After the S&P Settlements, What’s Next for Government Prosecution?

The Wall Street Journal has reported that Standard & Poor’s, a unit of McGraw Hill Financial Inc., could settle SEC charges of securities fraud related to its rating of commercial real estate in 2011 this week. Previous estimates have put a settlement of these charges, unrelated to the subprime rating lawsuit by the DOJ, at around $60 million.

This report comes on the heels of Bloomberg and Reuters reports that Standard & Poor’s will settle for more than $1 billion the DOJ lawsuit brought under the False Claims Act for misleading the United States Government about its mortgage-backed securities ratings.

The S&P lawsuit is one of four largest that remains as a result of the financial crisis. The United States also has the FHFA lawsuit against the Royal Bank of Scotland settles the FHFA lawsuit and Morgan Stanley is under investigation for its mortgage-backed bond practices in 2015.  All three could easily settle in 2015 to avoid a cloud over their heads while their competitors move on from the mortgage crisis.  large settlements in this arena that have dominated the headlines could be over by the end of the year.

There’s also the $10 billion lawsuit Credit Suisse faces from New York. In an interview with Reuters, New York Attorney General Eric Schneiderman indicated that there will be more lawsuits filed against banks for selling mortgage-backed securities.  So it still may be too early to call the end to cases of mortgage fraud, but not too early to start speculating about the future.

If the U.S. no longer spends significant resources targeting mortgage fraud, what will be the next area of corporate misconduct on the government’s radar?

If the government looks overseas, it should find plenty of potential cases.

Bribery is one area that is prime for additional prosecution. The record settlement with Alstom for violations of the Foreign Corrupt Practices Act (FCPA) in December could be the beginning of greater prosecutions in this area as the government frees resources from the mortgage prosecutions.

The FBI has already announced that it will triple the number of agents investigating foreign corruption, which includes both FCPA violations and kleptocracy. FBI agents play an important role in the investigation of bribery charges brought by the SEC and DOJ under the FCPA.

There should be no shortage of cases for them to investigate. China has been hunting down corruption within its country and whistleblowers are bringing cases to the SEC in record numbers. In FY2014, whistleblowers classified 159 tips as related to FCPA violations. Since starting the whistleblower program, the SEC has received more than 400 tips in this area.

Another area that took a big leap forward last year was the prosecution of anti-money laundering and economic sanctions violations.  With the BNP Paribas settlement reaching nearly $9 billion last summer, this could become a hot area as government attorneys look for other financial institutions involved in similar banking deals.

If the government looks domestically, the auto industry is another potential target. Delayed recalls by car manufacturers have put millions of families at risk as unsafe vehicles have been driven unknowingly by families. There are several bills in Congress to strengthen regulation of motor vehicles and the passage of the Thune-Nelson bill would add whistleblower rewards to this area.

The high profile cases of GM and Takata last year might just be the tip of the iceberg. After a record 60 million cars were recalled last year, more than twice the previous record, the NHTSA is already predicting that we will see a new record set in 2015 as the government pushes manufacturers for more aggressive recalls. The Fiscal Times declared 2015 the year of the recall already.

Will mortgage cases stay on the government’s radar?  Will the government focus elsewhere?  Let us know your thoughts in the comments.