They’re saying that anybody that sell mortgage back securities, many of you have extensive experience with MBS securities, they have to retain 5% of the credit risk, they don’t say how long. I would have liked for them to have identified how long they would have to retain that because I’ve been talking with someone who originates and device these things and say, “Yeah, we will retain them but we’ll sell them out the next day.” So I would like to see that quantifies a little bit better. There is going to enhanced documentation for the underlying assets. I don’t know what enhanced means when you have somebody structure products and have 500 different types of securities. I don’t know how you have enhanced documentation but I would like to see what that means.
Now, the Municipal Bond Advisers are going to fall under the SEC. In the past, they have been under the Municipal Rule Making Board, MSRB, so now it’s going to fall under the SEC.
Safety nets and Advocacy, Mortgage Relief, as I mentioned earlier, there was some direct financial aspect to Dodd-Frank for mortgage relief. A billion dollars going to state and municipalities, a lot of money to help avoid foreclosures. A billion dollars in mortgage relief for the unemployed. Then a HUD legal assistance program to help homeowners facing foreclosure. Again these are elements that are not often discussed related to Dodd-Frank. I think Dodd-Frank has been painted as a Wall Street reform but there is some significant consumer protection measures embedded in this as well.
Here are some of the things that I talked about earlier. Oil, gas, mineral fees paid to foreign persons or partners. It is basically targeting abroad. State departments are going to be involved in developing policy so there is no link between conflict minerals in areas where there is armed conflict. We want to make sure that funds are going through the International Monetary Fund, are going to the right places and are limited to countries that have sustainability and not where the debt exceeds the Gross National Product of the country.
This is the kind of thing that has been talked about more than any other aspect of Dodd-Frank. I think it is like the bounty hunter of this legislation, so let’s take a look at what it means. The program is under the direction of the SEC. There was a whistleblower aspect of Sarbanes-Oxley, but now it has expanded. It is now under the direction of the SEC. It encourages people to report securities violation. If there is more than a $1 million that is recovered, rewards are up to 30% of the recovered funds. It must be material, actionable, it must be of substance when it is reported and not just an “I heard at a cocktail party this or that” and here is the most important thing to many of you on this call, is any whistleblower must be represented by an attorney. I can see some issues related to that. There aren’t a lot of attorneys who want finance and commit to long term battle against the large corporations. So I think it is a mixed blessing. I think it recognizes the importance of whistleblower, but also in identifying that they must be represented by outside counsel is going to potentially post a burden for both the whistleblower and any legal counsel that they may choose.
What’s in it for me? Here’s the accompanying slide to slide #9 when I broke it down, I think there is some obvious employment investigative career opportunities.
– Flat out, this is creating a new, larger, broadly based bureaucracy that is going to need to be staffed both internally and with consultants.
– Experts are going to come under increased scrutiny to the point that they will have to be experts that will have liability.
– There is going to be system needs, both software and internal compliance systems.
– It is going to have to designed, monitored and then the legal representation for the whistleblowers.
I think those four bullet points are very important to think about, in terms of your own practice or your own business. Here’s I think, as we end up or getting close to the end of the presentation, here is a sort of counterpoint.
The point is Dodd-Frank enables the critics to say that it must mandate and not just enable. It underscores policy behavior. Other folks would say that it underscores weakness. It is pointing to new staffing but largely to existing staffing with tired and ineffective habits. It identifies many independent advocates but how independent will they actually be. Major shift of tone, the supporters will say but tweaks are really not a major shift in tone.
The Dodd-Frank Wall Street Reform & Consumer Protection Act: The Impact on Regulatory Mandates & Securities Litigation Pt. 9 is by TASA, consumer protection expert witness specialists for the legal community.