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Economy

GOP Budget Cuts Leave Agencies Too Broke To Police Wall Street, Top Regulators Tell Congress

By Travis Waldron on May 23, 2012 at 10:35 am

CFTC head Gary Gensler (left) and SEC chief Mary Schapiro

Two of the nation’s top financial regulatory agencies don’t have enough funding to competently regulate the Wall Street banks they oversee, top regulatory officials told the Senate Banking Committee yesterday. The Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) both took on new regulatory responsibilities under the 2010 Dodd-Frank Wall Street Reform Act, but multiple rounds of Republican-led budget cuts aimed at neutering the new law have left them without sufficient funding to carry out those mandates.

As a result, the agencies are “outgunned” by the Wall Street banks they oversee, SEC head Mary Schapiro and CFTC head Gary Gensler told the committee Tuesday, the Huffington Post reports:

“We’re way underfunded at the CFTC,” Gensler told lawmakers, after a question on the subject from Senator Chuck Schumer (D- N.Y.). “Imagine if, all of a sudden, there are eight times the number of teams on the [football] field, but only seven refs,” Gensler said. “There would be would be mayhem on the field. The fans would lose confidence.”

SEC chief Schapiro echoed the point: “We’ve been asked to take on very significant new responsibilities,” she said. Though the SEC has made progress in hiring new staffers and improving its technological capabilities, Schapiro conceded that, in some areas, the efforts haven’t gone far enough.

As ThinkProgress noted in January, adequately funding the CFTC and SEC is imperative to successfully implementing new regulations and policing Wall Street. Republicans oppose those efforts and have repeatedly pushed for cuts to the agencies’ budgets. “The less we fund those agencies,” Senate Minority Leader Mitch McConnell said last June, “the better America will be.”

The SEC is funded by fees paid by banks, not by taxpayers, so cuts to its budget won’t affect the federal deficit. But it is prohibited from collecting more in fees than it is allocated in the budget, so the $225 million cut Republicans pushed last year amounts to a massive giveaway to Wall Street, which will save exactly that amount.

As the 2008 financial crisis demonstrated, failure to police Wall Street can have perilous consequences for American taxpayers and the economy. But when one party’s purpose, as Rep. Spencer Bachus (R-AL) said last year, is to “serve the banks,” preventing another such fiasco is apparently of little matter.

Economy

House Republicans Again Vote Against Fully Funding Wall Street Watchdog, Giving The Money To Banks Instead

By Pat Garofalo on Mar 7, 2012 at 9:30 am

One of the many ways in which House Republicans have sought to undermine the Dodd-Frank financial reform law — and the tactic that has been most successful — is denying the regulatory agencies that police financial markets enough funding to adequately do their job. The GOP, in particular, has denied funding to the Securities and Exchange Commission, despite that agency’s vast new responsibilities under Dodd-Frank.

This week, SEC Chairman Mary Schapiro implored Congress to give her agency the funding it needs. In the House Financial Services Committee yesterday, Rep. Barney Frank (D-MA) offered an amendment to do just that, but House Republicans voted it down on party lines.

But the worst part about the GOP’s intransigence when it comes to funding the SEC is that the agency isn’t even paid for by taxpayers. Instead, its budget comes from fees assessed on Wall Street. So refusing to fund it undermines regulatory enforcement, and just leaves more money to the banks:

Cutting the S.E.C.’s budget will have no effect on the budget deficit, won’t save taxpayers a dime and could cost the Treasury millions in lost fees and penalties. That’s because the S.E.C. isn’t financed by tax revenue, but rather by fees levied on those it regulates, which include all the big securities firms.

A little-noticed provision in Dodd-Frank mandates that those fees can’t exceed the S.E.C.’s budget. So cutting its requested budget by $222.5 million saves Wall Street the same amount.

The SEC regulates more than 35,000 institutions, and to give a sense of the funding gap it faces, JP Morgan Chase spends four times the SEC’s entire budget on information technology alone.

As the New York Times’ James Stewart put it, “given the magnitude of the S.E.C.’s task, Congress could make Wall Street firms pay more and not less to police the mess they helped create.” However, House Republicans have refused to do that, instead following House Financial Services Committee Chairman’s Spencer Bachus’ (R-AL) philosophy that Washington’s role is to “serve the banks.”

Climate Progress

BREAKING: TransCanada’s Dirty Keystone XL Jobs Claims Draw Complaint To SEC

By Brad Johnson on Jan 26, 2012 at 4:16 pm

Based on TransCanada claims, the U.S. Chamber of Commerce declares that the Keystone XL pipeline "will create 20,000 well-paying jobs."

ThinkProgress Green has learned that TransCanada, the foreign tar sands company behind the proposed Keystone XL pipeline, is facing a potential inquiry into whether it deliberately deceived investors by inflating the job-creation potential of the project. Greenpeace has filed a complaint with the Securities and Exchange Commission (SEC) over TransCanada’s “false or misleading statements about the proposed Keystone XL pipeline project.”

In the complaint, Greenpeace shows evidence from TransCanada’s Canadian filings and the State Department that the project would involve fewer than 1000 in-state jobs, and around 6000 total jobs. This evidence is contrasted with TransCanada’s (TRP) repeated public pronouncements that pipeline construction would involve 20,000 American jobs:

Specifically, TRP has asserted that each mile of KXL pipeline constructed in the U.S. would create American jobs at a rate that is 67 times higher than job creation totals given by the company to Canadian officials for the Canadian portion of the pipeline.

These false and misleading job creation numbers are part of TRP’s lobbying and public relations campaign designed to create congressional pressure on the U.S. government to issue a Presidential Permit approving construction of KXL. Without government approval, TRP will not be able to build KXL, which will significantly impact the company’s future earnings and share price. That government approval was thrown into serious doubt last week when President Obama rejected the current KXL pipeline proposal at the State Department’s recommendation.

It may be legal to lie to the American public, but it is an actionable offense to deceive shareholders under U.S. securities disclosure laws.

Download the Greenpeace SEC TransCanada letter here.

NEWS FLASH

Oil Industry Demands Less Transparency | The American Petroleum Institute is demanding the Securities and Exchange Commission withdraw and revise proposed rules that mandate disclosure of oil and mining companies’ payments to governments. A January 19 letter from the American Petroleum Institute to the SEC “alleges that the regulators’ late 2010 proposal illegally shirks adequate economic analysis, and that the SEC should take another swing,” the Hill reports. “The rules, required under 2010’s Dodd-Frank Wall Street reform law, requires companies to provide the SEC data about payments for production licenses, taxes, royalties and other aspects of energy and mineral projects in countries where they operate.”

By Brad Johnson on Jan 24, 2012 at 4:40 pm

NEWS FLASH

SEC Now Seeks Power To Impose Greater Fines On Firms That Commit Fraud | Federal Judge Jed Rakoff dealt the Securities and Exchange Commission a serious reprimand when he rejected a $285 million settlement it reached with Citigroup, Inc. Smarting from the blow, the SEC is asking Congress to enact legislation that would give it “the power to impose much-larger penalties on financial firms and individuals that commit fraud.” In a letter to the Senate Banking Committee Monday, SEC Chairman Mary Schapiro asked for the power to impose fines up to nine times greater than the maximum currently allowed; to increase the maximum penalty to triple the net profit made from the fraud; and to triple penalties for repeat offenders who have been subject to SEC action or criminal conviction in the preceding five years. Had these rules been in place for the Citigroup case, “the maximum penalty would jump to $1.44 billion from $160 million.”

By Tanya Somanader on Nov 30, 2011 at 6:20 pm

NEWS FLASH

Sen. Grassley Praises Judge Who Blocked Citigroup Settlement: ‘Judge Rakoff Is Right’ | Yesterday, Federal Judge Jed Rakoff formally rejected a deal between Citigroup and the Securities and Exchange Commission that would have allowed the bank to pay $285 million to settle charges that it misled investors in mortgage securities. Rakoff said that there is “an overriding public interest in knowing the truth about the financial markets,” after previously deriding the settlement as “just for show.” Today, Sen. Chuck Grassley (R-IA) threw his support to Rakoff, saying in a statement, “Judge Rakoff is right to ask for information. The SEC needs to provide a clear rationale for the enforcement penalties in this case and in others. Otherwise, the public is in the dark about whether the settlements are adequate and the court’s role is reduced to a rubber stamp. A settle and slap-on-the-wrist approach has not and will not deter the defrauding of investors.”

NEWS FLASH

Obama’s SEC Asks Big Banks To Sign ‘Never-Do-It-Again’ Pledges, After Banks Repeatedly Broke Past Promises | Yesterday, the New York Times reported on deals brokered with the nation’s biggest banks by Robert Khuzami, the Securities and Exchange Commission’s director of enforcement. Khuzami has sought relatively small fines for frauds committed by big Wall Street companies, which he justifies by asking the banks to sign “never-do-it-again” pledges. But the Times conducted an analysis of enforcement actions and found that during the last 15 years, there were “at least 51 cases in which 19 Wall Street firms had broken antifraud laws they had agreed never to breach,” calling into question the validity of any new promises the banks might make. As ThinkProgress has noted, Khuzami was recommended for his position by Richard Walker, a regulator who spun through the revolving door to work at Deutsche Bank after allegedly squashing an SEC inquiry into a case of suspected insider trading at Deutsche Bank.

By Lee Fang on Nov 9, 2011 at 5:55 pm

NEWS FLASH

Government Archive Agency Says The SEC Was Wrong To Destroy Financial Investigation Files | The National Archives and Records Administration (NARA) said in a statement yesterday that the Securities and Exchange Commission (SEC) was wrong to destroy documents related to investigations of major financial institutions, a scandal that was recently documented by Rolling Stone’s Matt Taibbi. “While the National Archives is satisfied that the destruction has stopped, NARA remains concerned that the SEC has been slow in creating records schedules for review and approval,” it said in the statement.

By Zaid Jilani on Aug 19, 2011 at 1:55 pm

NEWS FLASH

Barney Frank: Lack Of Funding Is Hurting Financial Regulators ‘Enormously’ | As part of their campaign to undermine the Dodd-Frank financial reform law, House Republicans have refused to give the federal financial regulators — particularly the Securities and Exchange Commission and the Commodity Futures Trading Commission — the funding necessary to implement it. In an interview with ThinkProgress, Rep. Barney Frank (D-MA) said this lack of funds is hurting the regulators “enormously.” “They can’t do the new duties. They can’t even carry out some of the old ones,” he said. Watch it:

Justice

Supreme Court Term In Review, Part II: Wall Street’s License To Lie

By Ian Millhiser on Jun 27, 2011 at 1:20 pm

Securities and Exchange Commission regulations make it illegal to “make any untrue statement of a material fact . . . in connection with the purchase or sale of any security.” And, according to a complaint filed by the New York Attorney General’s office, an investment company named Janus did exactly that. Essentially, the complaint maintains, Janus promised its investors that it would prevent any new investors from engaging in a particular kind of price manipulation while secretly entering into agreements permitting that manipulation to occur.

Yet, thanks to the Court’s recent 5-4 decision in Janus Capital Group, Inc. v. First Derivative Traders, Janus and hundreds of other Wall Street firms now effectively enjoy a license to lie.

The license works like this: Janus set up two companies. Janus Investment Fund (JIF), which has no assets other than those owned by investors, and Janus Capital Management (JCM), which makes the investment decisions regarding how JIF’s investors’ money will be invested. At some point during this arrangement, JCM made allegedly false statements that made investing in JIF seem like it was a better idea than it actually turned out to be. So this should have been a slam dunk of a case. The SEC regulation does not allow anyone to “make any untrue statement . . . in connection with the purchase or sale of any security,” and JCM allegedly made an untrue statement in connection with the purchase or sale of a security.

Rather than follow the plain and obvious meaning of this regulatory language, however, Justice Thomas’ majority opinion instead invokes a strange metaphor involving a speechwriter:

For purposes of Rule 10b–5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not “make” a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by—and only by—the party to whom it is attributed. This rule might best be exemplified by the relationship between a speechwriter and a speaker. Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said.

This is, to say the least, a very odd understanding of the word “make.” As Justice Breyer explains in dissent, JCM drafted the allegedly false statements and it disseminated them to the public, actions that fall clearly within the ordinary meaning of the word “make.” Simply put, “[t]he English language does not impose upon the word ‘make’ boundaries of the kind the majority finds determinative.”

The practical result of this decision is that investment companies can completely immunize themselves from lawsuits under this SEC regulation simply by adopting Janus’ two-company structure. Under the Court’s decision JIF can still be sued, but since JIF also has no real assets such a lawsuit would be an entirely useless undertaking. Less than three years after Wall Street nearly destroyed our economy through incomprehensible investments and potentially criminal “shitty deals,” the Supreme Court has now given much of Wall Street a license to lie.

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