CFTC Gives Whistleblower $240,000 in First Award Under Dodd-Frank

May 23, 2014

The U.S. Commodity Futures Trading Commission (CFTC) finally made a whistleblower award under its Dodd-Frank mandate, but released virtually no information about the enforcement action that led to its $240,000 payout.

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Department of Justice Settles Suit with Wells Fargo for $175 Million for Homeowners to Resolve Lending Claims

July 24, 2012

On July 12, 2012 the Department of Justice filed in the U.S. District Court for the District of Columbia against Wells Fargo Bank, subject to court approval, the second largest fair lending settlement in the department’s history. The Department of Justice alleges that between 2004 and 2009, Wells Fargo engaged in fair lending discrimination against African-American and Hispanic wholesale borrowers by offering them less favorable terms on loans than non-Hispanic white borrowers.

According to the complaint, between 2004 and 2008, Wells Fargo, the largest residential home mortgage originator in the United States, steered approximately 4,000 African-American and Hispanic borrowers into subprime mortgages while non-Hispanic borrowers with similar credit profiles were offered prime loans. Additionally, the Department of Justice alleges that between 2004 and 2009, Wells Fargo discriminated against approximately 30,000 African-American and Hispanic borrowers solely based on their race and national origin rather than their credit worthiness, and charged them higher fees and rates than their white counterparts. Furthermore, even after learning of its pattern of discriminatory lending, Wells Fargo failed to take sufficient and effective actions to correct it.

When the settlement was announced, Deputy Attorney General James M. Cole stated:

“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination… An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for. With today’s settlement, the federal government will ensure that African-American and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership.”

Of the $175 million settlement, $125 million will go toward compensating wholesale borrowers who were charged higher fees and rates as a result of the subprime mortgages offered to them because of their race and national origin, and any compensation offered to retail borrowers will be in addition to the $125 million. The bank has also agreed to provide $50 million in direct down payment assistance to the communities most affected by their discriminatory practices and which were hardest hit by the housing crisis. Wells Fargo will also conduct its own internal review of its retail mortgage lending practice.

The Employment Law Group® law firm is a leader in the field of whistleblower law and has an extensive nationwide whistleblower practice representing employees who have exposed illegal activity by their employer, including securities fraud and commodities trading fraud.

Federal Court in New York Orders Chicago Resident and Former Floor Broker, Kent R.E. Whitney, to Pay $600,000 for Margin Call Avoidance Scheme

June 06, 2012

On May 22, 2012 the U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York issued a consent order and permanent trading and registration ban on former Chicago, Illinois floor broker Kent R.E. Whitney.  As part of an elaborate scheme to trade stock options without posting the required margin, Whitney was accused of making false and misleading statements to Chicago Mercantile Exchange (CME) representatives, futures commission merchants (FCMs), and others.

The consent order found that between May 2008 and April 2010, Whitney fraudulently avoided substantial margin calls when placing orders for commodity options traded on the New York Mercantile Exchange (NYMEX) and the CME by utilizing a margin avoidance scheme with out-of-the-money options that had no intrinsic value.  He did this by waiting until the day or two before the front month options expired to sell a large volume of front month out-of-the-money options on the NYMEX and CME trading floors.  In order to show that the accounts he sold were open and held sufficient funds, Whitney would provide clearing firms with invalid account numbers for the trading allocations he submitted, however, the accounts he traded were closed and held no funds for margin.

When the clearing firms that received the initial allocations realized that the account numbers Whitney provided were invalid or the accounts were closed, they would return the trades to the clearing firms of the executing floor brokers.  Whitney would then provide valid account numbers in order to clear the trade, which ultimately helped him avoid posting margins by shifting the overnight margin risk to the clearing firms of the executing floor broker.  This practice allowed Whitney to avoid posting over $96 million in margin calls and made it possible for Whitney to collect the premiums for the accounts he traded.

The Employment Law Group® law firm is a leader in the field of whistleblower law and has an extensive nationwide whistleblower practice representing employees who have exposed illegal activity by their employer, including securities fraud and commodities trading fraud.