PONZI SCHEMES: Liability Of Lawyers and Accountants to be Considered

"Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, (March 3, 1882 – January 18, 1949), commonly known as Charles Ponzi, was an Italian businessman and con artist in the U.S. and Canada. His aliases include Charles Ponci, Carlo and Charles P. Bianchi.^[1] Born in Italy, he became known in the early 1920s as a swindler in North America for his money making scheme. Charles Ponzi promised clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage.^[2][3] In reality, Ponzi was paying early investors using the investments of later investors. This type of scheme is now known as a "Ponzi scheme". His scheme ran for over a year before it collapsed, costing his "investors" $20 million." --- see Wikipedia.

Editor's Comments: The Supreme Court is going to hear a case involving a Ponzi Scheme that once upon a time was considered huge, until it was dwarfed by Madoff, which in turn was dwarfed by the Wall Street firms. The interesting thing about the original Ponzi Scheme is that it involved the promotion of false derivatives, which is exactly what happened in the mortgage meltdown.

Ponzi's scheme was based upon the false premise that certain certificates could be purchased at one price in one place and sold at a higher price in another place because markets vary from one place to another. Had he actually believed the false premise he would have invested according to plan.

But there is no question from anyone about the fact that the plan was unworkable and Ponzi knew it. So he never invested the money and simply relied upon continuing sales of his "securities" in a private investment scheme to fund the illusion of payments as promised; as sales progressed he was able to pay investors their expected return in order to encourage additional sales and word of mouth success. When investors stopped buying the scheme quickly collapsed. Look back on the mortgage bond market. When investors stopped buying, the entire system collapsed.

Ponzi's derivatives were fake. They were not derivatives because he never invested in the plan. He just kept the money and managed it until the scheme collapsed. The Mortgage Bond market was virtually identical to Ponzi except that it was more complex in terms of the number of moving parts. The mortgage bonds and credit default swaps were not derivative products either because the bonds never derived their value from actual mortgage loans. The "derivatives" that were allegedly exempt from securities regulation, the insurance products that were allegedly exempt from insurance regulation, were in fact not derivatives in most cases. The REMIC tranche that issued the bonds was a creature of the investment banks and the money advanced by investors never made it to the trust.

Like Ponzi the investment banks pocketed the money and then funded only what they needed to fund to give investors the false impression that their money was being invested in the manner required by the enabling documents --- the Pooling and Servicing Agreement, Prospectus and the use of an Assignment and Assumption agreement that was used to cover the movement of money. Everything they did was designed to encourage the sales of additional bogus bonds. Profits were made primarily by the cloud of players created by the Wall Street banks, while the losses from the inherent false premise of the "investment" plan fell to investors and borrowers in "loans" that were virtual gifts to cover up the theft of principal by the banks.

Now the question before the Supreme Court is not whether the principals are liable to victims of the fake investment scheme, but whether the professionals and affiliates are liable for their negligence or fraud in helping the Ponzi scheme to progress. To put it in lay terms, the question before the court is whether an accountant or lawyer for the Ponzi scheme can be liable if they negligently or knowingly assisted in the Ponzi scheme.

The very question testifies to the state of our tolerance for misbehavior and why our current foreclosure mess has failed to yield criminal prosecutions on mass fraud. Iceland put their bankers in jail and now enjoys a growing economy and a stable banking environment. In the United States there has been nothing. The FBI has stated that 80% of mortgage fraud is committed by the banks. Yet prosecutions have only been on the other 20%.

So the question is whether a lawyer or accountant negligently or knowingly assisted in defrauding the public should be liable for their actions. To put it more simply, will that lawyer or accountant be liable for actions that we know were wrong and caused and contributed to extensive damage, and without which the scheme could not have operated. The answer seems obvious --- except when you consider our awe of large schemes. The larger the scheme, the less likely is the prosecution. This in turn has resulted in the incentive for Ponzi operators to become as large as possible. In turn that means the incentive to escape prosecution requires that the scheme have massive scope and injuries.

If the Supreme Court hands down a decision favorable to investors, it will likely be that the liability extends only to private investment schemes that are not fully registered with the SEC. And if that happens then investors will be able to prove the Ponzi scheme and prove the accountants and lawyers were criminally and civilly liable.

This has everything to do with the mortgages and foreclosures. If the loans were window dressing on a Ponzi scheme instead of real loans by the originators and underwritten in accordance with industry standards, then the securities (mortgage bonds) issued from Wall Street were not derivatives. The impact travels all the way down to the closing table at which the closing agent applied money from investors held by investment banks to fund loans that were doomed to failure not only because of economic factors but also because the control over whether the loans would fail lay with the investment banks --- not with the borrower, the lender investor, or anyone else.

If the loans were faked --- in terms of NOT being funded in accordance with the indentures on the bonds --- then clarity opens up in the mortgage mess, to wit: the loans were made from the pocket of investment banks and not the REMIC trusts. They were using investor money as their own, which is why the banks received insurance proceeds and proceeds of credit default swaps, and the proceeds of sale of the bogus mortgage bonds to the Federal Reserve.

The damage to investors occurred as a result of alleged loans. But the loans were in essence payment to or on behalf of people who believed they were borrowers when in fact they were being used in the Ponzi scheme --- and had been exposed to risks that they knew nothing about because despite Federal and State law to the contrary, disclosure was withheld about the identity of the parties to the "loan" transaction, the fees paid to numerous parties, and the nature of the roles of the players that created the appearance of a loan transaction and a false chain of securitization.

The investors money was used to fund the alleged loans and fees but the documentation gave the loan to the Wall Street banks --- a practice prohibited by the Truth in lending Act and the deceptive lending practices acts in many states. The point here is that the documentation --- the note and mortgage --- were executed in favor of a party who was a non-lendor nominee of a non-lender nominee of the investor lenders. And that is why it is nearly impossible to get a valid satisfaction of mortgage on payoff or on short-sale. The "satisfaction" is directed at a recorded instrument that is a lie, which means that the mortgage was not satisfied because it was never a perfected lien in the first place. The money currently being paid on the payoff is going to parties who were strangers to the mortgage transaction.

Thus the decision by the Supreme Court in the Stanford Case could and should have impact on the auditors and attorneys and other professionals that currently enjoy a weird sort of immunity despite their obvious wrongdoing in deceiving the public and enabling the fraud. A proper audit would have revealed that bonds on the balance sheet of the banks were in fact owned by investors and were worthless creating a potential liability that should have been reported. A proper review by the ratings agency would have identified the proposed plan as nonconforming when in fact they granted a triple A rating. These "third parties" were paid to violate the standards of their profession and they knew it. Whistle blowing memos went unheeded in all  such organizations.

The ability of investors to prove the existence of a Ponzi scheme would have huge consequences on the foreclosure procedures. The focus would properly shift from "deadbeat" borrowers to felonious tricksters. A proper ruling in the Stanford case would thus open up the possibility for direct communication between investors and borrowers, enabling settlements that would enable investors to mitigate their damages on a large scale with the help of borrowers who are still willing to sign "modifications" that would result in the recording of actual perfected mortgage encumbrances eliminating nearly all of the foreclosure docket.

Stanford Ponzi Scheme Goes to Supreme Court

Deadline Approaching, U.S. Is Weighing More Charges in Madoff ...

Zombie Propertie

Zombie Properties: Banks Don’t Want the Money, Don’t Want the Property: They Just Want Foreclosure Sale and Deed

 

The borrowers are for the most part willing to straighten this mess out if approached with fair terms that reinstate their credit and reinstate or create loans that are free from the myriad of defects in the falsely claimed securitization chains. The intermediate banks don't want that because they would be facing liability for trillions of dollars they collected through fraud, deceit and identity theft. So if things keep going the way they are going, the ultimate effect is indeed going to be that the "free house" is going to switch from the intermediate banks who have no just or legal claim to the property to the homeowner whose signature was used in ways he never agreed and would never have agreed.

With 6.6 foreclosures and an equal amount to come, given 2.5 residents per household, more than 33 million people will be displaced--- paying the price for the misbehavior of the bank and having been used as innocent, ignorant pawns in a PONZI scheme that has nearly perfected the technique of PONZI schemes. ---

Internet Store Notice: As requested by customer service, this is to explain the use of the COMBO, Consultation and Expert Declaration. The only reason they are separate is that too many people only wanted or could only afford one or the other — all three should be purchased. The Combo is a road map for the attorney to set up his file and start drafting the appropriate pleadings. It reveals defects in the title chain and inferentially in the money chain and provides the facts relative to making specific allegations concerning securitization issues. The consultation looks at your specific case and gives the benefit of litigation support consultation and advice that I can give to lawyers but I cannot give to pro se litigants. The expert declaration is my explanation to the Court of the findings of the forensic analysis. It is rare that I am actually called as a witness apparently because the cases are settled before a hearing at which evidence is taken.

Zombie Properties got their name from being in a state of limbo. Broadly characterized, they include first homes abandoned my misinformed homeowners who believed their home was subject to a legitimate foreclosure. Second they include properties subject to foreclosures but where the bank has put off getting the final judgment or put off the sale. And third they include properties in which the foreclosure sale has occurred but the property was abandoned by the Banks.

Not surprisingly many schemes have evolved in which the renting of these properties has been accomplished by strangers to the transaction. Knowing that the property is temporarily or permanently abandoned, people are offering "deals" to renters, collecting rents on property they don't own. In other cases the neighborhoods have become so blighted that nobody would move in there if you gave the house to them. So Detroit, Cleveland and other cities are bull dozing tens of  thousands of homes creating farm land and park land where businesses and residential housing had been.

It seems obvious now that the Banks want that foreclosure sale and that is the end of the story. They don't want the money (we are trying to give them the money in several cases (1000 cents on the dollar) and they are resisting, they don't want the house (we are actually deeding the house to them without prejudice and without an agreement to avoid a deficiency judgment), They don't want reinstatement, they don't want redemption, and they don't want any modification or mediation except just enough to give the public relations impression that they are trying to work things out. In most modifications, even where the modification is approved and the homeowner complied with all terms including the payments, the Bank goes ahead and forecloses anyway.

In a real mortgage situation, Banks will do almost anything to avoid foreclosure. If you review the literature on foreclosures prior to 2007 it is all based upon workouts in commercial and residential real estate. In fact "workouts" are an area of concentration for most law firms that engage in mortgage litigation whether they are on the lender side or the borrower's side. Now now. The Bank wants the foreclosure sale and the borrower, investor who put up the funds and insurers who "covered" a "loss" and the counterparts who were covering announced losses, let them be damned.

Why do we have a pandemic of zombies and foreclosures when so many homeowners are actually eager to sign new document that would clear up the title problems caused by MERS, improper disclosure at closing as to who the lender was, claims of fraud, predatory lending deceptive lending etc.?

In the law we say look to the result to determine the intention. There is no doubt that the policies and procedures pursued by the banks, on loans they never owned based upon mortgage bonds that were issued by unfunded trusts, MINIMIZES the eventual monetary recovery and justifies the payment of insurance, payment of hedge contracts (CDS), and the reports to investors that there investment was lost because of foreclosures and expenses of foreclosure, leaving the Banks with the money and frequently the house too because they brought the foreclosure as a servicer without stating they were acting for a principal that had advanced the actual money for the loan.

Since the Banks are evading payment in full, evading receipt of the deed to the home, and evading workouts and modifications, the intent is clear no matter how logical the other alternatives appear to the advantage of all concerned. The intent is to get a foreclosure sale and deed on foreclosure which in most states starts a short statute of limitations ticking in which the deed on foreclosure cannot be challenged.

Of course there are possible remedies involving fraud on the court or the borrower that MIGHT change that but the foreclosure sale basically closes the book on the matter. What does this do for the banks? It ends the possibility of having to account for and pay back money received from investors, insurers, CDS counterparties, guarantors (Fannie and Freddie) and the Federal Reserve who has been buying the worthless mortgage bonds (that supposedly represent a claim of ownership over the loans) at the rate of $85 Billion per month apparently for years.

By getting a deed from a foreclosure sale, they put another layer of deniability between them, the Banks, and the parties from whom they took money on the announced failure of the loans, the bonds or the asset pools. The essential defect of the loans, that the payee and named mortgagee never loaned a dime to the borrower (unknown to the borrower) destroys the claim that the note and mortgage lien were ever perfected. This defect results in a finding of no valid mortgage, nullification of the instrument, and thus no security for the lending party --- something that obviously smart Wall Street lawyers knew about but thought they could finesse --- and they were right.

By having the information at hand in a title and securitization analysis, getting it explained in an Expert declaration from a credible source, and consulting with those who actually understand what happened here, the lawyer can feel confident that he is pleading and can prove that the entire transaction was a sham. Ask any professor of law who knows bills, notes, negotiable instruments, etc. If there was o underlying transaction in which value was exchanged both ways, no enforceable rights arise. There simply isn't a transaction at all, and all the paperwork in the world isn't going to fix that without getting a signature from the borrower --- which most borrowers are willing to do if they get a fair modification based upon real values, instead of the artificially inflated values that were used for the loans.

The fact remains that virtually all loans were paid off in their entirety whether they ever went into "default" (which could not exist because the loan no longer existed), or whether they are performing loans in which hapless homeowners are paying monthly payments to a bank who does not own the loan, on a loan that either no longer exists or which has been paid down by actual payment from parties who waived subrogation, waived contribution and waived any right of action against the homeowner. If the account receivable is paid off, the banks' claim for recovery one more time (after being paid several times over 100 cents on the dollar) in the form of a foreclosure is nothing more than looking for an official governmental action that cuts off the players who advanced the money on the same loan assets repeatedly.

Looking again to the result to determine the intent, it cannot be argued that the Banks pretended to issue mortgage bonds issued from a REMIC trust that was never funded and then did whatever they wanted to do with the trillions of dollars deposited with those investment bank for purchase of the bonds. The investors weren't buying bonds. They were buying problems. They were, contrary to agreement with the investment bank, directly lending money to homeowners without a note or mortgage.

The actual closing procedure was a sham. The closing agent applied the money received from investors through one of the investment banks or an affiliate of the investment bank as though it was a loan from the named payee on the note and the named mortgagee on the mortgage or the named beneficiary on the deed of trust.

Thus the title, to which the investors were expecting and entitled was diverted from the investors to puppet companies who were already under contract to do what they were told --- as in the Assignment and Assumption Agreement executed between the loan "originator" and the "aggregator" neither of whom advanced a dime, nor did they need to do so --- the money from the investors being at hand in a commingled account at the investment bank who never followed through giving money or loans to the Trustee of the New York "Trust" thus creating a legal entity that had neither money nor assets.

The illusion is ONLY completed with an apparently legal "foreclosure sale" which creates a presumption of validity on the 6.6 million foreclosures completed thus far, and the additional latest estimate of 7 million more foreclosures). By fabricating foreclosure documents after the "trades" had been completed (i.e., the banks had received payment for the bonds and loans several times over that they never reported to the investors - but which still must be accounted for as payment to the investor because the investment banks were at all times acting as the agents of the investors).

Confused? Here is the easy way of looking at it. The Banks stole the identity of the investors and the REMIC trust by issuing the bonds into street name" but showing on end of month statements to the investors that they owned the bonds and loans. After selling the loans several times or receiving mitigating payments that were intended to reduce the loss, the loans were worthless to the Banks and now represented a liability to give all that money back because the underlying loans were fraudulent and defective and the trading profits declared by the banks was really the proceeds of theft. All the participants squeeze the last ounce of fees and profit from this PONZI scheme which was completely reliant on the continued purchase of the bogus mortgage bonds. When it was all over, they pitched the loan over the fence and said the Trust owned it but there had never been a transaction between the trust and anyone else in which the trust paid for and was delivered the loan according to the terms of the Prospectus and the Polling and Servicing Agreement.

Want it shown differently? The Banks stole the identity of the borrowers and traded on it knowing they would do anything possible to make the loan go into default and thus collect, in addition to the original money advanced by investors, insurance and other funds that paid off the loan several times over. Some enterprising Class Action lawyer who really knows what they are doing can lay claim to the vast pool of money that emerged from this scheme with the real parties in interest -- the investor lenders and the homeowner borrowers taking the loss. The payment extinguishes the loan and the over payment collected by the banks is due back to the homeowner unless the investors intervene and assert claims to the pool of money that ultimately was held by firms that were at best only intermediaries and at worst (and usually) complete strangers tot he transactions with investors and complete strangers to transactions with the borrowers.

The borrowers are for the most part willing to straighten this mess out if approached with fair terms that reinstate their credit and reinstate or create loans that are free from the myriad of defects in the falsely claimed securitization chains. The intermediate banks don't want that because they would be facing liability for trillions of dollars they collected through fraud, deceit and identity theft. So if things keep going the way they are going, the ultimate effect is indeed going to be that the "free house" is going to switch from the intermediate banks who have no just or legal claim to the property to the homeowner whose signature was used in ways he never agreed and would never have agreed.