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
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.
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
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 (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.
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.
- 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
- 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 (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.