Wall Street Bond Lies Expose Culture Failure, SEC's Clayton Says
(Bloomberg) -- A top financial regulator has a warning for Wall Street after traders accused of lying about bond prices prevailed in some high-profile court battles against the government: No matter what the law says, misleading clients is never appropriate.
“The law may not prohibit all forms of lying but your culture should reject it,” Securities and Exchange Commission Chairman Jay Clayton said Monday at a New York Federal Reserve conference in New York. “If any financial institution thinks behavior of this type is acceptable or does not require prompt, clear and significant action, that financial institution has a cultural problem.”
While Clayton said he wasn’t commenting on a specific case, the SEC and Justice Department have been cracking down on deceptive practices in the notoriously opaque mortgage-bond market for years. The government suffered two major setbacks last month when on the same day a U.S. appeals court tossed out the conviction of former Jefferies Group LLC trader Jesse Litvak and a federal jury acquitted ex-Cantor Fitzgerald LP trader David Demos of five counts of securities fraud.
Litvak was accused of lying to customers about what he paid for bonds to persuade his clients to pay more for the securities than what they were worth. His lawyers said his negotiation tactics weren’t deception, but rather akin to strategies “heard at a local used car dealer.”
Despite the court defeats, the SEC continues to pursue investigations. The agency announced last week that Bank of America Corp.’s Merrill Lynch unit had agreed to pay $15.7 million to settle allegations it failed to properly supervise traders who persuaded clients to overpay for mortgage bonds. The firm didn’t admit or deny the SEC’s claims.
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