This page has been archived and commenting is disabled.
Are Accountants The Weakest Link In Unraveling The Fraudclosure Scandal?
With the recent realization that virtually the entire residential mortgage securitization system in America is hinging on fraud, as few if any of the recent structured finance packages actually were in possession of the necessary mortgage promissory notes (which were often improperly retained by seller banks as has been made all too clear after rounds of sworn and recorded servicer testimonies) we have seen a veritable explosion in the discussions, papers, essays and op-eds that claim that the existing housing system in America is based on a legal lie. Yet despite what has become glaringly obvious, the administration and the banks simply refuse to deal with the issue: that is to be expected as the damaging discoveries would result in a collapse in trillions of structured finance products leading to a fall out far worse than anything in the post-Lehman days. Furthermore, since banks now have recourse to trillions in fungible excess reserves the backdoor schemes to fill capital deficiencies will allow banks to pad the funding holes for the indefinite future. Additionally, rumors that the banks are pushing hard for a class settlement with the various attorneys general who have not yet been co-opted, bribed and otherwise converted to the fold indicates that it may only be a matter of time before this topic, which has lead so many in the blogosphere to the edge of hysteria will soon be buried. So is this merely another open and shut case which will disappear soon, and banks will continue with life and record bonuses as they know? Perhaps not. Bloomberg's Jonathan Weil suggests that instead of going after the banks and the legal system, which is now obviously beyond repair, those who seek justice should instead go after what could be the weakest link in the entire fraudclosure chain: the (well paid) auditors of these banks who may have committed fraud by signing off on their financial statements.
Thanks to a Nov. 16 court ruling in
Camden, New Jersey, we now know that a Bank of America Corp.
employee, Linda DeMartini, testified last year that the lender
routinely retained possession of mortgage promissory notes and
related documents, even after loans were packaged into bonds
that were sold to investors. If we’re to believe what she said,
it raises the prospect that some of those loans still should be
on Bank of America’s balance sheet today.
Yet if they are, and are not being represented as such, is BofA to blame? Surely, after such fiascoes as Repo 105 and countless other cases where banks have been caught red handed fudging their numbers openly, there is little we can expect from the banks in terms of voluntary disclosure.
But what about Bank of America's outside auditor PricewaterhouseCoopers? Aha...
DeMartini’s statements also place Bank of America’s outside auditor, PricewaterhouseCoopers LLP, in a tough spot. The firm has no choice now under U.S. auditing standards but to find out definitively if what DeMartini said is correct, and whether the answer would affect any of its prior audit conclusions. PwC billed Bank of America $128 million for its audit and other services last year. The mortgage at issue in the court ruling was originated in 2006 by Countrywide Financial, which Bank of America bought in 2008.
And here is where it gets interesting: while it is clear that the banks will lie without remorse to preserve the status quo, will accountants, whose business is at least on paper based on transparency and honest, be willing to take the fall for the Ken Lewises and Agent Oranges of the world?
The last thing investors need now, of course, is a new reason to worry about a too-big-to-fail bank’s accounting. The company’s regulators would have every incentive to keep any serious problems from coming to public light, for fear of destabilizing the financial markets. PwC and the other major accounting firms haven’t exactly covered themselves in glory, either, since the financial crisis began in 2007.
Indeed, as Weil makes all too obvious, it may be naive to believe that someone, somehere in this completely corrupt financial system will do the right thing. But at least there is a paper record...more so at the accountants, apparently, than anywhere else. And here is the kicker:
Generally speaking, for the transfer of a financial asset to qualify as a sale for accounting purposes, there must be a true sale at law. Otherwise, the transaction may have to be treated as a secured borrowing. One condition for sale treatment is that the party receiving the asset must have the right to pledge or exchange it. If the purchaser never received all the necessary paperwork, it might not have gained those rights or the ability to control the asset.
Which is why, we believe the focus should be not on the banks: they know any disclosure short of a government subpoena (which will not come - our politicians are more corrupt than anyone out there), it will have to be from such auditors as PwC.
Which is why Zero Hedge kindly requests any and all Big 4 (and all other) accounting firm whistleblowers to please stand up and let us know of any and every case of improper accounting they are aware of (preferably with supporting documentation). Zero Hedge will promptly process such data and present it to the world. While it is imperative to fix the US economy, doing so while the biggest American asset resides on fraudulent terms will be impossible, and more and more foreclosure sales will never take place as prospective buyers continue to refuse to transact in a system which is based on lies and fraud, and in which nobody knows what they are selling or buying (unless of course it is with a NINJA loan issued by the very bank in question in which case nobody cares).
We are confident at least one or two good men or women will stand up within the anonymous ocean of wholesale accounting gimmickry. We await your feedback.
»
- 6618 reads
- Printer-friendly version
- Send to friend
- advertisements -
Jonathon Weil has been eavesdropping on me and cribbing my notes, or he and I think alike!
OT, what is happening to Platinum/Palladium today!?
Duplicate post
And don't forget, the big accounting firms are NOT limited liability corporations. They are structured as partnerships to avoid disclosing the obscene payoffs, uh profits, they "earn." Johnathan Weil has earned his salary today.
Audit the auditors, bitchez!
They used to be the Big 8 in the 1980's, before law suits for dodgy audits when it all hit the fan in the early '90s turned them into the Big 6. Then, after the Enron and Worldcom fiascos, they became the Big 4.
Once the next round of law suits gets underway, what's the bet they're the Big Zero?
you get em, tyler.
i suppost this post, + trillions.
don't really know how many Ø's are in a trillion, though†
that would be 12 (twelve), Vbabe...except in Great Britain, where it's 18
HP ordered its employees to boycott Wikileaks
"The recent publication of classified documents by WikiLeaks is cause for an important reminder that Hewlett-Packard personnel, whether or not they hold a U.S. Government clearance of any sort, should not access the WikiLeaks website to view or download information. Doing so may introduce potentially classified information onto unclassified HP networks or onto personally owned devices. Rumors that the information is no longer classified because it now resides in the public domain are NOT true. Executive Order 13526, Section 1.1(4)(c) states “Classified Information shall not be declassified automatically as a result of any unauthorized disclosure of identical or similar information.”
Very prudent of HP. They probably found out Wikileaks is hosted on an HP ProLiant server.
What is an auditor for $1 Quadjillion Alex?
Ding ding ding Double Jeapardy!
Tyler-
Please post this. It needs very wide dissemination.
http://www.ritholtz.com/blog/2010/12/bailout-recipients/
Here is a far better analysis and one that has been kept up since early 2009
Thanks. Why don't you make this stuff a post soon? Oh, also, please make sure to add it to Rep. Paul's Pecora investigation primer!!
+1
I bought the original book just so I could donate for all the work they put in. Kudo's girls, well done.
Good report. Do you happen to know where all of the third party derivative payouts from AIG went?
right behind moody's and s&p..
Gee, who said, when this all started:
THERE ARE NO INNOCENT PARTIES IN A PONZI SCHEME.
The accountants?.
We know who MADE them sign off on corrupt paper.I am sure it was not by choice.
Until we get rid of the FED, and Congress takes back it's Constitutional DUTY to conduct our affairs( with accountability), then we are never going to get straight.
We can NO longer allow a Private Corporation to run the fiscal system of America, much less the world.
Charlie would agree.
MORE:
http://bit.ly/cSJiBm
You would be surprised how many of us CPAs are ashamed of our profession, particularly when they caved under the congressional threats and changed the fair value accounting rules.
OT: Is there any way to email or PM another poster on these forums? Been looking for such a function for 3 days. Is it possible?
Here are two important articles involving the "Show Me the Note" end of the issue--
Re: a recent ruling that should have BOA shuddering in fear...
http://usawatchdog.com/foreclosure-bombshell/
And our favorite heroine Rep. Marcy Kapture D-OH
http://www.ourbroker.com/foreclosures/the-mortgage-foreclosure-legislati...
patrick.net is a good aggregator of housing crisis related stories.
It matters in New Jersey because it's a judicial state. But in a non-judicial state, it doesn't matter one iota, I was told by an attorney, at least not yet (if ever..).
Everyone always wants to blame the accountants in the end but what's sad is that for all their effort in propping up the Ponzi scheme they are never paid their respective profits.
It would be stupid to stand if you were to lose your legs.
That's why wikileaks was set up, To protect the whistleblowers.
jal
P.D. there is always someone wiliing to do the dirty work for some shiny coins.
We need a rating agency to rate the rating agencies.
In the wake of Worldcom/Enron/Arthur Anderson we had a window of opportunity to turn this around by imposing significant personal penalties on "accountants" who have acted as enablers AND ADVISORS at every step of the ride we've been on. If there is one profession that should be hated more than the bankers and the "ratings agencies" it ought to be these guys.
See my post above. These firms are structured as partnerships, NOT limited liability corporations. Sue these little bitches, and you'll get their attention. Just ask a former Andersen partner.
As someone who has been significantly affected by this ongoing criminal behavior, I am angry. I have seen many good people, some that are families who bought into the whole refi craze and some who were smart entrepreneurs that had no reason to believe that real estate prices would collapse, I have seen these people lose everything, and they are angry as well. However, our government, starting with POTUS, believe that ignoring the rule of law will make things better for more people (than it will make things worse for fewer people). They are hoping the economy improves and that the masses remain comfortable enough that a revolt never happens. They are probably correct in their assumptions, but in ignoring the fundamental question of of society's response to rewarding those who break the law, our politicians have started the downhill slide of the moral correctness of our once great country. I know this, I have always been honest and always played by the rules and I have been fucked for my efforts...now I will fuck the big banks any chance I get, fuck right and wrong, as long as a good attorney will keep me out of jail.
I'm with ya Sir. Well said.
I think the fed gonna step in pretty heavy with this thing. Probably legislation & trusteeship or something to that nature.
For those of you who had read in previous posts about my finding out my mortgage has a forged signature on the note sent to me by Citi, an update.
After sending them a letter requesting tons of information, including the following:
p { margin-bottom: 0.08in; }
Please consider this letter a “qualified written request” under Section 6 of the Real Estate Settlement Procedures Act (RESPA 12 USC 2605) as well as a request under the Truth In Lending Act (TILA 15 USC 1641(f)(2)) and kindly respond with a notice acknowledging the receipt of this letter within the 20 business day limit. As such, I am looking for a response and clear answers to the following:
Please review the two different notes attributed as my debt obligation and submitted to me by your company in Appendix A and Appendix C. Please carefully inspect the signatures on the two notes and explain why there are two different notes with two clearly distinct signatures.
Please explain why the note faxed to me on 9/27/10 with the assignment stamp (and the signature not matching courthouse records) does not appear on the note sent via mail.
Please confirm if Fannie Mae is listed as the investor/note holder/assignee as is reported on the MERS system (Appendix B) and as was stated to me by your customer service representative Chris on 10/25/2010.
Please confirm if Citimortgage is the servicer of the note, as was stated to me by your customer service representative, Chris, on 10/25/2010.
Please confirm if Citimortgage is the lien holder of record for my home, as was stated to me by your customer service representative, Chris, on 10/25/2010.
If Citimortgage is indeed the servicer for this account, please verify and send documentation proving:
Any sale or transfer of my loan was conducted in accordance with proper laws and was a true sale of my note. In addition, please affirm who is in possession of the original (wet ink) promissory note and a complete paper chain of title of the note from inception
The claimed holder in due course of my promissory note and/or deed of trust is holding such note in compliance with State and Federal laws and is entitled to the benefits of my payments
All assignments, transfers, or other document evidencing a transfer, sale or assignment of my mortgage, deed of trust, promissory note or other document that secures payment by me to my obligation in this account from the inception of my loan to the present date including any such assignments on MERS
All records, electronic or otherwise, of electronic transfers, sales of my note, mortgage, deed of trust or or other security instrument, or assignments of my mortgage, promissory note or servicing rights to my mortgage, including any such assignment on MERS
They replied and the only information they gave me was that Fannie owns the note and they are the servicer. I've prepared a new letter referencing Texas property code and Penal code, including the areas of fraud, organized crime, money laundering, falsified government documents, and the the required release of a fraudulent note within 21 days of notice. I've sent the draft to an attorney to review and will be sending it out very soon.
Forge ahead, dude. I wish you the best. I'm in a similar situation with BofA, so keep us all updated.
Meantime, you may take a look at how the Fed would like to change the rules in the middle of the game, to our benefit of course. </sarc> I sent a tip to Tyler on this. Don't know if he'll run with it, but it's been under the radar for a few weeks.
http://www.housingwire.com/2010/11/18/consumer-advocates-urge-federal-re...
Try googling: FRB Docket R-1390
That should give you a head's up.
Being a CPA and former auditor for one of the "Big 4," and having audited banks in the past, I agree. Too many of the auditors are overly concerned about meeting budget, wrapping up the job quickly and pleasing the client. Skepticism is lacking although a lengthy risk assessment is part of every engagement. Adequate training and supervision of the staff auditors is also lacking. Too many auditors are like robots, going through the audit checklists as quickly as possible (which is most often rewarded with a high job evaluation). It is much too easy to become a CPA, hence the large number of incompetent accountants. I rarely did an audit where there was not a significant error, and in several cases, fraud, and had my share of butting heads with client management. I could write a book on the shenanigans that I encountered. A couple of clients even tried to get me fired for being too nosy and speaking with some of their employees they did not want me speaking with (because they told me the truth). Of course, restricting access to personnel is a scope limitation under auditing standards, so it didn't stop me and I stayed employed. I did manage to get some client personnel fired, though. The majority of audit staff fear that upsetting the client is a CLM so they are tentative about being aggressive, even if something does not look quite right.
Where are the restatements?!? Clearly, the previous bank financial statements were fraudulent. If the auditors had bothered to look as the mortgages and noticed the lack of documentation (and used their brains if they had any), it would have been a huge red flag - or what auditors refer to as "contemporaneous evidence" that there was something wrong. Back when I was auditing, lack of documentation would have meant immediate classification of the loan, the watch list at a minimum, and most likely a reserve. Ability to pay used to actually mean something. And why is the SEC not requiring restatement? I am glad I am not in this industry anymore. I left because I realized that the idiot partner down the hall, who was promoted because he was the star center on the office's basketball team, or some other partner across the country, could blow it for the rest of us. Enron later proved my point. I was not working at Arthur Anderson. However, it could have happened to any of the Big firms just as easily.
I am watching Foreclosuregate with great interest since I think it is a rapidly metastasizing financial cancer that cannot be contained. It touches too may areas (federal, state courts and laws, trust law and practice, tax laws and practice, etc.) for easy control by the Banksters. Indeed, it has a "Chaos Theory" vibe to it that is most satisfying for those who hope for some semblence of justice to arrive in the midst of all of this madness.
http://www.market-ticker.org/akcs-www?post=173831
(references a recent Yves Smith post as she has been closely tracking the story, with lots of gory, uncomfortable details). Just follow the trails - there are many to follow learning about this issue.
I agree with your assessment. It does have that "bit off more than they can chew" feeling to it.
My fear is that certain elements in Congress will continue attempts to legalize by the fraud by nationalizing the fraud as they did with HR 3808.
If they manage to overturn centuries of title and land law corporate statism will grab ahold of this country like nothing we've seen to date.
>>If they manage to overturn centuries of title and land law
It will be game on for the balkanization of the US.
It will all be buried and eventually forgotten. The banksters will continue their criminal behavior, never worried about being called out for their crimes, and, the little people will suffer the most (I am one of the little people).
The Fed has accepted over $1 trillion in "toxic" agency MBS, supposedly guaranteed, from GSEs. The same GSEs that are now pushing for MBS put backs. So all the Fed held "toxic" agency MBS are fine except for the devaluation of backing mortgaged assets? How fortunate.
Won't the FED then bail out the banks again and buy the MBS putbacks from the banks with QE2? Then there is all that PIMCO MBS buying in the weeks prior to the putback announcement and the NYFED's backing of the putbacks. Being suspicious, it makes me think that Gross may have had some discussions with the FED and was acting on non-public information. Isn't that called insider trading? Of course, that is no longer a crime if you are a banker.
Its seems as if those outside the financial ponzi system are being treated like children, ushered out of the room while the grownups have an adult conversation on topics beyond a child's comprehension.
Like Al Capone and Tax Evasion?
What troubles me in this case, it just doesn't seem to matter how blatant the fraud is. The proof is staring us all right in the face, yet isn't acknowledged. We're pissed off, but I fear the masses are going to become desensitized the longer this drags out. And that is by design...and it's working.
Mental war of attrition. It is also hard to understand. Mortgage securitization itself, different tranches, etc. is incomprehensible to many people.
Nice, well placed call ZH :)
Typical. When the CEO an CFO sign off on financials sure jail the accountants Lol
wan't it arthur anderson which was incinerated a few years ago because of its massive lying on audits? and then morphed into accenture? with congress - e.g. dodd and frank - approving fasb control fraud, how does one expect these auditing firms to roll over. they won't. they will be protected by schapiro, untold legal shills, bair, and a host of lying asswipe banksters...
the good news is that once the plutocrats have raped every person dry of any money, the fraud will begin to manifest itself in all kinds of ugly ways....the truth will win....not sure if it will be in our life times but it surely will prevail....
ZH must know it gets a lot of hits from the Big4's IP's.
The weakest link are not the accountants. They are tools. The weakest link is government itself.
The fact that regulation is skewed and ineffectual is the logical result of the monetary system. It is a mathematical truism.
A debt based fiat monetary system is predicated on inflation.
Inflation is a dynamic that conforms to the law of diminishing marginal utility. If this were not the case, then there would be a direct and constant correlation between government debt and GDP expansion for example. But as clearly shown by official data, since 1980 for example, government debt progressed by well over 1000% whereas GDP barely doubled.
So that as the "beneficial" effects of inflation wane, the monetary authorities must inevitably compensate by intervening directly. But again, as intervention gradually loses traction, the authorities must progressively intervene more forcefully and deeper.
Thus from a political perspective, over time, it is vital that regulation must become lighter, less restrictive and ever less punishing for the perceived sake of the system.
The corollary to the above is that in a debt based fiat monetary system, over time government must inevitably and necessarily become the largest actor in the economy.
The second corollary to the above is that as government becomes larger it must necessarily become more intrusive and more restrictive in order to ensure that centrally directed policies can be enacted regardless of any laws that may exist.
This is a mathematical truism.
The accounting profeesion willingly sold its soul for money as follows:
The awful truth is that, like the ratings agencies, the accounting profession globally was bought off by the money, rather than sticking to its tried and trusted principles. A brief summary of the descent:
1: Unrealised profits (ie profits that had not been made) were allowed to be reported as if they had been.
2: Imaginary unrealised profits (ie profits that were cooked up internally by a business by 'modelling' prices) were allowed to be reported as if they had been both confirmed by market prices AND realised.
3: When market reality struck the rules were changed (in a 180° U-turn from over 15 years of it being 'explained' to the simpletons who thought that 1 & 2 above was madness) so that hitherto sacrosanct market prices could be ignored; which led to -
4: Banks and many other financial services businesses clinging to their pre-crash valuations which everyone knows are huge overvaluations, and
5: HUGE liabilities that banks and others have hidden from any sort of financial reporting, taking advantage of all sorts of 'letter rather than spirit of the law' getouts actively connived in by the accounting standard setters and the profession, remain (a) unknown and (b) unreported.
The result is plain for all to see. The annual report and accounts is no longer a report showing the state of affairs of a financial business such as a bank. It is a wholly partial, deliberately misleading picture that is trading upon the continued and sadly unjustifed belief, that it is not.
The remedies are simple: separate realised profits from imaginary ones, all liabilites to be reported upon, clear statement of current market valuations of all assets held, rewards only payable on the basis of realised profits. Limited liability suspended in the event of ANY evasion of these rules. If 'grey areas' are identified (the accountants conscience-suppressor of choice) they fall WITHIN the rules by default. Finally restore unlimited liability to the accounting profession.
The point that most people do not understand, and that the accounting profession has managed to prevent being publicised, is that had the profession remained as it should have, almost all of the excesses that caused this whole mess probably would not have happened, as the imaginary 'profits' that were used to justify those excesses would not have been reported at all.