Sunday, June 3, 2012

From One Robosigner to Another; or, It's Only Paperwork

I've had a hard time hitting the "Publish" button on this post about hapless U.S. Representative Thaddeus McCotter (R-MI) because I can't keep up with everything that's going on in his saga. Long story short, McCotter is running for re-election in Michigan's 11th Congressional District, and the Michigan Secretary of State's office discovered that hardly any of the petition signatures that were gathered for the purpose of putting his name on the August primary ballot are valid. As a result, Thaddeus McCotter has decided not to run as a write-in candidate for re-election since he feels he cannot simultaneously cooperate with investigators, serve in Washington, D.C. and run a write-in campaign.

Though this might not be a totally accurate description, I tend to think of McCotter as being more of a semi-populist iconoclast than a cocktail circuit Republican stooge. I give him particular kudos for voting twice against TARP bailouts. It's just too bad he's such a lousy politician, as evidenced by how he could only muster a grand total of 35 votes in the 2011 Iowa Straw Poll during his almost non-existent 2012 presidential campaign.

Earlier today the Detroit Free Press published an excellent summary that includes all of the events that unfolded over the last week or so.  Highlights include the discovery of the invalid signatures, McCotter's reactions, a discussion of the other candidates who are either running or rumored to be running for McCotter's seat, and the fact that McCotter does not have much support from his local forever-nouveau riche Republican party bosses (or much support from anyone else, so it seems).

Here are a few snippets from older articles that give a few more specifics, starting with this May 29, 2012 post from the Detroit News (I added the bold):
[U.S.] Rep. Thaddeus McCotter turned in 2,000 petition signatures to get on August primary ballot, but all except 244 have been deemed invalid because of rampant duplicated copies, the Michigan Secretary of State found.
A review by The Detroit News of the petition signatures found full copies of a sheet of signatures that were photocopied once and in some cases two times and mixed in with the 136-page stack of signatures. In some cases, a different petition circulator's name was signed to the duplicate copy.
The overt copying is "frankly unheard of," said Chris Thomas, Michigan's director of elections, as he thumbed through the stack of petitions. "It's amazing when you sit and look, and it starts to dwell on you what they've done."
The Secretary of State's office has turned over its preliminary findings to the state Attorney General's office, which would take up a potential criminal investigation of violations of election law. 
The Detroit News further clarified on May 30, 2012 that "The 136-page stack of petition signatures turned in for U.S. Rep. Thad McCotter is riddled with photocopied duplicates, changes to election tracking numbers and apparent copying and pasting, a Detroit News review shows."

The Detroit Free Press reported late in the day on May 31, 2012 that:
Michigan Attorney General Bill Schuette announced this afternoon that his criminal division will investigate allegations of possible fraud related to nominating petitions filed in U.S. Rep. Thaddeus McCotter’s 2012 candidacy for the 11th Congressional District.

The issue was referred to Schuette by the Bureau of Elections in the Secretary of State’s office, which rejected McCotter’s nominating petitions for being obviously lacking in valid signatures.

"We will follow the facts, without fear or favor," said Schuette, a Republican like McCotter. “It’s our duty to maintain the integrity of our election process. We will conduct a thorough and comprehensive investigation. If evidence of criminal violations is uncovered, we will not hesitate to prosecute.”

The Bureau of Elections said only about 13% of the signatures turned in for McCotter’s re-election were beyond question. The congressman from Livonia is planning a write-in campaign to be nominated for a sixth term.
To his credit, Thaddeus McCotter has appeared to be fully open and cooperative ever since the story broke on May 26, 2012. As the Observer & Eccentric newspaper group reported on May 31, 2012: 
McCotter said he trusted the campaign volunteers, and that someone “lied” to him about the signatures. The procedure of volunteers collecting signatures for this campaign was no different than from any other campaign that McCotter has run in, he said. Prior to his five elected terms in Congress, McCotter won elections to the state Senate and Wayne County Commission.

“This isn't brain surgery,” McCotter said. “You get the signatures and you sign off as a circulator.” McCotter said the signatures were collected in February, and that he was told about a month before the May deadline that he had enough signatures.

“We really don't know who did what,” McCotter said about the signatures.

‘Buck stops with me'

McCotter has informed the Secretary of State in a letter that he will “assist in any way they see fit” in their investigation, McCotter said.

“The buck stops with me,” McCotter said. “That's why I urge the continued investigation into the petitions. Everyone deserves to know what happened regarding this filing.”

McCotter said he doesn't review the campaign materials and leaves it to the campaign volunteers. “I said I was going to do my job,” McCotter said. “You have to rely on people to do tasks. You didn't see Carl Pursell running around and putting up lawn signs.” McCotter referred to the longtime Republican Congressman from Plymouth. “Voters trust you to do your job.”

“For 10 years, I never had a problem,” McCotter added. “Do you want me worrying about the economy or going through a Bresser's (a cross reference directory) or a phone book?”
McCotter has also indicated that he is absolutely bewildered about this unfortunate turn of events, particularly since, according to Brian Dickerson at the Detroit Free Press, the unnamed persons who were possibly responsible for this snafu "...were trusted subordinates who had handled the chore without incident in previous election cycles."

As evidenced by the title of this piece, McCotter's inability to obtain valid petition signatures for the primary ballot is only half of the story. The really good part is how the name of David Trott, a deep-pocketed kingmaker wannabe and a partner of the notorious foreclosure mill law firm of Trott & Trott, was briefly being bandied about as a write-in candidate for McCotter's seat. Trott put those rumors to rest on May 29, 2012 when he announced in an e-mail statement that "The circumstances surrounding this election are unique and intriguing, but the simple answer is that the timing is not right for me or my family,......I will continue to support the candidates that are focused on moving both our state and our country forward."

Please note that the same rumor mill has not ruled out the possibility of Trott running for office in the 2014 elections. Also, as this Detroit Free Press article notes, Trott made his statement before McCotter announced that he wouldn't be running for re-election. With McCotter now officially out of the race, it wouldn't be a stretch to think that Trott could change his mind and run as a write-in candidate in 2012 after all.

I'm sure part of the problem with Trott's "timing" in running for office right now is that it would be a horrible time for someone who specializes in "foreclosure and debt collection work" to conceivably come up with the campaign slogan of "Vote for me and I'll throw you out of your house and sue you for your debts." However, per these articles at MFI-Miami, USA Today, and Crain's Detroit Business, because of Trott's business holdings, his more accurate campaign slogan might be, "Vote for me and I'll sell you a house, grant you a murky title policy, robosign a foreclosure notice on you, clear out your belongings, tell the whole world about your misfortune, then sue you for the balance of your mortgage after your home's short sale".

Trott will also have to decide if he can afford to temporarily cut himself off from some pretty lucrative fees his law firm receives for tossing 101-year old grannies out of their homes.

According to the MFI-Miami link above, Trott, like McCotter and/or his staff, might also be having a hard time comprehending the concept of valid signatures since he employs at least two lawyers who either both have a medical condition that interferes with their ability to sign their own names the same way twice, or who allow other staff members to forge their signatures while robosigning foreclosure documents at break-neck speed.

(Kenneth Kurel and Ellen Coon signatures, via Steve Dibert from MFI-Miami.)

Kenneth Kurel Signatures Ellen Coon Docs If anyone wants to jump in an write up something about David Trott's ties to Dolan Co./Dolan Media Company, NDeX, and American Processing Company LLC, as well as campaign contributions to Michigan Secretary of State Ruth Johnson from competitor foreclosure mill attorney Linda Orlans & Friends, Ingham County Register of Deeds Curtis Hertel's lawsuit against MERS and several foreclosure players inside the state (including a few Trott & Trott staff attorneys and a title company owned by David Trott), Michigan Attorney General Bill Schuette's perhaps half-hearted investigation into state foreclosure abuses, and Oakland County Treasurer Andy Meisner's triumphant yet ultimately misguided lawsuit against Fannie Mae and Freddie Mac, feel free to start with the above-referenced links, plus here, here, here, and here.

As Thaddeus McCotter noted in newspaper interviews above and in his May 29, 2012 interview with Frank Beckman at 760 WJR Radio (the link to the interview will be here for a little while longer), collecting signatures is not "brain surgery".  It's just "paperwork", which is something that supposedly anyone with more cells than an amoeba could handle. What's unsaid by Thaddeus McCotter or any other robosigning entity is that "paperwork" is akin to "unimportant women's work", meaning, it should supposedly be performed by osmosis, at little or no cost, and with little visible effort or oversight required by anyone whatsoever.

It's obviously quite interesting to find out that in the state of Michigan, (according to this Detroit News story),  "A circulator knowingly making a false statement in the above certificate, a person not a circulator who signs as a circulator, or a person who signs a name other than his or her own as a circulator is guilty of a misdemeanor." However if you prepare foreclosure paperwork with the same principles in mind as what's described above, that's perfectly OK since it helps keep the costs associated with kicking people out of their homes down to an acceptable level.

Idle Thoughts. It would be too much work for me to write about everyone who will be running for McCotter's seat. If you're interested, this Detroit Free Press article has a brief summary of the candidates. However, I'd be remiss if I didn't mention the fact that Kerry Bentivolio, the ex-design engineer/ex-teacher/ex-Army MP/Tea Party activist/reindeer herder, is the only name that will appear on the Republican primary ballot. While listening to Karl Denninger interview Bentivolio last October, I was struck by how the candidate reminds me of an old coot who holds up the grocery store line because he can't figure out how to swipe his credit card through the card reader, but you can't get mad at him because he's so loveable. If he spreads the wonderful message of "stop the looting and start prosecuting" far and wide, I'd be very happy. Career Southeast Michigan politicos like L. Brooks Patterson and Michael Cox would be horrified to see a Mr. Smith-type character representing this heavily-Republican district in Washington, D.C.

By wild coincidence I watched part of the excellent 1967 classic movie Bonnie & Clyde just before I put the finishing touches on this post. Relevant parts of the movie that I saw included: the scene where Clyde Barrow, a dispossessed farmer and the farmer's old farm hand took turns taking potshots at the bank foreclosure sign that was mounted outside of the farmer's former home; and a couple of variations of "This here's Miss Bonnie Parker. I'm Clyde Barrow. We rob banks."

Update June 4, 2012: Nolan Finley's June 3, 2012 column from the Detroit News presents an excellent analysis of McCotter's political difficulties with his local Republican peers. Even more telling is the fact that Finley didn't even mention Kerry Bentivolio in his column! It's pretty easy to tell that the Detroit News lives up to its reputation for being quite the mainstream Republican newspaper.

Friday, December 2, 2011

It's Good To Be the Despot

New York City Mayor Michael Bloomberg (who's also the commander-in-chief of the Bloomberg media empire) recently explained why he's in no hurry to move into the White House. As PolitickerNY explains "......I Have My Own Army".

Specifically, Bloomberg stated that:
“I have my own army in the NYPD, which is the seventh biggest army in the world. I have my own State Department, much to Foggy Bottom’s annoyance. We have the United Nations in New York, and so we have an entree into the diplomatic world that Washington does not have."
Please note that the City of New York recently enhanced their military budget to the tune of $4.6 million courtesy of extremely generous contributions starting in 2010 from JPMorgan Chase. More than one person noted that this must have been fresh in the minds of the NYPD as they ordered their officers into battle with the OrganizeWallStreet protestors.

Bloomberg might have also added that he has his own central bank, the Federal Reserve Bank of New York, which, in many ways, IS the U.S. Federal Reserve. (Jamie Dimon, the Chairman and CEO of JPMorgan Chase, is a director of the New York Fed. There's that company name again!)

Now if only Mayor Bloomberg had less judges like Federal District Court Judge Jed Rakoff and more like State Supreme Court Judge Joseph Galia, he could also claim his very own judiciary system!

Note: Although the Bloomberg media empire has it's own fair share of financial cheerleaders, it's all in all an outstanding news organization. One has only to look at how much of the behind-the-scenes machinations regarding our 2008 financial collapse came to light thanks to Freedom of Information Act requests filed (and court cases won) by Bloomberg reporters. Their latest efforts have unearthed how the U.S. Federal Reserve enabled the banks to reap $13 billion in profits after gifting them with a $7.7 trillion bailout.

Tuesday, November 22, 2011

From the Rising Sun to the Suncoast

One reason I don't update this blog very often is that the best stories about fraud and corruption are too complicated for me to sum up in one post. For example, I'd like to write more about the Olympus Corporation scandal out of Japan. However, I'll just give you a link to this random New York Times article and tell you that company executives are accused of hiding the fact that the company lost tons of money in the 1990's, and paid way too much for acquisitions and acquisition fees in an attempt to cover up their losses. Unconfirmed allegations that some of the missing money might have ended up with the Yakuza also helps spice things up a bit.

So, imagine my relief when I came across this little slam-dunk of a story from the Credit Union Times stating that "Lawsuit: Suncoast Schools Repossesses Car Over Mortgage Problems". It appears that employees of Suncoast Schools Federal Credit Union haven't quite figured out that if a customer starts falling behind on mortgage payments, they're supposed to take the house, not the car. Of course, the back story behind this is that Florida courts have such a backlog of foreclosure cases, it must be tempting for lenders to simply step in and take anything that isn't nailed down.

Perhaps there's some obscure little clause in the mortgage that states that Suncoast can seize other items being financed by the credit union in the event that the mortgagor starts missing her house payments. Even if that's the case, it still sucks. U.S. consumers have been moving their funds from banks to credit unions even before Occupy Wall Street, with Suncoast Schools Federal Credit Union being one of the beneficiaries. Although I have a few accounts at a credit union, I haven't been all that vocal about shutting down bank accounts because I've noticed that a lot of credit unions are often just a step or two behind the big guys as far as charging higher fees and now, apparently, screwing over their customers.

Wednesday, November 16, 2011

Picking the Bones Clean

I found out via Zero Hedge that, per this Wall Street Journal article,
J.P. Morgan Chase & Co. (JPM) next year plans to issue the first U.S. commercial mortgage-backed securities supported by defaulted loans since the 1990s as it revives a practice that regulators used to extricate the nation from the savings-and-loan crisis.

The investment bank has approached rating agencies with two pools of distressed loans that it acquired from European banks and other financial institutions, according to people familiar with the matter. J.P. Morgan wants to create commercial mortgage backed securities, or CMBS, backed by the troubled properties with interest and principal payments coming from property sales and the buildings' reduced cash flows.

J.P. Morgan as well as other banks are considering the business in hopes that such securitizations could become a popular way for investors to finance bulk purchases of loans from banks and loan servicers. These problem loans have been a drag on lenders since the downturn hit, but lately they've become more aggressive about unloading them at discounted prices.

Moody's Investors Service is predicting that "several billion dollars" in commercial mortgage securities backed by non-performing loans will be issued next year starting in the first quarter.

Zero Hedge readers had some, predictably, colorful opinions about the worthiness of these debt instruments ("It's a lot like a person backing their bad credit by not paying their bills. You bundle up the unpaid bills in a UBS [unpaid bill security] and then sell it back to creditors, like in never never land..."), and speculated on who would would be buying these instruments (one person came up with the New York Fed a la their Maiden Lane transactions) .

Back to the Wall Street Journal,

Bankers are hearkening back to the aftermath of the U.S. savings-and-loan crisis of the late 1980s and early 1990s, when the Resolution Trust Corp. was formed to work through hundreds of thousands of residential and commercial loans. The agency in 1992 began selling pools of bad debt carved up into bonds sold to investors.

RTC securitizations set the stage for modern-day CMBS, which by 2007 grew into a $234 billion market. The market has struggled to gain traction after the financial crisis, with about $30 billion in CMBS to be sold this year and about the same expected for 2012.

Investors are more likely now to take a chance with the risky debt as commercial property values have stabilized in core cities, said Moody's Philipp. The supply of bonds at least initially won't be as hefty as in RTC days since banks often have incentives to do workouts themselves, he said.


Commercial mortgage securities typically pay a steady interest rate and then investors are repaid all their principal when the bonds mature, usually in more than five years.

Distressed deals would likely pay a higher interest rate than conventional CMBS. Dealers and rating firms also envision distressed bonds with two- to-three year maturities and a "fast pay" structure where all interest and principal goes to bondholders as the loan servicer sells the property or otherwise resolves the default. [Emphasis mine.]

Investors are intrigued. Steven Schwartz, managing director of loan acquisitions at Torchlight Investors LLC said the New York-based real estate firm would be interested in buying the high-risk, high-return bonds in the pool.

"Defaulted loan pool securitizations are probably going to be one of the bright spots in CMBS for 2012," Schwarz said.

This sounds like a good product to sell to speculators who are finding it increasingly difficult to find anything lucrative to invest in and/or wish they could spend more time in gambling casinos. Normally I'd say let them have their fun. However, I'm a bit concerned that this might be part of a mechanism being put in place that will set off yet one more round of frenzied robosigning fraudulent foreclosures pushed through the U.S. system, debtor rights be damned, just so the bondholders will get their regularly scheduled payments. One has only to look at the havoc being wrought by "vulture funds" in Iceland to see how far they'll be willing to go to squeeze out as much money as they can from bad debts, and how far governments will go to back up the creditors' claims.

Update: This is worth it's own post, but here's a link from the UK Guardian that discusses how some vulture fund schmuck is trying to collect on what appears to be a bogus $100 million debt from the poverty-stricken Democratic Republic of the Congo. After doing some jurisdictional shopping, where they failed " seize the DRC embassy in Washington as a downpayment on the debt", the vulture fund is now pressing its enforcement case in that gleaming paragon of financial virtue, the Isle of Jersey.

Thursday, November 3, 2011

No Comment Necessary

This AP/Yahoo Finance headline just about says it all: "Stocks rise on hopes Greek vote will be scuttled". The article's sub-heading is just as revealing: "US stocks rise as Greek lawmakers revolt against putting bailout package to a vote".

I forget, who invented democracy? And who refined the concept?

Update: Greek Prime Minister George Papandreou capitulated; there will no longer be a citizen referendum on the European bailout plan.

Ah What A Tangled Web He Weaves

I can't possibly do more than a fly-by post regarding MF Global, the New York-based brokerage firm that, until earlier this week, was run by ex-co-Goldman Sachs CEO, ex-U.S. Senator, ex-Governor of New Jersey, Democrat Jon Corzine. By the time I get this post published it will probably already be obsolete. My criminally quick recap is that Jon Corzine took MF Global, a company that can trace it's pedigree back over 200 years, and promptly ran it into the ground close to two years later when the company decided to bet long and big on the eurozone.

Oh, and CNBC (aka the U.S. Business Propaganda Ministry) is one of MF Global's largest unsecured creditors, MF Global apparently crassly commingled customer funds with their general funds, and anywhere between $633 million and $1.5 billion of these same customer funds appears to be missing.

I can't possibly come up with a better example of why I started this Wolfram & Hart Hall of Fame blog in the first place. We have an ex-vampire squid who moves from Wall Street to politics back to Wall Street (with a few more political feelers thrown in for good measure), who makes ruinous bets with the apparent knowledge that his oligarchic friends will back up his bets with bailouts, decides that internal controls for making sure customer funds stay in customer accounts are for anal-retentive chumps, literally loses hundreds of millions of dollars, and showed every sign that he could have walked away with $12 million for his efforts if he had been able to sell the firm before filing for bankruptcy, with no immediate prospects of criminal prosecution. Who knows if there will be any further contagion into the financial community.

At least he didn't trespass in a park after hours without his ID.

Idle Thought. "MF global" appeared to its trading strategy as well as its company name.

Saturday, October 29, 2011

Floating to the Surface of a Dark Pool

I tend to agree with ex-Federal Reserve Chairman Paul Volcker when he told a Wall Street Journal reporter back in 2009 that:
"I made a wiseacre remark [at a financial services forum] that the most important financial innovation that I have seen the past 20 years is the automatic teller machine. That really helps people and prevents visits to the bank and is a real convenience.

How many other innovations can you tell me that have been as important to the individual as the automatic teller machine, which is in fact more of a mechanical innovation than a financial one?"

I've often thought of "financial innovators" as people who come up with ways to make money out of close to thin air. For example, "innovations" like CDO's and CDS's work fine until they don't, when they cause global financial meltdowns. So it's interesting that the U.S. Securities and Exchange Commission (SEC) didn't like what they saw upon closer inspection of what was happening at Pipeline Trading Systems, LLC. The SEC eventually slapped a $1 million fine on the company and fined both of Pipeline's innovative principals an additional $100,000 each.

According to Joshu Gallu and Nina Mehta in their Bloomberg article, "Pipeline Settles With U.S. SEC Over Dark Pools",
Pipeline Trading Systems LLC, the seven-year-old dark pool operator specializing in block trades, will pay $1 million to resolve U.S. claims it failed to provide the confidentiality and liquidity it advertised to customers.

Fred Federspiel, the nuclear physicist who founded Pipeline in 2004, and Alfred Berkeley III, a former Nasdaq Stock Market Inc. president who is Pipeline’s chairman, both agreed to pay $100,000 to settle the claims, the Securities and Exchange Commission said today in an administrative order.

The trading platform advertised by New York-based Pipeline was billed as a “crossing network” that matched customer orders with those from other clients, providing what’s called “natural liquidity,” the SEC said. Those claims were misleading, because Pipeline’s parent company owned a trading entity that filled the vast majority of customer orders, according to the order.

“It’s really shocking,” Larry Tabb, founder of research firm Tabb Group LLC in New York, said in a phone interview. “Here’s a firm that’s built a brand around executing large blocks and doing it in an unconflicted manner and here they are, taking the other side of many of these trades and not being forthcoming,” he said. Pipeline’s executives “are going to need to talk with their clients to reinstill confidence in the platform,” he said.

(It's important to note that Pipeline officials neither confirmed nor denied wrongdoing). I encourage you to click on the Bloomberg link above and this Wall Street Journal link for more technical details, particularly regarding what "dark pools" trading is all about. (Quick and dirty explanation; it's a system that allows funds managers to somewhat anonymously trade large blocks of company shares without causing the price of the stock to skyrocket or sending the stock market into full-blown panic mode.)

A few important aspects of this story jump out at me. First, one of the founders of the company was a nuclear physicist at Los Alamos in his former life. The internet is overflowing with stories of how people have been forsaking the often poorly-paid STEM professions (Science, Technology, Engineering, Mathematics) in favor of much more lucrative careers in the financial services industry. It would be tough to make the case that the world became better off after the math and science whizzes took over the asylum.

Another aspect is how Pipeline set up an affiliate, Milstream Strategy Group, LLC, which not only took the opposite side of the customer trades, but did so by taking advantage of a lot of what client's considered to be confidential information.

Pipeline seemed to take some precautions to make sure their customers weren't completely fleeced, e.g., per the Wall Street Journal article, "... traders working for Milstream were paid using a formula that rewarded them for offering favorable prices to Pipeline's customers". Also, the SEC conceded that Pipeline didn't really profit from the trades, which probably explains why they meted out relatively modest fines. Nonetheless, the whole structure screams "CONFLICT OF INTEREST", which Pipeline seemed to tacitly acknowledge by somehow forgetting to inform their customers that they were trading with a Pipeline affiliate rather than with outside institutions.

Apparently, Pipeline's operations came to light as part of a much larger SEC investigation into dark pools operations. I'm not sure how much more we'll hear about all of this, but my feeling is that Pipeline was a small potatoes operation that was unlucky to get caught up in what might have been a fairly cut-and-dried investigation. An analogy would be a random driver getting caught up in a speed trap. However, it is encouraging to see that the SEC is holding financial institutions to the Caesar's Wife standard, where their conduct is expected to be Above Suspicion.

Here are links to the official SEC announcement and the actual SEC order.