The SEC Shows Its Fangs Or, Alternatively, Cuomo Makes a Hard Run for Bigger and Better
Either the SEC is really trying to show its teeth or Andrew Cuomo is gunning for, uh, a way better gig than AG of NY.
Prosecutors are conducting a broad criminal investigation of six major Wall Street banks, including JPMorgan Chase & Co and Citigroup Inc, to determine if they misled investors, a person familiar with the matter said on Thursday.
The others are Deutsche Bank AG, UBS AG, Morgan Stanley and Goldman Sachs Group Inc, the source said.
The investigation, being conducted with the Securities and Exchange Commission, comes as Wall Street and major banks around the world are attracting scrutiny from regulators who are looking at transactions that occurred in the run-up to the subprime mortgage meltdown and financial crisis.
The source said the investigation includes mortgage-bond deals, that it is in an early stage, and that it might not necessarily lead to criminal charges against all of the firms. The person spoke anonymously because the probe is ongoing.
Felix Salmon calls it theater - which we are more than used to from the SEC, as well as the AG of NY - and I have to agree with him:
The theater of all this, then, is what really matters. The banks in question are going to be on the back foot; I’d advise them simply to say that they’re cooperating fully etc, etc and leave it at that. At least unless and until some substantive accusations start emanating from Cuomo’s office. But as Cuomo’s predecessor Eliot Spitzer knows, the attorney general of New York has a lot of power when it comes to bullying banks, and right now the harder Cuomo bullies the banks, the more popular he’ll be. The bankers, in turn, have little choice but to take their lumps and remind themselves how much money they’re making while doing so.
WSJ called it the SEC casting a wider net but it appears to be more of a show than an actual specific nip at any firm for any specific misdeed:
To win a criminal case, they would have to prove beyond a reasonable doubt that a firm or its employees intentionally misled investors. It's possible the probe could end with no charges being brought against any of the firms. It is unclear whether any individuals are of particular interest to the authorities.
As in: watch us make vague accusations and conduct closed-door meetings with executives to make it clear who is in control. A little hand-shaking, some settlements, a cross my heart hope to die promise from the bankers not to engage in any of that naughty behavior and boom, we're done here.
Cuomo gets his high up political position (whatever it is that he wants), the SEC looks like it has regulatory teeth and the bankers go back to doing whatever it was they were doing before we got all up in their ass.