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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Monday, January 30, 2012

Is There a Pecora for Goldman Sachs?

On this blog, we have been discussing for a long time when or if President Obama will encourage the investigation and prosecution of bank executives that were responsible for fraudulent securitization of sub-prime mortgages and CDOs. The President mentioned that the investigation will be proceeding with a task force on the Mortgage Origination and Securitization Abuses. You will have to pardon us if we do not take this new role seriously because Obama has already said that the banks committed unethical acts that are not considered illegal.

Goldman Sachs had its fair share of securities, CDOs made up of sub-prime mortgages that lost value after being sold. Goldman is being sued by a number of pension and other funds who bought these investments that were rated AAA but actually turned into junk.

Others are a bit skeptical too. Here are two takes on what could be a New Pecora Commission, or not:

A modern Pecora Commission could right Wall Street wrongs
By Barry Ritholtz - The Washington Post, Bloomberg

What shall we make of this surprise pronouncement in President Obama’s State of the Union address? A belated investigation has been launched into the role of fraud in the financial crisis.

This much is clear: Despite rampant illegalities, bank fraud and countless cases of perjury, the response to date — at the federal level and from most, but not all, states — has been underwhelming, cowardly even. A few principled holdouts — the attorneys general of Delaware, New York, Nevada and California — refuse to rubber-stamp a pre-investigation settlement with banks, but that’s all. Despite chances to bring crooks to justice, there has been little action.

So, here we are, four years after the great financial collapse, three years after the recovery began and in the last year of Obama’s term — and the president has finally decided to investigate the role of fraud in the great global financial crisis. Hence, this new task force — the unit of Mortgage Origination and Securitization Abuses — begins behind the curve. The statute of limitations is, in many cases, close to elapsing.

Even so, do not dismiss the investigation out of hand because of the timing: History informs us that a serious investigation can begin four years after the fact. Recall that Ferdinand Pecora was the fourth chief counsel for the Senate committee that investigated the Wall Street crash of 1929 and subsequent Depression. He was appointed in 1932 and received broad investigatory powers in 1933. His report ran thousands of pages. Thanks in large part to Pecora’s findings, Congress passed the Glass-Steagall Banking Act, which separated commercial and investment banking; the Securities Act of 1933, which established penalties for filing false information about stock offerings; and the Securities Exchange Act, which created the Securities and Exchange Commission to regulate the stock exchanges. Nearly 50 years of financial stability followed.

The personality in charge can make all the difference. In an encouraging sign, Obama appointed to the task force New York Attorney General Eric Schneiderman, one of the few attorneys general not railroaded into a premature settlement with banks of the robo-signing-foreclosure scandal.

Read the rest of the article here

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Is Obama's 'Economic Populism' for Real?
By Matt Taibbi - Taibblog (RollingStone)

There is a lot to digest in a recent series of events on the Prosecuting Wall Street front – the two biggest being Barack Obama’s decision to make New York Attorney General Eric Schneiderman the co-chair of a committee to investigate mortgage and securitization fraud, and the numerous rumors and leaks about an impending close to the foreclosure settlement saga.

There is already a great debate afoot about the meaning of these two news stories, which surely are related in some form or another. Some observers worry that Schneiderman, who over the summer was building a rep as the Eliot Ness of the Wall Street fraud era, has sold out and is abandoning his hard-line stance on foreclosure in return for a splashy federal posting.

Others looked at his appointment in conjunction with other recent developments – like the news that Tim Geithner won’t be kept on and Obama’s comments about a millionaire’s tax – and concluded that Barack Obama had finally gotten religion and decided to go after our corruption problem in earnest.

At the very least, Obama’s recent acts were interpreted as a public move toward economic populism: if the president was looking to associate himself with that word, he did a good job, since there were literally hundreds of headlines about Obama’s "populism" the day after his State of the Union speech.

I think it’s impossible to know what any of this means yet. There is a lot to sort out and a lot that will bear watching in the near future. Just to recap, here’s what’s at stake right now:

The impending, much-discussed foreclosure settlement is the Obama administration’s great bailout initiative. If it goes through with the kind of tiny numbers being discussed ($25 billion from the banks if California is in the deal, $19 billion if California AG Kamala Harris stays out), then what we’re talking about is a bailout on par with TARP.

The potential liability each of the banks faces from foreclosure litigation is vastly greater than $25 billion, and uncertainty surrounding that litigation is holding the stock prices of all of the major companies (in particular struggling ones like Bank of America) down.

A settlement would release those firms from that potential liability and likely bring massive surges in stock-market investment. It would therefore have a profound strengthening effect on the Too-Big-To-Fail banks. If the Obama administration wanted to be 100% real on the Wall Street crime front, it would suspend this deal pending the investigation by the new mortgage committee. But if the deal does indeed go through, we’ll know that the banks still have major influence with our populist president.

Some people have been confused about Schneiderman’s new role. The new Unit on Mortgage Origination and Securitization Abuses will not be investigating the same abuses covered in the foreclosure settlement. When the public thinks about corruption in the housing markets on the part of the big banks, what it mostly thinks of is robosigning and the other mass-perjury issues, which is the stuff targeted in the foreclosure settlement.

Read the rest of the article here


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