Watchdog fines Wall Street firms $4.5 million for lobbyist payments

n">(Reuters) - Wall Street's watchdog has fined five large firms over $4.48 million for seeking reimbursement for payments to lobbyists using proceeds from municipal and state bond offerings.

The Financial Industry Regulatory Authority said on Thursday that it fined Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Bank of America Corp's Merrill Lynch and Morgan Stanley.

Wall Street's self-imposed watchdog said the banks unfairly sought reimbursement of fees they paid to the California Public Securities Association between January 2006 and December 2010 by requesting they be refunded as underwriting expenses from the bond sales.

FINRA said the firms "violated" fair dealing and supervisory rules of the Municipal Securities Rulemaking Board by seeking reimbursement for those payments to Cal PSA, a political association whose activities include lobbying on behalf of companies seeking to influence California state government.

"It was unfair for these underwriters to pass along the costs of their Cal PSA membership to the municipal and state bond taxpayers, neglecting to disclose that these costs were unrelated to the bond deals," FINRA's chief of enforcement, Brad Bennett, said in a statement.

The firms, which were fined more than $3.35 million and are required to pay $1.13 million in restitution to certain issuers in California, neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

"We are pleased to resolve this matter and look forward to putting this behind us," Citi spokesman Scott Helfman said.

Morgan Stanley spokesman Mark Lake also said the firm is "pleased to have resolved this issue in a satisfactory manner for the firm."

Goldman Sachs said the company voluntarily refunded publicly disclosed Cal PSA fees in February 2011 for those charged as underwriting expenses on state-level issuances it lead underwrote, at the request of California's treasurer's office.

"At that time, we also discontinued the longstanding industry-wide practice of seeking reimbursement for such fees on offerings by state and local governments in California," said Goldman spokeswoman Tiffany Galvin. "We're pleased to have resolved this matter."

Merrill did not immediately comment on the sanction. JPMorgan declined to comment.

(Reporting By Ashley Lau and Lauren Tara LaCapra in New York; editing by Andrew Hay)

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Wal-Mart seen facing sizeable fines in U.S. bribery probe

A view shows the Walmart logo at an opened Walmart store on Thanksgiving day in North Bergan, New Jersey November 22, 2012.

Credit: Reuters/Eric Thayer

By Aruna Viswanatha

WASHINGTON | Tue Dec 18, 2012 3:59pm EST

WASHINGTON (Reuters) - Wal-Mart Stores (WMT.N) may be facing sizeable fines related to allegations of widespread bribery at its Mexican affiliate, after a second report from the New York Times provided more details about the scope of the potential misconduct.

Experts said the latest report, published online late on Monday, is significant because it appears to show that the alleged bribes were a substantial part of its business methods, and more than routine payments to speed up approvals, which are allowed under U.S. law.

The newspaper said the world's largest retailer opened some 19 stores by using hundreds of thousands of dollars in bribes to get what local laws otherwise prohibited.

In April the newspaper reported that Wal-Mart had stifled an internal probe into bribery at its Mexican affiliate Walmex (WALMEXV.MX), but gave the impression that many of the bribes paid may have been used to facilitate approval processes already in motion.

"I think the Times story, if it is true, changes the perception of the Wal-Mart matter from being about facilitating payments to something larger than that," said Danforth Newcomb, an expert on U.S. Foreign Corrupt Practices Act (FCPA) who defends such cases at the law firm Shearman & Sterling.

The latest story describes, for example, $765,000 in bribes that helped Wal-Mart build a refrigerated distribution center in an environmentally fragile area where electricity was scarce and smaller developers were turned away. It also describes in detail how Wal-Mart allegedly paid $52,000 to change a zoning map so it could open a store near the ancient pyramids in Teotihuacan.

It is difficult to put a ballpark figure on any settlement, especially because the U.S. investigation into Wal-Mart is in early stages, but experts said it could rival other major FCPA cases.

In the largest FCPA case to date, Siemens (SIEGn.DE) paid $800 million to resolve allegations of widespread bribery in 2008. In other sizeable cases, KBR (KBR.N) and its former parent Halliburton (HAL.N) paid $579 million in 2009, and BAE Systems (BAES.L) paid $400 million in 2010.

Wal-Mart declined to provide additional comment on Tuesday. On Monday, Wal-Mart said that the allegations in the Times report have been part of the investigation of potential FCPA violations the company began conducting more than a year ago.

The company is cooperating with the U.S. Justice Department and the U.S. Securities and Exchange Commission on the matter.

Representatives of the SEC and DOJ declined to comment.

POTENTIAL FINES

The Justice Department usually calculates fines in foreign bribery cases by either levying a per-violation fine or a penalty tied to the profits a company earned through the alleged bribery. Related SEC settlements usually also involve disgorging profits earned due to the bribery. Including Walmex's profits at stores throughout Mexico could prove a sizable fine. It is unclear how many of the roughly 2,000 locations in Mexico could be included. In 2011, Walmex posted gross profit of nearly 83.7 billion pesos ($6.58 billion).

In 2004, the year in which it allegedly pushed for zoning to open the store near the ancient pyramids, Walmex's gross profit was 28.84 billion pesos ($2.27 billion). The 2011 results include Central America.

When calculating potential fines, prosecutors take into account how widespread the conduct was, and whether senior management knew about it or were involved in any way. Wal-Mart has said it is investigating allegations related to its operations in Brazil, India, and China.

"Wal-Mart de Mexico didn't stumble into a bit of bribery. If the allegations are correct, it used systematic bribery as part of its business strategy as a way to grow," said Richard Cassin, an FCPA expert and author of a popular FCPA blog.

The company's costs to conduct the entire investigation - which already stand at $100 million - could be larger than its eventual fines, lawyers said.

Wal-Mart has also been proactive with other measures that could blunt some of the demands from authorities. When settling FCPA cases, companies are usually required to make some management changes and overhaul their compliance programs.

In October the company said it reorganized its compliance department and created a new global chief compliance officer position as part of an overhaul of its anti-corruption efforts.

It said then that it spent more than $30 million to update its anti-corruption program, named a new chief compliance officer for Wal-Mart International and a new vice president of global investigations, which are both new positions for the company. It also previously created a new global FCPA compliance officer position.

(Reporting By Aruna Viswanatha in; Washington; Additional reporting by Jessica Wohl in Chicago; Editing by Karey Wutkowski and Tim Dobbyn)

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