Monday, October 18, 2010

Just 3 examples of how real estate fraud worked

"Putting this behind" them seems to be a common refrain.

2nd UPDATE: NY Real-Estate Developer Pleads Guilty To Fraud
Thomas Kontogiannis pleaded guilty to conspiracy to commit bank and wire fraud in federal court in Brooklyn on Friday. The charges were connected to two New York developments, one in Brooklyn and one in Queens.

U.S. Attorney Loretta E. Lynch called the mortgage fraud "staggering" in its scope. New York Superintendent of Banks Richard H. Neiman said it was "one of the largest mortgage frauds directed by a single individual."

Kontogiannis is already currently serving a 97-month prison sentence after pleading guilty in 2008 to money laundering. Prosecutors had alleged Kontogiannis helped former U.S. Rep. Randy "Duke" Cunningham to launder bribes.

Cunningham was sentenced to more than eight years in prison in February 2008 after pleading guilty in 2005 to accepting $2.4 billion in bribes.

Kontogiannis's indictment said that he employed family and workers who acted as straw buyers on properties he owned and directed false loan files. The mortgages included false appraisals and other documentation. After the loans closed, Kontogiannis prevented the mortgages and deeds from being recorded, so he could sell the same property repeatedly. He eventually sold the loans to Washington Mutual or the Credit Suisse unit, DLJ Mortgage Capital Inc., according to the charges.

Kontogiannis's attorney Gregory O'Connell said his client had taken full responsibility for the matter and "expressed his sincere remorse and hopes to put this difficult manner behind him."

Mortgage company CEO from Colts Neck admits fraud
The chief executive of a Marlboro-based residential loans company pleaded guilty in federal court to bilking mortgage lenders out of more than $11 million to fund a lavish lifestyle through wire fraud, according to federal prosecutors.

David Findel, 45, of Colts Neck, who is president and CEO of Marlboro-based Worldwide Financial Resources, faces 20 years in federal prison and fines that could total more than half the amount he stole, after admitting he prepared and sold fake mortgage loans from 2008 through September 2009, according to U.S. Attorney Paul J. Fishman.

Findel on Thursday told U.S. District Court Judge Peter G. Sheridan that after selling an original loan to a third-party lender, he would create a second set of fraudulent mortgage documents for the same property to sell to another third-party lender and keep the proceeds of the second mortgage loan.

Mozilo Settles SEC Fraud Claims For $67.5 Million
Angelo Mozilo, former Countrywide Financial Corp. Chief Executive Officer, has agreed to settle fraud claims for $67.5 Million. $22.5 million will be paid as penalty and $45 million will be taken from the gains in selling inflated shares. In addition, he was barred by the SEC from serving as an officer or director of a public company.

“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite, a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” Robert Khuzami, director of the SEC’s enforcement division, said in the statement.

Alongside Mozilo, Former Chief Financial Officer Eric Sieracki and former Chief Operating Officer David Sambol also agreed to settlements. Sambol agreed to pay a $520,000 penalty and $5 million in disgorgement, and Sieracki agreed to pay a $130,000 penalty.

“Countrywide Financial Corporation will advance funds to Mozilo and Sambol as required by the indemnification provisions of its corporate bylaws in these circumstances,” according to the bank’s statement. “Those funds will be used by the defendants to pay the non-penalty amounts ordered by the Court.”

The penalty and disgorgement payments will go to the settlement fund for the Countrywide securities class action that Bank of America agreed to settle in April for $600 million.

See, also, How Countrywide Covered the Cracks
Mr. Mozilo and his two former colleagues were accused of misrepresenting the company’s declining lending standards during 2006 and 2007 and portraying themselves publicly as underwriters of high-quality mortgages even as they learned that the company’s loans were becoming increasingly risky.

The government also contended that Mr. Mozilo and Mr. Sambol improperly profited on inside information about the company’s problematic loans when they sold Countrywide shares. From May 2005 to the end of 2007, Mr. Mozilo generated $260 million from his stock sales, while Mr. Sambol’s sales produced $40 million, the government says.

“As is the case with most settlements, this is a compromise where nobody comes out a complete winner,” said Lewis D. Lowenfels, an authority on securities law at Tolins & Lowenfels. “The S.E.C. gets a substantial monetary settlement and a bar with respect to Mozilo serving as an officer or director. On Mozilo’s side, he is probably satisfied to have this behind him.

Lawyers for Mr. Mozilo declined to comment. Mr. Sambol’s lawyer said his client had “put the matter behind him for the benefit of his family and loved ones.”
That article, in particular, is worth a read-through. It is full of not previously disclosed admissions of how bad things were known to be, but covered up.

Now, one example of how the fraud MAY have worked, but due to technical legalities, we will not find out:

BofA's Countrywide wins dismissal of mortgage case
Investors cannot force Countrywide Financial Corp to buy back mortgages that the lender agreed to modify, a New York court ruled.

Kapnick ruled that the two plaintiff investment funds had not complied with requirements necessary to sue -- including a provision mandating that they gather the support of 25 percent of investors.

Bank of America spokeswoman Shirley Norton said they are pleased the court recognized the 25 percent rule.

"These preconditions protect investors collectively against ill-conceived litigation forays that could prove damaging to investors -- such as the Greenwich plaintiffs' bid, which would effectively halt all modifications of distressed mortgages," Norton said.

The decision by New York State Supreme Court Justice Barbara Kapnick, made public on Wednesday, dismissed a lawsuit brought by two investment funds.

Also, NY judge rules in favor of Countrywide in lawsuit brought by investors over pooled mortgages
The funds, which own securities made up of pooled mortgage loans, claimed Countrywide reduced payments due on hundreds of thousands of home loans by as much as $8.4 billion and failed to buy the mortgages back from investors.

The investors claimed Countrywide was required under a contract to buy back any mortgages that it modified to lower borrowers' payments.

If forced to absorb lower payments on the mortgages, the value of the securities will decline, the funds argued.

William Frey, chief executive of Greenwich Financial Services in Greenwich, Conn., said Wednesday those issues remain unresolved by the ruling.

"This case was not decided on the merits, it was decided on a procedural issue," Frey said, adding that his lawyers are deciding whether to appeal the decision or refile the lawsuit.

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