Banking Law Prof Blog

Bank Enforcement Focus

Banking lawyer Thomas P. Vartanian and Dominic Labitzky, an associate in Vartanian's Washington law firm - Fried, Frank, Harris, Shriver & Jacobson LLP, have published the first of a semi-annual analysis of Bank Enforcement Trends in the June 4, 2007, edition of BNA's Banking Report.

Vartanian and Labitzky find that the federal banking agencies have focused primarily on enforcement actions involving Bank Secrecy Act compliance (especially reviewing the effectiveness of compliance programs and the timeliness of Suspicious Activity Report filings); institution-affiliated party transactions; and data security issues. 

This analysis is well worth the attention of bankers and their lawyers.  The prediction that future enforcement actions will continue to be dominated by a focus on BSA/SAR compliance is coupled with a discussion of new attention to subprime mortgage lending.  Check it out! 

(ag) June 15, 2007, in Enforcement

FDIC Whips Up On the Bad Guys

During December 2006, FDIC entered 26 enforcement Orders:  7 removal and prohibition orders; 11 civil money penalty orders; 5 cease and desist orders, 1 termination of an order to cease and desist, 1 order terminating insurance and 1 modification of an order.

Link to FDIC's Press Release dated yesterday:  http://www.fdic.gov/news/news/press/2007/pr07012.html

(ag) Feb. 9, 2007, in Enforcement

Advising Bank Directors? This Should Get Their Attention!

The Federal Reserve announced an Order of Prohibition against the former President, CEO and Director of Exchange Bank of Missouri, Fayette, Missouri.

The Consent Order was based on alleged participation in violations of law, unsafe and unsound banking practices, and breaches of fiduciary duty in connection with reports to bank management and board of directors relating to the delinquency status of loans, loan documentation, property appraisals, and loan purpose statements.

Link:  http://www.federalreserve.gov/boarddocs/press/enforcement/2007/20070201/attachment.pdf

(ag) Feb. 6, 2007, in Enforcement

First Bank Failure Since 2004

Metropolitan Savings Bank, Pittsburgh, PA, was closed Friday, Feb. 2, 2007 by the State of Pennsylvania Banking Department.  FDIC was appointed Receiver and promptly arranged a Purchase & Assumption Transaction (P&A), pursuant to which all insured deposits were transferred to Allegheny Valley Bank of Pittsburgh.  The failed bank had assets of $15.8 million and $12 million in deposits.  Allegheny paid a premium equal to 6% of the deposits acquired through the P&A.  There were 70 accounts with deposits that appear to be over the FDIC-insured limit.

This is the first insured bank failure since June 25, 2004.

Link:  http://www.fdic.gov/bank/individual/failed/metropolitansb.html

(ag) Feb. 5, 2007, in Enforcement

Flood Insurance CMP

The Federal Reserve and Pacific Mercantile Bank entered into an agreed Civil Money Penalty Order stemming from violations of the National Flood Insurance Act.  The amount -- $6,850 -- is small, but it's a heads-up about Flood Insurance as a current exam focus.

Link:  http://www.federalreserve.gov/boarddocs/press/enforcement/2007/200701242/default.htm

(ag) Jan. 27, 2007, in Enforcement

Gatekeepers

Check out the 2006 book by John C. Coffee, Jr., Adolf A. Berle Professor of Law, Columbia Law School.  GATEKEEPERS explores the role of professionals, including attorneys, auditors, analysts, and rating agencies, in recent corporate scandals.  He includes consideration of the most relevant question:  "What Should Work? (And How to Get There).

In the banking world, of course, these "gatekeepers" can also known as "Institutional Affiliated Parties" -- with levels of potential liability that can certainly capture one's attention.

(ag) Dec. 15, 2006, in Enforcement

Uh, Oh for Auditors - FNMA Sues KPMG

Fannie Mae (Federal National Mortgage Association) announced Dec. 12, 2006, that it has filed suit against its former outside auditing firm, KPMG LLC.  The complaint, filed in Superior Court of the District of Columbia, alleges negligence and breach of contract.  A copy of the complaint is available on Fannie Mae's website.

Link:  http://www.fanniemae.com/newsreleases/2006/3877.jhtml;jsessionid=OJCPKU1VUJBL3J2FQSISFGA?p=Media&s=News+Releases

(ag) Dec. 13, 2006, in Enforcement - for lack of a better category & based on the SEC's earlier action vs. Fannie Mae

Grant Thornton Fined $300,000 in connection with Keystone Audit

IAPs take note:  The accounting firm Grant Thornton LLP is the subject of Civil Money Penalties totalling $300,000 arising out of its "reckless" conduct of the 1998 audit of First National Bank of Keystone.  OCC's Press Release dated Dec. 8, 2006, says that Grant Thornton ignored “unequivocal, written evidence” that nearly 25 percent of the bank’s assets could not be accounted for.

Link:  http://www.occ.treas.gov/ftp/release/2006-132.htm

(ag) Dec. 8, 2006, in Enforcement

Counseling Clients About Individual Liability

FDIC's "Supervisory Insights" includes a three-part series on Enforcement Actions Against Individuals.  Part One is an Overview of the Enforcement Process. Part Two provides Case Studies.  Part Three details FDIC Enforcement Actions Against Individuals During Calendar Year 2005, focusing on losses to financial institutions and the importance of oversight at all levels to prevent and detect fraud. 

Link: http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum06/article03_enforcement.html

(ag) Nov. 12, 2006, in Enforcement

Options Backdating - SEC Perspective

The Senate Finance Committee and the SEC are looking into 100 matters involving executive compensation and options backdating.  Pictured are Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Democratic Member Max Baucus (D-MT).

For an update on the SEC's pursuit of options backdating investigations & the lessons to be learned, see the Oct. 30, 2006, speech by SEC's Enforcement Division Director, Linda Chatman Thomsen.  Link:  http://www.sec.gov/news/speech/2006/spch103006lct.htm

Thomsen testified before the Senate Finance Committee on this same issue in September.  Link to Senate Hearings on "Executive Compensation:  Backdating to the Future/Oversight of current issues regarding executive compensation including backdating of stock options; and tax treatment of executive compensation, retirement and benefits":  http://www.senate.gov/~finance/sitepages/hearing090606.htm

(ag) Nov. 7, 2006, in Enforcement

How Bad Are the Bad Boys Or Girls? (no gender bias implied)

FDIC has posted an analysis of 84 Enforcement Actions Against Individuals in 2005.  The article recognizes that the motives for fraud include:  securing personal gain, concealing the deteriorating condition of a borrower, protecting position and employment.  Board oversight of senior management is critical.  Fraud by senior management accounts for 80% of the total fraud losses.

Link:  http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum06/article03_enforcement.html

(ag) Oct. 26, 2006, in Federal Banking Agencies-FDIC/Enforcement