Bill Black on Financial Fraud Investigations Feb 6 2012

7/31/2019 Bill Black on Financial Fraud Investigations Feb 6 2012

1/3

Bill Black on Financial Fraud InvestigationsFebruary 6, 2012

by Theresa Riley

We checked in with banking fraud expertBill Blackfor his take on the ongoing investigation into the U.S.

financial crisis. Todays the deadline for the multistate foreclosure settlement between state attorneys general

and the major banks. If the purported $25 billion deal goes through, it will provide some relief to those who

have experienced foreclosure (or are in danger of it) and require banks to overhaul their foreclosure practices.

Theresa Riley: Last week there were many rumors about the types of fraud that will be covered

in the multistate foreclosure settlement. Initially there were reports that it would be limited to

robo-signing abuses and then there were reports to the contrary. What is expected to be

included in the settlement?

Photo by Robin Holland

William Black: The newest (pro-release) rumors are that the current draft of the settlement includes some

releases for mortgage origination fraud and secondary market fraud, but that those releases are limited. We are

not told how limited.

Riley: If the deal goes through as reported, what could this mean for future criminal

investigations and reforms?

Black: The leaks about the proposed deal occurred in conjunction with President Obamas State of the Union

Address and a series of press releases and conferences by Attorney General Holder about a newly created

working group. That working group is intended to investigate secondary market fraud. There is no

comprehensive investigation of the over $1 trillion in mortgage origination fraud. There are no prosecutions of

any of the elite bank officers who led, and became wealthy from, the epidemic of mortgage origination fraud.

The State AGs do not have the resources to investigate even two of the largest fraudulent lenders.

The major development this past week is that New York Attorney General Schneiderman filed suit, alleging that

the Mortgage Electronic Registration System (MERS) is aiding foreclosure fraud and ruining Americas public

recordation system for real estate, which conservative economists praised as one of the key reasons America

became so prosperous. MERS is enormous and it is fundamentally flawed and dangerous, so this could be a

tremendously useful action.
http://billmoyers.com/author/theresariley/http://billmoyers.com/guest/william-k-black/http://billmoyers.com/guest/william-k-black/http://billmoyers.com/guest/william-k-black/http://cdn.billmoyers.com/wp-content/uploads/2012/02/Bill-Black-0409_018_bw.jpghttp://billmoyers.com/guest/william-k-black/http://billmoyers.com/author/theresariley/


2/3

Riley: Speaking of Schneiderman, whats your view of President Obamas SOTU announcement

of a new Financial Crimes Unit (the Residential Mortgage-Backed Securities (RMBS) Working

Group) co-chaired by him?

Black: If Schneiderman had been named Attorney General of the United States, we would know that the

administration really intended to hold accountable the frauds that drove the crisis. Instead, the top two JusticeDepartment officials that are supposed to be prosecuting the elite frauds have consistently failed to even

investigate the frauds, have denied the existence of material fraud, and came from the same law firm that

represented many of the big, fraudulent banks and was critical to the creation of the notorious Mortgage

Electronic Registration System (MERS) that contributed to the foreclosure fraud.

AG Schneiderman was appointed to the working group because he has broad credibility as a real prosecutor.

His refusal to support the earlier drafts of the robo-signing deal (which was so bad that I described it as the

formal surrender of the U.S. to crony capitalism) led the State AGs to kick him out of the settlement

discussions.

Schneiderman is only one of the co-chairs of the new working group. The others are federal prosecutors orofficials who were the strongest proponents of the cynical deal that would have de facto immunized the elite

criminals from civil and even criminal sanctions. The working group is set up so that Schneiderman can give

the group credibility while being marginalized. He can be outvoted in any matter in which he proposes vigorous

prosecutions.

Riley: It sounds like you dont think this new working group is going to get the job done. Last

week, Schneiderman said that he thinks he has the resources (particularly the IRS and the

Consumer Protection Unit) and the political will to pursue the investigation in a meaningful

way. Why do you disagree?

Black: First, the investigation will not investigate what was by far the largest and most destructive fraud control frauds the origination of millions of fraudulent loans. Second, the working groups resources to

investigate secondary market fraud are ludicrously inadequate.

Let me provide specifics on scale.

The total staffing of the working group (once completed in several months) is 55. At peak, there were roughly

1000 investigators (and hundreds of prosecutors) assigned to the S&L prosecutions 20 years ago. The current

crisis caused losses far exceeding the S&L debacle and involves frauds that are massively greater than the

frauds that drove the S&L debacle.

But the issue of resources is not where the discussion needs to begin. The keys are information, expertise,

understanding of control fraud, and prioritization of investigations and prosecutions. Absent criminal referrals

from the financial regulators and whistleblowers, absent dozens of banking regulators being detailed to serve

with the FBI as their internal experts, absent training of the investigators and prosecutors on how to detect and

prosecute control frauds (the Justice Department uses the mortgage lending industrys definition of mortgage

fraud and, surprise, it defines the lenders and their CEOs who made millions of fraudulent liars loans as the

good guys/victims of mortgage fraud rather than the perpetrators), and absent the immediate reversal of the


3/3

current system of making smaller mortgage frauds our top criminal justice priority absent all of these things

there can be episodic prosecutorial successes, but continued systemic failure is certain.

We will know that there is a real commitment to prosecuting the elite frauds when the Justice Department

takes these essential, foundational steps and the Department quadruples the number of FBI agents assigned

to investigate mortgage fraud.

Riley: What would you like to see happen?

Black: We have descended too fully into the cesspool of crony capitalism when our most elite banks can

commit what SEC investigations find to be fraud and still claim in filings to the SEC that they have a strong

record of compliance with securities laws and the SEC buys such a preposterous claim hook, line, sinker,

rod, reel, and the canoe they paddled into the swamp.

Where are the soft on crime conservatives when you need them? This is the perfect story for Republicans to

use in attacking President Obamas policies. Why are they so silent?

I want the elite criminals who ran the control frauds to be prosecuted and imprisoned if found guilty. Under

President Bush, the Justice Departments prosecution of financial frauds was pathetic. Even though financial

fraud reached unprecedented levels, the Bush administration prosecuted fewer than one-half as many financial

frauds as during the S&L debacle. The bad news is that the Obama administration has proven even more

disgraceful failures in holding elite criminals accountable than did the Bush administration. The Obama

administration has convicted a few bankers from non-elite banks and it may eventually convict a token elite

banker, but it will continue to fail systemically to hold elite bankers accountable for their frauds.

Documents

Bill Black on Financial Fraud Investigations Feb 6 2012