March 29, 2024

DealBook: Court Expresses Antipathy for S.E.C. in Handling of Madoff Case

Bernard L. Madoff.Ruby Washington/The New York TimesBernard L. Madoff.

A federal appeals court ruled on Wednesday that Bernard L. Madoff‘s investors cannot sue the Securities and Exchange Commission for not uncovering his fraud, but at the same time blasted the agency for its failings.

“Despite our sympathy for plaintiffs’ predicament (and our antipathy for the S.E.C.’s conduct),” the investors claims are barred because of a law protecting government agencies from lawsuits related to their use of investigatory powers, the United States Appeals Court for the Second Circuit said.

Notwithstanding the S.E.C.’s “regrettable inaction,” the court added, the commission is shielded from a negligence suit. The ruling upheld the 2011 dismissal of the case by the trial court judge in 2011.

The S.E.C. and other government agencies are protected by an exception to a law — the Federal Tort Claims Act — that allows citizens to sue the United States. The exception, in fact, is an “exception to an exception,” because the act is an exception to sovereign immunity law that typically immunizes the United States from suit.

A group of Madoff investors blamed the S.E.C. for its grossly negligent oversight of Madoff’s investment business. Relying on the damning report by the S.E.C.’s inspector general on the case, the investors cited the S.E.C.’s failure on multiple occasions to respond to questions raised about the Madoff business. In recapping the plaintiffs’ allegation, the three-judge appeals panel highlighted the agency’s deficiencies in handling the Madoff case.

“Plaintiffs allege in detail approximately eight separate complaints the S.E.C. received regarding Madoff and the S.E.C.’s inadequate and often incompetent response to each,” the court wrote. “As a result of the S.E.C.’s repeated failure to alert other branch offices of ongoing investigations, properly review complaints and staff subsequent inquiries, and follow up on disputed facts elicited in interviews, the S.E.C. missed many opportunities to uncover Madoff’s multibillion-dollar fraud.”

Mr. Madoff, 74, is serving an 150-year sentence in a federal prison in North Carolina after admitting in 2009 to orchestrating the largest Ponzi scheme in history.

Article source: http://dealbook.nytimes.com/2013/04/10/court-expresses-antipathy-for-s-e-c-in-handling-of-madoff-case/?partner=rss&emc=rss

Gotham: Cuomo Pick Played Role in Calamity

A few years back, behind on their bills, the Saint-Jeans sought to refinance their mortgage with Emigrant Mortgage Company, a subsidiary of a bank established to help immigrants in a new land.

Emigrant refinanced without ever looking at their income, extending them a most risky loan that goes by the deceptively gentle name NINA (No Income, No Assets). The Saint-Jeans’ interest rate jumped to 11.75 from 7.25 percent, and they faced monthly payments that the couple said were equal to 80 percent of their income.

Their broker, they said, promised their rate would drop back to 6 percent. That did not happen. Instead, when the Saint-Jeans were late on a payment, it jumped to 18 percent.

That they now face foreclosure is unremarkable. Millions of Americans received toxic loans.

But Emigrant, as it happens, handed out a striking number of these problematic deals, leading to a spate of foreclosures in black and Latino neighborhoods. Emigrant is owned by Howard P. Milstein, a real estate developer, philanthropist and political donor. He showered $100,000 on Andrew M. Cuomo’s gubernatorial campaign.

Late last month, Mr. Cuomo nominated him as chairman of the State Thruway Authority. The State Senate will consider the nomination on Wednesday.

“Mr. Milstein’s world-renowned experience will help turn around an agency that had long been known for inefficiency and inaction,” says Josh Vlasto, a Cuomo spokesman.

Mr. Milstein’s spokesman said that his banking record was exemplary, and that to question it bordered on recklessness.

Well, O.K. , let’s take a closer look.

Mr. Milstein, who declined to be interviewed, is a generous charitable giver. To be fair, his bank was not alone in handing out questionable loans. To walk the streets of Manhattan is to find evidence that pursuit of wealth is a consuming preoccupation

I marvel, though, at the indignation with which the city’s wealthiest greet skeptical questions about actions the past few years. Many bankers have a glow of health, but hundreds of thousands of New Yorkers — and millions of Americans — look very sickly still.

TAXPAYERS treated banks kindly. During the financial crisis, Emigrant changed its tax status so it could receive a $267 million federal bailout. Fitch Ratings upgraded Emigrant from negative to stable, but Emigrant has yet to repay a dime.

Mr. Milstein’s spokesman said the Federal Deposit Insurance Corporation gave Emigrant satisfactory marks for investing in low-income neighborhoods and praised its no-income loans as innovative. The F.D.I.C., however, is free with such kisses — it gave satisfactory ratings to some of the worst predatory lenders of the past decade.

South Brooklyn Legal Services, which has sued Emigrant on behalf of the Saint-Jeans, says it found that in 2008 Emigrant made 1.5 percent of all the refinance loans in the city, but accounted for 30 percent of the risky no-income loans. The result was calamitous. That year, 83 percent of the bank’s foreclosures were on loans originated during the previous two years.

In a statement to The New York Times, Emigrant disputed these statistics as inaccurate and misleading but did not provide specifics. The bank, in legal papers, says it never engaged in predatory lending or discrimination and dismissed the Legal Services lawsuit as a tirade against subprime lending.

Emigrant also awarded lucrative bounties to agents who persuaded homeowners to take a high-interest loan — the Saint-Jeans’ broker received a payment of $1,387.

Mr. Cuomo served as housing secretary during the Clinton administration and spoke eloquently against such practices. It was unethical, he said then, for borrowers to unwittingly pay higher rates to cover bonuses. (His language proved stronger than his actions; under pressure from mortgage bankers, he declined to outlaw such practices).

All of which brings us back to the Saint-Jeans. He works at a public library, she as a health care worker, and they have four daughters. They have owned their home since 1995, and nearly all of their savings are tied up in it.

“Always we have a dream of owning a house,” he says. “Now I wake up in the morning feeling like I am choking.”

E-mail: powellm@nytimes.com

Article source: http://feeds.nytimes.com/click.phdo?i=33432fefe471015dfeb8ca3cdec31cd0

Mexico Takes Aim at a Titan in Telecom

But over the last few weeks, a series of developments is threatening to chip away at Mr. Slim’s dominance.

First, Mexico’s antitrust agency imposed a $1 billion fine on the wireless company Telcel, the local unit of Mr. Slim’s pan-Latin company América Móvil. Then, at the end of last month, the Mexican congress approved a tough new antimonopoly law that raises fines for monopolistic practices and permits prison terms for executives who have been found to engage in them.

Last week, a Supreme Court ruling halted a legal maneuver that Mr. Slim’s companies had used to fight lower tariffs. The decision gives new heft to the country’s telecom regulator as it begins to slash the high interconnection fees that América Móvil charges other companies.

The flurry of activity after years of inaction suggests that at last Mexican authorities may be willing to challenge Mr. Slim and make good on their pledge to provide a more competitive environment for the telecommunications industry.

The actions also send a signal to other large companies in Mexico that they too may soon come under closer scrutiny. For years, powerful companies have resisted regulation by tying up rulings in the courts and using their political influence.

It is too early to tell, though, how effective the efforts will be and whether they will stick.

América Móvil’s Mexican units, the mobile carrier Telcel and the fixed-line firm Telmex, will continue their legal challenges, and analysts say the fine may not be paid for years, if ever. Meanwhile, Telmex now claims more than 80 percent of all fixed lines and Telcel more than 70 percent of wireless phones.

Despite the new antitrust law, Mexican lawmakers and regulators have stalled on other measures to haul telecommunications rules into the 21st century.

And as the July 2012 general election approaches, political support for tougher regulation against Mr. Slim — widely reported to be the world’s wealthiest man — and other magnates may wane as parties jockey for support from the business elite. (Mr. Slim is the second-largest shareholder in The New York Times, behind the Sulzberger family, and in 2009 extended a $250 million loan to The Times, which the company says it intends to repay in early 2012.)

“The big companies believe that when the law is applied to them it’s because of personal animosity and that the law only applies to their enemies,” said Eduardo Pérez Motta, the president of the Federal Competition Commission, which imposed the billion-dollar fine. “They think it is a country of favors, friendships and privileges.”

Executives at Mr. Slim’s companies argue that they benefit the Mexican people by reaching the country’s poorer communities, while their competitors want to sell only to the rich. Indeed, in almost half of the country, Telmex is the only company with any infrastructure at all, because its concession requires it to be there.

In public appearances, Mr. Slim responds to questions about monopoly power by arguing that he has taken on powerful international competitors such as ATT and that there are multiple players in the Mexican market. He often hands out charts showing how Mexico compares favorably to many other developing countries in mobile coverage, and argues that international studies showing that Mexico’s prices are high are skewed by exchange rates. He also says that he faces a barrier because regulators refuse to grant him a pay-TV license, while cable companies now compete with him by offering phone and Internet service.

Business competition is viewed as an important issue for Mexico’s economic future. Studies from the World Bank and the Organization for Economic Cooperation and Development suggest that Mexico’s monopolies stunt its growth. Although the economy expanded an estimated 5 percent in the first quarter, that pace still lags other large Latin American economies.

Big companies control many basic goods and services, including cement, beer, corn flour, and medicine distribution. The resulting high prices, Mr. Pérez Motta argues, harden Mexico’s gap between rich and poor because it forces poor families to spend more of their income on staples.

It is the fight over telecommunications, though, that has grabbed the recent attention.

Article source: http://feeds.nytimes.com/click.phdo?i=26c62be516da32bfb923510b928a63b6