Yesterday, in the aftermath of the latest settlement by the world's biggest banks, who finally admitted they have criminally rigged virtually all markets since the Great Financial Crisis (and prior) despite promising repeatedly they would not do that after having been caught time and again and punished with ever "harsher" wristslaps, we wrote that the "Public Is Confused Why World's Biggest Banks Admitting Criminal Fraud, Leads To Public Yawns."
It appears the public is not the only one who is confused, or yawning, that yet again banks get away with just another penalty (to be paid by their shareholders) and zero jail time for the perpetrators despite what is supposedly "criminal" rigging: none other than a SEC regulator working for the same enforcer who "punished" the Too Big To Prosecute banks only to immediately grant them waivers to continue business as usual, is just as confused.
Here, two weeks after SEC commissioner Cara Stein raged that the SEC would turn a blind eye to Germany's Deutsche Bank for a "Decade Of Lying, Cheating, And Stealing", is her dissenting opinion with the SEC settlement, this time broadening her anger to include all the banks, not just the German one.
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Dissenting Statement Regarding Certain Waivers Granted by the Commission for Certain Entities Pleading Guilty to Criminal Charges Involving Manipulation of Foreign Exchange Rates
Commissioner Kara M. Stein
May 21, 2015
I dissent from the Commission’s Orders, issued on May 20, 2015, that granted the following waivers from an array of disqualifications required by federal securities regulations:
- UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. (“JPMC”), and the Royal Bank of Scotland Group Plc (“RBSG”), waivers from the provisions under Commission rules that automatically make them ineligible for well-known seasoned issuer (“WKSI”) status;
- UBS AG, Barclays, and JPMC waivers from automatic disqualification provisions related to the safe harbor for forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934; and
- UBS AG and three Barclays entities waivers from the automatic Bad Actor disqualification provided under Rule 506.
The disqualifications were triggered for generally the same behavior: a criminal conspiracy to manipulate exchange rates in the foreign currency exchange spot market (“FX Spot Market”), a global market for buying and selling currencies. Traders at these firms “entered into and engaged in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for,” the euro-dollar foreign currency exchange (“FX”). To carry out their scheme, the conspirators communicated and coordinated trading almost daily in an exclusive online chat room that the traders referred to as “The Cartel” or “The Mafia.” Additionally, salespeople and traders lied to customers in order to collect undisclosed markups in certain transactions. This criminal behavior went on for years, unchecked and undeterred.
There are compelling reasons to reject these requests to waive the automatic disqualifications required by statute or rule. Chief among them, however, is the recidivism of these institutions. For example, in the face of the FX criminal action, a majority of the Commission has determined to grant Citigroup yet another WKSI waiver, its fourth since 2006. It is worth noting that Citigroup was automatically disqualified from WKSI status between 2010 and 2013 for unrelated misconduct, meaning that it has effectively now triggered WKSI disqualifications five times in roughly nine years. Further, through this latest round of Orders, the Commission has granted:
- Barclays its third WKSI waiver since 2007;
- UBS its seventh WKSI waiver since 2008;
- JPMC its sixth WKSI waiver since 2008; and
- RBSG its third WKSI waiver since 2013.
- The Commission has thus granted at least 23 WKSI waivers to these five institutions in the past nine years. The number climbs higher if you include Bad Actor and other waivers.
This latest round of criminal charges also comes on the heels of the Department of Justice’s actions against UBS, Barclays, and RBSG for their collusive manipulation of the London Interbank Offered Rate (“LIBOR”), a benchmark used in financial products and transactions around the world. The manipulation of LIBOR was flagrant and “impact[ed] financial products the world over, and erode[d] the integrity of the financial markets.” As part of the settlements in the LIBOR matters, UBS, Barclays, and RBSG each entered into agreements with the Department of Justice in which they undertook not to commit additional crimes during the term of the agreements.
Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored. It is not sufficient to look at each waiver request in a vacuum.
And today the Commission heads further down this path. After the LIBOR guilty pleas, UBS was granted a WKSI waiver that was explicitly conditioned on compliance with the judgment in the LIBOR-related matter. That explicit condition has now been violated. Yet, the Commission has just issued UBS a new WKSI waiver.
It is troubling enough to consistently grant waivers for criminal misconduct. It is an order of magnitude more troubling to refuse to enforce our own explicit requirements for such waivers. This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers. We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them.
In conclusion, I am troubled by repeated instances of noncompliance at these global financial institutions, which may be indicative of a continuing culture that does not adequately support legal and ethical behavior. Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic. Firms and institutions increasingly rely on the Commission’s repeated issuance of waivers to remove the consequences of a criminal conviction, consequences that may actually positively contribute to a firm’s compliance and conduct going forward.
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Or to summarize, running a criminal cartel is expensive...
... but at least keep everyone out of prison. For, you know, crimes.
Great chart tracking the people sent to jail over the myriad banking scandals, market-rigging and frauds: pic.twitter.com/hofqPmc2EV— Jamie McGeever (@ReutersJamie) May 22, 2015