopped a Florida vote recount, clearing the way for Republican George W. Bush to become president over Democrat Al Gore.

There have been no leaks in high-stakes financial cases including ones affecting the tobacco industry. Stocks of insurers and other healthcare companies could be roiled by any ruling on the two-year-old healthcare law, Obama's signature domestic policy achievement.

The last time Supreme Court leaks emerged as an issue was under Chief Justice Warren Burger, who left the court in 1986.

Then-ABC TV journalist Tim O'Brien reported in 1986 that the court the next day would strike down a key part of a law to balance the U.S. government's budget. He was right about the outcome, but the ruling did not come down until weeks later.

In 1979 he correctly reported the ruling in a major libel case involving the CBS News television show "60 Minutes."

Burger accused an employee in the printing shop of tipping O'Brien and had the employee transferred. The employee denied disclosing any information about the ruling.

"The court has the right to protect its secrets," said O'Brien, who has left ABC and who acknowledged that leaks of rulings are rare.

"But if the news media learns about it, we should report it," said O'Brien, an attorney who has taught law. "People don't watch us or read us because of our ability to keep the government's secrets."

In 1973 Time magazine correctly predicted the court's historic decision that women have a constitutional right to an abortion. Burger then warned all the law clerks not to speak to or be seen with news reporters.

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