A big day for mortgage fraud… and class warfare?

I was getting ready to go on CNN earlier today to talk about a story that’ll be in tomorrow’s dead-tree version of Time when I saw the breaking news about the DOJ and FBI busting 406 people, 60 of whom were arrested yesterday, for mortgage fraud.

The denouement of the three-and-a-half-month-long “national takedown” dubbed Operation Malicious Mortgage kind of freaked me out, because the thing I was going on CNN to talk about was a new breed of company that purports to help people get out from under their mortgages. I thought I was going to have to bring being an insta-expert to a whole new level, but luckily, no. We talked about my story. Which I’ll be able to link to tomorrow.

Anyway, back at the office I realized that there was not one, but two news conferences I wanted to watch at 1:15. While officials in DC were describing the results of Operation Malicious Mortgage (an estimated $1 billion in losses from 144 different instances of lending fraud, foreclosure rescue scams and mortgage-related bankruptcy schemes), prosecutors in Brooklyn were detailing the charges against Ralph Cioffi and Matthew Tannin, those two Bear Stearns hedge fund managers who maybe weren’t completely honest with investors or their employer as they went about losing $1.4 billion last summer. They’re now up against conspiracy, securities fraud and wire fraud charges. Cioffi also got a charge of insider trading. It’s really not cool to lie about how much money is getting yanked from your fund, or how much of your own money you’re transferring elsewhere, especially if you’re acting all perky on the outside then secretly panicking over e-mail. Now we get to find out if it’s illegal. You can read a PDF of the indictment here.

As these two cases unfold—well, the Bear Stearns case and the 144 from Operation Malicious Mortgage—I think it’s going to be interesting to watch how much blame the various victims (alleged victims?) get lobbed their way. Already, some of the cable-news chatter around the Cioffi/Tannin indictment pivots on the fact that hedge fund investors are very sophisticated people. If you’ve got $57 million to threaten to pull from a hedge fund, then maybe you’ve got a little more financial wherewithal than some guy getting lied to about how an ARM works. Does that mean you’re less of a victim?

I guess my suggestion as we go through all this excitement is to remember that a lot of people—rich and poor alike—have gotten screwed over. In a world where Ed McMahon faces the prospect of foreclosure, surely we can figure out a way to come together and stay there.

Apple CEO Cook Gives Up $75M in Stock Dividends

NEW YORK — Apple CEO Tim Cook is giving up $75 million in dividends on restricted stock that the company is awarding to all of its employees.

In a filing with the Securities and Exchange Commission on Thursday, Apple Inc. said that Cook requested that his restricted stock units not receive dividends. The dividends that Apple workers are getting amount to $2.65 per quarter for each restricted stock unit held. The shares are not normally eligible to receive dividends, so Apple’s decision is a perk for its employees.

odograph

Thanks Barbara, that is breaking news!

The Bear thing is a little weird for me though. When someone speaks for a company we kind of expect him to put the best face on news, perhaps even while panicking inside. In engineering we sometimes say we can meet the deadline, while we think “how can I meet this deadline?”

If the net effect is that internal communications must be treated as external … that might cut down on the efficiency (and honesty) of the corporation.
Barbara Kiviat

You know, it’s funny you should say that because that was my first reaction, too. And then I read the indictment. (I should, at this point, make clear that an indictment contains allegations — i.e., these guys haven’t been found guilty of anything yet.)

One of the most blatant incidents described is Cioffi meeting with a big investor (called Major Investor #1) on April 18. Major Investor #1 said that he (she?) was considering a redemption of $57 million. Cioffi told the investor that he and other portfolio managers had $8 million invested in the fund. Cioffi didn’t mention he’d recently withdrawn $2 million of his approximately $6 million investment.

Then, on a April 25 investor conference call, Cioffi brought up the issue of redemptions, saying he’d been getting a lot of questions. He said that the next big redemption date would be June 30 and “as of now, I believe we only have a couple million of redemptions.” The indictment highlights that despite Cioffi acknowledging the importance of the issue to investors, he failed to disclose the $57 million redemption submitted by Major Investor #1.

I completely see what you’re saying though, and I do think it’s a valid point, even in this case, in certain ways. In mid-March, Cioffi wrote an e-mail to a colleague saying, “I’m fearful of these markets. Matt [TANNIN] said it’s either a melt down or the greatest buying opportunity ever, I’m leaning more toward the former. As we discussed it may not be a melt down for the general economy but in our world it will be.” Should Cioffi have been required to tell his investors that? That he thought it might end in disaster… but there was also a chance everything was just getting cheap temporarily and there would be an absurd amount of money to be made? I’m guessing that’s in line with what you’d consider to be a reasonable conversation to keep internal — and I think I’d agree.
odograph

Ah well, if it is false statements of fact (is that what they call “materially false?”) that might be a clearer thing than worried expectations.

I guess … in one of the Internet’s oldest acronyms … IANAL.