SEC Drafts Rules For Mediation

Earlier this year, the Securities and Exchange Commission (SEC) approved a Financial Industry Regulatory Authority (FINRA) proposal to merge its dispute resolution subsidiary, FINRA Dispute Resolution, Inc. into and with its regulatory subsidiary, FINRA Regulation, Inc. FINRA continues to operate a dispute resolution program, now as a separate department within FINRA Regulation under the name of the Office of Dispute Resolution. Now, the SEC has proposed draft rules for mediation specified in the Corporation Code and other special laws it implements. The guidelines also apply to intra-corporate issues voluntarily brought to the commission by the parties concerned, provided the disputes have not yet been lodged in court. The SEC has the responsibility to determine the aspects of the dispute that can be mediated and those that cannot. Despite the passage of the Securities Regulation Code (SRC), which transferred the jurisdiction over intra-corporate cases to the regular courts, the SEC has retained its power to handle residual cases. The mediation rules are available for comment until May 25, 2016, and do not cover administrative cases including petitions for cease-and-desist orders for violations of the Corporation Code, the SRC, and other laws and circulars issued and implemented by the commission, which are subject to administrative sanctions. See more at-- http://www.finra.org/industry/notices/16-04#sthash.n4dxbJBY.dpuf and http://bit.ly/1SQzpjT

Judge Questions SEC Settlement

Manhattan Federal District Judge Victor Marrero today questioned a hedge fund paying the government $600 million in penalties to settle insider trading accusations while not having to admit doing anything illegal. Reserving judgment on approving the settlement during a hearing on the landmark deal between the Securities and Exchange Commission and SAC Capital Advisors, the judge found it incongruous when told the client merely made a business decision in agreeing to pay such a large fine. Allegations included illegally trading pharmaceutical stocks after a former portfolio manager obtained secret information from a doctor about clinical drug trials. The hearing focused heavily on “neither admit nor deny wrongdoing” language in the agreement. Reportedly, federal judges across the country have expressed concerns over whether government agencies are letting defendants off too easy by not forcing them to admit liability. Last year, District Judge Jed S. Rakoff rejected the settlement in a fraud case brought against Citigroup by the SEC that let the bank avoid acknowledgment that it did anything wrong. That decision and whether he exceeded his authority in rejecting the settlement is now under review by a Federal Appeals Court. As such, Judge Marerro hinted that he might condition any approval of the SAC settlement on the outcome of the Citigroup appeal. Though the United States Court of Appeals for the Second Circuit is likely limited to Judge Rakoff’s ruling within the context of the specific facts of the Citigroup case relating to the bank’s sale of a complex $1 billion mortgage bond deal, it could impact other cases. Judge Marerro noted that other federal judges across the country had recently followed Judge Rakoff’s lead and cast skepticism on the “neither admit nor deny language,” in some cases demanding greater accountability before approving settlements. SEC counsel urged Judge Marerro to approve the settlement with SAC, despite the pending appeals court decision, acknowledging risk of a shifting legal landscape. “But the ground is shaking,” said Judge Marerro,“there are tremors.” See full story here-- http://nyti.ms/11TD9G0

Jurist tough on settling parties in mortgage crisis litigation

Last month, the Securities and Exchange Commission had to defend their proposed settlements to U.S. District Judge Jed S. Rakoff, who according to the Wall St. Journal is "No Mr. Nice Guy." The SEC apparently considers factors including losses suffered by investors as a result of the alleged wrongdoing in weighing how much the company benefited from the behavior and whether they will be hurt by a penalty. Judge Rakoff was skeptical why Citigroup's penalty is less than one-fifth the penalty paid by Goldman Sachs Group Inc. in its $550 million settlement with the SEC last year over a different mortgage-bond deal. Likewise, Judge Rakoff forced Bank of America and the SEC to come back with a 50-page statement and a higher penalty. He reluctantly approved the revised deal, quoting "the great American philosopher Yogi Berra" in a ruling. The judge says he saw in private practice how delays and gamesmanship made the American legal system too slow and expensive for the average person. See related stories at: http://on.wsj.com/sBSoL0 and http://on.wsj.com/u7f9FE