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Robosigning = Smoking Gun for Multiple Fraud

Robot. Wants. Immunity. Or Else. (photo: lameazoid, flickr)

Robot. Wants. Immunity. Or Else. (photo: lameazoid/flickr)

There are a few voices emerging suggesting that the current iteration of the “50 AG settlement” is somehow wonderful, or at least OK, because it only immunizes robosigning. “Only,” as if robosigning was some relatively benign peccadillo, instead of a massive conspiracy to commit forgery and perjury that is systematically driving our population into homelessness AND continuing to drive down the value of our homes.

Peter Henning writing for NYTimes Dealbook thinks

Narrowing the investigative focus to the creation and sale of residential mortgage-backed securities may help push cases forward because the government will not spread itself too thinly by chasing every firm that somehow contributed to the financial crisis. Much like the focus of the Enron Task Force a decade ago, looking at a single target may allow investigators to master the intricacies of a slice of the market to determine whether there is evidence of fraud

Wrong. The better analogy is to the Savings and Loan crisis in the 1980’s. Back then there were hundreds of government lawyers and plenty of criminal cases to send a message along with the civil cases to try to recoup some of the money. THAT’s how you do it. Henning thinks that most of the bad guys will get off for lack of evidence.

Could there be a “smoking gun” that would somehow implicate firms or executives in fraudulent practices that has gone undiscovered so far? The short answer is “no,”….

Wrong again; there certainly is a smoking gun, thousands of them, actually. They are the robo signed documents forged after the fact to try to create the false impression that the mortgages and notes were transferred to MERS and into securitization trusts/REMICs in a timely fashion. Add to that the formation documents for MERS and the Pooling and Servicing agreements for the REMICs and you have a case that is VERY easy for a judge and jury to understand.  [cont’d.]

Even the normally laser visioned Matt Taibbi doesn’t get it. He thinks that robosigning immunization will only hurt the homeowners trying to stave off foreclosure from an entity that has no standing to foreclose, as if that wasn’t enough all by itself.

Robosigning had a profound and immediate impact on large numbers of actual human beings, and I don’t want people to think I’m dismissing it as unimportant. I probably also shouldn’t celebrate news like this until I see how the actual deal looks, what wording is used to narrow the deal’s purview, how homeowners and other victims will be compensated, what will be done to prevent it in the future, and so on.

But my point was that, while a gross crime and one of the more obvious (and easily provable) parts of the criminal scheme common during the mortgage bubble years, robosigning is really an ancillary part of an even more enormous fraud that went on, and is still going on, in securitization/origination. Many homeowners were victimized by robosigning, but your more common victim of bank fraud during this time was an investor in MBS — maybe even another Wall Street entity like a hedge fund or a bond insurer, maybe a foreign trade union, maybe a state worker whose pension fund lost 40% of its value because it was sold bad bonds by a too-big-to-fail bank. And the hook that snared those victims was securitization.

What both Henning and Taibbi are missing is that the easiest way for the pension funds and the hedge funds to win in court is to have a narrative that the jury can understand. Critical to that narrative is that the robosigned documents are of no legal effect; just like a forged dollar bill is of no legal effect and has no value once you realize that it’s counterfeit.

If this horrendous settlement is allowed to go through and sprinkle magic pixie dust on these forgeries and perjuries and by some alchemy that eludes me turn them into documents that can be used to “prove” what’s contained in them (thereby turning everything I ever knew about the rules of evidence inside out), then the pension funds and other purchasers of MBS will not be able to prove the truth, namely, that the REMICs they bought were empty or largely empty and that they are entitle to rescind that purchase.

If robosigning is immunized you screw millions of homeowners, but you also screw the very banks and hedge funds and pension plans that the 1% are so interested in protecting.

The deal sabotages everything because the robosigning is the smoking gun. No one resorts to creating fabricated documents unless they are desperate and know they have no other hope of winning. It’s the illegal strategy equivalent of a Hail Mary Pass after time has run out. Had the robosigning never been exposed, they might have gotten away with winning through perjury, but now that it is exposed, the idea of immunizing it is preposterous.

CommunityMy FDL

Robosigning = Smoking Gun

Robot. Wants. Immunity. Or Else. (photo: lameazoid, flickr)

Robot. Wants. Immunity. Or Else. (photo: lameazoid, flickr)

There are a few voices emerging suggesting that the current iteration of the “50 AG settlement” is somehow wonderful, or at least OK, because it only immunizes robosigning. “Only,” as if robosigning was some relatively benign peccadillo, instead of a massive conspiracy to commit forgery and perjury that is systematically driving our population into homelessness AND continuing to drive down the value of our homes.

Peter Henning writing for NYTimes Dealbook thinks

Narrowing the investigative focus to the creation and sale of residential mortgage-backed securities may help push cases forward because the government will not spread itself too thinly by chasing every firm that somehow contributed to the financial crisis. Much like the focus of the Enron Task Force a decade ago, looking at a single target may allow investigators to master the intricacies of a slice of the market to determine whether there is evidence of fraud

Wrong.  The better analogy is to the Savings and Loan crisis in the 1980’s. Back then there were hundreds of government lawyers and plenty of criminal cases to send a message along with the civil cases to try to recoup some of the money. THAT’s how you do it. Henning thinks that most of the bad guys will get off for lack of evidence.

Could there be a “smoking gun” that would somehow implicate firms or executives in fraudulent practices that has gone undiscovered so far? The short answer is “no,”….

Wrong again; there certainly is a smoking gun, thousands of them, actually. They are the robo signed documents forged after the fact to try to create the false impression that the mortgages and notes were transferred to MERS and into securitization trusts/REMICs in a timely fashion. Add to that the formation documents for MERS and the Pooling and Servicing agreements for the REMICs and you have a case that is VERY easy for a judge and jury to understand.

Even the normally laser visioned Matt Taibbi doesn’t get it. He thinks that robosigning immunization will only hurt the homeowners trying to stave off foreclosure from an entity that has no standing to foreclose, as if that wasn’t enough all by itself.

Robosigning had a profound and immediate impact on large numbers of actual human beings, and I don’t want people to think I’m dismissing it as unimportant. I probably also shouldn’t celebrate news like this until I see how the actual deal looks, what wording is used to narrow the deal’s purview, how homeowners and other victims will be compensated, what will be done to prevent it in the future, and so on.

But my point was that, while a gross crime and one of the more obvious (and easily provable) parts of the criminal scheme common during the mortgage bubble years, robosigning is really an ancillary part of an even more enormous fraud that went on, and is still going on, in securitization/origination. Many homeowners were victimized by robosigning, but your more common victim of bank fraud during this time was an investor in MBS — maybe even another Wall Street entity like a hedge fund or a bond insurer, maybe a foreign trade union, maybe a state worker whose pension fund lost 40% of its value because it was sold bad bonds by a too-big-to-fail bank. And the hook that snared those victims was securitization. (more…)

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Cynthia Kouril

Cynthia Kouril

Cynthia Kouril is a former Special Assistant United States Attorney in the Southern District of New York under several different U.S. Attorneys, former counsel to the Inspector General for the N.Y.C. Department of Environmental Protection where she investigated threats to the New York City water supply and other environmental crimes, as well as public corruption and fraud against the government, former Examining Attorney at the N.Y.C. Department of Investigation and former Capital Construction Counsel at New York City Parks and Recreation.
She is now in private practice with a colleague whom she met while at the USA Attorney's Office. Ms. Kouril is a member of the Steering Committee, National Committeewoman and Regional Coordinator for the New York Democratic Lawyers Council, a member of the Program Committee of the Federal Bar Council and a member of the Election Law Committee at the Association of the Bar of the City of New York. She is active in several other Bar Associations.
Most important of all, she is a soccer mom.