Cuomo sues Lewis of Bank of America… Did Lewis act unethically or is Cuomo grandstanding?

February 9, 2010

Reported on in Bloomberg…(see the full article here).

The former Chief Executive Officer of Bank of America, Kenneth Lewis was sued by New York Attorney General Andrew Cuomo for supposedly defrauding investors and the government when buying Merrill Lynch & Co.  Recently, the bank agreed to pay $150 million to settle a related lawsuit by U.S. regulators which is being considered by U.S. District Court Judge Jed Rakoff.  Last year, Rakoff called the SEC’s initial settlement neither fair nor reasonable and questioned why the bank’s executives and lawyers weren’t sued. The agency said it lacked evidence to bring claims against specific individuals.

Cuomo also sued the bank’s former chief financial officer Joe Price and the bank itself for not disclosing about $16 billion in losses Merrill had incurred before it was bought by Bank of America in an effort to get the merger approved.  Afterward, Lewis demanded government bailout funds, Cuomo said.

“We believe the bank management understated the Merrill Lynch losses to shareholders, then they overstated their ability to terminate their agreement to secure $20 billion of TARP money, and that is just a fraud,” Cuomo said yesterday during a telephone press conference. “Bank of America and its officials defrauded the government and the taxpayers at a very difficult time.”

Interestingly enough, Cuomo is pursuing individuals at the bank while the SEC has declined to do so. The suit is being filed under the Martin Act, a New York securities law that permits both civil and criminal penalties.

Cuomo said he coordinated efforts with the SEC. “Our case will bring individuals to justice and will make a point to people that this is a very serious matter,” he said yesterday. “When you settle a case the way the SEC is settling today, the upside is you implement immediate regulatory reforms.”

Last month, the SEC expanded its claims against the bank, accusing it of failing to disclose Merrill Lynch’s mounting losses before holding a shareholder vote on the acquisition.

The proposed fine would be distributed back to harmed shareholders, the SEC said yesterday.

The SEC settlement “addresses the judge’s concerns of penalizing shareholders so it’s likely to pass muster,” said Peter Henning, a law professor at Wayne State University in Detroit. “At the same time, it’s hard to show any monetary damage to shareholders at this point because the Merrill deal has turned out to be a good acquisition for the bank.”

The conduct of Brian Moynihan, the bank’s current chief executive, is not under investigation, said David Markowitz, Cuomo’s special deputy attorney general for investor protection. Moynihan, who became general counsel in the middle of events, was candid with Cuomo’s office in the probe, Markowitz said.

According to the complaint, Lewis and his lieutenants Moynihan and Price calculated that if they threatened “to get out of the deal, the federal government would counter with more taxpayer funds out of a concern for the greater economy.”

The U.S. injected $45 billion into Bank of America through the purchase of preferred shares, including $20 billion approved after the acquisition in January 2009 to keep the deal from collapsing. The bank redeemed the shares in December.

“We find it regrettable and are disappointed that the NYAG has chosen to file these charges, which we believe are totally without merit,” the bank said in a statement. “In fact, the SEC had access to the same evidence as the NYAG and concluded that there was no basis to enter either a charge of fraud or to charge individuals. The company and these executives will vigorously defend ourselves.”

Lawyers for Lewis and Price denied wrongdoing. “The allegation that Mr. Price deliberately caused Bank of America to withhold from shareholders information they were entitled to know is utterly false,” said William H. Jeffress Jr. and Julia E. Guttman of Baker Botts LLP in Washington, in a statement.

SOME QUESTIONS TO CONSIDER:

Is the decision to sue Mr. Lewis and other Bank of America Executives by Mr. Cuomo a political move that has more to do with advancing political aspirations than bringing justice?  Or, is Mr. Cuomo the only person to have the fortitude to bring justice to an unethical action by BofA executives?

“The decision by Mr. Cuomo to sue Bank of America, Mr. Lewis and other executives in connection with BofA’s acquisition of Merrill Lynch is a badly misguided decision without support in the facts or the law,” said Mary Jo White of Debevoise & Plimpton LLP in New York, who represents Lewis. “There is not a shred of objective evidence to support the allegations by the Attorney General.”

Bank of America agreed to buy Merrill on Sept. 15, 2008, after just 25 hours of due diligence, according to the suit. When the board of directors met that day to approve the transaction, they thought they were going to buy Lehman Brothers Holdings Inc., the suit says.

WOW…is that true?  If so, and it is proven, then one would have to wonder about not only Mr. Lewis actions, but the actions of the Board of Directors. Who makes a decision like this with only 25 hours of due diligence?

Cuomo said Bank of America scheduled a shareholder vote to approve its plan to buy Merrill on Dec. 5, 2008. By that date, Merrill incurred losses of more than $16 billion, Cuomo said. Bank of America’s management, including Lewis and Price, knew of the losses and knew that more were coming, Cuomo said.

After the merger was approved, Lewis told federal regulators the bank couldn’t complete the deal without a taxpayer bailout because of accelerated losses from Merrill, Cuomo said. However, between the time the shareholders approved the deal and the time Lewis sought the bailout, Merrill’s losses only increased by $1.4 billion, Cuomo said.

Greed, Hubris

“The conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris, and a palpable sense that the normal rules of fair play did not apply to them,” Cuomo said in the lawsuit. “Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth.”

But wait…is Bank of America the only culprit in this grand scheme?  We (the taxpayers) lost substantially more with AIG, so where is Mr. Cuomo when it comes to that grand deception?  I respect the grandstanding claiming “greed and hubris” but I’m not sure why the BofA – Merrill merger is being focused on when there seems to be much bigger fish to fry.  Any help here?

The suit claims Bank of America received more than $20 billion in taxpayer aid as a result of their misleading efforts. Cuomo’s statement said the bank can’t explain why they didn’t disclose the losses to shareholders though the merger “would have threatened the bank’s very existence if there had been no taxpayer bailout.”

Cuomo also claims management failed to disclose to shareholders it was allowing Merrill to pay $3.57 billion in bonuses. Nor did the bank’s management tell the bank’s lawyers about the extent of Merrill’s losses before the shareholder vote.

Here’s what appears to be the sad truth…  Lewis will be defended by attorney’s for Bank of America.  BofA received bailout money.  Merrill is now part of BofA.  And, even if found guilty, more than likely any fines assessed will be paid from BofA’s insurance.  Perhaps…this is all posturing for something else.  Bank of America likely was wrong, but I’m not sure that Attorney General Cuomo is truly motivated by bringing justice…

But then again…I could be wrong.  YOUR THOUGHTS?

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President Obama and Those Fat Cats from Wall Street – 2009 Ethics a Year in Review (1 of 3)

January 1, 2010

Frankly I couldn’t believe what I heard on the news when President Obama, in an interview, called bankers into the White House to seek their help with the economy – having referred to them the day before as “Fat Cat” bankers.  Hum…the President of the United States resorting to labeling people in less than a professional manner.  Perhaps it is just his folksy style, but that type of approach seems much less than presidential.  But then I got to thinking…

Seems like in this administration there was some effort to curb the abuses that the banks have hurled at consumers when it came to credit cards.  That, for everyone but the banks, was hailed as “about time” legislation.  Ethically, the banks have played less than fair with consumers.  Personal example…my wife, who has spotless credit had a Bank of American card with a zero balance and substantial credit limit, received a letter from BofA increasing her interest rate to 22.9% from 8.9%.  She called asking why and was told it was a mistake, but one that could not be undone.  After expressing her deep dissatisfaction and then vowing (after she got off the phone not to ever use the card), she got a letter from Bank of America (just a week later) cutting her credit line by 75%.  Ethical actions by Bank of America – yea right.

According to Money Magazine senior writer – Donna Rosato – “Lawmakers gave issuers till February 2010 to fully comply with the new law. Meanwhile, issuers have rushed to raise interest rates, impose new fees and cut credit limits. The median rate on credit cards surged 13% to 23% from December 2008 to July 2009, according to a study by the Pew Charitable Trusts. Meanwhile, a bill to expedite the credit card reforms, the Credit Card Rate Freeze Act, has gone nowhere. When the new law kicks in in 2010, consumers will have more protection.”

Maybe the term “Fat Cat” Bankers was justified.

Ah…but there’s more.

Fortune Magazine states:

What Ken Lewis wanted, Ken Lewis got. During his eight-year tenure as Bank of America’s CEO, he embarked on a dizzying series of acquisitions to create the nation’s biggest financial services company.

But when his last two big buys — toxic-mortgage giant Countrywide and dead-on-its-feet bank Merrill Lynch — drew too much scrutiny from regulators and shareholders, Lewis packed up his golden parachute last October and bailed.

Maybe I should be a bit kinder in my blog.  Perhaps after squandering Bank of American funds on losing propositions, they needed the rate increase on credit cards.  Of course, that assumes that folks use those credit cards.  In our case, I think not.

BUT TO TOP IT OFF…

When the government, back in the Clinton administration, asked Fannie Mae and Freddie Mac to extend credit to many American who, otherwise, were not credit worthy – I have to ask the question – with rising deficits and massive government spending – why should anyone in the government call anyone names when the government is doing just what those Wall Street “Fat Cats” did – namely living above their means.  We have massive debt and seem to believe that living in debt is O.K.

Perhaps the ethical thing to do is say – NO to additional government debt and do what is being preached to the population – live within your means and act ethically and in a responsible manner.

WHAT DO YOU THINK?


AIG Bonuses – Now Is Not The Time For Irresponsible Rhetoric Senator Grassley

March 16, 2009

aigthumb How many adjectives can we use to describe the feelings associated with the news that AIG paid $165 million in bonuses when the Federal Government spend over $170 Billion – yes, that is Billion, in bail out money to save the ailing giant?

There is outrage and many in government leadership are expressing their opinions about how they feel about the audicity of AIG to effect those payments.  That said, it is also important to make sure that leadership on both sides of the isle don’t get carried away with their comments.

CNN reported the following comments:

Republican Sen. Charles Grassley of Iowa didn’t appear to be joking, however, when he spoke with Cedar Rapids, Iowa, radio station WMT.charles-grassley

“I would suggest the first thing that would make me feel a little better toward them [AIG executives] is if they follow the Japanese example and come before the American people and take that deep bow and say, ‘I am sorry,’ and then either do one of two things: resign or go commit suicide,” he said.

“And in the case of the Japanese, they usually commit suicide.”

Now I know that emotions are high, but come on Senator Grassley – that is political rhetoric and frankly is uncalled for.  I can’t believe for a minute that Grassley would, in fact, want anyone to commit suicide.  After all – we are talking about money and money can be replaced – human life can’t.

Perhaps as the night wears on cooler heads will prevail.  The right and ethical thing to do is reconsider how and when bonuses should be paid to a company that – but for the help of the taxpayers – would be bankrupt and out of business.  Further, more – this whole scenario should serve as a less for other businesses that line up to receive their bailout money.

Bonuses should be paid for outstanding performance.  When performance is lacking and, in fact, when a company faces the very real possibility of not continuing, then different choices should be made.  As a business ethics speaker, I understand Grassley’s frustration, but would hope that he would be more careful with his words.   Now is the time for level headed leadership, not sound bites spoken to garner media attention.

YOUR COMMENTS ARE WELCOME!


Stanford Financial Group Chief Investment Officer – Laura Pendergest-Holt – Arrested! Stanford Won’t Go Down Alone…

February 26, 2009

The third ranking executive of the Stanford Financial Group – Chief Investment Officer Laura Pendergest-Holt was arrested by the FBI on charges that she stanford_financial25obstructed a government proceeding.  Appearing before a federal magistrate in Houston on Friday, Pendergest-Holt is accused of making “several affirmative misrepresentations” to SEC investigators who were seeking to learn about a scheme to defraud investors and account-holders of billions of dollars in deposits.

The FBI and IRS are actively conducting a criminal investigation(s) of Stanford’s allegedly fraudulent dealings, which was confirmed in court documents.  A CNN article reports:

“Since June of 2008 I and others on behalf of the FBI, special agents with the Internal Revenue Service, and postal inspectors have been conducting an investigation into allegations that executives of Stanford Financial Group … have defrauded investors and account-holders of more than $8 billion in deposits,” said FBI agent Vanessa Walther in an affidavit filed with the charges against Pendergest-Holt.

“We have been conducting this investigation parallel to an investigation being conducted by the Securities and Exchange Commission,” the affidavit says.

Bloomberg reports:

The Securities and Exchange Commission sued Pendergest- Holt, Stanford Chairman R. Allen Stanford, and Stanford Chief Financial Officer James M. Davis on Feb. 17, accusing them of misleading investors about $8 billion in certificates of deposit in Antigua-based Stanford International Bank.

Keeping in mind an arrest is not a conviction, her attorney stated:

“She is extremely disappointed in the path the SEC and law enforcement are taking,” said Pendergest-Holt’s lawyer Dan Cogdell. “She has been cooperating for weeks, and now she is falsely charged for a crime she didn’t commit.”

The full Bloomberg report is here.

Thinking that at one time she might be the one to topple the house of cards and send Stanford to prison for a very long time, one might ask if her arrest is just a ploy to put pressure on her to provide exactly what the government wants.  Perhaps she did withhold data – which one can go to prison for – or perhaps it’s a power squeeze.  Either way, the choices made by Pendergest-Holt in the past are surely producing consequences today – and likely will for years to come.

As a business ethics and fraud prevention speaker, one this is sure – there will be more to come….

O.K. SO HERE IS SOME MORE…

The Wall Street Journal Law Blog reports on the Pendergest-Holt criminal charges.  Pulling from a story from the Northeast Mississippi Daily Journal, the WSJ Law Blog reports:

A bit strange, however, is the story’s several mentions of Pendergest-Holt’s looks. The story notes that while the Baldwyn, Miss., native, now 35, “had no financial services or securities industry experience” before joining SFG in 1997, “less than a decade later she was managing more than $15 billion in assets and running a worldwide team of equity, policy and sector anaylsts.”

According to the story, Pendergest-Holt had a “killer combination of beauty, brains and connections,” was was “an expert number-cruncher” and “has been described as strikingly beautiful and statuesque.”

Wow…I’ve heard that one should look the part, but $15 billion under management…well one would assume that there would be a string of credentials that would support such responsibility.  But then, reality check, it seems that it really was all part of a big illusion.  Maybe striking looks just makes the illusion easier to pull off.

YOUR COMMENTS WELCOME!


Bank of America – Taking Advantage of Youth – Is that Ethical?

November 6, 2008

As my fingers rest on the keys of this keyboard, I have heard from colleagues that I should avoid writing on this subject – as Bank of America – might elect to be a client and wouldn’t appreciate negative publicity. My question back to them was – as an ethics speaker and author – don’t I have a responsibility to speak the truth?

“Yes” was their reply “but at what peril?”bank-of-america-logo

So…being honest I have debated for days whether to write or not. In the end…I have elected to as I feel that ethical choices – at times – may mean less money or less business – but in the end – doing the right thing will always pay off. If I am to discuss someone else’s ethics, I must stand behind mine.

THE STORY: My son, Alex, received his “check card” and bank account from deal ole dad (that would be me) sometime after he was 16 years old. Weekly I would place his allowance on it and tried to help him understand how to responsibly use this first intro into banking.

He kinda got the idea – in that he knew if he presented his card that if there were no funds it would not be accepted. Likewise, he knew that he could take the card to the ATM and check the balance anywhere. Simple – so he thought.

Quick Reality Check: What the bank shows as an available balance isn’t always THE available balance. You would think in this modern day of instant transactions that once you use the card the amount used would “immediately” be subtracted from your account. Most of us adults know – NOT SO. Young people don’t get that. Let me repeat – YOUNG PEOPLE DON’T GET THAT! They think that if you send a text (for example) and it arrives within seconds – then when you use your card the money is withdrawn in the same time. In their minds why would it not be?

Back to the story – So as Alex nears the end of his 17th year he overdraws his account. Seems that he didn’t know the balance in his account when he drove into the convenience store one weekend. He pumped gas and paid with his checkcard. A little later that day, he went to the Bank of America ATM and checked his balance. All seemed well. So he went to the movie, purchased some popcorn and a drink, later purchased a sandwich from Subway and got some gum from the convenience store. All purchases were made with his checkcard – against a balance he thought he had – afterall, the ATM told him his balance “after” he pumped his gas.

Adult readers know exactly where this is going. The gas purchase had not yet been removed from his account as it was done over the weekend…and all the other purchases exceeded the balance in his account. HE WAS OVERDRAWN.

Is that the ethical issue – Not a chance – that’s life. And at times life comes at you hard. For Alex the very real realization was that for each overdraft he owed $35. Yes – my son – you owe $35 for purchasing a $1.29 pack of gum. “That’s not right dad,” I remember him telling me. To which I replied, “Then take it up with the bank…you got yourself into this you can pay yourself out.”

HELP WITH AN INTERESTING TWIST: Up to this point the issue is my son screwed up. But, true to my suggestion he went to his local Bank of America branch to seek help. Oh, by this point he had turned 18.

He met with the Assistant Manager and told her his plight. She was kind in helping him (so it seemed) and “split the difference” on the overdraft charges – she forgave some and he paid the rest – then she suggested that he apply for a “STUDENT CREDIT CARD.” She told him that the credit card would provide him overdraft protection and keep him from having problems like he just had.

What do you think he did? He SIGNED UP! No questions asked…it just seemed like a good idea and (not knowing any better) he took her trusted advice. She did tell him that he would need to link it to his account when he got it. Reality check: Link it to an account when you’ve never had a card before doesn’t connect. That’s like telling a guy in his 20’s you need to have your PSA checked. They’ll look at you and say O.K., but not know what a PSA test is!

Reality Check: Likewise, she never told him that the suggestion she was offering was not “free.” Turns out that if the card is linked to the account it will advance funds to cover an overdraft (that’s what he was told). What he was not told was that there is a COST involved. Seems that Bank of America charges $10.00 per overdraft transfer. Hum…so let me get this straight – the $1.29 pack of gum which cost him $36.29 would now cost him $11.29. Great deal huh?

Back to the story… The card came in and he did exactly what he thought she told him to do. It said on the card – call this number to ACTIVATE your card. Well since it had been a week or so since he had been in the bank – he assumed that the instructions on the card were what she was talking about and so he did what he was told to do (or so he thought) and he activated the card.

BIG PROBLEM NOW: A month of so passes – no problems – then in July ’08 he overdrew his account again – and again it was the weekend nightmare. Minor purchases were made – 10 in fact – that each were overdrawn from his checkcard. POINT OF INTEREST: For any readers, if your children have checkcards – do they maintain a check register? My guess is NO! Most of them have never written a check in their lives and don’t connect with the “write it down and keep the balance” mentality of adults. The rest of this story – YOU GOT IT – HE WAS CHARGED $350.00 in overdraft fees.

He was devastated and I was furious. He went back to Bank of America and once again talked with the same Assist Manager who encouraged him to get the credit card (without full disclosure – that begs and ethical question). She told him that he was to “link” it. He thought by “activating it” he had. No…per this Assistant Manager it was his fault. There was nothing she could do to help him. Well, she could transfer the OVERDRAFT charges to his credit card and clear his checking account.

Faced with no acceptable option he elected to have the fees transferred over to his credit card. NOW LET ME GET THIS IN MY HEAD. A bank officer with Bank of America suggests a kid get a credit card to help with overdrafts. She doesn’t follow up to link the account of have it automatically link, she assumes that kids who have ZERO experience will know what to do. She doesn’t tell him that there are continued charges if he does overdraft. Oh, and she suggests the transfer of $350 of fees (profits to Bank of America) into a credit card where they will get MORE FEES. Sorry, but that just seems irresponsible, greedy and UNETHICAL.

THE REST OF THE STORY: It’s early October ’08 and my son is now in college. He and I visit another Bank of America branch seeking help for this situation. We met with another Assistant Manager who appeared to want to help. We shared the story and she was appalled. She said that anytime she suggested that a kid get a card – she would follow up to make sure the card was linked. That made sense to me.

With a Masters in Accounting – I understood the numbers. While I didn’t like the fact that my son was maneuvered into a credit card that still cost him should he overdraft his account, I accepted that fact.

So what would be a fair outcome? I suggested that if the card had been linked properly in the first place he would have been charged $10 for each overdraft incident or $100.00. He was charged instead $350.00. It would seem the fair, just and ethical response would be a $250.00 credit on his card. SIMPLE.

Nope…not so…you see there’s profit involved and which branch would “suck up” that loss? The branch in his college town called the branch in his home town. One Assistant Manager talked to the other Assistant Manager. At least the one in his home town told the truth – the facts are as I’ve stated. But she was unwilling to take the charge – afterall it would be charged against her branch. (And apparently Bank of American needs all the money it can earn from what ever source including unsuspecting young people). Of course, the Assistant Manager in his college town…well, she was sympathetic but unwilling to take the charge either – afterall she or her branch didn’t create the problem.

QUESTIONS: Does a bank have a responsibility to fully disclose all charges and possible pitfalls when suggesting to young people that they subscribe to a product of theirs?

Is it right to suggest to a young person that they should obtain a credit card for a specific purpose without first disclosing that there are fees for the application of that purpose?

Is Bank of America so motivated by profit at the branch level that they would elect to look past the obvious ethical choice in order to keep $250.00 profit from an 18 year old who knew no better?

Perhaps the last question: Am I the one off base here?

Oh…per the Bank of America Web Site related to their Code of Business Ethics the following is stated: The code, in effect, explains what we mean when we say one of our core values is “doing the right thing.” Somehow I can’t think that charging unsuspecting newly turned 18 year olds is “the right thing” – but perhaps I am off base?

Your comments are encouraged and welcome!

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Virginia Banker – Rebecca Dawn Long – Charged with Embezzlement. Hard Economic Times Means More Fraud on the Way!

November 1, 2008

I suppose it will become a sign of the times – the economic times that is, but fraud will rise over the course of the next several years as we begin to see the “perfect storm” unleash its fury.  As the need to survive increases – or at least maintain as some see it – the inclination to find means to “have” will tempt otherwise honest people to make choices that will have far reaching consequences.  Fraud is being uncovered at increasing rates and, in my opinion, will only get worse.  Ethical choices are thrown out of the window when faced with severe need.

Facing a federal indictment, a southwest Virginia woman – 35-year-old Rebecca Dawn Long of Jonesville – has been indicted on federal charges that she embezzled nearly $488,000 from the bank where she worked.

HOW:  In Ms. Long’s case, she used “opportunity” as her method to create the fraud.  She is accused of falsifying loan documents.  According to the indictment she established a line of credit under a fictitious name.

According to the indictment, between December 2004 and September 2008 Long devised and executed a scheme to obtain money from The Peoples Bank of Ewing by establishing a line of credit under a fictitious name. After establishing the false credit line, Long allegedly withdrew $487,685.23.

The indictment also charges that Long created and faxed a fraudulent loan document to an office of The Peoples Bank for the purposes of disguising the fact that she had embezzled over $487,000 from that financial institution.

POINT OF INTEREST:  In many of the current mortgage fraud cases, falsification of loan documents is common and, has in the past, almost been encouraged in order to meet the qualification standards from the loan underwriters.  Underwriting standards have tightened significantly, but that does not stop the practice.

U.S. Attorney Julia Dudley said Tuesday that a grand jury in Abingdon indicted  on charges that included bank fraud, bank embezzlement, money laundering and making a false statement on a loan document. She faces a maximum penalty of 120 years in prison and a $3 million fine if convicted.

QUESTION:  Does anyone know Ms. Long and what might have motivated her to make such a foolish choice?  If so, please feel free to comment.

Every choice has a consequence.  In this case, Ms. Long is at the beginning of the phase of facing her consequences.  I know what she is facing.  I have faced it myself.  While I am not proud of my past, I have to be honest as an ethics speaker and writer – I, too, spent time in federal prison for embezzlement.  The experience was less than pleasant and the consquences linger to this day…and I have been out for 12 years.

While Ms. Long has made a grave mistake, as a wise man once said to me – You are not a mistake.  Neither is Ms. Long.  To all who seek justice…Ms. Long will stare justice in the face and likely face time of reflection in federal prison.  However, to her family and friends, let me say, my thoughts are with you and I know that with the right approach there is recovery after an event like this.


Twenty Million Dollar Mortgage Fraud Scheme – Osmond Decoteau Indicted Faces Prison – Business Ethics Speaker Chuck Gallagher Comments…

October 27, 2008

Well over a year ago, I along with others were writing profusely about mortgage fraud and the severe lack of business ethics that seemed rampant in the industry. It almost seemed like “money for nothing” and the house was free. Now, as we approach the time for our general election, things could not be worse. There is no doubt that this will be a disaster for the GOP when the election results come in.

October 23, 2008, an indictment was handed down in Brooklyn federal court charging OSMOND DECOTEAU with wire fraud for masterminding a scheme to defraud mortgage lenders and banks of more than $20 million in connection with the sale of several properties located in Brooklyn and Florida.

According to the indictment: DECOTEAU recruited straw purchasers for properties located in Brooklyn and Florida, and ensured that their mortgage applications would be approved by lenders by fraudulently misrepresenting the purchasers’ financial condition. Subsequently, at the closings on these properties, DECOTEAU presented phony payoff letters which indicated that three companies he controlled were the loan servicers for the properties. The closing attorneys then issued payoff checks to the DECOTEAU-controlled entities, instead of the actual loan servicers for the holders of the pre-existing mortgages. To conceal the fraud, DECOTEAU caused monthly payments to be made on the underlying mortgages so that those mortgages would not be declared delinquent. As a result of the defendant’s scheme, between April 2005 and January 2007, multiple fraudulent closings occurred resulting in a fraud exceeding $20 million, and each of the properties is now encumbered by two first-lien mortgages.

Mortgage Fraud has been rampant. It will take years for the majority of the crimes to be uncovered. No doubt Decoteau, if found guilty, is just one of thousands who will prosecuted for taking advantage of a system without substantial controls.

“In May of this year we announced the formation of a task force comprised of federal, state, and local law-enforcement agents and investigators to address the burgeoning problem of mortgage fraud,” stated United States Attorney Campbell. “This prosecution is one example of the results of that cooperative initiative, which includes the investigation and prosecution of mortgage fraud that has harmed investors, lenders, and homeowners across the country.” FBI Assistant Director-in-Charge Mershon stated, “Combating mortgage fraud is a priority because mortgage lending and the housing market have a significant overall effect on the nation’s economy. The FBI is committed to investigating and prosecuting criminals who exploit vulnerabilities and devise new methods or schemes to defraud.”

As a business ethics and white collar crime speaker, I understand first hand the effects of the choices we make. I served time in federal prison for poor choices I made 25 years ago and the consequences still follow to this day. If it takes three components to create a fraud: (1) need; (2) opportunity and (3) rationalization…then Decoteau had plenty of opportunity considering the lax state of oversight when it came to mortgages in the past five to eight years.

If you know Decoteau…perhaps you’ll comment on his motivation.

Your comments are welcome…