More “Accountability”

To an outsider, the vow may seem unusual. Citigroup, after all, was merely promising not to do something that the law already forbids. But that is the way the commission usually does business. It also was not the first time the firm was making that promise.

Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same antifraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000.

Citigroup has a lot of company in this regard on Wall Street. According to a New York Times analysis, nearly all of the biggest financial companies – Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America among them – have settled fraud cases by promising that they would never again violate an antifraud law, only to have the S.E.C. conclude they did it again a few years later.

A Times analysis of enforcement actions during the past 15 years found at least 51 cases in which the S.E.C. concluded that Wall Street firms had broken anti-fraud laws they had agreed never to breach. The 51 cases spanned 19 different firms.

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Senator Carl Levin, a Michigan Democrat who is chairman of the Senate permanent subcommittee on investigations and has led several inquiries into Wall Street, said the S.E.C.’s method of settling fraud cases, is “a symbol of weak enforcement. It doesn’t do much in the way of deterrence, and it doesn’t do much in the way of punishment, I don’t think.”

Barbara Roper, director of investor protection for the Consumer Federation of America, said, “You can look at the record and see that it clearly suggests this is not deterring repeat offenses. You have to at least raise the question if other alternatives might be more effective.”

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But prior violations are plentiful. For example, Bank of America’s securities unit has agreed four times since 2005 not to violate a major antifraud statute, and another four times not to violate a separate law. Merrill Lynch, which Bank of America acquired in 2008, has separately agreed not to violate the same two statutes seven times since 1999.

Of the 19 companies that the Times found by the S.E.C. to be repeat offenders over the last 15 years, 16 declined to comment. They read like a Wall Street who’s who: American International Group, Ameriprise, Bank of America, Bear Stearns, Columbia Management, Deutsche Asset Management, Credit Suisse, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Putnam Investments, Raymond James, RBC Dain Rauscher, UBS and Wells Fargo/Wachovia.

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In 2005, Bank of America was one of several companies singled out for allowing professional traders to buy or sell a mutual fund at the previous day’s closing price, when it was clear the next day that the overall market or particular stocks were going to move either up or down sharply, guaranteeing a big short-term gain or avoiding a significant loss.

In its settlement, Bank of America neither admitted nor denied the conduct, but agreed to pay a $125 million fine and to put $250 million into a fund to repay investors. The company also agreed never to violate the major antifraud statutes.

Two years later, in 2007, Bank of America was accused by the S.E.C. of fraud by using its supposedly independent research analysts to bolster its investment banking activities from 1999 to 2001. In the settlement, Bank of America without admitting or denying its guilt, paid a $16 million fine and promised, once again, not to violate the law.

But two years later, in 2009, the S.E.C. again accused Bank of America of defrauding investors, saying that in 2007-8, the bank sold $4.5 billion of highly risky auction-rate securities by promising buyers that they were as safe as money market funds. They weren’t, and this time Bank of America agreed to be “permanently enjoined” from violating the same section of the law it had previously agreed not to break.

In fact, the company had already violated that promise, according to the S.E.C when it was accused last year of rigging bids in the municipal securities market from 1998 through 2002. To settle the charges, Bank of America paid no penalty, but refunded investors $25 million in profits plus $11 million in interest. And, the bank promised again never to violate the same law.