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Hmmmm....

posted by Adam Levitin

How is one to reconcile the civil fraud allegations in the US's suit against Countrywide for defrauding the GSEs with the Department of Justice dropping its criminal investigation of Angelo Mozillo in 2011?  If the DOJ thinks that they've got Countrywide on civil fraud, I would think that should give them basically all they need to get Mozillo (and a whole bunch of other Countrywide folks) on wire fraud or mail fraud.  Mozillo, recall, settled with the SEC, but not, as far as I know with the Dept. of Justice or, for that matter, with any state Attorney General.  Just sayin'.   

The answer, I first thought, might relate to statutes of limitations.  Maybe it's too late for the Feds to go after Mozillo.  Mail and wire fraud statutes of limitations are five years.  But they are extended to 10 years under FIRREA for mail and wire frauds " affecting a federally insured financial institution". That brings us back to the suit against BoA/CW:  the DOJ is making an interesting argument for deploying FIRREA.  Countrywide is alleged to have defrauded the GSEs. That alone doesn't trigger FIRREA's extension of the statute of limitations.  So the DOJ is arguing that the fraud affected federally insured financial institutions that invested in GSE stock because they were harmed when the GSE's share price fell.

I get the argument, but it seems to prove too much.  The statutory language doesn't clearly require direct harm--just "affecting a federally insured financial institution," but there have to be some limits on indirect harm or everything would trigger FIRREA statute of limitation extensions.  If the DOJ's argument is taken literally, defrauding a consumer is a FIRREA violation because it affects the consumer's ability repay loans to a federally insured financial institution.  Or my A's wire fraud on B affected B's ability to pay C, which affected C's ability to repay a FDIC insured bank.  Is A really subject to a 10-year FIRREA statute of limitations?  Perhaps reading in a materiality requirement to the "affected" term in the statute would remedy the situation, but even that doesn't deal with the sort of indirect harm problem.  Maybe a foreseeability component? Absent some sort of limiting principle, however, the DOJ's interpretation of FIRREA would seem to produce some otherwise seems border-line absurd results.

Still, for purposes of prosecuting Mozillo, if the DOJ thinks its got a FIRREA hook for Countrywide, then it should also have that hook for Mozillo.  So again, I say hmmmm.  

Comments

Umm, because criminal and civil liability have totally different thresholds?

And because every interaction with the GSE's referenced in the complaint was probably taken by low-level employees, not the CEO, and there isn't a smoking gun tying the CEO to any particular loan sale?

And because they really don't intend to try this case to a jury - in part because they don't want to have discovery regarding what Fannie and Freddie officials were saying internally about loan quality - but to extract a settlement? (And, isn't it, by the way a funny coincidence that this comes out just before the election but only after the re-election campaign has ceded B of A's HQ state to the GOP?)

Your post seems to operate on the premise that , what a complaint alleges pretty much tells you how a trial is going to go. Unlikely.

Oh mt, bless your heart. I don't think this is going to trial, and I don't think I gave any indication of that. We still know far, far, far, too little about what was going on in the GSEs during the bubble. (Why didn't Wallison push for the FCIC to dig deeper on the GSEs? Or did he, only to have his concerns frustrated?) Discovery comes long before a trial, so if this even gets to summary judgment, some discovery might become public as exhibits to motions, etc. (I'd expect everything to be under seal, however.)

I don't think the different standards of proof for criminal and civil liability really matter here. This strikes me as more of a binary case in terms of whether the elements are met--yes/no rather than degrees of certainty. If I'm right about that--and I might not be--then the civil/criminal liability threshold shouldn't matter.

As far as whether Mozillo was out of the loop, again, I'm speculating here, but I would be shocked if Mozillo wasn't kept apprised of a program like this. He had a reputation as a pretty involved manager. But even if he was out of the loop, why not prosecute the middle managers then? We certainly did in the S&L era. If there was fraud, it should be prosecuted.

The point you make about the timing vis-a-vis the election is well taken. But are any lefties really going to turn out and vote for Obama because of this? The downside might be limited, but I don't see much political upside. Still, it'll be interesting to see how soon this settles after election day.

1 billion is such a neat and tidy number, if you are going to settle anyway, not making up a 3 or 5 billion Headline Grabber for the October Surprise© is a marketing blunder

1. When I was prosecutor, I had to tell any number of people (usually small business owners), "Yes, it looks like you have a civil fraud action, but I can't proceed criminally. Different elements, different burdens of proof." Note that agencies bring piles of civil fraud actions, but they rarely turn into criminal actions.

2. On the more cynical side, corporations are prosecuted as opposed to individuals because they pay the fines and don't take up prison space.

I think Adam's instinct is correct that "lefties" aren't likely to respond to this by getting up off their disillusioned backsides to go out and vote.

Similarly, they aren't likely to respond to current rumors about removing DeMarco - if only if only if only Obama is reelected.

- As if only we had that little... But it's way too little and way too late.

By my estimation, there are eligible voters from at least 9M households who will punish Obama by either abstaining altogether, or by casting their vote for Mr. Romney.


There the problem over at Ginnie Mae which I believe has been brought to the forefront also right before the election conveniently, where 800,000 application for HAMP were denied when in fact they were qualified for the modification.

What happen is 800,000 foreclosures of government insured loans (FHA & VA) were illegally foreclosed and false claims where made to both the FHA Mortgage Insurance Premium & VA Guaranty Fund.

First there is the procedure where all the Notes are signed in blank with at that point in time the Notes are non-negotiable document because Ginnie Mae cannot and does not buy home mortgage loans. You separate the Note from the debt and the debt from the title (mortgage, deed of trust, security deed) as there is no debt if you don't purchase it, and no title/lien if there is no debt.

The servicers who foreclosed and submit claims are guilty of collecting false claims against the Federal Government. The average government loan balance is a little over $100,000 and the claims submitted on average was 10% of that balance giving us $8 billion plus 3 times with treble damage is $24 billion we the tax payer are owe right now!

Huge theatre for the benefit of the taxpayers who are footing the bill for this scam called "The GSE Business Model". If you think that the GSEs were not fully complicit, I have a bridge for you in Brooklyn.

http://www.scribd.com/doc/110901076/Memorandum-in-Support-of-Jurisdiction


Richard Davet v Federal National Mortgage Association

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