SEC Brings in $3B from Crisis-Related Enforcement Actions

Since the start of the financial crisis, the Securities and Exchange Commission (SEC) has charged 169 institutions and individuals with actions that “led to or arose from” the crisis, enacting penalties and monetary relief amounting to $3.02 billion.

Included among the enforcement actions are sanctions against 70 individual executives and senior officers, more than half of whom are now barred from holding director positions in the industry, holding any position in the industry, and/or receiving commissions in the industry.

The SEC has pursued enforcement actions against institutions and individuals who concealed or misrepresented risks, terms, prices, or other information regarding collateralized debt obligations (CDOs) and mortgage-backed securities (MBS).

The list of institutions charged with such actions includes most major mortgage banks and lending institutions in the country—Wells Fargo, Citigroup, Goldman Sachs, Bank of America, and JPMorgan Chase among them.

Early in the SEC’s crusade against institutions that contributed to the financial crisis, the agency pursued legal action against two Bear Sterns portfolio managers, filing charges in June 2008 “for fraudulently misleading investors about the financial state of the firm’s two largest hedge funds and their exposure to subprime mortgage-backed securities.”

Ralph R. Cioffi and Matthew M. Tannin settled with theSEC last year, agreeing to pay a total of $1 million. The two are also barred from working in any SEC-regulated industry for three and two years, respectively.

The SEC also brought legal action against three Countrywide executives in 2009. Countrywide was acquired by Bank of America in 2008.

Countrywide’s CEO, Angelo Mozilo, agreed to pay $22.5 million in penalties and is permanently barred from holding officer or director positions in the financial

industry for misleading the company’s corporate investors, failing to disclose the full extent of Countrywide’s risk exposure, and insider trading.

Mozilo’s settlement, reached in 2010, was a record-setting settlement for the SEC, bringing in the largest amount of money from a single executive in any settlement in SEChistory.

In another record-setting settlement,, Goldman Sachs in 2010 agreed to pay $550 million and reform its business practices after allegations of “misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.”

In 2011, the SEC pursued legal action against six former executives at Fannie Mae and Freddie Mac, charging them with securities fraud for “misleading investors about the extent of each company’s holdings of higher-risk mortgage loans, including subprime loans.”

Other major settlements include a $118 million settlement with Charles Schwab for allegedly misleading MBSinvestors (2011); a $296.9 million settlement and a separate $153.6 million settlement with J.P. Morgan Securities for misleading MBS investors (2012) as well as corporate investors as the housing market began to decline (2012); and a $131.8 million settlement with Merrill Lynch for keeping inaccurate books and making faulty disclosures of CDOs (2013).

Wells Fargo and one of its former vice presidents were charged with “selling investments tied to mortgage-backed securities without fully understanding their complexity or disclosing the risks to investors.” Wells Fargo reached a $6.5 million settlement for these charges last year.

In August, the SEC charged Bank of America and two of its subsidiaries with “defrauding investors,” “failing to disclose key risks and misrepresenting facts” related toMBS trades. These charges have not yet been settled.

“A strong enforcement program helps produce financial markets that operate with integrity and transparency, and reassures investors that they can invest with confidence,” said Mary Jo White, chair of the SEC, inannouncing this year’s enforcement results.

In the fiscal year ending September 2013, the SEC filed a total of 686 enforcement actions for violations of securities laws within the financial industry, resulting in a record $3.4 billion in sanctions for the 12-month period. That’s 10 percent higher than the monetary sanction brought in during fiscal year 2012 and 22 percent higher than fiscal year 2011, when the SEC filed the most actions in the agency’s history.


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