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Top Ten Federal Financial Fraud Recoveries of 2021

Posted  January 21, 2022

While 2021 may have felt like more of the same as the pandemic dragged on, it marked some new trends in federal financial fraud recoveries. As we predicted last year, the Anti-Money Laundering Act of 2020 has heralded some large recoveries against banks. The Act also established an Anti-Money Laundering Whistleblower Program, so that whistleblowers who report financial institutions engaging in money laundering – even if it took place before 2020 – can be eligible to receive an award. This past year also marked a settlement with Boeing over the 737 Max scandal, one of the most high-profile cases of recent years. (It may not technically be a financial fraud, but it’s a major corporate fraud worth highlighting.) And, for the first time in its 50-year history, the Consumer Product Safety Commission brought a criminal enforcement action against a company that sold dangerously defective products.

Not to worry, though, 2021 also saw its fair share of the golden oldies of fraud, including bid-rigging and Wells Fargo charging hidden fees. Read on for Constantine Cannon’s Top Ten Federal Financial Fraud Recoveries of 2021.  This list is exclusive of cases featured in our other Top Ten posts, which are devoted to specific whistleblower programs and agencies.

  1. Boeing – Coming in at number one on our list, though not strictly a financial fraud, is Boeing’s deferred prosecution agreement with the DOJ regarding one of the best-known corporate scandals in recent history: Boeing’s concealment of flaws in its 737 Max planes. Constantine Cannon is proud to represent Boeing whistleblower Ed Pierson, who repeatedly provided crucial testimony before Congress about production pressures at Boeing facilities and highlighted how Boeing put profit before safety. The problems with the 737 Max allegedly led to the loss of 189 lives in the Oct. 29, 2018 crash of Lion Air Flight 610 in the sea near Indonesia and 157 lives in the March 10, 2019 crash of Ethiopian Airlines Flight 302 near Ejere, Ethiopia. Boeing’s failures, and the ensuing tragedies, have received significant media attention and a popular book. Boeing’s deferred prosecution agreement was reached in January 2021 and dwarfs other federal settlements this year, although it is not without controversy. The agreement includes over $2.5 billion in payments by Boeing: a $243.6 million criminal penalty, $1.77 billion in compensation to 737 Max purchasers, and the establishment of a $500 million crash-victim beneficiaries fund. Although the agreement is the largest of its kind in 2021, critics and family members of crash victims have raised concerns that the agreement is merely “a slap on the wrist” and the payments are too small compared to Boeing’s enormous profits.
  2. Capital One (money laundering) – Also in January 2021, Capital One agreed to pay $390 million to resolve allegations of violating the Bank Secrecy Act and other anti-money laundering laws. Under the Bank Secrecy Act, banks have an obligation to file Suspicious Activity Reports (SARs) and currency transaction reports (CTRs) when transactions raise red flags for money laundering. From 2008 to 2014, and perhaps longer, Capital One knowingly failed to meet these obligations. For instance, Capital One failed to file required CTRs for $16 billion in cash transactions. The case is a reminder that FinCen, the agency charged with enforcing the Bank Secrecy Act, means business, and should offer hope to whistleblowers seeking to bring violations to light under the agency’s relatively new anti-money laundering whistleblower program. One of the major problem areas for Capital One was its “check cashing group,” which included 90-150 check-cashing businesses in New York City for whom the bank provided services – allegedly without anti-money laundering controls, despite warnings about its high-risk nature. One of the largest check cashing businesses in the group was owned by Domenick Pucillo, a convicted criminal associated with the Genovese organized crime family – talk about your red flags.
  3. Epsilon (consumer data) – With big data comes big responsibility, said a Deputy Chief Postal Inspector in the press release about Epsilon’s big mistake. Epsilon Data Management Corporation is a large marketing company with its hands-on huge amounts of consumer data. In January 2021, Epsilon entered into a $150 million settlement agreement with the DOJ after admitting that it sold consumer data to fraudsters targeting the elderly and vulnerable. Some of the data purchasers engaged in schemes like mailing elderly people materials telling them they had won sweepstakes prizes or personalized psychic readings – that could be claimed for a low, low fee! Of course, when the recipients sent their precious pennies in, no prizes or psychic enlightenment were forthcoming. The bulk of the settlement money – $127.5 million of it – is going into a compensation fund for victims of the fraud.
  4. State Street (financial services customer fraud) – Financial services firm State Street entered into a $115 million settlement with the DOJ after it became clear that one of the services it offers its client is hidden mark-ups on out-of-pocket expenses. The company used misleading invoices and outright lied to conceal $290 million in mark-ups it tacked on between 1998 and 2015. In the DOJ press release, acting US Attorney Nathaniel R. Mendell said State Street “defrauded its own clients of hundreds of millions of dollars over decades in a most pedestrian way.” Not even points for creativity. Ouch.
  5. Pilgrim’s Pride (antitrust, bid-rigging)– Have you noticed a little more pain in the pocketbook after your visits to KFC? Pilgrim’s Pride, one of America’s largest sources of broiler chickens – that’s the eating kind, to city slickers – pled guilty to a conspiracy to fix prices and rig bids and agreed to pay a $107 million fine. That’s nothing to be proud of, and it affects what consumers pay at venerable institutions including Costco and KFC. Investigations are ongoing, so expect more news of chicken chicanery.
  6. Gree Electric (consumer product defect) – Gree Electric’s $91 million penalty for failing to report dangerous defects in millions of humidifiers marks the first criminal enforcement action brought under the Consumer Product Safety Act, the 1972 law that created the Consumer Product Safety Commission. Gree Electric, an appliance manufacturer based in Zhuhai, China, and its U.S.-based subsidiary, knew that its humidifiers were defective and could cause fires. Nonetheless, they failed to report that to the Consumer Product Safety Commission for months as users continued to be harmed. The problem, which caused at least 450 known fires, ultimately resulted in a recall of 2.5 million humidifiers in the US.
  7. Bank Julius Baer (money laundering) – Swiss bank Bank Julius Baer agreed to pay $79 million in criminal penalties for its role in a conspiracy to launder $36 million in bribes to Fédération Internationale de Football Association (FIFA) officials through the United States. In other words, while America may not be a hot spot for soccer fandom, it is still a hot spot for soccer-related money laundering. FIFA has been enmeshed in a variety of complex scandals, many of which came to light in 2015, when nine FIFA officials were indicted. In 2014 we spotlighted courageous whistleblower Phaedra Almajid, who revealed bribery in the bidding process for who would host the 2018 and 2022 World Cups. The particular flavor of scandal involved in the 2021 Bank Julius Baer case involved the proceeds of sports marketing companies bribing FIFA officials for the right to broadcast matches. Although Bank Julius Baer employees knew the high risk that FIFA-linked accounts included the proceeds of bribes, bank executives asked that these accounts be fast-tracked for opening because of the large dollar amounts involved. Turns out when you mix a notoriously corrupt sporting organization with infamously secretive banking, you get a $79 million fine.
  8. Wells Fargo (bank customer fraud) – Wells Fargo is at it again, this time agreeing to pay a $70 million settlement after allegedly defrauding 771 customers with excessive foreign exchange service fees in violation of the Financial Institutions Reform Recovery and Enforcement Act (FIRREA). This time, the alleged victims were mainly small- and medium-sized businesses and financial institutions. Wells Fargo secretly manipulated foreign exchange rates, so that they always used the rate most favorable for the bank and least favorable for the customer. Taking things a step further, Wells Fargo employees outright lied to customers about the exchange rate, and when called on it told customers that they had just mistakenly transposed numbers. This from a bank that has been caught so many times that in our September 2021 post on the subject, we almost ran out of words to hyperlink different stories: “This, of course, is not Wells Fargo’s first brush with scamming its customers or violating the law.” The Wells Fargo San Francisco office even had a bell they would ring after especially profitable foreign exchange transactions. Too bad FIRREA doesn’t include extra fines for excessive celebration.
  9. NatWest (market manipulation) – Number 9 on our list is another repeat offender. NatWest paid $35 million in fines, restitution, and forfeiture after pleading guilty to wire fraud and securities fraud. Traders at NatWest, a banking and financial services office, engaged in multiple fraud schemes across its offices, in violation of a 2017 non-prosecution agreement for foreign currency market manipulation. The recent schemes involved spoofing, or artificially creating the appearance of demand by placing orders for securities while intending to cancel them before execution. Spoofing is a relatively common market manipulation tactic; in 2020 JP Morgan paid a whopping $955 million settlement for spoofing.
  10. Argos (antitrust, bid-rigging) – Argos USA LLC, a Georgia-based ready-mix concrete business, agreed to pay a $20 million criminal penalty for engaging in bid-rigging and a conspiracy to allocate markets and fix prices. These anti-competitive practices violate the Sherman Act and led to customers, including state university Georgia Southern, paying inflated prices for concrete required for construction projects.

Please contact us if you would like more information on the CFTC or SEC whistleblower award programs, or if you would like to speak with one of our experienced whistleblower lawyers. And make the most of an annual tradition by checking out our other Top Ten Lists.

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Annual Whistleblower Insider Top Ten Lists

Every January, Whistleblower Insider looks back at the significant government enforcement actions of the past year. Our Top Ten lists highlight the biggest recoveries and significant enforcement efforts by different government actors in cases of interest to whistleblowers.
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Tagged in: Antitrust General, Bribery and Bid-Rigging, Criminal Proceedings, Financial and Investment Fraud, FIRREA, Foreign Exchange, Market Manipulation and Trading Violations, Money Laundering, Price Fixing, Top 10,