Another Soros-funded Attorney General, Former Rand Paul Opponent Jack Conway, Threatens the Big Bank Settlement

George Soros is just itching for a crisis. A few weeks ago, the NYT reported:

“This crisis has the potential to be a lot worse than Lehman Brothers,” said George Soros, the hedge fund investor, citing the lack of an authoritative pan-European body to handle a banking crisis of this severity. “That is why the problem is so serious. You need a crisis to create the political will for Europe to create such an authority, but there is still no understanding as to what the authority will do.”

The other day, we wondered aloud why the New York Attorney General, Eric Schneiderman, was aggressively blocking the Bank of American and Bank of New York Mellon settlement regarding Countrywide RMBS. Maybe he's just an uncorrupted politician looking out for the best interests of the good investors of New York. Or maybe, he's being pressured by one of his largest campaign contributors, George Soros.

In a separate matter, Schneiderman has also been an active critic of the settlement among the big banks and state attorneys general. Add to that list another recipient of Soros' largess, the AG of Kentucky and none other than Rand Paul's former opponent for US Senate, Jack Conway.

Will Soros get the US leg of his crisis? With all eyes on BAC, focus might soon shift to BNY Mellon. As RC Whalen wrote the other day at the IRA Analyst (behind pay wall now):

We cannot help but wonder if that August 30, 2011 lawsuit by US Bank did not have something to do with the unexplained volatility in the BK CSUITE. "Bank of New York Mellon raised eyebrows after the closing bell Wednesday by announcing the departure of Chairman and Chief ExecutiveRobert Kelly, but analysts say the bank won't miss a beat under new leadership, and the stock didn't either," writes Steve Schafer of Forbes.

Skip a beat or skip away is the question we have in mind. Under Sarbanes-Oxley, the general counsel of BK has an affirmative duty to make members of the board of directors aware of any failure in terms of internal systems and controls or future risks. Looking at the public record, it does not appear that BK has yet acknowledged the problems regarding trustee activities that have been made public by the State of New York.

The auditor of BK as well as the outside counsel to the bank also have affirmative duties to report to the SEC any failure to disclose such risks to investors in the event that the board fails to make such disclosure. Again, we see nothing in the public record indicating any disclosure by BK regarding these allegations by the State of New York. And is it not interesting that the New York AG was not represented at last Friday's meeting of parties in the Countrywide put-back litigation? While the penalties for failure to disclose in the Sarbanes-Oxley law are bad enough, a litigation by the NY AG using the Martin Act is the big shoe waiting to drop on both BAC and BK. What will the NY AG do? Stay tuned.

Stay tuned, indeed. As the only competitor to JP Morgan in the US custodial securities business, BNY Mellon is more of a systemic risk than BAC, and adds an interesting dimension to the current financial crisis.