September 30, 2022

New Housing Task Force Takes Aim at Wall St.

After failing to produce any major prosecutions stemming from the housing crisis, an expanded federal task force is planning a new tack, cracking down on financial firms suspected of improperly bundling home loans into securities for investors, officials said Wednesday.

The Obama administration tried to instill confidence in the effort by installing Eric T. Schneiderman, the New York state attorney general who is viewed by liberal groups as a crusader against big banks, as one of the leaders of a new unit within the Financial Fraud Enforcement Task Force. But skeptics still doubted the sincerity of the new effort.

The unit, announced by President Obama in the State of the Union address on Tuesday night, while Mr. Schneiderman looked on from a prime seat behind Michelle Obama, is the latest in a string of efforts undertaken by the administration over the last three years to prosecute crimes related to the financial crisis, bolster the housing market and help homeowners who are suffering under unaffordable mortgages.

Many of those efforts have met with limited success. The Financial Fraud Enforcement Task Force, created in late 2009, seemed little more than “a press release collection agency” being propped up by the Justice Department “to collect examples of investigations or prosecutions that would otherwise have been brought,” said Senator Charles E. Grassley, an Iowa Republican, at a Senate oversight hearing in June.

Officials said the new effort would be more focused than previous interagency programs to tackle the mortgage crisis.

“There have been investigations going on in various states and branches of the federal government,” Mr. Schneiderman said, speaking to reporters in Washington. “We’re now making a concerted effort to pull everything together and move forward aggressively to address these issues.”

Officials said the unit would most likely focus on Wall Street firms, big banks and other entities that many people thought had escaped scrutiny for their role in the housing crisis. The task force will most likely follow the lead of New York and Delaware, which are investigating potential flaws in the creation of mortgage-backed securities that could lead to charges of tax evasion, insurance fraud and securities fraud.

The Delaware attorney general, Beau Biden, has not yet signed on to the new effort. “We are willing to work with any agency that has the same interest in pursuing accountability in the mortgage finance industry,” said Ian McConnell, the director of Mr. Biden’s fraud division, which has joined forces with other states to pursue their own mortgage-related cases. “But any collaboration has to be real and meaningful.”

With only a year left in the president’s term, the task force also has a limited amount of time to produce results.

Mr. Obama told Congress that the new unit would include federal law enforcement officials and state attorneys general and would “expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.”

That sounds much like previous White House efforts, particularly in 2009 when Mr. Obama outlined a new program to strengthen the investigation and prosecution of mortgage fraud, promising more money and people to target “virtually every step of the process, from predatory lending on Main Street to the manipulation on Wall Street.”

But Tuesday’s announcement shifted focus away from yet another faltering effort — an attempt, led by federal officials, to reach a settlement between state attorneys general and the large banks on foreclosure abuses.

Administration officials had tried unsuccessfully to reach a settlement before Tuesday night’s State of the Union address. On Wednesday, one of the crucial players, Kamala D. Harris, the attorney general of California, rejected the most recent terms, saying, “We believe it is inadequate for California.”

Mr. Schneiderman has been one of the most vocal critics of the proposed settlement because he feared it would provide the banks with immunity that would prevent him from a larger investigation into the causes of the crisis. The fact that he was appointed to the new unit reassured him that the proposed settlement would not give the banks a pass, he said Wednesday.

“Obviously, there’s no way that I or that any of the others involved are going to release any of the claims we’re investigating,” he said.

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U.S. and New York Sue Bank of New York Mellon Over Exchange Fees

In a civil lawsuit filed in state court, the attorney general, Eric T. Schneiderman, said that the Bank of New York Mellon had consistently overcharged customers for processing foreign currency transactions. He is seeking about $2 billion, which is the ostensible ill-gotten profits that the bank generated over the last decade.

Preet S. Bharara, the United States attorney in Manhattan, filed a civil complaint in Federal District Court in Manhattan that also charges the Bank of New York Mellon with defrauding its customers in the foreign exchange markets. Whereas Mr. Schneiderman is seeking redress on behalf of state pension funds, Mr. Bharara is seeking hundreds of millions of dollars in penalties on behalf of the United States.

“This suit seeks to impose not only appropriate civil penalties, but also comprehensive injunctive relief to ensure that Bank of New York’s alleged fraud stops now,” Mr. Bharara said.

Among those affected by the bank’s actions were pension funds operated by the State University of New York and New York City retirees, as well as thousands of investment funds, including some run by Duke University and Walt Disney.

In separate statements, Bank of New York Mellon vigorously denied any wrongdoing. It claimed that the United States attorney’s accusations were based on “flawed analysis” of its role as a principal in the foreign exchange market, and said the attorney generals’ lawsuit was an example of “prosecutorial overreach.” The bank said it was confident that it had provided competitive and attractive foreign exchange rates to its customers.

Still, bank officials recognize the impact that the drumbeat of bad publicity has on their brand. The bank’s newly installed chairman and chief executive, Gerald L. Hassell, has said he will be pragmatic about resolving any suits.

Mr. Schneiderman’s lawsuit charges that the bank guaranteed that customers would receive the most competitive or attractive rates available on any given trading day. In reality, the lawsuit says, the Bank of New York Mellon provided the opposite: the worst or nearly the worst of the rates available to the bank. Then it earned nearly $2 billion — or as much as 75 percent of its foreign exchange revenue — by pocketing the difference, the suit contends.

The New York attorney general’s action comes after similar moves by authorities in California, Florida, Massachusetts and three other states that are looking into the foreign exchange practices of the Bank of New York Mellon and one of its main competitors, the State Street Corporation. The Securities and Exchange Commission and Justice Department are also in the middle of investigations, according to corporate filings from the banks.

The inquiries began almost two years ago when a group of whistle-blowers made up of plaintiffs’ lawyers and Harry M. Markopolos, the financial investigator who first sounded the alarm about Bernard L. Madoff’s Ponzi scheme, sought out the New York state attorney general’s office to bring lawsuits against the bank.

But by taking advantage of the powerful New York state securities law known as the Martin Act, Mr. Schneiderman has turned it into a national case. The lawsuit seeks to recover damages incurred not only by the New York pension funds, but also by dozens of government and private investors across the country.

It is not the first time Mr. Schneiderman has squared off against the Bank of New York Mellon. He recently moved to block a proposed $8.5 million settlement involving the bank and the Bank of America over troubled loan pools issued by Countrywide Financial. The suit accuses the Bank of New York Mellon of fraud in its role as trustee overseeing the investment pools, a claim the bank has denied.

Mr. Schneiderman has not shied away from fights with other big banks. In the continuing settlement talks with the nation’s largest mortgage servicers, Mr. Schneiderman stepped down from the lead committee of attorneys general after making it clear that he would not sign a broad release that would allow the banks to avoid liability for an array of issues. His office is now conducting its own investigation.

Mr. Bharara brought his lawsuit against Bank of New York Mellon under the Financial Institutional Reform, Recovery and Enforcement Act, a law that gives federal prosecutors the right to seek civil penalties for banking-related violations. Congress passed the law in 1989 in the wake of the savings-and-loan crisis, giving the government a civil prosecutorial tool with a lower burden of proof than federal criminal statutes.

This year, Mr. Bharara’s office used another law, the False Claims Act, to file a complaint against Deutsche Bank, claiming that one of its units had lied about the quality of government-backed mortgage loans it underwrote. Deutsche Bank has denied the claims.

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