This paper explores the economic and legal causes and consequences of the 2007-2008 credit crisis. We provide basic descriptive statistics and institutional details on the mortgage origination process, mortgage-backed securities (MBS), and collateralized debt obligations (CDOs). We examine a number of aspects of these markets, including the identity of MBS and CDO sponsors, CDO trustees, CDO liquidations, MBS insured and registered amounts, the evolution of MBS tranche structure over time, mortgage originations, underwriting quality of mortgage originations, and write downs of the commercial and investment banks. In light of this discussion, the paper then addresses questions as to whether these difficulties might have been foreseen, and some of the main legal issues that will play an important role in the extensive litigation (summarized in the paper) that is underway, including the Rule 10b-5 class actions that have already been filed against the banks, pending ERISA litigation, the causes-of-action available to MBS and CDO purchasers, and litigation against the rating agencies. In the course of this discussion, the paper discusses three distinctions that will likely prove central in the resolution of the securities class action litigation: (1) “no fraud by hindsight”; (2) “truth on the market”; and (3) loss causation.
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From Paper to Electronic: Exploring the Fraud Risks Stemming From the Use of Technology to Automate the Australian Torrens System
By Rouhshi Low
Interesting points:
In all electronic systems, land title instruments are prepared electronically. This may make it easier for fraudulent persons with access to the system to perpetrate fraudulent alterations, because unlike a physical alteration, an electronic alteration on an electronic document will not leave any physical evidence of the alteration.
In the paper system, the practice of the Land Titles Office manually checking instruments lodged for registration before updating the register may be said to act as a safeguard against this type of fraud, since any alteration of an instrument might leave some form of a physical mark which might then be noticed by the officer and appropriate action may then be taken. Of course the effectiveness of this safeguard depends on the vigilance of the examining officer.
It is observed that these considerations do not arise in the paper registration system. They are unique to an electronic system because of the use of technology to replace the handwritten signature. In the paper system, handwritten signatures can be forged, but there was never a requirement or a need for individuals to keep their signatures safe. It is simply not possible. Replacing handwritten signatures with digital signatures introduces a new element into the process. And because of the potential for fraud whether because the fraudulent person has managed to obtain an existing digital certificate/PSP or circumvented the registration process to obtain one, the use of digital signatures therefore imposes ‘new’ obligations on users as well as the entity responsible for the registration process that do not exist in the paper system. The user is now responsible for keeping the digital certificate/PSP safe. The entity issuing the digital certificate/PSP is responsible for developing and maintaining effective registration processes to minimize the risk of a fraudulent person impersonating an authorised user. In fact, attacking the registration process in this manner is an additional avenue for the fraudulent person to perpetrate identity fraud so that it could be said that in an electronic system, there might be two opportunities for identity fraud: (i) identity fraud of the owner of the land and (ii) identity fraud of an authorized user of the system.
So to perpetrate fraud in an electronic registration system, the solicitor would not even need to forge the victim’s signature, or mislead the client into signing documents, or create false powers of attorney, or fraudulently alter instruments, as is the case in the paper registration system.All that the solicitor would have to do would be to prepare the instrument, digitally sign it and submit it to the Land Titles Office for registration. As noted above, being able to fraudulently use a digital certificate/PSP to digitally sign instruments for lodgement and registration is a new opportunity for fraud in an electronic system. As seen in the discussion here, solicitors will have the greatest opportunity to perpetrate this new type of fraud.
In all the electronic systems, clients no longer sign land title instruments for registration. Rather an authorisation form is signed instead. This change in practice may see a shift in forgery cases – instead of forging the signature of the victim on the land title instrument, fraudulent persons will now have to forge the signature of the victim on the authorisation form.
The concern in abolishing the paper certificate of title in an electronic registration system is that it will result in more identity fraud. When the New Zealand system was introduced, Thomas argued that ‘[T]he absence of an outstanding duplicate certificate of title (or anything in substitution of the same) is argued to be a key flaw in the new system, making it more vulnerable to fraud’.63
But will this be the case? It is argued that identity fraud might be perpetrated in an electronic registration system in the same way as in the paper registration system – when the fraudulent person is able to successfully impersonate the victim of the fraud to convince the authorised user responsible for the transaction that he or she has a right to deal with the land. The difference is that in the paper registration system, since the certificate of title is the document used to evidence a right to deal with the land, identity fraud uses the certificate of title. In an electronic registration system, the manner in which identity fraud may be perpetrated would depend on the system and how identity and right to deal might be established.
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