Financial Integrity

Dodd-Frank Act Enforcement Limited as Rules and Guidance Delayed

Since the Dodd-Frank Act (the Act) became law almost one year ago, U.S. government agencies have had a difficult time creating the rules and regulations called for in the Act. Presently, only 21 of the 387 sets of rules called for by the Act have been finalized and no agency has met any of the 26 related deadlines set for April. The Securities and Exchange Commission (SEC), which is responsible for most of the regulations called for in the Act, has only finished 6 rules, missed 11 deadlines, and is still responsible for an additional 50 sets of rules. This slow pace has prevented the SEC and the Commodity Futures Trading Commission from enforcing bounty payments for whistleblowers who reveal financial fraud.
Wall Street Journal: Overhaul Grows and Slows (2 May 2011)
(Source: Wall Street Journal)

RBI Penalises Bhuj Co-operative Bank
Asia Pacific

The Reserve Bank of India (RBI) has fined The Bhuj Co-operative Bank Ltd. 500,000 Rupees for violating RBI instructions including those relating to “know your customer” norms, anti-money laundering guidelines, and temporary overdrafts.
RBI’s media release (25 April 2011)
(Source: RBI)

RBI Penalises 19 Banks for Derivatives Contraventions
Asia Pacific

The Reserve Bank of India (RBI) has imposed penalties ranging from 500,000 to 1.5 million Rupees on 19 local and foreign-owned banks for contravening the RBI’s instructions in respect of derivatives.

The infringements included:

  • “failure to carry out due diligence in regard to suitability of products”;
  • “selling derivative products to users not having risk management policies”; and
  • “not verifying the underlying/adequacy of underlying and eligible limits under past performance route”.

RBI’s media release (26 April 2011)
(Source: RBI)

Bank to Pay US$400,000 to Ponzi Victims for Failures

The US Department of Justice (DoJ) has announced that CommunityONE Bank has agreed to pay US$400,000 to compensate victims of a Ponzi scheme that operated through the bank due to its failure to file a suspicious activity report (SAR) and maintain an anti-money laundering program. Bank customer Keith Franklin Simmons ran a US$40 million Ponzi between 2007 and 2009 through his account, however the bank failed to file an SAR despite hundreds of suspicious transactions being carried out in that period. Simmons also diverted more than US$2 million to his other business accounts and almost US$800,000 for personal use.
DoJ’s media release (27 April 2011)
(Source: DoJ)

Derivitives Lawsuit Filed Against Buffett and Sokol Connected to Lubrizol Trading

A shareholder of Berkshire Hathaway has sued the Company’s chairman, Warren Buffett, as well as a former executive, David Sokol, and has accused both men of wrongdoing as a result of stock trading done by Mr. Sokol. Earlier this year, Mr. Sokol personally purchased $10 million worth of stock in a company called Lubrizol. Shortly after purchasing the stock, Mr. Sokol brought Lubrizol to the attention of Mr. Buffett as a potential acquisition target. Berkshire Hathaway then announced it had agreed to buy Lubrizol in March, causing the company’s stock to soar and Mr. Sokol’s holdings to increase by $3 million. The shareholder’s lawsuit alleges that Mr. Sokol’s stock purchase violated his duties to Berkshire Hathaway and requests that the Delaware court disgorge Mr. Sokol’s profits from the trade and award damages to Berkshire Hathaway’s shareholders. While this is the first action brought as a result of Mr. Sokol’s trading, the Securities and Exchange Commission (SEC) has opened an investigation into whether Mr. Sokol’s actions violated any securities laws.
New York Times: Buffett and Sokol Sued Over Trading in Lubrizol Shares (19 April 2011)
(Source: New York Times)