Tag Archives: Securities and Exchange Commission

Who Says Crime Doesn’t Pay?

16 Saturday Oct 2010

Posted by in economy, Financial Crisis, Justice Department, Obama administration, too big to fail, Wall Street

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It certainly paid well for two former executives of Countrywide yesterday in the settlement of a civil lawsuit brought by the Securities and Exchange Commission charging Angelo Mozilo, former CEO, and David Sambol, former president, with securities fraud and insider trading. A scam which netted the two a total of nearly $160 million.

The first two paragraphs of the story read like this:

“Angelo R. Mozilo, who as head of home-loan giant Countrywide was at the center of the housing boom and bust, agreed Friday to pay a record fine as part of a $73-million settlement of a government fraud lawsuit over the lender’s near-collapse.

The deal with the Securities and Exchange Commission requires Mozilo, the highest-profile figure to be accused of wrongdoing in the mortgage meltdown, to personally pay a $22.5-million fine. The government said it would be the largest penalty ever paid by a senior executive of a public company in an SEC settlement.”

Then come the “buts”:

“Mozilo…also agreed to pay $45 million in “ill-gotten gains” to former Countrywide Financial Corp. shareholders, who lost billions when the company’s stock price plunged as defaults on home loans surged. But Bank of America Corp., which bought Countrywide in 2008, and Countrywide’s insurers will pay that amount under terms of Mozilo’s employment contract.

Countrywide’s former president, David Sambol, agreed to pay $520,000 in fines and $5 million in restitution. Bank of America will reimburse him for the latter.”

So to recap, Mozilo pays $22.5 million, Sambol pays $520,000. During the period covered by the suit Mozilo received $141.7 million, Sambol $18.3 million, while Countrywide was losing $1.6 billion. But that’s just a snapshot:

“For years, Mr. Mozilo was among the highest-paid executives in America and his S.E.C. fine is a fraction of the vast wealth he amassed running Countrywide. In one eight-year period, from 2000 until he left the company in 2008, Mr. Mozilo received total compensation of $521.5 million, according to Equilar, a compensation research firm.”

Mozilo is still the subject of a criminal investigation by the Justice Department, but anyone who believes this DOJ will pursue criminal charges against any of the financial industry’s Masters of the Universe hasn’t been paying attention. The next one prosecuted will be the first. Gotta keep looking forward, you know.

No Legal Recourse for the “Small People”

24 Thursday Jun 2010

Posted by in Wall Street

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Jonathan Weil at Bloomberg:

“Crime didn’t pay for Joseph Collins, a former corporate lawyer who received a seven-year prison sentence in January for securities fraud.

Collins, a former partner at the law firm Mayer Brown LLP, was the chief outside counsel for Refco Inc. when the futures- trading firm collapsed in October 2005, two months after its initial public offering. He was convicted last July on five felony counts for helping Refco executives fleece the company’s investors and lenders of $2.4 billion. Yet Collins, 60, hasn’t been forced to pay compensation to anyone who lost money when Refco went bust.

That’s mainly because Congress has made sure only the government has the right to bring civil court claims against defendants for aiding and abetting securities fraud. Private litigants are barred from doing so under federal law. That means outside investors typically have no means to seek redress in such cases, unless prosecutors or regulators choose to pursue restitution for them. As for the Collins case, the government has proved worthless in that respect.

Last week, the Securities and Exchange Commission settled its own civil complaint against Collins. His deal included no monetary penalties. His only punishment was a court order barring him from violating the securities laws’ anti-fraud provisions in the future. He also was allowed to settle the suit without admitting or denying the SEC’s allegations, an absurd formality considering he’s already been found guilty of a crime.

Investors aren’t slated to recover any money as part of his conviction, either. His sentence included a mere $500 fine. The judge who presided over his trial denied prosecutors’ request for a forfeiture order, under which Collins’s assets could have been used to compensate victims of Refco’s fraud.

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“[T]he judge in the criminal proceedings, Robert Patterson of New York, rejected prosecutors’ request for a forfeiture order after concluding that Collins received no personal benefit for his participation in the fraud.”

Nah, no “personal benefit” whatsoever:

“Mayer Brown billed Refco, Collins’s most lucrative client, more than $40 million in fees from 1997 through 2005, according to court records. Collins’s annual income usually topped $1 million during the same time span.”

Are Goldman Charges the Tip of the Iceberg?

19 Monday Apr 2010

Posted by in bailout, economy, Financial Crisis, financial reform, financial regulation, Goldman Sachs, Politics, too big to fail, Wall Street

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Could Friday’s news that the Securities and Exchange Commission is bringing civil charges of fraud against Goldman Sachs be the tip of the iceberg? Consider what has happened since then.

The German government is considering legal action against Goldman.

British Prime Minister Gordon Brown called for investigations into the bank’s role in the mortgage market.

“The SEC is investigating whether other mortgage deals arranged by some of Wall Street’s biggest firms may have crossed the line into misleading investors.

S.E.C. Enforcement Director Robert Khuzami told CNBC, “We have brought and will continue to pursue cases involving the products and practices related to the financial crisis.” … a wide range of cases are currently being investigated.”

Subprime mortgage king Countrywide is also in the crosshairs:

“Federal criminal investigators looking into the collapse of Countrywide Financial Corp. have been calling witnesses before a grand jury, say people familiar with the matter.”

Former Goldman employees are starting to talk, implicating company execs up to and including CEO Lloyd Blankfein in Goldman’s profiting from the housing market collapse.

Dylan Ratigan has a basic explanation of what Goldman and others were doing. The analogy goes like this—they were selling cars with faulty brakes and then taking out life insurance policies on the people to whom those cars were sold.

But it was even more sinister than that. Goldman not only sold the car with faulty brakes, while telling the buyers that the brakes were good, they designed the car to have faulty brakes, knowing that it was going to crash at some point. So they profited on both ends, selling the car they knew would crash and then collecting the life insurance when it crashed.

Those who are quick to dismiss the charges against Goldman as a tempest in a teapot, something that will quickly blow over after the firm pays a small (relative to their size) fine and goes on their merry way should remember this. It was a night watchman who found a piece of tape on a lock on a door at the Watergate Hotel which led to an investigation which culminated in the resignation of a president.

The question now is do we have a modern-day Woodward and Bernstein? Do we have a modern-day Ben Bradlee who will defy the powers that be and publish the information those reporters uncover in spite of the possible repercussions that those powers may bring to bear? Do we have a modern-day Sam Ervin in Congress? Is there a modern-day John Dean? An ethical person with inside knowledge of the activities at Goldman and other Wall Street giants who is willing to talk?

Time will tell.