268 U.S. 353 (1925)

WALLACE BENEDICT, RECEIVER,
v.
RATNER.

No. 11.

Supreme Court of United States.

Argued October 5, 1923. Decided May 25, 1925.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

354*354 Mr. Selden Bacon, for petitioner.

Mr. Louis S. Posner, for respondent.

357*357 MR. JUSTICE BRANDEIS delivered the opinion of the Court.

The Hub Carpet Company was adjudicated bankrupt by the federal court for southern New York in involuntary proceedings commenced September 26, 1921. Benedict, who was appointed receiver and later trustee, collected the book accounts of the company. Ratner filed in that court a petition in equity praying that the amounts so collected be paid over to him. He claimed them under a writing given May 23, 1921 — four months and three days before the commencement of the bankruptcy proceedings. By it the company purported to assign to him, as collateral for certain loans, all accounts present and future. Those collected by the receiver were, so far as 358*358 appears, all accounts which had arisen after the date of the assignment, and were enumerated in the monthly list of accounts outstanding which was delivered to Ratner September 23. Benedict resisted the petition on the ground that the original assignment was void under the law of New York as a fraudulent conveyance; that, for this reason, the delivery of the September list of accounts was inoperative to perfect a lien in Ratner; and that it was a preference under the Bankruptcy Act. He also filed a cross-petition in which he asked that Ratner be ordered to pay to the estate the proceeds of certain collections which had been made by the company after September 17 and turned over to Ratner pursuant to his request made on that day. The company was then insolvent and Ratner had reason to believe it to be so. These accounts also had apparently been acquired by the company after qthe date of the original assignment.

The District Judge decided both petitions in Ratner’s favor. He ruled that the assignment executed in May was not fraudulent in law; that it created an equity in the future acquired accounts; that because of this equity, Ratner was entitled to retain, as against the bankrupt’s estate, the proceeds of the accounts which had been collected by the company in September and turned over to him; that by delivery of the list of the accounts outstanding on September 23, this equity in them had ripened into a perfect title to the remaining accounts; and that the title so perfected was good as against the supervening bankruptcy. Accordingly, the District Court ordered that, to the extent of the balance remaining unpaid on his loans, there be paid Ratner all collections made from accounts enumerated in any of the lists delivered to Ratner; and that the cross-petition of Benedict be denied. There was no finding of fraud in fact. On appeal, the Circuit Court of Appeals affirmed the order. 282 Fed. 12. A writ of certiorari was granted by this Court. 259 U.S. 579.

359*359 The rights of the parties depend primarily upon the law of New York. Hiscock v. Varick Bank of N.Y., 206 U.S. 28. It may be assumed that, unless the arrangement of May 23 was void because fraudulent in law, the original assignment of the future acquired accounts became operative under the state law, both as to those paid over to Ratner before the bankruptcy proceedings and as to those collected by the receiver;^[1] and that the assignment will be deemed to have taken effect as of May 23. Sexton v. Kessler, 225 U.S. 90, 99. That being so, it is clear that, if the original assignment was a valid one under the law of New York, the Bankruptcy Act did not invalidate the subsequent dealings of the parties. Thompson v. Fairbanks, 196 U.S. 516; Humphrey v. Tatman, 198 U.S. 91. The sole question for decision is, therefore, whether on the following undisputed facts the assignment of May 23 was in law fraudulent.

The Hub Carpet Company was, on May 23, a mercantile concern doing business in New York City and proposing to continue to do so. The assignment was made there to secure an existing loan of $15,000, and further advances not exceeding $15,000 which were in fact made July 1, 1921. It included all accounts receivable then outstanding and all which should thereafter accrue in the ordinary course of business. A list of the existing accounts was delivered at the time. Similar lists were to be delivered to Ratner on or about the 23d day of each succeeding month containing the accounts outstanding at such future dates. Those enumerated in each of the lists delivered prior to September, aggregated between $100,000 and $120,000. The receivables were to be collected by the company. Ratner was given the right, at any time, to 360*360 demand a full disclosure of the business and financial conditions; to require that all amounts collected be applied in payment of his loans; and to enforce the assignment although no loan had matured. But until he did so, the company was not required to apply any of the collections to the repayment of Ratner’s loan. It was not required to replace accounts collected by other collateral of equal value. It was not required to account in any way to Ratner. It was at liberty to use the proceeds of all accounts collected as it might see fit. The existence of the assignment was to kept secret. The business was to be conducted as theretofore. Indebtedness was to be incurred, as usual, for the purchase of merchandise and otherwise in the ordinary course of business. The amount of such indebtedness unpaid at the time of the commencement of the bankruptcy proceedings was large. Prior to September 17, the company collected from accounts so assigned about $150,000, all of which it applied to purposes other than the payment of Ratner’s loan. The outstanding accounts enumerated in the list delivered September 23 aggregated $90,000.

Under the law of New York a transfer of property as security which reserves to the transferor the right to dispose of the same, or to apply the proceeds thereof, for his own uses is, as to creditors, fraudulent in law and void.^[2] 361*361 This is true whether the right of disposition for the transferor’s use be reserved in the instrument^[3] or by agreement in pais,^[4] whether the right of disposition reserved by unlimited in time^[5] or be expressly terminable by the happening of an event;^[6] whether the transfer cover all the property of the Debtor^[7] or only a part;^[8] whether the right of disposition extends to all the property transferred^[9] or only to a part thereof;^[10] and whether the instrument of transfer be recorded or not.^[11] oral or written;

If this rule applies to the assignment of book accounts, the arrangement of May 23 was clearly void; and the equity in the future acquired accounts, which it would otherwise have created,^[12] did not arise. Whether the rule applies to accounts does not appear to have been passed upon by the Court of Appeals of New York. But it would seem clear that whether the collateral consist of chattels 362*362 or of accounts, reservation of dominion inconsistent with the effective disposition of title must render the transaction void. Ratner asserts that the rule stated above rests upon ostensible ownership, and argues that the doctrine of ostensible ownership is not applicable to book accounts. That doctrine raises a presumption of fraud where chattels are mortgaged (or sold) and possession of the property is not delivered to the mortgagee (or vendee).^[13] The presumption may be avoided by recording the mortgage (or sale). It may be assumed, as Ratner contends, that the doctrine does not apply to the assignment of accounts. In their transfer there is nothing which corresponds to the delivery of possession of chattels. The statutes which embody the doctrine and provide for recording as a substitute for delivery do not include accounts. A title to an account good against creditors may be transferred without notice to the debtor^[14] or record of any kind.^[15] But it is 363*363 not true that the rule stated above and invoked by the receiver is either based upon or delimited by the doctrine of ostensible ownership. It rests not upon seeming ownership because of possession retained, but upon a lack of ownership because of dominion reserved. It does not raise a presumption of fraud. It imputes fraud conclusively because of the reservation of dominion inconsistent with the effective disposition of title and creation of a lien.

The nature of the rule is made clear by its limitations. Where the mortgagor of chattels agrees to apply the proceeds of their sale to the payment of the mortgage debt or to the purchase of other chattels which shall become subject to the lien, the mortgage is good as against creditors, if recorded.^[16] The mortgage is sustained in such cases “upon the ground that such sale and application of proceeds is the normal and proper purpose of a chattel mortgage, and within the precise boundaries of its lawful operation and effect. It does no more than to substitute the mortgage as the agent of the mortgagee to do exactly what the latter had the right to do, and what it was his privilege and his duty to accomplish. It devotes, as it should, the mortgaged property to the payment of the mortgage debt.” The permission to use the proceeds to furnish substitute collateral “provides only for a shifting of the lien from one piece of property to another taken in exchange.” Brackett v. Harvey, 91 N.Y. 214, 221, 223. 364*364 On the other hand, if the agreement is that the mortgagor may sell and use the proceeds for his own benefit, the mortgage is of no effect although recorded. Seeming ownership exists in both classes of cases because the mortgagor is permitted to remain in possession of the stock in trade and to sell it freely. But it is only where the unrestricted dominion over the proceeds is reserved to the mortgagor that the mortgage is void. This dominion is the differentiating and deciding element. The distinction was recognized in Sexton v. Kessler, 225 U.S. 90, 98, where a transfer of securities was sustained.^[17] It was pointed out that a reservation of full control by the mortgagor might well prevent the effective creation of a lien in the mortgagee and that the New York cases holding such a mortgage void rest upon that doctrine.

The results which flow from reserving dominion inconsistent with the effective disposition of title must be the same whatever the nature of the property transferred. The doctrine which imputes fraud where full dominion is reserved must apply to assignments of accounts although the doctrine of ostensible ownership does not. There must also be the same distinction as to degrees of dominion. Thus, although an agreement that the assignor of accounts shall collect them and pay the proceeds to the assignee will not invalidate the assignment which it accompanies,^[18] the assignment must be deemed fraudulent in law if it is agreed that the assignor may use the proceeds as he sees fit.

In the case at bar, the arrangement for the unfettered use by the company of the proceeds of the accounts precluded 365*365 the effective creation of a lien^[19] and rendered the original assignment fraudulent in law. Consequently the payments to Ratner and the delivery of the September list of accounts were inoperative to perfect a lien in him, and were unlawful preferences.^[20] On this ground, and also because the payment was fraudulent under the law of the State, the trustee was entitled to recover the amount.^[21]

Stackhouse v. Holden, 66 App. Div. 423, is relied upon by Ratner to establish the proposition that reservation of dominion does not invalidate an assignment of accounts. The decision was by an intermediate appellate court, and, although decided in 1901, appears never to have been cited since in any court of that State.^[22] There was a strong dissenting opinion. Moreover, the case is perhaps distinguishable on its facts, p. 426. Greey v. Dockendorff, 231 U.S. 513, upon which Ratner also relies, has no bearing on the case at bar. It involved assignment of accounts, but there was no retention of dominion by the bankrupt. The sole question was whether successive assignments of accounts by way of security, made in pursuance of a contract, were had because the contract embraced all the accounts. The lien acquired before knowledge by either party of insolvency was held good against the trustee.

Reversed.

[1] Williams v. Ingersoll, 89 N.Y. 508, 518-520; Coats v. Donnell, 94 N.Y. 168, 177. See Rochester Distilling Co. v. Rasey, 142 N.Y. 570, 580; MacDowell v. Buffalo Loan, etc. Co., 193 N.Y. 92, 104. Compare New York Security & Trust Co. v. Saratoga Gas, etc. Co., 159 N.Y. 137; Zartman v. First National Bank, 189 N.Y. 267.

[2] Griswold v. Sheldon, 4 N.Y. 580; Edgell v. Hart, 9 N.Y. 213; Russell v. Winne, 37 N.Y. 591; Southard v. Benner, 72 N.Y. 424; Potts v. Hart, 99 N.Y. 168; Hangen v. Hachemeister, 114 N.Y. 566; Mandeville v. Avery, 124 N.Y. 376; Skilton v. Codington, 185 N.Y. 80; Zartman v. First National Bank, 189 N.Y. 267; In re Marine Construction & Dry Docks Co., 135 Fed. 921, 144 Fed. 649; In re Davis, 155 Fed. 671; In re Hartman, 185 Fed. 196; In re Volence, 197 Fed. 232; In re Purtell, 215 Fed. 191; In re Leslie-Judge Co., 272 Fed. 886. Compare Frost v. Warren, 42 N.Y. 204; also Lukins v. Aird, 6 Wall. 78; Robinson v. Elliot, 22 Wall. 513; Smith v. Craft, 123 U.S. 436; Means v. Dowd, 128 U.S. 273; Etheridge v. Sperry, 139 U.S. 266; Huntley v. Kingman, 152 U.S. 527; Knapp v. Milwaukee Trust Co., 216 U.S. 545.

[3] Edgell v. Hart, 9 N.Y. 213, 216; Zartman v. First National Bank, 189 N.Y. 267, 270.

[4] Russell v. Wynne, 37 N.Y. 591, 595; Southard v. Benner, 72 N.Y. 424, 432; Potts v. Hart, 99 N.Y. 168, 172-173.

[5] Southard v. Benner, 72 N.Y. 424, 430; Potts v. Hart, 99 N.Y. 168, 172.

[6] Zartman v. First National Bank, 189 N.Y. 267, 270.

[7] Zartman v. First National Bank, 189 N.Y. 267, 269.

[8] Russell v. Winne, 37 N.Y. 591; Southard v. Benner, 72 N.Y. 424.

[9] Potts v. Hart, 99 N.Y. 168, 172.

[10] Russell v. Winne, 37 N.Y. 591, 593; In re Leslie-Judge Co., 272 Fed. 886, 888.

[11] Potts v. Hart, 99 N.Y. 168, 171. N.Y. Personal Property Law, § 45; Laws, 1911, c. 626, authorizes the creation of a general lien or floating charge upon a stock of merchandise, including after-acquired chattels, and upon accounts receivable resulting from the sale of such merchandise. It provides that this lien or charge shall be valid against creditors provided certain formalities are observed and detailed filing provisions are complied with. It is possible that, if its conditions are performed, the section does away with the rule “that retention of possession by the mortgagor with power of sale for his own benefit is fraudulent as to creditors.”

[12] Field v. Mayor, etc. of New York, 6 N.Y. 179.

[13] Smith v. Acker, 23 Wend. 653; Griswold v. Sheldon, 4 N.Y. 580, 590; Edgell v. Hart, 9 N.Y. 213, 218; Conkling v. Shelley, 28 N.Y. 360. The statutes to this effect merely embody the commonlaw rule. But, in New York, an additional statute provides that unrecorded chattel mortgages under such circumstances are absolutely void as to creditors. New York Lien Law, § 230; Laws, 1909, c. 38, § 230, as amended 1911, c. 326, and 1916, c. 348, See Seidenbach v. Riley, 111 N.Y. 560; Karst v. Kane, 136 N.Y. 316; Stephens v. Perrine, 143 N.Y. 476; Russell v. St. Mart, 180 N.Y. 355. See Stewart v. Platt, 101 U.S. 731, 735. Compare Preston v. Southwick, 115 N.Y. 139; Nash v. Ely, 19 Wend. (N.Y.) 523; Goodwin v. Kelly, 42 Barb. (N.Y.) 194. In the case of a transfer of personal property by sale, retention of possession creates a rebuttable presumption of fraud. See Kimball v. Cash, 176 N.Y. Supp. 541; also New York Ice Co. v. Cousins, 23 App. Div. 560; Rheinfeldt v. Dahlman, 43 N.Y. Supp. 281; Tuttle v. Hayes, 107 N.Y. Supp. 22; Young v. Wedderspoon, 126 N.Y. Supp. 375; Sherry v. Janov, 137 N.Y. Supp. 792; Gisnet v. Moeckel, 165 N.Y. Supp. 82. In order to create a valid pledge of tangible personalty, there must be a delivery to the pledgee. In re P.J. Sullivan Co., 247 Fed. 139, 254 Fed. 660.

[14] Williams v. Ingersoll, 89 N.Y. 508, 522.

[15] Niles v. Mathusa, 162 N.Y. 546; National Hudson River Bank v. Chaskin, 28 App. Div. 311, 315; Curtis v. Leavitt, 17 Barb. (N.Y.) 309, 364; Young v. Upson, 115 Fed. 192. In 1916, Section 230 of the New York Lien Law was amended to the effect that a mortgage, pledge, or lien on stocks or bonds given to secure the repayment of a loan is, if not recorded, absolutely void against creditors unless such securities are delivered to the mortgagee or pledgee on the day the loan is made. See N.Y. Laws, 1916, c. 348.

[16] Conkling v. Shelley, 28 N.Y. 360; Brackett v. Harvey, 91 N.Y. 214; Spaulding v. Keyes, 125 N.Y. 113; Briggs v. Gelm, 122 App. Div. 102. See Robinson v. Elliot, 22 Wall. 513, 524; People’s Savings Bank v. Bates, 120 U.S. 556, 561.

[17] See note 18, infra.

[18] Young v. Upson, 115 Fed. 192. If it is agreed that the transferor may use the original collateral for his own purposes upon the substitution of other of equal value, the transfer is not thereby invalidated. Clark v. Iselin, 21 Wall. 360 (book accounts); Sexton v. Kessler, 225 U.S. 90 (negotiable securities); Chapman v. Hunt, 254 Fed. 768 (book accounts). Compare Casey v. Cavaroc, 96 U.S. 467.

[19] Compare Mechanics’ Bank v. Ernst, 231 U.S. 60, 67.

[20] Schaupp v. Miller, 206 Fed. 575; Grimes v. Clark, 234 Fed. 604; Gray v. Breslof, 273 Fed. 526, 527.

[21] Mandeville v. Avery, 124 N.Y. 376, 382; Stimson v. Wrigley, 86 N.Y. 332, 338; Dutcher v. Swartwood, 15 Hun (N.Y.) 31.

[22] It was cited in Young v. Upson, 115 Fed. 192 (Circ. Ct.); In re Michigan Furniture Co., 249 Fed. 978 (D. Ct.); and in the opinion here under review.

Crooks and Liars–

Matt Taibbi has a new article on Rolling Stone on the recent hearings in the U.S. Senate and whether or not Goldman Sachs executives should be facing criminal trials or not in the wake of ongoing investigations into their part in the financial meltdown we went through a few years ago. CNN decided to bring in the Atlantic Monthly’s Wall Street apologist Megan McArdle to debate Taibbi on Your Money.

A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges

Rolling Stones-

They weren’t murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.

[image: abcnews]

Elko Daily-

ELKO — At a time when Nevada is leading the nation in foreclosures for three years running, Signature Developers just avoided adding another piece of property to the list.

In a major victory for the developers of the Riverside Condominiums, an Elko District Court jury found Wednesday that Wells Fargo Bank committed fraud, negligent misrepresentation, breach of written contract and breach of good faith and fair dealing when trying to foreclose on the property.

BLOOMBERG-

The Justice Department is reviewing a report by a U.S. Senate panel that said Goldman Sachs Group Inc. (GS) misled clients about the firm’s bets on securities tied to the housing market, according to Attorney General Eric Holder.

Holder told the House Judiciary Committee at a hearing today that the department is reviewing the April report by the Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin, a Michigan Democrat. Holder didn’t say which aspects of the report, which probed the causes of 2008 financial crisis, are under review

iWatch

In 2007, the report says, Deutsche Bank rushed to sell off mortgage-backed investments amid worries that the market for subprime loans was deteriorating.

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” a Deutsche Bank manager wrote in February 2007 about a deal stocked with securities created from raw material produced by Ameriquest and other subprime lenders.

Spitzer to Holder: Prosecute Goldman Sachs or Resign

VIA: HuffPolitics

Senator Carl Levin (D-MI) and former Goldman Sachs Mortgages Department head Daniel Sparks, Senate Governmental Affairs Subcommittee on Investigations hearing, April 27, 2010

Dylan Ratigan with special guest New York Times’ Louise Story, discussing the 600+ page report uncovering Goldman Sachs scheme to defraud investors. According to Bloomberg, The U.S. Justice Department and regulators will have to determine whether employees and executives of Goldman Sachs Group Inc. violated any laws when they traded securities tied to the housing market and testified to Congress about the transactions, Senator Carl Levin said.

United States Senate
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
Committee on Homeland Security and Governmental Affairs
Carl Levin, Chairman
Tom Coburn, Ranking Minority Member

WALL STREET AND
THE FINANCIAL CRISIS:

Anatomy of a Financial Collapse

~

MAJORITY AND MINORITY
STAFF REPORT

PERMANENT SUBCOMMITTEE
ON INVESTIGATIONS

UNITED STATES SENATE

April 13, 2011

In the fall of 2008, America suffered a devastating economic collapse. Once valuable securities lost most or all of their value, debt markets froze, stock markets plunged, and storied financial firms went under. Millions of Americans lost their jobs; millions of families lost their homes; and good businesses shut down. These events cast the United States into an economic recession so deep that the country has yet to fully recover.

This Report is the product of a two-year, bipartisan investigation by the U.S. Senate Permanent Subcommittee on Investigations into the origins of the 2008 financial crisis. The goals of this investigation were to construct a public record of the facts in order to deepen the understanding of what happened; identify some of the root causes of the crisis; and provide a factual foundation for the ongoing effort to fortify the country against the recurrence of a similar crisis in the future.

Using internal documents, communications, and interviews, the Report attempts to provide the clearest picture yet of what took place inside the walls of some of the financial institutions and regulatory agencies that contributed to the crisis. The investigation found that the crisis was not a natural disaster, but the result of high risk, complex financial products;  undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.

While this Report does not attempt to examine every key moment, or analyze every important cause of the crisis, it provides new, detailed, and compelling evidence of what happened. In so doing, we hope the Report leads to solutions that prevent it from happening again.

Click image below to continue…

In late February, Charles Ferguson’s film – Inside Job – won the Academy Award for Best Documentary. And now the film documenting the causes of the 2008 global financial meltdown has made its way online (thanks to the Internet Archive). A corrupt financial industry, its corrosive relationship with politicians, academics and regulators, and the trillions of damage done, it all gets documented in this film that runs a little shy of 2 hours.

Inside Job (now listed in our Free Movie collection) can be purchased on DVD at Amazon. We all love free, but let’s remember that good projects cost real money to develop, and they could use real financial support. So please consider buying a copy.

Hopefully watching or buying this film won’t be a pointless act, even though it can rightly feel that way. As Charles Ferguson reminded us during his Oscar acceptance speech, we are three years beyond the Wall Street crisis and taxpayers (you) got fleeced for billions. But still not one Wall Street exec is facing criminal charges. Welcome to your plutocracy…

Via: harisgr

via GAWKER‘s  Adrian Chen:

A member of the activist collective Anonymous is claiming to be have emails and documents which prove “fraud” was committed by Bank of America employees, and the group says it’ll release them on Monday. The member, who goes by the Twitter handle OperationLeakS, has already posted an internal email from the formerly Bank of America-owned Balboa Insurance Company.

For full details go to Gawker.com

Email is between Balboa Insurance vice president Peggy Johnson and other Balboa employees

[Image OperationLeakS via Twitter]

NATURE OF THE ACTION

1. In mid-2006, Bear Stearns induced investors to purchase, and Ambac as a financial guarantor to insure, securities that were backed by a pool of mortgage loans that – in the words of the Bear Stearns deal manager – was a “SACK OF SHIT.”1 Within the walls of its sparkling new office tower, Bear Stearns executives knew this derogatory and distasteful characterization aptly described the transaction. Indeed, Bear Stearns had deliberately and secretly altered its policies and neglected its controls to increase the volume of mortgage loans available for its “securitizations” made in patent disregard for the borrowers’ ability to repay those loans. After the market collapse exposed its scheme to sell defective loans to investors through these transactions, JP Morgan executives assumed control over Bear Stearns and implemented an across-the-board strategy to improperly bar EMC from honoring its contractual promises to disclose and repurchase defective loans through a series of deceptive practices. In what amounts to accounting fraud, JP Morgan’s bad-faith strategy was designed to avoid and has avoided recognition of the vast off-balance sheet exposure relating to its contractual repurchase obligations – thereby enabling JPMorgan Chase & Co. to manipulate its accounting reserves and allowing its senior executives to continue to reap tens of millions of dollars in compensation
following the taxpayer-financed acquisition of Bear Stearns.

continue to the complaint below…

[ipaper docId=49597312 access_key=key-1ntbyo6ofse38sd72v9v height=600 width=600 /]

ALLSTATE BANK, ALLSTATE
INSURANCE COMPANY, ALLSTATE
LIFE INSURANCE COMPANY,
ALLSTATE NEW JERSEY INSURANCE
COMPANY, ALLSTATE LIFE
INSURANCE COMPANY OF NEW YORK,
AGENTS PENSION PLAN, and ALLSTATE
RETIREMENT PLAN,
Plaintiffs,

-against-

JPMORGAN CHASE BANK, N.A.; J.P.
MORGAN ACQUISITION CORPORATION;
J.P. MORGAN SECURITIES INC.; J.P.
MORGAN ACCEPTANCE CORPORATION
I; WM ASSET HOLDINGS
CORPORATION; WAMU ASSET
ACCEPTANCE CORPORATION; WAMU
CAPITAL CORPORATION;
WASHINGTON MUTUAL MORTGAGE
SECURITIES CORPORATION; LONG
BEACH SECURITIES CORPORATION;
DAVID BECK; DIANE NOVAK; THOMAS
LEHMANN; EMC MORTGAGE
CORPORATION; STRUCTURED ASSET
MORTGAGE INVESTMENTS II INC.;
BEAR STEARNS ASSET BACKED
SECURITIES I LLC; and SACO I INC.
Defendants.

excerpt:

NATURE OF ACTION

1. This action arises out of Defendants’ fraudulent sale of residential mortgage-backed
securities in the form of pass-through certificates (the “Certificates”) to Allstate.
Whereas Allstate was made to believe it was buying highly-rated, safe securities backed by pools
of loans with specifically-represented risk profiles, in fact, Defendants knew the pool was a toxic
mix of loans given to borrowers that could not afford the properties, and thus were highly likely
to default.

2. Defendants made numerous material misrepresentations and omissions regarding
the riskiness and credit quality of the Certificates in registration statements, prospectuses,
prospectus supplements, and other written materials (the “Offering Materials”).

continue below…

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“Even the processor at the lender – Flagstar Bank – she thought, ‘Hey, you got an offer full price, we’ll get the foreclosure stopped; we’ll make it go away; we’ll have a sale.’ She calls me back and says, ‘sorry.’”

Realtor, home seller baffled when bank rejects its own offer

By Dan Tilkin KATU News and KATU.com Staff

Countrywide Is Sued by TIAA-Cref, Investors in Mortgage-Backed Securities

By Karen Freifeld – Jan 24, 2011 5:35 PM ET

Bank of America Inc.’s Countrywide Financial unit was sued by investors in mortgage-backed securities who alleged a “massive fraud” in a complaint filed today in New York state court.

TIAA-CREF Life Insurance Co., New York Life Insurance Co., and Dexia Holdings Inc. are among about a dozen plaintiff institutional investors in mortgage-backed securities issued by Countrywide’s subsidiaries, according to the complaint.

The investors claim they bought hundreds of millions of dollars of Countrywide mortgage-backed securities from 2005 to 2007 because they wanted conservative, low-risk investments and relied on term sheets, prospectuses and other materials provided by the firm that they say were recklessly or knowingly false, according to the complaint.

“In reality, Countrywide was an enterprise driven by only one purpose — to originate and securitize as many mortgage loans as possible into MBS to generate profits for the Countrywide defendants without regard to the investors that relied on the critical, false information provided to them with respect to the related certificates,” according to the complaint.

[ipaper docId=47510655 access_key=key-20yqediudgrrg9o6t0zh height=600 width=600 /]

Suit Seeks $30 Million in Compensatory and $90 Million in Punitive Damages from Goldman
Sachs Over Its Role in Developing and Marketing the Synthetic CDO “ABACUS”

New York, NY — January 6, 2011 — ACA Financial Guaranty Corporation (ACA), a monoline
bond insurance company now operating in run off, filed suit today against Goldman Sachs & Co.
(Goldman Sachs) for fraud and unjust enrichment in connection with a synthetic collateralized
debt obligation (CDO) called ABACUS 2007-AC1 (ABACUS), which Goldman Sachs
developed and sold on behalf of its hedge fund client Paulson & Co. Inc. (Paulson) in 2007.
ACA was misled by Goldman’s fraudulent activities and is seeking $30 million in compensatory
and $90 million in punitive damages.

According to the complaint, filed in the Commercial Division of the Supreme Court of the State
of New York, New York County, this fraud action arises from the egregious conduct of Goldman
Sachs in developing and marketing ABACUS based on a portfolio of investment securities
selected largely by its hedge fund client, Paulson. Goldman Sachs’s scheme was to design
ABACUS to fail, so that Paulson could reap huge profits by shorting the portfolio and Goldman
Sachs could reap huge investment banking fees. Goldman Sachs fraudulently induced ACA to
take a long position in and provide guaranty insurance for ABACUS. Goldman Sachs did so by
deceiving ACA into believing that Paulson also was to be a long investor in ABACUS. In fact,
as Goldman Sachs knew, Paulson intended instead to take an enormous short position in
ABACUS, reaping nearly $1 billion when the portfolio failed.

As the complaint alleges: “ABACUS was worthless at the time Goldman Sachs marketed it to
ACA. Had Paulson’s true role as a short investor selecting the portfolio been known, neither
ACA nor anyone else would have taken a long position in it. Because of Goldman Sachs’s
deceit — which led ACA to reasonably believe that ABACUS was a valuable product selected by
the equity investor with identical objectives — ACA invested in what was in fact a worthless
product. Goldman Sachs engaged in this egregious misconduct notwithstanding that it expressly
acknowledged that its participation presented ‘reputational risk’ and after at least one other major
investment bank declined to participate for that very reason.” Goldman Sachs has since settled
SEC civil charges arising out of this fraudulent conduct, agreeing to pay a $550 million fine.

ACA is represented by Marc E. Kasowitz of Kasowitz, Benson, Torres & Friedman LLP.

About ACA Financial Guaranty Corporation
Founded in 1997, ACA Financial Guaranty Corporation is a monoline bond insurance company
licensed in 50 states and 5 territories and regulated by the Maryland Insurance Administration.
On August 8, 2008, the Company and counterparties to its structured finance products reached an
agreement on a restructuring plan for ACA. The plan, approved by the Maryland Insurance
Administration, provided for settlement of the structured finance obligations and protection for
ACA’s municipal policyholders. ACA will operate as a runoff insurance company and focus on
actively monitoring its remaining insured municipal obligations. ACA’s portfolio consists of
approximately 700 policies guarantying timely payment of principal and interest on more than $7
billion of generally high yield municipal bonds.

Contact:
Elliot Sloane
212-446-1860
esloane@sloanepr.com

Whit Clay
212-446-1864
wclay@sloanepr.com

Read Complaint Below…

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA

GUSTAVO REYES, ET AL., Plaintiffs,

v.

WELLS FARGO BANK, N.A., Defendant

[…]

IV. CONCLUSION

For the reasons stated above, Defendant’s Motion is GRANTED in part and DENIED in part
as follows: 1) the Motion is GRANTED as to Plaintiffs’ claim for breach of contract/breach of the
implied covenant of good faith and fair dealing, which is dismissed for failure to state a claim.
Because the Court concludes that Plaintiffs cannot state a claim by amending their complaint, this
claim is dismissed without leave to amend; 2) the Motion is GRANTED as to Plaintiffs’ claim for
restitution/rescission except as to Plaintiffs’ March payment, as to which Plaintiffs state a claim.
Otherwise, the claim is dismissed without leave to amend; 3) the Motion is DENIED as to Plaintiffs’
claim under the Rosenthal Act; and 4) the Motion is DENIED as to Plaintiffs’ unfair competition
claim under Cal. Bus. & Prof. Code §§ 17200 et seq.

IT IS SO ORDERED.

Dated: January 3, 2011

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Richard (RJ) Eskow

Consultant, Writer, Senior Fellow with The Campaign for America’s Future
Posted: December 30, 2010 04:58 PM

Bankers. The red carpet’s still being rolled out for them in Washington, but if there’s a stain on it they’ll pout for days. Jason Linkins documents the latest set of cheap white whines from very wealthy white men. (Discrimination lawsuits are a routine part of their legal troubles, too.) This time they’re upset because nobody from the six largest banks in America was invited to the president’s CEO Roundtable.

They’re offended because they didn’t meet with the president? From the looks of things they’re lucky not to be meeting with the warden. Their collective rap sheet includes fraud, sex discrimination, collusion to bribe public officials… even laundering drug money for Mexican drug cartels. One of them is accused of ripping off some nuns! None of this criminal behavior has stopped them from sulking over a presidential slight. Let’s review the record for these corporate malefactors, and then decide:

Which of these six banks was “America’s Most Shameless Corporate Outlaw” in 2010? (I mean, really: Nuns?)

Causes of Action:

Common law-fraud; aiding and abetting common-law fraud; negligent misrepresentation; and successor and vicarious liability

read the full complaint below…

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Bank of America, UBS Assets Seized in Italy Swap Probe

December 21, 2010, 7:55 AM EST

By Elisa Martinuzzi

(Adds details from second paragraph.)

Dec. 21 (Bloomberg) — Italy’s finance police seized 22 million euros ($29 million) from six lenders including Bank of America Corp. amid allegations of fraud in a probe focusing on the sale of derivatives to five municipalities in central Italy.

Police said they took 15 million euros from Bank of America, and 1.7 million euros each from Deutsche Bank AG and UBS AG, according to an e-mailed statement. The remainder was seized from Natixis SA, Dexia Crediop SpA and Banca Monte Paschi di Siena SpA.

The amount represents the alleged illicit profit the banks made from selling derivatives to the city of Florence, the region of Tuscany and three other municipalities in the region, the police said. The local governments have lost about 123 million euros on the swaps that adjusted payments on 1.4 billion euros of debt, the police said.

The complaint seeks to recover nearly $1 billion in fees and profits and an additional $5.4 billion in
damages for JPMC’s decades-long role as BLMIS’s primary banker, aiding and abetting Madoff’s
fraud. All recovered monies will be placed into the Customer Fund and distributed, pro rata, to
Madoff customers with valid claims, the rightful owners of those monies.

“JP Morgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff,” said David J. Sheehan, counsel for the Trustee and a partner at Baker & Hostetler LLP, the court-appointed counsel for the Trustee. “While many financial institutions enabled Madoff’s fraud, JPMC was at the very center of that fraud, and thoroughly complicit in it. JPMC was BLMIS’s primary banker for more than 20 years, and was responsible for knowing the business of its customers – in this case, a very large customer. Madoff would not have been able to commit this massive Ponzi scheme without this bank. JPMC should pay the price for its central role in enabling Madoff’s fraud.”

Continue below…to read TO BE FILED UNDER SEAL COMPLAINT

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