A summer of financial scandals

From money laundering to trading blunders, here's a roundup of recent wrongdoings.

By Kim Peterson Jul 18, 2012 2:36PM
Image: Jail (© Darrin Klimek/Getty Images/Getty Images)Bankers behaving badly? That's nothing new. But a whole army of naughty Wall Streeters getting busted repeatedly for truly breathtaking scandals?

That's exactly what we've seen this summer. We're talking about financial manipulation on a global scale. A money laundering case that reads like a Hollywood thriller. An investigation at the Vatican. An investing disaster that led to a suicide attempt.

The hits just keep coming, yet it's unclear what's triggering all this slimy behavior. Is there something new here, or was Wall Street acting like this all along and we're just figuring that out?

Here's a roundup of the scandals that have rocked the financial world lately:

Money laundering charges at HSBC
The U.S. Senate released a massive report (read it here) this week charging that HSBC Holdings sat back as billions of dollars came in from shadowy regions of the world. Between 2007 and 2008, for example, some $7 billion was moved into the bank's U.S. operations from Mexico. Money like that doesn't come out of Mexico unless it's tied to illegal drug operations.

HSBC also did business with a bank in Saudi Arabia that has links to terrorism, Reuters reports. Other parts of HSBC had ties to Iran. Much of the Senate report focused on money laundering and shady bulk-cash deposits.

The fallout: HSBC's head of group compliance, David Bagley, is resigning. The bank promised to close operations in such havens as the Cayman Islands.

The following video has more about HSBC's scandal.

Post continues below.
There's a reason Libor starts with 'lie'

The world uses the London interbank offered rate, or the Libor, as the benchmark for mortgages, corporate loans and other contracts. Messing around with that rate ripples around the world, and can bring you plenty of money if you know how to play the game -- which, apparently, lots of London bankers do.

The Libor is calculated daily from interest rates submitted by major banks. So if the banks wanted to tweak the Libor, all they had to do was lie when they submitted the rates. The banks knew the Libor would change, and they used that knowledge to make profits, screw with mortgages and make themselves look healthier than they actually were.

The fallout: Barclays will pay $453 million to settle claims it lied about lending rates in order to screw with the Libor index. Barclays chairman Marcus Agius and CEO Bob Diamond resigned. Expect to see more resignations, as Barclays surely didn't act alone here.

Peregrine Financial's missing millions
The company filed for bankruptcy after news emerged that more than $200 million in client investments had disappeared. Founder Russell Wasendorf Sr. admitted to fraud in a suicide note he left behind after he funneled tailpipe exhaust into his car in the parking lot of his office headquarters in Iowa.

After his suicide attempt failed, Wasendorf confessed to stealing the money, and said it's pretty much all gone at this point. He forged documents and used post-office boxes to keep the fraud going for nearly 20 years.

The fallout: Wasendorf faces decades in prison. His jet, his $100,000 wine collection and other assets are being sold to try to recover some of the stolen money.

The 'London Whale' loses billions for JPMorgan
JPMorgan Chase (JPM) has billions of dollars in cash, and its investment office is supposed to invest that money conservatively. But its London office went nuts with some of that cash, making huge, risky trades that ultimately has cost the bank $5.8 billion in losses.

Three traders apparently participated in the so-called "London Whale" blunder, in which they built a huge and risky stake in synthetic credit derivatives.

The fallout: Those three traders are no longer with the company. The head of JPMorgan's investment office has resigned. The bank is restating its first-quarter earnings. The bank has been hit with several lawsuits.

Hedge funds getting early information
A stock can climb or plunge on an analyst's recommendation. Wouldn't you love to know what the analysts are saying before the rest of the market? That's exactly the kind of information some hedge funds appear to be getting, The New York Times reports.

Analysts fill out questionnaires for hedge funds every month or quarter, and the information on those surveys are used in those hedge funds' trading strategies, the Times reports. The issue got the attention of the public in Facebook's (FB) initial public offering. News emerged that privileged investors got early word that analysts were revising their estimates on the company.

The fallout: The Facebook disclosures have triggered investor lawsuits. But little else has changed about these practices. The retail investor has no chance against Wall Street.

More money laundering -- at the Vatican?
The Vatican bank has gone silent after prosecutors asked for more information about the massive amounts of cash moving through the account of one priest, Ninni Treppiedi.

Prosecutors suspect that the priest may have been laundering money for a wanted mafia hotshot named Matteo Messina Denaro. Earlier this year, the head of the bank was fired after a unanimous no-confidence vote by the board of directors.

The fallout: Treppiedi has been suspended. The bank has suffered financial scandals for years, and isn't saying much about this one.

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Jul 18, 2012 3:13PM
I know, I know...some will say legislation like Dodd-Frank (w/the Consumer Protection Act), Oxley-Sarbanes, et al, do little to reign in this egregious behavior by the financial services industry and with the stumbles of existing regulatory agencies (e.g., SEC, bank regulators and futures regulators, et al), we are all doomed. I say WE NEED MORE regulation, except we need to get the people who know what they're doing and can investigate more efficiently and more often. Regulatory agencies should hire the people in the financial services industry who understand how the games are played. We also need more technology. Also, jail time for these crooks, wouldn't hurt along with the return of all the money they "earned." This has got to stop. We all suffer because of such blatant greed and avarice. 
Jul 18, 2012 4:12PM
Crooked Banksters who have loads of juice with politicians? I'm SHOCKED, SHOCKED!

MONEY IS NOT SPEECH!  MONEY IS POLITICAL POWER. Thank you Supremes for giving us the best government that money can buy.

 If corporations are people, we are in for a CORPORATE DICTATORSHIP.

Jul 18, 2012 3:24PM
Still, no real prosecution for the egregious crimes committed during the housing/mortgage debacle that plunged us into the Great Recession, nor any clawbacks.  Crime pays--a lot--in the USA.
Jul 18, 2012 4:57PM
"I say WE NEED MORE regulation, except we need to get the people who know what they're doing and can investigate more efficiently and more often. Regulatory agencies should hire the people in the financial services industry who understand how the games are played."

ABSOLUTELY! I'm completely tired of executives judging skill by degrees and badges. Everyone who could and would be capable of reining in corruption is- unemployed! Hello? If you were going to be crooked, wouldn't you hire puppets who make good minion and fire competence? Of course, we are stuck with a scholar who reads the manual and suddenly insists he's an expert. History is going to chronicle President Obama as having made all the wrong decisions about handling the financial crises, credit crises, executive privileges and the Federal Reserve's plan that funded terrorism while abandoning the common consumer. We're $1 QUADRILLION into bad debt contracts, fiat currency and hoarded wealth. The commonsense solution was always there-- unplug the machine and arrest the rats as they jump. It's a global economic collapse. If every nation is behind-the-eight ball, then catching crooks would be easy... just hunt down those with excessive cash. UNLESS... you're one of them. More than 350 points gained for the Dow in just 4 days. Not one of the companies in the Dow presented anything more than profits as they gave 2nd quarter results. If you fired all your employees, trashed pensions and benefits, while amassing record cash and replacing competent management with market crooks... of course you will show a profit every quarter! Where was that CHANGE we were promised? The nation is a wreck and no one has heard squat from Obama about the REAL State of the Nation. I don't usually pick on the Prez but if he doesn't come clean by the weekend, I think a full gutting of the do-nothings in DC is well overdue.
Jul 18, 2012 8:12PM
ARREST THEM ALL!!!! Why are the Bankers as unaccountable as our politicians????

Anyone who still believes that conspiracy theorists are nuts, CAN'T READ!


All that ever happens is they get trivial little fines, that they pass on to us in extra fees. Or perhaps it's paid for out of the bailout fund the crooked Feds gave them...to keep their mouths shut about their own corruption!

Treason is running rampant in DC, and you still have faith in this election year between two of the most despicable candidates ever to run against each other?

God help us if you vote for either one of them...Please learn to read, or at least stop watching Fox news!

Our families lives depend on you being adult enough to stand up and speak against the fascist's who have infiltrated and taken over our government. We already have UN troops and FEMA camps within our borders, ready to make their move against our citizens. On the 27th of this month they will be voting to take our guns away.

Never mind...you probably have TV to watch, or just don't want to think about it. Se you all at the FEMA camp picnic. 

Jul 19, 2012 10:02AM
Congress created this problem. However, no one in congress will be put in jail.
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