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

On December 9, 2009, the Director of the SEC’s Division of Enforcement, Robert Khuzami, testified before Senate Judiciary Committee at a hearing entitled “Mortgage Fraud, Securities Fraud and the Financial Meltdown: Prosecuting Those Responsible.” Khuzami’s testimony detailed five primary areas in which the SEC is focusing its enforcement efforts.

First, the SEC is investigating and pursuing enforcement cases based on unlawful conduct related to the financial crisis.  Second, the SEC is enhancing its working relationship with other law enforcement authorities, including the DOJ.  Third, the SEC is implementing several reorganization initiatives, including the creation of specialized units within the Division of Enforcement that are aimed at attacking both the causes of the recent financial crisis, as well as current and future market practices that are a potential cause for concern for the SEC.  Fourth, the SEC’s staff is proposing various legislative reforms, including nationwide service of process, a whistleblower program and enhanced access to grand jury material.  Last, the SEC is seeking additional resources for both the Enforcement Division and throughout the SEC.

A transcript of Khuzami’s testimony is available here.

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On Wednesday, December 2, 2009, the House of Representatives Financial Services Committee passed two significant acts, the Financial Stability Improvement Act and the Federal Insurance Office Act, both of which are aimed at increasing federal regulation over the financial services industry.  Both bills have been referred to the full House for consideration.  

A brief summary of the legislation is at the following link: . http://www.perkinscoie.com/news/pubs_detail.aspx?publication=2411&op=updates
 

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Last month, the SEC approved a proposed rule change filed by the New York Stock Exchange which amends certain of the Exchange’s disclosure requirements for listed companies, including publicly traded financial services corporations. The changes take effect January 1, 2010, so the new disclosures will be required in proxy statements for annual meetings to be held after December 31, 2009. Below is a general overview of the new disclosure requirements. 

·        303A.02(a):  NYSE's independence disclosure will no longer require a listed company to disclose the board's categorical standards for independence. However, a listed company may still disclose these standards as a means of supporting its claim that a director is independent.

·        303A.02(b)(v):  A listed company may choose where to make its charitable contribution disclosure: on its website or in its annual proxy statement. If the former, the company must so disclose this fact in the proxy/Form 10-K and provide its website address.

·        303A.09 / 303A.10:  A listed company will no longer need to disclose that its nominating/corporate governance, compensation and audit committee charters, corporate governance guidelines and code of business conduct and ethics are available in print upon request. The company need only disclose that the above are available on the company's website and provide the website address.

·        303A.10:  A company must disclose any waivers of the code of business conduct and ethics for executive officers or directors within four days (rather than the "promptly," which had been inconsistently defined).

·        303A.12(a):  A listed company will not be required to disclose in the company's annual report to shareholders or Form 10-K that: the previous year's CEO certification was submitted to NYSE (and disclose any qualifications to that certification;  the company filed as an exhibit to its most recently filed Form 10-K, the Sarbanes-Oxley Act Section 302 certification.

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American Banker reports that  JPMorgan Chase & Co. has agreed to eliminate mandatory arbitration clauses in its credit card contracts .   Bank of America made a similar decision in August 2009.   The scraping of mandatory arbitration clauses followed last summer's settlement between National Arbitration Forum and the Minnesota attorney general, which included NAF's agreement that it would stop handling consumer disputes.  The American Arbitration Association made a similar decision shortly thereafter.

The JPMorgan decision preceded an announcement by Berger & Montague P.C.that it had agreed to drop a class-action suit alleging that JPMorgan Chase and other issuers of "unlawfully conspired to require their cardholders to arbitrate disputes." Under the terms of the settlement, JPMorgan Chase will eliminate its arbitration clause for three-and-a-half years, will not discuss arbitration with other issuers and will cover attorney's fees for the plaintiffs.

Mandatory arbitration provisions have long been a source of tension between credit providers and consumer advocates.  Creditors have for many years used arbitration to resolve consumer claims, arguing that arbitration provides a cost-effective and expeditious method to resolve disputes.  Consumer groups, on the other hand, have criticized the arbitration process, including charging that the arbitration groups managing the arbitration process have a pro-industry bias.   

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