Financial Fraud Prosecutions Likely To Focus More On Individuals

Posted On Friday, March 14, 2014
By: Christopher A. Iacono

In a recent interview, the head of the New York State Department of Financial Services, Ben Lawsky, vowed to punish individuals — not just businesses — in mortgage and bank probes.  This suggests the era of stand-alone corporate settlements in these types of investigations is ending.

Mr. Lawsky stated that efforts to expose individual bad actors as part of probes into corporate malfeasance could prove to be a powerful deterrent to fraud. “Corporations are a legal fiction. You have to deter bad individual conduct within corporations,” Mr. Lawsky told the Financial Times in an interview published recently. “People who did the conduct are going to be held accountable.”  His comments are noteworthy since his agency has a global reach, given its location.

The message came as his office conducts investigations into home loan servicers Nationstar Mortgage LLC and Ocwen Financial Corp., and amid investigations into banks for running afoul of U.S. sanctions against other countries.  For instance, his agency recently reached a $100 million settlement with the Royal Bank of Scotland PLC for doing business with Iran, Sudan and other regimes in violation of U.S. sanctions imposed against those nations.   

In recent years, prosecutors and government regulators in financial fraud investigations have focused in large part on prosecuting corporations, rather than the individual corporate executives.   This emphasis is reflected by the number of corporate deferred and nonprosecution agreements at the federal level.  Given Mr. Lawsky’s comments, however, it appears that the pendulum will continue to swing back toward holding individuals accountable.