Daily Archives: September 25, 2016

Wells Fargo scandal should be major campaign issue

The Hill:

Corporate CEOs should have to pay the same price as your common petty thief.

Corporate accountability should not be merely a subject matter for academic journals at prestigious business schools. No, it should be a 2016 campaign issue. Not just at the presidential level, but all the way down the ballot.

Let’s see if Trump and Democratic nominee Clinton have the guts to raise the issue in the first debate on Monday night. Will either one of them name names and name corporations that are abusing their employees and their customers and putting profit over everything else?

Will either one of the candidates running for the highest office in the land pledge to do away with this jail-free sanctuary for corporate criminals? Or will it just be the same old game?

One last point. As a public service, here is a complete list of the Wells Fargo board of directors, with their current and/or former titles as listed on the Wells Fargo website:

John Baker II: executive chairman, FRP Holdings, Inc.
Elaine Chao: former U.S. Secretary of Labor
John Chen: executive chairman and CEO, BlackBerry Limited
Lloyd Dean: president and CEO, Dignity Health
Elizabeth Duke: former member of the Federal Reserve Board of Governors
Susan Engel: retired CEO, Portero, Inc.
Enrique Hernandez Jr.: chairman, president and CEO, Inter-Con Security Systems, Inc.
Donald James: retired chairman, Vulcan Materials Company
Cynthia Milligan: dean emeritus, College of Business Administration, University of Nebraska-Lincoln
Federico Peña: senior adviser, Vestar Capital Partners, and former U.S. Secretary of Energy and former U.S. Secretary of Transportation
James Quigley: CEO emeritus and retired partner at Deloitte
Stephen Sanger: retired chairman, General Mills, Inc.
John Stumpf: chairman and CEO, Wells Fargo & Company
Susan Swenson: chair and CEO, Novatel Wireless, Inc.
Suzanne Vautrinot: president, Kilovolt Consulting, Inc. and retired U.S. Air Force major general and commander

How can you hold them accountable if you don’t know their names?

Former A.I.G. chief expected to testify in civil fraud trial.

NY Times:

Maurice R. Greenberg, the former chief executive of American International Group, is expected to take the witness stand on Tuesday in his civil fraud trial, which recently got underway in a New York State court. The 91-year-old Mr. Greenberg, who is known as Hank, is expected to go toe-to-toe with lawyers from the New York’s attorney general’s office, and his appearance could last several days. He has fought the accusations for more than a decade, determined to preserve his legacy as a prominent businessman and the architect of A.I.G. The case was originally filed byEliot Spitzer when he was the state attorney general. Mr. Greenberg and another former A.I.G. executive, Howard Smith, face charges that they engineered phony reinsurance transactions intended to make A.I.G.’s numbers look better to Wall Street, a claim that Mr. Greenberg and Mr. Smith have denied. Liz Moyer


By  David Dayen

Part 4

Penny stock gadfly Chris DiIorio tells the SEC about his suspicion that Knight Capital is tanking penny stocks on purpose and racking up unsustainable balance-sheet liabilities. But that leads to another mystery: Why don’t they seem to care?

CHRIS DIIORIO SUSPECTED major broker-dealer Knight Capital of tanking penny stocks on purpose and racking up massive, unsustainable balance-sheet liabilities based on all the stocks it “sold” that it never really had.

It had taken him five years to reach these conclusions — five years of digging through reams of financial data in search of answers to how and why his particular penny stock investment was so brutally crushed. Knight never answered DiIorio’s questions, nor, during the reporting of this story, any of The Intercept’s.

In April 2011, DiIorio decided he had to alert the Securities and Exchange Commission. He reached out to the SEC through its Office of the Whistleblower.

“The core business at Knight has always been naked shorting penny stocks,” DiIorio asserted.

Shorting a stock is betting it will drop in price: You borrow a share, sell it, hope the stock price drops, then buy another share to pay back your loan, hopefully for less than you borrowed it for.

In naked shorting, you sell a share that doesn’t exist and cash the proceeds. Do that enough and you bet the price will drop. Set it up so that it looks like you really sold the share to everyone except an obscure middleman, and the only toxic byproduct is a liability on your balance sheet representing shares you have sold but not yet purchased.

DiIorio believed this represented the secret of Knight’s success. “I told the SEC, ‘If you don’t believe me, ask Knight!’ If their penny stock volumes went to zero, what would happen to their trading profits?”

DiIorio filed a TCR (tip, complaint, or referral) form. Under Section 922 of the Dodd-Frank Act, the SEC has the authority to provide substantial monetary awards to eligible whistleblowers who inform the agency of securities law violations, if the subsequent enforcement actions exceed $1 million. But DiIorio says he wasn’t trying to win back his losses by filing a whistleblower complaint; he just wanted to see the ongoing fraud of investors like him put to a stop.

He also pointed to the threat to the markets from Knight’s thinning capital compared to the billion-dollar-plus “sold not yet purchased” liability. “I said, ‘Knight is insolvent, and this is how I know.’”

Indeed, the firm’s own second-quarter 2011 report to the SEC clearly showed $1.9 billion in “sold, not yet purchased” liabilities — up from $1.3 billion just six months earlier. By contrast, it reported “net current assets, which consist of net assets readily convertible into cash less current liabilities, of $105.1 million.”

Other than a perfunctory acknowledgement of receipt, the SEC did not respond to the TCR. DiIorio sent personal emails to top officials at the agency. One still exists on the SEC’s website, an October 2011 letter to Robert Khuzami, then the SEC’s head of enforcement. “Why won’t [then-Knight CEO Thomas] Joyce disclose to the investing public the nearly [$2 billion] sold not yet purchased liability is where he moves aged fails,” DiIorio wrote. “It is a structural liability and does not in fact ‘fluctuate with volumes’ as [Joyce] has said in several public filings.”

Read on.

Trump hotels agree to pay $50K in data breach settlement with NY AG

The Attorney General reached a settlement with Trump Hotel Collection involving a data breach that resulted in the exposure of over 70,000 credit card numbers and other personal data. Infiltrators hacked into the company’s payment processing system and deployed malware designed to steal credit card information. The hotels have agreed to pay $50,000 in penalties and reform its data security practices. Read The Hill piece here.

First investor suit against Wells Fargo against board for breaching fiduciary duty by not clawing back exec pay

Wells Fargo & Co.’s board was accused of breaching its duty to investors in a lawsuit that also names Carrie Tolstedt, the executive whose community banking unit created unauthorized customer accounts to reap extra fees.

The suit adds to the mounting pressure on Wells Fargo and Chief Executive Officer John Stumpf since the bank agreed Sept. 8 to pay $185 million in fines and penalties to resolve regulators’ allegations it created more than 2 million deposit and credit-card accounts without customers’ authorization. Analysts and congressional leaders have called for the bank to claw back Tolstedt’s compensation and for Stumpf to resign.

Board members’ refusal to scale back Tolstedt’s retirement benefits is “a breach of their fiduciary duties to shareholders,” according to the complaint, which may be the first such investor case. The suit, in which Stumpf is a defendant along with Tolstedt and the board, asks a San Francisco state court judge to bar the bank from making additional payments to Tolstedt before her retirement slated for the end of the year.

Read on

Sen. Elizabeth Warren raved about David Dayen’s book Chain of Title

From Elizabeth Warren facebook:

Elizabeth Warren

I was on a plane recently, waiting to get off when the guy in the row in front of me turned around and said, “You look a lot like Elizabeth Warren.” (I get that a lot.) He laughed when I told him I was, and he said he was a big fan (always nice to hear). But then he paused and said he didn’t think that I should be so angry with the big banks. I told him: “The truth is, I AM angry.” And then, because I’d just read it, I added: “And if you read David Dayen’s new book, you will be too.”

Chain of Title is a careful documentation of the mortgage fraud at the heart of the 2008 financial crisis, and the story of how three people fought back. If you’re looking for a book to read over Labor Day weekend – one that will that will get your heart pumping and your blood boiling and that will remind you why we’re in these fights – add this one to your list.

Bank Regulators Join Investigation Into JPMorgan’s China Hiring

  • Fed said to seek as much as $62 million in possible settlement
  • OCC is also examining whether bank made hires to win business

The Federal Reserve and the Office of the Comptroller of Currency have joined investigations into JPMorgan Chase & Co.’s hiring practices in China, according to people familiar with the matter.

The Fed is seeking a fine of as much as $62 million from the bank, and the OCC is also seeking punishments to settle claims that a breakdown in controls resulted in JPMorgan inappropriately hiring the children of Chinese officials to win business, the people said, asking not to be identified because the talks are private. Those probes would come on top of settlements being negotiated with the U.S. Securities and Exchange Commission and federal prosecutors.

At issue is whether the bank’s hiring of relatives of influential Chinese officials was tantamount to paying a bribe that ran afoul of the Foreign Corrupt Practices Act. The 1977 law made it illegal to provide pay or benefits to a foreign government official.

Read on.

Wells Fargo CEO Stumpf Confirmed to Testify Before House Panel


John Stumpf has agreed to appear before House Financial Services Committee Sept. 29 at hearing on scandal over unauthorized accounts, spokesman for congressional panel says in e-mail Friday. * Hearing is entitled “Holding Wall Street Accountable: Investigating Wells Fargo’s Opening of Unauthorized Customer Accounts”

Wells Fargo Whistleblower: “They Are All Riding the Stagecoach to Hell”


I recently spoke to a former Wells Fargo employee turned whistleblower about the ongoing issues of fraud and predatory banking practices implemented by the bank regarding the ongoing housing and mortgage fraud. Beth Jacobson is a former high level employee of the bank, who told me:

“In 1998, I was hired by Wells Fargo Home Mortgage as a ‘Home Mortgage Consultant’ or loan officer. I worked for Wells Fargo Home Mortgage (‘Wells Fargo’) until December, 2007. After a period of time, I was promoted to Sales Manager. I told DOJ over six years ago about Wells Fargo’s quotas. At that time it was subprime loans. A loan officer had to fund three subprime loans per month. If there was a quarter when that didn’t happen, they were fired. So the result is prime borrowers were put in subprime loans so that the loan officer kept their job.

[John] Stumpf was also part of the management team that stated the company goal was to have Wells Fargo’s fixed cost paid by the subprime division. Once Countywide went under, Wells Fargo was the #1 subprime lender in the country, specifically [in the] third quarter of 2007. The media keeps whitewashing Wells Fargo as this great lender that avoided all the pitfalls of the other lenders in the mortgage meltdown. No, Wells Fargo was the worst, they are just pure evil, [but] they hired more lawyers and more PR people to spin it Wells Fargo’s way. They are all riding the stagecoach to hell.”

Jacobson went on to illustrate the nature of the quotas imposed on Wells employees and underwriters:

“The commission and referral system at Wells Fargo was set up in a way that made it more profitable for a loan officer to refer a prime customer for a subprime loan than make the prime loan directly to the customer. The commission and fee structure gave the A rep a financial incentive to refer the loan to a subprime loan officer.

“Initially, subprime loan officers had to give 40 percent of the commission to the A rep who made the referral; later on, A reps received 50 basis points of the available commission. Because commissions were higher on the more expensive subprime loans, in most situations the A rep made more money if he or she referred or steered the loan to a successful subprime loan officer like me. A reps knew about my success in qualifying customers for subprime loans. As a result, I received hundreds of referrals. When I got the referrals, it was my job to figure out how to get the customer into a subprime loan. I knew that many of the referrals I received could qualify for a prime loan. If I had access to Wells Fargo’s loan files right now and could review these files, I could point out exactly which of these customers who got a subprime loan could have qualified for a prime loan.

“Because I worked on the subprime side of the business, once I got the referral the only loan products that I could offer the customer were subprime loans. My pay was based on the volume of loans that I completed. It was in my financial interest to figure out how to qualify referrals for subprime loans.

“Moreover, in order to keep my job, I had to make a set number of subprime loans per month. I also know that there were some loan officers who did more than just use the discretion that the system allowed to get customers into subprime loans. Some A reps actually falsified the loan applications in order to steer prime borrowers to subprime loan officers. These were loan applicants who either should not have been given loans or who qualified for a prime loan.

“One means of falsifying loan applications that I learned of involved cutting and pasting credit reports from one applicant to another. I was aware of A reps who would ‘cut and paste’ the credit report of a borrower who had already qualified for a loan into the file of an applicant who would not have qualified for a Wells Fargo subprime loan because of his or her credit history. I was also aware of subprime loan officers who would cut and paste W-2 forms. IDs deception by the subprime loan officer would artificially increase the creditworthiness of the applicant so that Wells Fargo’s underwriters would approve the loan. I reported this conduct to management and was not aware of any action that was taken to correct the problem.

“High-ranking Wells Fargo managers knew that this practice was going on, because after about a year of these standby explanations being given, underwriters in the underwriting department were told to call the customers directly rather than contact the loan officer who was working with the customer. The loan officers quickly figured out how to work around this by warning customers that underwriters might call them and then coaching the customers about what to say. For example, customers were told that they should just tell the underwriter that they did not have much in the way of assets or documentation for their income, because otherwise the underwriter would deny their loan or force them to fill out additional paperwork to document their financials. The point was to get the customer to say whatever would allow them to qualify for a subprime loan, even if it was not true. The customers went along with this because they thought it would expedite the process of getting them the loan that they had been told was the right one for them.”