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To a few Wall Street financiers, a lawsuit that accuses the government of shortchanging the American International Group in its 2008 bailout is something else: a promising investment in a cause they support, the New York Times reported today. Maurice R. Greenberg, the former AIG chief executive who still holds a large stake in the insurance company, filed the lawsuit on behalf of fellow shareholders. He has now raised several million dollars from three Wall Street companions to help cover the cost of the case. The investors, who are entitled to a cut of any damages Greenberg collects from the government, contributed about 15 percent of the tens of millions of dollars in legal costs. Six years after the government saved Wall Street from the brink of collapse, the lawsuit is coming to trial, reopening one of the ugliest chapters in modern financial history. The trial, which begins next week in Washington, D.C., will most likely hinge on testimony from the policy makers who orchestrated AIG’s rescue, including former Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Timothy F. Geithner.

The ability of the Financial Stability Oversight Council (FSOC) to designate nonbank firms as systemically important financial institutions (SIFIs) has come under intense scrutiny in recent months, HousingWire.com reported today. Many critics have called the SIFI designation just another version of “too big to fail,” the phrase that became synonymous with the bailouts of some of the nation’s largest financial institutions in the aftermath of the financial crisis, as the SIFI designation brings the nonbank under the supervision of the Federal Reserve. But during the Monday keynote address at ABS East in Miami, Patrick Pinschmidt, the deputy assistant secretary and executive director of the FSOC, said that those characterizations are inaccurate and untrue. “SIFI designation is not ‘too big to fail,’” Pinschmidt said. He countered that the SIFI designation is designed to bring additional oversight of nonbanks in an attempt to mitigate the impact of a nonbank’s potential failure on the country’s economy.

Virginia Attorney General Mark R. Herring (D) on Monday dropped JPMorgan Chase from a mortgage securities lawsuit against the country’s biggest banks, after learning that his predecessor Ken Cuccinelli (R) had already struck a confidential settlement with the bank, the Washington Post reported yesterday. The decision comes a week after Herring announced a $1.15 billion lawsuit against 13 of the country’s biggest banks for misleading a state retirement fund about the quality of bonds made up of residential mortgages. JPMorgan and its Washington Mutual subsidiary were named in the suit, along with Citigroup and Bank of America, for packaging faulty home loans into securities sold to the Virginia Retirement System (VRS). According to Herring’s office, the pension fund failed to inform the attorney general that the previous administration had reached a $3 million settlement with JPMorgan in 2013. Kelly said the case against the remaining 11 banks will go forward.

Two Federal Reserve officials who have warned loudly and persistently that the Fed is overreaching in its economic stimulus campaign plan to retire next year after completing terms on the Fed’s policy-making committee, the New York Times reported today. Charles Plosser, president of the Federal Reserve Bank of Philadelphia since 2006, said yesterday that he would retire in March. Richard Fisher, president of the Federal Reserve Bank of Dallas since 2005, is required to step down by the end of April. Both men dissented at the committee’s most recent meeting, last week, arguing that the central bank is not retreating fast enough from its support program as the economy gains strength. The departures are unlikely to have a large influence on policy. The two men, and a handful of like-minded officials, have been marginalized in recent years as their warnings that inflation would accelerate have failed to materialize. The Fed’s chairwoman, Janet L. Yellen, and her predecessor, Ben S. Bernanke, have chosen to press ahead with majority support rather than seeking unanimity.
http://www.nytimes.com/2014/09/23/business/fed-official-crtical-of-poli…

To listen to further perspectives on Fed Policy, be sure to attend ABI’s luncheon at the 88th NCBJ Annual Meeting. Richmond Federal Reserve President Jeffrey M. Lacker will deliver a keynote titled “ Rethinking the Unthinkable: Bankruptcy for Large Financial Institutions.” Click here for more information: http://www.ncbjmeeting.org/index.php

MF Global's creditors, who have waited nearly three years to get paid, will have to wait a little longer after a bankruptcy judge yesterday held off approving its bid to repay them $295 million, Dow Jones Daily Bankruptcy Review reported yesterday. Bankruptcy Judge Martin Glenn said that he was uncomfortable with one part of the proposal: MF Global's request to estimate certain unresolved claims at zero dollars. The judge said that he was "not happy" that he didn't have enough information on some of the claims.

The U.S. Securities and Exchange Commission awarded more than $30 million to a whistle-blower in its largest payout from a program started in 2011 to encourage people to come forward with evidence of securities fraud, Bloomberg News reported yesterday. The whistle-blower, who lives outside of the U.S., provided key information in an enforcement action that the SEC didn’t identify, the agency said yesterday. Whistle-blower awards range from 10 percent to 30 percent of the money collected in a case. Congress authorized the SEC’s whistle-blower program in 2010 as the agency was trying to bolster its enforcement program after having failed to act on a detailed tip that Bernard Madoff was operating a multibillion dollar fraud. The agency has made payouts to more than a dozen whistle-blowers, including a $14 million reward in 2013. By law, the SEC doesn’t disclose the identity of the whistle-blower or information that might reveal who it is.

Doral Financial Corp., the holding company for Puerto Rico’s second-largest mortgage lender, pressed its demand before a judge for a $229.9 million tax refund, with testimony from the company’s lawyer, Bloomberg News reported yesterday. Doral and Puerto Rico agreed in 2012 that the company was entitled to the refund as a result of a restatement of earnings from 1998 to 2004. Puerto Rico’s treasury department voided the deal, claiming Doral obtained it through fraud. The numbers in the refund agreement “are correct,” Doral’s General Counsel Enrique Ubarri today told Superior Court Judge Laureana Perez Perez in the third day of a non-jury, Spanish-language trial in San Juan, amid repeated objections from island treasury officials. He said he reviewed the figures with Chief Executive Officer Glen Wakeman. Puerto Rico’s refusal to honor its agreement threatens to undermine all contracts between government agencies and private parties on the island, Doral said in its complaint.

Regulators are poised to require that accounting firms identify exactly who is in charge of each audit they perform at thousands of publicly traded companies, but just where that disclosure will happen is still up for debate, the Wall Street Journal reported today. The Public Company Accounting Oversight Board (PCAOB), the government's audit regulator, expects to give final approval in the next few weeks to a long-awaited rule that will mandate accounting firms disclose the name of their lead "engagement partner," their partner in charge, on each public-company audit they perform each year. The move is aimed at increasing accountability for auditors and giving more information to investors. PCAOB Chairman James Doty wants the name disclosed in the audited company's annual report, also known as the 10-K, in the section in which the auditor's opinion appears. But big accounting firms are pushing for disclosure in a different location: a separate report the auditing firms file with the PCAOB, known as a Form 2.

The nation's largest mortgage servicers are desperate to put the robo-signing scandal behind them, American Banker reported today. At least two of the servicers say that they are close to being released from consent orders dating back to 2011, when the Office of the Comptroller of the Currency ordered 14 bank servicers to clean up their servicing practices. The consent orders were issued after bank employees were found to have improperly signed and processed foreclosure documents following the housing bust. Two of the banks have fulfilled the OCC’s requirements and expect to be released from the consent order as early as next month, their lawyers said this week. Several of the banks were given a Sept. 30 deadline to comply with the terms of the enforcement order.

U.S. banks may get another year to shift some swaps trading from their government-insured units as regulators respond to demands to give them more time, Bloomberg News reported today. A delay until July 2016 in applying the Dodd-Frank Act separation requirement is being weighed in discussions between bank lobbyists and officials from the Federal Reserve and Office of the Comptroller of the Currency. The provision was included in the 2010 law as a way to shield taxpayers from the kind of risky trading that helped fuel the 2008 credit crisis. Groups representing JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. say that the deadline should be delayed while rules are being completed.