On March 12, Securities and Exchange Commission (SEC) Chair Mary Jo White publicly returned fire for the first time on the charge from outsiders and two of her fellow commissioners that her agency is soft on Wall Street.
Cut through her rhetoric, however, and what she seems to be implying is: “The SEC trusts Wall Street.”
Here’s the background. The Department of Justice has fined major Wall Street firms for serious violations. The firms have settled by paying billions of shareholder funds in penalties. These infractions trigger other sanctions, including the loss of certain privileges at the SEC. But the SEC has generally waived these sanctions. Commissioners Kara Stein and Luis Aguilar have in several cases voted against these waivers, arguing, among other reasons, that waivers dilute the deterrence effect of the automatic sanctions. Stein, Aguilar and White are three of the five commissioners of the SEC.
In a speech at Georgetown University on March 12, Chair White drew a line in the sand. These sanctions should not be viewed as deterrence. She explained: “It must be emphasized, however, that it would not be an appropriate exercise of our authority to deny a waiver to further punish an entity for its misconduct or history of misconduct, or in an effort to deter it or others from possible future misconduct, by letting stand an automatic disqualification where the circumstances do not warrant it.”
White undoubtedly penned these remarks well before the eve of the speech and advantaged the prodigious talent on the SEC staff to buttress her legal case. In the written speech the assertion just quoted contains a footnote to a rule the SEC approved in July 2013. White joined her four commissioners to approve this rule. In fact, however, the SEC’s explanation of its rule contradicts her point.
It is the best of times if you’re a crook at a mega-bank. It is the worst of times if you’re in debt and dare to omit information on your bankruptcy declaration. Consider two federal cases dealing with perjury during bankruptcy.
In case one, Dallas woman Estela Martinez, 54, filed for bankruptcy but omitted her Social Security number and the previous times she’d filed for bankruptcy on the form. That’s perjury under federal law. She was arrested at her home on July 10, 2014. On July 18, 2014, she was sentenced to 366 days in prison on one count of perjury.
In case two, JPMorgan Chase admitted that it filed forms in bankruptcy court signed “under penalty of perjury” by “persons who had not reviewed the accuracy” of the forms. It did this not five times, nor 50 times, nor 500 times, but 50,000 times. Not one person at JPMorgan was sentenced to prison.
Why not? It’s not that the Department of Justice considers JPMorgan’s actions simply an accident, a foot fault as it were. “It is shocking that the conduct admitted to by Chase in this settlement, including the filing of tens of thousands of documents in court that never had been reviewed by the people who attested to their accuracy, continued as long as it did,” said Acting Associate Attorney General Stuart F. Delery. “Such unlawful and abusive banking practices can deprive American homeowners of a fair chance in the bankruptcy system, and we will not tolerate them.”
Today, President Barack Obama released the budget for what will cover his last year in office.
Even though he called for a greater emphasis on “middle-class economics” during the State of the Union address, the president’s budget does not go far enough to make sure that Wall Street and corporations pay their fair share of the cost of government. Notably missing from the budget is a strong stance on closing international tax loopholes and an important tax on stock, bond and derivative trades.
President Obama’s budget addressed the problem of international tax loopholes, but only partially. Though he proposed repatriating corporate profits stashed offshore, he should have proposed bringing these taxes back at a much higher rate. The 14 percent he proposed for immediate taxation to fund infrastructure investments is much too low, since multinational corporations have been milking a bevy of tax breaks for years. Though the president proposes taxing future overseas profits at 19 percent, and compared to the current statutory rate of 35 percent, that’s still leaving a lot on the table of the $2 trillion of profits estimated to be stashed offshore.
Granted, Obama’s 19 percent repatriation proposal is itself stronger than what U.S. Sens. Barbara Boxer (D-Calif.) and Rand Paul (R-Ky.) recently unveiled — a plan to shore up the depleted Highway Trust Fund by repatriating offshore taxes at the bargain-basement rate of only 6.5 percent. The 2015 bipartisan infrastructure reparation proposal is only slightly more than 1 percent higher than the 5.25 percent rate used in the well-documented failure of a similar experiment in 2004. Boxer and Paul’s 2015 proposal is a revenue loser, similar proposals are expected to cost in the range of $100 billion over 10 years, according to the Joint Committee on Taxation. Repatriation holidays such as these are major giveaways that will reward corporations that have for years avoided paying taxes by using accounting gimmicks to shift profits to the books of related foreign corporations.