Consent Order Reveals Multiple Sales of “Title”


Like other Consent Orders, this one reveals the banks as pursuing an on-going pattern of fraud, deception and theft. The problem is that people still can’t quite believe the entire scheme is fraudulent and that the base transactions don’t exist. The banks get away with this because the complexity is so great that nobody but a select few at trading desks understands the true nature of these transactions.

The financial markets are said to be based upon “trust.” The truth is that the only thing anyone on Wall Street trusts is that everyone else will pursue any business model that makes them money, blurring the lines of legality with a cover-up built entirely on creating meaningless complexity.

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Bill Paatalo wrote me an email (see below) that is actually an article. If you ever thought that the banks were in any way playing by the rules, maybe this article will be the straw that breaks the camel’s back. The bottom line is don’t admit or even believe that ANYTHING the banks say is true. Starting with the first “transaction” (the origination) right up through the foreclosure and sale, the entire scheme is devoted to defrauding as many people as possible.

We should stop treating the hundreds, even thousands, of known examples of bank fraud by the banks as “one-off” isolated instances in an otherwise legal world. We need to recognize that our economy was severely damaged by these banks and that we continue to be under siege by them.

To observers like myself Merrill Lynch (owned by Bank of America) has rebranded its symbolic statue of a bull from being a “bull market” to bulls–t.

Like the RICO case alleging Chase sold loans it never owned, here’s a Consent Order against Merrill Lynch, controlled by BofA, where they have been caught leveraging mortgage-backed securities belonging to other investors. If the certificateholders are deemed the investors in borrowers’ mortgages, then here we have a prime example of hypothecation fraud with the certificates.
Like a car title. ML was caught selling titles to cars it doesn’t own. The risk, as pointed out by the SEC, is that if ML or the economy crashed, two parties are going to come looking for their car, each with a title in hand. This plays into the Trustees taking actions on behalf of the certificateholders. Clearly the Trustee representing the certificateholders in these hijacked securities has no idea that multiple parties are claiming ownership to the same securities. The fraud scheme would likely stop dead in its tracks the minute any court demands proof from any of these Trustees that they verify the certificateholders they claim to represent.
“The first set of violations concerns trades devised by ML that were known internally as the Leveraged Conversion Trades (“Trades”).  From 2009 to 2012, ML used the Trades to reduce the amount of cash it was required to deposit in a customer reserve account that it maintained pursuant to Rule 15c3-3(e).  Margin loans extended to finance customer positions can properly reduce the amount a broker-dealer is required to deposit; however, ML made billions of dollars in margin loans to finance riskless trades that lacked defined terms and economic substance which ML structured and then executed with newly-created counterparty entities.  Through these trades, ML improperly reduced by billions of dollars the amount it was required to deposit in its customer reserve account.  These Trades evolved over time and, in their final iteration, became instantaneous roundtrips structured to provide financing for ML’s activities rather than in response to customer trading objectives.

ML used these Trades to remove up to $5 billion of customer cash week over week from its customer reserve account.  ML then used these funds to finance its business activities.  Had ML failed when the Trades were in use, its customers would have been exposed to a shortfall of customer cash in the customer reserve account.”

The second set of violations involved the custody of customer securities from 2009 until this year.  Rule 15c3-3(c) requires broker-dealers like MLPF&S to hold customer securities that are not collateralizing margin loans in a segregated account free of liens.  The purpose of this requirement is to protect customer securities from claims by a failed broker-dealer’s creditors.

From June 2009 to April 2015, MLPF&S held up to $58 billion of customer securities in a clearing account that was subject to a general lien by one of its clearing banks.  In addition to this account, until as recently as this year MLPF&S held approximately $1.38 billion in customer securities in 6 other clearing accounts in Europe and Asia as of the end of 2015 that also were subject to liens and approximately $4.8 billion in 48 other accounts in Europe, Asia, and Australia as of the end of 2015 that lacked documentation establishing that they were not subject to liens.  Had MLPF&S failed during this period, these liens, and the resultant uncertainty, would have hindered or prevented MLPF&S’s customers from retrieving their securities and could have significantly further damaged public confidence in the U.S. brokerage and securities industries during or after the Financial Crisis.”

E. MLPF&S Improperly Allowed Liens on Customer Securities

59. From June 2009 to April 2015, MLPF&S allowed tens of billions of dollars’ worth of its customers’ fully paid and excess margin securities to be held in a clearing account subject to a general lien by its domestic clearing bank (the “Clearing Bank”).  These customer securities were held in an account at the Clearing Bank for securities that can be transferred through the Federal Reserve Fedwire Funds Transfer System and consisted of Treasuries and mortgage backed securities (collectively, “Fedwire securities”).  The total market value of the Fedwire securities in this account during this period ranged from approximately $30 to $60 billion; approximately 98% of the securities in the account were customer securities, and the remainder was firm securities.  Pursuant to the Clearing Bank’s lien, if MLPF&S went bankrupt or defaulted on any debt it owed to the Clearing Bank, the Clearing Bank had the legal right to assert a security interest in those customers’ securities.

62. One of the services provided by the Clearing Bank is to extend its clearing clients intraday loans to facilitate the daily purchase of securities into the account.  If MLPF&S or one of its customers seeks to purchase a security, and if there is not sufficient cash in the clearing account to cover that purchase, the Clearing Bank will extend a loan to enable that transaction.  Particularly if the securities purchases on a given day exceed securities sales, the balance of these loans from the Clearing Bank can rise into the billions or even tens of billions of dollars.  The loan is typically paid back by the clearing customer at the end of the trading day.

Bill Paatalo
Oregon Private Investigator – PSID#49411

BP Investigative Agency, LLC
P.O. Box 838
Absarokee, MT 59001
Office: (406) 328-4075

3 Responses

    With amendments to February 24, 1970
    Source: Black’s Law 4th Edition, 1968; revised 6 – 1971; page XVII

    DR 1-102 Misconduct.
    (A) A lawyer shall not:
    (1) Violate a Disciplinary Rule.
    (2) Circumvent a Disciplinary Rule through actions of another.12
    (3) Engage in illegal conduct involving moral turpitude. 13
    (4) Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.
    (5) Engage in conduct that is prejudicial to the administration of justice.
    (6) Engage in any other conduct that adversely reflects on his fitness to practice law.

    Maxim – In default of the law, the maxim rules.

    Maxims on fraud:

    A forestaller is an oppressor of the poor, and a public enemy of the whole community and the country.

    Advice, unless fraudulent, does not create an obligation.

    Agreements which are not contrary to the laws nor entered into with a fraudulent design are in all respects to be observed. Cod. 2, 3, 39; Broom, Max. 698, 732.

    An agreement induced by fraud cannot stand. Dig. 2, 14, 7, § 9.

    By no agreement can it be effected that a fraud shall be practiced. Fraud will not be upheld, though it may seem to be authorized by express agreement. 5 Maule & S. 466; Broom, Max. 696.

    Deceit and fraud shall excuse or benefit no man. Yearb. 14 Hen. VIII. 8; Best, Ev. p. 469, § 428; 1 Story, Eq. Jur. § 395. 570

    Even though several causes of action are time barred, fraud never expires.

    Fraud and deceit should defend or excuse no man. 3 Coke, 78; Fleta, lib. 1, c. 13, § 15; Id. lib. 6, c. 6, § 5.

    Fraud deals in generalities. 2 Coke, 34a; 3 Coke, 81a.

    Fraud is not purged by circuity. Bac. Max. 4; Broom, Max. 228.

    Fraud lies hid in general expressions.

    Fraud lurks in generalities. Tray. Lat. Max. 162.

    Gross negligence is equivalent to fraud.

    He is not deceived who knows himself to be deceived.

    He who does not prevent what he can, seems to commit the thing.

    He who does not prevent what he can prevent, is viewed as assenting.

    He who does not forbid what he can forbid, seems to assent.

    He who does not forbid, when he might forbid, commands.

    He who does not repel a wrong when he can, induces it.

    If a guardian do fraud to his ward, he shall be removed from his guardianship. Jenk.Cent. 39.

    It is a fraud to conceal a fraud.

    Law is the safest helmet; under the shield of the law no one is deceived. 2 Inst. 56.

    Once a fraud, always a fraud.

    Out of fraud no action arises. Cowper, 343; Broom’s Max. 349.

    Right and fraud never dwell together. 10 Coke, 45a. Applied to the title of a statute. Id.; Best, Ev. p. 250, § 205.

    That which has been invalid from the beginning cannot be validated by fraud.

    The fraud of a predecessor prejudices not his successor.
    Those sinning secretly are punished more severely than those sinning openly. 8 Coke, 127.

    Unusual clauses [in an instrument] always induce suspicion. 3 Coke, 81.

    What otherwise is good and just, if it be sought by force and fraud, becomes bad and unjust.

  2. What? Multiple sales of Title?
    Wouldn’t that leave “somebody ” with multiple liabilities ?

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