Financial Institution Fraud

January 25, 2017

The SEC announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.  The SEC alleges that the firm, formerly Meyers Associates L.P. failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who were separately charged by the SEC with conducting a pump-and-dump scheme.  The SEC alleges that Windsor and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts.  Customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm.  The SEC further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available.  Rather than conduct a reasonable inquiry into the deposits, Windsor allegedly accepted claims of exemption at face value.  The SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo, and Justin Sindelman.  The complaint alleges that they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices.  Barton, Goode, Briggs, and Manzo will pay almost $8.8 million collectively to settle the charges brought against them.  SEC

January 24, 2017

Morgan Stanley Smith Barney and Citigroup Global Markets will pay $2.96 million each to settle charges that they made false and misleading statements about a foreign exchange trading program sold to investors.  According to the SEC’s orders, Citigroup held a 49% ownership interest in Morgan Stanley at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as “CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011.  The SEC’s orders finds that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade.  The undisclosed leverage and markups caused investors to suffer significant losses.  SEC

January 13, 2017

Morgan Stanley Smith Barney will pay a $13 million penalty to settle charges that it overbilled more than 149,000 investment advisory clients due to billing system errors.  According to the SEC’s order, Morgan Stanley received more than $16 million in excess fees between 2002 and 2016 due to more than 36 types of billing errors.  Morgan Stanley has reimbursed the full amount plus interest to affected clients.  The SEC’s order also found that Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination.  SEC

January 31, 2017

All 50 states and the District of Columbia announced a joint settlement with Colorado-based The Western Union Company, resolving a multistate investigation which focused on complaints of consumers who used Western Union’s wire transfer service to send money to third parties involved in schemes to defraud consumers. The settlement requires Western Union to develop and put into action a comprehensive anti-fraud program designed to help detect and prevent incidents where consumers who have been the victims of fraud use Western Union to wire money to scam artists. Western Union also has agreed to pay a total of $5 million to the states for the states’ costs and fees. In addition to this settlement with the states, Western Union also settled claims related to fraud-induced transfers with the Federal Trade Commission and U.S. Department of Justice, as announced on January 19, 2017. As part of those related settlements, Western Union has agreed to pay $586M to a fund that the Department of Justice will administer to provide refunds to victims of fraud induced wire transfers nationwide. NY, FL, MA, OH, PA

January 30, 2017

Florida announced a $1.5 million life claim settlement agreement reached with subsidiaries of the Ameriprise Group, RiverSource Life Insurance Company and RiverSource Life Insurance Company of New York. The settlement agreement focuses on the one-sided use of the Social Security Administration’s Death Master File to stop paying a deceased person’s annuity, but not using the same information to find and begin paying the deceased’s family or other beneficiaries for life insurance policies. Florida, California, New Hampshire, North Dakota and Pennsylvania conducted the examination into the companies that led to this agreement. Florida’s allocation of the multi-state settlement payment by Ameriprise is more than $111,000, which covers the costs of the investigations and future compliance monitoring. To date, state insurance regulators have either reached settlements or concluded the investigation of 28 of the top 40 companies constituting 80 percent of the total market. Efforts continue to be focused on the examination of the remaining 12 insurers. FL

January 26, 2017

E*TRADE Securities LLC and E*TRADE Clearing LLC were ordered to pay a $280,000 civil monetary penalty by the CFTC for failing to failure to retain required records and failure to diligently supervise. The CFTC found that between October 2009 and January 2014, E*TRADE Securities did not preserve and maintain certain audit trial logs for their customers. CFTC

January 23, 2017

The CFPB took separate actions against CitiFinancial Servicing and CitiMortgage, Inc. for creating obstacles for struggling homeowners seeking options to save their homes. The mortgage servicers kept borrowers in the dark about options to avoid foreclosure or burdened them with excessive paperwork demands in applying for foreclosure relief. CitiMortgage has been ordered to pay an estimated $17 million in compensation and another $3 million in civil penalties. CitiFinancial Services is to refund approximately $4.4 million to consumers, and pay a civil penalty of $4.4 million. CFPB

January 19, 2017

Colorado-based global money services business Western Union Company agreed to forfeit $586 million and enter into agreements with DOJ, FTC, and the U.S. Attorney’s Offices for the Middle District of Pennsylvania, the Central District of California, the Eastern District of Pennsylvania and the Southern District of Florida to settle criminal violations relating to the company's failure to maintain an effective anti-money laundering program and aiding and abetting wire fraud. According to company admissions, Western Union violated the Bank Secrecy Act (BSA) and anti-fraud statutes by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme. As part of the scheme, fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes or job opportunities. The fraudsters directed the victims to send money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds. The company also agreed to pay a $586 million judgement to settle related FTC charges. DOJ

January 18, 2017

Massachusetts-based global financial services company State Street Corporation agreed to pay a $32.3 million criminal penalty to resolve charges it engaged in a scheme to defraud a number of the bank’s clients by secretly applying commissions to billions of dollars of securities trades. The company also agreed to pay the SEC a civil penalty of the same amount to settle related charges for a total government payout of roughly $65 million. According to company admissions, bank employees conspired to add secret commissions to fixed income and equity trades performed for at least six clients of the bank’s “transition management” business, which helps institutional clients move their investments between and among asset managers or liquidate large investment portfolios. The commissions were charged on top of fees the clients had agreed to pay the bank, and despite written instructions to the bank’s traders that generally reflected that the clients were not to be charged trading commissions. State Street employees took steps to hide the commissions from the clients. DOJ