Whistleblower News: SEC Issues Third Whistleblower Award this Month & CFTC Clamps Down on Insider Trading
WHISTLEBLOWER QUOTE OF THE DAY:
“The recent flurry of awards reflects the high-quality nature of the tips the SEC is receiving as public awareness of the whistleblower program grows.”
— Sean McKessy, chief of the SEC’s Office of the Whistleblower
DAILY WHISTLEBLOWER HEADLINES:
Bank of America wins reversal of $1.27 billion penalty in U.S. mortgage case
A U.S. appeals court on Monday threw out Bank of America's $1.27 billion penalty in a fraud case over defective mortgages, dealing the U.S. Justice Department a major setback in a lawsuit related to the 2008 financial crisis.
The 2nd U.S. Circuit Court of Appeals in New York said the proof at trial was insufficient under federal fraud statutes to establish liability in connection with the "Hustle" mortgage program, which was run at the former Countrywide Financial.
Bank of America, in a statement, said it was pleased with the ruling. A spokesman for Manhattan U.S. Attorney Preet Bharara, whose office oversaw the lawsuit and took it to trial, had no immediate comment.
The ruling overturns a 2013 jury verdict in a lawsuit by the Justice Department against Bank of America, which bought Countrywide in July 2008, and Rebecca Mairone, a former midlevel Countrywide executive.
The jury found the bank liable for Countrywide's sale of shoddy loans originated by its "High Speed Swim Lane" program, also called HSSL or Hustle. The loans were sold to mortgage finance giants Fannie Mae and Freddie Mac
The Justice Department contended the program rewarded staff for generating more mortgages and emphasizing speed over quality, and resulted in Fannie Mae and Freddie Mac being lied to about the quality of loans they bought.
The government seized both companies during the financial crisis and put them into conservatorships.
Following the verdict, U.S. District Judge Jed Rakoff in 2014 imposed a $1.27 billion penalty on Bank of America and ordered Mairone to pay $1 million.
The lawsuit was pursued under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), a law adopted after the 1980s savings and loan scandal. read more »
SEC announces third whistleblower award this month, two individuals split $450,000
The Securities and Exchange Commission awarded more than $450,000 jointly to two individuals Friday for a tip that led the SEC to open a corporate accounting investigation and for their help once the investigation was underway.
The whistleblower award is the third announced by the SEC during May, bringing the month's payouts to $10 million, the agency said.
“The recent flurry of awards reflects the high-quality nature of the tips the SEC is receiving as public awareness of the whistleblower program grows,” Sean McKessy, chief of the SEC’s Office of the Whistleblower, said in a statement Friday.
“These two individuals not only submitted valuable tips to help open our investigation but also provided valuable assistance as we proceeded," McKessy said.
On May 17, the SEC awarded between $5 million and $6 million to a whistleblower whose information led the SEC to uncover securities violations which would have been “nearly impossible to detect” without the company insider’s help.
The award was the third highest ever granted under the SEC whistleblower program since the program’s inception in 2011.
On May 13, the SEC awarded a whistleblower more than $3.5 million for producing evidence against his or her company during an ongoing investigation "that strengthened the SEC's case."
By law, the SEC has to protect the confidentiality of whistleblowers and not disclose information that might reveal a whistleblower’s identity.
The agency has now awarded more than $68 million to 31 whistleblowers since the program started in 2011. read more »
Bone cement company blamed in Plano death accused of ‘human experimentation’
Reba Golden hurt her back after falling two floors while building an addition to her house in Honduras. But when she returned to Seattle for a routine spinal surgery, she suffered blood clots, severe bleeding and died in 2007 on the operating table.
Joan Bryant’s back had bothered her since a car accident, so in 2009 she sought help from a Seattle spinal surgeon, but she bled out and could not be revived.
Like at least three spinal surgery patients before them — including a woman in Plano — Golden and Bryant died after their doctor injected bone cement into their spine and some of the material leaked into their bloodstream, causing clotting.
The patients were never told that Norian bone cement wasn’t approved by the Food and Drug Administration. Instead, Norian and parent company Synthes used surgeons in what one doctor called “human experimentation.” Federal prosecutors say the aim was to skirt a long, costly regulatory process.
The Golden and Bryant families have filed lawsuits against Dr. Jens Chapman, the companies, the University of Washington, Harborview Medical Center and Washington state. The lawsuits say that Chapman knew the cement caused lethal clotting and that the university and hospital knew or should have known the product had been prohibited for such use. The first trial is scheduled for June in Seattle.
Synthes and Norian had been sued before. In 2012, they were accused of wrongful death and negligence by the family of an Oklahoma woman who died at the Texas Back Institute in 2003.
A surgeon injected the bone cement into the spine of Lois Eskind, 70, while a sales representative for the companies watched, court records show. The product leaked into Eskind’s veins and led to the clotting that killed her, according to the woman’s daughter. read more »
CFTC clamps down on insider trading in derivatives
When Arya Motazedi, an energy trader based in Miami, Florida, settled insider-trading charges with the US Commodity Futures Trading Commission (CFTC) on December 2, 2015, it marked the first successful prosecution of the crime in the agency's 41-year history – and the first time such charges had been filed under CFTC Rule 180.1, which implements the anti-manipulation authority granted to the commission by the Dodd-Frank Act. It could be the first of many. Asked whether the CFTC will bring more... read more »
Handicapping Insider Trading Case Against a Gambler
The case has all the ingredients to put the spotlight back on insider trading: a flawed corporate director accused of repeatedly leaking information to a high-rolling Las Vegas gambler that helped him realize about $40 million in gains and losses avoided, and passing along a tip about an impending corporate spinoff that helped a near-legendary professional golfer repay nearly a million dollars lost on bets.
Yet the charges may not be quite as easy to prove as they first appear.
The Justice Department charged William T. Walters, one of the most successful sports bettors in the country, with trading on information provided by Thomas C. Davis, a former investment banker who was chairman of the board of Dean Foods and a consultant in an activist campaign involving Darden Restaurants. Mr. Davis agreed to plead guiltyand is cooperating.
A lawyer for Mr. Walters said that he was “a true American success story, whose extraordinary accomplishments as a lawful sports gambler have been widely recognized and lauded” and planned to fight the charges.
The golfer is Phil Mickelson, winner of five major championships and a member of the World Golf Hall of Fame who was named as a “relief defendant” by the Securities and Exchange Commission in a parallel civil complaint. Although not accused of violating the law, Mr. Mickelson agreed to repay more than $1 million in profits and interest from trading in Dean Foods stock based on information provided by Mr. Walters.
This was his office’s first major insider trading prosecution since a federal appeals court overturned the convictions of two hedge fund managers in United States v. Newman in December 2014 that led to the reversal of a number of convictions.
The S.E.C., which must meet the same benefit requirement, stated in its complaint that Mr. Davis gave the information as a way of buying future favors from Mr. Walters, which he cashed in by getting financial assistance when his gambling debts grew larger. read more »
