United States Senators have expressed skepticism and have questioned whether the recent $1.4 billion Wall Street settlement against large investment banks would lead to meaningful reform and help the average investor. The comments came during a Senate Banking Committee hearing about the recent settlement between federal and state regulators and 10 investment banks over conflict of interest charges.
Committee members told regulators that they were skeptical about the effects of the settlement on the Wall Street culture. Sen. Richard Shelby (R-AL), chairman of the banking committee, said that he wasn’t convinced that the fines and penalties had done enough to change the attitudes at the investment banks. Mr. Shelby also questioned the small size of the settlement in relation to the amount of money that investors had lost.
Securities and Exchange Commission (SEC) Chairman William Donaldson defended the settlement, saying that it was the largest fine ever for the SEC. He also said that investors could pursue additional lawsuits to recoup money, although he acknowledged that many investors would probably never be fully repaid.
Sen. Paul Sarbanes (D-MD), the committee’s senior Democrat, echoed Mr. Shelby’s concerns, saying that analysts were still in “denial” and needed to “get with the program.” Mr. Sarbanes referred to remarks made a week earlier by Philip J. Purcell, the chairman and chief executive of Morgan Stanley. As part of the settlement, Morgan Stanley has agreed to pay $125 million. Mr. Purcell downplayed the harm that was done to investors, saying that he wasn’t “concern[ed]” about his firm’s actions.
Mr. Donaldson told legislators that his agency would continue its Wall Street investigations. “This is not the end,” he said. “This is the beginning.” The Wall Street Journal reported last Friday that regulators would be moving further up the chain of responsibility and targeting investment bankers next.