CCH Financial Reform News Center

Supreme Court Rejects Tenure Provisions of PCAOB

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The Supreme Court ruled 5 to 4 on June 28, 2010, that the tenure provisions of the Public Company Accounting Oversight Board (PCAOB), which was created as part of a series of accounting reforms in the Sarbanes-Oxley Act of 2002, are incompatible with the Constitution’s separation of powers.

Specter Amendment to Senate Financial Reform Bill Would Provide Private Right of Action for Aiding and Abetting

This story appeared in Jim Hamilton's World of Securities Regulation.

An amendment offered to the Restoring American Financial Stability Act (S 3217) by Senator Arlen Spector (D-PA) would overturn two US Supreme Court opinions and provide a private right of action for aiding and abetting securities fraud. The amendment essentially mirrors the Liability for Aiding and Abetting Securities Violations Act, S. 1551, introduced by Sen. Spector in 2009. The amendment (SA 3776) would legislatively overrule what the senator calls ``two errant decisions of the Supreme Court’’, namely the 1994 Central Bank of Denver v. First Interstate Bank ruling and the 2008 ruling in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. The immunity from suit that Central Bank confers on secondary actors, said the senator, has removed much-needed incentives for them to avoid complicity in and even help prevent securities fraud; and all too often left the victims of fraud uncompensated for their losses.

Supreme Court Oral Argument in PCAOB Case Centers on SEC Control of the Board and Presidential Removal Powers

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Supreme Court oral arguments in the case deciding the PCAOB’s constitutionality focused on the SEC’s pervasive control over the Board and the President’s control over the SEC. The case, brought by an audit firm, is before the Court on a grant of certiorari of a split panel ruling of the DC Circuit Court of Appeals that the PCAOB’s creation was constitutional because, under the Appointments Clause of the Constitution, Board Members are inferior officers of the United States who do not have to be appointed by the President and can be appointed by the SEC, as is currently required by Sarbanes-Oxley. (Free Enterprise Fund and Beckstead & Watts v. PCAOB, Dkt. No. 08-861).

Senate Draft Legislation Would Overrule Supreme Court Precedent and Allow Private Right of Action for Aiding and Abetting Securities Fraud

This story appeared in Jim Hamilton's World of Securities Regulation.

The Senate draft legislation, Restoring American Financial Stability Act, would enable investors to sue persons who aid and abet securities fraud. The draft amends Section 21D of the Exchange Act to provide that, in implied private civil securities fraud actions, any person that knowingly or recklessly provides substantial assistance to another person in violation of the securities antifraud rule or any other SEC rule or regulation must be deemed to be in violation to the same extent as the person to whom such assistance is provided.

Securities Industry Concerned About Consumer Financial Protection Draft, Supports Draft Creating Federal Fiduciary Standard for Brokers and Advisers

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The securities industry fears that draft legislation creating a Consumer Financial Protection Agency with broad new powers could inadvertently encroach on the jurisdiction of the SEC and CFTC. In testimony before the House Small Business Committee, The Securities Industry and Financial Markets Association (SIFMA) also said it favors draft legislation creating a new uniform federal fiduciary standard for brokers and advisers. However, SIFMA opposes the piece of the draft authorizing the SEC to prohibit pre-dispute arbitration clauses in broker-dealer and investment advisory agreements with retail customers.

Senior Senate Democrat Sponsors Legislation Regulating OTC Derivatives

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Draft legislation establishing a comprehensive regulatory framework for derivatives has been introduced by Jack Reed, Chair of the Senate Securities Subcommittee. The Comprehensive Derivatives Regulation Act, S. 1691, would require standardized credit default swaps and other unregulated derivatives to be cleared through a clearinghouse in order to protect the companies and the financial system from the risks posed by these instruments. Importantly, the draft would also authorize regulators to oversee any new derivative product in the future, so dealers can no longer create products that fall into holes in the law. Moreover, S. 1691 would set up strong capital and margin requirements for derivatives dealers and other major market participants and subject them to higher standards for products that are not traded on clearinghouses.

Fed Must Produce Documents on Securities Relating to Its Lending Programs; FOIA Exemptions Not Available

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Rejecting claims of FOIA exemption privileges, a federal judge has ordered the Federal Reserve Board to produce documents about the Federal Reserve System’s extraordinary actions taken in early 2008 during one of the worst financial crisis in the nation’s history. The information, requested by two financial reporters, involves securities posted as collateral to, among other things, the Primary Dealer Credit Facility, the discount window, and the Term Securities Lending Facility, as well as documents on the portfolio securities, listed on a security by security basis, supporting the loan extended by the Fed in connection with the proposed acquisition of Bear Stearns by JP Morgan Chase.

Supreme Court Says States Can Bring Enforcement Actions Against Banks

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, June 29, 2009.

The Supreme Court, in a 5-4 decision, ruled June 29 that New York’s Attorney General could bring judicial enforcement actions against national banks, but was not authorized to issue executive subpoenas if the banks failed to provide information about their lending practices.

The case, Cuomo v. the Clearing House Association LLC, dates back to 2005 when then-New York State Attorney General Eliot Spitzer, concerned that minorities were being charged higher rates, asked four leading banks for information regarding interest rates on home mortgage loans.

Supreme Court Reviews State Enforcement Power Preemption

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guide and Bank Digest.

The Supreme Court heard arguments on April 28, 2009, on the question of whether state officials are barred by the National Bank Act (NBA) and Office of the Comptroller of the Currency regulations from enforcing state consumer protection laws against national banks. The case, Cuomo v. The Clearing House Assn., dates back to 2005 when then-New York State Attorney General Eliot Spitzer, concerned that Home Mortgage Disclosure Act data showed minorities were being charged higher interest rates on mortgage loans, asked four leading banks for information on their home mortgage loan policies and practices.

Senate Bill Strengthening Securities and Financial Fraud Enforcement Clears Judiciary Committee

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.

A bill to improve enforcement of securities fraud and financial institution fraud involving asset-backed securities and fraud related to federal assistance and relief programs has been reported out of the Senate Judiciary Committee. The bill was introduced by Senator Patrick Leahy, chair of the Judiciary Committee, and Senator Charles Grassley. Fraud contributed to an unprecedented collapse in the mortgage-backed securities market, he noted, and as Congress passes legislation to make sure this kind of collapse cannot happen again, a component of reform must be the reinvigoration of federal anti-fraud measures.