The Securities and Exchange Commission and law enforcement continue to see a steady stream of Ponzi schemes nearly five years after the Bernard Madoff scandal rocked the securities world. Since fiscal year 2010 alone, the SEC has brought more than 100 enforcement actions across the nation against nearly 200 people for carrying out Ponzi schemes, prompting the commission to launch a Web page in 2011 for whistle-blowers to report violations of federal securities laws and apply for a financial award. “Investors should continue to be wary of Ponzi schemes, which we steadily uncover and prosecute in regions throughout the country,” said Kevin Callahan, an SEC spokesman. Red flags, such as promises of extraordinarily high returns with little or no risk, can signal that something may be amiss.” Read more in the Boston Herald [...]
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As we mark the fifth anniversary of the collapse of Lehman Bros., officials of the Securities and Exchange Commission have been whining to the press about how hard it is to nail wrongdoers but saying, hey, they’re doing a heck of a job anyway. Investors would be well-advised not to listen. That the SEC has failed not only to bring any action against the executives of Lehman Bros. in the wake of the 2008 meltdown but also against senior executives of any major bank for activities that seem patently fraudulent tells us our regulatory system is broken and we are at risk of another financial crisis. More on USA Today [...] Will top bankers’ behaviour ever land them in jail? Or are bad business decisions even a crime at all? Five years on from the bankruptcy of Lehman Brothers, the debate over how to hold senior bank bosses to account for failures is far from over, but legal sanctions for top executives remain a largely remote threat. Even as laws evolve – in Britain, the government wants to criminalise recklessness in banking – a repeat of the global financial crisis and near-collapses of 2008 would not necessarily result in many more prosecutions today, lawyers say. Read more on The Huffington Post [...] The Securities and Exchange Commission is ending its push to punish financial-crisis misconduct in the same way it started—with a new chairman vowing that Wall Street’s top cop will be tougher in the future. In 2009, at the depths of the recession, Mary Schapiro took the reins at the SEC promising to “move aggressively to reinvigorate enforcement” at the agency. She created teams to target various types of alleged misconduct, including one focused on the complicated mortgage bonds that helped set off a global financial panic. The agency has filed civil charges against 138 firms and individuals for alleged misconduct just before or during the crisis, according to an analysis by The Wall Street Journal. And it received $2.7 billion in fines, repayment of ill-gotten gains and other penalties. But some of the SEC’s highest-profile probes of top Wall Street executives have stalled and are being dropped. More in the Wall Street Journal [...] Five years after the fourth-largest U.S. investment bank collapsed, sparking a panic that many believed would bring down the world financial system, many of the executives who tried to paper over the bank’s mounting losses are reaping the benefits of the Wall Street comeback. The Huffington Post charted the career paths of 63 former Lehman Brothers employees named in an independent bankruptcy examiner’s report as having knowledge of an accounting maneuver that allowed Lehman to disguise the true extent of its deteriorating finances, likely postponing the reckoning. A stunning 47 of these bankers still hold senior positions in the financial services industry, including Michael McGarvey, an executive and senior member of Lehman’s finance group who described the accounting move in internal emails as “basically window-dressing” based on “legal technicalities.” Within Lehman, the this group was responsible for most aggressively pushing the dodgy accounting move, known as Repo 105, according to emails published with the 2,200-page examiner’s report. More in the Huffington Post [...] Bernard Madoff‘s investors aren’t entitled to interest or other damages on money they lost by investing in what was later revealed to be the biggest Ponzi scheme of all time, a bankruptcy judge has ruled. The decision on Tuesday by Judge Burton R. Lifland of the U.S. Bankruptcy Court in Manhattan represents a big step toward freeing up $1.36 billion in recovered investor funds that are sitting in a bank account awaiting resolution of the battle over whether such damages are allowed. The funds won’t be paid out right away, as investors who advocated such damages may appeal the bankruptcy judge’s ruling. More in the Wall Street Journal [...] Victims of Bernard L. Madoff’s fraud can’t use the length of time they invested in his company to add interest to their claims seeking a share of about $1.4 billion in cash reserves, a judge ruled. Using “time-based” calculations might be unfair to creditors who are at the end of the line to receive payouts and could give a windfall to claims traders who weren’t victims of Madoff’s Ponzi scheme, U.S. Bankruptcy Judge Burton R. Lifland said today in Manhattan. Such interest would “likely have significant unintended consequences, including favoring certain investors who have already recovered their principal investments at the expense of other investors who have yet to recoup their principal,” Lifland said. More on Bloomberg [...] Five years ago, Sunday night was a time of action for the financial world. Top officials desperate to band-aid an oncoming meltdown would use the weekend to find a suitor for distressed firms before the markets opened on Monday. Bear Stearns got sold to JPMorgan Chase on a Sunday night. Washington Mutual and Wachovia and Merrill Lynch sold on a Sunday too. Mortgage giants Fannie Mae and Freddie Mac went into conservatorship over the weekend. But there was no weekend shotgun wedding for Lehman Brothers, and their ensuing collapse triggered the final stage of a crisis that we’re still feeling today, when you look at 7.3 percent unemployment, the lowest labor force participation rate since 1978, 49 million on food stamps and 1 in 6 mortgage holders owing more on their house than it’s worth. The government spent trillions to bail out Wall Street, but ordinary Americans received only token support. And in this man-made disaster, virtually everyone responsible has gotten away unharmed. In fact, the system that created the financial collapse has been restored more than reformed, and the conditions still exist for another disaster. More on Salon [...] A federal bankruptcy judge said victims of Bernard Madoff’s fraud are not entitled to interest or inflation adjustments on their claims, a decision that could speed the return of $1.36 billion to the swindler’s former customers. U.S. Bankruptcy Judge Burton Lifland in Manhattan ruled in favor of Irving Picard, the trustee liquidating Madoff’s firm, in concluding that it would be unfair to award “time-based” damages to victims of the Ponzi scheme uncovered at Bernard L. Madoff Investment Securities LLC. He said a contrary ruling would likely have “significant unintended consequences” by favoring investors who have recovered their principal over those who have not, and perhaps giving a “windfall” to traders of claims on potential recoveries from Madoff’s estate who were never victims of the fraud. More on Reuters [...] The financial crisis brought with it the exposure and collapse of hundreds of Ponzi schemes,1 many of them headline news over the past five years. Scrambling to recover their lost investments, defrauded investors have turned to the courts. And with the shell companies run by the Ponzi scheme perpetrators typically bankrupt, victim-investors have pointed the finger elsewhere: at the banks where the perpetrators held accounts. The logic goes (according to these investors) that whatever tort the Ponzi schemer committed, the bank was liable for aiding and abetting by way of the banking services that it provided. Plaintiffs have also attempted to hold banks liable on other tort-based theories such as negligence, conspiracy, and conversion. Despite the influx of lawsuits against banks, courts have consistently dismissed the suits for sound legal and policy reasons, and three main themes have emerged. First, banks do not owe a duty to non-customers. Thus, negligence and breach of fiduciary duty claims against banks have failed for want of any duty owed to the investor/non-customer. Second, “red flags”—suspicious, atypical banking activity—do not constitute “actual knowledge,” an element that must be proven for an aiding and abetting claim. Third, providing routine banking services for a client is not enough to constitute “substantial assistance,” another element that must be proven for an aiding and abetting claim. More on Bloomberg Law [...] |
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