Financial and Investment Fraud

February 23, 2016

The CFPB filed two orders against Citibank relating to the bank’s illegal debt sales and debt collection practices.  The bureau ordered Citibank to provide nearly $5 million in consumer relief and pay a $3 million penalty for selling credit card debt with inflated interest rates and failing to forward consumer payments promptly to debt buyers.  Separately, the CFPB ordered Citibank to comply with a court order requiring the bank to refund $11 million to consumers and forgo collecting an additional $34 million for filing altered affidavits in debt collection litigations.   CFPB

February 16, 2016

New York announced the conviction and sentencing of Frederick E. Monroe, Jr., 59, of Queensbury, New York, for stealing over $5 million from investors by fraudulently soliciting them to reinvest their retirement monies. In December 2015, Monroe pleaded guilty in Albany County Court to Scheme to Defraud, Grand Larceny, Money Laundering and Securities Fraud for luring clients with whom he had established relationships with over his 20-year career as a financial planner, and then diverting their monies for his own personal use, as well as to pay back earlier investors he had defrauded. NY

February 11, 2016

Morgan Stanley agreed to pay a $2.6 billion penalty “for misleading investors about the subprime mortgage loans underlying the securities it sold” in the period leading up to the financial crisis.  As part of the agreement, Morgan Stanley admitted that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its residential mortgage-backed securities (RMBS) which ultimately caused investors, including federally insured financial institutions, to lose billions of dollars from investing in Morgan Stanley in the 2006-07 timeframe.  The $2.6 billion civil penalty resolves claims under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  In addition, the states of New York and Illinois announced their own settlements with Morgan Stanley for $550 million and $22.5 million, respectively.  When combined with prior settlements with other regulators -- $225 million to the National Credit Union Administration; $1.25 billion to the Federal Housing Finance Agency; $86.95 million to the Federal Deposit Insurance Corporation; and $275 million to the SEC -- this brings to almost $5 billion the total payout by Morgan Stanley in connection with its fraudulent sales of RMBS.  Whistleblower Insider

February 11, 2016

New York, in conjunction with members of a state and federal working group announced a $3.2 billion settlement with Morgan Stanley over the bank’s deceptive practices leading up to the financial crisis. The settlement includes $550 million – $400 million worth of consumer relief and $150 million in cash – that will be allocated to New York State. The resolution requires Morgan Stanley to provide significant community-level relief to New Yorkers, including loan reductions to help residents avoid foreclosure, and funds to spur the construction of more affordable housing. Additional resources will be dedicated to helping communities transform their code enforcement systems, invest in land banks, and purchase distressed properties to keep them out of the hands of predatory investors. NY

February 5, 2016

HSBC Bank USA agreed to pay $470 million settle charges of mortgage origination, servicing and foreclosure abuses.  According to the government, "the agreement is part of our ongoing effort to address root causes of the financial crisis."  The settlement parallels the $25 billion National Mortgage Settlement reached in February 2012 between the federal government, 49 state attorneys general and the District of Columbia’s attorney general and the five largest national mortgage servicers, as well as the $968 million settlement reached in June 2014 between those same federal and state partners and SunTrust Mortgage.  DOJ

February 5, 2016

The Department of Justice, the Department of Housing and Urban Development, the Consumer Financial Protection Bureau, along with 49 states, and the District of Columbia announced that HSBC will pay $470 million to address mortgage origination, servicing, and foreclosure abuses. The settlement also requires HSBC to substantially change how it services mortgage loans, handles foreclosures and ensures the accuracy of information provided in bankruptcy court. These terms are meant to prevent abuses such as robo-signing, improper documentation and the loss of paperwork. NY, CA, PA, TX, IL, MA

January 27, 2016

Arizona developer and attorney John Keith Hoover was sentenced to 10 years in prison for his role in a major investment and bankruptcy fraud in which he created nearly two dozen companies solicit money from Arizona and California investors for bogus real-estate developments.  Several investors were widows who gave Hoover control of the bulk of their estates based on his friendship with their families and because of the trust he developed as an attorney.  Hoover encouraged investors to liquidate retirement accounts, life-insurance policies, mutual funds and securities, and Social Security death benefits to fund their investments with him, and then used investor money to pay his living expenses.  When he ran out of money, he refinanced properties with false representations about salary, assets, liabilities, employment, and sources of down payments. Then, he and his wife filed bankruptcy while hiding assets.  DOJ (AZ)

January 14, 2016

State Street Bank and Trust Company will pay $12 million to settle charges that it conducted a pay-to-play scheme to win contracts to service Ohio pension funds.  An SEC investigation found that Vincent DeBaggis, head of State Street’s public funds group, made a deal with Ohio’s then-deputy treasurer under which DeBaggis would make illicit cash payments and political campaign contributions in exchange for three lucrative contracts to safeguard certain funds’ investment assets and effect the settlement of their securities transactions.  DeBaggis will pay almost $275,000 to settle the SEC’s charges.  In related proceedings, attorney Robert Crowe, who worked as a lobbyist and fundraiser for State Street, was charged in federal court for his role in the scheme.  SEC