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Wall Street reform bill threatened

Dick Taffe — Tue, 29 Jun 2010 16:00:57 +0000

The death of U.S. Senator Robert Byrd (r.) is threatening to delay passage of the sweeping Wall Street regulatory reform legislation until mid-July after it had been on track for House and Senate votes this week. Law Professor Cornelius Hurley, a former counsel to the Federal Reserve Board of Governors and now director of the Morin Center for Banking and Financial Law, says the proposed legislation has been so weakened in compromise efforts to garner enough votes to pass it in the Senate that it might be worth starting over.

“Its demise would have at least two significant benefits: first, it would allow the next Congress to develop a more robust bill, particularly with respect to systemic risk; and, second, it would enable global regulators to press the ‘reset button’ on international harmonization efforts, a vision apparently abandoned by this Congress and this Administration.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

SCOTUS on the “honest services” law

Dick Taffe — Thu, 24 Jun 2010 19:41:40 +0000

The Supreme Court restricted a favorite tool for pursuing corrupt politicians and self-dealing corporate chiefs, ruling that the law that makes it a crime to deprive the public or one’s employer of the “intangible right of honest services” can only be used where they could prove defendants accepted bribes or kickbacks. It means, for instance, that Enron ex-CEO Jeff Skilling’s conviction on the “honest services” law is thrown out – but not the other charges he was convicted of. Law Professor Elizabeth Nowicki, both a former SEC attorney and Wall Street lawyer, says the opinion finally gives some insight into newly appointed Justice Sonia Sotomayor’s view on business fraud.

“Surprisingly, she sided with the justices who struck down the ‘honest services’ doctrine for vindicating cases of overt fraud. This is a troubling blow for those who care about protecting investors and business integrity.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

BP faces Congress

Dick Taffe — Tue, 15 Jun 2010 16:16:56 +0000

It’s all BP all the time in Washington this week. After President Obama addresses the nation Wednesday on the BP oil spill situation, company executives on Thursday face a Congressional hearing on the matter. Visiting law Professor Elizabeth Nowicki, both a former SEC and Wall Street attorney, says BP CEO Tony Hayward would be well-served to remember what empirical research shows about the economic value of apologies.

“My advice to Hayward is to remember what behavioral research has shown: Corporations with senior management who willing and sincerely apologize are (a) less likely to get sued and (b) more likely to settle inevitable lawsuits more cheaply.”

Meantime, political science Prof. Graham Wilson, author of “Business and Politics,” wonders when other companies involved in the Deepwater Horizon disaster and its aftermath will be put in the spotlight that thus far has swamped BP.

“It will be interesting to see if the American companies involved, such as Transocean and Haliburton, are also asked to set aside funds [for clean-up]. Only eight of the people on the rig when the well failed were employed by BP.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu; or Graham Wilson, 617-353-2540, gkwilson@bu.edu

Dell settling Intel claims

Dick Taffe — Fri, 11 Jun 2010 21:03:14 +0000

Dell is in settlement talks with the Securities and Exchange Commission to resolve allegations that its founder/CEO Michael Dell engaged in financial irregularities related to Dell’s dealings with chip-maker Intel — with no admission of guilt or bar of Dell from service as an officer or a public company. Visiting law Professor Elizabeth Nowicki, a former SEC and Wall Street attorney, says it indicates the SEC is focused on bigger issues and might be willing to defer in the Dell matter to a similar lawsuit filed by New York’s attorney general.

“The SEC can only vigorously fight so many battles at a given time.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

Congress eyes credit-rating agencies

Dick Taffe — Wed, 02 Jun 2010 21:00:54 +0000

The Congressionally sponsored bipartisan Financial Crisis Inquiry Commission now has cast its eyes on the credit-rating agencies and the impact they may have had on the Great Crash of 2008. Law Professor Elizabeth Nowicki, a veteran attorney from both Wall Street and the Securities and Exchange Commission, says the agencies are both hopelessly plagued by conflicts and in a position to undermine the very stability of the capital markets.

Nowicki: “Today’s hearings, then, will serve only as a political tool to emphasize the need for a dramatic response to the financial crisis.”

Meantime, School of Management master lecturer Mark Williams, a former Federal Reserve Bank examiner and author of “Uncontrolled Risk” about the fall of Lehman Brothers, says that while the rating agencies weren’t the main cause of the credit crisis, but they left the gate open and let the market and its participants behave in a more destructive manner.

Williams: “Meaningful financial reform will require that rating firms devise compensation plans that reward for high rating standards and provide penalties for intentional ratings manipulation.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu; or Mark Williams, 617-358-2789, williams@bu.edu

BofA, Citi hid debt like Lehman

Dick Taffe — Thu, 27 May 2010 17:41:23 +0000

Bank of America and Citigroup brushed off reports that they incorrectly hid from investors billions in debt — similar to what Lehman Brothers did — to obscure its true level of risk. Company documents filed with regulators show the two Wall Street banks classified some short-term repurchase agreements (“repos”) as sales, which they should have shows as borrowings. Law Professor Elizabeth Nowicki, a former SEC and Wall Street attorney, says such “repo” transactions should have been disclosed — even if they were legal.

“Isn’t it material to one poker player to know that all the other poker players at the table regularly cheat in other games, even if none of the players actually cheats in the game then being played? Bank of America, Citi, and other banks using repos can count on being sued promptly by investors.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

SEC moves to avoid “flash crash”

Dick Taffe — Wed, 26 May 2010 20:30:17 +0000

In an effort to avoid a repeat of the May 6th “flash crash” when computerized trading markets tumbled out of control, the Securities and Exchange Commission has voted unanimously to require audit trails to cover all trading orders from start to finish. Visiting Law Professor Elizabeth Nowicki, a former SEC and Wall Street attorney, says the proposal to allow the SEC constant, real-time access to that information to better monitor the markets is a great idea in support of investor protection — but it won’t fix everything.

“The reality is that this sort of information aggregation system is not a panacea, and, given how fast and sophisticated today’s trading markets are, it is unrealistic to expect that the SEC can ever truly be a real-time market regulator. Investors simply cannot expect that of the SEC.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

Morgan Stanley new Fed target

Dick Taffe — Wed, 12 May 2010 21:16:18 +0000

Wall Street investment bank Morgan Stanley reportedly is being investigated by federal authorities to see if it misled investors about mortage-derivatives deals it helped design and sometimes bet against. This is on the heels of the Securities and Exchange Commission charging Goldman Sachs with securities fraud involving similar collateralized debt obligations or CDOs. Law Professor Elizabeth Nowicki, a former SEC attorney and Wall Street lawyer, says this suggests Morgan Stanley might end up in the same position as Goldman is in.

“The federal government is now making clear that they will take the aggressive watchdog actions they have recently been chastised for not taking over the past two years. The bigger question is what other banks can expect a phone call from the SEC or the DoJ.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

Crisis panel probes bank “window dressing”

Dick Taffe — Wed, 05 May 2010 18:43:45 +0000

The Financial Crisis Inquiry Commission, which is looking into the causes for the 2008 economic crash, today questioned former executives from the investment bank Bear Stearns (sold to J.P. Morgan in a firesale after a run on the bank) and explored the open-secret of how Wall Street banks legally fudged their quarterly books to dress up their financial statements. Law Professor Cornelius Hurley, a former counsel to the Federal Reserve Board of Governors and now director of the Morin Center for Banking and Financial Law, says that to deal with such “window dressing” it is time to consider borrowing a principle from tax law.

“Namely, if a pattern of financial and accounting maneuvers has no ‘economic substance’ other than to misstate the firm’s financial condition, it should be per se securities fraud.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Obama pushes Wall Street on reform

Dick Taffe — Thu, 22 Apr 2010 21:47:39 +0000

President Obama returned to Manhattan to lay out his vision for Wall Street reform now inching its way through Congress. Former deputy Comptroller of the Currency Robert Bench, now a senior fellow at the BU Law School’s Morin Center for Banking and Financial Law, says the proposed reforms don’t go far enough at reining in Wall Street’s excesses.

“Financial reform should be directed at capturing billions of profits into building capital and reserves at financial institutions. They need to become fortresses of finance rather than perpetual wards of the state.”

Contact Robert Bench, 617-353-5428, bobbench@bu.edu