5 Financial Services Stories You May Have Missed – Run-on Sentences

Sentencing: Insider Trading = Murder?Below are news stories from the week that were easy to miss, but may have some lasting impact.

1. How Bad Is Insider Trading? Galleon Sentencing May Settle The Matter.


Next week Raj Rajaratanam will be sentenced on 14 counts of securities fraud. The severity of the sentence will be watched closely. It is expected to highlight the fact that times have changed in the world of white-collar crime. Prosecutors in the hedge fund insider trading scandal surrounding the Galleon Fund are asking that he be sentenced to 24 years in prison. Oldsters amongst you will remember that in 1987 Ivan Boesky was sentenced to 3 years in prison for insider trading, later that decade Michael Milken was sentenced to 10 years for securities violations. But times have changed and by 2005 Bernie Ebbers received 25 years for the WorldCom scandal and of course in 2009, the “other Bernie,” Mr. Madoff, was sent up the river for 150 years. Is 24 years too much? Too little? Bear in mind that the average federal sentence for murder is 23 years. So how bad is insider trading? Worse than murder – if length of sentence is the measure.

In Galleon Case, Prison Term Is Seen as Test

2. Lloyd’s Pulls Deposits From Questionable European Institutions.

Without giving any details of which countries or which banks specifically, Lloyd’s have let it be known that they are removing their deposits from certain banks in some of the weaker economies in the EU. Lloyd’s keeps about GBP2.5 billion in cash deposits scattered amongst a number of banks. But like Siemens AG, that last week was reported to have pulled their short-term deposits out of Soc Gen, Lloyd’s wants to be perceived as safe from any risk of market contagion should dominoes start to fall. With so much money scrambling for safe havens it is not surprising to see rates and investment returns continuing to drop.

Lloyd’s of London Pulls Euro Bank Deposits

3. SEC’s Former GC Investigated For Madoff Link ~ Or Why You Should Track Conflicts Of Interest.

David Becker was the General Counsel of the SEC when the Madoff Scandal broke. Becker had inherited $1.5 million from his late mother’s investment account with the infamous Mr. Madoff. Now the Madoff bankruptcy trustee is suing Mr. Becker to claw back some of those profits. The odd twist to this story is that Mr. Becker did not hide his connection to Madoff. No. Instead he went to discuss the situation with the ethics counsel at the SEC – twice. However, the ethics counsel cleared him to work on the matter. Perhaps the most disturbing issue and the one cited by the SEC Inspector General is the lack of documentation of this conflict. Regulators want to know that financial institutions recognize conflicts of interest and that any resolution is well documented. Maybe it’s time the SEC buys a mirror.

SEC Ex-GC David Becker to be Investigated by DOJ Over Madoff Money

4. SEC Wants To Ban “Doubling Down” ~ Proposes Rules That Would Prevent Financial Firms From Betting Against Their Own Offerings.

Last year the SEC settled its claim against Goldman that the investment bank had created and marketed mortgage-backed securities that they later bet against using the derivative market for a record $550 million. The Commission has now asked for public comments on a new rule that would ban underwriters from shorting the asset-backed securities that they have created and marketed for a period of one year.

SEC moves to limit firms’ bets against clients

5. Failure To Compute ~ Relying On Computer Records For Foreclosure Questioned By Florida Court

The Glarums admittedly had not met the terms of their mortgage note. However, in their foreclosure action against the Florida couple, LaSalle Bank filed the affidavit of Ralph Orsini, a specialist at mortgage servicer Home Loan Services, Inc. Orsini attested to the fact that the computer records showed that the Glarums owed in excess of $340,000. In doing so he relied on records input by former servicer Litton Loan Servicing. The District Court Judge held that since Orsini did not know who specifically had entered the records and could not verify that the records were accurate at the time they were entered – his affidavit regarding the amount outstanding amounted to hearsay under Florida state law. This case holds serious potential consequences. With so much disruption and turnover in the mortgage market, if courts demand that computer records all be backed by personal knowledge of the loan servicer – foreclosures could become substantially more burdensome.

A Florida court ruling could make it harder for mortgage servicers to use computer records as evidence for foreclosure without verifying the underlying information.

Glarum v. LaSalle Bank National Association

About Richard Magrann-Wells

Richard is a Executive Vice President with Willis Towers Watson’s Financial Institutions Group based in Los Angel…
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