WBEZ | Securities and Exchange Commission http://www.wbez.org/tags/securities-and-exchange-commission Latest from WBEZ Chicago Public Radio en Whistle-blowing: Guilt or greed? http://www.wbez.org/blogs/bez/2012-09/whistle-blowing-guilt-or-greed-102374 <p><p>At the Securities and Exchange Commission, tips on financial misconduct and investment fraud have been pouring in at the rate of eight per day.&nbsp;According to the <em>Chicago Tribune</em>, as of mid-August the SEC&#39;s office on whistle-blowing had&nbsp;received in excess of 2,870 tips.&nbsp;</p><p><img alt="" class="image-original_image" src="http://llnw.wbez.org/styles/original_image/llo/insert-images/Money.jpg" style="height: 300px; width: 300px; float: left; " title="SEC payouts to whistle-blowers may be behind rise in tips (Flickr/ 401(K) 2012)" />Why this sudden rash of tipsters? Are the big-time players working deep inside our financial institutions suddenly burdened with a conscience? I don&rsquo;t think so. Two factors are fueling this rush to disclosure: fear of exposure and financial reward.</p><p>The list of individual players and big companies making the front page for the wrong reasons has been embarrassingly long: Bernie Madoff, Bear Stearns, AIG, Barclays. . . Frankly the heat is on.&nbsp;According to a Harris poll, 67 percent of the public distrusts Wall Street. I may be cynical, but I think a lot of insiders are telling all because they don&rsquo;t want to be blamed for <em>not</em> telling what they know. Jordon Thomas, a lawyer who represents whistle-blowers has said, &ldquo;[My clients] like their life, but they know something that they can&rsquo;t pretend they don&rsquo;t know [anymore].&rdquo;</p><p>In 2010 Congress passed the Dodd-Frank Act, authorizing a program that rewards whistle-blowers who disclose high-quality, verifiable information. Under these new rules, the SEC created a program to encourage people to report and provide evidence of actual or potential securities fraud. Tipsters whose information proves crucial to a case could get 10 to 30 percent of the penalties over $1 million. The SEC&#39;s first payment under this program was $50,000 to an informant who alerted regulators to a major investment fraud.</p><p>This new brand of whistle-blowers dishing out dirt from deep inside corporate America are less interested in fairness of the functional stability of the marketplace than they are in getting a cut of the potential multi-million dollar penalties offered by the SEC. Sadly, their actions are motivated by Economics 101 &mdash;&nbsp;not Ethics 101.&nbsp;</p><div><p><em>Al Gini is a Professor of Business Ethics and Chairman of the Management Department in the Quinlan School of Business at Loyola University Chicago.</em></p></div></p> Thu, 13 Sep 2012 05:00:00 -0500 http://www.wbez.org/blogs/bez/2012-09/whistle-blowing-guilt-or-greed-102374 Judge rejects SEC's settlement with Citigroup over mortgage bond deal http://www.wbez.org/content/judge-rejects-secs-settlement-citigroup-over-mortgage-bond-deal <img typeof="foaf:Image" src="http://llnw.wbez.org/story/photo/2011-November/2011-11-28/AP080813054907.jpg" alt="" /><p><p>NEW YORK &nbsp;— A federal judge on Monday used unusually harsh language to strike down a $285 million settlement between Citigroup and the Securities and Exchange Commission, saying he couldn't tell whether the deal was fair and criticizing regulators for shielding the public from the details of what the firm did wrong.</p><p>U.S. District Judge Jed Rakoff said the public has a right to know what happens in cases that touch on "the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives." In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.</p><p><img alt="" class="caption" src="http://rs.wbez.org/filestore/4/6/2/9_fa4298d8aadcbb1/4629_alt_32_87af7cd96da996b.jpg?v=2011-11-28+14%3A53%3A39" style="border-width: initial; border-color: initial; border-width: initial; border-color: initial; border-width: initial; border-color: initial; margin-left: 15px; margin-right: 15px; margin-top: 15px; margin-bottom: 15px; float: left; width: 325px; height: 183px; " title="(File/AP)">Rakoff said he had spent hours trying to assess the settlement but concluded that he had not been given "any proven or admitted facts upon which to exercise even a modest degree of independent judgment." He called the settlement "neither fair, nor reasonable, nor adequate, nor in the public interest."</p><p>The SEC shot back in a statement issued by Enforcement Director Robert Khuzami, saying the deal was "fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial."</p><p>The SEC had accused the bank of betting against a complex mortgage investment in 2007 — making $160 million in the process — while investors lost millions. The settlement would have imposed penalties on Citigroup but allowed it to deny allegations that it misled investors.</p><p>Citi said it was reviewing the decision and declined to comment.</p><p>The SEC's consent judgment settling the case was filed the same day as its lawsuit against Citigroup, the judge noted.</p><p>"It is harder to discern from the limited information before the court what the SEC is getting from this settlement other than a quick headline," the judge wrote.</p><p>"In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers," Rakoff said. "Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."</p><p>He set a July 16 trial date for the case.</p><p>Khuzami said in the SEC statement that Rakoff made too much out of the fact that Citigroup did not have to admit wrongdoing. He said forcing Citigroup to give up profits, pay fines and face mandatory business reforms outweigh the absence of an admission "when that relief is obtained promptly and without the risks, delay and resources required at trial."</p><p>Khuzami added: "Refusing an otherwise advantageous settlement solely because of the absence of an admission also would divert resources away from the investigation of other frauds and the recovery of losses suffered by other investors not before the court."</p><p>Rakoff said the power of the judiciary was "not a free-roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated."</p><p>He added: "If its deployment does not rest on facts — cold, hard, solid facts, established either by admissions or by trials — it serves no lawful or moral purpose and is simply an engine of oppression."</p><p>In the civil lawsuit filed last month, the SEC said Citigroup Inc. traders discussed the possibility of buying financial instruments to essentially bet on the failure of the mortgage assets. Rating agencies downgraded most of the investments just as many troubled homeowners stopped paying their mortgages in late 2007. That pushed the investment into default and cost its buyers' — hedge funds and investment managers — several hundred million dollars in losses.</p><p>Earlier this month, Rakoff staged a hearing in which he asked lawyers on both sides to defend the settlement.</p><p>At the hearing, Rakoff questioned whether freeing Citigroup of any admission of liability could undermine private claims by investors who stand to recover only $95 million in penalties on total losses of $700 million.</p><p>In his decision, he called the penalties "pocket change" to a company the size of Citigroup and said that, if the SEC allegations are true, then Citigroup got a "very good deal." If they are untrue, the settlement would be "a mild and modest cost of doing business," he said.</p><p>This wasn't the first time that the judge struck down an SEC settlement with a bank, and Rakoff has made no secret of his disdain for settlements between the government agency and banks for paltry sums and no admission of guilt.</p><p>"The SEC's longstanding policy — hallowed by history, but not by reason — of allowing defendants to enter into consent judgments without admitting or denying the underlying allegations, deprives the court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact," he wrote in Monday's decision.</p><p>In 2009, Rakoff rejected a $33 million settlement between the SEC and Bank of America Corp. calling it a breach of "justice and morality." The deal was over civil charges accusing the bank of misleading shareholders when it acquired Merrill Lynch during the height of the financial crisis in 2008 by failing to disclose it was paying up to $5.8 billion in bonuses to employees even as it recorded a $27.6 billion yearly loss.In February 2010, he approved an amended settlement for over four times the original amount, but was caustic in his comments about the $150 million pact, calling it "half-baked justice at best." He said the court approved it "while shaking its head."<br> Citigroup's $285 million would represent the largest amount to be paid by a Wall Street firm accused of misleading investors since Goldman Sachs &amp; Co. agreed to pay $550 million to settle similar charges last year. JPMorgan Chase &amp; Co. resolved similar charges in June and paid $153.6 million.</p><p>All the cases have involved complex investments called collateralized debt obligations. Those are securities that are backed by pools of other assets, such as mortgages.</p><p>Rakoff's ruling Monday was the latest in a series of setbacks for the SEC under the leadership of Chairman Mary Schapiro. Rakoff has said he doesn't believe the agency has been sufficiently tough in its enforcement deals with Wall Street banks over their conduct prior to the financial crisis.</p><p>The SEC told Rakoff recently that $285 million was a fair penalty, which will go to investors harmed by Citigroup's conduct, and that it was close to what the agency would have won in a trial.</p></p> Mon, 28 Nov 2011 20:42:00 -0600 http://www.wbez.org/content/judge-rejects-secs-settlement-citigroup-over-mortgage-bond-deal Illinois governor says SEC inquiry won't hurt planned bond sale http://www.wbez.org/story/bonds/illinois-governor-says-sec-inquiry-wont-hurt-planned-bond-sale <p><p>Illinois Governor Pat Quinn says an inquiry by the Securities and Exchange Commission won&rsquo;t interfere with the state&rsquo;s plan to sell bonds next month. <br /><br />Kelly Kraft, a spokeswoman for the governor, says the SEC began the inquiry in September. She says the agency is checking into statements Illinois officials made last spring about potential long-term savings from reforming the pension system. <br /><br />Last summer, the SEC charged the state of New Jersey with failing to disclose to bond investors that it was underfunding its pension plans. Quinn says the Illinois inquiry probably grew out of that effort to improve disclosure to municipal bond investors. <br /><br />&quot;We want to make sure that we answer any and all questions,&quot; Quinn said. &quot;We&rsquo;re totally confident that everything we do here is done the right way and that&rsquo;s the way it will always be.&quot;<br /><br />Illinois plans to sell $3.7 billion worth of bonds on February 17th to make its current pension payments. Quinn says the state should have no problem attracting investors. <br /><br />&nbsp;</p></p> Tue, 25 Jan 2011 20:01:00 -0600 http://www.wbez.org/story/bonds/illinois-governor-says-sec-inquiry-wont-hurt-planned-bond-sale