Bitcoin Startup Attracts Bank Investors; Sam's Club to Accept Amex

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Links in the Chain: Citigroup's Citi Ventures, Capital One Financial, Visa and Fiserv are among the financial-services companies that have invested in the Bitcoin startup Chain Inc. Former American Express CEO Jim Robinson is also an investor. The Wall Street Journal said the financial-services industry doesn't want to use Bitcoin as currency. Rather, they view the blockchain technology as a possible way to replace the inefficient methods they now use to verify transactions.

Chain's CEO said the blockchain technology will need the support of banks and other financial institutions in order for it to be adopted. An academic agreed with that assessment. “There’s a lot of work to do in building a consensus on how to do it and migrating existing technologies onto a new and untested platform,” said New York Law School professor Houman Shadab.

The Journal draws an analogy to the creation of the firm now known as Depository Trust & Clearing Corp., which was established in the late 1960s as a way to automate paper-based transactions. Speaking of Depository Trust & Clearing Corp., it's developing its own blockchain technology and expects to introduce a test program by the end of the year, said Rob Palatnick, chief technology architect at DTCC.

Back to Chain, the San Francisco company said Wednesday it's raised $30 million from the investor group, although it did not disclose a valuation for the company. “We hope to leverage Chain’s platform to rapidly test and develop applications as part of Citi’s multifaceted blockchain strategy which has the potential to greatly enhance our customers’ experience well beyond just currencies and payments.” Ramneek Gupta, co-head of global venture investing at Citi Ventures, told the Financial Times.

Wall Street Journal

The paper provided updated information on the federal probe into the trading of U.S. Treasuries, referenced in Wednesday's Morning Scan and reported by the FT on Wednesday. In addition to the New York Department of Financial Services, the U.S. Justice Department is also investigating possible rigging of Treasury auctions, the WSJ reported, citing anonymous sources. (The New York Post first reported, in June, the DOJ probe.)

Additionally, at least two private lawsuits, both seeking class-action status, have been filed, challenging how the auctions were run. Investigators are looking at whether banks colluded to pad their profits by rigging auctions of U.S. government debt.

An academic said it's going to be difficult for prosecutors and regulators to prove wrongdoing, since much of the information-sharing that goes on between banks is routine. “The conundrum for the regulator is separating communication that improves liquidity in the context of market making from that which distorts prices,” said University of Houston finance professor Craig Pirrong. Treasury auctions and the pricing of Treasury futures are where banks can make big profits, based on discrepancies in price.

The WSJ didn't name the banks that have been targeted by the DOJ and the NYDFS. The private lawsuits were filed by government-employee and union pension funds.

American Express lost Costco, but won Sam's Club. The warehouse retailer, the biggest rival to Costco, has said it will start accepting Amex cards on Oct. 1. Unlike Amex's deal with Costco, the Sam's Club agreement is not exclusive. But it's a welcome shot of good news for Amex, as Sam's Club, owned by Walmart, is a major retailer, with about 650 stores. That's just a little bit less than Costco's 680 stores.

New York Times

The paper looks at the start-ups that want to challenge Bloomberg L.P.'s dominance in data terminals. Symphony, the effort backed by Goldman Sachs and 14 other large banks, has been extensively described by American Banker. The Times notes Goldman has good reason to ditch the expensive Bloomberg terminal in favor of something cheaper: more than half of Goldman employees who have a Bloomberg terminal use it only for online chatting or other simple functions.

Another potential competitor to Bloomberg is Money.Net, which is led by an ex-Bloomberg executive. Money.Net is already stealing customers from Bloomberg, in large measure because the company claims it costs one-twentieth the price of a Bloomberg terminal. The Times notes Bloomberg is revamping its cost structure, with an eye toward better competing with its new rivals; and all Wall Street service providers are vulnerable at the moment because of widespread cost-cutting.

The Justice Department has prioritized the prosecution of individual employees, a step that may lead to the prosecution of executives involved in the housing crisis and financial meltdowns. The new emphasis was revealed in a memo distributed at the DOJ, although the paper notes the memo's contents may be more important as a symbolic message, rather than an actual call to jail executives. The DOJ memo also notes the agency won't accept mere low-ranking executives. Instead, corporations under investigation must offer up C-suite executives as prosecution targets, instead of trying to make scapegoats of underlings.

Elsewhere ...

Charlotte Observer: Are Bank of America customers ready to scream out a “Rebel Yell?” The bank has hired Billy Idol, the 1980s psuedo-punk pop star, as its latest pitchman. Idol appears in commercials, directed by Christopher Guest, touting B of A's new Preferred Rewards program, a campaign directed at the mass affluent. The ads are slated to run during late-night talk shows.

The Globe and Mail: Canadian Imperial Bank of Commerce and other Canadian banks have helped Chinese nationals move money out of China and into Vancouver real estate. The fund transfers raise questions of whether they violate both Canadian and Chinese anti-money laundering laws. The assertions are based on documents obtained by the Globe and Mail from Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), Canada's federal agency responsible for tracking money laundering. CIBC, HSBC, Royal Bank of Canada and Toronto-Dominion all told the paper they are compliant with Canadian anti-money laundering laws.

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