financial regulation

New York Times editor Gretchen Morgenson argues that investors need a more muscular Securities and Exchange Commission. Even though billions of dollars have been paid by financial firms to settle regulatory and legal actions related to the mortgage crisis, most of that money went to the Department of Treasury or states. The SEC has collected $2.6 billion in penalties and disgorgement of profits in its actions, but class actions on behalf of stockholders and debtholders has recovered much more for investors, Morgenson reports. In six cases involving both private lawsuits and SEC action, the SEC recovered $400 million, while private plaintiffs recovered $3.8 billion. The agency "is clearly hamstrung in its efforts to generate recoveries on behalf of harmed investors" and should be authorized by Congress to be able to recover penalties equal to investor losses, Morgenson argues. Investors also should be able to bring private actions udner the securities laws, she argues.

Banks will have another two years before they have to start abiding by the Volcker rule, which would force them to sell their stakes in private-equity and hedge-fund investments, Bloomberg's Jesse Hamilton and Cheyenne Hopkins reported earlier this month. The rule was enacted to make the financial system less vulnerable to risky investments as happened in the 2008 Great Recession. The banking industry lobbied for the delay, among other reasons, because they said having to sell their stakes quickly might force them to "accept discount prices."

The Wall Street Journal's Emily Chasan reports that a "surge" in investors focusing on socially responsible investing and issues like human rights, protecting forests and disclosing political spending could push the Securities and Exchange Commission to change how it handles investor proposals: "Companies can try to exclude such proposals from their proxy ballots by asking SEC staff for permission, but Commissioner Daniel Gallagher said Thursday that the agency should reconsider procedures for granting exemptions." Chasan cites a study that found that 48 percent of shareholder proposals made this year focused on policy issues.

The U.S. Court of Appeals for the Second Circuit has ruled that New York's top financial regulator can tackle online lending businesses run by two American Indian tribes in Oklahoma and Michigan, the New York Times reports: "In their lawsuit, the tribes — the Otoe Missouria Tribe in Red Rock, Okla., and the Lac Vieux Desert Bank of Lake Superior Chippewa Indians in Watersmeet, Mich. — argued that their sovereign status shielded them from the reach of New York State. The appeals court disagreed, outlining in a 33-page opinion that the borrowers reside in New York and received the loans, 'certainly without traveling to the reservation.”'

A Nevada federal judge has ruled that the Federal Trade Commission can sue payday lenders, even if they are affiliated with American Indian tribes, the Legal Times reports. The judge ruled "that the FTC Act is a statute of general applicability, one that does not include an exception for Indian tribes," the Legal Times further reported. Tribes argue that they are sovereign and free from regulation by state governments and the U.S. federal government.

USA Today reports on the U.S. Supreme Court oral arguments this week in a case that will shape the future of securities class actions in America: "The Supreme Court searched for a compromise Wednesday that would help businesses avoid some class-action lawsuits charging securities fraud without making them virtually extinct. Faced with the real prospect of overturning a 26-year-old precedent permitting class-action cases based on investors' trust in market prices, several justices asked whether it might be better to require that investors prove that the fraud affected the price. Four conservative justices previously had made clear their desire to modify or overturn the 1988 decision. That would take a huge burden off U.S. corporations but make class-action challenges more difficult to bring. During oral arguments in the case of Halliburton v. Erica P. John Fund, however, both Justices Anthony Kennedy and John Roberts appeared to be searching for a middle ground. Even Justice Antonin Scalia, an opponent of the court's earlier decision in Basic v. Levinson, mused about the court adopting 'Basic writ small.'"

Wall Street banks are being investigated by federal authorities on whether they "deliberately mispricing a type of mortgage bond that was central to the economic turmoil," The Wall Street Journal reports. Its the first "known wide-ranging examination of mortgage-bond sales by banks in the years that followed," The Journal reports. The investigation could upset the financial recovery those institutions have made, but it also could bring some accountability regarding the mortgage-sparked 2008 financial crisis.

In another financial development, JPMorgan has agreed to settle for $2 billion criminal charges that it failed to alert the government about Bernie Madoff's Ponzi scheme, The Washington Post reports.
 

Five financial regulatory agencies approved the Volcker rule Tuesday, The Wall Street Journal reports. The rule could "lop as much as $10 billion total in yearly pretax profit from the eight largest U.S. banks through lower revenue and higher compliance costs, according to estimates from Standard & Poor's," The Journal further reports. On the other hand, the rule aims to prevent another financial crisis by curbing proprietary trading through curbing "banks' ability to bet with their own capital" and forcing "them to draw bright lines separating trades for clients from trades to limit their risks and so-called proprietary bets," The Journal also reports. 

"Proprietary trading helped fuel the financial-services industry's climb to dizzying heights in the years leading up to the financial crisis—and created millionaires within the biggest banks," The Journal further reports.

The rule goes into effect April 1.

Five regulatory agencies are going to be voting today on the Volcker rule, which limits the ability of banks to invest in hedge funds or trade the money they hold for their own gain, The New York Times reports. Meanwhile, "lobbyists for Wall Street banks and business trade groups," including the U.S. Chamber of Commerce, are hinting that they will litigate to undercut the rule, The Times further reports.

At the same time as the financial sector plans to fight the rule to some extent, "Wall Street is also throwing resources into compliance.  Banks are writing new compliance manuals, training their traders and rewriting computer programs that effectively automate whether a trade is out of bounds under the Volcker Rule," The Times also reports.

The five agencies are the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation and the Comptroller of the Currency.

JPMorgan Chase and federal govermental officials have finalized a $13 billion settlement, which is the largest settlement with the goverment on record, The Wall Street Journal reports. The settlement resolves much of the legal liability JPMorgan faces for its role, or the role played by companies it bought up, in the economic crisis after mortgage-backed securities went south despite promises of their strength as an investment vehicle. Part of the settlement includes $4 billion in aid for distressed homeowners, the WSJ also reports.