June 15, 2015 at 5:00 am ET
Case in point: On May 20, five of the world’s largest banks, including Citigroup and JP Morgan, admitted guilt to what Attorney General Loretta Lynch called a brazen conspiracy to manipulate world currency exchanges. Among the penalties such crimes automatically trigger include the loss of certain privileges overseen by the Securities and Exchange Commission (SEC.) But, on May 20, these five banks applied for waivers from those penalties. And on May 20, the SEC granted the waivers.
Chair Mary Jo White has insisted that the SEC’s policies about waivers are separate from the policies about enforcement. Instead, she says they are administrative issues. These waivers involve whether firms can sell securities without review by the SEC. Honest, respected, dependable firms are known as “well known seasoned issuers,” or WKSIs. Since these WKSI waivers are separate from enforcement in the Chair’s eyes, White has explained the SEC must not view them as a device to clean up Wall Street or a way to deter other potentially wayward firms.
As administrative matters, they should be subject to public scrutiny in the light of day. Indeed, the firms’ applications for the waivers are appropriately public. And the SEC’s decisions to grant them are appropriately public.
But Public Citizen asked SEC officials why there was no advance notice of the SEC’s meeting to discuss the waivers, or why the SEC’s decision to grant the waivers was not made in an open public meeting, the answer given was that the issue involved “enforcement.” Note to Catch 22 author Joseph Heller: Please update your classic novel about paradox and double binds.
Indeed, there is much Catch 22 insanity at the SEC on waivers. Consider what happened on May 20. Step 1: Five banks agreed to plead guilty to years of fixing foreign exchange rates. Step 2: They applied for waivers from automatic penalties at the SEC. Step 3: Within hours, the SEC granted them. Step 4: The public was informed about the policy decision.
The Government in Sunshine Act was intended to bring light to government decisions. High-ranking officials aren’t supposed to meet in private to set policy. This should apply to dealings with criminal banks.
Chair White’s SEC has spent more than five years accepting public and industry comment on the rules it is supposed to implement as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Public Citizen and others complain the delay in implementing those rules only favors Wall Street. Sen. Elizabeth Warren (D-Mass) recently challenged Chair White on what can be seen as an anti-investor bent. But Chair White insists that implementation of rules must be thoughtful.
Yet when it comes to decisions Wall Street says it needs, Chair White can be an “efficiency nut” (her term).
Undoubtedly, the SEC didn’t really consider the waiver applications in just a few hours. Such waivers emerged from weeks, even months, of negotiations certainly involving the Department of Justice (DOJ.) The SEC’s Inspector General shed light on the process when it examined a 2010 waiver granted to Bank of America after it was accused of lying to shareholders during its acquisition of Merrill Lynch. Before the SEC informed the public about the waiver request, SEC staff held innumerable meetings with bank attorneys, with their DOJ counterparts, and even among themselves.
Yet such private discussions constitute another insult to the concept of open government. If criminal firms apply for a waiver, they should not be the only ones allowed to make a case before the SEC. Honest Americans should certainly be allowed to comment as well. It’s our country that’s being victimized by criminal banking. Surely, we should not be locked out of the meeting.
In fact, the Department of Labor (DOL) does maintain a public comment process for the waivers it considers. DOL waivers are concerned with how banks manage certain retirement accounts overseen by the agency. The five mega-banks in the currency conspiracy case have already applied for the waivers in documents that spill over 1,000+ pages. In a number of weeks, the DOL will surely propose a waiver for these companies, and invite public comment and even entertain a request of a public hearing. Public Citizen successfully joined with members of Congress and others to press for such a public hearing when criminal bank Credit Suisse applied for a waiver. The DOL is still weighing the Credit Suisse waiver.
More than 13 members of Congress have already called on the DOL to conduct public hearings on the waiver requests from the five criminal banks in the currency conspiracy.
Chair White must repair her “waivering” policy on Wall Street crime. As the SEC’s Inspector General pointed out, the absence of a sunshine policy exposes the government to legal peril from firms that do not win waivers (if that were to ever occur.) Without public information on how SEC reaches its decisions, firms may argue that the decision is “arbitrary and capricious.”
Unless and until the SEC opens its process to the public, including the proposal and adoption of a waiver policy informed by public comment, Wall Street will continue to understand that for the wages of sin is… diddly squat.
Bartlett Naylor is an expert on corporate governance, financial markets and shareholder rights at Public Citizen. He is a Bank of America shareholder.