In context

US settlements and prosecution: SAC Capital, JPMorgan and Bank of America

December 9, 2013
In context

The US has seen some major developments in settlements and prosecution in the past two months, particularly with SAC Capital, JPMorgan and Bank of America.

SAC Capital – largest settlement ever on insider trading
SAC Capital pleaded guilty to charges on insider trading and agreed to a USD 1.8 billion penalty. Under the agreement, the SAC companies will pay a fine of USD 900 million in the criminal case and, in the civil forfeiture and money laundering action, forfeit an additional USD 900 million to the US Treasury, bringing the total amount to USD 1.8 billion. SAC companies have already agreed to pay the SEC USD 616 million, that amount will be credited and therefore the SAC companies have to pay an additional amount of approximately USD 1.2 billion in criminal fines.


SAC agreed to plead guilty to four counts of securities fraud and four counts of wire fraud, one for each of the four SAC units that were charged. The settlement also provides that the SAC units involved and their affiliates will no longer accept outside investor funds and will shut down investment advisory operations. The settlement agreement enters into effect after approval by the court hearing the criminal case. The settlement does not provide for immunity from prosecution for individual defendants.


JPMorgan settles for record USD 13 billion
JPMorgan settled for USD 13 billion with the U.S. Department of Justice. It is the largest settlement ever between the US government and a corporation. This settlement does not release any individuals from civil charges, nor does it release JPMorgan or any individuals from potential criminal prosecution. The settlement includes a USD 9 billion payment to settle federal and state civil claims by various entities related to residential mortgage-backed Securities.


In November, JPMorgan reached a tentative USD 4.5 billion settlement with 21 major institutional investors over mortgage-backed securities sold to them before the 2008 crisis. This tentative deal, which requires approval by both a court and trustees overseeing the securities, is unrelated to the USD 13 billion settlement. In addition, as part of the settlement, JPMorgan has pledged to fully cooperate in investigations related to the conduct covered by the agreement. Whether these inquiries will indeed lead to the prosecution of certain bank employees remains to be seen.


Bank of America found guilty for selling defective loans
US prosecutors believe that Bank of America (“BoA”) should pay the maximum amount of penalties allowed under law, amounting to USD 863 million. US prosecutors are filing charges against BoA for selling defective loans to Fannie Mae and Freddie Mac.


The amount reflects the gross losses incurred by Fannie Mae and Freddie Mac with resulted from the “Hustle” program. Hustle was a lending program by BoA’s unit Countrywide, allegedly linking bankers’ bonuses to the speed with which they could originate loans. This case follows close on the heels of JPMorgan’s tentative settlement mentioned above.


A New York federal jury has already found BoA liable for selling defective loans, but the court still has to rule on the amount of the penalty. The hearing date was set for 5 December 2013.

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