April 10, 2019

Brown Calls on Chairman Crapo to Hold Hearing on Megabank Misconduct and Enforcement Actions

Data Shows Ongoing Misconduct By The Largest Domestic Banks

WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs –  is calling on Chairman Crapo to hold a hearing on megabank misconduct following the release of  “Misconduct By The Numbers” snapshots of the largest consumer facing domestic megabanks. The snapshots demonstrate that large Wall Street banks are too big to manage and are consistently violating multiple laws. 

“A decade after the financial crisis, Wall Street banks are raking in record profits and rewarding CEOs with record buybacks with the help of Republican legislative giveaways and lapdog Trump regulators. Time and time again, the watchdogs took one enforcement action only to find that another violation is occurring in a different part of the bank at the same time,” said Brown. “It’s important now, more than ever, for Congress and Trump regulators to hold Wall Street banks to the law, to strengthen economic protections, and to break up large, complicated banks that cannot be managed effectively. Hardworking Americans face real consequences when they break the law, so should the banks. I commend Chairwoman Waters for holding a hearing with the biggest banks, and I call on Chairman Crapo to do the same.”

The date an enforcement action is issued does not tell the whole story – while it may appear that big banks only run afoul of the law once in a while, a close reading of enforcement orders shows that banks are often simultaneously engaged in more than a dozen violations.  Based on a review of agency enforcement actions taken between 2005 and 2017, data aggregated by the minority staff of the Senate Banking Committee highlights continuous and overlapping misconduct by consumer facing U.S. Global Systemically Important Banks (U.S. G-SIBs): Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo.

The data aggregated by the Committee demonstrates that while enforcement actions are issued intermittently, at any given time there are multiple misdeeds occurring within any given institution. The data highlights the banks’ disregard for the law, the difficulty firms have identifying misconduct across their complex structures, and the inability of the regulators to find and act upon that misconduct in a timely matter. The data also shows that because wrongdoing is not revealed until enforcement actions are taken, we may not know for years what kind of illegal activity is happening on Wall Street today.

 

Misconduct by the Numbers

Institution	Acts of Misconduct (2007)	Acts of Misconduct (2012)
Bank of America	13	15
Citigroup	17	13
JPMorgan Chase	14	15
Wells Fargo	13	11

·         The chart provides the number of acts misconduct one year before the financial crisis (2007) and five years after the financial crisis (2012) and is based on public enforcement actions.

 

Bank of America Snapshot

Bank of America CEO Ken Lewis retired in 2010 after the financial crisis revealed the extent of his mismanagement. Enforcement actions show that in 2007 alone, Bank of America simultaneously:

·         deceptively marketed credit payment protection products;

·         charged customers undisclosed trading fees;

·         failed to lower interest rates on servicemembers’ loans to 6%;

·         wrongfully foreclosed on servicemembers; engaging in a nationwide practice of discrimination in mortgage lending;

·         violated sanctions laws;

·         failed to supervise a broker on heightened supervision;

·         sold Residential Mortgage-backed Securities (RMBS) that contained false or misleading information;

·         sold Collateralized Debt Obligations (CDOs) with misleading information;

·         violated Servicemember Civil Relief Act (SCRA) protections for veterans;

·         violated the Fair Housing Act by discriminating on the basis of disability and on the receipt of public assistance; and

·         misled investors on the risks associated with auction rate securities.

 

Just five years later – in the immediate aftermath of a financial crisis and two years into the leadership of current CEO Brian Moynihan – Bank of America was engaged in fifteen acts of misconduct. Enforcement actions show that in 2012, Bank of America:

·         continued to deceptively market credit payment protection products;

·         continued to wrongfully foreclose on servicemembers;

·         continued to violate the Fair Housing Act by discriminating on the basis of disability and the receipt of public assistance. 

·         lacked firm-wide governance to ensure its foreign exchange activities complied with safe and sound banking practices; 

·          violated laws concerning its short sales practices;

·         gamed regulatory capital requirements;

·         overcharged clients;

·         sold municipal bonds using materially false statements or omissions;

·         failed to comply with flood insurance requirements;

·         misused customer cash to generate profits;

·         lacked controls that caused mini-flash crashes;

·         failed supervision and recordkeeping requirements; and

·         failed to file suspicious activity reports.

 

JPMorgan Chase Snapshot

Enforcement actions show that in 2007, JPMorgan Chase under the leadership of current CEO Jamie Dimon:

·         failed to maintain an effective anti-money laundering program;

 

·         approved loans that did not meet FHA/VA rules;

 

·         engaged in unfair billing practices related to identity theft protection products;

 

·         violated sanctions regulations related to Cuba, weapons of mass destruction proliferators, global terrorism, Iran, and Sudan;

 

·         failed to comply with the SCRA related to collections litigation practices;

 

·         sold RMBS that contained false or misleading information;

 

·         unlawfully handled customer segregated funds;

 

·         submitted false claims and certifications to the Small Business Administration;

 

·         commingled client and bank funds;

 

·         sold CDOs with misleading information;

 

·         engaged in a conspiracy with other banks to fix foreign exchange markets;

 

·         hired relatives and friends of Chinese government officials to win business; and

 

·         discriminated on the basis of race and national origin in the conduct of its wholesale lending business.

 

In 2012, just five years after the crisis JPMorgan Chase experienced a $6.2 billion dollar loss due to a reckless trading strategy known as the “London Whale”. Other acts of misconduct at JPMorgan Chase continued. The bank:

·         approved loans that did not meet FHA/VA rules;

 

·         engaged in unfair billing practices related to identity theft protection products;

 

·         failed to comply with the SCRA related to collections litigation practices;

 

·         engaged in a conspiracy with other banks to fix foreign exchange markets; and

 

·         hired relatives and friends of Chinese government officials to win business. 

 

In addition, JP Morgan Chase in 2012:

·         did not comply with a 2011 foreclosure-related consent order;

 

·         failed to disclose conflicts of interest;

 

·         filed lawsuits and obtained judgments against customers by using deceptive affidavits and robosigning documents;

 

·         participated in public stock offerings within five days of shorting those same stocks;

 

·         engaged in an illegal marketing kickback scheme with loan officers;

 

·         engaged in a dozen manipulation strategies to obtain above market payments for power;

 

·         manipulated devices in connection with the trading of certain credit default swaps;

 

·         misrepresented advisor compensation models;

 

·         failed to maintain adequate exchange and clearing fee processing; and

 

·         failed to have proper processes in place for reporting accurate information related to checking accounts.

 

Citigroup Snapshot

Enforcement actions show that in 2007, under the leadership of former CEOs Charles Prince and Vikram Pandit, Citigroup simultaneously committed at least seventeen acts of misconduct. The bank:

·         engaged in deceptive marketing, billing, and administration of credit card add on products;

 

·         made false and misleading representations to investors;

 

·         failed to enforce policies and procedures that would prevent transactions based on false statements;

 

·         misled tens of thousands of investors regarding its auction rate securities;

 

·         failed to file timely annual reports;

 

·         approved loans that did not meet underwriting requirements;

 

·         sold RMBS that contained false or misleading statements;

·         misled investors about the extent of its exposure to subprime mortgage-related assets;

·         failed to comply with the Bank Secrecy Act;

 

·         engaged in a conspiracy with other banks to fix foreign exchange markets;

 

·         manipulated U.S. dollar swap rates;

 

·         failed to correct computer errors that caused the firm to report incomplete information;

 

·         overbilled clients;

 

·         repossessed servicemembers’ cars without obtaining required court orders;

 

·         incorrectly charged late fees and interest to student loan borrowers; and

 

·         failed to maintain an effective anti-money laundering compliance program in its subsidiary, Banamex.

 

In 2012, the year current CEO Michael Corbat assumed leadership of the bank, Citigroup continued its misconduct.  The bank:

 

·         deceptively marketed, billing, and administration of credit card add on products;

 

·         failed to enforce policies and procedures that would prevent transactions based on false statements;

 

·         approved loans that did not meet underwriting requirements;

 

·         engaged in a conspiracy with other banks to fix foreign exchange markets;

 

·         manipulated U.S. dollar swap rates;

 

·         failed to correct computer errors that caused the firm to report incomplete information;

 

·         overbilled clients;

 

·         incorrectly charged late fees and interest to student loan borrowers; and

 

·         failed to maintain an effective anti-money laundering compliance program at its subsidiary, Banamex. 

 

In addition, Citigroup began new misconduct in 2012, including that it:

 

·         sold municipal bonds that contained false information;

 

·         spoofed in U.S. Treasury futures markets;

 

·         failed to comply with consent orders related to Bank Secrecy Act and anti-money laundering deficiencies; and

 

·         engaged in illegal debt sales.

 

Wells Fargo Snapshot

Wells Fargo CEO John Stumpf retired in 2016 under public pressure amidst the scandal involving millions of fake customer accounts. Yet, Wells Fargo has a history of wrongdoing, including misconduct tied to the same broken sales culture that came under fire in 2016.  In 2007, the year Mr. Stumpf became CEO, enforcement actions show that Wells Fargo simultaneously:

·         failed to maintain an effective anti-money laundering (AML) program;

 

·         failed to establish adequate due diligence for foreign bank correspondent accounts and comply with suspicious activity reporting requirements;

 

·         billed customers for credit monitoring services that were not being provided;

 

·         discriminated against African-American and Hispanic borrowers by steering them into subprime mortgages;

 

·         sold RMBS that contained false or misleading information;

 

·         charged excessive markups in the sale of CDO equity shares;

 

·         failed to disclose to customers the risks associated with structured investment vehicle-issued asset-backed commercial paper;

 

·         overvalued mutual funds;

 

·         misled investors regarding auction rate securities that it underwrote, marketed, and sold; 

 

·         maintained accounts and processed transactions for blocked persons under the Foreign Narcotic Kingpin Designation Act;

 

·         falsely certified loans for FHA Mortgage Insurance, and failed to disclose faulty mortgage loans to HUD;

 

·         violated Servicemember Civil Relief Act protections for veterans; and

 

·         falsified income documents and “upsold” customers into more costly loans to meet the bank’s sales performance standards and receive incentive compensation.

 

We now know that by 2012, Wells Fargo’s aggressive sales culture led to the widespread illegal practice of secretly opening unauthorized deposit and credit card accounts.  But that was not all.  In 2012 alone, Wells Fargo: 

 

·         billed customers for credit monitoring services that were not being provided;

 

·         violated a foreclosure-related consent order;

 

·         failed to prevent its employees from insider trading and provided altered documents to the SEC;

 

·         engaged in an illegal marketing kickback scheme with loan officers;

 

·         maintained and marketed foreclosure properties in a manner that violated the Fair Housing Act;

 

·         discriminated against women who were pregnant or on maternity leave in making home mortgage loans;

 

·         made material misstatements and omissions in municipal bond offering documents;

 

·         engaged in illegal private student loan servicing practices;

 

·         repossessed hundreds of cars owned by protected servicemembers without obtaining a court order;

 

·         failed to file and timely file a number of Suspicious Activity Reports (SARs); and

 

·         opened unauthorized deposit and credit card accounts, encouraged by the bank’s sales targets and compensation incentives.

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The data aggregated by Senate Banking Committee staff is from public enforcement actions and agency resources. Specific documents are available upon request.

 

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