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Mortgage fraud inquiry nets hundreds Government official says losses in the fraud cases total about $1 billion. Last Updated: June 19, 2008: 12:45 PM EDT WASHINGTON (CNN) -- Hundreds of people across the country have been arrested by law enforcement officials targeting crooked mortgage brokers, real estate agents, and other industry officials, Justice Department officials said Thursday.
Losses in the fraud cases total about $1 billion, the FBI estimates.
More than 400 people have been charged, of whom nearly 300 have been arrested, including 60 in a coordinated sweep Wednesday, Justice Department said.
"Operation Malicious Mortgage," the investigation by the FBI and Justice Department, began March 1, government officials said. It resulted in 144 fraud cases in which 406 defendants were charged.
A wide range of agencies were credited as contributing to the investigation, including the Internal Revenue Service, the Secret Service, the Department of Housing and Urban Development, immigration and customs agencies, postal inspectors and the Federal Deposit Insurance Corporation.
Most of the arrests came Wednesday, federal law enforcement officials said, in Miami, Houston, San Antonio, Baltimore, Chicago, and other cities.
Officials indicated the suspects were involved mostly in small-scale schemes.
First Published: June 19, 2008: 9:35 AM EDT
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Crime and delusion on Wall Street Prosecutors allege two ex-Bear Stearns hedge fund managers misled investors. Perhaps, but Wall Street has long been kidding itself about the credit crunch. By Colin Barr, senior writer Last Updated: June 19, 2008: 1:14 PM EDT NEW YORK (Fortune) -- Coming soon to a docket near you: The first criminal case of the credit crunch.
Two former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, surrendered Thursday to the FBI. The men are expected to face federal charges later Thursday that they intentionally misled investors in two funds that collapsed last summer under the weight of wrong-way bets on mortgage-backed securities.
The case apparently turns on the question of what the men knew when they told investors they were hopeful about the funds' prospects - at a time when their performance was deteriorating and some investors were trying to withdraw money.
As it did in earlier cases following the collapse of the technology stock boom, the government is expected to rely in part on e-mails that allegedly show the managers had private doubts even as they were publicly expressing confidence.
Though the defendants intend to fight the charges, the notion that something was amiss in mortgage land seems obvious now, in light of the billions of dollars in losses being recognized almost daily by financial firms around the world.
Lawyers for Cioffi and Tannin said in a joint statement Thursday that the subprime mess "took everyone by surprise, including the Fed and Treasury," and led to more than $300 billion of losses at financial firms.
"Because his funds were the first to lose might make him an easy target but doesn't mean he did anything wrong," said Cioffi lawyer Ed Little. "Indeed, Mr. Cioffi had no motive to do anything wrong. He did not and could not have profited by doing anything the government now claims he did." Susan Brune, attorney for Tannin, said her client "is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."
What did they know? The case against Cioffi and Tannin will take awhile to play out. But what's clear today - and may be central to the managers' defense - is that the Bear Stearns managers were far from alone in failing to warn investors of the sea change in the credit markets. Indeed, top guns on Wall Street have spent a lot of time deceiving themselves about the depth of the mortgage mess.
The prosecution comes almost exactly a year after reports of problems at the funds, called the High-Grade Structured Credit Strategies and High-Grade Structured Credit Strategies Enhanced Leverage funds, bubbled to the surface. The funds' subsequent descent into bankruptcy exposed the first cracks in the teetering edifice that was Bear Stearns, then the nation's No. 5 brokerage firm. Bear narrowly survived a confidence crisis in August before collapsing this spring into the arms of JPMorgan Chase (JPM, Fortune 500).
The Bear Stearns funds were launched in 2006 to take advantage of the peak of the credit boom, in part by betting - using large amounts of borrowed money - on the decline of indexes representing the value of subprime-related securities. After making money for several months, the funds began running into trouble in early 2007, when the ABX indexes reversed and began rising.
That unexpected turn, together with the funds' heavy leverage, meant losses mounted quickly. Merrill Lynch, alarmed by the losses and unimpressed by Bear Stearns' plan to restructure the funds, then stepped in and seized some bonds the funds had put up as collateral - further unnerving investors.
Reports of troubles at the High Grade funds didn't appear in the business press till last June. But by then, Bear was already indulging in the self-defeating damage-control cycle that since has been evident at almost every turn in the credit crisis.
In April, for instance, Cioffi reportedly reassured hedge-fund investors on a conference call he was "cautiously optimistic" about Bear's ability to hedge its subprime holdings. The comments came a month after Cioffi had moved $2 million of his own money out of one of the troubled funds into a third Bear Stearns hedge fund, The Wall Street Journal reported, and even as Bear execs discussed problems in the mortgage markets and the ramifications they might have on the funds. Cioffi and Tannin's actions at the time of the "cautiously optimistic" remark reportedly have been a focus of the federal investigation.
As it turned out, Cioffi had little to be optimistic about. The fund eventually found it had lost 19% of its value in April alone - but, according to news accounts, compounded its problems by initially sending investors a letter putting the loss for that month at just over 6%. In June, the firm suspended investor redemptions and held a conference call to discuss the Enhanced Leverage fund's performance - a call in which Cioffi declined to take questions from nervous investors, a move that only heightened anxiety.
Under pressure from lenders threatening to seize the funds' collateral, Bear in late June issued a public statement blandly promising to "stabilize the situation," then promised to lend as much as $3.2 billion to keep the funds from collapsing. But in July, as the funds were preparing for a bankruptcy filing, the firm admitted that investors in the funds would recoup less than a dime on every dollar they invested.
Wall Street kids itself The bad news at Bear should have warned others on Wall Street to dig into their exposure to risky mortgage-related bets. Yet even as the collapse of the High Grade funds was being dissected in the press, other big subprime-writedown losers such as UBS (UBS), Merrill Lynch (MER, Fortune 500) and Citigroup (C, Fortune 500) remained in denial - initially underestimating eventual losses and eroding investor confidence by citing supposedly unforeseeable market conditions. Top execs were forced out at all three firms.
Even now, a year after the High-Grade funds started to wobble and months after the house cleanings that cost Chuck Prince and Stan O'Neal their jobs, those simple lessons are still being learned.
At AIG (AIG, Fortune 500), CEO Martin Sullivan was forced out after he oversaw two record quarterly losses just months after blithely reassuring investors the insurer's subprime exposure was limited. At Lehman Brothers (LEH, Fortune 500), two top execs were demoted last week after the firm insisted it wouldn't need to raise more capital to offset future losses, only to later do so twice.
In both instances, the firms claimed they had a handle on their mortgage-related problems, only to admit otherwise later - at great cost to shareholders.
Now Cioffi and Tannin will serve as the criminal test case. And however it ends, the events of the past year have shown that people who should have known better were all too willing to be misled.
First Published: June 19, 2008: 10:26 AM EDT
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Thursday, June 19, 2008 - 11:00 AM CDT FBI arrests 8 people for mortgage fraud
All 11 defendants are charged with conspiracy to commit wire fraud and various other counts including bank fraud, money laundering and engaging in a monetary transaction with criminally derived property. Residences that were used in the scheme include nine homes in Dallas, one in Irving and one in Allen.
Others arrested Wednesday were Regis Lamont Williams, 43, of Dallas, who was a real estate appraiser; Kevin Ray Sanderson, 33, of Irving, vice president of Farco Construction; Tony Earl Anderson, 51, of Dallas; James Edward Jones, 42, of Dallas; Edwin Terrence Bell, 41, of Fort Worth, principal of The Togetherness Group Inc.; Robert John Mason, 53, of Oak Leaf, an employee of Prestige Capital; and Christopher N. Williams, 41, of Flower Mound.
Farrington's charges include one count of conspiracy to commit wire fraud, one count of bank fraud and aiding and abetting, 15 counts of wire fraud and aiding and abetting, 10 counts of money laundering and aiding and abetting, and five counts of engaging in a monetary transaction with criminally derived property and aiding and abetting.
quote:Originally posted by glassman: here's another one:
Thursday, June 19, 2008 - 11:00 AM CDT FBI arrests 8 people for mortgage fraud
All 11 defendants are charged with conspiracy to commit wire fraud and various other counts including bank fraud, money laundering and engaging in a monetary transaction with criminally derived property. Residences that were used in the scheme include nine homes in Dallas, one in Irving and one in Allen.
Others arrested Wednesday were Regis Lamont Williams, 43, of Dallas, who was a real estate appraiser; Kevin Ray Sanderson, 33, of Irving, vice president of Farco Construction; Tony Earl Anderson, 51, of Dallas; James Edward Jones, 42, of Dallas; Edwin Terrence Bell, 41, of Fort Worth, principal of The Togetherness Group Inc.; Robert John Mason, 53, of Oak Leaf, an employee of Prestige Capital; and Christopher N. Williams, 41, of Flower Mound.
Farrington's charges include one count of conspiracy to commit wire fraud, one count of bank fraud and aiding and abetting, 15 counts of wire fraud and aiding and abetting, 10 counts of money laundering and aiding and abetting, and five counts of engaging in a monetary transaction with criminally derived property and aiding and abetting.
Glass, Do you think that is part of the same operation or something seperate? Just curious if they had multiple investigations going, or just that "Operation Malicious Mortgage" one. And also I wonder if the States will get involved on a State by State basis as well? What are your thoughts?
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i can't tell yet, i assume it's part of the 400, but it provides better specifics about he "little fish"...
here's my query:
Will the "big fish" be limited to Bear Stearns? or will they go after hedge funds that didn't get bailed out?
UBS. Merryl Lynch and others had quite a few failed funds too... and the pattern was the same. many people were lied to when they inquired...
On Friday November 2nd 2007, The Wall Street Journal More specifically, the article relates "In one deal, a hedge fund bought $1 billion in commercial paper issued by a Merrill-related entity containing mortgages, a person close to the situation said. In exchange, the hedge fund had the right to sell back the commercial paper to Merrill itself after one year for a guaranteed minimum return, this person said. While the Merrill-related entity's assets and liabilities weren't on Merrill's own balance sheet, Merrill might have been required to take a write-down if the entity was unable to sell the commercial paper to other investors and suffered losses, the person said. The deal delayed that risk for a year, the person said." they played this shell game everywhere.... dump the KNOWN bad paper onto unsuspecting investors.
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quote:Originally posted by Pagan: From the article:
"It resulted in 144 fraud cases in which 406 defendants were charged."
But they may even get into RICO if they can prove it was an ongoing criminal enterprise.
Fraud is a general term, Pagan. Hence the list of specific charges in Glass' post. I was just wondering what direction they were going with the investigation. Whether it was the lenders for the fraudulent credit ratings to give to investors or if it was at the ground level.
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quote:Originally posted by Pagan: From the article:
"It resulted in 144 fraud cases in which 406 defendants were charged."
But they may even get into RICO if they can prove it was an ongoing criminal enterprise.
Fraud is a general term, Pagan. Hence the list of specific charges in Glass' post. I was just wondering what direction they were going with the investigation. Whether it was the lenders for the fraudulent credit ratings to give to investors or if it was at the ground level.
Well, it sounds like from both articles they are going after the ground level. Not to say once some of them flip, lenders might be sucked in as well.
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It is disgusting the amount of corruption in our own country. I thought I saw bad corruption in Iraq, but that was just violence. The scale of money involved in all that is coming to light probably tops any other country on a monetary scale. Again...not violence but in amounts of money involved. just my opinion though i could be way off
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quote:Originally posted by T e x: Any of you following this, please look for any mention of "Avelo Mortage." That's the crooked bazturds I'm at war with...
Lenders promise streamlined workouts HOPE NOW coalition services most mortgages By Matt Carter, Wednesday, June 18, 2008.
Inman News
More than two dozen loan servicers that collect payments on most U.S. mortgages have agreed to adopt guidelines that are intended to expedite the process of working with troubled borrowers to prevent foreclosures.
The new HOPE NOW guidelines state that loan servicers should inform homeowners within 45 days whether their application for a workout -- such as a repayment plan, loan modification or short sale -- has been accepted or denied.
Servicers also agreed to re-subordinate second-lien loans if their position will not be worsened by a refinance or workout -- potentially removing a major obstacle to preventing foreclosures in cases where borrowers have "piggyback" second loans. HOPE NOW servicers will also attempt to contact homeowners with subprime adjustable-rate mortgages (ARM) and other homeowners with ARMs that have a probable risk of default 120 days in advance of reset.
The Bush administration helped organize the HOPE NOW coalition of loan servicers, and has cited its efforts in opposing a proposal to expand FHA loan guarantee programs to help more troubled borrowers refinance (see story).
The 27 lenders agreeing to follow the new HOPE NOW guidelines were Acqura Loan Services, Assurant Inc., Aurora Loan Services, Avelo Mortgage LLC, Bank of America, Carrington Mortgage Services, Chase, Citigroup Inc., Countrywide Financial Corp., EMC Mortgage Corp., First Horizon Home Loans and First Tennessee Home Loans, GMAC ResCap, Home Loan Services Inc., HomEq Servicing, HSBC Finance, Indymac Bank, LandAmerica Financial Group Inc./LoanCare Servicing Center, Litton Loan Servicing, National City Mortgage Corp., Nationstar Mortgage LLC, Ocwen Loan Servicing LLC, Option One Mortgage Corp., Saxon Mortgage Services, SunTrust Mortgage Inc., Washington Mutual Inc., Wells Fargo & Co., and Wilshire Credit Corp.
For more information visit HOPENOW.com. The Homeownership Preservation Foundation's HOPE Hotline (888) 995-4673 is available 24 hours a day, seven days a week.
Updated 3.20.2008 Copyright 2007. Senderra Funding dba Avelo Mortgage, L.L.C. All rights reserved. 1091 521 Corporate Center Drive | Fort Mill, SC 29707 | www.senderra.com Not for public distribution. This information is intended to assist Mortgage Professionals only and should not be construed as an advertisement to promote consumer credit as defined by Title 12, Code of Federal regulations, Section 226.2. Programs, terms and conditions are subject to change without notice. Avelo Mortgage, LLC d/b/a Senderra Funding, 1091 521 Corporate Center Drive, Fort Mill, SC 29707 (704) 831-3600. AZ: Arizona Branch License #BKBR-113572; CA: Finance Lender #603F784 and Mortgage Banker #813E589, Licensed by the Department of Corporations under the California Residential Mortgage Lending Act; KS: Kansas licensed mortgage company, 2005-4988-01; IL: Illinois Residential Mortgage Licensee; KS: “Kansas licensed mortgage company,” Supervised Loan Licenses #2005-4988- 01 and #2006-5160; MA: Massachusetts Mortgage Lender #ML3196; NH: Licensed as Avelo Mortgage, LLC, Mortgage Banker License #11347-MB, “Licensed by the New Hampshire Banking Department”; NJ: Avelo Mortgage Company LLC, 10 Exchange Place, 27th Floor Jersey City, NJ 07302 (973)-263-3986, “Licensed by the NJ Department of Banking and Insurance.” PA: “Licensed by PA Department of Banking”. Senderra and TurnBlazer are service marks of Avelo Mortgage, L.L.C. This email is produced by Avelo Mortgage, L.L.C. d/b/a Senderra Funding.
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April 5, 2006 - Senderra Funding Senderra Funding Enters Market with Paperless Approval Process
Senderra Funding, a new wholesale mortgage company specializing in non-prime lending, is now open for business in seven states and rapidly moving to build a national presence.
The firm is led by Charles Brad Bradley, who founded, led, then sold EquiFirst. Working with him on the management team are veterans from GMAC, Accredited Home Lenders and Wachovia Securities. The five top executives have more than 30 years of combined experience in the mortgage industry.
quote:AEVLO MORTGAGE, L.L.C, Mortgage Servicer for LASALLE BANK NATIONAL ASSOCIATION AS TRUSTEE FOR GSAMP TRUST 2006-HE5, MORTGAGE PASS_THROUGH CERTIFICATES, SERIES 2006-HE5, the current Mortagee of the Note and Deed of Trust related to the above referenced loan...
anything anybody can dig up, mucho appreciated...
-------------------- Nashoba Holba Chepulechi Adventures in microcapitalism...
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Use of this Web Site Although Bank of America, N.A, LaSalle Bank National Association and their affiliates ("Bank of America","We, "Us") have tried to provide accurate and timely information, the content of this site may not be accurate, complete or current and m
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might be...shows lack of internal controls. Which AVELO mirrors in spades...
well, some of my DD indicates that Avelo is somehow an extension of Sunderra. Sunderra does hire and train brokers. BUT Dunn & Bradstreet disagrees
Detailed Avelo Mortgage, Llc Company Profile
This company profile is for the private company Avelo Mortgage, Llc, located in Irving, TX. Avelo Mortgage, Llc's line of business is surety insurance carrier.
posted
Update on the Bear Stearns not so dynamic duo...
A Bear Case for Smart Folks Who Write Dumb E-mail
Commentary by Ann Woolner
June 20 (Bloomberg) -- Ralph Cioffi and Matthew Tannin are, presumably, a couple of smart guys. They have solid educations and for a while did well for themselves managing hedge funds on Wall Street. I'm thinking they're the sort of men who keep up with current events.
So, what's with the e-mail?
The feds arrested both yesterday at their homes, cuffed them for a perp walk and held a press conference to tout the case.
This pair of collared white collars are charged with lying to investors about the value of the Bear Stearns Cos. hedge funds they ran, the ones whose failures last June sent the subprime mortgage crisis into overdrive.
Their crime, the indictment says, is that they urged people to keep pouring in money when they knew the bottom was falling out.
The funds, once worth $20 billion, had invested heavily in subprime mortgages: a big mistake. Investors lost $1.6 billion, Bear Stearns collapsed and so did the subprime mortgage market, prompting almost $400 billion in writedowns to date.
So, can we blame Cioffi and Tannin for that? Why do we think they lied? In large part because of e-mail, the indictment says.
In those intimate, chatty electronic blips to each other, Tannin and Cioffi say one thing about prospects for their funds. When presenting to investors or brokers, they say the opposite, according to the charges.
The subprime market is ``pretty damn ugly,'' Tannin typed into his keyboard in April 2007. He called it ``toast.''
``We're very comfortable with exactly where we are,'' Tannin said in a conference call with investors two days earlier. The fund's structure ``has performed exactly the way it was designed to perform.''
Or Not
``I'm fearful of these markets,'' Cioffi wrote in March 2007, according to the indictment.
That same month, that same man, Cioffi, called the fund an ``awesome opportunity'' when speaking to a Bear broker who had more than 40 clients invested in it.
I'm having a deja vu. Why didn't they?
Had they never heard of Henry Blodget, ex-Internet analyst for Merrill Lynch & Co. and one-time star of CNBC? He ran into trouble for urging people to buy shares of companies while he described them in internal e-mail as ``crap'' and a ``piece of junk.''
It was in all the papers.
And then there was Jack Grubman, former telecommunications analyst for Citigroup Inc. His e-mail to his boss, Sandy Weill, suggested he would upgrade his recommendation on AT&T Corp., whose investment business Citigroup was courting, to win Weill's help in landing a spot at an exclusive Manhattan nursery school for Grubman's child.
No Jail
Blodget and Grubman settled the matter civilly, both avoiding criminal charges. Not so for Frank Quattrone, former investment banker with Credit Suisse First Boston, focusing on high-tech companies. Prosecuted for obstructing justice on the basis of a single e-mail message, Quattrone shed his criminal problems only after a mistrial, a conviction, and a reversal on appeal.
``You would think that people would have learned that e- mails are sort of like Styrofoam,'' says Robert Mintz, former prosecutor, now white-collar defense lawyer in Newark, New Jersey. ``They live on forever.''
True, none of the heedless e-mailers wound up in prison for their messages. Nonetheless, their stories should have served as cautionary tales.
What, Me Worry?
But hey, what has caution got to do with it? We're talking hedge funds! You can't be risking hundreds of millions of dollars on shaky mortgages and then get queasy about who might later read those private little messages you send out all day long, can you?
Back in the hedge fund heyday, the managers were kings of risk, flying high on their own invincibility, indeed, on arrogance. Sort of like it was during the Internet and telecom boom, no?
And to whom are these hedge guys accountable? Isn't that the special beauty of these privately held hedge funds? No one's watching very closely.
So, no. Stupidity's probably not to blame for the e-mails exposed in this week's indictment. Perhaps these new Masters of the Universe simply never thought that they needed to be careful.
Besides, the real problem isn't what they told each other. The problem is what they told investors and brokers. If the indictment's right, they did wrong when they hid the truth, not when they revealed it to each other.
Not Guilty
There is, of course, another explanation for their writing seemingly incriminating e-mail messages, beyond stupidity, beyond arrogance. Innocence.
It could be that these few e-mails and the snippets of conversations that the indictment reveals don't tell the whole story. Yes, the subprime market worried them, but upon further investigation they found reason for the optimism they passed on to investors. That's clearly what the pair's lawyers will argue.
Perhaps we will now see an e-mail that says, ``I have full confidence in the subprime market now. That was just a false alarm. Silly me.''
Or maybe their lawyers will produce a conference call in which Tannin and Cioffi warn investors about a probable downturn. Maybe the second half of that conversation with the Bear broker went something like, ``but maybe you should caution your clients about risks we're seeing.''
Whether they are innocent or guilty, their case offers another lesson in the dangers of e-mail. E-mail can help prove crimes. It can also be pulled out of context to give the false appearance of wrongdoing.
Either way, write your e-mail as if it could appear in an indictment. That way you can make sure it doesn't.
(Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.)
To contact the writer of this column: Ann Woolner in Atlanta at awoolner*bloomberg.net.
Last Updated: June 20, 2008 04:21 EDT
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