Scandals At “Too Big to Fail” Wall Street Banks

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There are over 10,000 local lenders (community banks & credit unions) across America, and we support them. We also support the vast majority of honest and good employees in these 5 megabanks.

That said, these megabanks are so large that they leave themselves open to serious institutional scandals, including deception, fraud, and racism. We assert that these scandals would be less serious and less frequent if these banks were smaller and easier to manage.

See also: ProPublica’s scandal list.


Woman Who Couldn’t Be Intimidated by Citigroup Wins $31M - Sherry Hunt, a former Citi employee, took Citi to court for fraud—and won. “By 2006, the bank was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures, she says. It was Hunt’s job to identify these defects, and she did, in regular reports to her bosses. Executives buried her findings, Hunt says, before, during and after the financial crisis, and even into 2012.”

How Citibank Dumped Lousy Mortgages on the Government - “The government requires lenders to certify that insured loans meet FHA standards. Citi appears to have flouted those standards. According to the lawsuit, the bank passed along subpar loans to the FHA until very recently, making ‘substantial profits through the sale and/or securitization of FHA-backed insured mortgages’ while ‘it wrongfully endorsed mortgages that were not eligible.’”

Citigroup Fined $75M for Misleading Investors Over Subprime Assets (2010) - “Charges laid yesterday by the Securities and Exchange Commission accuse Citigroup of repeatedly making misleading statements and improper disclosures in its quarterly earnings releases during 2007. At the time, Citigroup claimed its exposure to high-risk sub-prime mortgages was no more than $13bn when in fact, according to the SEC, it was more than $50bn.

Citi to Settle Suit for $590M (2012) - “In one of the largest settlements of suits tied to the financial crisis, Citigroup Inc. agreed to pay $590 million over claims that it deceived investors by hiding the extent of its dealings in toxic subprime debt.



JPMorgan Chase

SEC fines JPMorgan Chase in Jefferson County Illegal Payments Scheme - “J.P. Morgan Securities settled the SEC’s charges and will pay a penalty of $25 million, make a payment of $50 million to Jefferson County, and forfeit more than $647 million in claimed termination fees.”

Looting Main Street: How the nation’s biggest banks are ripping off American cities - “Because Jefferson County had no idea what kind of deal it was getting on the swaps, JP Morgan could basically charge whatever it wanted. According to an analysis of the swap deals commissioned by the county in 2007, taxpayers had been overcharged at least $93 million on the transactions.”

JPMorgan Whale Report Signals Deeper Problem - “A review of roughly 1 million e-mails and tens of thousands of voice tapes suggests traders within the once-obscure Chief Investment Office ‘may have been seeking to avoid showing the full amount of losses’ during the first quarter by placing inaccurate prices on their positions.”

JPMorgan to Pay $153.6M in Fraud Case - “As the housing market began to tank in 2007, J.P. Morgan Securities sold investors a complex instrument that was secretly designed to help a hedge fund profit at their expense, the government alleged Tuesday. The investors who lost money on the deal included General Motors pension plans and a Lutheran nonprofit life insurer.”



Bank of America

Bank of America [Countrywide division] Fined $335M for Minority Discrimination - “The US justice department said around 200,000 qualified African-American and Hispanic borrowers were charged with higher rates ’solely because of their race or national origin.’”

BofA [Merrill Lynch division] Fined $2.8M for Overbilling 95,000 Accounts - “Merrill Lynch, which was acquired by Bank of America in 2009, lacked an adequate supervisory system to ensure that customers were billed in accordance with their contracts and disclosure documents, the regulator said.”

Bank of America: Too Crooked to Fail - ”Bank of America paid a $137 million fine for its sabotage of the government-contracting process—and in an attempt to avoid prosecution, it applied to the Justice Department’s corporate leniency program, essentially confessing its criminal status: As plaintiff attorneys noted, the application “means that Bank of America is an admitted felon.”

Bank of America $150M SEC Fine - “U.S. District Judge Jed S. Rakoff in New York said today he “reluctantly” approved the settlement of two suits in which the agency accused the Charlotte, North Carolina-based bank of misleading investors following the announcement that it would acquire Merrill Lynch. He criticized the accord as “half-baked justice at best” and “inadequate and misguided,” while adding that the law compels him to defer to regulators seeking approval.”



Wells Fargo

SEC Charges Wells Fargo for Selling Complex Investments Without Disclosing Risks - “Wells Fargo and McMurtry were, at a minimum, negligent in recommending the relevant ABCP programs without obtaining adequate information about them to form a reasonable basis for recommending these products and without disclosing the material risks of these products.

Wells Fargo Fined $85 Million for Pushing Subprime Loans - “Wells Fargo & Co., the largest U.S. home lender, agreed to pay a record $85 million fine to settle Federal Reserve claims it steered borrowers into costlier loans and falsified data in mortgage applications.”

Judge Rules Wells Fargo Engages in “Reprehensible” Systemic Accounting Abuses on Mortgages - from the judge: “Only through litigation was this practice discovered. Wells Fargo admitted to the same practices for all other loans in bankruptcy or default. As a result, it is unlikely that most debtors will be able to discern problems with their accounts without extensive discovery.”

Wells Fargo Pays $175M In Race Discrimination Probe -  ”A government investigation found 34,000 instances of Wells Fargo charging African Americans and Hispanics higher fees and rates on mortgages compared with white borrowers with similar credit profiles, according to documents filed in the U.S. District Court for the District of Columbia.” [DOJ Brief]




Goldman Sachs

Goldman Sachs Handed Record $550M Fine Over Abacus Transaction - “The Abacus case had called into question the integrity of Wall Street after the commission alleged Goldman had packaged up mortgages into Abacus and then sold the CDO to investors without telling them one of its powerful clients, the hedge fund Paulson, had been taking a trading position intended to profit from a fall in the value of US house prices.”

How Goldman Sachs Helped Greece To Mask Its True Debt - “Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country’s already bloated deficit.

Goldman Pays to End State Inquiry Into Loans - “In the first major settlement involving Wall Street’s role in the subprime mortgage business, the Goldman Sachs Group agreed on Monday to pay up to $60 million to end an investigation by the Massachusetts attorney general’s office into whether the firm helped promote unfair home loans in the state.”

Banks Bet Greece Defaults On Debt They Helped Hide - “These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit. “It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.”





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