Financial and Bank Cases

The SEC recently awarded one of the largest awards since the whistleblower program’s inception.

Two insiders will share a $50 million award for their assistance in uncovering securities fraud. Neither the whistleblowers’ identities nor the company’s name have been disclosed, which is customary with SEC fraud cases. Confidentiality is essential to ensure tipsters will not be retaliated against or blacklisted by the industry.

The Commission said in a press release that the two whistleblowers “alerted SEC staff to violations that involved complex transactions” which “would have been difficult to detect without their information” and provided “exemplary assistance.” The tipsters met with SEC staff several times and provided “voluminous detailed documents.” Their information was instrumental in returning tens of millions of dollars to harmed investors, the SEC said.

The SEC said a third claimant also applied for an award, but their information did not contribute to the Covered Action investigation.

SEC Chief Jane Norberg said the award is actually the second largest in the agency's whistleblower program’s history. Over the current fiscal year, the SEC has awarded over $270 million dollars to whistleblowers, including its largest award to date, $114 million awarded last October....

A new defense bill proposes the creation of a whistleblower program to encourage reporting of anti-money laundering violations. The proposed regulations, which are part of the National Defense Authorization Act, have garnered legislators’ approval and could be signed into law before Donald Trump leaves the White House.

The new legislation would offer anti-money laundering (AML) whistleblowers a similar level of protection as the SEC's whistleblower program. Informants would be able to report violations anonymously and would enjoy anti-retaliation protections. Without this legal shield, people with information about money laundering activities are very reluctant to come forward. Many of them fear their employers might fire them in retaliation. And once out of a job, they often find themselves labeled as 'problematic' and unable to find work in the same industry.

Since its inception, the SEC whistleblower program has paid more than $720 million to securities industry insiders who came forward with tips leading to enforcement actions. Since the SEC and CFTC whistleblower programs have limited jurisdiction over AML violations, their success has not served to deter money launderers....

Despite the slowing down of markets due to the COVID-19 pandemic, April 2020 has been a prolific month for the Securities Exchange Commission. The agency’s Office of the Whistleblower has announced a $27 million award followed by a $5 million award.

Upon the announcement of the $27 million award, the agency hailed it as a milestone for its whistleblower program, which brought the total amount of SEC whistleblower awards “over the $400 million mark.” Up until April 20th, 2020, that number has risen to $430 million, awarded to 80 whistleblowers over eight years. In 2019 alone, the agency received more than 5,200 tips from over 70 countries.

The $27 million award surpassed the SEC panel’s initial recommendation. The agency said in a statement that the award recipient provided information about misconduct “occurring, in part, overseas,” and tried to report internally on multiple occasions before contacting the SEC. The unusually high amount of the award reflected the whistleblower’s “substantial amount of ongoing assistance and cooperation” and the many “critical investigative leads” they provided, the Commission explained....

Two SEC whistleblowers received a $50-million award for their role in exposing misconduct by JPMorgan Chase. The financial institution allegedly concealed information about conflicts of interest from its customers. This resulted in a $307 million settlement with the agency, which enabled the tipsters to receive $37 million and $13 million in whistleblower awards respectively.

Both whistleblowers have remained anonymous, as it is customary with individuals exposing fraud by financial institutions. It became known, however, that one of the tipsters (the one who received the $13 million reward) was once a high-ranking JP Morgan executive. It is not known whether he or she is still employed by the bank.

Financial institutions failing to disclose conflicts of interest to their wealth management customers is nothing new. The SEC whistleblower program has repeatedly succeeded in exposing this type of misconduct through the promise of anonymity, anti-retaliation protections, and sizable rewards for insiders willing to speak out....

Regulators have known since the last presidential election that stringent rules for banking institutions are not one of the Trump administration’s priorities.

The Dodd-Frank Act has been protecting consumers from risky behavior by banks since the aftermath of the 2008 crisis. Now, the administration is effectively removing this stringent oversight, with the sole exception of Wall Street’s giants.

Financial institutions that benefit from the rollback include American Express, Capital One, SunTrust, U.S. Bank, and many others. Meanwhile, the likes of Bank of America, JPMorgan, and Citibank will continue to be scrutinized as they have been since the financial collapse.

While the government vows to only burden with complex rules the large global banks that could potentially destabilize the whole financial system, members of the opposition believe the Dodd-Frank rollback is increasing the risk for the American taxpayer....

Allied Home Mortgage Capital Corporation has lost a decade-long battle in a verdict that tripled damages from $93 million to $268 million on September 14. United States Attorney for the Southern District of New York, Joon H. Kim, announced an additional judgement of $25 million against Allied Capital President and CEO, Jim Hodge, for False Claims Act and FIRREA violations involving the Federal Housing Administration (FHA) mortgage insurance program.

Branch Manager Peter Belli Claims Allied Falsely Certified FHA-Insurance Loans

Tuesday’s verdict against Allied Capital started in 2011, when former Allied branch manager, Peter Belli, filed a qui tam whistleblower lawsuit against Allied and CEO Jim Hodge claiming the company was certifying high-risk loans as eligible for FHA insurance. Belli’s case was one of just two major post mortgage meltdown cases that went to trial (the other being a Manhattan case against Countrywide)....

Troy, Michigan-based United Shore Financial Services LLC (USFS) has agreed to pay the U.S. $48 million to resolve allegations it violated the False Claims Act by underwriting Federal Housing Administration (FHA)-insured mortgage loans that did not meet FHA requirements.

As part of the settlement agreement, United Shore admitted to pressuring underwriters to approve FHA mortgages, using a compensation plan formula tying underwriter compensation to percentage of loans approved and closed, and falsely certifying that direct endorsement underwriters reviewed appraisal reports before USFS approval and FHA-insured mortgage endorsement, the Justice Department announced Wednesday.

U.S. Investigation Finds USFS Approved Hundreds of Ineligible FHA-Insured Loans

Allegations stem from a January 10, 2014-initiated joint investigation into United Shore Financial Services’ underwriting and quality control practices by the U.S. Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the Civil Division’s Commercial Litigation Branch and the Western District of Wisconsin and Eastern District of Michigan U.S. Attorneys’ Offices....

A U.S. government investigation into a JPMorgan hiring program in Asia concluded with a multi-$264 million settlement. The SEC found substantial evidence that J.P. Morgan offered prestigious jobs to the children of Chinese government officials in exchange for the officials' influence to secure lucrative investment-banking assignments - a violation of the Foreign Corrupt Practices Act (FCPA).

In 2006, JPMorgan APAC created a referral program known internally as the “Sons & Daughters Program.” According to the SEC order, the initial goal of the program was to accommodate frequent requests “to hire the relatives and friends of senior executives or officials with its clients, prospective clients, and contacts within foreign government ministries” by offering targeted entry-level and short-term employment opportunities.

Compliance Officer Chris Charnock’s Concerns Dismissed by JPMorgan Management

While the program may have been created in good faith in the beginning, by 2011, JPMorgan employees in Asia were already trying to raise concerns with compliance executives in New York that the bank might be charged with bribery....

In May, 2011, Peter Belli filed a complaint in Boston. With guidance from whistleblower experts at Mahany Law, he accused Allied Home Mortgage Capital Corporation of massive mortgage fraud in a False Claims Act “qui tam” whistleblower lawsuit.

Over five years later, and after a trial that lasted five weeks, a jury found both the corporation and its CEO, Jim Hodge, guilty of knowingly representing to Housing and Urban Development (HUD) that certain loans were properly prepared and eligible for Federal Housing Administration (FHA) insurance, when in fact they were not.

Belli had managed several Allied branches in Massachusetts, Rhode Island, Arizona, and other states. He was thus in an ideal position to observe Allied Capital’s fraudulent practices, and he was determined to bring the scheme to light. Unfortunately, he passed away before the verdict came out only days ago in Texas. The move to a Texas court had been a choice of the defendants....

A Southern District of Texas federal court jury returned today a nearly $100 million verdict against Allied Capital and bank principal Jim Hodge for violating the U.S. False Claims Act and under FIRREA statutes.

The case has special significance as it is one of only 2 False Claims Act cases against a lender related to the mortgage meltdown that went to trial and verdict. The other was the well-chronicled HUSL - Bank of America case. All others were settled in some of the largest settlement amounts in U.S. history.

The False Claims aspects of the case relate to Allied’s “shadow branches”. HUD requires banks, mortgage companies, lenders…to have licensed offices, in effect something at risk themselves in the form of salaries, offices rents and other overhead as a government approved loan originator and therefore a motivator for good business practices....