Monday, July 14, 2008

White Collar and Securities - SEC and Fed Reach Memorandum of Understanding to Share Information

In an attempt to confront regulatory gaps the Securities and Exchange Commission and the Federal Reserve have reached a memorandum of understanding to allow the staffs of the two agencies to share information.

The Fed has regulatory responsibilities for banks, bank holding companies, financial holding companies and their subsidiaries, and foreign banks. The SEC regulates securities companies, broker dealers, clearing houses, transfer agents, and some investment advisers and investment companies. When the regulatory framework was initially established, the Glass Steagall Act separated investment and commercial banking. The intent of the separation was to limit speculation, which had exacerbated the stock market collapse of 1929. In 1999 Congress repealed the Glass Steagall Act with the Gramm Leach-Bliley Act. This allowed commercial banks to once again enter the securities area. Many commentators believe that this entry of the commercial banks has helped to create the current subprime meltdown.

The memorandum of understanding is an attempt by the Federal Reserve and the SEC to navigate the current financial terrain and address any gaps in the regulatory system. Whether the memorandum succeeds in providing a complete regulatory safety net remains to be seen. Ultimately, Congress may be forced to reform the nation's financial regulatory system.

It is particularly important for attorneys representing persons and/or entities under investigation or inquiry by either the SEC or the Fed understand that any negotiations will very likely be multiparty on the government's side. Additionally, defense counsel must always bear in mind the possibility of Department of Justice involvement.

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