Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Goldman, Countrywide's Underwriters Sued for Fraud by New York Agencies

By David Mildenberg and Karen Freifeld

Jan. 26 (Bloomberg) -- Three New York agencies sued Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and 23 more underwriters for allegedly helping Countrywide Financial Corp. to defraud investors.

New York's city and state comptrollers and their pension funds added the securities firms, two accounting firms and Countrywide officers and directors as defendants in a federal securities-fraud lawsuit filed against the home lender in August.

" The underwriters and accountants enabled Countrywide to release false statements. Investors lost millions and New Yorkers lost their homes,'' New York State Comptroller Thomas DiNapoli said in a statement. ``We need to recover the pension fund's losses and find a way to help all those families.''

Falling home prices and rising defaults pushed Countrywide down 85 percent in the past year and Chief Executive Officer Angelo Mozilo has called the housing market the worse since the Great Depression. That view contrasts with his view during the previous three years that Countrywide's superior risk management disciplines set it apart from other lenders, according to the lawsuit.

The state and city pension funds' combined losses from Countrywide's declining stock price were as much as $100 million, City Comptroller William Thompson Jr. said Nov. 30. Countrywide's market value, which peaked at $25.9 billion last January, is now $3.5 billion.

Losses, Writedowns

The world's biggest financial companies have posted at least $133 billion in credit losses and writedowns tied to declining values of subprime mortgages, typically given to people with weak credit. Overdue payments on subprime loans rose to a 10-year high in the third quarter, according to the Mortgage Bankers Association.

Calls to Calabasas, California-based Countrywide's media office weren't returned.

Grant Thornton LLP and KPMG are the accounting firms named in the lawsuit. Grant Thornton spokeswoman Kristi Grgeta didn't return voice-mail and e-mail messages. KPMG spokesman Dan Ginsburg said, ``We have not seen any filing referenced in the Bloomberg article and have no basis for comment.''

Lucas van Praag, a spokesman for Goldman, and Citigroup spokeswoman Danielle Romero-Apsilos declined to comment. JPMorgan Chase & Co. spokesman Tom Kelly also declined to comment. Wachovia Corp. spokeswoman Christy Phillips-Brown said the company hadn't seen the lawsuit and couldn't comment.

Buyout Pending

Bank of America Corp., the nation's second-largest bank by assets after Citigroup, agreed to buy Countrywide on Jan. 11 for stock then valued at $4 billion. Bank of America spokesman Scott Silvestri declined to comment on the suit.

The transaction involves ``the mother of all due-diligence deals'' because of risks from litigation and increasing defaults and late payments by Countrywide borrowers, Bank of America Chief Executive Officer Kenneth Lewis said in a Jan. 15 interview.

U.S. District Judge Mariana Pfaelzer in Los Angeles appointed the New York State Common Retirement Fund, the second- largest U.S. pension fund, as co-lead plaintiff on Nov. 28 and consolidated five related suits. The lawsuit is on behalf of everyone who bought shares of Countrywide from April 7, 2004, to Aug. 9, 2007, when the company disclosed in a regulatory report that ``unprecedented market conditions'' were forcing it to secure new funding sources, according to the lawsuit.

Lead plaintiffs choose the course of securities litigation, assign tasks to other parties and usually get the largest share of a settlement or verdict.

Housing Crisis

The securities and accounting firms and the lender misled investors by ``falsely representing that Countrywide had strict and selective underwriting and loan origination practices, ample liquidity'' and ``a conservative approach that set it apart from other mortgage lenders,'' according to the lawsuit.

Mozilo told investors in March 2007 that the deepening housing crisis would ``be great for Countrywide'' adding that ``at the end of the day, all of the irrational competitors will be gone,'' according to the lawsuit.

Countrywide's growth ``resulted from the company's continuing to aggressively originate risky loans without regard to its stated origination policies and in spite of worsening market conditions,'' according to the lawsuit.

The securities and accounting firms took part in Countrywide's capital raising and financial statements without making a ``reasonable investigation'' of the facts and without exercising ``reasonable care,'' according to the lawsuit.

Strict Liability

U.S. securities law allows investment banks, accounting firms and others to be held strictly liable for the wrongdoing of the companies for whom they sell securities. Their only defense is to show that no reasonable person could have discovered a fraud even after performing a diligent investigation.

Mozilo and other company insiders sold $869 million of Countrywide stock from April 7, 2004, to August 9, 2007, according to the lawsuit. On Aug. 22, Bank of America bought $2 billion of preferred stock in Countrywide to help rescue the lender and secured the right to match any buyout offer.

Countrywide fell 9 cents to $6.02 yesterday in New York Stock Exchange composite trading.

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net ; Karen Freifeld in New York at kfreifeld@bloomberg.net .

Last Updated: January 26, 2008

http://www.bloomberg.com/index.html?Intro=intro3

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Blossom
Recent suits have been casting wider nets as vast web of complicity becomes more apparent.  
Full list of defendants in above referenced case:
 
ABN AMRO Inc.
A.G. Edwards & Sons, Inc.
Banc of America Securities LLC
Barclays Capital Inc.
BNP Paribas Securities Corporation
BNY Capital Markets, Inc.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities Inc.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J.P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill, Lynch, Pierce, Fenner & Smith Inc.
Morgan Stanley & Co. Inc.
RBC Capital Markets Corporation
RBC Dominion Securities Inc.
RBC Dain Rauscher Inc.
Scotia Capital Inc.
SG Americas Securities
TD Securities Inc.
UBS Securities LLC
Wachovia Capital Markets LLC
Wachovia Securities, Inc.
Grant Thornton LLP
KPMG LLP


http://www.comptroller.nyc.gov/press/2008_releases/print/pr08-01-005.shtm

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