Financial Institution Fraud

April 20, 2017

The CFPB sued one of the country’s largest nonbank mortgage loan servicers, Ocwen Financial Corporation, and its subsidiaries for years of widespread errors, shortcuts, and runarounds that cost some borrowers money and others their homes. Ocwen allegedly botched basic functions like sending accurate monthly statements, properly crediting payments, and handling taxes and insurance. Allegedly, Ocwen also illegally foreclosed on struggling borrowers, ignored customer complaints, and sold off the servicing rights to loans without fully disclosing the mistakes it made in borrowers’ records. CFPB

April 12, 2017

Constantine Cannon Partner Eric Havian was quoted in the San Francisco Chronicle article, Wells Fargo directors: Don’t blame us. Blame former execs, CEO.  

March 30, 2017

The SEC announced fraud charges and an emergency asset freeze obtained against Michigan-based pastor Larry Holley accused of exploiting church members, retirees, and laid-off auto workers who were misled to believe they were investing in a successful real estate business.  The SEC alleges that Holley, pastor of Abundant Life Ministries in Flint, Michigan, cloaked his solicitations in faith-based rhetoric, replete with references to scripture and biblical figures.  According to the SEC’s complaint, which also charges Holley’s company Treasure Enterprise LLC and his business associate Patricia Enright Gray, approximately $6.7 million was raised from more than 80 investors who were guaranteed high returns and told they were investing in a profitable real estate company with hundreds of residential and commercial properties.  In fact, Treasure Enterprise struggled to generate enough revenue from its real estate investments to support the business and make payments to investors.  Additionally, the SEC alleges Gray advertised on a religious radio station based in Flint and singled out recently laid-off auto workers with severance packages to consult her for a “financial increase.”  Gray allegedly promised to roll over investors’ retirement funds into tax-advantaged IRAs and invest them in Treasure Enterprise.  The SEC alleges that no investor funds were deposited into IRAs. SEC

March 29, 2017

A major subprime auto loan funder in Massachusetts, Santander Consumer USA Holdings Inc. (Santander), will pay $22 million for its role in facilitating unfair, high-rate auto loans for thousands of Massachusetts car buyers. The AG’s investigation, handled jointly with the Delaware Attorney General’s Office, revealed that Santander allegedly funded auto loans without having a reasonable basis to believe that the borrowers could afford them. In fact, Santander predicted that many of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers, were incorrect and often inflated. Car loans to consumers with poor credit, known as subprime auto loans, are often made through contracts signed at the car dealership, but the loans are funded by non-dealer financial institutions, like Santander. As part of the funding process, many financial entities resell or repackage the loans, passing them along to third parties. Money obtained from this process is then used to fund more subprime loans. MA

March 23, 2017

New Jersey announced that the manager of a now-defunct Bergen County used car dealership was sentenced to 10 years in prison for his role as “point man” in a bank financing scam that netted $1.4 million in fraudulent loans for luxury cars. Hector Marquez, the general manager of D.I.B Leasing in Teterboro, was also ordered to pay $110,370 in restitution under the sentence handed down yesterday by Superior Court Judge Susan Steele in Bergen County. Marquez, 44, of Monroe, pleaded guilty in July to first-degree money laundering and second-degree misconduct by a corporate official in the dealership case. He also pleaded guilty to second-degree insurance fraud in a separate indictment involving a $139,000 Bentley purchased at his dealership and later torched and reported stolen to an insurance company. He was sentenced to 10 years in prison for that case and will serve both sentences concurrently. Last week, the dealership’s finance manager, Paul Russo, 52, of Scotch Plains, was sentenced to six years in prison and ordered to pay $150,267 in restitution by Superior Court Judge Steele. In July 2015, Russo pleaded guilty to second-degree money laundering and second-degree misconduct by a corporate official in the dealership case. NJ

February 14, 2017

Morgan Stanley Smith Barney will pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.  The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs.  Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a hedging strategy.  Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many clients experienced losses.  The SEC’s order further found that Morgan Stanley failed to follow through on another key policy and procedure requiring a supervisor to conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.  Finally, the SEC’s order found that Morgan Stanley failed to monitor the single ETF positions on an on-going basis and did not ensure that certain financial advisers completed single inverse ETF training.  SEC

February 13, 2017

New York-based brokerage firm Sidoti & Company LLC will pay a $100,000 penalty to settle charges of compliance and trading surveillance failures.  Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.  Sidoti’s hedge fund, by design, invested in issuers covered by Sidoti’s research department and, additionally, some of the issuers for which Sidoti provided investment banking services.  Yet, according to the SEC’s order, for a period of more than eight months, from November 3, 2014 (when the hedge fund commenced trading) until July 10, 2015, Sidoti had no written policies or procedures in place to prevent the misuse of material, nonpublic information by its founder and CEO or any other associated persons that had the authority to or otherwise participated in making investment decisions for the hedge fund.  SEC