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The Morning Risk Report: Justice Department Charges Traders Over Alleged Metals Contracts Manipulation
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The Justice Department on Monday charged three precious-metals traders over a racketeering conspiracy. PHOTO: PATRICK SEMANSKY/ASSOCIATED PRESS
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Good morning. Two traders and one former executive at JPMorgan Chase & Co. were indicted and charged Monday with manipulating prices for precious-metals futures contracts over an eight-year period.
Gregg Smith, Michael Nowak and Christopher Jordan were criminally charged in Chicago federal court and became the latest targets of a government campaign to punish a type of illicit trading known as spoofing. The Justice Department said the scheme was focused on the bank’s precious-metals desk, involving offices in New York, London and Singapore, and involved thousands of fraudulent orders intended to benefit the traders’ positions.
[Continued below...]
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In addition to spoofing and other federal offenses, the indictment charged all three men with racketeering, a claim that is more typically found in cases against organized crime entities. Authorities said it represents the first time that defendants accused of spoofing electronic derivatives markets have been charged with racketeering.
“Based upon the fact it was conduct that was widespread on the desk, it was engaged in thousands of episodes, that it is precisely the kind of conduct that the RICO statute is meant to punish,” Assistant Attorney General Brian Benczkowski said Monday.
Spoofing involves submitting orders to exchanges that traders have no intention of fulfilling, according to regulators. The problematic orders are typically sent in large volume on one side of the market, creating the appearance of greater interest in buying or selling. When spoofers get the trade they want, they cancel the other orders, sometimes leaving their counterparties with a loss.
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From Risk & Compliance Journal
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SEC Charges Third Cognizant Executive With Foreign Bribery
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Cognizant Technology Solutions Corp.’s former chief operating officer has agreed to pay a $50,000 fine to settle civil charges that he helped authorize and conceal a bribe paid to an Indian official.
Sridhar Thiruvengadam, 55 years old, is the third top Cognizant executive to face charges after the U.S. Justice Department in February released a letter saying it wouldn’t criminally prosecute the Teaneck, N.J.-based company over an alleged bribery scheme in India.
Cognizant at the time agreed to pay a $25 million civil penalty in a separate agreement with the U.S. Securities and Exchange Commission. But federal prosecutors said they were declining to prosecute Cognizant under a leniency program for corporate Foreign Corrupt Practices Act offenders, since the company had self-reported the alleged scheme and had a strong, pre-existing compliance program, among other factors.
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Justice Department to Consider Analytics in Compliance Reviews
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Federal prosecutors plan to assess whether compliance officers make adequate use of data analytics in their reviews of companies that are under investigation, a senior U.S. Justice Department official said Monday.
Matthew Miner, deputy assistant attorney general in the Justice Department’s criminal division, said during a speech at a compliance and ethics conference in Maryland that prosecutors have been trained to ask whether compliance departments have access to internal data that could help them spot misbehavior.
The training is part of a broader compliance push at the Justice Department, which published guidance in April on what prosecutors expect to see when evaluating a company’s internal controls. Mr. Miner said that questions about data aren’t spelled out in the April guidance. Instead, he said, they are part of an “evolving narrative arc” about expectations of prosecutors.
The Justice Department has had success in spotting fraud in the health-care and securities industries by relying on data analytics, Mr. Miner said. He said that prosecutors expect compliance officers to do the same. “The bottom line is market data tells us where to look,” Mr. Miner said. “We believe the same data can tell companies where to look for potential misconduct.”
—Kristin Broughton
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Amazon CEO Jeff Bezos has propounded a ‘customer obsession’ mantra. PHOTO: JIM WATSON/AFP/GETTY IMAGES
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Amazon.com Inc. has adjusted its product-search system to more prominently feature listings that are more profitable for the company, said people who worked on the project—a move, contested internally, that could favor Amazon's own brands.
Late last year, these people said, Amazon optimized the secret algorithm that ranks listings so that instead of showing customers mainly the most-relevant and best-selling listings when they search—as it had for more than a decade—the site also gives a boost to items that are more profitable for the company.
The issue is particularly sensitive because the U.S. and the European Union are examining Amazon’s dual role—as marketplace operator and seller of its own branded products. An algorithm skewed toward profitability could steer customers toward thousands of Amazon’s in-house products that deliver higher profit margins than competing listings on the site.
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Prudential Financial Inc. agreed to pay $32.6 million to settle claims that it didn’t disclose how a reorganization of its mutual-fund business would cost the funds millions in lost interest income. The Securities and Exchange Commission said the 2006 reorganization—intended to engineer tax benefits for Prudential—created a conflict of interest because the company benefited while the funds lost income from securities lending. They also paid higher taxes in certain foreign jurisdictions. In addition to the fines, Prudential reimbursed over $155 million to the funds, the SEC said in a settlement announcement.
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Fifth Third Bancorp is the latest company to seek supervision from Trump-appointed regulators who have struck a friendlier tone with the banking industry. The Office of the Comptroller of the Currency, a national bank regulator, last week approved Fifth Third’s application to be primarily regulated by the OCC. The Cincinnati-based bank is currently overseen by Ohio regulators.
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California Gov. Gavin Newsom said he would sign a bill banning flavored e-cigarettes if the state legislature sent one his way.
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A worker raises a pipe on an oil rig near Wink, Texas, in August 2018. Shale producers plan to use the attacks on Saudi facilities as a chance to regain investor support. PHOTO: NICK OXFORD/REUTERS
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American intelligence indicates Iran was the staging ground for a debilitating attack on Saudi Arabia’s oil industry, people familiar with the discussions said Monday, as Washington and the kingdom weighed how to respond. The assessment, which the U.S. hasn’t shared publicly, comes as President Trump raised the prospect of a joint U.S.-Saudi retaliatory strike on Iran, a scenario that risks broadening into a regional armed conflict.
Brent crude, the international benchmark for crude prices, soared 15% to $69.02 a barrel on Monday, the largest gain recorded in over three decades. Higher fuel prices pose another threat to the world economy amid a U.S.-China trade dispute, although Saudi and U.S. officials said they would ensure that the oil market remains well supplied.
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The impact of the U.S.-China trade war, until now largely confined to manufacturing, may be spreading to the trade in services, a development that could further drag on global economic growth. Rising tariffs have contributed to a lengthening decline in cross-border sales of goods, contributing to a weakening of global economic growth this year as factory output declines. That has prompted an increasing number of central banks to cut their key interest rates in an effort to protect jobs and limit the impact of higher tariffs on other sectors of the economy, but chiefly services.
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Finding home insurance in wildfire-prone parts of California is getting more difficult and more expensive. No one can agree on how to make it any easier. A new flashpoint is the use of algorithmic models for predicting catastrophe losses. Insurers have long used these models to project losses from natural disasters but insurers, homeowners and regulators disagree on how they should be applied to assess California’s wildfire risk.
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Boeing 737 MAX planes have been grounded world-wide since March. PHOTO: DAVID RYDER/GETTY IMAGES
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A panel of international air-safety regulators is finishing a report expected to criticize the initial U.S. approval process for Boeing Co.’s 737 MAX jets, according to people briefed on the conclusions, while urging a wide-ranging reassessment of how complex automated systems should be certified on future airliners.
As part of roughly a dozen findings, these government and industry officials said, the task force is poised to call out the Federal Aviation Administration for what it describes as a lack of clarity and transparency in the way the FAA delegated authority to the plane maker to assess the safety of certain flight-control features. The upshot, according to some of these people, is that essential design changes didn’t receive adequate FAA attention.
The report, these officials said, also is expected to fault the agency for what it describes as inadequate data sharing with foreign authorities during its original certification of the MAX two years ago, along with relying on mistaken industrywide assumptions about how average pilots would react to certain flight-control emergencies. FAA officials have said they are devising new pilot-reaction guidelines after two fatal crashes.
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The strike involves roughly 46,000 full-time workers in more than 30 factories across 10 states. PHOTO: JEFF KOWALSKY/AGENCE FRANCE-PRESSE/GETTY IMAGES
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General Motors Co. stands to lose as much as $100 million a day if the nationwide strike of auto workers continues.
Auto-industry analysts estimate that the walkout—which began Monday and involves roughly 46,000 full-time workers in more than 30 factories across 10 states—could dent GM’s profit by between $50 million and $100 million daily. Stalled production could slash more than a tenth of GM’s expected third-quarter operating profit of about $3.5 billion by the weekend, although GM could make up some lost production once workers return, analysts say.
The U.S. business is GM’s most profitable, but the strike comes at a delicate time for both the nation’s largest auto maker and the United Auto Workers union. GM is seeking to recover lost market share in the lucrative pickup-truck category, with the continuing roll out of its most extensively redesigned pickups in two decades. The Detroit company is also confronting eroding profits in China, its largest market in terms of sales.
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The Capitol in Sacramento, Calif. State lawmakers on Friday approved several amendments to the California Consumer Privacy Act. PHOTO: RICH PEDRONCELLI/ASSOCIATED PRESS
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California legislators adjourned for the year on Friday without watering down a sweeping privacy law set to take effect in January, although they passed a handful of amendments intended to clarify parts of the legislation.
Privacy advocates from organizations including the American Civil Liberties Union said business groups made a last-minute push for amendments to the California Consumer Privacy Act that would have weakened the law by adding exceptions for targeted advertising and altering definitions of key terms.
The CCPA, signed into law in June 2018, gives state residents the right to know what information businesses collect about them and opt out of having their data shared or sold. The legislation is considered the strictest consumer-privacy law in the U.S., and lawmakers in New York, Washington and other states have weighed similar regulations in recent months.
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Lena Shishkina will serve as Red Points Solutions SL's first finance and operations chief. PHOTO: RED POINTS SOLUTIONS SL
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Red Points Solutions SL has hired its first finance and operations chief, a hybrid position that will focus on adding U.S. staff to the software provider and managing the company’s data operation. The Barcelona-based software-as-a-service company, which provides brand protections such as an intellectual-property-infringement detection and removal service, tapped Lena Shishkina for the role. The former Workday Inc. executive is expected to start in the position Monday.
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Otis Elevator Co. hired a new finance chief as it gets ready to separate from industrial conglomerate United Technologies Corp. The Farmington, Conn.-based maker of elevators and escalators said Monday that Rahul Ghai is its new chief financial officer. United Technologies is in the process of breaking itself into three entities, even as competitor Thyssenkrupp AG prepares to sell its elevator unit.
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SeaWorld Entertainment Inc. said that Chief Executive Gustavo Antorcha is leaving the company, seven months after taking the helm. The amusement park chain named Marc Swanson, its current chief financial officer, as its interim CEO. Elizabeth Castro Gulacsy, the company’s chief accounting officer, will become interim CFO.
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