Will Judge Go Rogue, Reject DOJ Settlement with HSBC?

Simon Dawson/Bloomberg via Getty Images(NEW YORK) -- There could be a hitch in the Justice Department's controversial decision not to prosecute Europe's largest bank over allegations it laundered money for Mexican drug gangs, rogue states and terrorist money men.

To the surprise of some experts, a federal judge has so far refused to sign off on an agreement reached three months ago between federal prosecutors and the Britain-based bank HSBC.  Despite what prosecutors said was a mountain of evidence of illicit money transfers, the deal enabled HSBC to avoid a potentially crippling criminal prosecution.  Instead, HSBC agreed to pay an unprecedented $1.92 billion in fines.

While the Justice Department brokered the deal, it can't go through without the approval of U.S. District Court Judge John Gleeson.

"It does not seem likely that the judge would have taken this much time if he was not at least thinking hard about whether to accept the agreement," said Duke University Law Prof. Sam Buell, a former federal prosecutor.

The Justice Department decision to allow the bank to avoid criminal sanctions has been pilloried by lawmakers.  Sen. Jeff Merkley, an Oregon Democrat, accused the Justice Department of creating a "prosecution free zone" for big banks.

Lawmakers said they were particularly irritated by suggestions from Attorney General Eric Holder and other senior Justice officials that the government avoided prosecuting the bank because doing so had the potential to destabilize the economy.  That assertion led lawmakers to question whether banks as large as HSBC are "too big to prosecute."

"If you're caught with an ounce of cocaine, the chances are good you're going to jail," said Sen. Elizabeth Warren (D-Mass.).  "Evidently, if you launder nearly $1 billion for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night."

In a December court hearing in New York, Gleeson asked lawyers for the Justice Department and HSBC to provide him their arguments for him to approve the deal.

"My suggestion is you present to the court a document that demonstrates why I should accept the agreement," Gleeson said, according to published reports. "There's been some publicized criticism of this.  I think you should feel free to address it."

In January, each side presented the judge with written arguments defending the deal, known as a deferred prosecution agreement.  In the government's 20-page filing, federal prosecutors argued that the deal "was carefully tailored to punish the defendants and deter future misconduct of others."  It also repeated the assertion that a criminal prosecution could result in "collateral consequences, including … disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable."

The bank, in turn, argued that a deal is a deal.  HSBC lawyers wrote that the bank has already paid a steep price -- publicly admitting to wrongdoing and suffering "unusual reputational harm" as a result.

"The government must be held to its obligations," the filing says.

ABC News left messages for HSBC lawyers and the Justice Department seeking comment but did not receive a response.

Buell said both sides make legitimate points, and added that the Justice Department would be placed in a tough spot if the judge rejects the agreement.  But because criminal charges are still pending against HSBC, Buell said, the judge still has the power to reject the deal and force the government to move ahead with a prosecution or propose a different deal.

Gleeson has not signaled which way he will rule.  He issued an order in mid-February stating only that "the Court has not yet approved or disapproved the proposed agreement disposing of the case.  The application for approval of that agreement has been taken under advisement."

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Banks Reach $8.5B Settlement with Regulators on Foreclosure Abuses

Hemera/Thinkstock(NEW YORK) -- Ten banks have reached an $8.5 billion foreclosure abuse settlement with regulators.  This is not the first or the biggest of such settlements, but another in a series of settlements and lawsuits coming out of the now several-years-old housing bubble.

The deal provides billions in direct payments to 3.8 million homeowners who were forced into foreclosure in 2009 and 2010.  The Fed says they were subjected to “unsafe and unsound” practices by banks.  

In addition to the direct payment, banks will pay $5 billion for loan modifications and other assistance to millions more struggling to stay in their home.

This settlement comes out of the so-called “robo-signing” scandal, where banks were found to be fast tracking foreclosures without adequate paperwork.

Borrowers eligible for payment do not need to take any action; they will be contacted by a “payment agent” set up as part of this settlement.  If a borrower thinks they should be eligible, they should contact their bank.

This agreement includes Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo.  Regulators are still negotiating with some servicers, so the size of the settlement could grow.

State Attorneys generals came to a somewhat similar $25 billion settlement with banks last year.  

Monday's announcement is separate from Bank of America’s more than $10 billion settlement with Fannie Mae announced earlier in the day.

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Toyota Agrees to $1 Billion Settlement in Acceleration Case

TED ALJIBE/AFP/Getty Images(NEW YORK) -- Toyota has agreed to pay more than $1 billion to customers to settle a class-action lawsuit that alleged its vehicles accelerated dangerously and without warning, according to statements by the carmaker and the plaintiffs' attorney.

The deal, which still needs approval by a federal judge in California, includes a $250 million fund to be paid to Toyota owners who sold their cars at a loss following reports of vehicle malfunctions, as well as the installation of a brake override system in about 3.25 million vehicles.

An additional $250 million fund will be created to pay those owners whose vehicles are not eligible for the retrofitted brakes.

Toyota recalled more than 14 million vehicles after reports of sudden, unexplained acceleration in several models began to surface between 2009 and 2010. There were also reports of brake problems with the Prius hybrid.

Toyota insists that it was not an electrical flaw that caused the acceleration problems, but driver error, floor mats and sticky gas pedals.

Both the National Highway Traffic Safety Administration and NASA have said there is nothing wrong with programs that run the vehicles' onboard computers.

"From the very start, this was a challenging case," said Steve Berman, the plaintiffs' lawyer. "We brought in automotive experts, physicists and some of the world's leading theoreticians in electrical engineering to help us understand what happened to drivers experiencing sudden acceleration."

The settlement also includes $30 million to be given to outside groups to study automotive safety.

In a statement, Toyota agreed to the deal.

"In keeping with our core principles, we have structured this agreement in ways that work to put our customers first and demonstrate that they can count on Toyota to stand behind our vehicles," said Toyota spokesman Christopher P. Reynolds.

Copyright 2012 ABC News Radio

Is HSBC Too Big to Prosecute?

Simon Dawson/Bloomberg via Getty Images(NEW YORK) -- Europe's largest bank will avoid a potentially crippling criminal prosecution for its role in moving cash for known terror groups, Mexican drug cartels and rogue governments such as Iran, instead agreeing to pay a record $2 billion settlement, U.S. Justice Department officials announced at a press conference on Tuesday.

The announcement of the immense fine was overshadowed by efforts to explain why, in one of the clearest cases of criminal money laundering in recent memory, no one would be facing jail time.  Criminal conviction on money laundering violations would have also forcibly prevented HSBC from doing business in the United States.

Lanny Breuer, Assistant Attorney General for the Criminal Division, disputed suggestions that the bank was "too big to be prosecuted," but did not dispute the idea that the Justice Department was looking for ways to penalize the bank without compromising the jobs and beneficial economic activity that the massive bank supports.

"Our goal here is not to bring HSBC down," said Breuer.  "I wouldn't say it's too big to prosecute.  I'm not going to say that. ...I don't think the bank thinks it got off easy."

American officials said the $1.92 billion fine -- the largest ever in such a case -- would send a pointed message to financial institutions that have been lax in weeding out the banking activities of criminals and terrorists.

"The HSBC settlement sends a powerful wake-up call to multinational banks about the consequences of disregarding their anti-money laundering obligations," said Sen. Carl Levin (D-Mich.), whose investigative subcommittee first aired concerns about HSBC's actions in hearings earlier this year.

Critics of the settlement said Tuesday that the government had missed a rare chance to send an unmistakable signal about the threat posed by financial institutions willing to assist drug lords and terror groups in moving their money.

"How much more do you need to know?," said Jack Blum, an international banking expert in Washington, D.C.  "These people managed to cross virtually every line that was crossed.  It was an astonishing amount of criminal behavior."

"I'd say this is a signal to other banks that if you don this kind of stuff you'll get a parking ticket," said Blum.  "You pay the fine, and you move on.  And that's unacceptable."

Breuer said, "I don't think you can make a strong argument that we haven't addressed the underlying issue."

The fine, while large, represents only a fraction of the bank's business -- in 2011 HSBC had net income of $16.8 billion.  Markets responded to the settlement by sending HSBC's stock up.  HSBC Holdings PLC's share price in London was trading 0.5 percent higher.  Analysts said the bank will be able to absorb the cost of the settlements.

According to Shore Capital analyst Gary Greenwood, the penalties are equivalent to around 9 percent of each company's 2012 pretax profits.

The U.S Attorney for the Eastern District of New York, Loretta Lynch, told reporters on Tuesday that HSBC ignored "numerous red flags and warnings about the money laundering risks."

The bank "routinely did business with entities on the U.S. sanctions list," she said, "evading U.S. prohibitions on such transactions by disguising the source of the funds so the payments would go through."

Some of the most egregious activities involved efforts by the bank to assist Mexican drug lords in moving the massive amounts of cash they were receiving through their criminal activity, giving the bank the reputation as the bank of choice for drug gangs, Lynch said.

In a statement, HSBC Group Chief Executive Stuart Gulliver said, "We accept responsibility for our past mistakes.  We have said we are profoundly sorry for them, and we do so again.  The HSBC of today is a fundamentally different organization from the one that made those mistakes."

"Over the last two years," said Gulliver, "under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."

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JPMorgan Chase to Pay $100M for Hiking Credit Card Fees

Peter Foley/Bloomberg via Getty Images(SAN FRANCISCO) -- Under a court settlement filed this week in San Francisco, JPMorgan Chase will pay $100 million to credit card holders who saw their minimum monthly payments hiked from 2 percent to 5 percent between 2008 and 2009.

A class-action lawsuit, filed three years ago, argued that the increase was improper, and that it violated commitments made by the bank to induce cardholders to switch their balances to Chase from other lenders.

Those commitments, says Howard Dvorkin, CPA, a founder of ConsolidatedCredit.org, included interest rates that were supposed to remain “fixed” until balances were paid in full.

“They said come to us and we’ll fix your interest rate for the life of the loan, until it’s paid off,” says Dvorkin.

In 2008 and 2009, however, the bank raised rates, triggering an increase in late payment penalties from hard-squeezed borrowers.  Late payment also could trigger a penalty interest rate of 29.29 percent.

“Your promotional rate that got you to the bank, they didn’t honor,” says Dvorkin.  “A client would go delinquent, and triggering penalty and late fees, and your interest rate could go to 30 percent.  Do I think this was part of an evil master plan?  No.  Do I think it was aggressive?  Yes.  And now they’re paying the penalty for it.”

Chase’s view, according to the proposed settlement, which still must be approved by a judge, was that raising payment minimums was “a reasonable and sensible response to unprecedented economic turmoil and impending regulatory changes” -- meaning the credit card reform act of 2009.

The proposed settlement includes a complex allocation plan for divvying up the $100 million between members of the class.  Class members get a flat payment of $25 plus a pro-rata share of the settlement fund (after legal fees and costs have been deducted).  The plan gives $72 as a representative amount.

“At the end of the day,” says Dvorkin, “it’s the lawyers who make the money.”

A spokesperson for JPMorgan Chase, contacted by ABC News, declined to comment on the settlement.

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Credit Card Settlement May Not Help Consumers

Comstock/Thinkstock(NEW YORK) -- There's one thing plenty of people agree on about the new $7.25 billion settlement reached between big banks and retailers on credit card swipe fees: They don't like it.

"People on both sides of the issue are disappointed," says Anisha Sekar, VP of credit and debit products for NerdWallet, a website that helps consumers decide which credit card program is best for them.

Under the proposed deal -- which, if approved by a judge, would be the largest antitrust settlement in U.S. history -- merchants would be free to tell customers at checkout how much extra they're paying to use a given credit card than if they'd paid by cash.  Merchants also would have the option of imposing a surcharge on credit card purchases, which would help them recoup some of the hefty fees they pay to banks for credit card transactions.

The Wall Street Journal reports that for many retailers, those fees represent the third-biggest cost of doing business, right after rent and payroll.  A merchant's average fee, says the Journal, is 1.5 percent to 3 percent of each credit card transaction.

Defenders of the settlement reached last week say that under it, merchants' costs would be reduced; and further, that consumers would get more information to help them make better decisions about which card to use (or whether to use a card at all, and instead to pay cash).

Jeffrey Shinder, an attorney who represents some 145,000 convenience stores through the National Association of Convenience Stores (NAC), questions how much of a benefit consumers might get.

"If this goes through intact," he says, "you should ask yourself: Are merchants really going to surcharge?  I have my doubts."

Singling out credit card customers for a special charge would be "a PR nightmare in a tight economy," says Shinder.  Moreover, he says, state law in New York, California, Texas and seven other states prohibits such surcharges.  These states together, he says, account for 42 percent of transaction volume.  So, the settlement's terms "won't affect half the country."

One more twist: Merchants who accept American Express are precluded under their agreement with the card provider from imposing surcharges on Amex transactions.  And under the settlement's terms, merchants cannot favor one card over another.  Thus, any merchant who accepts Amex (and can't impose an Amex surcharge) can't impose a surcharge on for any other card, either.

"All of which is to say," says Shinder, "that I don't think there's going to be much impact.  It's why this is not a landmark settlement.  It's not going to benefit consumer welfare."

It could, however, be a huge pain in the neck for merchants.  Doug Kantor, counsel for NAC, foresees widespread confusion and frustration: "At the end of the day, merchants will throw up their hands and say, 'I can't do it,'" he predicts.

Copyright 2012 ABC News Radio

Feds: GlaxoSmithKline to Pay $3B for Illegally Marketing Drugs

GLAXOSMITHKLINE/AFP/Getty Images(WASHINGTON) -- Heathcare giant GlaxoSmithKline has agreed to an unprecedented $3 billion settlement with the U.S. government over allegations that the company advertised drugs for uses not approved by the Food and Drug Administration and then used lavish gifts to convince doctors to prescribe the drugs.

In one instance, a drug was widely promoted to help treat depression even though the FDA had never tested it for such a use, according to the Department of Justice.  The multi-billion dollar settlement is the largest in U.S. history for alleged healthcare fraud, government officials said.

GlaxoSmithKline, or GSK, is a major manufacturer of prescription medication, vaccines and consumer healthcare products.  On its website, the company boasts, "every minute more than 1,100 prescriptions are written for GSK products."

In a 2011 Corporate Responsbility Report, GSK addressed the government's allegations broadly, saying, "Some people are concerned that marketing by pharmaceutical companies may exert undue influence on doctors, that sales representatives may not always give doctors full information about the products they are promoting, or that there may be promotion of medicines for unapproved uses."

GSK goes on in that document to say that the company has "fundamentally changed our procedures for compliance, marketing and selling in the USA to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently."

Copyright 2012 ABC News Radio

Apple Settles with Chinese Company over iPad Trademark Rights

David Paul Morris/Bloomberg via Getty Images(NEW YORK) -- Apple has finally settled its two-year legal battle with Proview International for ownership of the “iPad” name in China.

The two had been embroiled in a tangled web of lawsuits and countersuits disputing claims of infringement, defamation and fraud since 2009.  The settlement mitigates Apple’s concerns about blocked iPad sales in China, and may come in the nick of time for LCD screen manufacturer Proview, which filed for bankruptcy in March.

The Guangdong High People’s Court announced in a statement Monday that the two companies had come to some resolution over ownership of the IPAD trademark to the tune of $60 million.

Xie Xianghui, a lawyer for Proview, affirmed that “this is a result that is acceptable to both sides.”  However, Xie mentioned that the company had settled for much less than the $400 million it had hoped for, feeling pressure to settle debts.  Xie also stated that even Apple’s settlement, nearly four times the amount it had originally offered, might not be enough to stave the looming threat of Proview’s bankruptcy.

In 2000, one year before Apple announced the development of its iPad, Proview registered the IPAD trademark in Taiwan, following suit in China, Europe, Indonesia, Mexico, and other international markets in the next four years.  After Proview’s line of tablet computers bearing the name floundered, Proview Electronics, the company’s Taiwanese subsidiary, sold the trademark in 2009 to American company IP Application Development (IPAD) for 35,000 pounds ($54,800).

Proview Electronics claimed in its lawsuit that it did not realize that “IP Application Development” was an Apple shell company, which was in the process of purchasing the rights to the IPAD trademark internationally before launching product sales across the globe.  Meanwhile, the Chinese trademark office rejected Apple’s attempts to transfer rights to the trademark in mainland China.

While Taiwan-based Proview Electronics sold Apple rights to the IPAD name in many different countries, Apple soon discovered that the rights to the name in mainland China were not included in that purchase and that a different Proview branch, Shenzhen-based Proview Technology, still maintained rights to the trademark on mainland China.  Once Apple went to market with the iPad, Proview Technology asserted their trademark ownership and demanded $800 million for transfer of rights.

Apple, which had started selling iPads as soon as it had purchased the trademark, proceeded to sue Proview Technology in China for continuing to claim ownership of the IPAD name.  After the Shenzhen Municipal Intermediate People’s Court ruled in December of last year that Apple did not have rights to the name in China, Proview countersued Apple in the U.S., asserting that the company was fraudulent in acquiring the trademark through a dummy corporation. Proview also applied to local customs to ban Apple iPad sales in two major Chinese cities, threatening to push for a national ban if Apple did not compensate the company at the steep base sum of 10 billion yuan ($1.6 billion).

The lawsuit was dismissed in May after Apple argued that it had purchased ownership to the name in 10 different countries.  Since then, the two companies had been in court-sponsored mediation.

Copyright 2012 ABC News Radio

US, UK Reach Settlement with Barclays over Interest Rate Manipulation

Bruno Vincent/Getty Images(NEW YORK) -- Regulators in the U.S. and U.K. have reached a settlement with Barclays, the world’s third largest bank, over allegations that it tried to manipulate worldwide interest rates for its own financial gain, ABC News has confirmed.

The U.S. Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) announced on Wednesday that U.K.-based Barclays tried to influence something called the LIBOR rate -- the worldwide benchmark for interest rates -- for a period of years dating back at least until 2005.

The London Interbank Offered Rate is supposed to reflect the rate at which top banks in London lend to each other.  It is used in the U.S. and other nations to set rates for student loans, mortgage rates, credit cards and car loans.

Barclays reached separate settlements with the CFTC, DOJ, and the British agency FSA, the Financial Services Authority in England.  More than $450 million in fines were levied, including $160 million to the DOJ.

[CLICK HERE TO SEE THE CFTC'S LEGAL FILING ON THE CASE]

Emails investigators found shows traders inside Barclays wrongfully contacted the division of the bank that influences interest rates. The wrongful conduct is said to have happened on an almost daily basis at times.

As a part of the settlement, Barclays will be required to cease and desist from further similar activity.

Copyright 2012 ABC News Radio

Mets Owners Agree to Pay $162 Million to Madoff Victims

Mario Tama/Getty Images(NEW YORK) -- The owners of the New York Mets agreed Monday to pay $162 million to settle claims that they willfully ignored the Ponzi scheme orchestrated by Bernie Madoff.

"We believe that this is a fair and just settlement," said David Sheehan, chief counsel to Irving Picard, the court-appointed trustee recovering money on behalf of Madoff's defrauded clients.

The trustees had demanded six years of "fictitious profits" that team owners Saul Katz and Fred Wilpon allegedly earned from their Madoff investments. The amount is about half of what Picard had hoped to recover from them. Katz and Wilpon did not admit any wrongdoing and are released from further claims or litigation. They agreed to pay out the $162 million over five years.

"This settlement represents the best possible outcome," Sheehan said.

The agreement, negotiated with the help of former New York Governor Mario Cuomo, was announced Monday morning, moments before the trial of Katz and Wilpon was to begin in federal court in Manhattan. The list of potential witnesses included Hall of Fame pitcher Sandy Koufax, a friend of Wilpon's who took his advice and invested with Madoff.

"This entire trial would have turned on the question of whether the Mets owners, who had dealt with Madoff for many years, knew or should have known the returns they were getting on their investments were simply too good to be true," said Robert Mintz, a former federal prosecutor now in private practice at McCarter and English LLP in Newark.

Picard had argued Katz and Wilpon were willfully blind to Madoff's Ponzi scheme. The Mets owners have said they knew of no red flags. They now have three years to begin making payments, which the agreement says must be completed in five years.

"For the Mets owners I think the key here was putting to an end a high-risk gambit," said Mintz, the former prosecutor. "The unpredictability of placing this case before a jury was a risk that in the end they thought was too high to take."

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