According to a recent Bloomberg National Poll, more than 50% of Americans despise Wall Street and favor punishment of the bankers who caused the worst financial crisis since the Great Depression. The majority of poll participants -- 56 percent -- say big financial companies are more interested in enriching themselves at the expense of ordinary people.
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The Securities Industry and Financial Markets Association, an important Wall Street lobbying group, has decided to support the Obama administration’s proposal to hold brokers to the same standard as a fiduciary when they provide investment advice, according to a recent report in The Wall Street Journal. While investors who sue their brokers have long argued, with considerable success, that a fiduciary duty arises whenever there is a relationship of trust and confidence between broker and investor, that determination is presently made on a case by case basis under laws that vary from state to state. A federal standard, which is more likely to pass now that it has been endorsed by the industry, would make it easier for investors to prevail in claims against brokers.
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On May 13, 2009, the U.S. Securities and Exchange Commission (“SEC”) approved a rule change that requires brokers to disclose alleged sales practice violations made by a customer against a securities broker in the body of a civil lawsuit or arbitration claim, even if that broker is not named as a defendant or respondent. The SEC received a total of 1,654 comment letters on the proposed rule change. Approximately 1,451 of the letters were “form letters” from financial advisors and insurance agents (who sell insurance products such as variable annuities) opposing the change.
After several months of silence, it is apparent that money market funds aren’t “out of the woods” yet. Some funds still have exposure to investments in structured investment vehicles (“SIVs”) or similar instruments that, in turn, invested in subprime securities. SIVs use short-term borrowing to buy higher-yielding long-term assets.
For example, Legg Mason Inc. has recently entered into a capital support agreement agreeing to provide up to $400 million to bail out an institutional money market fund from potential losses incurred on debt issued by SIVs. The move will cut Legg Mason’s profit by $316 million ($195 million net of taxes) for the quarter ending March 31.
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