SPECIAL LIRC EDITION
I must be doing it wrong
Sorry, but this might have to be the last free edition of these Musings. I just read an article in the Harvard Gazette[1], entitled, Lawyers reap big profits lobbying government regulators under the radar — Harvard Gazette. Apparently, I am missing out on this gravy train, and I want to hop on. Anyway, here’s what the article says about a new study published in the journal Perspectives on Politics that really blows the lid off the nationwide scandal I apparently engage in that is financial services legal work,
[The research] specifically pulls back the curtain on regulatory advocates — almost always attorneys — with clients in the U.S. finance sector. Carpenter and his co-author drew from a variety of empirical sources, including years of meeting logs kept by government administrators following passage of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. They found a regulatory advocacy market so large, and so lucrative, it eclipses the formal lobbying sector. “It’s tough to get a precise estimate on the amount of money that moves around when these meetings happen,” Carpenter said. “But even our most conservative estimates imply that it’s double or more of what’s spent in congressional lobbying.
What the heck? “It’s tough to get a precise estimate” and “conservative estimates” aside, this is not real academic research, but rather political commentary (note where it was published) designed to discourage free speech rights and trample on the role of attorneys that doesn’t deserve the oxygen I am giving it.
A Few Good Men Reference
But who else is going to call it out, You, Lieutenant Weinberg?[2] This research is flawed and clearly designed to create a picture of shadowy nefarious behavior on what is just normal and mutually beneficial communications and interactions between regulators and the companies they regulate. The research itself acknowledges it is extrapolated from “back of the envelope” calculations and uses famed New York M&A lawyer Rodgin Cohen[3] as its single example to extrapolate a vast right wing[4] conspiracy of attorneys influencing regulators in ways that are somehow terrible and, to make it worse, they make a lot of money doing that,
Practicing law does not equal lobbying
Now, I’m not a lobbyist (at least not registered), but with my “under the radar” interactions with the good folks from the CFPB and other state and federal consumer lending agencies, I guess I could be accused of lobbying[5] in any given discussion. But I also could equally be accused of practicing law with a license in those same conversations.[6] Unfortunately for me, however, while I make a decent living, I haven’t yet figured out how to “reap big profits” from my alleged lobbying.[7] Also, even with about 2,000 unpaid subscribers, this blog is still qualifies as under the radar, so if I do find a way to monetize this thing, I guess I still won’t be earning money in a respectable way in a noble profession so easily disrespected by some Liz Warren JV academic types with a political agenda.
OCC General Counsel Order
On the flip side, here’s something financial services lawyers, especially in-house counsel actually should care about[8]. In February, the OCC reported on a Personal Cease and Desist Order with a bank’s General Counsel[9]. The problem there is that the OCC’s Order and the expectations for behavior of bank general counsel it reveals interfere with the attorney client relationship by putting inside bank counsel in the role of having to investigate and/or police their own client.
Here’s the OCC in its own words describing what the general counsel was accused of failing to do [emphasis added], “… her role in not ensuring the bank conducted or suggesting to the Board that the bank conduct an investigation into concerns related to a residential mortgage loan product, not ensuring the bank’s BSA program had an adequate system of internal controls, and not timely reporting suspicious activity related to certain residential mortgage loans.”
Which hat are you wearing?
Admittedly, like many in-house counsel, this GC wore multiple hats at her institution[10], but the OCC didn’t distinguish the Bank Secrecy Act (BSA) and compliance roles from her role as GC. Regulators want banks to be hyper-vigilant about BSA, but this all occurred largely in the mortgage lending context.
Specifically, to my knowledge, this was a bank that bought non-QM portfolio loans. The fact OCC went after the in-house lawyer personally for not investigating and ensuring BSA compliance is noteworthy for any bank counsel asked to serve in non-legal roles. It remains to be seen if the OCC might demand any bank counsel not wearing any other hats to be cops and whistleblowers when those roles are already supposed to be played by risk managers, internal audit and compliance folks.
Thrown under the bus?
It’s possible this GC just got thrown under the bus along with the head of mortgage lending and the Chief Loan Underwriter who also landed personal consent orders from the OCC. Further to that theory, I didn’t see anything personal against the Board or CEO (the bank itself had a Consent Order and $6 million Civil Money Penalty). I’ll note that the GC’s Order even says that she may have been stymied by others from acting[11], but that she was still expected to be responsible to act as cop or whistleblower. It is curious that management was not also criticized by OCC for combining the GC’s role with others which may have led to these compliance failures. Meanwhile, also worthy to note when a GC is asked to wear multiple hats, it’s unclear if OCC even let the GC get indemnified for her legal fees. So it appears the GC had to also fund some other lawyer’s big profits out of her own pocket to get out the jam her bosses put her in.
Whatever happened to Richard Cordray?
In other news, esepcially for those of you who remember the early years of the CFPB and are parents of college bound seniors dealing with the FAFSA disaster, RIchard Cordray recently resigned from his position in charge of that program. Incredible how one person can fail at multiple government jobs, yet still get attaboys on the way out.
[1] It really is incredible how many reasons I have right now to be personally offended by my law school alma mater just for who I am and what I do for a living. Shameful.
[2] To my trade association and financial service attorney brethren, “You want me on that wall, you need me on that wall!”. BTW, there was no reference intended to outstanding compliance guru, Josh Weinberg with that Lieutenant Weinberg comment. That is just a line from the movie, A Few Good Men.
[3] All lawyers who interact with regulators are neither paid like Mr. Cohen nor deal with the same issues.
[4] Or left wing. It doesn’t matter. They are attorneys who get paid to talk to regulators and that must somehow be very bad.
[5] A study that assumes all work by regulatory lawyers is lobbying is academically dishonest and/or intentionally misleading.
[6]This is not a crime. Nor is speaking my mind (see the First Amendment).
[7] I know, the subtweet is “Maybe you’re just not good enough at it Levy.”
[8]Maybe we can discuss it at the ethics panel on Wednesday at LIRC.
[9]Per the OCC, “The OCC uses enforcement actions against an institution-affiliated party (IAP) to deter, encourage correction of, or prevent violations, unsafe or unsound practices, or breaches of fiduciary duty. Enforcement actions against IAPs reinforce the accountability of individuals for their conduct regarding the affairs of a bank. The term “institution-affiliated party,” or IAP, is defined in 12 USC 1813(u) and includes bank directors, officers, employees, and controlling shareholders. Orders of Prohibition prohibit an individual from any participation in the affairs of a bank or other institution as defined in 12 USC 1818(e)(7).”
[10] I wore a lot of hats when I was inside counsel and often warned management that it could compromise privileged conversations and the ability to provide legal guidance. They just thought I wanted to get out of the responsibilities and workload. Both things can be true.
[11]Implying that she did report the issues, but perhaps did so in her attorney role only?