Bank Lawyer's Blog

Out With The Old

A year ago, we proposed that the sudden interest of House Ethics Committee Chairman Darrell Issa's interest in pursuing old-hat charges of mischief against certain House members arising out of Countrywide's infamous "Friend of Angelo's" VIP loan program that people like Chris Dodd and Pete Conrad took advantage of, was motivated by pure election year politics. Now that the elections are over, it's hardly surprising that Issa has concluded that there's nothing he can do about the alleged ethics violations, but not because there's no fire beneath the smoke.

The committee said nearly all the allegations of favored treatment involved loans that were granted so long ago that they fell outside the panel's jurisdiction. The committee added, however, that participation in the VIP program did not necessarily mean borrowers received the best loan deal available - and most lawmakers were not even aware they were placed in a VIP unit.

The actions of unnamed House staff members were harshly criticized. Emails indicated they reached out to Countrywide lobbyists for assistance with their personal loans, but those actions also were too old to remain in the committee's jurisdiction. The panel said that if the incidents had been more recent, the staff members could have faced discipline.

In other words, House members' staff were well aware of the benefits of the program and sought preferential treatment, but their bosses were blissfully ignorant. This reminds me of the Soprano's episode where Tony never outright tells Ralph Cifaretto to whack Jackie Aprile, Jr., but artfully words a statement of "support" for whatever decision that Ralphie makes so that Cifaretto knows he's got to put a bullet in the back of the kid's head if he wants to keep inhaling oxygen. Deniability: it's not just for the Mafia.

The use of the statute of limitations rationale as the primary excuse for non-action reinforces the cynic's belief that the modus operandi of Issa, his Democratic predecessor, and all similarly-situated kleptocrats is, when faced with claims of wrongdoing by fellow members of the political class is to putz around for however long it takes to pass the limitations period. By then, most folks will have forgotten completely about the original charges, which is certainly the case with the FOA loans. The only folks with long memories are bloggers with a burr under their saddle.

I find particularly grating the allegation by Issa's committee that there was no evidence that the FOA loan terms were any better than members of Congress could have found elsewhere. So all those members got those particular loans from Countrywide because they liked Countrywide's pretty logo? The criticized staff members "who may have reached out to lobbyists or other government affairs officials at Countrywide for assistance with their personal loans" did so because they all woke up in a Countrywide frame of mind in the morning?

Spare us.

Issa added that his committee found that Countrywide employees viewed their VIP program as a tool to build relationships with those positioned to influence the company's business interests, including government officials.

They hoped to build influence with public officials by offering them loan terms that those officials could have obtained from other lenders. That makes sense, doesn't it?

Applying the theory that when you're being shameless, you might as well give the public The Full Monty, Issa claims that the committee's report is a deterrent to other lenders who might want to set up a loan  program in the future that will attempt to offer politicians the same loan terms that everyone else receives and thereby curry favor with those politicians.

"While short of formally determining a violation, this sends an unmistakable warning to any entity that might try to duplicate Countrywide's lobbying strategy," he said.

Don't worry, Darrell. Only a fictional lender would attempt to duplicate your fictional loan program.

Defending The "Guilty"

In the continuing spirit of the holiday season, I'm deviating from the subject of banking law (and my other favorite topic: bashing politicians) to address a subject near and dear to my heart: the criminal justice system in this country. The following is a repost of an article I wrote a number of years ago for another, more personal, blog, but one I want to repeat, due to some recent discussions with people close to me whose study of our country's legal system seems to have been short-changed by our public school system, as well as by a private university of some distinction. As we are finding out in these difficult times, ignorance is not bliss.

A "blogging buddy" asked me: "I've often wondered how a defense lawyer could defend someone who was guilty, and defend that client with a clear conscience? To me, it's kind of like selling your soul. How do you view it? I know you're supposed to operate on the principal of presumed innocence, but sometimes it's so obvious that the person is, indeed, guilty."

Although I did criminal work early in my career, and I've been a consulting expert to criminal defense teams (as well as to the government) since then, I haven't been a criminal defense attorney in over 34 years. While I have no problem with the question, I may not be the best person to answer it without assistance.

I think Juanita Brooks, a criminal defense attorney at a firm where I was an equity partner "back in the day" (practicing bank regulatory and real estate law, not criminal law), comes very close to my feelings. In an article she wrote for a legal periodical that I have in hard copy but can not find online, she addressed the same topic as follows:  

Confront defense attorney Jaunita Brooks at a cocktail party about how she can, in good conscience, represent guilty people, and her first inclination is to flee.    

"Normally, I walk away and try to engage somebody else in conversation," Brooks says. "But if they won't let me, the honest answer is that I am not the one that makes the judgment about whether the person is guilty or not. My role as a criminal defense lawyer is to keep the system honest. Either a judge or a jury or my client will make the determination (of guilt)."    

Just doing her job. Like her colleagues, Brooks, a partner with McKenna & Cuneo, notes that about 95 percent of all people charged with a crime end up guilty via plea bargaining. (Of the 16,573 felony cases filed by the San Diego District Attorney last year, only 688 went to trial.) So by default, the overwhelming number of clients defense attorneys represent are found guilty of something. The remaining 5 percent, defense attorneys say, have a legitimate need for a trial, with the primary reasons being disagreement over plea bargain offers or belief that the accused is innocent of the charges.

That's the system. It's adversarial. Before the State can deprive a defendant of life, liberty or property (fines and seizures) by virtue of its power to enforce the criminal laws, it must prove the defendant's guilt beyond a reasonable doubt. To do this, the state employs a prosecutor who has, at his or her disposal, the investigative resources of the state, which are considerable, all paid for from the public treasury. The defendant has the right to counsel (and if he cannot afford to retain one, one will be appointed for him by the state). Because the state has the greater resources and the consequences, in a Western society that prizes individual liberty, are so severe, the state has the burden of proof.

As I said, the process is adversarial, and both lawyers have an ethical duty to advocate their client's (state or defendant) position zealously. A judge or a jury makes the determination whether the client is "guilty" or "not guilty." The defense lawyer has a duty to make the state prove its case beyond a reasonable doubt, to attack the holes in the state's case, and to raise every legitimate defense and mitigating fact.

The system doesn't work the way in which it was intended to work if the defense attorney doesn't represent the "potentially guilty" as well as the "potentially not guilty." The "guilty" are separated from the "not guilty" only when the trier of law and fact has made its determination. The attorneys don't make the call. If you want "justice," in the terms of "innocence" and "guilt," human beings can't give it to you. You'd better look to God for that type of "justice." In our society of laws, "the process," functioning as it is intended to function (with all the flaws to which fallible human beings can subject it), is the best form of "justice" a civilized society can construct here on Earth, in my opinion.

I accept this system, which has evolved out of the British common law system, and has been adopted by the U.S. and all of the current and former members of the British Commonwealth. If you feel otherwise, try to change the system to something "better." Obviously, enough citizens feel that, on balance, it provides enough "rough justice" that they refrain from "self-help" (vigilante action), except in isolated instances that are usually, themselves, punished by the system.

I never felt bad about doing the job the system expected me to do and that I agreed to do, which is not to judge "guilt," but to provide the best defense to the prosecution's charges that I can provide. I would have felt worse if I hadn't done my best.

It's rarely that cut and dried, of course, which makes the question more theoretical than realistic. If to a defense attorney a client is "obviously guilty" of the crime with which he or she is charged, that means that the prosecution's unimpeachable evidence is very strong and the defenses are poor. In such a case, the defense attorney will do his or her best to get the most favorable plea bargain for the client, and make a recommendation to the client to accept it. The client makes the final decision, not the attorney.

I don't want to rehash my previous posts (here and elsewhere), because I've covered this same ground previously. Suffice it to say that I can't see how it would bother a defense attorney to defend a client who "obviously" (to the defense attorney) committed a crime. To not defend the client would be standing the system on its head. If it bothers you, don't be a criminal defense attorney. Do something else for a living.

Like offering counseling to an obviously evil person, for example. I just don't know how a person could do that. :-)

"I was once asked by a minister, 'How can you represent guilty people?'" says Carmela Simoncini of Appellate Defenders Inc. "I asked him, 'How can you preach to sinners?'"

We Wish You A Merry [Fill In Blank]

It's Christmas week and many of my regular readers are spending time doing more useful things than reading this blog. Such as sleeping. Therefore, my blogging will be light-to-nonexistent until the new year. Before I slack off, however, I want to wish those of you who celebrate a religious holiday during this period a Merry Christmas or Happy Hanukkah, and for the nonbelievers, either a Joyous Festivus or the following politically correct, incredibly annoying, salutation, adapted from the Urban Dictionary:

Please accept my non-denominational holiday wishes with no obligation, implied or implicit, my best wishes for an environmentally conscious, socially responsible, low-stress, non-addictive, gender-neutral celebration of the winter solstice holiday, practiced within the most enjoyable traditions of the religious persuasion of your choice, or secular practices of your choice, with respect for the religious/secular persuasion and/or traditions of others, or their choice not to practice religious or secular traditions at all. I also wish you a fiscally successful, personally fulfilling and medically uncomplicated recognition of the onset of the generally accepted calendar year 2013, but not without due respect for the calendars of choice of other cultures whose contributions to society have helped make America great. Not to imply that America is necessarily greater than any other country nor the only America in the Western Hemisphere. Also, this wish is made without regard to the race, creed, color, age, physical ability, religious faith or sexual preference of the wish.

TARP Profits Continue To Grow

Back in February, I noted that TARP had yielded a profit for the US Treasury of $20 billion. Notwithstanding the fact that the program is now down to the "harder-to-exit" smaller banks that might not be as attractive to potential purchasers of the preferred stock that the Treasury still holds, the profit figure is now up to $23 billion. While that's a drop in an ocean of federal debt, it's nothing to sneeze at. What I said earlier, I'll say again:

Opponents of the original TARP will never admit that they might have been wrong about the need for the program to save the economy from ruin. The fact that the Treasury has already made a profit on its original TARP investments ($20 billion so far, according to the linked article) is meaningless to them. I guess they wanted to let the "creative destructive" forces of a "pure market system" work their magic on all of us, and if we ended up standing in bread lines, they'd say that was a hard lesson learned and that we're all the better for it. I don't have the energy to tell them that not only is God dead, but so is Ayn Rand.

Even if the remaining $8 billion is written off (it won't be), the program still ends up in the black. Not bad for a much-maligned "bailout."

Of course, the Treasury may have a problem getting potential investors to pay as much as they might have in future TARP stock auctions now that one bank has stiffed an investor on TARP stock dividends (paid subscription required). The fact that those dividends are noncumulative makes it risky when small banks decide that, while it was their patriotic to pay the US Treasury, it's perfectly fine not to pay investors who bought their TARP stock from the Treasury Department.

"This is a good lesson as to what risks buyers need to be aware of with small banks," said Doug Faucette, a lawyer at Locke Lord. "That's why they call it stock."

I think that's an astute observation. However, I wish that bank the best of luck if it ever finds itself in need of capital from private equity investors in the future. PE hates it when Main Street starts acting just like Wall Street.

Georgia On My Mind

From the "that was quick" department comes the news (via Kevin LaCroix's D&O Diary) that a mere week after a jury rendered a verdict against a group of former IndyMac officers and in favor of the FDIC on a D&O lawsuit, the former CEO of IndyMac, Michael Perry, settled his FDIC lawsuit for $1 million and an assignment of his claims against IndyMac's D&O insurance carrier. As Kevin astutely observes, "the FDIC’s settlement with Perry also appears in large measure to be about the D&O insurance."

In other words, it appears that the $11 million insurance portion of Perry’s settlement with the FDIC basically represents a claim check for the agency to try to redeem in the interpleader action. Because there are numerous other claimants each attempting to assert their own claims to the insurance proceeds, it will remain to be seen how much of the $11 million insurance portion of its settlement with Perry the FDIC will ultimately collect.

Kevin also noticed another interesting aspect of the settlement agreement.

[T]he FDIC expressly acknowledges that the FDIC’s complaint “does not allege that Mr. Perry caused the Bank to fail or that he caused a loss to the FDIC insurance fund.” Nevertheless, on December 14, 2012, the FDIC entered – apparently with Perry’s consent – an Order of Prohibition from Further Participation (here) reciting that Perry “engaged or participated in unsafe or unsound banking practices” at IndyMac; that these practices "demonstrate [his] unfitness" to serve as a director or officer at any FDIC-insured institution; and prohibiting him from involvement in any financial institution. The Am Law Litigation Daily article quotes Perry’s counsel as saying with respect to this order, to which Perry consented, that “the FDIC extracted this condition at the eleventh hour because they could,” and that “the FDIC knew Perry was out of insurance funds, and they took advantage of the situation."

"Were not alleging that he caused a loss to the insurance fund, but we're alleging that he engaged in unsafe and unsound practices and must be banned from the business until hell freezes over."

Only lawyers could think of getting away with serving up such contradictory baloney with a straight face. Then again, when a large segment of your profession is basically shameless, its not such a stretch.

Kevin's blog post also discusses a recent FDIC lawsuit against former officers and directors of a failed Georgia bank as evidence that the FDIC has it in for the land of peaches. One third of all FDIC lawsuits arising out of the current crop of bank failures have been filed against officers and directors of Georgia banks (even though Georgia bank failures represent 18% of all failures), and the last four lawsuits filed by the FDIC all involve failed Georgia banks. That's good news for Georgia defense lawyers (and FDIC lawyers, for that matter), but a lousy omen for Georgia bankers. When I made the statement in one of my recent speeches that being a bank officer or director was the equivalent to being a featured actor in "The Hurt Locker," I didn't have Georgia on my mind, but I should have.

An in-house counsel for one of my good clients recently said candidly over lunch, "Why would anyone want to be a community bank director, given the FDIC's perfect 20/20 hindsight, exercised years after decisions are made?" I couldn't think of an answer for that one. Certainly, in Georgia, I wouldn't sign on to a directorship without combat pay.

Gigging Sharks For Christmas

As a client alert issued by the law firm bearing my favorite acronym (MoFo) put it so well, last week "Congress gave banks and other ATM operators an early holiday present."

On December 11, the Senate unanimously passed S. 3204, which eliminates the external fee notice requirement in the Electronic Fund Transfer Act, 15 U.S.C. § 1693, et seq. (“EFTA”). The House passed an identical bill, H. 4367, last July. The President is expected to sign the measure into law.

I'm not sure which holiday they were discussing, but I assume it was either Christmas, Hanukkah, or Kwanzaa. I doubt MoFo celebrates Festivus.

Once the law goes into effect, ATM operators will be required to give only the on-screen notice of transaction fees. The additional external notice that's currently required will go the way of the TAG.

As MoFo notes, this law will do away with the plethora of "frivolous lawsuits" that bottom-feeders and their shark enablers have been using to squeeze settlements out of banks and credit unions whose only offense was, in many cases, not having the external signs booby-trapped with claymore mines to discourage "unknown perpetrators" from stealing them shortly before plaintiffs' lawyers photographed the absence of signage and used that absence as the basis of a lawsuit on behalf of plaintiffs who used the ATM shortly after the external signs disappeared. Sure, some of those plaintiffs gave us an occasional cause to grin, but, for the most part, they were as welcome as would be Charlie Sheen as the keynote speaker at the Sisters of Charity Federation annual convention.

Unfortunately, there remains plenty of ATM-related chum to attack the predators. The ADA, for example. Where there's a financial remedy tied to a solvent defendant, the plaintiffs' bar will always find the basis for a claim, no matter how far into the ionosphere they have to travel to find it.

She's Baaaaaack!!!!

In the aftermath of last month's stalemate at the polls, I pointed out one perverse bright spot: Lizzie Warren would be a member of the US Senate and, therefore, potential blog fodder. The announcement that she's achieved her deepest longing, and been appointed to the Banking Committee, not only sent  left-wing mouthpieces like David Lazerus into orgasmic ecstasy, they've guaranteed me at least four years of unrestrained whack-a-mole bliss. As one reader emailed me, the bankers thought they'd killed her off, but she's risen from the dead to eat their eyeballs and has, thus, become: "Zombie Lizzie." So, you see, "it's all good."

Speaking of "all good," I suppose most of you have seen by now the video of the Oklahoma bank employees who were "rewarded" by management for good behavior by being permitted to make a Gangnam Style music video. For those of you who've not yet seen it, here it is:

To me, this demonstrates conclusively that when you live in the buckle of the bible belt, you simply cannot "get jiggy with it" in convincing fashion. My props to the peeps for the effort, though.

Of course, it's tough for any bankers to compete with the Gangnam Styler-In-Chief.

More Mailbagging

A few recent emails are worth a comment (or three).

1.    A credit union trade official wrote to comment on my recent spate of blog posts regarding news reports about the brutally different results for robbers who pick on credit unions versus robbers who pick on banks. The latter are apt to be apprehended with their persons intact, while the former are apt to meet their maker, then meet his evil twin "Skippy" (aka "The Dark Price"). My correspondent intimated that I might be leaning toward the bankers on this matter, due to some sort of suppressed pacifist tendency that, if not nipped in the bud, might flower into a marijuana brownie-munching, Birkenstock-wearing meltdown. He thought I might soon be shouting "When guns are outlawed, only credit unions will have guns!"

Rest assured: I will never wear Birkenstocks.

2.    Last night's ramble regarding IndyMac officers who did not "beat the rap" prompted one financial institution attorney to wonder when the defendants would demand indemnification from New York Senator Charles "Chuckles" Schumer, and then answer his own question with "Oh wait, I forgot he doesn't have to answer for his actions . . ." A man after my own heart.

Long-time readers may recall my many potshots at that cretin esteemed member of the US Senate when his election year electioneering precipitated the run on IndyMac that forced the OTS to close it. Not that the OTS would not have had to close the steaming heap of goat custards that comprised IndyMac eventually, but that agency and the FDIC might have made a more orderly transition to oblivion than the lines-around-the-block debacle that Schumer's "leakage" precipitated. I reminded my correspondent that my original lambasting of Chuckie Cheese earned me a-whole-lotta-hate from leftards and moonbats, including one prominent, New Yawk City-based, bank-hating blogger who just about had to invent an entirely new language in order to articulate epithets vile enough to accurately describe my bovine nature. Man, that was a sweet memory!

3.    Finally, to the reporter who wrote to complain that she "didn't like me" because, in an off-the-cuff comment in a throwaway line in a blog post of over six months ago that was read by maybe three people (two of whom are related to me), I "twisted her words": please accept my most Grand Canyon-esque yawn of abject inertia. I deny that I twisted anything, least of all your words, but now that I know that I bug you without consciously attempting to do so, I'll be sure to not only twist your words, but your tail, whenever the opportunity presents itself. This is what happens to "one" when "one" takes "oneself" seriously, quite often by referring to "oneself" in the third person.

Keep those cards and letters coming kids. I don't have time to respond to them all, but I enjoy even the barking mad ones.

IndyMac Hands Round One To FDIC

When federal district court judge Otis T. Wright, II, ruled last year that bank officers in California did not have the benefit of the Business Judgment Rule, I thought that was a bad omen for the defendants in the case, former officers of IndyMac. Last week, the axe dropped on those defendants, when the jury in the case found that the defendants were both negligent and had breached their fiduciary duties, and awarded the FDIC $168.8 million. I don't know about you, but an adverse judgment of that size would throw a wet blanket over my Christmas spirit.

Kevin LaCroix analyzed the decision and speculated that even if the officers had had the benefit of the Business Judgment Rule, they may have lost the case anyway, because the jury found that they had breached their fiduciary duty of due care. I don't think that's necessarily true, but at this point, we won'r know. The case is sure to be appealed, on among other grounds the allegation that the judge erred in his ruling on the applicability of the BJR to officers, as well as the application of California, not Delaware, law to decide the question (as we discussed in January). There's a split in authority at the federal district court level in California that needs to be clarified. Whether these defendants will now settle (if that's possible), or whether this case will be appealed, remains to be seen.

The defense attorneys I've chatted with on a preliminary basis think that since this is the first jury decision on a case arising out of the current crop of FDIC lawsuits, it is likely to encourage the FDIC to bargain hard, at least facially, on the issue of whether or not the economic collapse of 2008 was reasonably foreseeable by reasonably prudent officers and directors of failed banks. Obviously, defendants in these cases have strongly asserted that it was not. On the other hand, the defendants in this case worked for one of the poster children of the debacle, IndyMac. Juries are composed of your "peers" and in case anyone hasn't noticed this fact, your "peers" are pissed at banks generally, and failed banks in particular. OK, primarily at Wall Street banks that were bailed out, but failed banks come in a close second, especially high profile failures like this one. I don't know whether that same degree of anger would also play out among members of a jury who are also members of a community where the former officers and/or directors involved are respected participants and who aren't subject to the allegation that they were pumping up profits to milk bonuses from the bank at any cost, which was the FDIC's story line in the IndyMac case. Nevertheless, the defense "It was the economy, stupid" didn't get rave reviews on opening night.

As Kevin notes, this story is far from over.

The just completed trial apparently represents only the first trial phase of this matter. There apparently will be a separate trial phase that will address the FDIC’s allegations as to scores of other loans as well as allegations with respect to the bank’s loan portfolio as a whole. The FDIC apparently is seeking total damages of more than $350 million. In addition, the FDIC’s separate case against Perry, the bank’s former CEO, will continue to go forward as well.

Given the magnitude of the jury’s verdict, there undoubtedly will be post-trial motions and, after the conclusion of all remaining trial phases, appeals as well.

Moreover, as Kevin also discusses, collecting the judgment may be a tough nut to crack. Thus far, there does not appear to be an insurance fund available that hasn't been drained by defense costs. This is another issue that may be subject to permutations by appellate court decisions.

Bank of America Propels Young Lawyer To Fame and (Potential) Fortune

Eighteen months ago, we made the official call: "B of A has become the poster child for foreclosure dysfunction." Of course, we were way late in throwing that flag, but unless we could belabor the obvious, we'd be out of blogging material.

The incident that prompted our banal observation was the sweet foreclosure by a wrongfully foreclosed-upon Florida couple upon a Bank of America branch, a theatrical performance engineered by an attorney only eight months out of law school. It turns out that the lawyer, Todd Allen, has turned his fifteen minutes worth of fame into a potential career in Hollywood.

Allen said his life has changed quite a bit. He never anticipated getting nationwide attention.

"After that, my career took off," said the 35-year-old East Naples resident who is originally from Utah. "I started getting a lot more business and a lot more referrals."

Allen, of the Naples firm Goede & Adamczyk, is voluntarily taking more free cases and quickly became a national media source for the foreclosure crisis.

[...]

What surprised Allen the most was receiving calls from people out of the state all facing foreclosures, he said.

[...]

In summer 2011, Allen and the Nyergeses signed with a producer in Los Angeles and entered into a contract to make a movie.

"The idea is being shopped around to movie houses but nothing has happened yet," Allen said.

Allen said he doesn't have a preference of which company decides to do the film as long as the scope of the foreclosure crisis and the impact it has on people is accurate.

When asked who he wants to play his part, the married father of three children said he really doesn't care.

"I just want it to be funny," he said of the movie.

I'm sure it will be funny Todd, although The Daily Show "report" on the incident will be difficult to top.