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Top Ten Federal Financial Fraud Recoveries of 2019

Posted  January 17, 2020

The U.S. government has a range on enforcement options for financial and investment fraud, including those that provide for whistleblower rewards such as the SEC Whistleblower Program, the CFTC Whistleblower Program, and the IRS Whistleblower Program, each of which are very much open for business and continuing to pay millions of dollars in whistleblower awards in exchange for their assistance in exposing fraud.

However, financial fraud is as pervasive as ever, and federal enforcement actions run the gamut from cases involving housing and mortgage fraud, accounting fraud, bribery, money laundering, and price fixing. The following are Constantine Cannon’s Top Ten Federal Financial Fraud Recoveries, other than those featured in our other Top Ten posts devoted to specific programs and agencies.

    1. General Electric – General Electric (GE), previously honored as a Catch of the Week, wins first place with a penalty of $1.5 billion paid to the Department of Justice (DOJ) under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), as a result of the company’s marketing of subprime residential mortgage loans. GE misrepresented the quality of the loans as well as their internal quality and fraud controls for residential mortgage-backed securities through its subsidiary WMC Mortgage. This type of housing and mortgage fraud contributed directly to the 2008 financial crisis and caused billions of dollars in losses. While GE’s quality control department may have been a “toothless tiger” incapable of addressing these gross violations, the U.S. government showed it still has claws to pursue financial fraud.
    2. UniCredit – Coming in at a close second is UniCredit Bank AG and its affiliated entities, who agreed to pay more than $1.3 billion to resolve criminal charges and allegations of unlawful conduct for processing hundreds of millions of dollars in transactions on behalf of Iranian entities, including a sanctioned manufacturer of weapons of mass destruction – talk about a bombshell announcement. The hefty fine was paid to several federal and state agencies, including DOJ, the Federal Reserve, Treasury’s Office of Foreign Assets Control, and the New York Department of Financial Services.
    3. Standard Chartered – London-based Standard Chartered Bank agreed to pay $1.1 billion to resolve criminal charges and allegations of unlawful conduct on both sides of the pond. Like UniCredit, Standard Chartered admitted to processing financial transactions worth hundreds of millions of dollars for the benefit of entities and individuals subject to Iranian sanctions, but it also falsified records of New York financial institutions and had crucial deficiencies in its compliance programs.
    4. Equifax – Credit-reporting company Equifax agreed to pay $700 million due to its failure to properly secure network and consumer data, resulting in a hack and massive breach exposing the private information of nearly 150 million people despite being warned beforehand that its systems were vulnerable. The penalty comprises payments to affected consumers, the Consumer Financial Protection Bureau (CFPB), multiple states, the District of Columbia and Puerto Rico. Equifax also agreed to an independent review of its security systems moving forward and to provide all of its customers with multiple free credit reports over a period of seven years, but you can’t put a price on data security and customer trust.
    5. Jho Low – Tied with Equifax at $700 million is Jho Low, who fraudulently acquired funds from Malaysia’s international development fund (1MDB). The misappropriated monies were linked to several luxury properties, including high-end real estate in New York and London, plus a boutique hotel in Beverly Hills. He might have been living the high life, but Low’s behavior certainly lives up to his name.
    6. StarKist – StarKist, the tuna processor, landed in hot water when it engaged in a price-fixing conspiracy with competitors Bumble Bee Foods and Chicken of the Sea due to falling demand for its products. As a result, millions of American households and businesses purchased canned tuna at inflated prices. The price-fixing scheme, which lasted two years, came to light thanks to Chicken of the Sea executives, who smelled something fishy and crowed to federal investigators. U.S. District Court Judge Edward Chen ordered StarKist to pay a $100 million fine – the statutory maximum – despite the company’s claims that it would be bankrupted. As the market leader in packaged seafood, StarKist’s participation was crucial for the conspiracy’s success. While Chicken of the Sea was granted immunity in exchange for its cooperation, Bumble Bee was fined $25 million in 2017 and all three companies are currently facing civil lawsuits.
    7. Outcome Health – Outcome Health, a digital provider of medical information and advertising to doctors’ offices, sold non-existent inventory to the tune of almost $1 billion in debt and equity financing after issuing fraudulent financial statements, in addition to falsifying customer reports and inflating the quantity and quality of its services. The company agreed to pay $70 million to the victims of their misrepresentations. Fraudulent business practices in the healthcare industry are prevalent and cannot be allowed to spread.
    8. Northern Resolution Group and others – After routinely engaging in predatory debt collection practices (g. misrepresenting to consumers that they owed sums they did not owe or falsely threatening them with legal action), the government came to collect at Northern Resolution Group’s door in this list’s second CFPB case. Colluding with other individuals and entities, Northern Resolution Group purchased millions of dollars in consumer debt, inflated these amounts, and relied on illegal tactics to extract as much money as possible from vulnerable consumers. The culprits were ordered to pay over $66 million in restitution, and permanently banned from the debt collection industry.
    9. Univar – Rounding up the list with a customs fraud case is Univar USA, a subsidiary of chemical and ingredients distributor Univar Inc., which agreed to pay the U.S. government $62.5 million to settle claims that it engaged in the unlawful transshipment of saccharin manufactured in China in order to evade antidumping duties. According to the DOJ, Univar evaded $36 million in antidumping duties by negligently importing saccharin from Taiwan without verifying its origin, which was actually a Chinese manufacturer. This is the largest recovery ever reached in the U.S. Court of International Trade under the applicable customs statute. As this case demonstrates, it pays for importers to fully vet suppliers and comply with customs regulations.
    10. NHK Spring – Price-fixing again led to substantial criminal fines, this time against Japanese manufacturer NHK Spring Co. Ltd., which agreed to pay $28.5 million and plead guilty to a charge that it conspired with its fellow manufacturers of components used in the assembly of hard disk drives. According to DOJ, NHK Spring shared pricing and other information with its co-conspirators so that NHK Spring and others could use that information in negotiations with U.S. and other customers looking to purchase components.  The price-fixing and market allocation resulting from the conspiracy is resulted in unfair competition and inflated prices.  DOJ’s investigation is ongoing.

2019’s Top Ten Financial Frauds represent some of the most egregious cases of financial fraud affecting taxpayers, consumers, the government, and the U.S. economy.  For information about top recoveries in government enforcement actions involving specific agencies and programs, see the rest of our Top Ten Lists.

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Tagged in: Financial and Investment Fraud, Financial Institution Fraud, FIRREA, Housing and Mortgage Fraud, Top 10,


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