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Prosecutors Look to Enron, Refco in Subprime Probes (Update3)
By David Glovin, Patricia Hurtado and David Voreacos
Oct. 16 (Bloomberg)
Lehman Is the Focus of Three U.S. Grand Jury Probes (Update1)
By Linda Sandler and Christopher Scinta
Oct. 17 (Bloomberg
Last updated October 16, 2008 10:41 p.m. PT
Suits allege WaMu missteps
By BILL VIRGIN
Mortgage Inquiries Focusing on Florida
By LYNNLEY BROWNING
Published: October 15, 2008
By David Glovin, Patricia Hurtado and David Voreacos
Oct. 16 (Bloomberg)
Garcia's white-collar crime unit now has 20 prosecutors, up from 17, and he has assigned eight lawyers to a new mortgage- fraud division. One case this month led to a 10-year sentence for a man who duped homeowners facing foreclosure out of $2.5 million.
In addition to 12 prosecutors working on securities-fraud cases, Brooklyn's Campbell has created a task force to probe the subprime fallout. He said he's made white-collar crime a priority. Christie has added a prosecutor to his 10-person securities-fraud unit.
``There are various iterations -- valuations questions, insider trading, material misrepresentations,'' Campbell said. ``What we are generally seeing is the same kind of fraudulent activity. But it's the factual background to the fraudulent activity that's different.''
In addition to 12 prosecutors working on securities-fraud cases, Brooklyn's Campbell has created a task force to probe the subprime fallout. He said he's made white-collar crime a priority. Christie has added a prosecutor to his 10-person securities-fraud unit.
``There are various iterations -- valuations questions, insider trading, material misrepresentations,'' Campbell said. ``What we are generally seeing is the same kind of fraudulent activity. But it's the factual background to the fraudulent activity that's different.''
By Linda Sandler and Christopher Scinta
Oct. 17 (Bloomberg
Lehman Brothers Holdings Inc., which last month filed the largest bankruptcy in history, is the subject of three federal criminal probes and at least 12 subpoenas, according to a lawyer for the failed bank.
``We are facing three grand jury investigations,'' said lead Lehman bankruptcy lawyer Harvey Miller yesterday in Manhattan federal court.
The probes, launched by the New York U.S. attorneys in Brooklyn and Manhattan as well as in Newark, New Jersey, are focusing in part on Lehman's role in the $330 billion auction rate securities market and possible crimes associated with the New York-based bank's $6 billion June stock issue, according to a person familiar with the case.
The New York Post reported today that Lehman Chief Executive Officer Richard Fuld is among the 12 subpoenaed, without saying where it got the information. Miller declined to immediately comment on whether Fuld was among those subpoenaed.
Investigators have subpoenaed Ernst & Young LLP, Lehman's auditor; U.K.-based bank Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case. It's not clear whether these subpoenas are part of the 12 noted by Miller.
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The New York Post reported today that Lehman Chief Executive Officer Richard Fuld is among the 12 subpoenaed, without saying where it got the information. CNBC reported former Lehman Chief Financial Officer Erin Callan, 42, now Credit Suisse's global hedge fund chief, was subpoenaed, without saying where it got the information. She didn't immediately return calls seeking comment.
Investigators have subpoenaed Ernst & Young LLP, Lehman's auditor; U.K.-based bank Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case.
It's not clear whether these subpoenas are part of the 12 noted by Miller, 75, of New York-based Weil, Gotshal & Manges. In court yesterday, he said a state attorney general is also probing Lehman, without elaborating.
[..]
Campbell, who obtained indictments of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin in June, cited e-mails showing their disparagement of the securities they were touting to clients. The defendants, who pleaded not guilty, face fraud charges for cheating investors out of $1.6 billion.
E-mails may also figure prominently in any Lehman prosecution. The U.S. House of Representatives Committee on Oversight and Government Reform recently released e-mails it obtained from the bank as part of a hearing Oct. 6 in Washington.
Prosecutors may seek to bring a securities fraud prosecution if they can show that Lehman officials sought to mislead investors as to the financial health of the firm.
``E-mails are a great tool,'' said Christie. ``People seem freer to say things in e-mails that they might not say otherwise.''
``We are facing three grand jury investigations,'' said lead Lehman bankruptcy lawyer Harvey Miller yesterday in Manhattan federal court.
The probes, launched by the New York U.S. attorneys in Brooklyn and Manhattan as well as in Newark, New Jersey, are focusing in part on Lehman's role in the $330 billion auction rate securities market and possible crimes associated with the New York-based bank's $6 billion June stock issue, according to a person familiar with the case.
The New York Post reported today that Lehman Chief Executive Officer Richard Fuld is among the 12 subpoenaed, without saying where it got the information. Miller declined to immediately comment on whether Fuld was among those subpoenaed.
Investigators have subpoenaed Ernst & Young LLP, Lehman's auditor; U.K.-based bank Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case. It's not clear whether these subpoenas are part of the 12 noted by Miller.
[..]
The New York Post reported today that Lehman Chief Executive Officer Richard Fuld is among the 12 subpoenaed, without saying where it got the information. CNBC reported former Lehman Chief Financial Officer Erin Callan, 42, now Credit Suisse's global hedge fund chief, was subpoenaed, without saying where it got the information. She didn't immediately return calls seeking comment.
Investigators have subpoenaed Ernst & Young LLP, Lehman's auditor; U.K.-based bank Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case.
It's not clear whether these subpoenas are part of the 12 noted by Miller, 75, of New York-based Weil, Gotshal & Manges. In court yesterday, he said a state attorney general is also probing Lehman, without elaborating.
[..]
Campbell, who obtained indictments of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin in June, cited e-mails showing their disparagement of the securities they were touting to clients. The defendants, who pleaded not guilty, face fraud charges for cheating investors out of $1.6 billion.
E-mails may also figure prominently in any Lehman prosecution. The U.S. House of Representatives Committee on Oversight and Government Reform recently released e-mails it obtained from the bank as part of a hearing Oct. 6 in Washington.
Prosecutors may seek to bring a securities fraud prosecution if they can show that Lehman officials sought to mislead investors as to the financial health of the firm.
``E-mails are a great tool,'' said Christie. ``People seem freer to say things in e-mails that they might not say otherwise.''
Suits allege WaMu missteps
By BILL VIRGIN
Three class-action lawsuits -- each a consolidation of similar lawsuits filed against the company, directors, executives (and in some cases accountants and securities underwriters) -- now pending in federal court detail the sorts of conduct that a task force may be looking into as part of its investigation.
One of those suits in particular -- a securities class-action suit representing investors who bought WaMu stock between Oct. 19, 2005, and July 23, 2008 -- uses interviews with former employees (many identified as "confidential witness" followed by a number) to describe what was actually going on inside the Seattle-based consumer bank and mortgage company.
Class-action lawsuit against Washington Mutual (PDF)
One of those suits in particular -- a securities class-action suit representing investors who bought WaMu stock between Oct. 19, 2005, and July 23, 2008 -- uses interviews with former employees (many identified as "confidential witness" followed by a number) to describe what was actually going on inside the Seattle-based consumer bank and mortgage company.
Class-action lawsuit against Washington Mutual (PDF)
The study, released Wednesday by researchers at the Transactional Records Access Clearinghouse at Syracuse University, is based on fresh data obtained from the Justice Department, which has a new program to track criminal mortgage fraud by lenders and financial companies.
Because the Justice Department only recently began tracking mortgage fraud as a separate category, there is no comparative data for previous years, and thus no indication of how much, or whether, the 151 cases represent a significant increase amid the subprime debacle.
The data covers the first 10 months of the 2008 fiscal year, October 2007 through July 2008, a period when the deflation of the subprime lending bubble accelerated and foreclosures mounted. It does not cover efforts at the state level to scrutinize possible mortgage fraud.
Over all, there is no centralized effort by regulators or the private sector to track the total extent of possible mortgage fraud nationwide, a gap that has drawn criticism from some policy analysts.
Nearly half of the federal prosecutions, or 71, are being carried out by the F.B.I., which opened preliminary mortgage fraud inquiries last month into Fannie Mae, Freddie Mac, Lehman Brothers and the American International Group.
The Federal Deposit Insurance Corporation, which regulates the nation’s banks, was the second most active investigator, handling one in five of the cases.
The data shows that despite the indications of possible mortgage fraud, federal prosecutors have narrowly focused their efforts and opened criminal cases in only 10 of the 89 judicial districts across the 50 states, in California, Florida, Georgia, Mississippi, New York, Ohio, Pennsylvania and Vermont.
Only a fraction of the cases now being prosecuted have been completed, resulting in convictions or settlements, but the actual number is likely to be higher because of delays by courts in reporting outcomes.
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In addition to the major cases, the F.B.I. is working with other federal, state and local agencies on about 1,400 investigations into smaller companies and individuals who are suspected of mortgage fraud, nearly double the level of 2005.
Nearly half, or 69, of the federal cases are being handled by prosecutors’ offices in southern Florida, a flash point of falling housing prices. The second-busiest region is the Pittsburgh area in western Pennsylvania, where 24 prosecutions are taking place.
Southern and central California, northern Georgia and southern New York were next, each with an average of 10 cases.
TRAC website
Because the Justice Department only recently began tracking mortgage fraud as a separate category, there is no comparative data for previous years, and thus no indication of how much, or whether, the 151 cases represent a significant increase amid the subprime debacle.
The data covers the first 10 months of the 2008 fiscal year, October 2007 through July 2008, a period when the deflation of the subprime lending bubble accelerated and foreclosures mounted. It does not cover efforts at the state level to scrutinize possible mortgage fraud.
Over all, there is no centralized effort by regulators or the private sector to track the total extent of possible mortgage fraud nationwide, a gap that has drawn criticism from some policy analysts.
Nearly half of the federal prosecutions, or 71, are being carried out by the F.B.I., which opened preliminary mortgage fraud inquiries last month into Fannie Mae, Freddie Mac, Lehman Brothers and the American International Group.
The Federal Deposit Insurance Corporation, which regulates the nation’s banks, was the second most active investigator, handling one in five of the cases.
The data shows that despite the indications of possible mortgage fraud, federal prosecutors have narrowly focused their efforts and opened criminal cases in only 10 of the 89 judicial districts across the 50 states, in California, Florida, Georgia, Mississippi, New York, Ohio, Pennsylvania and Vermont.
Only a fraction of the cases now being prosecuted have been completed, resulting in convictions or settlements, but the actual number is likely to be higher because of delays by courts in reporting outcomes.
[..]
In addition to the major cases, the F.B.I. is working with other federal, state and local agencies on about 1,400 investigations into smaller companies and individuals who are suspected of mortgage fraud, nearly double the level of 2005.
Nearly half, or 69, of the federal cases are being handled by prosecutors’ offices in southern Florida, a flash point of falling housing prices. The second-busiest region is the Pittsburgh area in western Pennsylvania, where 24 prosecutions are taking place.
Southern and central California, northern Georgia and southern New York were next, each with an average of 10 cases.
TRAC website