Bank of America Corp (BAC): Could the SEC Actually Get Some Teeth?

Page 1 of 2

The Securities & Exchange Commission has some awesome attributes. However, in some areas it has utterly failed us. Hopefully that’s about to change, though.

Let’s start with the awesome part: The SEC is a priceless repository of key information for investors. I worked at a subcontractor for the SEC in the early ’90s. I remember when SEC documents were distributed in paper form. I know from experience that a physical Form S-4 merger document can make quite a doorstop. I also remember the then-revolutionary EDGAR database in its infancy — an amazing improvement in individual investors’ access to company information.

In other words, today’s individual investors have an amazing depth of information about potential investments.

Bank of America Corp (NYSE:BAC)

However, the SEC falls short in other functions, one of which is extremely significant. After the Depression, the SEC formed to protect investors. When it comes to truly keeping companies’ proverbial feet to the fire, it simply hasn’t done it lately. The entity has often let companies off scot-free. Even when companies have hit the SEC radar, they’ve been allowed to settle without admitting wrongdoing.

Recently elected SEC Chair Mary Jo White has made an interesting step in a different direction. In some of its enforcement cases, the agency will now pressure selected companies to admit to wrongdoing. That’s far different, and much more impressive, than the old way: letting companies pay up and settle, and never making them admit to or deny having done anything wrong at all.

Don’t expect an impressive fireworks display yet
Granted, while the SEC might get some teeth, it’s not exactly a full set. In most cases, status quo will still apply. It’s a step in the right direction, though, and it may pressure other agencies like the FDIC and the Department of Justice to step up their own practices.

White’s move highlights an important, haunting question: Why weren’t banks’ top managements held more accountable for the financial crisis through real ramifications? In 2009, Tom Gardner, co-founder here at the Fool, had some serious words about the concept of actual jail time for some wrongdoers. The big banks’ reckless, risky behavior affected every American one way or another.

These days, the term “too big to fail” has morphed into “too big to jail.” Consumer advocates like Massachusetts Senator Elizabeth Warren have been fighting this mind-set among regulators for years.

My Foolish colleague Matt Koppenheffer recently pointed out that some bankers have recently been punished by the SEC for fraud, but they’re just community bankers. He went on to explore the facets of why the big ones, the ones we all feel are most culpable for the most damage, have remained unscathed.

The SEC’s change will apply to the worst cases, where there’s intentional misconduct, harm to many investors, and obstruction of investigations. We know the downsides of this; for example, it’s hard to prove intent. “I didn’t know” proved to be a major, albeit lame, excuse when the financial crisis put the spotlight on Wall Street’s top brass.

Penny-ante penalties
There are many reasons that financial settlements with no admission of wrongdoing are annoying, even beyond the fact that nobody goes to jail or otherwise pays for poor behavior or leadership. These financial hits are usually minute in the grand scheme of big companies’ businesses, and that’s no disincentive. In other words, such actions not only lack teeth, they hardly even qualify as a slap on the wrist.

Unethical or even criminal behavior can be more profitable than taking the moral high ground, particularly since the financial ramifications tend to be weak at best.

In one example, Wal-Mart Stores, Inc. (NYSE:WMT) has been dealing with regulatory investigations into allegations of international bribery. At this juncture, the giant has disclosed in its regulatory filings that it does not believe that the costs associated with that ongoing situation will be material to its business. Somehow, that’s not surprising.

Bank of America Corp (NYSE:BAC) has been landing in heaps of trouble lately, bringing back memories of the worst things about the financial crisis and housing crash. The most recent outrage has been allegations that it paid bonuses and even gift cards to employees who foreclosed on homeowners, lying to borrowers and its government rescuer. Meanwhile, New York has also sued HSBC for ignoring state law requiring that banks give homeowners opportunities to modify their loans and avoid losing their homes.

New York’s attorney general could also file lawsuits against other banks, including Bank of America Corp (NYSE:BAC), for violating the terms of a settlement related to handling home loans.

Strengthening pressure from every side could help avoid crises and unethical or fraudulent behavior in the first place.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!