In the aftermath of the financial crisis, there have been relatively few individuals held responsible for the roles they played, or the bad mortgages they issued and bundled together to pass along to investors. However, a former employee of the mortgage lender Countrywide Financial was fined Wednesday as part of a civil fraud case.
It was nicknamed "the Hustle" – a program in which Countrywide is alleged to have passed bad mortgage products onto investors. Since Bank of America acquired Countywide in 2008, the bank was fined nearly $1.3 billion for the fraud. Additionally, a former Countrywide employee, Rebecca Mairone, was fined $1 million, which the judge specified she should pay herself.
Unlike previous financial crises, pursuing individuals for their misdeeds has not been the norm in recent years, says Ken Thomas, an independent bank consultant and economist.
“We’re seeing companies paying fines, but little actions against the people involved,” he says. “After the savings and loan crisis, there were many savings and loan executives that went to jail. Here, we don’t see that.”
Countrywide’s former CEO and CFO were also fined coming out of the financial crisis.
However, most individuals who have been targeted are typically lower-level employees who worked directly on the bad deals, says Michael Santoro, a professor at Rutgers Business School.
“It’s a little more difficult to present evidence against people who have set policies in motion or who might turned the other way or who may have winked at something,” he says.
According to the Securities and Exchange Commission, 174 companies or entities have been charged arising from the financial crisis. About 40 percent of those charges have been against CEOs, CFOs or other senior executives.
Many of those actions were on a different scale than this case, says David Zaring, associate professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School.
“Ms. Mairone, she’s in a unique place,” says Zaring. “There’s an actual jury verdict that came in against her and a fine that was duly awarded after that verdict. Almost everything the SEC has done has been a settlement.”
Zaring says earlier failed criminal cases against a pair of Bear Stearns employees might have been a deterrent, and that if the wrongdoing was such a widespread practice in the financial industry, it can be hard to single out individuals.
What other individuals have paid fines?
It's exceedingly rare for an individual to be singled out by the SEC and it's just as rare for those folks to pay any more than a couple hundred thousand dollars -- chump change. There are only a few other exceptions: here are the biggest penalties levied by the SEC in the wake of the Great Recession:
- Angelo Mozilo, former CEO of Countrywide, is the biggest exception to the rule by far. As part of a settlement with the SEC, Mozilo agreed to pay a record $22.5 million penalty, on top of another $45 million in "ill-gotten gains" to be returned to investors. Mozilo was also banned from running a public company for life. His CFO paid a relatively puny $130,000 penalty.
- Former Brookstreet CEO Stanley Brooks didn't settle with the SEC and a federal judge hit him with a $10 million fine. In addition to the penalty, the maximum allowed for his charges, Brooks had to pay another $110,000 to investors.
- From here, the penalties drop pretty quickly and leave the executive suite. Fabrice Tourre, a Goldman Sachs trader turned academic, was accused of defrauding investors and became a symbol of the economic crisis for many. The SEC sought nearly $1 million in fines from "Fabulous Fab," but he was eventually ordered to pay $825,000.
- Former Bear Stearns portfolio managers Ralph Cioffi and Matthew Tannin were notably aquitted of securities fraud in 2009, but they settled in a later civil case, agreeing to pay about $1.05 million.
Pretty much everything bad that happens behind the wheel today is our fault.
“Today, 95 percent of accidents are actually driver error,” says Robert Hartwig, president and economist at the Insurance Information Institute, an industry association.
When cars drive themselves, he says, people hope to see a lot fewer accidents.
“The data seems to support that these cars will be better drivers than most people, because they don’t get distracted, they don't turn around and talk to their kids, they don’t play with their cellphone," says Chris Shultz, deputy commissioner of community programs and policy initiatives at the California Department of Insurance.
And while you might think this would mean cheaper insurance policies, Schultz says the future of auto insurance has actuaries getting anxious.
“We might see decreased frequency of collisions, but increased severity,” he says.
While policy holders might pay less, because your car is involved in fewer accidents, you might pay more because the cost of high tech repairs is higher.
Then, there's the liability question.
"What happens if I put my five-year-old in the back and press the button and say 'drive my five-year-old to kindergarten'? I don’t think any policy makers know what to do with that yet," says Schultz.
“The question really turns into 'who is in control of the driverless car?'” says Frank Douma, a research fellow and associate director of the State and Local Policy Program at the Univeristy of Minnesota's Humphrey School of Public Affairs and a research scholar at its Center for Transportation Studies.
The answer, says Douma, could mean analyzing data from the car after an accident – looking at its black box.
But while the knowledge may prove a relief to no one but insurers, self driving cars still have classic problems, in which liability is clear. So although we can expect to see a significant number of autonomous cars on the road by 2020, Robert Hartwig says, don’t plan to cancel your insurance policy.
“Cars could still be stolen, trees could still fall on your car.”
Kellogg's, maker of Froot Loops, Apple Jacks and Corn Flakes, could be drying up.
Americans aren't buying cereal like they used to. And that's led to a sales slump: Profits were down 16 percent last quarter.
Another factor is that cereals like Special K used to be popular because they were low-calorie. Now, however, Kellogg's CEO says Americans have become more interested in foods that are "more nutritious."
The other day, an email came in from a big online contact lens store that said, starting Aug. 1, we can all forget about getting a deal on the most popular contact lenses.
What’s happening is something called unilateral pricing. Johnson & Johnson, which makes the top-selling Acuvue brand, is joining other manufacturers, like Alcon and Bausch & Lomb, in telling eye doctors, big box retailers and online stores that they can’t charge less than a certain amount.
“If the retailer sets the lenses for below that price, then the supply of that particular contact lens would be cut off,” Senator Amy Klobuchar, Democrat of Minnesota, said as she opened a Judiciary Antitrust Subcommittee hearing on the new practices.
“If the point is to save consumers money, I don’t know why we have a minimum price we can’t go below,” R. Joe Zeidner, general counsel at the discounter 1-800-CONTACTS, told the panel.
— 1-800 Contacts (@1800CONTACTS) July 30, 2014
But pricing experts say unilateral pricing is not always bad for consumers.
“They can compete on other things,” said Barbara Sicalides, a partner and antitrust expert at the law firm, Pepper Hamilton. Companies like Bose use unilateral pricing to maintain cachet. Others, like Samsung, use minimum prices to help combat “showrooming,” helping stores staffed with knowledgeable salespeople compete with online sellers.
“One benefit is that you’re going to have more services provided to you when you buy some very complex products,” says John Zhang, a pricing expert and professor at the University of Pennsylvania’s Wharton School.
But buying contacts is different. Your doctor has already told you what to buy, and gets paid separately for the exam.
Eliminating discounts may make you more willing to buy directly from the optometrist. That’s the accusation made by contact lens discounters like 1-800-CONTACTS.
At the hearing, Dr. Millicent Knight, Johnson & Johnson Vision Care's head of professional affairs, said the new pricing is simpler and cheaper for most. It eliminates cumbersome rebates, and has “a price that is actually lower than the current national average selling price to consumers," she said.
But that’s just the average. For the roughly 10 percent of shoppers who buy online, according to Euromonitor, prices will likely go up.
And, all of this is perfectly legal, as long as manufacturers aren’t actively coordinating prices among themselves or with retailers.
Policy change in effectDan Bobkoff/Marketplace
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