The Commonwealth of Virginia announced Friday that it reached a “record” settlement with 11 banks over allegations that the banks defrauded the state’s retirement system by allegedly misrepresenting the quality of residential mortgage-backed securities in the run-up to the financial crisis, HousingWire.com reported on Friday. According to the office of Virginia Attorney General Mark Herring, the $63 million settlement is the largest non-healthcare-related recovery ever obtained in a suit alleging violations of the Virginia Fraud Against Taxpayers Act. According to Herring’s office, Virginia initially sought to recover $383 million in alleged damages, including $250.66 million of realized losses.
The Securities and Exchange Commission yesterday announced that Ocwen Financial Corp. has agreed to settle charges that it misstated financial results by using a flawed, undisclosed methodology to value complex mortgage assets, according to an SEC press release yesterday. Ocwen agreed to pay a $2 million penalty after an SEC investigation found that the company inaccurately disclosed to investors that it independently valued these assets at fair value under U.S. Generally Accepted Accounting Principles (GAAP). Ocwen’s audit committee failed to review the methodology with company management or its outside auditor, and the related party’s valuation deviated from fair value measures, according to the SEC. Ocwen consequently misstated its net income for the last three quarters of 2013 and the first quarter of 2014.
Goldman Sachs said yesterday that it had agreed to a civil settlement of up to $5 billion with federal prosecutors and regulators to resolve claims stemming from the marketing and selling of faulty mortgage securities to investors, the New York Times reported today. Goldman, which is scheduled to report fourth-quarter earnings on Wednesday, said the settlement would reduce earnings in that period by approximately $1.5 billion on an after-tax basis. In the early days of the financial crisis, Goldman Sachs received an outsize share of criticism from politicians and the media as its trading desk made money by betting against the housing market in the run-up to the crisis. But in the end, Goldman’s role in churning out faulty mortgages and securities backed by home loans to borrowers who could not afford them was smaller than that of many other Wall Street firms like Bank of America or JPMorgan Chase. As a result, Goldman’s settlement is far smaller than the sums paid by other firms for selling flawed mortgage securities. Goldman is among the last firms to reach a civil settlement with a task force of federal prosecutors, state attorneys general and regulators empowered to investigate Wall Street’s role in cobbling together securities from all the mortgages that borrowers found themselves unable to afford. Read more.
In related news, the U.S. Securities and Exchange Commission said that Goldman Sachs & Co. will pay $15 million to settle civil charges that its securities lending practices violated federal regulations, Reuters reported yesterday. Goldman made improper representations to customers who requested that the firm locate certain stocks for short selling, the SEC said. Goldman told those customers that it had arranged to borrow, or believed it could borrow, the security to settle the short sale, a process known as "granting locates." Goldman, however, had not performed an adequate review of the securities customers had asked it to locate, the SEC said. At issue is U.S. regulation for short selling that requires brokerages to enter an agreement to borrow securities on behalf of customers or to have “reasonable grounds” for believing that it can borrow the security. A team of Goldman employees, between 2008 and 2013, relied on an automated system to fill customers’ stock requests. But a problem with the system allowed employees to grant customers’ “locate” requests based on the inventory reported to Goldman early in the day by other large financial institutions, even after the inventory had been depleted as the team processed requests during the day. Additionally, the team did not check other possible sources for securities or perform a “meaningful further review,” the SEC said. Read more.
The Office of the Comptroller of the Currency said that JPMorgan Chase & Co. will pay $48 million to settle the last in a series of missteps in its handling of foreclosures after the 2008 credit crisis, Bloomberg News reported yesterday. The largest U.S. bank by assets will be fined for failing to meet terms of a 2013 accord over mortgage-servicing flaws, the agency said in a statement Tuesday. The new fine will close out JPMorgan’s OCC obligations from the earlier order, under which it had previously faced $2 billion in penalties and payments to borrowers. The bank was among a group of major U.S. servicers accused of mishandling loan papers or robo-signing. After an aborted effort to force the banks to review individual files for wrongdoing, most of the companies agreed in 2013 to pay a combined $10 billion in settlements with regulators and to fix their practices. Several of them, including JPMorgan, failed to live up to their promises in those settlements, according to regulators. Last year, the OCC found JPMorgan was continuing to “engage in unsafe and unsound practices” and had failed to meet 10 of 98 requirements in the 2013 settlement, including new practices for communicating with borrowers and putting its final compliance policies in place.
