U.S. securities regulators, under pressure from the asset-management industry, are preparing to exempt a majority of money-market mutual funds from a central plank of rules intended to curb risks in the $2.6 trillion market, the Wall Street Journal reported today. The Securities and Exchange Commission, poised to implement structural changes to money funds in coming months, is expected to broaden an exemption for mom-and-pop retail investors from requirements that certain money funds abandon their signature $1 share price and float in value like other mutual funds. Supporters of a floating share price argue it would train investors to accept slight fluctuations in the value of their shares and not panic if they fall below the $1 price.
A judge ordered Fabrice Tourre, a former Goldman Sachs trader at the center of a troubled mortgage deal, to pay the Securities and Exchange Commission (SEC) $825,000 in penalties and other costs, The New York Times reported yesterday. The sum fell short of the roughly $1 million payout that the agency had requested. The ruling, a capstone to one of the SEC’s most prominent Wall Street cases and its first significant courtroom victory stemming from the financial crisis, was equal parts validation and leverage for an agency that has threatened harsher penalties and fewer settlements. The case could signal to Wall Street employees, with all their legal resources, that the agency is willing to take them on and that it just might win, even though the agency has lost five of its last 12 trials. In addition, the recent losses have raised questions about the costs of a trial, which can take several weeks and drain resources from the SEC.
The Securities and Exchange Commission urged municipal borrowers and underwriters to voluntarily report violations, allowing them to avoid steeper penalties after an investigation, Bloomberg News reported yesterday. The regulator today said that it created an enforcement program providing standardized settlements for borrowers and banks that report running afoul of the law. For states and cities, it would let them avoid financial penalties. “We encourage eligible parties to take advantage of the favorable terms we are offering,” said Andrew Ceresney, director of the SEC’s enforcement division. “Those who do not self-report and instead decide to take their chances can expect to face increased sanctions for violations.” The commission has toughened enforcement against state and local governments that borrow in the $3.7 trillion municipal-bond market, seeking to protect investors from being harmed by inadequate or misleading disclosures.
The U.S. Securities and Exchange Commission won an appeals court ruling that may allow it to collect illegal proceeds from money managers who engage in insider trading even when their firms got all the profit, Bloomberg News reported yesterday. The U.S. Court of Appeals in Manhattan yesterday upheld a lower court’s finding in an SEC lawsuit that Joseph Contorinis, an ex-Jefferies Paragon Fund money manager convicted of insider trading in 2010, must turn over $7.2 million he made for the fund and an additional $2.5 million in interest. The decision could affect future insider trading cases and offers the government “another avenue” to put money managers on the hook for profits, said Marc Agnifilo, a New York defense lawyer who wasn’t involved in the case. Contorinis is serving a six-year prison sentence for his role in the scheme. Jurors found that he traded on tips from an associate director of mergers and acquisitions at Zurich-based UBS AG.
Federal securities regulators say that public policy concerns are driving their newly launched bid to block Edison Mission Energy's plan to exit bankruptcy via a sale to NRG Energy Inc., Dow Jones Daily Bankruptcy Review reported today. The Securities and Exchange Commission on Monday filed papers asking a Chicago bankruptcy judge not to approve Edison Mission's chapter 11 reorganization plan, which the judge is slated to take up next week. The SEC says Edison Mission's plan violates bankruptcy laws by proposing to sell the company's operations, free it from its debts and issue new shares in the left-behind company to creditors.
The Securities and Exchange Commission announced yesterday that Michael J. Osnato, Jr. has been named chief of the Enforcement Division unit that conducts investigations into complex financial instruments, according to a SEC press release. Osnato previously helped spearhead the SEC’s case against JPMorgan Chase & Co. and two former traders for fraudulently overvaluing a complex trading portfolio in order to hide massive losses, and the subsequent action in which the bank admitted that it violated federal securities laws. Osnato will now lead a Complex Financial Instruments Unit that is comprised of attorneys and industry experts working in SEC offices across the country to investigate potential misconduct related to asset-backed securities, derivatives, and other complex financial products.
Four months after being found liable for defrauding investors in a soured mortgage deal, Fabrice Tourre now faces a stiff financial penalty for his actions, the New York Times DealBook Blog reported today. The Securities and Exchange Commission disclosed yesterday that it is seeking $910,000 in fines against Tourre, a former Goldman Sachs vice president whose defeat handed the government its first big legal victory in a case arising from the financial crisis. The government is also seeking the forfeiture of $175,463 in ill-gotten gains, along with $62,858.03 in interest. Tourre faces a significant fine for his part in a failed investment that has become one of the most enduring symbols of the 2008 financial crash. He was found liable for six of seven counts of civil fraud.
In a defeat for Wall Street, the "Volcker rule" won't allow banks to enter trades designed to protect against losses held in a broad portfolio of assets, the Wall Street Journal reported today. The practice, known as portfolio hedging, has become a focal point of regulators drafting the rule, a controversial plank of the 2010 Dodd-Frank financial law that seeks to prevent banks from putting their own capital at risk in pursuit of trading profits. The rule, named after former Federal Reserve Chairman Paul Volcker, is expected to be approved next week, ending a three-year period of regulatory uncertainty for some of the securities industry's most-profitable businesses. But it won't contain language permitting portfolio hedging, which has been "expunged" from earlier drafts of the rule. Regulators decided to remove portfolio hedging from the rule after JPMorgan Chase & Co. disclosed billions of dollars in losses from its so-called London whale trades in 2012. The bank initially described the trades as a portfolio hedge. Now, it is likely other Wall Street firms also will end up paying for J.P. Morgan's slip-up. Regulators, in response to the J.P. Morgan disclosure, pushed to write a rule that would ensure banks couldn't engage in such trades.
The U.S. Securities and Exchange Commission is weighing whether proxy advisers have grown so influential in corporate elections that regulators should impose rules to make their business more transparent, Bloomberg News reported yesterday. The roles of Institutional Shareholder Services Inc. and Glass Lewis & Co. LLC in shareholder voting will be debated by institutional investors, brokers, business groups and unions today at a meeting hosted by the SEC. ISS and Glass Lewis dominate the market for providing recommendations for votes on topics such as executive pay, nominees for boards of directors, and corporate mergers. ISS and Glass Lewis have already agreed with the European Union’s securities regulator to follow a voluntary code of conduct to manage conflicts of interest and disclose how they make recommendations. The U.S. Chamber of Commerce and Business Roundtable have pressed the SEC to require more disclosures by proxy advisers, including conflicts of interest and their method for grading company policies such as executive pay.
The House is scheduled to vote on two bills this week that would undercut new Dodd-Frank Act financial regulations, the New York Times DealBook blog reported today. The legislation has garnered broad bipartisan support in the House, even after lawmakers learned that Citigroup lobbyists helped write one of the bills, which would exempt a wide array of derivatives trading from new regulation. The bills are part of a broader campaign in the House among Republicans and business-friendly Democrats to roll back elements of the 2010 Dodd-Frank Act, the most comprehensive regulatory overhaul since the Depression. Of 10 recent bills that alter Dodd-Frank or other financial regulation, six have passed the House this year. This week, if the House approves Citigroup’s legislation and another bill that would delay heightened standards for firms that offer investment advice to retirees, the tally would rise to eight. Both the Treasury Department and consumer groups have urged lawmakers to reject the bills, warning that they could leave the nation vulnerable again to excessive financial risk taking. The House proposals stand little chance of becoming law, having received a much chillier reception in the Senate and at the White House, which on Monday threatened to veto the bill on investment advice for retirees. http://dealbook.nytimes.com/2013/10/28/house-set-to-vote-on-2-bills-is-…
In related news, the House Financial Services Financial Institutions and Consumer Credit Subcommittee will hold a hearing today at 3 p.m. entitled “Examining Legislative Proposals to Reform the Consumer Financial Protection Bureau.” For more information, including the witness list, please click here.
