JPMorgan Scores Victory for Repeat Offenders: Jonathan Weil
Read just about any article in the financial press about a Securities and Exchange Commission settlement with some accused fraudster, and you probably will see two lines bound to get a lot of eyes rolling.
One is that the defendant neither admitted nor denied the SEC’s claims. The other is that the penalties include a court injunction or SEC order barring the alleged crook from breaking the securities laws in the future, as if it had been perfectly legal to violate them beforehand. No one, it seems, ever gets nailed for anything.
As if that weren’t maddening enough, here’s an open secret: The SEC hardly ever enforces these obey-the-law orders. This brings us to last week’s headline-grabbing settlement between the SEC and JPMorgan Chase & Co. (JPM)’s securities arm over a toxic bond deal four years ago called Squared CDO 2007-1.
First, the prologue: In 2006, the SEC fined the same JPMorgan unit $1.5 million after determining it had defrauded customers who bought something called auction-rate securities from the company. Specifically, the SEC accused it of violating section 17(a)(2) of the Securities Act of 1933, under which the SEC need only show negligence to establish a fraud claim. The SEC also ordered the company not to violate that section of the law in the future.
So what would be the penalty for disobeying that order? Nothing, it turns out.
One More Time
As part of last week’s settlement, the SEC accused the same JPMorgan subsidiary of again violating the same section of the law. However, the commission’s complaint didn’t include any allegation that the company had breached its 2006 cease-and- desist order. An SEC spokesman, John Nester, didn’t offer an answer when asked why not. A JPMorgan spokesman, Joseph Evangelisti, declined to comment.
“This is inexcusable on the part of the SEC not to push this, and it shows how pathetically eager it is to hang up part of the scalp, close an investigation, point to a remedy, and then move on,” says James Cox, a securities-law professor at Duke University School of Law. “They’re just indicating that these orders don’t have any future impact. That’s too bad for the public interest.”
Here’s what the SEC should have done, for appearances’ sake if nothing else. It should have added a claim for violating the 2006 order and fined the company for that infraction separately, even if it kept the total settlement amount the same. Instead, the SEC acted as if the cease-and-desist order never existed, which makes you wonder why the commission bothered to issue it in the first place.
No Names
Under last week’s settlement, which was approved yesterday by a federal judge in New York, JPMorgan will pay $153.6 million. No individuals who worked for JPMorgan were named as defendants, as if the fraud just happened of its own volition. The company also consented to an injunction barring future violations.
Technically, the infractions cited in the 2006 complaint should have disqualified the company from participating in certain kinds of securities offerings. So, back in 2006, JPMorgan asked the SEC’s staff for a waiver that would let it go about its business as usual. (This, too, is standard operating procedure whenever a big securities firm settles an SEC fraud complaint.)
The company got what it wanted, with one catch. The staff wrote that its decision was based on the assumption that JPMorgan “will continue to comply with” the SEC’s cease-and- desist order. The company received two similar waivers from the five-member commission, as well. Don’t count on the SEC to revoke any of those waivers now, though.
Third Time
Last week’s lawsuit was the third time since 2006 that the SEC accused the same subsidiary, J.P. Morgan Securities, of the same kind of fraud violation. In 2009, the company -- without admitting or denying anything, of course -- paid $75 million to end the SEC’s investigation into some nasty derivatives it sold to Jefferson County, Alabama. The alleged misconduct in that instance predated the 2006 order, though. The SEC went ahead and issued another cease-and-desist order.
What’s galling is how typical this is. Back in 2006, the securities arms of Goldman Sachs Group Inc. (GS) and Wachovia Corp. were co-defendants with JPMorgan in the same auction-rate- securities case. They, too, were issued cease-and-desist orders barring the same type of future violations as JPMorgan.
Both Goldman and Wachovia were accused later by the SEC of violating the same section of the law again. The SEC settled those cases without accusing either company of violating the prior orders. Per the usual ritual, they neither admitted nor denied the SEC’s claims.
Now ask yourself: Is this any way to run a cop shop? The SEC’s enforcement division, led by Robert Khuzami, should be embarrassed for engaging in such charades, as should Chairman Mary Schapiro and her fellow commissioners. No one can expect Wall Street to respect the SEC when the agency doesn’t even pay lip service to its own orders against repeat offenders. The notion of deterrence has become a fantasy.
Quelle: www.bloomberg.com/news/2011-06-30/...enders-jonathan-weil.html
Zweiter Artikel von Bloomberg, hier geht es um Geihtner...
Geithner’s Possible Departure Would Make Obama Rebuild Team For Campaign
Treasury Secretary Timothy F. Geithner’s potential departure from the administration would force President Barack Obama to assemble a new economic team as he enters a re-election campaign that’s likely to be dominated by voter concern over jobs.
Geithner has told Obama that he’s considering leaving the administration after the president reaches an agreement with Congress to raise the national debt limit, according to a person familiar with the matter.
The Treasury secretary said yesterday that speculation about his departure was being driven by his decision to commute to New York so his son can finish his final year of high school there. He stated his intention to stay, without saying how long.
“I live for this work,” he said at the Clinton Global Initiative in Chicago. “It’s the only thing I’ve ever done. I believe in it. We have a lot of challenges as a country. I’m going to be doing it for the foreseeable future.”
Geithner, 49, won’t make a final decision on whether to leave until the debt-ceiling issue has been resolved, according to another person familiar with the matter. Both people spoke on condition of anonymity to talk about private discussions.
An exit by Geithner would complete the turnover in Obama’s original economic team, with Council of Economic Advisers Chairman Austan Goolsbee scheduled to leave in early August to return to the University of Chicago. It would leave Obama with two key posts to fill as the recovery slows. The unemployment rate rose to 9.1 percent in May, and the economy grew at a 1.9 percent pace in the first quarter, the government reported.
‘New Blood’
Three other top economic advisers already have departed. Goolsbee replaced Christina Romer at the CEA, and National Economic Council Director Lawrence Summers and Office of Management and Budget Director Peter Orszag left the administration last year.
“There is never a good time to leave, but there is also value to bringing new blood into the policymaking process,” said Stephen Myrow, a former Treasury official who’s now with ACG Analytics Inc., a Washington investment research firm.
“If and when Secretary Geithner announces his departure, it will be interesting to see whether the president emphasizes with his replacement financial-sector credentials like he did by choosing William Daley as his chief of staff, or if he focuses primarily on Washington experience and regulatory acumen,” said Myrow.
Needs a Break
Geithner has told associates he needs a break from government service after dealing with the turmoil that followed the collapse of Wall Street firms, including Bear Stearns Cos. and Lehman Brothers Holdings Inc., first as president of the Federal Reserve Bank of New York and then as Treasury secretary.
Now he’s facing pressure over the debt limit. He has said the U.S. risks defaulting on its obligations if Congress doesn’t raise the $14.3 trillion debt ceiling by Aug. 2. The administration and Republicans in Congress are at an impasse in negotiations over increasing the limit, which is tied to efforts to cut the nation’s long-term deficit.
Moody’s Investors Service said on June 2 that it expects to place the U.S. government’s Aaa credit rating under review for a possible downgrade if there’s no progress on the talks by mid- July. Fitch Ratings said June 21 it would place the U.S. on a negative rating watch if no action is taken by Aug. 2.
“Geithner leaving may raise the level of uncertainty for the direction of economic policy, and that is never a positive thing for the markets and the recovery,” said Christopher Sullivan, who oversees $1.7 billion as chief investment officer at the United Nations Federal Credit Union in New York.
No ‘Shock Value’
Still, he said, it wouldn’t have too much “shock value,” especially if Geithner remains at Treasury until the debt ceiling is settled, “which is the most pressing concern.”
Treasuries fell for a fourth day yesterday as stocks rose and a measure of U.S. business activity improved. The yield on the 10-year note rose five basis points, or 0.05 percentage point, to 3.16 percent at 5:14 p.m. in New York.
Investors may be more interested in who would come after Geithner.
“The question in cases like this is always who will be the replacement,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee. “You can’t judge if this is good or bad for the market until you see who follows.”
Investors were “comfortable” with Geithner because he was “a visible player in trying to blunt the crisis,” he said.
Need a CEO
Some Republicans are already urging Obama to select a replacement from the business community.
“What would be smart is to bring a CEO on board,” Senator Rob Portman of Ohio said on Bloomberg Television. “Somebody who’s got business experience. Somebody who, again, understands the important connection between policies and jobs and the economy and the fiscal situation.”
If Geithner does leave, Obama would be losing a member of his economic team who understands Washington institutions and the New York banking world as well as the intricacies of the Chinese economy. Geithner has pressed the Chinese to let their currency appreciate faster to reduce the global imbalances that both he and Obama have blamed for financial uncertainty.
After Obama’s victory in the 2008 election, Geithner had a rocky start in Washington as he faced Senate scrutiny over his failure to pay self-employment tax returns while he worked at the International Monetary Fund. He paid some of the taxes after being audited by the Internal Revenue Service and didn’t pay the rest until it was clear that he would be nominated for the Treasury post, according to the Senate Finance Committee.
Growing Stature
His initial moves to return financial markets to health were rebuffed by Wall Street. On Feb. 10, 2009, when Geithner unveiled a plan to bolster the banking system, the Standard & Poor’s 500 stock index tumbled 4.9 percent. Before the 2010 mid- term elections, then-House Minority Leader John Boehner called on Obama to fire Geithner and other members of the economic team.
As Obama’s presidency progressed, administration officials began to view Geithner as more of a public asset.
“Tim was very influential from day one,” said Romer. “His public persona has just caught up with what has always been true inside the White House.”
Former President Bill Clinton said he didn’t know whether business confidence might be hurt if Geithner leaves.
“What people want is predictability now,” Clinton said in an interview with Bloomberg Television in Chicago. “We’ve absorbed a lot of change, we’ve absorbed a lot of trauma.”
Clinton said he hadn’t heard that the Treasury secretary was considering leaving. Later, while interviewing Geithner, Clinton said told him that staying at Treasury would “be good for America.”
Geithner earned a bachelor’s degree from Dartmouth College in Hanover, New Hampshire, and a master’s degree from Johns Hopkins University’s School of Advanced International Studies in Washington. After graduate school, he worked for three years at a global consulting firm founded by Henry A. Kissinger.
Quelle: www.bloomberg.com/news/2011-07-01/...rebuild-for-campaign.html