Citigroup faces regulatory scrutiny in Japan -source
TOKYO, Oct 2 (Reuters) - Citigroup is being
investigated by Japanese regulators for possible infractions
related to its marketing of financial products and could face
its third major punishment in Japan in 7 years, a source with
knowledge of the matter said.
Japan's Financial Services Agency (FSA) is probing whether
Citigroup failed to offer sufficient explanations to customers
about investment trusts, which are similar to mutual funds in
the U.S., and other financial products, the source said.
The regulator is also looking at whether controls against
money laundering were sufficient, following punitive action in
recent years for lax oversight in that area, the source said.
The FSA plans to order Citigroup to report on its legal
compliance and will then decide whether it deserves to be
punished. Possible sanctions include having some operations
suspended for a certain period of time, the source said.
The source spoke on condition of anonymity because the probe
into Citigroup specifically has not been made public.
No one at the FSA, which carries out routine inspections on
all banks, could be immediately reached for comment.
"It is a matter of public record that the FSA is conducting
an inspection and we don't comment on conversations with our
regulators," a spokeswoman for Citigroup in Japan said without
elaborating.
News of the probe was first reported by Dow Jones.
Sanctions would come as a fresh blow to Citigroup, which had
its name tarnished in Japan in 2004 when regulators forced it to
close its private banking business due to lax controls in the
prevention of money laundering.
It was punished again in 2009 for the same violation and
forced to suspend retail bank marketing activities for a month.
(Reporting by Noriyuki Hirata, Taiga Uranaka and Junko Fujita;
Editing by Nathan Layne)
$9 bln claim not 'customer' claim -Lehman trustee
* Fight centers on status of claim from Lehman European arm
* Trustee says should not be given customer status
* If allowed, could limit reimbursement for other customers
By Nick Brown
Sept 30 (Reuters) - The trustee liquidating Lehman
Brothers' (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) U.S. brokerage said an $8.9 billion claim
from the failed investment bank's European affiliate is not
entitled to the higher-priority payback status given to
customers.
Responding to an objection filed in August by Lehman
Brothers Inc Europe, trustee James Giddens stood by his earlier
decision to deny the claim customer status, saying it was not
made on behalf of any customer.
LBIE's claim would benefit the affiliate's general estate,
"including the estate's trade creditors and bondholders,"
Giddens said in court papers lodged Friday in U.S. Bankruptcy
Court in Manhattan.
That would fly in the face of the Securities Investor
Protection Act, whose purpose is to protect customers of failed
brokerages, argued Giddens, an attorney at Hughes Hubbard &
Reed.
LBIE had challenged Giddens' interpretation of SIPA, saying
nothing in the law inherently prevents affiliates from
asserting valid customer claims. The objection came about 11
months after Giddens denied the claim customer status in
September 2010.
The claim relates to securities traded by LBIE and held on
its behalf by the brokerage, Lehman Brothers Inc.
The dispute, which is still likely more than a year away
from trial, will be front-and-center in the fight over how to
allocate LBI's finite resources.
The brokerage has between $20 billion and $25 billion in
assets, the bulk of which will probably go to customers.
Customer claims have a higher reimbursement priority than the
pool of general unsecured claims, which is where Giddens says
LBIE's claim belongs.
The brokerage has already committed $12.2 billion to
customers, with several billion dollars in claims still
pending. Granting the hefty LBIE claim customer status would
hurt other customers' chances of full payback, the trustee
said.
Effectively, LBIE is undermining its own efforts to earn
payback for its customers, Giddens said. Because more than
two-thirds of the already-committed $12.2 billion is for LBIE
customers, those customers would be among the parties impacted
if the new claim was thrown into the mix.
"Such a result would defeat the purposes of a SIPA
liquidation and destroy the confidence of customers transacting
in U.S. securities in the safety of their accounts," Giddens'
office said in a statement.
An attorney for LBIE did not return a call seeking comment
Friday.
Giddens, a court-appointed trustee, is charged with
recovering as much money as possible to pay back public
customers of the Lehman brokerage and maximize its estate for
other creditors.
He has already denied customer status to nearly $42 billion
in claims, according to a report submitted by his legal team in
August.
The Lehman parent, Lehman Brothers Holdings Inc, has also
objected to the denial of at least $7.9 billion in customer
claims, though the parties say they are working to resolve that
issue consensually.
As Giddens works to recover money for LBI customers, the
Lehman parent is in the midst of trying to end its bankruptcy.
It has proposed a $65 billion creditor payback plan it hopes
will receive bankruptcy court approval by year's end.
[ID:nS1E78S0V4]
The LBI liquidation is Securities Investor Protection Corp
v. Lehman Brothers Inc, U.S. Bankruptcy Court, Southern
District of New York, No. 08-1420.
The Lehman bankruptcy is In re Lehman Brothers Holdings
Inc, in the same court, No. 08-13555.
(Reporting by Nick Brown)