Posted on 06/19/2008 6:06:31 PM PDT by Rebelbase
More than 400 people have been arrested since March as part of a sweeping Justice Department crackdown on alleged mortgage fraud schemes.
Ex-Bear Stearns execs could face criminal charges for misleading investors.
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The FBI said the schemes — 144 mortgage fraud cases, resulting in 406 arrests between March 1 and June 18 — caused $1 billion in mortgage losses and have contributed to the nation's housing crisis.
The arrests, dubbed operation “malicious mortgage,” were announced Thursday along with the separate indictments of two Bear Stearns hedge fund managers on fraud, conspiracy and insider trading charges — the first executives to face charges related to the FBI’s investigation of financial institutions involved in subprime lending.
The Bear Stearns investigation focused on the implosion of two hedge funds, which were heavily invested in subprime lending and debt obligations connected to risky subprime mortgages.
The funds were managed by Ralph Cioffi and Matthew Tannin, who were charged with eight counts of securities fraud, wire fraud and conspiracy to commit securities and wire fraud. Cioffi was also charged with insider trading for allegedly moving $2 million out of the funds when he knew they were not performing well.
The indictment alleges that the men encouraged investors to continue putting money into the funds despite knowing they were unstable. The funds’ implosion cost investors an estimated $1.5 billion in a two-month period.
“Rather than disclosing the true state of the Funds to investors and lenders … Cioffi and Tannin agreed to make misrepresentations in the ultimately futile hope that the Funds’ bleak prospects would change and that their incomes and reputations would remain intact,” the indictment says.
Lawyers for the two men said they were innocent.
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“We are shocked and disappointed that the government has seen fit to fix blame on these two decent men. The good news though is that there will be a trial, and we look forward to the day they will be vindicated,” Ed Little, Cioffi’s attorney, said.
Susan Brune, attorney for Tannin said in a statement, “Matt Tannin is innocent. He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal.”
The indictment notes that at the end of March “Cioffi expressed to a Fund team member that “I'm sick to my stomach over our performance in March.”
According to the indictment, on March 7 Cioffi told a Bear Stearns broker who had over 40 investors in the hedge funds that the markets represented “an awesome opportunity.”
The indictment alleges that the two managers through March told investors they would be adding more of their own money to the funds. But, on March 23, 2007, Cioffi began to move $2 million of his $6 million invested in the fund into a separate Bear Stearns hedge fund called Structured Risk partners, the indictment claims.
The indictment alleges that Tannin sent an e-mail to another fund team member at the end of March that said, “[B]elieve it or not — I've been able to convince people to add more money.”
By the end of March 2007 both funds were down over 3.7 percent, which prompted a major investment bank to begin withdrawing $57 million.
As the situation became worse on April 22, 2007 Tannin sent a e-mail to Cioffi noting, “the subprime market looks pretty damn ugly … I think we should close the funds now. The reason for this is that if [the CDO report] is correct then the entire subprime market is toast.”
But, the indictment says, three days later Tannin told investors on a conference call, “we're very comfortable with exactly where we are … the structure of the Fund has performed exactly the way it was designed to perform.”
The indictment further alleges that Cioffi failed to disclose to investors on the conference call that the investment bank had requested to withdraw their $57 million from the funds.
Little said in a statement, “The subprime crisis took everyone by surprise, including the Fed and Treasury, and dozens of the largest financial institutions have lost over $300 billion to date on the same investments. Ralph Cioffi’s funds lost money in exactly the same way. Because his funds were the first to lose might make him an easy target but doesn't mean he did anything wrong. Indeed, Mr. Cioffi had no motive to do anything wrong. He did not and could not have profited by doing anything the government now claims he did.”
foreclosed
The FBI says it has arrested about 300 real estate industry players since March.
(ABC News Photo Illustration)
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Cioffi and Tannin have also been targeted in a civil lawsuit by Barclays Investment Bank, which was a major investor in the funds, for allegedly making false representations about the performance of the funds.
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A lawsuit filed by the Massachusetts Secretary of State alleges Bear Stearns Asset Management inadequately managed investors’ funds by devising a set of increasingly complex deals that they did not clear with top Bear Stearns directors. The fund crumbled as the subprime credit industry unraveled.
Chris Dodd??
Just wait till O!bama starts to arrest Oil executives, returning soldiers, people who don’t agree with him, carbon criminals....
This smells of grandstanding by the Feds and really not addressing the real problem.
People chose to take risks and in this case some of them got caught in that risk.
Oh how I wish for some good ol’-fashioned leadership where somebody in charge, or somebody who wants to be in charge steps up to the plate and tell it like it is.
Most people caught up in this mess either lied on their applications or took risks they never should have.
Too bad there is no one in the GOP who stand up and say this kind of thing.
Are you kidding?
These greedy criminals and their companies loaned illegal aliens mortgage money for Gods sakes. They'd lend money to a corpse with interest, if they had a crack at any inheritance.
Their lending ethics and standards were no where to be seen.
I can only hope their bosses are next.
‘People chose to take risks and in this case some of them got caught in that risk.”
These aren’t the folks that bought more house then they could afford. These are the folks that set up $800k loans on $400k homes and then walked away.
Yeah, can you imagine these guys lending out 800k to someone with a 75k yr salary?
“Yeah, can you imagine these guys lending out 800k to someone with a 75k yr salary?”
And then they’d give them a second for the remainder of 125% of the 800k. Bankers are only slightly above drug dealers in ethics but they’re working on earning first place.
Are you kidding? Jamie Gorelick is on the short list to be Imperial Director of Income Redistribution in the Obama administration.
Jamie Gorelick? Isn’t she the Clinton scumbag who constructed the legal wall between the FBI and the CIA in order to protect Clinton from investigations into his illegal Chinese campaign connections and which helped the 9-11 terrorists murder 3,000 Americans? The Jamie Gorelick with the blood of 3,000 American citizens on her hands? THAT Jamie Gorelick?
Perhaps North Dakota Democrat Kent Conrad with preferential terms on a multiple mortgage deals from Countrywide Financial Group was indicted with the rest.
Perhaps Connecticut Democrat Senate Banking Committee Chairman Christopher J. Dodd with preferential terms on two mortgage loans from Countrywide Financial Group was indicted with the rest.
Dodd called Countrywide Financial Corp. business practices "abusive."
Obviously, his mortgage terms were not quite preferential enough!
It is not illegal to lend people money unless you are charging them interest at a statutorily usurious rate - which is not the issue here at all.
Why are lenders greedy but the people who took much more house than they could reasonably afford not greedy?
Sub-prime mortgages remind me of the pyramid schemes that pop up every now and then only they are worse as many didn’t even need to come up with cash to get in. What a ripoff by supposedly reputable institutions.
When Jamie Gorelick left her position as Vice-Chairman of the Federal National Mortgage Association (Fannie Mae) to devote more time to the bipartisan National Commission on Terrorist Attacks Upon the United States, more routinely known as the 9-11 commission, I was the first to protest. I knew the role she had played as President Clinton's Deputy Attorney, (warrant less searches ) General in shaping - some would say ''corrupting'' - the outcome of the TWA Flight 800 investigation.
On Aug. 22, 1996, five weeks after the plane's demise, Jim Kallstrom, who headed up the FBI investigation into TWA 800, was summoned to Washington to be served up a dose of survival reality. His boss, Louis Freeh, had little to do with the summons or the investigation. Nor did Freeh's boss, Attorney General Janet Reno. Although both were ineffectual, neither was entirely reliable....Continued
Gee! in scandal after scandal the same names keep coming up as not only part of the scandal but as part of the 'legal law enforcers'. Let's not die laughing or crying at that euphemism, we must remember our legacy. We must not let these American citizen imposters steal it from us.
The Democrats are entirely inbred. If you read even only one or two of the links that I have provided you will see that. And by inference, I am not saying that Republicans are not more than enough inbred themselves to not only raise alarms, but to persuade us to invent new political partys. If Bush had any honesty, upon taking office he would have realized and began proceedings against the clintons and most of their appointees. but he didn't and most of his problems resulted from theses Democrats who were left in positions from which they could harm Bush. We need to 'can' them all. 'Can', as in Garbage can.
This is government interference with private enterprise. The government is not charged with enforcing Ethics, only Laws.
Good thinking..Who needs ethics and standards! Screw that.
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