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How the Megabanks Just Played the SEC and Shut Out Their

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Shareholders of the global megabanks JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley have just been silenced.

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JL A (282)
Saturday March 16, 2013, 7:33 pm

Micah Hauptman

How the Megabanks Just Played the SEC and Shut Out Their Shareholders
Posted: 03/14/2013 1:30 pm

Shareholders of the global megabanks JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley have just been silenced. Previously, the shareholders attempted to exert their longstanding ability to present proposals to be voted on at the banks' annual shareholder meetings, in accordance with Section 14(a) of the Securities Exchange Act of 1934. But late last night, the Securities and Exchange Commission (SEC) updated its website, revealing that the agency had capitulated to those four megabanks' demands to block the shareholders' proposals from being voted on.

The shareholder proposals, submitted in late 2012 by the AFL-CIO Reserve Fund, AFSCME Employee Pension Plan, Trillium Asset Management and the Change to Win Investment Group, asked each bank's board of directors to appoint an independent committee to explore extraordinary transactions that could enhance stockholder value. One potential transaction that each of the shareholder proposals asked the banks to consider was separating the banks' businesses -- in other words, breaking up the banks.

Several commentators, including former FDIC Chair Sheila Bair and banking analyst Mike Mayo, have suggested that our nation's largest banks do not deliver the kind of value for their shareholders that they would if they were converted into multiple smaller institutions. As Mayo wrote earlier this year, "The largest banks have underperformed not only on returns but also on efficiency, revenue, risk, transparency, reputation and stock price ... When we ask, a large majority of investors indicate that breakups -- divestitures, downsizings and de-mergers -- would be good for stock prices."

But the banks made a concerted effort to prevent their shareholders from having a spirited debate on the merits of that exact issue. The banks' "no-action requests" sought assurances from the SEC that it would not recommend enforcement actions against them if they excluded the proposals from their proxy materials. The banks' requests plainly show that they were willing to make every conceivable argument -- and some inconceivable ones -- as to why the proposals should not be given up or down votes.

For example, the megabanks argued that the proposals should be excluded because they deal with matters related to each company's ordinary business operations. That's right, the banks argued that matters concerning the radical restructuring of their operations would be an "ordinary business decision" and therefore outside shareholders' purview. JP Morgan Chase made that argument despite the fact that such a restructuring plan would be clearly subject to shareholder approval under the controlling law in Delaware.

The megabanks also argued that the proposals were "so vague and indefinite that shareholders in voting on it would not be able to determine with any reasonable certainty what actions are required." Perhaps the banks presume their shareholders are fools and won't understand what the proposals seek to do. More likely, the banks fear that their shareholders would fully understand what the proposals seek to do -- and support their passage.

It is alarming that, despite the banks' imaginative but flimsy arguments, the SEC, without much explanation, sided with the banks, advising each institution in identical language that, "There appears to be some basis for your view that [insert megabank here] may exclude the proposal ... as vague and indefinite." The agency then punted on all of the other arguments that the banks offered, finding it unnecessary to address alternative bases for excluding the proposals from their proxy materials.

Shareholders' role in reforming corporations -- especially megabanks -- has garnered increased attention recently. For example, Bair offered this little bit of advice to shareholders last year: "So, shareholders, get ye to the boards that represent you and ask them loudly about whether your company would be worth more in easier-to-understand pieces. The public-policy benefits of smaller, simpler banks are clear. It may be in the enlightened self-interest of shareholders as well."

The megabanks should welcome the opportunity to explain to their investors why they benefit from their megabank size and structure. And the SEC should permit investors an opportunity to let their voices be heard.

Angelika R (143)
Saturday March 16, 2013, 8:31 pm
See how you're getting screwed?! - If their voices are silenced like this they should get rid of the stocks.

"Shareholders' role in reforming corporations -- especially megabanks -- has garnered increased attention recently." -That's right, especially when you look overseas, direction Switzerland ! (for those who missed the news or my post recently, it's the shareholders who define the Bank CEO's paid and bonusses !)

JL A (282)
Saturday March 16, 2013, 8:35 pm
I wonder if any of the things not getting voted on came from pension fund shareholders...
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John B (185)
Saturday March 16, 2013, 9:03 pm
Thanks J.L. for the informative post. I have no dealings with JPMorgan Chase, Bank of America, Citigroup or Morgan Stanley. If I were a shareholder with any of these institutions I'd be dumping my shares and moving on. Read and noted.

JL A (282)
Saturday March 16, 2013, 9:07 pm
You are welcome John. You cannot currently send a star to John because you have done so within the last day.

Dorothy N (63)
Saturday March 16, 2013, 11:15 pm
Isn't the excuse for corporate destruction of human and environmental health and life always that their duty to their shareholders is their only responsibility?

They've just blown that one out of the water, not that that actually entitles them to harm others in the pursuit of increased shareholder dividends, share prices or whatever.

And here, in the following, the excuse is that it might hurt the economy if large institutions are held to account for illegal acts.

Well, doesn't all of this corporate fraud hurt the economy?

Thu Mar 07, 2013 at 06:35 AM PST
Holder Confesses

by Michael Lux

Thank you, Attorney General Holder, for finally being so blunt and definitive about DOJ’s unwillingness to prosecute the biggest banks:

But I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy. I think that is a function of the fact that some of these institutions have become too large.
Again, I'm not talking about HSBC, this is more of a general comment. I think it has an inhibiting influence, impact on our ability to bring resolutions that I think would be more appropriate.

I rarely agree with Chuck Grassley, but when he calls this “stunning”, he couldn’t be more right. This is the ultimate Big F’ing Deal: the nation’s top prosecutor openly admitting that some people and institutions are so big, wealthy, and powerful that it is the policy of the United States to hesitate to prosecute them no matter how terrible their crime. And it isn’t just American banks, either: HSBC, while operating here, is a foreign based bank.

Look, that this is the policy of the US Justice Department has been pretty obvious for quite a while. The unwillingness to prosecute the big banks in spite of some of the most egregious and obvious financial fraud in American history in the run-up to 2008’s financial collapse has become legendary. But the HSBC case, where thousands of emails over many years along with a great deal of other evidence proved beyond a shadow of a doubt that the bank was laundering money for some of the most murderous and evil drug cartels and terrorists on the face of earth, made it crystal clear that once your bank becomes a certain size, the DOJ considers you beyond prosecution. For anything. Too Big To Jail, to the hundredth power. And the penalty they did get? A fine worth approximately 5 weeks worth of profits- after raking in massive profit from these drug cartels and terrorist-linked groups for many years.

So, yes, it has been obvious that this is the unspoken policy of the DOJ. Now, in front of a Senate committee, fully on the record, it is the official stated policy of the American government that if your bank is big enough, and the judgment is that prosecuting you will have a negative impact on the economy, DOJ will be “inhibited” in, and will find it “difficult”, to prosecute you.

We have truly crossed the Rubicon here. This is a tragic moment in the history of our nation, that we are willing to say on the record to some of our richest and powerful people and institutions that no matter what you do, you will not be prosecuted. What kind of society have we become? How corrupt are we as a nation?

There are a couple of ironies worth noting here. The first is that not prosecuting bankers for fraud and corruption actually hurts the economy far, far more than whatever short term hit you might get from hurting a bank’s stock price, or forcing it into reorganization, because when bankers have no incentive not to commit fraud, that puts the economy on far more shaky ground than a short term hit on a single bank would do, and it drains money out of productive investment in the mainstreet economy.
The second irony is that Eric Holder runs something called the Anti-Trust division of the DOJ. If these banks are this big and this dangerous to our core economy, why doesn’t Anti-Trust come into play here? The whole idea of the Anti-Trust laws is to stop market manipulation and anti-competitive predatory business practices. That sure sounds like the Too Big To Fail (and Too Big To Jail) banks to me.

Thank goodness some politicians are standing up on this issue, in both parties. Grassley asked the right question at the committee hearing yesterday. Elizabeth Warren is on it. Sherrod Brown and David Vitter are making a major legislative to break up these Too Big To Fail and Jail banks. And a movement is building on the outside to take on the big banks, you can join it by signing this petition now.

This is a monumentally important issue. If a nation’s official policy is that it will not (or, as Holder confessed, it will “hesitate” to) prosecute certain institutions and people because they are too wealthy and powerful, we are lost.

Giana Peranio-paz (398)
Sunday March 17, 2013, 1:22 am
Shareholders must have a say in the activities of the companies they are shareholders in. Banks have way to much power and do as they please at our expense. This is a worldwide capitalistic problem, not only in the uS.

Sherri G (128)
Sunday March 17, 2013, 2:38 am
SEC whose side are you on? Is every government agency bought and paid for by the GOP rich? The mega rich elite of France thought they could do anything they wanted too. Look what happened to them when the people said that's enough.

Sherri G (128)
Sunday March 17, 2013, 2:48 am
SEC whose side are you on? What a betrayal!!!!!!! Is every government agency bought and paid for by the 1% billionaires? The mega rich elite of France thought they could do anything they wanted too. Look what happened to them when the people said that's enough. Twittered this article to the President.

Ro H (0)
Sunday March 17, 2013, 8:43 am

. (0)
Sunday March 17, 2013, 9:13 am
Did you notice which state has the controlling law? It's Delaware! Yes Delaware, where all the hedge fund managers and multinational corporations and politicians through their straw man funds launder their money and pay little or not tax whatsoever on their huge incomes. Restructuring the Delaware tax system and re-instituting Glass-Steagall would definitely by painful for these large investment banks. Good for the little people like us but bad for the Elites.

g d c (0)
Sunday March 17, 2013, 10:29 am

Joanne Dixon (38)
Sunday March 17, 2013, 12:25 pm
Yes, if shareholders would start dumping their stock, and I mean dumping ever heard of penny stocks?), it might get the banks' attention. It is, however, quite a sacrifice to ask for from the shareholders. Gee, I wonder why I am discouraged.

JL A (282)
Sunday March 17, 2013, 12:40 pm
You are welcome Ro and G D.
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Theodore Shayne (56)
Sunday March 17, 2013, 2:03 pm
Bring back Glass-Steagall quick.

Angelika R (143)
Sunday March 17, 2013, 2:26 pm
Joanne -don't you think it's just as much-if not a bigger-sacrifice to get f%&/ like that? I call that masochism! (or insanity)

Lois Jordan (63)
Sunday March 17, 2013, 2:30 pm
While members of Congress are making major legislative efforts to break up these banks, I'm just wondering how much support they'll get from other "bought-and-paid-for" members who will continue to protect these greedy, lowlife banksters. I'll be contacting my Congress critters to support this legislation. When shareholders have no say, the smart ones will cash in and leave.

Past Member (0)
Sunday March 17, 2013, 2:35 pm
More proof banks are above the law! But they are even more than that, they dictate the laws!

JL A (282)
Sunday March 17, 2013, 2:40 pm
A lot of good comments and ways to respond--thanks everyone!
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Debra Van Way (12)
Sunday March 17, 2013, 2:58 pm
I am still scratching my head wondering why any one would even want to have any kind of account much less own stock with these banks considering they are the ones that wrecked the entire country, got bailed out and never have to pay any of the money back.

Birgit W (160)
Sunday March 17, 2013, 4:43 pm

Robert K (31)
Sunday March 17, 2013, 7:39 pm
Every bank with over 5 billion in holdings needs the corporate death penalty.

Aurea Aurea Walker (226)
Sunday March 17, 2013, 10:10 pm
I know I am going to sound repetitive but here goes - we the good ole USA is no longer a country, it is a business governed by the fucorporations! Holder is held and beholdend by them! The GANGTSA/BANKTURDS own us. If shareholders cannot ask for transparency from the BANKTURDS what hope do we have? Time to go back to small banks, credit unions etc.... It can be a "wonderful life" if WE UNITE.

Alan Lambert (91)
Tuesday March 19, 2013, 11:46 am
Too big to fail/too big to jail is too big to exist. Break them up and FORCE them to compete with each other.

S M (0)
Saturday March 23, 2013, 11:03 am
Yes, so proving that when UK politicians say it is up to shareholders to hold the banks to account not Westminster/politicians they say it with tongue in cheek to put us (general public) off their friends ... and it patronising to keep repeating it.
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