The always behind-the-curve Fed seeks to fine mortgage servicers for unsafe practices and robo-signing with an amount dependent on allegedly independent review by consultants.
Federal Reserve Governor Sarah Bloom Raskin on Saturday said the Fed must impose monetary penalties on banks who entered into an April agreement with regulators over how to fix problems in their mortgage servicing businesses.
“The Federal Reserve and other federal regulators must impose penalties for deficiencies that resulted in unsafe and unsound practices or violations of federal law,” Raskin said in remarks prepared for delivery to the Association of American Law Schools. “The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties.”
In April, 14 mortgage servicers, including Bank of America and JPMorgan Chase entered into a settlement with the Fed, the Office of the Comptroller of the Currency and the now defunct Office of Thrift Supervision on steps that have to be taken to correct and improve their servicing practices, such as providing borrowers with a single point of contact for questions.
As part of the agreement, these mortgage servicers have hired consultants to review foreclosures that took place in 2009 and 2010 to see if any were improper.
Regulators have said these reviews will help determine the size of any penalties the servicers will have to pay.
Expect Trivial Penalties, Spread a Mile Wide
Don’t expect this announcement to amount to much of anything. Penalties, if any will be trivial and the fines are nearly guaranteed to not benefit those harmed in any substantial way. Instead, expect fines to be spread out to include those not harmed at all.
Another Whitewashing Move by the SEC
Similarly, don’t expect much of anything from this feeble announcement: SEC to demand admission of wrongdoing in some cases
Securities regulators will no longer let companies settle civil cases without admitting or denying the charges if they have already admitted wrongdoing in parallel criminal cases.
The policy change, announced by Securities and Exchange Commission Enforcement Director Robert Khuzami on Friday, applies only to instances where a defendant has already admitted to violating criminal laws.
It comes just over a month after a federal judge in New York rejected a proposed $285 million settlement between the SEC and Citigroup, in part because the bank had not admitted to wrongdoing. However, in that case, no parallel criminal charges have been filed.
It seemed “unnecessary” for the SEC to include its traditional “neither admit nor deny” approach if a defendant had already been criminally convicted of the same conduct, Khuzami said.
In one of the most egregious examples, Bernard Madoff pleaded guilty for his role in a multi-billion dollar Ponzi scheme in 2009, but neither admitted nor denied the allegations in a settlement with the SEC.
In rejecting the Citigroup accord, U.S. District Judge Jed Rakoff said the SEC’s failure to require Citigroup to admit or deny its charges left him with no way to know whether the settlement was fair. Rakoff also called the $285 million payout “pocket change” for the third-largest U.S. bank.
The Citigroup settlement was intended to resolve charges that the firm sold risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt.
“My take on things is it is all about managing the press,” said James Cox, a professor at Duke Law School. The agency “looked pretty silly before Judge Rakoff the other day,” he said.
This policy “non-change” borders on the absurd. The ruling only applies to only to instances where a defendant has already admitted to violating criminal laws. Notice that the ruling does not even apply to the Citigroup case in which a Judge Blasted the the SEC.
“Doesn’t the S.E.C. have an interest in what the truth is?” Judge Rakoff asked, in reference to the commission’s longstanding practice of not forcing a defendant to admit any wrongdoing when settling a case.
Judge Rakoff called the contempt power — a judge’s ability to punish a party for disobeying a court order — “the backbone of the judiciary.” He questioned whether the S.E.C. was really serious about ever seeking an injunction against repeat offenders.
“It’s just for show,” Judge Rakoff said.
“We’re not saying that we will never use injunctive relief,” said the S.E.C. lawyer.
“Hope springs eternal,” the judge replied.
The S.E.C.’s current enforcement action against Citigroup is at least the fifth time that the commission has reached a settlement with the bank related to civil fraud accusations.
SEC Fine vs. Citigroup Gain
Estimates are that Citigroup made a $3.8 billion profit from the bogus investment portfolio. The investors lost over $700 million. The $285 million offer to settle is a joke. The Judge made clear he would not allow corporations to continue to buy their way out of fraud from “a cost of doing business” fund. The Judge demands the truth to be revealed and the public protected.
Public service is a public trust. Federal employees have a duty to protect the public interest. Apparently, the SEC forgot their duties and the fact that the Court is the final arbiter. The legal team at the SEC that crafted the Citigroup deal need to remember they are federal service not bank employees. It’s refreshing to see Judge Rakoff remind government workers who employs them. show.php?db=special&id;=138
Rakoff’s words to the SEC and big banks has been globally hailed as public policy genius. Thank you Judge Rakoff.
The trial is scheduled for July 16, 2012.
While essentially ignoring billions of dollars in repeated fraud allegations against Citigroup, the SEC brought full weight down on Martha Stewart over (drum roll please) … $45,673.
Martha Stewart went to prison and was fined $30,000. Since then, no one has gone to prison or even been criminally indicted in $trillions of dollars of fraud in the global financial crisis. And unless someone does admit criminal action, the SEC reserves the right to do more whitewashing without seeking admission of guilt.
Mike “Mish” Shedlock
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