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The Nelnet Whistleblower Scandal Hits Wikileaks: JPM, Citi And Nelnet Implicated In Massive Conspiratorial Student Loan Fraud
Wikileaks has released the lawsuit filed by Nelnet former employee Rudy Vigil against Nelnet, JPMorgan and Citigroup, which alleges an extensive conspiracy between JPMorgan and Citi and the student servicer in order to steal millions of dollars from US taxpayers. In the lawsuit, Nelnet is accused of keeping "false records, statements and certifications of compliance with statutes, regulations and policies" as it was falsely stating the amount of US money Nelnet was entitled to receive from the US, on behalf of itself or the two other banks, it was administering FFELP loans not in compliance with HEA statutes, that it was providing wrong and misleading data, and other comparable reasons.
A good summary of the lawsuit is provided below. If this lawsuit is found to have merit, this could be one of the biggest student loan fraud/abuse scandals in the history of the US:
Beginning at the latest when Vigil began working for Nelnet, and continuing until present, JP Morgan, Citigroup and Nelnet entered into the servicing agreements and the credit agreement referred to above with the common objective of maximizing each Defendants' income through the presentment of and receipt of payment for as many FFELP claims to the U.S. as possible. Nelnet's over acts of presenting or causing to be pad claims while not in compliance with HEA statutes, regulations and DOEd policies, and while an EP, notwithstanding its certifications that its claims were in compliance with HEA statutes, regulations and policies, were intended to and caused the U.S. to make payments to Nelnet that were not otherwise due Nelnet, including the claims Nelnet made on JP Morgan's and Citigroup's behalf. The U.S. suffered damages as a result of this conspiracy between Nelnet, JP Morgan and Citigroup.
In essence the mortgage fraud that everyone knows was encouraged by each and every subprime (and otherwise) lender, in order to maximize the number of loans issued without regard for underlying credit quality of the debtor during the credit bubble, was taking place in the student loan arena, courtesy of Nelnet, JP Morgan and Citigroup.
Here is what Vigil estimates were the losses to the US taxpayer as a result of this alleged complicit conspiracy between the three defendants:
The U.S. government, unaware of the falsity of the claims and/or statements, in reliance on the accuracy thereof, and by virtue of and as a result of the false claims paid or approved ... the U.S. has suffered actual damages and is entitled to recover three times the amount by which it is damaged, plus civil money penalties of not less than $5,500 and not more than $11,000 for each false claims paid or approved or caused to be paid or approved, and other monetary relief as appropriate."
We present the full lawsuit for your consideration, courtesy of wikileaks. This will undoubtedly become a major topic in the coming weeks, especially with the student loan market still nowhere close to being rebubbled by Bernanke et al., and taxpayers starting to get very angry at big banks who have consistently taken advantage of their gullibility, even as they consider paying themselves record bonuses in 2009.
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Gee, why am I not surprised?Rampant criminality...so much easier than making money honestly.I wonder what kind of wrist slap will be applied?Or failing that, what hapless minion gets to take the fall?
oh that's easy, a generation or two that will now go without any sort of higher education financing. Slap JPM on the wrist and your childrens children will pay for this.
Don't worry about your kid's there headed for China and real jobs.. This country has had it.
Look at the cretins running this place 535 comoditized temple monkey scouring the ruins of America looking for bribes. The whorehouse on the hill, where you can insert a quarter and out slides the desired legislation.... Time to fold up the tents folks.
Another government fucking program
oh yeah, there is no corruption in China. They're just full of "real" jobs making cheap knock-offs (and some cheap originals), have complete disregard for intellectual copyright and patents, and their stock market is much more akin to a casino than the American one (and that is not a defense of America, either). You're an idiot.
Then, I have an idea...... STAY HERE... 7Eleven's hiring
The National Bureau of China (anything like the BLS? Or Prada?) released the latest statistics data on 7-29-2009 showing that average wage of urban workers at post is RMB 14,638 in the first half of this year, increasing RMB 1,674, or 12.9% on a year-on-year basis. By contrast, buyers (in 2007) can't get anything ``decent'' in Shanghai for under 10,000 yuan ($1,300) a square foot—a first-tier city. In second-tier cities you can see prices around 6,000 to 12,000 yuan per square foot.''
http://www.bloomberg.com/apps/news?pid=20601087&sid=ay.epfEFTIgs&refer=home
I just posted this elsewhere a few minutes ago: Maybe it should have been here.
You say that "if China, or any other country, had more natural resources than America it would have risen to the top many centuries ago"
Resources—oil, corn, or iron ore—are inanimate objects. It is man who invented steam; it is man who makes steel and circuit boards. And it is man who makes politics and government. It is man’s government, whether it is under a Saudi king, the Soviet politburo, the Chinese communists, or the Constitution of James Madison, that moves the inventions, the production and the resources.
For 6000 years, man struggled as a beast of burden to exist under despotic government. It is time we realized that civilization’s progress rests on the foundation of a single principle: freedom! China dies as soon as its American corporations are withdrawn or taken over by a communist government. A tremendous volume of goods produced in China is produced by American corporations located there: those corporations are protected by American patents and American innovation which were developed under a free-enterprise system.
Everyone knows how we got here after they look around and see all the stuff: “America, you got the ball rolling, it’s time to let the Communists handle it.” No matter that all past communist systems have failed, of course, it’s time to let them try again.
It’s like a little urban kid who thinks milk comes from the grocery store.
In 1997, a study of the inventors honored in the National Inventors Hall of Fame in Akron, Ohio, revealed that 91% of the world’s greatest inventors worked in America and only 9% in other countries.
As ZH Anonymous #54823 said: The whole world worships China for its rapid economic growth, while we forget that their industrial revolution is very different in character than that of North America and Western Europe. I mean the industrial revolution in the West was fueled by an endless stream of innovations starting with the steam engine. Chinese growth is fueled by cheap money, cheap labor and the drive of multinationals to enter a huge market. China has opened up to benefit from the innovations made in the West, but it isn´t contributing anything beyond cheap labor and the promise that companies can grow there for a long time to come. Capitalism without individual freedom is not capitalism, it is feudalism.”
I think America’s "kids" would have a better chance taking back their Consitutional rights in America than reestablishing them in China.
Well said! thank you.
A counter-argument comes from Singapore: the country has no freedom, but it does have the Rule Of Law. Its prosperity comes from the latter. As long as you know the rules, and the rules don't change, you'll do fine.
Wikileaks is an amazing website. I'm looking forward to reading through the complain in its entirety.
p.s. Fuck the banksters and their slaves in government.
It's too late, the current administration has taken over student loans.
So they will be fined 33 mill dollars so what ?
Sometimes it's useful to step back and view the bigger picture. There is a pattern here to all these various economic and political scandals. Once we drop our naive belief that government is here "to serve and to protect" we recognize that government's purpose is simple.
To enable through law and brute force the systematic exploitation of one class of people for the benefit of another much smaller but more powerful class. Everything else is noise and deliberate distraction.
When the fraud and corruption breaks from it's confines and can no longer be hidden, the solution is to engineer an economic panic to stampede the population while at the same time divert the money appropriated to fix the panic to instead wash away any traces of the fraud and corruption.
Will some of the puss ooze out and be seen? Of course it will. All the better to assure the public that the government is doing its job "to serve and to protect."
I pledge allegiance to the Banana Republic of the United States of America.
Larry Skummers face oozes puss
EXACTLY. You are one of the few commenters, I have found, who have the big picture right and with spot-on analysis.
Thank you. Many of my cherished beliefs and myths have come crashing down in order to arrive where I am now. With more crashing every day.
I so wish things were different but they're not. I so want to be wrong but the more I dig to prove I'm wrong the more I discover I'm right.
We don't wish to recognize the cockroaches scurrying around when the lights are turned on so we seek refuge in denial.
Many of us most capable of dealing with the cockroaches make the strategic decision that it's easier to join them than to fight them. The rest of us are left to fend for ourselves.
Your right on,,,
I like to call it "The consensus trance"
The myth of a nation. An essential aspect of control to wage unlimited warfare, manipulate the treasury and subordinate the judiciary with the acquiescence of the population. The interesting thing I suspect is that far more folks are aware that we can appreciate, it is just most of them feel isolated and powerless. Once this gap is bridged events will take on a life of their own.
Miles,
I agree. This is the brilliance of Zero Hedge. On our own, we can easily be dismissed with peer pressure or through ridicule. The politics of personality bashing enables the average person can safely ignore the message they don't wish to hear anyway and gives the perpetrators of the Ponzi cover.
By being anonymous, ZH allows the truth (and those questioning the lies) to stand on its own merits and emboldens others to come forward and declare to the world that the truth must be heard. ZH becomes a leaderless leader, no insult intended to Tyler, Marla and all.
ZH is a place of refuge for the truth and the truth seekers.
Yes, the gov is exploiting one (or more) class to the benefit of the small but powerful elite. As Marcy Kaptur said, the so-called emergency bail-out was a financial coup d'etat. If there's any doubt, re-read Henry "the hammer" Paulson's original 3 page TARP law.
It includes this nice little ditty which I'm sure all of the lawyers can appreciate in its simplicity:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
http://www.bailoutfacts.com/Paulson_Plan.htm
@Miles: I am one of them who feels isolated and powerless. I feel like a salmon swimming upstream everymoring. I look around me and see that my good, honest,hard working ways taught by my family were a myth of success.
My friends who are winning are all involved in legal bank fraud, medical or government, mutually exclusive.
I come here for a peek at what is so obvious to all and get to laugh at some of the brilliant minds who post one liners! x
It won't break from its confines as the US population is fast asleep in front of the TV.
ZZZZZZZZZZ.............zzzzzzzzzzzzz..............zzzzzzzzzz
JP Morgan, Citi involved in a massive fraud...what a surprise. Isn't it curious how JP Morgan's name is at the forefront of pretty much each and every major financial fraud in America these days?
IMHO JPM, GS and HSBC are the three stooges of the Federal Reserve, doing the dirty work for the Fed and being amply rewarded in return.
In the tradition of a master magician, JPM is the lead stooge and works closely with GS in a "good cop, bad cop" tango where GS takes a lot of the heat, allowing JPM to work quietly and mostly undetected.
HSBC is the foreign flavor in this three egg omelet.
Being a pure momentum trader (don't stand in front of the damn train if it is moving) I do not see how this will impact JPM or GS. C however is set up for bankruptcy and could take one to the nuts. I know this is a callous assessment, but probably and unfortunately accurate.
But I would like to thank ZH for the macro view.
It won't. Any of them. These banks are fully backed by the printing press - in fact they ARE the Fed. They won't implode until the dollar does.
Bravo. These banks are the financial IV injected directly into the arm of the world's economic system.
After all, the primary responsibility of the federal reserve is to maintain the stability and solvency of its member institutions.
@GG. They know that the dollar will implode and they are preparing for it. Goldman (a bank holding company and NOT a hedge fund)recently bought 15% of Geely, the Chinese auto maker.
In the land of easy money, there's not going to be a lending source without scathe, greed, corruption, doesn't surprise me, knew stud lns were never as good as they used to be. Doesn't come as surprise that phone rooms are hot beds for phony money and rip off tactics. (?)
For those that did not want to read at least the first 20 pages of the complaint here is the gist -
Because Nelnet offered performance bonuses to sign up student loans and payments to schools for top-billing, created misleading advertisements stating individual students could save thousands with a consolidation, and made statements that you had to consolidate within 6 months of leaving school or leave the option; Nelnet in effect made false statements when applying for default relief because these actions are prohibited by servicers receiving backstopped aid in the FFELP program.
The complaint references multiple communications from the DOE that states that NO individual inducements can be offered to employees or outside 3rd parties when soliciting for FFELP loans and receiving FFELP guarantees. This to me is pretty cut and dry part of the case. Seems like the gov has a slam dunk here. Action declared out-of-bounds by DOE. Nelnet did it anyway. Guarantee received and cashed. Rules violated.The advertisment stuff though seems must more fuzzy. That's so loose it feels like a throw-in. Get all the complaints in at once and hope one sticks. This case it will probably be the inducements.
JPM and C are added in the case because they extended credit lines and were serviced by Nelnet and thus received the benefits of the guarantees and through their credit lines helped originate loans and are therefore jointly and severally liable for Nelnet's action as well. This part in my opinion is a major stretch. Since this is a civil action lets get as many big pockets in here as possible. This is in essence saying because I extend a loan to an institution and happen to have my book serviced there as well I am somehow responsible for the conduct. MAJOR stretch.
This is not a case about bad underwriting standards or big bad banks its a case about a servicer out of control and not following the policies laid out by the DOE. Tyler I am also going to disagree with your assertion that this case is the equivalent to mortgage fraud. Nowhere in the arguments does it discuss underwriting, NINJA loans, avoiding risk criteria, or stating income this was straight up rules violations by Nelnet for inclusion as a servicer in the FFELP program. In fact, there have been a couple of other nastier scandals in the student loan area and the reason this case was probably still sealed is that it may have already been covered through other actions and settlements related to loan servicers sending $ and goodies to student loan offices that broke about 2 years ago.
See here: Google: University of Texas Financial Aid Scandal or for a quick view
http://blogs.abcnews.com/theblotter/2007/04/student_lender_.html
+1...nice summation. FFELP lending is, or appears to me, a distant cousin of FHA practices.
Knowing a few of the FFELP lenders from an ABS perspective, how the FFELP deals ever sold long-term debt in the form of auction-rate securities was always beyond my grasp. At least until ARS locked up Feb 2008.
Thank you for the breakdown. I'm sure that JPM & Citi both KNEW about the Nelnet scam, but proving that in court--and extracting penalties from them for their part in the conspiracy--will be extremely difficult to prove.
PS--JPM or Citi may even have SUGGESTED some of the scam ideas, but that will really be hard to prove.
Excellent. Thank you. ?. Wouldn't these actions be covered under the duty to supervise and exercise due diligence? I know I know. Responsibility and due diligence are not words that can be used with respect to JPM & C. However, the civil standards are fairly straight forward, especially when funding, facilities, sales materials and sales personnel are all singing of the same hymnal so to speak?
Thanks.
They will settle for 1.5 million with non admission of guilt, and some servicer in Peoria will get reamed. BUY stock in broom makers... they'll be a sweepin furiously.
Justice from the flim-flam crooks who run the Fed and Washington, DC? Huh-uh. Can Congress care about students and their loans and wink while “the Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral”? (Bloomberg)
This scandal reminds me of the charges by Catherine Austin Fitts, former Assistant Secretary of Housing and Federal Housing Commissioner, that “the allegations of mortgage collateral fraud are true…that a significant number of Fannie Mae or Freddie Mac mortgages that serve as collateral for U.S. mortgage-backed securities markets are not real. They do not exist…" That Chase [now JP Morgan Chase] as the lead HUD servicer and the other big banks implementing HUD fraud were using the same home to create ten or more mortgages that were placed into different pools.
Said Fitts: “This was why we would see the same house default two, three, or four times in a year... FHA mortgages had to be churned through multiple defaults to generate the cash to keep all these fraudulent pools afloat...”
And we ponder why Bernanke won’t open his books?
Or is this the reason? Fitts: “This issue of collateral fraud was repeated in other markets. As I started to learn more about precious metals and the commodities markets, I would hear story after story about precious metals arrangements in which what investors really had was a bank credit—there was no bullion behind the arrangement…"
http://news.goldseek.com/GoldSeek/1218694140.php
Here is a good article in 2008 suggesting off-balance-sheet central bank gold lending to promote liquidity that may have worsened the then downtrend in gold prices. Is this one more reason why the Fed had to intervene with currency devaluation to save JPM/GS/MS/Citi/AIG, if these were gold swap or gold lending counterparties to central banks?
http://www.mineweb.net/mineweb/view/mineweb/en/page33?oid=71224&sn=Detail
Catherine Austin Fitts ...we must remember that name. Like a window being opened and fresh air abounds, I want to read more.
I wonder if me not paying my student loans will present any sort of dent in the bigger fraud? moral hazard fraud blah blah blah I keep saying the only way to fi this with legal action is a massive rico case. other than that youre just cutting the weeds that grew too far from the turd factory.
Are you kidding? Be a minute late with they're payment they'll have your nuts stapled to the wall. Or, Shitibank can do to you what they did to me...."confirm receipt" of forebearance paperwork, never process said paperwork (lose it, throw it out....never got a good explanation), never contact you in the 12 month deferral period, send you to a collection agency without your knowledge and screw your credit for 7 years because they refuse to change the note on your credit report even though the loans are paid up and it would take them all of 3 minutes to do.
Nelnet is actually the entity that brought this issue to the DOE about 13 months before anything else became public. The DOE sat on the info for about a year, said thanks for the heads up and don't do this in the future. The "whistle blower" here stands to make a lot of money (I think it is 20% of the pot) for something he had no part in doing (reporting the loophole that allowed for the windfall profits, which, again, had already been done by Nelnet). I'm sure he is doing it for social justice and "the taxpayer," and not for the 6-7 million dollars he'll get in the judgment.
While I understand that it is easy to attack the defendants here, government regulations allowed the loopholes to exist. Perhaps this is an issue with government subsidies in general? That is, they are generally not well thought out, overly-broad, and suffer from atrocious oversight practices (IMHO). I mean, isn't a politician just a failed businessman? And they write the laws (based on lobbyists and re-election). At least I gleaned something from my Political Science degree...