Bank Lawyer's Blog

We Won't Tell What To Do Until After We Punish You For Not Doing It

The CFPB isn't the only federal government agency that is promulgating new "regulations" by enforcement action. According to yesterday's American Banker (paid subscription required), the OCC's been playing the same game, especially with the BSA.

Few dare talk about their concerns publicly, for fear of alienating regulators. Privately, they say that BSA exams have become more rigorous and focused in recent years, digging deeper into the weeds of processes, systems and controls. Foot-dragging and shortcomings are being met with stiffer monetary penalties and lengthy lists of demands for systems improvements and additional personnel.

Yet it's not clear that even the regulators know exactly what they want from bank BSA programs. Instead, critics say, they're looking to the private sector for the latest in best practices and then seeking to transmit those ideas to the rest of the industry through regulatory decree.

BSA officers report combing through consent orders and regulatory pronouncements with urgency, looking for clues of subtle changes and what's coming next. "We are now in an era of 'regulation by enforcement action,'" says Teresa Pesce, head of the Americas AML practice at consulting firm KPMG.

"Banks feel that they can no longer look at the statutes and regulations to know what to do," Pesce says. "They have to look at the most-recent regulatory guidance or enforcement action against their peers, and then try to plug those holes, as opposed to creating more thoughtful and sustainable programs."

"Thoughtful and sustainable programs?" What's that got to do with covering your backside, avoiding second-guessing from your "superiors" and your "peers," and protecting your government retirement benefits? Let's get with the program here, Teresa.

According to the American Banker's sources, the causes for the uptick in scrutiny on BSA is open to debate.

Some point to the lingering anger of Congress and the public over Wall Street's role in the financial crisis, and the failure of regulators to catch it. Others note that with banks having largely cleaned up their credit problems, quieting the safety and soundness risks that had dominated regulators' concerns in recent years, all those examiners hired at the peak of the crisis now have more time on their hands.

Idle hands are the devil's workshop.

One former OCC official even said much of this may have to do with career advancement by small bank examiners who want to earn notches in their gun by taking down some too-small-to-fight-me community banks, and thereby be promoted to examining the plutocrats of commercial banking. I guess it's every examiner's dream to make yourself such a pest to Bank of America that it hires you just to get you out of harm's way.

FinCEN's Director Jennifer Shasky Calvery claims it's because FinCEN is getting better at using the billions of bits of information that banks feed into its maw every day via various reporting avenues. She even talks about a bank that included a phone number in a SAR that matched a number found in Osama Bin Laden's file cabinet found by Seal Team Six in the follow-up to ventilating the former terrorist-in-chief. Jennifer won't tell us what the people who parse these nuances did with the number. Maybe the NSA used it to order a truck load of peperoni and italian sausage pizzas to be delivered to a kabob house in Kandahar, demoralizing a phalanx of jihadists. Whatever, she wants banks to know that she and her fellow "sheriffs" are cracking down on banks because all of those SARs they're defensively filing are no longer fed to FinCEN's pet goat.

So, bankers, buckle up and get ready for more _regulating-by-enforcement. What's good for FinCEN's good for the country, and the bad guys are moving too fast to bother with that irksome Administrative Procedures Act. The regulators will tell you what you did wrong after you've done it, not before. If you don't like that, well, that's tough nuggies. In this brave new world, the ends justify the means.

FinCEN Consults The Dude For Guidance On Banking Marijuana Businesses

I love some of the headlines I read last Friday and over the weekend on the preposterous "guidance" issued by FinCEN last Friday on the process financial institutions should follow in providing financial services to marijuana-related businesses. The most common (incorrectly used) metaphor was that the guidance "opened the door" for banks to inhale deeply the second-hand smoke of reefer madness. That's either a mighty tiny door or an infinitesimally small opening. As one of the first comments I received (from a skilled financial institutions compliance attorney) put it so well:

This is the biggest joke.  Basically, it tells FI’s that you are finally given the green light to conduct transaction activity for Marijuana Businesses but every time you do, you have to file some form of SAR that might potentially include information from a DOJ memo that you have never read and probably never heard of, all so that you can go out and do the leg work for our investigations.  They should just let FI’s do business with folks on the OFAC list and just make them file lengthy and detailed SARs on those people every single time the conduct any transaction.

Other comments received from financial institution attorneys, especially those who represent either banks or marijuana businesses that want to get together, were equal parts F-bombs and derisive laughter.

Reactions from banks and trade group representatives in Colorado, the state with the most immediate need for action at the federal level, were uniformly negative.

"We're still not going to bank them," said Jim Reuter, executive vice-president of FirstBank, the state's second-largest bank in terms of market share."We are not comfortable taking this guidance alone and on its face," Reuter said. "There's simply too much at stake."

[...]

"They should proceed with maximum caution," CBA president Don Childears said he'll advise its members. "But, honestly, we'll be telling them to not proceed at all."

A FinCEN spokesman tried to put a positive spin on the non-starter.

"This reduces the burden on banks," FinCEN's Shasky Calvery insisted in an interview. "Marijuana under federal law requires a SAR. Now, the necessity is limited, reducing the banks' burden a bit and more importantly clarifies where law enforcement focuses its attention."

"reduces the burden"? Really? It still requires a SAR! In every instance the bank "banks" a marijuana business! The type of SAR may vary, but determining which type of SAR is now required adds to the burden, it doesn't lessen it. As my correspondent above noted, the guidance adds to the already-staggering burden that federal regulators place on financial institutions to do law enforcements "leg work."

CBA's Childears agrees that the burden is not lessened, it's increased.

"It's just bizarre. The threatening language about the liability for prosecution," he said. "Now, not only must we know our customers' business, but our customers' customers' business."

Moreover, under the guidance, the bank is required to refer to "The Cole Memo," a memo that is internal to the US Justice Department and that was not attached to the guidance. The bank has to worry about Mr. Cole's "priorities" of bad-guy behavior and the evil consequences of consorting with Mary Jane in various degrees of seriousness (including harvesting foremen who rely too much on the catch-phrase "Say hello to my little friend"), and also to do all kinds of detailed due diligence, including watching out for a boatload of "red flags," including these two gems:

• The business receives substantially more revenue than may reasonably be expected given the relevant limitations imposed by the state in which it operates.
• The business receives substantially more revenue than its local competitors or than might be expected given the population demographics. It also is still illegal under federal law to service a recreational marijuana business.

That is merely a tiny taste of the problematic nature of the burden imposed by the guidance. We could go on and on, but why bother? The IBC's Barbara Walker said what many of us feel: "Better luck next time."

"The bottom line would continue to be the need for the (banking regulators) to address in writing all of the many issues of concern to the financial services industry," said Barbara Walker, executive director of Independent Bankers of Colorado. "The (Federal Deposit Insurance Corporation, Federal Reserve and Office of the Comptroller of the Currency) are simply asleep at the wheel on the many serious issues posed by Colorado's laws. It's shameful."

"Asleep at the wheel." That sometimes happens when you get to toking when you should not be smoking.

The Tough Sledding Will Get Tougher

When H. Rodgin Cohen speaks, bankers listen. At least, they ought to listen if they want to learn something.

Bank Lawyer's Blog favorite Cohen gave a speech last week in New York City in which he dropped a few pearls of wisdom concerning why he thinks an already tough regulatory environment for banks is going to only get tougher. Among the reasons are the following:

• "The lingering public perception that banks got off too easy after the financial crisis could color regulators' mindsets." Cohen thinks that regulators will be especially tough on anti-money laundering and consumer law violations. He also believes that federal regulators may be motivated to pursue criminal penalties because of the perception among bankers that since recent criminal penalty settlements have not resulted in any individual bankers serving jail time, the risks of pleading guilty to crimes has somehow lessened. On the other hand, the long-time banking attorney thinks that banks have no one to blame but themselves for continuing to violate laws that they should, by now, know how to comply with.
• New OCC risk management standards for board members will provide a basis for new enforcement actions. In this area, Cohen thinks the regulators are being unrealistic. "I do worry that there is a point at which boards just cannot perform all of these tasks. You can only do so if you are prepared to have directors who really have no other significant occupation. … The cost would be to lose an incredible inventory of valuable directors." Amen, Brother Cohen!
• A recent FRB proposal that attempts to assert increased US control over foreign banks could hurt the US economy, Cohen worries. It also might have "an adverse impact on international trade and effective resolution."
• Too big to fail bank resolution procedures continue to be a preoccupation of the regulators and will continue to motivate regulatory actions. Cohen does think that effective too big to fail processes are "within reach" if the will exists to enact them. I consider Mr. Cohen to be an optimist on that issue, but he's smarter and closer to the throb of the power center in D.C. than I am, so I'll defer to his judgment.

Speaking of optimists, Cohen's partner, Michael Wiseman, gave an upbeat view about what all this increased regulatory pressure means for lawyers.

"It is an intellectually fascinating time to be a banking lawyer," he said. "When I started out, it was a relatively boring job."

"Intellectual fascination" will be (correctly) interpreted by banking clients to mean "higher legal fees." That's the silver lining that bankers always have a hard time seeing.

Banks Steering Clear of "Targeted" Businesses

Wall Street Journal reporter Robin Sidel, along with Andrew Johnson, reported on the success that the federal government is having in barring access to the banking system for a number of businesses. As we've discussed previously, "Operation Choke Point" and related arm-twisting efforts by the Feds are aimed at making life difficult for a variety of targeted businesses. Among those disfavored businesses are online lenders, payday lenders, check cashers, virtual currency dealers, gaming businesses, and marijuana-related businesses (although our beloved US Attorney General has been making noises that he simply will look the other way when it comes to enforcing federal drug laws against marijuana businesses that are operating legally under state law).

Even at a time when many banks can use every dime they can scrape up, the risk is simply not worth the potential pain.

While the temptation to deal with certain businesses might be high, some banking-industry veterans said, it isn't worth provoking regulators or adding more resources to ensure that the clients are meeting industry standards. And in the overall banking industry, such pullbacks aren't likely to hurt profits.

"Banks are making practical decisions about profitability versus risk exposure, and they are concluding this hill isn't worth the battle," said Gerard Comizio, a partner who specializes in banking at law firm Paul Hastings LLP.

Mr. Comizio sums up the thought process of bankers very well.

In the article and a companion audio interview, Sidel states that the primary concern appears to be with the difficulty of complying with BSA and money laundering risk. While that's certainly true with many of the businesses, it's also true that some of the businesses have been targeted by the regulators for extra scrutiny because they're in a line of business, like payday lending, where the regulators simply don't like the business model on social policy grounds. If we see the Feds back off of weed but still keep the heat on payday lenders, then the argument that it's all about money laundering risk becomes a bit tenuous.

One "human interest" portion of the article caught my attention. A medical marijuana businessman related how his bank not only dumped his marijuana business accounts, but his personal accounts and the accounts of his "unrelated " pizza businesses (in the audio, Ms. Sidel adds that the bank also dumped his business partner's personal accounts). I thought that it was a stroke of pure genius to own a business that creates "the munchies" and another business that feeds "the munchies." You'd want to find a way to back that kind of ingenuity, if possible.

The owner claims that he's found another bank to handle his marijuana business account "on the down low." He claims that removing the word "marijuana" from the business' name somehow gives the bank comfort that the bank can fly under the Feds' radar screen. After reading that story, I can't imagine that the FDIC, the FRB, and the OCC aren't doing a little digging to try to find out who's trying to pull that sleight of hand. While the regulators may eventually come out with guidance that permits banks to deal with legal (under state law, at least) marijuana businesses, I doubt that "disguising the true nature of the account owner's line of business" will ever become an accepted practice. It runs counter to the "know your customer" ethos.

An underlying concern continues to be the fact that the regulators are picking winners and losers among legal businesses, and preventing those businesses that they deem to be "losers" from having access to the banking system. That rubs many people the wrong way, and not all of those people are bankers.

The Next New Thing: Paying For Pot With Bitcoin

When we discussed why Colorado bankers are having a tough time providing banking services to pot growers and sellers, we noted the obvious impediment: it's illegal under federal law. Until that inconvenient roadblock fact is worked out with the federal government, the fact that growing and selling pot in a regulated fashion under state law is legal in Colorado doesn't make banking Mary Jane-associated businesses any less problematic.

Recently, The Wall Street Journal (paid subscription required) noted that virtual currency companies (like those dealing in bitcoin) are, likewise, finding that there's no room in the bank vault for their cold, hard "something-like-cash-but-a-lot cooler."

Lenders are leery of dealing with virtual-currency companies because of concerns that the businesses could run afoul of anti-money-laundering laws or be involved in illegal activities, banking executives say. Regulators and central bankers around the world have raised similar concerns in recent months.

[...]

"This is definitely causing a bottleneck in the industry," he said in an interview. "The ability of companies to get bank accounts is necessary so that they can take the next step in building out the core bitcoin infrastructure."

Apparently, some businesses are attempting to disguise their connection to bitcoin by eliminating any variation of the words "bit" and "coin" from their business names. How that would help a business avoid the fact that federal law requires banks to "know their customer" and, therefore, the bank is going to know the business is virtual currency related, is beyond me.

As long as the federal and state banking regulators classify the business as a "money transmitter," the business brings with it all the heightened regulatory scrutiny and accompanying risk that comes from banking any other type of money services business. While some banks will take on that burden, many more of them will not. The article states that Wells Fargo and Bank of America publicly make noises that they're willing to do the extra due diligence required, but that Chase flatly refuses to get involved with such businesses. An owner of one virtual currency business who was interviewed for the article claims that he was rejected by 30 US banks because of regulatory scrutiny issues and that he finally found a bank in Germany (perhaps the same one that bankrolled "Sprockets").

The federal bank regulators gave their usual clear and concise guidance on the matter.

"Banks make their own decisions on which customers to accept, but areas like virtual currency that present heightened risk require heightened risk-management and controls," said a spokesman for the Office of the Comptroller of the Currency, which regulates banks.

And, of course, those risk-management practices and controls will never, ever be "heightened" to a sufficient level to satisfy regulatory "concerns," will they? You don't need to be a reader of tea leaves to get the OCC's drift. It's another case of "We can't tell you not to bank them, but if you do, prepare for a world where bank examiners arrive at your office and spend all day sitting there, not saying a word, just staring at you like those kids in 'Village of the Damned.' You can still go about your business if you wish, but sooner or later your head might spontaneously combust."

At least one bank, from an area of the country that should be no surprise to anyone, is willing to bank the virtual currency crowd.

Silicon Valley Bank, a Santa Clara, Calif., lender with $23.7 billion in assets, is one of the few institutions providing banking services to bitcoin companies. The bank has established a separate due-diligence process to vet such ventures and is being "extraordinarily selective," said Chief Operations Officer Bruce Wallace.

Mr. Wallace said providing services to bitcoin companies fits with the bank's business model to support innovative companies and "market disrupters." But he added, "I can definitely understand how some other financial institutions, where this is not a core part of their business, would question the point of taking any risk at all."

The lesson is that if you want to jump into banking a business that will heighten your risk, virtual currency is the land of opportunity. If you're not anxious to cope with the additional risk, then stick to something more traditional, at least until virtual currency becomes more traditional, which, in the current environment, may be only a few years down the road.

Lesson Not Learned

Once upon a time, we thought that having the Mossad, in league with litigious victims of terrorism, beating you about the head and shoulders in courts foreign and domestic would be enough to deter giant foreign banks from thumbing their noses at UN and US anti-money laundering laws. In the case of HSBC, a sane person might also conclude that paying a fine big enough to choke a Saudi shiek might do the trick. If he or she thought that, he or she would, according to at least one whistle-blower, be dead wrong.

[A] former employee is alleging that the bank continued to break anti-money-laundering rules even as it claimed to be reforming its controls, and he has asked federal authorities to open a new investigation.

Everett Stern, who worked in HSBC Bank USA's anti-money-laundering division in 2010 and 2011, unveiled the allegations Thursday at a protest against the bank in New York. In March, Stern and the law firm Berger & Montague submitted his evidence — which includes internal emails and other documents he collected while working at the bank — to the Securities and Exchange Commission, the Justice Department and banking regulators, claiming that the bank continued to flout money laundering rules while he was employed there.

What's especially surprising is that, as part of its deal with US authorities, HSBC agreed to a five-year deferral of criminal sanctions against the bank and its executives. The deferral is contingent on the bank's good behavior. According to Mr. Stern, the bad boys continued their wrongful ways, evidencing a cavalier attitude toward the prospect of being incarcerated in a minimum security federal country club, where, for an extended period of time, you have to carry your own bag around the golf course. Well, that, and you might be forced to adopt the name "Sweetcakes" by a guy with a bad case of roid rage.

Stern was one of the people hired by the bank to "cure their problem," the "problem" being the laundering of money for terrorist organizations through the bank. Instead of "solving the problem," Stern alleges that the bank adopted a "wink-wink, nudge-nudge" system that, if his allegations are true, was a smoke-and-mirrors attempt to make the regulators think that the bank was trying to comply with AML regulations while allowing hundreds of millions of dollars to be washed, rinsed, and nicely dried by known "financiers of terrorists."

Here's one possible sanction, should Stern's accusations prove to be true: kick the bank out of the United States. If you're going to launder money for people who want to wipe us from face of the Earth (along with all those nasty Israelites), why are we allowing you continue to operate within our borders? Then again, if we start down that path, I suppose we'll have to kick our own big banks out of this country, as well, since other deterrents don't seem to work, and that would never...

Wait a minute! I think that this might be worth further consideration. I'll have a couple more Shiner Bocks and ponder this while watching the latest episode of "Boardwalk Empire" for tips on dealing with this particular brand of bad-boy bankers.

A Change of Policy, But Only in Two States

While the epic "Yo Mamma" wars between banks and credit unions have been well-documented (and often lamented) on this blog, I have no explanation for the recent activities of Chase Bank and Huntington Bank, as outlined in a recent article in Credit Union Times.

As many as 30 credit unions in West Virginia and Ohio have been scrambling to establish new correspondent vendors after a regional and national bank terminated their accounts over the past few weeks.

The $1.4 billion Volunteer Corporate CU and the $3.7 billion Corporate One FCU both reported the closed accounts, and in both cases said members reported the banks cited Bank Security Act and money laundering risk.

Charlie Thomas, VolCorp’s senior vice president of West Virginia operations, said the Nashville, Tenn.-based corporate first became aware of the terminated correspondent relationships in late March when a member called, asking for assistance. He said the two banks were the Columbus, Ohio-based Huntington Bank and New York-based Chase Bank.

[...]

Thomas said a letter he’d seen from Huntington to a credit union said the decision to terminate the business relationship was the result of regulatory requirements, “some of which may be new or been amended since the credit union opened its account.” The decision reflected a change in bank wide strategy, and was not a reflection on the credit union, the letter added.

The two banks aren't providing a more detailed explanation and the Fed refuses to comment to reporters on the matter, including indicating whether the banks were directed to close the accounts by their primary regulators because of BSA concerns. Speculation includes the theory that the banks are trying to reduce volatility of deposits, but other observers note that those banks are so large that the 30 banks would be but a blip on the radar screen. Also, why only banks in those two states? Is there some massive money laundering risk suddenly emerging from coal country? Are moonshiners now allied with Mexican drug cartels and laundering massive amounts of illicit cash through these credit unions?

This may be worth following. Or, it may not be. If anything interesting pops, I'll post.

The Same Old Song

While the focus of John Byrne, the EVP of ACAMS, is on BSA, money-laundering, and similar compliance issues, the question he poses in the title to a recent article in the ABA Banking Journal extends to all areas of bank compliance: "Why Are We Still Fixing The Same Things?"

Are we in a time warp?

 
Without pointing out what specific regulators have said, it is incredible to me that basic issues such as maintaining an effective program of compliance are deficient. We are told that bank management needs to determine if compliance reporting to the lines of business (lobs) is a good idea-it is not, not before and not now. And these other perennials still come up:
 
• Outsourcing the "function" is not outsourcing the responsibility.
• Affiliate work should reflect U.S. laws, not local standards.
• Audit oversight needs experience with U.S. law and OFAC requirements.
• The more thorough the audit, the better your examiners can rely on the report.
 
For exam problems, federal agencies are telling the industry that in 2011 we are still deficient in the following ways:
 
• Customer risk-rating methodology is inconsistently applied across the customer base
• Officer and directors are not being properly identified nor screened for PEPS (politically exposed persons) and negative news
• BSA training is clearly inadequate and there is no escalation to notify senior management of past-due employees who have not completed the required annual BSA training.
• Cost-cutting is resulting in a lack of AML oversight.

John has an idea why these same old compliance problems keep popping up.

What is interesting (or frustrating, depending on your point of view) is that some of the root causes have been stated many times before:
 
• Elevation of the business line over the compliance function
• Offering products without adequate controls in place
• New technologies such as prepaid access
• Compliance programs that are not commensurate with the risks

John calls these "gaps" in compliance "inexcusable in 2011." I'd have to agree. So, apparently, do the regulators. Otherwise healthy banks, and even banks that are in the death spiral because of assets quality and capital deficiencies, are being hammered by compliance examinations that not only add insult to injury, but pose the very real risk to the bank, and possibly its  management and directors, of civil money penalties. Just take a look at the list of civil money penalties imposed by the FDIC in April of this year for compliance failures.

With the enactment of Dodd-Frank and the advent of the CFPB, compliance will not get any easier, less expensive, or less risky. Banks need to be on top of their game in compliance. At least, those that want to continue to operate profitably need to be.

A decent place to check how your compliance programs stack up, and perhaps pick up some tips you hadn't considered, may be next month's webinar from Bankerstuff on Target Compliance Management, presented by former Federal Reserve Board Supervising Examiner and long-time bank compliance professional Mary Thorson. Whatever the approach, and wherever bank management and board members think compliance ought to rank on the list of their current concerns, rest assured that the subject remains at the top of the bank regulators' lists.

Bank Bashes Bad Barrister

Although banks that fail to adhere to BSA and anti-money laundering regulations and are fined for their failures seem to show up in press reports frequently, occasionally you'll find a story about a bank that is not only watching out for suspicious activity, it's taking action when it discovers it to nail the suspect. One such do-gooder is City National Bank of Florida, which was the first person or entity to file a complaint with the Florida state bar about an attorney who had been using his attorney's trust account at the bank "to pay expenses such as secretarial services, office cleaning, electric service, health insurance payments and mortgage payments." For those not familiar with the purpose of such a trust account, it's to hold funds of the client. An attorney is not permitted to pay personal living expenses out of the trust account. That's a "breach of trust" and an unethical practice.

Four days after two investors sued the attorney (who was apparently engaged in a type of Ponzi scheme), the bank filed its complaint. Acting on that complaint, the Florida Supreme Court recently disbarred the attorney. Like Mr. Pines in yesterday's post, he'll have to find another line of work where ethics are of little concern. Maybe he can rate subprime CDOs on Wall Street.

There are few more cases of punishment handed out by the Florida Supreme Court to other lawyers who've run afoul of the applicable ethical rules. While self-policing is essential to foster public trust in the profession (what little is left), it's discouraging to see so many members (now ex or suspended members) of this "honorable" profession give lawyer bashers such powerful ammunition.

In this case, the community bankers were on the ball and the lawyers were behind the eight ball.

Unrelated Ruminations

A couple of bank-related scattershots while wondering why I ever thought that the pace of life would slow down as I aged:

The recent imposition of $7 million in civil money penalties by the OCC and FinCEN against Pacific National Bank of Miami, Florida for BSA violations brought home to me once again the fact that while the rest of the nation might be preoccupied with finding a job, saving their homestead from foreclosure, or what exactly is the chemical composition of Charlie Sheen's "Tiger Blood," the bank regulators and FinCEN are preoccupied with the Bank Secrecy Act. When it comes to finding a spare regulatory violation or two (or more) to fatten the penalty coffers, BSA is the go-to regulation. I've seen the regulators beat dying banks--banks just a few short months away from meeting their maker--beaten to a bloody pulp for BSA violations. In case any bank hasn't yet gotten the word, be ever vigilant with BSA compliance, and let nothing distract you from your appointed task of doing law enforcement's job.

Another lesson to be taken from the Pacific National Bank beating is the fact that civil money penalties are usually (although not exclusively) based upon the fact that the miscreant bank ignored prior warnings to clean up its act. This important lesson extends far beyond BSA, into all phases of a bank's life here on earth and in its afterlife, as well. Read the complaints filed by the FDIC thus far against former officers and directors of failed banks. You'll notice that one of the common themes that runs through the FDIC narrative is that the officers and directors ignored previous warnings to stop doing something, in most cases to stop concentrating on commercial real estate loans and to improve and/or adhere to loan policies. Blowing off examination criticisms, or even worse, informal or formal enforcement action demands, is akin to lighting up a fine cigar while standing in the hold of an oil tanker. Every time I see it, I shake my head and wonder what is the most appropriate bouquet to send to the mortuary.

A completely unrelated thought popped into my head when I read a story today about the dismissal by a US District Court judge of a class action complaint filed on behalf of former shareholders of Freddie Mac against the mortgage giant. He said, according to the press report, that the plaintiffs simply hadn't proved that Freddie Mac's public disclosures were misleading regarding its exposure to subprime mortgages. The suit was filed in 2008, the same year that Uncle Freddie, along with Aunt Fannie, was placed into conservatorship, and has been slowly working its way to this point. I'm not surprised by the fact that the plaintiffs got the boot (although they can amend and refile). I suspect that many class action lawsuits are filed not with the expectation that if the lawsuit ever makes it to a decision on the merits that the plaintiffs will prevail, but with the expectation that the cost of paying lawyers and the crap shoot that litigation can sometimes become, will eventually induce defendants who have to worry about the bottom line to settle. In this case, it's the US taxpayer who's on the hook, represented by the executive branch of the federal government, so, naturally, there's less accountability for legal costs, and little fear that anyone's job is on the line if the defendant loses. That kind of defendant is likely to hang on to the bitter end. That's bad news for class action lawyers. In this case, it looks like they picked on the wrong "victim" to pursue.