The Securities and Exchange Commission (SEC) is responsible for making sure that prospective investors have the necessary information to make investment decisions. SEC’s goal is to ensure that when stocks and bonds are traded all investors, whether they are individuals, small business or enormous corporations, have the same information on which to trade. This is a very important role considering the vast amount of financial securities this involves. Therefore, it is important to implement laws to protect transactions which can unfairly tip the earnings in an investor’s favor. Funds in financial institutions are backed by the federal government; however, investment transactions are not. All investments are at risk, which makes regulation even more critical. The financial health of stocks and bonds ultimately affects the financial health of the overall economy.
There are many ways investors are led to thinking that they are makings sound investments based on public information. Bank of America (BOA) was accused in 2013 by the SEC of not disclosing critical information to investors about residential mortgage-backed securities. In 2008 BOA intentionally set out to move high-risk mortgages that did not originate with BOA, or with any of their subsidiaries to unsuspecting investors. The value of the move was 855 million of B mortgages positioned sold to very conservative investors (SEC Charges Bank of America With Fraud in RMBS Offering, 2013). BOA was aware that the loans were secured with unscrupulous appraisal methods, fraudulent income statements and other undocumented information. However, it did not prevent BOA from moving forward with a public residential mortgage-backed securities offering.
However, because of a special government task force created to investigate mortgage fraud, which resulted in the financial collapse of the mortgage industry, BOA is being held accountable for financial non-disclosure. The United States Department of Justice on August 6, 2013, filed a civil lawsuit against BOA because it defrauded investors by misrepresenting the value of its mortgage portfolio (Office of Public Affairs, 2013). This action against BOA is representative of the U.S. government's commitment to hold those entities that help create the financial collapse of 2007. The details of the deceptiveness of BOA’s officials are now public information, this will encourage investors to request a more in-depth financial analysis of future financial transactions.
Most serious business transactions require a contract, especially those involving banking and financial institutions. A written formal agreement will help to make sure that all parties will keep their promise. Unfortunately, sometimes contracts are breached and require legal proceedings. For a contract to be valid it must be accepted by all parties, a solicitation must be made, an exchange of goods or services (something of value) must be offered, and there must be mutual agreement (Elements of a Contract, 2014). These fundamental elements must be present for legal proceedings to ensue. There are instances also when a third party intentionally interferes with the contractual obligations between consenting parties. When a third party interferes with a contractual obligation, this action can be taken up as a lawsuit against the third party. However, in order for a loss to be proven in a court of law, proof that a contract existed must be substantiated, proof that all parties knew about the contract, and proof that the third party purposely caused the contract to fail, and proof that the defending party was monetarily affected.
Loan and trust officers in a financial environment are often privy to personal information of clients. When this private information is used for personal gain this results in a breach of fiduciary duty (Breach of Fiduciary Duty, 2007). Therefore, mechanisms should be put in place to prevent this. Clients have a significant amount of trust in their financial institutions and banks. The institutions are responsible for ensuring the safety of information and making sure it is not used inappropriately.
In the financial environment protecting customer personal information is taken very seriously. The ability to bank anywhere is a convenience to be enjoyed by anyone with a smartphone or a computer. The days of going into a bank to make a deposit, check a balance, or cash a check have long disappeared. Not only are checking accounts opened online but so are other financial products. Billions of customer’s data travels through cyberspace on a global basis twenty-four hours a day. Savvy customers have considered some of the dangers of cyber hacking and are using credit monitoring services and anti-virus software on their personal computers.
Banks are also making it difficult for would-be hackers by constantly monitoring its security measures and updating them when needed. While security breaches are rare at financial institutions, third-party vendors are not as well protected. Douglas (2012) wrote about a third-party breach involving Capital One and their vendor Epsilon Data Management. This marketing company’s data was breached, and access was gained to e-mail addresses of Capital One customers. Thankfully, Epsilon did not have any financial data. However, Capital One did alert their customers of the breach. Epsilon is now upgrading its security system (Douglas, 2012). Many banks have fraud prevention departments and monitor abnormal activity on their consumers debit and credit accounts. Phone calls made by either automated attendants or personal representatives are made to confirm unusual transactions. Personal identification numbers (PIN) are a common way to protect information. Many times, these numbers are required before any information will be provided. Securing information may start with financial institutions, but consumers also share in the responsibility. Although smartphones are a great tool, careful consideration should be taken when saving log-on information for checking, savings, and other accounts on these devices. The same can be said of any electronic device.
Thankfully there are laws and regulations that govern both financial institutions and investments. The major banks and investors do have leverage over smaller institutions when it comes to being officially charged with financial improprieties by the SEC. However, the overall objectives of the SEC remain intact. The SEC is a viable government service to the investment global community and takes seriously its mission to make sure there is equality and fairness while promoting the growth of the financial economy.
Office of Public Affairs. (2013, August 6). Retrieved from United States Department of Justice: http://www.justice.gov/opa/pr/2013/August/13-ag-886.html
Breach of Fiduciary Duty. (2007). Retrieved from The Legal Practitioner: http://legal.practitioner.com/regulation/standards_9_3_6.htm
Douglas, D. (2012, June 17). Banks layer up on security to protect customers. Washington Post. Retrieved from http://www.washingtonpost.com/business/capitalbusiness/banks-layer-up-on-security-to-protect-mobile-and-online-banking-customers/2012/06/15/gJQAxBcqjV_story.html
Elements of a Contract. (2014). University of New Mexico, Judicial Education Center. Retrieved from http://jec.unm.edu/education/online-training/contract-law-tutorial/contract-fundamentals-part-2
SEC Charges Bank of America With Fraud in RMBS Offering. (2013, August 06). U.S. Securities and Exchange Commission. Retrieved fromhttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539751924