New settlement push in CFTC oil manipulation case (Reuters)

NEW YORK (Reuters) – One of the biggest oil market manipulation cases undertaken by regulators is entering a new phase in which a judge will mediate settlement talks, three years after the case was launched.

The Commodity Futures Trading Commission case against the U.S. unit of Optiver Holding BV, a Netherlands-based trading firm, has been referred to U.S. Magistrate Judge Theodore Katz for settlement, according to a filing in the U.S. district court in Manhattan.

The June 15 order marks a departure from a long series of legal submissions since the CFTC in July 2008 charged Optiver with using a rapid-fire trading program to manipulate crude, gasoline and heating oil prices on the New York Mercantile Exchange.

According to the futures regulator, Optiver reaped a $1 million profit in 2007 by "banging the close." This is an illegal strategy in which a firm accumulates a large position just before the market closes, and offsets that position at the close itself, manipulating prices through sheer volume of trades.

The case revealed details about computer software called the "hammer" that rapidly entered a series of orders to allegedly manipulate markets.

It also included emails and phone recordings showing efforts by traders at Optiver's Chicago branch to "move," "whack" and "bully" oil prices -- providing rare insight into the dark side of high-speed electronic trading, which has grown rapidly in the last decade.

The latest court order was signed by Chief Judge Loretta Preska, who had handled the case from the beginning. No date had been set for mediation, and the scope of Katz's involvement is not immediately clear.

A CFTC spokesman and Stacie Hartman, a lawyer for Optiver, declined to comment, citing ongoing litigation. A lawyer for one of the three Optiver employees named in the lawsuit did not immediately return requests for comment.

NEW ENFORCEMENT POWERS, PRESSURES

Mediation can signal outstanding disagreements that the court or the opposing parties believe a judge, acting as a facilitator, can help resolve. The process is not legally binding, and talks could fall apart, resulting in further litigation.

"A lot of times, the CFTC wants to have some agreed-to facts and that's a negotiated instrument," said a lawyer who deals sometimes with the regulator and requested anonymity.

Often, this lawyer said, the CFTC will seek a trading ban, which "could be a sticking point. Obviously that's a pretty severe sanction."

CFTC Chairman Gary Gensler has been zeroing in on market manipulation with tough talk and new enforcement powers granted in last year's Dodd-Frank financial overhaul.

The law requires the agency to show only that a trader acted in a manner that could disrupt the market, making it easier to prove a case -- though it would not apply retroactively to Optiver.

Reflecting a more aggressive stance, the CFTC in May sued oil trader Arcadia Petroleum for manipulation in its biggest such case.

Commodity markets have been a focus of greater regulatory attention since crude oil prices soared close to $150 a barrel in 2008. This stoked criticism in Washington over speculation and worries over unfair and damaging trading practices.

While prices crashed during the financial crisis, they have traded back above $100 this year, renewing political pressure on the CFTC. Crude for August delivery traded Wednesday around $93.13 a barrel.

Optiver is a household name in Chicago's and Amsterdam's electronic trading communities, where it is known for market making and arbitrage strategies in options and other derivatives.

The proprietary firm trades its own money, employs some 600 people, and is a member of a newly formed European lobby group to weigh in on rule changes for high-frequency traders.

(Reporting by Jonathan Spicer, additional reporting by David Sheppard, editing by Gerald E. McCormick and Robert MacMillan)

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Bank of America in $8.5B mortgage settlement (AP)

NEW YORK – Bank of America and its Countrywide unit will pay $8.5 billion to settle claims that the lenders sold poor-quality mortgage-backed securities that went sour when the housing market collapsed.

The deal, announced Wednesday, comes after a group of 22 investors demanded that the Charlotte, N.C. bank repurchase $47 billion in mortgages that its Countrywide unit sold to them in the form of bonds.

The group, which includes the Federal Reserve Bank of New York, Pimco Investment Management, and Blackrock Financial Management, argued that Countrywide enriched itself at the expense of investors by continuing to service bad loans while running up servicing fees.

Bank of America, which bought Countrywide in 2008 for $4 billion, has denied those claims.

Bank of America CEO Brian Moynihan said Wednesday that the settlement would minimize "future economic uncertainty" in the banking business and "clean up the mortgage issues largely stemming from our purchase of Countrywide."

For several months, Bank of America battled claims based on estimates "that were much different from ours," Moynihan said. But at this point, it made more sense to settle than to keep fighting, he said.

"We have said consistently if people are reasonable and can get to a reasonable assessment of their claims and it's in the best interest of shareholders, we will settle," Moynihan told Wall Street analysts in a conference call.

The settlement is subject to court approval and covers 530 trusts with original principal balance of $424 billion.

Citi analyst Keith Horowitz said the settlement, which amounts to only 2 percent of the original principal balance, removes one of the largest investor risks for Bank of America.

"We think this could prove to be a step forward" for Bank of America, Horowitz said. It would show investors that the bank can manage through crisis without raising additional capital.

As a result of the settlement, Bank of America put its second-quarter loss at $8.6 billion to $9.1 billion. Excluding the settlement and other charges, the bank expects to post a quarterly loss of $3.2 billion to $3.7 billion.

Shares of Bank of America Corp. jumped more than 4 percent, or 48 cents to $11.30 before the market opened, with investors happy that the bank can put very big uncertainty behind it.

Investors may now be more confident that they can get similar concessions from other major U.S. banks that created markets for mortgage-backed securities with questionable pedigrees.

Yet stocks in the financial sector were rising in electronic trading Wednesday, likely because the Bank of America deal presents a framework for others to follow.

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