From the November 01, 2012 issue of Futures Magazine • Subscribe!

Rogue CEOs and absent regulators: Is there a pattern?

CRIME: Concealed from investors risks, terms, and improper pricing in CDOs and other complex structured products…

Citigroup - Misleading investors about a $1 billion CDO tied to the housing market in which Citigroup bet against investors as the housing market showed signs of distress. $285 million settlement. (10/11)

Goldman Sachs - Defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. $550 million settlement. (7/10)

ICP Asset Management - Fraudulently managing investment products tied to the mortgage markets as they came under pressure. Unspecified settlement. (9/12)

J.P. Morgan Securities - Misleading investors in a complex mortgage securities transaction just as the housing market was starting to plummet. $153.6 million settlement. (6/11)

Mizuho Securities USA - Misleading investors in a CDO by using “dummy assets” to inflate the deal’s credit ratings while the housing market was showing signs of severe stress. $127.5 million settlement. (7/12)

Stifel, Nicolaus & Co., RBC Capital Markets - Defrauding five Wisconsin school districts by selling them unsuitably risky and complex investments. $30.4 million settlement. (9/11)

Wachovia Capital Markets - Misconduct in the sale of two CDOs tied to the performance of residential mortgage-backed securities as the housing market was beginning to show signs of distress. $11 million settlement. (4/11)

Wells Fargo - Selling investments tied to mortgage-backed securities without fully understanding their complexity or disclosing the risks to investors. $6.5 million settlement. (8/12)


CRIME: Made misleading disclosures to investors about mortgage-related risks and exposure…

American Home Mortgage - SEC charged executives with accounting fraud and misleading investors about the company's deteriorating financial condition as the subprime crisis emerged. Former CEO settled charges by paying $2.45 million and agreeing to five-year officer and director bar. (4/28/09)

BankAtlantic - SEC charged the holding company for one of Florida's largest banks and CEO Alan Levan with misleading investors about growing problems in one of its significant loan portfolios early in the financial crisis. (1/18/12)

Citigroup - SEC charged the company and two executives with misleading investors about exposure to subprime mortgage assets. Citigroup paid $75 million penalty to settle charges, and the executives also paid penalties. (7/29/10)

Countrywide - SEC charged CEO Angelo Mozilo and two other executives with deliberately misleading investors about significant credit risks taken in efforts to build and maintain the company's market share. Mozilo also charged with insider trading. (6/4/2009)

Mozilo Settled Charges - Agreed to record $22.5 million penalty and permanent officer and director bar. (10/15/10)

Franklin Bank - SEC charged two top executives with securities fraud for misleading investors about increasing delinquencies in its single-family mortgage and residential construction loan portfolios at the height of the financial crisis. (4/5/12)

Fannie Mae and Freddie Mac - SEC charged six former top executives of Fannie Mae and Freddie Mac with securities fraud for misleading investors about the extent of each company's holdings of higher-risk mortgage loans, including subprime loans. (12/16/11)

IndyMac Bancorp - SEC charged three executives with misleading investors about the mortgage lender's deteriorating financial condition. (2/11/11)

CEO Settles Case - IndyMac's former CEO and chairman of the board Michael Perry agreed to pay an $80,000 penalty. (9/28/12)

New Century - SEC charged three executives with misleading investors as the lender's subprime mortgage business was collapsing. (12/7/09)

Executives Settled Charges - Paid more than $1.5 million and each agreed to five-year officer and director bars. (7/30/10)

Option One Mortgage Corp. - SEC charged the H&R Block subsidiary with misleading investors in several offerings of subprime residential mortgage-backed securities by failing to disclose that its financial condition was significantly deteriorating. The firm agreed to pay $28.2 million to settle the charges. (4/24/12)

Thornburg executives - SEC charged three executives at formerly one of the nation's largest mortgage companies with hiding the company's deteriorating financial condition at the onset of the financial crisis. (3/13/12)

TierOne Bank executives - SEC charged three former bank executives in Nebraska for participating in a scheme to understate millions of dollars in losses and mislead investors and federal regulators at the height of the financial crisis. Two executives settled the charges by paying penalties and agreeing to officer-and-director bars. (9/25/12)


CRIME: Concealed the extent of risky mortgage-related and other investments in mutual funds and other financial products…

Bear Stearns - SEC charged two former Bear Stearns Asset Management portfolio managers for fraudulently misleading investors about the financial state of the firm's two largest hedge funds and their exposure to subprime mortgage-backed securities before the collapse of the funds in June 2007. (6/19/08)

Cioffi and Tannin Settled Charges - Agree to pay more than $1 million and accept industry bars. (6/18/12)

Charles Schwab - SEC charged entities and executives with making misleading statements to investors in marketing a mutual fund heavily invested in mortgage-backed and other risky securities. The Schwab entities paid more than $118 million to settle charges. (1/11/11)

Evergreen - SEC charged the firm with overstating the value of a mutual fund invested primarily in mortgage-backed securities and only selectively telling shareholders about the fund's valuation problems. Firm settled charges by paying more than $40 million, most of which was returned to harmed investors. (6/8/09)

Morgan Keegan - SEC charged the firm and two employees with fraudulently overstating the value of securities backed by subprime mortgages (4/7/10)

Morgan Keegan Settled Charges - Firm agreed to pay $100 million to the SEC and the two employees also agreed to pay penalties, including one who agreed to be barred from the securities industry. (6/22/11)

OppenheimerFunds - SEC charged the investment management company and its sales distribution arm for misleading statements about two of its mutual funds that had substantial exposure to commercial mortgage-backed securities during the midst of the credit crisis in late 2008. (6/6/12)

Reserve Fund - SEC charged several entities and individuals who operated the Reserve Primary Fund for failing to provide key material facts to investors and trustees about the fund's vulnerability as Lehman Brothers sought bankruptcy protection. (5/5/09)

State Street - SEC charged the firm with misleading investors about exposure to subprime investments while selectively disclosing more complete information to specific investors. State Street agreed to repay investors more than $300 million to settle the charges. (2/4/10)

Two Former State Street Employees Charged - Accused of misleading investors about exposure to subprime investments. (9/30/10)

TD Ameritrade - SEC charged the firm with failing to supervise representatives who mischaracterized the Reserve Fund as safe as cash and failed to disclose risks when offering the investment to customers. Firm settled charges by agreeing to repay $10 million to certain fund investors. (2/3/11)


CRIME: Others…

Bank of America - SEC charged the company with misleading investors about billions of dollars in bonuses being paid to Merrill Lynch executives at the time of its acquisition of the firm, and failing to disclose extraordinary losses that Merrill sustained. Bank of America paid $150 million to settle charges. (2/4/10)

Brooke Corporation - SEC charged six executives for misleading investors about the firm's deteriorating financial condition and for engaging in various fraudulent schemes designed to conceal the firm's rapidly deteriorating loan portfolio. Five executives agreed to settlements including financial penalties and officer and director bars. (5/4/11)

Former CEO Settled Charges - The sixth executive agreed to an officer and director bar and financial penalty. (9/8/11)

Brookstreet - SEC charged the firm and its CEO with defrauding customers in its sales of risky mortgage-backed securities. (12/8/09)

Judge Orders Brookstreet CEO to Pay $10 Million Penalty - Stanley Brooks and Brookstreet Securities ordered to pay $10,010,000 penalty and $110,713.31 in disgorgement and prejudgment interest. (3/2/12)

Brookstreet Brokers Charged - SEC charged 10 Brookstreet brokers with making misrepresentations to investors in sale of risky CMOs. (5/28/09)

Colonial Bank and Taylor, Bean & Whitaker (TBW) - SEC charged executives at the bank and the major mortgage lender for orchestrating $1.5 billion scheme with fabricated or impaired mortgage loans and securities, and attempting to scam the TARP program.

Lee Farkas, Chairman of TBW (6/16/10)

Desiree Brown, Treasurer of TBW (2/24/11)

Catherine Kissick, Vice President at Colonial Bank (3/2/11)

Teresa Kelly, Supervisor at Colonial Bank (3/16/11)

Paul Allen, CEO of TBW (6/17/11)

Credit Suisse Group - SEC charged four former veteran investment bankers and traders for their roles in fraudulently overstating subprime bond prices in a complex scheme driven in part by their desire for lavish year-end bonuses. (2/1/12)

UCBH Holdings Inc. - SEC charged former bank executives with misleading investors about mounting loan losses at San Francisco-based United Commercial Bank and its public holding company during the height of the financial crisis. (10/11/11)

SEC charged former bank executive with misleading the bank's independent auditors regarding risks the bank faced on certain outstanding loans. (3/27/12)

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