The securities and the banking system of a country are known to be one of the strongest and the most important foundations of an economy. To ensure that these systems do not move into negative or loss making territories, the government of a country requires keeping a check and control over the functions and operations of entities that are part of these securities and banking system. If the government does not ensure regulation of these systems, the entities involved in these sectors can make decisions that are only beneficial to them, while all other stakeholders are not considered in the process. Such decisions can gravely impact on the economy in general and can result in the uprising of an unwanted influence amongst the powerful entities. In the United States of America, the Securities and Exchange Commission (SEC) is required to perform the task of regulating these sectors to ensure that investors do not make an high risk investment and business decisions that can have a negative impact not only on them but also on the economy at large, thus, preventing a mass pervasive negative impact . With respect to the trading of futures contracts as a commodity, the United States has commissioned the Commodities Future Trading Commission (CFTC) to regulate the futures trading industry. Thus, the United States government has made efforts to regulate the banking sector largely to avoid any economical catastrophes from occurring.
It is the responsibility of the Division of Investment Management of the SEC to protect the investors and applying and regulating the banking and the investment sector. In view of the nature of the investment commodities such as mutual funds, shares, etc., the disclosures the asset management companies make in their accounts are under immense scrutiny and regulation from the SEC via this division. This division is also responsible for ensuring the filing of various documentations by these asset management companies are in line with prevalent regulations. Further, the division also seeks to ensure if there are any changes or new additions required in the regulations to result in a smooth and effective regulatory system in the country. In cases where there is a need to enforce law through he need of legal action, the SEC has the authority to conduct investigations and prevent companies, banks and business from operating in a specific manner through legal notifications. Moreover, the SEC works in collaboration with other law enforcement agencies to ensure that there is no breach of regulation and criminal activities are dealt with as per the requirement of the law.
Elements of a contract and fair dealing in the banking relationship
Whenever an investor invests in a financial instrument that belongs to or is managed by a different entity, the investor enters into an agreement or contract of investment. This agreement is the legal documentation that allows the investor to claim its rights and obligation over the investment. As every agreement is a contract of some nature, there have to be certain elements of a valid contract existing between the parties involved. The first element would be that there is an offer existing to enter into an agreement for the investor. Secondly, the investor gives his or her acceptance to enter into the contractual bond. Thirdly, the parties should be aware of that the contract is in fact legally binding and any breach of the agreement would result in legal consequences for the party that conducts the breach. The final aspect of a valid contract would be the existence of a consideration, which means that both the parties entering into an agreement are willing to do something in return for the other party . Once all these elements are found to exist at the time of the agreement is made, the contract is considered to be valid.
When dealings and agreements are made between banks and its customers, the contractual norms are understood to entail the understanding that each of the parties involved are imposing a duty of fair dealing and good faith on the enforcement and performance of their duties. Such duties, although not specified in the contractual terms, exist in an implied form. The banks and its customers, both are critically important for each other in terms of their financial dealings in the current times. Therefore, a necessity arises for both the parties to build upon the relationship and support it through fair dealing and acts of good faith so that the business for each party progresses and grows . The banks are required to inform customers of any information that might assist them in investing in certain transactions that involve the bank, while the customer is required to show a good faith in the bank during the course of transactions. It is upon such efforts the relationship between the two parties improves and develops, as trust arises for the customer, making it more easy for him or her to get involved in future dealings with the bank, while the bank ensures it acts fairly so that the customer feels valued and continues to bring more business towards the bank, thus crowing the banking relationship between the two.
Intentional and negligent tort actions
Tort deals in civil wrongdoings. It is defined by common law as a civil wrong that results in a person suffering loss or harm, without being fair to them. The person who commits the tortious act (referred to as the tortfeasor) is legally liable for their wrongful behavior. In a case of tort, the injured party, if proven to have a valid claim, is awarded damages as compensation for the troubles they have/will suffer as a consequence of the tortious act. Tort law is divided into three sub-branches: intentional torts, negligence torts and strict liability torts.
An intentional tort is one that results from an act that was committed by the tortfeasor on purpose. Any tort that involves a deliberate attempt at causing harm such as fraud, battery, defamation will be classed as an intentional tort. A tort of negligence occurs when the resulting harm is not intentional, and was a consequence of carelessness. Negligence in the context is described as by J.M. Feinman as: "The core idea of negligence is that people should exercise reasonable care when they act by taking account of the potential harm that they might foreseeably cause harm to other people." Strict liability torts relate to product liability.
In order to recover damages in the tort for negligence, the injured party must prove in a court of law that it suffered loss as a result of the other party's negligence. Since negligence tort cases are very fact specific, it is easier for the person filing suit to prove them by mitigating and quantifying their loss. However, in the case of intentional torts, the injured party needs to prove the intent of the tortfeasor when performing the act that leads to the alleged damages being incurred. The injured party should be able to justify with specific certainty with regard to the intent of the other party.
Interference with contractual relations and participating in a breach of fiduciary duty
Whilst a part of a contract, a party is required to adhere to the contractual terms or it would have to bear the consequences of the legal repercussions of interfering with the contractual obligations to which it is legally bound by means of an agreement. When a bank is involved in interfering with contractual relations with customers intentionally, it faces the risk being taken to the court by the customers to whom harm has occurred, which can be in the form of fraud as well. In such scenarios, the law of tort applies where the customer is required to prove the intention of the bank to fraud the customers to benefit itself and its management. The tort actions become severely consequential for the bank if it indulges in the breaching of its fiduciary duty, i.e. acting within the set regulations by the regulatory bodies so that customers' rights are protected. If a bank were to behave in the manner JP Morgan Chase did, and I was the customer of the bank, I would have to prove certain elements in the legal court to claim any tort action against the bank. I must first prove that there existed a valid contract between the bank and myself based on the four elements of a valid contract. This would be easy to prove if I am a customer of the bank who has invested in its financial instruments such as term deposit receipts or savings schemes. The involvement in such manner would prove that I am in a contract with the bank. Further, I would justify to the court that the falsification of quarterly accounts prove the intention of the bank as breaching its fiduciary duty towards its stakeholders and interfering with the contractual obligations as the trade losses at the period end due to investment decisions were hidden or covered. Had these reports…