Trump’s Other Ban

Trump’s travel ban and his rightwing Supreme Court pick are troubling in themselves, but they are also serving to deflect attention away from the plot by the administration and its Republican allies to undermine the regulation of business.

Surprisingly little is being said about Trump’s January 30 executive order instructing federal agencies to identify two prior regulations for elimination for each new rule they seek to issue. It also dictates that the total incremental cost of new rules (minus the cost of repealed ones) should not exceed zero for the year.

While Trump’s appointees will probably not propose much in the way of significant new rules that would have to be offset, the order amounts to a ban on additional regulation.  It boosts the long-standing effort by corporate apologists to delegitimize regulation by focusing on the number of rules and their supposed cost while ignoring their social benefits.

Meanwhile, the regulation bashers are also busy on Capitol Hill. Republicans have resurrected the rarely used Congressional Review Act as a mechanism for undoing the Obama Administration’s environmental regulations as well as its Fair Pay and Safe Workplaces executive order concerning federal contractors.

Both Trump and Congressional Republicans are also targeting the Dodd-Frank law that enhanced financial regulation after the 2008 meltdown. Calling the law a “disaster,” Trump recently said “we’re going to be doing a big number on Dodd-Frank,” adding: “The American dream is back.”

If Trump was referring to the aspirations of the wolves of Wall Street, then that dream may indeed be in for a resurgence. For much of the rest of the population, the consequences would be a lot less pleasant.

To take just one example, an attack on Dodd-Frank would certainly include an assault on the Consumer Financial Protection Bureau that was created by the law and which has aggressively gone after financial predators. As Violation Tracker shows, during the past five years the agency has imposed more than $7 billion in penalties in around 100 enforcement actions against banks, payday lenders, credit card companies and others. Its $100 million fine against Wells Fargo last September brought attention to the bank’s bogus-account scheme.

The CFPB has not let the election results impede its work. Since November 8 it has announced more than a dozen enforcement actions with penalties totaling more than $80 million. The largest of those involves Citigroup, two of whose subsidiaries were fined $28.8 million for keeping borrowers in the dark about options to avoid foreclosure and burdening them with excessive paperwork demands when they applied for foreclosure relief.

Citigroup, one of the companies that has the most to gain from restrictions on the CFPB and Dodd-Frank in general, has shown up often as I have been collecting data on recent enforcement cases from various agencies for a Violation Tracker update that will be released soon.

The Securities and Exchange Commission recently announced that Citigroup Global Markets would pay $18.3 million to settle allegations that it overcharged at least 60,000 investment advisory clients with unauthorized fees. In a separate SEC case, Citi had to pay $2.96 million to settle allegations that it misled investors about a foreign exchange trading program.

Around the same time, the Commodity Futures Trading Commission filed and settled (for $25 million) allegations that Citigroup Global Markets engaged in the illicit practice of spoofing — bidding or offering with the intent to cancel the bid or offer before execution — in U.S. Treasury futures markets and that it failed to diligently supervise the activities of its employees and agents in conjunction with the spoofing orders.

Citi’s record, along with that of other rogue banks, undermines the arguments of Dodd-Frank foes and in fact makes the case for stricter oversight. Yet the reality of financial misconduct is about to be overwhelmed by a barrage of alternative facts about the magic of deregulation.

Update: After this piece was written, Congress voted to repeal another provision of Dodd-Frank known as Cardin-Lugar or Section 1504, which required publicly traded extractive companies to report on payments to foreign governments in their SEC filings. The disclosure was meant as an anti-corruption measure. 

A Culture of Corruption

The chief executive of Wells Fargo would have us believe that more than 5,000 of his employees spontaneously became corrupt and decided to create bogus accounts for customers who were then charged fees for services they had not requested.

John Stumpf has earned himself a place in the corporate hall of shame for putting the blame on underlings for carrying out a fraud that must have been sanctioned by top officials at the bank, which has a reputation for pushing new products on customers. He may have been inspired by Volkswagen, whose senior people have been claiming that they knew nothing about systematic cheating on auto emissions tests.

After the announcement that Wells would pay $185 million to settle the case, Stumpf did a self-protective interview with the Wall Street Journal in which he insisted that the misconduct was in no way encouraged by management and was inconsistent with the bank’s internal culture. Few seem to be buying that argument, and Wells is facing various federal investigations.

The notion that Wells had been a paragon of virtue is preposterous. The dishonesty begins with its name, which evokes the legendary stagecoach line. The company is actually the descendant of Norwest, a bank holding company based in Minneapolis which changed its name after acquiring the old Wells Fargo in 1998.

Four years later, the combined company had to pay a penalty of $150,000 to settle SEC charges of improperly switching customers among mutual funds. In 2005 the securities industry regulator NASD (now FINRA) fined Wells $3 million for improper sales of mutual funds.

When Wells acquired Wachovia Bank amid the financial meltdown of 2008 it acquired a bunch of legal problems, including a municipal securities bid rigging case that required a $148 million settlement.

Recent years have seen a long list of additional scandals and settlements. In 2009 Wells had to agree to buy back $1.4 billion in auction-rate securities to settle allegations by the California attorney general of misleading investors. In 2011 it agreed to pay $125 million to settle a lawsuit in which a group of pension funds accused it of misrepresenting the quality of pools of mortgage-related securities. That same year, the Federal Reserve announced an $85 million civil penalty against Wells Fargo for steering customers with good qualifications into costly subprime mortgage loans during the housing boom.

In 2012 Wells Fargo was one of five large mortgage servicers that consented to a $25 billion settlement with the federal government and state attorneys general to resolve allegations of loan servicing and foreclosure abuses. Later that year, the Justice Department announced that Wells Fargo would pay $175 million to settle charges that it engaged in a pattern of discrimination against African-American and Hispanic borrowers in its mortgage lending during the period from 2004 to 2009. Also in 2012, Wells agreed to pay $6.5 million to settle SEC charges that it failed to fully research the risks associated with mortgage-backed securities before selling them to customers such as municipalities and non-profit organizations.

In 2013 Wells was one of ten major lenders that agreed to pay a total of $8.5 billion to resolve claims of foreclosure abuses; it settled a lawsuit alleging that it neglected the maintenance and marketing of foreclosed homes in black and Latino areas by agreeing to spend at least $42 million to promote home ownership and neighborhood stabilization; and it agreed to pay $869 million to Freddie Mac to repurchase home loans the bank had sold to the mortgage agency that did not conform to the latter’s guidelines.

Jumping to 2016: the Justice Department announced that Wells would pay $1.2 billion to resolve allegations that the bank certified to the Department of Housing and Urban Development that certain residential home mortgage loans were eligible for Federal Housing Administration insurance when they were not, resulting in the government having to pay FHA insurance claims when some of those loans defaulted.

And a few weeks before the CFPB revealed its sham accounts penalty against Wells, the agency fined the bank $3.6 million plus $410,000 in restitution to customers to resolve allegations that it engaged in illegal student loan servicing practices.

Contrary to Stumpf, the sham accounts were much in line with the culture of Wells, which has been corrupt for years. As long as the bank’s top management denies the reality, it seems unlikely anything will change.

Note: This post draws from my newly updated Corporate Rap Sheet on Wells Fargo.

The 2013 Corporate Rap Sheet

Monopoly_Go_Directly_To_Jail-T-linkThe ongoing corporate crime wave showed no signs of abating in 2013. Large companies continued to break the law, violate regulations and otherwise misbehave at a high rate. Whatever lip service the business world gives to corporate social responsibility tends to be overwhelmed by bad acts.

Continuing the trend of recent years, 2013 saw an escalation of the amounts that companies have to pay, especially in the United States, to get themselves out of their legal entanglements. In November JPMorgan Chase set a record with its $13 billion settlement with the U.S. Department of Justice and other state and local agencies on charges relating to the sale of toxic mortgage-backed securities. JPMorgan’s legal problems are not over. There have recently been reports that it may face criminal charges and pay $2 billion in penalties in connection with charges that it turned a blind eye to the Ponzi scheme being run by Bernard Madoff while it was serving as his primary bank.

Other banks have also been shelling out large sums to resolve disputes over the sale of toxic securities in the run-up to the financial crisis. Much of the money has gone to settlements with mortgage agencies Fannie Mae and Freddie Mac. Bank of America alone agreed to pay out $10.3 billion ($3.6 billion in cash and $6.75 billion in mortgage repurchases) to Fannie.

Here are some of the year’s other highlights (or lowlights):

FORECLOSURE ABUSES. In January, ten mortgage servicing companies–including Bank of America, Citibank and JPMorgan Chase–agreed to an $8.5 billion settlement to resolve allegations by federal regulators relating to foreclosure abuses.

LIBOR MANIPULATION. In February, U.S. and UK regulators announced that the Royal Bank of Scotland would pay a total of $612 million to resolve allegations relating to rigging of the LIBOR interest rate index. In December, the European Union fined RBS and five other banks a total of $2.3 billion in connection with LIBOR manipulation.

ILLEGAL MARKETING. In November, the Justice Department announced that Johnson & Johnson would pay more than $2.2 billion to settle criminal and civil allegations that it improperly marketed the anti-psychotic drug Risperdal for unapproved use by older adults, children and people with development disabilities.

SALE OF DEFECTIVE MEDICAL IMPLANTS. Also in November, Johnson & Johnson agreed to pay more than $2 billion to settle thousands of lawsuits charging that the company sold defective hip implants, causing many individuals to suffer severe pain and injury from metallic debris generated by the faulty devices.

INSIDER TRADING. In March, the SEC announced that an affiliate of hedge fund giant SAC Capital Advisors had agreed to pay $602 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies. At the same time, a second SAC affiliate agreed to pay $14 million to settle another insider trading case. Later, SAC agreed to pay $1.2 billion to settle related criminal and civil insider trading charges.

PRICE-FIXING. In July, German officials fined steelmaker ThyssenKrupp the equivalent of about $115 million for its role in a price-fixing cartel. In September, the U.S. Justice Department announced that nine Japanese automotive suppliers had agreed to plead guilty to price-fixing conspiracy charges and pay more than $740 million in criminal fines, with the largest amount ($195 million) to be paid by Hitachi Automotive Systems.

MANIPULATION OF ENERGY PRICES. In July, the Federal Energy Regulatory Commission ordered Barclays and four of its traders to pay $453 million in civil penalties for manipulating electricity prices in California and other western U.S. markets during a two-year period beginning in late 2006.

BRIBERY. In May, the Justice Department announced that the French oil company Total had agreed to pay $398 million to settle charges that it violated the Foreign Corrupt Practices Act by paying bribes to officials in Iran.

VIOLATION OF DRUG SAFETY RULES. In May, DOJ announced that generic drug maker Ranbaxy USA Inc., a subsidiary of the Indian company Ranbaxy Laboratories, had pleaded guilty to felony charges relating to the manufacture and distribution of adulterated drugs and would pay $500 million in fines.

VIOLATION OF RULES ON THE SALE OF NARCOTICS. In June, the U.S. Drug Enforcement Administration announced that the giant Walgreen pharmacy chain would pay a record $80 million in civil penalties to resolve charges that it failed to properly control the sales of narcotic painkillers at some of its stores.

DEALINGS WITH ENTITIES SUBJECT TO SANCTIONS. In June, New York officials announced that Bank of Tokyo Mitsubishi-UFJ had agreed to pay $250 million to settle allegations that it violated state banking laws by engaging in transactions with entities from countries such as Iran subject to sanctions.

LABOR LAW VIOLATIONS. In November, the National Labor Relations Board found that Wal-Mart had illegally disciplined and fired workers involved in protests over the company’s labor practices. A Wal-Mart spokesperson was found to have unlawfully threatened employees who were considering taking part in the actions.

CLEAN WATER ACT VIOLATIONS. In May, the Environmental Protection Agency announced that Wal-Mart had pleaded guilty to charges that it illegally disposed of hazardous materials at its stores across the country. The company had to pay $81.6 million in civil and criminal fines.

HEALTH AND SAFETY CODE VIOLATIONS. In August, Chevron pleaded no contest and agreed to pay $2 million to settle charges that it violated state health and safety regulations in connection with a fire at its refinery in Richmond, California that sent thousands of people to hospital for treatment of respiratory problems.

DELAYS IN RECALLING UNSAFE VEHICLES. In August, Ford Motor was fined $17.4 million by the National Highway Traffic Safety Administration for taking too long to recall unsafe sport utility vehicles.

PRIVACY VIOLATIONS. In November, Google agreed to pay $17 million to 37 states and the District of Columbia to settle allegations that the company violated privacy laws by tracking online activity of individuals without their knowledge.

Note: For fuller dossiers on many of the companies listed here, see my Corporate Rap Sheets.

A Cost of Doing Dirty Business

The Justice Department’s announcement of a $26 billion federal-state legal settlement with the country’s five largest mortgage servicers is filled with words like “unprecedented,” “landmark” and “historic.” It claims that the deal “provides substantial financial relief to homeowners and establishes significant new homeowner protections for the future.”

All of this hyperbolic language cannot disguise the fact that the settlement is just the latest in a series of efforts by the Obama Administration to give the appearance of being tough on corporate misconduct while actually letting the malefactors off easily. It is disappointing that so many state attorneys general gave into pressure to go along with the deal.

The $17 billion of the total that the servicers will be required to spend on direct relief (mortgage balance reductions and cash payments) will aid only a fraction of the homeowners victimized by abusive mortgage and foreclosure practices. Like earlier efforts by the Administration to deal with the housing debacle, it will do nothing for most of those who have been dispossessed in one of the most egregious cases of corporate lawlessness this country has ever seen.

The size of the settlement pool is meager in connection with the $200 billion multi-state tobacco settlement of 1998, for instance, and it will not present much of a financial burden for the five big servicers. Those companies—Bank of America, Citigroup, J.P. Morgan Chase, Wells Fargo and Ally Financial (formerly GMAC)—have combined assets of about $8 trillion. In other words, they are being asked to give up only about one-third of one percent of their total resources to resolve a crisis that has left so many with no resources at all.

Actually, the impact on the banks is even smaller than the absolute numbers would suggest. Many of the home loans that will be adjusted have already been written down in value by the financial institutions, so they are not really conceding anything. Meanwhile, those who have lost their homes to foreclosure will receive pitiful payments of about $2,000 each. There may be other pitfalls in the fine print of the settlement, which as of this writing has not yet been posted on the website created to publicize the deal.

The one good thing that can be said about the settlement is that, thanks to the insistence of New York Attorney General Eric Schneiderman, it does not release the banks from culpability for all mortgage-related offenses, and it allows the state AGs to continue pursuing any criminal charges. This leaves the door open for cases such as the one taking place in Missouri, in which a foreclosure servicing company called DocX is being charged with forgery. Yet it remains to be seen how aggressive federal and state agencies will be in pursuing such cases if the settlement gives the impression that the book has been closed on foreclosure abuses.

That impression was reinforced by the announcements of bank regulators such as the Federal Reserve and the Office of the Comptroller of the Currency that they have reached their own settlements with mortgage servicers.

Foreclosure abuses did not simply force people out of their homes in an unjust way. They exposed the imbalance of power between individuals and giant corporations when it comes to the application of the law. Capitalism is supposed to be based on the sanctity of contracts and the clear identification of ownership rights. Revelations that financial institutions were able to carry out foreclosures based on shoddy documentation, robo-signing and the like showed that, when it comes to the rule of law, not everyone is playing by the same rules.

Housing and Urban Development Secretary Shaun Donovan would have us believe that the settlement “forces the banks to clean up their acts and fix the problems uncovered during our investigations.” It can just as easily be said that the deal signals to large financial institutions that they can go on mistreating their customers and that the worst consequence would be modest financial penalties that can be written off as a cost of doing dirty business.