It’s either RICO Act or Control Fraud.

We are entering the Age of Rage.

It is presently most visible in Europe as austerity programs that potentially could shred a half century of social entitlement advances are met with increasingly violent street demonstrations.  It is seen in the US Tea Party rallies with their fury that the very fabric which the US capitalist system is based on is being destroyed and discarded. Unfortunately these demonstrations of rage are focusing on the effects and not the cause. The cause is a systemic plaque of unenforced financial control fraud.

Americans witnessed CEOs arrested during the nightly news coverage of the S&L Crisis of the early 90’s. They were placated as they heard the details of over 1000 indictments of the perpetrators of fraud. In the aftermath of the tech bubble implosion ten years later, injured investors once again witnessed the most senior executives at Enron, WorldCom, Tyco, Qwest and others being led off in handcuffs and disgrace to waiting police cruisers. Retirees with decimated retirement plans felt that some level of restitution had been made when 25 year sentences were meted out to these formerly high-flying felons.

After nearly two years since the greatest financial malfeasants in history and ten years since the last public example of financial crime, the public haven’t seen a single CEO sentenced to hard time for the financial meltdown. They have not had their thirst for revenge quenched by a single high level court case. Instead, the public infuriatingly witnesses politically crafted theater in congressional hearings that go nowhere, read watered down legislation that is replete with even richer lobbyist-authored loopholes and only occasionally see small headlines of quiet settlements with insulting token amends payments. Why? Were there no crimes committed? No laws broken?

The public is forced to accept excuses that we have enforcement agencies not enforcing, regulators not regulating and legislators not equipped to legislate properly in our modern fast moving financial world.  The public is left with the gnawing concern of whether it is incompetence or something much deeper, more troubling, and more sinister.  Confidence and trust in government and our democratically elected politicians continue to worsen from already pathetic levels.

The taxpayer while standing in long unemployment lines, reads in the newspapers of financial institutions that were making mind-numbing profits and paying horrendous executive bonuses suddenly being insolvent and needing taxpayer bailouts. Then as their unemployment benefits near exhaustion, they read of the banks’ profits soaring once again. These are the foundations of the emerging new age of public rage.

We have much more than a crisis of integrity. We have fraud that is so pervasive that it is now unknowingly institutionalized into our business and political culture. The sickening part is that it a like a cancer; if it’s not detected early, it will be too late to fight. We need to fully understand and prosecute the tenets of fraud before it is too late.

FRAUD

Fraud is the act of creating trust then betraying it. Fraud is deceit.

If I was to articulate this definition to the average person,  I believe the vast majority (without formal legal training) would immediately respond that this is exactly how they’d describe the financial crisis!  So why are there no indictments?  Is the fraud of liar’s loans, NINJA (No income, No Job, No Assets) loans, false housing appraisals, false AAA credit ratings and false contingent liability reporting so hard to prove? Not really. It takes an indictment and that’s often a much too political process in America.

Some would argue it was not intentional and therefore can’t be seen as a felony. They‘d say it is more a matter of civil damages. Again, wrong.

CONTROL FRAUD

What emerged from the S&P debacle was the concept of control fraud. At the core of financial control fraud is the notion that a CEO would deliberately use the S&L as a camouflage to make bad loans, thereby gutting the underwriting process while knowing full well that the loans would statistically fail over the long run. By doing this, money is made in the initial stages, exactly in the fashion of a Bernie Madoff Ponzi scheme. Profits are declared and rich bonuses are paid. Stocks soar and rich stock options are executed. Then when the inevitable day arrives as the defaults emerge, the CEO takes the company into bankruptcy with no claw-back provisions, or an even newer and richer approach – the CEO seeks government bailouts to replace the pillaged balance sheet.

Corporate Control Fraud might be viewed as having four tell-tales:

1.     Deliberately making bad loans or investments.

2.     Exceptionally High Growth (because improperly accounted profits are being booked today).

3.     The use of extraordinary leverage to maximize profits while profits are artificially available.

4.     False representation of actuarial appropriate loss reserves.

Sound eerily familiar?

The S&L debacle prompted the Prompt Corrective Action (PCA) Law (US Code: Title 12,1831o). William K Black the author of “ The Best Way to Rob a Bank is to Own: How Corporate Executives and Politicians Looted the S&L Industry, “ argues that this law is presently being broken through the misrepresentation of bank asset positions.  Additionally, because the Prompt Corrective Action Law is not being enforced, the felony of accounting control fraud is being committed.

Control fraud theory was developed in the savings and loan debacle. It explained that the person controlling the S&L (typically the CEO) posed a unique risk because he could use it as a weapon.  The theory synthesized criminology (Wheeler and Rothman 1982), economics (Akerlof 1970), accounting, law, finance, and political science. It explained how a CEO optimized “his” S&L as a weapon to loot creditors and shareholders.

The weapon of choice was accounting fraud. The company is the perpetrator and a victim. Control frauds are optimal looters because the CEO has four unique advantages. He uses his ability to hire and fire to suborn internal and external controls and make them allies. Control frauds consistently get “clean” opinions for financial statements that show record profitability when the company is insolvent and unprofitable. CEOs choose top-tier auditors. Their reputation helps deceive creditors and shareholders.

Only the CEO can optimize the company for fraud. He has it invest in assets that have no clear market value. Professionals evaluate such assets-allowing the CEO to hire ones who will inflate values. Rapid growth (as in a Ponzi scheme) extends the fraud and increases the “take.” S&Ls optimized accounting fraud by loaning to uncreditworthy and criminal borrowers (who promised to pay the highest rates and fees because they did not intend to repay, but the promise sufficed for the auditors to permit booking the profits). The CEO extends the fraud through “sales” of the troubled assets to “straws” that transmute losses into profits. Accounting fraud produced guaranteed record profits-and losses.

CEOs have the unique ability to convert company assets into personal funds through normal corporate mechanisms. Accounting fraud causes stock prices to rise. The CEO sells shares and profits. The successful CEO receives raises, bonuses, perks, and options and gains in status and reputation. Audacious CEOs use political contributions to influence the external environment to aid fraud by fending off the regulators. Charitable contributions aid the firm’s legitimacy and the CEO’s status. S&L CEOs were able to loot the assets of large, rapidly growing organizations for many years. They used accounting fraud to mimic legitimate firms, and the markets did not spot the fraud. The steps that maximized their accounting profits maximized their losses, which dwarfed all other forms of property crimes combined. (1)

I have written extensively about the degree to which the banks 10K and 10Q balance sheets do not represent current fair market value of their assets. When the FDIC continuously takes over banks and declares that asset values are 25- 35% overvalued, there’s no further proof required. The banks, which are sold as part of the regular FDIC  “Friday night bank lottery” continuously see no CEOs indicted for falsely representing FDIC-insured assets. We the taxpayers are then unwittingly presented with the tab.

Secretaries Paulson and Geithner subverted the PCA law by allowing failed banks to engage in massive accounting fraud (which also means they are engaged in securities fraud). Treasury is telling the world that resolving the failed banks will require roughly $2 trillion dollars. That has to mean that the failed banks are insolvent by roughly $2 trillion. The failed banks, however, are reporting that they are not simply solvent, but “well capitalized.” The regulators flout PCA by permitting this massive accounting and securities fraud. (Note that by countenancing this fraud they make it extremely difficult to ever prosecute these elite white-collar frauds.)  (5)

Above, I made the assertion that indictments are too political a process in America. Control Fraud isn’t unique to just CEOs. Heads of sovereign governments and their empowered representatives also fall within this type of fraud. We once again see ourselves moving upwards hierarchically towards people in authority, who are charged with a fiduciary and judiciary responsibility, taking positions that enrich or politically benefit themselves at the expense of the innocent. This is fraud. Though we find ourselves asking, where are they when we most need them, we should be asking, who will bring them to justice?

If you think this is not widespread, how do you rationalize that it was recently reported that Goldman Sachs never had a trading day loss in April yet its clients in eight out of ten cases lost money.  Incompetence? Stupidity? The Financial Times reports “The trading operations of Goldman Sachs and JPMorgan Chase made money every single business day in the first quarter … Goldman’s trading desk recorded a profit of at least $25m(£16.8) on each of the quarter’s 63 working days, making more than $100m a day on 35 occasions, according to a regulatory filing issued on Monday …  JPMorgan also achieved a loss-free quarter in its trading unit – making an average of $118m a day, nearly $5m an hour”. Morgan Stanley reported trading profits on a mere 93% of the first quarter trading days. This defies any sort of logic in a freely trading markets, unless the markets are controlled and the game fixed. These are better odds than owning a casino.

As A frustrated Tyler Durden at Zero Hedge observes: “if you ever wanted to see what a monopoly looks like in chart form:

The firm did not record a loss of even $0.01 on even one day in the last quarter,” Durden says. “The statistic probability of this event is itself statistically undefined. Goldman is now the market – or, in keeping with modern market reality, Goldman is the ‘house,’ it controls the casino, and always wins. Congratulations America: you now have far, far better odds in Las Vegas that you have making money with your E-Trade account.” (7)

The famous Barnum & Bailey carnival barkers used to snidely boast “there’s a sucker born every minute”. The carnival games were notoriously fixed so the ‘sucker’ almost certainly lost. I’m not indicting anyone here (I will leave that to our alarmingly incompetent regulatory and enforcement agencies), but rather I’m only reinforcing why we have entered an age of public rage and why I felt compelled to write the Extend & Pretend series of articles.

GRESHAM’S LAW

As the concept of control fraud emerged from the S&L crisis, an expansion of Gresham’s Law — has begun to be sketched out by Bill Black —

It will no doubt emerge out of this depression.

Gresham’s Law describes how “bad money drives out good.” Expanding on that idea, what Black calls “A Gresham’s Dynamic” operates similarly, when cheaters profit and “the dishonest drive out the honest.”

CLICK FOR VIDEO

Dr. William Black, University of Missouri-Kansas City.
Thursday, Feb. 18th, 2010, 7:30-9:00 PM, at the Council Chamber.
The title of Dr. Black’s talk is: Why Elite Frauds Cause Recurrent, Intensifying Economic, Political and Moral Crises.


RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS (RICO) ACT

Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes—27 federal crimes and 8 state crimes—within a 10-year period can be charged with racketeering.   Racketeering activity includes:

In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of “racketeering activity.” RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.

It seems it is the same names I continue to read about in the press. Do these financial institutions settle to avoid the magic ‘2 committed felony’ threshold qualification for a RICO indictment?

On March 29, 1989, financier Michael Milken was indicted on 98 counts of racketeering and fraud relating to an investigation into insider trading and other offenses. Milken was accused of using a wide-ranging network of contacts to manipulate stock and bond prices. It was one of the first occasions that a RICO indictment was brought against an individual with no ties to organized crime. Milken pled guilty to six lesser offenses rather than face spending the rest of his life in prison. On September 7, 1988, Milken’s employer, Drexel Burnham Lambert, was also threatened with a RICO indictment under the legal doctrine that corporations are responsible for their employees’ crimes. Drexel avoided RICO charges by pleading no contest to lesser felonies. While many sources say that Drexel pleaded guilty, in truth the firm only admitted it was “not in a position to dispute the allegations.” If Drexel had been indicted, it would have had to post a performance bond of up to $1 billion to avoid having its assets frozen. This would have taken precedence over all of the firm’s other obligations—including the loans that provided 96 percent of its capital. If the bond ever had to be paid, its shareholders would have been practically wiped out. Since banks will not extend credit to a firm indicted under RICO, an indictment would have likely put Drexel out of business. Is this really what is behind too big to fail prosecution? (6)

You don’t need a fancy high priced Philadelphia lawyer to tell you that “when the glove fits you can’t acquit!”  – A little old fashion common sense is all that is required.

CONCLUSION

The Age of Rage during the French revolution cost people their heads when the guillotine administered public justice daily for the angry masses. Political and bureaucratic heads will also roll in the future if justice is not soon administered. As Marie Antoinette learned too late, it may be much worse than merely the loss of an elected position with all its trappings.

It takes public rage for someone to spend the time to create expressions of frustration like the above graphic represents!

SOURCES:

(1) 08-30-08 The Control Fraud Theory Bizcovering

(2) US Code: Title 12, 1831o. Prompt Corrective Action

(3) April 2009 William K. Black on The Prompt Corrective Action Law Bill Moyers Journal

(4) Accounting Control Fraud Google Scholar

(5) 02-23-09 Why Is Geithner Continuing Paulson’s Policy of Violating the Law? The Huffington Post

(6) RICO – Wikipedia

(7) 05-12-10 Goldman’s Perfect Quarter Eric Fry The Daily Reckoning

C

Gordon T Long

Tipping Points

Mr. Long is a former senior group executive with IBM & Motorola, a principle in a high tech public start-up and founder of a private venture capital fund. He is presently involved in private equity placements internationally along with proprietary trading involving the development & application of Chaos Theory and Mandelbrot Generator algorithms.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, you are encouraged to confirm the facts on your own before making important investment commitments.

© Copyright 2010 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.

Bank of America RECORDED CALL regarding FORECLOSURE FRAUD *MUST LISTEN*

I think this is what WE all go through!

jwerner79 — April 25, 2009 — This call happened 4/24/09 whereas a Countrywide representative called me, Jason Werner, literally while I was driving home from a pre-mediation conference. The loan amount is less than $50,000. This is a good example of a crime trying to be covered by the Treasury. Please see my comments to follow. Thank you.

ARE FORECLOSURE MILLS Coercing Buyers for BANK OWNED homes? ARE ALL THE MILLS?

YOU MUST use Sellers Title Company! If you BUY before 6/30 I will give you an extra 3.5% towards your CC!
YOU MUST use Sellers Title Company! If you do by 6/30 I will give you an extra 3.5% towards your CC!
Found this in Trulia but it may get deleted once this is posted. It’s ok …thanks to Baby Jesus I saved it! But it goes exactly like this:

fannie mae owned.bank property. property is vacant.all offers requiring financing must have preapproval letter.all cash offer require proof of fund(see attachement).this property is eligible for home path renovation mortgage-as little as 3% down.buyer must close with seller closing agent(david j. stern law offices,p.a).investors not eligible for first 15days.*for showing instr please read broker remarks* note:offers must be submitted using attachment.close by 30 june and receive extra 3.5% in closing cost

Looking further into this I noticed the following:

  • Still in the name of the owner
  • NOT named under any REO
  • Home last sold for 245K
  • Now listed at 120K

Here is the BIGGEST:

I found a Bank-owned packet for this “SPECIALLY SELECTED” Agent/BROKER in many other REO’s and in this package it states the following:

9) Which title companies are the sellers and who do I make out the earnest money deposit to once offer is verbally accepted?

a. PLEASE LOOK ON MLX REMARKS FOR TITLE COMPANY. MLX WILL HAVE ONE OF THE FOLLOWING:
i. David Stern, P.A.
ii. Marshall C. Watson, P.A.
iii. Smith, Hiatt, & Diaz, P.A.
iv. Butler & Hosch, P.A.
v. Shapiro & Fishman, P.A.
vi. Spear & Hoffman, P.A.
vii. Adorno & Yoss, P.A.
viii. Watson Title

ix. New House Title (This is registered with FDLG address 9119 CORPORATE LAKE DRIVE, SUITE 300 TAMPA FL 33634)

10) Can the buyer use their own title company or must they use the title company selected by seller?

a. The buyer MUST HOLD ESCROW with Fannie Mae Title Company as stated on MLX.

NOW are we unleashing another dimension to this never ending SAGA?

We recently found out about WTF!!! DJSP Enterprises, Inc. Announces Agreement to Acquire Timios, Inc., Expand Presence Into 38 States , so is this a way for the Mills to Monopolize on the sales of these properties??

HERE IS same Agent/Broker for a FLORIDA DEFAULT LAW GROUP property:

THIS IS FANNIE MAE HOMEPATH PROPERTY.BANK OWNED.ALL OFFERS REQUIRING FINANCING MUST HAVE PREAPPROVAL LETTER. ALL CASH OFFERS REQUIRE PROOF OF FUNDS. THIS PROPERTY IS APPROVED FOR HOMEPATH AND HOMEPATH RENOVATION MORTGAGE FINANCING-AS LITTLE AS 3% DOWN,NO APPRAISAL OR MORTGAGE INSURANCE REQUIRED! ** FOR SHOWING INST PLEASE READ BROKER REMARKS** YOU MUST SUBMIT OFFER USING ATTACHMENT! INVESTORS NOT ELIGIBLE FOR FIRST 15DAYS.CLOSE BY JUNE 30 TO BE ELIGIBLE FOR EXTRA 3.5% SC. EMD: FL DEFAULT LAW GROUP.

Here is another same Agent/Broker for MARSHALL C. WATSON property:

FANNIE MAE OWNED.BANK PROPERTY. PROPERTY IS VACANT.ALL OFFERS REQUIRING FINANCING MUST HAVE PREAPPROVAL LETTER.ALL CASH OFFERS REQUIRE PROOF OF FUNDS(SEE ATTACHEMENT).THIS PROPERTY IS ELIGIBLE FOR HOME PATH RENOVATION MORTGAGE-AS LITTLE AS 3% DOWN.BUYER MUST CLOSE WITH SELLER CLOSING AGENT (LAW OFFICES OF MARSHALL C. WATSON).INVESTOR NOT ELIGIBLE FOR FIRST 15DAYS.*FOR SHOWING INSTR PLEASE READ BROKER REMARK* NOTE:OFFERS MUST BE SUBMITTED USING ATTACHMENT.CLOSE BY JUNE 30 TO GET 3.5% EXTRA IN CLOSING COST

Does the JUNE 30th Closing Day have any significance??

MAYBE it’s because of this? MERS May NOT Foreclose for Fannie Mae effective 5/1/2010I am just trying to make sense of this…Is there a grace period that followed?

  • What “if” the BUYER selects their own Title company? Does this eliminate their chances of ever even being considered as a buyer?
  • Why even bother to state this?
  • Is this a way for the selected Agent/ Broker to find the buyer and discourage other agents or buyers from viewing?
  • Was this at all even necessary to state?
  • Is this verbiage to coerce agents to get a higher commission rather than pass down the incentive of 3.5% towards closing cost “if” under contract by 6/30?
  • Why do investors have to refrain from buying for the first 15 days?

Coercion (pronounced /koʊˈɜrʃən/) is the practice of forcing another party to behave in an involuntary manner (whether through action or inaction) by use of threats, intimidation, trickery, or some other form of pressure or force. Such actions are used as leverage, to force the victim to act in the desired way. Coercion may involve the actual infliction of physical pain/injury or psychological harm in order to enhance the credibility of a threat. The threat of further harm may lead to the cooperation or obedience of the person being coerced. Torture is one of the most extreme examples of coercion i.e. severe pain is inflicted until the victim provides the desired information.

RELATED STORY:

LENDER PROCESSING SERVICES (LPS) BUYING UP HOMES AT AUCTIONS? Take a look to see if this address is on your documents!

“PROCESS SERVING INSIDER”…Other monsters in the Sea: PROVEST, LLC

Posted by SUItheGATOR on May 24, 2010 ForeclosureHamlet.org

Another area that should be investigated in the foreclosure mill process is the “process serving” Mills such as ProVest LLC.

I worked at ProVest for 7 months a few years ago, as jobs are scarce. There were some issues there of some of the servers just “drop serving” the summons, (just leaving at the door and saying they gave it directly) or Sewer serves, (saying it was served and they never even left at the door). A few borrowers obtained legal counsel and executed their rights, as they were never properly served, but there are probably more borrowers unaware they have been “had”.

If Improperly served, the court dates cannot be set.

Due to ProVest’s aggressive style, and high volume of work, it is possible many servers, not direct employees, were forced to do the serves this way due to the volume and ProVest’s unrealistic expectations. They wanted a serve within 10 days of it being filed at the court house. As an employee, server or not, if you did not meet their outrageous timeframes it provoked what I call “public floggings” of employees. Not a nice place to work.

ProVest does process serving for many of the foreclosure mills such as Stern and FDLG… And for the record, when I was there, a husband worked for FDLG, and the wife worked for ProVest…

So, if you want more dirt for your compaign, here it is.. Check to see if the borrowers were properly served.

RELATED STORY:

Lender Processing Services LPS and ProVest: Resemblance is uncanny