Here are news stories from the week that were easy to miss, but may have some lasting impact.
1. Settlements Not Enough; Warren Wants Admissions from Institutions
Freshman Senator Elizabeth Warren is already causing waves by pushing regulators to reconsider their stance on settling claims with financial institutions without demanding admissions of guilt. In a letter to regulators and enforcement officials she wrote,
[I]f a regulator reveals itself to be unwilling to take large financial institutions all the way to trial – either because it is too timid or because it lacks resources – the regulator has a lot less leverage in settlement negotiations and will be forced to settle on terms that are much more favorable to the wrongdoer.
A number of judges have rejected high-profile settlements in the last year because they lacked support for the amount of the settlement and have additionally criticized the lack of an admission of guilt. While the new SEC commissioner, Mary Jo White, has agreed to review, she has supported such “no-guilt” settlements in the past with the argument that pursing admissions of guilt will not result in greater settlements and will tax the agency’s resources.
The Wall Street Journal: Sen. Warren Targets Wall Street Settlements
2. Remember Stockbrokers?
Stockbrokers are getting older. It’s a fact. It seems that young people are just not willing to put in the years it takes to become a successful broker (the “lazy youth” argument). Others would contend that it has more to do with the changing nature of the investment market (the “I can do all that online” argument). Either way the phenomenon is real. In the last four years the age of the average stockbroker has gone from 48 to 53 and the market share of the traditional broker model firms has fallen, while online broker-dealers have increased their market shares. Will the stockbrokers go the way of ticker machines and hand signals on the trading floor? Those young whippersnappers with their computers are changing everything–that’s for certain.
3. Don’t Hide Your Cyber Breach ~ Advertise it
Companies are getting smarter about how they respond to cyber breaches. Not only are they improving the firewalls and insurance programs, but they are trying to make the best of a bad situation. More than simply acknowledging that a breach has occurred, firms are beginning to publicize the event and what they did to respond. The humor website The Onion was recently hacked and in response they not only disclosed how the perpetrators breached their system they also published what steps others could take to avoid similar schemes – a sort of public service announcement. Hacked data security firms have responded similarly. Major financial services companies have yet to follow suit, but with recent SEC pronouncements requiring companies to disclose their cyber security risks, we may see firms more openly discussing breaches and steps they are taking to protect their customers. With careful crafting of the message, they may get some marketing mileage out of the event.
The Wall Street Journal: The Morning Risk Report: From Cyber Lemons to Lemonade
4. Lehman Says it was Short-Changed
When Lehman went bankrupt it was forced to close out lots of interest rate swaps in a hurry. It now claims that the event created an unfair windfall for the swap counterparties, and it is seeking recompense. Unfortunately many of the counterparties were not-for-profits and the result is that the defunct firm is asking for millions from charities. The trustees of the bankrupt Lehman do have a duty to the firm’s investors, but a failed investment bank asking for money back from charities is sure to cause consternation.
5. Et Tu Credit Unions? Embezzlement Cases Double at CUs
It’s an image they have worked very hard to establish. Credit unions portray themselves as the honest depositor-owned small guys compared to the big profit-seeking banks. So while credit unions still have fewer events of fraud than banks, it was a bit surprising to learn that instances of major embezzlement cases (thefts of over $100,000) involving credit unions went from 8 in 2011 to 18 in 2012. Five of those cases were multi-million dollar crimes. There were the usual stats – 1/3 of the individuals involved had gambling problems, 2/3 were in a finance or accounting position. But the crux is that credit unions are composed of real people and face the same risks as the big guys when it comes to employee theft.