By Haddon Libby

Non-partisan non-profit Good Jobs First promotes corporate accountability via its Corporate Research Project.  Their research shows that 100 companies have paid anywhere from $250 million to a staggering $56.7 billion in fines over the last six years for bad behavior.  Eight of the top ten bad corporate actors are in the financial services industry.

Overall, the financial services industry has paid $191 BILLION in fines for activities that would probably land you or me in jail.  Leading all bad actors is Bank of America with $56.7 billion in fines of which $28 billion relate to the mortgage loan crisis. JP Morgan/ Chase is second at $28.7 billion followed by Citibank at $15.5 billion, Wells Fargo at $11.8 billion, Goldman Sachs $9.3 billion and Morgan Stanley at $5 billion.

So far this year, Deutsche Bank and Credit Suisse paid $7.2 billion and $5.3 billion, respectively, for misleading investors on toxic residential loan securities.

While much of the $191 billion in violations relate to mortgage fraud and the sale of toxic securities, bad behavior also includes fines for an assortment of actions.  As an example, Western Union paid $586 million for their role in money laundering and wire frauds. 

Let’s take a quick look at recent violations by the financial companies that you are most likely to do business with:

Chase/JP Morgan have paid $424 million in fines over the last year including $53 million for discriminatory hiring practices and $4 million for falsely stating in marketing materials that their private bankers are never paid commissions on the sale of products to clients.

Citibank has paid $635 million in fines including $29 million in connection with allegations that they kept borrowers in the dark on ways to avoid home foreclosures.  Additionally, $18 million was paid to settle charges that they overbilled investment advisory clients; $5 million for inflating interest rates on many customer credit cards; $3 million for making false and misleading statements about a foreign exchange trading program sold to investors and $11 million for falsifying court documents.

Merrill Lynch has paid $437 million of which $415 million was for misusing customer cash to generate profits for the firm and failing to protect customer securities from the claims of Merrill Lynch creditors.  Another $10 million was paid for misleading investors in the sale of structured notes.

Morgan Stanley has paid $2.7 billion including $13 million for overcharging their investment advisory clients and another $3 million for making false and misleading statements about a foreign exchange trading program sold to investors. They paid another $1 million for not safeguarding customer information that was sold online.

State Street Bank paid a $32 million fine for engaging in a scheme to defraud a number of the bank’s clients by secretly applying commissions to billions of dollars of securities trade and another $12 million for a pay-to-play scheme where they donated to politicians in order to win the management of state pension funds in Ohio.

Wells Fargo paid $2 billion with $1.2 billion due to their falsification of mortgage documents sold to the FHA and another $4 million for illegally repossessing 413 cars owned by U.S. military servicemen.  They also had those messy RICO violations for opening client accounts without their knowledge.

The next wave of violations to hit the finance and insurance industries relates to overcharging 401(k) participants and/or the sale of unsuitable and expensive annuity contracts to clients.

The truth here is that many companies see fines as the corporate equivalent to a traffic ticket.  If you dislike this type of corporate behavior, there are plenty of responsible companies that do not behave badly.  To help you figure this out, go to www.violationtracker.goodjobsfirst.org.

Haddon Libby is Managing Director of Winslow Drake Investment Management and can be reached at 760.449.6349 or www.WinslowDrake.com.

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