Bank Lawyer's Blog

The Latest, If Not Greatest

Updating a couple of stories we've been following:

Marc Dann resigned today, proving that even someone devoid of shame can read the handwriting on the wall when it's spray painted on the wall with HUGE CAPITOL LETTERS. Ohio Democrats wanted him out, filed articles of impeachment on Tuesday and on the same day the Governor authorized an investigation by Ohio's Inspector General, which got rolling this morning.  Good bye Crusader Dann, The Mortgage Cop (paid subscription required). You can always join your role model, Eliot Mess, as an associate in his law firm, Spitzer & Dupre Associates. Maybe you'll even make your own Top Ten List.

TJX, the subject of a massive security breach that resulted in the theft of 90 million stolen credit card account numbers and hundreds of millions of dollars in claims, has recently "suffered" from increased sales (paid subscription required). Ben Worthen of The Wall Street Journal's Business Technology Blog isn't happy about it.

For those of us who care about tech security – admittedly a smaller group than those who care about cheap clothes – the results are disheartening. And they raise two questions: 1) Why don’t customers avoid businesses that mishandle their personal data? 2) Why should businesses care about protecting customer information if the public doesn’t care?

We think we know the answer to the first question: It’s not customers who suffer when someone uses their credit cards — it’s the bank that issued the card. Sure, a customer has to go through the hassle of getting a new card, but this doesn’t cost any money. We recently spoke to one man who’s had his credit-card number stolen seven times. He now views getting a new card as routine.

We don’t know what to do about the second question, though. Breaches are bad PR, and the business leaders we’ve spoken to whose organizations have lived through one make it sound like an ordeal that they wouldn’t ever want to repeat. But it’s hard to see how businesses that haven’t gone through a breach would look at TJX’s numbers and conclude that they need to spend more on security technology and train employees to behave differently.

Yep, it's the banks that suffer and it's the banks that have been suing (well, along with every other aggrievede party that class action lawyers can dig up). Bank Litigation: a growth industry. This is a great country, is it not?

As to Worthen's second worry, that TJX's example will make businesses less concerned about security technology, that's not an option for banks. First, their business depends on being secure. A leaky bank bleeds customer goodwill, and reputational risk is a safety and soundness consideration, too. Which leads us to the more important consideration, that bank regulations and guidelines require banks to be concerned about technology security, whether or not they'd otherwise be interested. Finally, since banks, especially credit card banks, are often on the hook for costs associated with replacing compromised credit cards, they have an incentive for making sure that the merchants they do business with give a hoot about technology security.

Still, consumers can be "sheeple" on occasion, can't they?

How About A Moratorium On Moratoriums?

Word came today from Teresa Rice, General Counsel of the Minnesota Bankers Association, that a major amendment was made on the Minnesota Senate floor on Monday of this week that exempts loans originated by state or federal banks, savings banks, or credit unions from the one-year foreclosure "deferment" provided by the Minnesota "Subprime Borrower Relief Act of 2008." The law has been making banks in the land of a thousand lakes sweat a bit (a lot, actually). In an e-mail to me today, Tess stated that the proposed legislation "is the first major bill in a long time that the Minnesota Bankers Association has had to completely oppose." At the rate the cynics in state legislatures across the country are churning out this chum, it may not be the last.

At least we didn't have to face the astonishing prospect of federally-chartered banks and thrifts pulling out the big stick of federal preemption and then having state banks, thrifts and credit unions cry about a competitive disadvantage (or simply switch charters). Then again, "eligible foreclosed loans" that were originated by non-financial institution lenders and purchased by banks and thrifts (and securities that are backed by such loans) are still in for impairment.

Housing Wire's Paul Jackson reported yesterday on a similar one-year moratorium bill passed by the New York Assembly (along with three other consumer protection measures). It does not appear to contain an exemption for banks, thrifts and credit unions. If it makes it through the Senate and is signed by the governor, perhaps we'll get to see how "astonishing" are the actions of federally-chartered banks and thrifts in pushing preemption. The legislation would give the trial court the right and obligation to determine a new mortgage payment for the duration of the moratorium in an amount "which will preserve the relative financial interests of both parties under terms which are equitable and just." Cool. No rewrite of the mortgagee's contract there, is there? No, there isn't, according to one of the bill's sponsors.

Under the terms of the bill, lenders would need to certify their complete cost of carry — traditionally, around 1.5 percent of unpaid principal balance per month — which would be paid by the borrowers in lieu of their full mortgage payment during the stay period.

Specifically, the bill says that the “lender must establish to the satisfaction of the court the minimum monthly amount necessary to preserve their relevant financial position so as to prevent an erosion of the mortgagee`s financial position.”

Amusingly, the bill also says that “the purpose is to postpone the mortgagee’s profit and not to cancel or alter the terms of the mortgage agreement.” For one thing, lenders don’t profit from a foreclosure, so the bill is essentially winding up losses for all parties, not postponing some sort of phantom profit; for another, the bill most certainly alters the terms of the borrower’s mortgage agreement — that’s the very textbook definition of a one-year moratorium on payments.

Don't throw ugly facts into a perfectly positioned political spiel, Paul. The force of logic's irrelevant to a cynic. Speaking of which, Sheila Bair ought to be on board with this bill, regardless of its financial impact on any FDIC-insured institutions. It appears to be pro-consumer, and underlying financial reality is not a consideration.

The long-term foreclosure moratorium appears to be the flavor of the day for pols eager to show the voters that they'll stand up for the little guy and face down evil  mortgage lenders. New York State Assembly Speaker Sheldon Silver spun it so well.

"The federal government was quick to bail out big businesses like Bear Stearns from near-collapse, but seems to have all but forgotten the everyday common household victims of this national crisis," said Silver. "We in the Assembly Majority want to see New York's families stay in their homes and our communities to remain intact. Our package is not a bail out. It's an assistance program to help homeowners in our state keep the American dream from turning into a nightmare."

That's right, the unique "bailout" of Bear Stearns to prevent a general collapse of the financial system (which even economic moralists like Warren Buffet and Charlie Munger thought was a justified exception to the "moral hazard" rule) is the same as artificially delaying the foreclosure of thousands of subprime loans to borrowers who can't pay them now and won't be able to pay them in a year. And the fact that it's an election year means that "the Assembly Majority" doesn't give a rat's tukus that the effect of such legislation won't make a silk purse out of a sow's ear, which will still be attached to the same lipstick-wearing pig when the moratorium expires. Of course, that will be after November 2008, won't it? At that point, while the voter/borrower pigs are butchered, the legislator pigs will be back grunting at the public trough.

What We Have Here Is A Failure To Truncate

The Wall Street Journal's Law Blog had an update last Friday about the status of class action lawsuits filed by aggrieved consumers (in other words, by class action attorneys who've "discovered" lead plaintiffs) to punish merchants who left too much information on electronically-printed credit card receipts in violation of the Fair and Accurate Credit Transactions Act (FACTA). Oddly, the Law Blog's link to FACTA ties to a Yahoo article by Chris Kelleher ("an award-winning small-business advisor and attorney") about the disposal requirements of FACTA, not the truncation requirements. Oh well, "close" is enough in horseshoes and law blogging, right?

The latest post is an update of a post earlier in April that discussed a split in lower courts, with one trial court denying class action status partly on the basis of an "annihilation defense" (class action damages would "annihilate" the defendant), and another court declining to strike down class certification on that basis. One commenter to that post points out that the "overwhelming majority" of the 300 class action lawsuits filed involve the failure to delete the expiration date of the consumer's credit card on the receipt, not all but the last five digits of the credit card number. The commenter alleges that "[t]he expiration date is of NO benefit to an identity thief..." I'm not certain that's correct, since it's one piece of information that, taken with others, can aid an identity thief. Moreover, its elimination is technically required by FACTA, and the failure to delete it exposes these defendants to between $100 and $1,000 per class plaintiff (and, of course, the always-beneficial-to-society class action attorneys' fees), so there you have it. If the plaintiffs can prove reckless or willful disregard for the law, then the upper limit of damages is a real possibility.

A commenter to the earlier post who claims to be an attorney whose firm is defending some of these suits makes the claim that the liability should be covered by the retailer's liability insurance, and, therefore, "so as long as we can keep the settlements reasonable, it won’t spell the end of the companies (just their ability to acquire reasonably-priced insurance in the future)." That's certainly a very practical take on the problem. Once again, the insurance company pays over the short run, but everybody pays over the long run through higher premiums, although this isn't an issue that's likely to be recurring, is it?

It might be because I followed FACTA so closely for some of my clients, but I'm not sympathetic to the ignorance of retailers, especially some of the large ones, who claim ignorance of the law (never a sufficient excuse in any event). In an article in last April's WSJ, an attorney for a retailers trade group blamed credit card companies for doing a lousy job of notifying retailers. I thought that was the job of retailers trade groups.  I simply don't see the equities lying in favor of the businesses in this case. With identity theft such a high profile crime, and with the  lead time provided to businesses to comply, the stick-your-head-in-the-sand approach doesn't seem to garner much sympathy, notwithstanding the fact that, once again, it's our favorite punching bag, class action plaintiffs' attorneys, trolling town for consumers with "nontruncated" credit card receipts.

At least one commenter claimed that class action litigation caused companies to change their practices, which is undoubtedly true, and which is used a justification for class actions. Ironically, a publication from September 2007 on this topic by Jones Day offers "prompt corrective action" as a tactic for defeating class action status.

At least two federal district court judges have denied class certification for these types of cases. When comparing the plaintiffs' failure to show any actual harm against the potential harm to the defendants in the tens of millions to hundreds of millions of dollars, the court determined that class actions were not the best method to adjudicate these claims...That both defendants immediately corrected their error upon filing of the complaints served as a major consideration behind these decisions...

Maybe an indication as to how much of a non-issue this hubbub might eventually turn out to be is demonstrated by the settlement outlined in the most recent Law Blog post.

In a settlement approved on Tuesday in the Western District of Pennsylvania, Kings Family Restaurant agreed to offer the plaintiff-class one of the following four options:

• a free ‘appeteaser’ and a free mini-sundae, with a retail value of up to $ 4.68; or

• a free homemade bowl of soup and a free slice of apple or pumpkin pie, with a retail value of up to $ 4.78; or

• a free cup of soup and a free ‘appeteaser,’ with a retail value of up to $ 4.38; or

• a free dinner salad and a free single scoop of Kings Premium Ice Cream, with a retail value of up to $ 4.38.

According to the opinion, defendant has further agreed to donate 500 gift certificates for kids’ soft drinks, with a retail value of $ 0.99 per drink, to First Tee, a non-profit organization which offers underprivileged children the opportunity to play golf. Defendant also agreed to pay plaintiffs attorneys fees and costs not to exceed $75,000.

The Law Blog states that only 165 class members (less than 1% of the class) obtained "coupons" (I assume the author meant the right to obtain the free "goodies" offered by the restaurant), which meant that the attorneys fees exceeded the recovery by 100 to 1. That's a relatively sweet deal for the lawyers, but not much reward for the class members, unless you're into "appeteasers."

As a parting observation, you have to love the comment by one anonymous person, presumably a lawyer: "I say 75 k is not worth my time." No wonder so many people hate lawyers.

Cynicism or Stupidity? You Be The Judge

At the end of a long day, I tried to catch up with my "professional reading" (The Economist, The Wall Street Journal, a trade paper that doesn't list this blog in its roundup and, therefore, is dead to me, Sports Illustrated's Swimsuit Issue, etc.), and what did I read right out of the gate but this cynical nonsense.  I was about ready to start fisking the report when I decided to check with a few of my favorite bloggers first and, sure enough, Tanta and PJ had already taken care of business.

Paul Jackson at Housing Wire pummeled this sorry report today like Jake LaMotta pounded Sugar Ray when he was really, really cranky. As I read his piece, I couldn't get Robert De Niro in "Raging Bull" out of my mind ("I'm the boss-boss-boss-boss-boss-boss-boss-boss-boss!"). Just a sampling, then read the rest.

There isn’t an effective loss mitigation strategy I know of that can solve for fraud. Extending foreclosure timelines, or introducing more uniform standards for loss mitigation — both “solutions” proferred by the state AGs in their report — will actually serve to make fraud even more costly for everyone involved. And that’s the last thing anyone who wants to see housing recover should be rooting for.

[...]

In no small part, fixing the current mess is tied to fixing fraud; and that means fraud at all levels, from borrower to broker to lender. It’s both as simple and as complex as that.

Which means that it’s time borrowers, consumer groups and erstwhile working groups stop floating a revisionist history of the “hapless borrower” — you know, the one where greedy, mean lenders duped those innocent and pure borrowers? — as a substitute for what’s really going on in the real world.

Yeah, it's time, Paul, but what are the odds?

Although Tanta claims that she's merely "piling on," she actually dissects the report like a scalpel-wielding Hannibal Lechter looking for a liver to go with her fava beans ("When I opened the cranium, I found little grey matter but much fecal matter."). Her always spot-on dissection is, of course, greatly aided by the fact that she (as does Paul) has an unfair advantage over the report's authors: she actually understands the mortgage business. Her carefully considered conclusion coincides with my initial gut reaction.

The lesson of the "stated" disaster--stated income, stated assets, stated appraised values, oral "promises" of loan originators rather than clear written disclosures, the whole cluster of practices that removed the "barrier" of "paperwork"--is apparently still lost on the Working Group. We started this by being "efficient" about the documentation and casual about the borrower's own statements; we aren't going to get out of it that way. This report just reeks of political grandstanding. I'm sure I know at least one journalist who will love it.

"Political grandstanding"? You betcha.

I was talking today with an attorney who represents a financial institutions trade association, and is intimately involved in legislative efforts at the state level to "solve the subrime mortgage mess." I was commiserating with him over the apparently limitless supply of clueless legislators (my phrase, not his) who insist on doing precisely the wrong thing at exactly the wrong time. I know it's an election year, which means political cynicism is elevated above its normally high levels, but I told him that it's got to be especially tiring this legislative session trying to beat back wave after wave of ill-advised legislative interventions in the mortgage markets that even quarter-wits like yours truly can see will not only not address the intended problems, but will likely make the problems worse and, simultaneously, create a whole batch of new ones. He agreed wholeheartedly, and ruefully observed that we've still got a long way to go until November.

I asked him whether the legislators who were so eager to "do something" were amenable to listening to reasoned explanations as to how their legislation might be useless or much, much worse. His reply is that they don't want to listen because they simply don't care. They don't care about the facts and they don't care about the actual effect of the legislation. All they care about is being able to go back to their constituents, who understand  the mortgage market even less than they do, and tell them that they "did something." Adverse results likely will surface down the line, and a reasonably competent politician can always spin the story so that someone else is to blame.

This may be a long, hot, tiresome summer.

 

Fannie's Fraud Action Fizzles

As Rod Stewart sang, "Some guys have all the luck." Certainly, Franklin Raines and Timothy Howard appear to be "fortunate sons."

In August 2006, the Department of Justice dropped criminal investigations against the two former Fannie Mae officials. Last week, the OFHEO announced that the two men, along with the company's former controller, Leanne Spencer, had agreed to pay some relatively minor fines and to give up some worthless stock options, in return for a full settlement of allegations that they had conspired to inflate Fannie Mae's earnings in order to pump up their compensation.

Raines is paying $24.7 million, including a $2 million penalty and the forfeiture of stock options, the Office of Federal Housing Enterprise Oversight said in a statement today. Former Chief Financial Officer Timothy Howard will surrender $6.4 million, and Leanne Spencer, who was the Washington-based company's controller, was fined $275,000.

That might sound like a lot of money to most of us, until you compare it to what OFHEO alleged was its damages when it commenced administrative proceedings against these individuals.

The settlements, short of the $215 million in damages sought by Ofheo, ends more than a year of fighting with the executives over who was responsible for $6.3 billion in misstatements at the government-chartered company. Fannie Mae insurance will pay the $3 million cash portion of the settlements.

Note that the defendants don't come out-of-pocket for the cash settlement, the insurance company does. Therefore, the defendants must be giving up something very valuable other than cash as part of the over $32 million that the defendants are "paying" or "giving up," right? Not so fast.

Raines will pay a $2 million fine to the federal government [Ed: paid for by insurance]; relinquish claims on stock options valued at $15.6 million when they were issued; donate $1.8 million in proceeds from the sale of Fannie Mae stock to charitable programs that help struggling homeowners; and forfeit about $5.3 million in other benefits that Ofheo didn't disclose.      

Raines was given stock options in 2000 through 2003 for 932,000 shares at exercise prices ranging from $69.43 to $80.95 a share. After he left, the shares never rose above $72 and now trade at less than $30, signaling any options he relinquished would be worthless.

In addition to the insurance company covering the cash, the stock options are worthless, yet constitute $15.6 million of the $24.7 million Raines is "paying" to settle the lawsuit. Another $5.3 million consists of foregone "undisclosed benefits" that Raines never received, but that he arguably has a right to claim.

Howard's $750,000 fine will be covered by insurance. He will surrender $5.2 million in stock options, donate $200,000 in proceeds from stock sales to charity and forfeit other benefits valued at $240,000, Ofheo said.

Again, less than impressive, isn't it?

The defendants' counsels claimed victory, and I don't blame them. Although shareholder litigation against these individuals is pending, today's The Wall Street Journal notes that such litigation is also likely to end in a settlement. On the other hand, the defendants have to pay their lawyers, which ought to put a dent in their wallets. Moreover, the WSJ also alleges that "the careers of Messrs. Raines and Howard were shattered." Perhaps. One thing this country's good at is giving people a second chance (assuming, unlike, say, Ken Lay or Jeff Skilling, you stay out of jail and/or don't drop dead). I wouldn't be surprised to see one or more of these individuals make a come-back.

Maybe Donald Trump will transform them.

Big Law Feasts On Subprime

I don't know about my readers, but when I see a headline like this one from a recent issue of the Houston Business Journal ("Law Firms Brace For Subprime Fallout"), I envision  a gaggle of shysters locked in an office, hard hats perched on heads to shield their big brain pans, grasping two-by-fours that brace the ceiling against an onslaught of subprime turkeys plummeting to their doom from a helicopter hovering above, like in that old episode of WKRP in Cincinnati ("Oh, the humanity!" "As God is my witness, I thought turkeys could fly."). But, no, that would be inaccurate. Instead, large law firms, in Houston at least, are merely licking their chops over what's for dinner: litigation, bankruptcy, and various other forms of plague and pestilence.

Fulbright & Jaworski LLP's six-month-old global subprime practice numbers 100 attorneys. Most firms are starting small with units of 10 to 20 litigators, corporate bankruptcy specialists and white-collar crime lawyers.

Andrews Kurth LLP has assigned 13 lawyers on an ad hoc basis to the firm's newly formed subprime and distressed assets group.

"It's something we've been talking about a while," says Tom Perich, Houston managing partner for Andrews Kurth. "Our thought was that we're big in all these areas that were impacted, it seems like we know all aspects of this thing, and we've got the lawyers and finance experts."

[...]

Perich says the group likely could grow to dozens considering all signs indicate there will be plenty of work to go around.

"The front-line action is going to be lawsuits," he says. "People are going to be suing each other, so you've got to have front-line litigators. They need the subject expertise behind them."

The article doesn't note it, but I'm convinced that he punctuated his remarks about these joyful prospects with just the littlest line of drool running down his chin. When so many carcasses are being broiled over an open flame, the smell can drive you wild. You know you're in nirvana when it smells like subprime spirit.

And when it comes to economic disasters involving banks and real estate loans, where better to find your hired guns than The Great Republic?

The transition into subprime practice was not difficult. Many Texas law firms saw significant work in similar areas during the bust years of the 1980s and savings and loan scandals of the 1990s.

"We had probably our greatest growth spurt in the '80s," Perich says, noting the firm grew by 50 percent.

"A lot of those guys are still here," he says.

Ah, the good old days! As for "a lot of those guys" still being here, what he didn't add was the sentiment "and maybe we can squeeze another 3000 billable hours out of them before they flame out."

The article lists the plethora of potential defendants, which offers ample opportunity for "bet-the-firm" litigation, the kind that can suck the life out of paralegals, associates and contract attorneys, leaving them dried husks to be tossed on the fire of the equity partner pyramid, to be replaced by a never-ending supply of young suckers up-and-comers. Investment banks, mortgage companies, title companies, home builders, and investors are all candidates who can look forward to spending quality time with litigation and bankruptcy counsel, after which they can end their existence as biodegradable suicide bombers in a theater of action of their choice, because that's all they'll be fit for.

One of my pet peeves about the entire sales pitch of a "subprime practice group" has been that this isn't anything special. It's the same old skill sets applied to the latest segment of our economy to falter. Craig Weinstock of Locke Lord Bissell & Liddell LLP gets it.

"Nobody was born a subprime lawyer," Weinstock says. "These are folks who have depth of experience representing in the securities fraud area, financial institutions, white-collar crime -- expertise that is now being turned to these current problems."

My favorite line is from Wayne Kitchens of Hughes Watters Askanase LLP.

"Our entire default servicing group and a large part of the litigation group deal with subprime issues, lenders and borrowers on a day-to-day basis and has for years," says Partner Wayne Kitchens.

Hughes Watters is continuously in a subprime mode.

Says Kitchens: "Subprime is already such an intrinsic part of our practice that we felt no need to start any new group or section."

How strange are these times when a firm is described a being "continuously in a subprime mode" and that's a compliment.

Welcome to the Roadkill Cafe, boys and girls. Our steaks are Grade A (sub)Prime. And there's plenty for everyone.

The More Things Change, The More They Really Change

What difference a decade (or two) makes. This time around, while other parts of the country are being hit by declining prices and increasing foreclosures, Texas looks comparatively peachy.

Texas is bucking the national trend of rising property foreclosure rates, according to a California-based research company.

A total of 10,700 Texas properties entered the foreclosure process during March, down more than 16 percent from the volume of filings recorded in March 2007, a recent report by Calif.-based RealtyTrac shows. The March foreclosure figure also represents a decrease of almost 13 percent from filings reported this past February.

Nationally, foreclosures are up 57% annually and 5% from the previous month. Texans ought to be absolutely giddy. Well, somewhat relieved, anyway. It could be worse. We could live in California, Florida or Ohio. Then again, a friend of mine in Colorado (fifth in foreclosures, by the way) observes that "you still have to live in Texas." He thinks that is the ultimate downside, while "we'all" think it's the cherry on top of the sundae.

The recently released national figures also show an increasing trend of deeds-in-lieu-of-foreclosure being used by borrowers who default on their loans.

James J. Saccacio, CEO of RealtyTRAC, points out that on a year-over-year basis as of the end of March, default notices and bank repossessions nationwide were up nearly 57 percent and 129 percent, respectively -- an indication "that more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender," Saccacio says.

Auction notices, by comparison, jumped by 32 percent during the period.

"This deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without putting it up for public foreclosure auction," Saccacio adds.

At first blush, the number of borrowers who are willing to "walk away" (a highly charged term to use, by the way) from their home-sweet-home seems to call into question all the previous hand-wringing about the need for foreclosure moratoriums and similar measures designed to force lenders to change their evil ways and to prevent them from seizing borrowers' homes through the foreclosure process and then kicking the borrowers, bawling their eyes out, into the streets. Increasingly, it appears, more and more borrowers are willing to cough up the keys without going through the foreclosure process.

In a customary deed-in-lieu situation, the consideration for the deed is the release of the borrower from liability for any deficiency (with some protections to the lender for such things as fraud, waste and bankruptcy within a certain period). Apparently, a rapidly increasing proportion of borrowers who can't afford the loans believe that's a fair trade, and it's hard to argue with them if the lender's willing to forgive the loan balance and either (a) the borrowers can't afford the loan or (b) the collateral is underwater and they simply don't want to pay the loan back even if they could do so. Emotionally, these may not be homes to some of them, but rather merely an investment in real estate that simply didn't work out. It's impossible to generalize, and RealtyTrack doesn't give us much insight into why borrowers are increasingly willing to give lenders a deed-in-lieu.

Lenders apparently have decided that in many cases they'll take the entire risk of a declining home price if it saves them the cost and time of foreclosure. They must also be deciding either that the borrowers don't have the financial resources to satisfy a deficiency (in those states where a deficiency is permitted) or that the cost of the struggle to collect it outweighs the benefit. Perhaps the moratorium bills and other strong-arm tactics are achieving a purpose, after all, albeit not the announced purpose of keeping delinquent homeowners in their homes.

Interesting. I wish we had more data about this phenomenon that gave us the percentage of defaulting borrowers who have given a deed-in-lieu-of foreclosure and that broke that group down further according to the different reasons for that decision. Without that information, we're guessing, and, in some cases, letting our personal prejudices factor into our use of the limited information we do have available.

Marky Marc Takes After His Role Model

Ohio's Attorney General, Marc "Grandstand" Dann, has done everything possible to insert himself, publicly of course, between borrowers and lenders and otherwise to do whatever it takes to follow in the footsteps of his role model, the late Eliot Spitzer (may the Great Gaia have mercy on his Earth Spirit).  As an editorial in today's Dayton Daily News points out:

In 2006, when he ran for Ohio attorney general, Marc Dann pointed to New York's Eliot Spitzer as a role model, what with Mr. Spitzer having created a reputation for aggressively prosecuting evil-doers involved in street as well as white-collar crime.

That was before the Mayflower and Mr. Spitzer's resignation as New York's governor, after he was accused of hiring high-priced prostitutes.

It seems that Dapper Dann has his own sex scandal brewing in Ohio. According to press reports, two female employees of the AG's office have filed sexual harassment complaints against one of Dann's top assistants, Anthony Gutierrez, 50. They allege that he made unwanted sexual advances to them while at work, while at bars, and while at a bachelor pad that Mr. Gutierrez shared with Mr. Dann and a third male pal. One of the complainants, Cindy Stankoski, 26, made specific allegations that Dann was hanging around when some of her clothing mysteriously became rearranged and Mr. Gutierrez misplaced much of his.

Stankoski reported one incident from September in which Gutierrez persuaded her to visit several bars with him after work. Then, after she had had too much to drink, he talked her into coming back to the condo in Dublin he was sharing with Dann and Jennings, she said. After several hours of lying unconscious on Gutierrez's bed, she awoke to find her pants partially unbuttoned and her boss beside her wearing only his underwear, she said.

Stankoski said Dann was in the condo at the time.

I expect that Dann may pull the famed "Sergeant Schultz Defense" as to that claim, and shout that he knew "nothing, nothing at all." Perhaps he'll opt for the Teddy Kennedy corollary, and claim that everyone "drops trou" when company comes calling, especially when company is young, female, nubile, and plastered. As long as you're not behind the wheel, and a bridge is nowhere in sight, what's the problem?

Although he's not been charged with sexual harassment himself, Dann has been accused of being in the apartment with a young female aid who was, at the time, wearing her pajamas. Dann's response was curious.

Attorney General Marc Dann denied reports that his 28-year-old former scheduler was ever wearing pajamas at his apartment — an allegation made in a sexual harassment complaint filed by two other female employees against Dann's friend and neighbor, Anthony Gutierrez.

"She's never been in my house wearing pajamas, so she certainly wasn't there that night in pajamas," Dann told reporters Wednesday, April 9. "That's just the strangest thing that I could ever imagine anyone saying. And it's hurtful because I have children who are embarrassed by the fact that that's been repeated over and over again in the newspaper."

An online commenter to that story named Dave stole my lines with this response to Dann's duck, bob and weave job:

"She’s never been in my house wearing pajamas, so she certainly wasn’t there that night in pajamas," That’s a very lawyer-like answer. Dann doesn’t say that she’s never been in my condo "at night." Dann doesn’t say that she’s never been in my condo "at night in her nightie." Dann doesn’t say that she’s never been in my condo "at night wearing nothing at all." He simply declares that she hasn’t been there at night wearing pajamas. That’s reassuring. For a minute I thought he had a problem!

Dave gets the Bank Lawyer's Blog's High Five of Snark for that bitchslap across the brow.

Of course, every busy lawyer has to have a pied a terre in town when late nights keep him from his suburban hearth, home, wife and kids. Moreover, discussions with young unmarried female staffers concerning one's schedule can't be conducted at the office or over the telephone. Not secure. No, they simply must be conducted at night, in person, and away from the prying eyes of spouses, reporters, and any other person not willing to give the appearance of impropriety a wink-wink, nudge-nudge, any person other than, oh, Tony ("Where'd I Put My Pants?") Gutierrez. As to clothing: Hey, it's night! What's more appropriate at night than PJs? I know the last time I simply had to speak to my executive assistant, she and I held the meeting in the hot tub, and clothing was optional.

Being a stickler for probity, Dann's recused himself from looking into the allegations against Gutierrez and has appointed two members of the AG's staff to investigate. People whose paychecks he signs. He's refused to appoint an independent prosecutor or investigator, thereby sticking his finger in the eyes of the editorial boards of the Ohio newspapers who are calling for independent investigators to look this over.

The Dayton Daily News notes that this ethical lapse is not Dirty Dann's first.

Mr. Dann has a tin ear and a lazy eye when assessing his behavior and others'. Since taking office, he has had to fire a deputy security director who had been convicted of involuntary manslaughter in another state. He let another aide go after it was found that the man was drawing a salary from the Youngstown Police Department, while on Mr. Dann's payroll.

He has jetted off on government airplanes at a time when state officials are supposed to be pinching pennies, and he once yelled profanities at a reporter, which was caught on a television camera.

In short, Mr. Dann has been attorney general for fewer than 18 months, and he's brought more embarrassment upon himself than even his enemies could have manufactured.

His past judgment has not been inspiring. The future is not looking good, either.

The least he can do is respond to serious charges by calling in an independent investigator.

This story is worth following, if only to see if another ardent foe of bankers, and one who loves to publicly bully others for political gain by using the powers of the state, becomes a victim of his own imperial hubris and is publicly immolated by the flames of his arrogance. A spokesman for Dann recently said about Dann's decision not to prosecute Rush Limbaugh for "Operation Chaos," "We have no intention of prosecuting Rush Limbaugh because lying through your teeth and being stupid isn't a crime." Those are words that Dann and his buddies have taken to heart. 

I don't know if it will have any influence in the court of public opinion, but I hope that voters in Ohio recall this campaign video made by Dann and realize that Dann's always been a bit of a horndog.

Victims

According to today's The Wall Street Journal, the subprime crisis is sweeping a lot of elderly investors down the drain, many of whom didn't realize that they were investing in the subprime mortgage market. Instead, they thought they'd been sprinkled with fairy dust and entered the magic kingdom where interest rates are always impossibly high and risk never rears its ugly head.

Until a few weeks ago, Sonia Deravedisian had never heard of the subprime-mortgage market. Nevertheless, she lost her life savings because of it.

The $55,000 she saved over 35 years as a self-employed tailor is gone. Ms. Deravedisian, now 74 and disabled, is one of the earliest victims of the mortgage crisis, in a case that has drawn the attention of federal investigators over the role some of the biggest names on Wall Street may have played.

She and 22,000 other people, many elderly, lost about $750 million when a Philadelphia lender called American Business Financial Services Inc. went bankrupt three years ago. ABFS had funded its operation partly by selling notes directly to the public, pitching them in newspaper ads and mass mailings that promised high interest rates. When it went under, these notes, which carried no collateral and weren't insured, became worthless.

Now a bankruptcy trustee is trying to recover money from the investment banks that turned the lender's loans into securities. His claim: They helped keep the lender alive -- and paying them fees -- by enabling it to overstate the value of assets on its books.

When your primary defendant fails, you look for other potential defendants with deep pockets. What else is new? The trustee is doing what so many have done before: try to get the financial institutions with big bucks to cough up a hefty settlement as a cost of doing business. According to The WSJ, the trustee is picking on many of the usual suspects: Bear Stearns, J.P. Morgan Chase, Morgan Stanley and Credit Suisse. Those banks will keep their lawyers busy for the next few years fighting these claims. A number of large Wall Street law firms are, as we speak, casting legions of paralegals and young associates into the billable hour fires to burn in the hell-like torture of document parsing and deposition indexing until their brains fry and the partners' wives can all afford a new pair of new Angelina-Jolie-like bee lips.

There are a couple of interesting twists. The trustee has drawn in the FBI and the SEC. Sounds like a three front war for the investment banks, doesn't it? The enemy of my enemy is my friend, eh? This case also presents us with another class of victims: investors, many, if not most, elderly, who chased a yield that seemed too good to be true because it was, and who failed to read the prospectuses provided to them (one with eighteen pages of risk factors) because they were too long and/or contained too much "mumbo jumbo." Typical is Virgil Magnon, 81 years old and out a cool $761,000.

"Small investors like me are not very savvy," says the retired aerospace contract administrator. "My primary interest in investing was to raise enough money for catastrophic medical problems down the line. You could call that greed, but I don't think it's greed. It's trying to get more for your money."

It might also be called stupidity, venality, gullibility, or a number of other things. Every con man who runs a successful "grift" knows that he can't make it work without appealing to the baser instincts of the "mark," whose desire for "something for nothing" blinds him to the risk.

Here's the kind of yield that victims like Virgil were chasing:

"Found: a 24 month investment opportunity yielding 9.14% annually," said a mass mailing from ABFS dated Nov. 14, 2001. At the time, two-year Treasury notes paid about 3%. ABFS's ads touted interest rates of more than 12%.

The yield is over three times that of a comparable Treasury note. That's not just a red flag, that's a red flag the size of Christo's wrapping of the Reichstag. Yet, people just piled on to devour this garbage.

I'm not defending any of the defendants, certainly not ABFS. If there was wrongdoing, then it will likely come out in the wash, inasmuch as there appears to be a veritable army of eyeballs scoping out every nook and cranny of potential liability. The guilty should pay for their transgressions. I also feel sorry for people who've lost so much, but only up to a point. I feel as sorry for them as I do for borrowers who failed to read the disclosure and loan documents provided to them when they borrowed a subprime loan.  They have some responsibility for their own unwise decisions. They may all be "victims," but I suspect that many are not victims who bear absolutely no fault for their current predicament.

What keeps me awake at night are possible claims by subprime borrowers against the purchasers of these worthless notes that allege that by their negligence in purchasing the notes, they enabled ABFS to stay alive and continue its victimization of more subprime borrowers who borrowed money on terms they thought too good be true.

Speaking of suckers related to the residential real estate market, the following is a faux ad that is as bitter as it is sweet (h/t American Digest).

How Low Can You Go?

**WARNING: A LINKED STORY CONTAINS LANGUAGE SOME READERS MAY FIND OFFENSIVE, ESPECIALLY THOSE CURRENTLY RESIDING IN A MONESTARY. PROCEED AT YOUR OWN RISK**

A reader sent me a link to this story before Easter, but it seemed sacrilegious to post about this too close to Holy Week. The story hasn't mellowed with age, though. It's the heart-warming tale of the CEO of a subprime lender trashing a deposition with foul language; in fact, an "F-Bomb" carpet bombing that laid waste to any sense of decorum. Now, this blog isn't exactly a haven of the prim and proper, and "snark" is a word with which we are well familiar, but even wing nuts like us have our limits.

The judged who sanctioned this low-life $29,000 for his behavior watched the videotaped deposition and counted a total of 73 instances where the crud ball dropped the F-Bomb. Reporter Karen Donovan notes that this pales in comparison with the movie Goodfellas, where the word was used 246 times during the film's 145 minutes. Unlike the characters in Goodfellas, however, the potty mouth in this case is only a wanna-be tough guy. All that posturing and tough guy talk, apparently aimed to convince himself that he's "Baaaaad," and he gets his sorry tukus hauled before a judge, and Hiz Honor  slaps him down like a child, notwithstanding his pleading that he's a poor, weak-minded troll who can't help his ejaculatory crudities because he suffers from "anxiety disorder." In other words, he's not really a hard guy, he just plays one on TV.

This clown would have been perfect as an aide to the late, great Eliot Spitzer, but that career path appears closed now, doesn't it? It's nice to see, however, that the prostitute who serviced the Spitz is now getting more than her 15 minutes of fame. Even The Donald wants to "promote" her, which isn't surprising, is it? Maybe there's a place for her in subprime, too. As an "Executive Assistant" to a subprime CEO, perhaps?

According to the story, the tough guy's attorney was caught on camera snickering at his client's antics. Wonderful. And yet, many lawyers appear to resent the fact that ordinary folks would say that, by describing a person as an attorney, you're ascribing to them a blatant character defect. You roll around in the mud with pigs, you get dirty.