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settlement monitors

Via Politico, a WSJ news item from last month that should not pass unremarked:

New York’s banking regulator is pushing to install government monitors inside the U.S. offices of Deutsche Bank and Barclays … as part of an intensifying investigation into possible manipulation in the foreign-exchange market … The state’s Department of Financial Services notified lawyers for the two European banks earlier this month that it wanted to install a monitor inside each firm, based on preliminary findings in the agency’s six-month currencies-market probe … Negotiations are continuing over the details of the monitors’ appointments, but New York investigators expect to reach an agreement soon.

The regulatory agency has selected Deutsche Bank and Barclays for extra scrutiny partly because the records it has collected so far from more than a dozen banks under its supervision point to the greatest potential problems at those two banks, the people said. Plus, Deutsche Bank and Barclays are among the dominant players in the vast foreign-exchange market, so investigators hope a close-up view into their businesses will help them observe other players and trading patterns [emphasis added -- W.O.].

We’ve covered the expanding role of settlement and litigation monitors in past posts, and noted the seemingly arbitrary and unaccountable powers these monitors may exercise during their stay within the enterprises to which they are embedded. But there’s something novel (isn’t there?) about the installation of monitors loyal to state overseers whose mission includes watching other firms and market players besides the one that has admitted misbehavior (or has been found by a court to have misbehaved). When you have dealings with a company, and perhaps decide to entrust your sensitive personal or business data to it, should you be worried that it wind up crossing the screen or desk of a quietly emplaced monitor reporting back to Albany, or perhaps Washington?

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WSJ editorial this morning: “We hold no brief for Citi, which has been rescued three times by the feds…. [But] good luck finding a justification for [the $7 billion figure] in the settlement agreement. The number seems to have been pulled out of thin air since it’s unrelated to Citi’s mortgage-securities market share or any other metric we can see beyond having media impact.

“This week’s settlement includes $4 billion for the Treasury, roughly $500 million for the states and FDIC, and $2.5 billion for mortgage borrowers. That last category has become a fixture of recent government mortgage settlements, even though the premise of this case involves harm done to bond investors, not mortgage borrowers.” More: Bloomberg. And the settlement directs Citigroup to hire former Eric Holder associate Thomas Perrilli, now at Jenner & Block, for a monitorship that is likely to prove an extremely lucrative plum [Reynolds Holding, Alison Frankel] Also: Ira Stoll.

March 5 roundup

by Walter Olson on March 5, 2014

  • U.S. Commission on Civil Rights commissioners Gail Heriot, Peter Kirsanow: Administration’s new policy on race and school discipline likely to make schools more chaotic [Robby Soave, Daily Caller, 2011 related, earlier here, etc.]
  • French court: fan club members suffered legally cognizable emotional damage from Michael Jackson’s death [Lowering the Bar, earlier]
  • “The Newkirk incident demonstrates why cameras in the courtroom are a bad idea” [James Taranto, includes bonus New York Times disgrace]
  • Claim: advocates stymied firearms research over most of past two decades. Accurate? [Fox News]
  • Another look at the CPSC’s war on former Buckyballs CEO Craig Zucker [Jim Epstein, Reason, earlier]
  • Chris Christie use of monitorships in white-collar prosecutions draws renewed scrutiny [New Republic, earlier]
  • In which I am included in a list with George Will and Heather Mac Donald, all very flattering etc. etc. [Charles C. W. Cooke, NRO]
  • D.C.: disbarred lawyer sat for years as workers comp judge [Washington City Paper]
  • “German home-school family won’t be deported” although Supreme Court declines to hear asylum appeal [AP; discussion in comments earlier]

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I was a guest Friday on Fox Business Network’s The Willis Report, with guest host Dennis Kneale, to discuss two antitrust cases in the news: Apple’s vigorous efforts to fight back against a monitor appointed as part of its e-books antitrust case [Roger Parloff/Fortune, Alison Frankel/Reuters], and the FTC’s enforcement action against music teachers for anti-competitive practices. You can watch here.

I’ll save the (highly significant) Apple-vs.-monitor case for another post. The Federal Trade Commission’s enforcement action against music teachers, skillfully told by Kim Strassel in the WSJ, demonstrates what officialdom is willing to do with the legal sledgehammer that it claims to need to take on giant corporations like Apple: it uses that weaponry against the mild-mannered piano teacher next door and her little trade association. In a sane world, when the association said its hortatory statement had never been enforced and it would delete it from now on, the FTC’s enforcers would declare victory and move on to some more important case. That they did not do so here speaks volumes about the zeal, careerism and lack of proportion that add up to runaway government. More: George Leef, Forbes.

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My new Cato post tells how on-site feds increasingly direct big business decisions.

P.S. Related thoughts on deferred prosecution agreements from Brandon Garrett and David Zaring at NYT “DealBook.”

When local governments lack a properly compliant attitude:

The federal monitor overseeing Westchester’s much-debated court settlement with the U.S. Department of Housing and Urban Development over affordable housing asked County Executive Rob Astorino on Wednesday to remove a news release from the county’s website, saying it contains falsehoods….

[Manhattan-based attorney James] Johnson cast doubt on whether Astorino can say whatever he wants about the controversial 2009 settlement.

During a conference call with journalists shortly before Astorino’s news conference, Johnson said the settlement calls for the county to educate the public about the benefits of integration. Astorino, on the contrary, has been antagonistic toward much of the agreement, Johnson said.

Johnson says Astorino wrongly suggests that HUD is pressing for construction of more than the 750 units of “affordable” housing specified in the settlement; Astorino responds that HUD officials keep citing a study under which a much larger number of units would be required to bring the towns into compliance. Westchester voters elected Astorino in part because of his criticism of the much-disliked deal. [Newsday, paywall; earlier here, here, here, etc.]