SEC to the Rescue?

Posted by kevin on March 29, 2014 under Foreclosure Blog | Comments are off for this article

Earlier this week, we commented on the DOJ audit relating to financial fraud and, more specifically, mortgage fraud. The report concluded that the DOJ dropped the ball on these issues. One of the excuses used by the DOJ was that mortgage fraud (notwithstanding the President’s task force included mortgage fraud) was not really within its purview, but should be considered securities fraud. This was kick the can over to the SEC.

Oddly enough, the SEC announced that it is investigating whether a recent Wall Street boom in complicated bond deals is opening up new opportunities for fraudulent behavior. My Goodness. Is there gambling going on at Rick’s Cafe Americain? Keeping with the Casablanca theme, the SEC is lining up the usual suspects-Barclay’s , Citigroup, Deutsche Bank, Goldman, Morgan Stanley, RBS and UBS.

Now, I am hoping that the investigation is more than a press release. After all, the SEC was rather slow on the uptake in their investigation of irregularities following the mortgage crash of 2008. But, maybe they learned something from the prior go around.

A WSJ article indicates that the SEC is referring to the securities as CLO’s (collateralized loan obligations). It is not clear whether the SEC is investigating deals involving consumer credit or CDO type deals. Irrespective, the SEC must investigate and aggressively go after wrongdoers. Wall Street was emboldened by the tepid response by regulating agencies, While making billions of dollars, Wall Street practically wrecked the economy, got bailed out, and there were scant criminal or regulatory repercussions. So, is the plan, lay low for a couple of years, and let the games begin anew. The SEC has an opportunity to prove that its priority is to protect the public as opposed to laying the groundwork for getting its higher ups great jobs at mega law firms or in investment banking houses. You will know the answer based on the results of this and other investigations. I am not optimistic.


Posted by kevin on March 25, 2014 under Foreclosure Blog | Comments are off for this article

It has been a recurring theme in this blog that the courts have done little to level the playing field in foreclosures, and the federal and state governments have done little to bring the big players to justice. It is almost farcical when you read articles in NJ about the US attorney or State attorney general prosecuting individual mortgage brokers when the higher ups on Wall Street and at the big mortgage originators do not get prosecuted, do not go to jail, and do not forfeit their vast fortunes. Maybe in the next life.

Recently, the DOJ inspector general came out with a report on DOJ’s efforts to address mortgage fraud.The time line was 2009-2011. The report stated that even though the President made a big deal about setting out a financial fraud task force headed by Eric Schneiderman, the up to that point carnivorous NY AG, the FBI Criminal Investigation Division rated financial crimes lowest among criminal threats facing the country. Moreover, the FBI rated mortgage fraud as the lowest sub-priority within the financial crimes category.

Last week, Gretchen Morgenson had a sobering article in the NY Times. She cited that inspector general report. She also pointed out that the Justice Department claimed that the task force was a great success with criminal charges lodged against 530 defendants including 172 executives. 73,000 victims who lost over a $1 billion dollars were helped. Of course, those numbers were BS. The number of defendants was revised downward to 107, the number of executives to about 70 and the losses to about $95 million. The article also quoted Senator Kaufman, retired, from Delaware. ( I remember seeing him on C-Span more than once.) He tried valiantly to bring the mortgage fraud issues to the forefront, but he had little support from his fellow senators (or the administration). Kaufman said that not only was mortgage fraud not the top priority of DOJ, it was their last priority.

What happens when people are not punished but rewarded for their bad behavior? More bad behavior not only from the original miscreants, but also eventually from the erstwhile honest people who conclude that crime actually does pay. The Morgenson article ends with the following quote from Senator Kaufman: “The report fits a pattern that is scary for a democracy, that there really are two levels of justice in this country, one for the people with power and money and one for everyone else”.

It is a shame.