securities and exchange commission | FORECLOSURE FRAUD | by DinSFLA - Part 2

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HW | SEC clears shareholder vote for foreclosure reviews at major banks

HW | SEC clears shareholder vote for foreclosure reviews at major banks


Source: Housing Wire

The Securities and Exchange Commission upheld a New York City Pension Funds request that big bank shareholders will get to vote on whether or not those vested financial institutions conduct foreclosure reviews.

Shareholders of Bank of America (: ), Citigroup (: ) and Wells Fargo (WFC: 31.27 -0.76%) will vote at annual meetings this spring, because of the ruling. Wells did not contend the proposal at the SEC. In January, The New York City Comptroller John Liu asked the boards of the banks and JPMorgan Chase (JPM: 45.20 -0.59%) to conduct the reviews to catch potential problems related to robo-signing and other documentation issues.

Read full story… HOUSING WIRE

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WaPO | SEC moves to charge Fannie, Freddie execs

WaPO | SEC moves to charge Fannie, Freddie execs


The Securities and Exchange Commission is moving toward charging former and current Fannie Mae and Freddie Mac executives with violations related to the financial crisis, setting up a clash with the housing regulator that oversees the companies, according to sources familiar with the matter.

The SEC, responsible for enforcing securities laws, is alleging that at least four senior executives failed to provide necessary information to investors about the companies’ mortgage holdings as the U.S. housing market collapsed.

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Richard Syron, Ex-Freddie Mac Chief, May Face Civil Action

Richard Syron, Ex-Freddie Mac Chief, May Face Civil Action


By BEN PROTESS and AZAM AHMED

The former chief executive of Freddie Mac may face a civil action as the government ramps up an investigation of disclosure practices at the mortgage finance giant and its sister company, Fannie Mae, people briefed on the investigation said.

The executive, Richard F. Syron, a former president of the American Stock Exchange and now an adjunct professor and trustee at Boston College, has received a so-called Wells notice from the Securities and Exchange Commission, an indication the agency is considering an enforcement action against him.


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Issa and Grassley Probe SEC on Failure to Properly Examine Conflict of Interest in Madoff Scandal

Issa and Grassley Probe SEC on Failure to Properly Examine Conflict of Interest in Madoff Scandal


WASHINGTON D.C. – Oversight and Government Reform Committee Chairman Darrell Issa and Committee on the Judiciary Ranking Member Senator Chuck Grassley sent a letter today requesting additional information from the Securities and Exchange Commission (SEC). Chairman Issa and Senator Grassley seek to clarify how the SEC neglected to act on the seemingly obvious, significant conflicts of interest presented by then-General Counsel David Becker’s involvement in the Madoff case.

[ipaper docId=50415671 access_key=key-zdgw6xcrbry0n2f1fr6 height=600 width=600 /]

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SEC Charges Former Mortgage Lending Executives With Securities Fraud

SEC Charges Former Mortgage Lending Executives With Securities Fraud


FOR IMMEDIATE RELEASE
2011-43

Washington, D.C., Feb. 11, 2011 — The Securities and Exchange Commission today charged three former senior executives at IndyMac Bancorp with securities fraud for misleading investors about the mortgage lender’s deteriorating financial condition.

The SEC alleges that former CEO Michael W. Perry and former CFOs A. Scott Keys and S. Blair Abernathy participated in the filing of false and misleading disclosures about the financial stability of IndyMac and its main subsidiary, IndyMac Bank F.S.B. The three executives regularly received internal reports about IndyMac’s deteriorating capital and liquidity positions in 2007 and 2008, but failed to ensure adequate disclosure of that information to investors as IndyMac sold millions of dollars in new stock.

Additional Materials

IndyMac Bank was a federally-chartered thrift institution regulated by the Office of Thrift Supervision (OTS) and headquartered in Pasadena, Calif. The OTS closed the bank on July 11, 2008, and placed it under Federal Deposit Insurance Corporation (FDIC) receivership. IndyMac filed for bankruptcy protection later that month.

“These corporate executives made false and misleading disclosures about IndyMac at a time when the company’s financial condition was rapidly deteriorating. Truthful and accurate disclosure to investors is particularly critical during a time of crisis, and the federal securities laws do not become optional when the news is negative,” said Lorin L. Reisner, Deputy Director of the SEC’s Division of Enforcement.

According to the SEC’s complaints filed in U.S. District Court for the Central District of California, Perry and Keys defrauded new and existing IndyMac shareholders by making false and misleading statements about IndyMac’s financial condition in its 2007 annual report and in offering materials for the company’s sale of $100 million in new stock to investors. In early February 2008, IndyMac projected that it would return to profitability and continue to pay preferred dividends in 2008 without having to raise new capital. In late February 2008, Perry and Keys knew that contrary to the rosy projections released just two weeks earlier, IndyMac had begun raising new capital to protect IndyMac’s capital and liquidity positions. Specifically, Perry and Keys regularly received information that IndyMac’s financial condition was rapidly deteriorating and authorized new stock sales as a result. Yet they fraudulently failed to fully disclose IndyMac’s precarious financial condition in the 2007 annual report and the offering documents for the new stock sales.

The SEC further alleges that Perry knew that rating downgrades in April 2008 on bonds held by IndyMac Bank had exacerbated its capital and liquidity positions to the extent that IndyMac had no choice but to suspend future preferred dividend payments by no later than May 2, 2008. This material information was not disclosed in IndyMac’s ongoing stock offerings. Perry also failed to disclose in various SEC filings or a May 2008 earnings conference call that IndyMac would not have been “well-capitalized” at the end of its first quarter without departing from its traditional method for risk-weighting subprime assets and backdating an $18 million capital contribution.

According to the SEC’s complaint, Abernathy replaced Keys as IndyMac’s CFO in April 2008. He similarly made false and misleading statements in the offering documents used in selling new IndyMac stock to investors despite regularly receiving internal reports about IndyMac’s deteriorating capital and liquidity positions.

The SEC also alleges that in summer 2007 while serving as IndyMac’s executive vice president in charge of specialty lending, Abernathy made false and misleading statements about the quality of the loans in six IndyMac offerings of residential mortgage-backed securities (RMBS) totaling $2.5 billion. Abernathy received internal reports each month revealing that 12 to 18 percent of IndyMac’s loans contained misrepresentations regarding important loan and borrower characteristics. However, the RMBS offering documents stated that nothing had come to IndyMac’s attention that any loan included in the offering contained a misrepresentation. The SEC alleges that Abernathy failed to ensure that the quality of IndyMac’s loans was accurately disclosed and failed to disclose that information had come to IndyMac’s attention about loans containing misrepresentations.

Abernathy agreed to settle the SEC’s charges without admitting or denying the allegations. He consented to the entry of an order that permanently restrains and enjoins him from violating Section 17(a)(2) and 17(a)(3) of the Securities Act and requires him to pay a $100,000 penalty, $25,000 in disgorgement, and prejudgment interest of $1,592.26. Abernathy also consented to the issuance of an administrative order pursuant to Rule 102(e) of the SEC’s Rules of Practice, suspending him from appearing or practicing before the SEC as an accountant. He has the right to apply for reinstatement after two years.

The SEC’s complaint charges Perry and Keys with knowingly violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aiding and abetting IndyMac’s violations of its periodic reporting requirements under Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. Perry also is charged with aiding and abetting IndyMac’s reporting violations under Exchange Act Rules 13a-11 and 13a-13. The SEC’s complaint against Perry and Keys seeks permanent injunctive relief, an officer and director bar, disgorgement of ill-gotten gains with prejudgment interest, and a financial penalty.

The SEC acknowledges the assistance of the FDIC in this investigation.

# # #

For more information about this enforcement action, contact:

John M. McCoy III
Associate Regional Director, SEC’s Los Angeles Regional Office
(323) 965-4573

Kelly Bowers
Senior Assistant Regional Director, SEC’s Los Angeles Regional Office
(323) 965-3924

Donald W. Searles
Senior Trial Counsel, SEC’s Los Angeles Regional Office
(323) 965-4573

http://www.sec.gov/news/press/2011/2011-43.htm

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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CoreLogic Announces Resignation of CFO Anthony ‘Buddy’ Piszel After Wells Notice

CoreLogic Announces Resignation of CFO Anthony ‘Buddy’ Piszel After Wells Notice


CoreLogic  announced today that Anthony “Buddy” Piszel, chief financial officer (CFO), has resigned as CFO effective immediately.  Piszel, who joined CoreLogic in January 2009, will stay on in a non-executive capacity through June 1, 2011 to assist in a smooth transition of his responsibilities.

Piszel has informed the company that he received a Wells notice from the U.S. Securities and Exchange Commission (SEC) staff in connection with certain disclosure matters during Piszel’s tenure at his previous employer, Freddie Mac.  Piszel served as chief financial officer of Freddie Mac from November 2006 to September 2008.

The Wells notice indicates that the SEC staff is considering recommending a civil enforcement action against Piszel.  Under the SEC’s procedures, recipients of a Wells notice have the opportunity to respond in the form of a “Wells submission” in which they seek to persuade the SEC that no action should be commenced.  Piszel has informed CoreLogic that he intends to make such a submission.

SOURCE: CoreLogic

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REUTERS: SEC sends more subpoenas in mortgage probe: sources

REUTERS: SEC sends more subpoenas in mortgage probe: sources


By Matthew Goldstein and Rachelle Younglai

NEW YORK/WASHINGTON | Fri Dec 17, 2010 12:32pm EST

NEW YORK/WASHINGTON (Reuters) – Regulators have opened a new line of inquiry in their mortgage foreclosure probe and are asking big Wall Street banks about the beginning stages of mortgage securitization, two sources familiar with the probe said.

The Securities and Exchange Commission launched the new phase of its investigation by sending out a fresh round of subpoenas last week to big banks like Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co, the sources said.

The subpoenas focus on the earliest stage of the mortgage securitization process, said the sources, who requested anonymity because the probe is not public.

The sources said the SEC is asking for information about the role of so-called “master servicers” — specialized firms that oversee the selection and maintenance of the large pool of home loans that go into every mortgage-backed bond.

In many cases, Wall Street banks that underwrite mortgage-backed securities either own their own master servicing firms or are closely aligned with one.

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GINNIE MAE ANNOUNCES ADOPTION OF MISMO

GINNIE MAE ANNOUNCES ADOPTION OF MISMO


Ginnie Mae is pleased to announce that it has joined with Fannie Mae and Freddie Mac (GSEs) in adopting the Mortgage Industry Standards Maintenance Organization’s (“MISMO”) Uniform Loan Delivery Dataset (“ULDD”) for delivering loan information to the agencies. The GSEs have been working on this effort; and, announced to their respective program participants that effective September 1, 2011, and forward, all loans delivered to the GSEs will be required to be transmitted to the GSEs using the ULDD specifications.

The mortgage finance industry supports the adoption of standards and common file formats, as they lead to higher quality data, less rework, and lower costs for all participants in the industry, including borrowers.

Continue reading letter below…

GINNIE MAE MISMO

[ipaper docId=45270380 access_key=key-2d8e3lcqmn1a42nlky1q height=600 width=600 /]

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WHITE PAPER: The Trustee’s Role in Asset-Backed Securities

WHITE PAPER: The Trustee’s Role in Asset-Backed Securities


November 9, 2010

—By the American Bankers Association, Corporate Trust Committee

Executive Summary
In this position paper, the Corporate Trust Committee is responding to current assertions that the obligations of trustees in asset-backed securities1 (?ABS?) are greater than the duties contractually undertaken by those trustees.

These assertions, which have been made by participants in the ABS market by investors, investment advisors, rating agencies and others2, fail to recognize the legal limitations on the duties of ABS trustees and have been made in response to both disappointing ABS investment performance and market issues arising from the current economic crisis. Although ABS investment performance has been disappointing, particularly with respect to certain residential mortgage-backed securities, and there were numerous market issues which gave rise to the current crisis, it is the position of the Committee that the contractual role of the trustee was not a contributing factor to either the investment performance or the market issues which may have caused or affected it.3 Moreover, in many instances, ambiguities or errors in the transaction documents governing impaired asset-backed securities have been construed in ways that were not contemplated or bargained for by the original transaction parties and that seek to alter the role and potential liability of trustees to a degree not warranted either by the contractual language or applicable statutory and common law. As a basic principle, the Committee acknowledges the need for more clarity in transaction documents generally going forward. However, the Committee’s position is that any issues that were neither contemplated by nor addressed in the documents governing current ABS transactions must be resolved in accordance with the legal contracts governing those transactions and generally accepted rules of contractual interpretation. Reliance on clear hindsight, even with the goal of protecting particular constituencies or investors generally, to impose duties retroactively on trustees that are clearly outside the range of duties undertaken in their contracts effectively abrogates those contracts and violates basic tenets of U.S. contract law.

[ipaper docId=42227548 access_key=key-1uknn1d8h89ukxpfkc5z height=600 width=600 /]

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MISMO comments to the SEC on adopting MERS

MISMO comments to the SEC on adopting MERS


Excerpt:

Page 23359 -Is the approach to asset number identifier workable? Should we only require or permit one type of asset number for all asset classes? If so, which one would be most useful? It appears that our proposed naming convention of “[CIKnumber]-[Sequential asset number]” would be applicable to all asset classes. Does the use of an asset number alleviate potential privacy issues for the underlying obligor? Why or why not? What issues arise if the asset number is determined by the registrant? Would there be any issues with investors being able to specifically identify each asset and follow its performance through periodic reporting.

MISMO Response
MISMO does not believe that a single asset numbering system should be required across all asset classes. The industry infrastructure behind each asset class is supported by different systems and business processes. Each ABS participant industry (e.g. residential real estate finance) should be able to utilize an asset numbering system as efficiency and convention dictate, absent a compelling regulatory purpose.

In the mortgage sphere, the MERS Mortgage Identification Number (MIN) has been in use since 1997 and has been assigned to over 65 million loans. The MIN is a combination of a unique loan identifier for the originating lender plus the loan’s internal file number. It is available for residential, multifamily and commercial loans. It can attach to a mortgage as early as the application for a loan. The MIN is then used to track a loan throughout its life cycle, from application through monthly servicing activities until final loan payoff. It is used also used within the loss mitigation and Real Estate Owned (REO) processes. The MIN is well integrated within all facets of the real estate finance industry.

The adoption of a new, different, and/or conflicting numbering system would result in greater confusion, unnecessary system development costs, longer lead times for compliance and decreased transparency by making it more difficult for industry participants to track assets across multiple data and reporting systems. The real estate finance industry would be required to add the new asset number to all of its applications, databases, and file transfers between applications. In certain situations, a new asset number may have unintended consequences in the primary residential mortgage market. If a lender has to decide at the time of application whether to employ the MIN or some other loan numbering system based on the lender’s estimation that the borrower may not qualify for a conforming loan (loans meeting the criteria of Fannie Mae or Freddie Mac) or governmental mortgage (loans meeting the criteria of FHA, VA, or the Rural Housing Service), then the Proposal could unintentionally steer applicants to particular loan types. Alternatively, if a lender starts down one path and then needs to re-key an application, the chances for error increase.
The MIN is the only universally accepted identifier for loans in the mortgage industry across the entire lifecycle of the loan. The major participants in the residential mortgage industry utilize the MIN. Fannie Mae, Freddie Mac and Ginnie Mae all utilize the MIN. MISMO encourages the SEC to adopt the MERS Mortgage Identification Number (MIN) as the primary loan identifier for real estate finance ABS.

As long as the proposed data elements cannot be associated with a specific individual, there should not be privacy concerns with this information being made publically available. In anticipation of this requirement, MERS has designed and will implement a public version of the MIN that issuers would use in their public disclosure file format that could not be used to identify an individual associated with the required data.

To address the possibility of duplicate loan identifiers across different ABS industries (e.g. real estate finance and credit cards), a unique identifier can be provided with file submissions to denote a particular asset class, avoiding the drastic impact of imposing a whole new numbering system on an industry.

[ipaper docId=42072634 access_key=key-agtoyaj6evcxfh7lkuv height=600 width=600 /]

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Judge rejects Citigroup’s $75 million settlement with SEC

Judge rejects Citigroup’s $75 million settlement with SEC


Washington Post Staff Writer
Monday, August 16, 2010; 7:32 PM

A federal judge on Monday refused to accept a $75 million settlement between the Securities and Exchange Commission and Citigroup, the second time in a year that the agency’s attempt to sanction a major bank was foiled by a judge with questions about the appropriateness of the agreement.

Judge Ellen S. Huvelle of the U.S. District Court of the District of Columbia raised questions during a hearing Monday about why the SEC chose to penalize Citigroup financially when it’s the company’s shareholders who will ultimately bear the price of the sanction, according to lawyers who were present. She also asked why the agency decided to charge only two executives with wrongdoing when other more senior executives were involved with Citigroup’s actions, the lawyers said.

Huvelle demanded more information from SEC and Citigroup and scheduled another hearing for Sept. 24.

Continue Reading…Washington Post

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re SEC rule-making now happening

re SEC rule-making now happening


SEC Publishes Public Request for Comment to Inform Study of Obligations of Broker-Dealers and Investment Advisers

FOR IMMEDIATE RELEASE
2010-134

Washington, D.C., July 27, 2010 — The Securities and Exchange Commission today published a request for public comment to inform its study of the obligations and standards of care of broker-dealers and investment advisers providing personalized investment advice about securities to retail investors.

The study is required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which President Obama signed into law on July 21, 2010.

As required by the Dodd-Frank Act, the SEC is requesting public input, comments, and data on issues related to the effectiveness of existing standards of care for brokers-dealers and investment advisers, and whether there are gaps, shortcomings, or overlaps in the current legal or regulatory standards.

“Broker-dealers and investment advisers provide critical financial services to millions of American investors,” said SEC Chairman Mary L. Schapiro. “A system that fairly and effectively regulates these market participants is essential to protecting investors. We look forward to receiving comments from the public on these important issues.”

The public comment period will remain open for 30 days, following publication of the comment request in the Federal Register.

# # #

http://www.sec.gov/news/press/2010/2010-134.htm


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SEC Chairman Schapiro Announces Open Process for Regulatory Reform Rulemaking

SEC Chairman Schapiro Announces Open Process for Regulatory Reform Rulemaking


FOR IMMEDIATE RELEASE
2010-135

Washington, D.C., July 27, 2010 — Securities and Exchange Commission Chairman Mary L. Schapiro today announced that the agency is making it easier for the public to provide comments as the agency sets out to make rules required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under a new process, the public will be able to comment before the agency even proposes its regulatory reform rules and amendments. Additionally, the SEC will provide greater public disclosure of meetings with SEC staff.

The new process goes well beyond what is legally required and will provide expanded opportunity for public comment and greater transparency and accountability. The SEC also expects to hold public hearings on selected topics.

“It has not even been a week since the President signed the regulatory reform legislation into law, but at the SEC we are already working to fully implement the dozens of studies and rulemakings required of our agency,” said Chairman Schapiro. “We recognize that the process of establishing regulations works best when all stakeholders are engaged and contribute their combined talents and experiences. We look forward to preliminary public comments in these areas.”

The SEC is generally required by law to establish a public comment period at the time it proposes rules or rule amendments. However, because of the significant rulemaking envisioned under the new regulatory reform law, the public will have an opportunity to voice its views before rules or amendments are even proposed as well as to see what others are saying to the agency about these issues.

To facilitate public comment, the SEC is providing a series of e-mail links on its website at http://www.sec.gov/spotlight/regreformcomments.shtml. These mailboxes are organized by topic and are listed starting with rules that have the shortest time frame for implementation. The public can provide preliminary comments on topics including OTC derivatives, hedge funds, corporate disclosure, credit rating agencies, and other areas in which the SEC will be engaged in rulemaking and studies over the next 18 months. Submitted comments will also be posted on the website for full transparency.

In addition to seeking public comment before rules and amendments are proposed, the SEC staff will follow newly-established best practices when holding meetings with interested parties in order to ensure full transparency to the public:

Staff will try to meet with any interested parties seeking a meeting. When the number of requests exceeds availability, the staff will seek out parties with varying viewpoints. Staff may have to limit the number of meetings with similarly situated parties and will limit multiple meetings with the same party.

Staff will reach out as necessary to solicit views from affected stakeholders who do not appear to be fully represented by the developing public record on a particular issue.

Staff will ask those who request meetings to provide, prior to the meeting, an agenda of intended topics for discussion. After the meeting, the agenda will become part of the public record.

Meeting participants will be encouraged to submit written comments to the public file, so that all interested parties have the opportunity to review and consider the views expressed.

# # #

http://www.sec.gov/news/press/2010/2010-135.htm


© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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SEC KNEW ABOUT SUBPRIME ACCOUNTING FRAUD A DECADE AGO

SEC KNEW ABOUT SUBPRIME ACCOUNTING FRAUD A DECADE AGO


by Elizabeth MacDonald FoxBusiness

The Securities and Exchange  Commission is missing a bigger fraud while it chases the banks. Even though it knew about this massive, plain old fashioned accounting fraud back in 1998.
Instead, the market cops are probing simpler disclosure cases that could charge bank and Wall Street with not telling investors about their conflicts of interest in selling securities they knew were damaged while making bets against those same securities behind the scenes, via credit default swaps.
Those probes have gotten headlines, but there aren’t too many signs that this will lead to anything close to massive settlements or fines.

For instance, the SEC doesn’t appear to be investigating how banks frontloaded their profits via channel stuffing — securitizing loans and shoving paper securitizations onto investors, while booking those revenues immediately, even though the mortgage payments underlying those paper daisy chains were coming in the door years, even decades, later. Those moves helped lead to $2.4 trillion in writedowns worldwide.
The agency said it  believed banks were committing subprime securitization accounting frauds back in 1998 and claimed to be ‘probing’ them.
I had written about these SEC probes into potential frauds while covering corporate accounting abuses at The Wall Street Journal. The rules essentially let banks frontload into their revenue the sale of subprime mortgages or other loans that they then packaged and sold off as securities, even though the payments on those underlying loans were coming in the door over the next seven, 10, 20, or 30 years.
Estimating those revenues based on the value of future mortgage payments involved plenty of guesswork.

Securitization: Free Market Became a Free For All
The total amount of overall mortgage-backed securities generated by Wall Street virtually tripled between 1996 and 2007, to $7.3 trillion. Subprime mortgage securitizations increased from 54% in 2001, to 75% in 2006. Back in 1998, the SEC had warned a dozen top accounting firms that they must do a  better job policing how subprime lenders book profits from loans that are repackaged as securities and sold on the secondary market. The SEC “is becoming increasingly concerned” over the way lenders use what are called “gain on sale” accounting rules when they securitize these loans, Jane B. Adams, the SEC’s deputy chief accountant, said in a letter sent to the Financial Accounting Standards Board, the nation’s chief accounting rule makers.
At that time, subprime lenders had come under fire from consumer groups and Congress, who said banks were using aggressive accounting to frontload profits from securitizing subprime loans. Subprime auto lender Mercury Finance collapsed after a spectacular accounting fraud and shareholder suits, New Century Financial was tanking as well for the same reason.

SEC Knew About Subprime Fraud More than a Decade Ago
The SEC more than a decade ago believed that subprime lenders were abusing the accounting rules.
When lenders repackage consumer loans as asset-backed securities, they must book the fair value of profits or losses from the deals. But regulators said lenders were overvaluing the loan assets they kept on their books in order to inflate current profits. Others delayed booking assets in order to increase future earnings. Lenders were also using poor default and prepayment rate assumptions to overestimate the fair value of their securitizations.
Counting future revenue was perfectly legal under too lax rules.
But without it many lenders that are in an objective sense doing quite well would look as if they were headed for bankruptcy.
At that time, the SEC’s eyebrows were raised when Dan Phillips, chief executive officer of FirstPlus Financial Group, a Dallas subprime home equity lenders, had said the poor accounting actually levitated profits at lenders.
“The reality is that companies like us wouldn’t be here without gain on sale,” he said, adding, “a lot of people abuse it.”
But this much larger accounting trick, one that has exacerbated the ties that blind between company and auditor, is more difficult to nail down because it involves wading through a lot of math, a calculus that Wall Street stretched it until it snapped.

Impenetrably Absurd Accounting
These were the most idiotic accounting rules known to man, rules manufactured by a quiescent Financial Accounting Standards Board [FASB] that let bank executives make up profits out of thin air.
It resulted in a folie à deux between Wall Street and complicit accounting firms that swallowed whole guesstimates pulled out of the atmosphere.
Their accounting gamesmanship set alight the most massive off-balance sheet bubble of all, a rule that helped tear the stock market off its moorings.
The rules helped five Wall Street firms – Bear Stearns, Lehman Bros., Morgan Stanley, Goldman Sachs and Merrill Lynch – earn an estimated $312 billion based on fictitious profits during the bubble years.

Who Used the Rule?
Banks and investment firms including Citigroup, Bank of America and Merrill all used this “legit” rule.
Countrywide Financial made widespread use of this accounting chicanery (see below). So did Washington Mutual. So did IndyMac Bancorp. So did FirstPlus Financial Group, and as noted Mercury Finance Co. and New Century Financial Corp.
Brought to the cliff’s edge, these banks were either bailed out, taken over or went through bankruptcies.
Many banks sold those securitized loans to Enron-style off-balance sheet trusts, otherwise called “structured investment vehicles” (SIVs), again booking profits immediately (Citigroup invented the SIV in 1988).
So, presto-change-o, banks got to dump loans off their books, making their leverage ratios look a whole lot nicer, so in turn they could borrow more.
At the same time, the banks got to record immediate profits, even though those no-income, no-doc loans supporting those paper securities and paper gains were bellyflopping right and left.
The writedowns were then buried in obscure line items called “impairment charges,” and were then masked by new profits from issuing new loans or by refinancings.

Rulemakers Fight Back
The FASB has been fighting to restrict this and other types of accounting games, but the banks have been battling back with an army of lobbyists.
The FASB, which sets the rules for publicly traded companies, is still trying to hang tough and is trying to force all sorts of off-balance sheet borrowings back onto bank balance sheets.
But these “gain on sale” rules, along with the “fair value” or what are called “marked to market” rules, have either been watered down or have enough loopholes in them, escape hatches that were written into the rules by the accountants themselves, so that auditors can make a clean get away.
As the market turned down, banks got the FASB to back down on mark-to-market accounting, which had forced them to more immediately value these assets and take quarterly profit hits if those assets soured – even though they were booking immediate profits from this “gain on sale” rule on the way up.
Also, the FASB has clung fast to the Puritanism of their rulemaking by arguing a sale is a sale is a sale, so companies can immediately book the entire value of a sale of a loan turned into a bond, even though the cash from the underlying mortgage has yet to come in the door.

Old-Fashioned ‘Channel Stuffing’
This sanctioned “gain on sale” accounting is really old-fashioned “channel stuffing.”
The move lets companies pad their revenue and profit numbers by stuffing lots of goods and inventory (mortgages and subprime securities) into the system without actually getting the money in the door, and booking those channel-stuffed goods as actual sales in order to cook ever higher their earnings.
Sort of like what Sunbeam did with its barbecue grills in the ’90s.

Intergalactic Bank Justice League
Cleaning up the accounting rules is an easier fix instead of a new, belabored, top-heavy “Systemic Risk Council” of the heads of federal financial regulatory agencies, as Sen. Chris Dodd (D-Conn) envisions in financial regulatory reform.
An intergalactic Marvel Justice League of bank regulators can do nothing in the face of chicanery allowed in the rules.

Planes on a Tarmac
What happened was, banks and investment firms like Citigroup and Merrill Lynch who couldn’t sell these subprime bonds, or “collateralized debt obligations,” as well as other loan assets into these SIVs got caught out when the markets turned, stuck with this junk on their balance sheets like planes on a tarmac in a blizzard.
Bank of America saw its fourth-quarter 2007 profits plunge 95% largely due to SIV investments. SunTrust Banks’ earnings were nearly wiped out, a 98% drop in the same quarter, because of its SIVs.
Great Britain’s Northern Rock ran into huge problems in 2007 stemming from SIVs, and was later nationalized by the British government in February 2008.
Even the mortgage lending arm of tax preparer H&R Block used the move. Block sold its loans to off-balance-sheet vehicles so it could book gains about a month earlier than it otherwise would. Weee!
The company had $75 million of these items on its books at the end of its fiscal 2003 year. All totally within the rules.

Leverage Culture
The rampant fakery helped fuel a leverage culture that got a lot of homes put in hock.
Banks, for instance, started advertising home equity loans as “equity access,” or ways to “Live Richly” or as Fleet Bank once touted, “The smartest place to borrow? Your place.”
In fact, Washington Mutual and IndyMac got so excited by the gain on sale rules, they went so far as to count in profits futuristic gains even if they had only an “interest rate” commitment from a borrower, and not a final mortgage loan.
Talk about counting chickens before they hatch.

Closer Look at Wamu
Look at Wamu’s profits in just one year during the runup to the bubble. Such gains more than tripled in 2001 at Wamu, to just shy of $1 billion, or 22% of its pretax earnings before extraordinary items, up from $262 million, or 9%, in 2000.
But in 2001, Washington Mutual took $1.7 billion in charges, $1.1 billion of it in the final, fourth quarter, to reflect bleaker prospects for the revenue stream of all those servicing rights.
It papered over the hit with a nearly identical $1.8 billion gain on securitizations and portfolio sales.

Closer Look at Countrywide
The accounting fakery let Countrywide Financial Corp., the mortgage issuer now owned by Bank of America, triple its profit in 2003 to $2.4 billion on $8.5 billion in revenue.
At the height of the bubble, Countrywide booked $6.1 billion in gains from the sale of loans and securities. But this wasn’t cold, hard cash. No, this was potential future profits from servicing mortgage portfolios, meaning collecting monthly payments and late penalties.

Posted in bank of america, cdo, concealment, conspiracy, corruption, countrywide, foreclosure, foreclosure fraud, S.E.C., scam, securitization, washington mutualComments (0)

Borrower Bailout?: Goldman Sachs Conveyor Belt

Borrower Bailout?: Goldman Sachs Conveyor Belt


 Via: Livinglies

Borrower Bailout?: Goldman Sachs Conveyor Belt

  • If you have a GSAMP securitized loan you might want to pay particular attention here. In fact, if you ever had a securitized loan of any kind you should be very interested.
  • Hudson Mezzanine: The use of the word “mezzanine” is like the use of the word “Trust.” There is no mezzanine and there is no trust in the legal sense. It is merely meant to convey the fact that a conduit was being used to front multiple transactions — any one of which could be later moved around because the reference to the conduit entity does not specifically incorporate the exhibits to the conduit.
  • The real legal issue here is who owns the profit from these deals? The profit is derived from insurance. The cost of insurance was funded from the securitized chain starting with the sale of securities to investors for money that was pooled.
  • That pool was used in part to fund mortgages and insurance bets that those mortgages would fail. 93% of the sub-prime mortgages rated Triple AAA got marked down to junk level even if they did not fail, and insurance paid off because of the markdown. That means money was paid based upon loans executed by borrowers, whether they were or are default or not.
  • If enough of the pool consisted of sub-prime mortgages, the the entire pool was marked down and insurance paid off. So whether you have a sub-prime mortgage or a conventional mortgage, whether you are up to date or in default, there is HIGH PROBABILITY that a payment has been made from insurance which should be allocated to your loan, whether foreclosed or not.
  • The rest of the proceeds of investments by investors went as fees and profits to middlemen. If you accept the notion that the entire securitization chain was a single transaction in which fraud was the principal ingredient on both ends (homeowners and ivnestors), then BOTH the homeowner borrowers and the investors have a claim to that money.
  • Homeowners have a claim for undisclosed compensation under the Truth in Lending Act and Investors have a claim under the Securities laws.  (That is where these investor lawsuits and settlements come from).
  • What nobody has done YET is file a claim for borrowers. The probable reason for this is that the securities transactions giving rise to these profits seem remote from the loan transaction. But if they arose BECAUSE of the execution of the loan documents by the borrower, then lending laws apply, along with REG Z from the Federal reserve. The payoff to borrowers is huge, potentially involving treble damages, interest, court costs and attorney fees.
  • Under common law fraud and just plain common sense, there is no legal basis for allowing the perpetrator of a fraud to keep the benefits arising out of the the fraud. So who gets the money?
April 26, 2010

Mortgage Deals Under Scrutiny as Goldman Faces Senators

By LOUISE STORY

WASHINGTON — The legal storm buffeting Goldman Sachs continued to rage Tuesday just ahead of what is expected to be a contentious Senate hearing at which bank executives plan to defend their actions during the housing crisis.

Senate investigators on Monday claimed that Goldman Sachs had devised not one but a series of complex deals to profit from the collapse of the home mortgage market. The claims suggested for the first time that the inquiries into Goldman were stretching beyond the sole mortgage deal singled out by the Securities and Exchange Commission. The S.E.C. has accused Goldman of defrauding investors in that single transaction, Abacus 2007-AC1, have thrust the bank into a legal whirlwind.

The stage for Tuesday’s hearing was set with a flurry of new documents from the panel, the Permanent Senate Subcommittee on Investigations. That was preceded by a press briefing in Washington, where the accusations against Goldman have transformed the politics of financial reform.

In the midst of this storm, Lloyd C. Blankfein, Goldman’s chairman and chief executive, plans to sound a conciliatory note on Tuesday.

In a statement prepared for the hearing and released on Monday, Mr. Blankfein said the news 10 days ago that the S.E.C. had filed a civil fraud suit against Goldman had shaken the bank’s employees.

“It was one of the worst days of my professional life, as I know it was for every person at our firm,” Mr. Blankfein said. “We have been a client-centered firm for 140 years, and if our clients believe that we don’t deserve their trust we cannot survive.”

Mr. Blankfein will also testify that Goldman did not have a substantial, consistent short position in the mortgage market.

But at the press briefing in Washington, Carl Levin, the Democrat of Michigan who heads the Senate committee, insisted that Goldman had bet against its clients repeatedly. He held up a binder the size of two breadboxes that he said contained copies of e-mail messages and other documents that showed Goldman had put its own interests first.

“The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients,” Mr. Levin said.

Mr. Levin’s investigative staff released a summary of those documents, which are to be released in full on Tuesday. The summary included information on Abacus as well as new details about other complex mortgage deals.

On a page titled “The Goldman Sachs Conveyor Belt,” the subcommittee described five other transactions beyond the Abacus investment.

One, called Hudson Mezzanine, was put together in the fall of 2006 expressly as a way to create more short positions for Goldman, the subcommittee claims. The $2 billion deal was one of the first for which Goldman sales staff began to face dubious clients, according to former Goldman employees.

“Here we are selling this, but we think the market is going the other way,” a former Goldman salesman told The New York Times in December.

Hudson, like Goldman’s 25 Abacus deals, was a synthetic collateralized debt obligation, which is a bundle of insurance contracts on mortgage bonds. Like other banks, Goldman turned to synthetic C.D.O.’s to allow it to complete deals faster than the sort of mortgage securities that required actual mortgage bonds. These deals also created a new avenue for Goldman and some of its hedge fund clients to make negative bets on housing.

Goldman also had an unusual and powerful role in the Hudson deal that the Senate committee did not highlight: According to Hudson marketing documents, which were reviewed on Monday by The Times, Goldman was also the liquidation agent in the deal, which is the party that took it apart when it hit trouble.

The Senate subcommittee also studied two deals from early 2007 called Anderson Mezzanine 2007-1 and Timberwolf I. In total, these two deals were worth $1.3 billion, and Goldman held about $380 million of the negative bets associated with the two deals.

The subcommittee pointed to these deals as examples of how Goldman put its own interests ahead of clients. Mr. Levin read from several Goldman documents on Monday to underscore the point, including one in October 2007 that said, “Real bad feeling across European sales about some of the trades we did with clients. The damage this has done to our franchise is very significant.”

As the mortgage market collapsed, Goldman turned its back on clients who came knocking with older Goldman-issued bonds they had bought. One example was a series of mortgage bonds known as Gsamp.

“I said ‘no’ to clients who demanded that GS should ‘support the Gsamp’ program as clients tried to gain leverage over us,” a mortgage trader, Michael Swenson, wrote in his self-evaluation at the end of 2007. “Those were unpopular decisions but they saved the firm hundreds of millions of dollars.”

The Gsamp program was also involved in a dispute in the summer of 2007 that Goldman had with a client, Peleton Partners, a hedge fund founded by former Goldman workers that has since collapsed because of mortgage losses.

According to court documents reviewed by The Times on Monday, in June 2007, Goldman refused to accept a Gsamp bond from Peleton in a dispute over the securities that backed up a mortgage security called Broadwick. A Peleton partner was pointed in his response after Goldman refused the Gsamp bond.

“We do appreciate the unintended irony,” wrote Peter Howard, a partner at Peleton, in an e-mail message about the Gsamp bond.

Bank of America ended up suing Goldman over the Broadwick deal. The parties are awaiting a written ruling in that suit. Broadwick was one of a dozen or so so-called hybrid C.D.O.’s that Goldman created in 2006 and 2007. Such investments were made up of both mortgage bonds and insurance contracts on mortgage bonds.

While such hybrids have received little attention, one mortgage researcher, Gary Kopff of Everest Management, has pointed to a dozen other Goldman C.D.O.’s, including Broadwick, that were mixes of mortgage bonds and insurance policies. Those deals — with names like Fortius I and Altius I — may have been another method for Goldman to obtain negative bets on housing.

“It was like an insurance policy that Goldman stuck in the middle of the sandwich with all the other subprime bonds,” Mr. Kopff said. “And it was an insurance policy designed to protect them.”

An earlier version of this article misidentified Senator Levin’s home state.

Relatated Stories:

Shareholders Sue Goldman, Blankfein Confirming Trusts Do NOT Own the Loans

Posted in cdo, concealment, conspiracy, corruption, foreclosure fraud, goldman sachs, hank paulson, john paulson, livinglies, matt taibbi, neil garfield, S.E.C., securitizationComments (1)

House Democrats calling for criminal investigation of Goldman Sachs

House Democrats calling for criminal investigation of Goldman Sachs


Rep. Kaptur is the one that keeps grilling Geithner on the AIG scam involving you guessed it …Goldman Sachs!

April 21st, 2010 7:15 PM

House Democrats calling for criminal investigation of Goldman Sachs

 

  By Eric Zimmermann / The Hill

 A growing number of House Democrats are asking the Department of Justice to open a criminal investigation into Goldman Sachs.

 Rep. Marcy Kaptur (D-Ohio) made the request Tuesday in a letter to Attorney General Eric Holder. Since then, almost 20 of her colleagues have signed on.

 The Securities and Exchange Commission (SEC) has filed a fraud action against Goldman for allegedly promoting a package of investments that was designed to fail. But the SEC can only pursue civil actions. Kaptur wants the Justice Department (DOJ) to consider criminal charges as well.

 “[I]f the DOJ is not currently looking into this particular case, we respectfully ask you to ensure that the U.S. Department of Justice immediately open a case on this matter and investigate it with the full authority and power that your agency holds,” Kaptur wrote to Holder.

 “The American people both demand and deserve justice in the matter of Wall Street banks whom the American taxpayers bailed out, only to see unemployment and housing foreclosures rise.”

 Republicans have accused Democrats of engineering the SEC charge to bolster the case for financial reform. Democrats have vehemently denied that claim, but the push for criminal charges isn’t likely to quiet the conservative charges.

 The letter has so far garnered 18 signatures, and the Progressive Change Campaign Committee (PCCC) is organizing a grassroots campaign to urge more lawmakers to sign on. The group says it has gathered 23,000 signatures and organized 2,400 calls to Congress. 

“Now is the moment to make clear: Nobody on Wall Street is ‘too big for jail,’ ” PCCC co-founder Aaron Swartz wrote to supporters.

 The following House Democrats have signed on to Kaptur’s letter: Jim McDermott (Wash.), Diane Watson (Calif.), Chris Carney (Pa.), Raul Grijalva (Ariz.), Keith Ellison (Minn.), John Lewis (Ga.), Charlie Melancon (La.), Tom Perriello (Va.), Betty Sutton (Ohio), Jay Inslee (Wash.), Pete Stark (Calif.), Mike Honda (Calif.), John Salazar (Colo.), Niki Tsongas (Mass.), Alan Grayson (Fla.), David Loebsack (Iowa) and Bob Filner (Calif.).

 Top Republican asserts feds 'looked the other way' from financial fraud

Posted in goldman sachsComments (0)

SEC Employees Were Eye"Balling” Porn While Your Economy Tanked

SEC Employees Were Eye"Balling” Porn While Your Economy Tanked


Via Gawker.com click the the new SEC logo to see the news via 4closure 

On a 2nd note …Husbands and Wives check out who what your souless mates are doing while AWAY at a S.E.X.C. meeting!

SEC Employees Were Masturbating to Kiddie Porn While Your Economy Tanked

SEC Employees Were Masturbating to Kiddie Porn While Your Economy Tanked

SEC Employees Were Masturbating to Kiddie Porn While Your Economy Tanked

SEC Employees Were Masturbating to Kiddie Porn While Your Economy Tanked

Posted in S.E.C.Comments (0)

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