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Top Ten Federal Financial Fraud Recoveries of 2018

Posted  January 25, 2019

While 2018 has been a banner year for FCPA, Tax, and SEC & CFTC recoveries, in the bottomless pit of financial frauds that hurt taxpayers, the government, consumers, investors, and the American economy, 2018 brought us additional stunning recoveries for violations related to residential-mortgage backed securities, international economic sanctions, consumer protection, anti-money-laundering, EB-5 investment fraud, and even investment fraud in the Fyre Festival. The following are Constantine Cannon’s (CC’s) Top Ten Federal Financial Fraud Recoveries (other than those featured CC’s other Top Ten posts):

  1. RMBS/FIRREA cases – Topping our list and weighing in at over $8B total in recoveries are a cluster of RMBS (residential-mortgage backed securities) cases under FIRREA, led by $ multi-billion penalties against Royal Bank of Scotland Group (a Catch of the Week honoree) and Wells Fargo. These cases, along with others against HSBC, Nomura, and Aurora Loan Services (a Lehman Brothers subsidiary) hold these entities accountable for their part in the U.S. 2008 financial crisis. The misconduct includes various schemes (for example, sham due diligence) that misled investors, including Fannie Mae, Freddie Mac, non-profits, retirement funds, and federally insured financial institutions.
  2. Société GénéraleSerial financial fraudster Société Générale S.A. inhabits our number 2 spot for its $1.34 billion penalty for violating U.S. sanctions laws against Cuba. The bank violated the Trading with the Enemy Act (“TWEA”) when it processed $ billions involving Cuban credit facilities and on behalf of Cuban entities through the U.S. financial system. Notably, much of the civil penalty is intended for the United States Victims of State Sponsored Terrorism Fund. In the interest of national security and foreign policy, enforcement of U.S. economics-sanctions laws continues to be a hot priority area.  Société Générale also features in our Top Ten FCPA Recoveries and SEC/CFTC Recoveries of 2018.
  3. Wells Fargo Bank – Wells Fargo nabs our only CFPB spot in this list. The Consumer Financial Protection Bureau assessed a whopping $1B penalty against the bank for harming consumers when it violated the Consumer Financial Protection Act (CFPA). Wells Fargo’s misconduct involved its administration of a mandatory insurance program for auto loans and its charges for mortgage interest rate-lock extensions.
  4. Rabobank – In one of two anti-money-laundering (AML) cases making this Top Ten list, Rabobank National Association, the California subsidiary of Netherlands-based Coöperatieve Rabobank, pleaded guilty to federal crimes, but not for money-laundering itself. When transactions raised red flags for narcotics trafficking, organized crime, and money laundering, the bank looked the other way, then compounded the problem by covering up anti-money laundering deficiencies and obstructing the investigation. Rabobank copped to the charges and forfeited some $369M. With the Panama and Paradise papers releases, money laundering is a hot area in recent financial frauds, and the CC Whistleblower Team advocates for more targeted AML whistleblower programs.
  5. Deloitte & Touche – Deloitte & Touche carries us to the second stop in this list’s mortgage fraud tour. The accounting company agreed to pay an eye-popping $149.5M for its role in the ultimate collapse of loan originator Taylor, Bean & Whitaker Mortgage Corp. (TBW). TBW had engaged in a long-running scheme involving the sale of fictitious or double-pledged mortgage loans, concealing severe financial distress in its financial statements. In its role as an independent outside auditor, Deloitte & Touche allegedly deviated from applicable auditing standards and failed to detect fraudulent conduct that enabled TBW’s fraud until TBW failed. This recovery demonstrates that accounting fraud cases in which auditors fail in their standards and duties to protect the public remain of keen enforcement interest.
  6. MoneyGram International Inc. – In our second anti-money-laundering (AML) case in this Top Ten list, MoneyGram learned the hard way that prior settlements with the government do not give license to resume questionable activities. MoneyGram agreed to pay a whopping $125M for allegedly violating a 2009 FTC order and a 2012 deferred-prosecution agreement that required the global money transfer business to implement fraud prevention and AML measures. The underlying fraud scams targeted elderly and vulnerable groups by falsely claiming to be relatives in dire straits or falsely promising cash prizes, requiring victims to send funds through MoneyGram. MoneyGram failed to suspend or terminate locations or corrupt employees or to block known fraudsters despite its prior promises to the government. This case demonstrates that money transfer companies cannot look away in the face of obvious signs of fraud and money laundering.
  7. HSBC – UK-based financial services company HSBC Holdings agreed to pay almost $100M in criminal penalties, disgorgement, and restitution on criminal charges that it defrauded bank clients in a “front-running” scheme. The bank’s staggering fines follow its breach of client confidentiality agreements when its foreign exchange desk used the client information to manipulate the price of British Pound Sterling – benefitting the bank while harming the clients. With its mention in No. 1, above, HSBC graces this Top Ten list twice.
  8. Ariel Quiros – The chickens came home to roost for Mr. Quiros who finally agreed to some accountability for his role in fraud rooted in the EB-5 Immigrant Investor Program. The EB-5 program allows permanent U.S. residency for those who finance projects that create a certain amount of jobs. Mr. Quiros, along with another individual, abused some $200M raised from foreign investors for a Vermont-based ski resort. Instead of using the funds for their stated purposes, he bought other properties and paid personal expenses and tax liabilities. For his pains, Mr. Quiros agreed with the SEC to repay more than $81M of investor funds. Mr. Quiros is one of the last to settle the SEC’s claims related to this scheme; prior settling wrongdoers include Bill Stenger (an individual) and Raymond James Financial Inc.
  9. Nippon Chemi-Con – Nippon Chemi-Con, a maker of electrolytic capacitors, suffered the largest criminal fine to date – $60 million – in a DOJ investigation into massive collusion in the capacitors industry. The company conspired to suppress and eliminate competition for electrolytic capacitors from at least 2001 to 2014. Eight companies, all of which have pleaded guilty, and 10 individuals (two of whom have pleaded guilty) have been charged. Fraud based on anti-trust and anti-competitive activities is rampant and continues to lead to some of the largest recoveries intended to benefit consumers and the free market. The DOJ is committed to holding companies and individuals accountable, whether foreign or domestic. The CC Whistleblower Team advocates for more robust whistleblower reward programs for anti-trust-related frauds.
  10. McFarland (Fyre Festival) – Twenty-seven-year-old New York entrepreneur William Z. McFarland agreed to a permanent officer-and-director bar and disgorgement of $27.4 million to settle charges he defrauded more than 100 investors to in the Fyre Festival – an ill-fated “life-changing, luxury” music event in the Bahamas. The festival allegedly descended into chaos with insufficient food, water, shelter, medical care, and left some concertgoers stranded after the officials placed the site on lockdown for failure to pay customs duties on items imported for the event. The government charged Mr. McFarland with lying to investors by exaggerating his successes with doctored statements, fabricated sales, and lying about the status of insurance. Although Mr. McFarland’s staggering SEC penalty makes our Top Ten list, the CC Whistleblower team has queried readers whether he in fact suffered the punishment he deserves. A $100M class action continues to wend its way through the courts.

2018’s Top Ten Federal Financial Frauds represents the breadth and staggering scope of the myriad financial frauds that hurt taxpayers, consumers, the government, and the U.S. economy.  Many other fraud recoveries in 2018 could have made the list. To read more:

Tagged in: Accounting Fraud, Financial and Investment Fraud, Financial Institution Fraud, FIRREA, Foreign Exchange, Housing and Mortgage Fraud, Market Manipulation and Trading Violations, Misrepresentations, Securities Fraud, Top 10, Visa Fraud,


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