A recent NY Post article caught my
eye:
March 8, 2014
Ex-Jeffriestrader guilty of fraud
A federal jury found former Jefferies
Group trader Jesse Litvak guilty of defrauding clients on mortgage
bond trades, a victory for the government as it probes whether banks
cheated their customers in the years after the financial crisis.
After reading about Litvak I wondered
whether it is fact or urban myth that no top level bankers have gone
to jail for perpetrating mortgage fraud. The Securities and Exchange
Commission charged Angelo Mozilo of Countrywide with insider trading and securities fraud
in 2009 for selling shares of his company while publicly proclaiming
it was in fine shape. But those were civil charges, which Mozilo
settled with $67.5 million in fines and a lifetime ban from serving
as an officer of a public company. A criminal investigation was
dropped.
In 2011, Michael J. McGrath Jr., former
president of U.S. Mortgage Corp., was sentenced to 14 years in prison for
orchestrating a conspiracy that defrauded credit unions and Fannie Mae of $136 million.
According to the DOJ press release - 2/24/11
Michael J. McGrath, Jr., the former
president and controlling shareholder of closely-held U.S. Mortgage,
previously pleaded guilty before U.S. District Judge Katharine S.
Hayden to one count of mail and wire fraud conspiracy and one count
of money laundering. Judge Hayden also imposed the sentence today in
Newark federal court.
According to documents filed in this and related cases and statements made in court:
Beginning as early as 2002 to January 27, 2009, McGrath conspired
to fraudulently sell Fannie Mae hundreds of loans belonging to
various credit unions. Other members of the conspiracy included U.S.
Mortgage’s chief financial officer and its servicing manager, Leroy
Hayden. McGrath directed Leroy Hayden, who provided numerous reports
to credit unions falsely stating that loans that had been sold were
still in the credit unions’ portfolios, to falsify records to
conceal the fraudulent sales.
According to documents filed in this and related cases and statements made in court:
McGrath admitted that he devised the scheme to prop up U.S. Mortgage, and that he used the proceeds to fund U.S. Mortgage’s operations, his personal investments, and investments he made on U.S. Mortgage’s behalf.
The pace of the fraudulent sales increased during 2008 and early 2009. On January 27, 2009, dozens of law enforcement agents executed a search warrant at U.S. Mortgage and CU National’s Pine Brook headquarters. In the following weeks, U.S. Mortgage and CU National commenced bankruptcy proceedings. Hundreds of U.S. Mortgage employees lost their jobs as a result.
In addition to the prison term, Judge Hayden sentenced McGrath to three years of supervised release. McGrath also consented to forfeiture of the proceeds of his crimes and $14 million of his assets that the government has seized or frozen. The Court postponed entry of a restitution order so that the victims’ losses could be properly allocated. The total loss amount, previously estimated at around $139 million, has been calculated as being somewhat less. The restitution order is expected to require McGrath to pay more than $136 million in restitution to his victims.
In 2011, Lee Bentley Farkas, the former chairman of a private mortgage lending company, Taylor, Bean & Whitaker (TBW), was convicted for his role in a more than $2.9 billion fraud scheme that contributed to the failures of Colonial Bank, one of the 25 largest banks in the United States in 2009, and TBW, one of the largest privately held mortgage lending companies in the United States in 2009.
After a 10-day trial, a federal jury in the Eastern District of Virginia found Farkas guilty of one count of conspiracy to commit bank, wire and securities fraud; six counts of bank fraud; four counts of wire fraud; and three counts of securities fraud. At sentencing, one July 1, 2011, Farkas faced a maximum prison term of 30 years for the conspiracy charge and for each count of bank fraud, 20 years for each count of wire fraud related to TARP, 30 years for each count of wire fraud affecting a financial institution and 25 years for each securities fraud count. Farkas was remanded into custody.
According to court documents and
evidence presented at trial, Farkas and his co-conspirators engaged
in a scheme that misappropriated more than $1.4 billion from Colonial
Bank’s Mortgage Warehouse Lending Division in Orlando, Florida, and
approximately $1.5 billion from Ocala Funding, a mortgage lending
facility controlled by TBW. Farkas and his co-conspirators
misappropriated this money to, among other things, cover TBW’s
operating expenses. The fraud scheme contributed to the
failures of Colonial Bank and TBW.
“Today a jury convicted Lee Farkas of orchestrating one of the
longest and largest bank fraud schemes in the country,” said U.S.
Attorney Neil H. MacBride [at sentencing]. “In 2008, Lee Farkas
boasted that he ‘could rob a bank with a pencil.’ And he
did just that. His staggering greed led him to steal nearly $3
billion from Colonial Bank and other investors. Farkas’s
mammoth fraud contributed to the toppling of a financial institution
and the ripple effects were felt from Wall Street to Main Street.
Now he’s being held responsible for the financial ruin he left in
his wake.”
Evidence at trial also established that
Farkas and his co-conspirators caused Colonial BancGroup to file
materially false financial data with the SEC regarding its assets in
annual reports contained in Forms 10-K and quarterly filings
contained in Forms 10-Q. Colonial BancGroup’s materially
false financial data included overstated assets for mortgage loans
that had little to no value that Farkas and his co-conspirators
caused Colonial Bank to purchase. Farkas and his
co-conspirators also caused TBW to submit materially false financial
data to the Government National Mortgage Association (Ginnie Mae) in
order to extend TBW’s authority to issue Ginnie Mae mortgage-backed
securities.
According to court documents and
evidence presented at trial, Farkas also personally misappropriated
more than $20 million from TBW and Colonial Bank to finance his
lifestyle, including purchasing multiple homes, scores of cars, a jet
and sea plane, and restaurants and bars.
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989
AN ACT - To reform, recapitalize, and consolidate the Federal deposit insurance system, to enhance the regulatory and enforcement powers of Federal financial institutions regulatory agencies, and for other purposes. Which includes the following provision:
(2) SPECIAL RULE FOR CONTINUING VIOLATIONS--
In the case of a continuing violation, the amount of the civil penalty may exceed the amount described in paragraph (1) but may not exceed the lesser of $1,000,000 per day or $5,000,000.
It
all sounds like too little. But its not too late.U.S. citizens continue to lose their homes to foreclosure despite media proclamations that the foreclosure crisis is well behind us. ITS NOT. Mortgages initiated in recent history, since 2002 or so, are riddled with misrepresentation and fraud. It's not too late to punish those who steal the wealth of U.S. citizens.
