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A U.S. appeals court ruling yesterday revived a lawsuit against JPMorgan Chase & Co. filed by a former vice president claiming the bank ignored red flags about a client's potential fraud, even after the massive Ponzi scheme operated by Bernard Madoff, another JPMorgan client, was exposed, Reuters reported yesterday. The U.S. Court of Appeals for the Second Circuit reversed a lower court's decision to throw out Jennifer Sharkey's whistleblower suit and ordered the judge to consider whether the case should be allowed to continue under a more lenient standard of whistleblower protection. The ruling from the three-judge panel was unanimous. JPMorgan has rejected Sharkey's allegations.

American International Group Inc.’s unique set of risks was seen by one of the primary orchestrators of its rescue as requiring tough conditions that included the government’s taking most of the insurer’s stock, Bloomberg News reported yesterday. The fight over whether those terms were fair is set to continue today in a federal trial in Washington, D.C. “I thought we were taking an enormous, unprecedented risk,” said Timothy Geithner, who was the head of the Federal Reserve Bank of New York in September 2008 when it agreed to lend AIG $85 billion. “We might lose billions or tens of billions of dollars.” Geithner, scheduled for a third day of testimony today, will be followed by another architect of the bailout, Ben Bernanke, the former chairman of the Federal Reserve Board of Governors. Maurice “Hank” Greenberg’s Starr International Co., which was AIG’s largest shareholder before the bailout, accuses the government of illegally taking 80 percent of the company’s equity in consideration for the loan and seeks more than $25 billion in damages. Starr, whose chief executive officer Greenberg led AIG until 2005, is seeking to show that the insurer was treated unfairly, as evidenced by what one of its lawyers contends was an “extortion rate” of 14 percent interest on the loan.

U.S. prosecutors are pressing to bring charges against a bank for currency-rate rigging by the end of the year, and actions against individuals will probably follow in 2015, Bloomberg News reported yesterday. The Justice Department may seek guilty pleas from several firms, including at least one in the U.S. While federal prosecutors have wrested convictions from foreign banks this year for wrongdoing, they’ve yet to win a guilty plea from a U.S. lender in that push, and they’re preparing for strong resistance if they attempt to do so. Justice Department officials have vowed to hold more institutions and individuals accountable for criminal conduct amid public frustration over the lack of prosecutions against top Wall Street executives for the worst financial crisis since the Great Depression.

The chief executives of 18 large U.S., European and Japanese banks are set to agree in principle at a meeting at the Federal Reserve in Washington, D.C., on Saturday to wait up to 48 hours before seeking to terminate derivatives contracts and collect associated payments from a troubled financial institution, the Wall Street Journal reported today. A delay would give regulators time to transfer a failing firm’s assets and some obligations into a new “bridge” company, removing the need to unwind derivatives contracts or undertake asset sales during times of turmoil. The proposed changes are aimed at helping to end the problem of dealing with “too big to fail” banks that are so large and intertwined that their collapse threatens to trigger broad economic damage or market tumult. The changes won’t go into effect until 2015, and are significant because they would force firms to give up certain rights under the law. The derivatives in question, called swaps, constitute a $710 trillion market that was snarled by the September 2008 bankruptcy filing of Lehman Brothers Holdings Inc. The contracts are used by firms to hedge or speculate on everything from moves in interest rates to the cost of fuel.

The hackers who raided the data banks of JPMorgan Chase & Co. used computers now linked to possible attacks on at least 13 more financial companies, Bloomberg News reported yesterday. More than a month after the JPMorgan hack was made public, it’s now clear that the perpetrators had attempted a broad campaign aimed at a payroll-servicing company, a popular stock brokerage and some of the world’s biggest banks. The depth of the JPMorgan breach and the scope of the intended targets have sent a shudder through Wall Street, even if the attackers had mixed success. The group set its sights on companies including Citigroup Inc., HSBC Holdings Plc, E*Trade Financial Corp., Regions Financial Corp. and Automatic Data Processing Inc., the payroll firm. U.S. intelligence agencies, attorneys general from at least two states, as well as federal prosecutors including from New York are conducting their own investigations, reflecting the urgent concern around the JPMorgan breach, worries over the precise motive of the attack and its ripples throughout the financial system.
http://www.bloomberg.com/news/print/2014-10-09/jpmorgan-hackers-said-to…

For more on cybersecurity, do not miss former White House CIO Theresa Payton’s keynote at ABI’s Winter Leadership Conference. Register today!
http://www.abiworld.org/WLC14

Giants Stadium LLC is urging a judge to allow $600 million-plus in claims against Lehman Brothers Holdings Inc. related to interest-rate swaps used to finance the East Rutherford, N.J., football stadium, Dow Jones Daily Bankruptcy Review. In a partially redacted filing in bankruptcy court on Tuesday, lawyers for holders of claims once owned by the New York Giants football team said that Lehman's argument that the entity actually owes Lehman money is wrong. "Giants Stadium properly terminated the swaps and reasonably calculated its loss," lawyers for the entity said in the filing. Lehman, which is suing the Giants Stadium entity for $100 million saying that it is actually the one owed money, declined to comment.

Payment processor New Beginnings NY Inc. and owner Kenneth Newton agreed to pay $71,640 to settle charges brought by the New York attorney general's office that the company withdrew money from consumers' bank accounts for identity theft protection that was never provided, CollectionsCreditRisk.com reported yesterday. Newton also has been ordered to shut down both New Beginnings and Ironwood Management Group, a consumer collection agency he operated. Cheektowaga, N.Y.-based New Beginnings worked as the payment processor for Phoenix Trust. New Beginnings allegedly electronically withdrew funds from bank accounts between June 26, 2013 to July 11, 2013 and deposited the money into another account to pay for the identity theft services.

Timothy Geithner, one of the highest-ranking government officials during the financial crisis, testified in federal court yesterday that he thought a failure of American International Group Inc. would have had catastrophic consequences, the Wall Street Journal reported today. He conceded that he once said the government’s rescue “wiped out” the company’s shareholders, in a nod to the harshness of the terms. Geithner, president of the Federal Reserve Bank of New York when AIG nearly collapsed, parried with trial lawyer David Boies yesterday in the U.S. Court of Federal Claims as part of a lawsuit brought by AIG’s former longtime chief executive, Maurice R. “Hank” Greenberg. The suit alleges that the government cheated shareholders of $40 billion when it took a 79.9 percent equity stake without justly compensating them. The class-action suit was filed in 2011 by Starr International Co., an investment and charitable firm run by Greenberg that was AIG’s largest shareholder in 2008. While no smoking guns have emerged, Boies has been pulling together an array of material seeking to prove Starr’s contention that senior government officials considered the treatment of AIG shareholders to be extremely punitive, even as they believed that AIG must accept the terms because the damage from an AIG bankruptcy would be so widespread. A key part of the lawsuit is that the government forced the rescue package’s onerous terms on AIG, rather than AIG voluntarily accepting the deal, as the government maintains.

Standards in the U.S. are so high for mortgage loans that former Federal Reserve Chairman Ben S. Bernanke, now a Brookings Institute fellow-in-residence with a net worth of at least $1.1 million, said at a conference last week that he couldn’t refinance his house in Washington, D.C., Bloomberg News reported today. Lenders are continuing to tighten the credit vise on homebuyers after five straight years of economic expansion, imposing the toughest standards since at least 1998, according to a new index by CoreLogic Inc. In May, credit availability for all home loans was half of what it was in the late 1990s, when the housing market was making steady gains much like today, according to the Housing Credit Index. While federal programs for struggling homeowners have helped to boost refinancing, credit availability for home purchases in May was about a third of what it was in 1998, according to the index.

The Justice Department is preparing a fresh round of attacks on the world’s biggest banks, again questioning Wall Street’s role in a broad array of financial markets, the New York Times reported today. With evidence mounting that a number of foreign and American banks colluded to alter the price of foreign currencies, the largest and least regulated financial market, prosecutors are aiming to file charges against at least one bank by the end of the year, according to interviews with lawyers briefed on the matter. Ultimately, several banks are expected to plead guilty. The charges will most likely focus on traders and their bosses rather than chief executives.