Comments submitted to a top banking regulator supporting a 2015 merger between OneWest Bank and CIT Bank were attributed to people who never sent them, according to documents obtained under the Freedom of Information Act and reviewed by The Intercept.
The fake comments appear to be tied directly to Joseph Otting, the head of the regulatory agency himself.
The documents reviewed by The Intercept show that the Office of the Comptroller of the Currency, the main bank regulator for nationally chartered banks, knew about the fake comments at the time, before it approved the merger. But the OCC appears to have done no meaningful investigation of the matter, and even cited public support for the merger when approving it.
Incidences of fake comments delivered to the government to boost support for a particular regulatory position have become epidemic. New York Attorney General Barbara Underwood is investigating fake comments submitted regarding the Federal Communications Commission’s repeal of net neutrality regulation, with as many as 2 million identities stolen. The Wall Street Journal also found fake comments in the Consumer Financial Protection Bureau’s proposed rule on payday lending.
But in this case, OneWest Bank may have played a role in the fabrication. The text of the fake supportive comments is identical to a sample letter placed on the OneWest website in 2015 encouraging customers to support the merger. Otting, then CEO of OneWest, sent emails to his contacts on Wall Street at the time, pointing to the sample letter on the website and soliciting support.
Otting now heads the OCC, where he has kicked off a project to “modernize” the Community Reinvestment Act, which assesses banks for lending into low- and moderate-income areas. The CRA really only has one enforcement mechanism: Regulators examine it when banks attempt to merge. Otting has cited his experience with the OneWest-CIT merger as cementing his views on the CRA. “I went through a very difficult period with some community groups … who came in at the bottom of the ninth inning, that tried to change the direction of our merger,” he told a banking conference in April.
Critics argue that Otting’s main goal is to undermine the CRA because of his experience in the OneWest merger. “This bank did a particularly poor job in lending to the community,” claimed Kevin Stein of the California Reinvestment Coalition, one of the organizations that fought the merger. “They were upset there was an effort to hold them to account. The response is to try and loosen the rules across the board, and diminish the role the community has in the process.”
OneWest rose out of the ashes of failed subprime lender IndyMac. A consortium led by current Treasury Secretary Steve Mnuchin purchased the bank, with a unique backstop agreement in which the Federal Deposit Insurance Corporation covered losses beyond a certain threshold. OneWest faced persistent criticism in its short life for hasty — and what some have alleged as illegal — foreclosures.
In 2014, CIT, a business lender run by John Thain, the disgraced leader of Merrill Lynch, who installed a $35,000 golden toilet in his office while the investment bank was failing, announced a proposed $3.4 billion purchase of OneWest. Investors like Mnuchin, who bought IndyMac for just $1.55 billion, would more than double their money. Otting, CEO of OneWest since shortly after its launch in 2010, would also stand to gain.
As is customary, federal regulators — both the OCC and the Federal Reserve had jurisdiction — opened a public comment process for the merger. Community activist groups like the California Reinvestment Coalition immediately called for a public hearing, citing OneWest’s dubious foreclosure practices and insufficient commitment to lending in poor communities. “This bank had very low reinvestment; they mostly foreclosed on people,” said Kevin Stein.
This reportedly angered Otting. As a January 2015 Bloomberg piece explained, the then-CEO emailed his rolodex of contacts with the subject line “Support for OneWest Bank,” urging recipients “to click on the link below and submit a letter of support” for the merger. The link, now dead, went to a mini-site at OneWest Bank, also promoted to bank customers, which featured a sample letter:
I am writing to offer my support for the pending OneWest and CIT merger. OneWest serves as a strong source of capital and banking services to the Southern California community. This merger will retain and create new jobs in California. I believe the management team and OneWest have demonstrated its commitment to our community and to serving the needs of not only their clients but the community at large and due to this, I do not believe there is a need for a public hearing.
“I have never heard anything like this,” said one banking consultant to Bloomberg about Otting’s solicitation of support. “It strikes me as unusual and kind of overkill.”
According to the Federal Reserve, 2,177 individuals and organizations submitted supportive comments, “of which approximately 2,093 commenters submitted substantially identical form letters” — aka OneWest’s sample letter. Opposition groups filed petitions with 21,000 signatures calling on regulators to block the merger.
In an email, OCC spokesperson Bryan Hubbard stated that “identical ‘form letters’ are considered one comment letter as form letters are frequently used.” But the OCC’s order on the merger states: “The OCC received over 2,300 comment letters both in support of and in opposition to the Application. Approximately 1,700 of the letters resulted from an email campaign initiated by CITG and OWB seeking support for the merger.”
Almost immediately, the California Reinvestment Coalition found irregularities with the support letters. The group heard from a Vallejo, California, resident who was listed as sending an email of support for the merger. “I did not authorize or send this email,” the individual said.
Upon further research, the CRC found that, in a batch of 593 “supporters” of the merger, all of them had Yahoo email addresses, when Yahoo only controlled 3 percent of the email market. Yahoo famously suffered a data breach in 2014 of at least 500 million user accounts, including passwords, which could have facilitated placing emails in user’s names without their knowledge. Plus, a large number of the emails were sent in the middle of the night on Valentine’s Day in 2015, and roughly one-third of the email addresses associated with supporters bounced back, including seemingly fake ones like “firstname.lastname@example.org.”
Reports also indicated that OneWest donated $2.5 million to 14 organizations who provided supportive comments on the merger. In two cases, then-OneWest chair Mnuchin sat on the boards of supportive organizations, and personally delivered $66,000 to them from his family foundation. Community groups asked at the time for an investigation into OneWest’s possible manipulation of public support, but were rebuffed.
Activists did get regulators to commission a public hearing, and in response to criticism, CIT and OneWest put together a $5 billion low-income lending plan. But regulators approved the merger on July 21, 2015. The OCC order of approval cited public support. “Commenters in support of the transaction praised the banks for many reasons, including the banks’ community outreach efforts,” the OCC wrote in its approval order. The astroturf campaign appeared to have worked.
When Otting was nominated to run the OCC in mid-2017, CRC and Inner City Press, a watchdog journalism outlet based in the Bronx, filed an expansive FOIA request, seeking information on OneWest foreclosures, loan modifications, consumer complaints, and regulatory enforcement activities. In addition, the organizations sought “communications, conversations, complaints, interpretations, decisions or actions taken relating to whether emails or other letters or representations of support for the merger of OneWest and CIT Bank were fabricated or manufactured, and whether the purported authors of these emails or letters of support actually supported the merger, or even existed.”
After a yearlong effort to obtain the information, which included ongoing litigation, the OCC made available 15 pages. They contain emails to and from David Finnegan, an OCC senior licensing analyst who was a point of contact for public comment on the merger.
Four individuals contended in emails to Finnegan that they never sent the comment letters supporting the merger. “This is to bring to your attention that I received an email from the office of OCC regarding a subject I am completely unaware of,” wrote one individual (the OCC redacted the emailers’ identifying information). “I DID NOT send the email below that you responded to. This is a fraudulent use of my email account.” The other three sent similar complaints.
The letter of support attributed to these individuals was identical to the letter posted at the OneWest Bank website.
Matthew Lee of Inner City Press expressed outrage at the fake comments. “There’s nothing more offensive of speech rights than artificially presenting someone as saying something you don’t believe,” Lee said. “You have the right to be silent. It’s so beyond the pale.”
Finnegan responded to these emailers, thanking them for letting him know. He also sent two emails to Stephen Salley, an attorney with Sullivan & Cromwell, who was representing OneWest in the merger. “FYI and review. We would appreciate any information you can provide regarding this submission,” Finnegan wrote to Salley on both occasions.
Presumably, Finnegan reached out to OneWest’s lawyer about the fake comments because they featured the same form letter that OneWest had written to encourage public support. But the two emails are the only record that OCC did any investigation of the fake comments. There is no reply from Salley or Sullivan & Cromwell to the OCC, at least not in written form. “By reaching out to the attorneys immediately, it suggests something serious, and yet there’s no follow-up that’s apparent whatsoever,” said Stein of the California Reinvestment Coalition. His organization has asked the OCC for clarification on how it investigated the fake comments, but he has yet to receive any information.
Stein believes that OneWest had to have been behind the fake comments. “Who else would do it?” he said. “Why would anyone else say, ‘I’ve got an idea, let’s hack into a bank website for the purposes of creating fabricated comment regulatory letters?’”
Olivia Weiss, a spokesperson for CIT, forwarded a request for comment to her colleague Gina Proia, who declined to comment. Salley did not respond when asked whether he or his law firm responded to the OCC. The OCC acknowledged receipt of The Intercept’s questions, but did not respond to most of them.
The mystery of the fake merger support comments has taken on new relevance since Otting became head of the OCC, and made his announcement to revise the Community Reinvestment Act. The Fed and the FDIC share in the responsibility for the CRA, but did not join the OCC in issuing an advance notice of proposed rule-making. Critics believe the OCC’s hinted-at changes would eliminate bank commitments to low-income residents and local communities.
The CRA, enacted in 1977, hasn’t been updated since the 1990s. Its goal is to prevent redlining and other forms of discrimination, by encouraging lending to lower-income borrowers in the communities that banks serve. Banks are assessed every few years and get a grade on their local lending efforts. Advocates say it has moved trillions of dollars into the hands of those who need credit, and made banks more accountable to their communities.
Compromises and loopholes have made the CRA a less effective tool, however. Since its enactment, 97 percent of all banks examined have received a “satisfactory” or “outstanding” grade, according to a 2015 Congressional Research Service report. Despite near-universal compliance with low-income lending, poor people still find loans hard to come by, a testament to banks’ persistent and successful efforts to game the system, including getting credits for financing payday lenders, as well as landlords that evict low-income families from apartments. Community groups have consistently called for the CRA to be strengthened, not weakened; a bill released this week by Sen. Elizabeth Warren, D-Mass., would do just that.
No financial penalties are attached to a bad CRA grade; the only real consequence is that scores are taken into account when banks apply for mergers. During the OneWest-CIT merger, groups criticized OneWest for its weak community lending efforts. That’s precisely the part of the law that Otting wants to roll back, according to his own comments. A Wall Street Journal report this week, which likened community groups’ use of the CRA to “extortion,” suggests that Otting and Mnuchin’s experience with OneWest is fundamental to their aims. Otting said earlier this year that community groups should not be able to “pole vault in and hold [bankers] hostage” during mergers.
That makes Otting’s potential role in inducing fake public comments a critical factor. “You have a bank regulator run by a banker who openly defrauded the bank merger process a few years earlier,” said Matthew Lee of Inner City Press. “What these documents show raise troubling questions about the effort to change the CRA.”
Somewhat ironically, Otting’s agency has initiated a public comment period about the CRA changes. “It is time for a national discussion on how we can make the CRA work better,” Otting said, once again soliciting public comments for a preferred regulatory position.
In his public comment for Inner City Press, Lee asked for Otting to recuse himself from the new rule-making, highlighting the fake comment controversy. “Public participation is key to CRA, on performance evaluations and crucially on bank merger and expansion applications,” Lee wrote. He added that it’s unclear whether the OCC has improved its processes to prevent fake comments from being submitted again in the CRA rule-making. The public comment period ends in November.
Otting is scheduled to appear at a Senate Banking Committee hearing on October 2, where his CRA push could be a topic of discussion.