Journalism in the Public Interest

Courts Fault Feds, SEC for Going Easy on Banks

3 pm: This post has been updated.

When big banks have announced settlements with the Securities and Exchange Commission, we’ve put those agreed-upon fines into perspective, and have often found that even millions of dollars in fines aren’t too hard for these big financial firms to shell out.

Judges, increasingly, seem to agree. This week, a federal judge even called a $298 million settlement between U.S. prosecutors and Barclays—the U.K.’s second largest bank—“a sweetheart deal,” asking prosecutors, “Why isn’t the government getting tough with the banks?”

Barclays was accused of altering financial records to hide that it was breaking U.S. sanctions in trades with Iran, Cuba, Sudan, Libya and Burma from 1995 through 2006. Its deal with the Justice Department would help it avoid prosecution, according to The Wall Street Journal, but the judge has ordered that the lawyers return to court today to address his concerns about the settlement’s leniency.

A federal lawyer argued on Tuesday that the settlement is “in excess of what the company earned” when it processed the trades from the sanctioned countries, Bloomberg reported; Barclays declined to comment.

Earlier this week, another federal judge rejected a $75 million settlement between Citigroup and the SEC.

Citigroup was accused of hiding its exposure to more than $40 billion in subprime CDOs. As we’ve noted, under its agreement with the SEC, it would’ve paid a $1 fine for every $500 worth of hidden exposure. The judge demanded additional information from both parties and scheduled another hearing in September, reported The Washington Post.

Last year, a judge also took issue with a $33 million SEC settlement with Bank of America over the bank’s disclosure of bonuses paid to Merrill Lynch employees before Merrill was taken over by BofA. The judge grudgingly approved the settlement when it was quintupled to $150 million, but still called it “half-baked justice at best,” reported The New York Times.

Update, 7/18: In today's hearing, the judge approved the $298-million settlement between Barclays and the Justice Department. Despite approving the settlement, U.S. District Court Judge Emmet G. Sullivan continued with his criticism, reported the Journal: "It's proceedings like these that raise concerns in the public's mind about fairness and justice."

Erich Riesenberg

Aug. 19, 2010, 6:29 a.m.

A distinction needs to be made as to who profited from the crime and who pays the fine.

When Citi lied to its own investors, enticing them to pay inflated prices for its stock, and then Citi pays the fine, which means shareholders pay the fine, it is not fair.  Citi exec’s should pay the fines.

When Goldman lied to a customer, and shareholders profited from that, it makes sense for the company to pay the fine, though the humans inside the company should be punished also.

The bottom line is the people who do the things need to be punished, because corporations are not people, in the real world, outside of the walls of the US Supreme Court.

Douglas Greenberg

Aug. 22, 2010, 11 a.m.

From a deterrence standpoint, I couldn’t agree more.  A $50M fine is woefully inadequate.  If a firm can earn $500M - $1B more each year through fraud, they’d be foolish not to do it (given the low price of getting caught).

The fines need to make sense.  They need to be high enough so that the expected benefit of engaging in fraud (risk of detection x penalty) is actually negative, not positive.

This just goes to set a precedent that the banks can buy their way out of prosecution on dealings that go against U.S. sanctions.

Apply this to the housing bailout and the banks can forgo the rules of loan modifications with little repercussion beyond financial windfalls only slightly higher than they would stand to make in doing unfair dealings. 

Without harsher punishments or fear of prosecution why would any bank fret over having to simply pay back what it gained in profits and find another scheme to run?

I think the bigger issue here is not the matter of money anymore.
The fines paid do not get back to the people they stole from. They go to the same branch of government that tries these cases.
Not to the consumers whom they have stole from.

The ONLY way to put a stop to government abuse and Corporate America is not to keep changing the amount of the fines but to change the penalties.

If I so much as not pay a 30.00 traffic ticket I lose my license, Go to jail, Pay more fines and will eventually go to prison for being habitual if I do it 3 times.
Technically it would be for the price of not paying 90.00 in fines. These people steal millions. Think about it…

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