Articles Posted in Bank whistleblower case

The Securities and Exchange Commission today announced that State Street has agreed to pay more than $35 million to settle charges that it fraudulently charged secret markups for transition management services and separately omitted material information about the operation of its platform for trading U.S. Treasury securities.

An SEC order finds that State Street’s scheme to overcharge transition management customers generated approximately $20 million in improper revenue for the firm.  State Street used false trading statements, pre-trade estimates, and post-trade reports to misrepresent its compensation on various transactions, especially purchases and sales of bonds and other securities that trade outside large transparent markets.  When one customer detected some hidden markups and confronted State Street employees, they falsely called it a “fat finger error” and “inadvertent commissions” in order to conceal the scheme.

“Agreeing to a fee arrangement and then secretly tucking in hidden, unauthorized markups is fraudulent mistreatment of customers,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office that investigated the overcharges.

Wells Fargo sent its bankers and tellers, especially those of Latino descent to go out and scout the streets and Social Security offices to fish for clients and specifically to located undocumented immigrants to take them to local branches and get them to open new bank accounts, according to the sworn statements of former Wells Fargo employees in a shareholder lawsuits filed against the company. Some went to construction sites and factories, according to the court documents.  Wells Fargo employees promised the immigrants to waive check-cashing fees knowing they needed a place to cash their checks. Some offered the immigrants money to open an account according to the documents. They also state that the more people signed up, whether it was for checking and savings accounts, credit and debit cards, online banking or overdraft protection, the better. If they signed up for all of the features, even better. Each new account was considered a sale, and the more sales employees rack up, the better their future was with the company.

Former bank managers, personal bankers and tellers say they were forced to resort to questionable tactics to meet the company’s unrealistic sales quotas.

In September, Wells Fargo was forced to pay $185 million in regulatory penalties following revelations that more than 2 million bank and credit card accounts were opened on behalf of customers without their knowledge. The fraudulent accounts netted more than $2 million in fees charged to customers for services they didn’t sign up for.

Online lender Bank of Internet (BofI) is being investigated by the Department of Justice for possible money laundering according to published reports. The bank’s Chief Executive Gregory Garrabrants, head of the bank since 2007, may be a focus of the probe. Neither the 18-year-old bank nor Garrabrants has been accused of any criminal activity. In late 2015, a Houston pension fund filed a civil suit against BofI and its CEO claiming the bank “misrepresented the risks of investing” with it. BofI allegedly filed incorrect call reports to hide loans made to foreign nationals without requiring them to provide a tax identification number — a form of ID that’s used to root out money laundering, the suit alleges.

 BofI, pubicly traded with a market cap of $1.7 billion, is primarily an online-focused bank. Its deposits more than tripled to $6.6 billion since 2013, according to company filings. BofI’s accounting and money-laundering controls have been the subject of lawsuits for at least two years — since a former auditor, Charles Erhart, accused Garrabrants in a separate civil suit of flouting disclosure rules. The CEO allegedly deposited third-party checks into his personal account, the suit claims. In another, Garrabrants was the signer on an account for Charles Erhart, Charles’ brother and a minor league baseball player earning poverty wages, the suit claimed. The account had a balance of $4 million and was the largest consumer account at BofI.

The bank allegedly  also didn’t disclose to the OCC that it had made as many as 200 loans to people without the ID numbers, a potential violation of the USA Patriot Act and the Bank Secrecy Act, according to the suit.Those people “included very high level foreign officials from major oil-producing countries and war zones,” according to Erhart’s suit.

Deutsche Bank will pay $7.3 billion  related to their handling of residential mortgage-backed securities. The settlement will serve two purposes, sending $3.1 billion to the government as a civil monetary penalty while $4.1 billion will be used for consumer relief purposes such as loan modifications and other assistance for homeowners and borrowers for at least five years.

Justice Department officials include in the lawsuit emails and conversations about the bank’s hidden losses and bad investments, and how employees would either hide or improve the situations.

Problems with Deutsche Bank manipulating core lending and foreign exchange rates, pushing toxic mortgages, helping hedge funds lessen their tax bills and failing to put in place proper risk controls have persistently infuriated regulators.

A federal jury  found two former New York stockbrokers liable for trading on confidential tips about an IBM Corp  acquisition. This decision was rendered despite an appeals court ruling that has made insider trading cases more difficult to prove. The jury said that Euro Pacific Capital Inc brokers Daryl Payton and Benjamin Durant liable for engaging in insider trading.

After a 2014 appellate ruling attacking insider trading laws, prosecutors dropped criminal charges against Payton, Durant and three others but the SEC continued to pursue civil charges. The SEC alleged that the two men placed trades before IBM announced its $1.2 billion acquisition of SPSS Inc in 2009.

Payton, 39, and Durant, 40, admitted they traded on non-public information but said their trades did not constitute illegal insider trading, a position they adopted after the appellate ruling.

The Justice Department today announced that Morgan Stanley will pay a $2.6 billion penalty to resolve claims related to Morgan Stanley’s marketing, sale and issuance of residential mortgage-backed securities (RMBS).  This settlement constitutes the largest component of the set of resolutions with Morgan Stanley entered by members of the RMBS Working Group, which have totaled approximately $5 billion.  As part of the agreement, Morgan Stanley acknowledged in writing that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS and about its due diligence practices.  Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued by Morgan Stanley in 2006 and 2007.

“Today’s settlement holds Morgan Stanley appropriately accountable for misleading investors about the subprime mortgage loans underlying the securities it sold,” said Acting Associate Attorney General Stuart F. Delery.  “The Department of Justice will not tolerate those who seek financial gain through deceptive or unfair means, and we will take appropriately aggressive action against financial institutions that knowingly engage in improper investment practices.”

“Those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “This resolution demonstrates once again that the Financial Institutions Reform, Recovery and Enforcement Act is a powerful weapon for combatting financial fraud and that the department will not hesitate to use it to hold accountable those who violate the law.”

The United States Department of Justice announced today that Fifth Third Bank will pay  $85 million to the federal government to settle claims under the False Claims Act (“FCA”) relating to the Bank’s practices in connection with loans insured by the Federal Housing Administration (FHA).

The whistleblower,George Mann a former chief appraiser at the Bank, who alleged  commercial and residential mortgage violations, including fraudulent appraisal practices, resulting in major losses to the federal government. The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act. These provisions permit private parties to sue on behalf of the United States when they believe an individual or company has submitted false claims for government funds. The whistleblowers were represented by Kenney & McAfferty.

Jeffrey Newman represents whistleblowers



Standard Chartered Bank is under renewed regulatory scrutiny as a result of a Financial Times investigation into its business ties to Iran. According to news sources, the bank continued to do business with Iranian related companies after agreeing to stop in 2007.

The investigation this time is being spearheaded by the Department of Justice, the Manhattan district attorney, the Federal Reserve, the New York Department of Financial Services and now the New York attorney-general’s office. After paying a settlement for the same conduct in 2012,  the bank said it had “ceased all new business with Iranian customers in any currency” five years earlier.

A Financial Times investigation  identified transactions involving Iran that could put the bank at risk of severe penalties ranging from further fines to suspension or loss of its crucial dollar clearing licence. Financial times suggested that StanChart continued to seek new business from Iranian and Iran-connected companies after it had committed in 2007 to stop working with such clients.

While individuals whose bank accounts are hacked removing funds can recover their losses from banks, small businesses often cannot. Regulation E of the Electronic Fund Transfer Act requires banks to bear the burden of hacking losses for the most part. That’s not the case for small businesses. The only thing the law requires of banks is , under the Uniform Commercial Code, to offer business customers a “commercially reasonable” security protocol. If the bank follows that protocol, it can refuse to reimburse businesses that are victims of fraudulent money transfers.

This appears to be a major loophole in the law which Congress should fix.

Bankers say the best way to deal with this is for banks to inform customers about the dangers so they can take steps to prevent hacking including changing passwords and educating employees and requiring two person approvals for transfers.

The Securities and Exchange Commission has fined Bank of New York Mellon $15 Million for giving internships to the kids of government officials affiliated with a Middle Eastern sovereign wealth fund in an alleged effort to win business. It is unclear how common this practice is among larger companies across the Globe but the SEC is serious about preventing such arrangements. Some observers say it is a common practice occurring on a large scale.

The bank agreed to pay a $14.8 million penalty to settle charges that it violated anti-bribery and internal accounting controls provisions of the Foreign Corrupt Practices Act in 2010 and 2011.

According to the SEC ORder, BNY Mellon gave internships in Europe to the son and nephew of one unnamed government official and to the son of another unnamed official. The Middle Eastern country of the sovereign wealth fund was not named by the SEC.