High & Low Finance: After a Fraud, Regulators Go After a Bank

In such a scheme, money that is supposed to be invested is really used to line the pockets of the Ponzi promoter or to pay previous investors. A lot of money has to flow through bank accounts, and it flows in ways that differ from what the promoter tells investors is happening. Banks are in a unique position to notice what is going on before the money is all gone.

But it is extremely rare for a bank to face sanctions for not noticing.

The typical judicial attitude was expressed last year when the United States Court of Appeals for the 11th Circuit upheld the dismissal — before a trial or any discovery of evidence — of a class-action suit against Bank of America by investors who had lost money in a pyramid scheme run by a promoter named Beau Diamond.

Even assuming that the plaintiffs could prove that Mr. Diamond “engaged in atypical business transactions, such as numerous wire transfers unrelated to any legitimate business activity,” the appellate court ruled, that would not be enough. The allegations in the suit were insufficient to render “plausible” a conclusion that the bank had “actual knowledge” of what Mr. Diamond was doing, so there was no need for a trial.

See no evil, face no liability.

That is why a joint regulatory action filed last week by the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, a part of the Treasury Department, seems so noteworthy. TD Bank, an American subsidiary of Canada’s large Toronto-Dominion Bank, agreed to pay $52.5 million to settle accusations that it had helped a Florida lawyer named Scott W. Rothstein commit one of the more brazen Ponzi schemes of recent years.

It is not clear, however, whether this represents a new attitude on the part of regulators to try to force banks to pay attention to possible Ponzi schemes — just as the Patriot Act requires them to monitor possible terrorist financing — or whether it is an isolated response to a particularly egregious case. Certainly the regulators had evidence, much of it provided by Mr. Rothstein in an effort to minimize his sentence, suggesting that one or more bank employees knew they were helping him deceive investors.

If regulators do not go after banks, the banks are usually home free. Some bankruptcy trustees for collapsed Ponzi schemes have tried to sue banks to recover money for defrauded investors only to have judges rule that because the trustee is standing in the shoes of the fraudster, such suits are not permitted. But when investors try to sue the banks, they can run up against rules limiting class-action suits and a Supreme Court decision saying that only the government — not victims — can bring suits contending that a bank, or anyone else, aided and abetted a fraud.

The Rothstein Ponzi scheme was created by a lawyer who had burst onto the Fort Lauderdale scene, living large and making highly publicized charitable donations. His firm, Rothstein, Rosenfeldt & Adler, employed 70 lawyers. He was vice chairman of a Florida Bar Association grievance committee that heard ethics complaints against lawyers. He was named to a committee to advise on state judicial appointments.

And he put together a $1.2 billion Ponzi scheme, according to the federal charges to which he pleaded guilty.

His scheme involved persuading investors to put money into “structured settlements.” Supposedly, these were settlements of cases that involved complaints like sexual harassment. The companies, he explained, had agreed to pay money over time to his clients in return for their silence. Those clients would sell the right to the payments in return for an upfront payment from the investor. He assured the investor that all the money had in fact been paid into escrow accounts he administered.

He spread the profits of the Ponzi scheme around, according to the federal charges, using money to “provide gratuities to high-ranking members of police agencies in order to curry favors with such police personnel and to deflect law enforcement scrutiny.” Political contributions were made with the money “in a manner designed to conceal the true source of such funds and to circumvent state and federal laws governing the limitations and contribution of such funds.” He sponsored fund-raisers for, among others, Gov. Charlie Crist, Senator John McCain and President George W. Bush.

For their first wedding anniversary, in 2009, he and his wife, Kimberly, attended an Eagles concert, where Don Henley dedicated a song, “Life in the Fast Lane,” to them. That cost him a $100,000 charitable contribution.

Floyd Norris comments on finance and the economy at nytimes.com/economix

DealBook: U.S. Regulators Approve Stricter Trading Rules Abroad

Federal regulators reached a last-minute compromise on Friday to expand their oversight far beyond American shores, overcoming internal squabbles and Wall Street lobbying to rein in some of the overseas trading that imploded during the financial crisis.

The Commodity Futures Trading Commission voted 3 to 1 to adopt its so-called cross-border guidance, a deal struck just hours before a self-imposed deadline was set to expire. Gary Gensler, the agency’s chairman and a fierce critic of Wall Street risk-taking, spearheaded the decision to approve the guidance, which dictates how to apply United States regulations to American banks doing business in London and beyond.

Yet the agency’s battle, both internally and with Wall Street, will drag on for months.

While firms like Goldman Sachs International and the London branch of Citigroup will face a wave of new scrutiny, the agency made crucial concessions to big banks, including a delay in the new oversight.

The oversight, Mr. Gensler said, will be phased in over several months and his agency will defer to European regulators if they adopt similar rules.

The agency also afforded Wall Street additional time to comment on the plan to phase in the regulation, inviting an onslaught of lobbying from banks that could seek additional delays. One financial group, the Institute of International Bankers, called the agency’s announcements “a big step forward” to a “workable approach.”

Dennis M. Kelleher, president and chief executive of Better Markets, a nonprofit advocacy group, called it, “the lobbyist full employment act.”

While he praised Mr. Gensler for securing a deal, he added that “this mixed bag of some very good, some not-so-good and some to-be-determined provisions will mean that Wall Street’s war on regulation of high-risk cross-border derivatives dealing will not end today.”

This delay could be costly. Mr. Gensler, a former Goldman Sachs executive who has been an aggressive regulator, is expected to leave the agency before the end of the year. His departure could leave certain aspects of the cross-border plan in the hands of someone with a softer stance toward the banks.

Even with the compromise, however, the guidance is a victory for Mr. Gensler, who had vowed to meet the Friday deadline without fully caving in to Wall Street’s demands. The 2008 crisis, he noted, demonstrated the huge risks of overseas trading to financial stability.

“At the center of this crisis were the far-flung operations of U.S. financial institutions,” he said in an interview. “What we did is kept those lessons in mind and kept our eye on protecting the American public.”

Trades by a London unit of the insurance giant American International Group, he noted, nearly toppled the company. And JPMorgan Chase’s $6 billion trading loss in London last year reignited concerns that risk-taking could come crashing back to American shores.

The crisis led Congress to enact the Dodd-Frank Act in 2010, a law that mandated an overhaul of the $700 trillion marketplace for derivatives, financial contracts that derive their value from an underlying asset like a bond or an interest rate. Under that law, the trading commission is supposed to extend new derivatives changes overseas — including tougher capital standards, a requirement that trades go through regulated clearinghouses and other requirements — if the foreign trading has “a direct and significant connection with activities” of the United States.

Over the last year, the agency has battled infighting over how aggressively to interpret the law, and when to do it.

The guidance, the most contentious issue facing the agency, had strong support from Mr. Gensler and Bart Chilton, a fellow Democratic commissioner at the agency who also supported completing the guidance by the Friday deadline. Mr. Chilton noted that, with the deadline coming three years after Dodd-Frank was passed, “It didn’t just sneak up on us.”

But Mark P. Wetjen, a Democratic commissioner with an independent streak, had expressed concern that the Friday deadline was “arbitrary.”

With the agency’s Republican commissioner, Scott D. O’Malia, opposing the guidance, Mr. Wetjen held the swing vote.

A compromise appeared unlikely until Wednesday, people close to the agency said, when Mr. Wetjen and Mr. Gensler reached a tentative deal.

A central component of Mr. Gensler’s final plan will apply the Dodd-Frank rules to overseas firms that are guaranteed by an American bank, including Goldman Sachs International. Foreign branches like the British branch of JPMorgan Chase, where the recent losses occurred, will also face the agency’s oversight.

Mr. Gensler also included offshore hedge funds, many based in the Cayman Islands, so long as their “nerve center” is based in the United States.

But Mr. Gensler’s victory came with some sacrifice. He agreed, for example, to defer to foreign regulators in Europe and elsewhere that have adopted “comparable and comprehensive” regulations to Dodd-Frank. It is up to Mr. Gensler’s agency to decide whether the other regulators’ rules meet the standard.

While European regulators have adopted many similar rules, authorities in Hong Kong, Switzerland and elsewhere have fallen far behind. Unless those regulators catch up by December, Dodd-Frank will apply to American banks doing business in those regions.

In a concession to Mr. Wetjen, Mr. Gensler agreed to delay the requirements, so the start date for most banks for the new rules would be Dec. 21. By soliciting additional comments from Wall Street, the agency also signaled that it was open to a longer delay.

The compromise traces to a plan that Mr. Chilton floated in June. While he noted that foreign regulators could use the additional time to catch up, he also argued that the agency should not delay indefinitely.

“Like in the movie ‘Field of Dreams,’ when the voice from the corn field says, ‘If you build it, he will come,’ ” Mr. Chilton said on Friday. “I’ve said repeatedly that if we and the E.U. build balanced and fairly harmonized financial regulatory regimes, the rest of the world will come.”

DealBook: Regulators Seek Stiffer Bank Rules on Capital

Yuri Gripas/ReutersThomas Hoenig, a Federal Deposit Insurance Corporation official.

Confronted with large and complex banks, financial regulators have spent years drafting rules that are just as complicated.

On Tuesday, though, regulators signaled that the byzantine approach was inadequate. In a significant shift, the Federal Deposit Insurance Corporation, along with the Federal Reserve and the Office of the Comptroller of the Currency, proposed stricter banking rules that aim for simplicity.

The agencies’ move is part of their continuing efforts to strengthen the financial system and prevent situations where taxpayer-financed bailouts might be required.

The latest regulations focus squarely on capital, the financial cushion that banks have to hold to absorb potential losses. In theory, a bank with higher levels of capital is more likely to weather shocks and less likely to need government aid in a crisis. The proposed rules would raise a crucial requirement for capital held by the largest banks.

“This will increase the overall financial stability of the system,” said Thomas M. Hoenig, vice chairman of the F.D.I.C. “This is an advantage to the banks over the long run, and to the economy. I am confident of that.”

The agencies’ latest push could meet fierce resistance, however. As outlined, the new capital requirements could be costly for the largest banks, which have 60 days to comment on the rules.

The F.D.I.C. estimated that the country’s eight biggest banks would have to find as much as $89 billion to comply with the proposed rules. An analysis of JPMorgan Chase’s books suggested that it might have to bolster its capital position by $50 billion, a number the bank declined to verify.

The added burden for the big banks unnerves some in the industry.

“This goes a little higher than is necessary,” said Tony Fratto, a partner at Hamilton Place Strategies, a research and public relations firm that has represented banking trade groups. Mr. Fratto said the new rules could weigh on the economy and undermine the global competitiveness of the largest American banks. “It’s our view that there has to be a trade-off with greater restrictions,” Mr. Fratto said.

The regulators are acting at a time when some members of Congress are calling for tougher bank regulation because they believe the sweeping overhauls instituted soon after the financial crisis fell short. Senator Sherrod Brown, Democrat of Ohio, and Senator David Vitter, Republican of Louisiana, introduced a bill earlier this year that demanded capital increases exceeding what the agencies are now proposing.

“The Brown-Vitter bill really galvanized the debate about ‘too big to fail’ and capital ratios,” said Camden R. Fine, president of the Independent Community Bankers of America, an industry group that supports the agencies’ proposed rules. “It really focused the regulators’ attention on these capital issues.”

With their latest move, the regulators hope to make the rules clearer and tougher.

After the crisis, American regulators agreed to impose an international banking overhaul known as Basel III. Officials like Mr. Hoenig have criticized Basel regulations because they rely on a method called risk weighting to set capital. With risk weighting, banks estimate the perceived riskiness of assets. They are then allowed to hold less capital, or even no capital, against assets that appear less risky. A bank may have $1 trillion of assets on its balance sheet, for example, but many of those assets could have low risk weightings. As a result, the bank might be able to reduce its total of risk-weighted assets to $500 billion. It would then calculate its needed capital from that lower figure. With a capital requirement of 7 percent, the bank would need $35 billion in capital.

Critics have questioned the risk weighting process, arguing that it can be inconsistent and complex and leave banks short of capital.

The regulations proposed Tuesday are intended to compensate for the shortcomings of risk weighting. Using a yardstick known as the leverage ratio, the proposed rules would not allow the bank with $1 trillion in assets to discount any of that sum. In fact, the bank would have to increase the asset total it uses to calculate capital to reflect risks not readily apparent on its balance sheet.

The agencies estimate that the new calculations would increase the largest banks’ asset totals by around 43 percent. The $1 trillion bank would, in essence, become a $1.43 trillion bank.

The proposed rules would also effectively require the largest banks to hold capital equivalent to 5 to 6 percent of their new asset totals. The hypothetical $1.43 trillion bank would therefore have to hold more than $70 billion. “Risk weighting is based on a very arcane and complicated series of ratios and formulas that are immediately gamed,” Mr. Hoenig said. “The leverage ratio is a check on that.”

Stock market investors appeared to shrug off the tougher requirements. Shares in the largest banks, which have risen sharply in recent months, were mostly up on Tuesday.

“I am surprised by the market reaction,” said Richard Ramsden, a bank analyst at Goldman Sachs. “It’s a fairly demanding proposal.”

Only two big banks, Wells Fargo and Bank of America, appear to already have sufficient capital to meet the proposed leverage ratio requirements, according to an analysis by Keefe, Bruyette & Woods.

But other big banks may be more strongly affected. JPMorgan Chase, the nation’s largest bank by assets, has two large subsidiaries with federal deposit insurance. Those subsidiaries would have to hold 6 percent capital, according to the proposed rules. In theory, this could push up their combined capital requirement to $177 billion from the $127 billion they hold today.

Regulators may favor such an outcome because JPMorgan, like some other large banks, uses its insured subsidiaries to hold most of its derivatives. Derivatives, financial instruments that can be used to hedge risks or speculate, can be a source of losses and instability when markets are in severe turbulence.

The banks have until the end of 2017 to comply with the higher requirements. In the next two months, they are likely to push back hard. But with the economy strengthening and bank profits at record highs, the banks may not find sympathetic audiences.

Advocates of higher capital say it can increase confidence in the banking sector and promote lending.

Mr. Fratto, of Hamilton Place Strategies, is skeptical of that viewpoint. “Do we want to conduct that experiment at a time when we’ve seen banks shedding assets, exiting businesses and pulling back a bit on lending?” he asked.

These days, regulators have more power to press ahead in the face of any opposition. The Dodd-Frank overhaul passed by Congress in 2010 gave regulators added leeway to toughen rules for large banks. The leverage ratio is only one initiative regulators are pursuing. The Federal Reserve, for example, is going to propose a rule that raises capital requirements for banks that borrow heavily in the markets. But even with the flurry of new rules, Mr. Hoenig says he does not think the banks’ hands will be tied.

“They have plenty of flexibility to lend and invest,” he said.

Supreme Court Lets Regulators Sue Over Generic Drug Deals

In a 5-to-3 vote, the justices effectively said that the Federal Trade Commission can sue pharmaceutical companies for potential antitrust violations, a decision that is likely to increase the number of generic drugs in the marketplace and benefit consumers.

Specifically, the justices threw out lower-court rulings that said the agreements were legal, provided that a deal did not keep a generic drug off the market beyond the term of the brand-name drug’s patent.

The decision is likely to create considerable uncertainty in the drug business and shift an important balance of power to the generic companies, industry analysts said. Drug developers may now find it harder to ward off generics, which typically cost about 15 percent of the brand-name’s price and cause the original to quickly lose up to 90 percent of its market share.

Consumer groups, drug retailers, wholesalers and insurance companies, which all benefit from the lower prices of generic drugs, could also step up their challenges to the agreements under antitrust laws.

The court did not address whether the agreements, called pay-for-delay or reverse payments, were unlawful on their face. In a standard patent infringement lawsuit, a settlement payment would be made by an infringer to the patent holder.

In the case, Federal Trade Commission v. Actavis, No. 12-416, the agency said that a payment to Actavis by Solvay Pharmaceuticals, the holder of a patent on a testosterone gel known as AndroGel, represented an unlawful restraint of trade because it was intended to keep Actavis from producing its generic version of AndroGel for a certain number of years.

Solvay’s deal with Actavis is known as a reverse-payment agreement because payment flows from the brand-name drug company to the generic competitor that is challenging the patent.

Justice Stephen G. Breyer, writing for the majority, said that “a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent.”

The stakes in the case are significant. Pharmaceutical sales in the United States totaled roughly $320 billion in 2011, according to IMS Health, a research company whose statistics the trade commission cited in its arguments. Brand-name drugs accounted for 18 percent of the total prescriptions written by doctors in 2011 but 73 percent of consumer spending, IMS reported.

“No other decision this term will have as much impact on consumers’ pocketbooks,” said David A. Balto, an antitrust lawyer and a former Federal Trade Commission policy director.

“It clearly maps out how the F.T.C. can use the law to stop these anticompetitive schemes and make sure consumers receive the full benefits of a competitive marketplace,” Mr. Balto added. “At the same time it permits the broad range of settlements that pose few competitive concerns.”

Officials at the trade commission, which has fought against the pay-for-delay agreements for several years, were predictably enthusiastic.

“The Supreme Court’s decision is a significant victory for American consumers, American taxpayers and free markets,” said Edith Ramirez, chairwoman of the F.T.C. “With this finding, the court has taken a big step toward addressing a problem that has cost Americans $3.5 billion a year in higher drug prices.”

Executives at Actavis played down the decision’s significance. “The F.T.C. did not win anything with this decision,” said Paul M. Bisaro, president and chief executive of Actavis. “We think these settlements will continue, and we will continue to enter into these kinds of settlements. We believe all of our agreements were pro-competitive.”

Justice Breyer’s decision, which was joined by Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, reversed a decision of the 11th Circuit Court of Appeals, which had thrown out the F.T.C.’s case. The appeals court said that because the exclusion of the generic drug did not extend beyond the term of the brand-name drug’s patent, a “quick look” could determine that there was no anticompetitive effect.

The Supreme Court’s decision adopted a different standard, known as the “rule of reason,” which states that the agreements must be considered in the context of their possible benefits for consumers.

Chief Justice John G. Roberts Jr. wrote a dissenting opinion, which was joined by Justices Antonin Scalia and Clarence Thomas. Justice Samuel A. Alito Jr. recused himself from the case.

In their dissent, the justices pointed out that the agreement between Solvay and Actavis allowed for the generic drug to come to market five years before the scheduled expiration of Solvay’s patent. The majority’s decision will discourage the settlement of patent litigation, the justices said.

Congress has encouraged generic drug makers to challenge the patents protecting lucrative brand-name drugs through the 1984 Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act.

DealBook: Regulators to Send First Batch of Checks to Troubled Borrowers

Ross D. Franklin/Associated PressA foreclosed home in Queen Creek, Ariz. Major lenders agreed to a $9.3 billion pact with regulators to settle claims of foreclosure abuses.

The nation’s top banking regulators have some good news for some troubled homeowners: the checks will be in the mail soon.

Months after brokering a multibillion-dollar settlement with banks over mortgage foreclosure abuses, the Federal Reserve and the Office of the Comptroller of the Currency are set to dole out roughly $1.2 billion in the first batch of payments. By April 12, the regulators expect to mail 1.4 million checks. An additional round of checks will be sent out by the middle of July, according to the regulators.

The settlement, which scuttled a deeply flawed review of millions of loans in foreclosure, will ultimately provide $3.6 billion in cash relief to borrowers who entered foreclosure in 2009 or 2010.

Among those borrowers in the first group to receive relief are the 1,082 service members who were foreclosed on illegally by banks. Under the settlement, each borrower will receive about $125,000, the largest amount of relief.

Homeowners who were foreclosed on even though they never missed a mortgage payment will also receive a check in the first round of payments. The comptroller’s office said that there were 53 such borrowers, whose homes will receive $125,000. Another 626 homeowners who were wrongfully foreclosed on will receive $5,000 to $15,000 in relief because their foreclosure was not completed or was reversed.

The largest category of borrowers slated to get money are the more than half a million homeowners who were deprived of a loan modification or other loss mitigation assistance. The 568,476 borrowers that fall into that group are to receive $300 each.

For millions of Americans battling to save their homes, the checks are the first federal lifeline in years, according to housing advocates.

In January, the comptroller’s office scuttled the foreclosure review, which was hobbled by delays and inefficiencies. Instead, the regulator brokered a $9.3 billion settlement involving $3.6 billion of cash payments and other forms of relief. The review, which was hastily dismantled, was ordered by bank regulators in 2011 amid mounting concerns that banks were churning through piles of foreclosure files without reviewing them for accuracy.

The independent consultants hired to pour over millions of loan files only reviewed a sliver of the foreclosed loans. As homeowners languished, regulators opted to end the review in favor of the settlement. Even so, many homeowners have been waiting to receive relief.

The announcement of the payments comes just days before the Senate Banking Committee is scheduled to hold a hearing on the foreclosure review. Last week, the Government Accountability Office issued a scathing report that took aim at the Federal Reserve and the Office of the Comptroller of the Currency.

The regulators, the report found, created a dizzying bureaucratic process that ultimately slowed relief to homeowners. Problems with the review began almost from the outset in November 2011, the report said.

European Regulators Investigating MasterCard Fees

Let’s install webcams in slaughterhouses so we can see how we get our meat.

A look back at Margaret Thatcher’s mutual admiration society with Mikhail Gorbachev in the final years of the Cold War.

Many Cruise Ship Lack Backup Power Systems, Vexing Regulators

“It was really hell,” said Bernice Spreckman, who is 77 and lives in Yonkers, N.Y. “I used my life jacket, which was flashing with a little light on it, to find a bathroom it was so dark.”

Ms. Spreckman was not among the 4,200 people aboard the Carnival Triumph who this month endured five days of sewage-soaked carpets and ketchup sandwiches. Her trial at sea came in 2010, on another ship run by Carnival Cruises, called the Splendor, which carried 4,500 passengers.

On both ships, fires broke out below decks, destroying the electrical systems and leaving them helpless. A preliminary Coast Guard inquiry into the Splendor found glaring deficiencies in its firefighting operations, including manuals that called for crew members to “pull” valves that were designed to turn.

But more than two years after the episode, the final report about what happened on the Splendor has yet to appear, a reflection of what critics say is a pattern of international regulatory roulette that governs cruise ship safety.

While the Splendor was based in the United States, the ship was legally registered in Panama, meaning the Panamanian Maritime Authority had the right to lead the investigation. But after the 2010 fire, Panamanian regulators chose to have the Coast Guard take over the inquiry. Then, officials in both countries apparently spent months trading drafts of their reports.

One official in Panama said the authority had completed its review of the Splendor report in October 2012. But a Coast Guard spokeswoman, Lisa Novak, said it still had not “finalized” the report. In the case of the Carnival Triumph, the regulatory scene will shift to the Bahamas, where that ship was registered.

In a recent letter to Coast Guard officials, Senator Jay Rockefeller, Democrat of West Virginia, said that cruise ships seemed to have two separate lives. Only during days near port are they closely monitored.

“Once they are beyond three nautical miles from shore, the world is theirs,” said the letter from Senator Rockefeller, who has headed recent inquiries into cruise ship safety.

Cruise industry officials point out that seaborne vacations are extremely safe and that some 20 million people go on cruises annually, with few problems. The most glaring exception to that record occurred last year when a vessel operated by a subsidiary of Carnival, the Costa Concordia, ran aground off the coast of Italy, resulting in 32 deaths.

In the Triumph’s case, the Coast Guard has said that the ship’s safety equipment contained the blaze. And both the Triumph and the Splendor returned from their aborted voyages without serious injuries to passengers or crew.

But those successes also underscore what most travelers do not realize when they book cruises: nearly all ships lack backup systems to help them return to port should power fail because to install them would have cost operators more money.

The results are repeated episodes involving dead ships, with all the discomforts and potential dangers such situations can bring. In another case, in late 2012, the Costa Allegra cruise ship, a sister ship of the Concordia, lost power after a fire in the generator room and it had to be towed under guard from its location in the Indian Ocean.

In many ways, passengers aboard boats like the Triumph and Splendor were lucky because their ships were disabled in calm weather, when instead they could have been knocked out during storms, or when they were far out at sea or in pirate-infested waters, experts said.

“Anything that knocks a ship dead in the water is serious,” said Mark Gaouette, a safety expert and former Navy officer.

This article has been revised to reflect the following correction:

Correction: February 25, 2013

A caption with an earlier version of this article misstated the number of passengers on the Carnival Splendor when it was disabled at sea. There were 4,500 aboard, not 14,500.

This article has been revised to reflect the following correction:

Correction: February 25, 2013

Because of an editing error, an earlier version of this article misstated the performance of the safety equipment on the Triumph. It contained the blaze; it is not the case that it failed to contain it.

Chinese Regulator’s Family Profited From Stake in Insurer

The regulator, Dai Xianglong, was the head of China’s central bank and also had oversight of the insurance industry in 2002, when a company his relatives helped control bought a big stake in Ping An Insurance that years later came to be worth billions of dollars. The insurer was drawing new investors ahead of a public stock offering after averting insolvency a few years earlier.

With growing attention on the wealth amassed by families of the politically powerful in China, the investments of Mr. Dai’s relatives illustrate that the riches extend beyond the families of the political elites to the families of regulators with control of the country’s most important business and financial levers. Mr. Dai, an economist, has since left his post with the central bank and now manages the country’s $150 billion social security fund, one of the world’s biggest investment funds.

How much the relatives made in the deal is not known, but analysts say the activity raises further doubts about whether the capital markets are sufficiently regulated in China.

Nicholas C. Howson, an expert in Chinese securities law at the University of Michigan Law School, said: “While not per se illegal or even evidence of corruption, these transactions feed into a problematic perception that is widespread in the P.R.C.: the relatives of China’s highest officials are given privileged access to pre-I.P.O. properties.” He was using the abbreviation for China’s official name, the People’s Republic of China.

The company that bought the Ping An stake was controlled by a group of investment firms, including two set up by Mr. Dai’s son-in-law, Che Feng, as well as other firms associated with Mr. Che’s relatives and business associates, the regulatory filings show.

The company, Dinghe Venture Capital, got the shares for an extremely good price, the records show, paying a small fraction of what a large British bank had paid per share just two months earlier. The company paid $55 million for its Ping An shares on Dec. 26, 2002. By 2007, the last time the value of the investment was made public, the shares were worth $3.1 billion.

In its investigation, The New York Times found no indication that Mr. Dai had been aware of his relatives’ activities, or that any law had been broken. But the relatives appeared to have made a fortune by investing in financial services companies over which Mr. Dai had regulatory authority.

In another instance, in November 2002, Dinghe acquired a big stake in Haitong Securities, a brokerage firm that also fell under Mr. Dai’s jurisdiction, according to the brokerage firm’s Shanghai prospectus.

By 2007, just after Haitong’s public listing in Shanghai, those shares were worth about $1 billion, according to public filings. Later, between 2007 and 2010, Mr. Dai’s wife, Ke Yongzhen, was chairwoman on Haitong’s board of supervisors.

A spokesman for Mr. Dai and the National Social Security Fund did not return phone calls seeking comment. A spokeswoman for Mr. Che, the son-in-law, denied by e-mail that he had ever held a stake in Ping An. The spokeswoman said another businessman had bought the Ping An shares and then, facing financial difficulties, sold them to a group that included Mr. Che’s friends and relatives, but not Mr. Che.

The businessman “could not afford what he has created, so he had to sell his shares all at once,” the spokeswoman, Jenny Lau, wrote in an e-mail.

The corporate records reviewed by The Times, however, show that Mr. Che, his relatives and longtime business associates set up a complex web of companies that effectively gave him and the others control of Dinghe Venture Capital, which made the investments in Ping An and Haitong Securities. The records show that one of the companies later nominated Mr. Che to serve on the Ping An board of supervisors. His term ran from 2006 to 2009.

The Times reported last month that another investment company had also bought shares in Ping An Insurance at an unusually low price on the same day in 2002 as Dinghe Venture Capital. That company, Tianjin Taihong, was later partly controlled by relatives of Prime Minister Wen Jiabao, then serving as vice premier with oversight of China’s financial institutions. In late 2007, the shares Taihong bought in Ping An were valued at $3.7 billion.

The investments by Dinghe and Taihong are significant in part because by late 2002, Beijing regulators had granted Ping An an unusual waiver to rules that would have forced the insurer to sell off some divisions. Throughout the late 1990s, the company was fighting rules that would have required a breakup, a move that Ping An executives worried could lead to bankruptcy.