The Tale of Three Monkeys and the Government's Attempt to Transform a Real Estate Agent, His Wife,the Broker, and Two Successful Real Estate Investors into Convicted Criminals

On August 22, 2014, a Sacramento federal jury returned a verdict of not guilty to all counts against all four defendants in a bogus mail fraud and money laundering prosecution. See the news story in the Sacramento Bee.    

Here is how my three colleagues, Toni White, John Balazas, and Daniel Koukol, and I viewed the evidence presented at trial. Each of our defendants had material defenses on the various elements of fraud.   We also presented a broader challenge to the prosecutions through the testimony of our expert, Professor William Black, professor of economics and law, white-collar criminologist, and former financial regulator. This federal prosecution against four Russian Americans was nothing more than the government’s attempt to punish our clients instead of the real crooks, the bankrupt lenders who designed the system that pumped out millions of phony mortgages that destroyed the global financial system.

Literally back in 2006, all one needed to get 100% financing on a home, was for the loan application to state any income desired and the banks would lend the money. These loans were called stated income loans, or “liar loans.” During trial, the lender’s underwriters’ testimony was that the lenders were forbidden to verify income or employment.

How could this be you ask? Well, as the GreenPoint Mortgage flyer with the three monkeys suggests, the officers controlling GreenPoint, and the other lender in the case, Aegis Mortgage, ordered their underwriters not to verify the borrower’s willingness to repay the loan. The underwriters were ordered by their bosses not to conduct essential underwriting.

Astounding that my client, who could have submitted any income amount on the application she wished,was prosecuted when she instead submitted an application with the income and employment sections left blank pursuant to the bank’s lending program which called for the income and employment section to be left blank – for the express purpose of making it impossible for the underwriter to even “guess” at the borrower’s income. The loan was funded, and my client was still prosecuted even though she had nothing to do with the decision to fund the loan.

The federal government was and still is aggressively prosecuting the little people in the mortgage crisis: the real estate agents, brokers’ representatives, and the borrowers who thought they were going to get rich flipping houses in a modern day Gold Rush. The government refuses to prosecute the the fat cats who brought this country and much of the global economy to its knees walked away with millions of dollars in bonuses made possible by leading the “sure thing” of “accounting control fraud.”

Professor Black, whose credentials would take up this whole blog, explains how during the trial, the government tried to defend the crooked lenders who he exposed during his testimony in their scheme to defraud the people of the United States of America through what he called “control fraud:” “The [government] tried to become the defense counsel for the ‘worst of the worst’ lenders as innocent victims, but the evidence from the agents at trial was that they never investigated the banks in this case because they assumed that they were innocent victims -- and that in eight years of ‘investigations’ of ‘mortgage fraud’ they had never investigated the banks or any bank officer. [Chief Assistant United States Attorney of the Eastern District of California Benjamin] Wagner has given interviews published in the WSJ revealing that he believes he has a valid fraud case against [JP Morgan] based on it conspiring with senior GreenPoint officers to restructure their secondary market sales to JPM to try to hide the toxic nature of GreenPoint's loans. The ‘three monkeys’ ad makes it clear that GreenPoint's ‘decision-makers’ invited toxic loans as their regular course of business.”

The bottom line folks is that these crooked lenders created these “toxic” loan programs so they could get rich reselling these loans to willing buyers at Wall Street Banks and they left the borrower out to dry. Now the government is prosecuting the borrowers for taking advantage of the crooked loan programs instead prosecuting the real crooks who created the loans. For more information, read the updated version of Professor Black’s book: The Best Way to Rob a Bank is to Own One (published in 2014). It explains how the banksters’ frauds caused the financial crisis and the Great Recession.