This issue of the Credit Crunch Digest focuses on ongoing civil lawsuits and regulatory investigations into Libor manipulation by large banks, including the possible imposition of new criminal penalties by U.K. authorities against currency manipulators; the rejection by the D.C. Circuit of Wells Fargo’s attempts to dismiss a mortgage-related False Claims Act lawsuit; the status of negotiations between Bank of America and the U.S. Department of Justice to resolve mortgage-related claims; and investigations, and loosening of Dodd-Frank requirements for insurers.

Libor and Foreign Exchange Litigation

  • Libor Multidistrict Litigation Plaintiffs Petition Supreme Court to Allow Immediate Appeal of Dismissed Complaint
  • Britain’s Serious Fraud Office May Begin Investigation of Currency Market Manipulation
  • Currency Manipulators May Face Jail Time 
     

Litigation and Regulatory Investigations

  • Mega Mortgage Settlement Does Not Preclude False Claims Act Suit Against Wells Fargo
  • Bank of America and DOJ Negotiations on Mortgage Settlement Reach Standstill

Government and Regulatory Intervention

  • New Senate Bill Eases Dodd-Frank Regulatory Requirements for Insurers

Libor and Foreign Exchange Litigation

Libor Multidistrict Litigation Plaintiffs Petition Supreme Court to Allow Immediate Appeal of Dismissed Complaint
Plaintiff bondholders are seeking an immediate appeal of their dismissed consolidated complaint in the Libor multidistrict litigation, in which they argue several large banks manipulated Libor causing the bondholders to lose money. The bondholders filed a petition of certiorari with the U.S. Supreme Court, after the Second Circuit Court of Appeals denied their appeal.  Specifically, the Second Circuit concluded that the district court’s dismissal of the plaintiffs’ consolidated complaint was not a final order since 60 related matters remain pending before the district court. The plaintiffs initially filed their petition for certiorari in March 2014.  The defendants submitted their opposition brief in May 2014, and the plaintiffs replied on June 3, 2014.

The defendants requested that the Supreme Court deny the bondholders’ petition, arguing that it would obstruct the lower courts’ capability of administering case management schedules in complex lawsuits.  There is currently a circuit split regarding the issue of whether plaintiffs have the right to seek an immediate appeal of dismissed complaints in consolidated actions.  Plaintiffs allege that there are few opportunities for the U.S. Supreme Court to address this issue, making their petition suitable to resolve the circuit split.  (“Justices Urged to Mull Quick Appeal Question In Libor MDL,”  Law360.com, June 4, 2014)

Britain’s Serious Fraud Office May Begin Investigation of Currency Market Manipulation
Following a criminal investigation commenced by the U.S. Department of Justice in October, Britain’s Serious Fraud Office (SFO) is determining whether it should begin its own investigation against major banks regarding alleged currency market manipulation.  This manipulation allegedly is linked to a $5 trillion daily foreign exchange market, which is partially based in Britain. 

The SFO recently agreed to investigate Libor manipulation claims, criminally charging 12 individuals, and to date is the only regulatory agency that has prosecuted defendants.  However, the SFO has not yet determined whether it will investigate the alleged criminal misconduct of currency market manipulation because it is still evaluating whether the agency has authority to do so.  Other investigations have demonstrated that banks still have difficulty monitoring trading activity, even with current regulatory controls.  (“UK Anti-Fraud Agency ‘Examining Data’ in Currency Fixing Probe,” Reuters, June 5, 2014)

Currency Manipulators May Face Jail Time
George Osborne, Britain’s Chancellor of the Exchequer, announced earlier this month that traders will face criminal charges and possible lengthy jail time for the future manipulation of currencies or borrowing costs. The U.K. government is drafting laws set to extend criminal sentences of up to seven years for Libor manipulation or other benchmarks used in foreign-exchange, fixed-income and commodity markets. The new sanctions were announced as a part of a market review by the Treasury, Bank of England and the Financial Conduct Authority.

The measures follow numerous scandals, investigations and settlements related to Libor and other currency manipulations that may have tarnished the country’s financial industry.  To date, in excess of $6 billion in fines have levied against nine firms arising out of these financial scandals. The rules will also apply to non-British banks with U.K. operations.  (“Benchmark Riggers to Face Jail in Planned U.K. Law Shift,” Bloomberg, June 11, 2014)

Litigation and Regulatory Investigations

Mega Mortgage Settlement Does Not Preclude False Claims Act Suit Against Wells Fargo
In a unanimous opinion, the D.C. Circuit Court denied Wells Fargo’s attempt to extract itself from a False Claims Act (FCA) suit brought by the Federal Housing Administration (FHA) involving mortgage fraud allegations. Wells Fargo sought dismissal on the grounds that it had resolved all mortgage claims by the FHA following its $5 billion payment in connection with a $25 billion nationwide mortgage settlement the FHA reached in February 2012 with several prominent banks.

In rejecting Wells Fargo’s motion to dismiss, the Circuit Court held that the bank misinterpreted the scope of the February 2012 release. The 2012 release precluded mortgage fraud claims based solely on claims arising from the bank's annual certification. The Circuit Court held that the basis for the FHA’s case is not based solely on the bank’s false annual certification. In reaching its decision, the court relied on the government’s position during oral argument, where it stated that the pending FCA case does not cover the same issues, namely, the material violations and allegations of falsity with respect to individual loans. (“Wells Fargo Can't Evade Mortgage Fraud Suit, DC Circ. Says,” Law360.com, June 10, 2014)

Bank of America and DOJ Negotiations on Mortgage Settlement Reach Standstill
Talks between Bank of America and the U.S. Justice Department came to an abrupt halt following disagreements over a possible multibillion-dollar settlement to resolve claims arising out of the bank’s role in the mortgage and financial crisis. Discussions ended after the Department of Justice was apparently dissatisfied with the bank’s offer of more than $12 billion to resolve various state and federal investigations with respect to the sale of mortgage investments. The offer apparently was less than expected by the federal prosecutors, who reportedly sought a settlement of approximately $17 billion. A settlement of the magnitude contemplated by the Department of Justice would have been the largest in the string of mortgage-related settlements made by any large bank to date.

Bank of America has attempted to rekindle negotiations in an attempt to avoid a civil complaint by the Department of Justice, which would reportedly accuse Bank of America of selling mortgage-backed investments resulting in losses in the billions. An apparent issue for Bank of America is the extent of the claimed losses and any related fine attributed to Merrill Lynch, an entity the bank purchased during the financial crisis. Bank of America has argued that its acquisition of Merrill Lynch was completed following significant pressure from the Federal Reserve and U.S. Treasury Department and thus, any losses or wrongdoing attributable to Merrill Lynch should not be Bank of America’s responsibility.

The proposed settlement would resolve all federal and state mortgage crisis investigations and a prior Justice Department lawsuit filed in North Carolina. Bank of America previously agreed to a settlement with the Federal Housing Finance Agency to resolve claims arising out of mortgage investments. (“Bank of America Mortgage Settlement Is Said to Be Deadlocked,” NY Times Dealbook, June 10, 2014)

Government and Regulatory Intervention

New Senate Bill Eases Dodd-Frank Regulatory Requirements for Insurers
On June 3, 2014, the U.S. Senate passed a bipartisan amendment to the Dodd-Frank Act that mandates the Federal Reserve to follow state capital requirements for insurance companies.  Proponents of the bill assert that this law would reduce regulatory requirements for insurance companies by allowing the Federal Reserve to differentiate its capital guidelines for banks and insurers.  If insurers had to face the same capital requirements, senators critiqued that the regulations would raise insurance premiums for consumers.

The bill forbids the Federal Reserve to require insurers to switch from state accounting principles to generally accepted accounting principles when submitting their financial statements.  The bill also provides that a regulator will oversee all activities for all holding companies to ensure they are sufficiently capitalized.  If the bill becomes law, the Federal Reserve will have to work with state insurance regulators to regulate all insurers doing business in the United States.  (“Senate OKs Bill to Ease Dodd-Frank’s Insurer Regs,” Law360.com, June 3, 2014)

 

Topics:  Bank of America, Banking Sector, Banks, Currency Manipulation, Dodd-Frank, DOJ, False Claims Act, Insurers, Libor, Mortgages, UK, Wells Fargo

Published In: Criminal Law Updates, Finance & Banking Updates, Insurance Updates, International Trade Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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