The Fourteenth Banker Blog

August 18, 2010

Somebody is Waking Up on the Legal Front

Filed under: Running Commentary — thefourteenthbanker @ 7:55 AM

Finally the Judicial system, the lone branch of government that does not have to sell-out for its job security, is waking up. The decision highlights the relatively innocuous headline on Bloomberg, “Barklays Follows Citigroup With Court Rejection of US Accord”.  What the heck does the mean?  I nominate that for worst headline of the day.  Here is the meat:

In yesterday’s hearing, Sullivan said the Barclays settlement “concerns the court.” Unlike the London-based firm, the average American caught robbing a bank doesn’t get deferred prosecution and the option of returning ill-gotten gains, he said.

Let’s hear it for the judge! Someone “gets it”. There is a trend, still timid, towards “getting it”. These are small but meaningful steps. The courts are starting to reject the sweetheart deals that allow banks and other firms to pay back a small portion of their ill-gotten profits from illegal activities. In some cases the settlements are obscene and are met with celebration by the guilty parties. But perhaps the days of those celebrations are ending.

Perhaps the days of hiding behind the corporate shield will be ending soon as well. Individual prosecutions must follow corporate prosecutions.

U.S. agencies and prosecutors, taking note of the decisions, will begin trying harder to deliver the executives responsible for misconduct, Doty said.

In one of the more obscene settlements, a former Citigroup CFO, still in a lucrative position with the firm, paid back a measly $80,000 in fines for deliberately misleading investors.

Former Chief Financial Officer Gary Crittenden, who left New York-based Citigroup last year, agreed to pay $100,000 to settle claims he didn’t disclose the risk after getting internal briefings.Arthur Tildesley, Citigroup’s former head of investor relations, will pay $80,000 to settle claims that he helped draft disclosures that misled investors, the SEC said. Tildesley now heads cross-marketing at Citigroup, according to the agency.

The matter was administrative, not criminal. See the SEC filing for details. The penalties for robbing the people must be stepped up with greater individual accountability and in appropriate cases, where there would be many, jail time. As highlighted in this prior post, the current criminal system remains biased against smaller property crime and in favor of major white-collar crimes that are clearly larceny on a greater scale.  Note also this, and this, and this.



  1. Well said, 14! And Judge Sullivan!

    Comment by Lawrence — August 18, 2010 @ 9:23 AM | Reply

  2. Judges do seem to be waking up. I wonder what the marginal profits were from the offending activities? This is a civil action. In my state, the minimum civil traffic violation fine is now $150. Usually, the fines levied exceed that. That is at least two days pay for most people today. So, how about two days marginal daily profits as a minimim here. I use the marginal concept because the civil traffic fines are really on gross marginal profits of the worker. Usually, just gross income. So divide Barclays consolidated revenues by 365 and multiply by 2 for a minimim fine? Add on from there geometrically like the traffic court judge does.

    The Bloomberg article notes that the Barclay’s lawyers assert the fine already is a vast multiple of the profits earned. It would be very revealing to know the some of actual gross profits. Revenues less directly associated costs with no allocations of overhead. I have made those charge everything but the universe against the income calculations for legal purposes. Done the opposite too. Our truth is heroically adversarial.

    I was discussing this Bloomberg piece yesterday with a friend. His first comment was who controls the excesses of Judges? I quipped with a big grin , ” Yah, they are all Roland Friesler’s. My friend said ” You betchum .”

    Comment by Jerry J — August 18, 2010 @ 12:25 PM | Reply

  3. Yesterday, Reuters ran a major story about garden variety mortgage fraud in Chicago. Here we have alleged ordinary grifters. The sting point is when the unsuspecting bank closes the loans. A number of foreclosed properties were bought at foreclosure on the South Side in the area of $30-$50k. A few months later they were sold for around $300k , naturally heavily mortgaged. A number of properties were sold in preceding months to set the tale that houses were worth around $300k. The appraisers now had fully functioning comparables for an appaisal to support the mortgage values. The loans closed with the recipients of the funds closing out the funds and the mortgages never collecting even a first payment.

    The upshot of all this was that , so far, no one can be tied into a conspiracy or even allege fraud against the buyers who financed the purchase. In one case a bank that sold off a foreclosed house at a very low value reloaned against it a few months later at around a ten times greater value.

    The implication I got from the article was that there has never been a prosecution involving activity of this type. Presumably, the FBI will get into this one .

    I was sort of interested in buying a house in my home town that I always admired. It was foreclosed and sold for around $120,000 in February. It is now listed for sale at $450, 000 which was it’s 2009 market value for real estate tax purposes. This is a new game. I jumped it tracing out local actual sales compared to market value according to the local Assessor. Actual sales averaged around 60 % of Assessors 2009 numbers. Speculators are snapping up foreclosures and banks are just dumping period. Now, If I had been the speculator of that house I admired, I would self finance it . I called about the house and sure enough, the owner would finance the sale !

    Crooks R Us?

    There is a lesson. Houses are local. The lending bank needs to lend long and be local itself with a local loan officer. They must service their own loans.

    Comment by Jerry J — August 18, 2010 @ 4:08 PM | Reply

  4. That didn’t take lomg……

    Comment by iceobar — August 18, 2010 @ 9:18 PM | Reply

  5. Looking at this subject in the ususal American simplistically emotional manner points to “those evil big banksters” since a whole flock of them have agreed to fines over payments to states the US dislikes. This is a case of payment processes outside the US which looks more than somewhat amateurish though I will discuss the opposite here. A lot of times stupidity can be covered by ingenuity after the fact. They got caught in a public relations squeeze and need an out. At least that is what the WSJ seems to be saying. Internal manuals on how to evade US rules ? Good grief! But the employee’s seem to be non US nationals employed outside the US by non US parts of Barclay’s. So, how could those employees be perps unless the US claims indirect extra territorial rights against everyone in the world? That way the US fines the qualified entities in the US for the acts of their subsidiaries and offices outside the US. ( They can hardly go after the non US employees criminally unless US law overrides everyone else’s sovereignty. Similarly, for entirely foreign subsidiaries.) On that basis Russia could fine the hell out of US companies due to their registry in Russia if they felt like US employees were affronting Russian law or policy . Shades of what happened to US operators in the Sakhalin Island oil fields. But here Russia could fine BP for the Macondo spill as a simple example.

    Just what the hell was Judge Sullivan up to here? The SEC/ NY are asking the Judge to stick with the $298 million deal. It is the two government’s deal. Probably about as far as they can go without Barclay’s telling them to take your best shot based on how much you all stiffed the other big banks for. We need settlement now for strategic reasons. Obviously, under all circumstances jurisdictionally the SEC and New York knows this is all they can get. If they could get more they would be going after more. Besides, NY needs the money now! The SEC effectively has warranted to the Judge that Barclays spent $250 million in investigating the activity that is an affront to the SEC. They ask for a civil fine of $298 million. Think about the amount of money spent internally by Barclay’s. Astounding. The Judge was concerned that the shareholder’s got stuck for the cost of activity by employee’s. Is the Judge inviting a shareholder suit against the upper level employee perps that Barclay’s spent $250 million investigating? First, Barclay’s must have employee tort insurance against Barclay’s being held liable for employee acts including civil penalties.(Like authorizing policy manuals to evade laws)( There must be a lot of employees involved from top to bottom over the last decade.) Does Barclay’s have an employee tort insurance claim here? They do pay out a lot of money for such coverages. Secondly, key employees, anyway, usually have coverages against their acts provided as part of their employment contract. They know they risk falling afoul of civil penalties. The know government can be very civilly very egregious in interpreting the rule breaking to collect fines. After all it took $250 million to figure out if their was bad behaviour on which to levy a civil fine that Barclay’s might be stuck with? All this aside, there is a guaranteed shareholder suit ( which may go nowhere) so whatever is presented to the Judge winds up under scrutiny again. And, well, NY needs da dough now not in five years. Simple and moral it ain’t. Mores the shame but complexity decides.

    Other big banks agreed to civil fines that exceed the Barclay’s deal. If these companies were not banks could they tell the USG and NY to buzz off and make it stick?

    Comment by Jerry J — August 19, 2010 @ 5:59 PM | Reply

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