JPMorgan IGNORED SUSPICIOUS MADOFF ACTIVITIES: SECURITIES LAW VIOLATIONS

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

It is my contention that this routine violation of the lending laws, recording laws, and other rules and regulations concerning liens and transfers of property amounts to a waiver on the part of the lender(s) or pretender lenders of any claim that this was a loan at all, much less secured. The transactions were in fact the illegal and fraudulent sale of securities to homeowners who could not know that they were being converted from homeowner to investor. — Neil F Garfield

EDITOR’S NOTE: In a theme echoing in courtrooms around the country, the chickens are coming home to roost. The latest round in litigation between Morgan and the Madoff receivership is the allegation that Morgan should have known of suspicious activity and probably did, but they ignored it. Why? At this point one can only speculate as to reasons but it seems pretty clear at this point that Morgan actually knew enough to conclude that the entire Madoff model was a Ponzi scheme. My conjecture is that (1) Morgan was running its own PONZI scheme in the securitization markets for credit derivatives and (2) that there were people at Morgan who were channels for investment in the Madoff scheme.

This is no idle theory. The allegations pile up from investors, investigators and reporters that it was impossible for Madoff to pull off a $60 billion scam without most of Wall Street being aware that he hadn’t done a single trade.

The exact same thing applies in the mortgage mess — how could $14 trillion in defective mortgages be originated without proper documentation from an industry that was the author of all such documentation for centuries? Investors are alleging and asking the same questions as homeowners. How could the appraisals of the securities, the real property (homes) and the loans have been so wrong for so long? Why were virtually all underwriting standards dropped as a condition to approval of so-called loans. My conjecture is that the only reason this was allowed was by intentionally ignoring, evading and hiding the facts from investors who bought defective mortgage bonds and homeowners who bought “defective mortgage loan products.”

My conclusion is that the reason for the lack of loan underwriting is that these were not really loans. They were unregistered securities disguised as loans to evade the disclosure and registration requirements for the sellers and sale of the financial products as securities. To answer a question that has been asked several times since I first posited that the transaction was never a loan transaction, much less secured and that it was a security, a “security” is usually defined as any evidence of an investment in which the person advancing the money is expecting a gain, profit or income without actively participating in any business.

A security is thus defined by its passivity — the lack of any requirement that the investor do anything to make or lose money. In this case the the loan products were sold as vehicles to gain a profit or additional capital by virtue of the rising value of the home — the same thing as any stock sale by a broker — except that in this case there was a statutory and contractual and common law guarantee that the lender would verify the viability of the investment and would not misrepresent the values portrayed. The main representation that the property was worth more than the financial loan product was false and anyone of the least sophistication should have known it was a false and probably did.

Unknown to the homeowner who was becoming an investor without adequate disclosure, the assurances received and the statutes relied upon were routinely violated. It is my contention that this routine violation of the lending laws, recording laws, and other rules and regulations concerning liens and transfers of property amounts to a waiver on the part of the lender(s) or pretender lenders of any claim that this was a loan at all. If it wasn’t a loan then it couldn’t be secured. And the documents themselves prove the point by naming non-lenders as “lenders.” The bloated appraisals of homes, increasing as much as 20% per month was unprecedented and unsupported by any known market fundamentals. That fact alone, if disclosed, would not doubt have diminished if not eliminated both the investor purchase of the bogus mortgage bond and the homeowner’s purchase of the security purchased, disguised as a mortgage loan product.

It is the obviously defective nature of the mortgage and foreclosure process that proves the point that these were never loans, but instead were investments that were based upon deceptions without the right of rescission and rights to disclosure that any ordinary investor would get if they were buying into an IPO. If the so-called “loan” transaction included a component wherein the payments reset to unsupportable levels, subject to the ability to finance those payments and remove additional capital from the investment with price rises in the real property, then this was a security not a loan. By definition, a loan is a transaction where the money is advanced in anticipation of getting it back. Most of these transactions were based upon values and requirements that made it highly unlikely they would ever be paid. That being the case, it cannot be defined as a loan. After all, the main word used throughout the industry was “securitization.”

Where does this leave us? Back at JPM’s doorstep, along with “government” Sachs et al.

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Madoff Trustee Sues JPMorgan for $6.4 Billion

By DIANA B. HENRIQUES
Irving H. PicardBrendan McDermid/ReutersIrving H. Picard, the trustee, contends JPMorgan should have spotted highly suspicious cash movements in the Madoff accounts.

8:12 p.m. | Updated

The trustee who is tracking down assets for the victims of Bernard L. Madoff’s Ponzi scheme sued JPMorgan Chase for $6.4 billion on Thursday, contending that the bank bears some responsibility for the losses of victims because it continued to serve as Mr. Madoff’s primary banker despite growing evidence that he was running an enormous fraud.

“Madoff would not have been able to commit this massive Ponzi scheme without this bank,” David J. Sheehan, a lawyer for the trustee, Irving H. Picard, said in a statement after the case was filed in United States District Court in Manhattan.

The complaint was filed under seal to conform with a confidentiality agreement the bank negotiated with the trustee when it first began responding to his document requests.

According to Mr. Sheehan, the lawsuit contends that JPMorgan ignored “clear, documented suspicions” about Mr. Madoff.

Moreover, he said, the bank should have spotted highly suspicious cash movements through Mr. Madoff’s accounts and recognized them as hallmarks of a Ponzi scheme.

In a statement on Thursday, JPMorgan called the trustee’s claims “irresponsible and overreaching” and said it had no advance knowledge that anything was amiss at Mr. Madoff’s firm.

The trustee’s complaint “blatantly distorts both the facts and the law in an attempt to grab headlines,” the bank said in the statement. “Contrary to the trustee’s allegations, JPMorgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff.”

The bank intends to “defend itself vigorously against the meritless and unfounded claims” in the lawsuit, the statement concluded.

For nearly two years, Mr. Picard has used his subpoena power to obtain internal bank documents and conduct depositions with bank employees, and the lawsuit will clearly reflect his conclusions from that research. But with the complaint filed under seal, the trustee’s specific accusations are not yet public.

There may be clues, however, to the case’s main themes in excerpts of internal bank documents that were leaked to the French media after the bank submitted them last summer to a magistrate in France who is investigating the Madoff scandal.

According to an exclusive account in L’Express on July 10, the bank provided a computer disk with more than 500 pages of documents to the magistrate. L’Express published what it identified as excerpts of those documents that show that some bank executives had expressed concern about Mr. Madoff several years before his fraud unraveled in December 2008.

In assessing a large European feeder fund, a document identified as an internal bank report from 2008 noted the fund’s total reliance on Mr. Madoff to confirm what its assets were worth from day to day. With “no real way to confirm those valuations, fraud presents a material risk,” the report said.

But Mr. Madoff’s personal wealth and his status over several decades as a respected leader in a regulated industry were also cited in the report as “factors making fraud unlikely.”

The excerpted documents also included what was described as a confidential report the bank made to British authorities in October 2008, after the bank had withdrawn nearly $250 million of its own money from the Fairfield Sentry fund, the largest of the Madoff feeder funds.

The report said the bank was concerned that Mr. Madoff’s investment performance was “so consistently and significantly ahead of its peers” that it appeared “too good to be true — meaning that it probably is.”

The report also asserted that a Swiss investment manager had made “thinly veiled” threats to a bank employee after learning that one of the bank’s Madoff-linked investments could lose value. In the report, the bank complained that the Swiss banker had insisted the price of the investment must not fall and made references to “Colombian interests who will not be happy” with the bank’s actions.

A spokeswoman for the bank could not immediately comment on the authenticity of these excerpts, but there is no sign that L’Express ever published a retraction of its article.

The trustee’s lawsuit against JPMorgan Chase is the second-largest claim he has filed in the Madoff liquidation so far, after a $7.2 billion claim last year against the estate of Jeffry M. Picower, one of Mr. Madoff’s longtime investors.

Negotiations between the trustee and the Picower estate have been continuing since before Mr. Picower’s death in October 2009, and lawyers for the trustee have hinted at court hearings that a settlement in the billions of dollars is possible. But so far, no final agreement has been reached, according to several people who have been briefed on the discussions.

A large number of significant cases against big banks, large feeder funds and prominent longtime investors are likely to be filed in the next dozen days because Mr. Picard faces an ironclad deadline of Dec. 15 for filing lawsuits against those who received money from Mr. Madoff’s fraud before it collapsed in December 2008.

Last week, Mr. Picard sued UBS and its feeder fund affiliates for $2 billion, accusing the Swiss bank of profiting from the fraud by accepting fees for lending its name and sponsorship to several big Madoff feeder funds without providing the supervision or due diligence that its role required.

Thomas Kaplan and Peter Lattman contributed reporting.

16 Responses

  1. FYI… think of Mr. Marcapolis and his constant claims against Madoff over the years the SEC turned a blind eye… in the words of Gandhi… first they ignore you, then they ridicule you and then you win!

    http://online.wsj.com/article/SB10001424052748704377004575651272119701864.html

  2. Crash JP Morgan, Buy Silver!

    I bought 100 silver coins even though im broke. Its worth it to get back at the bankster as the politicians aint gonna do shit. Spread the word!

    http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash

  3. THOSE HEDGE FUNDS – and Madoff – does anyone really think Madoff acted alone???

    Heard one Hedge Fund manager speaking yesterday about “distressed debt mortgages” – and how profits may be affected by any government intervention.

    Will not name the hedge fund here. But, my friends, this is a business. And, those in hedge funds have power to silence to you – and get what they want – no matter what it takes.

    This is what we have lived with since deregulation of financial services — Services – that is the key word —— and who are those mortgage servicers currently servicing for? One of two 1) the government – who bailed out every financial institution possible and now owns collection rights 2) deregulated hedge funds that now owns collection rights.

    Want to know — -why aren’t the current hearings addressing this??? This must be publicized NOW..

    And, I will say this. Fraud is particularly prevalent against minorities and seniors. Neil is shouting, I am shouting, as is (almost) everyone else here – who is shouting for us at hearings??

    Only John Conyer?? Elizabeth Warren?? Just do not tell us it is enough to “encourage” mortgage servicers to not to do “dual tracking” modifications/ foreclosures. We already heard that line when Congress FIRST “encouraged” servicers to do a modification. It is like encouraging a child to do something – but the child turns the other way – because the child still does not know right from wrong – because you never told them.

  4. Mr Davies, Sorry I did not mean free and clear in that sense, it’s just a phrase when somebody owns something outright. What I was asking can you end up with a house without a mortgage after a Chapter 7

  5. Touchdown!!!!!! in Kellyfornia…..MOTION TO STRIKE PORTIONS OF DEFENDANT’S ANSWER FILED BY J.P. MORGAN CHASE BANK, N.A.
    San Mateo County_Law & Motion_Tentative Ruling:
    CLJ 202669 J.P. MORGAN CHASE BANK, N.A. VS. VIRGILIO ORTIZ, ET AL.
    · DENIED. The Motion of Plaintiff to Strike Portions of the Defendant Jamie Ortiz’ Answer is DENIED. See, Code of Civ. Proc. Sec. 1161a and Vella v. Hudgins (1977) 20 Cal.3d 251, 255.
    · Plaintiff is seeking to establish its right to possession under CCP Sec. 1161a, under which Plaintiff is obligated to show it has perfected title! An “eviction after foreclosure . . . sale under CCP Sec. 1161a requires the purchaser seeking eviction to have ‘duly perfected’ title. Thus, in Sec. 1161a UDs, a plaintiff’s lack of title is a defense.” Friedman, Garcia & Hagarty, Landlord-Tenant (The Rutter Group) Sec. 8:388, citing Vella v. Hudgins (1977) 20 Cal.3d 251, 255 and Evans v. Sup.Ct. (Robbins) (1977) 67 Cal.App.3d 162, 169.
    · The Vella court states: “A qualified exception to the rule that title cannot be tried in unlawful detainer is contained in Code of Civil Procedure section 1161a, which extends the summary eviction remedy beyond the conventional landlord-tenant relationship to include certain purchasers of property . . . . Section 1161a provides for a narrow and sharply focused examination of title.” Vella, supra, 20 Cal.3d 251 at 255.
    · There is nothing contrary to law or improper about the allegations made in the Answer.
    · If the tentative ruling is uncontested, it shall become the order of the court, pursuant to Rule 3.1308(a)(1), adopted by Local Rule 3.10, effective immediately, and no formal order pursuant to Rule 3.1312 or any other notice is required, as the tentative ruling affords sufficient notice to the parties.

  6. […] This post was mentioned on Twitter by kim thomas, Adysin Montgomery. Adysin Montgomery said: JPMorgan IGNORED SUSPICIOUS MADOFF ACTIVITIES: SECURITIES LAW …: It is my contention that this routine violati… http://bit.ly/gFJWT9 […]

  7. B Davies..nice work.. you stick it to em!!!
    I think that that the “loan level file & all the other doc were never lost track of…this is preposterous .
    These doc represent $$$$$$ the banks NEVER misplace -or loose track of $…NEVER.
    You are 100% correct the “loan level”files reveal the TRUE INTENT OF THE FRAUD! This media spin on shoddy paperwork is HYPE to cover the trail!
    YOU ARE A FIGHTER & YOU MAKE ME PROUD!

  8. In 2008 the State of Florida, Office of Financial Regulation examined files of K.Hovnanian American Mortgage ( the pretender in my case of FRAUD) and they worked very hard! They examined SIX files of closed loans. How tiresome that must have been. They found FRAUD in FOUR out of the SIX loansand this was a crime of course, as that’s what FRAUD is…. They threw the book at them!

    It has negatively affect the stock of HOVNANIAN I’m sure, as for this ENTIRE YEAR of fraud, they were fined the exhorbitant amount of ….$3,500. and they had to Pinky-Swear not to do it again, and to check ALL the 2007 files and refund any stolen money.

    Have faith in your leaders.

    This is the link to the file

    https://real.flofr.com/Documents/View.aspx?docGuid=CC12CFBF-90EA-4B6A-9DCB-1664CDF63B51&docFileName=3518472.pdf

  9. This is systemic,”
    said April Charney, a senior staff attorney atJacksonville Area Legal Aid and a member of the Florida Supreme Court’sforeclosure task force.
    “Banks can’t show ownership for many of thesesecuritized loans,”
    Charney continued
    . “I call them empty-sack trusts,because in the rush to securitize, the originating lender failed to check the paper trial and now they can’t collect.

  10. BRIAN DAVIES,
    Well said!

  11. John,

    There is a State Complaint for fraud, violations of the foreclosure statutes in California. This is far from over.

    There is nothing free about it unless your a proffering opinions here a spy banker and that is your party line to make people think the borrower is the problem. Let me assure you that that is not the case and the Justice Department is starting to agree.

    I hope to take the case back to the State Court and also file criminal charges against some of the participants.

    I have spent hours researching these apparent criminal acts. It is interesting how over the last year the congress is starting to agree. I would not want to be a servicer, LPS Default or a foreclosure mill as in my case.

    There has been criminal charges against my table funder–Colonial Bank–
    Indymac was the alleged investor, seller, and depositor. NDEX was involved.

    There is nothing free.

  12. http://www.scribd.com/doc/44620045/Land-Court-Assignment-Fraud-by-Nye-Lavalle-December-2010

    good review of the crimes against homeowners.

  13. Mr. Davies, is it possibly to own your home free & clear after a chapter 7 liquidation? How can you end up with equity when claiming broke?

  14. There is needs to get the loan level files of these MBS as there is questions “where’s the beef”. Deutsche Bank used the Feds as a piggy bank. The loan level files will expose the fraud. Suponea the loan files.

    Here Deutsche Bank NY answering for Deutsche Bank National Trust Company as Trustee in California tried to object to discovery. The problem is this is the Federal System and they were denied motions for relief as Onewest and Onewest as agent for Deutsche Bank.

    Attorney letter Robert Firth to Deutsche Bank.

    http://www.scribd.com/doc/44617327/Firth-Letter-to-Dbntc-Re-Discovery-11-3-10-REQUEST-TO-RESPOND-TO-SUPOENA-AND-PRODUCE-THE-ENTIRE-LOAN-LEVEL-FILES

  15. so let me out something outthere, where did the MBS the foreign banks sold to the fed came from?

    were those some sort of buy back scheme?

    Investors demanded their money back and they returned the bonds and the banks sold them to the FED?

    BUT THE FOREIGN BANKS ARE STILL FORECLOSING IN TBEIR NAME?

  16. I think Madoff was only the tip of the iceberg. We are going to see more of these “Ponzi” schemes coming to light, because the banks were in collusion with the schemes. The banks, apparently, are capable of anything as long as they make money. How about we all figure out the top ten people of each of the mega banks and see what’s up. I am sure some of them have shady stuff floating around. http://www.challengingforeclosure.com Sirak@challengingforeclosure.com

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