Newscast Media WASHINGTON—The Securities and Exchange Commission today announced charges against two Houston-based investment advisory firms and three executives for engineering thousands of principal transactions through their affiliated brokerage firm without informing their clients.
One of the firms — along with its chief compliance officer — also is charged with violations of the “custody rule” that requires firms to meet certain standards when maintaining custody of client funds or securities.
In a principal transaction, an investment adviser acting for its own account or through an affiliated broker-dealer buys a security from a client account or sells a security to it. Principal transactions can pose potential conflicts between the interests of the adviser and the client, and therefore advisers are required to disclose in writing any financial interest or conflicted role when advising a client on the other side of the trade. They must also obtain the client’s consent.
“By failing to disclose principal transactions and obtain consent, Parallax and Tri-Star Advisors deprived their clients of knowing in advance that their advisers stood to benefit substantially by running the trades through an affiliated account,” said Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit.
According to the SEC’s orders instituting administrative proceedings, Bott initiated and executed at least 2,000 undisclosed principal transactions from 2009 to 2011 without the consent of Parallax clients. In each transaction, Parallax’s affiliated brokerage firm Tri-Star Financial used its inventory account to purchase mortgage-backed bonds for Parallax clients and then transferred the bonds to the applicable client accounts. Bott received nearly half of the $1.9 million in sales credits collected by Tri-Star Financial on these transactions.
The SEC’s investigation was conducted by R. Joann Harris and Asset Management Unit member Barbara L. Gunn of the Fort Worth Regional Office. The SEC’s litigation will be led by Jennifer Brandt.
Newscast Media NEW YORK—A tentative deal has been negotiated by JPMorgan Chase CEO Jamie Dimon to settle a case for $13 billion regarding fraudulent mortgage-backed securities (MBS) that were never mortgage backed.
Here is how the scam works: The banks bundled mortgages into pools. These pools of mortgages were then further divided into what is referred to as “tranches”. The tranches are based on the credit scores of homeowners. For example, those with a high beacons score 750+ would be in the top tier. Then those with, say 700-749 would be in the tranche below. Homeowners with 600-699 would be in the next tranche and the bottom tranche would have the lowest credit score, and would be the riskiest. In essence, a tranche is a slice of a deal in structured financing.
These pools of mortgages, also referred to as “derivatives” are then sold on the secondary market in form of a bond that is backed by the value of the house (mortgage). The bond certificate that is issued is what is referred to as a “mortgage-backed security” or a “Collateralized Debt Obligation” (CDO).
These mortgage-backed securities are put into a trust called a Real Estate Mortgage Investment Conduit Trust (REMIC Trust). A trustee like JPMorgan Chase or Bank of America or Wells Fargo is then chosen to oversee the trust. The trust is usually called something like Alternative Loan Trust 2010-XYZ Certificate series. (The year indicates when the trust was opened).
Each trust is then insured with what is referred to as “credit default swaps” that way if a homeowner defaults, the bank cashes in on the insurance policy which is up to 30 times the amount of the home. For example if a person purchases a home for $200,000 the insurance money the bank would get is ($200K X 30)= $6,000,000, for just one home. The bank then sends the homeowner an eviction notice and sells the home again for perhaps $80,000. This money is mostly pocketed by the foreclosure attorneys who run the scam for the banks.
The problem is, during the bailout, the government gave JPMorgan Chase & Company, $390 billion as the Troubled Asset Relief Program (TARP). At the time of the bailout, the bank then declared the derivatives (mortgage-backed securities/collateralized debt obligations) in its possession as “toxic assets.” Upon declaring the CDOs toxic assets, the trusts became defunct and ceased to exist. In other words, the trusts were empty, because the government bought all of them out through TARP. However, because of greed, these banks continued to sell derivatives knowing that those mortgage-backed securities were never mortgage backed and the trusts were empty. That’s how they caused the financial meltdown that started in 2007 and is continuing to be felt to this very day.
So even if JPMprgan Chase and Co. were to pay $13 – $23 billion out of the $390 billion they received, it wouldn’t hurt them. It would be like a drop in the bucket…all of which is taxpayer money. What!
The banks defrauded the federal government (by taking TARP money and continuing to sell bogus mortgage-backed securities); they defrauded investors (by selling them bogus mortgage-backed securities from phantom trusts); they defrauded homeowners (by selling the titles to their homes multiple times on the secondary market, hence creating a cloud on those titles); and finally, they are defrauding the court system (through the use of greedy corrupt attorneys who use forged documents to steal thousands of properties across America, on behalf of trusts that do not even exist!)
Obama is finally cracking down on the big fish. The corrupt attorneys in this game are like sardines, the CEOs like Jamie Dimon, are the crocodiles Obama is going after. I’ve been to Africa and I have swum in the River Nile. Anyone will tell you that before you can safely swim or fish in the Nile, you have to make sure the area is not infested with crocodiles. What Obama is doing is, he’s getting rid of the crocodiles, and once he is done with them, then he’ll go after the sardines.
There is an old African saying that goes: “The big fish is caught with the big hook.” The big fish here are the bank CEOs, the big hook is the Department of Justice.
The entire story about this fraudulent scheme and the settlement between JPMorgan Chase and the Justice Department can be found here.
Newscast Media WASHINGTON—The Securities and Exchange Commission today
announced charges against a Morristown, N.J.-based investment advisory firm and its
owner for misleading investors in a collateralized debt obligation (CDO) and breaching
their fiduciary duties.
The SEC’s Enforcement Division alleges that Harding Advisory LLC and Wing F. Chau
compromised their independent judgment as collateral manager to a CDO named
Octans I CDO Ltd. in order to accommodate trades requested by a third-party hedge
fund firm whose interests were not necessarily aligned with the debt investors.
CONTINUE TO FULL ARTICLE>>
Newscast Media WASHINGTON—The Securities and Exchange Commission today announced an award of more than $14 million to a whistleblower whose information led to an SEC enforcement action that recovered substantial investor funds. Payments to whistleblowers are made from a separate fund previously established by the Dodd-Frank Act and do not come from the agency’s annual appropriations or reduce amounts paid to harmed investors.
The award is the largest made by the SEC’s whistleblower program to date.
The SEC’s Office of the Whistleblower was established in 2011 as authorized by the Dodd-Frank Act. The whistleblower program rewards high-quality original information that results in an SEC enforcement action with sanctions exceeding $1 million, and awards can range from 10 percent to 30 percent of the money collected in a case.
“Our whistleblower program already has had a big impact on our investigations by providing us with high quality, meaningful tips,” said SEC Chair Mary Jo White. “We hope an award like this encourages more individuals with information to come forward.”
The whistleblower, who does not wish to be identified, provided original information and assistance that allowed the SEC to investigate an enforcement matter more quickly than otherwise would have been possible. Less than six months after receiving the whistleblower’s tip, the SEC was able to bring an enforcement action against the perpetrators and secure investor funds.
By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower’s identity.
Categories: News Tags: asset backed securities, collateralized debt obligations, credit default swaps, mortgage backed securities, mortgage fraud, mortgage modification, SEC, securities and exchange commission
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission charged a former executive at New York-based broker-dealer Jefferies & Co. with defrauding investors while selling mortgage-backed securities (MBS) in the wake of the financial crisis so he could generate additional revenue for his firm.
According to the SEC’s complaint filed in federal court in Connecticut, Jesse Litvak arranged trades for customers as part of his job as a managing director on the MBS desk at Jefferies. Litvak would buy a MBS from one customer and sell it to another customer, but on many occasions he lied about the price at which his firm had bought the MBS so he could re-sell it to the other customer at a higher price and
keep more money for the firm. On other occasions, Litvak misled purchasers by creating a fictional seller to purport that he was arranging a MBS trade between customers when in reality he was just selling MBS out of his firm’s inventory at a higher price. Because MBS are generally illiquid and difficult to price, it is particularly important for brokers to provide honest and accurate information.
The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit. His misconduct helped him improve his own standing at the firm, as his bonuses were determined in part by the amount of revenue he generated for the firm.
“Brokers must always tell their customers the truth, particularly in complex securities transactions in which it is difficult for investors to determine market prices on their own,” said George Canellos, Deputy Director of the SEC’s Division of Enforcement.
“Litvak repeatedly lied to his customers and invented facts to bring additional profits into his firm and ultimately his own pocket at their expense.”
The SEC’s complaint charges Litvak with violating the antifraud provisions of the federal securities laws, particularly Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.
Newscast Media HOUSTON, Texas—As explained in Part I, courts make money through bid bonds. Bonds are required to be posted even at times when it is someone prosecuting another. In cases where people are arrested for protesting or demonstrating and are detained briefly, a form is filled out and the person is released. Those few minutes or hours of detention, or even if one is not detained but is asked to state his or her name and asked, “Do you understand the charges being brought against you?” The judge is setting you up to be auctioned off to the highest bidder. That’s why they always ask you to sign papers, even on a traffic stop because your signature is what creates the negotiable instrument.
Your name is spelled in ALL CAPS in every government agency. Look at your birth certificate, passport, social security card, drivers license and so forth. That is the “strawman” who was charged. Then you the real human being whose names are not spelled in “All Caps” are detained as the surety for the strawman. The forms that the court fills out are SF 24 the bid bond and SF 25 the performance bond which are surety bonds. These are filled out by them, and they pool them together and sell them in bulk as securities on the secondary market. The forms are:
*All forms are live and can be typed into
*(When people like Jesse Jackson get arrested and thrown in jail for protesting, then released after only 15 minutes, the courts make million$$ off of his arrests by selling him to the highest bidder usually an insurance company or a bank that underwrites his surety bond — the Bid Bond.)
Courts hereafter make millions of dollars through the sale of these securities all around the world, that’s the reason the prison system is a very profitable business and that’s why courts are listed as trading businesses on Dun & Bradstreet as we saw in Part I. Banks and insurance companies underwrite these sureties that are bundled into securities. If you do not know all this and just agree with everything they tell you without objecting, you are giving them jurisdiction over you without fully understanding why you are being charged, whether it is trespassing, or disturbing the peace and so forth.
The company that owns every security is called The Depository Trust Company, the nominee of whom is CEDE &Co. and appears on every Pooling and Servicing Agreement of securitized instruments. They are the world’s largest depository of securities and are a member of the privately-held Federal Reserve Bank. Click here and read page three and four of their Letter of Representations.
That is the reason why during discovery attorneys will never produce the PSA and the prospectus even when a Motion To Compel is filed under Federal Rules Of Civil Procedure 37(b).
In my investigative research I have never seen an attorney who was able to produce or willing to produce the documents that proved mortgages were securitized. Some of them genuinely do not understand securities, others are covering up who the real owner is. After doing a forensic audit on property I was investigating, I was consulted by several attorneys and a federal who asked me to help explain how a promissory note evolves to become a security, and all the necessary laws that govern it.
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission has charged 14 sales agents who misled investors and illegally sold securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.
The SEC alleges that the sales agents — which include four sets of siblings — falsely promised investor returns as high as 12 to 14 percent in several weeks when they sold investments offered by Agape World Inc. They also misled investors to believe that only 1 percent of their principal was at risk. The Agape securities they peddled were actually non-existent, and investors were merely lured into a Ponzi scheme
where earlier investors were paid with new investor funds.
The sales agents turned a blind eye to red flags of fraud and sold the investments without hesitation, receiving more than $52 million in commissions and payments out of investor funds. None of these sales agents were registered with the SEC to sell securities, nor were they associated with a registered broker or dealer. Agape also was not registered with the SEC.
“This Ponzi scheme spread like wildfire through Long Island’s middle-class communities because this small group of individuals blindly promoted the offerings as particularly safe and profitable,” said Andrew M. Calamari, Acting Regional Director for the SEC’s New York Regional Office. “These sales agents raked in commissions without regard for investors or any apparent concern for Agape’s financial distress and inability to meet investor redemptions.”
According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, more than 5,000 investors nationwide were impacted by the scheme that lasted from 2005 to January 2009, when Agape’s president and organizer of the scheme Nicholas J. Cosmo was arrested. He was later sentenced to
300 months in prison and ordered to pay more than $179 million in restitution. The SEC alleges that the sales agents misrepresented to investors that their money would be used to make high-interest bridge loans to commercial borrowers or businesses that accepted credit cards. Little, if any, investor money actually went
toward this purpose. Investor funds were instead used for Ponzi scheme payments and the agents’ sales commissions, and Cosmo lost $80 million while trading futures in personal accounts.
The SEC’s complaint charges the following sales agents:
* Brothers Bryan Arias and Hugo A. Arias of Maspeth, N.Y., who offered and
sold Agape securities to at least 195 and 1,419 investors respectively. They
received more than $9.5 million combined in commissions and payments.
* Brothers Anthony C. Ciccone of Locust Valley, N.Y. and Salvatore Ciccone
of Maspeth, N.Y., who offered and sold Agape securities to at least 535 and
348 investors respectively. They received more than $17 million combined in
commissions and payments.
* Brothers Jason A. Keryc of Wantagh, N.Y. and Michael D. Keryc of Baldwin,
N.Y. Jason Keryc offered and sold Agape securities to at least 1,617 investors
and received at least $16 million in commissions and payments. He also paid
sub-brokers, including his brother, at least $7.4 million to sell Agape securities
for him. Michael Keryc offered and sold Agape securities to at least 177
investors and received more than $1 million in commissions and payments.
* Siblings Martin C. Hartmann III of Massapequa, N.Y. and Laura Ann Tordy of
Wantagh, N.Y. Hartmann enlisted his sister in his sales effort while he worked
as a sub-broker for Jason Keryc. Hartmann and Tordy offered and sold Agape
securities to at least 441 investors and received more than $3.5 million in
commissions and payments.
* Christopher E. Curran of Amityville, N.Y., who worked as a sub-broker for
Keryc. Curran offered and sold Agape securities to at least 132 investors and
received at least $531,890 in commissions and payments.
* Ryan K. Dunaske of Ronkonkoma, N.Y., who worked as a sub-broker for Keryc.
Dunaske offered and sold Agape securities to at least 70 investors and
received more than $700,000 in commissions and payments.
* Michael P. Dunne of Massapequa, N.Y., who worked as a sub-broker for
Keryc. Dunne offered and sold Agape securities to at least 99 investors and
received more than $1.5 million in commissions and payments.
* Diane Kaylor of Bethpage, N.Y., who offered and sold Agape securities to at
least 249 investors and received at least $3.7 million in commissions and
* Anthony Massaro of Boynton Beach, Fla., who offered and sold Agape
securities to at least 826 investors and received more than $5.9 million in
commissions and payments.
* Ronald R. Roaldsen, Jr. of Wantagh, N.Y., who worked as a sub-broker for
Keryc. Roaldsen offered and sold Agape securities to at least 159 investors and
received more than $600,000 in commissions and payments.
The SEC’s complaint charges Bryan and Hugo Arias, Anthony and Salvatore Ciccone, Jason and Michael Keryc, Dunne, Hartmann, Kaylor, Massaro, and Tordy with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint charges all 14 defendants with violations of Section 15(a) of the Exchange Act, and Sections 5(a) and 5(c) of the Securities Act.
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission has charged UBS Financial Services Inc. of Puerto Rico and two executives with making misleading statements to investors and concealing material information regarding securities. However, this approach is very unique that the SEC is taking. It bypasses the courts by the use Administrative Procedure Act, and directly charges the banks and executives involved with securities fraud, and even imposes a fine.
This is very powerful because the majority of judges in federal courts do not understand securities; attorneys also do not know how to defend such cases because they do not learn about securities laws in law school, so rather than risk losing a case based on a technicality or a judge’s unwillingness to address fraud committed by banks, the SEC is charging them directly and writing orders very much like a judge would do. This out-of-court approach will help investors and beneficiaries of fraudulently-created trusts resolve cases in which mortgage-backed securities are involved.
Just like a judge can issue an injunction, the SEC’s version is to issue a cease and desist from violating the Securities Act of 1933. Which means if a bank defrauds investors in regard to the existence of Trusts that don’t exist, and they bring it to the awareness of the SEC rather than the courts, they can receive relief for the fraud. Homeowners whose mortgages were put in defunct trusts secured by their deeds of trusts, benefit from such an order because it prohibits the banks and their agents from ever receiving any financial gain relating to such trusts. This way, homeowners are quietly winning injunctions against the big banks, without having to deal with the courts or when ruled against by the courts.
In this particular case of UBS in PR, the SEC used the Administrative Procedure to resolve the case. Here is exactly what the SEC said in its order:
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in UBS PR’s Offer.
Accordingly, pursuant to Section 8A of the Securities Act, and Sections 15(b) and 21C of the Exchange Act, it is hereby ORDERED that:
A. UBS PR cease and desist from committing or causing any violations and any future violations of Sections 17(a) of the Securities Act, Sections 10(b) and 15(c) of the Exchange Act, and Rule 10b-5 of the Exchange Act.
B. UBS PR shall, within 14 days of the entry of this Order, pay disgorgement of $11,500,000.00, prejudgment interest of $1,109,739.94, and a civil money penalty of $14,000,000.00 to the Securities and Exchange Commission.
When a bank violates Section 17 of the Securities Act of 1933, it means there was fraud involved in the sale or acquring of securities. As I have said before in previous articles, almost 100 percent of the Trusts banks claim to be Trustees over do not exist, so the mortgage-backed securities are not mortgage backed. Banks like Deutsche Bank, Option One, Wells Fargo and many others that claim to hold mortgages for Trust XYZ on behalf of Certificate holders would be in violation of Section 17(a)(2) if the Trusts in which those alleged mortgage-backed securities they claim to own do not exist.
Violation of Section 17(a)(1) and 17(a)(2) of the Securities Act of 1933
Section 17 – Anti-Fraud Authority
Section 17(a) provides one of the central sources of anti-fraud authority for law enforcement. In most securities actions you will see Section 17(a) used as a basis for jurisdiction (along with Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder).
“It shall be unlawful for any person in the offer or sale of any securities or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act [15 USCS § 78c note]) by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly (1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”
So when the SEC issues a cease and desist to a bank from committing or causing any violations and any future violations of Sections 17 of the Securities Act of 1933, it is an equivalent of a permanent injunction to enjoin(stop) the bank from claiming any property rights to the related trust as highlighted in Section 17(a)(2) above.
Unfortunately not too many homeowners or even their attorneys are familiar with SEC rules, to be able to benefit from the rulings that are happening in regard to fraud. Only the savvy homeowners are the ones benefiting from such rulings, and when a “clear title” is filed, the bank, in accordance to the SEC order, cannot attempt to claim ownership over a property tainted with fraud, or else it will be in violation of the SEC order. This is something the media is forbidden to report, because the large corporations own the corporate media, and do not want an awakening to occur. You may read or download the UBS cease and desist order here.
Categories: News Tags: collateralized debt obligations, credit default swaps, derivatives, foreclosure fraud, fraudclosure, mortgage backed securities, securities fraud, Troubled Asset Relief Program, UBS Puerto Rico
Newscast Media WASHINGTON, D.C. —The Securities and Exchange Commission today announced that it charged Franklin Bank Corp.’s former chief executives for their involvement in a fraudulent scheme designed to conceal the deterioration of the bank’s loan portfolio and inflate its reported earnings during the financial crisis. The SEC alleges that former Franklin CEO Anthony J. Nocella and CFO J. Russell McCann used aggressive loan modification programs during the third and fourth quarters of 2007 to hide the true amount of Franklin’s non-performing loans and artificially boost its net income and earnings. The Houston-based bank holding company declared bankruptcy in 2008.
“Nocella and McCann used the loan modification scheme like a magic wand to change non-performing loans into performing assets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Their disclosure and accounting tricks misled investors into believing that Franklin was outperforming other banks during the height of the financial crisis.”
What the SEC means is that these banks sold “toxic assets” to investors in form of Mortgage-Backed Securities (MBS) that were pooled together into Trusts. The banks were first compensated through TARP (Troubled Assets Relief Program) money using billions of taxpayers’ money. They were also compensated a second time through insurance (credit default swaps), and the third compensation came through the stream of monthly payments by homeowners. The fourth compensation came when banks were unable to modify loans, and sold the homes at public auctions through foreclosure.
So these banks have earned money four-fold, and are not being held accountable. It seems the magic word is to add the word “bank” in a business name and one is virtually immune from being charged with illegal business practices. However, the SEC is slowly changing that, yet whether the courts will be willing to hold the banks accountable remains to be seen.
The SEC’s complaint filed in U.S. District Court for the Southern District of Texas seeks financial penalties, officer-and-director bars, and permanent injunctive relief against Nocella and McCann to enjoin them from future violations of the federal securities laws.
The SEC has a strong case under Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5]
15 USC § 78j(b) – Manipulative and deceptive devices states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
17 C.F.R. § 240.10b-5 states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
The securities banks deal with are Mortgage-Backed Securities (MBS). A company that engages in the business of investing, reinvesting, owning, holding, or trading in securities should abide by the Investment Company Act of 1940 also referred to as (15 USC § 80a–3) that requires any such business to be registered in order to conduct business.
Almost 100 percent of these banks that claim to be Trustees for XYZ Trust are operating illegally because the Trusts are defunct and do not exist. Unfortunately judges and attorneys seem to be unfamiliar or unwilling to learn about the securitization process, so one has to school them using charts, tables or
diagrams. The SEC is doing just that, and we should expect more diagrams to be provided at trial.
When fighting such cases involving banks claiming to be Trustees, acting on behalf of some Trust, one has to be willing to fight them all the way to the Supreme Court, since those justices are more knowledgeable in dealing with such complex laws.
For more information about this enforcement action, contact:
Regional Director, SEC’s Fort Worth Regional Office
Associate Regional Director, SEC’s Fort Worth Regional Office
Categories: News Tags: asset backed securities, bank mortgage fraud, collateralized debt obligations, credit default swap, derivatives, foreclosure fraud, mortgage backed securities, mortgage fraud, SEC, SEC investigations, SEC mortgage fraud
Newscast Media WASHINGTON D.C. — The Securities and Exchange Commission today announced that a federal judge has ordered the former CEO of Brookstreet Securities Corp. to pay a maximum $10 million penalty in a securities fraud case related to the financial crisis.
The SEC litigated the case beginning in December 2009, when the agency charged Stanley C. Brooks and Brookstreet with fraud for systematically selling risky mortgage-backed securities to customers with conservative investment goals. Brookstreet and Brooks developed a program through which the firm’s registered representatives sold particularly risky and illiquid types of Collateralized Mortgage Obligations (CMOs) to more than 1,000 seniors, retirees, and others for whom the securities were unsuitable.
Brookstreet and Brooks continued to promote and sell the risky CMOs even after Brooks received numerous warnings that these were dangerous investments that could become worthless overnight. The fraud caused
severe investor losses and eventually caused the firm to collapse.
The Honorable David O. Carter in federal court in Los Angeles granted summary judgment in favor of the SEC on February 23, finding Brookstreet and Brooks liable for violating Section 10(b) of the Securities Exchange Act of 1934 as well as Rule 10b-5. The court entered a final judgment in the case yesterday and ordered the financial penalty sought by the SEC.
Section 10(b) of the Securities Exchange Act states:
Section 10 — Manipulative and Deceptive Devices: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange–
a. (1) To effect a short sale, or to use or employ any stop-loss order in connection with the purchase or sale, of any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or
for the protection of investors.
(2) Paragraph (1) of this subsection shall not apply to security futures products.
b. To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
Rules promulgated under subsection (b) prohibit fraud, manipulation, or insider trading.
“Brooks’ aggressive promotion and sale of risky mortgage products to seniors and other risk-averse investors deserves the maximum penalty possible, and that is what he got,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
“Those who direct such exploitative practices from the boardroom will be held personally accountable and face severe consequences for their egregious actions.”
Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office, added, “The CMOs that Brookstreet sold its customers were among the most risky of all mortgage-backed securities. This judgment highlights the responsibility of brokerage firm principals to ensure the suitability of the securities they sell to customers.”
The SEC has brought enforcement actions stemming from the financial crisis against 95 entities and individuals, including 49 CEOs, CFOs, and other senior officers.
Guest article by Michael Olenik
Newscast Media — The pooling and servicing agreement (PSA) is a contract that should govern the terms under which trillions of dollars worth of equity in the land of the United States of America was flung around the world. These contracts should govern how disputes over ownership and interest in the land that was the United States of America should be resolved. Pretty simple stuff, right? I mean if I’m a millionaire big shot New York Lawyer working for big shot billionaire Wall Street Investors and banks, then I’d do my job as a lawyer to make sure the contract was right and that all the “is” were dotted and the “Ts” were crossed right?
But that’s not at all what’s happened. In our scraggly street level offices, far below the big fancy marble encased towers of American law and finance simple dirt lawyers defending homeowners started actually reading these contracts. We ask lots of questions about just what all those fancy words in their big shot contracts mean. Invariably, the big shot lawyers and the foreclosure mills tell us, “Don’t you worry about all them words you scraggly, simple dirt lawyer. Those words aren’t important to you.”
But increasingly judges recognize that the words really do mean something. Take note of the following statements from the recent Ibanez Ruling:
I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets.
The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally recognizable form before they exercised the power of sale that accompanies those assignments.
The Ibanez decision underscores the fact that it is important for all of us to know and understand how the pooling and servicing agreements directly impact what is occurring in the courtroom. And for assistance with understanding the PSA and how to find it, more commentary from Michael Olenick at Legalprise:
Overview of PSAs
Securitized loans are built into securities, which happen to look and function virtually identically to bonds but are categorized and called securities because of some legal restrictions on bonds that nobody seems to know about.
The securities start with one or more investment banks, called the Underwriter (should be called the Undertaker), that seems to disappear right after cashing in lots of fees. They create a prospectus that has different parts of the security that they are proposing. Each of these parts is called a tranche. There are anywhere from a half-dozen to a couple dozen tranches. Each one is considered riskier.
Each tranche is actually a separate sub-security, that can and is traded differently, but governed by the same PSA, listed in the Prospectus. Similar tranches from multiple loans were often bundled together into something called a Collateralized Debt Obligation, or CDO. So besides the MBS there might also be one or more CDOs made up of, say, one middle tranche of each MBS. Each tranche is considered riskier, usually based a combination of the Credit Scores of the people in the tranche and the type of loans (ex: full/partial/no doc, traditional/interest-only/neg am, first or secondary lien, etc…).
CDOs were eligible for a type of “insurance” in case their price went down called a Credit Default Swap, or CDS (also known as “synthetic CDOs). There was actually no need to own the CDO to buy the insurance and many companies purchased the insurance, that paid out handsomely. [That's what the AIG bailout was for, because they didn't keep adequate reserves to pay out the insurance policies.]
Later, investors could also purchase securities made up of multiple CDOs, much the same way that CDOs were made up of tranches of multiple MBSs. These were called “CDOs squared.” Not surprisingly, there were also a few “CDOs cubed, CDOs of CDOs squared. CDOs were virtually all written offshore so little is known about who owns them, except that they were premised on the idea that since there was
collateralized mortgage debt at their base they could not collapse. Their purpose was to spread the various of risks of mortgages which, back then, meant prepayment of high interest debt and default.
Investors were actually way more obsessed with prepayment because they thought the whole country could not default; to make sure of that MBSs and all their gobbly gook were spread around the country; you can see where in the prospectus. They were almost more concerned with geographic dispersion than
One warning on those secondary filings, servicers and trusts both break them out as assets. How one loan can be reported as an asset in two places is a mystery, but considering this doesn’t even cover the CDOs and CDSs dual reporting doesn’t seem to strange. You’ll see your loan keep wandering through the financial
system, with one exception (next paragraph), right up to the present day. You can even see how much the investment banks thinks that its worth over time since they report out both original amount and fair market value.
The exception – when your loan really does disappear – is when it was eaten up by the Federal Reserve’s Toxic Loan Asset Facility, TALF. But you can look that up to and see how the government purchased your loan for full-price, when investors on the open market were only willing to pay a few cents on the dollar. If
your loan went to TALF you can find it in the spreadsheet here:
Your loan will be in the top spreadsheet and the genuine lender in the bottom.
305 Puritan Rd.
W. Palm Beach, FL 33405
Categories: News Tags: CDS, collateralized debt obligations, credit default swaps, derivatives, how to find your pooling and servicing agreement, how to find your psa, MBS Trust, mortgage backed securities, pooling and servicing agreement, psa, REMIC, REMIC Trust, REMICs, SEC, securities and exchange commission, TARP, Toxic assets
Newscast Media HOUSTON, Texas–The process of acquiring or selling homes in the past few years has been forever changed by the securitization process that has affected homes of over 60 million Americans. I receive many emails and questions regarding this topic, and since I am not an attorney, I will direct the readers to a brilliantly written article by Rodaben Esquire, that explains the whole process and by the end of the article, you’ll be surprised as to what the banks are hiding from you. I have also created the chart above to show you the flow of transactions.
Understanding Securitization and Foreclosure:
Bank A issues a mortgage to Caprice to purchase a house. Two documents are produced, a promissory note and a trust deed. The trust deed is essentially the title of the property that is held in trust until the promise to repay the loan (promissory note) is satisfied. Once the loan is paid in full Bank A releases its claim on the Trust deed and ownership passes in full to Caprice. That is what most of us believe happens in mortgages because you are not informed as to what happens after the paperwork is signed and how it impacts the title and promissory note you are obligated to. This is intentional, and represents the entire scheme that allows securitization occur. If the process that is now used is too complex it can be used as a justification to allow the shenanigans that occur during a foreclosure process to happen while the judges and juries believe that the process described above is what is actually happening. Lets look next at the basics of securitization.
Once the mortgage has been formed between Caprice and Bank A, Bank A wants to get rid of it as fast as possible and recoup its funds. To take advantage of this and the tax benefits of securitization it has to form what is called an SPV, a (Special Purpose Vehicle) Think of it as a shell company. This protects the mortgage if something happened and Bank A went out of business. The mortgage would still exist. It also theoretically reduces the liability of Bank A to the mortgage default. It is important to realize one important thing here…the two documents that Caprice signed (the promissory note and the title deed) are now SEPARATED. The trust deed remains with its trustee. The promissory note—the asset that pays money—is SOLD to the SPV. The original note is paid off by the SPV and the stream of payments becomes the property of the SPV. Bank A has its money in full and no longer has ANY interest in the mortgage.
Now, the SPV forms a new trust entity. This trust entity is defined by the IRS as a REMIC (Real Estate Mortgage Investment Conduit) and must adhere to the laws regarding such a trust. The benefit of doing this is that when the SPV transfers the mortgages into the Trust NO TAXES MUST BE PAID ON THE TRANSFER. This makes the trust is a much more efficient and profitable vehicle for investors. REMICs, in turn, cannot retain any ownership interest in any of the underlying mortgages. The Trust, then, is as its name states a Conduit where money flows in from the person who pays their mortgage and out to the investor as a payment. The right to receive those payments was purchased when the security (stock or bond) to the trust was purchased. Proceeds from that went back to the SPV who used them to purchase the mortgages from Bank A. It is a giant figure 8 circular flow of money with the Trustee coordinating it all.
Lets see who OWNS the mortgage then:
The first owner was Bank A who took interest in the property as collateral on its loan to Caprice. Simple enough. When Bank A sold the mortgage to the SPV its interest was extinguished. Ownership of the promissory note WAS transferred to the SPV who is now the note holder. The SPV forms the REMIC trust and transfers the note into the trust, thereafter it irrevocably changes the nature of Caprice’s mortgage. It becomes a Security. Once again, the SPV must transfer the note and pay taxes on the transfer. The mortgage now in the trust becomes for all purposes a blended group of monthly payments. These payment streams become the source of funds that the trustee pays out to investors. In essence the trustee—when certificates, stocks or bonds to the trust are sold—sells a beneficial interest in the mortgage. That is not ownership of any portion or any segment of the revenue stream but rather is simply a security—just like a share of IBM or Google doesn’t entitle you to any of the assets of the company. But who owns the note?
Because of the tax exemption of the REMIC it is PROHIBITED from retaining any ownership of the underlying assets it no longer holds any ownership to the note on the day it is formed. The investors in the trust do not hold any interest in the note either, they only hold the security which was sold to them. So what happened to ownership of the note? It was EXTINGUISHED when it entered into the trust in order to obtain the flow of cash back to the original lender and the tax-preferred investment proceeds to the investors. So, who does Caprice owe the money to? Who has authority to release the deed to Caprice when her mortgage has been satisfied? The answer? No one.
The trust is set up and cannot take an active role in the collection of the funds. It is a shell entity ONLY. Therefore it appoints a servicer to collect the payments every month. So what happens when Caprice defaults? How is his property foreclosed upon?
In this proceeding the servicer presents documents to the court (or the trustee of the deed in a non-judicial foreclosure state) that state that THEY are the owner of the note and have a legal standing to foreclose. This is not true, is not legally possible, and is fraudulent. The servicer is the agent of the Trust and will use that to claim that they are foreclosing on behalf of the trust. The problem? The Trust itself cannot hold ownership of the note because of its tax-preferred REMIC status! What about if they state that they are representatives of the investors? The investors have no ownership interest in the underlying mortgages, they only have ownership interest in the securities that were issued to fund the trust! So who does Caprice owe? The answer is nobody. The process of a note becoming a Security is final and irreversible. You cannot unscramble the eggs. A Security cannot be used to foreclose. The Kansas Federal Court Ruling decided once a note was securitized it was no longer a note and would NEVER be a note again. It becomes a Security. (Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834.)
Bottom Line -All Terms of Your Mortgage Were Fulfilled:
The Lender was paid from the SPV upon selling the note.
The SPV was paid from the Trustee who received money from the sale of securities.
The Servicer was paid on schedule by the Trustee from fees generated.
Owners of the certificates (bonds or stock) received a payment from the Trust.
The REMIC Trust itself was insured by the SPV to protect investors.
If the terms of the mortgage were fulfilled (i.e. everyone was paid) To Whom Does Caprice Owe Any Money?
There still exists a lien on the house that is unenforceable. You would have to go through a process to extinguish that lien by having an attorney file for you a Quiet Title, that silences or quiets any more claims to the property. http://www.newscastmedia.com/securitization.html
Written by Rondaben Esquire
Edited by Joseph Ernest
Categories: News Tags: Class Action Lawsuit, credit default swap, deed of trust, homeowner, how to stop foreclosure, mortgage backed securities, mortgage loan, mortgage security, mortgage servicer, note, pro se litigation, promissory note, real estate mortgage investment conduit, REMIC, securities and exchange commission, security, special purpose vehicle, SPV, stop foreclosure, trust, trust deed, trustee