The 4 Most Shocking Legal Cases That Came Out Of The Financial Crisis by Andrew May

It’s been exactly 8 years since the collapse of Lehman Brothers and the start of the global financial crisis, which was the second biggest in history and set off a chain reaction of events that we are still dealing with today.

The collapse was so destructive it has moved the public perception of Wall Street and big banks from admirable enterprises to greedy economic drains. Not a day goes by without another headline about corporate greed and the lack of accountability for the individuals and corporations that caused the crisis.

While it may be unfair to blame an entire industry for the disaster, the collapse did expose some very unsavory elements of the financial system back in 2008. While critics may argue that regulators have not done enough, a number of fraudsters and insider traders were exposed by the financial crisis and have been charged with lawsuits.

The 4 Most Shocking Legal Cases That Came Out Of The Financial Crisis

Most Shocking Legal Cases That Came Out Of The Financial Crisis

As legendary investor Warren Buffett likes to say, “You only find out who is swimming naked when the tide goes out.”  So, here are the four most shocking legal cases that came out of the financial crisis…

  1. Angelo Mozilo

Mozilo came from a very humble background. His father was a butcher and he went to Fordham University for a Bachelor in Science. A decade after graduating, Mozilo teamed up with his former mentor to start Countrywide, a pioneer in the non-bank mortgage industry. Even though countrywide was late to the game of subprime mortgages, Mozilo is blamed for the financial crisis more than any other individual involved.

That’s because as his company kept making bad loans he knew were toxic, Mozilo promised shareholders that things were looking up. It was at this time that he spent shareholder money to buy back the company’s stock and secretly sold more than $402 million in stock from his personal holdings. Mozilo was charged with insider trading by the SEC in 2009 and settled the charges by paying $67.5 million in damages. He is now banned from holding any director or officer position at a public company.

  1. Fabrice “Fabulous Fab” Tourre

Fabrice Tourre was living it up as one of the most well-paid bond traders at Goldman Sachs in 2009. He was young, ambitious and confident enough to call himself “Fabulous Fab” in emails to his girlfriends. While at Goldman, Tourre created a product he called Abacus 2007-AC1 It allowed people to bet against the housing market, which investor John Paulson was more than happy to do.

When the market collapsed, John Paulson made $1 billion in profit, Goldman Sachs lost $90 million on the deal and Fabrice was paid $2 million for his “ingenious” product. Tourre was charged with seven counts of fraud by the SEC, 6 of which he was convicted for in 2014, which is widely regarded as the most high-profile court victory related to the subprime mortgage meltdown for the Securities and Exchange Commission. He refused to settle and now teaches an honors class in economics at the University of Chicago while fighting the case.

  1. Allen Stanford

Allen Stanford is perhaps one of the most well-known fraudsters of the past decade. He went from running a failed bodybuilding gym in Texas to making millions in the housing collapse in the 1980’s when the Texas oil bubble burst. He used his money to move to Antigua and start a bank called Stanford International Bank, which was owned by his company Stanford Financial Group.

When the global financial crisis of 2008 hit, his higher-than-market returns on depositor’s money started to look suspicious.  The SEC began investigating him in ‘09 and discovered that he was running a Ponzi scheme. He was convicted of all charges besides wire-fraud in 2012 and is currently serving a 110-year prison sentence.

  1. Bernie Madoff

Bernie Madoff was a stockbroker and financial adviser and is widely regarded as the perpetrator of the largest financial fraud in U.S. history. Bernie saved up money from his job as a lifeguard and sprinkler installer and started Bernard L. Madoff Investment Securities LLC in 1960. From there, Madoff grew his penny trading company into a Wall Street giant. He even helped to create the technology that underpins the NASDAQ stock exchange.

In 1999 a stock analyst noticed that the returns the company was publishing were mathematically and legally impossible. The SEC ignored this data for ten years before finally charging Madoff with the largest Ponzi scheme in history. He is now serving a 150-year prison sentence, the maximum allowed in the country. The net loss to investors was a whopping $10 billion. His victims include Nobel Peace Prize recipient and Holocaust survivor Elie Wiesel, Actors Kevin Bacon and John Malkovich and Hollywood mogul Steven Spielberg.

These are just a few of the most shockingly bad stories to come out of the 2008 financial crises.  And with every passing year, more information comes to light that helps regulators hold dishonest individuals and corporations responsible for the actions they took which brought down an entire country’s economy.

About the Author:  Andrew May is a finance and business attorney and the founding member of May Law in Downtown Chicago.  He specializes in Form PF compliance U5 defamation and FINRA rule 1017. Andrew is also an avid blogger and enjoys sharing his expertise on a variety of online publications. For more, visit www.MaylawPc.net.