Could IRS Enforcement of REMICs Bring Wall Street Into Line? Yes but they won’t do it. Investors and homeowners continue to suffer as victims of fraud.

Posted on May 14, 2020 by Neil Garfield

The most obvious places to look for correction in the illegal conspiracies masquerading as securitization of residential debt were the IRS , the SEC, the FDIC and the FTC and probably later the CFPB. Qui tam (whistleblower) actions were regularly dismissed because the agency that lost money due to false claims rejected the notion that it was a false claim or that anything bad had occurred. Sheila Bair lost her job as head of the FDIC for protesting policy set by Presidents Bush and Obama that failed to hold the line.

So here is a 2014 article that talks about how we could have regulated the investment banks through IRS examination of the REMICs.

Corruption is the answer. Too many people were making too much money and were “donating” too much money to people in public office. Enforcement was impossible. The real answer is extremely simple — stop all private money in elections. All elections should be publicly funded. No exceptions.

see.. PA Journal of Business Law – REMIC Tax Enforcement

The problem remains that US government agencies refuse to police schemes that are labelled as securitization of debt. If they are securitization of debt then market forces apply and everything COULD even out in the end. The problem is that the debt was never sold into a securitized scheme and nobody cares even though that has eliminated even the possibility of the existence of any creditor.

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REMIC policing by the IRS would be ideal to reveal the fatal deficiencies and fraudulent character of these securitizations schemes. It is why the first 9 lawyers tasked with drafting the documents for securitization all quit with one declaring that she would not be party to or an accessory to a criminal enterprise. There is no entity that qualifies as REMIC in residential loans. AND the reason is very simple:  neither investors nor the trust is buying the loans.
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So all the tests and premises about having an ownership interest, and about the quality of the loans are all false tests designed to cover up the fact that there has never been securitization of any residential loan except is very specific rare circumstances where individual mortgage brokers have sold loans to small groups of investors with repurchase agreements. In most instances those turned out to be scams.
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The way they got away with it is that there was a securitization process — i.e., one in which new securities were issued, even if they were unregulated. But only those schooled in Wall Street finance grasp the fact that they were securitizing bets on data — something that is very ornate and complex.
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Once you DO grasp the idea of what they really were doing and are still doing then you see why all the documents in all the foreclosures had to be fabricated, forged, backdated and robosigned. 
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You can also see why they have robowitnesses come to court and why they show only the business records of a servicer who has no contact with the so-called principal named in the claim or lawsuit. You can see why there is never a proffer of the business records of a creditor because there is no creditor.

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There cannot be contact between foreclosure mill and trustee of REMIC trust, there cannot be contact between “servicer” and Trustee of REMIC trust, there cannot be direct contact between investment bank and any of the players because any such contact would undermine the essential ingredient of the entire plan — plausible deniability of intent or knowledge of the scope of the illegal plan.

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The job of the litigator is to assume that that the entire thing is fraudulent and to ask for what they cannot give — answers to simple questions about the ownership and authority and status of the “obligation” that in reality is nothing more than a return of the consideration paid for a license to sue the homeowner’s private data and homeownership as mere points of reference for the issuance and trading of complex securities.
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But you must make it look like all of those companies are in actual contact and that payments from consumers or from the forced sale of their property are going to a creditor. You need to do that in order to give a judge cover for ruling in favor of the investment bank who is not even in the courtroom.
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The answer is as simple as simple can be: they are making everything up.
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Documents are not real unless they memorialize something that happened in the real world. But Wall Street banks put together a plan that made it appear that a sale of the debt occured where there had been no such sale. Or to be even more specific, they made it appear that there had been a purchase by or on behalf of the investors or trusts. Nothing could have been further from the truth. The truth is that investment bankers never looked at homeowner transactions as loans. They saw the money they paid to homeowners as a cost and condition precedent to creating and selling new securities. 
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Why no creditor? Because that is how you escape liability for lending law violations. 
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Why call it a loan? Because that is how you keep consumers from bargaining for their share of the very rich pie created by investment banks in the sale and trading of derivatives, insurance contracts, hedge products and just plain bets on fictitious “movement” of data that was completely controlled, in the sole discretion, of the investment banks. 
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They were printing money for themselves. The losers were and remain investors who buy “certificates” that are nothing more than a cover for underwriting the sale of securities for a company that doesn’t exist. the losers are the homeowners whose issuance of a note and mortgage triggers a vast undisclosed profit scheme in which the wealth of America shifted from the many to the few.

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BUYING RMBS CERTIFICATES IS LIKE BUYING TULIPS JUST BECAUSE THERE IS A MOB OF PEOPLE WHO FOR COMPLETELY IRRATIONAL AND TEMPORARY REASONS THINK THEY ARE VALUABLE.
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Filed under: Bailout, CORRUPTION, discovery, Discovery -Subpoena, evidence, expert witness, Fabrication of documents, FDIC, foreclosure, foreclosure defenses, forensic investigation, investment banking, Investor, jurisdiction, legal standing, originator, Pleading, Presumptions, prima facie case, securities fraud, Servicer, sham transactions, TRIAL OBJECTIONS, trial strategy, trustee, Unlawful Detainer | Tagged: , , , , , , , | 3 Comments »

Brilliant Analysis of Securitization Sleight of Hand

Posted on April 8, 2020 by Neil Garfield

A person with whom I am well acquainted and who prefers to remain in the background just sent the following email to me, Bill Paatalo and Charles Marshall.

Thanks to the Virus, I had some free time to catch-up on Neil’s blogs and radio shows; as such, I just listened to your piece with Charles on the Christiana Trust counter-suit.  One thing that took me by surprise is that Rushmore is seemingly linked to that trust (or phantom trust).

While you may recall, one of my cases (my principal mortgage) that began with GreenPoint, then supposedly was taken-over by Capital One, was passed to Rushmore upon Cap-One exiting the mortgage business, but then oddly got repositioned with Carrington.  I discovered that Carrington was the principal player of Christiana Trust and its nesting of it, into Wilmington.  However, that trust tomfoolery now has been superseded by the Stanwich Trust bag of snakes.

Hence, Stanwich is nested into Wilmington.  It seems to me that the real player is Carrington.  I discovered that Stanwich has lots of offshoots, i.e. a list of trusts (A, B, C, etc.) registered in Delaware, but also other entity permutations of “Stanwich” (https://whalewisdom.com/filer/stanwich-mortgage-acquisition-company-llc).

If you prowl around SEC docs, you’ll notice that the signatory of Stanwich Acquisition is Andrew M Taffet.  Mr. Taffet also happens to be the Chief Investment Officer & Head of Asset Management at Carrington Capital Management (i.e. LINKEDIN).

After looking in a bunch of dusty corners, I suspect that my mortgage, originated by GreenPoint in 2005 (then a wholly owned subsidiary of North Fork Bancorp) was likely securitized (I’m thinking either Lehmann or Bear, but could have taken another or other routes).  Since CapOne retained the image datafile, they had access to an image of the Note which they then reconstituted and indorsed the falsified/forged note and presented it as prima facie evidence of ownership.  But piecing together my conjecture, it gets worse…

When CapOne decided to jettison all of these dubious notes and claims in 2018, they handed the box of bullshit to Carrington who poses as the new servicer, saying that Wilmington is the Owner.  But not really Wilmington per se.  “Wilmington as Trustee of Stanwich Mortgage Loan Trust A”. This is a bit of sleight of hand.  Wilmington “as” Trustee “of”.  For this charade let’s turn to Abraham Lincoln’s Gettysburg Address. “of the People, by the people and for the people” – three distinct prepositions (Of, By & For).  Wilmington claims in its moniker to be “of” Stanwich, not “for” Stanwich.  Example if Tom Brady plays some tag football with me and my buddies in the park, he is still Tom Brady “of” the Tampa Bay Buccaneers, but he is not playing with us “for” the Buccaneers – a subtle but profound difference.

Digging deeper, I found that Cap-One seems to own shares/units in Stanwich Acquisition Securities, which causes me to think that there was no money changing hands, CapOne simply exchanged fraudulent mortgages for shares  After all, the (CapOne) had no skin in the game anyway.

The GreenPoint saga is equally as convoluted.  I know that you know that GreenPoint Mortgage Funding, Inc. “surrendered” is California operation back in 2004.   But this tale is very circuitous and dubious.  Without belaboring the details.  GreenPoint Bank evolved in to GreenPonit Financial, with GreenPoint Bank and GreenPoint Mortgage as subs in or around 1998.  Notwithstanding, there was another Corporation registered in NY (Credit Suisse Asset Management, Inc.)  Somehow, in 1999 coinciding with GreenPoint merging with Headlands Mtg of California and folding in a couple of other acquisitions, the company took on the moniker GreenPoint Mortgage Funding Inc nearly simultaneously with Credit Suisse Asset Management Inc. changing its name to GreenPoint Mortgage Funding, Inc.  This also coincided with t a shell company set up in Delaware of the same name.  it’s quite a labyrinth of which I ‘ve unraveled some but not all.

Anyway, I though the Stanwich/Christiana trust thing might be of interest to you, Charles and Neil.  As you likely know, Cristiana Trust is a division of Wilmington Savings Fund… https://www.globenewswire.com/news-release/2017/11/02/1173772/0/en/WSFS-Announces-Formation-of-Christiana-Trust-Company-of-Delaware.html  Anyway, I suspect that the trust game Cristian and Stanwich, are just part of the game to cross state lines for the mortgages being claimed to be in the trust.  However, Delaware statutory trusts (DST), which exist to facilitate 1031 exchanges and REITs, are there to use Wilmington as a disguise to file foreclosure suits across state lines.  But in truth, a DST is likened to a corporation not a traditional trust, and if Wilmington is acting “as” trustee “of” a trust, then the underlying trust has no personal jurisdiction to cross state lines to sue.

Hope you find this interesting,

Filed under: CORRUPTION, discovery, Discovery -Subpoena, evidence, expert witness, Fabrication of documents, foreclosure, forensic investigation, investment banking, Investor, prima facie case, Servicer, sham transactions, standing | Tagged: , , , , , , , , , , , , , , , , | 5 Comments »

The Fallacy of Legitimacy: SEC Documents are not Evidence

Posted on March 14, 2018 by Neil Garfield

Documents filed with the SEC are not evidence of the legitimacy of a PSA.  The PSA was not filed with the SEC although the banks would like you to think so. The document, such as it is, was loaded onto the SEC website without any review or acceptance process. Anyone can load documents onto the SEC website. In fact, you can upload them yourself if you have an account.

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In most cases the PSA loaded onto the SEC website is incomplete or unsigned. As an example, in nearly all cases there is no Mortgage Loan Schedule attached as an exhibit and other exhibits referenced in the PSA are also not attached.

As an incomplete trust document, the trust is not created by a settlor since until the trust document is complete, there is no trust. No trust can be implied either since there is no indication that anything was ever entrusted to the trustee nor that the Trustee acquired assets on behalf of the trust and thence the trust beneficiaries. Without property or money entrusted to an active managing trustee of a Trust borne from a completed trust instrument, the claims of servicers, trustees, etc., mean nothing because there is no active trust and thus there is no active management of business activity for a trust. A document uploaded to the SEC does not make the Trust so.

Hence there is no trust, trustee or servicer since all of them claim rights derived from a nonexistent trust arising from an incomplete or unsigned instrument (or both).

The banks know all of that. They load documents onto the SEC website or even other sites where the same access is granted. Then they print the version loaded from the SEC website without any certificate of authenticity and ask for judicial notice. This is not a government document e.g., where the time, date and signature of an authorized party is noted. This is not a commonly known fact or group of facts in the public domain. This is a self-serving document created out of thin air presented without the original as a document offered as “Evidence” of the existence of the trust and as evidence of the loans owned by the Trust, neither of which assertions is even remotely true.

Hence a motion for judicial notice, while often allowed by foreclosure defense counsel, is completely inappropriate and should be disallowed every time — if the foreclosure defense attorney presents his objection or motion in limine well enough. Even the argument for letting it in to show the document exists would be disingenuous (i.e., wrong) because the fact that an image was loaded onto the SEC website by the party proffering the evidence does not mean that the original document exists. Therefore, challenge the document as disingenuous when presented, and don’t rely on the document as proof in your own litigation. Demand the full PSA in discovery, signed by an actual corporate officer with ALL schedules and attachments, and especially mortgage loan schedules.

 

Filed under: foreclosure | Tagged: , , | 14 Comments »

SEC “Cease & Desist” Reveals Deception – Wilmington Savings Fund Society, FSB as Trustee / “Transfer Agent” Was Acting On Behalf Of Unknown Investors

Posted on April 14, 2017 by Neil Garfield

SEC “Cease & Desist” Reveals Deception – Wilmington Savings Fund Society, FSB as Trustee / “Transfer Agent” Was Acting On Behalf Of Unknown Investors

Posted by on Apr 12, 2017
http://bpinvestigativeagency.com/sec-cease-desist-reveals-deception-wilmington-savings-fund-society-fsb-as-trustee-transfer-agent-was-acting-on-behalf-of-unknown-investors/

On September 22, 2016, the SEC issued the following “Cease & Desist” order against “Wilmington Savings Fund Society, FSB” who was the successor to “Christiana Bank & Trust Company.” (See: Wilmington Savings Fund Society – SEC Cease and Desist 2016 ). The following excerpts spell out quite clearly that this entity has been operating as a Trustee / “Transfer Agent” on behalf of unverifiable investors. WSFS’ failure to maintain “books and records,” as well as its filing of records that were “inaccurate and/or incomplete,” means it is very likely that this Trustee represented no one.

 

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), against Wilmington Savings Fund Society, FSB (“WSFS” or “Respondent”).

 

Summary

1. These proceedings arise from WSFS’ fundamental failure to comply with the rules and regulations that govern the conduct of transfer agents. Transfer agents are gatekeepers who provide critical services to issuers and their shareholders, including maintaining accurate shareholder records, timely processing of transfers, and responding to shareholder inquiries. To that end, issuers of securities, including corporations with securities registered under Section 12 of the Exchange Act, engage transfer agents to perform various recordkeeping functions.
2. Pursuant to Section 17A of the Exchange Act, the Commission promulgated rules governing services provided by registered transfer agents (the “Transfer Agent Rules”). As a registered transfer agent, WSFS was required to, among other things: (1) keep its registration current and accurate and to file annual reports regarding its transfer agent services; (2) make and maintain certain books and records for each issuer to which it provided transfer agent services; and (3) have written policies and procedures with respect to certain of its transfer agent services.
3. WSFS commenced acting as a transfer agent in 2010. From that time through 2013, however, WSFS failed to keep its registration current and accurate and failed to file an accurate annual report of its services. In addition, although WSFS maintained some records for issuers to which it provided transfer agent services, it did not maintain all of the records or create all of the reports required by the Transfer Agent Rules. Further, those records WSFS did maintain were inaccurate and/or incomplete. Finally, during this period, WSFS did not have any written policies or procedures to ensure compliance with the Transfer Agent Rules and WSFS employees were unaware of the Rules and received no training regarding the Transfer Agent Rules until 2013.

 

Background

7. On December 3, 2010, WSFS acquired Christiana Bank & Trust Company (“CB&T”). CB&T ceased to exist and WSFS began performing the services formerly performed by CB&T, including transfer agent services, under the name Christiana Trust. WSFS provided transfer agent services, as defined by Section (3)(a)(25) of the Exchange Act, to a number of clients, including to at least one issuer with a security that was registered under Section 12 of the Exchange Act.
8. The transfer agent services undertaken by WSFS included maintaining master securityholder files (i.e., official lists of individual securityholder accounts), registering ownership and the transfer of ownership of securities, monitoring the issuance of securities, and handling, processing and storing paper securities certificates. WSFS Filed Inaccurate Transfer Agent Registration and Annual Reporting Forms in Violation of Sections 17A(c)(1) and 17A(d)(1) and Rules 17Ac2-1 and 17Ac2-2 Thereunder
9. Section 17A(c) of the Exchange Act requires transfer agents to register with the Commission or, if the transfer agent is a bank, with a bank regulatory agency, before providing transfer agent services. Pursuant to Section 17A(c)(2), to register, a bank transfer agent files a registration form (Form TA-1), which provides basic information about the transfer agent’s business and activities. The Form TA-1 must be kept current and updated on an as-needed basis. If any of the information on the Form TA-1 becomes inaccurate, misleading or incomplete, Rule 17Ac2-1(c) requires the transfer agent to file an amendment to the form within 60 days of the occurrence. Rule 17Ac2-2(a) requires each registered transfer agent to also file an annual report with the Commission on Form TA-2, describing its transfer agent activities. These forms provide important information about the organization and activities of registered transfer agents, which allows the Commission to more effectively and efficiently monitor the activities of registered transfer agents and to evaluate compliance with the Transfer Agent Rules.
10. On December 3, 2010, WSFS acquired CB&T and immediately began performing the transfer agent services that had previously been performed by CB&T. However, although it was required to amend its Form TA-1 within 60 days of any change that would render the form “inaccurate, misleading, or incomplete,” WSFS did not file a Form TA-1 until June 22, 2011, six months later. Moreover, when WSFS filed its untimely Form TA-1, it inaccurately listed the name of the entity performing transfer agent services as “Wilmington Savings Fund Society, FSB,” rather than “Wilmington Savings Fund Society, FSB D/B/A Christiana Trust.” This is inaccurate because WSFS markets its transfer agent services under the name Christiana Trust.
11. In addition, WSFS did not file an annual Form TA-2 for the year ending December 31, 2010, even though it had operated as a transfer agent since acquiring CB&T earlier that month.
12. Further, when WSFS finally filed its first annual Form TA-2 on April 16, 2012, for the year ending December 31, 2011, WSFS failed to identify the correct number of individual securityholder accounts for which it maintained master securityholder files. WSFS was unable to provide the correct number on its Form TA-2 because it could not identify all of the issuers to which it provided transfer agent services. WSFS Failed to Maintain Accurate Books and Records in Violation of Sections 17(a) and 17A(d)(1) and Rules 17Ad-10 and 17Ad-11.
13. Pursuant to Rule 17Ad-10(e), a recordkeeping transfer agent must keep an accurate control book, which is a record or other document that shows the total number of shares (in the case of equity securities) or the principal dollar amount (in the case of debt securities) authorized and issued by the issuer.

 

14. In addition, Rule 17Ad-10(a) requires a recordkeeping transfer agent to accurately post transactions to the master securityholder file with details, such as the certificate number, number of shares or principal dollar amount, the securityholder’s registration, the address of the registered securityholder, and the issue and cancellation dates for the security (“Certificate Detail”), about the securities issued, purchased, transferred or redeemed. When there is a discrepancy between the Certificate Detail for a security transferred or redeemed and the Certificate Detail posted to the master securityholder file, Rule 17Ad-10(a)(1) requires that the details of that discrepancy must be maintained in a subsidiary file. The transfer agent must diligently and continuously seek to resolve those differences and then promptly update the master securityholder file.
15. A transfer agent’s failure to perform its duties promptly, accurately, and safely can compromise the accuracy of an issuer’s securityholder records, disrupt the channels of communication between issuers and securityholders, disenfranchise investors, and expose investors, securities intermediaries, and the securities markets as a whole to significant financial loss.
16. WSFS maintained master securityholder files for several issuers to which it provided transfer agent services; however, those files contained multiple inaccuracies. For example, for certain issues, WSFS failed to maintain accurate records of the outstanding balances and registered incorrect securityholder names in the master securityholder files.

 

17. Further, WSFS did not maintain subsidiary files or a control book for any issuers to which it provided transfer agent services and, therefore, WSFS could not determine whether, for any issuers, there were differences between the total number of shares or total principal dollar amount of securities in the master securityholder file for a particular issue and the number of shares or principal dollar amount in the control book for that issue (one type of a “Record Difference”). WSFS was required to report Record Differences that existed for more than 30 days (“Aged Record Differences”) and exceeded certain aggregate dollar thresholds that are established by Rule 17Ad-11 of the Transfer Agent Rules. WSFS was unable to determine whether Aged Record Differences existed and, therefore, was unable to determine whether it was required to report any Aged Record Differences. Indeed, WSFS’ account administrators did not even know that WSFS was required to maintain subsidiary files or a control book.

 

This comes as no surprise to those of us who have been fighting these “straw-man Trustees.” I believe, based on further “Transfer Agent – TA-2″ filings I have reviewed, that this is common amongst all trustees. For example, take a look at this “TA-2″ filing for Transfer Agent – U.S. Bank Trust, N.A. from back in 2008 which reported over 8,000 “Lost Securityholder Accounts.”

https://www.sec.gov/Archives/edgar/data/1145893/000114589309000002/xslFTAX01/primary_doc.xml

If the Trustees / Transfer Agents have no verifiable records of who owns the underlying certificates, it becomes crystal clear that the servicers and trustees represent no one.

 

Bill Paatalo
Oregon Private Investigator – PSID#49411

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

Filed under: foreclosure | Tagged: , , , , | 8 Comments »

Lawsuit Seeking Disgorgement Might Not Be Barred by Statute of limitations

Posted on January 13, 2017 by Neil Garfield

What is apparent here is that the Courts are coming to terms with the possibility that those relying upon a statute of limitation as a defense to various claims might NOT be protected by an otherwise applicable statute of limitations.

The premise enunciated in a decision that seeks affirmation from the U.S. Supreme Court, is that disgorgement is not monetary damages or a penalty. It is an equitable finding that a party has been unjustly enriched and therefore has no present right to hold onto ill-gotten gains. The decision could result in elimination of the statute of limitations as a defense for the banks.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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This is a potential thrust to the heart of the bank strategy to create a vacuum, fill it with illusory claims on behalf of complete strangers to the transactions, and walk away with a free house after submitting an utterly fraudulent “credit bid.”.
The SEC is asking the Supreme Court to affirm the Tenth Circuit’s decision in SEC v. Kokesh, which held that “disgorgement is not a penalty under [28 U.S.C.] § 2462 because it is remedial” and, therefore, is not subject to the five-year federal statute of limitations in § 2462. see https://www.findknowdo.com/news/01/04/2017/sec-urges-supreme-court-affirm-disgorgement-not-subject-statute-limitations?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original
A favorable SCOTUS decision would have the effect of recasting the suits for damages as instead suits for disgorgement because neither the servicers nor anyone they represent had any right to collect or enforce the putative loan by an undisclosed and probably unknown creditor. This would have the same ultimate effect as TILA rescission which the courts have steadfastly resisted despite the clear language of 15 USC §1635 and SCOTUS in Jesinoski v Countrywide.

Filed under: foreclosure | Tagged: , , , | 8 Comments »

Wells Fargo Bank, N.A. Accused of Control Fraud through Stumpf and Other Corporate Insiders

Posted on October 20, 2016 by Neil Garfield

see also

Republished by permission. Dan Edstrom is the senior forensic analyst of Livinglies.
By Daniel Edstrom
DTC Systems, Inc.

October 19, 2016

The purpose of Sarbanes-Oxley legislation is to put in place financial controls in order to not only reduce fraud, but to identify risks so that the controls can be expanded or new controls put in place. Large companies such as Wells Fargo Bank have compliance departments and ethics lines where questionable conduct (unlawful or not) can be reported “safely” in order for the company to take action to stop and/or remediate the questionable conduct. This is done so that a business operates safely and soundly, and is the perfect source for implementing new controls, enhancing existing controls, testing the effectiveness of the controls, or at least disclosing material deficiencies that can be identified and corrected at a later date.

Risk Management would entail identifying the risk, and then prioritizing, such that the highest priority risks can be mitigated first.  Assuming that early on this conduct was identified, the risk could have been low, leaving it to be addressed at a future date. Its fair to say now that it appears this conduct was effectively suppressed from any risk management.

Based on current reporting, it would appear that the compliance and ethics lines were used against those who reported questionable conduct. This is the exact opposite of the purpose for which Sarbanes-Oxley legislation was imposed, and if true, represents the creation of non-reported internal controls that do the exact opposite of what the legislation imposes. The exact opposite because the controls are put in place to reduce fraud, and require that senior officers such as the CEO and CFO, provide an oath that they have established appropriate internal controls, and then certify that they “have evaluated the effectiveness of the company’s internal controls”. Presumably they would need to disclose information related to material deficiencies.

It is fairly obvious (now) that they had no controls to inhibit, detect or report these issues even though they presumably had actual knowledge of the conduct (or reports of the actual knowledge, which if investigated appropriately would have led to actual knowledge of the conduct).  This, if true, would seemingly mean that when these officers gave their oath, they were knowingly concealing material information that should have been disclosed (no internal controls to detect this activity, fraud, false accounting, and no controls put in place to make sure if this conduct was reported, that it would be appropriately investigated, etc.). They seemingly also knew that their controls were defective, insufficient, and that there were material exceptions that they were knowingly withholding from disclosure. And even worse, it appears they may have implemented “secret” controls, policies and procedures to specifically target and retaliate against those who actually did make an effort to report this “questionable” conduct (i.e. opening accounts for their customers without the customers request in order to receive bonuses, and then, presumably, closing these accounts). But these “secret” controls were not disclosed at all, nor mentioned as a material exception.

But who was the target of the fraud? The customer? No, although they were a victim. This was all targeted at the stockholders in order to falsely inflate their stock value through false and fabricated financial transactions that simulated the “flow” of money in order to give the appearance that money was moving and that fees were being generated.

According to Wikipedia from this URL: https://en.wikipedia.org/wiki/Money_laundering

According to the United States Treasury Department:

Money laundering is the process of making illegally-gained proceeds (i.e. “dirty money”) appear legal (i.e. “clean”). Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the “dirty money” appears “clean.”[10]

This could have started out as bad acts by one or more employees opening these accounts to get paid extra money. Or it could have started out designed from the top as a complete scheme and artifice to defraud. But either way is now irrelevant. Once it was happening and once known at the highest levels, it became a standard and practice. If it wasn’t a control fraud early on, it became one when ethics and compliance officers, managers or employees failed to act (or worse, retaliated or allowed others to retaliate). The final nail in the coffin came when senior officers decided retaliation was appropriate instead of enhancing their internal controls, disclosure controls and reporting. Once they knew or should have known of the conduct, it became their business processes, whether they controlled it directly or not. Closing your eyes so as not to learn the truth is an affirmative act.

How does Sarbanes-Oxley work?  Here is a small sampling on Section 302: Disclosure Controls from Wikipedia, available at this URL: https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

Sarbanes–Oxley Section 302: Disclosure controls[edit]

Under Sarbanes–Oxley, two separate sections came into effect—one civil and the other criminal. 15 U.S.C. § 7241 (Section 302) (civil provision); 18 U.S.C. § 1350 (Section 906) (criminal provision).

Section 302 of the Act mandates a set of internal procedures designed to ensure accurate financial disclosure. The signing officers must certify that they are “responsible for establishing and maintaining internal controls” and “have designed such internal controls to ensure that material information relating to the companyand its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared.” 15 U.S.C. § 7241(a)(4). The officers must “have evaluated the effectiveness of the company‘s internal controls as of a date within 90 days prior to the report” and “have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date.” Id..

The SEC interpreted the intention of Sec. 302 in Final Rule 33–8124. In it, the SEC defines the new term “disclosure controls and procedures,” which are distinct from “internal controls overfinancial reporting.”[30] Under both Section 302 and Section 404, Congress directed the SEC to promulgate regulations enforcing these provisions.[31]

External auditors are required to issue an opinion on whether effective internal control over financial reporting was maintained in all material respects by management. This is in addition to the financial statement opinion regarding the accuracy of the financial statements. The requirement to issue a third opinion regarding management’s assessment was removed in 2007.

A Lord & Benoit Report: Bridging the Sarbanes-Oxley Disclosure Control Gap was filed with the SEC Subcommittee n internal controls which reported that those companies with ineffective internal controls, the expected rate of full and accurate disclosure under Section 302 will range between 8 and 15 percent. A full 9 out of every 10 companies with ineffective Section 404 controls self reported effective 302 controls in the same period end that an adverse Section 404 was reported, 90% in accurate without a Section 404 audit.http://www.section404.org/UserFiles/File/Lord_Benoit_Report_1_Bridging_the_Disclosure_Control_Gap.pdf

Filed under: foreclosure | Tagged: , , , , | 2 Comments »

New York Times: Prosecution of Financial Crisis Fraud Ends With a Whimper

Posted on August 29, 2016 by Neil Garfield

White Collar Watch

By PETER J. HENNING AUG. 29, 2016

In 2011, Robert Khuzami of the Securities and Exchange Commission announced charges against top executives from Fannie Mae and Freddie Mac. Win Mcnamee/Getty Images

One source of great frustration from the financial crisis has been the dearth of cases against individuals over subprime lending practices and the related securitization of bad loans that caused so much financial havoc. To heighten the frustration, I offer Aug. 22, 2016, as the day on which efforts to pursue cases related to subprime mortgages were put to rest with no individuals — save perhaps the unfortunate former Goldman Sachs trader Fabrice Tourre — held accountable.

On that date, the Securities and Exchange Commission settled its last remaining case against a former Fannie Mae chief executive for securities fraud related to the disclosure of the company’s subprime mortgage exposure. The agency accepted a mere token payment that will not even come out of the individual’s own pocket.

On the same day, a federal appeals court refused to reconsider its May ruling that Bank of America’s Countrywide mortgage unit and one of its former executives did not commit fraud by failing to disclose to Fannie Mae and Freddie Mac that the subprime loans it was selling to them did not come close to the contractual requirements for such transactions.

In December 2011, the S.E.C. publicized its civil securities fraud charges against top executives from Fannie Mae and Freddie Mac for understating their exposure to subprime mortgages, which resulted in the government taking them over. Robert Khuzami, then the head of the S.E.C.’s enforcement division, said that “all individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”

That is not how it turned out, however. Five of the executives settled in 2015 by arranging for modest payments to be made on their behalf by the companies and their insurers, amounts that were never even described as penalties in the settlements.

Each also agreed not to hold a position in a public company that would require signing a filing on its behalf for up to two years. That is far short of the director and officer bar the S.E.C. usually seeks in such cases, but at least it had the sound of something punitive regardless of whether there was any real impact.

The settlement with the sixth defendant, Daniel H. Mudd, the former chief executive of Fannie Mae, disclosed in a judicial filing on Aug. 22, did not even reach that modest level of accountability. Fannie will make a $100,000 donation on his behalf to the Treasury Department — which is like shifting money from one pocket to another because the government already controls the company. Nor is there any ban on Mr. Mudd holding an executive position at another public company, something that at least resulted from the cases against the other executives.

What the S.E.C. accomplished in settling the cases against Mr. Mudd and the other executives hardly sends a message to other executives to be careful about how they act in the future. No money came out of the pockets of any of the defendants, and the prohibitions on future activity were token requirements. It was, after all, unlikely that any of the defendants would have been put in a leadership position at a public company within the applicable time. It is difficult not to come away with the impression that the settlements were little more than a slap on the wrist, and perhaps less than that for Mr. Mudd.

The case involving Countrywide may be more disheartening because it calls into question the scope of a federal statute from the savings and loan crisis, the Financial Institutions Reform, Recovery, and Enforcement Act, or Firrea, that the Justice Department used to extract large settlements from banks. That law authorizes the Justice Department to seek civil penalties for conduct that violates the mail and wire fraud statutes if it affects a bank.

The government won the jury trial in 2013. Preet Bharara, the United States attorney in Manhattan, said that “in a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow. That profit, however, was built on fraud.” The trial court hit Bank of America with a $1.267 billion penalty and ordered a former Countrywide executive, the only individual named as a defendant in the case, to pay a separate $1 million fine.

But the United States Court of Appeals for the Second Circuit in Manhattan overturned the verdict last year by ruling that the government had not shown fraud because there was no false statement made when Countrywide sold loans that did not meet certain contractual obligations it had with Fannie and Freddie. The opinion found that “willful but silent noncompliance” with a contract was not fraudulent without some later misstatement.

The government’s aggressive approach to the case may explain why the Justice Department asked the full appeals court to review the decision even though such a request is rarely granted.

The appeals court judges issued a terse order on Aug. 22 denying the government’s request without further comment, which means the only option for challenging the ruling will be to try to take the case to the Supreme Court. The last time the Justice Department asked the Supreme Court to review a case from Mr. Bharara’s office was in United States v. Newman, an insider trading decision. The justices rejected that request before granting review in a similar case from California.

The likelihood that the Supreme Court will take up the appeals court’s decision appears to be low. The issue about what constitutes fraud in a contractual relationship is narrow, raising arcane questions about how a court should construe an agreement between sophisticated parties and when full disclosure is required. This is the type of claim that is usually pursued in a private lawsuit rather than through a federal enforcement action, so the justices may not want to be dragged into a dispute that will have little precedential impact on the application of federal law.

The lack of cases identifying individuals for any misconduct related to the financial crisis has become an all-too common complaint. What will be additionally disheartening to many is that even those few cases that were brought have now ended up largely as defeats for the government.

Filed under: foreclosure | Tagged: , , , | 4 Comments »

ALERT: COMMUNITY BANKS AND CREDIT UNIONS AT GRAVE RISK HOLDING $1.5 TRILLION IN MBS

Posted on November 14, 2013 by Neil Garfield

I’ve talked about this before. It is why we offer a Risk Analysis Report to Community Banks and Credit Unions. The report analyzes the potential risk of holding MBS instruments in lieu of Treasury Bonds. And it provides guidance to the bank on making new loans on property where there is a history of assignments, transfers and other indicia of claims of securitization.

The risks include but are not limited to

  1. MBS Instrument issued by New York common law trust that was never funded, and has no assets or expectation of same.
  2. MBS Instrument was issued by NY common law trust on a tranche that appeared safe but was tied by CDS to the most toxic tranche.
  3. Insurance paid to investment bank instead of investors
  4. Credit default swap proceeds paid to investment banks instead of investors
  5. Guarantees paid to investment banks after they have drained all value through excessive fees charged against the investor and the borrowers on loans.
  6. Tier 2 Yield Spread Premiums of as much as 50% of the investment amount.
  7. Intentional low underwriting standards to produce high nominal interest to justify the Tier 2 yield spread premium.
  8. Funding direct from investor funds while creating notes and mortgages that named other parties than the investors or the “trust.”
  9. Forcing foreclosure as the only option on people who could pay far more than the proceeds of foreclosure.
  10. Turning down modifications or settlements on the basis that the investor rejected it when in fact the investor knew nothing about it. This could result in actions against an investor that is charged with violations of federal law.
  11. Making loans on property with a history of “securitization” and realizing later that the intended mortgage lien was junior to other off record transactions in which previous satisfactions of mortgage or even foreclosure sales could be invalidated.

The problem, as these small financial institutions are just beginning to realize, is that the MBS instruments that were supposedly so safe, are not safe and may not be worth anything at all — especially if the trust that issued them was never funded by the investment bank who did the underwriting and sales of the MBS to relatively unsophisticated community banks and credit unions. In a word, these small institutions were sitting ducks and probably, knowing Wall Street the way I do, were lured into the most toxic of the “bonds.”

Unless these small banks get ahead of the curve they face intervention by the FDIC or other regulatory agencies because some part of their assets and required reserves might vanish. These small institutions, unlike the big ones that caused the problem, don’t have agreements with the Federal government to prop them up regardless of whether the bonds were real or worthless.

Most of the small banks and credit unions are carrying these assets at cost, which is to say 100 cents on the dollar when in fact it is doubtful they are worth even half that amount. The question is whether the bank or credit union is at risk and what they can do about it. There are several claims mechanisms that can employed for the bank that finds itself facing a write-off of catastrophic or damaging proportions.

The plain fact is that nearly everyone in government and law enforcement considers what happens to small banks to be “collateral damage,” unworthy of any effort to assist these institutions even though the government was complicit in the fraud that has resulted in jury verdicts, settlements, fines and sanctions totaling into the hundreds of billions of dollars.

This is a ticking time bomb for many institutions that put their money into higher yielding MBS instruments believing they were about as safe as US Treasury bonds. They were wrong but not because of any fault of anyone at the bank. They were lied to by experts who covered their lies with false promises of ratings, insurance, hedges and guarantees.

Those small institutions who have opted to take the bank public, may face even worse problems with the SEC and shareholders if they don’t report properly on the balance sheet as it is effected by the downgrade of MBS securities. The problem is that most auditing firms are not familiar with the actual facts behind these securities and are likely a this point to disclaim any responsibility for the accounting that produces the financial statements of the bank.

I have seen this play out before. The big investment banks are going to throw the small institutions under the bus and call it unavoidable damage that isn’t their problem. despite the hard-headed insistence on autonomy and devotion to customer service at each bank, considerable thought should be given to banding together into associations that are not controlled by regional banks are are part of the problem and will most likely block any solution. Traditional community bank associations and traditional credit unions might not be the best place to go if you are looking to a real solution.

Community Banks and Credit Unions MUST protect themselves and make claims as fast as possible to stay ahead of the curve. They must be proactive in getting a credible report that will stand up in court, if necessary, and make claims for the balance. Current suits by investors are producing large returns for the lawyers and poor returns to the investors. Our entire team stands ready to assist small institutions achieve parity and restitution.

FOR MORE INFORMATION OR TO SCHEDULE CONSULTATIONS BETWEEN NEIL GARFIELD AND THE BANK OFFICERS (WITH THE BANK’S LAWYER) ON THE LINE, EXECUTIVES FOR SMALL COMMUNITY BANKS AND CREDIT UNIONS SHOULD CALL OUR TALLAHASSEE NUMBER 850-765-1236 or OUR WEST COAST NUMBER AT 520-405-1688.

BLK | Thu, Nov 14

BlackRock with ETF push to smaller banks • The roughly 7K regional and community banks in the U.S. have securities portfolios totaling $1.5T, the majority of which is in MBS, putting them at a particularly high interest rate risk, and on the screens of regulators who would like to see banks diversify their holdings. • “This is going to be a multiple-year trend and dialogue,” says BlackRock’s (BLK) Jared Murphy who is overseeing the iSharesBonds ETFs campaign. • The funds come with an expense ratio of 0.1% and the holdings are designed to limit interest rate risk. BlackRock scored its first big sale in Q3 when a west coast regional invested $100M in one of the funds. • At issue are years of bank habits – when they want to reduce mortgage exposure, they typically turn to Treasurys. For more credit exposure, they habitually turn to municipal bonds. “Community bankers feel like they’re going to be the last in the food chain to know if there are any problems with a corporate issuer,” says a community bank consultant.

Full Story: http://seekingalpha.com/currents/post/1412712?source=ipadportfolioapp

Filed under: AMGAR, community banks, CORRUPTION, credit unions, currency, evidence, expert witness, Fannie MAe, foreclosure, GTC | Honor, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, trustee | Tagged: , , , , , , , , , , , | 112 Comments »

Monday Livinglies Magazine: Crime and Punishment

Posted on June 24, 2013 by Neil Garfield

Steal this Massachusetts Town’s Toughest New Foreclosure Prevention Ideas
http://www.keystonepolitics.com/2013/06/steal-this-massachusetts-towns-toughest-new-foreclosure-prevention-ideas/

Florida leads nation in vacated foreclosures — and it’s not even close http://www.thefloridacurrent.com/article.cfm?id=33330748

Editor’s Note:  it is only common sense. There are several things that are known with complete certainty in connection with the mortgage mess.

  • We know that the banks found it necessary to forge, fabricate and alter legal documents illegally in order to create the illusion that foreclosure was proper.
  • We know that the banks manipulated the published rates on which adjustable mortgages changed their payments.
  • We know that the banks typically abandon any property that the bank has deemed to be undesirable (then why did they foreclose, when they had a perfectly good homeowner who was willing to pay something including the maintenance and insurance of the house?).
  • And we can conclude that it is far more important to the banks that they be able to foreclose and have the deed issued then to actually take possession of the property for sale or rental.
  • And so we know that the mortgage and foreclosure markets have been turned on their heads. Lynn, Massachusetts has adopted a series of regulations which appeared to be constitutional and which make it very difficult for the banks to turn neighborhoods that were thriving into blight.  The actions of this city and others who are taking similar actions will continue to reveal the true nature of the mortgage encumbrances (the lanes were never perfected because the loan was never made by the party that is claiming to be secured) and the true nature of foreclosures (the cover-up to a Ponzi scheme and an illegal securities scam that does not and never did fall within the exemptions of the 1998 law claimed by the banks).

The Bank Of International Settlements Warns The Monetary Kool-Aid Party Is Over
http://www.zerohedge.com/news/2013-06-23/bank-international-settlements-warns-monetary-kool-aid-party-over

Wells Fargo Sells Woman’s House In Foreclosure After She Reinstates Loan for $141,441.81
http://4closurefraud.org/2013/06/20/wells-fargo-sells-womans-house-in-foreclosure-after-she-reinstates-loan-for-141441-81/

Editor’s Note: In all of these cases you need to start with the premise that the bank has a gargantuan liability in the event that it took insurance, credit default swap proceeds, federal bailouts, or the proceeds of sales of mortgage bonds to the Federal Reserve. Most experts in finance and economics agree that if the Federal Reserve stops making payments on the “purchase” of mortgage bonds the entire housing market will collapse. I don’t agree.

It is the banks that will collapse in the housing market will finally recover bringing the economy back up with it. The problem for the Federal Reserve and the economy is that most likely they are buying worthless paper issued by a trust that was never funded and that therefore could never have purchased any loan. Thus the income and the collateral of the mortgage bond is nonexistent.

Many people in the financial world completely understand this and are terrified at the prospect of the largest banks being required to mark down their reserve capital;  if this happens, and it should, these banks will lack the capital to continue functioning as a mega-bank.

So why would a bank foreclose on house on which there was no mortgage and/or no default? The answer lies in the fact that they have accepted money from third parties on the premise that they lost money on these mortgages. If that turns out not to be true (which it isn’t) then they most probably owe a lot of money back to those third parties.

My estimate is that in the average case they owe anywhere from 7 to 40 times the amount of the mortgage loan.  It is simply cheaper to settle with the aggrieved homeowner even if they pay damages for emotional distress (which is permitted in California and perhaps some other states); it is even cheaper and far more effective for the bank to give the house back without any encumbrance to the homeowner. Without the foreclosure becoming final or worse yet, as the recent revelations from Bank of America clearly show, if the loan is modified and becomes a performing loan all of that money is due back to all of those third parties.

“Deed-In-Lieu” of Foreclosure and Other Things
http://www.fxstreet.com/education/related-markets/lessons-from-the-pros-real-estate/2013/06/20/

Editor’s Note: This has come up many times in  questions and discussions regarding dealing with the Wall Street banks. It seems that the banks have borrowers thinking that in order to file a deed in lieu of foreclosure they need the permission of the bank. I know of no such provision in the law of any state preventing the owner of the property from deeding the property to anyone.  Several lawyers are seeing an opportunity, to wit: once the homeowner deeds the properties to the party pretending to foreclose on the property, the foreclosure action against the homeowner must be dismissed. That leaves the question of a deficiency judgment.

The advantages to the homeowner appears to be that any lawsuit seeking to recover a deficiency judgment would be strictly about money and would require the allegation of a monetary loss and proof of the monetary loss which would enable the homeowner, for the first time, to pursue discovery on the money trail because there is no other issue in dispute.

In the course of that litigation the discovery may reveal the fact that the party who filed the foreclosure and misrepresented their right to the collateral would be subject to various causes of action for damages as a counterclaim; but the counterclaim would not be filed until after discovery revealed the problem for the “lender.” Therefore several lawyers are advising their clients to simply file the deed in favor of the party seeking foreclosure based upon the representation that they are in fact the right party to obtain a sale of the property.

The lawyers who are using this tactic obviously caution their clients against using it unless they are already out of the house or are planning to move. Homeowners who are looking to employ this tactic should check with a licensed attorney in the jurisdiction in which their property is located.

Must See Video: Arizona Homeowners Losing their Homes to Foreclosure Through Forged Documents
http://4closurefraud.org/2013/06/21/must-see-video-arizona-homeowners-losing-their-homes-to-foreclosure-through-forged-documents/

Monitor Finds Mortgage Lenders Still Falling Short of Settlement’s Terms

By SHAILA DEWAN

The biggest mortgage lenders in the United States have not met all of the terms of the $25 billion settlement over abuses, an independent monitor found.

British Commission Calls for New Laws to Prosecute Bankers for Fraud

By MARK SCOTT

As part of a 600-page report, the British parliamentary commission on banking standards is urging new laws that would make it a criminal offense to recklessly mismanage local financial institutions.

A Fit of Pique on Wall Street

By PETER EAVIS

Perhaps more than at any time since the financial crisis, Wall Street knows it must prepare for a world without the Federal Reserve’s largess.

S.E.C. Has a Message for Firms Not Used to Admitting Guilt

By JAMES B. STEWART

By requiring an admission of guilt in some cases, the S.E.C.’s new chairwoman is pressing for more accountability at financial firms.

Bank of America’s Foreclosure Frenzy
http://ml-implode.com/staticnews/2013-06-24_BankofAmericasForeclosureFrenzy.html

Filed under: CDO, CORRUPTION, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , | 296 Comments »

OCC Says Bank Losses Mounting on Defective Foreclosures and Loans

Posted on July 13, 2012 by Neil Garfield

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Editor’s Comment:  

This has been my point, although the article below only covers a small part of the losses that will eventually befall the banks and servicers. The banks are carrying assets on their balance sheet that do not exist — especially, as this article points, out home equity lines of credit that are second in priority to the first mortgage. We already know that those home equity loans are worthless. But even the first mortgages are claimed as assets despite the fact that the bank didn’t put up one dime to fund the mortgage or purchase it. How the big accounting firms are permitting this, why the SEC is not objecting to it, is amystery only if you believe in the tooth fairy. They are missing it because they have been told not to bring down the banks — at least not yet. Eventually though, the true figures will emerge and the so-called large or mega banks will be shown for what they are — the same sham that was created in the origination of the loans.

Regulator Warns of Mortgage Losses for U.S. Banks

by Alan Zibel

WASHINGTON–U.S. banks may be hit with a new round of mortgage losses over the next five years as borrowers who took out home-equity loans a decade earlier face increased monthly payments, a regulator warned Thursday.The Office of the Comptroller of the Currency warned that more than half the amount borrowed on equity lines at national banks, or $221 billion out of $380 billion, will face higher payments from 2014 to 2017, exposing banks to the possibility of losses if some equity-line borrowers default.

Home-equity lines extended during the mid-2000s housing-market-boom years typically had a 10-year period in which the borrower made only interest payments. When that period ends, borrowers must start to pay back the principal balance as well, increasing monthly payments for some homeowners who have seen their incomes and property values decline.

Darrin Benhart, deputy comptroller for credit and market risk at the OCC, said “banks are going to have to be thinking about ways that they’re going to address” the problem, including debt restructuring. Analysts have been voicing similar concerns. In a May report, Deutsche Bank identified First Horizon National Corp. (FHN), PNC Financial Services Group Inc. (PNC), TCF Financial Corp. (TCB) and Huntington Bancshares Inc. (HBAN) as institutions that are most exposed to losses from home-equity lines.

The OCC report, the first in a series of semi-annual reports on financial risks in the banking system, also said banks have shifted to higher-risk investments to boost interest-rate returns, a development that could create future losses for banks.

The OCC separately is studying which banks could be hit the hardest if interest rates rise. For larger banks the regulator said it will focus on problems with mortgage servicing as well as underwriting standards for business loans and exposure to European institutions. The agency also will scrutinize smaller banks to look at loss exposure from commercial real-estate loans and new types of auto and other lending products

The report said banks still face a huge overhang of delinquent and foreclosed properties stemming from the nationwide housing bust. And the nation’s largest banks “continue to face profitability challenges” from deficiencies in their foreclosure-processing operations, which bank regulators are forcing the nation’s largest mortgage servicers to overhaul.

The report, however, said that banks are in a far stronger financial position than before the recession of 2007-2009, with higher levels of capital around the industry, particularly at the largest banks.


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Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , | 43 Comments »

Hiding Behind Advice of Counsel No Better Than Ratings

Posted on May 4, 2012 by Neil Garfield

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Editor’s Comment:

In an article entitled “Legal Beagles in Cross Hairs” WSJ reports that the SEC and many others in law enforcement have on-going investigations into the role of attorneys not misconduct of their clients. For the most part it is an attorney’s solemn duty to represent and advocate the position of his or her client to the utmost of their ability without violating the law. Everyone is entitled to a lawyer no matter how reprehensible their conduct might have been when they committed the act.

But the SEC seems to be leading the way, starting with indictments and convictions of attorneys that kicks aside the clients’ defense of “I did it on advice of counsel.” in wide ranging probes law enforcement agencies are after the attorneys who said it was OK — upon receiving lavish payments, that what the Banks did in setting the securitization structure for the cash trail and setting up the securitization procedure for the document trail and then setting up the contents of the documents that would provide coverage for intentional acts of theft, forgery, fabrication and a variety of other acts.

The attorneys who gave letters of opinion to the investment banks blessing securitization of home and commercial mortgages as they were presented and launched are in deep hot water. This is especially true since the law firms that engaged in these “blessings” had lawyers quitting their jobs leaving behind memorandums to the partners that the law firm itself was committing crimes. The similarity between the blessing of the law firm and the ratings of Moody’s, S&P, Fitch is surprising to some people.

And the attorneys who suggested severance settlements conditioned on employed lawyers or other witnesses on a sudden onset of amnesia are also in the cross-hairs, getting stiff long-term sentences. These are all potential witnesses in what could be come nationwide probes that were blocked by “advice of counsel” claims and brings to mind those many cases where the lawyer for Wells, US Bank, or BOA was fined and sanctioned for lying to the court about facts which they most certainly knew or should have known — like the name of their client.

As these probes continue it may be seen as scapegoating the attorneys or as chilling the confidentiality of the relationship between lawyer and client. But that rule of confidentiality and the defines of advice of counsel vanishes when the conduct of the attorney or indeed a whole law firm is that of a co-conspirator. It is especially unavailable when you have a foreclosure mill that is forging, fabricating and filing documents on behalf of extremely well paying clients.

It would therefore seem to be an appropriate time to file complaints with law enforcement including police and regulatory authorities that are well-written, honed down to a sharp point and which attach at least some evidence beyond the mere allegation of wrong-doing on the part of the attorney or law firm. If appropriate lay people can file the same complaints as grievances with the state Bar Association that is required to regulate and discipline the behavior of lawyers. And attorneys for homeowners and judges who hear these cases are under an obligation to report evidence of wrongdoing or else face disciplinary charges of their own resulting in suspension or disbarment.

Legal Eagles in Cross Hairs

By JEAN EAGLESHAM

The Securities and Exchange Commission is intensifying its scrutiny of lawyers who gave a green light to certain mortgage-bond deals before the financial crisis or have tried to thwart investigations by the agency, according to people familiar with the matter.

The move is at an early stage and might not result in any enforcement action by the SEC because of the difficulty proving lawyers went beyond their legal duty to clients, these people cautioned. In the past, SEC officials generally have gone after lawyers only when accusing them of active involvement in securities fraud or serious misconduct, such as faking documents in a probe.

In recent months, though, some SEC officials have grown frustrated by what they claim is direct obstruction of a few investigations and a larger number of probes where lawyers coach clients in the art of resisting and rebuffing. The tactics include witnesses “forgetting” what happened and companies conducting internal investigations that scapegoat junior employees and let senior managers off the hook, agency officials say. “The problem of less-than-candid testimony … is a serious one,” Robert Khuzami, the SEC’s director of enforcement, said at a conference last month. The stepped-up scrutiny is aimed at both internal and outside lawyers.

Claudius Modesti, enforcement chief at the Public Company Accounting Oversight Board, an accounting watchdog created by the Sarbanes-Oxley Act, said at the same event: “We’re encountering lawyers who frankly should know better.”

The SEC enforcement staff has recently reported more lawyers to the agency’s general counsel, who can take administrative action against lawyers for alleged professional misconduct.

The SEC hasn’t disclosed the number of referrals. Only one lawyer has ever been banned for life from representing clients before the agency because of professional misconduct.

Earlier this year, Kenneth Lench, head of the SEC’s structured-products enforcement unit, said the agency needed to “seriously consider” charges against lawyers in “appropriate cases.” Mr. Lench said he saw “some factual situations where I seriously question whether the advice that was given was done in good faith.”

In July, the Commodity Futures Trading Commission gained the new power to take civil action against anyone, including lawyers, who makes “any false or misleading statement of a material fact.”

The agency, which oversees the futures and options market, hasn’t taken any action yet under the expanded power, according to a person familiar with the matter. A CFTC spokesman declined to comment.

“Frankly, I wish we had the power the CFTC has,” Mr. Khuzami said.

The SEC’s focus on advice provided by lawyers in mortgage-bond deals is part of the wider push by officials to punish alleged wrongdoing tied to the financial crisis. So far, the SEC has filed crisis-related civil suits against 102 firms and individuals, and more cases are coming, according to people familiar with matter.

Some former government officials say stepping up regulatory scrutiny of lawyers for their work on cases snared in investigations by the SEC could send a chilling message. “The government needs to be careful not to deter lawyers from being zealous advocates for their clients,” says John Wood, a former U.S. Attorney for the Western District of Missouri.

The only lawyer hit with a lifetime ban by the SEC for his work on behalf of a client is Steven Altman of New York. The client was a witness in an SEC investigation, and the agency alleged that Mr. Altman suggested in a recorded phone conversation that the client’s recollection of certain events might “fade” if she got a year of severance pay.

Last year, an appeals court rejected Mr. Altman’s bid to overturn the 2010 ban. Jeffrey Hoffman, a lawyer for Mr. Altman, couldn’t be reached for comment.

In December, a federal grand jury in Los Angeles indicted lawyer David Tamman on 10 criminal counts related to helping a former client cover up an alleged $20 million fraud. Prosecutors claim Mr. Tamman changed and backdating documents, removed incriminating documents from investor files and lied to SEC investigators in sworn testimony.

“The truth is that my client was set up and made a scapegoat,” says Stanley Stone, a lawyer for Mr. Tamman, adding that his client acted under the advice and guidance of senior lawyers at his former law firm, Nixon Peabody LLP. “We’re going to prove at trial that what was done was not criminal,” Mr. Stone says.

A Nixon Peabody spokeswoman says Mr. Tamman was fired in 2009 “as soon as we learned that he was under SEC investigation and he failed to explain his actions to us.” The law firm has asked a judge to throw out a wrongful-termination suit filed by Mr. Tamman.

A criminal trial last year shows how the SEC could face daunting hurdles in bringing enforcement actions against lawyers for providing bad advice.

“A lawyer should never fear prosecution because of advice that he or she has given to a client who consults him or her,” U.S. District Judge Roger Titus in Maryland ruled when dismissing all six charges against Lauren Stevens, a former lawyer at drug maker GlaxoSmithKline PLC. GSK +0.19%

Ms. Stevens was accused by prosecutors of lying to the FDA and concealing and falsifying documents related to an investigation by the U.S. agency. The federal judge refused to let a jury decide the case, saying that would risk a miscarriage of justice.

Reid Weingarten, a lawyer for Ms. Stevens, couldn’t be reached. A spokeswoman for the Justice Department declined to comment.

Despite the government’s defeat, “the mere fact she was charged sends a strong signal to other lawyers about the risks of being seen as less than forthcoming in their representation s to the government,” says Mr. Wood, the former federal prosecutor in Missouri. He now is a partner at law firm Hughes Hubbard & Reed LLP.


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How Did H & R Block Get into the Subprime Mortgage Business?

Posted on April 27, 2012 by Neil Garfield

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CUSTOMER SERVICE 520-405-1688

Tax Preparer Slammed with $24 Million in Fines on Toxic Mortgages

Editor’s Comment:  You really have to think about some of these stories and what they mean. 

1. Where is the synergy in a merger between Option One and H&R Block? The answers that they were both performing services for fees and neither one was ever a banker, lender or even investor sourcing the funds that were used to lure borrowers into deals that were so convoluted that even Alan Greenspan admits he didn’t understand them.

2. The charge is that they didn’t reveal that they could not buy back all the bad mortgages — meaning they did buy back some of them. which ones? And were some of those mortgages foreclosed in the name of a stranger to the transaction? WORSE YET — how many satisfactions of mortgages were executed by Ocwen, which was not the creditor, never the lender, and never the successor to any creditor. Follow the money trail. The only trail that exists is the trail leading from the investor’s banks accounts into the escrow agent’s trust account with instructions to refund any excess to parties who were complete strangers to the transaction disclosed to the borrower. The intermediary account in which the investor money was deposited was used to pay pornographic fees and profits to the investment banker and close affiliates as “participants” in a scheme of ” securitization” that never took place.

3. Under what terms were the loans purchased? Was it the note, the mortgage or the obligation? There are differences between all three.

4. Since they didn’t have the money to buy back the loans it might be inferred that they never had that money. In other words, they appeared on the “closing papers” as lender when in fact they never had the money to loan and they merely had performed a fee for service — I.e., acting as though they were the lender when they were not.

5. Who was the lender? If the money came from investors, then we know how to identify the creditor. but if we assume that the loan might have been paid or purchased by Option One, then isn’t the lender’s obligation paid? let’s see those actual repurchase transactions.

6. If that isn’t right then Option One must be correctly identified as the lender on the note and mortgage even though they never loaned any money and may or may not have purchased the entire loan, just the receivable, the right to sell the property — but how does anyone purchase the right to submit a credit bid at the foreclosure auction when everyone knows they were not the creditor?

7. How could any of these entities have any loans on their books when they were never the source of funds and why are they being allowed to claim losses obviously fell on the investors who put up the money on toxic mortgages believing them to be triple A rated. 

8. Why would anyone underwrite a bad deal unless they knew they would not lose any money? These mortgages were bad mortgages that under normal circumstances would never have been  offered by any bank loaning its own money or the it’s depositors. 

9. The terms of the deal MUST have been that nobody except the investors loses money on this deal and the kickers is that the investors appear to have waived their right to foreclose. 

10. So the thieves who cooked up this deal get paid for creating it and then end up with the house because the befuddled borrower doesn’t realise that either the debts are paid (at least the one secured by the mortgage) or that the debt has been paid down under terms of the loan (see PSA et al) that were never disclosed to the borrower — contrary to TILA.

11. The Courts must understand that there is a difference between paying a debt and buying the debt. The Courts must require any “assignment” to be tested b discovery where the money trail can be examined. What they will discover is that there is no money trail and that the assignment was a sham.  

12. And if the origination documents show the wrong creditor and fail disclose the true fees and profits of all parties identified with the transaction, the documents — note, mortgage and settlement statements are fatally defective and cannot create a perfected lien without overturning centuries of common law, statutory law and regulations governing the banking and lending industries.

H&R Block Unit Pays $28.2M to Settle SEC Claims Regarding Sale of Subprime Mortgages

By Kansas City Business Journal

H&R Block Inc. subsidiary Option One Mortgage Corp. agreed to pay $28.2 million to settle Securities and Exchange Commission    charges that it had misled investors, federal officials announced Tuesday.

The SEC alleged that Option One promised to repurchase or replace residential mortgage-backed securities it sold in 2007 that breached representations and warranties. The subsidiary did not disclose that its financial situation had degraded such that it could not fulfill its repurchase promises.

Robert Khuzami, director of the SEC’s Division of Enforcement, said in a release that Option One’s subprime mortgage business was hit hard by the collapse of the housing market.

“The company nonetheless concealed from investors that its perilous finances created risk that it would not be able to fulfill its duties to repurchase or replace faulty mortgages in its (residential mortgage-backed securities) portfolios,” Khuzami said in the release.

The SEC said Option One was one of the nation’s largest subprime mortgage lenders, with originations of $40 billion in its 2006 fiscal year. When the housing market began to decline in 2006, the unit was faced with falling revenue and hundreds of millions of dollars’ worth of margin calls from creditors.

Parent company H&R Block (NYSE: HRB) provided financing for Option One to meet margin calls and repurchase obligations, but Block was not obligated to do so. Option One did not disclose this reliance to investors.

Option One, now Sand Canyon Corp., did not admit or deny the allegations. It agreed to pay disgorgement of $14.25 million, prejudgment interest of nearly $4 million and a penalty of $10 million.

Kansas City-based H&R Block reported that it still had $430.19 million of mortgage loans on its books from Option One as of Jan. 31. That’s down 16.2 percent from the same period the previous year.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 26 Comments »

Whitewashing at the Fed and the SEC: Pennies on the Dollar

Posted on January 10, 2012 by Neil Garfield

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EDITOR’S COMMENT: Money makes its own morality. Here again the FED and the SEC are planning to slap the wrist of criminals with fines amounting to rounding errors on the scope of theft these people committed. Martha Stewart went to jail and paid a $30,000 fine for an alleged infraction worth $46,000. Nobody has gone to jail yet for what is clearly criminal fraud. At this point in the savings and loan scandal in the 1980’s more than 800 people from high up to down low, were spending their time counting the days in prison. The system has been hijacked by the rule of men instead of the rule of law. And the men who rule answer to only one higher power: MONEY.

Fed to Announce Monetary Penalties for Robo-Signing and Unsafe Practices ; Another Whitewashing Move by the SEC

SEE FED TO ANNOUNCE PENALTIES FOR ROBOSIGNING

Courtesy of Mish

The always behind-the-curve Fed seeks to fine mortgage servicers for unsafe practices and robo-signing with an amount dependent on allegedly independent review by consultants.

Federal Reserve Governor Sarah Bloom Raskin on Saturday said the Fed must impose monetary penalties on banks who entered into an April agreement with regulators over how to fix problems in their mortgage servicing businesses.
“The Federal Reserve and other federal regulators must impose penalties for deficiencies that resulted in unsafe and unsound practices or violations of federal law,” Raskin said in remarks prepared for delivery to the Association of American Law Schools. “The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties.”
In April, 14 mortgage servicers, including Bank of America and JPMorgan Chase entered into a settlement with the Fed, the Office of the Comptroller of the Currency and the now defunct Office of Thrift Supervision on steps that have to be taken to correct and improve their servicing practices, such as providing borrowers with a single point of contact for questions.
As part of the agreement, these mortgage servicers have hired consultants to review foreclosures that took place in 2009 and 2010 to see if any were improper.
Regulators have said these reviews will help determine the size of any penalties the servicers will have to pay.

Expect Trivial Penalties, Spread a Mile Wide

Don’t expect this announcement to amount to much of anything. Penalties, if any will be trivial and the fines are nearly guaranteed to not benefit those harmed in any substantial way. Instead, expect fines to be spread out to include those not harmed at all.

 

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , | 21 Comments »

Ex-Freddie Mac, Fannie Mae chiefs sued by SEC over loans

Posted on December 16, 2011 by Neil Garfield

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EDITOR’S COMMENT: In my opinion they should not be just sued by a regulatory agency with a civil result. And whatever Obama says he has been told, the acts committed were illegal and probably criminal, despite reports to him to the contrary. Yet this is a good step forward.

Although it is a premature, I have been working on a Fannie Mae Loan Analysis and I think it is appropriate to share my notes, so far: ANALYSIS OF FNMA LOANS. By the way, this is not on the store. If you want this type of work from me it takes 8-10 hours and the cost is very high. You can write to neilfgarfield@hotmail.com if you want this done for you. I only do perhaps one per month. At such time that I can reduce it to a template and have assistants or volunteers create reports out of it, like we do with the COMBO, I will post it as something you can buy as a commoditized version directed at your loan.

FROM THE WASHINGTON POST:

Richard Syron, the former chief executive officer of Freddie Mac, and Daniel Mudd, ex-CEO of Fannie Mae, were sued by the U.S. Securities and Exchange Commission over disclosures they made about subprime loans.

Complaints were filed against the two men today in Manhattan federal court. Also sued by the regulator were Enrico Dallavecchia, who was chief risk officer for Fannie Mae; Thomas Lund, Fannie’s Mae’s former executive vice president; Patricia Cook, Freddie Mac’s former executive vice president; and Donald Bisenius, who was a senior vice president at Freddie Mac.

“This action arises out of series of materially false and misleading public disclosures,” the SEC said in the complaint filed against Syron. The agency seeks unspecified damages against the defendants. Fannie Mae or Freddie Mac aren’t named as defendants in the case.

Read more at:
http://www.washingtonpost.com/business/ex-freddie-mac-fannie-mae-chiefs-sued-by-sec-over-loans/2011/12/16/gIQAnLPGyO_story.html

Or visit washingtonpost.com.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , | 24 Comments »

USA NAME CHANGE: UNITED BANKS OF AMERICA

Posted on November 29, 2011 by Neil Garfield

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TOO BIG TO FAIL AND TOO BIG TO FIGHT OR REGULATE

SEE 74051381-Judge-Rakoff-s-Ruling-in-S-E-C-v-Citigroup-Global-Markets

SEE JUDGE BLOCKS CITI SETTLEMENT WITH SEC

SEE LONE JUDGE EXPRESSES FURY AT BANKS AND REGULATORS

SEE NEITHER REASONABLE, NOR FAIR, NOR ADEQUATE, NOR IN THE PUBLIC INTEREST

EDITORIAL COMMENT: Investors lost $700 million in one deal while Citi made $160 million. The loss to investors was intentional, knowing with full appreciation of the consequences. They weren’t acting as an intermediary bank or broker, they were just acting as a common grifter. The proposed settlement was $285 million with no admission of any of the facts supporting the case and no restitution — i.e., giving back the money they stole. Now multiply that deal 25,000 times and you get the full scale of the securitization scam that is ripping apart the economies of this nation and most nations of the world. The amount exceeds the gross national product of several countries combined including our own.

There is no greater threat to our national security than the power wielded by the Banks and what they are willing to do with that power. For many Americans the damage is already done — their lives destroyed by the exact same tactics deployed against “smarter” people who manage institutional investment funds. For the rest, the next waves are coming and those who thought they were immune from the crisis or affected only slightly are in for a rude awakening. The risk rises every day of an unruly explosion of anger unemployed and underemployed population that can’t afford to put a roof over their heads, eat decent food, and get proper medical care.

The answer from the SEC is that the Banks are too big to fight against. The Banks have greater resources. We have a trillion dollar military budget allegedly for national security but we have no money to assure domestic security and tranquility? The answer from the federal reserve is non-interest loans of $7 trillion to the same crooks that started the whole mess and stole the money, property and futures of every American and future generations. The answer from the U.S. Treasury has been direct infusion of money into the same institutions who cheated, lied, and stole money from the taxpayers, investors and homeowners.

In any ordinary case of fraud, restitution is the norm. Then come the penalties, civil and criminal. Let anyone of you do anything remotely similar to what the Banks did and you will end up in jail with most of your assets seized to make good on restitution. Look at Madoff and other cases where receivers and trustees were appointed to decide on how to divide the restitution payments and how to collect up the assets.

Changing the rules as a result of the size of the fraud is the rule of men, not the rule of law. If we are not a nation of laws then we are nothing more than a banana republic with dictators running the country. If the SEC is stating the policy of this country that it won’t enforce the laws against the Banks because they lack the resources to prosecute then the country has surrendered its sovereignty to the Banks. UBA, not USA.

Judge Rakoff is the lone voice in the wilderness of chicken-hearted Judges and lawyers who won’t go for the jugular to save their own country from banksters who have siphoned off the life-blood of the country and are now using our weakened condition against us. Look to history. This can only end up one way — a general strike or uprising of people who force change when they can’t eat anymore and can’t find a place to live. This isn’t a revisit to the Great Depression, it is a coup engineered by the Banks who have taken control of the country, its policies, and its direction.

President Obama needs to come out of his ivory tower and engage the Banks in a fight to the death, with or without the direct help of congress. There are enough laws, rules and regulations to enforce that will take care of the situation. The people know it, understand it and want it. If Obama won’t give the people what they want then he can kiss his second term good-bye.

FROM JUDGE RAKOFF’S ORDER:

“According to the S.E.C.’s Complaint, after Citigroup realized in early 2007 that the market for mortgage backed securities was beginning to weaken,    tigroup created a billion-dollar Fund (known as “Class v Funding IIIU) that allowed it to dump some dubious assets on misinformed investors. This was accomplished by Citigroup’s misrepresenting that the Fund’s assets were attractive investments rigorously selected by an independent investment adviser, whereas in fact    tigroup had arranged to include in the portfolio a substantial percentage of negative    projected assets and had then taken a short position in those very assets it had helped select….

“…Citigroup knew in advance that it would be difficult to sell the Fund if Citigroup disclosed its intention to use it as a vehicle to unload
hand-picked set of negatively projected assets, see Stoker Complaint…

“…this would appear to be tantamount to an allegation of knowing and fraudulent intent (“scienter,” in the lingo of securities law)…

“Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if    fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”

Editor’s Note: One more thing (although there are many others that could be added here): Why is it so hard for America to accept that the investors were defrauded in the same scheme that sold bogus financial products to homeowners who are now evicted out of their homes. Why are we picking up one end of the stick and not the other. Why are we blaming the victims on one end of the stick and blaming the banks on the other? Where is the case for fraud in the execution, fraud in the inducement, damages and restitution for homeowners?

It is a fair bet that virtually 100% of those who signed mortgage papers had no inkling that they were issuers of paper that would be used as securities, valued as securities and treated as securities and that therefore they would be liable not only as Payors under the so-called notes, but as issuers in a fraudulent securities issuance scheme about which they had neither knowledge nor even access to knowledge.

If you track the 51 cases so far in which the SEC found this type of fraud, you see the same pattern over and over again. By what standard of conduct that will guide us in the future as to our behavior, will we be able to look into the face of homeowners who were tricked into signing papers in loan derivatives that burgeoned from a selection of 4-5 in 1974 to 450 possible loan products in 2003? How can we justify blaming them and expect anything other than chaos in the marketplace as a result?

In a world where victims are “deadbeats” (if they are individuals) and thieves are the center piece in the halls of power, there are no standards that we can depend upon — just the expectation that some small group of people might tell us that what we had we don’t have anymore because they said so. Nothing could undermine confidence in the commercial markets than that — and yet the media, the government and big business and Banks are pursuing exactly that policy with an obvious end result undermining the very structure of our government, our society and our morality. Money has now made its own morality and is the alter at which we now worship above all else. Do we submit?

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , | 23 Comments »

Borrower is actually entering into an undisclosed investment contract, not a loan

Posted on March 31, 2011 by Neil Garfield

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EDITOR’S NOTE: I’m not sure who the actual author of this piece is, but it is very good in many places. Probably John Korman. The point, as we have stated here before, is that there were no loans because the money advanced by the investors was subject to a set of documents supporting a bond in which the homeowner was not the payor and where the homeowner never signed. The homeowner was subjected to a set of documents that failed to disclose the real party or the real terms of the entire transaction — a black letter requirement of the truth in lending laws.

The purpose of the transaction was for the investment banks to get money from the investors and to get a signature from the homeowner without connecting the two. The real purpose of the transaction was an investment scheme wherein the intermediaries took everything — the money, the property and the gains from credit default swaps, insurance and government bailouts.

Thus the intent of the investor to lend money for residential mortgages, and the intent of the homeowner, to get a loan for his home, was never accomplished and was effectively thwarted by the attempt to cover tracks by refusing to document the trail of the money. The actual documents offered in foreclosures document a fictitious trail — one in which no money ever changed hands.

The homeowner, without consent or knowledge, was converted from a borrower to a securities issuer and the investor was converted from being a part owner in a valid REMIC pool to being the alleged buyer of the security issued by the homeowner. Hence the right of rescission and damages arises not only from TILA but from the SEC rules and regulations. And the time for filing doesn’t start to run until the parties had enough information to either know or where they should have known of the fraud.

John Korman
934 SW 21st Way
Boca Raton Florida 33486
(561) 372-1741
(561) 350-0828
February 16th 2011
This letter is addressed to the Attorney General in each great State of America.
Alabama; Luther Strange
Alaska; John J. Burns
Arizona; Tom Home
Arkansas; Dustin McDaniel
California; Kamala D. Harris
Colorado; John W. Suthers
Connecticut; George C. Jepsen
Delaware; Beau Biden III
Florida; Pam Bondi Only
Georgia; Sam Olens Hawaii; David M. Louie Idaho; Lawrence G. Wasden Illinois; Lisa Madigan Iowa; Tom Miller Kansas; Derek Schmidt Kentucky; Jack Conway Louisiana; James D. Caldwell Maine; William J. Schneider Maryland; Douglas F. Gansler’s Massachusetts; Martha Coakley Minnesota; Lori Swanson Mississippi; Jim Hood ; Missouri; Chris Koster Montana; Steve Bullock Nebraska; Jon Bruning Nevada; Catherine Cortez Masto New Hampshire; Michael A. Delaney New Jersey; Paula T. Dow New Mexico; Gary King
smclure@ago.state.al.us attorney.general@alaska.gov consumerinfo@azag.gov consumer@arkansas.gov
piu@doj.ca.gov attorney .general@state.co.us
attorney.general@ct.gov Attorney.General@State.DE.US provides an electronic on-line Form agolens@law.ga.gov hawaiiag@hawaii.gov kriss.bivens.cloyd@ag.idaho.gov ag_consumer@atg.sta te.il. us webteam@ag.state.ia.us
general@ksag.org
attorney.general@ag.ky.gov
Adminlnfo@ag.state.la.us
attorney.general@maine.gov
consumer@oag.state.md.us
ago@state.ma. us. attorney .general@state.mn.us
ccano@ago.state.ms.us consuhier.help@ago.mo.gov contactdoj@mt.gov nedoj@nebraska.gov
aginfo@ag.nv.gov doj-cpb@doj.nh.gov citizen s.serv iees@lps.sta te. nj .us ewood@nmag.gov
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New York; Eric T. Schneiderman NYAG.Pressoffice@oag.state.ny.us
North Carolina; Roy Cooper ncogo@ncdoj.gov
North Dakota; Wayne Stenehjem ndag@nd.gov
Ohio; Mike DeWine comsumerweb@ohioattorneygeneral.gov
Oklahoma; E. Scott Pruitt diane.cl»y@oag.ok.gov
Oregon; John Kroger consumer.hotline@doj.state.or.us
Pennsylvania; William H. Ryan, jr info@attorneygeneral.gov
Rhode Island; Peter Kilmartin contactus@riaj.ri.gov
South Carolina; Alan Wilson info@scattorneygeneral.com
South Dakota; Marty J. Jackley consumerhelp@state.sd.us
Tennessee; Robert E. Cooper, jr tnattygen@ag.tn.gov
Texas; Greg Abbott Greg.Abbott@oag.state.tx.us
Utah; Mark Shurtleff uag@utah.gov
Vermont; William H. Sorrell atginfo@atg.state.vt.us
Virginia; Ken Cuccinelli, II mailoag@oag.state.va.us
Washington State; Rob McKenna belcrc@atg.wa.gov
West Virginia; Darrell V. McGraw, jr consumer@wvago.gov
Wisconsin; J.B. Van Hollen 608 267-2779 faxed
Wyoming; Bruce A. Salzburg djourg@state.wy.us
My name is John Korman. I, as a paralegal who lives in Florida investigated Mortgage Loans for an Attorney who defends clients against foreclosure. The job I did was research the Corporate / Trust Documents [law of the case] filed with the Securities and Exchange Commission, in reference to the target loan and create an Affidavit based on my finding. Almost every Mortgage loan investigated which was produced by a major Banking Institution between the years 2000 – 2008 was securitized. Securitization is the act of producing an investment vehicle of Mortgage-Backed Securities (“MBS”) using the Borrower’s Mortgage NOTE as the under-lying corpus, as collateral.
In each and every securitized loan produced by these Banking Institutions, file with the Securities and Exchange Commission certain documents which are mandated, include but is not limited to the Pooling and Servicing Agreement, Prospectus, Indenture, 10-K [yearly report], 10-Q [quarterly report], 8-K [current report] Form 15-D and the Servicing Agreements] (herein after referred to as “Documents”), agreed to by the Party’s.
Reading these Documents, in each investigation to date, the common mandated procedure is as follows; first we have the Lender. Shortly after the Mortgage
2 of 9
NOTE documents have been executed [or before the NOTE is executed] the Lender sells [or has already sold] its right, title and interest in this Mortgage NOTE to a third party, an arms length transaction [true sale] to a party known as the Seller. Within thirty [30] days or less the Seller will sell its right title and interest to this Mortgage NOTE to another party known as the Purchaser, also identified as the Depositor. The Depositor agrees to “trade” with a named Trust-Entity, it’s Mortgage NOTE for a predetermined amount of Mortgage-Backed Securities [less commission], these Certificates are then sold to investors.
Now a really interesting thing happens once the Mortgage NOTE is acquired by this named Trust Entity, witnessed through the use of specialty licensed software which permits investors [or licensed users] access to any “named Trust-Entity”. I can see each Mortgage Loan held by this named Trust-Entity, and I can see its currant status. I can see if the named Trust-Entity is in possession of the Mortgage NOTE documents. I can see if a Mortgage NOTE is thirty (30) days late, sixty (60) days late, ninety (90) days late, or if it is in foreclosure. I can also see how many “tranches” have been created within this named Trust-Entity. The analogy to describe what a tranche is [in my minds eye] would be similar to, you giving me one apple, I return this one apple to you as apple juice [different form], and however I manage to create from this one apple, ten additional artificial apples out of thin air and transform them into apple juice. Now this named Trust-Entity has the authority and ability to sell [juice from ten artificial apples] Mortgage-Backed securities in multiples of the underlying collateral by creating multiple tranches within the said named Trust Entity. Within these multiple tranches I find the same Mortgage NOTE to exist, at full face value. The last investigation which I just completed within this past week the named Trust Entity held twenty one tranches and the target Mortgage NOTE appeared in each one of those tranches. This one Mortgage NOTE now has the potential of generating twenty one times its face value of this Mortgage NOTE, in Mortgage-Backed Securities sold to investors. Based on the foregoing if a Trust sells these Mortgage-Backed Securities to investors and receives only ten times the face value of the original under-lying Mortgage NOTE [Security] has the named Trust Entity been damaged by the Mortgagor not making the promised monthly payments under the Mortgage NOTE agreement? In other words, if Sam goes to the Bank and borrows a sum of money but Sally pays off the debt can the Bank still claim to be a damaged party because Sam did not make the payments as promised?
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In the event whereby the Lender knows fore-hand this loan [Mortgage NOTE] will be sold out-right, securitized once executed, the Borrower is actually entering into an undisclosed investment contract, not a loan, per-say. In the not so distant past and throughout our history, prior to securitization, the Maker of the Mortgage NOTE Holds a possessory right to said Mortgage NOTE. Once the debt was discharged the Bank which held this Mortgage NOTE as a “Special Deposit” returned it to the Borrower. Today, with the advent of securitization these so-called loans [Special Deposits] are truly investment contracts [Mortgage NOTE sold out-right to generate profit] and the Borrower is an undisclosed investor with possessory rights to the profits generated from said Mortgage NOTE. Because this undisclosed investor [Borrower] is unaware of the moneys due it abandons the right to receive said funds when Borrower / Maker fail to make a claim to said funds within three years. To prove my point the Attorney General needs to request the Servicer, or the Trustee to produce a copy of the 1099-OID Form which was filed with the Internal Revenue Service, and the 1099-A including the 1099-B. These three Forms are filed with the Internal Revenue Service by either the Servicer or the Trustee and will prove the aforementioned allegation, that it is the Borrower that created, and is entitled to the “O”riginal “F’ssue “Discount, but the Borrower has abandoned these funds [1099-A] which is now claimed by the Servicer, or the Trustee [1099-B]. In other words, these aforementioned Forms will identify the Bank as the Debtor. The profit made from the invested Mortgage NOTE belongs to the Maker. We live in a wonderful place, if it wasn’t for the deceit.
Many of today’s so-called Lenders only lent their name to the Mortgage loan transaction. In other words, the Lender did not lend you their money, an undisclosed third party provided the funds for the Borrower making it appear like the Lender / Bank / Broker provided the funds. A group of investors, or a single investor creates what is commonly known as a Special Purpose Vehicle (“SPY”) wired the money to the Lender just prior to Closing. The Lender / Bank now acting in the capacity of a Nominal Lender used this SPY money to transact the Closing. Once the Closing was completed the Nominal Lender was paid in full plus a commission, then the Nominal Lender put its name on the Mortgage NOTE. Within twenty-four (24) hours from Closing the Nominal Lender was required to physically conveyed the Mortgage NOTE to the true Lender / Investor. Thereafter this Nominal Lender takes on a new role as the Servicer of the debt, or it may employ a subServicer. The Borrower makes the monthly payments to the Servicer who s/he believes is the Lender, who forwards the payment [less its fee] to the true Lender / Investor[s]. The Homeowner was
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tricked into thinking he was a Borrower of a Loan, when in fact was a Seller of a Mortgage NOTE into an Investment Trust [SPV]. This Investment Trust has no right to a Mortgage which is used to facilitate the purchase a NOTE, fraudulently procured under the guise of a “Loan”, when in fact it was not a Loan but rather the “Purchase / Sale of a Mortgage Note” facilitating the foundation of these Mortgage-Backed Securities; the true nature of this Transaction was not disclosed to the Borrower either before or at Closing; and this Nominal Lender was paid in full plus a commission for loan it did not fund. Question; can a Nominal Lender that did not fund the transaction [Loan], putting its name on a Mortgage NOTE pretending to be the True-Lender, tricking a Homeowner into signing over a Mortgage NOTE in order to secure an Investment Security, thereafter assign a Beneficial Right to a third party, a right which it never Held from the beginning?
•
A reading of the Corporate / Trust Documents filed with the Securities and Exchange Commission two constants are apparent; the Original Lender after selling its right, title and interest to said Mortgage NOTE becomes the Servicer of this debt; and
the “conveyance” of the Mortgage NOTE, Documents [law of the case] mandate the delivery of the Original Mortgage NOTE, endorsed in blank … without recourse … with ALL prior and intervening endorsements showing a complete chain of endorsement from the Originator [Lender] to the “person” so endorsing to the Trustee. In every investigation that I have personally conducted find there are four parties to the initial transaction, if we exclude the Borrower. The “Originator / Lender,” who sells its right, title and interest to said Mortgage NOTE to the “Seller,” the Seller sells its rights, title and interest to the “Purchaser / Depositor,” who sells to the “Trustee in trust for the benefit of the Certificate-Holder[s].” Although the named Trust Entity Documentation [law of this case] mandates this “chain of endorsements” I have yet to witness these endorsements on any Mortgage NOTE. Rather I witness an “Assignment” of the Mortgage that purports to convey the NOTE directly to the named Plaintiff. My understanding is a NOTE can not be assigned; it is endorsed from the present Holder / Owner of said NOTE and conveyed to the new Holder / Owner. Instead I am witnessing the Servicer [who was once the Lender] claiming to be the Plaintiff with all the rights title and interest as an Owner / Holder of a Mortgage NOTE, after selling its right title and interest to that same Mortgage NOTE to a third party, at an arms length transaction, viewed as a true sale. The Documents [law of this case] mandate it to be a true sale.
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I witness assignments [and or endorsements] being filed with the Courts assigning [endorsing] the right title and interest of the Originator / Lender directly to the Plaintiff, passing-over the Seller, Purchaser and the Trustee, when the Plaintiff is a named Banking Institution. The named Banking Institution would need to acquire this said Mortgage NOTE from the Trustee in order to foreclose, [not from the Lender] thus the Trustee’s endorsement would be expected on the NOTE, from it to the named Plaintiff, in a proper chain of endorsement. Instead I witness over and over again where an assignment of the Mortgage will go directly from the source [Lender] to the Plaintiff, as there are no prior and intervening endorsements showing a complete chain of endorsement from the Originator [Lender] to the “person” so endorsing the NOTE to the Trustee.
If the Trustee is the named Plaintiff acting for a named Trust-Entity would still require the endorsement from the Depositor / Purchaser to the named Trustee in trust for the Certificate-Holder. In my opinion, [non-attorney] this is why there was a rash of “Lost NOTE” claims in the past; the endorsements are missing, however re-establishing a NOTE cures that problem; however re-establishing a NOTE you never Owned, Held or possessed is a criminal act, in my opinion. Not only do I believe this act is a Fraud upon the Court but it is also using the legal system to facilitate a counterfeited financial instrument. The Homeowner who loses their home to foreclosure [95% are uncontested] with the use of a re-established NOTE faces the added threat that the true Owner / Holder may appear at some future date requiring the Homeowner to pay this same NOTE a second time, unless the Order from the Court provides the Defendant protection against such an occurrence. However when a Homeowner does not defend their case, lack of funds, or whatever, this protection [should the Real-Party-In-Interest appear at some future date and demand payment for the Original Mortgage NOTE] against paying twice, is often missing from the Final Order for Foreclosure, because the Homeowner lacked the legal capacity to request this protection be included in the Order from the Court, and the Plaintiff will not do the right thing, voluntarily, by including this protection, exparte.
In the event the Plaintiff does possess and produces the Original NOTE bearing the once wet ink signatures of the Borrower[s], it [NOTE] must contain the endorsements of all the aforementioned parties, otherwise there is a clear break in the Chain of Title. The Chain of Title in every securitized document I have personally reviewed requires an endorsement from the Originator / Lender to the Seller, from Seller to Purchaser and from the Purchaser to the Trustee in trust for the benefit of the Certificate Holder [s], this is in accord with each one
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of the documents I have reviewed, filed with the Securities and Exchange Commission.
•
These investigations that I have personally conducted disclose that most Trustees over-see dormant, dissolved or unregistered named Trust-Entities. Every named Trust Entity that I personally have investigated filed a Form 15-D with the Securities and Exchange Commission, notifying all parties of its Termination of Registration and suspension of its Duty to File Reports under the Securities and Exchange Act of 1934 (15 U.S.C.A. §§ 77a et seq., 78a et seq.). The Trustee foreclosing on a Homeowner [after filing a Form 15-D] is doing so on behalf of a named Trust-Entity contrary to the INVESTMENT COMPANY ACT OF 1940, see Section 7, under TRANSACTIONS BY UNREGISTERED INVESTMENT COMPANIES.
What is really transpiring with these Mortgage loans is [in my minds eye] the Lender is selling the Borrower an automobile that the Lender knows has faulty brakes, and then said Lender takes out an insurance policy on that automobile. Once the automobile is totaled in a crash, the Lender collects on the insurance and still holds the borrower liable to pay the out-standing balance due on the automobile. Look no further than the foreclosure rates here in Florida or your home State, and then look at the record profits being generated by the Banks. How do you think this feat is being accomplished? Are foreclosures a negative force on the economy, because it does not seem to be negatively impacting the major banking institutions.
Brings me to my final observation, Mortgage Electronic Registration Systems (“MERS”), which acts as the purported Mortgagee of record [which we know is not true; as MERS did not loan any money and the Borrowers] do not owe any money to MERS]. MERS usually acts in the capacity as nominee for the Mortgage NOTE Owner / Holder; however, according to the procedural manual produced by MERS, it may only act in such a capacity [nominee] for and on behalf of another MERS’ Member. To the best of my knowledge none of these securitized named Trust Entities are MERS Members, thus bifurcating the Mortgage and NOTE, destroying the security and rendering the Mortgage a nullity.
When you get right down to it I think we would all agree, the bottom line is, the Creditor is the party with the skin in the game, they are the Certificate Holder[s], they are true investors], Hard-Money-Lender[s]. All Certificate Holders are customers of Cede & Co., being the nominee of the Depository
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Trust Company (“DTC”), a subsidiary of the Depository Trust and Clearing Corp. The Entities that purchase these Trust Certificates must purchase them from Cede & Co., or from one of its authorized agents. Seems to imitate the MERS model in so far as Cede & Co. appears to be the central recordation hub were investors trade positions by electronic registration. These named Trust Entity’s Certificates are almost always Held in the “street name” of Cede & Co.
Within the past month I was engaged to conduct research / investigation into a Mortgage Note foreclosure, Plaintiff is JPMorgan Chase, the Original Lender was Washington Mutual Bank (“WaMu”). Within this Complaint JPMorgan Chase avers it is the Mortgage NOTE Owner and Holder by virtue of a Purchase and Assumption Agreement facilitated by the Federal Deposit Insurance Corporation (“FDIC”) after it seized WaMu. Within this Complaint filed by JPMorgan Chase is attached as prima fascia evidence this aforementioned Purchase and Assumption Agreement between JPMorgan Chase and the FDIC which read, [paraphrasing] JPMorgan Chase purchased all of the assets of WaMu, as such is the Owner / Holder of the Mortgage NOTE being foreclosed on [presumptively giving JPMorgan Chase Standing]. However, reading the Documents filed with the Securities and Exchange Commission WaMu sold this Mortgage NOTE out right to a third party [true sale] long before its seizure by the FDIC. The only nexus held by WaMu in reference to this Mortgage NOTE in question were its right to Service this debt. In the case styled UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA, case number 09-CV-01656-RMC, Document 55, styled DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for the Trusts listed in Exhibits 1-A and 1-B, Plaintiff, vs. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for Washington Mutual Bank; JPMORGAN CHASE BANK, National Association; and WASHINGTON MUTUAL MORTGAGE SECURITIES CORPORATION, Defendants; JPMorgan Chase herein pleads, on page 33. of 39;
“Under the plain terms of that agreement, JPMC did not become WMB’s successor in interest. Since its closure, the FDIC as receiver has controlled WMB. While JPMC purchased all of the assets of WMB, it assumed only specified liabilities: those that had been reduced to a dollar amount on WMB’s ‘general ledger and subsidiary ledgers and supporting schedules which support the general ledger balances.’”
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I only know of this one case in particular whereby JPMorgan Chase is foreclosing on a property in which it holds no right title nor interest aside from its Servicing right[s] acquired under a Purchase and Assumption Agreement, still to be executed between it and the FDIC. However JPMorgan Chase is telling a Judge in New Jersey it Owns and Holds this particular Mortgage Note by virtue of the aforementioned Purchase and Assumption Agreement acquired from the FDIC. Then in this case, [as sited above] in order to avoid / evade liability now pleads it”… did not become WMB.’s successor in interest.” You’ all know the difference between “avoid” and “evade,” [twenty years]!
It is my sincere hope the Attorney General of Florida along with the Attorney General in the other forty-nine States investigate JPMorgan Chase’s claim as successor in interest to WaMu, wherein JPMorgan Chase claims to be a Plaintiff, as its foundation points to the Purchase and Assumption Agreement. Equity would call for an Estoppel of all foreclosure Actions in which JPMorgan Chase claims to be WaMu’s successor in interest.
In closing, these named Trust Entities by-and-large are missing a mountain of Mortgage NOTEs. I have not had the time to do a mean average [as some named Trust Entities hold literally a thousand Mortgage Loans and the calculations must be done manually] however the field marked “Doc” [abbreviation for Documents] either reads “Unknown” or “Limited” in over 50% of these Mortgage Loans [by observation] conservatively. The named Trustee of the named Trust Entity clearly did not do even a reasonable job in receiving the Mortgage NOTEs as mandated under these named Trust Documents filed with the Securities and Exchange Commission.
/s/ John Korman

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , | 25 Comments »

NO SURPRISE: MADOFF CONNECTION WITH SEC and “Mortgage Backed Bonds”

Posted on March 9, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO TITLE AND SECURITIZATION SEARCH, REPORT, ANALYSIS ON LUMINAQ

EDITOR’S NOTE: Well we already knew that his son was working in SEC enforcement so it should come as no surprise that the SEC attorney that was involved in payouts to victims was also involved with Madoff. In fact, it should be no surprise that hundreds of “channels” were involved on Wall Street because Madoff never made a trade. It was a PONZI scheme, but he was well connected and knew perfectly well that the GREAT SECURITIZATION SCAM in mortgage-backed bonds was also a scam.

So while the SEC and others generally like to grab people like this, and others like to blow the whistle and see the scheme fall apart, the SEC, being the recipient of a 29 page TEN YEAR OLD report prepared by one of the most knowledgeable analysts on Wall Street, did nothing. That report showed that what Madoff was saying was impossible from any angle and everyone on Wall Street knew for a fact that they had never seen or heard of a single trade from the Madoff “accounts.” Even the mega banks that had Madoff money parked in them knew they had not seen a trade and were talking and writing about it in emails and over cocktails at lunch. What Madoff didn’t realize was that powers bigger than him — and he had a lot of power — were using him as the scape goat to divert attention from their own scam. AND IT WORKED!

The plain truth is that if anyone blew the whistle on Madoff, then the entire mortgage scam would have come to a halt because Madoff would have traded his knowledge of the securitization scam for leniency or even immunity. He miscalculated, like all PONZI artists, because after 30 years he thought both his scheme and the securitization scheme would go on forever — a kind of mutually assured destruction tacit agreement existed between the mega banks and Madoff. Neither one ratted the other out even though both knew what was going on.

So now everyone is in a hurry to get the foreclosures done so we can put this nasty episode behind us, except it just won’t go away. The Banks, in control of government, are successfully arguing that if they are allowed to slowly convert this mess into another mess, the economy will be better off and that less people will be hurt. Using that logic, Madoff and all other PONZI operators should have been left alone. Ask anyone who got nicked by a PONZI scheme — they all secretly wished it could have gone a little longer so they would have gotten their money back — even though that meant that someone else’s money was “paying” them.

This is why PEOPLE need to act in the their central role as the boss of this sovereign country. It says so right in the constitution in clear unambiguous words. PEOPLE need to act, using their powers of removal, election, petitions, and referendums to take control of the government away from those who are using the current occupants of offices that pull the levers of power and put it into the hands of people who understand that if they pull the same crap, they too will fall under the axe of the real boss in this country — its voting citizens.

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

NY TIMES

S.E.C. Chairwoman Under Fire Over Ethics Issues

By LOUISE STORY and GRETCHEN MORGENSON

The Securities and Exchange Commission took a beating two years ago for failing to detect Bernard L. Madoff’s multibillion-dollar Ponzi scheme during the decades that he ran it.

Now, its chairwoman is coming under Congressional fire for hiring as the S.E.C.’s general counsel someone with a Madoff financial interest — David M. Becker, who participated in matters involving how the scheme’s victims would be compensated.

The revelations about Mr. Becker’s role have raised fresh questions about ethical standards and practices at the agency, where Mary L. Schapiro was brought in as chairwoman two years ago with a mandate to strengthen its enforcement unit. Ms. Schapiro will appear before Congress on Thursday to discuss the matter. Questions about Mr. Becker arose last month after Irving H. Picard, the trustee overseeing the Madoff case, sued him and two of his brothers to recover $1.5 million of the $2 million they had inherited in 2004 from a Madoff investment by their late mother. Mr. Becker’s financial ties to Madoff had not been publicly disclosed until that suit.

Mr. Becker said that he advised Ms. Schapiro and the chief ethics officer of his financial interest in a Madoff investment account, “either shortly before or after” joining the agency in February 2009.

Last Friday, H. David Kotz, the agency’s inspector general, announced that he would investigate the potential conflicts in Mr. Becker’s role as a Madoff recipient who was also the S.E.C.’s general counsel and senior policy director involved in decisions relating to the Ponzi scheme. Ms. Schapiro requested the review, a commission spokesman said.

Lawmakers have also asked Ms. Schapiro for details of her discussions with Mr. Becker about his Madoff account when she hired him in 2009. Ms. Schapiro missed a deadline on Monday for those responses. An S.E.C. spokesman said Ms. Schapiro declined to comment on Tuesday.

“One of the things the S.E.C. does is hold companies to a very high standard with regards to transparency and disclosure,” said Representative Randy Neugebauer, Republican of Texas, who is one of four Republican lawmakers asking Ms. Schapiro about her dealings with Mr. Becker and his disclosures. “We think it’s important that the same integrity exists within the S.E.C., ensuring that people working there do not have conflicts of interest and that here is a process to vet those issues and make sure they are taken care of in a way that gives confidence.”

Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.

Mr. Becker did not return a call for comment.

In correspondence with lawmakers late last month, Mr. Becker also said that he alerted the ethics office about his family’s Madoff investment again that May after he received a letter from a number of law firms representing Madoff victims asking that the commission change its proposed compensation formula. Among the issues are whether Madoff investors who withdrew money before the fraud was exposed must return some of their proceeds — and if so, how much — to other investors.

“I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee’s decision to bring clawback actions against persons like me,” Mr. Becker wrote in response to lawmakers. The ethics officer approved his participation, he said. That officer reported directly to Mr. Becker and spent only 25 minutes reviewing the matter, according to Congressional staff members briefed on the discussions who requested anonymity because they also were not authorized to discuss the matter publicly.

Congressional investigators want to know if Mr. Becker and Ms. Schapiro took all the necessary steps outlined in government ethics rules. Under the United States code, for example, Ms. Schapiro may have been required to make a written determination that Mr. Becker’s financial interest was not substantial enough to affect his job performance. A spokesman for the S.E.C. said that such a waiver would not be required unless Mr. Becker had been found to have a substantial financial conflict.

Congress also asked Ms. Schapiro whether she discussed Mr. Becker’s Madoff account with other staff members or commissioners and if she took up the matter with officials in the federal government’s Office of Government Ethics, or the commission’s ethics counsel.

“As the government official responsible for appointing Mr. Becker to his position in 2009, what steps did you take to manage the appearance of or actual conflict of interest presented by Mr. Becker’s financial interest in the Securities Investor Protection Corporation’ liquidation?” asked a March 1 letter signed by four Republican members of the House Financial Services Committee. They are Spencer Bacchus of Alabama, Jeb Hensarling of Texas, Scott Garrett of New Jersey and Mr. Neugebauer.

In any Ponzi scheme, there are victims who withdraw money before the fraud is exposed. There are many such Madoff investors and determining how much they may keep is being sorted out in two places. Some investors are fighting in court to be entitled to the amount of money on their final Madoff statements, though they have been unsuccessful so far. Another battle involves how much customers can be compensated by the Madoff trustee and the Securities Investor Protection Corporation, a government entity that helps recover money for customers of failed brokerage firms. The S.E.C. oversees SIPC; neither matter has been decided.

Mr. Becker’s late mother, Dorothy, invested $500,000 with Mr. Madoff’s company; when she died in 2004, her three sons transferred the money into a new account at the firm. The next year, the investment was worth $2.04 million and they withdrew it. Mr. Picard said that the family should be allowed to keep the original $500,000 investment but return $1.54 million — all of the gain — to compensate other victims.

If the S.E.C. gets its way, Mr. Becker and his brothers would be allowed to keep more than that to compensate them for the time the money was invested with Mr. Madoff. How much more is unknown because details of the commission’s proposal have not been disclosed.

Both SIPC and Mr. Picard, the trustee for the Madoff estate, have proposed that the customers who withdrew funds before the fraud was uncovered should be allowed to keep only as much money as they put in. Initially, the full commission agreed and approved that approach in early 2009, according to the two people briefed on the discussions.

Mr. Becker joined the commission in February that year. By spring, he began meeting with lawyers for Madoff customers seeking a different formula. They wanted to let longer-term investors keep more money than those who had money with Mr. Madoff for shorter periods. Mr. Becker apparently dismissed arguments that investors were entitled to the amounts Mr. Madoff had listed on their final statements.

In the summer of 2009, Mr. Becker did reverse the commission’s earlier decision, however. His legal staff came up with a new proposal to reflect the length of time the money was invested, and the commissioners approved it at the end of the year. Some at the agency who worked with SIPC expressed dissent about the change, according to the people briefed on the deliberations.

Stephen P. Harbeck, the chief executive of SIPC, confirmed that his investor protection unit and the S.E.C. had initially agreed that victims should be able to keep only the money they had originally put into the Madoff firm. “Then they refined their opinion,” he said on Monday, referring to the S.E.C. He said that he did not know who had pushed for the change.

The S.E.C.’s definition, Mr. Harbeck said, would benefit anyone who withdrew more money from their Madoff accounts than they had put in. Mr. Becker’s family would be among them.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , | 5 Comments »

SEC FUNDING CREATES CONFLICT OF INTEREST AND BAD NEWS FOR CONSUMERS

Posted on February 15, 2011 by Neil Garfield

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

WALL STREET: THE UNTOUCHABLES

Representative Stephen Lynch, Democrat of Massachusetts, warned: “You think regulation is costly? How about the $7 trillion we just lost from not regulating the derivatives markets.”

EDITOR’S NOTE: Our institutions are compromised with moral hazard every way you turn. The FDA, running mostly on money from fees paid by drug and medical supply companies (who then turn around and hire the same FDA people who approve so-called blockbuster drugs) supposedly reviews test results and approves labeling without doing any independent testing of their own. And people die. The federal and state agencies regulating banks, insurance companies, oil companies all run the same way — funded by fees paid by the companies they regulate and then the people who were the regulators end up employed by the companies they were regulating.

Somehow we seem to expect that this “system” will provide us with protection from thieves and those indifferent to whether we live or die, as long as they make a profit. This isn’t a system. It is a scam on the American public. Except that with the financial crisis it ended up affecting the world. With Congress regulating its own ethics, and with money being the principal religion in Washington, D.C. it is a huge challenge to even offer a conjecture of a favorable outcome.

In the mortgage mess, it was the rating agencies who were funded by fees paid by investment bankers who told the rating agency how to analyze the “low-risk” derivatives and give them AAA ratings — while at the same time the same investment firms had paid lobbyists to make sure they were not regulated at all when it came to derivatives and credit default swaps and other “custom” exotic financial products. It was the appraisers who were funded by fees generated by “lenders” (most of whom were merely acting as mortgage brokers) in order to generate fee revenue for merely pretending to underwrite loans. It is quite natural that the appraisals and ratings were so favorable to the scheme — the people who were doing the appraising and ratings were being paid to see things the way their “benefactors” wanted them to see it.

The two “protections” — ratings for investors and appraisals for homeowners — were reasonably relied upon to their combined detriment. What was promoted as an independent third party evaluation became an in-house marketing tool. So the investigations and the charges against individuals will skim the surface just enough for government to say they did something but not so much to make sure it never happens again. The larger problem is that each iteration of this cycle ends up in a worse debacle than the one before it.

So it should come as no small surprise that the SEC operates the same way. Funded by fees paid by companies who are regulated by the SEC, the SEC spawns future employees of the law firms and investment banking firms that are the subject or should be subjected to scrutiny and compliance with applicable laws, rules and regulations. Not content with virtually total control over the dominant currency of the world — collateralized debt obligations — and not content with being virtually unregulated, the banks are now seeking to choke off the last vestige of any hope that our financial system will ever regain stature. In a word, they seek to stop funding from Congress just to make sure there is nobody who legally touch them. In other words, the mega banks are willing to pay the fees to the U.S. Government (fees meant for SEC enforcement), provided the government doesn’t use that money to fund the SEC which is the only real agency with teeth.

Running on Empty

NY TIMES EDITORIAL 2/13/11

The new financial regulation law gave the Securities and Exchange Commission a big new job to police hedge funds, derivatives dealers and credit agencies — some of the main culprits in the financial meltdown. It authorized raising the commission’s budget to $2.25 billion, over five years. Now Congress is threatening to deny the S.E.C. the necessary financing to carry out its duties.

What makes this even more absurd is that the S.E.C. doesn’t cost taxpayers a dime. Its budget, like that of other financial regulators, is covered by fees assessed on Wall Street firms. While the other regulators decide their own financing needs, Congress sets the S.E.C.’s budget.

The agency’s budget was due to rise $200 million this year to $1.3 billion, but hasn’t because of the across-the-board freeze in discretionary spending. If House Republicans get their way and roll back spending to 2008 levels, the S.E.C. budget would fall to $906 million.

Mary Schapiro, the chairwoman of the S.E.C., warns that more budget cutting will hamstring its ability to carry out its usual duties of policing increasingly complex securities markets — let alone discharge its new responsibilities. A group of lawyers representing the financial companies regulated by the S.E.C. sent a letter to lawmakers urging them to increase the commission’s budget. Otherwise, they warn, the markets will lose investors’ trust. “The regulator of our capital markets is running almost on empty,” they wrote.

The S.E.C. needs better technology and more employees. S.E.C. officials have pointed out that it took the commission three months to understand what happened during last May’s “flash crash,” because it took that long for its computers to handle all the trading data. The number of investment advisers that the S.E.C. must police has grown by half over the past decade and trading volume has doubled. In the years running up to the financial crisis, the commission’s staff declined.

Ms. Schapiro planned to hire 800 employees this year to beef up enforcement and meet the agency’s new duties. Those plans are on hold. The commission has also started cutting back on investigations and is considering canceling technology upgrades, including new data management systems and a new digital forensics lab.

The S.E.C.’s recent record was tarnished by its failure to uncover Bernard Madoff’s gargantuan Ponzi scheme, and it was caught off guard by the collapse of Bear Stearns and Lehman Brothers. The Bush administration’s lax approach to regulation should bear much of the blame. But a lack of qualified investigators was also a big problem. If the commission is to do its job right, it needs the resources to do it.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , | 6 Comments »

Moody’s Gets Notice from SEC: May Lose Status as Rating Agency

Posted on May 10, 2010 by Neil Garfield

Editor’s Note: Hard to say which way this will go, but it SHOULD go negative for Moody’s, Fitch and Standard and Poor’s. This was appraisal fraud at the OTHER end of the lending chain. Investors were misled as to the value of the security not only because the home appraisals were inflated, and not only because the viability of many of the loans ran from “sure to fail” to dubious, but because the amount of funding from the investors was far more than the amount of funding of the mortgages.

Deep in the pile of documentation, credit enhancements. etc. is the fact that investment bankers took money from investors and DIDN’T invest it. The ratings agencies all had people who realized this and reported it internally. The Triple AAA ratings came spewing out nonetheless because the rating agencies, like the property appraisers and mortgage brokers, were getting paid a premium to lie.

Moody’s Gets “Wells Notice,” SEC May Order Ratings Agency To “Cease And Desist”

Possible blockbuster news buried in Moody’s 10Q and discovered by Zero Hedge:

The SEC has hit Moody’s with a “Wells Notice” pertaining to the company’s application to be recognized as a ratings agency. Wells Notices are usually precursors to full SEC complaints (and most of them result in the agency going forward with charges). The SEC is preparing to file a “cease and desist”.

It’s not clear how broad the threat is here. It might just require Moody’s to re-file its application.  If the action could be a “cease-and-desist from being a ratings agency,” however, Moody’s is potentially screwed.

Here’s the complete language from the 10Q:

On March 18, 2010, MIS received a “Wells Notice” from the Staff of the SEC stating that the Staff is considering recommending that the Commission institute administrative and cease-and-desist proceedings against MIS in connection with MIS’s initial June 2007 application on SEC Form NRSRO to register as a nationally recognized statistical rating organization under the Credit Rating Agency Reform Act of 2006.

That application, which is publicly available on the Regulatory Affairs page of http://www.moodys.com, included a description of MIS’s procedures and principles for determining credit ratings. The Staff has informed Moody’s that the recommendation it is considering is based on the theory that MIS’s description of its procedures and principles were rendered false and misleading as of the time the application was filed with the SEC in light of the Company’s finding that a rating committee policy had been violated. MIS disagrees with the Staff that the violation of a company policy by a company employee renders the policy itself false and misleading and has submitted a response to the Wells Notice explaining why its initial application was accurate and why it believes an enforcement action is unwarranted.

And here’s the finding and commentary from Zero Hedge:

And now for today’s bombshell – literally at the very end of Moody’s 10-Q filed last night, we find this stunner:

On March 18, 2010, MIS received a “Wells Notice” from the Staff of the SEC stating that the Staff is considering recommending that the Commission institute administrative and cease-and-desist proceedings against MIS in connection with MIS’s initial June 2007 application on SEC Form NRSRO to register as a nationally recognized statistical rating organization under the Credit Rating Agency Reform Act of 2006.

Filed under: bubble, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, GTC | Honor, HERS, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Servicer, STATUTES, trustee | Tagged: , , , , , , , , , , , , , , , , | 4 Comments »

Tourre: The CDO’s I Create Are “Pure Intellectual Masturbation”

Posted on April 26, 2010 by Neil Garfield

“a ‘thing’ which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price.”

Editor’s Note: Think about it. The foundation of the supply of money that was pressure pumped into our economic housing system resulted in inflation of home appraisals.

  • It was so large that everyone thought the “market” was going up, when in fact it was going nowhere.

  • Everyone knew it except the homeowners who were tricked into relying upon “lenders” who had no stake in the transaction except to close it and collect their fee.

  • Under intense pressure from Wall Street consisting of the carrot of higher fees and the whip of unemployment if they didn’t comply, nearly everyone in the real industry on up to the securities industry was corrupted by this scheme.

  • And it was all based upon creating a scheme that was so complex, nobody could understand it or assess the value of what they were buying.
  • So front and center, the rating agencies and appraisers, both performing the same task, both violating the most basic standards of their “professions” gave credence to this intellectual exercise that far from pleasurable, brought the worst pain to the American soil since the Great Depression.
  • The supreme Irony is that they still have us under their spell. We have good people pointing the finger at other good people raising hell about how nobody should get a free house, while the fight itself is allowing just that — a free house to anyone who walks away with title or proceeds from a foreclosure sale of property “secured” by a securitized loan.
  • I have yet to see a single foreclosure sale where the party foreclosing had one dime at risk in the loan.

Fabulous Fab Tourre: The CDO’s I Create Are “Pure Intellectual Masturbation”

Gregory White | Apr. 25, 2010, 1:49 PM | 2,242 | comment 33

fabrice toureFabrice “Fabulous Fab” Tourre has bitten his tongue again, after it was revealed in an e-mail that he likened the debt instruments he created to, “pure intellectual masturbation,” according to the Times of London.

Other e-mails also revealed his distrust for the index many of his derivatives products were based on, the ABX, comparing it to “Frankenstein“, who famously turned on his inventor.

He also said that his creation was “a ‘thing’ which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price.”

While the SEC’s release of a full e-mail between Fabrice Tourre and his girlfriend did much to make the man look more sincere, these latest revelations will heap pressure on the Goldman Sachs market-maker as his Senate hearing looms.

Check out our top 20 winners and losers from the Goldman Sachs Case >

Filed under: bubble, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, workshop | Tagged: , , , , , , , , , , , , , | Leave a comment »

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