We mentioned the JPMorgan settlement and the unusual “tax treatment” imposed on the bank in this issue. That settlement illustrated the need for more information to the public on settlements involving the federal government. Two U.S. Senators have introduced a new bill that would force enforcement agencies to provide more details about settlements to resolve corporate misconduct by U.S. companies. Senators Elizabeth Warren, a Democrat, who is a fierce consumer advocate, and Tom Coburn, a Republican, introduced legislation to force regulators to better explain the true value of legal settlements like that reached with JPMorgan. Each of the Senators is a member of the Senate Banking Committee. Sen. Coburn also serves as ranking member of the Homeland Security and Governmental Affairs Committee.
Quite often public officials tout huge dollar figures when they settle accusations of wrongdoing by financial firms and other companies. But, as we have learned, many times the officials don’t provide key details of the actual charges involved in the case and occasionally inflate the real monetary value of the settlement. Settlements allow the companies to avoid trials, which allows the companies to avoid telling what the wrongdoing consisted of. A full airing of the facts during a trial is needed so that the public can be better protected in the future. For example, when the Justice Department announced the $13 billion settlement with JPMorgan Chase & Co. in November that included a $2 billion penalty to resolve a civil fraud investigation into flawed mortgage bonds, very little critical information was disclosed. In that instance, the Department of Justice failed to spell out the specific charges. Nor did they explain how the penalty was calculated. The development did release a “statement of facts” that described some of the bank’s harmful conduct. Sen. Warren had this to say:
When government agencies reach settlements with companies that break the law, they should disclose the terms of those deals to the public. Increased transparency will shut down backroom deal-making and ensure that Congress, citizens and watchdog groups can hold regulatory agencies accountable.
The Warren-Coburn bill would require federal agencies to explain whether any portion of a settlement is tax deductible and to publish other details of the agreements, including the claims settled and how payments were classified. The bill applies to any settlements larger than $1 million. Various enforcement agencies, including the U.S. Securities and Exchange Commission and the Federal Reserve, have different rules for what details of deals they release and what that keep confidential. The bill directs agencies with more stringent disclosure standards to explain why they must keep a settlement secret.
The legislation also asks the Government Accountability Office to examine how agencies determine that settlements should be confidential and to provide ways to make the process more transparent. Sen. Warren, the architect of the new U.S. consumer watchdog agency, has been critical of regulatory settlement practices and has urged enforcers to take more cases to trial. I agree with her assessment of the situation. All too often, settlements by the federal government with corporate wrongdoers are much more favorable to the wrongdoers than can be justified. Many don’t fully compensate either the government or the individuals who are harmed by the wrongful conduct. Hopefully, this legislation will pass both houses and be signed into law.
Source: Insurance Journal
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