CCH Financial Reform News Center

Citigroup Settles Charges of Misleading Investors

This story appeared in Bank Digest.

The SEC has charged Citigroup Inc. with misleading investors about the company's exposure to subprime mortgage-related assets. The agency also charged one current and one former executive for their alleged roles in causing Citigroup to make the misleading statements in an SEC filing. The SEC alleged that in response to intense investor interest on the topic, Citigroup repeatedly made misleading statements in earnings calls and public filings about the extent of its holdings of assets backed by subprime mortgages. Without admitting the charges, Citigroup agreed to pay a $75 million civil penalty, and the two individuals agreed to penalties of $100,000 and $80,000.

SEC-IG to Investigate Goldman Sachs Settlement

This story appeared in Bank Digest.

Securities and Exchange Commission Inspector General David Kotz has agreed to a request from Rep. Darrell Issa, R-Calif., Ranking Member of the Oversight and Government Reform Committee, to broaden his current investigation examining the SEC’s decision to move forward with action against Goldman Sachs to include the timing of the SEC’s recently announced settlement with the company. According to Issa, recent press reports indicate that the purpose of the settlement was to avoid continued press criticism.

Leahy Antifraud Amendment Approved by Senate Conferees

This story appeared in Jim Hamilton's World of Securities Regulation.

By unanimous consent, Senate conferees approved the bi-partisan Leahy Amendment, which is an antifraud amendment that Senator Leahy had offered on the Senate floor (SA 3794). The amendment was not voted on before the Senate passed the bill. As of last night, the House had not acted on the Leahy Amendment.

The Leahy Amendment would add new Section 1079A to the bill to amend the US criminal code to increase the statute of limitations for securities fraud violations from five to six years, which aligns it with the current statute of limitations in tax fraud cases. The amendment would also direct the US Sentencing Commission to review and amend the federal sentencing guidelines and policy statements for offenses related to securities fraud and financial institution fraud to reflect the intent of Congress that penalties for the offenses appropriately account for the potential and actual harm to the public and the financial markets from the offenses.

Global Settlement Reached in WaMu Failure

This story appeared in Bank Digest.

The Federal Deposit Insurance Corporation’s Board of Directors has approved a global settlement of the bankruptcy case involving Washington Mutual Inc., the holding company of Washington Mutual Bank, an institution for which FDIC was appointed receiver on Sept. 25, 2008. The FDIC is a participant in the global settlement because of claims and counterclaims involving the company resulting from its role as receiver. The agreement also settles claims between Washington Mutual Inc. and JPMorgan Chase, the acquirer of the failed Washington Mutual Bank. FDIC’s General Counsel, Michael Bradfield, stated that “this agreement will result in substantial recoveries to the receiver and resolve potential claims that could have taken years and millions of dollars to litigate.”

Senate Votes on State AG Powers

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Under a compromise amendment to financial reform legislation approved by the Senate May 18, 2010, state attorneys general would be allowed to enforce new rules issued by the proposed Consumer Financial Protection Agency.

However, state attorneys general would not be able to bring federal class action-like suits against national banks, nor would they be able to cross state lines to bring charges against a national bank.

Specter Amendment to Senate Financial Reform Bill Would Provide Private Right of Action for Aiding and Abetting

This story appeared in Jim Hamilton's World of Securities Regulation.

An amendment offered to the Restoring American Financial Stability Act (S 3217) by Senator Arlen Spector (D-PA) would overturn two US Supreme Court opinions and provide a private right of action for aiding and abetting securities fraud. The amendment essentially mirrors the Liability for Aiding and Abetting Securities Violations Act, S. 1551, introduced by Sen. Spector in 2009. The amendment (SA 3776) would legislatively overrule what the senator calls ``two errant decisions of the Supreme Court’’, namely the 1994 Central Bank of Denver v. First Interstate Bank ruling and the 2008 ruling in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. The immunity from suit that Central Bank confers on secondary actors, said the senator, has removed much-needed incentives for them to avoid complicity in and even help prevent securities fraud; and all too often left the victims of fraud uncompensated for their losses.

Goldman Sachs Charged with Securities Fraud

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The Goldman Sachs Group, Inc., has been charged by the Securities and Exchange Commission with securities fraud in the structuring and marketing of a financial product tied to subprime mortgages.

The SEC said  April 16, 2010, that Goldman failed to disclose to investors that a major hedge fund, Paulson & Co., paid the firm about $15 million to structure a collateralized debt obligation (CDO) in which it took short positions against mortgage securities that had in large part been chosen by Paulson. Investors in the CDO lost over $1 billion, while Paulson reaped approximately an equal amount in profit.

SEC Recovers $14.2 Million for Stanford Victims

This story appeared in Bank Digest.

The Securities and Exchange Commission has announced that approximately $14.2 million has been secured for the benefit of the worldwide victims of R. Allen Stanford’s alleged multi-billion dollar fraud scheme. A court-appointed receiver expects these funds to be  returned to the receivership estate by June 2010. The recovery was accomplished by the extensive cooperation between SEC staff and other regulatory authorities in multiple jurisdictions and the receiver in the SEC’s enforcement action against R. Allen Stanford and others. As a result of these efforts, the receiver was able to close on a sales contract of certain Stanford-related entities located in the Republic of Panama to third-party purchasers, with the sale proceeds provided to the receivership estate.

Bi-Partisan Senate Bill Would Provide Tax Relief to Victims of Ponzi Investment Schemes

This story appeared in Jim Hamilton's World of Securities Regulation.

Bi-partisan Senate legislation would provide tax relief to investors victimized by securities fraud in Ponzi-scheme types of operations. Since the legislation applies only to qualified fraudulent investment losses discovered in calendar years 2008 or 2009, it essentially assists victims of frauds such as those run by disgraced financiers Bernie Madoff and Alan Stanford. Generally, the measure would extend certain benefits that are already available to larger investors to smaller investors as well. It would allow victims to take a deduction for funds lost from their IRA accounts, allow for accelerated and increased contributions to tax-free retirement accounts to make up for losses, and allow for penalty-free early withdrawals from retirement accounts for investors in dire need of cash.

Fed Must Disclose Information on Lending Programs

This story appeared in Bank Digest.

By Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guide and Bank Digest.

The U.S. Court of Appeals for the Second Circuit has ruled against the Federal Reserve Board in two suits brought by news organizations seeking information under the Freedom of Information Act. Bloomberg, L.P., and Fox News Network, LLC, both sued the Fed to compel disclosure of information on lending by the Federal Reserve Banks. Bloomberg had requested information on the loans the FRBanks made to private banks in April and May 2008 under both the Discount Window authority and the emergency lending facilities that were established to provide liquidity during the height of the financial crisis.