DOJ

  • 07 Aug 2013 at 9:40 AM

Everybody Will Always Be Suing BofA Over Mortgages

These lawsuits against Bank of America are pretty lame, aren’t they? The SEC and Department of Justice each sued BofA yesterday for fraud in a 2008 prime jumbo mortgage securitization but it doesn’t really feel like fraud. The guns are smoke-free. The DoJ gets itself all excited because someone proposed including some bad mortgages in the deal, and a Bank of America trader said of those mortgages that, “like a fat kid in dodgeball, these need to stay on the sidelines,” but they did! The trader thought some of the mortgages were crap, and they were crap, and so they weren’t included in the deal. The system worked! It’s like if Fabulous Fab emailed his girlfriend saying “I am creating monstruosities,” and she told him to stop, and he did.

The complaints put their fraudy eggs in two main baskets. The first is that Bank of America omitted to tell investors some material facts, of which the most important is that 70% of the loans in this securitization were wholesale loans (originated through brokers), and that wholesale loans were worse – for both credit and prepayment risk – than loans originated by BofA directly. Read more »

One hopes “black edge” wasn’t on the list. Anyway today’s indictment against SAC, for wire fraud and securities fraud, is a hoot:

For example, on or about July 29, 2009, a recently hired SAC PM (the “New PM”) sent an instant message to [Steve Cohen] and relayed that, due to some “recent research,” the New PM planned to short Nokia when he started work 10 days later. The New PM apologized for being “cryptic” but noted that the head of SAC compliance “was giving me Rules 101 yesterday – so I won’t be saying much[.] [T]oo scary.”

Possibly the weirdest part here is that new hires got compliance lectures two weeks before they showed up at the firm? But maybe not; the DOJ takes a pretty dim view of SAC’s hiring process generally, and if you believe the DOJ that SAC’s main hiring criterion was “is good at insider trading” then you could imagine the need for a little pre-start-date warning about email etiquette: Read more »

The judge hearing the Justice Department’s CDO-rating lawsuit against S&P refused to dismiss it yesterday, rejecting S&P’s much-mocked theory that its pre-crisis claims of independence and objectivity and, like, plausible ratings were just “puffery” that no one should have taken seriously. Here is the story, and here is his opinion, and here is a rhetorical question:1

At the hearing on this matter, Defendants repeatedly asserted that no reasonable investor would have relied on S&P’s claims of independence and objectivity. Regarding the question of materiality, S&P argued that, since the issuer banks had access to the same information and models that S&P analysts did, they could not have been fooled by faulty credit ratings. This begs the question: if no investor believed in S&P’s objectivity, and every bank had access to the same information and models as S&P, is S&P asserting that, as a matter of law, the company’s credit ratings service added absolutely zero material value as a predictor of creditworthiness?

Well so I mean do you want an answer? How much value do you think they added?

The S&P case is a pretty weird beast because it’s brought under the FIRREA, a law designed to protect federally insured banks, and so the government has to assert that: Read more »

  • 19 Dec 2012 at 3:50 PM
  • Banks

Sometimes UBS Traders Manipulated Libor Just To Mess With Each Other

The last of the UBS Libor settlements to come out was the U.S. one and it has some of the best quotes. There’s the yen swaps trader who said “I live and die by these libors, even dream about them.” There’s … I mean, there is the life and career of Bart Chilton, in toto; here is a thing he said:

“A Conscience Isn’t Nonsense”

Statement of Commissioner Bart Chilton on UBS Settlement

December 19, 2012

Every so often, folks wonder if some in the financial sector believe that having a business conscience is nonsense. Financial sector violations are hurtling toward us like a spaceship moving through the stars. All too often, penalties have been a simple cost of doing business. That needs to change.

Particularly good are the exhibits to the criminal complaint against Tom Hayes and Roger Darin. We’ve previously met Hayes, cleverly disguised as Trader A; he was the senior yen swaps trader at UBS in Tokyo. Darin was the short-term rates trader “in Singapore, Tokyo, and Zurich,” though probably not all at once; he and his team submitted yen Libors for UBS. You can guess what happened when they got together!

But you don’t have to guess because there are lots of transcripts of their chats in the exhibits.1 Here is a problematic one: Read more »

Ooh so Wells Fargo screwed the government out of hundreds of millions of dollars of mortgage insurance by fraudulent underwriting, allegedly. We’ve all heard big-bank mortgage fraud stories by now and they’re usually pretty juicy and smoking-gun-tastic: “shit breathers,” etc. And the government claims that WFC submitted somewhere between 6,000 and 50,000 bad loans, while specifically describing a dozen or so in the complaint, presumably cherry-picked for maximum offensiveness. Let’s look at one:

92. FHA case number 352-4948464 relates to a property on Martin Luther King Blvd. in Newark, NJ (the “King Blvd. Property”). Wells Fargo underwrote the mortgage for the King Blvd. Property, reviewed and approved it for FHA insurance, and certified that a DE underwriter had conducted the required due diligence on the loan application and that the loan was eligible for HUD mortgage insurance. The mortgage closed on or about July 23, 2003.

93. Contrary to Wells Fargo’s certification, Wells Fargo did not comply with HUD rules in reviewing and approving this loan for FHA insurance, and did not exercise due diligence in underwriting the mortgage. Instead, Wells Fargo violated multiple HUD rules, including HUD Handbook 4155.1 ¶¶ 2-3 and 3-1, HUD Handbook 4000.4 ¶ 2-4(c)(5), and Mortgagee Letters 1992-5 and 2001-01.

94. Wells Fargo’s violation of HUD Handbook 4155.1 ¶ 2-3 is illustrative of the multiple rules that Wells Fargo violated in approving the King Blvd. Property. HUD underwriting guidelines state that lenders must analyze a mortgage applicant’s credit and determine the creditworthiness of the applicant. Specifically, lenders must verify and analyze the borrower’s payment history of housing obligations, and obtain written explanations from the borrower of past derogatory credit. HUD Handbook 4155.1 ¶ 2-3. Contrary to this clear requirement, Wells Fargo failed to verify the borrower’s history of housing obligations or obtain explanations from the borrower for past derogatory credit. In violating HUD Handbook 4155.1 ¶ 2-3, Wells Fargo endorsed the King Blvd. Property for FHA insurance without sufficiently analyzing the borrower’s creditworthiness.

Gosh! Failure to verify history of housing obligations! Unobtained explanations for past derogatory credit! INSUFFICIENT ANALYSIS!

What? Read more »