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BREAKING: Obama to strike sweetheart deal with big banks: Proposed total restitution for the millions of Americans who lost their home due to illegal foreclosure tactics: $20 billion; 2011 big bank bonuses: $144 billion http://www.npa-us.org/call-obama-today You Can Call The White House at (202) 456-1111

On December 13, 2011, the Wall Street Journal published an article entitled “Banks in Push for Pact.” It was an obscure article buried in the real estate section.  The article contained this clause:  “Under the proposal, banks would be released from legal claims tied to servicing delinquent mortgages as well as certain mortgage-origination practices….”  Opponents of this proposed amnesty for mortgage-origination fraud have charged repeatedly that the federal government and Tom Miller, the Attorney General of Iowa, who is leading the settlement negotiations, support the amnesty.  Previously, Miller’s key lieutenant, but not the Obama administration, angrily denounced the charge.

The Four Levels of Control Fraud Involving Mortgages

Home lenders, particularly those making liar’s loans, typically committed endemic “accounting control fraud” on multiple levels.  Control fraud occurs when the persons controlling a seemingly legitimate entity use it as a “weapon” to defraud.  Accounting is the “weapon of choice” for financial control frauds.  Mortgage frauds can be grouped into four levels, each of them exceptionally widespread:  loan origination fraud by the lenders and their agents, the fraudulent sale of fraudulent mortgages, the fraudulent pooling and sale of collateralized debt obligations (CDOs) in which the underlying was largely fraudulent mortgages, and foreclosure fraud.

Loan Origination Fraud

The classic economics article describing such frauds is George Akerlof and Paul Romer’s “Looting: the Economic Underworld of Bankruptcy for Profit” (1993).  The recipe” for accounting control fraud by a lender (or purchaser) has four ingredients.

1. Extreme growth by making (or purchasing)
2. Loans of extremely poor quality at a premium yield
3. While employing extreme leverage, and
4. Providing grossly inadequate allowances for loan and lease losses (ALLL)

Origination fraud involved a series of mutually supportive frauds: inflating the borrower’s income, inflating the appraised value of the home, providing grossly inadequate allowances for loan and lease losses (ALLL), and failing to recognize losses on fraudulent loans held in portfolio.  It was also common for federally insured lenders to file false reports with and make false statements to the regulators.  Lenders that made liar’s loans were “accounting control frauds.”  Their CEOs cause them to create perverse incentives to suborn the supposedly independent experts to provide opinions that inflate values and understate risk in order to aid and abet the underlying accounting fraud.  These perverse incentives create a “Gresham’s” dynamic in which bad ethics drives good ethics out of the marketplace.  The result is “echo” fraud epidemics.  Each of these frauds constitutes a federal felony.  Most of the frauds I have described are also felonies under state law.  Collectively, there were millions of origination frauds with a total dollar amount of fraudulent originations well in excess of $1 trillion.

The Fraudulent Sale of Fraudulent Loans

The second level of fraud is the fraudulent sale by the lenders of the fraudulent loans.   This form of fraud required endemic false “reps and warranties.”  Roughly 90 percent of liar’s loans were sold, so this second level of fraud also constitutes millions of federal and state felonies and roughly $1 trillion in fraudulent sales.

The Frauds involved in Pooling Fraudulent Loans to Create and Sell Fraudulent CDOs

The third level of fraud is the sale of collateralized debt obligations (CDOs) “backed” by fraudulent liar’s loans through false disclosures.  This level of fraud constitutes tens of thousands of federal felonies and roughly $1 trillion in fraudulent sales.

Foreclosure Fraud

The fourth level of fraud is foreclosure fraud.  The best known of these frauds involved the commission of hundreds of thousands of felonies through the filing of false affidavits to secure foreclosures (inaptly called “robo signing”).

Massive Foreclosure Fraud Generated the Global Settlement Discussions

It was this last level of fraud that prompted the settlement discussions.  What one must keep constantly in mind when dealing with lenders that are control frauds is that they and their senior officers will be represented by the best criminal defense lawyers.  America still does many things superbly, and we do lawyers really well.  The fraudulent officers who control banks engaged in control fraud will spend bank funds like water for their defense lawyers.  The old joke is that when one is dealt lemons one should make lemonade.  In law school, however, we consider that the “C minus” answer.  When dealt lemons; the best lawyers seek to make Dom Perignon.

Consider the setting – you represent a systemically dangerous institution (SDI) that was the beneficiary of a federal bailout.  Your client has made hundreds of thousands of fraudulent liar’s loans and fraudulently sold the great bulk of them.  If your client is held responsible for these frauds it will have to reveal that it is massively insolvent and face receivership.  Your client is also one of the largest mortgage loan servicers in the world.  A small law firm representing a borrower has taken the deposition of one of your client’s key employees who signed the affidavits necessary to support roughly ten thousand foreclosures a month – and admitted that the key statements she has made in each of those affidavits is false.  The somnolent federal government had finally been forced to admit that the banks have engaged in endemic foreclosure fraud.  The states are also involved.  This would be a nightmare scenario for any normal client.  For an SDI, however, it was an opportunity.

L’audace, encore l’audace, toujours l’audace!

(Audacity, more audacity, always audacity: the white collar defense lawyer’s creed)

One of the secrets to being an extraordinarily effective elite criminal is also true of their lawyers – audacity.  Elite white-collar criminals can frequently get away with grotesque criminal conduct if they use their exceptional advantages provided by wealth, privilege, and seeming legitimacy.   Even within the ranks of elite white-collar criminals, however, the CEOs who control SDIs – particularly during a financial crisis that they caused – are unique in their power to commit crimes with impunity.  They hold the national, even global, economy hostage.  Treasury Secretary Geithner has made this strategy simple by displaying the “Stockholm Syndrome.”  He has fallen in love with the criminals that are holding our economy hostage.  Geithner claims that the fraudulent SDIs are so fragile that they would collapse if they were even investigated seriously for fraud.  He conveniently ignores the fact that the primary reason for the SDIs’ fragility is that their CEOs looted the banks.

They can also use “their” bank to buy the modern equivalent of indulgences for even the most destructive frauds.  There are two non-exclusive means of buying indulgences.  The most obvious means is political contributions.  The finance industry is the leading funder of both political parties. The less obvious means of buying immunity arises from the dysfunctional nature of DOJ policies for (not) prosecuting major firms for serious felonies and the ability of the CEO to use corporate funds to purchase personal immunity from criminal prosecutions.  Five facts about the criminal defense of large firms must be kept prominently in mind when considering the defense of banksters.  First, the CEO will gladly trade off billions of dollars in payments by the bank and its liability insurers in order to secure immunity from criminal charges against the CEO and the senior officers who could implicate the CEO.

Second, the Department of Justice (DOJ) has essentially ceased to prosecute large firms for serious felonies.  DOJ was so traumatized by the consequences of prosecuting Arthur Andersen that it has decided to allow large firms to enter into “deferred prosecution” agreements (in which prosecution is, in reality, perpetually deferred).  Arthur Andersen had entered into two deferred prosecution agreements, and DOJ offered it a third, when AA refused the agreement and went to trial.

Third, while I have referred to the firm as the “client” and the firm and its insurers typically pay for the attorney fees and fines, it is the CEO that can hire and fire outside counsel.  Outside counsel, therefore, are chosen by fraudulent CEOs because they are willing to aid and abet the CEO in looting the real client (the firm).  This is a classic example of the fraudulent bank CEO deliberately creating a Gresham’s dynamic in which the least ethical members of the “independent” profession drive the most ethical out of lucrative representations.  In criminology jargon, control frauds are criminogenic.  Fraudulent CEOs use their ability to make compensation for officers, employees, and independent professionals perverse in order to create environments that cause widespread frauds that aid and abet the lender’s fraud scheme.  To put it in plainer, biblical English:  fraud begets fraud.

Fourth, the settlement payments are typically deductible from taxes.  This means that the defendant’s actual burden of paying the fine is much smaller than the announced amount of the fine.

Fifth, defense counsel typically promise to pay some portion of the fines to the victims of the fraud.  This is a brilliant tactic.  It makes the government attorneys feel good about the settlement and it allows them to bash opponents of the settlement as blocking relief for the victims.  The tactic, of course, is cynical and dishonest.  The weak settlement is what prevents a far greater recovery for the victims of the fraud.  The government does not have to wait for a settlement to aid the victims of foreclosure fraud.

Settlement discussions by counsel for control frauds with the government and shareholders are all about exceptionally able and zealous legal representation of the CEO at the expense of the client, its shareholders, and the public.  Only vigorous regulators and prosecutors can protect the firm, shareholders, and public from looting by these CEOs and the allies they generate.

The Proposed Deal: The $1 Trillion Lagniappe

The obvious deal that criminal defense counsel for banks always seek is to trade a showy amount of fines for de facto or even formal immunity for the CEO and other senior officers who led the frauds and became wealthy through the frauds.  Here, the defense counsel were far more audacious – they are demanding immunity not only from prosecution, but even from investigation, and they are demanding immunity for crimes they committed that have never been investigated by the state and local prosecutors.  The foreclosure fraud cases, while enormous, are by far the least of the banksters’ worries.  The potential loss exposure from the foreclosure fraud is measured in the tens of billions of dollars.  The potential loss exposure from fraudulent home loan originations is in the trillions of dollars – and a trillion is a thousand billion.  The banks’ CEOs are demanding, for a puny $25 billion, a release from liability for foreclosure fraud.  That is obscene on multiple levels.  Even President Obama concedes that the banks treat such fines as a mere “cost of doing business” (by which he means the “small tax on the wealth obtained by elites through doing fraudulent business”).  The senior officers involved in the fraud should be imprisoned.  Giving them immunity, allowing them to keep their bonuses “earned” through fraud, and keeping them in leadership roles are all despicable acts that should be anathema to every prosecutor.

But what came next went beyond scandal as usual.  The banks then demanded a lagniappe – a little something extra, for free, in a New Orleans restaurant – they wanted immunity for loan origination fraud.  The slight difference is that this lagniappe is worth trillions of dollars to the frauds.  It sickens me to inform the reader that the Obama administration is eager to provide the frauds with this lagniappe.  The Department of Housing and Urban Development (HUD), led by Secretary Shaun Donovan, is actively pushing this scandalous deal, with strong support in the background from Treasury Secretary Geithner.  The silence of Attorney General Holder, and President Obama, on this travesty is exceptional.

Worse, the banks are seeking immunity even from investigation of the over trillion dollars in mortgage origination fraud – and the Obama and Bush administrations’ supposed “investigations” of mortgage origination fraud by the large lenders that made the mass of liar’s loans are all unworthy of the word “investigations.”  It would take roughly 100 investigators, working for years, to do a serious investigation of any of the largest liar’s loan lenders.  There has never been, remotely, such an investigation by the federal government of the any large liar’s loan lender.  The Obama administration is reported to support the fraudulent financial CEOs’ dearest dream – de facto immunity even from investigation of over a trillion dollars in fraudulent liar’s loans origination.

The Republican Party and its candidates for the Party’s presidential nomination are not criticizing Obama’s proposed formal surrender to crony capitalism.  They only wish they were in complete power and could cash in even more heavily on the tidal bore of campaign contributions flowing out of the finance industry.

Miller, and everyone involved, knows there was endemic origination fraud

Miller no longer denies that he has joined the administration in favoring the banks’ most cherished dream – amnesty for originating a trillion dollars in fraudulent home loans.   Indeed, the settlement is designed to prevent even investigations of the mortgage origination fraud.

I confess that I am so naïve that I would have believed it impossible that any federal or state governmental entity would enter into such an abject surrender to crony capitalism.  Once I learned that they were seriously contemplating such a travesty I could not believe that Miller would support it.  I believed his lieutenant’s (Mr. Madigan’s) denunciation of criticism of the proposed amnesty.  (I have reviewed Madigan’s comments in preparing this piece and I see that they were artfully crafted to be disingenuous.) The testimony of Thomas J. Miller, Attorney General of Iowa, at a 2007 Federal Reserve Board hearing shows that he knows that the lenders engaged in massive origination fraud.

Over the last several years, the subprime market has created a race to the bottom in which unethical actors have been handsomely rewarded for their misdeeds and ethical actors have lost market share…. The market incentives rewarded irresponsible lending and made it more difficult for responsible lenders to compete. Strong regulations will create an even playing field in which ethical actors are no longer punished.

Despite the well documented performance struggles of 2006 vintage loans, originators continued to use products with the same characteristics in 2007.

Miller, T.  2007.  “Comments to the Federal Reserve Board ofGovernors on Adopting Regulations to Prohibit Unfair and Deceptive Acts andPractices under the Home Ownership and Equity Protection Act (HOEPA).” (August 14).  Miller was correct. We know that it was overwhelmingly lenders and their agents that put the lies in “liar’s” loans.  We know that 90 percent of liar’s loans were fraudulent.  We know that the industry massively increased the number of liar’s loans after warnings that the loans were endemically fraudulent.  The growth rate of liar’s loans was so rapid (over 500% from 2003-2006) that these fraudulent loans caused the housing bubble to hyper-inflate.  We know that no government entity ever caused any entity to make or purchase (and that includes Fannie and Freddie) liar’s loans.  Indeed, the government repeatedly warned of the dangers of liar’s loans.  We know that by 2006 roughly one-third of all home loans made that year were liar’s loans – which means there were millions of fraudulent loans made annually and, collectively, trillions of dollars in fraudulently originated home loans.

What must be done

Our economy and our democracy cannot succeed under crony capitalism.  Please join me in writing to Congress, the administration, your state attorney general, the media, and any court that must approve this proposed settlement.  It is a disgrace.  President Obama is, of course, correct that some actions can be illegal but exceptionally unethical and damaging.  He is about to take precisely such an action in derogation of his oath of office to defend and protect the constitution of the United States of America.  The fraudulent CEOs of the banks that became wealthy by causing the financial crisis and the Great Recession are treating us as fools who will give trillion dollar plus gifts to the least deserving, most arrogant, and least ethical elites.  Have we fallen so low as a people that we will allow this to happen?

Please join me in supporting the Attorney Generals of New York, Delaware, and California who have opposed this settlement.  As for President Obama, I hope that he will make this New Year’s resolution:  “I resolve to honor my oath of office and faithfully execute the laws of the United States and defend its constitution, which is premised on justice and the rule of law.  No person, no matter how elite, is above that law.  I have today asked Messrs. Bernanke, Geithner, and Donovan for their resignations because of their support for bailing out the elite banks and granting de facto amnesty to fraudulent financial CEOs.  I, and my new Attorney General and new Secretary of the Treasury, have mutually resolved to make the vigorous prosecution of the elite financial frauds that drove the ongoing crisis our mission. ”

William K. Black – New Economic Perspectives

Consumer bankruptcy attorney Linda Tirelli holds up mortgage documents from one of the civil cases she is handling in her White Plains, New York office, December 14, 2011.

(Reuters) – Four years after the banking system nearly collapsed from reckless mortgage lending, federal prosecutors have stayed on the sidelines, even as judges around the country are pointing fingers at possible wrongdoing.

The federal government, as has been widely noted, has pressed few criminal cases against major lenders or senior executives for the events that led to the meltdown of 2007. Finding hard evidence has proved difficult, the Justice Department has said.

The government also hasn’t brought any prosecutions for dubious foreclosure practices deployed since 2007 by big banks and other mortgage-servicing companies.

But this part of the financial system, a Reuters examination shows, is filled with potential leads.

Foreclosure-related case files in just one New York federal bankruptcy court, for example, hold at least a dozen mortgage documents known as promissory notes bearing evidence of recently forged signatures and illegal alterations, according to a judge’s rulings and records reviewed by Reuters. Similarly altered notes have appeared in courts around the country.

Banks in the past two years have foreclosed on the houses of thousands of active-duty U.S. soldiers who are legally eligible to have foreclosures halted. Refusing to grant foreclosure stays is a misdemeanor under federal law.

The U.S. Treasury confirmed in November that it is conducting a civil investigation of 4,500 such foreclosures. Attorneys representing service members estimate banks have foreclosed on up to 30,000 military personnel in potential violation of the law.

In Alabama, a federal bankruptcy judge ruled last month that Wells Fargo & Co. had filed at least 630 sworn affidavits containing false “facts,” including claims that homeowners were in arrears for amounts not yet due.

Wells Fargo “took the law into its own hands” and disregarded laws banning perjury, Judge Margaret A. Mahoney declared.

And in thousands of cases, documents required to transfer ownership of mortgages have been falsified. Lacking originals needed to foreclose, mortgage servicers drew up new ones, falsely signed by their own staff as employees of the original lenders – many of which no longer exist.

But the mortgage-foreclosure mess has yet to yield any federal prosecution against the big banks that are the major servicers of home loans.

UNPRECEDENTED FRAUD

Reuters has identified one pending federal criminal investigation into suspected improper foreclosure procedures. That inquiry has been under way since 2009.

The investigation focuses on a defunct subsidiary of Jacksonville, Florida-based Lender Processing Services, the nation’s largest subcontractor of mortgage servicing duties for banks.

People close to the investigation said indictments may come as early as the end of this month. Nationwide press reports had showed photos of what appeared to be obviously forged signatures on foreclosure affidavits.

The Justice Department doesn’t disclose pending investigations, making it impossible to say if other criminal inquiries are underway. Officials in state attorneys’ general offices and lawyers in foreclosure cases say they have seen no signs of any other federal criminal investigation.

“I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history,” said Raymond Brescia, a visiting professor at Yale Law School who has written articles analyzing the role of courts in the financial crisis. “I can’t think of one where you have literally tens of thousands of fraudulent documents filed in tens of thousands of cases.”

Spokesmen for the five largest servicers – Bank of America Corp., Wells Fargo & Co., JP Morgan Chase & Co, Citigroup Inc., and Ally Financial Group – declined to comment about the possibility of widespread fraud for this article.

Paul Leonard, spokesman for the Housing Policy Council, whose membership includes those banks, said any faults in foreclosure cases are being addressed under a civil settlement earlier this year with federal regulators.

A portion of a mortgage document from one of the civil cases being litigated by New York consumer bankruptcy Attorney Linda Tirelli is seen in her office in White Plains, New York, December 14, 2011.

FALSE STATEMENTS

Justice Department and Federal Bureau of Investigation officials say they have brought mortgage-fraud criminal cases through their “Operation Stolen Dreams.” None, however, were against big banks. All targeted small-scale operators who allegedly defrauded banks with forged mortgage applications or took advantage of homeowners by falsely promising arrangements to get them out of default and then pocketing their money.

Justice Department spokeswoman Adora Andy declined to comment on the absence of prosecutions for foreclosure practices by big banks. She said in a statement: “The Department of Justice has been and will continue to aggressively investigate financial fraud wherever it occurs, including at all levels of the mortgage industry and, when we find evidence of a crime, we will not hesitate to pursue it.”

Some judges have accused banks of falsely stating in court that they are working on loan modifications for homeowners in default.

In a November 30 court hearing, not previously reported, a federal bankruptcy judge in New York accused Bank of America of falsely telling courts and the public that it was working to renegotiate loans.

“Bank of America issues constant press releases about how it is responsive to their borrowers on these issues. They are not, period,” said Judge Robert Drain, in a case involving homeowner Richard Tomasulo, a pharmacist from Crompond, New York. Drain said Bank of America had been telling the court since January that it was working to modify Tomasulo’s mortgage, but hadn’t done so.

“Whoever is in charge of this program and their supervisor, who should be following it, should be fired” because “they are frankly incompetent.”

Bank of America spokeswoman Jumana Bauwens said the bank has completed “nearly one million” modifications since 2008. The U.S. Treasury this year suspended loan modification incentive payments to the bank because it was “seriously deficient” in responding to requests for modifications.

CHEATERS AND LIARS

Foreclosure fraud came to light in September 2010, with evidence that employees of Ally Financial Corp. had committed “robo-signing,” in which low-level workers signed and swore to the facts in thousands of affidavits they hadn’t read or checked.

The affidavits were notarized outside the signers’ presence, in apparent violation of state and federal criminal laws.

Since then, mounting evidence of possible foreclosure fraud has convinced judges and state regulators that servicers have harmed homeowners and the investors who bought mortgage-backed securities.

A unit of the Justice Department that oversees bankruptcy court cases, the U.S. Trustees Program, said in its 2010 annual report that there were “pervasive and longstanding problems regarding mortgage loan servicing,” which “are not merely ‘technical’ but cause real harm to homeowners in bankruptcy.”

Banks, the Trustees Program says, have falsified affidavits by claiming homeowners owe fees for services never rendered and by overstating how much owners are behind on payments.

Former federal prosecutor Daniel Richman, a professor of criminal law at Columbia University Law School, says a central question is who prosecutors would target in criminal investigations. Richman said it would be easy but not worthwhile to charge large numbers of rank-and-file workers who, directed by supervisors, falsely churned out affidavits.

He said criminal investigations would be warranted, but harder to bring, “if there are particular individuals who lie at the heart of this conduct in a very significant way.”

In October 2010, members of Congress pressed the Justice Department to investigate. Attorney General Eric Holder said investigations were best left to the states, with help from the Justice Department.

The Office of the Comptroller of the Currency, the top bank regulator, quickly negotiated settlements with the 14 largest servicers, requiring changes in practices and “remediation” for harmed homeowners. That settlement allows the banks to choose their own contractors to determine who was harmed and by how much.

Lawmakers and homeowner advocates have criticized the arrangement, contending that it will let the banks avoid making all wronged homeowners whole, because the contractors are paid by and answer to the banks.

Since then, the department’s civil division has worked with a shaky coalition of all 50 states, which have been seeking a civil settlement with five banks that are the largest loan servicers. The negotiations center on requiring them to pay $20 billion or more in penalties, only some of which would go to compensate wronged homeowners.

A undated combination graphic shows two versions of a promissory note filed by Wells Fargo & Co. The first, above, does not show that Wells Fargo owns the mortgage loan, and therefore lacks the right to foreclose. The version below, filed later, bears an additional stamp that appears to give the bank ownership. But federal bankruptcy judge Martin Glenn dismissed Wells Fargo’s foreclosure attempt, questioning the validity of these and other documents.

STATES TAKE ACTION

Federal law enforcement has been noticeably absent, even in areas hardest hit by the crisis, such as Las Vegas.

In 2010 the FBI’s Las Vegas office shut down its mortgage fraud task force, which had focused on small-scale swindlers.

Tim Gallagher, chief of the FBI’s financial crimes section, said that the Las Vegas office had asked to transfer agents to other duties.

Impatient with the lack of federal prosecution, states including New York, Massachusetts, Delaware and California have launched their own investigations of the banks.

In November, it became the first state to file criminal charges. The state attorney general obtained a 606-count indictment against two California-based executives of Lender Processing Services.

It accuses the executives of paying Nevada notaries to forge the pair’s signatures and falsely notarize them on notices of default, documents Nevada requires in foreclosure actions. State officials said more indictments are expected.

In an interview, John Kelleher, Nevada’s chief deputy attorney general, said the investigation began in response to citizen complaints.

“We were concerned and then shocked at the sheer number of fraudulent documents we were finding that had been filed with the county recorder,” Kelleher said.

Investigators found “tens of thousands” of false records filed on behalf of big mortgage servicers, he said.

The two executives have pleaded not guilty. In a press release, the company said: “LPS acknowledges the signing procedures on some of these documents were flawed; however, the company also believes these documents were properly authorized and their recording did not result in a wrongful foreclosure.”

BACK HOME IN NEW YORK

The U.S. Attorney’s Office in Manhattan is the federal prosecutors’ office that traditionally has filed the most cases against top banks and financiers. But it hasn’t brought any foreclosure-related criminal cases involving Wall Street’s biggest financial houses or the law firms that represent them.

To date the only step it has taken publicly was an October 2011 civil settlement with New York State’s largest foreclosure law firm.

The Steven J. Baum P.C. law firm, based near Buffalo, New York, in recent years filed approximately 40 per cent of all foreclosures in New York State, on behalf of banks and other mortgage servicers. Court records show that the firm angered state court judges for alleged false statements and filing suspect documents.

Arthur Schack, a state court judge in Brooklyn, in a 2010 ruling said that pleadings by the Baum firm on behalf of HSBC Bank, a unit of London-based HSBC Holdings, in a foreclosure case were “so incredible, outrageous, ludicrous and disingenuous that they should have been authorized by the late Rod Serling, creator of the famous science-fiction television series, The Twilight Zone.”

Another state judge that year imposed $5,000 in sanctions and ordered the firm to pay $14,500 in attorneys’ fees, ruling that “misrepresentation of the material statements here was outrageous.”

But the U.S. Attorney’s office in Manhattan filed no criminal charges against the Baum firm. Instead, it signed a settlement with Baum ending an inquiry “relating to foreclosure practices.” The agreement made no allegations of wrongdoing, but required the firm to improve its foreclosure practices.

Baum agreed to pay a $2 million civil penalty, but didn’t admit wrongdoing.

The law firm said it would shut down after New York Times columnist Joe Nocera in November published photographs of a 2010 Baum firm Halloween party in which employees dressed up as homeless people. Another showed part of Baum’s office decorated to look like a row of foreclosed houses.

“The settlement between the Manhattan U.S. Attorney’s Office and the Steven J. Baum Law Firm resulted in immediate and comprehensive reforms of the firm’s business practices,” said Ellen Davis, spokeswoman for the Manhattan U.S. Attorney’s office.

Earl Wells III, a spokesman for Baum, said the lawyer wouldn’t comment because “he’s laying low right now.”

An HSBC spokesman said: “We are working closely with the regulators to address any matters raised regarding” the bank’s foreclosure practices.

BROKEN PROMISES

The most serious potential foreclosure violations involve falsified mortgage promissory notes, the documents homeowners sign vowing to repay mortgage loans. Courts uniformly have ruled that unless a creditor legally owns the promissory note, it has no legal right to foreclose. For each mortgage there is only one promissory note.

Bankruptcy court records reviewed by Reuters show that at least a dozen radically different documents purporting to be the authentic promissory note have turned up in foreclosure cases involving six different properties in the federal bankruptcy court for the Southern District of New York.

In one, Wells Fargo is battling to foreclose on the Bronx home of Tindala Mims, a single mother who works as an ambulance driver. In September 2010, Wells Fargo filed a promissory note bearing a signed stamp showing that the note belonged to defunct Washington Mutual Bank, not Wells Fargo. The judge threw out the case.

In a second attempt, the court was given a different version of the note. But inspection showed physical alterations. A variety of marks on the original were missing or seemed obviously altered on the second. And the second version had a stamped endorsement, missing on the first, that appeared to give Wells Fargo the right to foreclose.

The judge threw out the second attempt too. Wells Fargo is trying a third time. It declined to comment on the case.

Linda Tirelli, Mims’ lawyer, in October sued Wells Fargo, alleging “fabrication of documents.”

“It seems to me that Washington is deathly afraid of the banking industry,” Tirelli said. “If you’re talking about filing false documents and filing false notarizations, do you really think that the U.S. Attorney would find it too difficult to prosecute?”

The office of U.S. Attorney Preet Bharara in Manhattan has routinely brought charges involving forgery and filing false documents against smaller targets.

In April, the FBI arrested seven employees of the USA Beauty School in Manhattan. Bharara’s office alleged that the seven suspects had forged documents such as high school diplomas, attendance records and applications for financial aid for students taking cosmetology classes.

In August, Bharara’s office filed felony charges against a sports-memorabilia company’s CEO, accusing him of auctioning jerseys falsely advertised as “game used” by Major League Baseball players.

In a press conference, a U.S. Postal Inspection Service official said prosecution was important because “victims felt that they had a piece of history only to be defrauded and left with a feeling of heartbreak.”

Given the record of Bharara’s office, and those of his fellow U.S. Attorneys around the country, to aggressively pursue violations both big and small, the absence of cases involving the foreclosure fiasco seems to stand out.

“Why there hasn’t been more robust prosecution is a mystery,” said Brescia, the visiting professor at Yale.

SOUCE: Reuters: (Editing by Michael Williams and Chris Kaufman; Reporting By Scot Paltrow)

From Jeff Barnes, Esq. over at ForeclosureDefenseNationwide:

THIRTY-TWO PLAINTIFFS FILE RICO ACTION AGAINST JPMORGAN CHASE BANK AND CHASE HOME FINANCE

September 2, 2011

(updated post from this morning, as we have literally received a blizzard of telephone calls since this post was first put up today)

Thirty-two Plaintiffs have filed a multi-count Complaint in the Circuit Court for Palm Beach County, Florida against JPMorgan Chase Bank and Chase Home Finance, LLC. The Plaintiffs retained Jeff Barnes, Esq., whose Firm, W. J. Barnes, P.A., filed the action last Friday.

The 29-page Complaint alleges several causes of action including violations of the Florida RICO Act, and requests temporary and permanent injunctive relief on a national level to halt all Chase-related foreclosure activity in the eight (8) separate states in which the Plaintiffs reside. The Complaint alleges a pattern of criminal activity on the part of JPMorgan Chase Bank and Chase Home Finance in connection with the institution of both judicial and non-judicial foreclosures, including but not limited to the filing and recording, in the public records, of forged and fraudulent documents; fraudulent collection activities; intentional misuse of the MERS system; and the intentional misrepresentation, in foreclosures across the United States, that Chase is the “successor in interest” to Washington Mutual Bank when in fact Chase itself has affirmatively represented, in multiple Federal court filings in different states, that it is NOT the successor in interest to WaMu, and only purchased certain defined assets and liabilities from the FDIC as Receiver for WaMu.

Since this article was originally posted this morning, we have had almost non-stop telephone calls from other victims of JPM and CHF who have told us the same thing over and over: that in their foreclosure, the same “Chase is the successor to WaMu” representation was made, which was done in an apparent attempt to foist a cloak of legal standing on the Chase entity which instituted the foreclosure. It thus appears, even at this early juncture, that the scope of the illegal and fraudulent conduct set forth in the Complaint is even more widespread than we could have imagined.

The Asset Purchase Agreement between the FIDC and Chase is over 70 pages long, yet the purchase by Chase of the certain assets from the FDIC as Recceiver for WaMu coincidentially took place on exactly the same day that WaMu failed and was taken over by the FDIC.

The Complaint details the common wrongful actions of JPM and CHF utilized in both judicial and non-judicial foreclosures instituted across the United States, characterizing the conduct as a “nationalized fraud”.

The Plaintiffs have also filed a Request for Production of Documents which is being served on JPM and CHF which requests the production of fifty-four (54) separate categories of documents relating to the Plaintiffs’ mortgage loans. This same discovery has previously been compelled, by Court Order, to be produced by foreclosing parties in numerous other cases throughout the United States where Mr. Barnes and his local counsel have propounded this discovery in connection with individual foreclosure challenges.

The Complaint is not a class action and is not a “mass joinder” case. It is a multi-Plaintiff action, which is not subject to the rigors of class actions such as certification of the class, and was never, at any time, advertised or intended to be a “mass joinder” case such as those the subject of the recent “K2″ debacle. The case is also not related or affiliated, in any way, to any other litigation instituted against the Chase entities by any other group or which may be posted on any other websites, which other websites are apparently attempting to link other Chase-related lawsuits with the Florida action the subject of this article.

The action is the second RICO-based Complaint filed by Mr. Barnes’ Firm in recent weeks. The Firm previously filed an action in Arizona against M&I Marshall & Isley Bank which is grounded in part on violations of the Arizona RICO statute. That action is pending in Tuscon.

Jeff Barnes, Esq.

Well, who coulda known you can’t foreclose on something you don’t own?

Of course, we’ve been asking this for a while.  So far, I’d say this is probably one of the best responses to that question.

CY VANCE: DIRTY D.A. – An Old Boy Toy Story from Melissa Ulto on Vimeo.