Financial Institution Fraud

January 19, 2017

The CFPB sued TCF National Bank for tricking consumers into costly overdraft services. The CFBP alleges TCF designed its application process to obscure the fees and make overdraft seem mandatory for new customers to open an account, even though banks cannot charge overdraft fees on one-time debit purchases and ATM withdrawals without a consumer’s consent. TCF also adopted a loose definition of consent for existing customers in order to opt them into the service and pushed back on any customer who questioned the process. CFPB

January 18, 2017

Illinois filed a lawsuit against Navient Corporation, its subsidiaries Navient Solutions Inc., Pioneer Credit Recovery Inc. and General Revenue Corporation and Sallie Mae Bank, over widespread abuses across all aspects of its business, including student lending, student loan servicing and student loan debt collection. Madigan’s complaint alleges that Navient’s practices harmed borrowers and put the company’s profits before the interests of millions of student borrowers across the country. For decades, Navient and Sallie Mae have been involved in the business of student lending – from the origination of loans, to the servicing of those loans for repayment, and the collection of loans that enter into default. In this time, Madigan alleged that Navient grew its student loan company into one of the country’s largest by engaging in practices that repeatedly harmed borrowers. IL

January 18, 2017

The CFPB sued the nation’s largest servicer of both federal and private student loans, Navient, for systematically and illegally failing borrowers at every stage by providing bad information, processing payments incorrectly, and failing to act when borrowers complained. Navient also used short cuts and deception to illegally cheat many struggling borrowers out of their rights to lower repayments. CFPB

January 13, 2017

The Department of Justice, 21 states, and the District of Columbia reached a nearly $864 million settlement agreement with Moody’s Investors Service Inc., Moody’s Analytics Inc., and their parent, Moody’s Corporation to resolve allegations arising from Moody’s role in providing credit ratings for Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDO), contributing to the worst financial crisis since the Great Depression. According to the government, "Moody’s failed to adhere to its own credit rating standards and fell short on its pledge of transparency in the run-up to the Great Recession [and] . . . used a more lenient standard than it had itself published." The settlement includes a $437.5 million federal civil penalty, which is the second largest payment of this type ever made to the federal government by a ratings agency. DOJ

January 13, 2017

Illinois, the Department of Justice, and 21 other states announced an $864 million settlement with Moody’s Corporation, Moody’s Investors Service Inc. and Moody’s Analytics Inc. to resolve allegations that the credit ratings agency compromised its independence and objectivity in assigning its highest ratings to risky mortgage-backed securities and other structured finance securities in the lead up to the 2008 economic collapse. According to the settlement, Moody’s consistently made misrepresentations about the processes it used to assign credit ratings to structured finance securities. While publicly promising independent, objective analyses, the company privately relaxed its ratings criteria to ensure its clients’ residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) would achieve higher ratings than the actual quality of the assets supported. Structured finance securities, including RMBS and CDOs, derive their value from the monthly payments consumers make on their mortgages. The alleged misconduct began as early as 2001 and became particularly rampant between 2004 and 2007. IL, CA, PA, MA

December 21, 2016

The SEC announced fraud charges against Navnoor Kang, the former Director of Fixed Income for the New York State Common Retirement Fund, and Greg Schonhorn and Deborah Kelly, registered representatives of two different broker-dealers.  According to the SEC’s complaint, Schonhorn and Kelly orchestrated a pay-to-play scheme in which Kang steered billions of dollars in pension business to certain firms in exchange for luxury gifts, lavish vacations, and tens of thousands of dollars spent on hotel rooms, restaurants, cocaine, and prostitutes.  SEC

December 20, 2016

Morgan Stanley & Co. LLC will pay $7.5 million to settle charges it used trades involving customer cash to lower the firm’s borrowing costs in violation of the SEC’s Customer Protection Rule.  The Customer Protection Rule is intended to safeguard customers’ assets so that they can be promptly returned should the broker-dealer fail.  The SEC’s order found that from March 2013 to May 2015, Morgan Stanley had its affiliate Morgan Stanley Equity Financing Ltd. serve as a customer of its U.S. broker-dealer.  This allowed the affiliate to use margin loans from the broker-dealer to finance the costs of hedging swap trades with customers.  The margin loans lowered the borrowing costs incurred to hedge these swap trades and reduced the U.S. broker-dealer’s customer reserve account deposit requirements by tens to hundreds of millions of dollars per day.  According to the SEC’s order, the transactions violated the Customer Protection rule, which prohibits broker-dealers from using affiliates to reduce their customer reserve account deposit requirements.  SEC

January 12, 2017

New York announced the resolution of a four-year investigation of Citigroup Global Markets, Inc. (CGMI), a subsidiary of Citigroup, that revealed that CGMI had overcharged over 47,000 of its customers more than $22.5 million in fees. After the Attorney General’s Office launched its investigation, CGMI revised its policies and procedures to address the fee overcharge issues uncovered in the investigation, and as a part of the agreement CGMI admits the findings of Attorney General Schneiderman’s investigation. In cooperation with the Attorney General’s investigation, in October 2014 CGMI began reimbursing its customers in full with interest, for the overcharged fees. The agreement also requires CGMI to report fee overcharge issues to the New York Attorney General’s office for the next three years and to pay a penalty of $1 million to the State of New York. The fee overcharges at issue in the investigation arose (1) when CGMI overcharged some of its customers more than the fees they had negotiated on their managed investment accounts, and (2) when CGMI overcharged customers by failing to rebate certain customers’ accounts after periods of inactivity when fees should not have been charged but were charged. NY