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October 1, 2014–March 31, 2015
The OIG’s Office of Investigations conducts criminal, civil, and administrative investigations related to Board and CFPB programs and operations. The OIG operates under statutory law enforcement authority granted by the U.S. Attorney General, which vests our special agents with the authority to carry firearms, seek and execute search and arrest warrants, and make arrests without a warrant in certain circumstances. OIG investigations are conducted in compliance with CIGIE’s Quality Standards for Investigations and the Attorney General Guidelines for Offices of Inspector General with Statutory Law Enforcement Authority.
During this period, the Office of Investigations met with other financial OIGs to discuss matters of mutual interest, joint investigative operations, joint training opportunities, and OIG hotline operations and processes. The office also met with officials at both the Board and the CFPB to discuss investigative operations and the investigative process.
The Board is responsible for consolidated supervision of bank holding companies, including financial holding companies formed under the Gramm-Leach-Bliley Act. Under delegated authority from the Board, the Reserve Banks execute the day-to-day supervision of bank and financial holding companies, and the Board’s Division of Banking Supervision and Regulation is responsible for overseeing the Reserve Banks’ supervisory activities.
The Board is also responsible for supervising and regulating state-chartered banks that are members of the Federal Reserve System. Under delegated authority from the Board, the Reserve Banks execute the day-to-day supervision of state member banks, and the Board’s Division of Banking Supervision and Regulation is responsible for overseeing the Reserve Banks’ supervisory activities.
Our office’s investigations concerning bank holding companies and state member banks typically involve allegations that holding company directors or officers falsified financial records, lied to or misled examiners, or obstructed examinations in a manner that may have obstructed the Board’s ability to carry out its supervisory and regulatory responsibilities over these entities. Such activity may result in criminal violations, such as false statements or obstruction of a bank examination. Examples of investigations affecting the Board’s ability to carry out its supervisory and regulatory responsibilities are provided below; however, due to prosecutorial discretion and the nature of the investigative process, certain criminal allegations investigated by our office may not appear in U.S. Department of Justice indictments, plea agreements, or press releases.
On October 7, 2014, a former Vice President of UCB pleaded guilty to charges of conspiracy to commit false bank entries, reports, and transactions related to his preparation of false and misleading reports. On December 9, 2014, a former Chief Financial Officer of UCB pleaded guilty to one count of conspiracy to make a materially false and misleading statement to an accountant. The plea follows an earlier indictment that charged him with multiple offenses. On March 25, 2015, a federal jury convicted the former UCB Chief Operating Officer and Chief Credit Officer of seven felony counts of conspiracy, securities fraud, and other corporate fraud offenses stemming from the bank’s failure. The defendant was found guilty of conspiring with others within the bank to falsify key bank records as part of a scheme to conceal millions of dollars in losses and falsely inflate the bank’s financial statements.
On November 6, 2009, UCB, of San Francisco, California, was closed and the FDIC was appointed as receiver. It has been reported that the failure of UCB resulted in approximately $1.1 billion in losses. In addition, UCB accepted approximately $297 million in federal funds during the 2008 financial crisis, which has not been repaid. UCB’s holding company, UCBH Holdings Inc., is regulated by the Board.
This case was the result of a joint investigation by the Board-CFPB OIG, the FDIC OIG, the Federal Bureau of Investigation (FBI), the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), and the U.S. Attorney’s Office for the Northern District of California.
On October 2, 2014, the former bank officers of NOVA Bank were indicted on fraud conspiracy charges by a grand jury in the Eastern District of Pennsylvania. The alleged scheme was an attempt to defraud the government of more than $13 million in Troubled Asset Relief Program (TARP) funds. The defendants are each charged with conspiracy to defraud the United States, TARP fraud, two counts of false statements to the federal government, and bank fraud. The former bank Board Chairman was also charged with two counts of wire fraud. NOVA Bank’s holding company, NOVA Financial Holdings, Inc., of Berwyn, Pennsylvania, is regulated by the Board.
Among other activities, both subjects allegedly devised a fraudulent scheme to create the appearance of private investors providing the bank with new capital. The defendants also allegedly directed employees to tell the U.S. Department of the Treasury that NOVA Bank had raised new capital when it had not. The bank was ultimately unable to raise private capital and did not receive TARP funds; in October 2012, the bank failed and was closed by state and federal banking regulators.
This case was the result of a joint investigation by the Board-CFPB OIG, the FDIC OIG, the FBI, SIGTARP, IRS–Criminal Investigation, and the U.S. Attorney’s Office for the Eastern District of Pennsylvania.
A former bank Director, who was indicted in July 2012 by a federal grand jury in the Southern District of Georgia on a charge that he defrauded the Montgomery Bank & Trust, of Ailey, Georgia, of over $21 million, was sentenced on October 28, 2014, to 30 years in federal prison. Montgomery Bank & Trust is a subsidiary of Montgomery County Bankshares, Inc., a bank holding company regulated by the Board.
In addition to being sentenced to 30 years’ imprisonment, the former bank Director was also sentenced to serve a term of 5 years of supervised release and ordered to forfeit a total of $51 million, representing the proceeds of his crimes, and to pay restitution to the victims of his crimes in an amount to be determined at a later restitution hearing.
According to the allegations in the indictment, in 2010 an investment group controlled by the former bank Director invested approximately $10 million in the failing Montgomery Bank & Trust. He was then made a Director of Montgomery Bank & Trust and became responsible for investing the bank’s capital. The indictment alleged that over the next 18 months, he stole, misappropriated, and embezzled over $21 million from Montgomery Bank & Trust. To cover up his fraud, he allegedly provided bank officials with false account statements that indicated that the bank’s capital was safely held in an account at a financial services firm. He was arrested in December 2013, pleaded guilty in later court hearings, and was sentenced in October 2014.
This case was the result of a joint investigation by the Board-CFPB OIG, the FDIC OIG, the FBI, and the U.S. Attorney’s Office for the Southern District of Georgia.
Title X of the Dodd-Frank Act created the CFPB to implement and enforce “federal consumer financial law” and transferred to the CFPB the consumer protection functions of several federal agencies. The CFPB’s five statutory objectives are (1) to provide consumers with critical information about financial transactions, (2) to protect consumers from unfair practices, (3) to identify and address outdated and unduly burdensome regulations, (4) to foster transparency and efficiency in consumer financial product and service markets and to facilitate access and innovation, and (5) to enforce federal consumer financial law without regard to the status of the person to promote fair competition.
In general, the CFPB supervises three types of regulated entities: (1) nondepository covered persons (including mortgage brokers, loan modification services, payday lenders, consumer reporting agencies, debt collectors, and private education lenders); (2) “very large” banks, thrifts, and credit unions (with total assets in excess of $10 billion); and (3) “other” banks, thrifts, and credit unions (with total assets of $10 billion or less).
Our office’s investigations concerning the CFPB’s supervisory and regulatory responsibilities typically involve allegations that company directors or officers provided falsified business data and financial records to the CFPB, lied to or misled examiners, or obstructed examinations in a manner that may have affected the CFPB’s ability to carry out its supervisory and regulatory responsibilities over regulated entities. Such activity may result in criminal violations, such as false statements or obstruction of a bank examination. Examples of investigations affecting the CFPB’s ability to carry out its supervisory and regulatory responsibilities are provided below; however, due to prosecutorial discretion and the nature of the investigative process, certain criminal allegations investigated by our office may not appear in U.S. Department of Justice indictments, plea agreements, or press releases.
On March 6, 2015, a 40-count federal indictment was unsealed in U.S. District Court in Salt Lake City, Utah, charging six individuals with conspiracy, mail fraud, wire fraud, telemarketing fraud, conspiracy to commit money laundering, and money laundering, in an alleged scheme to market and sell home loan modification services under the guise of a law firm. The CFPB normally regulates mortgage service providers, unless such services are provided by a law firm. The Board-CFPB OIG investigated this matter in part to determine whether any misrepresentations were made to the CFPB in an effort to obstruct the agency’s enforcement program.
The indictment alleges that the object of the conspiracy for the defendants was to market and sell loan modification services using false and fraudulent pretenses to obtain money from customers and to enrich themselves. According to allegations in the indictment, two of the defendants started their loan modification business in July 2009 and hired attorneys to create the false impression that their loan modification business was a law firm. The indictment alleges that nonattorney processors and telemarketers working for them performed most if not all the work for customers seeking loan modifications. In August 2009, one of the defendants obtained information about homeowners who were delinquent on their mortgage payments and hired third parties, including a telemarketing center in California, to market his loan modification business to these homeowners.
The case is being investigated by the Board-CFPB OIG, SIGTARP, IRS–Criminal Investigation, the FBI, the Federal Housing Finance Agency OIG, and the U.S. Attorney’s Office for the District of Utah.
|Investigative actions||Number or dollar value|
|a. Some of the investigative numbers may include data also captured by other OIGs. Return to table|
|Investigations open at end of previous reporting period||66|
|Investigations opened during the reporting period||13|
|Investigations closed during the reporting period||16|
|Investigations open at end of the period||63|
|Investigative results for the reporting period|
|Referred to prosecutor||22|
|Referred to audit||1|
|Referred for administrative action||0|
|Oral and/or written reprimands||0|
|Terminations of employment||1|
|Criminal fines, restitution, and forfeiture||$464,000|