Daily Archives: December 12, 2012

JPMorgan Pressed by SEC on Prop Trading Before Whale Loss

JPMorgan Chase & Co. (JPM) was pressed by U.S. regulators to strengthen investor disclosures on proprietary trading almost a year before a wrong-way bet on credit derivatives cost the bank at least $6.2 billion.

The Securities and Exchange Commission asked Chief Financial Officer Douglas Braunstein to provide information about the bank’s so-called principal transactions revenue and proprietary trading, according to letters between the agency and the company from June 15 of last year through Feb. 17 that were made public yesterday. Proprietary trading, in which banks make bets with their own money, would be restricted under a Dodd-Frank Act provision known as the Volcker rule.

Read on.

Libor Scandal: UK Police Make Three Arrests

The Serious Fraud Office (SFO) has made three arrests as part of its investigation into the manipulation of the interbank lending rate, Libor.

The major banks declined to comment on the development but Sky sources have suggested that one of the people detained used to work as a trader at the Swiss bank UBS, which has a big presence in the City.

The SFO, with the assistance of the City of London Police, executed search warrants at three residential premises – one in Surrey and two in Essex.

It said in a statement: “Three men, aged 33, 41 and 47, have been arrested and taken to a London police station for interview in connection with the investigation into the manipulation of Libor.”

It added: “The men are all British nationals currently living in the United Kingdom.”

Read on.

MBS industry takes a hit in second NY ruling on trustee liability

There was much gnashing of teeth in the mortgage-backed securities industry last April, when U.S. District Judge William Pauley of Manhattan ruled that mortgage-backed certificates are debt, not equity. That finding, in turn, led Pauley to conclude that MBS trustees are subject to the federal Trust Indenture Act of 1939, which imposes duties on bond trustees. Under the TIA, Pauley said, MBS trustees can be liable if they fail to notify investors of deficiencies in the trust’s underlying mortgage loans and fail to act on those deficiencies. Beth Kaswan of Scott + Scott, who represents the Chicago pension fund that brought the suit before Pauley (which named Bank of New York Mellon as Countrywide’s MBS trustee), told me at the time that the “watershed” decision was a way for investors to get around MBS pooling and servicing agreements, which typically require 25 percent of a trust’s investors to band together before they can bring any action against an issuer. Scott + Scott was so happy about Pauley’s ruling that the firm immediately brought another case for the same client based on the same theory. In the second case, the Chicago fund sued Bank of America and U.S. Bank as trustees for Washington Mutual mortgage-backed securities.

Read on.

Here is the court document: http://www.scribd.com/doc/116346020/Policemen-s-Annuity-Vb-of-A