More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
Concluding a two-year bipartisan investigation, Sen. Carl Levin, D-Mich., and Sen. Tom Coburn, R-Okla., released a 635-page final report on Thursday detailing what it called key causes of the recent financial crisis. According to Levin, “The report catalogs conflicts of interest, heedless risk-taking and failures of federal oversight that helped push the country into the deepest recession since the Great Depression.”
“High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets,” Levin said in a statement. “Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them.”
When announcing the release of the report, Levin also specifically criticized Goldman Sachs for its role in selling mortgage-backed securities while at the same time taking short positions in their own portfolio.
"In my judgment, Goldman clearly misled their clients and they misled the Congress," Levin. “They gained at the expense of their clients, and they used abusive practices to do it," he said.
In a statement, Goldman denied wrongdoing.
The Levin-Coburn report expands on evidence gathered at four Subcommittee hearings in April 2010, examining four aspects of the crisis through case studies that include:
- High-risk mortgage lending, using the case of Washington Mutual Bank, a $300 billion thrift that became the largest bank failure in U.S. history;
- Regulatory inaction, focusing on the Office of Thrift Supervision’s failed oversight of Washington Mutual;
- Inflated credit ratings that misled investors, examining the actions of the nation’s two largest credit rating agencies, Moody’s and Standard & Poor’s; and
- The role played by investment banks, focusing primarily on Goldman Sachs, creating and selling structured finance products that foisted billions of dollars of losses on investors, while the bank itself profited from betting against the mortgage market.
The report then details 19 recommendations to address the conflicts of interest. The recommendations advocate for the implementation of the new restrictions on proprietary trading and conflicts of interest and action by the SEC to rank credit rating agencies according to the accuracy of their ratings. Other recommendations seek to advance low risk mortgages, greater transparency in the marketplace, and more protective capital, liquidity, and loss reserves.