Tallying the fines

Scanning the headlines on Thursday, most of the top ones seemed to involve some large financial institution settling a large tab with the government for some wrong doing. Years after the financial crisis, the Securities and Exchange Commission and other regulators are getting tough for some of these past actions.

The New York Times reported on Bank of America’s mortgage fines:

The fallout from the bursting of the housing bubble continues to plague Wall Street.

Bank of America agreed on Thursday to pay a $131.8 million penalty to securities regulators to settle an investigation linked to the structuring and sale of two complex mortgage securities that its Merrill Lynch division sold to investors.

The settlement between Bank of America and the Securities and Exchange Commission arises from a series of collateralized debt obligations that Merrill Lynch cobbled together and marketed. The hedge fund Magnetar Capital had a role in helping to pick some of the mortgage securities included in the C.D.O.’s.

The S.E.C., in an administrative order, alleged that Merrill Lynch misled investors by failing to disclose Magnetar’s role in influencing the selection of the underlying securities in the C.D.O.’s. Merrill Lynch also failed to disclose that the hedge fund not only had invested in the deal but was also shorting, or betting against, their performance in some instance, the S.E.C. said.

The deals, called Norma C.D.O. and Octans 1 C.D.O., which were sold in 2006 and 2007, had a combined face value of $3 billion. The so-called Magnetar deals were the subject of a Pulitzer Prize-winning article on the investigative website ProPublica in 2010.

But it appears that the investigation by the S.E.C. is ending without any finding of fault or liability by Magnetar. In response to the S.E.C. settlement with Bank of America, the hedge fund issued a statement saying that it had received a “closing letter” from the S.E.C. with regard to the investigation of the firm.

The Guardian had this story about JPMorgan Chase and fines it will pay over the Madoff scandal:

JP Morgan Chase, the biggest bank in the US, is facing another multi-billion dollar fine, this time deriving from its involvement with notorious Ponzi scheme fraudster Bernard Madoff.

The bank has tentatively agreed to pay $2bn to settle allegations it failed to inform US authorities of the jailed fraudsters suspicious activity, according to people familiar with negotiations. A settlement deal with the Justice Department could come as early as next week. The bank declined to comment.

Madoff was arrested at his Manhattan penthouse five years ago this week after his $20bn scam came to light. JP Morgan was his bank for two decades and the US authorities suspect it continued to service his business even as it suspected something was wrong.

The fraudster himself predicted the bank would one day face a big fine. In a 2011 interview with the Financial Times he said: “JPMorgan doesn’t have a chance in hell of not coming up with a big settlement.” He claimed: “There were people at the bank who knew what was going on,” an assertion that JP Morgan has consistently claimed is false.

According to court papers filed by Irving Picard, the trustee charged with recouping losses for Madoff’s victims, the bank had grave doubts about Madoff 18 months before his scam unwound. The documents quote one banker claiming Madoff’s “Oz-like signals” were difficult to ignore.

The filings also quote a June 2007 email from a senior JP Morgan banker warning colleagues that another banker “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

The bank filed a “suspicious activity” report with UK authorities in 2008 but did not take a similar step in the US.

Then Bloomberg had this story about traders implicated in the Libor manipulation probe being likely to pay fines in January:

U.K. regulators may issue the first penalties against individuals in their probe of Libor manipulation as soon as next month, three people with knowledge of the case said.

The Financial Conduct Authority sent notices to traders in the past two months outlining their findings, according to the people, who asked not to be named because the case is private. The FCA is in discussions with some of the traders over proposed penalties, including fines of more than 100,000 pounds ($160,000), one of the people said.

The targets have one month to respond to the claims, two of the people said. The agency plans to levy civil fines early next year, though some may be delayed if the people contest the penalties or the findings, known as preliminary investigation reports.

“Individuals may be more inclined to fight these fines if they risk losing approved-person status because of the implications on their future job prospects,” said Peter Lodder, a senior trial lawyer at 2 Bedford Row in London.

More than a half dozen finance firms, including Barclays Plc (BARC) and UBS AG (UBSN), have been fined a total of about $6 billion since June 2012 for manipulating the London interbank offered rate, or Libor, the benchmark interest rate for more than $360 trillion of securities worldwide. More firms will face fines next year and seven people are being prosecuted in parallel U.S. and U.K. probes.

It will be interesting to see when shareholders get tired of all the fines and start turning to other industries with less litigation risk. Or maybe, by getting through all these issues, the finance sector is gearing up for better days.