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A trial over whether JPMorgan Chase & Co. fired a wealth manager for raising fraud and money laundering concerns about a client ended with each side accusing the other’s main witness of lying, Bloomberg News reported yesterday. Jennifer Sharkey claims the bank ruined her career by illegally firing her in 2009 in retaliation for telling superiors about red flags raised by the client, known in the trial only as "Client A." Sharkey claims JPMorgan Chase violated whistle-blower protections in the 2002 Sarbanes-Oxley Act. The bank claims it fired Sharkey for lying about an unrelated account. “Ms. Sharkey came up with this whole idea after she was terminated and started looking for a payday from this court," Michael Schissel, a lawyer for the bank, told jurors in his closing argument Monday in Manhattan federal court. “Ms. Sharkey was terminated because she lied to her boss multiple times. It’s that simple." Schissel argued Sharkey’s claim that Client A refused to turn over documents needed for JPMorgan Chase’s “Know Your Customer” review was “an unmitigated lie."

Swaps clearinghouses are pushing back against the suggestion by a top Trump administration official that they have become too big and pose a market risk, saying that regulatory and internal “stress tests” prove there is no cause for alarm, the Wall Street Journal reported today. National Economic Council Director Gary Cohn said last week that he worried the entities could be a “new systemic risk” to financial stability, a viewpoint supported by policy makers across the government. A day after Cohn’s comments, a government regulator said its stress tests showed big U.S. clearinghouses could withstand a crisis-triggered liquidity crunch even if two of their major clearing member banks defaulted. Clearinghouses were beefed up after the 2008 financial crisis as the 2010 Dodd-Frank Act routed more transactions through them in an effort to protect financial stability. Still, Trump-appointed policy makers and clearinghouses agree the clearing mandate for swaps trading, widely regarded as one of the most successful parts of Dodd-Frank, could be tweaked to counter some consolidation and liquidity concerns. In particular, clearinghouses and their bank clearing members, as well as regulators at several agencies, say that a capital rule intended to provide a buffer against risky investments is actually preventing banks from doing more swap trading at clearinghouses, depressing liquidity.

Proposals floating around Washington to cap the amount that Americans can contribute before taxes to 401(k) plans and individual retirement accounts are unsettling professionals in the retirement industry, the Wall Street Journal reported today. Republicans are looking for ways to generate revenue to support broad reductions in individual tax rates. One idea is to limit the amount of pretax money households can sock away for retirement saving. Such a move would likely generate significant political blowback but it hasn’t been explicitly ruled out, stirring worry among industry lobbyists. Members of the House Ways and Means Committee are widely expected to release a version of the tax bill by mid-November.

President Donald Trump's top economic advisor said yesterday the administration remains committed to killing a tax perk that would hit certain corners of Wall Street in the pocketbook, even though it wasn't mentioned in the GOP tax plan, CNBC.com reported. "The president remains committed to ending the carried interest deduction," Gary Cohn, director of the National Economic Council, said on CNBC. Carried interest is the profit hedge funds, private equity funds and other investment managers make for managing investments. Usually they charge 20 percent of gains in their funds in any given year on top of a 2 percent annual management fee they get regardless of performance. According to Institutional Investor's <em>Alpha</em> magazine, the top 25 hedge funds made $11 billion in profit last year. For investments held for more than one year, profit is taxed at the lower capital gains rate of 23.8 percent, not the ordinary income rate of 39.6 percent. Profitable investments held less than one year are short-term gains taxed as ordinary income.

Lynn Tilton, whose aggressive management style made her a success on male-dominated Wall Street, won a U.S. Securities and Exchange Commission trial she’d spent months fighting to avoid, Bloomberg News reported yesterday. SEC administrative law judge Carol Fox Foelak ruled in favor of Tilton over allegations that she and her firm, Patriarch Partners LLC, bilked investors out of more than $200 million. “It is concluded that the violations” alleged by the SEC are “unproven,” Foelak wrote in her ruling issued Wednesday. “Thus, the proceeding will be dismissed.” The decision follows a three-week trial that ended last November. Tilton, who repeatedly argued that the SEC’s internal legal process is unfair to defendants, went all the way to the U.S. Supreme Court in her unsuccessful efforts to have the case heard in federal court, rather than before an SEC administrative judge.

The controversy over a rule restricting conflicted retirement advice is shifting to states, which are moving to bolster investor protections out of concern the Trump administration will weaken the federal provision, the Wall Street Journal reported today. In recent months, the governors of Nevada and Connecticut signed bills to expand or amplify “fiduciary” requirements for brokers. Legislators in New York, New Jersey and Massachusetts have introduced similar bills. And several other states, including California, have indicated interest in exploring such requirements. Unveiled last year, the Labor Department’s fiduciary rule requires brokers to act in the best interests of retirement savers rather than sell products that are merely suitable and potentially more lucrative for the brokers. Financial-industry leaders have fought against the Obama-era regulation, saying it would limit investment options, elevate costs and potentially cut off low-balance customers from some forms of professional advice. The states’ efforts come as the fate of the federal rule, which partially went into effect in June, remains in question. President Donald Trump shortly after taking office ordered the Labor Department to re-evaluate the economic impact of the rule with an eye toward repeal or revision. The states in many cases are looking to go beyond the federal rule, which only governs advice on tax-advantaged retirement savings, and instead require that brokers uphold a fiduciary standard across all accounts.

Noble Group Ltd.’s self-styled restructuring advocate has no intention of letting the beleaguered commodities trader get embroiled in chapter 11, Bloomberg News reported yesterday. After winning shareholder approval for the sale of its gas and power unit yesterday, chairman Paul Brough, who oversaw the liquidation of Lehman Brothers’s assets in Asia, said the company would likely find a buyer for its oil business by the month-end and get an extension on its debt covenant waiver beyond October. The company would then have the room to settle a repayment plan with its banks and avoid default, he said. “I don’t go into companies with the intention of liquidating them; I am a restructuring man,” Brough told the shareholder meeting. “I have only once ever been in a chapter 11 situation with Lehman Brothers, and I don’t wish to go there again. So rest assured, I’m doing all I can to avoid any kind of formal process, and I’m doing all I can to try and turn the business around.” Noble is fighting for its life more than two years into a crisis marked by accounting criticisms, a plunge in its securities and credit-rating downgrades. The trader is selling the units to shore up its finances after posting a $1.75 billion loss in the second quarter as net debt surged. Moody’s Investors Service has warned that the planned sales may be insufficient to cover its debt, while S&P Global Ratings sees non-repayment risk in the next six months.

The Federal Reserve on Friday finalized a new rule that should make it easier to wind down systemically important U.S. banks by creating a safe harbor for financial contracts after a firm defaults, Reuters reported. The decision, unanimously approved by Fed board members, forms part of global post-crisis efforts to end ‘too big to fail’ institutions that are so large and complex they could endanger the entire financial system if they fall into bankruptcy. The rule requires global systemically important banks (GSIBs) to amend the language in common financial contracts so they cannot be immediately canceled if the firm enters bankruptcy. By imposing new legal protections, regulators aim to prevent a run on a GSIB’s subsidiaries that could be triggered if a large number of counterparties rush to terminate their contracts, as occurred in the case of Lehman Brothers in 2008. The new rules would apply to eight GSIBs, including JPMorgan Chase, Goldman Sachs, and Citigroup.