Regulators Size Up Wall Street, With Worry

March 12, 2014
Money laundering, market rigging, tax dodging, selling faulty financial products, trampling homeowner rights and rampant risk-taking — these are some of the sins that big banks have committed in recent years.
Wall
The regulators also said that they have stepped up pressure on the banks’ boards. The regulators hope that more independent-minded directors will demand changes if they see standards and practices slipping, especially in crucial areas like accounting and risk management.To help promote that push, Mr. Dudley said, the New York Fed has bolstered the stature of supervisors who interact with the boards and senior executives. “We’ve put some of our very best people in those spots,” he said.But boards may have very different priorities from regulators.Directors may not see the need for far-reaching changes if a bank is producing large profits that benefit shareholders.JPMorgan Chase’s board took steps to hold management accountable after the so-called London Whale trading scandal that engulfed the bank in 2012 and 2013. Still, in January, JPMorgan’s board approved a large raise in the 2013 pay of Jamie Dimon, the bank’s chief executive.Antony P. Jenkins, the chief executive of Barclays, which has been hit by its own scandals, took a different approach with his 2013 compensation. Earlier this year, he turned down a bonus worth $4.5 million.

And compensation is one area where bank regulators may need to do more if they want to do more to clean up bank culture, according to critics of the industry.

Wall Street’s compensation practices can reward unhealthy levels of short-term risk-taking and entice bankers into ethical lapses. Acknowledging that, regulators around the world agreed after the crisis to overhaul bankers’ pay, in part by requiring them to wait several years before they receive all of their bonuses. The hope is that bankers will behave better if they know their employers can easily take back the deferred part of their pay.

But there is evidence that large American banks are still deferring much less pay than their European peers. The Fed is in charge of regulating compensation at American banks. When asked whether the pay overhaul at American banks had gone far enough, Mr. Dudley said, “There is potential to defer more compensation for longer periods of time.”

One particularly daunting challenge looms over the efforts to improve the ethics of banks. Some banks may be so large and complex that it would be difficult for managers to maintain a clean culture across all of their operations.

But Mr. Dudley said he would not allow size or complexity to be an excuse for ethical breaches. “Either the firm is not too complex, you can manage it, you do know what’s going on,” he said. “Or, if you don’t know, that’s sort of raising the question whether the firm is too complex to manage.”

Burned by the media: Million dollar coffee lawsuit

By Dean Staley

Updated: Tuesday, March 4, 2014

ALBUQUERQUE (KRQE) – It has been more than 20 years since 79-year-old Stella Liebeck bought an 8-ounce cup of coffee at the drive-through of the Albuquerque McDonald’s at Gibson and San Mateo.

She spilled the coffee on herself, sued McDonald’s and won a $2.9 million award.

Coffee

Video:  Burned by the media: Million dollar coffee lawsuit

In the years since, the story spread across the country and around the world. Over time the details faded, until all anyone remembers was that a woman spilled coffee on herself, sued and made millions. It became an urban legend and Liebeck became the poster child for frivolous lawsuits.

Video:  KRQE report on McDonald’s coffee

The story is now part of our popular culture, including references on the TV shows “Seinfeld,” “Futurama” and country singer Toby Kieth’s music video “American Ride.” Liebeck’s family says being a punch line is a distinction Stella, who died in 2004, never wanted and didn’t deserve.

“Everybody says well, ‘she’s a gold digger, she was just suing McDonald’s because she wants a lot of money,’ and really her only point was she didn’t want it to happen to anybody else,” her grandson, Chris Tiano, said.

He was with her the day of the accident, driving the car while Stella sat in the passenger seat of the Ford Probe. He parked in the McDonald’s parking lot so Liebeck could add cream to her coffee. She had the cup between her legs when she pulled off the top, and the coffee soaked her sweat pants.

“I got her out of the car, I pulled off her terry cloth sweats, had a blanket in the back of the car and wrapped it around her, thinking it’s probably just a water burn,” Tiano said.

But at the emergency room, Liebeck soon discovered she had suffered third-degree burns on some of the most sensitive areas of her body. It took more than a week in the hospital and multiple skin grafts to repair the damage.

According to her attorney, Ken Wagner, the image of a lawsuit-happy old lady is false.

“She wasn’t looking to get rich, she just wanted them to turn the temperature down so other people didn’t suffer what she suffered,” Wagner said.

In fact, before Liebeck sued, she only asked that McDonald’s check the temperature of their coffee and pay her more than $10,000 in medical bills. Only after McDonald’s offered her $800 did Liebeck sue.

At trial, it was revealed that in the preceding nine years, more than 700 people had complained of burn injuries from McDonalds’ coffee. The jury also heard testimony that McDonald’s guidelines for franchisees was to keep the coffee between 180 and 190 degrees, 30 degrees hotter than the coffee produced by a home coffee maker.

In the end, the jury awarded Liebeck $2.9 million. What most people don’t remember is that the award was later reduced by a judge to $480,000 and Liebeck eventually settled for even less.

Video:  CBS report on reduced coffee settlement

Still, the image of a lawsuit-happy old lady getting rich from a frivolous lawsuit lingers.

“Once the media and corporate America got a hold of it, she was maligned and I think absolutely it was unjustified,” says Wagner. For Liebeck’s grandson, the pain is personal, “I’d really like people to realize this story isn’t how its been portrayed for the most part,” said Tiano. “The fact that she went up against McDonald’s to make sure something like this couldn’t happen to any of us, just tells you who my grandmother really was.”