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

Biggest Fish Face Little Risk of Being Caught

EDITOR’S NOTE: There is only one reason why there are not over 1,000 prosecutions that would successfully land the perps in jail — the reason is that the perps are the ones actually in charge. This is not rocket science. It is complex but it is not abstract requiring the intellect of Einstein. It takes elbow grease but not brilliance to make the case for fraud.




So much for Angelo Mozilo taking the fall for the financial crisis.

Late last week, word leaked out that Mr. Mozilo, who had co-founded Countrywide Financial in 1969 — and, for nearly 40 years, presided over its astonishing rise and its equally astonishing fall — would not be prosecuted by the Justice Department. Not for insider trading. Not for failing to disclose to investors his private worries about subprime loans. Not for helping to create a culture at Countrywide in which mortgage originators were rewarded for pushing fraudulent loans on borrowers.

In its article about the Justice Department’s decision, The Los Angeles Times said prosecutors had concluded that Mr. Mozilo’s actions “did not amount to criminal wrongdoing.”

Just months earlier, the Justice Department concluded that Joe Cassano shouldn’t take the fall for the financial crisis either. Mr. Cassano, you’ll recall, is the former head of the financial products unit of the American International Group, a man whose enthusiasm for credit-default swaps led, pretty directly, to the need for a huge government bailout of A.I.G. There was a time when it appeared that there was no way the government would let Mr. Cassano walk. But it did.

And then there’s Richard Fuld, the man who presided over Lehman Brothers’ demise. Though he was the subject of an investigation shortly after the Lehman bankruptcy, it appears that prosecutors are moving on.

Most of the other Wall Street bigwigs whose firms took unconscionable risks — risks that nearly brought the global financial system to its knees — aren’t even on Justice’s radar screen. Nor has there been a single indictment against any top executive at a subprime lender.

The only two people on Wall Street to have been prosecuted for their roles in the crisis are a pair of minor Bear Stearns executives, Ralph Cioffi and Matthew Tannin, whose internal hedge fund, stuffed with triple-A mortgage-backed paper, collapsed in the summer of 2007, an event that anticipated the crisis. A jury acquitted them.

Two and a half years after the world’s financial system nearly collapsed, you’re entitled to wonder whether any of the highly paid executives who helped kindle the disaster will ever see jail time — like Michael Milken in the 1980s, or Jeffrey Skilling after the Enron disaster. Increasingly, the answer appears to be no. The harder question, though, is whether anybody should.

Aficionados of financial crises like to point to the savings-and-loan debacle of the 1980s as perhaps the high-water mark in prosecuting executives after a broad financial scandal. When the government loosened the rules for owning a thrift, the industry was taken over by aggressive entrepreneurs, far too many of whom made self-dealing loans using savings-and-loan deposits as their own personal piggy banks.

In time, nearly 1,000 savings and loans — a third of the industry — collapsed, costing the government billions. According to William K. Black, a former regulator who teaches law at the University of Missouri, Kansas City, “There were over 1,000 felony convictions in major cases” involving executives of the thrifts. Solomon L. Wisenberg, a lawyer who writes for a blog on white collar crime, said, “The prosecutions were hugely successful.”

That is partly because the federal government threw enormous resources at those investigations. There were a dozen or more Justice Department task forces. Over 1,000 F.B.I. agents were involved. The government attitude was that it would do whatever it took to bring crooked bank executives to justice.

The executives howled that they were being unfairly persecuted, but the cases against them were often rooted in a simple concept: theft. And as prosecutors racked up victories in court, they became confident in their trial approach, and didn’t back away from taking on even the most well-connected thrift executives, like Charles Keating, who owned Lincoln Savings — and who eventually went to prison.

Today, Mr. Black says, the government doesn’t have nearly as many resources to pursue such cases. With the F.B.I. understandably focused on terrorism, there isn’t a lot of manpower left to dig into potential crimes that may have taken place during the financial crisis. Fewer than 150 of the bureau’s agents are assigned to mortgage fraud, for instance. Several lawyers who represent white collar defendants told me that outside of New York, there aren’t nearly enough prosecutors who understand the intricacies of financial crime and know how to prosecute it. It is a lot easier to prosecute people for old-fashioned crimes — robbery, assault, murder — than for financial crimes.

Which leads to another point: as Sheldon T. Zenner, a white collar criminal lawyer in Chicago, puts it, “These kinds of cases are extraordinarily difficult to make. They require lots of time and resources. You have some of the best, highest-paid and most sophisticated lawyers on the other side fighting you at every turn. You are climbing a really high mountain when you try to do one of these cases.”

Take, again, the one big case that prosecutors have brought, against Mr. Cioffi and Mr. Tannin. The Bear Stearns executives had written numerous e-mails expressing their fears and anxieties as the fund began to sink. Prosecutors viewed those e-mails as smoking guns, proof that the men had withheld important information from their investors. Thanks largely to those e-mails, prosecutors saw the case as a slam dunk.

But it wasn’t. For every e-mail the executives wrote predicting the worst, they would write another expressing their belief that everything would be O.K. Besides, expressing such fears publicly would have doomed the fund, because liquidity would have instantly vanished. Instead of viewing Mr. Cioffi and Mr. Tannin as crooks, the jury saw them as two men struggling to make the best of a difficult situation. By the time the trial was over, the e-mails, in their totality, made the defendants seem sympathetic rather than criminal.

It seems safe to say that the government’s failure to convict those two Bear Stearns executives has caused prosecutors to shy away from bringing other cases. After all, the case against Mr. Cioffi and Mr. Tannin was supposed to be the easy one. By contrast, a case against Angelo Mozilo would have been, from the start, a much harder one to win.

Although the Justice Department never filed charges against Mr. Mozilo, one can assume that its case would have been similar to the civil case brought earlier by the Securities and Exchange Commission. (On the eve of the trial date last fall, the S.E.C. blinked and settled with Mr. Mozilo.) One of the S.E.C.’s charges was insider trading — that Mr. Mozilo sold nearly $140 million worth of stock after he knew the company was in trouble. But the defense countered by pointing out that Mr. Mozilo was selling his stock under an automatic selling program that top corporate executives often use — thus mooting the insider trading accusation.

Like the Bear Stearns executives, Mr. Mozilo had written his share of e-mails expressing worries about some of Countrywide’s loan practices. He called one of Countrywide’s subprime products “the most dangerous product in existence, and there can be nothing more toxic.” The government argued that Mr. Mozilo had a legal obligation to share that information with investors.

But this case, too, would have been awfully difficult to make. Countrywide’s descent into subprime madness was hardly a secret. It made all sorts of crazy adjustable rate mortgages that required no documentation of income; its array of products was also well known and disclosed to investors. Indeed, Mr. Mozilo was quite vocal and public in saying that the housing market was due to fall, and fall hard. But he always assumed that whatever its losses, Countrywide was so strong that it would be one of the survivors and would feast on the carcasses of its former competitors. No internal e-mail he wrote contradicted that belief.

Was there outright fraud at Countrywide? Of course there was. That is a large part of the reason that Bank of America, which bought Countrywide in early 2008, has struggled so mightily with the legacy of all the Countrywide loans now on its books. But most of the fraudulent actions at Countrywide took place at the bottom of the food chain, at the mortgage origination level. It has been well-documented that mortgage brokers induced borrowers to take loans that they never understood, and often persuaded them to lie on their loan applications. [EDITOR’S NOTE: THEY STILL DON’T GET IT. WHO DO THEY THINK WAS GIVING THE INSTRUCTIONS? IN AN INDUSTRY THAT INVENTED THE TERM DUE DILIGENCE IS THERE ANY POSSIBILITY THAT MOZILO AND OTHERS DIDN’T KNOW EXACTLY WHAT WAS GOING ON? WHY NOT LET A JURY DECIDE?]

That kind of predatory lending is against the law — and it should be prosecuted. But going after small-time mortgage brokers isn’t nearly as satisfying as putting the big guy in jail, especially a big guy like Mr. Mozilo, who symbolizes to many Americans the excesses and wrongdoing embodied in the subprime lending mess. The problem is that Mr. Mozilo, though he helped create the culture that made such predatory lending acceptable, never made the fraudulent loans himself. Legally, if not morally, he’s off the hook.

A few days ago, I listened to a recording of a lengthy interview with Mr. Mozilo conducted by investigators working for the Financial Crisis Inquiry Commission and posted recently on the commission’s Web site. It was a remarkable performance; Mr. Mozilo expressed no regrets and no remorse. He extolled subprime loans as a way to allow lower-income Americans to get a piece of the American dream and “really build wealth” — just like people used to do during the housing bubble. He bragged that Countrywide, unlike the too-big-to-fail banks, never took a penny of government money. He said that Countrywide had helped put 25 million Americans in homes.

His voice rising passionately, he said finally, “Countrywide was one of the greatest companies in the history of this country.”

Which is a final reason Mr. Mozilo would have been difficult to prosecute. Delusion is an iron-clad defense.

14 Responses

  1. I have personally investigated many Countrywide
    loans. In almost every case the appraisal was inflated, the borrower was not qualified for the loan
    and a future foreclosure was a near certainty.
    I came on these cases to defend against the foreclosure and what I found were counterfeit Notes
    and phony assignments being entered into evidence by the usual foreclosure mills for one of
    the pretender lender servicing companies. It was all
    fraud but the real question is how does one pin it on

  2. we need homeowners fighting back in mass.

  3. Vegas Dude – but on reading the SEC vs. Mozilo complaint, it’s obvious he knew exactly what was going on,

    M.Soliman- He did, But did not like it (sub prime) …But had to keep it going
    ** Why ** ask yourself why?

    VD – and, far from doing nothing about it, he made sure it continued, and even intentionally lied to the shareholders AND the government so that he could profit MORE.

    M.Soliman – He did, He had to keep it going
    ** Why Ask yourself Why? **

    I’ll tell you, while in the business he had a reputation for underwriting an FHA loan better than the best underwriter’s.

    I can see him going over to BofA and saying “Okay, that’s it …Maybe I should talk ….or maybe you buy the company and we act nice …..

    What does Angelo know for Bof A to write a check for billions here? With the Feds at the door THINK ….THINK!

    (I personally asked the guy in New York at MBA gathering – – – when are you (CW) getting into subprime – (back in 2000) He say’s “Never” You shop Pic n Save I shop Sac 5th Avenue ” No kidding

    P.s. I use to lease cars with the guy in Pasadena ….long long time ago.


  4. One more thing…this part is just plain ridiculous:

    “The problem is that Mr. Mozilo, though he helped create the culture that made such predatory lending acceptable, never made the fraudulent loans himself. Legally, if not morally, he’s off the hook.”

    EXCUUUUUUSE ME……but on reading the SEC vs. Mozilo complaint, it’s obvious he knew exactly what was going on, and, far from doing nothing about it, he made sure it continued, and even intentionally lied to the shareholders AND the government so that he could profit MORE.

    As far as being “off the hook” …. NO WAY, JOSE. We do have laws which prohibit complicity, aiding and abetting, inducement, civil conspiracy, accessory, accomplice liability, criminal syndicalism, racketeering (RICO) acts, gross negligence, criminal negligence, etc. etc. The only way he’s “off the hook” is because the “hook” is owned and controlled by the corrupted.

    What should really happen is a huge class-action or joinder complaint from thousands of borrowers who had Countrywide loans against this cockroach who (so far) has bailed out with a golden parachute.

    Talk about evil.

  5. “…did not amount to criminal wrongdoing”????


    That’s the justice department for ya. Seems Mozilo isn’t the only “delusional” ones out there.

    If what he did isn’t criminal, I’ll eat the Constitution.

    Lord, help us.

  6. A sobering thought!

    George Carlin was a very funny guy. That is how we remember him, MOST OF THE TIME.

    Buy let me tell you……..right before he passed he did a very sobering performance.

    Click this link! You tell me he did not know what *IS* realling going on!


  7. Look, it’s called PR Public Control. Public Relations = control. Neil is right, the angle is not Justice for you. You know they defrauded us, slimly banks. The angle is on a Public Relations front to get the public on your side is as simply as Neil says, you go into court not wanting a free house, but a right to talk it over with the actual owner of the loan, right? A criminal is defined as somebody who wants to get something for nothing. So, why on Earth should the foreclosure entity get something for nothing, why should you get something for nothing. You are are only seeking the truth, who owns the loan and how do we talk and work out a deal. If I need to walk because no deal great, if not you get the house. This is simple exchange, simple contract law by collateral.

  8. Prosecution would need to demonstrate the interconnection between predatory loans [timed default] and unexpected waterfalls inside trusts that also defraud investors. One hurdle is that the investor reps. were negligent in their due diligence–many of these trusts had no loan lists filed –critical defect in investment security. The investor reps relied on the ratings “agencies”. Did the ratings agencies have a duty of care–apparently not and that was the breakdown. Responsibility passed down the line until it fell off the cliff.

    A significant question now would be whether the new originators are simply repeating those patterns—? is a new time bomb ticking?

  9. Really though… We need ONE national non-pofit organization with regional chapters and a way for these chapters to connect. We need signs to take the organization to the streets and let others become aware of it. Gather homeowners who are are in danger of loosing their homes and other supporters to stand at the intersections and gather together and stand as one voice…the voice of the people. We NEED to be noticed and we NEED to be heard!

  10. And Martha Stewert went to jail?

  11. Psychotic

  12. From Black’s Law Dictionary:

    Insane delusion – an irrational, persistent belief in an imaginary set of facts resulting in a lack of capacity to undertake acts of legal consequence.

  13. OK, I have started to right to the County leaders here in a very well run County in North Atlanta, and I sent 4 emails and got 1 response, he had no idea what “mers” was or is, and “mers” should know be called
    THEY NO LONGER WILL EVER GET capitol letters from me. I have volunteered to have an Huffington post meet up on Mardh 8th and if you live in Northern Georgia email me at “the and I will give you directions, bring a dish and your own beverage so “We The People” can start to map out a war type strategy to take back our Country and restore this GREAT NATION OF OURS not theres the time has come if you are making your mortgage payments you may soon be found to be treasonous, so please send this out because time is running out, we have to root these bastards out one by one with out bloodshed. Visit my new blog and help me get a message out to the people I do not know but you know people I don’t know and this can go viral very fast.
    I worked my ass off to build my home over 22 years and the greed has propelled me to start to write to every one and I know plan to mail and email every one I can. I have found my passion and I never knew It was so bottled up that now the gift has been exposed to me and I am done competing with the bankster’s that cut off the access to credit but still want me to pay “WTF” and my credit is trashed had a low 786 and a high of 814 for over thirty years (a 798 average) “never late never late”, F**kem, they can have right up their you know what I no longer care, I do not need a new car, a different house, I will defend this property till the end.
    I have been following Livinglies, since Jan 2009 and I have read every article posted and many more from others like, and I love what Lisa and April have done for Americans all over the USA, my hat is off to them, One last thing I found this peice of proerty and have built my dream homestead, and 13 weeks after I funded the project from a broker whose brother was engaged to my daughter, the wife told me to leave, no no honey you want out where are you going to go because I am not leaving, [Google the case-schiller] home price index for the last 112 I was divorced June 15 2006, I really don’t know how to do small things but I made it to the top, far be it false values, that was held against me. tuff sh*t 4 me.
    There is one goal I was able to finish, we now have one 2- bay shop for mechanics and auto’s, and a 4 bay shop (1850 s/ft) that Bob Villa would love, so I have a lot at stake and the paper work they don’t have, I bought the Combo from NEIL G. I would have never thought that the new law firm (the closing attorney that closed this home in 12/12/1998) would be asking me questions about mers and I offered to investigate for free while waiting on the ax man to come. Bring it on you mother******s
    Thank you, and I want to meet some of you Patriots soon after we have total victory, GOD BLESS AMERICA!


  14. Delusional or more like Psychotic?

Leave a Reply

%d bloggers like this: