Hillary Clinton Says Prosecuting Individuals is Key to Wall Street Reform

NEW YORK (TheStreet) -- Democratic presidential candidate Hillary Clinton, whose rivals have won points with voters by backing tighter regulations on Wall Street, is proposing to reform the finance industry by punishing individual investors, financial managers and traders for misconduct.

Lawbreakers will be "prosecuted and imprisoned" and bankers would face the possibility of tougher criminal penalties, according to a summary of Clinton's plan obtained by the Associated Press on Wednesday. They also would be banned from future employment in the finance industry and could find their compensation penalized in a government settlement.

The proposals came just days before the first Democratic presidential debate, to be held at the Wynn Las Vegas at 9 p.m. ET on Oct. 13. Liberal Democrats have spent months calling on Clinton to take a more aggressive approach to regulating Wall Street and one of her opponents, Vermont Sen. Bernie Sanders, has gained ground with a populist economic message that vows to take on the "billionaires."

Clinton's close ties to Wall Street and the centrist economic policies of the administration of her husband, former President Bill Clinton, make some in her party skeptical of her populist credentials. Both Clintons have earned millions in speaking fees, including some from Wall Street banks, and daughter Chelsea and her husband have worked at hedge funds.

In the first major economic speech of her presidential campaign, in July in New York City, Clinton expressed outrage at accounts of money laundering and currency manipulation involving several major financial firms. She said few rogue traders had faced consequences, individually, for malfeasance, a subtle swipe at the Obama administration.

"This is wrong, and on my watch it will change," she said. Regulation of Wall Street gained heightened importance following the financial crisis of 2008, when high-risk lending fueled a housing bubble that eventually led to the collapse of investment bank Lehman Brothers. Borrowers with poor credit had found themselves unable to repay high-interest loans, and securities based on those mortgages -- which were held by many Wall Street institutions -- plummeted in value.

The government spent billions propping up banks, as well as insurance giant AIG, while home foreclosures skyrocketed. Congress under Obama attempted to rein in some of the riskiest practices with Dodd-Frank law, which Clinton's campaign has backed.

"Through no fault of their own, families lost jobs, homes, and dreams," the campaign said on its website. "Yet the financial lobby and Republicans in Congress have shown that they are committed to unraveling the key reforms the Dodd-Frank Act put in place to protect consumers and keep a crisis like this from happening again. We will defend Dodd-Frank against attacks.

Along with a greater emphasis on punishing individuals, Clinton would impose a new tax on high-frequency trading, her campaign said. The fee would target trading strategies that involve significant numbers of order cancellations, a practice her campaign says makes markets "less stable and less fair."

Her plan would extend the statute of limitations on major financial fraud cases to allow prosecutors more time to develop a case, and she would increase funding for financial regulators including the Securities and Exchange Commission, Consumer Financial Protection Bureau and Commodity Futures Trading Commission. She also proposes raising the maximum fines those agencies can levy.

Clinton has proposed limiting the use of pacts, known as deferred prosecution agreements, in which the Justice Department agrees not to press criminal charges if a settlement is reached.

How Wall Street will react to the proposals remains to be seen. What banks already see as excess regulation has been a sore spot, as have multiple investigations and penalties from a variety of agencies in sometimes overlapping cases.

"For now, it's simply a reality for big banks," JPMorgan CEO Jamie Dimon said in his annual letter to shareholders in April. "When one or more employees do something wrong, we'll hear from multiple regulators on the subject."

On the other hand, Clinton's plan may not go far enough for elements of her party's base, who would like to see the revival of a Depression-era law banning financial institutions from combining their commercial banking operations with riskier investment banking. Two of her rivals, Sanders and former Maryland Gov. Martin O'Malley, say they'd like to see the law, called Glass-Steagall, restored. It was repealed during the administration of Clinton's husband.

Speaking in Iowa this week, Clinton said she isn't focused on reinstating Glass-Steagall.

"The big banks are not the only thing we have to worry about," Clinton said on Tuesday in Davenport. "I've studied this real closely, and what I am proposing is we go after the risk, and if they are too big to manage, that is a risk and they should not continue"

Copyright 2014 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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