The Honorable Eugene A. Ludwig Page 2 3. 4. 5. Provide similar information where OCC merely has required the violators to change their practices. As requested (Tr. p. 36), please provide copies of the 14 OCC. As requested (Tr. pp. 45, 49), please provide information on how many instances and involving what program areas or violations (i.e., fraud against customers, insider trading, etc.) OCC has made enforcement referrals to the SEC. Please explain your policy in this area and provide us with copies of any written guidelines. As requested (Tr. p. 63), please advise the Subcommittee how 6.a. You testified (Tr. p. 112) that 12 USC § 1818 authorized OCC to enforce the federal securities laws and the rules and regulations thereunder. Please support and explain that statement. In particular, please explain how violations of the federal securities laws by a bank, its securities subsidiary, or a third party broker-dealer can be considered "unsafe and unsound banking practices." Also, please advise whether any court has ever considered 12 USC 1818 to reach violations of the federal securities laws and the rules and regulations thereunder. b. As requested (Tr. p. 137), please submit a report on all the actions taken by OCC against banks or their employees for violations of the federal securities laws. Please segregate cases brought against banks in their capacity as municipal securities and government securities dealers, and as transfer agents, and those where the violations involve bank mutual fund or securities sales. Your report also should, by reference to the attached table from the SEC's annual report to Congress, explain in general the persons subject to, acts constituting, and basis for the enforcement action as well as what sanctions OCC can bring to bear. Please The Honorable Eugene A. Ludwig Page 3 7. compare and contrast your investor protection enforcement program with the program administered by the SEC. c. Please submit for the record, as requested (Tr. pp. 146, 147), copies of the specific rules that OCC has with regard to the rights (e.g., arbitration, private rights of action) of aggrieved individuals in connection with bank securities activities, and explain the application of these remedies. Please state for the record whether it is the position of the OCC that the National Bank Act pre-empts the application of the federal securities laws, and, in particular, the OCC's view on Simpson v. Mellon Bank, NA (ED. Pa. 1993). d. SEC enforcement actions are made public by the preparation of litigation releases (sample copy enclosed) which are publicized under news releases (significant cases are then reported in the press) and by publication in the weekly SEC Docket (sample copy enclosed). The NASD maintains an 800number that allows the public to check on a registered broker-dealer's disciplinary history before making a decision to do business with him. Moreover, the selfregulatory organizations, i.e., the exchanges and the NASD, are required to discipline their members and, as you may have observed, those actions are reported in the Wall Street Journal and New York Times. We have established this system so that customers can protect themselves in part by having access to the enforcement and disciplinary histories of broker-dealers. Please advise us of the OCC's program in this regard, providing us with copies for the record of the documents you publish on OCC enforcement actions in connection with bank sales of mutual funds or other securities. If you have no such program, please so state. How can a potential customer find out if there is a pattern of examiner requests that a particular bank or its employees "change their practices" (Tr. p. 34) in this area? As requested (Tr. p. 134), please submit a report on the progress of the OCC and SEC in coordinating your respective examination and enforcement programs. Your report should include a list of the dates, participants, and summaries of any and all interagency meetings on this subject, and copies of any memoranda of understanding between OCC and SEC with respect to the terms and conditions of such joint examination and enforcement programs. Are there any joint enforcement efforts currently pending between the SEC and the OCC? 80-222 0-94-24 The Honorable Eugene A. Ludwig If you have any questions about this request, please contact Consuela M. Washington of the staff at (202) 225-3147. Thank you for your cooperation and assistance with the work of the Subcommittee. Sincerely, John D. Dingell Subcommittee on Oversight Enclosures CC: The Honorable Dan Schaefer Thank you for your letter of March 17, 1994, in which you requested additional information on issues arising from the proposed merger between the Dreyfus Corporation (Dreyfus) and Mellon Bank Corporation. We have endeavored to provide you with the requested information. 1. How does 12 C.F.R. Part 9 ("Part 9") protect investors in a mutual fund or purchasers of other securities in a bank? Has the OCC ever used its 12 C.F.R. Part 9 ("Part 9") authority to protect investors in a mutual fund or purchasers of other securities in a bank? Part 9 protects investors as well as trust customers who receive investment advice and purchase mutual funds or other securities from a national bank or its employees. National banks that provide investment advice must first apply to and receive authorization from the OCC to exercise fiduciary powers pursuant to 12 U.S.C. § 92a. See, e.g., Decision of the Comptroller of the Currency Concerning an Application by American National Bank, Austin, Texas, to Establish an Operating Subsidiary to Provide Investment Advice (1983), reprinted in [1983 - 1984 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 99,732; Interpretive Letter No. 367 (1986), reprinted in [1985 - 1987 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,537. Part 9 contains provisions governing the treatment of funds awaiting investment or distribution, the investment of funds held as fiduciary, prohibitions against self-dealing, and compensation of bank fiduciaries. Part 9 requirements also apply to any investments made by a national bank trustee, including mutual fund investments, and prohibits self-dealing by fiduciaries. Bank trustees may not purchase proprietary or bank-advised mutual funds unless authorized by state law, trust instrument, court order, or consent, and only when appropriate for the account. -2 The OCC may take enforcement action against a national bank, its employees, or any institution-affiliated party' who violate the self-dealing or other relevant provisions of Part 9 when providing investment advice to customers. Although the OCC has not yet used Part 9 to bring a mutual fund-related formal enforcement action, the OCC has brought enforcement actions against national banks for improprieties in the administration of collective investment funds. For example, in 1989, the Comptroller revoked a national bank's trust powers when a trust officer purchased stock (in which the bank's president and a director had a conflicting interest) for the bank's common trust fund, in violation of the conflict of interest prohibition in 12 C.F.R. § 9.12. In the Matter of Central National Bank of Mattoon, AA-EC-87-83 (1989). The Comptroller also found that the bank violated 12 C.F.R. § 9.18 for its failure to value trust assets properly. 2. Please provide a list, with an explanation of the alleged wrongdoing and the sanction applied, of OCC enforcement actions where sanctions have been applied against banks or their employees in connection with mutual fund sales. Provide similar information where OCC merely has required the violators to change their practice. As I stated during the March 3 hearing, the OCC has not initiated final, formal administrative action against national banks or national bank employees expressly in connection with mutual fund sales activities. The OCC, however, has undertaken significant steps to ensure that national bank mutual fund activities are conducted in accordance with applicable law and are protective of customer interests. Where the OCC finds less significant compliance issues, we address them through examination criticisms, letters to bank boards, and other informal enforcement mechanisms. Where national banks fail to adequately respond to these criticisms, the OCC is committed to seeking all appropriate formal enforcement remedies. As stated in the our Securities Activities Enforcement Policy (Attachment A), the OCC believes that formal enforcement action is particularly appropriate to address cases involving customer abuse, fraud, and other deceptive or unfair practices in mutual fund or other securities sales. When pursuing formal enforcement actions, the OCC generally seeks remedies based on comparable SEC actions. Id. Since January 1993, the OCC has reviewed the mutual fund activities of 250 community banks and approximately 75 bank holding companies, controlling 430 national banks. During 'Under federal banking law, the term "institution-affiliated party" includes: 1) directors, officers, employees, controlling stockholders, or agents of an insured depository institution; 2) any other person who has filed a change in control notice; 3) shareholders, consultants, joint venture partners, or other persons who participate in conducting an insured depository institution's affairs; and 4) independent contractors, including attorneys and accountants. 12 U.S.C. § 1813(u). |