Can you really call it a loan when the money came from a thief?

The banks were not taking risks. They were making risks and profiting from them. Or another way of looking at it is that with their superior knowledge they were neither taking nor making risks; instead they were creating the illusion of risk when the outcome was virtually certain.

Securitization as practiced by Wall Street and residential “mortgage” loans is not just a void assignment. It is a void loan and an enterprise based completely on steering all “loans” into failure and foreclosure.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

Perhaps this summary might help some people understand why bad loans were the object of lending instead of good loans. The end result in the process was always to steer everyone into foreclosure.

Don’t use logic and don’t trust anything the banks put on paper. Start with a blank slate — it’s the only way to even start understanding what is happening and what is continuing to happen. The following is what you must keep in mind and returning to for -rereading as you plow through the bank representations. I use names for example only — it’s all the same, with some variations, throughout the 13 banks that were at the center of all this.

  1. The strategic object of the bank plan was to make everyone remote from liability while at the same time being part of multiple transactions — some real and some fictitious. Remote from liability means that the entity won’t be held accountable for its own actions or the actions of other entities that were all part of the scheme.
  2. The goal was simple: take other people’s money and re-characterize it as the banks’ money.
  3. Merrill Lynch approaches institutional investors like pension funds, which are called “stable managed funds.” They have special requirements to undertake the lowest possible risk in every investment. Getting such institutional investors to buy is a signal to the rest of the market that the securities purchased by the stable managed funds must be safe or they wouldn’t have done it.
  4. Merrill Lynch creates a proprietary entity that is neither a subsidiary nor an affiliate because it doesn’t really exist. It is called a REMIC Trust and is portrayed in the prospectus as though it was an independent entity that is under management by a reputable bank acting as Trustee. In order to give the appearance of independence Merrill Lynch hires US Bank to act as Trustee. The Trust is not registered anywhere because it is a common law trust which is only recognized by the laws of the State of New York. US Bank receives a monthly fee for NOT saying that it has no trust duties, and allowing the use of its name in foreclosures.
  5. Merrill Lynch issues a prospectus from the so-called REMIC entity offering the sale of “certificates” to investors who will receive a hybrid “security” that is partly a bond in which interest is due from the Trust to the investor and partly equity (like common stock) in which the owners of the certificates are said to have undivided interests in the assets of the Trust, of which there are none.
  6. The prospectus is a summary of how the securitization will work but it is not subject to SEC regulations because in 1998 an amendment to the securities laws exempted “pass-through” entities from securities regulations is they were backed by mortgage bonds.
  7. Attached to the prospectus is a mortgage loan schedule (MLS). But the body of the prospectus (which few people read) discloses that the MLS is not real and is offered by way of example.
  8. Attached for due diligence review is a copy of the Trust instrument that created the REMIC Trust. It is also called a Pooling and Servicing Agreement to give the illusion that a pool of loans is owned by the Trust and administered by the Trustee, the Master Servicer and other entities who are described as performing different roles.
  9. The PSA does not grant or describe any duties, responsibilities to be performed by US Bank as trustee. Actual control over the Trust assets, if they ever existed, is exercised by the Master Servicer, Merrill Lynch acting through subservicers like Ocwen.
  10. Merrill Lynch procures a triple AAA rating from Moody’s Rating Service, as quasi public entity that grades various securities according to risk assessment. This provides “assurance” to investors that the the REMIC Trust underwritten by Merrill Lynch and sold by a Merrill Lynch affiliate must be safe because Moody’s has always been a reliable rating agency and it is controlled by Federal regulation.
  11. Those institutional investors who actually performed due diligence did not buy the securities.
  12. Most institutional investors were like cattle simply going along with the crowd. And they advanced money for the purported “purchase” of the certificates “issued” by the “REMIC Trust.”
  13. Part of the ratings and part of the investment decision was based upon the fact that the REMIC Trusts would be purchasing loans that had already been seasoned and established as high grade. This was a lie.
  14. For all practical purposes, no REMIC Trust ever bought any loan; and even where the appearance of a purchase was fabricated through documents reflecting a transaction that never occurred, the “purchased” loans were the result of “loan closings” which only happened days before or were fulfilling Agreements in which all such loans were pre-sold — i.e., as early as before even an application for loan had been submitted.
  15. The normal practice required under the securities regulation is that when a company or entity offers securities for sale, the net proceeds of sale go to the issuing entity. This is thought to be axiomatically true on Wall Street. No entity would offer securities that made the entity indebted or owned by others unless they were getting the proceeds of sale of the “securities.”
  16. Merrill Lynch gets the money, sometimes through conduits, that represent proceeds of the sale of the REMIC Trust certificates.
  17. Merrill Lynch does not turn over the proceeds of sale to US Bank as trustee for the Trust. Vague language contained in the PSA reveals that there was an intention to divert or convert the money received from investors to a “dark pool” controlled by Merrill Lynch and not controlled by US Bank or anyone else on behalf of the REMIC Trust.
  18. Merrill Lynch embarks on a nationwide and even world wide sales push to sell complex loan products to homeowners seeking financing. Most of the sales, nearly all, were directed at the loans most likely to fail. This was because Merrill Lynch could create the appearance of compliance with the prospectus and the PSA with respect to the quality of the loan.
  19. More importantly by providing investors with 5% return on their money, Merrill Lynch could lend out 50% of the invested money at 10% and still give the investors the 5% they were expecting (unless the loan did NOT go to foreclosure, in which case the entire balance would be due). The balance due, if any, was taken from the dark pool controlled by Merrill Lynch and consisting entirely of money invested by the institutional investors.
  20. Hence the banks were not taking risks. They were making risks and profiting from them. Or another way of looking at it is that with their superior knowledge they were neither taking nor making risks; instead they were creating the illusion of risk when the outcome was virtually certain.
  21. The use of the name “US Bank, as Trustee” keeps does NOT directly subject US Bank to any liability, knowledge, intention, or anything else, as it was and remains a passive rent-a-name operation in which no loans are ever administered in trust because none were purchased by the Trust, which never got the proceeds of sale of securities and was therefore devoid of any assets or business activity at any time.
  22. The only way for the banks to put a seal of legitimacy on what they were doing — stealing money — was by getting official documents from the court systems approving a foreclosure. Hence every effort was made to push all loans to foreclosure under cover of an illusory modification program in which they occasionally granted real modifications that would qualify as a “workout,” which before the false claims fo securitization of loans, was the industry standard norm.
  23. Thus the foreclosure became extraordinarily important to complete the bank plan. By getting a real facially valid court order or forced sale of the property, the loan could be “legitimately” written off as a failed loan.
  24. The Judgment or Order signed by the Judge and the Clerk deed upon sale at foreclosure auction became a document that (1) was presumptively valid and (b) therefore ratified all the preceding illegal acts.
  25. Thus the worse the loan, the less Merrill Lynch had to lend. The difference between the investment and the amount loaned was sometimes as much as three times the principal due in high risk loans that were covered up and mixed in with what appeared to be conforming loans.
  26. Then Merrill Lynch entered into “private agreements” for sale of the same loans to multiple parties under the guise of a risk management vehicles etc. This accounts for why the notional value of the shadow banking market sky-rocketed to 1 quadrillion dollars when all the fiat money in the world was around $70 trillion — or 7% of the monstrous bubble created in shadow banking. And that is why central banks had no choice but to print money — because all the real money had been siphoned out the economy and into the pockets of the banks and their bankers.
  27. TARP was passed to cover the banks  for their losses due to loan defaults. It quickly became apparent that the banks had no losses from loan defaults because they were never using their own money to originate loans, although they had the ability to make it look like that.
  28. Then TARP was changed to cover the banks for their losses in mortgage bonds and the derivative markets. It quickly became apparent that the banks were not buying mortgage bonds, they were selling them, so they had no such losses there either.
  29. Then TARP was changed again to cover losses from toxic investment vehicles, which would be a reference to what I have described above.
  30. And then to top it off, the Banks convinced our central bankers at the Federal Reserve that they would freeze up credit all over the world unless they received even more money which would allow them to make more loans and ease credit. So the FED purchased mortgage bonds from the non-owning banks to the tune of around $3 Trillion thus far — on top of all the other ill-gotten gains amounting roughly to around 50% of all loans ever originated over the last 20 years.
  31. The claim of losses by the banks was false in all the forms that was represented. There was no easing of credit. And banks have been allowed to conduct foreclosures on loans that violated nearly all lending standards especially including lying about who the creditor is in order to keep everyone “remote” from liability for selling loan products whose central attribute was failure.
  32. Since the certificates issued in the name of the so-called REMIC Trusts were not in fact backed by mortgage loans (EVER) the certificates, the issuers, the underwriters, the master servicers, the trustees et al are NOT qualified for exemption under the 1998 law. The SEC is either asleep on this or has been instructed by three successive presidents to leave the banks alone, which accounts for the failure to jail any of the bankers that essentially committed treason by attacking the economic foundation of our society.

Why the Banks Fabricate and Forge Documents

We all know that the banks committed wholesale fraud on the government, on investors, on the the court system and on borrowers. They fabricated documents, forged them, altered them, and even paid off employees of Government agencies to do things that in normal circumstances would never be tolerated.

The question is why did the banks go so far off the rails doing what they have done for millennia — making loans and documenting them? The answer is that they lied about the origination and the alleged “transfers” of servicing rights, of trustee rights, and of course the rights of their self proclaimed entities to own or enforce the “closing documents.”

The answer is that they didn’t just fabricate the paper; they also fabricated the illusion of transactions that never took place in the real world. In the real world the history of transactions was much different than what is set forth in the PR releases, government filings and pleadings in court. Every lie became another opportunity for those “support” companies that fabricated notes, mortgages, assignments, signatures, payment schedules etc.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

Here is Bill Paatalo’s follow up article on the Visionet system for fabricating signatures and entire documents.

======================

Remember Harvey Keitel’s “fixer” character in Pulp Fiction?  “I’m Winston Wolf. I solve problems.” He is a no-nonsense, hard character who treats his subjects with no emotion, lives for work, and prescribes a solution to an issue that most would see as self-evident.

In my recent article involving the document reproduction mill “Visionet Systems, Inc.” (See: http://bpinvestigativeagency.com/automated-affidavit-verifications-and-lost-note-reproductions-for-bank-vendors-its-standard-business-practice/), I investigate an assignment produced by Visionet in which MERS, as nominee for defunct Greenpoint,  purports to transfer the mortgage directly to the “New Residential Mortgage Loan Trust 2015-1.”

During my investigation, I located Moody’s rating for this trust from June 2015 which announced, New Residential Mortgage Loan Trust 2015-1 (NRMLT 2015-1) is a securitization of seasoned performing residential mortgage loans which the seller, NRZ Sponsor V LLC, will purchase on the closing date, in connection with the termination of various securitization trusts.” (See: https://www.moodys.com/research/Moodys-assigns-provisional-ratings-to-New-Residential-Mortgage-Loan-Trust–PR_327931).

So, here we have an admission (I’ll start by calling it “admission number one”) that loans going into this trust were previously securitized in “various securitization trusts” even though there is no documentation of any previous securitization transactions per the Visionet assignment, the Note, nor the county records for this particular property.

Here are some additional admissions within Moody’s announcement:

“Third-party Review and Reps & Warranties

American Mortgage Consultants (AMC), conducted a compliance and data integrity review on a random sample of 367 loans from the pool. The regulatory compliance review consisted of a review of compliance with Section 32/HOEPA, Federal Truth in Lending Act/Regulation Z (TILA), the Real Estate Settlement Protection Act/Regulation X (TILA), and federal, state and local anti-predatory regulations. AMC ordered HDI values on all loans in the securitization in addition to an updated broker price opinions (BPOs) on 336 properties, from Clear Capital.

Upon the review of 367 loans, AMC found that 202 loans have exceptions. The majority of these exceptions were due to missing HUD and/or TIL documents, under disclosed finance charge, or missing right to cancel disclosures. 19 loans had missing original loan files. For the loans where the HUD documents, TIL documents and/or the original loan files are missing, AMC was unable to complete the testing. Although the TPR report indicated that the statute of limitations for many of these issues already passed, borrowers can still raise these legal claims in defense against foreclosure as a set off or recoupment and win damages that can reduce the amount of the foreclosure proceeds. In addition, some of these missing documents could prevent or materially delay activities such as foreclosure, loss mitigation and processing title claim under the related title insurance policy.

The seller, NRZ Sponsor V LLC, is providing a representation and warranty for mortgage files. In this R&W, and to the extent that the indenture trustee, the master servicer, the servicer, the depositor or the custodian has actual knowledge of a defective or missing mortgage loan document or a breach of a representation or warranty regarding the completeness of the mortgage file or the accuracy of the Mortgage Loan documents, and such missing document, defect or breach is preventing or materially delaying the (a) realization against the related mortgaged property through foreclosure or similar loss mitigation activity or (b) processing of any title claim under the related title insurance policy, the party with such actual knowledge will give written notice of such breach, defect or missing document, as applicable, to the seller, the indenture trustee, the depositor, the master servicer, the servicer and the custodian. Upon notification of a missing or defective mortgage loan file, the seller will have 120 days from the date it receives such notification to deliver such missing document or otherwise cure such defect or breach. If it is unable to do so, it will be obligated to replace or repurchase the mortgage loan. In our analysis we assumed that 10% of the projected default will have missing documents’ breaches that will not be remedied and result in higher than expected loss severity.”

Admission number two reveals that a compliance review exposed that nearly 55% of the loans being re-securitized had regulatory and compliance issues, including missing loan files. Moody’s seems to downplay these issues due to its belief that the statute of limitations for all this chicanery has likely run its course. But then we have admission number three – 10% of the projected default will have missing documents’ breaches that will not be remedied and result in higher than expected loss severity.”

“Will not be remedied?” Time to call in the “fixer.”

So, I looked to see who is behind “NRZ Sponsor V, LLC;” the entity providing the representations and warranties for the files. Lo and behold, it’s none other than “New Residential Investment Corp.” and its CEO/President – Michael Neirenberg. (See 10-Q: https://www.sec.gov/Archives/edgar/data/1556593/000155659315000011/nrz-2015630x10xq.htm#s262E0972E7E05C46ADEB9296D5C183F9).

From this Deadly Clear article,

(https://deadlyclear.wordpress.com/2013/08/05/where-are-bear-stearns-mortgage-executives-now/)

“Four of the executives, Thomas Marano, Jeffrey Verschleiser, Michael Nierenberg and Jeffrey Mayer, have been accused of making false statements in disclosures to federal regulators in a lawsuit brought by the Federal Housing Finance Agency, which oversees government-owned mortgage giants Fannie Mae and Freddie Mac.  They are among dozens of people and companies named in the lawsuit. [Click here for Complaint]

All four denied all the allegations in a 179-page response to the lawsuit.

The four “deny that the offering documents referenced contained material misstatements of fact or omissions of material facts,” according to the answer jointly filed by the Bear Stearns companies and the individual defendants from Bear.”

This is the guy who is going to vouch for the loan files? Yes, because his disclosures in the 10-Q state he is required to make these reps and warranties to appease his financing facilities, even though ultimately, the reps and warranties could be deemed inaccurate.

Per the 10-Q:

“Our borrowings collateralized by loans require that we make certain representations and warranties that, if determined to be inaccurate, could require us to repurchase loans or cover losses.

Our financing facilities require us to make certain representations and warranties regarding the loans that collateralize the borrowings. Although we perform due diligence on the loans that we acquire, certain representations and warranties that we make in respect of such loans may ultimately be determined to be inaccurate. In the event of a breach of a representation or warranty, we may be required to repurchase affected loans, make indemnification payments to certain indemnified parties or address any claims associated with such breach. Further, we may have limited or no recourse against the seller from whom we purchased the loans. Such recourse may be limited due to a variety of factors, including the absence of a representation or warranty from the seller corresponding to the representation provided by us or the contractual expiration thereof.”

Does anyone really believe that NRZ would repurchase these “hot potatoes” or cover losses on them? Time to call in the “fixer.”

So, here we have admission number five. NRZ will be making representations and warranties regarding loans it purchased from Sellers, who may not have had any documentation of the loans it was selling to NRZ.

This sounds like a “Fencing Operation.”

“A fence or receiver is an individual who knowingly buys stolen property for later resale, sometimes in a legitimate market. The fence thus acts as a middleman between thieves and the eventual buyers of stolen goods who may not be aware that the goods are stolen.”

So, where did NRZ buy this assigned loan, as well as all the others? Again, per the 10-Q:

“Representations and warranties made by us in our loan sale agreements may subject us to liability.

In March 2015, HLSS sold reperforming loans to an unrelated third party and transferred mortgages into a trust in exchange for cash. [THIRD-PARTY WHO? WHAT TRUST?] We may be liable to purchasers under the related sale agreement for any breaches of representations and warranties made by HLSS at the time the applicable loans are sold. Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxes or other liens; the loans compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien. If the purchaser is successful in asserting their claim for recourse, it could adversely affect the availability of financing under loan financing facilities or otherwise adversely impact our results of operations and liquidity. From time to time we sell residential mortgage loans pursuant to loan sale agreements. The risks describe in this paragraph relate to any such sale as well.”

Ah yes, HLSS and Bill Erbey. Need I say more?

(www.thedealnewsroom.tumblr.com/post/…/fortress-exploited-a-cayman-islands-loophole-)

“HLSS struck the deal under severe pressure from regulators, lenders, investors, and ratings agencies. A Dec. 19 settlement between Ocwen and the New York Department of Financial Services (NYDFS) had upset a delicate ecosystem of five interrelated companies including Ocwen, HLSS, Altisource Portfolio Solutions (ASPS), Altisource Residential (RESI) and Altisource Asset Management (AAMC) Bill Erbey, Chairman and de facto leader of all five companies, was forced to resign from those positions. The California Department of Business Oversight was threatening to suspend Ocwen’s license in that state. That put pressure on HLSS because its business and Ocwen’s were so closely interrelated.”

This is a cesspool. When it comes to chain of title, it all sounds like a line from SpongeBob Squarepants:

“I knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy, who knew this guy’s COUSIN….”

One thing is crystal clear from all of this. The chain of title is so corrupted and fatally defective for these loans that it would be virtually impossible to legally prove ownership in a foreclosure action without first calling in a “fixer” such as Visionet Systems, Inc. to create the illusionary paper trail.

It is also crystal clear that at least 1 out of every 10 foreclosures being brought by the servicer for “New Residential Mortgage Loan Trust 2015-1” will contain counterfeit documents, to which there will be a servicer witness raising his/her right hand, and swearing that this trust owns the loan and holds the “Original Note.”

 

Bill Paatalo – Private Investigator – OR PSID#49411

Bill.bpia@gmail.com

 

Hiding Behind Advice of Counsel No Better Than Ratings

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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.


Current Bank Plan Is Same as $10 million Interest Free Loan for Every American

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“I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.” Matt Taibbi

From Rolling Stone’s Matt Taibbi on Sheila Bair’s Sarcastic Piece

I hope everyone saw ex-Federal Deposit Insurance Corporation chief Sheila Bair’s editorial in the Washington Post, entitled, “Fix Income Inequality with $10 million Loans for Everyone!” The piece might have set a world record for public bitter sarcasm by a former top regulatory official.

In it, Bair points out that since we’ve been giving zero-interest loans to all of the big banks, why don’t we do the same thing for actual people, to solve the income inequality program? If the Fed handed out $10 million to every person, and then got each of those people to invest, say, in foreign debt, we could all be back on our feet in no time:

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Every time I watch a Republican debate, and hear these supposedly anti-welfare crowds booing the idea of stiffer regulation of Wall Street, I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.

Considering that we now know that the Fed gave out something like $16 trillion in secret emergency loans to big banks on top of the bailouts we actually knew about, you might ask yourself: How are these guys in financial trouble? How can they not be making mountains of money, risk-free? But they are in financial trouble:

• We’re about to see yet another big blow to all of the usual suspects – Goldman, Citi, Bank of America, and especially Morgan Stanley, all of whom face potential downgrades by Moody’s in the near future.

We’ve known this was coming for some time, but the news this week is that the giant money-managing firm BlackRock is talking about moving its business elsewhere. Laurence Fink, BlackRock’s CEO, told the New York Times: “If Moody’s does indeed downgrade these institutions, we may have a need to move some business around to higher-rated institutions.”

It’s one thing when Zero Hedge, William Black, myself, or some rogue Fed officers in Dallas decide to point fingers at the big banks. But when big money players stop trading with those firms, that’s when the death spirals begin.

Morgan Stanley in particular should be sweating. They’re apparently going to be downgraded three notches, where they’ll be joining Citi and Bank of America at a level just above junk. But no worries: Bank CFO Ruth Porat announced that a three-level downgrade was “manageable” and that only losers rely totally on agencies like Moody’s to judge creditworthiness. “A lot of clients are doing their own credit work,” she said.

• Meanwhile, Bank of America reported its first-quarter results yesterday. Despite that massive ongoing support from the Fed, it earned just $653 million in the first quarter, but astonishingly the results were hailed by most of the financial media as good news. Its home-turf paper, the San Francisco Chronicle, crowed that BOA “Posts Higher Profits As Trading Results Rebound.” Bloomberg, meanwhile, summed up results this way: “Bank of America Beats Analyst Estimates As Trading Jumps.”

But the New York Times noted that BOA’s first-quarter profit of $653 million was down from $2 billion a year ago, and paled compared to results of more successful banks like Chase and Wells Fargo.

Zero Hedge, meanwhile, posted an amusing commentary on BOA’s results, pointing out that the bank quietly reclassified nearly two billion dollars’ worth of real estate loans. This is from BOA’s report:

During 1Q12, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual policies for junior-lien consumer real estate loans. In accordance with this new guidance, beginning in 1Q12, we classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. As a result of this change, we reclassified $1.85B of performing home equity loans to nonperforming.

In other words, Bank of America described nearly two billion dollars of crap on their books as performing loans, until the government this year forced them to admit it was crap.

ZH and others also noted that BOA wildly underestimated its exposure to litigation, but that’s nothing new. Anyway, despite the inconsistencies in its report, and despite the fact that it’s about to be downgraded – again – Bank of America’s shares are up again, pushing $9 today.

RATING AGENCIES: MARKETING TOOLS FOR WALL STREET

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EDITOR’S NOTE: I might as well take this opportunity to suggest a potential cause of action on behalf of homeowners and borrowers, whether or not they are in litigation or foreclosure. It might sound a little far out to say that the rating agencies have any liability to mortgage borrowers, taxpayers or governmental agencies that collect revenue. I maintain that such liability does in fact exist and that in addition the auditing firms that certified the statements of the large banks that faked the securitization of mortgages may have the same liability.

 The reason why there has been so much  legislation, both federal and state, on the subject of disclosure to consumer buyers and borrowers is the attempt by the Congress and the state legislatures to level the playing field. It is public policy in the country and in each state that borrowers should know as much as possible about both the identity of their lender and the terms of the transaction. It is the public policy of the federal government as well as every state government that consumers have a viable right to choose between alternatives in order to ensure healthy competition in the marketplace.

 The fact that the identity of the actual lenders was intentionally hidden from the borrowers and the fact that the terms of repayment to the actual lenders was also hidden from the borrowers is obviously a violation of many pieces of legislation that announced a public policy of the federal government and each state. We often write about and talk about the liability of the participants in the great securitization scam, but we never talk about the people who helped them withhold vital information from borrowers, taxpayers, investors and government agencies.

 Borrowers made several reasonable presumptions based upon prior history in the lending industry regarding the quality of their lender and the quality of the long product that was being offered to them as the best possible alternative. All of these presumptions were based on false information and led to the current mortgage crisis which in turn has led to the current economic crisis which in turn is leading the world into a double dip recession.

 Most theories of liability under the law are based upon the premise of a “reasonable man.” I doubt if anyone would argue that virtually none of the loans would have been consummated in the event that the borrowers and the investors actually had been provided with full disclosure. Many investors and many borrowers would have been alerted to the possibility that they were being misled in the event that the rating agencies had used independent judgment under the guise of a quasi-government agency. It doesn’t take a great deal of research to discover that there were people inside the rating agencies who wanted to use independent judgment but who were overruled by management in order to justify the rising fees they were charging to the originators of the bogus mortgage bonds and the bogus credit derivatives that were supposedly backed by the bogus mortgage bonds.

 My theory is that borrowers would have been alerted that something was wrong if they knew that the source of funding was coming from a Wall Street scheme that was rated at toxic levels. The media would have been alerted that something was wrong. Regulatory agencies would have been alerted that something was wrong. Warnings would have been issued about both the quality of the loan and the potential negative impact on the title to real property or personal property that was supposedly the subject of a perfected lien.

It is more than obvious that the investors certainly would not have advanced any funds if they had known the truth. While I can expand this theory, I believe I have made my point. If the world had  known the truth, the mortgage mess could never have taken place. It did take place because the ratings from the rating agencies created a misleading impression that the loans were subject to underwriting standards common to the industry.

 It would be interesting to see some enterprising law firm bring an action on behalf of borrowers, or on behalf of both borrowers and investors, against the rating agencies and the auditing companies that all made it possible. Without them, the great securitization scam would never have occurred and would simply be a theory rumbling around in the back of the mind of some Wall Street executive who was thinking “wouldn’t it be great if I could get trillions of dollars from investors without ever paying it back, get trillions of dollars in real estate without ever paying for it, and declare a loss that threatened the financial system enabling me to also get trillions of dollars in bailout money for a loss that never occurred?”

You Get What You Pay For

By SIMON JOHNSON
DESCRIPTION

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Standard & Poor’s downgrade of United States government debt last month has been much debated, but not enough attention has been devoted to the fact, reported last week by Bloomberg News, that it continues to rate securities based on subprime mortgages as AAA.

Today’s Economist

Perspectives from expert contributors.

In short, S.&P. is suggesting that these mortgages are more creditworthy than the United States government — a striking proposition. Leave aside for a moment that S.&P. made a big mistake in its analysis of the federal budget (as explained by James Kwak in our blog). Just focus on all the things that can go wrong with subprime mortgages: housing prices can fall, people can lose jobs, the economy may fall into recession and so on.

Now weigh those risks against the possibility that the United States government will default. As we learned this summer, that is not a zero-probability event — but it would take either an act of Congress, in the sense of passing legislation, or a determination by members of Congress that they could not act. S.&P. finds this more likely to happen than some subprime mortgages’ going bad.

Now S.&P. might be right, of course. Or its assessment might be influenced by the fact that it is paid by the issuer of those mortgage-backed securities — which presumably wants a higher rating. The rating agency’s employees may want to do an accurate assessment; management can reasonably expect to make higher profits if its ratings please the paying customers.

Perhaps we should just disregard what S.&P. and its competitors say. But this is not so easy, because many investors are guided by rules — either self-imposed or created by regulators — that tie investment decisions, and thus these investors’ holdings, to ratings. Ratings changes undeniably can move markets.

How can we take seriously a rating agency that is compensated by the issuers of securities? This system has long outlived its usefulness and should be discontinued.

In a similar vein, let me ask why we should take seriously economic analysis offered up by a financial-sector lobbying group on behalf of its members — if, for example, it says that regulation of its members will slow economic growth? Surely, we should check the numbers in the analysis carefully and be skeptical of the policy recommendations.

A timely example comes from the Institute of International Finance, which calls itself “the Global Association of Financial Institutions” and whose board members are all from big banks. (Indeed, the institute is more than a mere lobbying group; in the recent Greek debt negotiations, it was in charge of coordinating the terms proposed by private-sector banks for their involvement in the debt restructuring.)

So what do we make of its policy recommendations? In a report released this week, “The Cumulative Impact on the Global Economy of Changes in the Financial Regulatory Framework,” for example, the institute asserts that additional capital requirements for its members could result in “3.2 percent lower output by 2015 in these economies than would otherwise be the case” (see Paragraph 5 of its news release accompanying the report).

In recent conversations with some policy makers from the Group of 7 nations, I was told that the institute’s previous, interim report on this same topic was largely without value (some said completely without value).

I hope these policy makers and others react the same way in this instance, because the institute refuses to acknowledge the vast cost imposed on society by the combination of big banks, high leverage and low capital that it endorsed through 2008 and that it defends today, with only minor modifications. (James Kwak and I wrote directly about these issues in “13 Bankers” — and we’re now hard at work on the sequel.)

The institute’s report is nothing more than lobbying masquerading as economic analysis. And just as S.&P. is paid for its ratings by the issuers, the institute is paid to represent the views of big banks. We would be wise to suspect that in both cases, the paying customer would prefer a particular outcome — irrespective of what the evidence says.

APPRAISERS AND CREDIT RATING COMPANIES ARE GETTING AWAY WITH IT TOO

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EDITOR’S NOTE: In 1983 the nominal value of credit derivatives was zero. Today it is over $600 TRILLION. None of this would have been possible without the active complicity of credit rating companies who as quasi public agencies “assured” the quality of securities sold to both sophisticated and unsophisticated investors. People forget that in most cases behind every “sophisticated” investor are millions of unsophisticated investors who entrusted their money to these venerable institutions to manage their savings and pensions.

A full 1/4 of the $600 TRILLION in derivatives is related in some exotic way to the housing market. When appraisal companies put profit before their reputations, you would have thought that the world would have come crashing down around them. When appraisers of real property were given instructions on what value they had to come back with to make the deal work (or else they would never be hired again), you would have thought that licensing boards would have revoked their licenses and criminal investigations would have led to prosecutions.

The whole grand hallucination referred to as securitization of debt instruments, was achieved by deceit, cheating and outright theft. But the guards at the gate not only let the barbarians in, they are letting them out too. I’m probably too old to see the eventual outcome of having a country governed by banks. But our children and grandchildren will see it in living color, and as food prices and other commodities start to rise and as the value of money falls, they will feel the pain of our folly and our failure to correct a situation that still is correctable. The founding fathers of our country gave us the right the and the means to do it.

If you like what you see, and you think that things are all going in the right direction, then you don’t need to do anything. You are probably a banker or financier with tens of millions of even tens of billions of wealth stashed away, with provisions for every eventuality. The rest of us don’t have that luxury. We were steered into an economy of excess by people who made sure that we had the money in our hands to spend — but only if we spent it, leaving ourselves and our economy and our future in tatters. If you don’t like that picture and the picture painted by hundreds of economists around the world, with our noble experiment becoming a banana republic, then maybe you should do something about it.

Innovation has been the hallmark of American success. Innovation is what it will take to bring about the changes that are necessary to have a country that is governed, with consent of the governed, by people who value human rights for all more than intense concentrations of wealth for a few. Millions of Americans have fought and died and been injured or maimed fighting for our rights as set forth in the constitutions. We treat our returning vets as expendable, and we treat their predecessors as part of some dry historical landscape without meaning.  If we are truly patriotic, then we will end the tyranny of wealth, and return to a society where wealth is possible, where hope springs eternal and where our expectations are virtually guaranteed, that our children will live better than we did.

Think back and remember. IF you can’t remember then research. We did it before. Let’s do it again.

Hey, S.E.C., That Escape Hatch Is Still Open

By GRETCHEN MORGENSON

IT’S hard to say what’s more exasperating: the woeful performance of the credit ratings agencies during the recent mortgage securities boom or the failure to hold them accountable in the bust that followed.

Not that Congress hasn’t tried, mind you. The Dodd-Frank financial reform law, enacted last year, imposed the same legal liabilities on Moody’s, Standard & Poor’s and other credit raters that have long applied to legal and accounting firms that attest to statements made in securities prospectuses. Investors cheered the legislation, which subjected the ratings agencies to what is known as expert liability under the securities laws.

But since Dodd-Frank passed, Congress’s noble attempt to protect investors from misconduct by ratings agencies has been thwarted by, of all things, the Securities & Exchange Commission. The S.E.C., which calls itself “the investor’s advocate,” is quietly allowing the raters to escape this accountability.

When Dodd-Frank became law last July, it required that ratings agencies assigning grades to asset-backed securities be subject to expert liability from that moment on. This opened the agencies to lawsuits from investors, a policing mechanism that law firms and accountants have contended with for years. The agencies responded by refusing to allow their ratings to be disclosed in asset-backed securities deals. As a result, the market for these instruments froze on July 22.

The S.E.C. quickly issued a “no action” letter, indicating that it would not bring enforcement actions against issuers that did not disclose ratings in prospectuses. This removed the expert-liability threat for the ratings agencies, and the market began operating again.

At the time, the S.E.C. said its action was intended to give issuers time to adapt to the Dodd-Frank rules and would stay in place for only six months. But on Jan. 24, the S.E.C. extended its nonenforcement stance indefinitely. Issuers are selling asset-backed securities without the ratings disclosures required under S.E.C. rules, and rating agencies are not subject to expert liability.

MARTHA COAKLEY, the attorney general of Massachusetts, has brought significant mortgage securities cases against Wall Street firms — and she is disturbed by the S.E.C.’s position. Last week, she sent a letter to Mary Schapiro, the chairwoman of the S.E.C., asking why the commission was refusing to enforce its rules and was thereby defeating Congressional intent where ratings agencies’ liability is concerned.

“We wanted to make clear that we see this as a problem and important enough that we would like an answer,” Ms. Coakley said in an interview last week. “They are either going to enforce this or say why they are not. As a state regulator, we don’t enforce Dodd-Frank, but we certainly deal with the fallout when it is not enforced.”

An S.E.C. spokesman, John Nester, said that the agency would respond to Ms. Coakley.

Meredith Cross, director of the S.E.C.’s division of corporation finance, explained the agency’s decision to stand down on the issue: “If we didn’t provide the no-action relief to issuers, then they would do their transactions in the unregistered market,” she said. “You would impede investor protection. We thought, notwithstanding the grief we would take, that it would be better to have these securities done in the registered market.”

Unfortunately, the S.E.C.’s actions appear to continue the decades of special treatment bestowed upon the credit raters. Among the perquisites enjoyed by established credit raters is protection from competition, since regulators were required to approve new entrants to the business. Regulators have also sanctioned the agencies’ ratings by embedding them into the investment process: financial institutions post less capital against securities rated at or above a certain level, for example, and investment managers at insurance companies and mutual funds are allowed to buy only securities receiving certain grades.

This is a recipe for disaster. Given that ratings were required and the firms had limited competition, they had little incentive to assess securities aggressively or properly. Their assessments of mortgage securities were singularly off-base, causing hundreds of billions in losses among investors who had relied on ratings.

That the S.E.C.’s move strengthens the ratings agencies’ protection from investor lawsuits, which runs counter to the intention of Dodd-Frank, is also disturbing. Moody’s and Standard & Poor’s have argued successfully for years that their grades are opinions and subject to the same First Amendment protections that journalists receive. This position has made lawsuits against the raters exceedingly difficult to mount, a problem that Dodd-Frank was supposed to fix.

I asked Representative Barney Frank, the Massachusetts Democrat whose name is on the 2010 financial reform legislation, if he was concerned that the S.E.C.’s inaction was enabling ratings agencies to evade liability.

Mr. Frank said he believed the S.E.C.’s move was part of a longer-term strategy to eliminate investor reliance on ratings and remove, at long last, all references to credit ratings agencies in government statutes. Indeed, the S.E.C. proposed a new rule last week that would eliminate the requirement that money market funds buy only securities with high credit ratings. If the rule goes through, fund boards would have to make their own determinations that the instruments they buy are of superior credit quality.

Still, Mr. Frank said, the commission could do a better job of explaining that its nonenforcement stance is part of an effort to reduce reliance on ratings. “The message should not be lax enforcement by the S.E.C.; it should be a lack of confidence in the ratings,” he said.

The problem is that it could take years to rid the investment arena of all references to ratings. In the meantime, the S.E.C. is letting the ratings agencies escape accountability once again.

Moreover, investors are right to fear that the S.E.C. may be capitulating to threats by the ratings agencies to boycott the securitization market as long as they are subject to expert liability. After all, Moody’s and S.& P. have succeeded before in derailing attempts by legislators to bring accountability to asset-backed securities.

Back in 2003, for example, Georgia’s legislature enacted one of the toughest predatory-lending laws in the nation. Part of the law allowed issuers of and investors in mortgage pools to be held liable if the loans were found to be abusive. Shortly after that law went into effect, the ratings agencies refused to rate mortgage securities containing Georgia loans because of this potential liability. The law was soon rewritten to eliminate the liability, allowing predatory lending to flourish.

IT is certainly important that the S.E.C. work to eliminate references to ratings in the investment arena, and to reduce investor reliance on them. But Congress couldn’t have been clearer in its intent of holding the agencies accountable. That the S.E.C. is undermining that goal is absurd in the extreme.

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

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.

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