Daily Archives: February 3, 2015

Judge: Time To Prosecute Corporations

So-called “deferred prosecutions” were developed in the 1930s as a way of helping juvenile offenders. A juvenile who had been charged with a crime would agree with the prosecutor to have his prosecution deferred while he entered a program designed to rehabilitate such offenders. If he successfully completed the program and committed no other crime over the course of a year, the charge would then be dropped.

The analogy of a Fortune 500 company to a juvenile delinquent is, perhaps, less than obvious. Nonetheless, beginning in the early 1990s and with increasing frequency thereafter, federal prosecutors began entering into “deferred prosecution” agreements with major corporations and large financial institutions. In the typical arrangement, the government agreed to defer prosecuting the company for various federal felonies if the company, in addition to paying a financial penalty, agreed to introduce various “prophylactic” measures designed to prevent future such crimes and to “rehabilitate” the company’s “culture.” The crimes for which prosecution was thus deferred included felony violations of the securities laws, banking laws, antitrust laws, anti-money-laundering laws, food and drug laws, foreign corrupt practices laws, and numerous provisions of the general federal criminal code.

The intellectual origins of this approach to corporate crime can be traced back at least to the 1980s, when various academics suggested that the best way to deter “crime in the suites” was to foster a culture within companies of acting ethically and responsibly. In practice, this meant encouraging companies not only to provide in-house ethical training but also to enlarge their internal compliance programs, so that responsible behavior would be praised and misconduct policed. The approach found favor not just with some corporations (notably General Electric under the guidance of its then general counsel, Ben Heineman), but also with the US Sentencing Commission, which, in promulgating the Corporate Sentencing Guidelines in 1991, made the overall adequacy of a company’s prior internal compliance programs the most important factor in reducing (by as much as 60 percent) the size of the fine to be imposed on a company found guilty of a federal criminal violation.

Read on.

UBS Bank Escapes From Class Action

SAN FRANCISCO (CN) – A federal judge dismissed a class action claiming Swiss banking giant UBS made billions of dollars by improperly closing accounts of secret account-holders, including those of a former Indonesian vice president.
Lead plaintiff AM Trust, the trust of former Indonesian Vice President Adam Malik,accused Zurich-based UBS in September 2014 of shutting down the accounts of people who died or were absent for prolonged periods, and of “withholding or destroying internal records pertaining to these accounts and converting the proceeds to their own use while wrongfully denying requests for information and accounting.”
The trust also sued the bank’s predecessors, Union Bank of Switzerland and Swiss Bank Corporation. UBS was formed in 1998 from the merger of the other two banks.
Before his death in 1984, Malik, who was also the 26th president of the United Nations General Assembly, had more than $5 million in cash and gold in Union Bank of Switzerland and UBS bank accounts, the trust said.

Read on.

Judge denies BofA request for new mortgage hustle trial

A federal judge in Manhattan said a $1.27 billion fine against Bank of America over an old mortgage-lending program known as Hustle should stick.

Former Countrywide executive Edward O’Donnell filed a whistleblower lawsuit that accused Countrywide of defrauding government-backed mortgage finance companies Fannie Mae and Freddie Mac.

In 2014, O-Donnell received $57 million by reporting Countrywide them loans that were not as good as the company represented them to be.

The case became known as the “Hustle” case due to the Countrywide process through which the loans were sold, which was technically referred to as HSSL.

Source: WSJ

JPMorgan settles Bear Stearns’ lawsuit, pays $500 million

JPMorgan Chase (JPM) has agreed to pay $500 million to settle more than six years of class action litigation overBear Stearns’ sale of $17.58 billion of mortgage securities during the financial crisis, according to an article in Reuters.

It resolves claims that Bear, which JPMorgan bought in 2008, misled investors when it sold certificates backed by more than 47,000 largely subprime and low documentation “Alt-A” mortgages in 14 offerings from May 2006 to April 2007.

Bear was accused of making false and misleading statements in offering documents about underwriting guidelines used by its EMC Mortgage unit, Countrywide Home Loans, Wells Fargo and other lenders, and the accuracy of associated property appraisals.

The settlement still requires approval by U.S. District Judge Laura Taylor Swain in Manhattan.

Source: Reuters

Calpers settles with S&P for $125 million

Standard & Poor’s Ratings Services has reached a $125 million settlement with the California Public Employees’ Retirement System, or Calpers, to resolve a case involving inflated grades of residential-mortgage deals that later faltered, an article in The Wall Street Journal said.

The state Supreme Court ruled in September that Calpers could sue Moody’s and Standard & Poor’s for millions of dollars due to the high ratings they gave to investments that collapsed in 2007 to 2008.

The Calpers settlement will bring S&P’s total payout to resolve the latest round of crisis-era lawsuits to $1.5 billion.

Calpers also named Fitch Ratings and Moody’s Investors Service in the lawsuit. Fitch previously settled, though the pension fund will continue to pursue Moody’s, the people said. Moody’s wasn’t immediately available to comment.

“Numerous initiatives by legislators and regulators across the globe to regulate Credit Rating Agencies, including the enactment of the Dodd-Frank Act in 2010, have imposed new requirements addressing potential conflicts of interest and procedures to protect the integrity and transparency of rating methodology. The Company and S&P Ratings take compliance with regulatory obligations very seriously and continue to make investments in people and technology to strengthen controls and risk management throughout the organization,” Standard & Poor’s said in response to its recent lawsuits.

Source: WSJ

Banks Brace for Pain: Statute of Limitations on TILA Rescission and TILA Claims

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TILA remedies and requirements actually address the “free house” complaint head on: If banks misbehave in material and important ways (as defined by statute and not in the minds of a judge or lawyer) then yes, the homeowner should get a free house. That is what all three branches of the Federal government have said and no re-interpretation of TILA rescission or TILA remedies will be allowed since last week when the Supreme Court unanimously decided that TILA meant what it says. Any Judge or lawyer who thinks otherwise is in fairyland. The fact that a Judge doesn’t “like” the result of a “free house” (as the Judge perceives it) means nothing. The Judge is required to apply the law as decided by the United States Supreme Court.

Practically everyone is asking questions about whether the statute of limitations starts running…

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Did Drug Cartels Save the Global Financial System?

In December 2009, the global financial system was still in crisis. The market had bottomed a short nine months earlier, and the fear of a double-dip recession was palpable.

With the world still on edge, one high-ranking United Nations official came forward with a bold assertion: The world financial system was saved from collapse by $352 billion of illegal drug profits propping up several key international banks.

Antonio Maria Costa, then head of the U.N. Office on Drugs and Crime, told The Guardian at the time that this funding from drug cartels was “the only liquid investment capital” available to these struggling institutions. He did not name specific banks or specific transactions, but claimed to have seen evidence from intelligence agencies and government investigations. Costa even went so far as to imply that by propping up those key international institutions, the entire financial system was kept afloat.

Read on.