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Wednesday, February 29, 2012

SEC SPOKESMAN ON LEARNING LESSONS REGARDING MONEY LAUNDERING COMPLIANCE

The following excerpt is from the SEC website:

“Broker-Dealer Anti-Money Laundering Compliance – Learning Lessons from the Past and Looking to the Future”
by
David W. Blass
Chief Counsel, Division of Trading and Markets
U.S. Securities and Exchange Commission
SIFMA Anti-Money Laundering & Financial Crimes Conference
February 29, 2012
The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission
or the staff of the Commission.

Introduction
Good Afternoon, I was honored to be asked to speak at this year’s anti-money laundering and financial crimes conference. I would like to thank Kevin Carroll and SIFMA’s AML committee for inviting me here and for SIFMA’s continued commitment over the years in promoting strong practices to combat money laundering.

Working on AML matters in my new role as Chief Counsel in the Division of Trading and Markets is in many ways a return to my roots at the SEC. I joined the Division almost a decade ago, as the primary attorney working in the AML area. Among other things, I represented the SEC during the 2006 FATF Evaluation of the United States and also participated in special due diligence rulemaking for correspondent and private banking accounts. While I have mainly been involved in other regulatory areas before returning to the Division, I’m pleased to be returning to this critically important and interesting area.
As you may know, my office is responsible for legal interpretations and policy issues relating to AML obligations for broker-dealers. Attorneys in the office work with our colleagues internationally, our fellow regulators domestically, in particular, Treasury, the Financial Crimes Enforcement Network, the U.S. Commodity Futures Trading Commission, and the banking agencies. We also work cooperatively with the industry on a variety of AML initiatives.

As I stated, I joined the SEC almost ten years ago, shortly after the passage of the USA PATRIOT Act.1 As I am returning to my original home at the SEC, it has caused me to reflect on the developments in the AML space during this time. I hope today’s talk will highlight the enormous strides made over the years, both by the industry and by regulators, in combating the abuse of the financial system by money launderers and criminal financiers. I also hope to highlight areas for further focus going forward.
Before I do, though, please let me remind you that my remarks represent my own views, and not those of the Commission, any individual Commissioners, or other members of the staff.

PATRIOT Act Transforms the AML Landscape for Broker-Dealers
Getting the basics right.
As we all know too well by now, the tragic events of September 11, 2001, were a watershed moment for the country and for the US financial service industry’s AML and counter-terrorist financing obligations. However, 9/11 was not the beginning of the story for the securities industry in the AML area.

Broker-dealers have been subject to many aspects of the Bank Secrecy Act since it was adopted in the 1970s.2 A focus on AML compliance has been part of the SEC’s program ever since, as evidenced by the early enforcement cases against a few broker-dealers for blatant violations of the Bank Secrecy Act’s currency reporting requirements.3
Still, while some aspects of AML compliance have long been applicable to securities firms, it was only in 2001 that broker-dealers became fully subject to anti-money laundering obligations with passage of the PATRIOT Act. In fact, within a few years of the President signing the PATRIOT Act into law, broker-dealers went from having basic reporting and recordkeeping obligations to a robust and complimentary set of obligations aimed at detecting and deterring money laundering and criminal financing. We at the SEC recognize that implementing those obligations was a significant challenge to the industry, requiring a considerable devotion of resources.

In the immediate aftermath of the PATRIOT Act, our primary focus was on trying to help firms get educated and started with their new AML obligations. In particular, our examiners focused on determining whether broker-dealers had fully implemented adequate AML programs, including identifying customers, detecting and reporting suspicious activity, and in certain cases, developing and implementing enhanced due diligence procedures.

Our enforcement actions from this period reflected that we were in the early days of firms’ AML understanding and compliance. Many firms were cited for failing on the basics. For example: some did not adopt and implement an adequate AML compliance program that complied with the basic AML requirements, including failing to designate an AML officer, to establish an AML training program, to perform basic customer identification, or to create suspicious activity monitoring procedures.4

Lessons learned -- filling out the contours and assessing the gaps
With the passage of time, all of the players – industry, regulators, and, likely, criminals – have become more sophisticated in their approach to AML. With this sophistication and experience, our expectations have changed, and frankly have increased, as is typically the case when a rule has been on the books for a while. As regulators, we have moved beyond the basic question of whether all the required parts are in place and generally functioning to a more nuanced approach addressing the rigor and effectiveness of a firm’s overall AML compliance structure. This evolution is reflective in the enforcement cases that have been brought by the SEC and FINRA over the last couple of years.

Take, for example, a recent action based largely on violations of CIP requirements, which, as you know, broadly require firms to obtain and verify certain identifying information about their customers. In the SEC’s enforcement action, the firm held master omnibus accounts for foreign entities, which in turn were subdivided into sub-accounts for other foreign entities.5 In this case, the holders of the sub-accounts were “customers” for CIP purposes because they were able to conduct unintermediated transactions directly on the US securities markets, but the firm failed to identify and verify the identities of the sub-account holders as required by the CIP rule. Merely calling an account an “omnibus” account did not relieve the firm of its CIP or other obligations with respect to the underlying customer of that account.

Of course, there are many legitimate account structures where it would be appropriate not to look through the account to the underlying accountholders for CIP purposes, and there is some guidance in this area that you may find helpful.6 What this enforcement action should make clear, however, is that we expect firms to look beyond the account label to the substance of their relationship with the underlying accountholders to determine whether those accountholders are in fact “customers” for purposes of CIP.
Moreover, even where firms adequately comply with CIP requirements, they must always consider the risks associated with grouped and other accounts, regardless of whether they are required to look through to the underlying customer for CIP purposes. A recent National Risk Alert on master/sub-accounts prepared by the SEC’s Office of Compliance Inspections and Examinations addressed some of these issues.7

We have also continued our focus on the adequacy of firms’ suspicious activity monitoring and reporting, which is an absolutely fundamental aspect of BSA compliance. As you know, the SAR rule requires reporting of transactions conducted or attempted “by, at or through” the broker-dealer, and we interpret this language broadly. Accordingly, firms should be monitoring any activity for red flags across their business lines, products, and transactions. Monitoring is not limited to “customer” activity or to certain types of transactions such as cash or securities movements. Instead, monitoring extends to all activity conducted “by, at or through” the broker dealer regardless of whether it is conducted by a “customer” of a firm for CIP or other purposes. So, for example, the fact that a trader in a subaccount may not be a “customer” for the CIP rule doesn’t mean that that trader’s transactions can be ignored for monitoring and reporting purposes. As part of this monitoring, we expect firms to have policies and procedures to resolve or report appropriate red-flags in a timely manner.

In one significant customer case brought by FINRA, a firm failed to obtain the names of the beneficial owners of a number of “high risk” accounts due to concerns that obtaining such information could cause the account holders to move their accounts elsewhere.8 This occurred despite repeated and ongoing requests from the firm’s counsel and the firm’s clearing firm to obtain the names of the beneficial owners before conducting transactions in the accounts. Turning a blind eye because of a fear of losing revenue is never an acceptable excuse for failing to fulfill a firm’s AML obligations or any other obligation under the federal securities laws or FINRA rules.

It is also important to note that suspicious activity monitoring and reporting is not only the responsibility of the firm but also individuals at the firm that are directly responsible for filing SARs on the behalf of the firm. The SEC and FINRA have brought a number of cases citing firms’ AML officers or Chief Compliance Officers for failing to follow up on red flags that are presented at the firm. These actions have resulted in significant fines, supervisory bars and industry suspensions.9

We have also become increasingly focused on how AML obligations interact with a broker-dealer’s other obligations under the securities laws and SRO rules, and with ensuring that firms do not silo information or take an overly narrow view of information that they have for other purposes. Firms should not view AML compliance as unrelated to their other obligations. AML obligations should be viewed as both complementary to and enhancing a firm’s compliance function. Firms should consider how to best leverage these corresponding requirements for a more holistic view of their risks. For example, a firm’s suitability and “know your customer” obligations require firms to obtain a significant amount of information about their customers that is useful in conducting the initial and ongoing customer due diligence necessary to assess the risk of and to adequately monitor an account for all suspicious activity, including securities fraud and other violations of the securities laws and SRO rules.

Learning from the Past to Predict the Future
The past ten years have clearly illustrated that AML compliance is not simply a “banking” issue or only a concern of “cash businesses.” Instead, it has affirmed our long-held belief that AML should be among the forefront of broker-dealers’ compliance concerns. The importance of AML compliance for us extends beyond money laundering and terrorist financing. AML compliance helps us detect and prevent securities fraud and other violations of the law. Accordingly, as we look forward, we will continue to emphasize the significance of this area in the securities industry to firms as well as to other regulators.
By looking back at the past ten years, we can also begin to identify some trends that I predict will manifest themselves in the future. Looking at the enforcement actions I have highlighted, it becomes clear that firms have been living under an expectation that they will be engaging in some form of due diligence of their customers and accounts.

While it is true that there currently is no rule that expressly requires due diligence in all instances, firms are required to have an AML program that at a minimum includes the establishment of policies and procedures reasonably designed to detect and cause the reporting of suspicious activity. It seems difficult to envision how a firm can comply with AML program or SAR responsibilities without having risk-based policies and procedures that allow firms to know who their customers are, what activities they may be reasonably expected to engage in, and also to have procedures to keep this information up to date over the course of the customer relationship. Of course, as SIFMA’s AML committee quite correctly explained in guidance issued in 2008, a firm’s AML program should be designed to permit firms the ability to make risk-based determinations about its customers, its customer’s source of income, and the customer’s expected activity.10 A firm should assess any risks associated with particular customers or transactions by evaluating its business to determine the likelihood that suspicious or potentially illegal activity will be present.11 This kind of common-sense approach to knowing who you are dealing with and what your dealings might reasonably entail should be no surprise to anyone in this room.
While I am on the topic of due diligence, I would like to take the opportunity to applaud David Cohen and his staff at Treasury and FinCEN for the issuance of the customer due diligence advance notice of proposed rulemaking earlier today. We in government should acknowledge and embrace our responsibility to speak clearly about our expectations for firms’ compliance. I believe Treasury’s ANPR can provide a solid roadmap of what a rule in this area could look like, or, at the very least, provide a starting point for discussions about that rule. It is my hope that any rulemaking for customer due diligence would further clarify regulatory expectations regarding this critical BSA obligation, and I encourage you to respond to the solicitation for comments.
As I mentioned, I do take seriously the responsibility to at least try to speak clearly about our expectations as regulators. I also believe we should be good listeners, to ensure that we understand the perspectives of all parties affected by our rules. While success is difficult to measure in this area, my goal is to strive to develop a productive, open relationship with the securities industry in dealing with AML concerns. I invite you to highlight for me and my team comments and concerns regarding the AML regime that are specifically targeted to the securities industry, in addition to those that cross industries. Identifying these issues is enormously helpful for us in working with Treasury, FinCEN, and other regulators in developing an effective AML regime.

To help us in this regard, I would like to let you know of a new initiative designed, at least in part, to enhance our understanding of how you comply with your AML obligations. We are partnering with the CFTC to establish a Capital Markets Working Group that will focus on money laundering vulnerabilities in the capital markets. Given the inherently complex and specialized nature of our capital markets, developing an accurate risk assessment requires the expertise and leadership of various public and private stakeholders, including regulatory agencies, the law enforcement community and representatives from the private sector. So we anticipate reaching out to some of you regarding this initiative. I would like to thank Chip Poncy, Katrina Carroll and Lawrence Scheinert, all from Treasury, for their strong support in this area. Also, I should thank the talented team of attorneys with vast AML expertise with whom I have the privilege of working with at the SEC for their continued dedication to all things AML.

Conclusion
To say the least, we have come a long way. But we could not have made such enormous strides in the area of broker-dealer AML compliance without the collective effort of the regulatory community and the securities industry participants.
I would also like to acknowledge you, as industry professionals, for your invaluable contribution to this shared effort. I know that success can often be difficult to measure in the AML area. An AML officer’s job might seem like a thankless job, but I am here to thank you. We in government appreciate the hard task that you and your firms face.
Thank you for the opportunity to speak today and for your giving me your time and attention. I would be happy to answer any questions.”
1

SEC COMMISSIONER DISCUSSES HOW SHAREHOLDER MONEY IS SPENT

The following excerpt is from the sec Website:

Shining a Light on Expenditures of Shareholder Money
by
Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
Practising Law Institute’s SEC Speaks in 2012 Program
Ronald Reagan Building and International Trade Center
Washington, D.C.
February 24, 2012
Good morning. It is my pleasure to be here today. This is my fourth SEC Speaks and my first after being sworn-in for a second term as an SEC Commissioner. I can report that the issues before the Commission and the magnitude of what is at stake remain of top concern, just as they have throughout my tenure. Before I begin, let me start by issuing the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the Securities and Exchange Commission, my fellow Commissioners, or members of the staff.

In thinking through how to use my time with you today, many issues immediately came to mind. To name just a few, I thought of discussing:

The SEC’s work on Title VII to regulate the security-based derivatives industry – what has been proposed and the longer list of what has yet to be adopted;
The SEC’s new no admit/no deny policy involving parallel criminal proceedings,1 and how it applies in so few situations that it needs to be revised to be more useful and effective; and
The lengthy delay in re-establishing the Investor Advisory Committee, a committee required by Dodd-Frank to amplify the voices of investors and ensure that the Commission is carrying out its core mission.
However, I decided to focus my time today on one issue – an issue that highlights the Commission’s fundamental responsibilities as a regulator.

The Commission’s core mission is to protect investors. William O. Douglas, a former chairman of the Securities and Exchange Commission, who went on to serve as a Supreme Court Justice, described the SEC’s role by contrasting it with a well-represented industry. Chairman Douglas said: “We’ve got broker’s advocates, we’ve got exchange advocates, we’ve got investment banker advocates, and we [the SEC] are the investor’s advocate.”2
Not much has changed since Chairman Douglas spoke those words at his first press conference as SEC Chairman in 1937. The industry, with its lobbyists and spokespeople, remains the loudest voice – in fact, one could say that things have gotten much worse. As a result, investors need an advocate today more than ever.3
Given that this is so, a true investor’s advocate would be focused on whether shareholders and investors receive adequate disclosure about the companies they own or may buy. In serving as an investor advocate, it is the responsibility of the Commission to promulgate rules to make sure that investors are armed with the appropriate information they need during each step of their investment decision – whether it is to buy, sell, or hold their securities, or to vote their securities. When it is clear that investors are in the dark and not receiving adequate disclosures, the Commission should act, and act swiftly, to ensure that investors have the information they require.

Background of Citizens United
I want to illustrate this point by looking at an issue that dominates the headlines on a daily basis. And that is the undisclosed corporate campaign spending arising from the Supreme Court’s decision in Citizens United v. Federal Election Commission.4 In January 2010, the Supreme Court struck down federal restrictions on the ability of corporations “to use general treasury funds to make campaign expenditures defined as an ‘electioneering communication’ or for speech expressly advocating the election or defeat of a candidate.”5 The Court was quick to also say “[t]he Government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress speech altogether.”6
Fundamental Deprivation
The ramifications of this decision and its resulting impact on campaign finance laws and practices have been significant and swift.
For example, it has been reported that outside groups spent four times as much in 2010, after the Citizens United decision, as compared to in 2006.7 A recently released poll found Americans across all parties oppose the ruling; and among all voters, 62% oppose the decision.8 President Obama described the impact of the Supreme Court’s decision as
… dealing a huge blow to [our] efforts to rein in this undue influence. In short, this decision gives corporations and other special interests the power to spend unlimited amounts of money – literally millions of dollars – to affect elections throughout our country. This, in turn, will multiply their influence over decision-making in our government.9

As to whether or not corporations should be making political contributions at all, that is a question I will leave to other agencies, corporations, institutions, and to the American public at large.
I want to focus on the shareholders of corporations and how they are often in the dark as to whether the companies they own, or contemplate owning, are making political expenditures. Withholding information from shareholders is a fundamental deprivation that undermines the securities regulatory framework which requires investors receive adequate and appropriate information, so that they can make informed decisions about whether to purchase, hold, or sell shares – and how to exercise their voting rights. Investors are not receiving adequate disclosure, and as the investor’s advocate, the Commission should act swiftly to rectify the situation by requiring transparency.

Many interested parties have weighed in and enumerated significant reasons for requiring these disclosures.10 These reasons include, but are not limited to, the following:
Investors may not want to invest in companies that engage in any political expenditure.
Individual investors may want to avoid investing in a company whose political spending advances causes or candidates with which that investor disagrees.

To ensure that political spending decisions do not further the interests of corporate managers at the expense of shareholder interests. On this topic, John Bogle, founder of Vanguard, has stated, “corporate managers are likely to try to shape government policy in a way that serves their own interests over the interests of their shareholders.”11

The view that when corporations are able to obtain favorable conditions through political influence, rather than meritoriously adding value through a better product or service, it distorts the operation of the marketplace, which undercuts capital formation.
A lack of transparency regarding political expenditures directly fosters destructive pay-to-play corruption. As just one example, nearly half the states have adopted pay-to-play bans, after corruption scandals revealed government officials demanding corporate payoffs in exchange for public contracts.12
Despite the abundance of reasons investors have for requiring this information and the transparency it would provide, the fact remains that no comprehensive disclosure framework exists.
There are tens of thousands that have urged the Commission to address this issue, ranging from investors, academics, non-profits, state treasurers, and businesses.13 To highlight just a few of the requests, in August 2011, ten law professors from distinguished universities across the country filed a petition for rulemaking requesting that the Commission promulgate rules to require that public companies disclose political expenditures.14 The Commission has also received letters from Members of Congress,15 from elected government officials with fiduciary responsibility for nearly one trillion dollars in pension fund assets,16 and from a coalition of United States Senators.17 Each of these letters asked the Commission to take action to require public disclosure of corporate political spending.

In November 2011, a coalition of asset managers and investment professionals representing over $690 billion in assets wrote to the SEC to express their strong support for the SEC to promulgate rules requiring corporate political transparency. This coalition lamented that corporate political expenditures “may be subject to a variety of state and federal rules, but there are no current rules that require that companies disclose this spending to their shareholders, and there are significant gaps in the type of spending that is required to be disclosed to anyone.”18

In a separate letter, the Council for Institutional Investors described the fundamental issue as
Shareowners have a right to know whether and how their company uses its resources for political purposes. Yet the existing regulatory framework creates barriers to this information. Disclosure is either dispersed among several regulatory authorities or entirely absent in cases where political spending is channeled through independent organizations exempt from naming donors.19
Ted Wheeler, the State Treasurer of Oregon, and a vocal advocate for rules regarding corporate disclosure of political donations, stated “[c]ompanies have the ability to spend heavily on political causes and they have the right to do so. However, corporations also have the ability to obscure that spending from shareholders, such as Oregon beneficiaries of trust funds . . . That’s wrong.”20 It is troubling that many companies are funding political campaigns without their shareholders’ consent or even knowledge.
Evidence of Investors Trying to Obtain the Information

The importance of this topic to shareholders is evident. The Commission itself has received tens of thousands of letters requesting that it take action.21 The record is replete with examples and evidence of investors trying to obtain information regarding corporate political expenditures.

For example, in 2011, out of the 465 shareholder proposals appearing on public company proxy statements, 50 proposals were related to political spending.22 In fact, more proposals of this type were included in proxy statements than any other type of proposal.23 During the 2011 proxy season, 25 of the companies in the S&P 100 included proposals on their proxy statements requesting disclosure of corporate spending on politics.24

The demand from investors has been so significant that large public companies have increasingly agreed to adopt policies requiring disclosure of companies’ political expenditures. In the S&P 100, this number has risen from a trivial level in 2004 to close to 60% by 2011. However, it is important to keep in mind that while some companies are voluntarily providing disclosures, many others are not. In addition, the disclosure that is provided is not uniform and may not be adequate.
Unfortunately, there is no comprehensive system of disclosure related to corporate political expenditures – and that failure results in investors being deprived of uniform, reliable, and consistent disclosure regarding the political expenditures of the companies they own.

This is a Core Responsibility of the SEC
Arming investors with the information they need to facilitate informed decision-making is a core responsibility of the SEC. In fact, it is one of the factors that led to the creation of the SEC. It is one of the SEC’s core functions to identify gaps in information that investors require, and then close that gap as quickly as possible.
Shareholders require uniform disclosures regarding corporate political expenditures for many reasons, including that it is impossible to have any corporate accountability or oversight without it. The Supreme Court recognized that need. For example, even as it struck down restrictions on corporate campaign contributions, the Supreme Court cited “[s]hareholder objections raised through the procedures of corporate democracy”25 as a means through which investors could monitor the use of corporate resources on political activities. The Court envisioned that
… prompt disclosure of expenditures can provide shareholders and citizens with information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “in-the-pocket” of so-called moneyed interest.26
Unfortunately, the Court envisioned a mechanism that does not currently exist.
This is not the first time that the Commission has been faced with a lack of transparency regarding political expenditures. In 1999, the Commission proposed a pay-to-play rule in direct response to egregious pay-to-play conduct by investment advisers that had harmed investors with sweetheart deals and bribes.27 The egregiousness of the conduct and the need for new rules was clear. It was obvious that depending solely on the SEC’s ability to use its anti-fraud authority would be too little, too late. However, the pay-to-play rule was shelved – lost to the wasteland where un-adopted SEC rule proposals go. It took a decade of scathing scandals, egregious fraud, and significant harm, before the Commission made pay-to-play a priority, and acted on it in 2010.28 If the Commission had adopted new rules in 1999, it is likely that much of the tremendous harm of the pay-to-play scandals from the last decade could have been averted. The cost of Commission inaction – particularly in the face of compelling evidence for the Commission to act – can be devastating, as we have seen over and over again.

Requiring transparency for corporate political expenditures cannot wait a decade. It is the Commission’s responsibility to rectify this gap and ensure that investors are not left in the dark while their money is used without their knowledge or consent. The Commission should provide for disclosure of corporate political expenditures that results in uniform and consistent disclosure.

Conclusion
As Commissioners, it is crucially important that we listen, and respond, to the needs of investors. The Commission receives investor input in various forms, from comment letters on proposed rulemakings, to formal rulemaking petitions. Unfortunately, the voices of investors are often drowned out by the louder, better-funded, and often better-connected voices of issuers, financial institutions, and corporate lawyers. When that happens, it is incumbent upon us to not only remember, but also make evident by our actions, that the fundamental mission of the SEC is to protect investors.
In closing, I want to thank you for your kind attention.
I also want to thank the many SEC staffers who are participating at this year’s SEC Speaks – as well as the many others who devote themselves to the protection of investors. I am proud to work at their side.
Thank you.”

FDIC INSTITUTIONS HAD BEST YEAR IN 2011 SINCE 2006

The following excerpt is from an FDIC e-mail:

FDIC-Insured Institutions Earned $26.3 Billion in the Fourth Quarter of 2011
Full-Year Net Income of $119.5 Billion Is Highest Since 2006

 FOR IMMEDIATE RELEASE
February 28, 2012

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $26.3 billion in the fourth quarter of 2011, a $4.9 billion improvement from the $21.4 billion in net income the industry reported in the fourth quarter of 2010. This is the 10th consecutive quarter that earnings have registered a year-over-year increase. As has been the case in each of the past nine quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings.

FDIC Acting Chairman Martin J. Gruenberg said that "2011 represented the second full year of improving performance by the banking system. Banks reported higher positive aggregate earnings, the numbers of 'problem' banks and failures declined, and loan balances increased in the final three quarters of the year." He also noted that "insured institutions of all sizes continued to make substantial progress in improving their profitability."

A majority of all institutions (63 percent) reported improvements in their quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 18.9 percent from 27.1 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.76 percent from 0.64 percent a year ago.
Fourth-quarter loss provisions totaled $19.5 billion, about 40 percent less than the $32.7 billion that insured institutions set aside for losses in the fourth quarter of 2010. Net operating revenue (net interest income plus total noninterest income) was $3.8 billion (2.3 percent) lower than a year earlier, due to a $4.4 billion (7.4 percent) decline in noninterest income.

Asset quality indicators continued to improve as insured banks and thrifts charged off $25.4 billion in uncollectible loans during the quarter, down $17.1 billion (40.2 percent) from a year earlier. Noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a seventh quarter, but the percentage of loans and leases that were noncurrent remained higher than in previous crises.

Financial results for the fourth quarter of 2011 and the full year are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Also among the findings:

Growth in loan portfolios continued. Loan balances posted a quarterly increase for the third quarter in a row. Total loans and leases increased by $130.1 billion (1.8 percent), as loans to commercial and industrial borrowers increased by $62.8 billion, residential mortgage loan balances rose by $26.0 billion, and credit card balances grew by $21.3 billion.

Money continued to flow into insured deposit accounts. Deposits in domestic offices increased by $249.7 billion (2.9 percent) during the quarter. More than three-quarters of this increase ($191.2 billion or 76.6 percent) consisted of balances in large noninterest-bearing transaction accounts that have temporary unlimited deposit insurance coverage. The 10 largest insured banks accounted for 73.6 percent ($140.7 billion) of the growth in these balances.

The number of institutions on the FDIC's "Problem List" fell for the third quarter in a row. The number of "problem" institutions declined from 844 to 813. This is the smallest number of "problem" banks since first quarter of 2010. Total assets of "problem" institutions declined from $339 billion to $319 billion. Eighteen insured institutions failed during the fourth quarter. For all of 2011, there were 92 insured institution failures, compared with 157 failures in 2010.

The Deposit Insurance Fund (DIF) balance continued to increase. The unaudited DIF balance — the net worth of the fund — rose to $9.2 billion at December 31 from $7.8 billion at September 30. Assessment revenue and fewer expected bank failures continued to drive growth in the fund balance. The contingent loss reserve, which covers the costs of expected failures, fell from $7.2 billion to $6.5 billion during the quarter. Estimated insured deposits grew 3.1 percent in the fourth quarter.
In conclusion, Acting Chairman Gruenberg noted, "The industry is now in a much better position to support the economy through expanded lending. However, levels of troubled assets and 'problem' banks are still high. And while the economy is showing signs of improvement, downside risks remain a concern."

U.S. ATTORNEY GENERAL ERIC HOLDER SPEECH AT COLUMBIA LAW SCHOOL ON FINANCIAL FRAUD

The following excerpt is from the Department of Justice website:

“Attorney General Eric Holder Speaks at Columbia University Law School on Preventing and Combating Financial FraudNew York ~ Thursday, February 23, 2012
As prepared for delivery

Thank you, President [Lee] Bollinger.   I appreciate your kind words, and I want to thank you and Dean [David] Schizer for the outstanding leadership that you provide to an institution and an academic community that mean a great deal to me.   I’d also like to thank the distinguished faculty members, staff, and alumni who are here with us – as well as the law students, graduate students, and undergraduates who continue to make Columbia such an extraordinary place.

It’s a privilege to join with so many members of the Columbia family.   And, as always, it’s good to be home.   Like many of you, I was born, raised, and educated in New York.   I count the seven years that I spent here in Morningside Heights to be among the great blessings of my life.

 Here on this campus, my interest in the law, my understanding of its remarkable power for good, and my desire to serve our nation’s justice system first took hold.   And although more than 35 years have passed since I completed my law degree – and started my “dream job” as a prosecutor in the United States Department of Justice – my time at Columbia shaped and enriched my life in ways that I am still realizing, and continue to appreciate.

That’s why – throughout my career, and especially during my tenure as Attorney General – I’ve returned to this campus often.   And, tonight, as we turn our attention to some of the most urgent and complex challenges facing our nation, I am grateful to be among so many current and future leaders – and fellow beneficiaries – of the culture of service, of excellence, and of optimism that has always distinguished this institution – and continues to reflect this country’s highest ideals.

In particular, I’d like to discuss something that another Columbia alumnus recently described – when he delivered last month’s State of the Union Address – as “the defining issue of our time.”  That issue – as President Barack Obama, a proud member of the College Class of ’83, stated – is “how to keep the basic American promise alive.”   For more than two centuries, this promise – that hard work is rewarded; that misconduct is punished; that the American economy is an engine of progress; that our institutions are worthy of the public trust; and that doors to opportunity, and to prosperity, are open for all citizens – has brought the American people together and made our nation an example for all the world.   But this promise must constantly be reaffirmed and renewed.

Tonight, I’d like to tell you about some of the ways in which today’s Justice Department is working to do just that – to hold accountable those who have violated our laws and abused the public trust; to restore faith in our financial markets and institutions; and to support and seek justice for those who’ve been devastated by our nation’s recent economic crisis.

Here in New York, and in cities and communities nationwide, the signs – and the scars – of this crisis are not hard to find.   Millions of hardworking Americans have lost their jobs and their homes, as well as their hard-earned savings and financial security.   Just as tragically, many of our fellow citizens have lost faith.   Although a range of contributing forces brought us to this point, the roots of our recent economic collapse can – in many ways – be traced to instances of unethical and reckless misconduct that took place in major financial centers like Wall Street.  These abuses have driven away many who were once willing to invest in our economy, and destroyed once-thriving communities.   And some of the practices that have been uncovered have placed unprecedented – and unfair – challenges before cash-strapped governments, local police departments, small businesses, and American workers and consumers.

In response, over the last three years, the Justice Department – and a host of our federal, state, and local partners – have come together in an unprecedented national effort to combat and prevent a wide range of financial-fraud crimes.   From securities, bank, and investment fraud; to mortgage, consumer, and health-care fraud – we’ve found that these schemes are as diverse as the imaginations of those who perpetrate them, and as sophisticated as modern technology will permit.   Yet, I am pleased to report that our record of success has been nothing less than historic.   And, this evening, I’m proud to be joined by some of the leaders who are on the front lines of this work, including:   United States Attorney David Fein, of the District of Connecticut; U.S. Attorney Paul Fishman, of the District of New Jersey; U.S. Attorney Loretta Lynch, of the Eastern District of New York; and U.S. Attorney for the Southern District of New York – and a fellow Columbia Law alumnus – Preet Bharara.

Many of you may also recognize Preet from the cover of last week’s TIME Magazine, where he was featured as the man who is “busting Wall Street.”   But, as the article lays out in black and white, Preet is more than just the face of this work.   He, Loretta, Paul, David – and their colleagues all across our U.S. Attorneys’ community and throughout the Justice Department’s Civil and Criminal Divisions – are making meaningful, measurable progress in this fight to ensure stability, accountability, and – above all – justice in the wake of once-in-a-century financial challenges.

Like the federal prosecutors that many of you are hoping to – and, no doubt, will – become, they are aggressive.   They are committed.   And they have proven their willingness to perform the exhaustive, time-consuming, and unglamorous but essential work – which often takes place far from the public eye – that allows us to move our anti-fraud efforts forward.   Thanks to them, and to many other key leaders – including Lanny Breuer, the head of the Department’s Criminal Division and yet another Columbia Law alumnus – we’ve found that much of the conduct that led to the financial crisis was unethical and irresponsible.   But we also have discovered that some of this behavior – while morally reprehensible – may not necessarily have been criminal.

Believe me, I understand – and I often hear about – the public desire to, as one pundit put it, “see the handcuffs come to Wall Street.”   So, let me assure you: whenever and wherever we do uncover evidence of criminal wrongdoing, we will not hesitate to bring prosecutions.   When we don’t, we will continue to use other tools available to us – such as civil sanctions – to hold people and institutions accountable.

Our track record makes this clear.   And it’s a record I’m proud of.   Since the beginning of this Administration, the Justice Department has taken bold, unprecedented steps to address the causes and consequences of our economic crisis – largely through the collaboration made possible by the interagency Financial Fraud Enforcement Task Force.   I am honored to chair this initiative.   Since President Obama launched it in 2009, the Task Force has been a model of success.   It represents the largest coalition ever assembled to combat financial fraud.   Not onlyhas it streamlined the investigative and enforcement efforts of multiple agencies and offices, it also has allowed us to make the most of increasingly limited resources – and to recover, and more effectively utilize, precious taxpayer dollars.

So far, this approach is paying dividends.   Since its creation, the work of the Task Force has resulted in charges – and sentences – against CEOs, CFOs, corporate owners, board members, presidents, general counsels, and other executives of Wall Street firms, hedge funds, and banks involved in financial-fraud activities.

In just the last six months, the Justice Department has achieved prison sentences of up to 60 years in a variety of cases charging securities fraud, bank fraud, and investment fraud.   We obtained a conviction – and record prison sentence – in the largest hedge-fund insider-trading case in U.S. history.   And we’ve secured lengthy prison terms for the architects of multimillion-dollar Ponzi schemes involving hundreds of investors.

In addition to advancing these and other successful prosecutions, the Task Force has helped us to identify and focus on priority areas.   For example, in recent weeks, it has given rise to two important working groups that will help take our comprehensive anti-fraud efforts to the next level.

As some of you know, last month, I convened the first-ever meeting of the Residential Mortgage-Backed Securities Working Group, which brings together a variety of partners – including New York State’s Attorney General, Eric Schneiderman – and other key leaders, in order to marshal and strengthen current state and federal efforts to investigate and prosecute abuses in the residential mortgage-backed securities market.

And, through another multi-level partnership between the Departments of Justice and Housing and Urban Development, other agencies, and 49 state attorneys general – we recently achieved a landmark $25 billion agreement with the nation’s top five mortgage servicers.   This marked the largest joint federal-state settlement in our nation’s history.   And it will provide significant assistance to struggling homeowners and communities – and to those who lost their homes due to unfair and improper mortgage practices.   Of course, this settlement will not – by itself – cure all that ails our housing market.   But – combined with other measures we are taking – it is a step in the right direction, toward the housing recovery that our nation so badly needs.

This settlement underscored the essential work being led by U.S. Attorneys like Loretta – whose office issued multiple subpoenas, reviewed more than two million documents, and interviewed numerous witnesses over the course of a three-year investigation that paved the way for this agreement.   But – as I know her team would be quick to point out – this is only the beginning.  Through the newly-formed Residential Mortgage Backed Securities Working Group, we intend to build on these efforts.   In fact, already, as part of current investigations, the Department has issued civil subpoenas to 11 different financial institutions.   And, although I can’t go into detail about ongoing investigations, I can tell you that we expect more to follow.

In addition, we continue to bring the full resources of the Task Force to bear in combating other types of financial fraud.   For example, over the last two fiscal years, we’ve indicted more than 2,100 individuals for mortgage-fraud related crimes.

In 2011, the Civil Rights Division – through its new Fair Lending Unit – settled or filed a record number of cases – including a $335 million settlement, the largest fair lending settlement in history – to hold financial institutions accountable for discriminatory practices directed at African and Hispanic Americans.

This type of collective action – across all levels of government, state boundaries, and even party lines – is precisely what the challenges before us demand.   It’s also what the American people deserve.   And it’s why we’re bringing the same approach to our fight against financial fraud schemes that target consumers.

Just ten days ago, I convened the first meeting of another newly-formed Task Force component – the Consumer Protection Working Group – which will enhance civil and criminal enforcement of consumer fraud.   This Working Group will also focus on raising public awareness about common schemes – and ways to report them – so that potential victims have the information they need to fight back.   Such prevention efforts are vital.   As we’ve seen all too clearly, consumer fraud schemes can cause extensive losses, financially cripple vulnerable Americans, and – in some instances – even threaten the safety and soundness of our financial institutions.

For instance, we recently identified an individual who victimized more than 350,000 small businesses and – by placing unauthorized charges on the phone bills of unsuspecting consumers – caused over $75 million in losses.   We also uncovered and shut down a telemarketing fraud scheme that spanned 46 states – and resulted in more than $25 million in consumer injuries; as well as a business-opportunity scheme that victimized more than 87,000 people by selling worthless training and job referral services to those who were desperately in need of work – causing $6 million in additional losses to cash-strapped consumers.

Fortunately, the perpetrators behind these schemes now have a few things in common: they’ve all been caught, convicted, and sentenced to lengthy terms in prison.   And I’m confident that the recent efforts we’ve launched will allow the Justice Department – and our law enforcement partners – to build on the momentum we’ve created in combating financial fraud.

There is perhaps no better illustration of this progress than our groundbreaking work to combat health-care fraud.   Over the last fiscal year alone – in cooperation with the Department of Health and Human Services and other partners, and by utilizing authorities provided under the False Claims Act and other critical statues – we were able to recover nearly $4.1 billion in funds that were stolen or taken improperly from federal health-care programs.   This is an unprecedented achievement – and it represents the highest amount ever recovered in a single year.

At the same time, we opened more than 1,100 new criminal health-care fraud investigations, secured more than 700 convictions, and initiated nearly 1,000 new civil health-care fraud investigations.   And our investments in this work are yielding extraordinary returns.   In fact, over the last three years, for every dollar we spent combating health-care fraud, we’ve been able to return an average of seven dollars to the U.S. Treasury, the Medicare Trust Fund, and others.

These numbers are stunning.   Despite this progress, I realize that this is no time to become complacent.   And I can assure you that for me, for President Obama, and for our colleagues across the Administration, the fight against all types of financial fraud will continue to be a top priority.

From our financial markets to our most critical health-care programs, we know that unscrupulous individuals and organizations will always be there to try and game the system, to steal from taxpayers, and to take advantage of the most vulnerable among us.   And no matter how aggressive or wide-ranging our efforts become, it simply won’t be possible to stop or prevent every instance of fraud across the country.

I know that, for some, that’s a sobering thought.   But, for the Justice Department, it’s also a call to action – and a challenge that we keep before us each day.

As we continue working to identify and implement the solutions we need to advance our fight against financial fraud, I’m certain that we’re on the right path.   This struggle in which we are engaged is about fairness.   It is about opportunity.   And it is about accountability.   We will be aggressive – yet measured – in our efforts.   We will be comprehensive in our investigations – yet realistic in the solutions we seek.   If we are successful – and we will be – this approach will help to strengthen our economy, by encouraging investment and by providing a level playing field to drive growth.

I am convinced that the impact of our recent economic catastrophe can be reversed, but only if the means by which economic gains are created are appropriately regulated.   This will not, as some might claim, stifle competition or investment – it will encourage them.   The perception and reality of fairness – and the existence of clear rules – are boons to growth.   The absence of them keeps potential stakeholders on the sidelines – and allows insiders to dominate in a way that adversely affects our larger society.   Recent history demonstrates that this is not mere theory.   The lack of appropriate and meaningful regulation was, without question, a primary contributor to the economic decline we’re now struggling to overcome.
 
However, as I look out over this crowd – at the colleagues and partners gathered here, and especially at the future leaders who will soon take up this fight – I cannot help but feel confident about where we’re heading.

Each one of you, as members of the Columbia community, are part of a long and celebrated tradition – of individuals who are unwilling to sit on the sidelines of history or miss an opportunity to work toward, and fight for, justice.   Though we may be separated generationally, we are united by this legacy – as well as the critical responsibilities that we share: to safeguard our nation’s progress, to restore its prosperity, to ensure its security and strength, and to help keep that most basic American promise – of opportunity, of fairness, and of justice for all.

Thank you for your commitment to this work – and thank you for allowing me to discuss it with you today.”

Tuesday, February 28, 2012

TWO RECEIVE FINAL CIVIL JUDGMENTS FOR INSIDER TRADING SCHEME

The following excerpt is from the SEC website:

February 24, 2011
“SEC v. Mark Anthony Longoria, et al., Civil Action No. 11-CV- 0753 (SDNY) (JSR)
SEC Obtains Final Judgments on Consent against Jason Pflaum and Walter Shimoon

The SEC announced that the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment on Consent as to Jason Pflaum (“Pflaum”) on February 21, 2012, and a Final Judgment on Consent as to Walter Shimoon (“Shimoon”) on February 24, 2012, in the SEC’s insider trading case, SEC v. Mark Anthony Longoria, et al., 11-CV-0753 (SDNY) (JSR).

The SEC filed its Complaint on February 3, 2011, charging two employees of the so-called “expert network” firm, Primary Global Research LLC (“PGR”), and four consultants with insider trading for illegally tipping hedge funds and other investors. On February 8, 2011, the SEC filed an Amended Complaint, charging a New York-based hedge fund and four hedge fund portfolio managers and analysts who illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants. The scheme netted more than $30 million from trades based on material, nonpublic information about such companies as Advanced Micro Devices, Seagate Technology, Western Digital, Fairchild Semiconductor, and Marvell Technology Group. The charges were the first against traders in the SEC's ongoing investigation of insider trading involving expert networks.

The SEC alleged that from approximately 2008 through 2010, Pflaum, a former analyst at Barai Capital Management (“Barai Capital”), received material nonpublic information regarding several publicly traded securities and, along with co-defendant Samir Barai, caused Barai Capital to execute securities trades based on that information. In December 2010, Pflaum pleaded guilty to conspiracy and securities fraud in a parallel criminal case,United States v. Pflaum, 11 Cr. 01265 (JGK), arising from the same conduct. Pflaum has been cooperating with the Government and the SEC in connection with the criminal and civil prosecution of several former employees and clients of PGR and other related investigations.

The Final Judgment against Pflaum: (1) permanently enjoins him from violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Exchange Act Rule 10b-5; and (2) orders him to pay disgorgement in the amount of $101,943.00 plus prejudgment interest thereon in the amount of $11,872.38, for a total of $113,815.38. Based on Pflaum’s agreement to cooperate with the SEC, the SEC did not seek a civil penalty. Separately, Pflaum has also consented to the entry of an order by the SEC instituting administrative proceedings pursuant to Section 203(f) of the Investment Advisers Act of 1940 and barring Pflaum from association with any investment adviser, broker, dealer, municipal securities dealer, or transfer agent.

With respect to Shimoon, a former Vice President of Business Development at Flextronics International Ltd., and also a paid consultant for PGR, the SEC alleged, among other things, that from at least the second half of 2008, Shimoon provided detailed material nonpublic information concerning Flextronics and its customers to co-defendant Bob Nguyen (a PGR employee) and to PGR’s hedge fund clients. The SEC further alleged that PGR’s hedge fund clients traded on the basis of the information Shimoon provided. In July 2011, Shimoon pleaded guilty to conspiracy and securities fraud in a parallel criminal case, United States v. Shimoon, 11 Cr. 00032 (JSR), arising from the same conduct. Shimoon has been cooperating with the Government and the SEC in connection with the criminal and civil prosecution of several former employees and clients of PGR and other related investigations.

The Final Judgment against Shimoon: (1) permanently enjoins him from violations of Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5; (2) orders him to pay disgorgement in the amount of $44,175.00, plus prejudgment interest thereon in the amount of $6,099.39, for a total of $50,274.39; and (3) permanently bars him from acting as an officer or director of a public company. Based on Shimoon’s agreement to cooperate with the SEC, the SEC did not seek a civil penalty.”


FDIC SAYS INSURED INSTITUTIONS HAVE HIGHEST 2011 EARNINGS SINCE 2006

The following excerpt is from an FDIC e-mail:

FDIC-Insured Institutions Earned $26.3 Billion in the Fourth Quarter of 2011
Full-Year Net Income of $119.5 Billion Is Highest Since 2006

 FOR IMMEDIATE RELEASE
February 28, 2012

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $26.3 billion in the fourth quarter of 2011, a $4.9 billion improvement from the $21.4 billion in net income the industry reported in the fourth quarter of 2010. This is the 10th consecutive quarter that earnings have registered a year-over-year increase. As has been the case in each of the past nine quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings.

FDIC Acting Chairman Martin J. Gruenberg said that "2011 represented the second full year of improving performance by the banking system. Banks reported higher positive aggregate earnings, the numbers of 'problem' banks and failures declined, and loan balances increased in the final three quarters of the year." He also noted that "insured institutions of all sizes continued to make substantial progress in improving their profitability."

A majority of all institutions (63 percent) reported improvements in their quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 18.9 percent from 27.1 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.76 percent from 0.64 percent a year ago.
Fourth-quarter loss provisions totaled $19.5 billion, about 40 percent less than the $32.7 billion that insured institutions set aside for losses in the fourth quarter of 2010. Net operating revenue (net interest income plus total noninterest income) was $3.8 billion (2.3 percent) lower than a year earlier, due to a $4.4 billion (7.4 percent) decline in noninterest income.

Asset quality indicators continued to improve as insured banks and thrifts charged off $25.4 billion in uncollectible loans during the quarter, down $17.1 billion (40.2 percent) from a year earlier. Noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a seventh quarter, but the percentage of loans and leases that were noncurrent remained higher than in previous crises.

Financial results for the fourth quarter of 2011 and the full year are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Also among the findings:

Growth in loan portfolios continued. Loan balances posted a quarterly increase for the third quarter in a row. Total loans and leases increased by $130.1 billion (1.8 percent), as loans to commercial and industrial borrowers increased by $62.8 billion, residential mortgage loan balances rose by $26.0 billion, and credit card balances grew by $21.3 billion.

Money continued to flow into insured deposit accounts. Deposits in domestic offices increased by $249.7 billion (2.9 percent) during the quarter. More than three-quarters of this increase ($191.2 billion or 76.6 percent) consisted of balances in large noninterest-bearing transaction accounts that have temporary unlimited deposit insurance coverage. The 10 largest insured banks accounted for 73.6 percent ($140.7 billion) of the growth in these balances.

The number of institutions on the FDIC's "Problem List" fell for the third quarter in a row. The number of "problem" institutions declined from 844 to 813. This is the smallest number of "problem" banks since first quarter of 2010. Total assets of "problem" institutions declined from $339 billion to $319 billion. Eighteen insured institutions failed during the fourth quarter. For all of 2011, there were 92 insured institution failures, compared with 157 failures in 2010.

The Deposit Insurance Fund (DIF) balance continued to increase. The unaudited DIF balance — the net worth of the fund — rose to $9.2 billion at December 31 from $7.8 billion at September 30. Assessment revenue and fewer expected bank failures continued to drive growth in the fund balance. The contingent loss reserve, which covers the costs of expected failures, fell from $7.2 billion to $6.5 billion during the quarter. Estimated insured deposits grew 3.1 percent in the fourth quarter.
In conclusion, Acting Chairman Gruenberg noted, "The industry is now in a much better position to support the economy through expanded lending. However, levels of troubled assets and 'problem' banks are still high. And while the economy is showing signs of improvement, downside risks remain a concern."

CANOPY FINANCIAL , INC., CO-FOUNDERS GO TO PRISON FOR STEALING

The following excerpt is from the Securities and Exchange Commission website:

February 27, 2012
“United States v. Jeremy Blackburn and Anthony Banas, Criminal Action No. 09 CR 976 (N.D. Ill. March 1, 2010)
The U.S. Securities and Exchange Commission (Commission) announced that on February 15, 2012, co-founders of the bankrupt Canopy Financial, Inc., a health care transaction-software company based in Chicago, were sentenced to 15 and 13 years in prison for defrauding investors and clients of more than $93 million. Anthony Banas, Canopy’s chief technology officer, was sentenced to 160 months in prison, while Jeremy Blackburn, Canopy’s former president and chief operating officer, was sentenced to 180 months in prison. Both men pleaded guilty in late 2010 to one count of wire fraud, admitting they engaged in a fraud scheme that cheated investors of approximately $75 million and also misappropriated more than $18 million from customer accounts intended for health care savings and expenses. In imposing sentence, United States District Judge Ruben Castillo of the Northern District of Illinois noted that this case was the most aggravated financial fraud he had seen in his 18 years on the federal bench. The judge ordered both men to pay mandatory restitution and forfeiture totaling $93,125,918.

According to their plea agreements, Blackburn and Banas used false information about Canopy’s financial condition, including a bogus auditor’s report and falsified bank statements, to fraudulently obtain approximately $75 million from several private equity investors in 2009. Approximately $39 million of that money was used to redeem shares of other Canopy investors, including approximately $1.6 million that went to Blackburn and $975,000 that went to Banas, while another $29 million obtained from investors was deposited into Canopy operating accounts.

Also according to their plea agreements, Blackburn and Banas misappropriated Canopy operating funds for their own benefit. Blackburn took approximately $6 million in unauthorized withdrawals and transfers from Canopy bank accounts during 2009. Blackburn typically directed a Canopy employee, or occasionally Banas, to transfer Canopy funds to his bank accounts or to pay for his personal expenses, including credit card balances, luxury car purchases, and travel on a private jet. Blackburn also paid for personal home renovations, bought sports tickets and purchased jewelry and watches using misappropriated Canopy funds. Banas used misappropriated Canopy money to invest $300,000 in a nightclub. Banas also spent $400,000 between 2007 and 2009 on other personal expenses.

Blackburn admitted that he created phony bank statements during 2009 to conceal the transfer of more than $18 million from special health care accounts in which Canopy held funds as custodian for the benefit of more than 1,600 clients and customers to make payments to medical providers. The funds were transferred to Canopy’s own operating accounts, as well as to benefit Blackburn and Banas personally.

The Commission’s cases against Blackburn (SEC v. Canopy Financial, Inc., et al., Case No. 09-CV-7429, USDC, N.D.IL (LR-21324) and Banas (SEC v. Anthony T. Banas, Case No. 10- CV 3877 USDC N.D. IL) (LR-21566) resulted in permanent injunctions against both individuals, by consent, for violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], ordered disgorgement of $1,779,759.83 and prejudgment interest of $71,182.03 against Blackburn in April 2011 and disgorgement of $975,548.25 and prejudgment interest of $32,910.45 against Banas in June 2010.
The Commission acknowledges the assistance of the U.S. Attorney’s Office of the Northern District of Illinois and the Chicago Regional Office of the U.S. Department of Labor in this matter.”


SPEECH BY SEC MARY SCHAPIRO ON STRUCTURE AND FUNCTION OF THE SEC

The following excerpt is from the SEC website:

Speech by SEC Chairman:
Remarks at the Practicing Law Institute’s SEC Speaks
by
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
Washington D.C.
Feb. 24, 2012
Good morning. Thank you so much for that kind introduction, Rob.
It is a pleasure to be here. I look forward to this conference every year as an opportunity to give a “State of the SEC” exposition – reviewing our recent activities and how we have evolved and how the changes we’ve made will benefit the markets we regulate and the investors we protect.
Twenty years ago when I first served as an SEC commissioner, the financial world was a very different place. The Dow was inching towards the 3000 mark. Derivatives were barely a blip on the radar. A portable Macintosh weighed 16 pounds. And all you could do on a cell phone was talk.
For most SEC staff, the biggest market disruption in living memory was the “Black Monday” crash of 1987 – a near-cataclysmic experience to be sure, but one that paled in comparison to the crisis of 2008.
So, when President Obama asked me to return and serve as Chairman, I knew the agency would be challenged on a level at which no SEC had ever been challenged before:
Challenged to restore confidence in markets that had nearly self-destructed.
Challenged to address risks that could jump from market to market like wildfire, incinerating each in turn.
Challenged to bring a pre-crisis mindset into a post crisis-era.
Challenged to prove that the agency could and would step up to play its role, aggressively and effectively.
Given the scope of the financial crisis and the fallout from the Madoff scandal, it was no surprise that some were calling for the agency to be disbanded.
But, the investing public and policymakers understood the importance of our mission – to protect investors and ensure the integrity of our markets.

And the men and women of the SEC were eager to meet these challenges head on.
That was no surprise to me. From my earlier years with the SEC, I knew well that the individuals who serve are a dedicated and talented team, able and eager to rise to the occasion. I knew we’d come through – and I am pleased by how far we have come.
And, so I would ask anyone who currently works – or has previously worked – at the SEC to stand and be recognized.

Thank you.
Our commitment to evolve helped to drive a consensus, inside and outside the SEC, that the better solution was not to shutter the agency, but to strengthen it – to demand more aggressive and efficient action from us, and for us to embrace needed reforms and better adjust to the new world in which we were operating.
And that’s what the SEC’s leadership team set out to do.
We redesigned the SEC, investing in technology and human capital, and significantly improving operations.
We put in place a new operating strategy, rooted in an entrepreneurial attitude and a collaborative approach.
We immediately began to execute on an agenda that would better protect investors and reduce the chances of another systemic shockwave.
I knew, as we found our footing after the financial crisis and began to implement this strategy, that every move would be watched by many eyes. What I didn’t realize was that the SEC’s energetic response to the challenges we faced would lift the agency’s profile to heights rarely seen since the days of Joe Kennedy and

The New Deal.
I welcome the attention. It gives rise to needed debate about important issues and challenges us to be our best. But, I sometimes worry that the tendency of observers to focus on individual rules or discrete actions distracts them from the big picture. What the agency has accomplished is greater than the sum of the rules we’ve adopted and the cases we’ve brought: we have fundamentally changed the agency in ways that will allow us to carry out our mission more effectively than ever in the 21st Century.
And it’s not just that we’ve accomplished a great deal over the last three years. It’s that we’re now fundamentally better equipped to perform at an even higher level in the years to come.

Redesigning the SEC
Investing for Continued Success
A first priority was to make better use of SEC resources, carefully investing overdue budget increases in people and technology and improving management in ways that allowed us to make the most of our funds.
When I returned to the SEC, I saw how much the staff was being asked to do, and how little they were being given to do it.
Although the agency experienced a brief period of funding growth following Sarbanes-Oxley, the budget failed to keep up with inflation in the years leading up to the financial crisis. Despite continued growth in the markets, the number of employees actually fell. And with oversight, examination and enforcement staff stretched to the limit, operations and IT needs were put on the back burner – investments in new IT fell by half.

During my term, we have been fortunate to experience a modest funding turnaround – increases that we were determined to invest strategically. We wanted not just to grow, but to grow more efficient as well – growing in ways that would expand capacity faster than the budget numbers were rising.
We broadened our hiring approach, searching for recruits with financial industry backgrounds and specialized experience. We now have traders, asset managers, academics and quants on staff in addition to attorneys, economists and accountants, giving us a correspondingly greater insight into the technologies and practices that drive today’s financial markets.
We increased the training budget to more than double what it was in 2009, helping staff to keep pace with the changes in the market.

We significantly upgraded our case management system. Overworked attorneys and paralegals can now take advantage of vastly improved research capabilities – and we are deploying an agency-wide eDiscovery tool that will expand our ability to parse evidence and drill down on key subjects.
Perhaps our most reported IT investment has been our new system for handling the thousands of tips, complaints and referrals we receive each year. And an ongoing series of upgrades is allowing us to better triage the information we receive as well as compare the data more effectively – opening new investigations, routing tips to existing investigations or discovering emerging trends that need to be watched.
Managing Effectively

Together with wise investments, we also have been finding ways to improve agency operations.
Within the various divisions and offices, we’ve created “managing executive” positions to handle important support areas, freeing legal, examination and other professionals to focus their skills on mission-critical work.
We are outsourcing responsibilities like leasing and financial management reporting to other agencies, focusing on core strengths and deploying people and resources accordingly.
And we’re implementing a number of management recommendations resulting from the Dodd-Frank mandated study of agency operations.

After three years of intense effort, the SEC is simply a sounder agency on a fundamental level, deploying people and technology more effectively and maximizing the impact of our limited resources. It’s all part of an effort to be more effective for years to come. But it should not suggest in any way that our work is done.
Instilling Entrepreneurial Leadership

Parallel to our investments in people and tools, we began to put in place a new approach. We wanted to be more entrepreneurial – moving to diminish or head off threats within the markets, trusting our teams to recognize these threats and move rapidly without the need for top-down guidance in every case.
This approach has flourished, and while we don’t have time to discuss every office and division, I’d like to offer a few as examples of how it is improving our efforts.
Corporation Finance

One place to look is the Division of Corporation Finance, which is run by SEC Speaks co-Chair Meredith Cross, and which has been particularly aggressive in enhancing its structure and focus.
In the last year, Corp Fin established new groups to concentrate closely on three systemically critical facets of the financial world: the largest financial institutions, structured finance products, and capital markets trends. These offices will help ensure that investors have clear information about items that could – without the sunlight of disclosure – turn into malignant trends or dangerous practices.
In addition, Corp Fin’s disclosure teams have been proactive in targeting specific disclosure issues which have potentially significant consequences.
They’ve prompted companies to provide critical information about the potential financial impact of repatriating cash held overseas.

They’ve raised questions about whether companies are properly disclosing their litigation contingencies.
And they’ve worked with our enforcement, accounting and international units to combat an uptick in problems with reverse mergers by stepping up scrutiny of related filings.
Corp Fin also is taking a lead in providing companies guidance on how existing disclosure rules apply to emerging and fast-changing market realities, issuing guidance – where possible – before inadequate or outdated disclosure practices harm investors.

The staff issued guidance regarding the way financial services firms should disclose their exposure to European sovereign debt in time for these firms to use it when they prepare their annual reports – helping to provide investors with adequate, granular financial information even as the situation remains fluid.
And the staff issued guidance regarding companies’ obligations to disclose material cyber-security risks and attacks – clearly an area of growing concern to investors. Additionally, in reviewing the most recent wave of IPOs, Corp Fin quickly stopped problematic revenue recognition practices. And they halted the use of misleading non-GAAP measures before these practices – prevalent during the tech bubble of the 90s – could take root again.
Similarly, disclosure teams acted swiftly when the right of investors to have their day in court was threatened – by objecting to a mandatory arbitration provision that was included in governing documents connected with a company’s IPO.

The results of these changes aren’t always eye-catching. But we are convinced that increased focus on systemically significant market sectors is a necessary shift in a post-crisis world. We know that our proactive efforts to provide guidance have proved helpful to many companies as they grapple with disclosure issues. And we believe, based on our own review of disclosure statements, that investors are getting information that is both more complete and more relevant than in the past.
Office of Compliance Inspections and Examinations (OCIE)
Perhaps the areas in which changes in organization and approach have been most apparent are in our examination and enforcement units.
In both, new leadership has managed significant organizational changes and – just as important – encouraged an aggressive and proactive approach.

Over the last two years, OCIE has put in place a new National Examination Program. The program has brought changes in the way examination teams are assembled – OCIE now precisely matches examiners’ skills with the unique challenges each examination offers. Examination materials are now standardized.
And working with the Division of Risk, Strategy and Financial Innovation, this national exam program greatly expands the use of risk-based targeting.

Better targeting and more effective examinations are paying off. Over the last two years, 42 percent of exams have identified significant findings – up by a third since 2009. And over that same period, the percentage of exams resulting in referrals to Enforcement has risen by half, from 10 percent to 15 percent.
One such referral involved a fund which had come into our sights through our risk-based targeting efforts.
During the resulting examination, the fund admitted to an error in its trading algorithm, which it had previously failed to report – a failure that cost investors more than $200 million. Thanks to the work of the exam team and enforcement staff, the fund agreed to a settlement – returning the money to wronged investors almost before they knew they had been wronged and paying a $25 million penalty.

Division of Enforcement
Meanwhile, the Enforcement Division – led by today’s other co-Chair Rob Khuzami –revamped its operations, putting additional talented attorneys back on the front lines, creating specialized units, and streamlining procedures.

Those reforms are already producing record results. I won’t steal all of Rob’s thunder, but last year the SEC brought a record 735 enforcement actions, including some of the most complex cases we’ve ever worked on. And we obtained orders for $2.8 billion in penalties and disgorgements. What’s most satisfying is that last year we returned more than $2 billion to wronged investors. If Congress agrees with my request to raise the caps on what we can obtain, we would have the ability in appropriate cases to return even larger sums to wronged investors.

In the area of financial crisis-related cases, we filed charges against nearly 100 individuals and entities – actions against Goldman Sachs, Citigroup, J.P. Morgan and top executives at Countrywide, Fannie Mae and Freddie Mac. And more than half of the individuals charged were CEOs, CFOs or other senior officers.
It should come as no surprise that there are more actions to come.
This division also realized significant gains from its Aberrational Performance Inquiry – another collaborative effort with Risk Fin and OCIE which uses quantitative analytics to search for hedge fund advisers whose claimed returns are unusual enough to raise a red flag.

In December, as a result of one of the aberrational performance sweeps, we charged four hedge fund advisers for inflating returns, overvaluing assets and other actions that materially misled and harmed investors.

OCIE, RiskFin, and Enforcement are working together through different analytic initiatives to target various types of misconduct. These initiatives are particularly important to the SEC’s efforts to detect fraud before complaints are received.

And one can draw direct lines between Enforcement’s earlier restructuring and its current results.
For instance, one unit created during the reorganization – the Asset Management Unit – took the time to survey a group of firms that were actively communicating through social media. In the process, they learned about the various approaches firms were using – getting a sense of those that were legitimate and those that might not be.
Shortly thereafter, a staff member who was familiar with the survey noticed something irregular in the operation of an Illinois-based investment adviser.
In short order, the ensuing investigation uncovered the fact that the adviser was offering more than $500 billion in fictitious securities through various social media websites, garnering significant attention from multiple potential buyers.
Again, the agency acted before investors were harmed by suing the adviser last month and effectively halting the fraud.

But rather than just stopping there, Enforcement teamed up with OCIE, the Investment Management division and our Investor Education office. And on the same day that we shut down the fraud, we released two publications – one that will help investors recognize, avoid, and report similar scams, and another one that will help investment advisers keep their communications in compliance.
It’s hard to quantify the results of efforts like these – to know how much savings won’t be poured into fraudulent offerings or what tips might arise from the publications we’ve released. But we think this is important and that this aggressive and coordinated approach is yielding superior results across the agency – and will continue to do so going forward.

Recommitting to our Investor Protection Mission
Yet another priority in recent years has been rededicating ourselves to our investor protection mission – an important task if we were to bolster the confidence so necessary for our markets to thrive.
That meant strengthening the regulatory structure and pulling back the veil that covered portions of our financial system.
That is why – even before Dodd-Frank – we set out to address the resiliency of money market funds, insist upon more meaningful information regarding municipal securities and require more information from investment advisers, among other initiatives.
The Dodd-Frank Act
With the passage of Dodd-Frank our responsibilities expanded dramatically. And I am proud of the across-the-board progress we are making against these mandates. Of the more than 90 mandatory rulemaking provisions, the SEC has proposed or adopted rules for more than three quarters of them, not to mention a number of the rules stemming from the dozens of other provisions that give the SEC discretionary rulemaking authority.

And we already have completed 12 studies called for by Congress.
We could talk for hours about Dodd-Frank, but let me just touch on a few highlights.
In the area of corporate governance, we have finalized rules concerning shareholder approval of executive compensation and "golden parachute" arrangements.

Led by the Division of Investment Management, we have adopted new rules that have already resulted in approximately 1,200 hedge fund and other private fund advisers registering with the SEC. It’s a process by which they agree to abide by SEC rules and provide critical systemic risk information that can give regulators better insight into their practices.

And we have established a whistleblower program that is already providing the agency with hundreds of higher-quality tips, helping us to avoid investigatory dead-ends and – at the same time – prodding companies to enhance their internal compliance programs.

In another area, response to the meltdown of the mortgage-backed securities market, the SEC has proposed rules that will protect investors by:

Increasing dramatically investors’ visibility into the assets underlying all types of asset backed securities.
Requiring securitizers – in conjunction with our banking colleagues – to keep skin in the game, giving them an incentive to double-check originators’ underwriting practices.
Changing the practices of the rating agencies whose gross mis-ratings of billions of dollars of mortgage-backed securities were kerosene on kindling.

OTC Derivatives
Next up will be the final proposals to essentially build, from the ground up, a new regulatory regime for over-the-counter derivatives.
The over-the-counter structure of the derivatives market has long presented a risk to the financial system. In October 1993, I addressed a Symposium for the Foundation for Research in International Banking and Finance about the potential problems. At that time I said “nothing will interrupt the progress of the derivatives market more abruptly than a financial crisis that is perceived to be caused or exacerbated by unregulated activity in those markets.”
Back then, of course, the notional value of interest rate and currency swaps was $4.7 trillion, which seemed like an extraordinary figure.

I was concerned that this potentially useful financial innovation might present significant systemic risk for various reasons, including: the opacity of the derivatives market; weak or non-existent capital, margin and clearing and settlement requirements; and the concentration of derivative transactions among a relatively small number of institutions.

While others shared these concerns, in 2000, Congress specifically excluded most derivatives transactions from regulation. And by mid-2008, as the repercussions of the mortgage-backed securities market’s collapse were echoing throughout the financial system, the notional value of the derivatives market had increased more than a hundred-fold, and was approaching $700 trillion.
Title VII of Dodd-Frank addresses challenges in the OTC derivative market underscored by the events of 2008, by bringing the derivatives market into the daylight.

The SEC is working with the CFTC to write rules that strengthen the stability of our financial system by:
Increasing centralized clearing of swaps and ensuring that capital and margin requirements reflect the true risks of these products.

Improving transparency to regulators and to the public by shedding light on opaque exposures and assisting in developing more robust price discovery mechanisms.
Increasing investor protection by enhancing security-based swap transaction disclosure, mitigating conflicts of interest, and improving our ability to police these markets.

Next Steps on Implementing Title VII
It is my hope that, in the near term, we will complete the last remaining proposals regarding capital, margin, segregation and recordkeeping requirements.
But, we are already beginning to transition to the adoption phase. As a first step, I expect the Commission to soon finalize rules that further define who will be covered by the new derivatives regulatory regime and, next, what will constitute a security-based swap.

Finalizing these definitions will be a foundational step, defining the scope of the new regulatory regime and letting market participants know whether their current activities will subject them to the substantive requirements we will be adopting in the coming year.
Beyond this, the Commission staff is continuing to develop a plan for how the rules will be put into effect. The plan should establish an appropriate timeline and sequence for implementation and avoid a disruptive and costly “big bang” approach.
And at all stages of implementation, those subject to the new regulatory requirements will be given adequate time to comply.

International Application of Title VII
While some issues are stand-alone concerns, certain issues cut across the entirety of our implementation of Title VII. Among the most important, given the global nature of the derivatives market, is the international impact of our rules.
We are working hard to coordinate with our foreign counterparts to help achieve consistency among approaches to derivatives regulation. There has been significant progress on the international level.
Our cross-border approach must strike a balance between sufficient domestic regulatory oversight and the realities of the global market. A “one-size-fits-all” approach is neither feasible nor desirable.
In the near term, the Commission intends to address the most salient international issues in a single proposal. This will give interested parties an opportunity to consider, as an integrated whole, our approach to cross-border transactions and the registration and regulation of foreign entities engaged in such transactions with U.S. parties.

Money Market Funds
Despite the breadth of Dodd-Frank, there are other gaps in the regulatory system that threaten investors that we are working to address.
One high-profile area of interest is money market funds. As you know, when the Reserve Primary Fund broke the buck in 2008, it set off a run so serious that the federal government was forced to step in and guarantee the multi-trillion dollar industry.
It was a shock that reverberated across the market and compelled us to take action. And so, two years ago, we adopted regulations making the mix of investments these funds can hold more liquid and less risky. But, at the time, I said we needed to do more.
That is because money market funds remain susceptible to runs and to a sudden deterioration in quality of holdings. We need to move forward with some concrete ideas to address these structural risks.
We’ve spent lots of time and outreach reviewing many possible approaches. There are two serious options we are considering for addressing the core structural weakness: first, float the net asset value; and second, impose capital requirements, combined with limitations or fees on redemptions.
It’s hard to miss the hue and cry being raised by the industry against either of these approaches.
But the fact is investors have been given a false sense of security by money market fund sponsor support and the one-time Treasury guarantee. Funds remain vulnerable to the reality that a single money market fund breaking of the buck could trigger a broad and destabilizing run.
Should that happen, the government will not have the tools it had in 2008. Then, Treasury used the Exchange Stabilization Fund to stop the run. But Congress eliminated that option when it passed TARP legislation. Today, the money-market fund industry and, by extension, the short-term credit market, is working without a net.

To the extent that there’s a deadline, it’s the pressure that we should feel from living on borrowed time. We’ve been incredibly deliberate about this. The President’s Working Group report on reform options was issued in October 2010. We’ve had extensive public comment. And we held a roundtable with the Financial Stability Oversight Council on money market funds and systemic risk last May.
Consolidated Audit Trail

Finally, we’re working to improve the SEC’s capacity to regulate and investigate. And so another major initiative is the consolidated audit trail.
Standardizing reporting across trading platforms would seem to be an obvious move, serving investors on two levels: aiding in the investigation of suspicious trading activities, insider trading, or market manipulation and allowing more rapid and accurate reconstruction of unusual market events.
The complexity of the undertaking, however, has necessitated a detailed and extended rulemaking process, including a thoughtful review of the many comments received since we first proposed the system’s creation. The contours of the regulation are being finalized and will be considered by the full Commission. But, regardless of the details, the broader result must be a mechanism that gives the agency the ability to rapidly reconstruct trading – something that doesn’t exist today.

In addition, while the initial proposal will be for an audit trail tracking orders and trades in the equity markets, I believe that the system should eventually be expanded to include fixed income, futures and other markets.
It is important that we get a structure in place sooner rather than later so that the heavy lifting of working through the technical nuances of the system can begin. We expect to adopt a final rule in the months ahead. After that, I anticipate that the exchanges and FINRA will be required to submit a detailed blueprint, which in turn would be subject to public comment and a separate Commission approval.

Conclusion
I’m proud to have the opportunity to work at the SEC during an exceedingly productive period in its history.
The SEC has accomplished much and we are on the verge of further critically important rulemakings that will strengthen the structure of the financial markets and enhance the agency’s ability to oversee those markets and pursue investors’ interests.

However, just as important as the cumulative effect of these accomplishments, are improvements in the culture, management, approach and attitude of the agency as an institution and the staff who make it work – improvements that all regulatory agencies should undergo – and that will allow the SEC to continue to function at a high level in the years ahead.

No one can predict what challenges will arise, what new threats to market stability will emerge, what fraudsters and manipulators will try down the road. But whatever does happen, the SEC is now materially better able to enforce the law and to identify and manage threats.
The burst of activity isn’t just a result of circumstances – a reaction to the financial crisis. It’s an indication that the SEC is evolving in step with the rapidly changing markets.
It has been a busy time. But there are a lot proud people who – even as we finish what is on our plates today – are looking ahead to an equally productive future.”


FBI FINANCIAL CRIMES REPORT

The following excerpt is from the FBI website:

"February 27th, 2012 Posted by Tracy Russo
The following post appears courtesy of the FBI.
The founder of a $7 billion hedge fund is convicted of insider trading. A drug company pleads guilty to making and selling unsafe prescription drugs to Americans. The head of a financial company admits scamming distressed homeowners who were trying to avoid foreclosure.
These recent crimes and many more like them can cause great harm to the U.S economy and American consumers. That’s why financial crimes are such an investigative priority.
Today, we’re releasing an overview of the problem and our response to it in our latest Financial Crimes Report to the Public. The report—which covers the period from October 1, 2009, to September 30, 2011—explains dozens of fraud schemes, outlines emerging trends, details FBI accomplishments in combating financial crimes (including major cases), and offers tips on protecting yourself from these crimes.

Here’s a brief snapshot of key sections of the report:
Corporate fraud: One of the Bureau’s highest criminal priorities, our corporate fraud cases resulted in 242 indictments/informations and 241 convictions of corporate criminals during fiscal year (FY) 2011. While most of our cases involve accounting schemes designed to conceal the true condition of a corporation or business, we’ve seen an increase in the number of insider trading cases.

Securities/commodities fraud: In FY 2011, our cases resulted in 520 indictments/informations and 394 convictions. As a result of an often volatile market, we’ve seen a rise in this type of fraud as investors look for alternative investment opportunities. There have been increases in new schemes—like securities market manipulation via cyber intrusion—as well as the tried-and-true—like Ponzi scams.

Health care fraud: In FY 2011, 2,690 cases investigated by the FBI resulted in 1,676 informations/indictments and 736 convictions. Some of the more prevalent schemes included: billing for services not provided, duplicate claims, medically unnecessary services, upcoding of services or equipment, and kickbacks for referring patients for services paid for by Medicare/Medicaid. We’ve seen increasing involvement of organized criminal groups in many of these schemes.

Mortgage fraud: During 2011, mortgage origination loans were at their lowest levels since 2001, partially due to tighter underwriting standards, while foreclosures and delinquencies have skyrocketed over the past few years. So, distressed homeowner fraud has replaced loan origination fraud as the number one mortgage fraud threat in many FBI offices. Other schemes include illegal property flipping, equity skimming, loan modification schemes, and builder bailout/condo conversion. During FY 2011, we had 2,691 pending mortgage fraud cases.

Financial institution fraud: Investigations in this area focused on insider fraud (embezzlement and misapplication), check fraud, counterfeit negotiable instruments, check kiting, and fraud contributing to the failure of financial institutions.
Also mentioned in the report are two recent initiatives that support our efforts against financial crime: the forensic accountant program, which ensures that financial investigative matters are conducted with the high-level expertise needed in an increasingly complex global financial system; and our Financial Intelligence Center, which provides tactical analysis of financial intelligence data, identifies potential criminal enterprises, and enhances investigations."
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