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Tag: banking and finance regulation

  • Enron Fast Facts | CNN

    Enron Fast Facts | CNN

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    CNN
     — 

    Here’s a look at Enron, an energy trading company that collapsed after a massive accounting fraud scheme was revealed. Its 2001 bankruptcy filing was the largest in American history at the time. Estimated losses totaled $74 billion.

    Enron was ranked as America’s fifth largest company by Fortune magazine in 2002, despite its 2001 bankruptcy filing.

    An independent review published in 2002 detailed how executives pocketed millions of dollars from complex, off-the-books partnerships while reporting inflated profits to shareholders.

    Executives including Kenneth Lay and Jeffrey Skilling were prosecuted for fraud-related crimes.

    Key figures sold their stock shortly before the company announced a sharp downturn in earnings.

    Lower-level employees were encouraged to invest in company stock for their retirement savings just before the company collapsed. The workers later filed a class action lawsuit and won an $85 million settlement.

    1985 – Houston Natural Gas merges with Omaha-based InterNorth to form Enron.

    1986 – Lay is appointed chairman and CEO of Enron.

    1989 – Enron enters the natural gas commodities trading market.

    1990 – Skilling, an energy consultant, is hired to run a new subsidiary called Enron Finance Corp.

    February 12, 2001 – Skilling becomes CEO while Lay stays on as chairman.

    August 14, 2001 – Skilling resigns and Lay becomes CEO again.

    August 2001 – Sherron Watkins, a vice president, warns Lay that the company could “implode in a wave of accounting scandals.”

    October 16, 2001 – Enron announces a third-quarter loss of $618 million. The company later reveals that it overstated earnings dating back to 1997.

    October 31, 2001 – The company discloses that it is under formal investigation by the Securities and Exchange Commission.

    November 9, 2001 – Enron confirms that it has agreed to be purchased by a rival company, Dynegy for $9 billion. On November 28, Dynegy announces it has terminated merger talks with Enron.

    December 2, 2001 – Enron files for Chapter 11 bankruptcy protection.

    January 9, 2002 – The US Department of Justice opens a criminal investigation into Enron’s collapse.

    January 10, 2002 – Arthur Andersen LLP, the accounting firm that handled Enron’s audits, discloses that its employees had destroyed company documents.

    January 15, 2002 – The New York Stock Exchange suspends trading of Enron shares.

    January 17, 2002 – Enron ends its partnership with Arthur Andersen.

    January 23, 2002 – Lay resigns as CEO. He later steps down from the board of directors.

    January 25, 2002 – Former Enron vice chairman J. Clifford Baxter is found dead in an apparent suicide.

    February 12, 2002 – Lay invokes his Fifth Amendment right before the Senate Commerce Committee.

    March 14, 2002 – The DOJ indicts Arthur Andersen for obstruction of justice. A jury later returns a guilty verdict for the accounting firm. The Supreme Court later overturns the conviction.

    February 19, 2004 – Skilling is charged with 35 counts of fraud and insider trading. He pleads not guilty.

    July 7, 2004 – Lay is indicted. He is charged with conspiracy, securities fraud, wire fraud, bank fraud and making false statements. During his arraignment the next day, he pleads not guilty to all 11 charges and is released on $500,000 unsecured bond.

    May 25, 2006 – Skilling and Lay are convicted of conspiracy and fraud. Skilling is also convicted on one count of insider trading and five counts of making false statements. The jury acquits Skilling on nine additional counts of insider trading.

    July 5, 2006 – Lay dies of a heart attack while awaiting sentencing.

    September 8, 2008 – A class action lawsuit filed by shareholders and investors is settled in federal court. The $7.2 billion settlement will be paid out by a group of banks accused of participating in the accounting fraud scheme.

    May 11, 2009 – Skilling files a petition with the Supreme Court to overturn his conviction after appeals with the lower courts fail.

    May 9, 2010 – “Enron,” a musical about the company’s collapse, closes on Broadway 12 days after opening amid slow ticket sales.

    April 16, 2012 – The Supreme Court rejects Skilling’s appeal.

    June 21, 2013 – A federal judge reduces Skilling’s sentence by more than 10 years. In return, Skilling agrees to stop challenging his conviction and forfeit roughly $42 million that will be distributed among the victims of the Enron fraud.

    December 8, 2015 – The SEC announces that it has obtained a summary judgment against Skilling, permanently barring him from serving as an officer or director of a publicly held company. The judgment settles a long-running civil suit by the SEC.

    February 21, 2019 – Skilling is released after serving over 12 years in federal prison.

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  • Angry lawmakers accuse Fed of inaction in insider trading investigation | CNN Business

    Angry lawmakers accuse Fed of inaction in insider trading investigation | CNN Business

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    CNN
     — 

    Congressional lawmakers grilled Federal Reserve Inspector General Mark Bialek Wednesday over possible insider trading among Fed officials in 2020, accusing the nation’s central bank of inaction.

    The heads of the Boston and Dallas Federal Reserve banks retired early in 2021 after trades they made before and during the pandemic came to light. Bialek said his investigation into any potential legal violations from the trades is “ongoing.”

    A separate investigation by Bialek last year found no wrongdoing stemming from trades by a financial adviser on behalf of Fed Chair Jerome Powell’s family trust and by former Fed Vice Chair Richard Clarida.

    Bialek told members of a Senate Banking Subcommittee on Economic Policy that he was limited in what he could disclose because it would impede his ability to “conduct a thorough, independent investigation” into the former regional bank heads’ trades.

    Sen. Elizabeth Warren, D-Massachusetts, interrupted: “You have had a year and a half,” she said. “This is not strong oversight. In fact, it is not even competent oversight.”

    As Republican and Democratic lawmakers on the subcommittee pointed out, Bialek, who has served in his role since 2011, is appointed by members of the Fed’s Board of Governors, whom he is tasked with investigating. Bialek told lawmakers there was no conflict of interest and that he was still able to conduct fair, independent investigations. Warren, among others, said she was unconvinced.

    “It looks like, to anyone in the public, that you gave your boss a free pass,” she said. “The Fed continues to stonewall Congress, stonewall the public on the underlying information about these trades. This is not acceptable.”

    The Office of Inspector General declined to comment Wednesday night.

    After Silicon Valley Bank collapsed in March, Warren and Republican Sen. Rick Scott of Florida introduced a bill to require a presidentially appointed, Senate-confirmed inspector general to the Fed Board of Governors.

    A separate Fed investigation into SVB’s collapse, not involving Bialek, faulted Fed supervisors. Scott on Wednesday said he lacked confidence in Bialek’s ability to investigate those Fed supervisory lapses.

    “Somebody at the Federal Reserve that was responsible for these banks for supervision clearly did it wrong,” he said Wednesday, referring to bank collapses since 2008. “The average person in America pays for all this.”

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  • Opinion: The SVB collapse doesn’t have to be the first in a chain of many | CNN

    Opinion: The SVB collapse doesn’t have to be the first in a chain of many | CNN

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    Editor’s Note: Lanhee J. Chen is a regular contributor to CNN Opinion and the David and Diane Steffy fellow in American Public Policy Studies at the Hoover Institution. He was a candidate for California state controller in 2022. He has played senior roles in both Republican and Democratic presidential administrations and has been an adviser to four presidential campaigns, including as policy director of 2012 Mitt Romney-Paul Ryan campaign. The views expressed in this commentary are his own. View more opinion on CNN.



    CNN
     — 

    When Silicon Valley Bank collapsed this month, analysts and policymakers quickly began considering how to prevent similar failures from happening in the future. While there are changes that lawmakers should consider, when it comes to financial regulation, history shows us that politicians are usually reacting to the last crisis and one step behind the next one.

    The savings and loan crisis of the 1980s led to passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which closed insolvent financial institutions, created new regulatory agencies and implemented restrictions on how savings and loan (or thrift) institutions could invest deposited funds.

    The 2007-2008 financial crisis led to passage of the sweeping Dodd-Frank Act in 2010, which revamped federal regulation of the financial services sector and placed restrictions on how banks do business. Amid criticism that Dodd-Frank had gone too far in regulating banks, a bipartisan coalition in Congress passed, and then-President Donald Trump signed into law in 2018, some rollbacks of Dodd-Frank’s requirements pertaining to small and midsize financial institutions.

    Democrats have largely blamed this rollback of regulations for SVB’s demise. Many Republicans, for their part, have focused their aim on whether the bank’s leadership spent too much time pursuing “woke” policies on diversity and sustainability rather than ensuring depositors were protected.

    The fact that there is so little overlap between Republican and Democrat critiques in the wake of SVB’s collapse illuminates the challenging road ahead for bipartisan policy solutions to avert a future similar failure. If the two sides can’t even agree on the principal cause of the bank’s failure, it’s unlikely there will be consensus on the policies needed to shore up the financial system for the future.

    But they should. While Democrats generally favor more aggressive oversight of the financial system and Republicans largely argue that the current regulatory scheme is sufficient, the right answer looking ahead is somewhere in between.

    In the wake of SVB’s failure, some regulatory interventions have come into focus and could form the basis of policy discussions in the coming weeks and months as Congress considers how to respond to the current banking crisis.

    First, SVB’s demise came when a lack of liquidity (or a shortfall of cash on hand) left it unable to pay out depositors when they came looking for their money. The bank had invested a disproportionate amount of assets in long-term debt that was purchased at a time when interest rates were much lower than they are today. When the bank attempted to liquidate this debt over the last few weeks, it was forced to do so at a significant loss. SVB failed to hedge against risk by diversifying its investments.

    When depositors tried to withdraw $42 billion in cash from the bank on a single day, SVB’s cash shortfall generated a panic among those who had deposits at the bank and raised concerns about the health of the US banking system more broadly.

    Just as individual investors are often advised to diversify their investment strategies to minimize risk, so too might politicians look to requirements that banks ensure that they have proper diversification in how they are investing their assets.

    Further, some Republicans and many Democrats are also calling for expanded deposit insurance so that bank deposits over the current federal cap of $250,000 are also insured. Democratic Sen. Elizabeth Warren of Massachusetts, a vocal supporter of increased financial sector regulation, has called for increased deposit insurance that would be paid for by banks. Democratic Rep. Ro Khanna of California is expected soon to introduce legislation that raises or removes the insurance cap entirely, such that deposits of all amounts will be protected.

    Some Republicans have joined them in addressing the insurance cap. Republican Sen. J.D. Vance of Ohio, for example, has argued that lifting the cap (for example, by ensuring the cap keeps up with inflation) would equalize the playing field between large banks and smaller local and regional ones. Republican Sen. Mitt Romney of Utah has suggested that larger depositors might be insured up to the entire amount of their deposits in exchange for a small fee.

    If Congress moves toward increasing or eliminating the deposit insurance cap entirely, it should do so carefully. Depending on how the policy is constructed, such changes could disproportionately benefit wealthier institutional depositors or encourage bad behavior by banks if they know an open-ended bailout is waiting on the other end of risky investment decisions.

    Finally, some changes will undoubtedly come through the Federal Reserve, rather than Congress. This is probably a good thing, as these policymakers have some insulation from the political forces that directly affect lawmakers.

    The Federal Reserve, for example, will likely examine the extent of both capital and liquidity requirements at banks based on their total assets. A bank’s capital is the difference between its assets and liabilities or, put another way, the resources a bank has to ultimately absorb losses. Liquidity, by comparison, is a measure of the cash and assets a bank has immediately on hand to pay obligations (such as money that depositors might ask for).

    America’s central bank may also look at the content of “stress tests” created by the Dodd-Frank Act and designed to regularly assess the health of large financial institutions across the country. For nearly a decade, tests have been benchmarked to a low-interest rate environment, which is not reflective of recent conditions.

    But ultimately, the Federal Reserve is not blameless in the collapse of SVB as it created a fertile environment for the bank’s failure by keeping interest rates as low as they were for as long as they were. Lawmakers should do their part to make sure people understand that monetary policy has far-reaching impacts.

    While the best way to prevent the next SVB is likely to be viewed by policymakers through partisan-tinted glasses, there are avenues for Democrats and Republicans to work together. But the window to do so is narrow and closing. This time next year, we’ll be in the throes of presidential primary elections, and neither party will be particularly interested in compromise — even if that’s what our financial system needs.

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  • CFPB: What it does and why its future is in question | CNN Business

    CFPB: What it does and why its future is in question | CNN Business

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    New York
    CNN
     — 

    The US Supreme Court decided this week to hear a case that will consider the constitutionality of funding for the Consumer Financial Protection Bureau and, in doing so, test the constraints of US regulators’ power. The case would be heard in the fall, with a decision likely by summer 2024.

    But what is the CFPB? How does its work affect your wallet? And why is its future potentially at risk?

    The agency was created after the 2008 financial meltdown, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That law was passed in the wake of the 2007 subprime mortgage crisis and the Great Recession that followed.

    The broad purpose of the CFPB is to protect consumers from financial abuses and to serve as the central agency for consumer financial protection authorities.

    Prior to its creation, as the agency notes on its site, “[c]onsumer financial protection had not been the primary focus of any federal agency, and no agency had effective tools to set the rules for and oversee the whole market.”

    The CFPB has regulatory authority over providers of many types of financial products and services, including credit cards, banking accounts, loan servicing, credit reporting and consumer debt collection.

    It is charged with implementing and enforcing consumer protection laws, making rules and issuing guidance for consumer financial institutions. And it is the place consumers can go to lodge complaints about financial products and services.

    Importantly, Dodd-Frank also gave the agency new authority to determine whether any given consumer financial product or service is unfair, deceptive or abusive and therefore unlawful.

    While there are critics of the agency’s current structure and funding, it has saved consumers money, made it easier for them to seek redress and to get better clarity and more tailored responses from companies when they have a problem with their accounts, loans or credit reports.

    “It has completely changed the consumer financial marketplace. Overall it has had a tremendous impact on making it more fair and transparent,” said Lauren Saunders, associate director of the National Consumer Law Center.

    For instance, the CFPB has taken action against bank overdraft policies. “Arguably, the focus on overdraft practices has led some banks to eliminate or reduce their overdraft fees,” said Christine Hines, legislative director of the National Association of Consumer Advocates.

    And it has gone after institutions for saddling consumers with pointless products, excessive fees and punitive terms.

    Both Hines and Saunders made a special note of CFPB’s actions against Wells Fargo, after the agency found the bank had been engaging in multiple abusive and unlawful consumer practices across several financial products between 2011 and 2022 — from auto loans to mortgage loans to bank accounts.

    Last month, the agency required the bank to pay more than $2 billion to customers who were harmed by such practices, plus a $1.7 billion fine that will go into a relief fund for victims.

    “More than 16 million accounts at Wells Fargo were subject to their illegal practices, including misapplied payments, wrongful foreclosures, and incorrect fees and interest charges,” the agency said in a blog post.

    In the area of mortgages, “CFPB has written rules to implement new protections so that mortgage lenders don’t make loans with tricks and traps that lead people to lose their homes,” Saunders said.

    It also has created other safeguards, including rules on how service providers should communicate with borrowers who want to find alternatives to foreclosure, Hines noted.

    Currently, the agency is in the midst of an effort to curb excessive or “junk” fees on a range of consumer financial products, such as credit card late fees.

    Critics of the CFPB have been trying for years to limit its power and independence, attacking the way the agency is structured and funded. Like federal banking regulators, its funding is not determined by lawmakers in Congress as part of the annual appropriations process. Rather, it gets its money from the Federal Reserve System’s earnings.

    “This nontraditional funding source limits congressional oversight of the agency and is the subject of legal challenges,” according to the Congressional Research Service.

    The latest challenge — arising from a federal appeals court ruling that CFPB’s funding violates the Constitution’s Appropriations Clause and separation of powers — is what the Supreme Court will take up in its October term.

    While it’s impossible to predict how the justices will rule, should they decide to uphold the appeals court ruling, that will put in doubt how the agency will be funded going forward, and whether it can continue to function effectively.

    It’s also unclear whether the agency’s actions and rule-making over the past 11 years would be invalidated, nor what impact it would have on banks and other financial institutions that have set up systems to be in compliance with CFPB rules and safe harbors.

    “The agency would be unable to do anything if the funding is invalidated. And prior rules could be challenged as the agency did not have a legal funding source that it could use to write those rules,” Cowen Washington Research Group analyst Jaret Seiberg said in a note to clients.

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  • Hong Kong finds 90-year-old cardinal guilty over pro-democracy protest fund | CNN

    Hong Kong finds 90-year-old cardinal guilty over pro-democracy protest fund | CNN

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    Hong Kong
    CNN
     — 

    A 90-year-old former bishop and outspoken critic of China’s ruling Communist Party was found guilty Friday on a charge relating to his role in a relief fund for Hong Kong’s pro-democracy protests in 2019.

    Cardinal Joseph Zen and five others, including the Cantopop singer Denise Ho, contravened the Societies Ordinance by failing to register the now-defunct “612 Humanitarian Relief Fund” that was partly used to pay protesters’ legal and medical fees, the West Kowloon Magistrates’ Courts ruled.

    The silver-haired cardinal, who appeared in court with a walking stick, and his co-defendants had all denied the charge.

    The case is considered a marker of political freedom in Hong Kong during an ongoing crackdown on the pro-democracy movement, and comes at a sensitive time for the Vatican, which is preparing to renew a controversial deal with Beijing over the appointment of bishops in China.

    Outside the court, Zen told reporters that he hoped people wouldn’t link his conviction to religious freedom.

    “I saw many people overseas are concerned about a cardinal being arrested. It is not related to religious freedom. I am part of the fund. (Hong Kong) has not seen damage (to) its religious freedom,” Zen said.

    Zen and four other trustees of the fund – singer Ho, barrister Margaret Ng, scholar Hui Po Keung, and politician Cyd Ho – were sentenced to fines of HK$4,000 ($510) each.

    A sixth defendant, Sze Ching-wee, who was the fund’s secretary, was fined HK$2,500 ($320).

    All had initially been charged under the controversial Beijing-backed national security law for colluding with foreign forces, which carries a maximum penalty of life imprisonment. Those charges were dropped and they instead faced a lesser charge under the Societies Ordinance, a century-old colonial-era law punishable with fines of up to HK$10,000 ($1,274) but not jail time for first-time offenders.

    The court heard in September that the legal fund raised the equivalent of $34.4 million through 100,000 deposits.

    In addition to providing financial aid to protesters, the fund was also used to sponsor pro-democracy rallies, such as paying for audio equipment used in 2019 during street protests to resist Beijing’s tightening grip.

    Although Zen and the other five defendants were spared from being charged under the national security law, the legislation imposed by Beijing over Hong Kong in June 2020 in a bid to quell the protests has repeatedly been used to curb dissent.

    Since the imposition of the law, most of the city’s prominent pro-democracy figures have either been arrested or gone into exile, while several independent media outlets and non-government organizations have been shuttered.

    The Hong Kong government has repeatedly denied criticism that the law – which criminalizes acts of secession, subversion, terrorism, and collusion with foreign forces – has stifled freedoms, claiming instead it has restored order in the city after the 2019 protest movement.

    Hong Kong’s prosecution of one of Asia’s most senior clergyman has cast the relationship between Beijing and the Holy See into sharp focus.

    Zen has strongly opposed a controversial agreement struck in 2018 between the Vatican and China over the appointment of bishops. Previously both sides had demanded the final say on bishop appointments in mainland China, where religious activities are heavily monitored and sometimes banned.

    Born to Catholic parents in Shanghai in 1932, Zen fled to Hong Kong with his family to escape looming Communist rule as a teenager. He was ordained as a priest in 1961 and made Bishop of Hong Kong in 2002, before retiring in 2009.

    Known as the “conscience of Hong Kong” among his supporters, Zen has long been a prominent advocate for democracy, human rights and religious freedom. He has been on the front lines of some of the city’s most important protests, from the mass rally against national security legislation in 2003 to the “Umbrella Movement” demanding universal suffrage in 2014.

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