FBI names more than 400 in mortgage fraud indictments

FBI names more than 400 in mortgage fraud indictments

[JURIST] The Federal Bureau of Investigation (FBI) [official website] Thursday announced that more than 400 people had been indicted [press release] in connection to what has been termed the US "sub-prime mortgage collapse." The vast majority of the indictments involved fraud related to individual mortgages, with the FBI focusing on lending fraud, foreclosure rescue scams and mortgage-related bankruptcy schemes, which account for more than $1 billion in losses.

Lending fraud frequently involves multiple loan transactions in which industry professionals construct mortgage transactions based on gross fraudulent misrepresentations about the borrower’s financial status, such as overstating the borrower’s income or assets, using false or fictitious employment records or inflating property values. Foreclosure rescue scams involve criminals who target legitimate homeowners in dire financial circumstances and fraudulently collect fees for foreclosure prevention services or obtain ownership interests in residential properties. Both of these fraudulent mortgage schemes may be furthered by filing bankruptcy petitions that automatically stay foreclosure.

The US Attorney's Office for the Eastern District of New York [official website] also announced Thursday that indictments [PDF text; press release] had been brought against two senior hedge fund managers at Bear Stearns [corporate website] for allegedly misleading investors even after they knew their mortgage-related funds were at serious risk of collapse. The Attorney's Office said that the two managers, Ralph Cioffi and Matthew Tannin, held more than $1.4 billion in investor funds.

[They] misrepresented or omitted material facts in communications with investors and lenders about a variety of topics, including the financial prospects of the Funds, their opinions regarding the financial prospects of the Funds, their personal investments in the Funds, the Funds' investor redemption requests, the Funds' liquidity picture, and the Funds' exposure to the subprime mortgage market.

AFP has more. AP has additional coverage.

In March of this year Bear Stearns was hit with two major lawsuits [complaint, PDF; JURIST report] after its announced acquisition [press release] by JPMorgan Chase [corporate website]. Earlier that month, Bear Stearns stock dropped precipitously after the announcement that the US Federal Reserve had provided it with emergency funds to avoid insolvency and JPMorgan Chase announced that it had reached a deal with the company to buy it out [merger agreement text, PDF] for $236 million, about $2 per share, a fraction of its prior market price.