In the early 1990s, NationsBank and its operating subsidiary, NationsSecurities, conspired to defraud elderly and retired citizens who held maturing certificates of deposit worth hundreds of millions of dollars by selling them toxic derivatives disguised as safe, Government-backed Term Trusts. In one misleading sales pitch, the registered representative waved a picture of the U.S. Capitol and repeated the alleged promise of a senior bank official that as long as the Capitol was standing, their money was safe. And the bank deliberately blurred the distinction between its employees and the stockbrokers who all worked side by side. The Office of the Comptroller of the Currency, during Eugene Ludwig's tenure, identified these fraudulent sales practices while conducting routine examinations in 1994 and 1995, yet did nothing to stop them. Only after the SEC presented the OCC with its findings and conclusions did the OCC act. The enforcement action and settlement were announced last week.

Unfortunately, I predicted these shenanigans when I conducted Oversight and Investigations hearings in 1994. This sorry episode provides definitive, albeit regrettable, proof why true separation and functional regulation must be included in HR 10. Bank divisions that act like brokerage firms must be regulated as brokerage firms. Business Week recently called this "an idea whose time is long overdue." The Bliley-Dingell-Leach Managers Amendment coupled with HR 10, as presently written, will close this loophole and protect investors and consumers.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

Business Week article

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