5 Financial News Stories You May Have Missed – With a New England Win

Cheering Fans

1. Discovering the Power of the CFPB

If financial institutions had any doubts about whether the new Consumer Financial Protection Bureau (CFPB) will have any serious impact on their business, the credit card company Discover has resolved the question and the answer is one hundred million yeses. Consumer Finance Protection BureauThat’s how many dollars the company has reported it expects to spend resolving its pending regulatory issues. The CFPB and the FDIC have announced that they will be undertaking their first joint enforcement action over the manner in which Discover marketed some of their services, particularly payment protection products. Discover has already entered into a consent judgment and settled eight pending class-action cases, so this is actually old news even with Discover’s announcement of the $100 million figure. What’s new here is this is the CFPB jumping into the consumer enforcement arena with both feet. Not sure how Discover feels about being the test case.

Discover Says CFPB Probe May Have ‘Adverse Impact’ on Net Income

2. Sometimes “a Chat with a Friend” is Insider Trading

Chatting with a friend about the latest news, we sometimes forget that news can be material nonpublic information subject to securities regulation. Bo Brownstein was a 35-year-old investment manager in Denver, Colorado. Chatting with a friend, the friend mentioned that the firm where his dad was on the board of directors might soon be an acquisition target. Over lunch or cocktails people talk about work and family. News that a company might be acquired makes exciting conversation. Bo decided to start trading on his friend’s tip and bought stock in the soon- to-be-acquired company. However, in the current regulatory environment, authorities and the public are unlikely to be lenient when dealing with those seeking to take advantage of the financial system. Unlike the recent revelations about insider trading rings and hedge fund conspiracies, this once-promising Columbia MBA acted alone and was just a friend having a “chat.” Bo has been sentenced to a year and a day in federal prison. (The friend’s father received two years’ probation for leaking the information to his own son.) So before “sharing” with friends – ask yourself, is it material? is it non-public? If so, have another cocktail and keep it to yourself.

Ex-Fund Manager Gets Prison Term in Insider Trading Case 

3. Financial Crimes Unit Sets Robo-Signing Settlement Back to Square One

During his State of the Union address President Obama announced that he was ordering his Attorney General to establish a new financial crimes unit whose first order of business would be to prosecute financial institutions involved in illegal mortgage origination and securitizations. All the various meetings over the past several months between state AGs, federal authorities and financial institutions may now be pointless. With this newly created agency taking lead on the matter, bankers may feel that they have been wasting time to this point. When asked about the mortgage settlement negotiations, Chase’s Jamie Dimon was quoted as saying the new unit “has a pretty good chance of derailing it.”

Details Emerge of New Financial Fraud Unit

4. The Rising Costs of Money Laundering

HSBC is the latest international bank to face investigation on charges alleging that they have aided in the movement of illegal funds. Despite internal education and serious efforts at anti-money laundering compliance, banks are still at risk of money laundering transactions sneaking through. These days money laundering is not just moving money for criminals but financial transactions done for watch-listed countries and politically exposed persons or “PEPs.”  A Senate subcommittee investigating HSBC is expected to report their findings in the next few months. Fines and settlements in money-laundering cases, while not well-publicized, can be extremely expensive. Since 2009 four European banks have forfeited a total of $1.7 billion dollars upon findings that the banks had aided sanctioned countries.  The fines and forfeitures associated with illegal money transfers are becoming a major risk for international banks.  More money and effort will need to expended to insure that such transactions don’t come in under the radar. Laundry’s expensive.

Doug Mirabelli (Boston Red Sox)

Boston Red Sox catcher Doug Mirabelli in 2007. PHOTO CREDIT: Wknight94 of Wikipedia

Senate investigating HSBC for money laundering

5. That “Other” New England Sports Team Wins Big

This week retired Boston Red Sox catcher Doug Mirabelli won a FINRA arbitration hearing against Merrill Lynch. Mirabelli won $1.2 million in damages and fees for the inappropriate investment advice that resulted in a loss of $800,000. The player’s entire portfolio, composed of all his liquid assets, was placed in a high-growth portfolio that suffered badly during the recent financial crisis. It’s highly unusual for FINRA to award a complete recovery for every dollar lost by an investor. Big win for Boston…that’s all I’m saying.

Former Red Sox Catcher Wins Claim Against Merrill

About Richard Magrann-Wells

Richard is a Executive Vice President with Willis Towers Watson’s Financial Institutions Group based in Los Angel…
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