5 Financial Stories You Might Have Missed — And a Tap-out

Old Time Wrestlers

Overdraft Oversight Overboard?

The new Consumer Financial Protection Bureau has announced that it will be reviewing overdraft policies and procedures at nine of the nation’s largest banks. One focus of the inquiryis how banks persuade consumers to purchase overdraft protection.  Last year consumers paid over $31 billion in overdraft fees. So the matter is an important one for both consumers and financial institutions. So far regulators have not publicly identified any specific violations of regulations—so there may be no fees or penalties forthcoming. This may, however, be an interesting first test for the new agency to play consumer advocate by cajoling banks or instituting new limits to reduce fees. Will the CFPB become the Ralph Nader of regulators?

Nine U.S. Banks Said to be Examined on Overdraft Fees

SEC Operating at the Wrong Frequency

U.S. Securities and Exchange CommissionTwo new rules introduced by the SEC to help the regulator get a grip on the explosive growth in high-frequency trading highlight the Commission’s failing to date. Fifty percent of stock trading in this country now takes place by electronic exchanges far removed from the common image of stock trading floors with screaming traders. The new trading floors are quiet places with large screens where computers match up buyers and sellers with stunning efficiency. Some contend that high-frequency traders have an advantage over the general public because of their access to such electronic trading environments. The current rule requires high-frequency trading firms provide the Commission with basic information, including how many people work at the firm and the general nature of their trading strategies.  The new rule that the SEC is proposing would require, for the first time, such exchanges to keep a paper trail of all trading activity. The simple truth is that the SEC simply cannot keep up with the speed and the changes that are developing in the market. One former SEC general counsel said it best, “It’s inconceivable that they can regulate… There are too many [high-frequency trading] systems; they’re all idiosyncratic; they’re all different. The SEC is starved for cash, starved for talent.” The SEC is playing a hard game of catch-up and the lack of resources may be adding risk to a fast moving marketplace.

SEC Fails To Monitor More Than Half Of Stock Trading, Former Agency Lawyers Say

Hedge Fund Manager Accused of Inflating Stock Price for a Fat Paycheck

UK Financial Services Authority (FSA) logoThe UK financial regulator FSA has proposed a £1.25 million fee and an industry ban for a hedge fund manager who has admitted to market abuse but claims that there was no intent to manipulate stock prices.  Hedge fund managers are often paid based on the performance of their funds and that performance is measured by the funds value on the last day of the year. The FSA is alleging that in the last two minutes of trading on December 31, 2007 the manager increased the value of the fund’s assets by nearly 3%, increasing his personal compensation by €360,000. The FSA has alleged that the manager ordered his brokers at Cantor Fitzgerald to “push it to the maximum” and regarding his stock positions he added “make it blow up for me.” His brokers at Cantor Fitzgerald have also been fined. Flagrant run-ups in stock prices in the final minutes of trading will catch the attention of regulators and that the consequences are very serious—no matter how tempting.

FSA Seeks Big Fine For Hedge Fund Manager

Most Derivative Dealers Avoid Oversight

U.S. Commodity Futures Trading CommissionThe SEC and CFTC are expected to approve a new rule that will reduce the number of swap dealers that are actually going to be affected by new oversight requirements. Instead of the $100 million initially proposed as the amount a dealer could trade before becoming a regulated entity, the new rule would only scrutinize firms that annually trade more than $8 billion. Quite a change! Energy companies had fought hard for the distinction because they trade large energy derivative contracts but didn’t want to be regulated by financial regulators. The change means that even a few large banks (banks listed in the top 25 derivative banks) will no longer qualify for monitoring by the regulators. This surprising outcome suggests that the SEC and CFTC want to start the process with the largest players and may not have the manpower to watch all the dealers in the marketplace. Bigger is not also better—but is certainly becoming more regulated.

Regulators to Ease a Rule on Derivatives Dealers

Ponzi – Palooza

Trevor Cook ran one of the largest scams in Minnesota history and is serving 25 years in federal prison. Now his three colleagues are to stand trial. The $194 million international fraud scheme centered on foreign exchange trading and lured over 700 investors. The three associates to stand trial are hardly your usual investment manager-types. One of the three was a former pro wrestler who frequented strip clubs. In fact a number of the brokers that the investment firm hired were former employees of the local strip clubs. Prosecutors in the case have already alleged “Legitimate financial services businesses generally do not feature strippers, prostitutes, and alcohol and drug abuse in the office. Witnesses have reported that, when they went to work…people would sometimes be passed out as a result of the previous night’s debauch.” Prosecutors using words like “debauch” means that this could be a trial worth watching.

Massive fraud scheme heads to trial

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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