Tag Archives: Ponzi

Tough Edge for Financial Services

Posted on by
Maria T. Vullo %>

Maria Vullo

 

 

 

 

 

 

 

Law360 quoted me in Cuomo’s DFS Nominee Likely To Keep Tough Edge (behind a paywall). It reads, in part,

Although New York Gov. Andrew Cuomo turned to a longtime BigLaw attorney to lead the New York State Department of Financial Services, observers say the agency is likely to continue taking the aggressive regulatory and enforcement stance that has become its calling card.

The governor tapped Paul Weiss Rifkind Wharton & Garrison LLP’s Maria T. Vullo to lead the DFS, completing a monthslong search to replace former New York Superintendent of Financial Services Benjamin M. Lawsky. In turning to Vullo, Cuomo brings on a litigator and former prosecutor with 25 years of experience in the law, including two decades of representing banks.

But given the reputation that the DFS has built up since it burst onto the scene with its $340 million sanctions violation settlement with the U.K.’s Standard Chartered PLC in 2012, advocates and observers believe that if confirmed, Vullo will continue to push for tough enforcement and big penalties against the banks, insurers and other financial firms that the DFS oversees.

 *     *     *

However, because Vullo comes from a BigLaw background with extensive experience representing financial firms, some have raised concerns that the agency will become less aggressive in enforcing New York state’s financial regulations.But observers who spoke to Law360 said her noncorporate experience gives a clearer picture of how she might run the DFS.

Vullo has been an advocate for women in the legal profession and represented women who sued for damages after being raped during the war in Bosnia between 1992 and 1995, helping secure a $745 million verdict in that case.

And in her work for Cuomo during his tenure as New York’s attorney general, Vullo oversaw a staff of around 200 that worked in the office’s investor protection, antitrust, real estate finance, consumer fraud and Internet bureaus.

In that position, she took action against Ezra Merkin and Ivy Asset Management for their roles in defrauding investors in Bernard L. Madoff’s $65 billion Ponzi scheme, as well as launching an investigation and action against Ernst & Young for investor losses in Lehman Brothers Holdings Inc.’s 2008 bankruptcy.

Those past experiences should allay any fears that Wall Street’s critics might have, said David Reiss, a professor at Brooklyn Law School.

“I thought that Governor Cuomo would seek an aggressive replacement for Lawsky,” Reiss said. “Vullo fits the bill.”

To that point, financial reform and other advocates said in interviews that they knew little about her, but were encouraged by what they did know.

“What we’re hoping is that the reputation that the department has established will continue through the new leadership,” said Andy Morrison of the New Economy Project, a New York-based advocacy group.

Indeed, Cuomo has an interest in maintaining an aggressive DFS.

The billions of dollars in fines it collected from banks have gone to fund state infrastructure projects, including the construction of a new Tappan Zee Bridge across the Hudson River north of New York City.

And that get-tough approach has also been a way to attract voters.

“My sense is he benefits from the halo effects of an aggressive DFS,” Reiss said.

Reiss on Ocwen Settlement

Posted on by

Law360 quoted me in New York’s Ocwen Deal Sets Tough Precedent For Regulators (behind a paywall). It reads in part,

New York regulators ordered Ocwen Financial Corp. to pay $150 million in hard cash and barred the company from claiming a tax deduction on the restitution payments in a mortgage servicing settlement that could set a new standard for regulators accused of being soft on the companies they penalize.

The New York Department of Financial Services’ penalty against Ocwen, which also saw the company’s executive chairman lose his job, comes amid criticism that major penalties against Bank of America Corp., JPMorgan Chase & Co. and other banks have been too lax. In a move aimed at addressing concerns over companies’ abilities to game the penalties, New York’s settlement specifically says Ocwen will not be able to use some of the techniques banks have used to lessen the blow of earlier settlements.

“They’ve tried to make a very tight settlement that demonstrates that Ocwen is suffering measurable costs for their behavior,” said David Reiss, a professor at Brooklyn Law School.

The New York Department of Financial Services announced Monday that Ocwen, the country’s fourth-largest mortgage servicer, with some $430 billion in unpaid servicing balances, would pay out $150 million in “hard money” to New York homeowners who were victim to the company’s problematic servicing operations. A third of that $150 million would go directly to people who were foreclosed upon, and the remaining $100 million would go to housing-related projects chosen by the state.

But, unlike in previous mortgage-related settlements, Ocwen will not be able to count what are known as “soft dollar” modifications of mortgages they do not own and other techniques toward its settlement total, the DFS said. Banks and other servicers have been able to count such modifications in their total settlement amounts in previous deals, including the $25 billion national mortgage settlement from 2012.

Critics say such soft-dollar remediation has allowed law enforcement agencies, regulators and banks to inflate the amount of money banks and servicers are said to be paying out while limiting the amount of money they actually pay.

“It seems like a transparent settlement,” Reiss said.

*     *     *

“A lot of the problems that people have had with these financial settlements are specifically identified,” Reiss said.

TARP’s Smallish Rogues Gallery

Posted on by

The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) issued its Quarterly Report to Congress on July 30, 2014. There is a lot to digest in this 500+ page document, but I thought that readers of this blog might be interested in the rogues gallery found at Figure 1.3 on pages 54-56 (note that this is the pagination found in the document, which is different from the pdf’s pagination of the document). Figure 1.3 lists the 85 people sentenced to prison as a result of a SIGTARP investigation, the sentences they received, and their affiliations:

Many of the criminal schemes uncovered by SIGTARP had been ongoing for years, and involved millions of dollars and complicated conspiracies with multiple co-conspirators. On average, as a result of SIGTARP investigations, criminals convicted of crimes related to TARP’s banking programs have been sentenced to serve 77 months in prison. Criminals convicted for mortgage modification fraud schemes or other mortgage fraud related investigations by SIGTARP were sentenced to serve an average of 39 months in prison. Criminals investigated by SIGTARP and convicted of investment schemes such as Ponzi schemes and sales of fake TARP-backed securities were sentenced to serve an average of 88 months in prison. (53-54)

Hard to tell if that is many or only a few people being held accountable. But it is interesting to note that restitution and forfeiture from crimes related to TARP have so far “resulted in more than $5.11 billion in court orders for the return of money to victims or the Government.” (59) That comes out to roughly $60 million for each of the 85 prisoners and about $800,000 for each of the 77 months each of them was sentenced (on average) to prison. While these metrics are merely impressionistic, they certainly make me wonder if this report is right to being touting SIGTARP as an agent of accountability so much.