Some might say you get what you deserve when you hire a fox to watch the henhouse, and not surprisingly that seems to be the case with consulting firm and “shadow regulator” Promontory Financial Group.
As noted first by the New York Times: “Promontory Financial Group occupies a position of trust in the global financial system, acting as a consultant to big banks, foreign nations and the Vatican. Its influence has soared over the years, positioning it as a sort of shadow regulator that provides government authorities with a window into bank misconduct. And the firm’s political ties run deep, thanks to its founder and chief executive, Eugene A. Ludwig, a former top banking regulator and a law school friend of Bill Clinton.”
However, the New York state financial regulator suspended Promontory from conducting most consulting assignments for banks that are licensed in New York and suspected of wrongdoing. Analysts note that the NYDFS suspended the firm indefinitely, which is very rare. The reasons for the suspension were presented in a report that alleges that Promontory actually worked to hide some of the misconduct it was supposed to help banks find and report.
Q2 Hedge Funds Resource Page Now LIVE!!! Lives, Conferences, Slides And More [UPDATED 7/3 17:55 EST]
Simply click the menu below to perform sorting functions. This page was just created on 7/1/2020 we will be updating it on a very frequent basis over the next three months (usually at LEAST daily), please come back or bookmark the page. As always we REALLY really appreciate legal letters and tips on hedge funds Read More
More on NYDFS report on Promontory Financial
The report was a scathing indictment of Promontory’s clearly false claims of independence, and focused on consulting for the UK bank Standard Chartered. Regulators had put the bank on notice that billions of dollars in transactions for Iran and other countries sanctioned by the United States had passed through through its New York branch. so Standard Chartered hired Promontory to conduct an “independent” assessment of the misconduct.
When NYDFS decided to conduct a more in-depth investigation, it discovered internal emails at Promontory that at the very least called so the firm’s so-called independence into question.
According to the regulator’s report, the emails highlighted ”numerous instances” when Promontory gave in to pressure from Standard Chartered execs and “sanitized” obvious misconduct, in some cases not mentioning obvious problems or editing “toning down” the language of reports on the matter.
NYDFA is understandably upset as it relied on Promontory’s presentations in determining the punishment for the oft-fined bank, which in agreed to pay $667 million to several agencies, including the NYDFS and the U.S. Justice Department almost three years ago.
One email message from a lawyer employed by Standard Chartered encouraged Promontory to make a presentation “more bland,” and the firm obliged without any objection.
In another email, the bank’s lawyers requested that Promontory delete a section of an interim report as it referred to conduct that regulators did not know about yet and may lead to “questions which we’re not yet prepared to answer.” Amazingly, and in clear violation of his duties, a Promontory employee agreed to this lying by omission, saying ”let’s do it. We’ve come this far, we might as well go for the three pointer.”
Legal battle expected
As the NYT points out, the suspension is almost certain to lead to a legal battle, as Promontory will seek a stay of the suspension order from the New York State Supreme Court, according to a knowledgeable source. Such a suit would be the first significant challenge to the expanded post-financial crisis authority of the NYDFS, and is an attempt to put a check on its wide-ranging powers.
See the full document here