JPMorgan Chase & Co. Sued by John Hancock For MBS Fraud

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Editor’s Comment: If the financial institutions were lying to each other, committing civil and criminal fraud, how much of a stretch is it to think that they are lying to the Courts, lying to homeowners, and that they lied to homeowners who bought bogus loan products just like they lied to John Hancock who insured the bogus mortgage bonds based upon lies to the fund managers (investors) who served as the real lenders?

Why would ANYONE presume that the mortgages are valid liens, or that anyone other than the defrauded investors is entitled to any money from the borrowers, from the bailout, from insurance contracts, from CDS, and other credit “enhancements” all procured by fraud?

See Full Article on Bloomberg

JPMorgan Chase & Co. was sued by Manulife Financial Corp.’s John Hancock Life Insurance unit, which accused the bank of fraud in connection with the sale of residential mortgage-backed securities.

The lawsuit, filed today in New York state Supreme Court in Manhattan, seeks unspecified damages for losses of market value and principal and interest payments, as well as rescission and recovery of payment for the investments.

John Hancock bought the securities “in reliance on the false and misleading” statements made by the defendants, which include Bear Stearns & Co. and Washington Mutual Inc. (WAMUQ), both of which were acquired by JPMorgan, lawyers for the Boston-based insurer said in the lawsuit.

“Based on these material misrepresentations and omissions, plaintiffs purchased securities that were far riskier than had been represented, backed by mortgage loans worth significantly less than had been represented, and that had been made to borrowers who were much less creditworthy than had been represented,” attorneys for John Hancock said in the lawsuit.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Jennifer Zuccarelli, a spokeswoman for JPMorgan, didn’t immediately return a telephone message left at her office seeking comment on the lawsuit.

The case is John Hancock Life Insurance Co. v. JPMorgan Chase & Co. (JPM), 650195/2012, New York state Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

 

45 Responses

  1. I’ve had a theory for a while now that the money wired to pay off in a refi is either dummy money or is not disbursed as we believe or something other than what it appears, and that these titles just keep going from one to the next, perhaps with a payment of some amount to the new mortgage co chosen through the refi process, but not by actually paying off completely. In other words, if there is a cash out then yes you would receive cash, but I have seen dox marked “cash out” and there was no cash out to borrower, at least not in this amount.
    In fact even seen same loan number go on from paid off loan to a new (refi). Possibly the mortgage is left in the pool if applies or passed in some other manner.
    Never any real record of having been paid off, asking an old Mortgage holder for dox from original an only receiving allonge from the originating broker, nothing more??? No real connected paperwork from, in this case Countrywide, the holder(?) or servicer(?) Does all that money wired, and by the way, maybe even twice, referenced in two different dox as being provided by two separate banks?? does that money just go from one pocket to the other pocket in the same pair of pants?

    Also, Bank Entry clearing, this is something I have found very little talked or written about, is this another way to give plausibility, among many other possible uses, to transfers of titles in refis and “payoffs”, multiple book entries on one loan, amount being the original full amount on loan. Can a consumers loan be deemed the Custodian Account for the Pool?

    All of those nameless entities entered simply as old inv, new inv with a number that represents them to someone. Perhaps it is not, but appears even after trying to read up on the subject, when seen in the ledger it appears to be no more than money laundering.
    Even the Govt does this according to what I have read.
    Does any one understand this? The only one I have ever seen talk about it was Neil. I’ve searched around the sight, anyway, and haven’t seen anything.

    The other thing this all makes me think of is the loans (while being foreclosed in some cases) that are used to pay off some deal made by a subsidiary to some associate of such a subsidiary via bond dealer or collection agency?
    Can a liquidated loan, granted not via true foreclosure, but none the less, liquidated, be used as sale over and over? Can it also be in the hands of a “junk bond dealer” possibly acting as maybe an agent to the true holder or the final profiteer?

    Did the Big Bank Mortgage Lenders actually put money out on all of the loans, or portions not deemed cash out? Is The hand quicker than the eye?
    I found the following in as search, an intersting read ps://docs.google.com/viewer?a=v&q=cache:oGUDSsdDnqwJ:www.peimedia.com/productimages/Media/000/165/467/Sample-16.pdf+rehabilitation+and+liquidation+another+term+for+junk+bond+dealer&hl=en&gl=us&pid=bl&srcid=ADGEESimxKud2bTFuCVwgMwUOwyaNRJ9CyjbPCHihaJE582tV2HZOHyyDg_uAwftc1w3nbAU9TVsIAGFrYqYWnYU16Nw0gVQCIbYrcxYqugl_-orMo2UeXz-jL6QbWHw_6V8w-T9amvq&sig=AHIEtbSQL-HqrQt78qi3PZOwSPvv-UBb7g

  2. OK —if you wanted to test this you would determine how much money is coming into the servicer from ordinary paying people—subtract out the payments passed through to investors–then ask whether that skim for fees and advances was too extreme to be fair to investor-pensioners etc.?

    Then you must identify the cash flows of the undisclosed affiliates buying under open or closed sales. Add that back–and you get the real dimensions of diversions. They will select higher value homes for the cherry-picking.

  3. “If trustees are allowing this, it doesn’t seem in the best interest of the investors at all. Maybe we’ve already determined those trustees don’t even know what’s being done which would upset the cart.”

    trustees are passive–everything in hands and on books of servicers–collection agencies–that is why schneiderman et al under new deal—are off-base——–they need to recognize that current events affect what the totality of events was –and damages building—do trustees have any duty?

  4. “like not void but messes up tax status”

    The trusts are supposed to close—ie “closed transaction” —so if the contractual duties are not met–then fails to meet standards–too loosey goosey to meet audits—–how can you have tax exempt activities wander without limits?

    The trusts are not REMICs–they are simple tax partnerships–with MBS holders the limited partners–the effect is that if one buys an MBS unit at say 15 cents/dollar——-then the loans are renegotiated en masse—-say to 50 cents [a la Greece] then the unit-holder receives 35 cents “phantom taxable income”–but no cash–ergo NO MODIFICATIONS

  5. Great news! Now all we need is the lawsuit regarding the proceeds that were collected, for false representations of ownership. That ought to break some of these predators monopoly on financial fraud.

    All we need is someone following the letter of the law, if that is possible?

  6. Bulldosing homes in Ohio is an expense of 1 percent not sharing the luxgury of results of accumulated work. My attorney leads with robo to tell the truth regardless of if the bank says transfers to the trusts are late but legal. Leverage debt banking is a crime against the right to own property/ maybe 20 million foreclosure by 2016 means maybe 40 million shot credit scores means higher interest rates for those already screwed out of their life’s financial future and their children What about the stinking interest rate swap the City of Oakland is stuck in contract with Goldman on its bonds for schools and roads? Makes me sick to think anyone would turn their back, put the head in the sand.

  7. @joann – the suit, citing Katherine somebody think it was, hints at tax
    ramifications for “retroactive” assignments (an impossibility in my book, not specific to trusts, just any retroactive assignment of a dot), but I can’t read a finite answer into what is there. I’m wondering for one reason because if an attempt at a ‘late’ assignment is made, if allowed to stand, it seems it may alter the tax consequence (if it’s not actually void), which is not something the investors would want. If trustees are allowing this, it doesn’t seem in the best interest of the investors at all. Maybe we’ve already determined those trustees don’t even know what’s being done which would upset the cart. That’s a problem for them imo if that’s true because some cases have held that’s where the buck stops.
    Well, those cases weren’t trustee-specific, just held noteowner is responsible for what is claimed as to a note. Maybe there’s a reason I don’t know about that would shield a sec’n trustee. I know the psa’s were “pretty good” to them generally. Boy, this gets circular because in order for a trustee to say anything about an assgt of the dot, the note had to get there. But then, on it goes,I guess same questions about the note’s late arrival: void or tax consequence and is that on all payments to investors, not just on the late arrivals? A note which is subject to the transfer provisions of the UCC really can’t be late, tho: if it’s not done, it’s not done. “They” can only pretend it got somewhere on time, which as we know for lack of dates is easy to do. So on that one, they can get away with pretending the note got there so neither tax consequence or void.
    This business sure provides strong motives for all the lies, doesn’t it? Many homes were stolen by pretending the loans weren’t securitzed and now they are being stolen by pretending they were.
    But, do you know: void or tax consequence?

  8. @joann _ I followed your link and am reading what’s there. Is it true that if there is not strict compliance with the psa, the transfers are void? Since I doubt the psa says those words (“miss the cut-off date and assign anyway, it’s void”), it must be as a matter of law. There are no alternatives, like not void but messes up tax status? Just void, period?
    If the majority or even a significant number of loans didn’t make it,
    does that by itself have an impact on the ‘legal’ status of the trust?

    If cut-off dates are absolute, why are pretenders now using their we-know-what method to do assignments to closed trusts? ARE they trying to assign dot’s to trusts right now? I saw one in 2009 (orig’d 2006) but dont’ recall any since, but maybe I just forgot.

  9. watch the Jamie Dimon, CEO of Chase talk at DAVOS on
    ‘muddling thru’ and impact of Greek Default on US Banks almost zero!! He also discusses bailouts and ‘too big to fail’.

    http://www.cnbc.com/id/46144727/Dimon_Impact_of_Greek_Default_on_US_Banks_Almost_Zero

  10. The ONLY evidence they care about is the paper (which is fraudulent itself) that the homeowner signed saying they would pay back such and such…that’s it. All other evidence means nothing.

  11. OK now we have this AG Biden which looks a lot like that fellow sitting behind Obama in the State of Union address telling us “we can investigate” this and this and this — never used the word have or shall–or anything committal.

    The problem with investigations –they are slow–glacial–well mostly be dead by time any trial was over and people went to jail–if any occurred.

    The other thing is that they focus on a big entity that has legal ramparts a mile high. The investigator is having no effect on what is happening in the here and now–which he wont look at for3-4 years maybe. Investigators are always way way behind the curve.

    The AGs do have the existing authority to enter the courtrooms today–to intervene in cases to protect the state interest. The state interest is that a claim that has been ost or stolen –abandoned—escheats to the state.

    The AGs have the powere to promulgate a rule that the court require submission of certain specific evidence of legitimacy of the claim–or immediately ORDER that the state be added as a necessary party to the case.

    That is the answer–historically and today—and why are they ignoring their own statutes that mandate escheat???

  12. Have you become DOERS yet?

    Since we are on our own, it seems like the best thing we could do for each other. Better even than write on this blog. Please sign up. You never know when you’ll need the kind of help Mandelman’s DOERS have been able to give.

    http://mandelman.ml-implode.com/2012/01/bank-of-america-does-the-wright-thing-doers-did-it-again-join-us-be-a-doer/

    And it makes you feel really, really good. Warm and fuzzy inside.

  13. Here’s another one !!!

    http://uk.reuters.com/article/2012/01/24/us-citigroup-loreley-idUKTRE80N2JO20120124?type=companyNews

    (Reuters) – Citigroup Inc (C.N) was sued for fraud by Loreley Financing over nearly $1 billion worth of collateralized debt obligations purchased in 2006 and 2007.

    Citigroup is accused of defrauding Loreley into purchasing “fraudulent investments that are now worthless,” Loreley said in a complaint filed Tuesday in New York State Supreme Court in Manhattan.

    Citi used the CDOs to offload the risks of toxic mortgage-backed securities on its books and to help preferred clients “short” the housing market, the lawsuit claims.

    Danielle Romero-Apsilos, a spokeswoman for Citigroup, said in an email, “We believe the suit is without merit.”

    Loreley Financing is a group of special-purpose entities formed to invest in CD0s. The entities are organized under the laws of Jersey in the Channel Islands.

    The entities, whose claims include fraud and unjust enrichment, are seeking at least $965 million paid for the notes and buybacks.

    The case is Loreley Financing v. Citigroup Global Markets, 650212/2012, New York State Supreme Court.

  14. Carie and DCB

    Check out Dylan Ratigan’s interview of Beu Biden.

    The fraud occurred at origination. The ongoing abuse of homeowners was the result. Homeowners have no clout or money obviously and no one listens to them even judges. So when the mbs investors get it that they were abused by the same fraud and get to the bottom of it (and not just shoddy underwriting but why) all hell will break loose. Everyone has been afraid of “no m in the mbs”. Beu Biden pretty much says that banksters think they – the AG’s, regulators ect. are afraid to investigate the pooling of mortgages and won’t go there. He says they aren’t afraid to go there and will stay on it. No settlement.

  15. The “conduct that created the crash” is the reason FOR the “conduct’ AFTER the crash, Mr.Schneiderman…

  16. Ian:

    “explain arms-length transactions”

    I was hoping someone else would do that… Used in the context of all those in house entites…….perhaps the meaning is the same….read the last paragraph in this web definition…maybe that is what investors are saying about the mbs deals. I also thought this sentence was interesting: “Similarly, this vertical integration allowed WaMu to both control and manipulate the loan-level documentation”

    “Investopedia explains ‘Arm’s Length Transaction’:

    The concept of an arm’s length transaction commonly comes into play in the real estate market. When determining the fair market value of a piece of property, the price for the property must be obtained through a potential buyer and seller operating through an arm’s length transaction, otherwise, the agreed-upon price will likely differ from the actual fair market value of the property.

    For example, if two strangers are involved in the sale and purchase of a house, it is likely that the final agreed-upon price will be close to market value (assuming that both parties have equal bargaining power and equal information about the situation). This is because the seller would want a price that is as high as possible and the buyer would want a price that is as low as possible.

    This contrasts with a situation in which the two parties are not strangers. For example, it is unlikely that the same transaction involving a father and his son would yield the same result, because the father may choose to give his son a discount. “

  17. “Our working group is focusing on the conduct related to the pooling and creation of mortgage-backed securities…the conduct that created the crash, not the abuses that happened after the fact.”

    “Conduct related to the pooling and creation of MBS”…
    Hello? That is DIRECTLY related to the fraudclosures, you idiot!!!

    What the heck is Schneiderman going to do when he finds out that the MBS were fraudulent and NEVER actually “mortgage”-backed? Pretend like that fact has NOTHING to do with the illegal foreclosures? He probably already knows…but God forbid that the hapless homeowners ever get compensated for the total destruction of the economy, their lives, and the theft of their homes…

  18. Schneiderman said Wednesday that the new unit’s efforts shouldn’t affect the foreclosure settlement talks because those investigations deal with conduct that took place after the housing market collapsed.

    “The multi-state talks all relate to post-crash conduct. These are abuses in the foreclosure process,” he said. “Our working group is focusing on the conduct related to the pooling and creation of mortgage-backed securities…the conduct that created the crash, not the abuses that happened after the fact.”
    http://www.latimes.com/business/la-fi-mortgage-probe-20120125,0,12638.story

  19. @ALL

    Get a firm grip on something–think help was on the way–joke on you–the great Schneiderman is only interested in investor fraud that occurred years ago—–and basically states that the securitization stuff does no affect present foreclosure activitities–he doesnyt have a clue —or hes as corrupt as the rest –goodness hes from new york after all

  20. joanne- can you further explain arms-length transactions? I understand the gist of the term, I don’t really know what it means in regards to MBS/psa, trusts, securitizations, etc. Thanks!

  21. I worked for John Hancock for 8 years downtown Chicago on La Salle Street, Hancock is tough as is the Chicago AG. This is good stuff. Check out “We sheeples vs Banksters.com” There is Power in Knowledge. Occupy Berkeley came up with the idea of coordinated neighborhood block parties to reach out to the people who just don’t know what to do. Have a kegger and pot luck on the block and educate, communicate and encourage young and old to fight for a new of the people financial system of fairness and reality. Hats off to the young people (and several grey hairs) at the Occupy 5 Ideas meeting Saturday in Berkeley.

  22. see also american home mortgage trusts–same integration pattern–same same same——who are the syndicators—lehaman bear sterns?

  23. Note this sentence:

    “As such, the vast majority of the transactions among the sponsor/seller, depositor and the Issuing Trusts were not arm’s-length transactions,as WaMu controlled all the entities……”

    In this paragraph:

    “The Certificates Plaintiffs purchased from the WaMu Trusts were structured and sold by WaMu and Long Beach. The depositors that created the Issuing Trusts were WaMu entities: Defendants WAAC, WMMSC and LBSC. The sponsor and/or seller for the Issuing Trusts were also WaMu entities, specifically, Defendant WMMSC or non-defendants LBMC and WaMu Bank. In addition, another WaMu entity, Defendant WaMu Capital, was an underwriter for nearly all of the Issuing Trusts. As such, the vast majority of the transactions among the sponsor/seller, depositor and the Issuing Trusts were not arm’s-length transactions,as WaMu controlled all the entities. Similarly, this vertical integration allowed WaMu to both control and manipulate the loan-level documentation and to ensure that loans would be approved by its in-house loan underwriters so that they could be securitized and off-loaded on to investors as soon as possible.”

    Add to that California Reconyeance Company WAMU/Chase owned.

  24. Funny. Just spoke to John Hancock a short time ago.

    Hey, are you getting my payments?? Still paying.

    Investors are the debt buyers. The John Hancocks were the security investors in what they THOUGHT were MBS. No, No, No. They were security investors in the cash flows to false collection rights.

    Shadow Banking??? Shadow banking is debt collection. In debt collection, falsely, before you refinanced. No one ever told you. And, no one told John Hancock.

  25. “…investors and others will have reason to doubt the legal ownership of pooled mortgages,”

    da

  26. “The courts will not ignore this case coming from this investor.”

    the investors always settle

  27. is it good cop bad cop or two poor cops

  28. From The Final Report of the Congressional Oversight Panel March 16, 2011 Page 94, paragraph 3:

    However, the Panel also found that if future revelations show that documentation problems are pervasive, investors and others will have reason to doubt the legal ownership of pooled mortgages, which could have severe consequences. In this scenario, borrowers may be unable to determine whether they are sending their monthly payments to the right people.

  29. DCB,

    Didn’t you hear Obama speak about the investigation task force chaired by Breuer and co-chaired by Schneiderman?

    Keep in mind that Breuer is the former chairman of Covington % Burling whire-collar crime DEFENSE division. Schneiderman is… well, NY AG, who is preventing the AGs from signing that grossly inadequate agreement and who is putting a damper on Obama’s plans to “move on” and leave Wall Street intact and unscathed.

    http://www.nakedcapitalism.com/2012/01/is-schneiderman-selling-out-signs-up-to-co-chair-committee-designed-to-undermine-defectors-to-mortgage-settlement-deal.html

  30. @Carie

    “END of story”.

    I so hope this will not be the end of the story…… it isn’t over until the fat cats sing.

    The courts will not ignore this case coming from this investor.
    My quotes in the previous post don’t do it justice.

    Read it at 4closureFraud.

    They quote Katherine Porter testifying before the Congressional Oversight Panel:

    “If the [securitization] trust does not have the loan, homeowners may have been making payments to the wrong party. If the trust does not have the note or mortgage, it may not have standing to foreclose or legal authority to negotiate a loan modification.”

    They quote Adam Levitin testifying before the House Financial Services Committee:

    “Concerns about securitization chain of title also go to the standing question; if the mortgages were not properly transferred in the securitization process (including through the use of MERS to record the mortgages), then the party bringing the foreclosure does not in fact own the mortgage and therefore lacks standing to foreclose”

  31. TRUE CARIE——all that matters is that somebody on the collectors side gets the money out of the house–even its the janitor that seeps the floor in the “vault”–ie immense warehouse

  32. Schneiderman to Breuer —what announcement re pairing?

  33. @joann

    NO LAWS are being followed by these CRIMINALS…and never will be. Simply because the unwitting “borrower” CANNOT EVER have what is perceived by them to be a “free house”. That’s how they think. That’s it. That’s ALL they care about. END of story. Period.

  34. The significance of this case is what it says and more importantly who is saying it. A very big investor is saying this (homeowners saying this have been more often than not been ignored. ) This is saying title is clouded and these trusts have no standing to foreclose. With the exception of maybe one or two others in past years investor lawsuits have continued to focus on shoddy underwriting misrepresented to them.

    “394. A fundamental aspect of the mortgage securitization process is that the issuing trust for each offering must obtain good title to the mortgage loans comprising the pool for that offering. This is necessary in order for the holders of the RMBS to be legally entitled to enforce the mortgage loans in the event of default. Two documents relating to each mortgage loan must be validly transferred to the trust as part of the securitization process – a promissory note and a security instrument (either a mortgage or a deed of trust).

    396. In order to preserve the bankruptcy-remote status of the issuing trusts in RMBS transactions, the notes and security instruments are generally not directly transferred from the mortgage loan originator to the trust. Rather, the notes and security instruments are initially transferred from the originator to the depositor, either directly or via one or more special-purpose entities. After this initial transfer to the depositor, the depositor transfers the notes and security interests to the issuing trust for the particular securitization. Each of these transfers must be valid under applicable state law in order for the trust to have good title to the mortgage loans.

    397. To ensure that the trust qualifies as a tax-free real estate mortgage investment conduit, the PSA generally requires the transfers to the trust to be completed within a strict time limit after formation of the trust. Furthermore, the applicable trust law in each state generally requires strict compliance with the trust documents, including the PSA, so that failure to comply strictly with the timeliness, indorsement, physical delivery and other requirements of the PSA with respect to the transfers of the notes and security instruments means that the transfers would be void and the trust would not have good title to the mortgage loans.”

    400. It is now clear that Defendants did not transfer securitized loans to the Issuing Trusts in a timely fashion, if they did so at all.”

    “402. The Offering Documents for the Certificates represented in substance that the Issuing Trust for each respective offering had obtained good title to the mortgage loans comprising the pool underlying the offering. However, in actual fact, Originators and Defendants routinely and systematically failed to comply with the requirements of applicable state laws and the PSAs for valid transfers of the notes and security instruments.”

  35. @DCB,

    “It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system,” he said.

    That, my friend, is why sales of weapons skyrocked in 2011. Everyone with half a brain can read the writings on the walls. And yesterday’s announcement to pair Schneiderman to Breuer is only one among the thousands of triggers.

    It will be a long year. Probably a bloody one too…

  36. How’s this for irony—my darling dad sent me an LA Times newspaper clipping (he’s old school), regarding “foreclosure myths”, and in the article it says:

    “…You don’t need to be behind to get help…keep making your payments, too—to your lender, no one else..”

    TO YOUR LENDER–NO ONE ELSE.

    HA. If ONLY.

    I ASKED the “servicer” for the “MBS Trust”—over and over and over again—WHO is real creditor/lender???—I want to make my payments to THEM—THE REAL LENDER/CREDITOR!!! Who is it??? They said “we don’t have to tell you”…cited “privacy laws”…and, if you want to “payoff” your “loan”, just make the check out to ONEWEST BANK, FSB…who is NOT your creditor/lender…they are a debt collector…whom the courts are allowing to take your house, even though they aren’t your lender, and have absolutely nothing to do with your lender…

    What part of that doesn’t make sense, ma’am?

  37. If people pay off their debts or quit paying–either way–bad for banks–unless they get insurance—They say they are all in such trouble I just keep thing:” Where did all the bailout $$ go to—-then I look and see Blackstone’s Schwartzman and WL Ross and I go Ah Ha–there is where they got those mysterious billions.

    The world’s loss of confidence in the efficiency of global markets after the financial crisis in 2008 “is comparable to the collapse of Marxism as a political system,” Soros said in the Newsweek interview. He said he expects riots in the United States as people respond angrily to their deteriorating economic conditions. “It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system,” he said.

    Soros said in early December that the global financial system is in a “self-reinforcing process of disintegration,” as a “deflationary debt trap” takes hold
    http://www.huffingtonpost.com/2012/01/25/george-soros-davos-2012-europe-austerity_n_1231243.html

  38. Chicago is acting… With or without Obama’s help, change will happen.

    For Immediate Release Media Contact: Robyn Ziegler

    January 25, 2012 312-814-3118

    rziegler@atg.state.il.us

    Follow OAG on:

    @ILAttyGeneral

    youtube.com/ILATTORNEYGENERAL

    huffingtonpost.com/lisa-madigan

    MADIGAN SUES STANDARD & POOR’S FOR ENABLING FINANCIAL MELTDOWN

    Lawsuit: ‘Profits Were Running the Show’ at Leading Credit Ratings Agency

    Chicago — Attorney General Lisa Madigan today filed a lawsuit against Standard & Poor’s for its fraudulent role in assigning its highest ratings to risky mortgage-backed investments in the years leading up to the housing market crash.

    Madigan filed her lawsuit today in Cook County Circuit Court, alleging that Standard & Poor’s, or S&P, compromised its independence as a ratings agency by doling out high ratings to unworthy, risky investments as a corporate strategy to increase its revenue and market share. The Attorney General’s lawsuit alleges that S&P ignored the increasing risks posed by mortgage-backed securities, instead giving the investment pools ratings that were favorable to its investment bank client base and S&P’s profits.

    “Publically, S&P took every opportunity to proclaim their analyses and ratings as independent, objective and free from its desire for revenue,” Madigan said. “Yet privately, S&P abandoned its principles and instead used every trick possible to give deals high ratings in order to retain clients and generate revenue. The mortgage-backed securities that helped our market soar – and ultimately crash – could not have been purchased by most investors without S&P’s seal of approval.”

    The Attorney General’s lawsuit cites numerous internal emails and conversations among S&P employees in the run up to the housing market’s crash that demonstrate the company misrepresented its ratings as objective and independent. In one such exchange, in April 2007, an online conversation via a company-based instant messenger application revealed employees discussing S&P ratings compared to the reality of risk involved, with an employee stating an investment “could be structured by cows and we would rate it.”

    Madigan said investors relied on S&P ratings because they were historically rooted in the agency’s purported independence and objectivity. S&P’s internal code of conduct states its goal to “promote investor protection by safeguarding the integrity of the rating process.” But, the Attorney General’s lawsuit cites congressional testimony by a former managing director of S&P who revealed that “profits were running the show,” with ratings being assigned to risky investments to help drive profit margins for their clients.

    S&P, a subsidiary of McGraw-Hill Companies, is one of the nation’s largest credit ratings agencies responsible for independently rating risk on behalf of clients and investors. Madigan said in the run up to the financial crisis, S&P consistently misrepresented the risk of mortgage-backed securities, assigning these securities its highest seal of approval – or AAA rating. This misrepresentation spurred investors to purchase securities that were far riskier than their ratings revealed.

    Mortgage-backed securities are financial products made up of a pool of mortgages that are bundled together and sold as a security. The assets are backed by residential mortgages, including subprime mortgages. The performance of these investment products have significant, real-world implications for Illinois institutional investors, such as pension funds and 401(k) managers that make decisions about whether, and which, of these securities are appropriate investments. It was the misrepresentation of the true value of these risky mortgage pools that helped the housing market skyrocket and ultimately led to its collapse in 2008.

    Today’s lawsuit is part of Attorney General Madigan’s continuing work to hold lenders accountable for their unlawful financial misconduct, and to provide relief and assistance to Illinois families struggling to save their homes. Most recently, in December 2011, Madigan and the U.S. Department of Justice reached a $335 million settlement with Countrywide, a subsidiary of Bank of America, for discriminating against thousands of Illinois borrowers of color during the height of the subprime mortgage lending spree. The settlement will provide restitution to harmed Illinois borrowers and is the largest settlement of a fair lending lawsuit ever obtained by a state attorney general. The Attorney General is litigating a similar lawsuit against Wells Fargo alleging widespread discrimination against African American and Latino borrowers.

    Madigan led an earlier lawsuit against Countrywide, which resulted in a nationwide $8.7 billion settlement in 2008 over the company’s predatory lending practices. The Attorney General also reached a $39.5 million settlement with Wells Fargo over the bank’s deceptive marketing of extremely risky loans called Pay Option ARMs, and in 2006, Madigan obtained more than $10 million in restitution for Illinois homeowners as part of a $325 billion multi-state settlement with Ameriquest over the former mortgage giant’s deceptive sales of predatory subprime mortgages.

    Assistant Attorneys General Vaishali Rao and Vijay Raghavan are handling the case for Madigan’s Consumer Fraud Bureau.

  39. http://www.bloomberg.com/video/84901442/
    no more Geithner in Treasury—only place with more zeros in the numbers is World Bank or Goldman–or is there a diference

  40. @David

    Exactly. All the courts care about is “You signed a piece of paper saying you would pay back this amount.” Doesn’t matter in the least if the “paper” you signed was FULL OF FRAUD AND A TOTAL MISREPRESENTATION OF WHAT WAS REALLY HAPPENING WITH YOUR SIGNATURE.
    The unsuspecting homeowners are COLLATERAL DAMAGE—of NO CONSEQUENCE OR CONCERN—unwitting “guinea pigs” for the biggest fraud/heist in human history.

  41. I love these big lawsuits, King Kong v. Godzilla. Big insurance is a good opponent for big banks. We still need criminal charges before the mess will be mitigated.

  42. 4closurefraud quotes a long passage from the case and provides link to the case:

    John Hancock Life Insurance Co. v. JPMorgan Chase

    IX. DEFENDANTS FAILED TO ENSURE THAT TITLE TO THE UNDERLYING MORTGAGE LOANS WAS EFFECTIVELY TRANSFERRED

    http://4closurefraud.org/2012/01/25/kaboom-jpmorgan-failed-to-ensure-that-title-to-the-underlying-mortgage-loans-was-effectively-transferred/

  43. From my experience for the past couple of years it really doesn’t matter to the courts if the banks and loans were fraudulent. Nobody really seems to get their complaints through the court system to find the truth.

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