More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
While some observers have suggested that Bank of America's big settlement with the federal government, BofA to Pay $16.65 Billion in Historic Mortgage Settlement, marks an end to the raft of lawsuits over the mortgage crisis which spawned the financial crisis of 2008-2009, a U.S. circuit court ruling suggests otherwise.
On August 19, the National Credit Union Administration (NCUA) scored a major victory in the 10th U.S. Circuit Court of Appeals in Denver in it its quest to recover losses from big banks that sold mortgage-backed securities to failed corporate credit unions.
The ruling, which was prompted by a directive from the U.S. Supreme Court in June, sided with the NCUA’s claim that the three-year time frame defendants have to file loss claims began when it seized three failed corporates, not when the corporates purchased the securities.
The NCUA, the federal credit union regulator, can now move forward with lawsuits filed in Kansas on behalf of U.S. Central Federal Credit Union and Western Corporate Federal Credit Union seeking damages over $1.74 billion in securities the two failed corporate credit unions purchased. The NCUA alleged in that case and in others that investment banks, including such big names as Wells Fargo (WFC) and Goldman Sachs (GS), knowingly sold securities to corporate credit unions without disclosing significant credit risk in the mortgages supporting them.
The ruling will not only carry weight with the NCUA’s suits but also lawsuits filed by other regulators seeking similar damages from investment banks over mortgage-backed securities losses.
Any additional losses the NCUA collects from the banks would offset corporate stabilization costs. The NCUA announced earlier this year it would not likely charge another corporate assessment to credit unions, as settlements with other banks, assessments and improved legacy asset performance have exceeded remaining corporate settlement expenses. However, the NCUA also downplayed the likelihood credit unions would receive a rebate in 2021, when corporate stabilization ends and the NCUA’s Guaranteed Notes mature.