Archive for the ‘Regulatory Compliance’ Category
Judge’s Rejection of SEC and Bank of America’s Settlement Raises Interesting Questions
September 15th, 2009 | 
Author: Jed Rakoff, a U.S. District Judge in New York, has rejected the proposed $33 million settlement between the SEC and Bank of America that was supposed to resolve the SEC’s claim that the bank deceived shareholders in a proxy statement concerning bonuses to be paid to Merrill Lynch executives. The proxy statement said that Merrill had agreed not to pay bonuses before the Merrill-Bank of America acquisition closed without the bank’s consent. The SEC claims that bank had actually approved payment of up to $5.8 million in bonuses.
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Judges Take Action While Regulators and Lawmakers Debate
There is an interesting article at Bloomberg.com that discusses how judges have taken the lead in punishing Wall Street for actions that have contributed to the first global recession since WWII, while regulators and lawmakers argue and discuss regulatory reforms designed to prevent future crises. I view this as a positive development as a history of light sentences in “country club” prisons did little to dissuade illegal activity that can make millions for financial executives. This can provide significant protection for consumers, providing that judges do not take it too far. It is important to ensure that ‘the punishment fits the crime.’
The kind of financial regulatory reform we really need- how do we best achieve it?
One of my interests that I study in my spare time is the history of Wall Street. Thinking about the events of the last few years in terms of the history of Wall Street disasters, I observed an oft repeated pattern- the SEC cites financial services firms for security law violations (usually in the aftermath of the collapse of the firms and/or financial markets), and it then assesses a fine that represents a tiny fraction of the profits earned from the illegal activity without requiring the firm to admit or deny guilt. Given this history, it is apparent that violating securities regulations is a relatively low risk and highly profitable proposition. In an industry that makes business decisions based on the risk/reward ratios, is it any wonder that regulatory violations occur on a fairly regular basis?
Court Ruling Underscores Need For National Consumer Protection
On June 29, the Supreme Court ruled 5 to 4 that states have the right to charge nationally chartered banks for violation of state consumer protection laws. The ruling in Cuomo vs. Clearing House Association denied states the right to unilaterally demand bank records the way a supervising regulator can, but they can pursue legal enforcement by suing national banks in court.
Proposed Regulatory Reform- Wall Street Needs to Respond Carefully
Not surprisingly, parts if the regulatory reform proposal released last week by the Obama Administration have proven to be rather controversial. The plan has attracting criticism from both lawmakers and members of the financial services industry, and praise from consumer advocacy groups. Can the plan prevent future financial crises without overburdening financial institutions with unnecessary and redundant oversight? I believe it has the potential to succeed, but the devil will be in the details that have yet to be determined. Over the coming weeks and months, there will be a great deal of debate, lobbying, and negotiations that will determine what the financial regulatory structure will be going forward.
Finra Warns B-Ds Not to Let Cost Cutting Lead to Lax Oversight
Speech by SEC Commissioner: Elisse B. Walter “Principles to Help Guide Financial Regulatory Reform”
Commissioner Elisse B. Walter
U.S. Securities and Exchange Commission
2009 Annual Washington Conference
Four Seasons Hotel
Washington, D.C.
Let me begin with the old Chinese proverb, "May you live in exciting times." This was actually not meant as a blessing, but as a curse. Before I rejoined the SEC last year, I never could have guessed that I would be serving as a Commissioner in the midst of the biggest financial crisis since the Great Depression. Rather than feeling cursed, however, I look at this crisis as presenting an opportunity to make needed changes in the structure of financial regulation.
Fed Delays Implementation of Bank Capital Limits
Yesterday, the Federal Reserve Bank announced that it is delaying the implementation of a rule that was to take effect on March 31 that would limit capital held at bank holding companies. The rules, adopted in 2005, limit the amount of trust preferred securities, perpetual preferred stock, and minority interests in the equity accounts included in Tier 1 capital. An in-depth discussion of the rules can be found here. Read the rest of this entry »
SEC Takes Positive Action
SEC Chairman Mary Schapiro made some interesting comments before the House Appropriations subcommittee on Wednesday regarding the reinstatement of the uptick rule and mark-to-market accounting standards, and the rating agencies. Regarding reinstatement of the uptick rule, Schapiro stated that, “Hopefully we’ll get out proposal out in April,” and that the agency will consider “other alternatives” relating to short-selling.
Fed Seeking Comment on Proposed Changes to Reg. Z
For immediate release
The Federal Reserve Board on Friday proposed for public comment changes to Regulation Z (Truth in Lending) that would revise the disclosure requirements for mortgage loans. The revisions would implement the Mortgage Disclosure Improvement Act (MDIA) which was enacted in July 2008 as an amendment to the Truth in Lending Act (TILA).
The March Towards Increased Hedge Fund Regulation Begins
Not surprisingly, the effort to strengthen the regulation of hedge funds has begun on both the state and federal level. Currently, advisors of private equity, venture capital, and hedge funds that they have fewer than 15 clients in any 12 month period enjoy a “private adviser exemption” to having to register with the SEC. A Bill introduced in the House of Representatives on January 27, 2009, would repeal this exemption.
Here is a link to the bill:
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h711ih.txt.pdf
According to The Hartford Business Journal, Connecticut lawmakers have introduced legislation to regulate hedge funds that do business in that state:
”State lawmakers have introduced three bills that would dramatically reverse Connecticut’s longstanding hands-off approach to regulating its once-booming but now shaky hedge fund industry.
The legislation would require each hedge fund to obtain a state license, provide for an independent annual financial audit and disclose fees and significant changes in management or management strategy.”[1]
While I agree that Hedge Funds should be regulated, I believe that it should be done on a federal level, not at the state level.
[1] Greg Bordonaro, “Lawmakers Propose Stiff Hedge Fund Oversight,” Hartford Business Journal, February 23, 2009.
