UPDATE: Richard Simring Pleads Guilty — Set to Testify Against Ed Okun

Richard B. Simring, the attorney charged with mail fraud and money laundering in the 1031 exchange scam led by Ed Okun, has pled guilty and agreed to testify against Okun.

According to a report in the ABA Journal based on a story in the National Law Journal, Simring “entered the plea in July in the Eastern District of Virginia, but few were aware of the development… Simring has agreed to testify against the businessman, billionaire Ed Okun, as part of the deal, Simring’s lawyer, Brian Tannebaum, told the National Law Journal. Simring faces up to five years in prison.”

The article in theNational Law Journal provides a few more details:

“Simring took the plea deal, in which he faces a possible five years in prison and must testify against his former boss, before a grand jury could indict him, according to his lawyer, Brian Tannebaum of Miami’s Tannebaum Weiss. ‘He’s taking responsibility for what the government says he did,’ Tannebaum said. ‘He didn’t want to roll the dice and face… a jury’.”

“Facing 12 to 14 years in prison and having just become a father for the second time, Simring pleaded guilty, said Tannebaum. He’s agreed to testify against Okun and faces a maximum five years in prison.  Tannebaum said Simring — who has no record of Bar complaints or crime — regrets going to work for Okun. ‘If he had it to do all over again he wouldn’t make the same choices,’ Tannebaum said.”

“Simring has notified the Florida Bar of his charges and agreed to temporarily stop practicing law. The Bar will appoint a referee to determine whether to impose any disciplinary action, which sources say will likely mean suspension.”

A Simple Way to Avoid Getting Scammed

When we read CNN’s story about the FBI’s investigation of a massive Ponzi scheme operated out of the University of Miami, what struck us as most instructive was the statement from one of the scam’s victims that he had been promised an 18 percent return on his short-term investment.

The victim, Victor Gonzalez, said he put more than $3.5 million into the scheme.

Here is a simple rule to follow if you want to avoid being scammed:

Do not believe someone who promises you an 18 percent return on a short term investment.

“What You Get for…$1.00” — The Housing Crisis Gets Crazy

The New York Times has a weekly real estate feature called “Property Values” that shows “What You Get for…” a certain a mount of money. 

This week the Times shows you “What You Get for…$10 Million” and it pictures palatial estates in Newport, Rhode Island, Kauari, Hawaii, and Whitefish, Montana.

But this week’s most interesting — and relevant — “What You Get for…” story wasn’t published in the Times, and the property isn’t situated in an up-scale locale.

The story was published in the Detroit News.

And the property — a cozy two story — is located in the foreclosure-ravaged Motor City.

It recently sold for $1.00 — after being on the market for for 19 days.

After reading the story, we tried an experiment. 

We went to realtor.com and looked up houses in Detroit.  For the minimum amount would put $0 and for the maximum amount we put $1000. 

The result was four more houses for $1, eight more for $100 or less, and a total of 172 properties at or under $1000.

Then we tried Cleveland, Ohio. 

The result was 10 properties available for $1 and five more for $1000 or less.

You can try the same experiment with other cities.  We think you’ll find similar results.

We noticed, too, that this example of America’s housing misery was providing aid and comfort to an old — and perhaps renewed — enemy.

The online edition of Pravda — which used to be the official newspaper of the Soviet Union and is now the official newspaper of Russia’s new bosses — put the Detroit Press story on the front page of its English language edition, just below the news about its shooting war in Georgia and South Ossetia.

Bankers Reject Free Market Ideology and Call for More Regulations and Protections for Investors

Free-market ideologues tend to blame most economic problems on government interference in the market.  And their response to economic crisis is invariably to call for the reduction or elimination of government regulations.

But free-market ideologues are usually pundits, professors, and politicians, and not capitalists themselves.

Real capitalists care less about ideology, and more about what is actually important — that is, capitalism.

That’s why it should come as no surprise that in the face of the potentially catastrophic crisis that is now gripping the banking industry, it is the bankers themselves who are calling for more, rather than less, government regulation.

As the Financial Times reports, “Many of the world’s biggest banks are proposing reforms that would limit the size and scope of their businesses in one of the most dramatic responses to the credit crisis. The proposals would hold down the number of investors who can buy complex financial products, bring large swathes of the derivatives markets into regulators’ sights and call on banks to spend more on technology and risk management.”

“Backed by banks including JPMorgan Chase, Merrill Lynch, Citigroup, HSBC, Lehman Brothers and Morgan Stanley, the proposals are being delivered to global regulators in the hope of producing rules for credit markets that would cut risk of contagion and restore confidence.”

Here is the story:  Last week, a panel of high-power bankers calling themselves “Counterparty Risk Management Policy Group III,” lead by Goldman Sachs managing director E. Gerald Corrigan, issued a report to Treasury Secretary Henry M. Paulson Jr. and Mario Draghi, chairman of the international Financial Stability Forum, calling for more regulation and governmental oversight of the banking industry and new standards for monitoring and managing risk.

The Washington Post reports that the bankers’ panel “suggested that big investment houses regularly perform ‘liquidity stress tests’ to measure their expected flexibility in the face of a crisis. It also urged firms to make sure they have accurate snapshots of their exposures to institutional trading partners, with the ability to compile detailed reports within hours.”

“In the current crisis, ‘some of the worst failures were in risk monitoring, which was before you even got to risk management,’ Corrigan, a former chief executive of the Federal Reserve Bank of New York, said in an interview.”

Included in the panel’s recommendations is a prohibition on selling high-risk and complex financial products to anyone except “sophisticated investors.” 

According to the Financial Times, under the panel’s recommendations “even pension funds and other institutional investors would no longer be automatically allowed to buy bonds backed by assets such as subprime mortgages. All but the wealthiest retail investors would be barred from buying structured products, such as auction rate securities, a $330bn market used by municipalities and student loan providers to raise funds.”

Corrigan said “the ‘markets had been sandbagged by complexity’ and suggested the new rules would help ensure sophisticated financial products were only sold to investors with the resources and skills to understand and monitor them.”

We agree with the panel’s report and recommendations. 

It is long overdue that investors in financial products have at least the kind of “qualified investor” protections that exist under the Securities and Exchange Act — both for the sake of the investors and the stabiliity of the financial markets.

And it is good to see that real capitalists care more about preserving the world’s financial markets than about preserving some ideologically pure notion of free-market capitalism.

On other hand, in the short term, it would not be good for the economy if the banks used these recommendations as a rationale to further restrict the availability of credit to qualified borrowers.

The Rise and Fall of Richard B. Simring, Esq.

Richard B. Simring is not someone you would expect to be charged with conspiracy to commit mail fraud and money laundering in a multi-million dollar scam.

Simring was a rising legal star and a well respected leader in his community.

The son of an attorney, Simring was valedictorian at Hollywood Hills High School in Florida, a magna cum laud graduate of Princeton University in 1988 and a 1991 summa cum laud graduate of George Washington University Law School.  

Following law school, Simring served as law clerk for Rosemary Barkett, the former Chief Justice of the Florida Supreme Court.  He then developed a successful legal practice in the areas of insurance, banking, and securities, specializing in complex business litigation and winning multi-million dollar verdicts. He represented banks, insurance companies, and financial institutions in reinsurance and insurance disputes, bad faith claims, state and federal RICO actions, securities class actions and broker/dealer arbitrations.  He became a partner in the prestigious law firm Stroock, Stroock & Lavan and then in the law firm Jorden Burt.

Simring actively used his success to benefit others.  He was a prominent figure at Miami fundraising events; charities, schools, and professional organizations were proud to have Richard B. Simring on their side.

He served as Chairman of the Board of Voices for Children Foundation, Inc., a Miami charity that raises money to advocate on behalf of abused and neglected children. He often spoke to legal and community groups about representing abused children in court.  He contributed to the Miami Lighthouse for the Blind, and he served on the board of directors for Educate Tomorrow, an international charity that works to make education an attainable goal for the disadvantaged in Miami and throughout the world, with particular efforts in the impoverished African nation of Niger. He took an active part in Princeton alumni organizations. He donated money to his law school and served as a volunteer on its advisory board of directors. 

Then he met Ed Okun.

According to the federal indictment, Simring first came into contact with Okun in November 2006, when Okun consulted him about legal issues involving the transfer of client funds in Okun’s 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Okun. 

The indictment does not claim that Simring knew that 1031TG was a scam, or that Simring thought that Okun wanted anything other than legitimate legal help in making sure that his activities were lawful. 

In fact, the indictment states that Simring conducted a legitmate and independent investigation of Okun’s activities with 1031TG and told Okun that they were illegal and needed to be halted until the exchange agreements were changed to allow the transfer of client funds and there were sufficient assets to cover client exchanges as they came due.  Simring also told Okun that doing this would not rectify what Okun had done in the past, but only reduce the liklihood of criminal charges.  Okun told Simring that he would follow his advice and change the exchange agreements and pay back the client exchange funds.  Simring then told Okun that if he failed to do this, he would probably go to jail.

A month later, Okun hired Simring as the Chief Legal Officer for Okun Holdings.  Simring was to be paid a salary of $850,000 and given a signing bonus of $100,000.

The indictment then alleges that in March 2007 Simring became aware that Okun had not followed any of his advice and was continuing to transfer millions of dollars from client exchange accounts into his personal bank account.  Simring also learned that 1031TG was on the brink of insolvency. Simring then “confronted” Okun. Okun assured Simring that he was fixing the problems and was in the process of paying back 1031TG.

By April 2007, the financial situation of 1031TG had become dire and Okun’s scam was on the verge of coming part.  1031TG was no longer able to fund exchanges or pay back clients. And the people whose money Okun had taken were calling and demanding explanations.

This appears to be the point at which Simring went from being Okun’s attorney to his co-conspirator.

According to the indictment, Simring now participated with Okun and others in lying to clients, telling them that their funds were secure.  Now also Simring apparently joined Okun in attempting a “holding action” against client inquiries and complaints, including making “lulling” payments to clients with money misappropriated from other clients.

In late April 2007, 1031TG’s CEO resigned and Okun appointed Simring as interim CEO.  Okun then directed Simring to transfer approximately $8,000,000 in client funds into Okun’s personal bank accounts.  According to the indictment, Simring complied.

Three days later, Simring resigned.

Why did Richard Simring become a co-conspirator of scammer Ed Okun?  Why didn’t he walk away once he learned that Okun wasn’t following his advice and continuing to engage in criminal activity?

Perhaps it was the money — although it seems that Simring had no trouble making money legally.

Perhaps he was caught up in his client’s bunker mentality once it was clear that the enterprise was collapsing.

Or perhaps Simring fell under the spell of Okun’s swindler charm.

We will likely never know why Richard B. Simring, Esq., legal star and community leader, appears to have thrown away his career, his honor, and the respect of his colleages and community.

He may not know himself.

UPDATE:

Read Richard Simring Pleads Guilty — Set to Testify Against Ed Okun.

UPDATE:

Read Wachovia Sued for Millions in 1031 Exchange Fraud.

President Bush Signs Housing Bill in Near Secret Without Ceremony or Photo Ops

We don’t understand why President Bush took such an under-the-radar approach to his eventual support for the new housing bill that he signed into law on Wednesday.

For months, Bush said that he opposed the bill and would veto it if it passed Congress.

Then he changed his mind.

We suspect that political polls trumped Bush’s conservative principles and that he was convinced by senior members of his party that if he followed through with his veto threat, Republicans would face an even bleaker November.

But why, then, did he appear to want to sign the bill in secret?

Instead of orchestrating a high-visibility signing ceremony, in which he could assert Republican Party leadership in dealing with the three-headed monster of the housing-mortgage-and-credit crisis, Bush opted for a muted 7 a.m. affair with only his Treasury Secretary and a few aides present. 

No members of Congress — either Republican or Democrat — were there to get a pen and a photo opportunity.

If he could, before the signing he probably would have borrowed an invisibility cloak from Harry Potter.

This seems to us to have been the worst possible outcome for Republicans and John McCain. 

First, President Bush signed a bill that he had repeatedly insisted he would veto — appearing to capitulate to political pressure and to be following the Democrats rather than leading the country on the central issues in the economy. 

Then, by signing the bill in near secret, he deprived Senator McCain and the Republican Party of an opportunity to stage their concern for beleaguered homeowners and their command of the country’s economic problems, complete with photo ops of presidential handshakes and congratulations to the Republican leadership, taking credit (however undeserved) for the government’s response to the housing crisis.

Whether the housing bill will actually help homeowners remains to be seen.

But it is clear that President Bush seems intent on it not helping Senator McCain or his struggling Republican Party.

Home Prices Fall Again — Down 15.8% From Last Year

According to the Standard & Poor’s/Case-Shiller Index, which measures the sale price of existing single family homes in 20 major metropolitan areas, prices fell another 0.9 percent in May 2008,  and were down 15.8 percent from May 2007.

File this information under “Tell Us Something We Didn’t Know.”

Actually, we knew it was bad, but we didn’t know it was this bad.

The Standard and Poors Report states that “For the second straight month, all 20 MSAs posted annual declines, nine of which are posting record lows and 10 of which are in double-digits. Both the 10-City Composite and the 20-City Composite are reporting record low annual declines.”

“Since August 2006, there has not been one month where we have seen overall price increases . . . For the month of May, markets that experienced large gains in the recent real estate boom continue to be the biggest decliners. Miami and Las Vegas were the worst performers returning -3.6% and -2.9%, respectively. On a brighter note, Charlotte and Dallas have recorded three consecutive months of positive returns. These two markets are also showing the smallest annual declines, with Charlotte own 0.2% and Dallas down 3.1% versus May of 2007. From a longer-term perspective, since January 2000, the best performing markets are Washington, Los Angeles, New York and Miami. The value of housing in Detroit is lower than it was in January 2000. Over the month, no region reported gains in excess of 1%. But for those that reported monthly declines, three were in excess of 2%.”

And with the credit market frozen, there is no end in sight to falling home prices and the housing crisis, now rapidly becoming the housing disaster.

Credit Markets are Frozen as Economy Stalls — The Fed’s Efforts to Increase Lending Fail Despite Billions to Banks

Federal Reserve Chair Ben Bernanke and his fellow monetary watchdogs have taken unprecedented steps in the past year to increase liquidity in the credit market.  They’ve cut the short-term interest rate seven times since September 2007.  They’ve committeded billions of public dollars to prevent the bankruptcy of Bear Stearns and other major financial institutions, and billions more to prop-up mortgage giants Fannie Mae and Freddie Mac.  The goal has been to stabilize the financial markets and increase liquidity — that is, to make more money available to more people and businesses.

What has been the result of the Fed’s efforts?

The answer is: Not much.

Despite the Fed’s efforts — and the billions of public dollars invested over the past year in the financial industry — the banking business has just about shut down.

In fact, it is harder now for most business to borrow money than it was before the Fed started its rating-cutting.

As the New York Times reports, “Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.  Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.”

The effect of the banks’ tight money policy could be devastating to the economy. 

Mortgage rates will continue to climb, further increasing foreclosures and heightening the housing crisis.  Those industries closely allied with real estate, such as construction, will continue to collapse.  Even successful businesses will be unable to expand, further increasing the jobless rate.  Smaller businesses, which provide a large percentage of American jobs, will be particularly hard hit, since they will be entirely frozen out of the credit market.  Bankruptcies, both large and small, will continue to spiral upward. 

What is the answer?

The Fed’s rate-cutting hasn’t worked, and the piece-meal approach being taken by Congress and the administration (including the new mortgage relief legislation) won’t work either.

What is needed is a comprehensive overhaul of the entire banking and financial system and the credit markets, including the securities laws.

And for that, we’ll have to wait at least until a new Congress and a new administration take over in January 2008.  Even then, comprehensive and systemic change is unlikely.

We need a 21st Century Franklin Roosevelt. 

Unfortunately, that’s probably impossible until we’re in the midst of a 21st Century Great Depression.

Here’s a New Foreclosure Scam that might be Socially Useful

Here’s a new twist on foreclosure scams, and proof that every crisis creates opportunities for those with initiative and imagination. 

With foreclosures rising, many neighborhoods have vacant houses with absentee landlords — that is, banks and lending institutions — who don’t visit their properties very often.  

In fact, the number of vacant homes in the United States is now at a record 2.28 million — up from 2.18 million in the same quarter last year — and still on the rise.

At the same time, the foreclosure crisis has greatly increased the number of people who are looking for housing to rent.

The banks usually don’t want to bother with rental issues, so desirable housing goes unused even as the demand increases.

Two enterprising men from Orange County, California — Anthony Marshall Friday and Alexander Braslavsky — apparently came up with an ingenious solution to this problem — and a potentially profitable one.

Here’s the idea:

Why not rent out vacant foreclosed houses as if they belonged to you?

Then you would be providing people with places to live, cutting down on eyesores and the crime that often afflicts foreclosed properties, and make a handsome profit for yourself.

Of course, you could get caught…

The Orange County Register reports that:

“Two men have been arrested for allegedly posing as landlords of homes that they don’t own and collecting thousands of dollars from unsuspecting renters. Police Sgt. Keith Blackburn says officers found 34-year-old Alexander Braslavsky and 38-year-old Anthony Marshall Friday at a vacant foreclosed home in the city of Carlsbad. The two Orange County men are accused of breaking into the house and listing it for rent on the Web site Craigslist.”

“Police found paperwork at the house that showed the men had collected several thousand dollars in rent and security deposits from people who thought they were renting the home.  Blackburn says police learned that the men pulled the same scam days earlier at another vacant house.”

The report didn’t say what will happen to the people who “rented” the houses — or whether the banks will let them stay so long as they pay the rent.

New Office Construction Down 91% in Orange County – Dozens of High-Rise Projects Stalled

An ominous sign for the Southern California commercial real estate market – and for the economy in general – is the report this week that office construction in Orange County, California, plunged 90.8 percent in the second quarter of 2008 from last year’s figures.

According to a report from Voit Commercial Brokerage, “The first half of 2008 has been characterized by a significant reduction in office development in Orange County.” 

“The total space under construction in Orange County at the end of the second quarter is 325,276 square feet,” said Jerry Holdner, vice president of market research for Voit Commercial Brokerage. “The total amount of construction is 90 percent lower than what was under construction at the same time last year.”

A drive down the 405 Freeway in Irvine shows dozens of stalled high-rise office construction projects.

Perhaps another indicator of the bust in office construction are the recent closings of several high-end restaurants in the Irvine Spectrum, which had relied substantially on business lunches. 

The slowdown in new office construction in Orange County means that more jobs will be lost in the building sector, and indicates that few companies plan to expand, or move to, this affluent and still high-priced Southern California county, which had served as the epicenter of the subprime mortgage industry.

On the other hand, the lack of new construction will likely mean that the vacancy rate for Orange County offices, which has been climbing steadily, will come down.

The vacancy rate is at 14.46 percent this quarter, which is significantly higher than the 8.95 percent vacancy rate recorded in the second quarter of 2007.