• Systemic Lenders.

On June 15th, Bloomberg reported the Basel Committee on Banking Supervision will draft rules for "systemic lenders," those institutions whose lending activities are so widespread, a collapse of one could threaten a nation's financial stability. Systemic Lenders.

• Gupta Guilty.

On June 15th, a federal jury convicted Rajat Gupta, a former managing partner of McKinsey & Co. and a former director at Goldman Sachs, on four counts of insider trading. See, e.g., Bloomberg.

• A Dangerous Obsession.

On June 14th, Michael W. Peregrine, of McDermott Will & Emery, wrote for the New York Times' DealBook concerning the regulatory obsession with "red flags" and the dangers that obsession presents. Dangerous Obsessions.

• The Best FCPA Defense.

On June 14th, Corporate Counsel discussed the lessons to be learned from Morgan Stanley's successful response to possible Foreign Corrupt Practices Act ("FCPA") violations. Because the firm had an established FCPA policy in place, it faced no charges when its executive violated the Act. Effective Policy.

• Dimon does D.C.

On June 13th, JP Morgan CEO Jamie Dimon testified before the Senate Banking Committee about his firm's multi-billion dollar trading loss. The Guardian reported Dimon called the trades "poorly conceived" and although he accepted ultimate responsibility for them, he claimed that "senior executives" failed to keep him informed. Compensation clawbacks for those responsible are likely, but no names were named. Appearances. Bloomberg summarized Dimon's testimony concerning JP Morgan's risk controls and its decision to change its risk modeling. Risk. The Washington Post noted the few confrontations that occurred between Dimon and certain Senators. Conflict. Separately, the Washington Post summarized the reaction to Dimon's performance. Pundits. On June 14th, Bloomberg reported that Comptroller of the Currency Thomas Curry has concluded that no other bank has followed JP Morgan's hedging example. Conclusions. Reuters reported that former FDIC Chairman Sheila Bair urged perspective when considering JP Morgan's losses, noting that the bank can withstand the loss and that a far greater concern looms large: the European debt crisis. She also believes that regulators should have spotted the risky hedges and should themselves admit their mistake. Perspective.

• Shifting Targets.

On June 12th, Reuters reported that litigation-minded shareholders have a new target: corporate compensation committees. Shifting Targets.

• Life Sentences for Financial Frauds.

On June 11th, the New York Times' DealBook discussed the legal and philosophical underpinnings of recent lengthy prison sentences meted out for financial frauds. Sentencing Philosophy. And on June 14th, R. Allen Stanford, who orchestrated a $7 billion Ponzi scheme, received the equivalent of a life sentence, 110 years in prison. Justice Department Press Release.

• Successful Defendant Becomes Hopeful Plaintiff.

On June 11th, the National Law Journal reported that on June 8, 2012, a California appeals court held that a securities fraud defendant, who won on summary judgment, could sue the plaintiffs' attorneys for malicious prosecution. Role Reversal.

• The Proposed Investment Advisers Oversight Act and States' Rights.

On June 9th, Reuters noted that a provision of the proposed Investment Advisers Oversight Act—which would require investment advisers to register with a self-regulatory organization—may be unconstitutional. The bill would require states overseeing investment advisers to report to the private SRO on their examination progress. It would also allow the SRO to determine whether a state's examination process is sufficient. Both questions may raise states' rights issues. States' Rights.

• Antitrust Inquiry into the Credit Derivatives Market.

On June 8th, Reuters provided an update on the Justice Department's antitrust investigation of the credit derivatives trading market. AT Investigation.

• OCC Issues Guidance on Portfolio Due Diligence Requirements.

On June 13th, the OCC adopted guidance to assist national banks and Federal savings associations in meeting due diligence requirements for the assessment of credit risk for portfolio investments. The guidance clarifies regulatory expectations with respect to investment purchase decisions and ongoing portfolio due diligence processes. The guidance will be effective January 1, 2013. 77 FR 35259.

• OCC Adopts Alternatives to Credit Rating Agencies.

On June 13th, the OCC adopted, as proposed, rules that replace in OCC regulations references to, or requirements based on, credit rating agencies. 77 FR 35253.

• Shadowy Reform.

On June 12th, Federal Reserve Board Governor Daniel Tarullo discussed the need for a regulatory reform agenda for the shadow banking system. He called for greater transparency, singling out the bilateral repo market as being particularly opaque. Tarullo renewed his call for reforms to the money market mutual fund industry, and endorsed, in the absence of SEC action, a Bank of England suggestion that banking supervisors set new limits on banks' reliance on funding provided by money market funds. Tarullo Remarks.

• Agencies Summarize Recent Regulatory Actions, Request Comments.

On June 12th, the Federal Reserve Board, the FDIC, and the OCC issued a press release summarizing three proposed rules and one final rule concerning capital requirements issued last week. Joint Agency Press Release.

• Executive Compensation.

On June 11th, Reuters reported that in a meeting with Federal Reserve Board Chairman Ben Bernanke and other officials, representatives from the banking industry said that a gap is growing between what shareholders want and regulators are requiring in the area of executive compensation. Pay Gap.

• A Frozen Reaction to the FDIC's Liquidation Authority.

On June 11th, Bloomberg columnist Peter J. Wallison opined on the Dodd-Frank Act's provision giving the FDIC liquidation authority for failing financial firms. Wallison suggests that the FDIC's plan is in most respects no better than established bankruptcy proceedings and in one respect worse; it provides for no judicial review. Liquidation Authority.

• OCC Publishes Revised Liquidity Booklet.

On June 8th, the OCC announced that it recently revised the "Liquidity" booklet of the Comptroller's Handbook, replacing a similarly titled booklet issued in February 2001. The revised booklet provides updated guidance to examiners and bankers on assessing the quantity of liquidity risk exposure and the quality of liquidity risk management. Revised Liquidity Booklet; OCC Bulletin.

• CFPB Requests Comment on Senior Financial Exploitation.

On June 14th, the Consumer Financial Protection Bureau requested comment on consumer financial products and services, financial literacy efforts, and fraudulent or deceptive practices impacting the lives of older Americans and their families. Comments should be submitted on or before August 13, 2012. CFPB Press Release.

• Private Student Loans.

On June 13th, the Consumer Financial Protection Bureau made available almost 2,000 comments from individual consumers about their experiences in the private student loan market. CFPB Press Release. On June 14th, the CFPB requested comment from banks, state attorneys general, consumer groups, and others, on borrower complaints about private education loans. Comments should be submitted on or before August 13, 2012. 77 FR 35659.

• Treasury Department Announces $619 Million Settlement with ING Bank.

On June 12th, the Treasury Department's Office of Foreign Assets Control ("OFAC") announced a $619 million settlement with ING Bank N.V. for apparent violations of U.S. sanctions. The settlement, the largest of its kind, resolves OFAC's investigation into ING Bank's intentional manipulation and deletion of information about U.S.-sanctioned parties in more than 20,000 financial and trade transactions routed through third-party banks located in the United States, primarily in apparent violation of the Cuban Assets Control Regulations, the Iranian Transactions Regulations, the Burmese Sanctions Regulations, the Sudanese Sanctions Regulations, and the now-repealed version of the Libyan Sanctions Regulations. The settlement with OFAC is simultaneous with settlements with the U.S. Attorney's Office for the District of Columbia, the Department of Justice's National Security Division, the Department of Justice's Asset Forfeiture and Money Laundering Section, and the New York County District Attorney's Office. Treasury Department Press Release.

• FinCEN Issues Updated Guidance on Currency Transaction Reporting Requirements.

On June 11th, the Financial Crimes Enforcement Network ("FinCEN") revised its August 31, 2009 guidance on determining eligibility for exemption from currency transaction reporting requirements. The revised guidance updates relevant citations to reflect the transfer of FinCEN's regulations from 31 C.F.R. Sec. 103 to 31 C.F.R. Chapter X, and amends the guidance dealing with exemption eligibility for payroll customers in accordance with the final rule amending 31 C.F.R. Sec. 1020.315, published at 77 FR 33638 on June 7, 2012. FinCEN Guidance.

• CFTC's Technology Advisory Committee to Meet.

The CFTC's Technology Advisory Committee will meet on June 20, 2012 to discuss High Frequency Trading, HFT strategies, and liquidity aggregation across designated contract markets and swap execution facilities. Written statements in connection with the meeting should be submitted on or before June 19, 2012. 77 FR 34352.

• CFTC Schedules Meeting to Consider Cross-Border Application of Swap Rules.

The CFTC will hold an open meeting on June 21, 2012 to consider Proposed Interpretive Guidance on Cross-Border Application of Certain Swaps Provisions of the Commodity Exchange Act, and a Proposed Exemptive Order Regarding Compliance with Certain Swap Regulations under the Act. CFTC Press Release. On June 14th, CFTC Chairman Gary Gensler provided a preview of what the agency is considering. Foreign entities transacting in more than a de minimis level of U.S. swap dealing activity would need to register under the CFTC's swap dealer registration rules. Overseas swap dealers would be subject to tiered requirements consisting of entity level requirements (capital, risk management, recordkeeping, and reporting) and transaction-level requirements (clearing, margin, real-time public reporting, trade execution, and sales practices). Entity-level requirements would apply to all registered swap dealers, but in certain circumstances, overseas swap dealers could meet these requirements by complying with comparable and comprehensive foreign regulatory requirements (substituted compliance). Transaction-level requirements would apply to all U.S. facing transactions. For these requirements, U.S. facing transactions would include not only transactions with persons or entities operating or incorporated in the United States, but also transactions with their overseas branches. Likewise, this would include transactions with overseas affiliates that are guaranteed by a U.S. entity, as well as the overseas affiliates operating as conduits for a U.S. entity's swap activity. For certain transactions between an overseas swap dealer (including a foreign swap dealer that is an affiliate of a U.S. person) and counterparties not guaranteed by or operating as conduits for U.S. entities, Dodd-Frank transaction-level requirements may not apply. For foreign swap dealers, the CFTC is considering phased-in compliance. Gensler Remarks.

• Supervision of Associated Persons with Multiple Associations.

On June 15th, the CFTC published for comment proposed rules that would make clear that each swap dealer, major swap participant, and other CFTC registrant with whom an associated person is associated is required to supervise the associated person and is jointly and severally responsible for the activities of the associated person. Comments should be submitted on or before August 14, 2012. 77 FR 35892.

• Dow Jones Industrial Futures Contract Certified.

On June 15th, the CFTC's Division of Market Oversight announced the certification of a Dow Jones Industrial Average Futures contract submitted by the Osaka Securities Exchange on April 30, 2012. CFTC Press Release.

• Swap Predictions.

On June 14th, Bloomberg cited CFTC Chairman Gary Gensler as predicting that international standards for swap collateral will be proposed by mid-July. Swap Predictions.

• Choosing a Segregation Approach.

On June 13th, CFTC Commissioner Bart Chilton suggested that the CFTC consider adopting the approach taken by the European Market Infrastructure Regulation ("EMIR") concerning the segregation of customer collateral. Article 39.5 of EMIR allows customers to elect to choose between "omnibus client segregation," which is similar to what the CFTC requires, and "individual client segregation," which is effectively full segregation. Chilton Remarks.

• Compliance Date for Investment Adviser Act's Pay to Play Rule is Extended.

On June 8th, the SEC extended the date by which advisers must comply with the ban on third-party solicitation in Rule 206(4)-5 under the Investment Advisers Act of 1940, the "pay to play" rule. The Commission is extending the compliance date to ensure an orderly transition for advisers and third-party solicitors as well as to provide additional time for them to adjust compliance policies and procedures after the transition. The compliance date is extended to nine months after the compliance date of a final rule adopted by the Commission by which municipal advisor firms must register under the Securities Exchange Act of 1934. SEC Release No. IA-3418.

• SEC Proposes Swaps Rules Implementation Schedule.

On June 11th, the SEC issued a policy statement describing the order in which it expects to implement new rules regulating security-based swaps. The statement covers final rules to be adopted in accordance with Title VII of the Dodd-Frank Act. The policy statement does not estimate when the rules would be put in place, but describes the sequence in which they would take effect. The phased-in approach is intended to avoid the disruption that could occur if all the new rules took effect simultaneously. The policy statement also discusses the timing of the expiration of the temporary relief the SEC previously granted to securities-based swaps market participants. The relief exempts these market participants from certain provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Trust Indenture Act of 1939. Much of this relief is due to expire when certain final rules under Title VII become effective. Comments should be submitted on or before August 13, 2012. SEC Press Release.

• Staff Announcement.

On June 15th, the SEC announced that Thomas J. Butler has been appointed Director of the agency's new Office of Credit Ratings. SEC Press Release.

• Regulation A.

On June 13th, the Washington Post discussed the JOBS Act's provisions concerning Regulation A. The Act raised Regulation A's limits to $50 million, permitting a company to annually issue up to $50 million in unrestricted securities. Regulation A.

• Investment Advisory Committee Holds its First Meeting.

On June 12th, AdvisorOne summarized the inaugural meeting of the SEC's Investor Advisory Committee, noting the areas the committee will consider. Members agreed that their first priority is the protection of retail investors. Outside of the meeting, members and SEC Chairman Mary L. Schapiro, hoped that the group will include broker duties to customers as part of the investor protection mandate. Inaugural Meeting.

• Municipal Bond Disclosure Requirements.

On June 11th, BusinessWeek reported that the SEC and the Financial Industry Regulatory Authority are examining municipal bond underwriters to insure that issuer disclosure obligations are being met. Municipal Bond Disclosures. On June 15th, Bond Buyer summarized the remarks of FINRA's associate director of member regulation concerning the SEC's risk alert on bond underwriters' due diligence obligations. FINRA Comments.

• Cross-Border Disconnect.

On June 11th, MarketWatch noted the legal and philosophical differences hampering the SEC's ability to gather information from China-based companies. Disconnect.

• Recent Acts are Outlined.

On June 9th, SEC Director, Office of Investor Education and Advocacy, Lori Schock outlined the provisions of the Dodd-Frank and JOBS Acts. Schock Remarks.

• Exchanges Take Aim at Dark Pools.

On June 14th, BusinessWeek reported that NYSE Euronext and NASDAQ OMX Group have asked the House Financial Services Committee to propose legislation requiring dark pools to either provide better prices or make quotes public. Better Execution.

• SEC Approves FINRA's Proposed Communications Rules.

On June 14th, the Financial Industry Regulatory Authority announced that the SEC has approved FINRA's proposed adoption of NASD Rules 2210 and 2211 and NASD Interpretive Materials 2210-1 and 2210-3 through 2210-8 as FINRA Rules 2210 and 2212 through 2216 (collectively, the Communications Rules), and to delete certain provisions of Incorporated NYSE Rule 472 and certain Supplementary Material and Rule Interpretations related to NYSE Rule 472. The Communications Rules become effective on February 4, 2013. FINRA Regulatory Notice 12-29.

• Customized Arbitrations.

On June 12th, Reuters reported the Financial Industry Regulatory Authority will institute a pilot program beginning on July 2, 2012, that will allow parties to arbitrations involving at least $10 million to customize procedural aspects of their case. Customized Arbitrations.

• Accelerated Approval Granted to Proposed Amendments to Private Placement Rule.

On June 7th, the SEC granted accelerated approval to the Financial Industry Regulatory Authority's adoption of FINRA Rule 5123 (Private Placements of Securities) in the consolidated rulebook. As approved, the rule eliminates the originally proposed requirement for members to disclose to investors the anticipated use of offering proceeds, and the amount and type of offering expenses and offering compensation. Instead, the approved amended rule limits members' obligations under the rule to filing any existing offering document (including any material amendment thereto) used in connection with a sale of the subject securities within 15 calendar days of the date of first sale, or to identify that no such document was used. Comments on the amendments should be submitted on or before July 5, 2012. SEC Release No. 34-67157.

• A Miserable Failure.

On June 11th, the Wall Street Journal recounted the glitches and problems plaguing Facebook's initial public offering on NASDAQ, noting one retail customer's lament: "My experience on that day is that the markets aren't built to handle failure.... With technology, you're able to accomplish a lot more, but when it fails, it fails miserably." Customer's Lament. On June 12th, Bloomberg reported that NASDAQ may be immune from private suit liability. Immunity.

• Quarterly Expiration Day Reminder.

NYSE Regulation reminded members that June 15, 2012, is a quarterly Expiration Day for stock and index options and futures products whose settlement pricing is based upon New York Stock Exchange and NYSE MKT opening or closing prices on that day. Members are further reminded of certain NYSE and NYSE MKT rules and policies regarding opening imbalance publications, entry and cancellation of market-on-close/limit-on-close and closing offset orders, publication of on-the-close imbalances, and printing the closing transaction. NYSE Regulation Information Memo 12-15.

• Supplemental Liquidity Providers Approved.

On June 7th, the SEC approved the New York Stock Exchange's and NYSE Amex's proposed addition of a class of Supplemental Liquidity Providers that are registered as market makers at the respective exchanges.

• Financial Institutions Bond Covered Forged Mortgages.

On June 15th, the Fifth Circuit affirmed the entry of summary judgment allowing plaintiff Peoples State Bank to recover on its Financial Institution Bond issued by Progressive Casualty. Peoples sought recovery for losses caused by the fraudulent collateral (forged mortgage documents), it accepted from a third party. Fifth Circuit holds that the Bond only required Peoples to rely on the collateral and to possess the documents in question. Since Peoples did and had both, the loss was covered. Peoples State Bank v. Progressive Casualty Insurance Co. (Unpublished).

• Banking Account Arbitration Agreement Plays No Role in Securities Fraud Complaint.

On June 13th, the Massachusetts Federal District Court denied a motion to compel arbitration in a securities fraud lawsuit. Plaintiff alleges Bank of America Securities ("BAS") improperly invested plaintiff's money in auction rate securities. Although the funds from plaintiff's investments were automatically debited from its Bank of America, N.A. ("BANA") account, the transactions were executed by BAS. The arbitration agreement, however, was only present in the account agreement with BANA and plaintiff makes no claim regarding the debiting of its account. The BANA arbitration agreement therefore does not apply. Tutor Perini Corp. v. Banc of America Securities LLC.

• Supreme Court to Consider Fraud-on-the-Market Pleading Requirement.

On June 11th, the Supreme Court granted certiorari to consider whether, in a case alleging a violation of Rule 10b-5, the district court must require proof that the alleged misrepresentation or omission was material before certifying a plaintiff class based on the fraud-on-the-market theory, and whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the fraud-on-the-market theory before certifying the class. Question Presented. In the opinion below, the Ninth Circuit, joining the Third and Seventh Circuits, held that while plaintiffs must show that the security in question was traded in an efficient market and that the alleged misrepresentations were public, they need to only plausibly allege, but need not prove, that the claimed misrepresentations were material. View Ninth Circuit Opinion.

• TILA Rescission and Non-Judicial Foreclosures.

On June 11th, the Tenth Circuit held that the Truth in Lending Act requires a borrower seeking to rescind a loan give the lender written notice of rescission within three years of the loan's closing and institute legal action to enforce that right if the lender does not respond. Raising rescission as a defense to foreclosure in a non-judicial foreclosure proceeding is not enough. Rosenfield v. HSBC Bank, USA.

• Political Contributions by Certain Investment Advisers: Ban on Third-Party Solicitation; Extension of Compliance Date - Effective June 11, 2012.

The Securities and Exchange Commission is extending the date by which advisers must comply with the ban on third-party solicitation in rule 206(4)-5 under the Investment Advisers Act of 1940, the "pay to play" rule. The SEC is extending the compliance date to ensure an orderly transition for advisers and third-party solicitors as well as to provide additional time for them to adjust compliance policies and procedures after the transition. The compliance date for the ban on third-party solicitation is extended until nine months after the compliance date of a final rule adopted by the Commission by which municipal advisor firms must register under the Securities Exchange Act of 1934. Once such final rule is adopted, the SEC will issue the new compliance date for the ban on third-party solicitation in a notice in the Federal Register. 77 FR 35263.

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