Small Settlement Brings a Little Hope

So, Capital One Bank settled with the S.E.C. for $3.5 Million today. Big deal you say.

The New York Times Deal book quotes a few anonymous people who seem to agree. After all a fine of $3.5 million to Capital One Bank is probably something in the neighborhood of a rounding error.  Do they make more money than that on debit card fees in a week?  The S.E.C. says the bank “materially understated” its loan loss expenses and “failed to maintain effective internal controls.”  This is in the Auto loan division of the bank, but to be fair it did not appear to involve the billions and billions of dollars of misstatements we might normally expect to see in an enforcement action.  Here is something pretty interesting about this particular story, the S.E.C. actually fined individuals who work at the bank. Not a lot of money mind you but, even if it is not a lot of money it is something to see the executives held accountable personally.

What I find most interesting though is the dates of the allegations.  The S.E.C.’s case stems from early 2007 it appears specifically to refer to the second quarter of 2007.  It is a little bit scary that the allegations have taken this long to resolve.  Understandably, a $3.5 million settlement might not be at the top of the list of problems from 2007 when the entire banking system was threatening to collapse.  It  makes you wonder if the S.E.C. needs more qualified people to deal with the fall out from the financial disasters of 2007 and 2008?  Apparently they have not yet completely handled all the enforcement cases from back then.

Lawyers expecting to file S.E.C. qui tam actions tomorrow morning and get results by the end of the week, had better be a little bit realistic, unfortunately, with their clients.  We are going to have to wait just a little bit to get the agency’s attention.  It’s going to take a while if the cases from the financial crisis of 2007-2008 are still not resolved.   Plus, of course, now the whistleblower office in the S.E.C. is getting, reportedly, dozens of new tips every week.  That will create a new backlog. This all pretty much guarantees that reading about enforcement actions in the paper is likely to reflect events of a few years ago rather than events of last week.

We would like to see more people hired to help the agency deal with this reality.  In the meantime, even a small recovery, even one that has taken a long and difficult route toward settlement is to be cheered.  It means that on some level the Agency can actually enforce its regulations and get something done.

That is hope for those of us who want to file new cases regarding financial fraud.