Finance Brief: CFTC to Issue Record $30 Million Whistleblower Award in JPMorgan Case


Top Stories

  • The Commodity Futures Trading Commission plans to issue a record $30 million whistleblower award to an applicant who informed the regulator that JPMorgan Chase & Co. did not tell wealth-management clients about conflicts of interest. That led to the bank agreeing in December 2015 to pay a record $367 million settlement, resulting in the largest whistleblower award issued by the CFTC. (Bloomberg)
  • Lawmakers in both parties are increasingly interested in placing new rules on the cryptocurrency sector. Rep. Dave Brat (R-Va.), a member of the House Financial Services Committee, said “you’re going to have that conversation” about regulation if cryptocurrencies end up having a destabilizing effect on the economy. (Reuters)
  • Federal Reserve Chairman Jerome Powell named economists Jon Faust and Antulio Bomfim as senior advisers, according to people familiar with the matter. Faust, a professor of economics at Johns Hopkins University, will work as an adviser one day a week until the completion of the current academic term. (The Wall Street Journal)

Chart Review

Events Calendar (All Times Local)

Tuesday
National Economists Club event on bitcoin 5 p.m.
Wednesday
CSIS event on economic impact of cybercrime 8 a.m.
SEC open meeting 10 a.m.
CFR World Economic Update 12:30 p.m.
Thursday
No events scheduled
Friday
Chicago Booth U.S. Monetary Policy Forum 10:15 a.m.
WITA event on North American Free Trade Agreement 10:30 a.m.
CFR event with World Bank’s Jim Yong Kim 1 p.m.

New Report: How Americans & Investors Are Reacting To Market Volatility

Recent tumult in the stock market has triggered a wave of concerns about investor confidence and the possibility of sustained downturn. To provide a better understanding of the real-time reaction to this volatility, Morning Consult conducted a comprehensive survey of both consumers and market investors. See the full report.

General

Lawmaker interest in NAFTA intensifies amid Trump moves
Vicki Needham, The Hill

The North American Free Trade Agreement (NAFTA) has never been more popular on Capitol Hill. The three-nation trade agreement that has long come under fire from both parties is getting a rousing defense amid a push from the Trump administration to either renegotiate or scrap the deal altogether.

Washington’s $500 Million Financial-Storm Forecaster Is Foundering
Ryan Tracy, The Wall Street Journal

Congress created a brand new agency after the 2008 financial crisis with a gargantuan mission: Serve as the finance world’s version of the National Weather Service. The new Office of Financial Research wasn’t expected to prevent economic storms, but it was supposed to anticipate them and issue warnings to help authorities contain the damage.

Dollar Rises With Treasury Yields; Stocks Struggle: Markets Wrap
Todd White, Bloomberg

Treasuries fell, with investors driving the benchmark yield up to the highest level in four years, as the dollar advanced with oil futures in New York. Futures on the S&P 500 Index declined 0.8 percent, the first retreat in more than a week.

Banking

JPMorgan Whistle-Blowing Case Resulted in Record $30 Million Award
Neil Weinberg, Bloomberg

JPMorgan Chase & Co.’s failure to properly inform some rich clients about conflicts of interest has resulted in a record $30 million whistle-blower award by U.S. futures regulators. The Commodity Futures Trading Commission will pay out that amount for tips received in the case, in which the bank didn’t properly disclose that it was steering asset-management customers into investments that would be profitable for the bank, according to a person familiar with the matter.

Fed Chairman Powell Taps Two Advisers
Nick Timiraos, The Wall Street Journal

Federal Reserve Chairman Jerome Powell has tapped two monetary policy specialists to serve as senior advisers, according to people familiar with the matter. Jon Faust, a professor of economics at Johns Hopkins University, will return to the Fed to advise Mr. Powell on a part-time basis.

Small banks near big win on Dodd-Frank rollback
Donna Borak, CNN

Thousands of the country’s smallest banks and dozens of regional lenders may finally get the relief they’ve been aching for. For the past eight years, banks like State Street, BB&T and SunTrust have fought tougher regulations crafted by Congress in the aftermath of the 2008 financial crisis.

Europe’s largest bank sees reported profit rise more than 140 percent in 2017
Yen Nee Lee, CNBC

HSBC’s fortune turned around in 2017 with an increase in the year’s profit. The bank, largest in Europe by assets, said Tuesday its full-year profit before tax rose 10.9 percent to $20.99 billion after adjusting for foreign currency translation and one-off items.

Financial Products and Investments

Federal Reserve Board seeks to fine and bar Barclays banker over FX manipulation
Anneken Tappe, MarketWatch

The Federal Reserve Board is looking to fine and permanently bar former Barclays employee Peter Little over manipulation in the currency market. Little, the former head of Barclays’ foreign exchange spot trading desk in New York, is “alleged to have engaged in unsafe and unsound practices by using electronic chat rooms to coordinate with traders and competitor banks to influence FX pricing benchmarks,” the Fed said in a statement on Friday.

GE faces shareholder lawsuit over insurance shortfall, SEC probe
Alwyn Scott and Jonathan Stempel, Reuters

General Electric Co was sued on Friday by a shareholder who accused the conglomerate of concealing mounting insurance liabilities and a U.S. Securities and Exchange Commission probe, saying it cost shareholders tens of billions of dollars. The complaint filed by the Cleveland Bakers and Teamsters Pension Fund appears to be the first proposed shareholder class action accusing GE of securities fraud since the company surprised investors with two negative announcements last month.

Strict US market rules limit corporate sellers of green bonds
Kate Allen, Financial Times

Companies seeking to raise green-labelled finance are avoiding the US market over fears that supposedly environmentally-friendly debt will not meet the country’s strict legal standards, which aim to protect investors from mis-selling. Much of the paperwork involved in raising a green bond — including environmental standards, planned use of proceeds and an independent assessment of the issuer’s credentials — is not included in the formal legal documentation when the bond is sold.

Reinsurers Hit by Catastrophe Losses, Rising Competition
William Wilkes, The Wall Street Journal

Irma and an extraordinary string of other natural disasters in 2017 saddled insurers and reinsurers globally with more than $135 billion in losses, according to Munich Re’s 2017 Natural Catastrophe Report. Typically, that would lead reinsurers—the largest of which include German and Swiss firms such as Munich Re, Swiss Re and Hannover Re —to raise prices, helping them to bounce back from the losses.

Democrats press Mick Mulvaney on CFPB fair lending enforcement
Joseph Lawler, Washington Examiner

Congressional Democrats are asking Consumer Financial Protection Bureau acting director Mick Mulvaney to explain his decision to reorganize an agency office overseeing fair lending rules, warning that doing so could lead to predatory lending. Democrats also asked the Trump-appointed Mulvaney to turn over all correspondence he might have had with the White House or bank lobbyists in arriving at the decision.

Housing and GSEs

Hensarling blasts FHFA for allowing GSE affordable housing payments
Rachel Witkowski, National Mortgage News

House Financial Services Committee Chairman Jeb Hensarling is calling out Fannie Mae and Freddie Mac’s regulator over the mortgage giants’ payments to two affordable housing trust funds. Hensarling sent a letter Friday to Federal Housing Finance Agency Director Mel Watt criticizing his decision to allow Fannie and Freddie’s continued support of the Housing Trust Fund and Capital Magnet Fund while the government-sponsored enterprises are suffering financially.

Taxes

IRS to review ruling limiting your early property tax deductions ahead of Trump tax law
Jonathan D. Salant, NJ.com

Acting Internal Revenue Service Commissioner David Kautter will review the agency’s ruling limiting how much New Jersey homeowners could deduct from their prepaid 2018 property taxes, two lawmakers said. Reps. Leonard Lance, R-7th Dist, and Josh Gottheimer, D-5th Dist., met with Kautter Thursday to press their case that all 2018 property taxes paid in 2017 should be deductible.

Tax Regulations at Center of GOP Dispute
Richard Rubin, The Wall Street Journal

A turf battle is breaking out in the Republican Party over which agencies should have a say in writing new regulations stemming from last year’s landmark tax legislation. Some Republican senators are pressuring the Office of Management and Budget to get involved in reviewing tax regulations, breaking a 35-year-old practice where tax regulatory work is handled by the U.S. Treasury Department and the Internal Revenue Service and doesn’t get a full OMB review.

Dems hit stock buybacks in tax law fight
Naomi Jagoda, The Hill 

Democrats are emphasizing companies’ stock buybacks to help make their case against the GOP tax law ahead of the midterm elections. The law is becoming more popular with the public and companies are touting employee bonuses, putting Democrats in a tough spot.

Financial Technology

Congress sets sights on federal cryptocurrency rules
David Morgan, Reuters

Jolted by the global investment craze over bitcoin and other cryptocurrencies, U.S. lawmakers are moving to consider new rules that could impose stricter federal oversight on the emerging asset class, several top lawmakers told Reuters.  Bipartisan momentum is growing in the Senate and House of Representatives for action to address the risks posed by virtual currencies to investors and the financial system, they said.

South Korean Cryptocurrency Regulator Found Dead at Home
Steven Russolillo and Min Sun Lee, The Wall Street Journal

A South Korean official who guided Seoul’s regulatory clampdown on cryptocurrencies was found dead on Sunday, according to a government spokesman. Jung Ki-joon, 52, was head of economic policy at the Office for Government Policy Coordination.

Worldpay and Visa are reversing duplicate transactions for Coinbase users
Evelyn Cheng and Kate Rooney, CNBC

Payments processors Worldpay and Visa said Friday they are reversing duplicate transactions that recently caused unauthorized withdrawals for some users of cryptocurrency exchange Coinbase. “Worldpay and Coinbase have been working with Visa and Visa issuing banks to ensure that duplicate transactions have been reversed and appropriate credits have been posted to cardholder accounts,” the two payments processors said in a joint statement published Friday evening New York time on Coinbase’s Medium blog.

Chicago trader is accused of stealing $2 million in cryptocurrency in city’s first bitcoin fraud case
Samantha Bomkamp, Chicago Tribune

A 24-year-old Chicago trader has been charged with fraud for allegedly stealing $2 million in bitcoin and another cryptocurrency from his employer to cover personal trading losses. It is the first criminal prosecution in Chicago involving digital currencies, according to federal prosecutors.

Puerto Rico’s governor is bullish on blockchain as part of island’s comeback
Leslie Picker and Dawn Giel, CNBC

Cryptocurrency aficionados have been flocking to Puerto Rico, attracted by a provision that exempts relative newcomers to the island from paying taxes on their capital gains. But the governor of Puerto Rico is not quite sold on crypto.

Mueller Says Russians Used PayPal to Buy Facebook Ads
Sarah Frier and Gerrit De Vynck, Bloomberg

Russian operatives using social media to manipulate the U.S. election bought their Facebook ads in a sophisticated manner: stealing the identities of Americans and opening accounts at PayPal Holdings Inc. “Defendants and their co-conspirators also obtained, and attempted to obtain, false identification documents to use as proof of identity in connection with maintaining accounts and purchasing advertisements on social media sites,” according to an indictment issued Friday by U.S. Special Counsel Robert Mueller.

Opinions, Editorials and Perspectives

Don’t reinvent the wheel on housing finance: Restore Fannie and Freddie
William M. Isaac, American Banker

Tackling the last piece of unfinished business from the 2008 financial crisis is a top priority for policymakers — the big question is how to do it. Recently, an early draft of legislation aimed at reforming the twin housing giants Fannie Mae and Freddie Mac was made public.

The CFPB Could Be a Force for Good
Todd Zywicki, The Wall Street Journal

During Richard Cordray’s tenure as director of the Consumer Financial Protection Bureau, the CFPB pummeled American consumers and the economy while doing little to promote financial stability. The pain was especially acute for low- and middle-income consumers who lost access to credit cards, faced higher bank fees and reduced access to free checking, and found it harder and costlier to obtain mortgages, especially as first-time homebuyers.

Searching For the New Vice Chair for the Federal Reserve
Elmus Wicker, The Weekly Standard

What should be the requirements for the next vice-chair of the Federal Reserve? At present these are elementary, I believe, and each one points to the same person.

Why Economists Are Worried About International Trade
N. Gregory Mankiw, The New York Times

When President Trump imposed tariffs on imported solar panels and washing machines, I was reminded of a line from George Orwell: “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.” While Orwell’s comment was focused on military and political issues of the late 1930s, my subject is economics, and to most people in my field, the benefits of an unfettered system of world trade are obvious.

Research Reports

Political Alignment, Attitudes Toward Government and Tax Evasion
Julie Berry Cullen et al., The National Bureau of Economic Research

We ask whether attitudes toward government play a causal role in the evasion of U.S. personal income taxes. We first use individual-level survey data to demonstrate a link between sharing the party of the president and trust in the administration generally and opinions on taxation and spending policy, more specifically.