The Mortgage Fraud Fraud
03/06/2012 2 comentarios
I got an e-mail the other day from Richard Engle telling me that his son Charlie would be getting out of prison this month. I was happy to hear it. Charlie’s ordeal isn’t over yet, of course. When he leaves prison on June 20, Charlie Engle, 49, will move temporarily to a halfway house, after which he will be on probation for another five years. And unless he can get the verdict overturned, he will have to spend rest of his life with a felony on his record. Perhaps you remember Charlie Engle. I wrote about him not long after he entered a minimum-security facility in Beaver, W.Va., 16 months ago. He’s the poor guy who went to jail for lying on a liar loan during the housing bubble. (source: Joe Nocera – NYTimes – 01/06/2012)
There were two things about Charlie’s prosecution that really bothered me. First, he’d clearly been targeted by an agent of the Internal Revenue Service who seemed offended that Charlie was an ultramarathoner without a steady day job. IRS conducted “Dumpster dives” into his garbage and put a wire on a female undercover agent hoping to find some dirt on him. Unable to unearth any wrongdoing on his tax returns, I.R.S. discovered he had taken out several subprime mortgages that didn’t require income verification. His income on one of them was wildly inflated. They don’t call them liar loans for nothing. Charlie has always insisted that he never filled out loan document, his mortgage broker did it, and he was actually a victim of mortgage fraud. (broker later pleaded guilty to another mortgage fraud). Indeed, according to a recent court filing by Charlie’s lawyer, the government failed to turn over exculpatory evidence could have helped Charlie prove his innocence. For whatever inexplicable reason, prosecutors really wanted to nail Charlie Engle. And they did. Second, though, it seemed incredible to me that with all the fraud that took place during housing bubble, Justice Department was focusing not on the banks that had issued the fraudulent loans, but rather on those who had taken out the loans, which invariably went sour when housing prices fell. As I would later learn, Charlie Engle was no aberration. The current meme, argued most recently by Charles Ferguson, in his new book “Predator Nation”, is that not a single top executive at any of the firms that nearly brought down the financial system has spent so much as a day in jail. And that is true enough. But what is also true, and which is every bit as corrosive to our belief in the rule of law, is that the Justice Department has instead taken after the smallest of small fry, and then trumpeted those prosecutions as proof of how tough it is on mortgage fraud. It is a shameful way for government to act. “These people thought they were pursuing American dream,” says Mark Pennington, a lawyer in Des Moines who regularly defends home buyers being prosecuted by the local United States attorney. “Right here in Des Moines,” he said, “there was a big subprime outfit, Wells Fargo Financial. No one there has been prosecuted. They are only going after people who lost their homes after the bubble burst. It’s a scandal”.
The Justice Department has had a tough run recently. Last week, Eric Schneiderman, New York attorney general, who was recently given a role by President Obama to investigate the mortgage-backed securities issued during the bubble, complained publicly that he wasn’t getting the resources he needed from Justice Department. And, of course, on Thursday, a federal judge declared a mistrial on five charges of campaign finance fraud and conspiracy in the trial of the former presidential candidate John Edwards. In Edwards case, Justice Department spent tens of millions of dollars, and trotted out novel legal theories, to prosecute a man who was essentially trying to keep people from discovering he had had a mistress and an out-of-wedlock child. Salacious though it was, case has zero public import. Yet this same Justice Department isn’t willing to use similar resources, and perhaps even trot out some novel legal theories, to go after pervasive corporate wrongdoing that gave us the financial crisis and the Great Recession. (I should note that the Justice Department claims that it “will not hesitate” to prosecute any “institution where there is evidence of a crime”). Think back to the last time the federal government went after corporate crooks. It was after Internet bubble. Jeffrey Skilling and Kenneth Lay of Enron were prosecuted and found guilty. Bernard Ebbers, the former chief executive of WorldCom, went to jail. Dennis Kozlowski of Tyco was prosecuted and given a lengthy prison sentence. Now recall which Justice Department prosecuted those men. Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama.