SEC Ruling Allows Shareholders to Force Audits on Banks

By Kyle Chezum Updated on 3/24/2011

Citigroup, Wells Fargo, and Bank of America have each independently face significant scrutiny in recent months from director boards and shareholder groups regarding mortgage and foreclosure practices, and, as one, these banks have mostly ignored this negative attention.  At best, the steps taken to comply with demands for internal and external audits and investigations have been shuffling and slow.  This won't be the case much longer.

The Securities and Exchange Commission has ruled that banks must undergo intensive audits if asked by the majority of their shareholders to do so.  Shareholders have recently tried to vote on such initiatives but have not received compliance from the executives at the major banks.  The SEC ruling will force banks to allow shareholders to vote on audit proposals.

New York City comptroller John C. Liu has been trying for months to force banks to comply with audit demands, but his efforts have been to no avail.  The SEC ruling will likely change this and is a major breakthrough in the industry.  "An independent examination of bank foreclosure practices is needed to reassure shareholders and protect pensioners and taxpayers," Liu said.  "Regrettably, the banks have failed us on this and even went so far as to try and kick us off the ballot, but the shareholders have prevailed."

The shareholder proposals for internal audits will be voted on by the shareholders of each of the major banks.  It's uncertain whether or not they will pass, but the housing crisis has made activists out of many investors, and these individuals have felt slighted and ignored since the beginning.  This is their chance to change the situation, hopefully for the better.