Talk Back

   By Suzanne Barlyn
   A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–It’s getting trickier for federal lawmakers to oppose a fiduciary standard that would protect the retail investor, especially when their sympathy now extends to the institutional investor.

Recent legislative proposals would establish a fiduciary duty for brokers who advise certain institutional investors, mainly states, municipalities and public pension funds. That is, those brokers would have to act in these investors’ best interests.

The initiatives stem from the recent Goldman Sachs mortgage derivatives case and the company’s insistence that it did not need to take the side of “sophisticated institutional investors” to whom it sold risky products. Civil fraud charges were filed last month against Goldman Sachs Group Inc. (GS) by the Securities and Exchange Commission and high-profile hearings by a Senate panel put the company’s executives in an unpleasant spotlight.

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By Suzanne Barlyn
A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–A surge in arbitration claims over private placements is raising a good question: Shouldn’t someone raise the income and asset thresholds that were designed to ensure that these largely unregulated securities are marketed only to institutions and well-heeled, sophisticated investors?

The answer would seem obvious, considering that these thresholds were set more than 20 years ago.

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 By Suzanne Barlyn 
A DOW JONES NEWSWIRES COLUMN 

NEW YORK (Dow Jones)–A former Securities and Exchange Commission lawyer who investigated Bernard Madoff in 2004 says the new report on how the agency failed to uncover his massive fraud places too much blame on staff examiners and overly generalizes about their “inexperience.”

Genevievette Walker-Lightfoot told Dow Jones Newswires on Thursday the SEC inspector general should have focused more of his attention on how supervisors, rather than the staff examiners and investigators, handled the agency’s many stillborn probes of Madoff.

An executive summary of the report, released on Wednesday, repeatedly emphasized what it described as the inexperience, confusion and limited expertise of staff assigned to at least six investigations involving Madoff since 1992.

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NEW YORK — The Securities and Exchange Commission’s agreement with Hank Greenberg marks the second time in a week the agency has announced, simultaneously, charges and a settlement in a serious matter involving misled investors.

It says the truth is being served. Not everyone agrees.

In fact, the pacts raise questions about how much — or how little — the public will ever know about events that may have contributed to one of the most serious financial crises in U.S. history.

In Thursday’s announcement, the SEC says it charged Greenberg, former chairman and chief executive of AIG, and Howard Smith, the company’s former vice chairman and chief financial officer, with accounting violations over inflated financial results reported by AIG between 2000 and 2005.

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By Suzanne Barlyn
   A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–The Obama administration’s push for a possible end to mandatory arbitration in disputes between investors and brokerages has huge implications for the industry – and one big catch.

The Obama administration suggested legislation Wednesday that would give the Securities and Exchange Commission “clear authority to prohibit mandatory arbitration clauses in broker-dealer and investment advisory accounts with retail customers.” But that can only be done after further study.

The SEC would first need to examine, among other issues, whether mandatory arbitration clauses in contracts between customers and brokerages – a decades-old practice – actually harm investors.

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By Suzanne Barlyn and Kristen McNamara
   A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–The Obama administration’s proposal for financial regulatory reform includes just a few sentences about how brokers are compensated – but they could ultimately doom some longstanding business practices on Wall Street.

The use of commissions, long a mainstay of broker compensation, could wind up in conflict with the Obama administration’s push to impose higher standards on broker-dealers.

A recommendation, buried amid the proposal’s discussion about holding broker-dealers and investment advisers to the same fiduciary standard, would empower the Securities and Exchange Commission to “examine and ban forms of compensation that encourage intermediaries to put investors into products that are profitable to the intermediary, but are not in the investors’ best interest.”

Translation: The SEC would be able to ban lucrative commissions that brokers can earn for selling particular products.

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By Suzanne Barlyn
    A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–It looks like the Financial Industry Regulatory Authority took to heart all the criticism about a proposal that would have obliged investors in arbitration to disclose more of their financial histories.

It quietly withdrew the plan.

Finra’s decision may have been influenced by the times, in which many investors have lost a third or more of their portfolio values in the market drop and some have lost even more in frauds like Bernard L. Madoff’s $50 billion Ponzi scheme.

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By Kristen McNamara and Shelly Banjo
   A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–A new Securities and Exchange Commission proposal may not necessarily strengthen protections for assets overseen by investment advisers, according to securities lawyers and financial adviser groups.

The SEC proposed Thursday to require investment advisers who hold or have access to customer funds to undergo annual exams to confirm the money actually exists. These changes come in response to massive investment scams by Bernard Madoff and others, and public outcry over lax oversight.

Industry representatives are awaiting the SEC’s written, detailed proposal but some say the commission appears to be casting its net unnecessarily wide. Continue reading…