PONZI SCHEMES: Liability Of Lawyers and Accountants to be Considered

“Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, (March 3, 1882 – January 18, 1949), commonly known as Charles Ponzi, was an Italian businessman and con artist in the U.S. and Canada. His aliases include Charles Ponci, Carlo and Charles P. Bianchi.[1] Born in Italy, he became known in the early 1920s as a swindler in North America for his money making scheme. Charles Ponzi promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage.[2][3] In reality, Ponzi was paying early investors using the investments of later investors. This type of scheme is now known as a “Ponzi scheme“. His scheme ran for over a year before it collapsed, costing his “investors” $20 million.” — see Wikipedia.

Editor’s Comments: The Supreme Court is going to hear a case involving a Ponzi Scheme that once upon a time was considered huge, until it was dwarfed by Madoff, which in turn was dwarfed by the Wall Street firms. The interesting thing about the original Ponzi Scheme is that it involved the promotion of false derivatives, which is exactly what happened in the mortgage meltdown.

Ponzi’s scheme was based upon the false premise that certain certificates could be purchased at one price in one place and sold at a higher price in another place because markets vary from one place to another. Had he actually believed the false premise he would have invested according to plan.

But there is no question from anyone about the fact that the plan was unworkable and Ponzi knew it. So he never invested the money and simply relied upon continuing sales of his “securities” in a private investment scheme to fund the illusion of payments as promised; as sales progressed he was able to pay investors their expected return in order to encourage additional sales and word of mouth success. When investors stopped buying the scheme quickly collapsed. Look back on the mortgage bond market. When investors stopped buying, the entire system collapsed.

Ponzi’s derivatives were fake. They were not derivatives because he never invested in the plan. He just kept the money and managed it until the scheme collapsed. The Mortgage Bond market was virtually identical to Ponzi except that it was more complex in terms of the number of moving parts. The mortgage bonds and credit default swaps were not derivative products either because the bonds never derived their value from actual mortgage loans. The “derivatives” that were allegedly exempt from securities regulation, the insurance products that were allegedly exempt from insurance regulation, were in fact not derivatives in most cases. The REMIC tranche that issued the bonds was a creature of the investment banks and the money advanced by investors never made it to the trust.

Like Ponzi the investment banks pocketed the money and then funded only what they needed to fund to give investors the false impression that their money was being invested in the manner required by the enabling documents — the Pooling and Servicing Agreement, Prospectus and the use of an Assignment and Assumption agreement that was used to cover the movement of money. Everything they did was designed to encourage the sales of additional bogus bonds. Profits were made primarily by the cloud of players created by the Wall Street banks, while the losses from the inherent false premise of the “investment” plan fell to investors and borrowers in “loans” that were virtual gifts to cover up the theft of principal by the banks.

Now the question before the Supreme Court is not whether the principals are liable to victims of the fake investment scheme, but whether the professionals and affiliates are liable for their negligence or fraud in helping the Ponzi scheme to progress. To put it in lay terms, the question before the court is whether an accountant or lawyer for the Ponzi scheme can be liable if they negligently or knowingly assisted in the Ponzi scheme.

The very question testifies to the state of our tolerance for misbehavior and why our current foreclosure mess has failed to yield criminal prosecutions on mass fraud. Iceland put their bankers in jail and now enjoys a growing economy and a stable banking environment. In the United States there has been nothing. The FBI has stated that 80% of mortgage fraud is committed by the banks. Yet prosecutions have only been on the other 20%.

So the question is whether a lawyer or accountant negligently or knowingly assisted in defrauding the public should be liable for their actions. To put it more simply, will that lawyer or accountant be liable for actions that we know were wrong and caused and contributed to extensive damage, and without which the scheme could not have operated. The answer seems obvious — except when you consider our awe of large schemes. The larger the scheme, the less likely is the prosecution. This in turn has resulted in the incentive for Ponzi operators to become as large as possible. In turn that means the incentive to escape prosecution requires that the scheme have massive scope and injuries.

If the Supreme Court hands down a decision favorable to investors, it will likely be that the liability extends only to private investment schemes that are not fully registered with the SEC. And if that happens then investors will be able to prove the Ponzi scheme and prove the accountants and lawyers were criminally and civilly liable.

This has everything to do with the mortgages and foreclosures. If the loans were window dressing on a Ponzi scheme instead of real loans by the originators and underwritten in accordance with industry standards, then the securities (mortgage bonds) issued from Wall Street were not derivatives. The impact travels all the way down to the closing table at which the closing agent applied money from investors held by investment banks to fund loans that were doomed to failure not only because of economic factors but also because the control over whether the loans would fail lay with the investment banks — not with the borrower, the lender investor, or anyone else.

If the loans were faked — in terms of NOT being funded in accordance with the indentures on the bonds — then clarity opens up in the mortgage mess, to wit: the loans were made from the pocket of investment banks and not the REMIC trusts. They were using investor money as their own, which is why the banks received insurance proceeds and proceeds of credit default swaps, and the proceeds of sale of the bogus mortgage bonds to the Federal Reserve.

The damage to investors occurred as a result of alleged loans. But the loans were in essence payment to or on behalf of people who believed they were borrowers when in fact they were being used in the Ponzi scheme — and had been exposed to risks that they knew nothing about because despite Federal and State law to the contrary, disclosure was withheld about the identity of the parties to the “loan” transaction, the fees paid to numerous parties, and the nature of the roles of the players that created the appearance of a loan transaction and a false chain of securitization.

The investors money was used to fund the alleged loans and fees but the documentation gave the loan to the Wall Street banks — a practice prohibited by the Truth in lending Act and the deceptive lending practices acts in many states. The point here is that the documentation — the note and mortgage — were executed in favor of a party who was a non-lendor nominee of a non-lender nominee of the investor lenders. And that is why it is nearly impossible to get a valid satisfaction of mortgage on payoff or on short-sale. The “satisfaction” is directed at a recorded instrument that is a lie, which means that the mortgage was not satisfied because it was never a perfected lien in the first place. The money currently being paid on the payoff is going to parties who were strangers to the mortgage transaction.

Thus the decision by the Supreme Court in the Stanford Case could and should have impact on the auditors and attorneys and other professionals that currently enjoy a weird sort of immunity despite their obvious wrongdoing in deceiving the public and enabling the fraud. A proper audit would have revealed that bonds on the balance sheet of the banks were in fact owned by investors and were worthless creating a potential liability that should have been reported. A proper review by the ratings agency would have identified the proposed plan as nonconforming when in fact they granted a triple A rating. These “third parties” were paid to violate the standards of their profession and they knew it. Whistle blowing memos went unheeded in all  such organizations.

The ability of investors to prove the existence of a Ponzi scheme would have huge consequences on the foreclosure procedures. The focus would properly shift from “deadbeat” borrowers to felonious tricksters. A proper ruling in the Stanford case would thus open up the possibility for direct communication between investors and borrowers, enabling settlements that would enable investors to mitigate their damages on a large scale with the help of borrowers who are still willing to sign “modifications” that would result in the recording of actual perfected mortgage encumbrances eliminating nearly all of the foreclosure docket.

Stanford Ponzi Scheme Goes to Supreme Court

Deadline Approaching, U.S. Is Weighing More Charges in Madoff

10 Responses

  1. Poppy to that point if you got a signature of Sara Knittel as the Assistance Secretary for MERS who is a senior attorney at Kozeny & McCubbin LLC out of St. Louis handling MO, KS, IA & NE and she created the assignment for a Washington Mutual loan that Wells Fargo Bank was servicing, its a forgery. None of these documents created can be legal because WaMu never sold the debt.

  2. This country as a whole has been destroyed by lawyers. San Francisco alone has more lawyers than all of the Japan combined! They didn’t get a bad rap out of nowhere. When every situation can be turned into an adversarial proceeding and both sides lose to lawyers, it is obvious that they are the problem.

  3. Hasn’t it occurred to most people yet the lawyers are the problem? They write the contracts, litigate for the bank AND are pushing the paperwork through the court from their own offices. When I carefully study my papers, I can see the signatures, mistakes and robo-signers are the same throughout. I call attention to anyone who is in a jurisdiction with Brock & Scott, in NC, SC, VA, GA or FL. One of the lawyers Jeremy Wilkins signature shows up on most of this paperwork and the notary sure gets around, the most frequent is Sylvia B. Jones, in all these states I just mentioned, electronic filings…even with the GSE involved, the in-house paperwork is very relevant. On the front lines this is who you are fighting and many of them are debt collectors.

    My piece.

  4. The Ponzi is a bank in Washington Mutual Bank (WaMu) is haul into a Congressional Hearing and the executives are fined, but yet Congress does not ask about 1.3 million loans that Wells Fargo is still servicing those that they have not foreclosed on yet, and the bank was seized and declared a “failed bank” on Sept 25, 2008, and is now a defunct bank, but only one person in the entire world is asking what about these government insured loans and why are the tax payer paying out insurance claims to loan that no one on earth can claim a financial interest in.

    I get it that this Ponzi involves Ginnie Mae as the kingpin, but it is a $1.1 trillion scheme were Ginnie Mae not invested a single red cent. So instead of simply reviewing every WaMu Note that was placed into the Ginnie Mae pools that been foreclosed and understand why the Note still has a blank endorsement, and it because there was not a purchase involved when the loans were relinquished.

    Here is something that really not that hard, and that is simply did you purchase the debt? Yes or No and if yes do you have any kind of paper proof of the sale? If no you cannot act as the “holder in due course”!

  5. A simple “theft by deception scheme”?

    Richard Davet
    2009 JPM Shareholder’s meeting
    Exchange with James Dimon CEO and Chairman

    As you know, for years, the Bank has been and continues to be major players in its mortgage business in what has come to be known as the “Government Sponsored Enterprise (GSE) Business Model”.
    In September of 2008, Treasury Secretary Paulson declared that, and I quote, “these enterprises pose a systemic risk”. Your mortgage business goes 90%+ to Fannie Mae on a daily basis.
    Much has been written about the GSE flawed business model, including a Wall Street op-ed by George Soros which calls the models “hopelessly conflicted” and “it simply doesn’t work”.

    ? 1, When do you and the Board intend to disclose to shareholders the consequences of the Bank’s vigorous involvement with this fatally flawed business model?

    ? 2 Isn’t this business a little like your running a house of ill repute while knowing that all your ladies have aids and what are you doing to your client base?

    ? 3, What would you say to the skeptics that are out there that think that all players involved with the GSE Business Model are engaged in a simple criminal scheme, albeit of a dimension that we have never seen before, that a prosecutor would call “theft by deception” with the American taxpayer as the victim?

  6. I remember when Madoff scandal hit the “news” I said to myself- he did not do that all by him little self.

  7. imagine the cross claims

  8. the word is reliance, the right to rely on the information presented as true.

  9. isn’t this where the real rubber meets the road as you say Neil, compare it to my job as a registered nurse, I have a license to practice and am an expert in my field, my patients rely on my knowledge to advocate for them in their best interests as a matter of duty and to promote public confidence. they pay for a service that has to be safe for them. If I am negligent in doing so, I am held accountable for my actions, and inactions that cause harm. I have been trained to know and if I claim I do not, shame on me, because people put their trust in me for information that will protect them from possible injuy,
    , i am their personal nurse it is my business and duty to be skilled in connecting the dots regarding everything about their health their blood work their gentic weaknesses the risks certain plans of care may pose v the benefits and my duty to inform them so they can make a informed choice about what they want to do. I am their gatekeeper THEY TRUST ME, I am at their bedside they are vulnerable. what is the difference.

  10. The lawyers NEED to be held accountable. I have in my possession, gotten October 05, 2013 (for a Countrywide note from 2007) a Certificate All-Purpose Acknowledgement from CA…Right! It is supposedly signed by Cecile Rodriguez, a well-known robo signer and attested to by notary L.A. Llanos. Now it is not signed, it is initialed, the notary “initials” are incorrect; L.l.l. is the endorsement….not L. A. Llanos, go figure, she forgot her name and initials? The thing is: after looking at other signatures from Brock & Scott, this is signed by Jeremy Wilkins. The pen used, the manner in which he signs things, etc…all match his John Doe and I am willing to pay a hand-writing expert to prove it. This is not the first time I have suspected the law firms are endorsing this stuff IN-HOUSE and handing it off in the court. This changes everything and makes them 100% culpable and guilty of intentional deception of the court!

    Just giving many of you heads-up here. The Hunoval Law firm has done the same thing AND transferred the note into his private corporation previously….this shit is punishable by the ABA, illegal and they can and should lose their license for it.

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