By Pam Martens and Russ Martens: February 21, 2018
Nothing buttresses Senator Bernie Sanders’ position that fraud on Wall Street is not a bug but a feature better than the news last week that the Citigroup Board was bumping up CEO Michael Corbat’s pay by 48 percent to $23 million for 2017. Corbat has sat at the helm of the bank since October 2012 as the bank has paid more than $12 billion in fines and restitution for serial abuses of the public and investors, including its first criminal felony count in more than a century of existence. The felony count came on May 20, 2015 from the U.S. Department of Justice over the bank’s involvement in a bank cartel that was rigging foreign currency markets. Numerous other charges against the bank have focused on money-laundering. Citigroup’s long history of involvement in money-laundering also gives the appearance of being a feature not a bug. (See a timeline of the charges against Citigroup under Corbat’s tenure at the end of this article.)
Aside from the feeling that overseeing a business model of fraud on Wall Street is a road to riches for Wall Street’s mega bank CEOs, there is the disquieting question as to whether this strangely uniform obscene pay of the top dogs on Wall Street is being orchestrated by another invisible cartel.
On October 14, 2016 Bloomberg News’ reporters Greg Farrell and Keri Geiger landed the bombshell report that the top lawyers of the biggest Wall Street banks had been meeting secretly for two decades with their counterparts at international banks. At the 2016 secret meeting, held in May at a posh hotel in Versailles, the following were among the big bank lawyers: Gregory Palm, part of the Management Committee at Goldman Sachs; Stephen Cutler of JPMorgan (a former Director of Enforcement at the SEC); Gary Lynch of Bank of America (also a former Director of Enforcement at the SEC); Morgan Stanley’s Eric Grossman; Citigroup’s Rohan Weerasinghe; Markus Diethelm of UBS Group AG; Richard Walker of Deutsche Bank (again, a former Director of Enforcement at the SEC); Robert Hoyt of Barclays; Romeo Cerutti of Credit Suisse Group AG; David Fein of Standard Chartered; Stuart Levey of HSBC Holdings; and Georges Dirani of BNP Paribas SA.
Reuters reported last Friday how Corbat’s $23 million pay compared to his peers on Wall Street. It noted that Jamie Dimon, CEO of JPMorgan Chase is now making $29.5 million. (Dimon has presided over three criminal felony counts at the bank within the past four years while keeping his job and watching his pay skyrocket.) Morgan Stanley CEO James Gorman is making $27 million. Lloyd Blankfein, whose bank is tiny compared to JPMorgan Chase, is making $22 million. And Bank of America’s CEO Brian Moynihan is being paid the same as Corbat, $23 million after recently getting a 15 percent pay boost.
Every one of the top lawyers of these banks were at that secret confab in 2016.
The most recent proxy filed by JPMorgan Chase goes to inordinate lengths to justify what it is paying its CEO Jamie Dimon. It includes a graph comparing his pay to peer bank CEOs and another graph that shows what percent of profits he and the CEOs of peer banks are receiving. (How that became a relevant metric is anyone’s guess. These are not, after all, family-owned businesses but banks that are subsidized by a taxpayer backstop for their trillions in insured deposits which typically earn less than one percent interest as the banks simultaneously charge 10 to 20 percent interest on their credit cards issued to the struggling middle class of America.)
A better metric would be how much shareholders have lost from fines and settlements under the reigning CEO. In Jamie Dimon’s case, it’s north of $36 billion since the financial crisis in 2008. Additionally, there’s those three criminal felony counts, the first in the bank’s more than century-old existence. Two felony counts were leveled by the U.S. Justice Department in 2014 for the bank’s role in Bernie Madoff’s Ponzi scheme. Another felony count came the very next year for the bank’s role in the foreign exchange rigging.
The era of obscene pay on Wall Street has occurred side-by-side with the era of serial charges of crimes. There is only one way to interpret this: the Boards of Directors of these banks have lost their moral compass.
A sampling of charges against Citigroup since Michael Corbat became CEO:
July 1, 2013: Citigroup agrees to pay Fannie Mae $968 million for selling it defective mortgage loans.
September 25, 2013: Citigroup agrees to pay Freddie Mac $395 million to settle claims it sold it toxic mortgages.
December 4, 2013: Citigroup admits to participating in the Yen Libor financial derivatives cartel to the European Commission and accepts a fine of $95 million.
July 14, 2014: The U.S. Department of Justice announces a $7 billion settlement with Citigroup for selling toxic mortgages to investors. Attorney General Eric Holder called the bank’s conduct “egregious,” adding, “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
November 2014: Citigroup pays more than $1 billion to settle civil allegations with regulators that it manipulated foreign currency markets. Other global banks settled at the same time.
May 20, 2015: Citicorp, a unit of Citigroup becomes an admitted felon by pleading guilty to a felony charge in the matter of rigging foreign currency trading, paying a fine of $925 million to the Justice Department and $342 million to the Federal Reserve for a total of $1.267 billion. The prior November it paid U.S. and U.K. regulators an additional $1.02 billion.
May 25, 2016: Citigroup agrees to pay $425 million to resolve claims brought by the Commodity Futures Trading Commission that it had rigged interest-rate benchmarks, including ISDAfix, from 2007 to 2012.
July 12, 2016: The Securities and Exchange Commission fined Citigroup Global Markets Inc. $7 million for failure to provide accurate trading records over a period of 15 years. According to the SEC: “CGMI failed to produce records for 26,810 securities transactions comprising over 291 million shares of stock and options in response to 2,382 EBS requests made by Commission staff, between May 1999 and April 2014, due to an error in the computer code for CGMI’s EBS response software. Despite discovering the error in late April 2014, CGMI did not report the issue to Commission staff or take steps to produce the omitted data until nine months later on January 27, 2015. CGMI’s failure to discover the coding error and to produce the missing data for many years potentially impacted numerous Commission investigations.”
January 23, 2017: The Consumer Financial Protection Bureau (CFPB) fined Citigroup $28.8 million for “giving the runaround to borrowers trying to save their homes.”
May 22, 2017: Citigroup signed a deferred prosecution agreement with the U.S. Department of Justice and paid a $97 million fine over charges that its Banamex unit committed “criminal violations by willfully failing to maintain an effective anti-money laundering” program.
November 21, 2017: The Consumer Financial Protection Bureau (CFPB) imposed a $2.75 million fine against Citibank for a litany of abuses against student loan borrowers. The CFPB also ordered Citi to pay $3.75 million in restitution.
December 28, 2017: Citigroup paid $11.5 million to settle FINRA charges its brokerage unit harmed retail customers by displaying the wrong research ratings from its analysts for hundreds of stocks for nearly five years. For example, customers might have been seeing a “buy” rating when the actual rating from the analyst was “sell.”
January 4, 2018: Office of the Comptroller of the Currency fines Citigroup $70 million for failures in its anti-money laundering policies.