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EDITOR’S NOTE: The fraud is that they lied about the quality and legal status of the mortgages, as well as the quantity of the mortgages. They lied about what investors were getting. Prove that and you get two for the price of one. Because when that is proven in court, especially in criminal prosecutions where the proof is beyond a reasonable doubt, then the proof and the verdict can be used to show that that the same lies and the same method of operation was used with the borrowers.
If you look at it from some perspective you can see that the sale to investors was identical to the sale to borrowers. Both relied upon fraudulent misrepresentations about the same facts. Both involved appraisal/ratings fraud, which are the same thing.
See Full Article on Syracuse.com
Securities Fraud: Public interest compels prosecutors to act boldly
Published: Friday, January 06, 2012, 2:00 AM
In late 2006, when the overheated and under-regulated mortgage investment market already was starting to self-destruct, the giant German financial institution Deutsche Bank began selling collateralized debt obligations (CDOs) under the name Gemstone 7.
Bankers at the fourth-largest CDO marketer in the United States knew the subprime mortgage securities in the $1.1 billion Gemstone 7 offering were unstable. Mortgage defaults were accelerating, and the value of the securities was dropping. In its subsequent analysis of the six-month sale period for Gemstone 7, the U.S. Senate’s Permanent Subcommittee on Investigations discovered the bank’s own employees dismissed the securities as “crap” and “pigs.” One sales officer wrote in an email: “We need to sell it now while we still can.” Wrote another: “I think we will price this just before the market falls off a cliff.”
Did those salespeople share their misgivings with prospective customers? No, they promoted the doomed securities relentlessly — even as some of the bank’s own traders bet against Gemstone 7. Ratings agencies were no help. Although Moody’s and Standard & Poor’s had bestowed subpar ratings to one-third of Gemstone 7’s assets, the agencies eventually rated 73 percent of these securities AAA. Deutsche Bank proceeded to sell $700 million of Gemstone 7 securities.
Those millions turned to dust in the hands of investors. So did much of the $400 million worth of Gemstone 7 securities Deutsche Bank was unable to unload despite its best — or worst — efforts.
The saga of Gemstone 7 is just a small part of the financial collapse. In the year after December 2006, Deutsche Bank alone put together 15 similar CDOs with a claimed value of $11.5 billion, earning $6 billion from its sales of tainted securities. Investors saw trillions of “face value” disappear. U.S. taxpayers paid hundreds of billions to bail out tottering financial institutions. There were some financial settlements of egregious investment scams — but not one criminal conviction of a major banker involved in the historic scandal.
Enonomist Jeff Madrick of Cooper Union, and Frank Partnoy, who teaches finance at the University of San Diego, recently singled out Gemstone 7 as a case worth prosecuting. A guilty verdict “would establish precedents that would make other prosecutions workable,” they write. “Then — and perhaps only then — would a strong deterrence against such activities be created.”
There are daunting obstacles to such federal prosecutions. Some worry that going after bankers could precipitate another financial crisis. Wading through mathematical investment formulas with a jury is a challenge. Plus, banks include pro forma warnings and disclaimers in their solicitations — and will argue that sophisticated investors should know the risks before they take the plunge. They can point to rating agencies that certified their junk securities as squeaky clean. Wall Street firms will hire the best lawyers money can buy.
But none of those obstacles trump the compelling public rationale for prosecuting the schemers who nearly brought down the U.S. economy. “If prosecutors are paralyzed by fear of losses and the complexity of these cases,” write Madrick and Partnoy, “justice may never be done.”
27 thoughts on “Prosecutions of Securities Fraud Will Unravel Mortgage Mess”
@DCB,
John Boehner is a heartless wuss. And it can’t pronounce his own name correctly.
@DCB – it all depends on what side of the wall you were on in 1960. I’m starting to like this site, for reasons other than fraud. If i am on the communist side I am not thinking about how America bombed our Country – i am still living it. If i am on the capitalist side I hold resentments but still remember that America did not start the war. The Rothschilds did to weaken the Mark and the blistering economic growth that they could not control through the bank of England.
@npv
“The Rothschilds did to weaken the Mark and the blistering economic growth that they could not control through the bank of England.”
ok —i never heard that perspective—–ok pls excuse my ignorance but did not the weimar republic print dm like crazy to deflate awaw war debt imposed by heavy -handed brits.frogs.?
then 3rd reich sort of used presses to fund war build-up?
now i can see how that untamed manipulation of dm could po a speculator or lender —-i do not know if 3rd reich was able to borrow dear dm from london banks and repay with cheap dm?
as i watch the eurozone today–daily ——it appears like the same stress points are re-opening but its london and dc and nyc that want the presses to run in unison? but –except for the now sidelined deutsche bank ceo —that got too loud—-the germans and other north europeans –are resistant to inflationary effect on labor vs capital—sort of a natl socialist perspective?
@Enraged Absolutely no offense taken, I thought deeply about your view before responding. Had you been an idiot, which you obviously are not, I wouldn’t have bothered to comment. i can understand your viewpoint now from a better perspective. As men, most of harshness is not genetic. Although, I agree that Germans tend to be a bit more hostile as a tribe, most of what we are as men, is bred through our fathers. It is a trait, but a learned character trait.
I have looked back on life and found at times I was a bully to my wife and my children. Not because I had to have them submit, more because I did not feel what was important to them was important at the moment. It was important, and because I was short it was mistaken as hostile. Sometimes I am still short – but that is because of my Irish nanny who would give any skinhead a run for their money, regardless of which side of the pond she was on.
Enraged, i have character flaws that i work on daily and your opinion on the subject matter made me think and reflect. Whether I agree or not is irrelevant because I learned from it which will make me a better man tomorrow. You made some good points. The open discussion is what I truly appreciate, for if we teach our own to do the same, America will be well on its way to improving.
Again, I will never agree with everything someone writes, but I can find the items I agree with without being offended and thus offer my feelings on the subject from a neutral standpoint.
Please see there is a conflict of interest where SEC does not involve in Criminal Prosecutions.
http://en.wikipedia.org/wiki/Robert_Khuzami
“General counsel
In 2004, Khuzami was hired by Richard H. Walker to work at Deutsche Bank in New York, where he supervised more than 100 lawyers[12] and oversaw Americas-based litigation and regulatory enforcement. From 2002 to 2004, he headed their global litigation and regulatory investigations. He stayed at the bank until 2009. Walker, who had met Khuzami at Cadwalader, Wickersham & Taft when Walker was a partner there, later recommended him for the enforcement job at the SEC,[1] a job he had once held himself.[13][14]
[edit] SEC Division of Enforcement
Khuzami was appointed by U.S. Securities and Exchange Commission (SEC) Chairman Mary Schapiro[5] to succeed Linda Chatman Thomsen after the SEC had come under public criticism for failing to detect Bernard Madoff’s Ponzi scheme.[12][15][16] His appointment was controversial because of his employment at Deutsche Bank, a global investment firm which did business with Goldman Sachs. He was portrayed as an outsider by some[1] but had had eleven years’ experience as a federal prosecutor.[17]”
@enraged again
But there is a toughness in them and a lack of empathy that is absolutely real. They are still very harsh
Our midwestern farmers of german ancestry are same—-im not sure its do anything not forbidden, or lack of empathy—–its a sort of sense of superiority with absolute confidence in the view–back to the ubermenschen stuff –ask john boehner
Iwantmypvn…
No offense to you. I don’t bundle all the germans into one category anymore than i bundle any ethnic group. All I said is that in the German mentality (and believe me, I know: my former husband, father to my kid is one and I really spent years there), anything not specifically forbidden is, therefore, allowed. It’s how they think. The same way that, here, people are very much attached to their physical comfort; that French people are chronic complainers (I lived there too, for a long time), that British are chronically constipated, (hence the way they talk…) etc.
I don’t attach a judgment to it. The thing is: there is such a thing as environmental conditioning and traits that are common to cultures from their historic background. Germany did not exist as a country for centuries after other countries had already been established, by virtue of the fact that there wasn’t any common language until Martin Luther. And even now, the cultural differences are enormous. Saxons have nothing in common with Westphaliens or Bavariens, other than the language. But there is a toughness in them and a lack of empathy that is absolutely real. They are still very harsh and hard.
I didn’t intend to offend you and i apologize if I did.
@enraged – I don;t have to ask them myself – I lived with them. My Grandfather Emil used to hate Hitler for allowing his own personal ego to destroy the chances of Germany ruling the world. Never once did I hear him speak to the masses of human beings he destroyed in the name of his own ideals.
My uncle, his son, would have birthday parties for Adolf Hitler. The rest of the family looked and would simply right them off as nuts. I don’t know for sure if they were nuts, but i can tell you their mentality was flawed. But what about the rest of the family. What would be wrong with our mentality?
As far as skinheads, they are extremely prominent in Austria, Britain, Wales, Scotland and England, as well as the United States. Most seek out the unity of other skinheads for safety and even more for a sense of belonging.
To you really believe that the Deutsche Trust is being run by Germans. England, America and Luxembourg have had full control over since the end of WW2. There are plenty of shitty folks out there, regardless of their country of origin. You are obviously well read and intelligent, and i would beg you not to fall into their trap of alienating groups, by lumping the entire group under a couple of fanatics.
For example, Jon Corzine, non German, decided to rob 1.2 billion dollars fro the depositors at the bank he ran, MF Global. i know some of the traders and they have been lumped in with Jon simply because they spoke with clientele direct.
Jon should be indicted and the traders should be able to not be looked upon as greedy thieves. Human thought process is far more individual than one would think, unless of course they jamming the patriotic bullshit down our throats.
@DCB,
Nope! Not a military brat. Remember? I’m not originally from here… Grew up in many different elsewheres. Dad was a diplomate in Berlin. And I felt loved plenty… But thanks for trying to shed some human light to it.
Just as a matter of interest re foreign relations——–I was at dinner a year or so ago with several military contractors who were bemoaning how much the Arabs hated Americans–ie them. And did everything they could to screw up whatever these people did or tried to do. I thought it was funny/strange to hear that one-sided view. What would I do if I were in an occupied country?
I quickly pointed ou that when I was with my former oilco employer–we almost always found the countries to be very supportive—really guard our camps etc —they were happy to see us because we brought things they wanted.
Did you think the Germans in 1960’s had forgotten the US destroyed their country? Do you think they do today? They have long memories over there. European history has always been a passion of mine–and im really entertained by the current activities–the northern half of the euro-subzone seems really close to reichs 1 and 2
Check this from market-ticker.com
http://market-ticker.org/akcs-www?post=200232
http://www.scribd.com/doc/77471634/Response-To-Motion-To-Dismiss
Remember the insurers waived the right to subrogation
excerpt
Cause of Action #10
Defendants allege that the “Plaintiffs lack standing to avoid foreclosure based on allegations related to a contract to which they are not a party or an intended beneficiary.”
Plaintiffs are relying on the theories of Unjust Enrichment and the One Satisfaction Rule. One cardinal principle of law states that, in the absence of punitive damages, a plaintiff can recover no more than the loss actually suffered.
“When the plaintiff has accepted satisfaction in full for the injury done him, from whatever source it may come, he is so far affected in equity and good conscience, that the law will not permit him to recover again for the same damages.” Lovejoy v. Murray, 70 U.S.(3 Wall.) 1, 17, 18 L.Ed. 129 (1865).
Further, “Payments made by any person in compensation of a claim for a harm for which others are liable as tort-feasors diminish the claim against them, whether or not the person making the payment is liable to the injured person, and whether or not it is so agreed at the time of payment, or the payment is made before or after judgment. The extent of the diminution is the amount of the payment made, or a greater amount if so agreed. MacKethan v. Burrus, Cootes and Burrus, 545 F.2d 1388 (C.A.4 (Va.), 1976)”
Given that CWALT, Inc. has credit default swaps insuring the performance of tranches within their portfolio, given that excess returns within a tranche will be shared with the next tranche, and given that CWALT, Inc. is the likely beneficiary of a negotiated settlement between Bank of America and The Bank of New York Mellon, the theories of Unjust Enrichment and the One Satisfaction Rule apply.
For these reasons, the Defendants’ Motion to Dismiss should therefore be Denied.
@enraged
“there is something terribly lacking in the German mentality”
yeah i think its toleration for bs———they booted that thief out that was in charge of all this and a big friend of london and nyc folks
if the charge sticks and pmt is due the german govt will pay it–bail out their own bank and no others–we could learn a lot—they do not easily get rushed into massive inflation-generating printing press bailouts——–but i saw the movie and goldmans poor poor ex ceo crying for us–so i guess we are in good hands
yeah they should pay and these multi-natls busted up—not much different what country but damn in this country we tolerate the bankers that did it running things–there they kicked em out
enraged were part of the army of international agression—part of the occupation troops and support–if so maybe thats why you didnt feel loved
@npv, I also never said anyone was evil. I called them corporate sociopaths, and I stand by that remark. I believe that any corporation that repeatedly bumps up against a wall of common decency, constantly shredding the fabric of a civil society, should be broken up or new management should be brought in. GS has gone passed this point, but is too powerful to constrain, just yet.
People have the right to stand up against institutional abuse, plain and simple. Market forces are quite often way underwhelming, as we’ve seen too much in the last decade. We’d all be much better off without the Monsantos and Deutsches of the world. They’re revolting, and they’re ugly too.
@Iwantmynpv,
I said nothing about “evil”. What I did say is that there is something very lacking in the German psyche. I am speaking from experience and it is true that, in their mentality, so long as something is not expressely forbidden, it is allowed. It is further true that that opens the door top every single possible excesses, including their most recent history of the last century.
Ask them yourself and you’ll see that many of the intellectuals there realize and acknowledge it. Without knowing the German history, I don’t believe you really can have an opinion one way or the other. one thing is sure: the most violent and resistant skin head groups are… in Berlin. American skin heads are choir boys in comparison and most other European countries don’t have any such groups.
Coincidence?
Let’s not forget that Lehman financed both sides of the civil war. American Banks financed both sides in WW2 until the Japanese bombed Pearl Harbor. Rothschild has been creating war debt since their rise in banking circles. Bankers are not foolish enough to tag anyone by religion, race etc… They leave that stupid fighting to us and than use it rig elections be separating us for votes.
@ E.Tolle & Enraged – DB is not evil and neither are the German People, at least not as much as made out to be. There are good and bad in every organization. Most banking organizations are run by folks of the Jewish Religion. Since they are God’s chosen people and I myself evolved out of the old testament I find it hard to believe they are all evil. Instead maybe it is just the folks in banking, all denomination, race creed etc.. that reigned over this fraud that are evil. I think the word greedy would be more fitting than evil until i think of James Dimon. let’s flip a coin.
What strikes me is that the failure to file a loan schedule —10000 plus lines of data —along with the SEC-State UCC is a pretty blatant redflag. There are quite a few in the Indie-originator groups. Id be happy to point tem out again if anybody really cares or does not already know and bypass. Some rights servicers specialize in these because they offer the best opportinty for seize and freeze casualty insurance claims [houses freezing as I type] to speedily liquidate the seizure rights. Unfortunately, some of the “worst in class”—or in their view “best in class” fly under the radar as Democrat donors. It shatters ones faith in Justice to see it so subverted.
Can anyone recommend an experience trial litigator in Texas?
Didn’t Deutsche Bank recently somehow “misplaced” $70 billions…? Or was it $700 Billions?
I’d start looking for them at Gemstone 7… Ya neva know!
@E. Toile,
And don’t forget that our occidental medicine directly derives from “scientific” experiments performed by the Germans on the camps prisoners… The idea of injecting anything and everything into humans was refined in those camps.
Look at the average health of the American people now…
First American Title Company Escrow agent, switched lot numbers on us and used my husbands identity as a Straw-Man, and the Government, the police, no one will help us!
The Court won’t even let us present evidence!
FOURTH AMENDED COMPLAINT at http://www.KFraud.com
How sad, a great article summarized with a stupid comment. “Nearly brought down the US Economy”? Are these people kidding me. we have true unemployment hovering at U6 numbers above 15%. The price of commodities, including non-core such as fuel and food had increased on average of 30%. This as a result of the carry-trade offset and the Arabs pricing barrels higher because of Geithner and Bernanke dollar policy.
If America did not have the luxury (which will be going away by 2015) of printing as the world reserve currency / peg. Americans would be picking crumbs off the street. The worst is yet to come!
Also, why didn’t the article mention that some of that pool was insured by AIG and Deutsche got paid in full through Maiden Lane, who still (alleged) owns the mortgages and Notes purchased instead of paying on the swap / NIm.
A quick glance at the Wikipedia entry for Deutsche Bank will explain exactly why we’re in the mess we’re in. Deutsche Bank shouldn’t be allowed to exist at all. If not for DB, Hitler would have had a hell of a time pulling off that crap, he probably wouldn’t have been nearly as successful as he was. After WWII, the bank was broken up only to morph back together again in less than a decade, not unlike that bad-ass metal antagonist in The Terminator.
Why is this scum allowed to continue on through time? Because the elite like it that way. It serves their purpose. Maybe you know someone who stayed at the Deutsche financed 0-Star lodging known as Auschwitz? The Gestapo never left home without credit from Deutsche Bank. Maybe you’ve heard of the famous think tank known as the Third Reich that DB financed? From those illustrious offerings all the way through to Magnetar capitol, and some $32,000,000,000 worth of toxic CDOs, what possible redeeming values could this group bring to the rest of us, to the civilized world?
They’re about as loveable and caring as Monsanto, and share the same sense of corporate responsibility to the rest of mankind. Oh by the way, did I mention that Monsanto was the supplier of Zyklon-B, the poisonous gas which rained down on the poor folks showering after their free train ride to Auschwitz.
If in fact the view is that corporations are people too, then these folks need to be placed in a modern Auschwitz-like camp built just for them. We’d all be much better off without all of these corporate sociopaths. Lock them all up and start up the showers once again. I’ll gladly volunteer for shower cleanup duty.
“Enraged” writes:
In any event, here is the best way to describe the German mentality: “If something is NOT expressly forbidden, it derives of it that it must be allowed”.
I rather suspect the American mentality could be equally described as “Hey, it’s catching before hanging!”, or perhaps “Rules are made for other people.” All you have to do is look out on the Interstate to see this simple truism: the posted speed is 65: the truckers are running 70, the casino buses are cruising 75, the local traffic is doing 80, the SUV’s with the Jersey plates are running a steady 85, and the State Police are hauling 90!
The difference with Germany is that you get ticketed there for “sweeping your sidewalk in a bathrobe;” in the USA, that ticket never happens because nobody is sweeping the sidewalk (or even fixing it).
Considering that for the past several months we have been inundated with politicians harping on their “Christian moral values” to sweep the evangelical vote, I have yet to see any sign of such considerations anywhere within New York.
And by the way, I am not refering to the then East Germany, under communist rule. A am refering to what was then West Germany, a so-called democracy, with the most stringent laws any European country had.
Only in Germany could a Hitler have been so successful for so long.
It’s in the psyche…
We already know prosecutors only go after the low hanging fruit. It’s 2012 folks. 2012. This criminal scheme has been going on for a decade or more
The Moral hazard created by failure to prosecute will be greater than any perceived moral hazard of homeowners not paying their debts.
Lack of prosecutions will send the clearest and loudest message to generations to come that everything is acceptable. That, in and of itself, is the end of any possible civilization.
Growing up in Germany in the early 60s, I was always struck by something in the German mentality I couldn’t quite put my finger on. Germany was the most “police state” of all European countries. Everything was regulated: how many garbage cans a family of 4 was allowed to use every week, whether or not one was allowed to sweep the sidewalk in front of her house wearing a robe (my mom got a ticket for that!), etc. I couldn’t understand why all those stupid laws existed and it really felt like a constant Big Brother was living with us.
It dawned on me one day: there is something terribly lacking in the German mentality: an intrinsic sense of right and wrong. Unlike most European countries, it was barbaric and tribal until Martin Luther artificially created the German Language (Hoch Deutsch). Germany as we know it never had the 2000 years other countries had to refine their mentality and their sense of right and wrong. Germany never even heard of moral codes until the first bible was printed.
In any event, here is the best way to describe the German mentality: “If something is NOT expressly forbidden, it derives of it that it must be allowed”.
That opens the door to every single possible excess.
What troubles me is that our country somehow adopted that mentality. I don’t know when it started but it now represents the American Psyche…