Brazilian Bribery, SEC worried about Cyber attacks, and Wells Fargo and the Wolf of Wall Street are both back in the news again

By Jack Kelly:

Wall Street bounced back from yesterdays 300 point selloff  but today it is all about Brazil’s, Bovespa’s stock market blowout plunging over 10% . Brazil’s currency, the real, tanked 7%, its worst day since the global financial crisis in 2008.

 

The selloff came after new bribery allegations surfaced against Brazil’s president, Michel Temer. Investors, whether located in US or Latin America are never too pleased when the person in charge of their government is in the midst of scandal.

 

In this instance, Brazilian President, Michel Temer, resisted calls to resign after allegations that he condoned the bribery of a potential witness in the massive “Car Wash” graft investigation.
Back in the US,  the S&P regained about 9 points of the previous day’s 43-point plunge, and the Vix (aka “the fear gauge”) backpedaled  2.7 per cent.  It now looks like the  “Trumpeachment” mini-panic may have ended after the US Justice Department appointed former FBI director Robert Mueller as special counsel to lead an investigation into Russia’s role in the 2016 US elections.

 

Concerns over a delay to enact tax reforms (which was a big driver of stock market gains in 2017) were pushed aside as Republicans promised to continue working on their policy agenda since the ‘Comey memo’ incident.

 

There may be an even bigger fear lurking in corporate America and globally. In excess of  twenty-five percent of  investment management firms in the US do not execute regular assessments of their cyber security defenses.  The worrying statistic has been published by the Securities and Exchange Commission less than one week after a ransomware attack known as WannaCry hit Microsoft systems at organizations around the world.

While financial services firms were largely unaffected by the rapid spread of the virus, the SEC issued a statement on May 17 reminding broker-dealers and fund management firms to ensure their operating systems are being “properly and timely installed”.

Included in the statement were the results of a recent assessment of the cyber security protocols at 75 SEC-registered firms by the Office of Compliance Inspections and Examinations.

According to the SEC, 26% percent of the investment management firms it examined did not conduct regular risk assessments of critical systems to identify cyber security “threats, vulnerabilities, and the potential business consequences”. The same was true of 5% of the broker-dealers surveyed.

The regulator also found that 57% of the investment management firms did not test the vulnerability of their critical IT systems. Again, this was also the case for 5% of broker-dealers.

 

Federal prosecutors are pursuing a potential settlement of their record-setting foreign corruption lawsuit that seeks $1 billion in assets, including future proceeds from the 2013 Hollywood hit movie The Wolf of Wall Street.

 

Today we also feature a piece, while not as scary as cyber attacks and stock market crashes, it involves  federal officials conducting the largest attempted seizure under anti-kleptocracy laws in U.S. history.  The case targets officials who allegedly misappropriated profits from financial dealings of the Malaysian sovereign wealth fund called 1MDB. Malaysia Prime Minister Najib Razak, who founded the fund, has denied wrongdoing.

 

According to the Department of Justice, conspirators allegedly misappropriated more than $3.5 billion from 1MDB in a money laundering scheme from 2009 through 2013.

 

Officially, 1MDB was intended to help Malaysia and its people by issuing debt securities that would fund economic development projects. But federal prosecutors allege that suspected conspirators instead used a network of shell companies to siphon funds for purchases of U.S. mansions and luxury condominiums, gambling costs at Las Vegas casinos, purchase of artwork by Vincent Van Gogh and Claude Monet and other personal expenses.

 

Millions of dollars from 1MDB was used to finance The Wolf of Wall Street, prosecutors charge. As a result, the federal recovery effort focuses in part on any rights, profits, royalties and distribution proceeds owed to Red Granite Pictures and related affiliates, which financed the film that starred actor Leonardo Dicaprio.

You may have forgotten about the Wells Fargo alleged unauthorized account opening scandal. Well, its back in the news. A San Francisco federal judge is leaning toward rejecting some of the terms of a $142-million settlement aimed at ending a bevvy of class-action lawsuits against Wells Fargo & Co. over its sham accounts scandal.

In a filing Wednesday, U.S. District Judge Vince Chhabria asked attorneys on both sides for more information about claims made last week by plaintiffs’ attorneys that as many as 3.5 million bogus checking, savings and credit card accounts may have been created by the bank.

That figure is far more than the 2.1 million accounts the bank had estimated when it reached a $185-million settlement with regulators in September.

Chhabria, in a request for additional information, questioned whether the parties have the ability to accurately estimate the number of bank customers who may be eligible to participate in the settlement.

 

“If so, what are those estimates and how were they reached? If not, why not?” asked Chhabria, who will preside over a hearing on the proposed settlement Thursday.

 

The estimate of 2.1 million was based on a review by the bank of accounts created between May 2011 and July 2015, while the new figure is an estimate of unauthorized accounts created between 2002 and this year.

 

The higher figure was predicated on a recent internal investigation by the bank that concluded the practice of opening unauthorized accounts may have started as early as 2002.

 

More importantly, here in New York City, spring is finally here. After weird winter weather and weeks of rain, we have some warmth and sunshine. Somehow, a nice change in temperature makes us less worried and angry about all the nonsense I just wrote about. Turn-off the news, stop being anxious about the chaos in the world, and enjoy the rest of this beautiful day. For our readers who are not experiencing such lovely weather; sorry.

 

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