Tan Man Whistleblower

Mr. Winston sent along this gracious response today – a must-read:

My name is Michael G. Winston. As you were kind enough to write about my legal battles with Bank of America/ Countrywide, I wanted to update you, show you how close you got to the truth and thank you from the bottom of my heart for covering the story.

My struggle is a struggle that goes on everywhere ignorance, arrogance and corruption are allowed to flourish.  My legal battles have been going on for over four years now. The legal process is glacially slow and woefully indifferent. After many years, one wonders if anyone is really out there is paying attention. My feeling is if it happened to me, it could happen to anybody. Do these people know who I am? Do they care?

Thank you for showing me you did. I read your column posted on February 19, 2011. I felt as if you understood  what happened and knew who I was. It was such a cleansing, healing and validating feeling to read the words in your blog.

I never thought of myself as a whistleblower. I still don’t. I never wanted to become a whistleblower. I just wanted Countrywide to do the right thing. I wanted them to follow their own ethical policies as well as the law. In the end,  I was not only trying to save shareholders, tax-payers, and employees from Countrywide’s malfeasant practices.  I was also trying to save Countrywide from itself. Thank you again for covering this story. Here is an update.

It is now more than six months past the Jury verdict which completely vindicated me and held Countrywide accountable for “retaliation in violation of public policy.” To the uninformed, I won and they lost, my lawyers have been paid. Surely by now, I have received the verdict money intended for me by the Jury. Also, I most certainly have received my expense money expected to be turned back to me via Court order. However, none of the above has happened. One wonders if it ever will.

I was called into Court in April, 2011 against CFC/BAC. They motioned the Judge to throw out the verdict as if it never happened. This is called a Motion for Judgment Notwithstanding Verdict. They made a long argument saying we produced no credible evidence at trial. The Judge stopped them cold citing “OVERWHELMING high credibility and very strong evidence in documents and witnesses on our side.”

I believe this is conduct unbecoming any publicly-traded company. They are insulting the more than one month- long effort of twelve Jurors and two Alternates, mocking the legal system, and again crawling out into the legal limelight seeking to invalidate a rightful Jury verdict.

We won again. They lost again. The Judge threw their motion out. What a waste of taxpayer and investor money!

Then, a month after they were again denied, they filed an Appeal seeking to invalidate all. They do this because they can. They do it with investor money. They do it with taxpayer money. They do this with your money. They will never admit the wrongdoing that is so blatantly evident to all. This is wrongful and must be changed. Clearly, there has been no punishment to these behemoths for breaking the law. Taking on corporate Goliaths should not be so daunting. But their access to influence peddling, capital, resources and data is OVERWHELMING. I am just one person fighting for what is right.

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Banks Rule

Hat tip to Kingside for sending this along, from the WaPo:

Iowa Attorney General Tom Miller, who is leading foreclosure settlement negotiations with the nation’s largest banks on behalf of all 50 states, abruptly removed New York Attorney General Eric Schneiderman from the coalition’s executive committee Tuesday, saying he had “actively worked to undermine” the group’s efforts in recent months.

Miller did not speak with Schneiderman before he sent word about the decision. Rather, Iowa assistant Attorney General Patrick Madigan e-mailed counterparts around the country just before 1 p.m. announcing that New York had been booted from the key group of states overseeing the negotiations, “effective immediately.”

Despite the move, New York could still support whatever deal emerges. At the same time, it makes the path more difficult for Miller and others if they are forced to move forward without one of the most influential states, not to mention one hit hard by the foreclosure crisis and home to many of the financial firms under scrutiny. The absence of New York also could diminish the size of any settlement.

Miller’s decision underscores tensions that have boiled over as officials try to finalize the multibillion-dollar deal with the banks whose widespread mortgage servicing problems — from appalling customer service to hundreds of thousands of “robosigned” documents — sparked national outrage last fall.

A central issue is how broad a release from future legal claims banks should receive in exchange for agreeing to overhaul their mortgage servicing practices and paying tens of billions of dollars in penalties.

Schneiderman, who has undertaken investigations into the way banks bundled and sold pools of mortgages, known as securitization, has said any settlement should not release banks from liability for all their mortgage-related sins committed before the financial crisis. Attorneys general from several other states, including Delaware, Nevada and Massachusetts, have expressed similar concerns.

Inherent in Schneiderman’s warnings was an implication that officials negotiating the current deal are willing to give away too much, a suggestion that those involved in the talks describe as inaccurate and infuriating. Several people familiar with the talks said those at the negotiating table have never considered granting banks immunity from claims related to the securitization process, nor have they sought to prevent Schneiderman and others from pursuing broader investigations into other issues, such as securitization, fair housing claims and criminal fraud.

“This investigation has been about robosigning and loan modifications for homeowners, so the release in the settlement should mirror that; it should be a narrow release,” said Illinois Attorney General Lisa Madigan (no relation to Iowa’s Madigan). “It was never intended to serve as a settlement for all the violations that the nation’s banks have engaged in.”

Schneiderman has insisted that too hasty a settlement could let banks off too easily. He wants a more comprehensive investigation into all aspects of the mortgage crisis, followed by a larger settlement that would bring relief both to struggling homeowners and large institutional investors who bought mortgage-backed securities that turned out to be worthless.

Farkas Gets 30 Years

Let’s mention the only real perp walk so far – hat tip to AL for sending this latimes.com article:

ALEXANDRIA, Va. — An executive convicted of orchestrating a nearly $3-billion fraud as chairman of one of the largest mortgage companies in the U.S. was sentenced Thursday to 30 years in prison by a judge who accused him of showing no remorse.

Federal authorities say the case against Lee B. Farkas, former chairman of Florida-based Taylor Bean & Whitaker, was one of the largest prosecutions arising from the nation’s financial crisis. The fraud put thousands of employees out of work and contributed to the collapse of Colonial Bank of Montgomery, Ala., which authorities described as the sixth-largest bank collapse in U.S. history.

“He deserves to be punished severely in light of the enormity of his crimes. The losses from this case are, in fact, off the charts,” federal prosecutor Patrick Stokes said in urging a judge to send Farkas, 58, to prison for life. “He has destroyed lives and institutions.”

Farkas, who denied any wrongdoing when he testified at his trial, was convicted in April of all 14 counts, including securities fraud and conspiracy. On Thursday, he acknowledged taking risks and making errors in judgment to keep his company afloat. But he did not directly apologize for any fraud.

“When faced with the prospect of Taylor Bean & Whitaker sinking, I had to take risks,” said Farkas, who was taken into custody after the verdict and appeared in court Thursday in a green prison jumpsuit. “I let Taylor Bean & Whitaker get out of control by letting it grow too fast.”

U.S. District Judge Leonie M. Brinkema told Farkas she detected no remorse as she sentenced him to 30 years — twice the 15-year sentence requested by his attorneys.

The fraud began in 2002 and took multiple forms until Taylor Bean collapsed in 2009 and the scheme unraveled, prosecutors said. Taylor Bean overdrew its main account with Colonial Bank by several million dollars and eventually double- and triple-pledged mortgages it held to a variety of investors. Prosecutors also alleged that Taylor Bean sold hundreds of millions in worthless mortgages to Colonial.

They say Farkas was motivated by a lavish lifestyle, maintaining several dozen classic cars, a private jet and seaplane and multiple houses, including one in Key West, Fla.

Farkas, of Ocala, Fla., is the last of seven employees and executives from Taylor Bean and from Colonial to be sentenced. The other six cooperated with the government and agreed to testify against him to secure lighter sentences.

Prosecutors say Colonial and two other major banks — Deutsche Bank and BNP Paribas — were collectively cheated out of nearly $3 billion in a scheme that spanned more than seven years. They say Farkas and his co-defendants also tried to fraudulently obtain more than $500 million in taxpayer-funded relief from the government’s bank bailout program, the Troubled Asset Relief Program. Neither Taylor Bean nor Colonial ever received any TARP money, even though TARP at one point gave conditional approval to a payment of roughly $550 million, investigators say.

Farkas’ lawyer, Bruce Rogow, said prosecutors had magnified Farkas’ role in the fraud and said that although his client may have made naive or foolish business decisions, he was not a calculating criminal deserving a life sentence. He said each of Farkas’ co-defendants deserved blame for allowing the fraud to continue for years.

Neal H. MacBride, the United States attorney for the Eastern District of Virginia, said he found Farkas’ apparent lack of remorse astounding, comparing him to a child who murders his parents and then begs for mercy because he’s an orphan.

SD Loan Broker Sued

Hat tip to Kingside for sending this along, from Bloomberg.com:

The U.S. Federal Deposit Insurance Corp., receiver for Downey Savings & Loan Association, sued Amerifund Financial Inc. and affiliated individuals in federal court seeking more than $1 million in damages.

The FDIC alleges breach of contract, professional negligence and civil fraud in the complaint against Amerifund, a mortgage broker, filed June 3 in U.S. District Court in Santa Ana, California.

Amerifund, based in Spring Valley, California, and its agents, processing mortgages for Downey in 2004 and 2005, “caused borrowers’ financial statements to be altered or misstated” in loan applications, the FDIC said. Had true income and debts been disclosed, borrowers wouldn’t have qualified for Downey loans, according to the complaint.

Downey Financial Corp., the S&L’s parent, sought Chapter 7 liquidation in U.S. Bankruptcy Court in Wilmington, Delaware, in 2008, citing as much as $50 million in assets and $500 million in debts. U.S. Bancorp subsequently acquired Downey.

Amerifund’s phone number was not in service today and company owner Eric M. Anderson couldn’t immediately be located for comment.

The case is Federal Deposit Insurance Corp. v. Amerifund Financial Inc., 11CV840, U.S. District Court, Central District of California (Santa Ana).

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We are familar with Amerifund, and they are small potatoes – just a handful of guys running a little shop out of Spring Valley.

But this lawsuit sounds like they’ve been accused of doing what virtually every mortgage broker was doing to obtain “liar loans” – are the feds going to prosecute other mortgage brokers too? 

What about the big fish!!??

Settlements May Not Be Enough?

From Nick at the WSJ.com:

Banks trying to foreclose on homeowners are hitting another roadblock, as some delinquent borrowers are successfully arguing that their mortgage companies can’t prove they own the loans and therefore don’t have the right to foreclose.

These “show me the paper” cases have been winding through the courts for several years. But in recent months, some judges have been siding with borrowers and stopping foreclosures after concluding that banks’ paperwork problems are more serious than previously thought and raise broader ethical questions.

This year, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and others have raised questions about whether banks properly demonstrated ownership.

During the fall, banks temporarily suspended foreclosures to address so-called robo-signing problems, where employees were approving legal documents without properly reviewing them. They said that in weeks they could fix what they considered to be simple clerical errors. But borrowers are uncovering new types of document problems, further delaying banks’ efforts to get foreclosures back on track.

In some cases, borrowers are showing courts that banks failed to properly assign ownership of mortgages after they were pooled into mortgage-backed securities. In other cases, borrowers say that lenders backdated or fabricated documents to fix those errors.

“Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages against these operations could be significant and take years to materialize,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp., in testimony to a Senate committee last month .

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Chasing Old Ghosts

From the latimes.com:

California Atty. Gen. Kamala Harris, saying that years of unscrupulous lending still haunts the state, is creating a 25-person task force to target mortgage fraud of any size — from small operations that preyed on troubled borrowers to corporations that sold risky loans as safe investments.

The team of 17 lawyers and eight special agents from the state Department of Justice will pursue three major areas, Harris said in an interview:

• Corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. Harris said her office plans to prosecute some cases under California’s False Claims Act, which she described as “one of those very powerful tools that California uniquely has … to pursue, in essence, what are false claims that are submitted to the state.”

• Scams, including instances in which consultants, lawyers and others took fees from people in foreclosure, saying they would help the homeowners get loan modifications or other remedies, but delivered nothing.

• Fraudulent lending practices, including deceptive marketing, failure to fully disclose loan terms and qualifying people for loans who couldn’t afford the terms.

Harris said the mortgage fraud that ultimately led to the housing crash continues to be a drag on the state, causing huge losses in jobs, property values and state revenues.

“We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said, referring to the decline in homeowner equity. “There is a direct connection” between mortgage fraud “and the issue that we are challenged with in terms of our state budget crisis.

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House of Cards

By Matt Taibbi:

Got a chance to meet Josh Rosner (co-author, with Times reporter Gretchen Morgenson, of the new book Reckless Endangerment) last night during an appearance on Eliot Spitzer’s In the Arena.

We were brought in to talk about the new investigation of the banks that apparently is being launched by New York State Attorney General Eric Schneiderman, which looks like it might be the first for-real attempt at a prosecution of the systemic corruption that led to the financial crisis.

Schneiderman’s probe reportedly targets the banks’ mortgage securitization process during the bubble years. Morgenson reported that Schneiderman is focused on at least three companies: Morgan Stanley, Bank of America, and old friend Goldman, Sachs.

This investigation has the potential to be a Mother of All Nightmares situation for the banks for a couple of reasons.

For one thing, the decision to go after the securitization process is a total prosecutorial bullseye. This is the ugly heart of the wide-scale fraud scheme of the bubble era.

The business model during this time was a giant bait-and-switch scam. Sleazy lenders like Countrywide and New Century first created huge masses of bad loans, committing every conceivable kind of fraud to get people into loans (from doctoring income statements with white-out to phonying FICO scores to engineering fake appraisals). They then moved the bad loans quickly to the big banks, which pooled them and chopped them up (this is the “securitization” process), sprinkled hocus-pocus math on them, and them sold them to suckers around the world as AAA-rated securities.

The questions Schneiderman will seek to answer are these: did the banks securitize loans they knew were fraudulent, throwing the rotten mortgages into the stew before serving them to customers?

Did they also commit insurance fraud by duping the bond insurers (known as “monoline” insurers) into thinking the mortgages were not as risky as they really were?

And did they participate in the fraud scheme on a more basic level by lending huge amounts of money to the Countrywides of the world, knowing that they in turn would immediately use that money to create the bad loans?

In other words, did the banks finance the fraud in addition to brokering it?  The reason this is such a potentially deadly investigation for the banks is that they seemed to be so close to getting away scot free.

There is another investigation into the banks’ mortgage abuses by the states’ Attorneys General, led by Iowa AG Tom Miller, that was rumored to be headed toward a settlement, despite the fact that nothing like a complete investigation has been done.

The expectation for some time has been that the banks would eventually have to pay a significant, but eminently survivable, settlement for abuses during the bubble era. Although the Miller probe was focused on practices like robo-signing and other such documentation abuses, it could theoretically have covered securitization as well.

But if the AGs were to sign off on a friendly global settlement for mortgage abuses prematurely, it would be like a DA offering a millionaire murderer a 2-year plea bargain before the cops even had a chance to interview all the eyewitnesses. It would be a blatantly political arrangement.

Such a desire to get some kind of deal done and sweep the mortgage mess under the rug once and for all seems almost universal among high-ranking politicians, and particularly in the Obama administration, which has acted throughout like it wants more than anything to simply get all of this over with and put in the past.

Schneiderman’s investigation throws a monkey wrench into all of this.

The banks cannot enter into a settlement with 49 states. They need all 50 at the table. But if Schneiderman breaks ranks and goes off on an end-run investigation that plunges right into the rotten core of the fraud era, then the whole pipe dream of an easy settlement vanishes in an instant. This is particularly true since Schneiderman is the most important AG, being from the state of New York, where most of the crime was probably committed.

The amount of money investors lost in this fraud scheme is probably gigantic.

The ill-gotten money the banks made off that same fraud is probably similarly huge. And the damage to society, in the form of mass foreclosures and other losses, is incalculable. If the banks end up being found liable for all of these offenses, they could face truly crippling fines and penalties. This goes far beyond the question of whether one bank like Goldman defrauded a client or two or lied to investigators. This probe could be asking whether the banks’ entire revenue model during the crisis years was based on fraud.

Everything I’ve heard so far indicates that Schneiderman’s investigation is not a publicity stunt and is an in-earnest attempt to get to the bottom of things.

Another Settlement Brewing

From msn.com

Local governments have been complaining for years that foreclosed homes are a blight on cities and counties, and that banks that take back homes often fail to maintain them. 

The California General Assembly is even considering a bill that would fine lenders $20,000 for each foreclosure to help cities pay the associated costs.

The city of Los Angeles filed suit Wednesday against Deutsche Bank, accusing the lender of being one of the city’s largest slumlords and seeking hundreds of millions of dollars in restitution.  “It’s time to recognize that the fraud committed on Wall Street turns into blight on Main Street,” City Attorney Carmen Trutanich said at a news conference announcing the lawsuit.

 “We must fight blight by holding banks accountable when they create vacant nuisance properties that pose threats to our residents and destroy the quality of life in our neighborhoods,” Trutanich said.

 The lawsuit accuses the bank of failing to maintain 166 properties and illegally evicting tenants from some of them. The suit lists the addresses of the properties and includes photos of the substandard conditions. You can read the lawsuit here and here.

(the lawsuit indicates that the majority of the properties were foreclosed in 2008 and 2009)

Deutsche Bank responded that the lawsuit was “against the wrong” party and that loan servicers, not Deutsche Bank, were responsible for maintaining foreclosed properties.

This Is Wrong

Hat tip to SM for sending this along from the nytimes.com:

Mr. Engle’s is a tale worth telling for a number of reasons, not the least of which is its punch line. Was Mr. Engle convicted of running a crooked subprime company? Was he a mortgage broker who trafficked in predatory loans? A Wall Street huckster who sold toxic assets?

No. Charlie Engle wasn’t a seller of bad mortgages. He was a borrower. And the “mortgage fraud” for which he was prosecuted was something that literally millions of Americans did during the subprime bubble. Supposedly, he lied on two liar loans.

It’s not just that Mr. Engle is the smallest of small fry that is bothersome about his prosecution. It is also the way the government went about building its case. Although Mr. Engle took out the two stated-income loans, as liar loans are more formally called, in late 2005 and early 2006, it wasn’t until three years later that his troubles began.

As a young man, Mr. Engle had been a serious drug addict, but after he got clean, he became an ultra-marathoner, one of the best in the world. In the fall of 2006, he and two other ultra-marathoners took on an almost unimaginable challenge: they ran across the Sahara Desert, something that had never been done before. The run took 111 days, and was documented in a film financed by Matt Damon, who served as executive producer and narrator. Mr. Engle received $30,000 for his participation.

The film, “Running the Sahara,” was released in the fall of 2008. Eventually, it caught the attention of Robert W. Nordlander, a special agent for the Internal Revenue Service. As Mr. Nordlander later told the grand jury, “Being the special agent that I am, I was wondering, how does a guy train for this because most people have to work from nine to five and it’s very difficult to train for this part-time.” (He also told the grand jurors that sometimes, when he sees somebody driving a Ferrari, he’ll check to see if they make enough money to afford it. When I called Mr. Nordlander and others at the I.R.S. to ask whether this was an appropriate way to choose subjects for criminal tax investigations, my questions were met with a stone wall of silence.)

Mr. Engle’s tax records showed that while his actual income was substantial, his taxable income was quite small, in part because he had a large tax-loss carry forward, due to a business deal he’d been involved in several years earlier. (Mr. Nordlander would later inform the grand jury only of his much lower taxable income, which made it seem more suspicious.) Still convinced that Mr. Engle must be hiding income, Mr. Nordlander did undercover surveillance and took “Dumpster dives” into Mr. Engle’s garbage. He mainly discovered that Mr. Engle lived modestly.

In March 2009, still unsatisfied, Mr. Nordlander persuaded his superiors to send an attractive female undercover agent, Ellen Burrows, to meet Mr. Engle and see if she could get him to say something incriminating. In the course of several flirtatious encounters, she asked him about his investments.

After acknowledging that he had been speculating in real estate during the bubble to help support his running, he said, according to Mr. Nordlander’s grand jury testimony, “I had a couple of good liar loans out there, you know, which my mortgage broker didn’t mind writing down, you know, that I was making four hundred thousand grand a year when he knew I wasn’t.”

Mr. Engle added, “Everybody was doing it because it was simply the way it was done. That doesn’t make me proud of the fact that I am at least a small part of the problem.”

Unbeknownst to Mr. Engle, Ms. Burrows was wearing a wire.

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“Fund ’em”

From the nytimes.com:

WHAT does it take to hold your powerful bosses accountable if they try to bully you out the door?

Documents, e-mails, a former deputy district attorney as your lawyer — and a never-say-die approach.

Such was the lesson learned by Michael G. Winston, a former executive at the Countrywide Financial Corporation. Mr. Winston spent three years in a legal battle against Countrywide, the once-mighty mortgage giant, and its current owner, Bank of America, contending that he was punished and pushed out for not toeing the company line. On Feb. 4, he won: a jury in California awarded him $3.8 million in damages.

Mr. Winston’s story provides a glimpse into how business was done at Countrywide at the height of the subprime craziness — and how assiduously Angelo R. Mozilo, the company’s fallen leader, worked to quash dissent in the ranks. Mr. Winston had the audacity to question Countrywide practices. Mr. Mozilo was not pleased and, before long, Mr. Winston was marginalized and later dismissed.

Mr. Winston, a prominent executive in the field of organization management, is a rarity among corporate whistle-blowers. Most of them get run over by their former companies. A fascinating detail in his case: after providing to the opposition his list of witnesses, which included former colleagues who had also been let go by Bank of America, the bank hired several of them back. Then they testified against him.

It wasn’t long after he joined Countrywide that Mr. Winston began to worry about its business strategy, he said. He still recalls an episode from late 2005 that raised red flags for him. He found himself parked next to a man in the Countrywide lot whose car had vanity plates that read, “Fund’Em.” “I said: ‘I’m not familiar with that expression. What is this about?’ ” Mr. Winston recalled. The man replied that the term described the company’s growth strategy for 2006 — to fund all loans.

“I was brand new and I said, ‘What if the person has no job?’ ” Mr. Winston said.

The answer: “Fund ’em.”

“What if the person has no assets?”

Again: “Fund ’em.”

Mr. Winston said he immediately relayed his fears about what he saw as an anything-goes strategy to Drew Gissinger, chief production officer of Countrywide Home Loans. “I told him that you need to focus on customer satisfaction, on the quality of the loan portfolio and on building leaders who would focus their people on that,” Mr. Winston said. “I wrote him a very comprehensive proposal on how to reward people properly.”

On Jan. 24, 2007, Mr. Mozilo wrote an e-mail to Ms. Goren, the head of human resources whom Mr. Winston had told about hiring a lawyer for himself.

“As I expressed to you, I am concerned about the motivations and overall attitude and demeanor of Michael Winston,” Mr. Mozilo wrote. “I want him terminated effective immediately.”

Testifying before the jury, Mr. Mozilo said he wanted Mr. Winston gone “because I concluded that he was not the type of individual that I wanted at a senior level at the company.”

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