Tuesday, June 09, 2015

Lawmakers Urge DOL Not to Rubber-Stamp Megabank Waiver Requests

By John Filar Atwood

Citing their disappointment that the SEC granted waivers without public input to UBS, JPMorgan Chase, Citigroup, Barclays, and Royal Bank of Scotland despite their roles in manipulating the foreign currency exchange (FX) spot market, key Democratic members of Congress are urging the Department of Labor not to make the same mistake. Led by Rep. Maxine Waters (D-Calif) and Sen. Elizabeth Warren (D-Mass), the 12 lawmakers have asked the DOL to hold a public hearing on any bad actor waiver requests it receives from these banks.

Background. In May, the banks pleaded guilty to conspiring to manipulate benchmark rates and were fined nearly $3 billion. Four banks pleaded guilty to criminal antitrust violations relating to the rigging of various FX benchmarks, and UBS pleaded guilty to manipulating LIBOR in breach of a non-prosecution agreement it entered into in December 2012.

The day after entering the guilty pleas, the SEC granted waivers to the banks to prevent them from being ineligible issuers under Securities Act Rules 405 and 506. The SEC waivers preserved the banks’ status as well-known seasoned issuers, allowing them to sidestep certain bad actor disqualifications under the securities offering rules.

Lawmakers’ request. In a letter to Labor Secretary Thomas Perez, the lawmakers encouraged the DOL to consider the facts thoroughly before ruling on any waiver requests, four of which the DOL has already received. They urged the DOL to give due weight to the seriousness of the criminal behavior and the extensive recidivist history rather than simply rubber-stamping the waiver requests.

The letter discusses the severity of the crimes for which the banks pleaded guilty, and cites current law, which provides that criminal misconduct of this nature automatically disqualifies the banks from claiming the status of a “qualified professional asset manager.” As a result, the lawmakers noted, the banks should be prohibited from providing certain asset management services to pension funds.

Too big to bar. The lawmakers expressed their concern that the two-tiered system of justice seems to put low-level offenders in jail while the rich and powerful buy their way out of trouble. Rather than continuing the double standard, the lawmakers said that the megabanks should be subject to the collateral consequences provided for by law. They asked the DOL to reject a too-big-to-bar policy of reflexively granting waivers and to use the disqualification provisions to deter future misconduct.

In a press release, the lawmakers noted that last year Rep. Waters and others asked the DOL to think twice before approving a waiver of sanctions for Credit Suisse, requesting that the Department conduct a hearing to allow for public input. In that case, the DOL granted their request, holding a public hearing in January.

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