Financial Institution Fraud

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 4, 2016

Miami-based brokerage firm E.S. Financial Services, now known as Brickell Global Markets, will pay a $1 million penalty to settle charges that it violated anti-money laundering rules by allowing foreign entities to buy and sell securities without verifying the identities of non-U.S. citizens who beneficially owned them.  Federal law requires all financial institutions to maintain an adequate customer identification program to ensure they know their customers and do not become a conduit for money laundering or terrorist financing.  But during SEC examinations, the firm twice failed to provide required books and records identifying certain foreign customers whom they were soliciting directly and to whom they were providing investment advice.  An ensuing investigation found that the firm’s customer identification program failed to obtain and maintain documentation to verify the identities of 23 non-U.S. citizens, the beneficial owners of 13 non-U.S. corporate entities, who executed more than $23 million in securities transactions through a brokerage account opened by a Central American bank affiliated with the firm.  SEC

February 2, 2016

Fourteen municipal underwriting firms will pay civil penalties to settle charges under the SEC’s Municipalities Continuing Disclosure Cooperation (MCDC) initiative.  In all, 72 underwriters (comprising 96% of the municipal underwriting market) have been charged under the voluntary self-reporting program which targets material misstatements and omissions in municipal bond offering documents.  The settling firms and civil penalties paid by the settling firms are as follows: Barclays Capital Inc. ($500,000), Boenning & Scattergood Inc. ($250,000), D.A. Davidson & Co. ($500,000), First Midstate Inc. ($100,000), Hilltop Securities Inc. ($360,000), Janney Montgomery Scott LLC ($500,000), Jefferies LLC ($500,000), KeyBanc Capital Markets Inc. ($440,000), Mitsubishi UFJ Securities  (USA) Inc. ($20,000), Municipal Capital Markets Group Inc. ($60,000), Roosevelt & Cross Inc. ($250,0000), TD Securities (USA) LLC ($500,000), United Bankers’ Bank ($160,000), and Wells Fargo Bank N.A. Municipal Products Group ($440,000).  SEC

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 29, 2016

Arthur Budovsky, founder of Liberty Reserve, which billed itself as the Internet’s "largest payment processor and money transfer system," pleaded guilty to running a massive money laundering enterprise used by cybercriminals around the world to launder the proceeds of their illegal activity.  Budovsky specifically designed Liberty Reserve to help users conduct anonymous and untraceable illegal transactions and launder the proceeds of their crimes.  Before the government shut it down in May 2013, Liberty Reserve had more than 5 million user accounts worldwide and had processed millions of transactions.  Budovsky admitted to laundering more than $250 million in criminal proceeds.  DOJ

November 30, 2015

Standard Bank will pay $4.2 million to settle SEC charges that it failed to disclose certain payments made in connection with debt issued by the Government of Tanzania in 2013.  The bank acted as a lead manager for the offering but failed to disclose that its affiliate, Stanbic Bank Tanzania Limited, would pay $6 million of the proceeds of the $600 million offering to a private Tanzanian firm that performed no substantive role in the transaction.  A representative of the Government of Tanzania was a director of the private firm and the offering was not finalized until Standard and Stanbic agreed to pay the firm a percentage of the proceeds of the offering.  The payment is part of a global coordinated settlement with the United Kingdom’s Serious Fraud Office under which Standard Bank will pay a total of $36.9 million.  SEC