It is easier for regulators to get their man than it is to get their money.
Since late 2005, the Securities and Exchange Commission and Commodity Futures Trading Commission have ordered $12.3 billion in penalties for alleged wrongdoing. The total includes fines, the return of ill-gotten profits and repayment of restitution to investors.
The largest fines and penalties imposed by the SEC are as follows:
CDO related
- Goldman Sachs - $550 million (
- JP Morgan Chase - $156.3 million
- Wachovia - $11 million
Making Misleading Disclosures related to mortgage backed securities
- American Home Mortgage - $2.45 mil fine, plus CEO got a 5-yr officer & director ban
- BofA's Countrywide - $22.5 million, plus CEO got a permanent officer & director ban
- Citigroup - $75 million
- New Century - $1.5 million, plus executives got a 5-yr officer & director ban
- IndyMac - Ongoing case.
Concealing Information related to mortgaged backed securities
- State Street Bank - $300 million, to repay investors
- Charles Schwab - $118 million
- Evergreen - $40 million, to repay investors
- TD Ameritrade - $10 million
Making Misleading Statements to investors
- Bank of America - $150 million, settlement for misleading its investors about bonuses paid to Merrill Lynch and not disclosing Merrill Lynch's mounting losses.
In total, the SEC, mildly policing the vast financial system that pushed a criminal musical chairs game of last-one-holding-a-toxic-asset-or-underwater-mortgage-loses, charged 66 entities and individuals with 'misconduct', imposed 19 officer or director bars, and levied $1.5 billion of penalties, disgorgement, and other monetary relief fines.
The above fines and penalties are paltry amounts when you compare this to the bonuses many of those financial institutions pay their executives and brokers:
- JP Morgan Chanse - $28 billion in bonuses for just 2010.
- Top Six U.S. Banks - $424 billion in total bonuses paid between 2007-2009.
- Wall Street Firms - $128 billion of bonuses in 2010.
And, let's not forget the $700 billion bailout money paid by Uncle Sam under the Troubled Asset Relief Program (TARP) to financial institutions and the auto industry:
- American International Group (AIG) - $70 billion
- Asset Guarantee Program ($12.5 billion) - 2 banks - Committed ($12.5 billion) - Invested ($5 billion) - Repaid (None)
- Bank of America - $7.5 billion
- Citigroup - $5 billion
- Capital Purchase Program ($700 billion) - Nearly 700 banks - Committed ($218 billion) - Invested ($204.8 billion - Repaid ($96.2 billion) - Below are banks and financial institutions over $1 billion. You can obtain a complete list of all the TARP banks HERE.
- Wells Fargo Bank - $25 billion
- State Street Corp - $2 billion
- Bank of America - $15 billion
- JP Morgan Chase - $25 billion
- Morgan Stanley - $10 billion
- Goldman Sachs - $10 billion
- U.S. Bankcorp - $6.6 billion
- Capital One Financial Corp - $3.555 billion
- Regions Financial Corp - $3.5 billion
- SunTrust Banks Corp - $3.5 billion
- BB&T Corp - $3.133 billion
- Bank of New York Mellon - $3 billion
- Key Corp - $2.5 billion
- Coamerica - $2.250 billion
- Marshall & IIsley Corp - $1.715 billion
- Northern Trust Corp - $1.576 billion
- Huntington Bankshares - $1.4 billion
- Zions Bankcorporation - $1.4 billion
- Auto Supplier Support Program ($5 billion) - 2 Auto companies - Committed ($5 billion) - Invested ($3.5 billion) - Repaid ($455 million)
- General Motors - Committed ($3.5 billion) - Invested ($2.5 billion)
- Chrysler Motors - Committed ($1.5 billion) - Invested ($1.0 billion)
- Automotive Industry Financing Program ($80.1 billion) - Invested ($77.6 billion) - Repaid ($2.141 billion)
- General Motors - Committed ($49.9 billion) - Invested ($49.9 billion) - Repaid ($361 million)
- Chrysler - Committed ($15.2 billion) - Invested ($12.8 billion) - Repaid ($280 million)
- GMAC - Committed ($13.5 billion) - Invested ($13.4 billion) - Repaid (none)
- Chrysler Financial - ($1.5 billion) - Invested (1.5 billion) - Repaid (none)
According to the SEC and CFTC the following fines and penalties still have not been paid:
- SEC is owed $3.78 billion.
- CFTC hasn't collected $752 million in fines alone.
- Total: $4.532 billion
The unpaid amounts represent three-fourths of fines imposed by the CFTC over the period of five fiscal years that ended last September. The SEC has failed to get 33% of the punishment doled out by the agency during the same period.
Bart Chilton, one of the five commissioners who run the CFTC, said via email in response to questions.
"We need to do better."
SEC spokesman John Nester said.
"The agency's collection efforts continue to pay enormous dividends. Last year, we returned two dollars to harmed investors for every dollar Congress spent on the entire SEC budget."
The payment figures show what happens to securities-enforcement cases long after headlines trumpeting regulatory crackdowns on fraud and other wrongdoing have faded.
James Cox, a law professor at Duke University in Durham, N.C. said.
"It's one thing to impose fines and hang up the scalps. It's quite another to collect the money."
The SEC's recent track record is roughly in line with previous years' records. The agency has collected $7.55 billion of $11.33 billion in fines and disgorgement, or repayment of illegal profits, in the past five fiscal years. The period includes the financial crisis.
At the CFTC, officials have gotten just $257 million of the $1 billion in fines imposed by the agency.
From 2002 to 2005, the CFTC collected about half of what it was owed, according to figures from the agency.
The agency doesn't track whether its disgorgement and restitution penalties are paid by individuals or firms pursued by the CFTC.
Mr. Chilton said CFTC officials have worked hard to improve the agency's collection rate. He said in an email.
"But, frankly, we need to do a better job to get more money back in the hands of defrauded investors."
In comparison, the Financial Industry Regulatory Authority, a self-policing regulator for Wall Street, has collected 96%, or $233 million, of the $242 million in fines it imposed during the past five fiscal years.
SEC and CFTC officials face daunting challenges when trying to get their hands on what the agencies are owed.
For example, CFTC officials say the agency isn't allowed to consider the ability of an individual or firm to pay when it seeks court approval for financial penalties.
They say the amounts sought by the CFTC are aimed at deterring future wrongdoing and maximizing recoveries of losses for investors.
Larger firms are more likely to pay up quickly than smaller firms, which often lack the financial cushion to come up with thousands or even millions of dollars.
In 2008, the SEC and CFTC filed civil charges against Safevest LLC, alleging the Laguna Hills, Calif., firm was running a bogus commodity-futures trading program that targeted Christian communities across the U.S.
The CFTC announced in 2009 that it "obtained more than $25 million in civil monetary penalties" in a court order from Safevest and the firm's two principals, Jon G. Ervin and John V. Slye.
Thomas Seaman, appointed by the SEC in 2008 to track down Safevest's assets, said in an interview that he has recovered "essentially nothing. This was a true Ponzi scheme."
Mr. Ervin has pleaded guilty to one criminal count of fraud and is awaiting sentencing. His lawyer, Dean Steward, said it is pointless for the SEC and the CFTC to try to levy civil penalties on Mr. Ervin.
"The reality is, Mr. Ervin is flat broke.…You can't get blood out of a turnip," Mr. Steward said.
Mr. Slye hasn't admitted any wrongdoing and is due to go on trial next year.
"Mr. Slye has pleaded not guilty, because he's not guilty," said lawyer Michael Khouri.
Gregory Mocek, the CFTC's director of enforcement from 2002 to 2008, said it is a "good question whether it's a proper use of the commission's limited resources to continue to pursue these [Ponzi] cases on a civil basis, rather than simply refer them to the criminal authorities."
Mr. Mocek is now a partner at law firm Cadwalader, Wickersham & Taft LLP.
CFTC spokesman Steven Adamske declined to comment.
SEC and CFTC officials refer some penalties that are overdue by more than six months to the Treasury Department for collection.
That agency sends collection letters and hires outside debt collectors.
Just $1 million of the $812 million in claims inherited from the CFTC in the past five years has been collected, according to the Treasury Department.
On SEC claims, Treasury officials got $3 million out of $1.3 billion.
Treasury officials said unpaid penalties from the two securities-enforcement agencies are especially hard to collect, partly because penalties can be imposed without regard to ability to pay.
Overall, the Treasury Department collects about $52 in delinquent obligations for every $1 it spends to pursue such debts, according to the agency.
Some experts said the SEC and the CFTC could improve their collection rates by shutting down fewer small frauds. Such a move likely would be fraught with political peril.
Mr. Cox, the Duke professor said.
"A lot of these SEC and CFTC cases are pretty small potatoes, but the agencies come under pressure, from members of Congress who have voters that have been scammed, to go after these schemes."
COMMENTARY: This whole thing gives me heart burn. What is really distasteful is that the U.S. government commited $700 billion TARP money plus additional billions later to bailout the financial industry WITHOUT any conditions. They were supposed to use that money to lend to businesses, but instead of this, they used that money to acquire weaker competitors and pay themselves fat bonuses.
The real victims of the financial meltdown are millions of Main Street bank customers and woekers who lsot their jobs and homes because banks would not lend or whose employer's suffered financial losses and had to downsize. None of them were bailed out. Today nearly 30% of homes in the U.S. are still underwater and we could have a record year in new foreclosures, and the unemployment hovers above 9%.
The fines and penalties assigned by the SEC and CFTC really amount to a slap on the hand for most of these fanks and financial institutions. The CEO's and other executives for a lot of these banks and Wall Street firms should be in prison or banned from the industry altogether. This is what happens when you deregulate the banking industry and the regulator's do a poor job of regulating.
Courtesy of an article dated July 8, 2011 appearing in The Wall Street Journal and CNNMoney.com Bailout Tracker
Comments