Currently pending before the U.S. Senate is a proposed amendment, Specter
Amendment SA 3806, to the Wall Street reform legislation to extend punishment
to broker-dealers who violate the standard of care to retail and institutional
clients to include incarceration. The duty imposed on broker-dealers,
their agents and employees, who provide investment advice regarding the
purchase or sale of securities, would require that such entities place
their clients’ interests before their own in order to end the
conflicts of interest that are so inherent in the financial industry. The amendment would call
for criminal sanctions, along with civil penalties, for intentional violation
of these standards.
The proposal has gained support from both democrats and republicans following
the recent Goldman Sachs hearings. Goldman Sachs is alleged to have misled
its clients by selling them collateralized debt obligations based on shaky
mortgages, while purportedly shorting the housing market for its own accounts.
While Goldman Sachs denies these allegations, the SEC has filed suit against
the firm for their failure to inform investors that a third party was
involved in creating an investment vehicle that was essentially designed
to lose money for investors.