Tag Archives: brokers

FBI Hits Mortgage Fraud with “Operation Malicious Mortgage” — 400+ Indictments and the Arrests of Two Bear Stearns Execs

The FBI announced today that the Justice Department’s crackdown on mortgage fraud has resulted in more than 400 indictments since March — including dozens over the last two days.

Those arrested run the gamut of players in the mortgage industry, including lenders, real estate developers, brokers, agents, lawyers, appraisers, and so-called straw buyers.

The Department of Justice’s name for the crackdown is “Operation Malicious Mortgage,” which it describes as “a massive multiagency takedown of mortgage fraud schemes.”

According to the FBI, the on-going “Operation Malicious Mortgage” focuses primarily on three types of mortgage fraud — lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes.

“To persons who are involved in such schemes, we will find you, you will be investigated, and you will be prosecuted,” said Federal Bureau of Investigation Director Robert Mueller. “To those who would contemplate misleading, engaging in such schemes, you will spend time in jail.”

In its statement, the FBI said that “Among the 400-plus subjects of Operation Malicious Mortgage, there have been 173 convictions and 81 sentencings so far for crimes that have accounted for more than $1 billion in estimated losses. Forty-six of our 56 field offices around the country took part in the operation, which has secured more than $60 million in assets.”

While most of those indicted so far are relatively small players in the industry-wide fraud crisis, Mueller today repeated his earlier promise that federal authorities are not ignoring the major players in the mortgage industry, but are investigating some “relatively large corporations” as part of its sweeping mortgage-fraud probe, including some 19 large companies, including mortgage lenders, investment banks, hedge funds, credit-rating agencies and accounting firms.

Most of these corporate fraud investigations, said Mueller, deal with accounting fraud, insider trading, and the intentional failure to disclose the proper valuations of securitized loans and derivatives.

The FBI’s announcement of Operation Malicious Mortgage coincided with the indictment and arrest in New York on Thursday of two former Bear Stearns managers, Ralph R. Cioffi and Matthew Tannin, who are charged with nine counts of securities, mail and wire fraud resulting in $1.4 billion in losses on mortgage-related assets.

According to the New York Times,  Cioffi and Tannin “are the first senior executives from Wall Street investment banks to face criminal charges, and the investigation by federal prosecutors based in Brooklyn is likely to become a test case of the government’s ability to make successful prosecutions of arcane financial transactions.”

“This is not about mismanagement of a hedge fund investment strategy,” said Mark J. Mershon, the head of the New York office of the Federal Bureau of Investigation at a news conference Thursday afternoon. “It’s about premeditated lies to investors and lenders. Its about the defendants prostituting their client’s trust in order to salvage their personal wealth.”

 

Realtors Settle Anti-Online Broker Lawsuit with Justice Department — NAR Agrees to Stop Blocking Access to Web Listings

Online realtors will now have the same access to Multiple Listing Service (MLS) data and other services as traditional real estate brokers, according to a proposed settlement reached on Tuesday between the U.S. Justice Department and the National Association of Realtors (NAR).

In September 2005, the Justice Department’s Antitrust Division filed an antitrust lawsuit against NAR charging that its obstruction of Internet based reatlors and its restrictive MLS policies were stifling competition and hurting consumers. The Justice Department said that these policies prevented consumers from receiving the full benefits of competition, discouraged discounting, and threatened to lock in outmoded business models. 

The case was scheduled to go to trial in federal court in Chicago in July 2008.

Under the terms of the settlement, brokers participating in a NAR-affiliated MLS will not be permitted to withhold their listings from brokers who serve their customers through virtual office websites (VOWs). 

In addition, brokers will be able to use VOWs to educate consumers, make referrals, and conduct brokerage services.  Such brokers will not be excluded from MLS membership based on their business model. 

NAR agreed to report to the Justice Department any allegations of noncompliance.  NAR also has agreed to adopt antitrust compliance training programs that will instruct local Associations of Realtors about the antitrust laws generally and about the requirements of the proposed settlement

You can read the proposed settlement here.

“Today’s settlement prevents traditional brokers from deliberately impeding competition.  When there is unfettered competition from brokers with innovative and efficient approaches to the residential real estate market, consumers are likely to receive better services and pay lower commission rates,” said Deborah A. Garza, Deputy Assistant Attorney General of the Antitrust Division.  “In addition, under this settlement, NAR will foster compliance with the antitrust laws by educating its members and its 800 affiliated MLSs.”

According to the Justice Department, “the first rule challenged by the Department required MLSs to permit traditional brokers to withhold their listings from VOWs by means of an ‘opt out’  NAR does not permit brokers to withhold their listings from traditional broker members of an MLS.  Many local MLSs adopted NAR’s policy before NAR suspended its policy during the Department’s investigation.  In one market in which the MLS adopted the policy, all brokers withheld their listings from the one VOW in the community, which was then forced to discontinue its popular website.”

“The second rule prevented a broker from educating customers about homes for sale through a VOW and then referring those customers (for a referral fee) to other brokers, who would help customers view homes in person and negotiate contracts for them.  Some of the VOWs that focused on referrals also passed along savings to consumers as a result of increased efficiencies.

“Collectively, NAR’s policies prevented consumers from receiving the full benefits of competition in the residential real estate industry.”

NAR called the settlement a “favorable” conclusion to the Justice Department’s antitrust lawsuit.  “This is clearly a win-win for the real estate industry and the consumers we serve,” said NAR President Richard F. Gaylord.

NAR points out that the final order expressly provides that NAR does not admit any liability or wrongdoing and NAR will make no payments in connection with the settlement.

The proposed settlement between NAR and the Justice Department still needs to be approved by a federal judge.