Credit Suisse Group AG and Barclays PLC agreed to pay $154.3 million combined to settle investigations by regulators into their “dark pools,” officials said, the Wall Street Journal reported today. The record settlements are with the U.S. Securities and Exchange Commission and the New York attorney general. The SEC “will continue to shed light on dark pools to better protect investors,” the agency’s chairman, Mary Jo White, said in the statement. The agreements are the biggest and second-biggest settlements related to dark pools, which are privately run stock-trading venues that have come under greater scrutiny in the past several years. Regulators and other critics have accused dark pools of providing unfair advantages to professional traders at the expense of big institutions.
Securities and Exchange Commission Chairman Mary Jo White outlined on Tuesday a busy agenda for what is likely to be her final full year at the helm of the SEC, with a range of initiatives focusing on boardroom diversity and executive compensation, the Wall Street Journal reported today. One new priority: possibly requiring companies to provide more details about the diversity of their directors. White said that she is concerned that existing disclosures may not provide investors with enough information. White said that she has instructed staff to review existing company disclosures and give her recommendations on whether the agency should require companies to provide more specific information about the racial or gender composition of their boards.
A little more than five years after federal agents raided the offices of Level Global Investors, securities regulators are returning $21.5 million in settlement money that the hedge fund paid to resolve an insider trading investigation, the New York Times reported today. A federal judge yesterday ordered the hedge fund’s 2013 settlement vacated after the Securities and Exchange Commission said it would not oppose the request by lawyers for the now-defunct hedge fund. Level Global shut its doors in 2011 after investors lost confidence in its management when one of its founders, Anthony Chiasson, was implicated in the insider trading scandal. Chiasson was convicted at trial, but the verdict was overturned and the charges tossed out by a federal appeals court in 2014.
U.S. securities regulators said yesterday that they would not oppose making a rare settlement refund of $21.5 million to hedge fund Level Global Investors LP after a federal appeals court's ruling that made pursuing insider trading cases tougher, Reuters reported yesterday. The U.S. Securities and Exchange Commission's position was laid out in a letter filed in federal court in Manhattan, after the defunct Connecticut hedge fund asked a federal judge to vacate the 2013 settlement and order the SEC to repay it. Level Global's request requires approval by U.S. District Judge Shira Scheindlin. Neither the SEC nor a lawyer for Level Global responded to requests for comment.
The Securities and Exchange Commission yesterday announced that Ocwen Financial Corp. has agreed to settle charges that it misstated financial results by using a flawed, undisclosed methodology to value complex mortgage assets, according to an SEC press release yesterday. Ocwen agreed to pay a $2 million penalty after an SEC investigation found that the company inaccurately disclosed to investors that it independently valued these assets at fair value under U.S. Generally Accepted Accounting Principles (GAAP). Ocwen’s audit committee failed to review the methodology with company management or its outside auditor, and the related party’s valuation deviated from fair value measures, according to the SEC. Ocwen consequently misstated its net income for the last three quarters of 2013 and the first quarter of 2014.
A congressional effort to put regulators under the microscope when they write new rules for Wall Street is gaining momentum, potentially creating new obstacles to the closer oversight of financial risk taking, the New York Times reported today. A bipartisan group of senators is working on a package of regulatory reform bills that most likely would include a measure to subject the Consumer Financial Protection Bureau, the Securities and Exchange Commission and other independent agencies to a heightened cost-benefit analysis and review process for major rules. Supporters say the legislation would bring rule-making standards for independent regulators closer in line with those for executive branch agencies, providing more consistency and transparency in the rule-making process. But critics, including top Democrats, warn that the legislation is instead intended to create additional burdens and delays, as well as make agency rules more vulnerable to legal challenges.
Goldman Sachs said yesterday that it had agreed to a civil settlement of up to $5 billion with federal prosecutors and regulators to resolve claims stemming from the marketing and selling of faulty mortgage securities to investors, the New York Times reported today. Goldman, which is scheduled to report fourth-quarter earnings on Wednesday, said the settlement would reduce earnings in that period by approximately $1.5 billion on an after-tax basis. In the early days of the financial crisis, Goldman Sachs received an outsize share of criticism from politicians and the media as its trading desk made money by betting against the housing market in the run-up to the crisis. But in the end, Goldman’s role in churning out faulty mortgages and securities backed by home loans to borrowers who could not afford them was smaller than that of many other Wall Street firms like Bank of America or JPMorgan Chase. As a result, Goldman’s settlement is far smaller than the sums paid by other firms for selling flawed mortgage securities. Goldman is among the last firms to reach a civil settlement with a task force of federal prosecutors, state attorneys general and regulators empowered to investigate Wall Street’s role in cobbling together securities from all the mortgages that borrowers found themselves unable to afford. Read more.
In related news, the U.S. Securities and Exchange Commission said that Goldman Sachs & Co. will pay $15 million to settle civil charges that its securities lending practices violated federal regulations, Reuters reported yesterday. Goldman made improper representations to customers who requested that the firm locate certain stocks for short selling, the SEC said. Goldman told those customers that it had arranged to borrow, or believed it could borrow, the security to settle the short sale, a process known as "granting locates." Goldman, however, had not performed an adequate review of the securities customers had asked it to locate, the SEC said. At issue is U.S. regulation for short selling that requires brokerages to enter an agreement to borrow securities on behalf of customers or to have “reasonable grounds” for believing that it can borrow the security. A team of Goldman employees, between 2008 and 2013, relied on an automated system to fill customers’ stock requests. But a problem with the system allowed employees to grant customers’ “locate” requests based on the inventory reported to Goldman early in the day by other large financial institutions, even after the inventory had been depleted as the team processed requests during the day. Additionally, the team did not check other possible sources for securities or perform a “meaningful further review,” the SEC said. Read more.
U.S. market regulators are intensifying their scrutiny of assets that can be hard to sell in stressed markets after the failure of a high-yield bond fund overseen by Third Avenue Management LLC, Bloomberg News reported yesterday. The Securities and Exchange Commission said yesterday that it plans to scrutinize how mutual funds, exchange-traded funds and hedge funds value these less-liquid holdings and manage the risk that they can’t be sold when managers need the cash. The SEC said that its examiners also plan to review the role of brokers that match buyers and sellers for less liquid investments. The regulator recently had to contend with the failure of the $788.5 million Third Avenue Focused Credit Fund, which blocked clients from pulling their money because the fund couldn’t meet redemptions without selling holdings at steep discounts.
