Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

With the recent flurry of legislative activity focused on reform of the regulatory framework for financial institutions and the financial markets, the Perkins Coie Financial Services Practice is pleased to bring you the Financial Services Bulletin.  This bulletin highlights recent legislative activity impacting financial services and financial institutions.  We plan to publish future bulletins as new legal developments are announced.  The Bulletin is available at the following link:  www.perkinscoie.com/news/pubs_detail.aspx .

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In response to various crises that have besieged the financial services industry in recent years, will the government create more governmental regulation or expand the role of SROs, such as Finra, to bolster public confidence in financial institutions? This topic is addressed in an article recently published in InvestmentNews by Perkins Coie partner Pravin Rao and Howard Rosenburg, general counsel and chief regulatory officer of the Chicago Investment Group LLC. The article, entitled “Forecasting Finra's Future,” features an in-depth discussion of Finra’s current jurisdiction and likely changes that would need to take place should the government further expand Finra’s authority.  Among the recommendations provided by the authors are: consolidating oversight of broker-dealers and investment advisers and adopting uniform fiduciary standards for these investment professionals; revising Finra’s internal operating procedures to allow for greater transparency in decision-making and financial management processes; and increasing coordination with other regulatory authorities, including the CFTC, the Federal Reserve, and the SEC.

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The Financial Industry Regulatory Authority (FINRA) has announced that the SEC approved a major expansion of  FINRA's BrokerCheck service — to make records of final regulatory actions against brokers permanently available to the public, regardless of whether they continue to be employed in the securities industry.  Under current rules, a broker's record generally becomes unavailable to the public two years after he or she leaves the securities industry and is no longer under FINRA's jurisdiction.

BrokerCheck is a an online service through which investors can reviewthe employment, qualifications and disciplinary history of more than 650,000 brokers under FINRA's jurisdiction. FINRA estimates there are more than 15,000 individuals who have left the securities industry after being the subject of a final regulatory action and whose disciplinary history is not currently available on BrokerCheck.

Disclosure records for former brokers will become available on November 30 and will include any final sanction (such as bars, suspensions and fines) imposed by the SEC, the Commodity Futures Trading Commission, any federal banking agency, the National Credit Union Administration, any other federal regulatory agency, any state regulatory agency, any foreign financial regulatory authority or any self-regulatory organization (such as FINRA).

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Two former managers who ran a Bear Stearns hedge fund that invested in subprime bonds and derivatives were found not guilty of securities fraud charges by a Brooklyn jury.  According to a report in the Wall Street Journal, the government alleged that the two men, Ralph Cioffi and Matthew Tannin, lied to investors about the condition and value hedge funds filled with subprime bonds. The funds collapsed in 2007, shortly before the pinnacle of the mortgage crisis that eventually doomed Bear Stearns.  WSJ noted that the acquittals are a setback for New York's U.S. Attorney's Office, which is also involved in investigating other Wall Street players for possible criminal wrongdoing stemming from the credit crisis, including at Lehman Brothers Holdings Inc. and AIG.

In a press release, U.S. Attorney Benton J. Campbell said "Of course, we are disappointed by the outcome in this case, but the jurors have spoken, and we accept their verdict.  Honesty and integrity are the principles upon which our financial markets function. Enforcing and protecting those principles will continue to be one of the principal efforts of this Office."

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Sen. Dodd rolled out his vision of consumer financial services regulatory reform this week and, among other things, it threatens to further consolidate oversight of banks into a single federal agency.
 

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Maloney-Frank bill will implement credit card reforms immediately upon enactment

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The New York Times reports that  Bernard. Madoff’s longtime accountant pleaded guilty to three counts of obstructing the administration of the federal tax laws carrying a prison sentence of up to 114 years .  The accountant, David G. Friehling, admitted that for nearly 20 years he had "rubber-stamped" audits that allowed Madoff to conceal his  Ponzi scheme from regulators.  Friehling essentially conceded that he had never properly conducted an independent audit of the Madoff operation. Despite this lack of independence, he produced the purported independent audits that helped to enable the Madoff scheme for several years.  Friehling also acknowledged that he had prepared tax returns for Madoff and "others," who remained unnamed.  Legal experts suggest that the "others"  are Madoff family members, who may be the next targets of the government's continuing investigation.

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