Levin-Coburn Report Investigates Causes of the Financial Crisis

Posted on April 19, 2011 by Michael Stocker

On April 13, after two years of investigation, Senator Carl Levin and Senator Tom Coburn, Chairman and Ranking Republican on the Senate Permanent Subcommittee on Investigations released a final report on their inquiry into the main causes of the financial crisis. The report presents new facts, findings and recommendations, with more than 700 new documents totaling over 5,800 pages.

The report focuses on the ways that financial firms deliberately took advantage of their clients and investors, on deeply flawed credit ratings, and on federal regulators who apparently cast a blind eye on these unsafe and unsound practices.

The report expands on evidence collected at four Subcommittee hearings in April 2010, examining four aspects of the crisis through a series of detailed case studies: 1) high-risk mortgage lending, using the case of Washington Mutual Bank; 2) regulatory inaction, focusing on the Office of Thrift Supervision’s failed oversight of Washington Mutual; 3) inflated credit ratings, examining the actions of Moody’s and Standard & Poor’s; and 4) the role played by investment banks, principally Goldman Sachs.

The report offers 19 recommendations, including a call for strong implementation of the new restrictions on proprietary trading and conflict of interest. The report also urges, in addition to the reform effected by the Dodd-Frank Act, that the SEC to use its regulatory authority to rank credit ratings agencies according to the accuracy of their ratings.

Contributed by Yoko Goto

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Taking Charge of Executive Compensation

Posted on April 8, 2011 by Michael Stocker

The SEC has finally issued much-anticipated proposed rules regarding executive compensation.

On March 30, 2011, the SEC unanimously proposed rules directing the national securities exchanges to adopt certain listing standards related to the compensation committee of a company’s board of directors as well as its compensation advisers pursuant to the requirements set forth in the section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The proposed rules require the exchanges to adopt listing standards that 1) require each member on a compensation committee be a member of the board of directors and be independent; and 2) provide that compensation committee has the authority to retain compensation advisers and is responsible for the appointment, compensation and work of any such adviser.

The proposed rules also require each company to disclose in its proxy material for an annual meeting of shareholders 1) whether its board’s compensation committee retained or obtained the advice of a compensation consultant, and 2) whether the work of the compensation consultant has raised any conflict of interest and, if so, the nature of the conflict and how the conflict is being addressed. 

Once an exchange’s new listing standards are in effect, a listed company will be required to meet these standards in order for its shares to continue to be traded on the exchange. Comments to the proposed amendments are due on or before April 29, 2011.

Contributed by Yoko Goto.

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