1. Finally! A Massive Mortgage Settlement for the Five Largest Servicers
In the largest joint federal and state settlement of all time, five of the largest mortgage servicing companies agreed to a $25 billion settlement. The agreement will end past mortgage servicing–related litigation from state Attorneys General around the country and the U.S. Attorney General as well as bank regulators. The gang of five includes Bank of America, Wells Fargo, Citibank, JP MorganChase and Ally Bank. Where does the money go?
- $10 billion is for principal reductions
- $3 billion to help borrowers refinance
- $7 billion for payment forbearance and other relief
- $5 billion in cash payments to the state and the federal coffers.
The agreement has a lot of moving pieces and still allows for additional fines. The final costs, when those additional fines are added in, may be closer to $39 billion according to some sources, but the markets have received the news and most of the institutions have fully reserved for the cost.
2. Swiss Miss—Oldest Private Swiss Bank—Indicted on Criminal Charges
The first Swiss private bank, Wegelin & Co., has been a bastion of privacy for 270 years. Now it has achieved another first: Wegelin is the first Swiss bank to face U.S. criminal charges. Swiss bankers have been indicted as individuals, but Wegelin is the first to be indicted as a bank. The charges filed by the U.S. Attorney General allege that Wegelin helped Americans hide $1.2 billion in assets and evade U.S. taxes. Prosecutors claim that when rival Swiss banks faced allegations from U.S. regulators, Wegelin stepped up its marketing and opened 70 new undeclared accounts for U.S. taxpayers. Authorities have used a civil forfeiture case to seize $16 million that Wegelin held with UBS in Stamford, Conn. With no offices or staff in the U.S. and little in the way of U.S. assets, it is not clear that Wegelin has much at stake in these proceedings. Last week the bank agreed to sell the firm to another Swiss institution, Raiffeisen Bank. The U.S. Attorney may have to chalk this up to a Swiss miss.
3. Adviser Employees Can’t Blow Whistles on Their Funds
Fidelity Investments won an important appeal this week when the First Circuit Court of Appeals overturned the district court. Two former employees had raised accounting concerns and reported their concerns to the regulators. The Appellate Court agreed with Fidelity (despite briefs filed by the SEC and the Department of Labor) that employees of a fund’s adviser are not employees of the actual fund. Why is this important? Because under the Sarbanes-Oxley and Dodd-Frank Acts only employees are protected by the whistle-blower provisions. The court in agreeing with Fidelity found that employees of the adviser are “contractors.” The SEC is reviewing the decision. But for now contractors may want to think twice before blowing whistles.
4. Rushing to Beat the Clock. Statute of Limitations Approaching on the Financial Crisis
The statute of limitations in the state of New York is six years. 2007 was the year many of the worst (and possibly litigation-worthy) mortgage-backed securities were being structured. 2007 plus six is 2013. That may mean that over the next 2 years we will see a rush of suits being filed in order to insure that claims are submitted before the statute runs out. In order to extend the statute some attorneys are getting creative. These creative legal thinkers are arguing that every time a client tries to exercise their rights to put wrongfully originated loans back to the bank and the bank then denies—that creates a new cause of action and the clock starts again. Statues of limitations do have a “pause button.” Plaintiffs can ask defendants to “toll” the statute, thereby agreeing to temporarily stop the running of the statute while parties try to negotiate a settlement. So while suits originating from the financial crisis may be working their way through the courts for years to come, the end of the filing of new financial crisis suits may be on the horizon. If regulators weren’t sufficiently motivated by the statute of limitations to file these high-profile claims against financial institutions soon, remember this is an election year—in case you haven’t been paying attention.
5. An IPO Like None Other ~ Facebook Grows Up
Banks and brokers have lots of data about their customers: social security numbers, account numbers, pins, and addresses. However, perhaps no company in the history of the world has held more information about more people than the company that announced its IPO last week: Facebook. The data held on Facebook’s servers includes incredibly private details about our friends and families, financial data and even photos of our children.
According to recent guidance issued by the SEC, a public firm should disclose its exposure to cyber-attacks. In fact, it must disclose previous attacks, financial implications and more. Facebook’s Offering Memorandum included the following disclosure:
Improper access to or disclosure of our users’ information could harm our reputation and adversely affect our business.
Our efforts to protect the information that our users have chosen to share using Facebook may be unsuccessful due to the actions of third parties, software bugs or other technical malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data. If any of these events occur, our users’ information could be accessed or disclosed improperly.
As financial institutions start to enter the world of social media they too will likely gain access to terabytes of private data that must be controlled—and the associated risks must be disclosed. Time to “friend” your insurance broker.