Securities News: J.P. Morgan Face Restrictions on Raising Clients Funds In the Wake of Improper Product Disclosures to Investments, Intel Sued Over Improperly Investing 401K Funds, and Citigroup, Bank of America, Other Big Banks Get New Bailout Rules

SEC Seeks to Limit JP Morgan’s Ability to Raise Client Money
An Over $200K settlement between J.P. Morgan Chase & Co. (JPM) and regulators has stalled because of efforts by federal regulators to limit the firm’s ability to raise money for clients. The move is an attempt to place a wider variety of consequences on financial firms accused of breaking regulations.

J.P. Morgan had settled allegations accusing it of failing to make proper disclosures when marketing its investment products to clients over the products offered by competitors. Now, the SEC wants the firm to say yes to limits on its ability to sell bonds or stocks through private placements for several years. Such a restriction could hamper its private bank’s efforts to raise funds for hedge funds and other clients through a key channel or sell bonds or stocks privately to rich investors and other sophisticated investors.

While banks are allowed to conduct private placement offerings, firms that violate the rules that these securities are under will lose privilege unless they are given a waiver.

Lawsuit Accuses Intel of Investing 401K Monies Improperly
An ex-Intel Corp. employee is suing company officials for breach of fiduciary duty. According to Christopher M. Sulyma, the company invested defined 401K participants’ retirement funds in high risk, costly private equity funds and hedge funds.

Sulyma, who is vested in Intel’s 401(K) plan and profit-sharing plan, claims that 401K and profit-sharing participants may have lost hundreds of millions of dollars in the private equity investments and hedge funds. He said these allocation choices strayed from the established asset allocation models set up by plan fiduciaries and investment professionals.

Court documents claim that starting in 2011, the investment committee made significant changes to Intel’s target-date portfolio’s asset allocation model by making it so that the model went from being about $50M invested in hedge funds to about $680M. From
2009 to 2014 how much the diversified fund was invested in hedge funds went from $583M to $1.665B and in private equity from $83M to $810M.

The complaint contends that participants were not adequately notified of the fees, risks, and expenses involved with private equity funds and hedge funds.

Fed Reserve Board Proposes New Bailout Rules Impacting Bank of America, JPMorgan Chase, Goldman Sachs, and Other Big Bank

The Federal Reserve Board has introduced new bailout rules that would allow eight of the biggest banks in the United States to raise $120B. The money would be set aside to recapitalize the banks should they fail, so as to decrease the need for a government bailout.

The firms affected by the proposed rules are Bank of America (BAC), Wells Fargo (WFC), Morgan Stanley (MS), Bank of New York Mellon (BK), JPMorgan Chase (JPM), Citigroup (C), Goldman Sachs (GS), and State Street (SS). These banks have been identified as “global systemically important bank. The rules would lower the “systemic impact” should one of them fail.

The proposed long-term debt mandate would establish a minimum long-term debt level that could be implemented to recapitalize the banks’ key operations in the event of failure. The requirement for complementary total loss-absorbing capacities would set a new minimum level for said capacity, which could be fulfilled with long-term debt and regulatory capital debt.

SEC Takes Tougher Stance on Enforcement in J.P. Morgan Case, The Wall Street Journal, October 27, 2015

Largest U.S. banks face $120 billion shortfall under new rule, Yahoo, October 30, 2015