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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TheCaseOfCookedBooks? U.S.

Prosecutors Look to Enron, Refco in Subprime Probes (Update3)

By David Glovin, Patricia Hurtado and David Voreacos

Oct. 16 (Bloomberg) -- U.S. prosecutors are adding employees to investigate New York-area financial firms for possible fraud linked to a global credit crisis that has wiped out $30 trillion of equity value in the past year.

The extra personnel will use strategies that proved successful in prosecuting executives of Enron Corp. and Refco Inc., U.S. Attorneys Michael Garcia of Manhattan, Benton Campbell of Brooklyn and Christopher Christie of Newark, New Jersey, said. A central question will be whether executives lied to investors about securities linked to overvalued subprime mortgages that sparked the credit crisis, the three said in interviews.

``It usually boils down to some type of fraud, some type of misrepresentation,'' said Garcia, 47, whose office covers the headquarters of most U.S. financial companies as well as the exchanges where their shares are traded.

Triggered by bankruptcies or stock losses linked to the credit crisis, the U.S. has begun investigations of mortgage lending, securitization and failed banks. Grand juries in Manhattan, Brooklyn and New Jersey are probing Lehman Brothers Holdings Inc., according to the firm's lawyer, Harvey Miller. Nationally, the FBI is looking into 26 firms, including American International Group Inc., a senior law-enforcement official said.

Bear Stearns

The probes follow the collapse of Bear Stearns Cos. earlier this year, the bankruptcy last month of New York-based Lehman, the government takeover of Fannie Mae and Freddie Mac and the rescue of New York-based AIG.

Garcia's white-collar crime unit now has 20 prosecutors, up from 17, and he has assigned eight lawyers to a new mortgage- fraud division. One case this month led to a 10-year sentence for a man who duped homeowners facing foreclosure out of $2.5 million.

In addition to 12 prosecutors working on securities-fraud cases, Brooklyn's Campbell has created a task force to probe the subprime fallout. He said he's made white-collar crime a priority. Christie has added a prosecutor to his 10-person securities-fraud unit.

``There are various iterations -- valuations questions, insider trading, material misrepresentations,'' Campbell said. ``What we are generally seeing is the same kind of fraudulent activity. But it's the factual background to the fraudulent activity that's different.''

Books Were Cooked

In the last wave of white-collar prosecutions, capped by the imprisonment of WorldCom Inc. Chief Executive Officer Bernie Ebbers and Enron CEO Jeffrey Skilling, prosecutors convinced juries that executives knew their companies' books were cooked.

Aware that jurors may get confused by financial instruments such as credit-default swaps, the government is looking to simplify prosecutions in the same way.

In Manhattan, prosecutors this year won convictions against top executives at New York-based Refco, which engaged in complicated futures transactions. They focused on lies CEO Phillip Bennett and President Tone Grant told investors about the now-defunct firm's operations.

``Refco is an example of a model'' for future prosecutions, Garcia said.

Campbell obtained indictments of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin in June. The two, who pleaded not guilty, face fraud charges for allegedly cheating investors out of $1.6 billion.

Credit Suisse

Last month, Brooklyn prosecutors charged two ex-Credit Suisse Group Inc. traders with fraudulently selling corporate clients more than $1 billion of auction-rate securities linked to subprime mortgages, which they claimed were backed by U.S. guaranteed student loans.

Campbell, 42, a former member of the Justice Department's Enron task force, said his staff has begun to see ``classic'' signs of fraud emblematic of the Enron era.

``How valuation questions were handled or how these structured finance vehicles were put together, for example, look very familiar,'' said Campbell, who declined to discuss the specifics of his ongoing investigations.

The Brooklyn prosecutor has opened investigations into whether Lehman executives misled investors about the firm's financial health and whether UBS AG lied to investors about securities backed by subprime mortgages, according to a person familiar with the probes.

12 Subpoenas

At a hearing today in U.S. Bankruptcy Court in Manhattan, Lehman attorney Harvey Miller of New York-based Weil Gotshal & Manges said 12 people have been subpoenaed as part of a grand jury investigation. Prosecutors are focusing on the auction rate securities market, Miller said.

Doug Morris, spokesman for Zurich-based UBS, and Lehman spokesman Hugh Burns declined to comment.

New Jersey U.S. Attorney Christie has subpoenaed documents to determine whether Lehman failed to fully disclose its eroding financial condition at the time of a $6 billion stock offering, according to people familiar with the matter.

``The scandals in the earlier part of this decade were much more contained,'' Christie said. ``Here, you have something that is potentially much broader across the marketplace. As a result, it's going to make it more time-consuming to figure out.''

Prosecutors will rely on e-mails obtained through subpoenas, interviews of firm employees and forensic accounting as they look for evidence. In the Bear Stearns case, for example, Cioffi and Tannin's e-mails showed their disparagement of the securities they were touting to clients, Campbell said.

`Great Tool'

``E-mails are a great tool,'' said Christie, 46, who declined to comment on the specifics of any probe. ``People seem freer to say things in e-mails that they might not say otherwise.''

The first challenge for the U.S. attorneys in prosecutions resulting from the subprime collapse will be distinguishing normal business activities from fraud.

``It's not a crime to make bad business decisions,'' Campbell said. ``What gets people in trouble is when they lie, cheat or steal.''

Defense lawyer Mary Jo White, who served as the U.S. attorney for Manhattan from 1993 to 2001 and is now a partner at New York's Debevoise & Plimpton, said her clients and colleagues have a ``real concern'' that some prosecutors or regulators will bow to political pressure and bring unwarranted cases.

She said the collapse of banks like Lehman and New York- based Bear Stearns will inevitably trigger official inquiries, including some that may not be justified by the facts.

`Good Faith'

``People doing their job in good faith should not find themselves under massive investigation,'' White added.

Garcia said that prosecutors won't begin a case merely because a company collapsed. Rather, referrals from the Federal Bureau of Investigation or Securities and Exchange Commission, as well as allegations from witnesses who ``walk-in through the door,'' may generate subpoenas and grand juries in cases that will develop quickly, or possibly ``take years.''

``It's the old Watergate question,'' said James McMahon, chief of Campbell's securities fraud section, on how they will decide whether to bring charges. ``What did they know and when did they know it?''

To contact the reporters on this story: David Glovin in U.S. District Court, Southern District of New York, Manhattan, at; Patricia Hurtado in U.S. District Court, Eastern District of New York, Brooklyn, at; David Voreacos in U.S. District Court, District of New Jersey, in Newark, New Jersey at

Last Updated: October 16, 2008 17:27 EDT
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Prosecute MSF
Prosecutors eyeing Wall Street mess look for lies
 International Herald Tribune - Monday, October 20, 2008

NEW YORK: Investigators are hunting through the remains of the stock-market collapse and housing bust of 2008 for fresh signs of white-collar crime, targeting many of the same types of misdeeds that precipitated past market downturns.

U.S. Attorney Benton Campbell of the Eastern District of New York said that companies and their products may have grown increasingly complex, but crimes following every market collapse are always very simple: "the classic lying, cheating, stealing type things."

"The more things change, the more they stay the same," he said in an interview.

On Monday, federal prosecutors in Manhattan and New York's attorney general said they would jointly probe an obscure and unregulated corner of markets that is closely linked to the massive losses and collapse of confidence dragging down investment banks and other financial institutions. They are focused on whether there was any manipulation that occurred in the multitrillion-dollar trade of credit default swaps, contracts that offer insurance for lenders worried about a borrower's ability to repay loans.

In Washington, 28 House Republicans led by Minority Leader John Boehner asked Attorney General Michael Mukasey to review the activities of Fannie Mae and Freddie Mac as part of its investigation of possible fraud in the markets for home loans and mortgage-backed securities.

The FBI is investigating two dozen large financial firms on a wide range of charges. Those reportedly on the agency's list include Fannie and Freddie, insurer American International Group Inc. and failed investment bank Lehman Brothers Holdings Inc.

In April, FBI director Robert Mueller diverted people from other assignments, committing 204 FBI agents to financial fraud investigations. On Monday, the bureau said 177 agents were handling mortgage fraud and other financial investigations. The bureau had no immediate response to questions about why fewer agents are now on the cases.

Despite the resources being deployed, it isn't always easy to land a conviction in a complicated white-collar case.

Charles A. Ross, a white-collar criminal defense lawyer, noted that nearly 200 companies were once under investigation in a stock-option backdating scandal a few years ago but very few charges resulted. In addition, 15 Wall Street Stock Exchange floor traders were charged on securities-fraud counts but the highly technical case completely collapsed.

And just last week, the government put three former executives of accounting giant KPMG on trial in a sprawling tax-fraud case after the original prosecution fell apart. Prosecutors are casting it as a simple case about lies, while defense lawyers are putting the focus on a tax code so complicated that it is spelled out in small print in six thick books that nobody fully understands.

In the latest investigations, experts say authorities will likely check to see if the suspects were saying one thing to each other privately and something else entirely to the public and the Securities and Exchange Commission.

"If I had to guess the kind of violation, it would be a disclosure violation," said Bruce Baird, who served nine years as a federal prosecutor. "Typical securities violations, a public company not disclosing it knew how bad a shape the company was in or how much the value of assets had been reduced."

Whoever ends up getting charged will be part of a long line of Wall Street figures who prosecutors sought to make examples of following market collapses.

In the 1980s it was Ivan Boesky and Michael Milken. After the dot-com bust, it was bankers who were touting vastly overvalued tech stocks. Accounting and stock scandals this decade brought down executives such as Martha Stewart, Bernard Ebbers and Jeffrey Skilling.

It is far too early to tell who might come to symbolize the meltdown of 2008, although there has been no shortage of ire directed at executives of AIG over lavish corporate retreats, along with former Lehman CEO Richard Fuld, whose company is under investigation by prosecutors in three locations.

The first Wall Street figures to be charged in the subprime mortgage fallout worked as hedge fund managers for Bear Stearns. They were arrested in June on charges accusing them of misleading investors about the subprime-mortgage crisis.

The Brooklyn federal case accused one of the men of pulling $2 million of his own money from the fund even as he was advising investors to maintain their investments. As the fund managers urged investors to put up more money, prosecutors said, internal communications revealed an outlook that was quite gloomy, with one of the bankers describing the subprime-mortgage market as "toast."

The hedge fund managers are awaiting trial; their lawyers say they are being made scapegoats for larger issues with the economy.

Anthony Barkow, a former federal prosecutor in Manhattan who now heads a think-tank at New York University, said white-collar investigators at every level of government will be busy now.

"There's an outcry for action," he said. "Indicting somebody tomorrow for one of these meltdowns is not going to fix the economy, but it could create a deterrent effect in the future."

New York Attorney General Andrew Cuomo has already initiated a wide-ranging probe of the mortgage industry, including loan originators and big banks. He also is investigating short-selling, a trading technique that has been criticized for being used by some traders illegally to manipulate markets.

Ross said some of his colleagues are predicting a bull market for his profession.

But while he believes that prosecutions related to the mortgage collapse will materialize, he said it would not be wise for prosecutors to overreact to wild swings in the stock market.

"The likelihood there is inherent criminality in all of that is extraordinarily low," he said.

Campbell said he was prepared to enlarge his team of prosecutors looking into financial crimes including securities fraud, accounting practices compliance and insider trading, but realized it was necessary to separate financial pain caused by market forces from criminal misconduct.

"Our job is to find the fraud," he said. 

Psst....Mortgage Servicing Fraud used for profit with Credit Default Swaps.


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4 justice now


Despite the resources being deployed, it isn't always easy to land a conviction in a complicated white-collar case.

Yes, I'm sure that just might be true.... especially, after one has chosen to wait and sit on their hands for approximately eight years and openly ignore the continued warnings and vast evidence offered by, and in support of at least the first ten thousand or so victims, who were the first to be defrauded and/or extorted by the orchestrator's of this nation wide crime through the bold and blatant theft of their homes and/or equity.  

But I'd also bet that for those who might have been sitting, waiting, watching and hoping to see at least some form of intervention take place, but have now only seen the closing of the proverbial barn door so many long years after all the horses have escaped must likely appear equally as moronic.  What a very, very sad day for all of those in law enforcement and for everyone else who made the mistake of expecting them to provide any form of justice.

But, that's just my opinion.

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Prosecute MSF

Prosecutors have been sitting on their hands, hid their heads in the sand or some other dark place? or have just been looking the other way on MSF far longer than many realize.  Personal experience dates infliction of MSF to late 1980's......yes, TWENTY YEARS AGO !!!

Twenty years ago, we thought 50,000 MSF victims was a LOT.  Couldn't even begin to guess where that number is today.  Perhaps someone can.
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I hear Nye Lavalle has a storage box of incriminating tape recordings that can bring these cons down. I for one cannot wait to hear em.
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4 justice now
Prosecute MSF:

I'm sure you are correct in the numbers that you present. I have heard that the present day fraud pretty much owes its existence to the S & L crimes decades ago as if they were just a trial run of today's scam and/or further cover ups. It all just keeps growing and growing doesn't it.


That would be so very great if Nye had such wonderfully entertaining tapes at his disposal, and I know we'd all love to see it as well but I would for one be concerned about this honest man's welfare. I wouldn't rule out anything when the NSF scumbags get their stinking hands on the truth and/or those who promote it.
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h gosh
When we have a government stating that it is far better for homeowners to lose their homes than for a corporation to declare bankruptcy, we have a very grave problem that is seated in the roots of humanity, or lack thereof!!  When we have a government that agrees that a homeowner, whose money and home was STOLEN from them, should only receive pennies on the thousands of dollars, because this will keep the corporation solvent, we have a problem that is seated in the roots of corruption!
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