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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

Saturday, March 2, 2013

Goldman Sachs Committed Control Fraud

The valiant and tireless writer and researcher and upholder of the law, William K. Black, has analyzed a recent study that confirms that control fraud was indeed committed by the banks.  The study is called Asset Quality Misrepresentation by Financial Intermediaries:  Evidence from RMBS Market by Tomasz Piskorski, Amit Seru and James Witkin (February 2013) ("PSW 2013").  In their study the authors conclude that "buyers received false information about the true quality of assets in contractual disclosures by intermediaries during the sale of mortgages in the $2 trillion non-agency market."  The two measures of misrepresentation were "misreported occupancy status of borrower and misreported second liens."

It seems the market was (re-)designed so that sellers of RMBS could give false information about the true quality of securities that would subsequently decline in value and cause large investor losses.  In other words, buyers received false information from underwriters.  Goldman Sachs was an underwriter for such securities and sold them to investors such as pension plans.  Goldman was later found guilty of fraud and paid a fine.

The authors of the study analyzed vast amounts of data including recent lawsuits filings which are listed in Appendix B. p. 70.  Goldman Sachs is one of several defendants listed there.
"Pervasive" Fraud by our "Most Reputable" Banks
By William K. Black - New Economic Perspectives
. . . .
The PSW 2013 study confirmed one form of control fraud and provided suggestive evidence of two other forms that I will discuss in a future column.  The definitive evidence of control fraud that PSW2013 identifies is by mortgage lenders who made, or purchased, mortgages and then resold them to “private label” (non-Fannie and Freddie) financial firms who were creating mortgage backed securities (MBS).  The deceit they documented by the firms selling the mortgage loans consisted of claiming that the loans did not have second liens.  The lenders knowingly sold mortgages they knew had second liens under the false representations (reps) and warranties that they did not have second liens.  (The authors confirm the point many of us have been making for years – the banks that fraudulently sold fraudulent mortgages did have “skin in the game” because of their reps and warranties.  The key is that the officers who control the banks do not have skin in the game – they can loot the banks they can control and walk away wealthy.)  The PSW 2013 study documents that the officers controlling the home lenders knew the representations they made to the purchasers as to the lack of a second lien were often false (pp. 2, 5 n. 6), that such deceit was common (p. 3), that the deceit harmed the purchasers by causing them to suffer much higher default rates on loans with undisclosed second liens (pp. 20-21), and that each of the financial institutions they studied – the Nation’s “most reputable” – committed substantial amounts of this form of fraud (Figure 4, p. 59).
. . . .
Once the fraud deniers have to admit that one form of control fraud involving mortgages was “pervasive” among our most prestigious banks, it becomes untenable to ignore the already compelling evidence that other forms of control fraud involved in the fraudulent origination and sale of mortgages and mortgage derivatives were even more pervasive at hundreds of financial institutions.  The PSW 2013 study destroyed the myth of the Virgin Crisis.  It also exposes the falsity of the ridiculous “definition” of mortgage fraud that the Mortgage Bankers Association (MBA) foisted on the FBI and the Department of Justice that implicitly defines control fraud out of existence for mortgage lenders.  Attorney General Holder and President Obama have no excuse for their faith in the Virgin Crisis, conceived without fraud and should repudiate the MBA definition immediately and train the regulators and agents to spot and prosecute the epidemic of control frauds that drove this crisis (and the S&L debacle and Enron-era frauds). 

Read the article here
Read the study here


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