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Federal Reserve Enforcement Action Against Banking Executives

Last month, the Federal Reserve Board (FRB) announced several notable enforcement actions. A February 5th press release discussed a:

"Consent Notice of Suspension and Prohibition against Fred Daibes, former Chairman of Mariner's Bancorp, Edgewater, New Jersey, for perpetuating a fraudulent loan scheme, according to a federal indictment."

The order against Daibes described the violations:

"... on October 30, 2018, a federal grand jury in the United States District Court for the District of New Jersey charged [Diabes] and an accomplice by indictment with one count conspiracy to misapply bank funds and to make false entries to deceive a financial institution and the FDIC, five counts of misapplying bank funds, six counts of making false entries to decide a financial institution and the FDIC, and one count of causing reliance on a false document to influence the FDIC... During the relevant time period, Mariner’s was subject to federal banking regulations that placed limits on the amount of money that the Bank could lend to a single borrower... the Indictment charges that in about January 2008 to December 2013, Daibes and others orchestrated a nominee loan scheme designed to circumvent the Lending Limits by ensuring that millions of dollars in loans made by the Bank (the “Nominee Loans”) flowed from the nominees to Daibes, while concealing Daibes’ beneficial interests in those loans from both the Bank and the FDIC. Daibes recruited nominees to make materially false and misleading statements and material omissions..."

The FRB and the U.S. Federal Deposit Insurance Corporation (FDIC) are two of several federal agencies which oversee and regulate the banking industry within the United States. The order bars Daibes from working within the banking industry.

Then, a February 7th FRB press release discussed a:

"Consent Prohibition against Alison Keefe, former employee of SunTrust Bank, Atlanta, Georgia, for violating bank overdraft policies for her own benefit."

The order against Keefe described the violations:

"... between September 2017 and May 2018, while employed as the manager of the Bank’s Hilltop Branch in Virginia Beach, Virginia, Keefe repeatedly overdrew her personal checking account at the Bank and instructed Bank staff, without authorization and contrary to Bank policies, to honor the overdrafts... Keefe’s misconduct described above constituted unsafe or unsound banking practices and demonstrated a reckless disregard for the safety and soundness of the Bank..."

Keefe was fired by the bank on July 12, 2018, and has repaid the bank. The order bars Keefe from working within the banking industry.

A February 21st press release discussed the agency's enforcement action against a former manager at J.P. Morgan Chase bank. The FRB:

"... permanently barred from the banking industry Timothy Fletcher, a former managing director at a non-bank subsidiary of J.P. Morgan Chase & Co. Fletcher consented to the prohibition, which includes allegations that he improperly administered a referral hiring program at the firm by offering internships and other employment opportunities to individuals referred by foreign officials, clients, and prospective clients in order to obtain improper business advantages for the firm. The FRB is also requiring Fletcher to cooperate in any pending or prospective enforcement action against other individuals who are or were affiliated with the firm. The firm was previously fined $61.9 million by the Board relating to this program. In addition, the Department of Justice and the Securities and Exchange Commission have also fined the firm."

The $61.9 million fine was levied against J.P. Morgan Chase in November, 2016. Back then, the FRB found that the bank:

"... did not have adequate enterprise-wide controls to ensure that referred candidates were appropriately vetted and hired in accordance with applicable anti-bribery laws and firm policies. The Federal Reserve's order requires J.P. Morgan Chase to enhance the effectiveness of senior management oversight and controls relating to the firm's referral hiring practices and anti-bribery policies. The Federal Reserve is also requiring the firm to cooperate in its investigation of the individuals..."

Last month's order against Fletcher described the violations:

"... from at least 2008 until 2013 [Fletcher] engaged in unsafe and unsound practices, breaches of fiduciary duty, and violations of law related to his involvement in the Firm’s referral hiring program for the Asia-Pacific region investment bank, whereby candidates who were referred, directly or indirectly, by foreign government officials and existing or prospective commercial clients were offered internships, training, and other employment opportunities in order to obtain improper business advantages for the Firm... the Firm’s internal policies prohibited Firm employees from giving anything of value, including the offer of internships or training, to certain individuals, including relatives of public officials and relatives and associates of non-government corporate representatives, in order to obtain improper business advantages for the Firm..."

Kudos to the FRB for its enforcement action. Executives must suffer direct consequences for wrongdoing. After reading this, one wonders why direct consequences are not applied against executives within the social media industry. The behaviors there do just as much damage; and cross borders, too. What are your opinions?

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