There is an old saying that goes back hundreds of years to the effect of “better the devil you know than the devil you don’t.” What this essentially means is that when choosing between a present unfavorable scenario and a future, unknown scenario which might be favorable or unfavorable, you might as well go with the present choice and sacrifice a potentially better situation for the benefit of certainty, albeit a less-than-ideal certainty. That seems to be the approach that a number of huge businesses have taken in the waning days of the Obama administration, as the administration was able to finalize civil and criminal-related settlements collectively worth over $20 billion (an enormous figure even by present standards) in just the final week of the administration.
Many Settlements Related to Mortgage Crisis
It may be fitting that a sizable portion of that $20 billion related to ongoing investigations stem from the mortgage crisis of 2008 which many believe helped propel Obama to victory in that year’s presidential election and the economic aftereffects of which dominated the early days of Obama’s presidency. Some of these settlements include:
- A $5.3 billion settlement with Credit Suisse over charges that it misled investors by pooling loans into mortgage-backed securities that the bank knew failed to meet underwriting guidelines. The settlement includes a $2.48 billion penalty and $2.8 billion devoted to consumer relief such as consumer loan forgiveness.
- A $7.2 billion settlement with Deutsche Bank based on similar facts that representatives at the bank knew that the loans backing the mortgage-backed securities offered by the bank were of lower quality than was being marketed to buyers. The settlement also involved a $3.1 billion penalty with an additional $4.1 billion pledged to consumer relief.
- A $862 million settlement between ratings agency Moody’s Corporation and the federal government as well as 21 states and the District of Columbia based on its ratings practices with regard to mortgage-backed securities. The settlement involves a $437.5 million penalty, the largest ever paid by a ratings agency.
Settlements in the last week which were not directly tied to the mortgage/housing crisis include:
- Volkswagen AG agreeing to pay $4.3 billion to settle criminal charges related to the controversy over the automaker’s attempts to defy emission standards through deceptive engineering of its automobiles.
- Japanese manufacturer Takata agreeing to pay $1 billion to settle charges related to defective air bags that have been tied to 16 deaths. Takata also agreed to plead guilty as part of the settlement.
The Companies Who Are Waiting Obama Out
It goes without saying that, while the Obama administration no doubt applied the expected pressure to defendants in making the above settlements, each of the defendant corporations voluntarily agreed to those settlements, and, if they had not, then they would have faced an uncertain future in how their cases would have been handled under the Trump Administration.
Two companies that did not reach settlements in Obama’s last days were Navient and JP Morgan Chase, both of which were named in lawsuits initiated by the federal government. Navient, which is a servicer of student loans, was hit with three different lawsuits by the federal government just days before Obama left office over the way it dealt with borrowers, and issued an aggressive release stating, “The timing of this lawsuit — midnight action filed on the eve of a new administration — reflects their political motivations…We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers.” Meanwhile, JP Morgan released a statement relating to ongoing investigations of pay discrimination at the bank with read in part: “we look forward to presenting our evidence to a neutral decision maker.”
Looking Towards a Trump Administration
Whether corporate and other white-collar defendants will fare better or worse under a Trump administration remains to be seen. While the new president has championed business and argued against overregulation in broad terms, he has also shown his willingness to target those in power and to take aim at business interests in ways that are markedly different from previous Republican administrations. While the last week of the Obama administration was a wild ride for those in the white-collar community, we may be in for a quite few more surprises in the near future under the new administration.