It’s been an expensive few months for JPMorgan Chase. The bank is in talks—which could still fall through—to pay a record $13 billion to the Department of Justice and other
agencies over several probes into alleged mortgage misconduct during the run-up
to the financial crisis.
Amid talks of the mortgage settlement, the bank agreed to pay
out another $920 million, this time to settle allegations in the “London Whale”
trading scandal. Overall, the bank has spent or set
aside $28 billion for legal costs since 2010. The company reported its first loss under Chief Executive
Jamie Dimon in early October.
Meanwhile, Bank of America,
Citigroup and others have also recently agreed to large settlements related to
allegations ranging from staying hush about an ongoing Ponzi
scheme to levying extra fees from customers. While many are paying up, few
are actually admitting guilt. Many banks are able to settle lawsuits for large
sums of cash without ever “admitting or denying” wrongdoing. This has long been
a major point of contention in the effort to regulate big banks.
And the cases keep coming: Many banks are being investigated
by multiple state and federal agencies, meaning they can be sued or
investigated multiple times over what might seem like the same allegation.
If you’re having a hard time keeping track, here’s a rundown
on the latest lawsuits, settlements and ongoing investigations involving big
banks:
Click on the sidebar links to jump to a section.
Mortgages
JPMorgan in talks to
pay $13 billion to end multiple mortgage probes
THE BANK
JPMorgan Chase
THE DETAILS
The Justice Department, New York Attorney General Eric T. Schneiderman, the Federal Housing Finance Agency and federal
prosecutors in Pennsylvania and California were investigating whether the bank
misled investors about the risk of mortgages underlying securities sold between
2005 and 2007, in the run-up to the 2008 financial crisis. Many
of the questionable sales were made by Bear Stearns and Washington Mutual,
companies that JPMorgan acquired when they failed in 2008.
THE POTENTIAL SETTLEMENT
The bank has discussed paying $13 billion to settle claims by
several U.S. agencies and prosecutors’ offices, though the tentative deal could still fall through. Of the $13 billion, $4 billion
would go to homeowners facing foreclosure.
As part of the $13 billion payout, JPMorgan agreed this week
to pay $4
billion in a separate settlement with the Federal Housing Finance Agency. The
FHFA sued the bank for allegedly selling Fannie Mae and Freddie Mac faulty
mortgage-backed securities. Fannie and Freddie are government-supported
companies that buy mortgages from lenders and bundle and sell them to
investors, freeing up more capital for banks to lend out.
There is some debate over whether JPMorgan or The Federal
Deposit Insurance Corporation should pay for the losses from Washington Mutual’s mortgage securities. The FDIC took over Washington
Mutual when it failed, and then sold it to JPMorgan. This remains a sticking
point in the settlement talks.
ONGOING INVESTIGATIONS
U.S. Attorney General Eric Holder would not agree to end all
inquiries into JPMorgan’s mortgage practices as part of the settlement. Federal
prosecutors in California will continue a criminal investigation into loans and
mortgage-backed securities the bank sold between 2005 and 2007. This has been
another point of contention, as JPMorgan is reportedly still seeking protection
from future criminal investigations.
ADMIT WRONGDOING?
The bank did not admit wrongdoing in its settlement with the
FHFA. The settlement is “an important step towards a broader resolution of the
firm’s [mortgage-backed securities]-related matters with governmental
entities,” the bank said in a statement.
JPMorgan has not yet said whether it will admit wrongdoing in
its settlement with the Justice Department and other prosecutors.
FHFA sues multiple
banks over faulty mortgage-backed securities
THE BANKS
JPMorgan Chase, Bank of America, UBS, Citigroup, General
Electric and 13 others
THE DETAILS
The Federal Housing Finance Agency, the conservator of
government-backed finance companies Fannie Mae and Freddie Mac, is suing several
banks for allegedly selling faulty mortgage bonds to Fannie and Freddie between
2004 and 2007. Fannie and Freddie have also brought suits against many of the
same banks over the sale of mortgage loans.
THE SETTLEMENTS
JPMorgan has settled its suit with the FHFA for $4 billion, as
part of a larger, tentative $13 billion payout over mortgage issues (see above).
The FHFA is reportedly seeking at
least $6 billion from Bank of America, which created the largest share of the
mortgage-backed securities in question.
Three additional banks have already settled with the FHFA,
which filed the original suits in 2011. UBS settled for $885 million in July. Citigroup
and General Electric settled earlier this year, though neither disclosed
details of their agreements with the agency.
ADMIT WRONGDOING?
JPMorgan and UBS did not
admit to wrongdoing in their settlements. Details of the GE and Citigroup
agreements were not disclosed. Bank of America has not yet said whether they
would admit wrongdoing in the case.
Banks buy back faulty
loans from Fannie Mae and
Freddie Mac
THE BANKS
Citigroup, Wells Fargo, SunTrust, JPMorgan
THE DETAILS
The banks have agreed to repurchase mortgages they sold to
Freddie Mac or Fannie Mae as far back as 2000 that went bad during the housing
market crash. The lawsuits allege that the banks did a poor job “underwriting”
these loans, which means assessing how likely borrowers are to default.
These settlements are separate from cases filed over
mortgage-backed securities by the Federal Housing Finance Agency in 2011.
THE SETTLEMENTS
JPMorgan has agreed to pay Fannie Mae $670 million for the
loans, and will pay $480 million to Freddie Mac. Citigroup repurchased $968
million of faulty loans from Fannie Mae and $395 million from Freddie Mac.
Wells Fargo paid Freddie Mac $780 million, and SunTrust bank settled with
Freddie Mac for $65 million.
ADMIT WRONGDOING?
None of the banks have admitted wrongdoing as part of their
settlements.
Bank of America Found Liable for Countrywide Hustled Mortgages
THE BANK
Bank of America
THE DETAILS
Bucking the trend of
banks settling out of court, Bank of America went to trial to fight Justice
Department allegations that it had lied to Fannie Mae and Freddie Mac about
tightening its underwriting standards for mortgages sold by Countrywide
Financial, which Bank of America purchased as it neared failure in 2008. In reality,
new incentives and looser quality controls had led to “rampant instances
of fraud and other serious loan defects,” alleged prosecutor Preet Bharara. Last week, a
federal jury found the bank and former mid-level Countrywide
executive Rebecca Mairone liable for fraud.
The case began when a former official blew the
whistle on an internal program nicknamed “the Hustle,” which he says
incentivized brokers to ignore quality controls and sell high-risk loans.
THE SETTLEMENT
The size of the penalty will be decided in early
December.
ADMIT WRONGDOING?
No. Bank of America spokesman Lawrence Grayson told Reuters
“the jury’s decision concerned a single Countrywide
program that lasted several months and ended before Bank of America’s
acquisition of the company. We will evaluate our options for appeal.”
A lawyer for Mairone also
told Reuters she intended to appeal the decision.
SEC files charges
in Magnetar deal
THE BANK
Bank of America’s wealth-management division, Merrill Lynch
THE DETAILS
The SEC has accused advisory firm Harding Advisory
and its owner, Wing Chau, of misleading investors in
a bundle of mortgage securities known as a collateralized debt obligation
(CDO). The case says Harding and the CDO’s creator, Merrill Lynch, agreed to
let hedge fund Magnetar help decide which assets went
into the $1.5 billion deal. Magnetar had bet against
those CDOs, and stood to profit handsomely if they failed. The bank itself has
not been charged in the suit.
Harding’s lawyer Steven Molo did not
return a call from ProPublica
reporters this month seeking comment. Through a spokesman, Magnetar declined to comment.
See the rest of our coverage of Magnetar,
and how deals like the one in the SEC’s suit worsened the impact of the housing
market’s collapse.
New York suing Wells
Fargo for allegedly violating the terms of mortgage settlement
THE BANK
Wells Fargo
THE DETAILS
Wells Fargo was one of five banks that agreed to 304 new
requirements for how they deal with mortgages as part of a $25 billion settlement over misconduct that
led to the foreclosure crisis. Now, the New York Attorney General Eric T. Schneiderman is suing the bank for allegedly delaying homeowners’ attempts to modify their loans and avoid foreclosure. Wells Fargo denies it has violated the agreement.
Schneiderman dropped a similar case
against Bank of America when the bank agreed to adopt additional protections
for struggling homeowners. In Florida, the complaints of hundreds of homeowners prompted
Bank of America and Wells Fargo to commit to improving foreclosure protections.
Nonprofit claims Bank of America ignored minority neighborhoods
THE BANK
Bank of America
THE DETAILS
The nonprofit National Fair Housing Alliance filed an expanded
complaint in September alleging that Bank of America has neglected bank-owned
homes in neighborhoods of color in 18 cities, while working harder to sell
those in white neighborhoods.
Bank of America denies the allegations. A Bank of America
spokesman told
the Wall Street Journal that the claims “revealed numerous, material
flaws in their methodology and how they represented that information
publicly.”
Wells Fargo settled a similar case with the U.S.
Department of Housing and Urban Development and the National Fair Housing
Alliance for $42 million in June. They, too, denied the allegations.
Capital One settles
claims its Chevy Chase bank raised rates
for black and Hispanic homeowners
THE BANK
Capital One
THE DETAILS
The Department of Justice alleges Chevy Chase Bank, which
Capital One bought in 2009, charged black and Hispanic customers hundreds of
dollars more in fees and interest on their mortgages. Investigators found that
one branch would charge an African American borrowing $250,000 roughly $950
more than they would a white borrower.
THE SETTLEMENT
The bank agreed to pay $2.85 million in damages.
ADMIT WRONGDOING?
No.
Nine banks hit with lawsuits over faulty
mortgage-backed securities
THE BANKS
Morgan Stanley, Barclays, JPMorgan Chase/Bear Stearns, Credit
Suisse, Royal Bank of Scotland, UBS, Goldman Sachs, Wachovia, Ally Securities
THE DETAILS
The National
Credit Union Administration is suing nine banks
for allegedly selling faulty mortgage-backed securities to two corporate credit
unions. One complaint says Morgan Stanley, Barclays, JPMorgan, Credit Suisse,
Royal Bank of Scotland and UBS lied about the true risk of the securities,
which helped lead to the collapse of the Southwest and Members United credit
unions. In a separate lawsuit also filed in September, the National Credit
Union Administration has accused Goldman Sachs, Wachovia and Ally Securities of
misrepresenting risky securities to Southwest Credit Union.
According to the NCUA, “Southwest and Members United corporate
credit unions paid more than $416 million for the securities in question in the
Morgan Stanley suit and more than $1.9 billion for securities sold by the other
defendants.”
Justice Department and
SEC say Bank of
America lied to investors
THE BANK
Bank of America
THE DETAILS
The SEC and the Department of Justice claim Bank of America
misrepresented high-risk loans as prime mortgages when they were bundled into
$850 million worth of mortgage-backed securities and sold to investors. Unlike
the high-interest loans made to low-income borrowers that are at the center of
several suits, these were “jumbo” mortgages for more expensive homes. The
lawsuit says many of the mortgages didn’t comply with the bank’s own standards.
The SEC says losses to investors who bought the
mortgage-backed securities could be as much as $120 million. Bank of America claims
it was the housing crash and not any wrongdoing on its part that led to the
loss. “These were prime mortgages sold to sophisticated investors who had
ample access to the underlying data and we will demonstrate that,” a bank spokesman said.
UBS settles charges its
CDO deal
violated securities law
THE BANK
UBS
THE DETAILS
The SEC claimed UBS kept $23.6 million in upfront cash that
should have gone into a mortgage-backed security the bank created in 2007. “In
doing so, UBS misrepresented the nature of the CDO’s collateral,” George S. Canellos, co-director of the SEC’s enforcement division, said in announcing the settlement.
THE SETTLEMENT
The bank agreed to pay $49.8 million in August.
ADMIT WRONGDOING?
The bank did not admit or deny wrongdoing in the settlement.
Power Markets
THE BANKS
JPMorgan Chase, Barclays
THE DETAILS
The federal government accused JPMorgan of engaging in “manipulative
schemes” designed to turn money-losing power plants in California and Michigan
into profit generators for the bank. JPMorgan gained the right to sell the
power plants’ electricity from Bear Stearns after it took over the failed
investment bank in 2008.
The Federal Energy Regulatory Commission also fined Barclays and four of its traders for
manipulating energy prices in California and other western states.
THE SETTLEMENT
Barclays agreed in July to pay $453 million to the Federal
Energy Regulation Commission, the largest settlement in the agency’s history.
The agency has since filed a court order to enforce the
settlement, claiming that Barclays has failed to pay up.
JPMorgan settled for $410 million, the regulator’s second-largest
settlement.
ADMIT WRONGDOING?
No. The FERC said JPMorgan agreed with them on the facts but
“did not admit or deny the violations.”
Barclays and the four traders named in the suit have denied
any wrongdoing.
London Whale
THE BANK
JPMorgan Chase
THE DETAILS
JPMorgan officials failed to regulate traders who were making
massive bets on corporate bonds —so massive they distorted the whole
derivatives market. Top management allegedly gave misinformation
to regulators and failed to inform their board about the traders lying about
the true losses of those massive bets. The trades ultimately cost the bank $6
billion.
THE SETTLEMENT
The bank shelled out $920 million dollars: $300 million to the
Office of the Comptroller of the Currency, $200 million to the Securities and
Exchange Commission, $200 million to the Federal Reserve, and $220 million to
the U.K. Financial Conduct Authority.
The bank also agreed to pay another $100 million to the U.S.
Commodity Futures Trading Commission, to settle their investigation into the
trades.
ADMIT WRONGDOING?
Yes. The bank admitted to violating federal security law,
and Chief Executive Jamie Dimon said in a press release that the company “accepted
responsibility and acknowledged our mistakes.”
Bruno Iksil, the trader nicknamed
the “London Whale,” left the bank last year. The former head of the bank’s
investment unit, Ina Drew, also resigned and had to return two years’ worth of
pay to JPMorgan.
ONGOING INVESTIGATIONS
The U.S. attorney’s office in Manhattan has indicted two former traders for allegedly trying to
cover up the losses.
Customer Charges
U.S. Bank settles suit
over wrongfully increasing customers’ overdraft fees
THE BANK
U.S. Bank
THE DETAILS
For several years, U.S. Bank withdrew charges from customer’s
accounts from the largest to smallest, instead of based on when the transaction
occurred. That meant many customers’ accounts ended up overdrawn, resulting in
extra overdraft fees. Customers filed a class-action suit, one of several
targeting that method of withdrawing from customer accounts..
THE SETTLEMENT
The bank settled for $55 million, which will go to refund 2.7
million customers.
ADMIT WRONGDOING?
No. U.S. Bank says there’s nothing wrong with the way it
ordered withdrawal from customers’ accounts, though it has stopped the
practice.
West Virginia
sues four banks for
misleading customers on credit card protection programs
THE BANKS
JPMorgan Chase, Bank of America, Citigroup and GE Money Bank
THE DETAILS
The state’s attorney general says thousands of customers were
deceived into paying for extra protection programs, often without knowing they
were even enrolled. The lawsuit claimed the banks violated the state’s consumer
protection laws.
THE SETTLEMENT
Each bank agreed to pay $1.95 million.
ADMIT WRONGDOING?
All four of the banks denied the allegations.
Chase customers
allegedly charged for protections
they never received
THE BANK
JPMorgan Chase
THE DETAILS
Millions of Chase customers paid between $8 and $12 each month
for extra credit card protections — services many never actually
received, according to a lawsuit filed by the Office of the Comptroller of the
Currency and the Consumer Financial Protection Bureau. The agencies claimed the
bank was selling customers extra protections against identity theft and fraud
before it received the authorization to provide them.
THE SETTLEMENT
In September, JPMorgan settled for $389 million: $80 million to
pay off penalties and $309 million to pay back the 2.1 million customers
affected.
ADMIT WRONGDOING?
The bank did not admit or deny wrongdoing in the settlement.
“We stopped new enrollments in these products in mid-2012 and will fully exit
them by the end of this year,” Bill Wallace, the head of operations for
consumer and community banking, said in a statement. “We have already credited or
refunded the customers affected. Any mistakes like these are regrettable.”
Libor Fixing
THE BANKS
JPMorgan Chase, Barclays, Credit Suisse and 10 others
THE DETAILS
The National Credit Union Administration sued 13 banks in September in the latest case
to come out of the Libor scandal. Libor — the London interbank offered
rate — is an interest rate set each day in London that determines how
much banks must pay to borrow from each other. The rate is also the basis for
trillions of dollars in loans. More than a dozen banks have been accused of scheming to
manipulate Libor.
Five banks — Barclays, Royal Bank of Scotland, ICAP, UBS
and Rabobank — have agreed to pay a total of about $3.7 billion in
settlements with U.S. and British regulators. Subsidiaries of Royal Bank of Scotland
and UBS also pleaded guilty to criminal wrongdoing in the settlements. Rabobank, which is based in the Netherlands, paid an
additional $96 million to the Dutch Public Prosecution Service. (See ProPublica’s and Marketplace’s excellent explainers for more
detail.)
The lawsuit is separate from those settlements, though. It
alleges that the banks’ Libor manipulations “resulted in a loss of income from investments and other
assets held by five failed corporate credit unions” in the U.S.
ADMIT WRONGDOING?
The credit union case is ongoing. Barclays, Royal Bank of
Scotland and UBS have admitted wrongdoing in the wider Libor scandal, although
Royal Bank of Scotland didn’t go as far as the other two banks.
Bob Diamond, Barclays’ chief executive, resigned last year,
along with the bank’s chairman and chief operating officer. ICAP did not admit or deny wrongdoingin its U.S. settlement last month. It
was unclear whether or not Rabobank’s settlement,
announced this week, would include an admission of wrongdoing.
Ponzi Schemes
JPMorgan Under
Investigation for Turning a Blind Eye to Madoff
THE BANK
JPMorgan Chase
THE DETAILS
The bank is in talks with federal prosecutors to resolve
allegations that it turned a blind eye to the possibility that Bernard Madoff, a client, was running a Ponzi
scheme. Madoff’s scheme lost his investors an
estimated $17 billion. JPMorgan and prosecutors have had preliminary talks
about reaching a deferred prosecution agreement, in which the bank would pay a
fine and agree to certain other concessions. The bank would be prosecuted if it
slipped up again. The Justice Department still hasn’t ruled out criminal
charges, though.
$52.5 million TD Bank settlement for failing to report a
Ponzi scheme
THE BANK
TD Bank
THE DETAILS
TD Bank settled civil charges with regulators in
September for its alleged role in a Ponzi scheme run
by Scott Rothstein, a Florida lawyer who pleaded guilty in 2010 and is
currently serving a 50-year prison sentence. Regulators accused the bank of
creating misleading documents and lying to investors about Rothstein’s
accounts.
THE SETTLEMENT
The bank settled the civil charges with the Financial Crimes
Enforcement Network and the OCC for $37.5 million and with the SEC for $15
million. Total payout: $52.5 million. The SEC also brought charges against
Frank Spinosa, a former regional vice president at
the bank whom the SEC alleges “told outright lies to investors.” That case is
ongoing. The bank is also appealing a 2012 federal jury verdict that ordered it to
pay $67 million for its role in the Ponzi scheme.
ADMIT WRONGDOING?
Rothstein pleaded guilty to cheating investors out of $1.2 billion. The
bank denies any wrongdoing.
Money Laundering
HSBC pays the
largest-ever U.S. penalty against a bank.
THE BANK
HSBC
THE DETAILS
A federal judge approved a settlement in July between HSBC and
federal and state authorities over charges that the bank had become the
“preferred financial institution” for Mexican and Colombian drug cartels
engaged in money laundering.
THE SETTLEMENT
HSBC shelled out $1.9 billion, the largest-ever U.S. penalty
against a bank.
ADMIT WRONGDOING?
Yes. The bank apologized last year and said it had
overhauled its anti-money-laundering efforts. But it made similar promises a
decade ago when it was cited for poor oversight of suspicious transactions.
David Bagley, HSBC’s head of compliance, resigned last summer.
