The 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.
But an important driver of Promontory’s success — guiding New York State banks through regulatory problems — is now in jeopardy, and so is the firm’s reputation for independence.
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On Monday, New York State’s financial regulator effectively suspended Promontory from conducting most assignments for banks that are licensed in New York State and suspected of wrongdoing. The decision to suspend the firm indefinitely, an unusually aggressive move even for the Department of Financial Services, a New York agency known to scuffle with Wall Street, was detailed in a report that accused Promontory of helping to obscure some of the same bank misconduct it was supposed to unearth.
The New York State Department of Financial Services (the “Department”) was created in 2011 to help ensure the safety and soundness of New York’s banking, insurance and financial services industries, to help ensure prudent conduct by providers of financial products and services, and to promote the reduction and elimination of unethical conduct by and with respect to banking, insurance and other financial services institutions. Pursuant to this mandate, on September 4, 2013, the Department undertook an investigation into Promontory Financial Group, LLC (“Promontory”). The conduct in question relates to reports that Promontory prepared and submitted to the Department in 2010-2011 detailing the findings of its review of certain transactions by Standard Chartered Bank (“Standard Chartered” or the “Bank”), an institution regulated by the Department.
The Department’s extensive, two-year investigation included the collection and review of thousands of documents, the taking of sworn testimony of five current and two former employees of Promontory, including two managing directors and the Chief Operating Officer, and the review of four written submissions made by Promontory’s counsel over the course of the investigation (including reports by four purported experts hired by Promontory). After careful consideration of the documents, testimony and submissions:
The investigation shows that Promontory exhibited a lack of independent judgment in the preparation and submission of certain reports to the Department in 2010-2011; and
Certain testimony regarding key issues provided by the Promontory witnesses during the course of the Department’s investigation lacked credibility.
Accordingly, the Superintendent has determined that the ends of justice and the public advantage would not be served by providing Promontory with access to confidential supervisory information pursuant to New York State Banking Law § 36(10). Therefore, the Department will review all pending and future requests to provide Promontory with confidential supervisory information under Section 36(10) and, barring any change in circumstances, the Department intends to deny all such requests until further notice.
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