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Promises Made, and Remade, by Firms in S.E.C. Fraud Cases

Posted by on Nov. 9, 2011 at 10:06 AM
  • 5 Replies

WASHINGTON — When Citigroup agreed last month to pay $285 million to settle civil charges that it had defrauded customers during the housing bubble, the Securities and Exchange Commission wrested a typical pledge from the company: Citigroup would never violate one of the main antifraud provisions of the nation’s securities laws.

To an outsider, the vow may seem unusual. Citigroup, after all, was merely promising not to do something that the law already forbids. But that is the way the commission usually does business. It also was not the first time the firm was making that promise.

Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same antifraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000.

Citigroup is far from the only such repeat offender — in the eyes of the S.E.C. — on Wall Street. Nearly all of the biggest financial companies, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America among them, have settled fraud cases by promising the S.E.C. that they would never again violate an antifraud law, only to do it again in another case a few years later.

A New York Times analysis of enforcement actions during the last 15 years found at least 51 cases in which 19 Wall Street firms had broken antifraud laws they had agreed never to breach.

On Wednesday, Judge Jed S. Rakoff of the Federal District Court in Manhattan, an S.E.C. critic, is scheduled to review the Citigroup settlement. Judge Rakoff has asked the agency what it does to ensure companies do not repeat the same offense, and whether it has ever brought contempt charges for chronic violators. The S.E.C. said in a court filing Monday that it had not brought any contempt charges against large financial firms in the last 10 years.

Since the financial crisis, the S.E.C. has been criticized for missing warning signs that could have softened the blow. The pattern of repeated accusations of securities law violations adds another layer of concerns about enforcing the law. Not only does the S.E.C. fail to catch many instances of wrongdoing, which may be unavoidable, given its resources, but when it is on the case, financial firms often pay a relatively small price.

Senator Carl Levin, a Michigan Democrat who is chairman of the Senate permanent subcommittee on investigations and has led several inquiries into Wall Street, said the S.E.C.’s method of settling fraud cases, is “a symbol of weak enforcement. It doesn’t do much in the way of deterrence, and it doesn’t do much in the way of punishment, I don’t think.”

Barbara Roper, director of investor protection for the Consumer Federation of America, said, “You can look at the record and see that it clearly suggests this is not deterring repeat offenses. You have to at least raise the question if other alternatives might be more effective.”

S.E.C. officials say they allow these kinds of settlements because it is far less costly than taking deep-pocketed Wall Street firms to court and risking losing the case. By law, the commission can bring only civil cases. It has to turn to the Justice Department for criminal prosecutions.

Robert Khuzami, the S.E.C.’s enforcement director, said never-do-it again promises were a deterrent especially when there were repeated problems. In their private discussions, commissioners weigh a firm’s history with the S.E.C. before they settle on the amount of fines and penalties. “It’s a thumb on the scale,” Mr. Khuzami said. “No one here is disregarding the fact that there were prior violations or prior misconduct,” he said.

But prior violations are plentiful. For example, Bank of America’s securities unit has agreed four times since 2005 not to violate a major antifraud statute, and another four times not to violate a separate law. Merrill Lynch, which Bank of America acquired in 2008, has separately agreed not to violate the same two statutes seven times since 1999.

Of the 19 companies that the Times found to be repeat offenders over the last 15 years, 16 declined to comment. They read like a Wall Street who’s who: American International Group, Ameriprise, Bank of America, Bear Stearns, Columbia Management, Deutsche Asset Management, Credit Suisse, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Putnam Investments, Raymond James, RBC Dain Rauscher, UBS and Wells Fargo/Wachovia.

Rest of article:

http://www.nytimes.com/2011/11/08/business/in-sec-fraud-cases-banks-make-and-break-promises.html?_r=3&scp=1&sq=Promises%20made,%20Then%20Broken&st=cse

Tin Hatters
http://www.cafemom.com/group/101527
by on Nov. 9, 2011 at 10:06 AM
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Replies (1-5):
Veni.Vidi.Vici.
by on Nov. 9, 2011 at 10:15 AM


Quoting smalltowngal:


Barbara Roper, director of investor protection for the Consumer Federation of America, said, “You can look at the record and see that it clearly suggests this is not deterring repeat offenses. You have to at least raise the question if other alternatives might be more effective.”

S.E.C. officials say they allow these kinds of settlements because it is far less costly than taking deep-pocketed Wall Street firms to court and risking losing the case. By law, the commission can bring only civil cases. It has to turn to the Justice Department for criminal prosecutions.


http://www.nytimes.com/2011/11/08/business/in-sec-fraud-cases-banks-make-and-break-promises.html?_r=3&scp=1&sq=Promises%20made,%20Then%20Broken&st=cse

this sums it up for me.....

stormcris
by Christy on Nov. 9, 2011 at 10:18 AM

I am curious how this is less costly if they continue to violate the people over and over again. At any rate this is like having a child destroy a house and saying ok your forgiven as long as you don't do it again, then when he does it again say the same thing.

Veni.Vidi.Vici.
by on Nov. 9, 2011 at 10:22 AM


Quoting stormcris:

I am curious how this is less costly if they continue to violate the people over and over again. At any rate this is like having a child destroy a house and saying ok your forgiven as long as you don't do it again, then when he does it again say the same thing.

I have to wonder who can be held accountable for breaking the law, what the punishment would be and if they could even be legitimately prosecuted. Fines? Fines are a slap on the wrist and can be accrued from unwitting customers as a fee or a surcharge. 

IMO until there is a reasonable way to hole the whole company criminally negligent it will continue and there isn't a damned thing we can do about it.

stormcris
by Christy on Nov. 9, 2011 at 10:33 AM
1 mom liked this

They can restrict their trading and transfer account. The SEC has may may ways to impose penalties and it uses them on certain companies while letting others slide. They can enforce penalties up to three times the amount of fraud and can stop them from trading or ban them from the same activities they were caught committing fraud on. A major problem with the SEC is the punishment is not predictable across the board and generally the least possible penalty is enforced.

It would honestly do the SEC well to handle all the negligence cases and impose penalities across the board because it would send a greater message. It may not be the hard cases of fraud but they are not doing a good job of getting those under control and hitting the lesser offenses may make a bigger impact. 

Quoting Veni.Vidi.Vici.:


Quoting stormcris:

I am curious how this is less costly if they continue to violate the people over and over again. At any rate this is like having a child destroy a house and saying ok your forgiven as long as you don't do it again, then when he does it again say the same thing.

I have to wonder who can be held accountable for breaking the law, what the punishment would be and if they could even be legitimately prosecuted. Fines? Fines are a slap on the wrist and can be accrued from unwitting customers as a fee or a surcharge. 

IMO until there is a reasonable way to hole the whole company criminally negligent it will continue and there isn't a damned thing we can do about it.


Fear of serious injury alone cannot justify oppression of free speech and assembly. Men feared witches and burnt women. It is the function of speech to free men from the bondage of irrational fears.
Louis D. Brandeis
smalltowngal
by Platinum Member on Nov. 9, 2011 at 10:51 AM

I have my doubts that the SEC will even go after these institutions. A lot of them got there jobs at the SEC after working in financial firms. They're not going to go after their previous coworkers especially if they're looking at getting a job back in the financial field after leaving the SEC. It's amazing how many of these government officials end up making 7 figure bonuses after leaving the government. :(

The whole system is broken. Hopefully, people will continue withdrawing their money from these big banks and demand they do better.

Quoting stormcris:

They can restrict their trading and transfer account. The SEC has may may ways to impose penalties and it uses them on certain companies while letting others slide. They can enforce penalties up to three times the amount of fraud and can stop them from trading or ban them from the same activities they were caught committing fraud on. A major problem with the SEC is the punishment is not predictable across the board and generally the least possible penalty is enforced.

It would honestly do the SEC well to handle all the negligence cases and impose penalities across the board because it would send a greater message. It may not be the hard cases of fraud but they are not doing a good job of getting those under control and hitting the lesser offenses may make a bigger impact. 

Quoting Veni.Vidi.Vici.:


Quoting stormcris:

I am curious how this is less costly if they continue to violate the people over and over again. At any rate this is like having a child destroy a house and saying ok your forgiven as long as you don't do it again, then when he does it again say the same thing.

I have to wonder who can be held accountable for breaking the law, what the punishment would be and if they could even be legitimately prosecuted. Fines? Fines are a slap on the wrist and can be accrued from unwitting customers as a fee or a surcharge. 

IMO until there is a reasonable way to hole the whole company criminally negligent it will continue and there isn't a damned thing we can do about it.



Tin Hatters
http://www.cafemom.com/group/101527
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