Wall Street crimes

This article is part of the Real Economy Project. Take action at BanksterUSA.org.

Info Graphic on Bank Mergers & Acquisitions (Source: Casey Research)

Below is a list of some of the settlements that have been reached between large banks and various law enforcement agencies and/or classes of plaintiffs since the start of the 2008 financial crisis. Banks and other financial institutions have agreed to several multi-million dollar settlements for numerous offenses, but no employee of a major Wall Street bank has gone to jail for their role in these crimes as of 2013. This has helped coin the phrase "Too Big to Jail", derived from the phrase "Too Big to Fail" which referred to the government bailout of big banks as well as the bank mergers, acquisitions, and buyouts beginning in the 1990s that lead to consolidation of many banks into only a handful of large financial institutions as illustrated by the info-graphic (right).

In April 2013, Senators Sherrod Brown (D-OH) and David Vitter (R-LA) introduced the first bipartisan legislation aimed directly at putting an end to "too big to fail" financial institutions and preventing future bailouts of America's behemoth banks.

Crimes

This is a summary of the “crimes” listed in this article. Source citations can be found in the subsections below. Note: There have not been any actual criminal charges relating to these activities. Some are civil cases brought under a legal theory of tort and/or breach of contract and some are enforcement actions brought by administrative agencies such as the SEC or FEC but are not formal criminal charges.

• Predatory, deceptive and abusive lending related to mortgages
• Securities fraud, including creating investment vehicles designed to fail
• Accounting fraud
• Brokerage fraud
• Bribery of government officials
• Undisclosed conflict of interest in financial analysis and advice
• Lying to shareholders and investors
• Robbing consumers with abusive overdraft fees
• Robbing homeowners by overcharging them by hundreds or thousands of dollars, when they were already in bankruptcy and foreclosure
• Robo-signing of false affidavits and other legal documents
• Discriminatory lending practices

List of settlements reached by major banks

Listed below are the recent settlements made by big financial institutions for their activities that may have significantly contributed to financial crisis of the late 2000's. These settlements were reached due to enforcement actions of government agencies such as the Securities and Exchange Commission, the Federal Trade Commission, and the U.S. Department of Justice, as well as by class action lawsuits brought by investors, organizations, governments, and others who had been harmed by the banks' illegal activities.

While many of the numbers may be shocking, it is important to keep in mind that these financial institutions may end up paying much less than the actual settlement amounts. This is because the amounts paid may be counted as tax deductible business expenses. The financial institutions may be able to receive tax deductions for much, if not all, of their settlement expenditures.

National Mortgage Settlement

• Settlement Amount: Approximately $25 billion
• Date: February 19, 2012
• Initiated by: Securities and Exchange Commission and 49 States Attorneys General

The settlement grew out of federal and state investigations which found that the country’s five largest mortgage servicers routinely signed foreclosure related documents outside the presence of a notary public and without knowing whether the facts they contained were correct. Both of these practices violate the law. The five lending institutions being held responsible are:

• Ally/GMAC
• Bank of America
• Citi
• JP Morgan Chase
• Wells Fargo

These five banks are supposed to provide at least $25 billion in consumer relief. At least $17 billion is supposed to be used to reduce the principal for to millions of homeowners who are behind on their mortgage payments or facing foreclosure. Another $3 billion should be used to help homeowners refinance if they are “underwater” because they owe more than their homes are currently worth.

Additionally, $1.5 billion is supposed to be paid to homeowners who lost their homes to foreclosure between Jan. 1, 2008 and Dec. 31, 2011. However, the amounts they receive are not expected to be very large. The New York Times reported that "750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000." These payments are supposed be distributed to homeowners in spring 2013.

The settlement also established first-ever nationwide reforms to mortgage servicing standards. These standards require better communication with borrowers, a single point of contact, adequate staffing levels and training, and appropriate standards for executing documents in foreclosure cases.

On March 12, 2012, the participants in the settlement appointed attorney and former North Carolina Commissioner of Banks Joseph A. Smith, Jr. as the Monitor who will oversee the agreement.

More information is available on the National Mortgage Settlement website or on the Office of Mortgage Settlement Oversight website.

New York Attorney General Will Sue Wells Fargo & Bank Of America for Violating Terms of Settlement

On May 6, 2013, Eric T. Schneiderman, New York’s Attorney General, announced that his office will file lawsuits against Bank of America and Wells Fargo for violating the terms of the settlement. The Office of the Attorney General received 339 violations alleging that Wells Fargo and Bank of America violated four Servicing Standards relating to the timeline for processing mortgage modifications. Other states could follow.

Rust Consulting Firm Bounces Checks to Consumers

Rust Consulting, the firm in charge of distributing $1.5 billion in payouts to consumers, has received several complaints due to sending out batches of checks with the wrong amounts and/or checks that “bounced” due to insufficient funds.

Wells Fargo

• Offense: Selling complex investments without disclosing risks
• Settlement Amount: $6.5 million
• Date: August 14th, 2012
• Initiated by: Securities and Exchange Commission

The SEC found that Wells Fargo improperly sold asset-backed commercial paper (ABCP) structured with high-risk mortgage-backed securities and collateralized debt obligations (CDOs) to municipalities, non-profit institutions, and other customers. Wells Fargo did not obtain sufficient information about these investment vehicles and relied almost exclusively upon their credit ratings.

The firm’s representatives failed to understand the true nature, risks, and volatility behind these products before recommending them to investors with generally conservative investment objectives.

Wells Fargo agreed to pay more than $6.5 million to settle the SEC’s charges. The money will be placed into a Fair Fund for the benefit of harmed investors.

“Broker-dealers must do their homework before recommending complex investments to their customers,” said Elaine C. Greenberg, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. “Municipalities and other non-profit institutions were harmed because Wells Fargo abdicated its fundamental responsibility as a broker to have a reasonable basis for its investment recommendations to customers."

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• Offense: Discriminatory lending practices
• Settlement Amount: $175 million
• Date: July 12th, 2012
• Initiated by: U.S. Department of Justice

An investigation by the Justice Department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk.

The Department of Justice filed the second largest fair lending settlement in the department’s history to resolve allegations that Wells Fargo Bank, the largest residential home mortgage originator in the United States, engaged in a pattern or practice of discrimination against qualified African-American and Hispanic borrowers in its mortgage lending from 2004 through 2009.

The settlement provides $125 million in compensation for wholesale borrowers who were steered into sub-prime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin. Wells Fargo will also provide $50 million in direct down payment assistance to borrowers in communities around the country where the department identified large numbers of discrimination victims and which were hard hit by the housing crisis.

Additionally, Wells Fargo has agreed to conduct an internal review of its retail mortgage lending and will compensate African-American and Hispanic retail borrowers who were placed into sub-prime loans when similarly qualified white retail borrowers received prime loans. Compensation paid to any retail borrowers identified in the review process will be in addition to the $125 million to compensate wholesale borrowers who were victims of discrimination .

Wells Fargo agreed to pay $125 million directly to individual borrowers and divide $50 million among the municipalities of Baltimore, Chicago, Cleveland, Los Angeles, New York, Oakland, Philadelphia and Washington for redevelopment purposes.

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• Settlement Amount: $1.4 billion
• Date: November 18, 2009
• Lawsuit filed by Attorney General of California
• Offense: "The brokerage arm of the bank marketed the securities, which resemble corporate debt and whose interest rates were regularly reset by auctions, as an alternative to cash for years, even after analysts warned that the market could freeze up. In February 2008, banks stopped participating in the auctions and effectively locked up investors' cash. Under the terms of the settlement, Wells Fargo agreed to buy back at par value by April 2010 all auction-rate securities bought through its brokerage unit by investors before the market froze up."

Wachovia Bank

(Wachovia Bank was acquired by Wells Fargo in 2008.)

• Settlement Amount: $590 million
• Date: November 14, 2011 (Approved by Federal Judge January, 2012)
• Class Action Lawsuit (In re Wachovia Corp. Securities Litigation)
• Offense: A class of investors sued alleging "Wachovia's offering materials materially and repeatedly misstated and failed to disclose the true nature and quality of Wachovia's mortgage loan portfolio, and materially misled investors as to the company's exposure to tens of billions of dollars of losses on mortgage-related assets," according to the complaint. The suit focused on Wachovia's exposure to pick-a-pay loans, which the bank's offering materials referred to as having "pristine credit quality." Pick-a-pay loans, or option-adjustable-rate mortgages, had sliding interest rates and a minimum-payment feature that wouldn't trim the loan's principal but instead would raise it. The loans, made to subprime borrowers soured rapidly, and the bank ultimately said more than half the portfolio was impaired.

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• Settlement Amount: $148 million
• Date: December 8, 2011
• Enforcing Agency: U.S. Justice Department, the SEC, Office of the Comptroller of the Currency, Internal Revenue Service, and 26 state attorneys general
• Offense: The SEC alleges that Wachovia generated millions of dollars in illicit gains during an eight-year period when it fraudulently rigged at least 58 municipal bond reinvestment transactions in 25 states and Puerto Rico. Wachovia won some bids through a practice known as “last looks” in which it obtained information from the bidding agents about competing bids. It also won bids through “set-ups” in which the bidding agent deliberately obtained non-winning bids from other providers in order to rig the field in Wachovia’s favor. Wachovia facilitated some bids rigged for others to win by deliberately submitting non-winning bids. Wachovia agreed to settle the charges by paying $46 million to the SEC that will be returned to affected municipalities or conduit borrowers. Wachovia also entered into agreements with the Justice Department, Office of the Comptroller of the Currency, Internal Revenue Service, and 26 state attorneys general that include the payment of an additional $102 million. The settlements arise out of long-standing parallel investigations into widespread corruption in the municipal securities reinvestment industry in which 18 individuals have been criminally charged by the Justice Department’s Antitrust Division.

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• Settlement Amount: $18.6 million
• Date: April 5, 2011
• Enforcing Agency: Securities and Exchange Commission
• Offense: “Washington, D.C., April 5, 2011 – The Securities and Exchange Commission today announced that Wells Fargo Securities LLC agreed to settle charges that Wachovia Capital Markets LLC engaged in misconduct in the sale of two collateralized debt obligations (CDOs) tied to the performance of residential mortgage-backed securities as the U.S. housing market was beginning to show signs of distress in late 2006 and early 2007. The SEC’s order found that Wachovia Capital Markets violated the securities laws in two respects. First, Wachovia Capital Markets charged undisclosed excessive markups in the sale of certain preferred shares or equity of a CDO called Grand Avenue II to the Zuni Indian Tribe and an individual investor. As detailed in the order, Wachovia Capital Markets marked down $5.5 million of equity to 52.7 cents on the dollar after the deal closed and it was unable to find a buyer. Months later, the Zuni Indian Tribe and the individual investor paid 90 and 95 cents on the dollar. Unbeknownst to them, these prices were over 70 percent higher than the price at which the equity had been marked for accounting purposes. Second, Wachovia Capital Markets misrepresented to investors in a CDO called Longshore 3 that it acquired assets from affiliates “on an arm’s-length basis” and “at fair market prices” when, in fact, 40 residential mortgage-backed securities were transferred from an affiliate at above-market prices. Wachovia Capital Markets transferred these assets at stale prices in order to avoid losses on its own books. The SEC’s order does not find that Wachovia Capital Markets acted improperly otherwise in structuring the CDOs or in the way it described the roles played by those involved in the structuring process.”

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• Settlement Amount: $50 million
• Date: January 8, 2011
• Enforcing Agency: U.S District of Northern California
• Offense: class action lawsuit settlement between Wachovia and certain borrowers who obtained Pick-a-Payment mortgage loans between 2003 and 2008. Wachovia faled to inform consumers about the details of the mortgage loans.

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• Settlement Amount: $160 million
• Date: March 17, 2010
• Enforcing Agency: U.S. District Court for Southern District of Florida
• Offense: "A deferred prosecution agreement with the Justice Department resolved charges that the bank had willfully failed to establish a program to guard against money laundering. It also resolved Wachovia's admitted failure to identify, detect and report suspicious transactions in third-party payment processor accounts."

JP Morgan Chase

• Settlement Amount: $269.9 million
• Date: November , 2012
• Enforcing Agency: Securities Exchange Commission
• Offense: The SEC alleges that J.P. Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS offering in which it was the underwriter. J.P. Morgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans. J.P. Morgan also is charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million. J.P. Morgan has agreed to pay $296.9 million to settle the SEC's charges.

JP Morgan Securities

• Settlement Amount: $153.6 million
• Date: June 21, 2011
• Enforcing Agency: Securities and Exchange Commission
• Offense: The SEC alleges JP Morgan Securities misled investors in a complex mortgage securities transaction just as the housing market was starting to plummet. Under the settlement, harmed investors will receive all of their money back. In settling the SEC’s fraud charges against the firm, J.P. Morgan also agreed to improve the way it reviews and approves mortgage securities transactions. Specifically, the SEC alleges ta JP Morgan structured and marketed a synthetic collateralized debt obligation (CDO) without informing investors that a hedge fund helped select the assets in the CDO portfolio and had a short position in more than half of those assets. As a result, the hedge fund was poised to benefit if the CDO assets it was selecting for the portfolio defaulted.

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• Settlement Amount: $25 million penalty, $50 million to Jefferson County, and forfeiture of $647 million in claimed termination fees
• Date: November 4, 2009
• Enforcing Agency: Securities and Exchange Commission
• Offense: Two former managing directors' played role in an unlawful payment scheme that enabled them to win business involving municipal-bond offerings and swap-agreement transactions with Jefferson County, Alabama.

Bear Stearns Companies

(Bear Stearns investment bank was bought by J.P. Morgan in 2008.)

• Settlement Amount: $275 million
• Date: November 9, 2012
• Class Action Lawsuit (In re Bear Stearns Companies, Inc. Sec., Derivative, & ERISA Litig., 763 F. Supp. 2d 423 (S.D.N.Y. 2011))
• Offense: Investors in bank's stock and former employees who held stock as participants in employee stock ownership plan (ESOP) brought class action against bank, its officers and directors, and accounting firm (Deloitte & Touche) that performed audits to recover for defendants' alleged violations of provisions of federal securities laws, as well as for breach of fiduciary duties allegedly owed under the Employee Retirement Income Security Act (ERISA). The lead plaintiff in the case is the State of Michigan Retirement Systems. Bear Stearns agreed to a $275 million settlement in June of 2012. A federal judge approved the settlement in November, 2012.

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• Settlement Amount: $28 million
• Date: September 9, 2008
• Enforcing Agency: Federal Trade Commission
• Offense: The Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation, have agreed to pay $28 million to settle Federal Trade Commission charges that they engaged in unlawful practices in servicing consumers’ home mortgage loans. The companies allegedly misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Under the proposed settlement they will stop the alleged illegal practices and institute a data integrity program to ensure the accuracy and completeness of consumers’ loan information.

Morgan Stanley

• Settlement Amount: Undisclosed
• Date: April 3, 2012
• Enforcing Agency: Federal Reserve Board
• Offense: A pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services, Inc.

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• Settlement Amount: $102 million
• Date: June 23, 2010
• Enforcing Agency: Massachusetts Attorney General
• Offense: Morgan Stanley will pay $58 million to affected Massachusetts borrowers and $23 million to the state's pension fund to make up for the investment losses it suffered, and will return $19.5 million to the state's taxpayers.

Bank of America

• Settlement Amount: $14 billion in mixed settlements
• Date: January, 7th 2013
• Enforcing Agency: Fannie Mae, Freddie Mac & various others
• Offense: Knowingly selling sour mortgage-backed securities to Fannie Mae and Freddie Mac and issuing 30,000 risky mortgage loans issued by Countrywide Financial which Bank of America acquired in 2008. B of A settled for $11.6 billion which includes an agreement to repurchase bad mortgages from Fannie Mae.

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• Settlement Amount: $4.7 billion
• Date: October 9, 2008
• Enforcing Agency: Securities & Exchange Commission, New York Attorney General
• Offense: Agreed to buy back as much as $4.7 billion in auction-rate securities to settle charges that it misled thousands of customers about the risky investments.

Merrill Lynch

(Acquired in 2009 by Bank of America, Merrill Lynch is BoA's wealth management division.)

• Settlement Amount: $150 million
• Date: February 22, 2010
• Enforcing Agency: Securities and Exchange Commission, New York Attorney General
• Offense: The bank failed to make required disclosures relating the $3.8 billion dollar bonus package paid to Merrill Lynch executives when BofA took over the investment firm in 2008. The Judge succeeded in getting the settlement raised from $33 million to $150 million.

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• Settlement Amount: $26.5 million
• Date: September 9, 2009
• Enforcing Agency: Texas State Securities Commissioner
• Offense: The brokerage firm allowed sales assistants to sell securities without being properly registered.

Countrywide Financial Corporation

(Bank of America purchased Countrywide Financial in 2008 for approximately $4 billion.)

• Settlement Amount: $108 million
• Date: June 6, 2010
• Enforcing Agency: Federal Trade Commission
• Offense: Cheated hundreds of thousands of customers facing foreclosure on their homes.

Citigroup

• Settlement Amount: $590 million
• Date: August 29, 2012
• Enforcing Agency: Shareholders
• Offense: Class action law suit with allegations that Citigroup had deceived its investors by hiding the extent of its dealing in toxic sub prime debt.

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• Settlement Amount: $158 million
• Date: February 15, 2012
• Enforcing Agency: Department of Justice (US Attorney Preet Bharara)
• Offense: Undermined the process that was supposed to check for mortgage fraud in order to push through reckless loans and get higher profits. Passed along subpar loans to the Federal Housing Authority, making "substantial profits through the sale and/or securitization of FHA-backed insured mortgages" while "it wrongfully endorsed mortgages that were not eligible." Erased the records of nearly 1,000 potentially fraudulent loans, and admitted to passing on loans that were "not eligible" for government guarantees.

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• Settlement Amount: $75 million
• Date: July 29, 2010
• Enforcing Agency: Securities and Exchange Commission
• Offense: Failed to disclose vast holdings of subprime mortgage investments that were deteriorating during the financial crisis and ultimately crippled the bank.

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• Settlement Amount: $7 billion
• Date: December 11, 2008
• Enforcing Agency: Securities and Exchange Commission, NY Attorney General
• Offense: Bank agreed to buy back billions of dollars of illiquid auction-rate securities from hundreds of customers. Those customers have been unable to sell the securities, which they thought were as good as cash.

Goldman Sachs

• Settlement Amount: $550 Million
• Date: July 15th, 2010
• Enforcing Agency: Securities and Exchange Commission
• Offense: Providing misleading information to investors about subprime mortgage products while the housing market began to collapse. The SEC focused its case on a single mortgage security which the firm created in 2007. The security, known as Abacus 2007-AC1 enabled a prominent hedge fund manager to place a bet against the company's mortgage bonds and furthermore the marketing information on Abacus did not accurately portray the product to investors. Though the settlement was one of the largest settlements in the history of the SEC, Goldman Sacs shares rose by 5% the same day news of the settlement was released. The increase in shares added more market value to the firm than the $550 million it will have to pay in the settlement.

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• Settlement Amount: $12 Million
• Date: September 27th, 2012
• Enforcing Agency: Securities and Exchange Commission
• Offense: Alleged bribery of a Massachusetts public official in an attempt to win lucrative government contracts. A former vice-president of the firm, Neil Morrison offered then Massachusetts State Treasurer Timothy Cahill campaign contributions in exchange for public contracts including 30 prohibited deals to help arrange Massachusetts bond offerings.

Credit Suisse

• Settlement Amount: $120 Million
• Date: November 16, 2012
• Enforcing Agency: Securities and Exchange Commission
• Offense: Fraudulent sales of troubled mortgage backed securities. Some of the underlying loans in their mortgage backed securities were already experiencing delinquency and Credit Suisse failed to inform investors.

Articles and Resources

External Resources

• SEC Enforcement Actions - Addressing Misconduct that Led to or Arose from the Financial Crisis, SEC.gov, Accessed May 22, 2013.
• Gretchen Morgenson, Paying the Price, but Often Deducting It, The New York Times, January 12, 2013.
• Savage, Charlie, Wells Fargo to Settle Mortgage Bias Case, The New York Times, July 12, 2012.
• Cyrus Sanati, Wells Fargo to Repurchase $1.4 Billion of Securities, New York Times, November 18, 2009.