NEW YORK | 'When a man repeats a promise again and again, he means to fail you,' says an old proverb. But, what if the promise is made by the biggest Wall Street companies like Merril Lynch, Bank of America, UBS and Citigroup, those that got the bailout?
Many of them have settled fraud cases brought by the US government with a promise to never violate the same law. But, as The New York Times points out, since 1996 they have broken it at least 51 times.
Last month, Citigroup agreed to pay $285 million to settle civil charges that it had defrauded customers during the house bubble. As part of that settlement, Citigroup agreed not to violate an anti-fraud law. Exactly the same promise it made four times before: in July 2010, May 2006, March 2005 and April 2000.
According to a New York Times analysis, nearly all of the biggest financial companies — Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America among them — have done the same.
“The point is that there may be customers who have concluded that they can’t trust Wall Street to act in their best interests. And that loss of trust could be coming home to roost in the form of less business”, writes Peter Cohan at Forbes.
Are these kinds of settlements enough to deter repeating offenses? The S.E.C. is the US front-line defense against financial fraud. It is responsible for bringing financial wrongdoers to justice. Yet its $1.4 billion budget is way meager than Wall Street firms'. In 2009 Citigroup and JPMorgan Chase spent $4.6 billion each, four times the S.E.C.’s entire annual budget, on information technology alone. Halah Touryalai put this dillema into context: only in litigation reserves, for example, JP Morgan spent $4 billion as of the third quarter 2010.
The S.E.C. knows that taking Wall Street firms to court, and risking to lose the case, is far much costly than a settlement even if it there is a big chance that the promises keep on being broken.