The Good, The Bad & The Ugly – Week of 3/11/13

The Good

 

  • Potential good. Carl Levin’s Permanent Subcommittee on Investigations will be holding a hearing at 9:30 am today titled “J.P. Morgan Chase “Whale” Trades: A Case History of Derivatives Risks and Abuse.” We can only hope he brings the fire again (like his famous “shitty deal” grill of Dan Sparks) and highlight the banks’ continued excesses and criminality to the public. Matt Taibbi will be live-blogging too. Matt Taibbi at Rolling Stone March 14, 2013

The Bad

  • Through a FOIA request, the LA Times learns that the FDIC has been covering up for banks by not publishing the fact they engaged in really bad behavior through a “no press release” clause in their settlements. E. Scott Reckard at The Los Angeles Times March 11, 2013
  • Jim Himes, former Goldman executive and now financial chair of the DCCC, introduces a bill to weaken Dodd-Frank, specifically the Prohibition Against federal Government Bailouts of Swaps Entities, which bars federal assistance from being provided to any swaps entity. Chelsea Kiene at the Huffington Post March 8, 2013

The Ugly

  • Mary Jo White sails through the confirmation hearing as nearly all congressmen (except Sherrod Brown) throw her softballs, not to mention a particularly slobbering introduction from Charles Schumer about her love of motorcycles. Pam Martens at Wall Street on Parade March 14, 2013

 

The Good, The Bad, & The Ugly – Week of 3/4/2013

The Good

Elizabeth Warren grills banking regulators (Fed, Treasury, OCC) for HSBC wrist slaps. At what point does the government actually bring criminal charges? Mark Gongloff at Huff Post March 7. 2013

Senate Permanent Subcommittee on Investigations report said to implicate JP Morgan executives in London Whale losses. Committee could ask executives to testify. Ben Protess and Jessica Silver-Green March 4, 2013

The Bad

Goldman Sachs, sidestepping Volcker rule, finds a way to invest in private equity (with our money). Jessica Toonkel and Lauren Tara LaCapra at Reuters March 4, 2013.

The Ugly

Eric Holder states openly what we already know to be the DOJ’s position, the patently absurd claim that the big banks are too big to prosecute because prosecuting them would cause grave economic harm. Robert Borosage at Alternet March 7, 2013

The chilling war on whistleblowers continues. Just days after Michael Winston’s appearance in the highly critical “Untouchables” PBS documentary, the Appeals Court of California overturns his $3.8 million wrongful termination suit, which was one of only a few glimmers of justice post-2008. Matt Taibbi at Rolling Stone March 4, 2013

The Good, The Bad, & The Ugly – Week of 2/25/13

OSEC news: We have filed a lawsuit against the Federal reserve, SEC, CFTC, OCC, FDIC, and the U.S. Treasury over Volcker Rule Delays. Our blog post on it is here.

 

The Good

  • Not so much good as revealing. Jamie Dimon in a moment of candor reveals his and others of his crowd’s mindset while also admitting his bank’s inferior capital ratio to other banks. Matt Taibbi at Rolling Stone February 27, 2013.

The Bad
 

  • The Volcker Rule might be put off until the second half of this year, much later than previously expected. This article was written the same day we announced our lawsuit against the regulators perfectly illustrating out point. Scott Patterson at the Wall St Journal February 27, 2013
  • The Supreme Court, in a unanimous 9-0 decision, sides with Gabelli in the case Gabelli v. SEC, a ruling which effectively reduces the timeframe in which the government can bring penalty actions against fraudsters. Basically another “get out of jail free” for fraudsters. Our post at the OSEC blog February 27, 2013

The Ugly

Jack Lew confirmed for Treasury:
 

  • Pam Martens writes about NYU’s odd $1.3 million home purchase for Jack Lew which under any normal government would disqualify him from the job of Treasury Secretary. Pam Martens at Wall Street on Parade February 25, 2013
  • Jonathan Weill describes the super bonus Citigroup promised Mr. Lew if he sought out a top level job in the government. It doesn’t get any slimier, really. Jonathan Weill at Bloomberg February 21, 2013

Supreme Court Decision in Gabelli v. SEC is a Boon for Fraudsters

In a unanimous 0-9 decision, the Supreme Court today reversed the 2nd Circuit in the case of Gabelli v. SEC, holding that the “discovery rule” does not apply for punitive fraud actions brought by government enforcement agencies.  Our previous blog post describes the case and references the amicus brief that Occupy the SEC filed in the case.

The Supreme Court’s decision effectively reduces the allowable timeframe within which the government can bring penalty actions against fraudsters.  This will allow wrongdoers to escape liability for no good reason other than the fact that the applicable government enforcement agency did not bring a suit in time.  The Court explicitly acknowledges this possibility:

“We have . . . concluded that ‘even wrongdoers are entitled to assume that their sins may be forgotten.’”

Agencies like the SEC have spare resources.  An increased burden has been placed on the SEC with the passage of Dodd-Frank.  Meanwhile there have been sustained efforts in Congress to limit the agency’s funding.  The obvious consequence of this is that the SEC will bring fewer fraud actions within the shortened 5 year window.  This decision is essentially a “get out of jail free” card for untold numbers of fraudsters.

Sadly the court did not seem to take cognizance of this reality, or the justness of such an outcome.  It instead focused heavily on the absence of any prior caselaw specifically applying the discovery rule to a government enforcement action.  But that is circular reasoning.  A case comes before the Supreme Court only because it presents a novel question.  If there is already extensive caselaw on a particular legal issue, the Court is unlikely to grant certiorari (i.e. decline to hear the case in the first place).  So the Court should not have placed so much emphasis on the fact that the discovery rule had not been applied to government actions before.  The discovery rule has been applied for centuries, and the Court could have (and should have) extended it to government penalty actions.  After the Gabelli decision, private plaintiffs can benefit from the discovery rule, but the government, which represents the public, cannot.

The discovery rule starts the clock on the statute of limitations when the agency should reasonably have discovered the fraud.  On the one hand, the Court questioned how it could determine whether a large federal agency actually discovered a fraud (“when does ‘the Government’ know of a violation? Who is the relevant actor? “).  But the same decision gave many examples of how the SEC has the power to subpoena documents and conduct investigations.  Obviously these actions (subpoenaing documents and conducting investigations) are clear indications of when the Government “knows” about a violation.  These actions could easily establish the start date for the discovery rule.

All in all, the decision sets a troubling precedent.  It also reinforces the dire need for the SEC and other enforcement agencies to receive more funding.  The deck is now stacked against them.

Occupy the SEC Sues Federal Reserve, SEC, CFTC, OCC, FDIC and U.S. Treasury Over Volcker Rule Delays

Occupy the SEC (OSEC) has filed a lawsuit in the Eastern District of New York against six federal agencies, over those agencies’ delay in promulgating a Final Rulemaking in connection with the “Volcker Rule” (Section 619 of the Dodd-Frank Act of 2010).

Congress passed the Volcker Rule in July 2010 in order to re-orient deposit-taking banks towards safe, traditional activities (like offering checking accounts and loans to individuals and businesses), and away from the speculative “proprietary” trading that has imperiled deposited funds as well as the global economy at large in recent years.  Simply put, the Volcker Rule seeks to limit the ability of banks to gamble with the average person’s checking account, or with public money offered by the Federal Reserve.

Almost three years since the passage of the Dodd-Frank Act, these agencies have yet to finalize regulations implementing the Volcker Rule.  Section 619(b)(2)(A) of the Dodd-Frank Act set a mandatory deadline for the finalization of the Volcker regulations.  That deadline passed over a year.  Despite this fact, the federal agencies charged with finalizing the Rule have yet to do so.  In fact, senior officials at the agencies have indicated that they do not intend to finalize the Volcker Rule anytime soon.

The longer the agencies delay in finalizing the Rule, the longer that banks can continue to gamble with depositors’ money and virtually interest-free loans from the Federal Reserve’s discount window.  The financial crisis of 2008 has taught us that the global economy can no longer tolerate such unrestrained speculative activity.  Consequently, OSEC has filed a lawsuit against the agencies, seeking declaratory, injunctive and mandamus relief in the form of a court order compelling them to finalize the Volcker Rule within a timeframe specified by the court.

The lawsuit names various officials at the following U.S. federal agencies: the Federal Reserve, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the U.S. Department of the Treasury.

The Good, The Bad & The Ugly – Week of 2/22/13

OSEC news: We submitted a comment letter to the Financial Stability Oversight Council in response to the Council’s proposed regulations to Money Market Funds. Here’s a blog post on it. Here’s the actual letter.

The Good

The Bad

  • On her disclosure form, Mary Jo White neglected to list three of her prior clients. Just another “ethical landmine,” in Jonathan Weill’s words. Bloomberg February 15, 2013

The Ugly

  • Another DOJ smokescreen as they pretend to go after Wall Street by extracting guilty pleas from foreign subsidiaries. Yves Smith asks “I’m not sure who the audience for this play-acting is supposed to be.” The DOJ seems to think there is one, showing how disconnected they really are. Matt Taibbi at Rolling Stone and Yves Smith at Naked Capitalism February 19, 2013
  • POGO’s in-depth report details just how captured the SEC is by the institutions it is meant to regulate. Bill Moyers and Michael Winship at Moyers and Co. February 15, 2013

Occupy the SEC submits comment letter on money market fund regulation

Occupy the SEC (OSEC) has submitted a comment letter to the members of the Financial Stability Oversight Council (FSOC) in response to the Council’s proposals for regulating money market funds (MMFs).  FSOC will consider public comments on MMF reform and will make recommendations to the Securities and Exchange Commission (SEC), which will ultimately implement final regulations.

OSEC has submitted its comments in order to ensure that the new MMF rules are developed with input from the perspective of the public, in light of the fact that the public is likely to bear the greatest costs of the systemic risk stemming from the MMF industry.

In its letter, OSEC recommends that regulators consider a series of measures that address gaps in the SEC’s 2010 MMF reforms.  Specifically, OSEC calls for enhanced diversification, increased liquidity and transparency, and greater fund board accountability.  OSEC also proposes that the FSOC (and ultimately the SEC) consider allowing fund managers to offer both floating and buffered Net Asset Value (NAV) structures, with full price transparency, so that fund investors have full knowledge of the risks involved, and can choose the fund structure that best aligns with their preferences.

The letter is available here.

The Good, The Bad & The Ugly – Week of 2/11/13

The Good

  • At her first Banking, Housing, & Urban Affairs Committee hearing, Senator Elizabeth Warren asks the regulators “When was the last time you took a Wall Street bank to trial?” In response, the regulators offer bumbling excuses. We can only hope this embarrassment produces some indictments. Ryan Grim at Huff Post February 14, 2013

The Bad

  • Eight more states join a lawsuit challenging Title II of Dodd-Frank, giving the treasury “Orderly Liquidation Authority” over banks. Armoreite February 14, 2013
  • Dave Dayen on how “the mortgage standards launched by the Consumer Financial Protection Bureau will fall short of what is necessary” Naked Capitalism February 12, 2013
  • Republicans are determined to gut the CFPB in any way possible from blocking the nomination of Richard Cordray to demanding the director be replaced with a commission. Carter Dougherty at Bloomberg Businessweek February 13, 2013

The Ugly

  • To stay with the broader theme of Occupy. Research by Emmanuel Saez, renowned income inequality expert, shows that 121% of income gains from 2009 to 2011 went to the top 1% of the population. As for the 99%, they saw a 0.4% decrease, showing that income inequality has only gotten worse under Obama. Bonnie Kavousi at Huff Post February 12, 2013

The Good, The Bad & The Ugly – Week of 2/4/13

The Good

  • The Department of Justice files a $5 billion suit against ratings agency S&P for misrepresentation of risks in MBS they rated. Aruna Viswanatha and Lauren Tara LaCapra at Reuters
    February 5, 2013
  • Yves Smith describes Judge Jed Rakoff’s ruling in a rep and warranty case, in which bond insurer Assured got nearly everything it wanted from the mortgage originator Flagstar as “a game-changer” and a huge blow to Bank of America and JPMorgan. Naked Capitalism
    February 6, 2013
  • Elizabeth Warren and Elijah Cummings begin an investigation into the recent OCC/FED settlement with mortgage servicers that ended the Independent Foreclosure Review process. Yves Smith at Naked Capitalism
    February 4, 2013

The Bad

  • A 2006 SEC law which “discourages entry and discourages new ideas and new ways of doing things” will undermine the DOJ lawsuit against S&P, which accuses them of deliberately misrepresenting bonds to get Wall Street business. Matt Robinson at Bloomberg
    February 6, 2013
  • Timothy Geithner has been named a “distinguished fellow” at Robert Rubin’s Council on Foreign Relations. The paycheck might not come directly from Wall Street, but it’ll get there nonetheless. Pam Martens at Wall Street On Parade
    February 7, 2013

The Ugly

  • Final installment of Yves Smith’s invaluable original research on the extensive borrower harm and orchestrated cover-up in the Bank of America foreclosure settlement. Naked Capitalism
    February 7, 2013

Occupy the SEC has some questions for Mary Jo White

Occupy the SEC (OSEC) has submitted a letter to the members of the Senate Committee on Banking, Housing and Urban Affairs in anticipation of the upcoming confirmation hearing of Mary Jo White. The letter requests that the Committee submit a series of questions to Ms. White regarding her intentions as Chairman of the SEC.

Figures from industry, media and the government have expressed their support for White’s nomination, along with expectations that she will bring tenacity and toughness to the position based on her track record as a prosecutor. While we are hopeful that she will live up to these expectations, Ms. White’s more recent work as a defense attorney raises significant questions that OSEC would like to see addressed in the hearing.

Specifically, we are concerned about the potential conflicts posed by her work representing many of the executives and institutions that she will be in charge of regulating. Her track record, together with comments about the prosecution of banking executives, raise questions that – if left unanswered – could further undermine the public’s faith in the integrity of the SEC.

The letter and accompanying press release are available on our website, www.occupythesec.org.