A Tiny Bank’s Surreal Trip Through a Fraud Prosecution
nytimes.com
nytimes.com
Hopefully he'll get some actual opposition in an election soon, he's an embarrassment to the city at this point.
Uhm... I deeply hate pulling the race card, but I would be tempted for this individual. Particularly, when the prosecution's star witness is the fraud master himself.
If I had to guess, it probably had a lot to do with them being relatively weak, small, mostly serving an immigrant community, and having no connection to the local power structure. Going after JP Morgan would be, well...awkward. Going after Abacus was easy.
It's not because Jamie Dimon is white and Thomas Sung is not; that was just a more-or-less inevitable consequence. (In employment law, this is called a "disparate impact".)
His actual reasoning is sadly irrelevant to how you mount your defense.
I doubt it was the actual reason, but the actual reason, sadly, is not very important in a PR war in politics.
> “When confronted with loan after loan in which the paperwork was allegedly falsified, a grand jury voted to indict the bank and other individuals,” her statement said. “Eight individuals publicly accepted criminal responsibility for their roles in this conspiracy by admitting to crimes they committed while employed in Abacus Bank’s loan department.”
A different article has more details on the indictment: http://www.bloomberg.com/bw/articles/2013-01-31/mortgage-fra....
> Abacus lied about applicants, Vance charged, because otherwise its loans wouldn’t have met Fannie Mae’s income requirements, and the bank depended on Fannie’s money for a significant chunk of its profit. The indictment stated that between 2005 and 2010, Abacus sold hundreds of millions of dollars of fraudulent mortgages to Fannie, reaping many millions of dollars in commissions and fees.
The other article also has descriptions about the "cooperation" missing from the NYT article:
> The Abacus clients whose aborted closing sparked Ken Yu’s termination lost their deposit on the property when the loan fell through. They went to the police and filed a complaint, mentioning that Yu had falsified their mortgage application. The police referred the matter to the DA. Abacus says it had already launched its own inquiry at this point, and that by mid-2010 it had hired two well-regarded fraud consultants, Vitale AML and the Mercadien Group, to do external investigations. The DA’s office declines to specify when its own investigation started, but says the bank only brought in the outside consultants after prosecutors started asking questions.
The NYT article also leaves out the gist of the reason the bank was indicted rather than just the individual employees:
> In April 2011, Yu pled guilty to grand larceny, fraud, and falsifying business records, and is cooperating with the investigation. Six others have also taken pleas. The DA’s argument is that fraud was standard operating procedure at Abacus, that it was taught there, not just tolerated. New employees with no banking knowledge and rudimentary English were instructed that mortgage origination was an act of financial sleight-of-hand: fake gift letters, fake verification of employment forms, blatant misrepresentations on loan application forms. The accused employees include Yiu Wah Wong, the bank’s chief credit officer, who reported directly to Jill Sung; and Wai Hung “Raymond” Tam, the loan origination supervisor, who trained the bank’s loan officers and processors. According to the indictment, the two managers “falsely told employees that the exceptionally low default rate of Abacus-originated loans made the underlying accuracy of loan documents insignificant.”
And on the opposite side is a myriad of proceedings, of which the bank was exonerated, on every. single. charge.
> The Abacus clients whose aborted closing sparked Ken Yu’s termination lost their deposit on the property when the loan fell through. They went to the police and filed a complaint, mentioning that Yu had falsified their mortgage application. The police referred the matter to the DA.
> its loans wouldn’t have met Fannie Mae’s income requirements, and the bank depended on Fannie’s money for a significant chunk of its profit.
> In April 2011, Yu pled guilty to grand larceny, fraud, and falsifying business records, and is cooperating with the investigation
> The accused employees include Yiu Wah Wong, the bank’s chief credit officer, who reported directly to Jill Sung; and Wai Hung “Raymond” Tam, the loan origination supervisor, who trained the bank’s loan officers and processors
The NYT article in contrast spins this whole utterly irrelevant narrative about an immigrant-founded bank.
Note also that there are two separable questions: 1) why was the bank prosecuted; 2) was the bank guilty. The two questions are related, but distinct. The NYT article is about (1) not (2). What's relevant to (1) is what facts and testimony the prosecutor has available when he decides to prosecute. There was plenty of facts and testimony to justify this prosecution. If this were HSBC instead of a small bank people on HN would be furious if the prosecutor didn't go after the bank with the kind of evidence he had.
The fact that the prosecution ultimately lost does not mean, as the article suggests, that the prosecutor was wrong to bring the case in the first place. If prosecutors could predict what evidence juries would credit at the end of the day, there would be no need for trials.
But what did the prosecutor do instead? He gave Yu a plea deal to try and indict the bank. Which went no where.
Also from the Bloomberg piece - "But in the wake of the financial crisis only one bank in the whole country has, as an institution, been criminally indicted for mortgage fraud: Abacus."
And that bank was exonerated on every charge.
So what it -looks- like, is a DA's office that wanted to get a high profile case, leaped at the chance to try and pin something on a bank (a small one, that won't have the legal counsel that a large one would have, and won't risk making real enemies), despite having very little to go on, and they couldn't make anything stick.
Or, sure, it could be that this little bitty bank was into some shady stuff but was so good that even though their plan to play nice with the DA early on by turning over info didn't work, they were still able to recover and convince a jury of their innocence. I'm really inclined toward the former though.
Besides the unfortunate but I suppose inevitable detail that the applicants lost their deposit to the property owner, nothing new or unacknowledged by the bank.
its loans wouldn’t have met Fannie Mae’s income requirements, and the bank depended on Fannie’s money for a significant chunk of its profit
The jury, AKA the finders of fact, disagreed with the allegation at the beginning of that snippet, the latter is just gilding the ragweed.
ADDED: as FireBeyond notes, ~30K/year isn't much profit. Per this http://www.ibanknet.com/scripts/callreports/getbank.aspx?ibn... its most current annual net income is 430,000, but that's certainly weighed down by the 10 million the NYT article reports they had to spend defending themselves. So ~30K/year is, as our intuition suspects, minuscule, certainly not "a significant chunk of its profit".
In April 2011, Yu pled guilty to grand larceny, fraud, and falsifying business records, and is cooperating with the investigation
Entirely congruent with the claimed actions and position of the bank, and mentioned in less detail in the NYT article.
The accused employees include Yiu Wah Wong, the bank’s chief credit officer, who reported directly to Jill Sung; and Wai Hung “Raymond” Tam, the loan origination supervisor, who trained the bank’s loan officers and processors
Well, yeah, and mentioned to some degree in the NYT article, but, again, the finders of fact disagreed with the prosecutor's allegations.
See, this is one of those facts that is more disputed than you seem to describe.
Sung noticed discrepancies, multiple checks to be written out, which were incongruous with common practice, called Yu to explain what was going on. She then noticed him outside the branch talking animatedly to the borrowers, and realized something wasn't right, and stopped the finalization of the loan.
"She begun investigating, and found trails of several fraudulent loans. By the following Monday, Yu was fired."
So less than a week from the incident to his dismissal.
Yet to listen to the DA, the bank only acted after the prosecutors began asking questions. Do you see the Manhattan Police and DA turning that (a fraud complaint) around into a criminal investigation into a bank in four business days or less? Or is the bank's story, that yes, this was happening, was discovered and the employee "immediately" terminated (because even for a small bank that's still a quick turn around in investigating financial fraud and falsified business records) actually accurate?
"> its loans wouldn’t have met Fannie Mae’s income requirements, and the bank depended on Fannie’s money for a significant chunk of its profit."
Yet the article states that the bank only received $120K in servicing fees across all Fannie Mae loans in several years. I'm not sure even a small bank sees $30K/year divided amongst however many mortgages (only a small fraction of which were determined to be fraudulent) as a "significant chunk of profit".
"If this were HSBC instead of a small bank people on HN would be furious if the prosecutor didn't go after the bank with the kind of evidence he had."
Perhaps if HSBC did as this bank did and fire all employees found to be in on this, rather than awarding them bonuses and promotions, people would be a lot less furious?
They were exonerated from all charges after trial, wouldn't that make the pre-trial "facts" supplied by the DA/prosecutor the non-factual narrative in this case?
> Abacus sold hundreds of millions of dollars of fraudulent mortgages to Fannie, reaping many millions of dollars in commissions and fees.
Yeah, but from the article: "And what of the prosecutors’ claim that Abacus was driven by greed to conduct the fraud? Figures provided to jurors show the bank has made a modest $123,000 in servicing fees on the loans."
And while you do a good job quoting the prosecutors theory about the bank, it's worth repeating that the jury disagreed pretty thoroughly. At a minimum we can say the prosecution completely failed to prove their theory. And I'd go further: I'd say that the details which have come out bring into question the entire prosecution.
He was the first one found to be doing these things, and was also fired before any of this saw the light of a courtroom, because of suspicions raised by the bank, not the aggrieved mortgagees. He has no possible incentive to spin himself as a mere pawn, whatsoever. /s
"The DA’s argument is that fraud was standard operating procedure at Abacus, that it was taught there, not just tolerated."
Of course that was the DA's argument. The jury disagreed pretty vehemently, however (and whatever the NYT's 'spin' on 'small independent immigrant bank doing its best' is, let's face it, most people are going to be looking for 'greedy bank' when called to judge the situation of mortgage origination fraud).
And, the DA's was going to manage the $2M collateral? What a sham!
False convictions happen. So now it's just a question of taking the known cost now, or a gamble on a much higher cost after the trial.
Very bad situation, this.
Being thrown charges until something sticks is akin to being interrogated until something / anything damning is found against you - an inquisition.
It's not shifting perceived risk, it's shifting real risk. If you're not charged for something, you're probably (right? correct me if I'm wrong?) not going to get convicted for it. If you /are/ charged for something, there's a chance you're going to get convicted for it.
Terrible things don't mostly happen because people are monsters, they happen because people are apathetic to others' problems and value their own convenience and gain above all else.
Can't speak to local DAs in bumfuck eygpt. Maybe they are trying to avoid losing by any means necessary.
TFA seems to illustrate the opposite.
The real effect is simply a much harsher one: If you're poor you're going to jail, guilty or not and if you're wealthy you can afford to defend.
The employees in question were highly placed: "The accused employees include Yiu Wah Wong, the bank’s chief credit officer, who reported directly to Jill Sung; and Wai Hung 'Raymond' Tam, the loan origination supervisor, who trained the bank’s loan officers and processors."
This isn't a case where you have to connect a chain of events between a third-world branch of a megabank all the way to someone who matters. It's neat and self-contained, and easy for a jury to understand.
And the bank is (fortunately) wealthy enough to defend itself. That of course did not stop the prosecutor from going after the employees.
Really. Bank discovers internal fraud, goes after the main perpetrator who then turns star witness for the prosecution. It's a giant mess with the prosecutors having considerable egg on their face.
The relevant sentence in the article is:
"Facing indictment and the threat of long prison sentences, eight Abacus loan department employees entered guilty pleas and agreed to cooperate with the district attorney’s investigation."
So according to the article it was the threat of long prison sentences that caused them to enter guilty pleas, not that they were in any way found guilty after a trial.
In short: there was no trial, so whether or not the case against them would fall apart if there had been remains to be seen.
But the article strongly suggests that the main culprit set up underlings to defer to his higher authority. That makes them a lot less culpable than the indictment would make you believe.
If anything, the prosecutor's loss highlights why prosecutors haven't gone after the big banks. If they can't even get a conviction with multiple loan department employees pleading guilty and testifying on behalf of the prosecution, imagine going after a big bank, where the link between the wrongdoing and the central command will be far more tenuous.
The malfeasant employee seems to have joined the prosecution against the bank only to relieve the pressure on himself and to distract attention (when in my opinion he should have been the one charged and the bank should have been commended on their handling of the case).
The other employees may have been negligent but do not appear to be malicious, if it wasn't for the alert eye of the director this could have gone on for a lot longer.
All in all this case seems to be a net loss for everybody.
What HSBC did went - as far as we can see from the outside - right to the top and required a lot more than a rogue employee.
It does not look like a single "rogue employee" but multiple employees in the department. Of course that doesn't mean anyone at the top is to blame, but one can see why the prosecutor would draw that inference.
> What HSBC did went - as far as we can see from the outside - right to the top and required a lot more than a rogue employee.
What about HSBC went to the top? The only thing from the indictment that was a policy from the top was not classifying Mexico as a "high risk" country for money laundering controls purposes. There wasn't even a "single loan officer . . . [who] joined the prosecution against the bank only to relieve the pressure on himself" willing to testify that a higher up made that classification decision with specific intent to profit from money laundering.
If there had been a witness like Mr. Yu in the HSBC case, the government would've settled for a lot more than it did.
http://www.law360.com/articles/419166/the-most-unlikely-fina...
I suspect the real reason is the quote at the bottom of the page:
"Vance — and by extension, New York’s entire state and federal regulatory regime — gain credibility for their tough stance against an allegedly sketchy institution. The mere indictment builds political capital, regardless of whether there’s any factual basis for their claims."
In other words: this case was brought to Enhance Vance's stature, not because of the gravity of the case.
Yu's supervisor was as far as I understand the case the only other person that should have faced charges, the rest is either operating on instruction from Yu or simply did not know about it and did the right thing once the situation came to light.
Yu's supervisor should have probably caught this in an earlier stage, it went on for too long.
Quoted from the Forbes article:
> If Ortiz thought Swartz only deserved to spend 6 months in jail, why did she charge him with crimes carrying a maximum penalty of 50 years? It’s a common way of gaining leverage during plea bargaining. Had Swartz chosen to plead not guilty, the offer of six months in jail would have evaporated. Upon conviction, prosecutors likely would have sought the maximum penalty available under the law. And while the judge would have been unlikely to sentence him to the full 50 years, it’s not hard to imagine him being sentenced to 10 years.
> In this hypothetical scenario, those 10 years in prison would, practically speaking, have consisted of six months for his original crime (the sentence Ortiz actually thought he deserved) plus a nine-and-a-half-year prison term for exercising his constitutional right to a trial.
[0]: http://www.thecrimereport.org/viewpoints/2014-01-how-plea-ba...
[1]: http://www.forbes.com/sites/timothylee/2013/01/17/aaron-swar...
There are federal sentencing guidelines, which are almost always used. It's a matrix and you can know pretty much what you face if you are found guilty.
It's also not correct to label a plea deal as what the prosecution thought they deserved. They factor in the cost of trial and probability of success. It's like any negotiation.
It's true that a plea deal is not what the prosecution `thought they deserved'. Too often, it's whatever they think that can get the defendant to agree to, and has little connection to justice.
The particulars of the Swartz case were meant to be indicative of the larger problem, and he certainly had access to good legal counsel. Nevertheless, that 6 months quote comes from the prosecutors press release [0]:
> The prosecutors recognized that there was no evidence against Mr. Swartz indicating that he committed his acts for personal financial gain, and they recognized that his conduct – while a violation of the law – did not warrant the severe punishments authorized by Congress and called for by the Sentencing Guidelines in appropriate cases. That is why in the discussions with his counsel about a resolution of the case this office sought an appropriate sentence that matched the alleged conduct – a sentence that we would recommend to the judge of six months in a low security setting. While at the same time, his defense counsel would have been free to recommend a sentence of probation. Ultimately, any sentence imposed would have been up to the judge. At no time did this office ever seek – or ever tell Mr. Swartz’s attorneys that it intended to seek – maximum penalties under the law.
Contrasted with her earlier press release [1].
> AARON SWARTZ, 24, was charged in an indictment with wire fraud, computer fraud, unlawfully obtaining information from a protected computer, and recklessly damaging a protected computer. If convicted on these charges, SWARTZ faces up to 35 years in prison, to be followed by three years of supervised release, restitution, forfeiture and a fine of up to $1 million.
[0]: https://www.techdirt.com/articles/20130117/02090421710/carme...
[1]: http://web.archive.org/web/20140625220211/http://www.justice...
(Link to archive as the page has since been taken down)
Also bonus reading on the connection to mandatory sentencing laws exacerbating this process:
[2]: http://www.nytimes.com/2011/09/26/us/tough-sentences-help-pr...
This is really the core of it. You are punished for daring to exercise your right to a trial. The only solution for this that I've been able to see is to end plea bargains. This, combined with a right to speedy trial, will result in prosecutors only being able to go after a small fraction of the cases they currently pursue. Which means less focus on victim less crimes (assuming the prosecutors have any morals left which is admittingly a dubious assumption).
Lesser, but still valid issues may remain when you are indeed guilty, but feel that plea bargaining or sentencing recommendations are out of proportion, unrealistic or whatever. "Hey, contest it. If you lose, you suffer. If you win you suffer, 'less'."
Meanwhile the burden of "expensive" trials, lets be honest, falls largely on the accused, not the state, who has (for all intents and purposes) and unlimited budget (especially at the federal level) - while not strictly accurate, I realize, if there's enough determination, you will suffer that - how often does the government dismiss cases because they are "too expensive to prosecute"? Compare and contrast to the myriad of people who have no option but public defenders.
Arguably that is what happened to banks that are "too big to jail" (with expenses to both the government and society at large). This does not make the situation seem any better or fairer.
For them, I'm ok leaving the punishment at _1x_. :)
You're not being realistic. Structuring the court system so that the most expensive option to the public is also the option with best expected outcome for the one selecting options is obviously inefficient. And an inefficient justice system is a bad justice system. Many of the problems with the justice system today stem from lack of funding and you're just proposing to make the situation much worse.
You have to define what you mean by efficiency before you can declare that one system is more efficient than another. I agree that the post you are replying to proposed an expensive system, but it may be more efficient if your efficiency metric takes time spent by innocent people in jail into account as a cost.
This is not to say that all prosecutors are railroading sociopaths, of course not. But there is a valid question in the sense of "should a prosecutors role be to a) see the guilty punished, or b) to see the most convictions?".
Obviously there's a threshold - how do you do so without a 'mini trial' of sorts (which I get is part of the purpose of the grand jury)? And where the plea deal is initiated by the defendant, then this is waived.
I'm not outright against plea deals. But I do think they are massively overused here in the US, and there needs to be some safeguards that you're not shoehorning someone into something, just to get anything.
1) the re-election of DAs and / or prosecutors, and;
2) the desire to minimize the cost of prosecuting cases, with a lack of acknowledgement of the massive disparity in power and little to no concern for those steamrolled in the name of such efficiencies.
Many of today's problems with the justice system do indeed stem from funding issues, but rarely on the prosecutorial side. Instead you have overworked, underpaid public defenders who may many times only meet their clients just before opening statements, even on more complex trials.
Leaving aside the question of zealotry in things like The Innocence Project, many of these cases have issues related to defense ineptitude, not (just) prosecutorial misconduct or misguidance. And by ineptitude, I don't mean active or otherwise incompetence (though there are certainly instances of this), but instead, details and problems that slipped through the cracks because a defendants counsel was too unfamiliar, too overworked to be able to provide the best or necessary defense. Tales abound of missed submission dates, witnesses not interviewed or called, and the like.
If there's funding issues to be found, it's this, rather than 'how do we make the prosecution's life easier/better?'.
And there's the minor detail that US crime has dropped dramatically from its recent peak; per the thesis of Arrest Proof Yourself, without a steady diet of "the clueless" being run through the system on petty crimes at worst, many police units and courthouses would have to lay off people, and that wouldn't do.
But I'm troubled by the apparent consensus here that offering plea deals violates a defendant's rights. I find that thinking in terms of rights isn't even helpful. Think in terms of outcomes.
You seem to believe that a bigger portion of the pie should be shifted to public defenders from prosecutors. Fine, I'm not arguing that you're wrong, but the money comes from the same pot. Having an incentive to spare the public the cost of a trial when the defendant acknowledges his own guilt is common sense.
Because rights shouldn't come with punishments for using them. This would be like the government being outright allowed to buy the votes from people by means of tax relief if they don't vote (which equates to a tax on those who do vote). Or imagine if the government instituted a tax of $300 per month for having any medium able to communicate (phone, computer with internet access, etc.) but then gave an equal amount tax relief to anyone who agreed to not communicate about certain topics. This would equate a tax on those forms of speech.
I would greatly prefer an honest accounting of my actual rights and the costs associated to using them. I think we would have much better justice system if less lip service was paid to "rights" and more attention was paid to costs and outcomes.
"In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, [...]"
So if everyone started demanding trials for speeding tickets, they would probably just switch them to civil offenses instead of criminal ones, where they already aren't.
The only solution is for actual service was provided to rights. Anything else is unethical and will justify and necessitate extreme violence to overthrow.
So, here is my reasoning: you say that you think it's a good idea to punish people for getting a fair trial. If you punish people for something, then it's inherently not a right, because if it's a right then the goal is for everyone to have one if they want it. Thus, you think that people should not have the right to a fair trial.
Note that I asked for clarification rather than just stating that this was your position, because I wasn't sure. So your upset response does not make sense to me.
Further, I don't understand why you find that phrasing to be distasteful, since you seem to be against the notion of phrasing things in terms of "rights" anyway. If you think "rights" are not a useful concept here, why is it wrong to say that you don't believe people should have the right to a fair trial?
And as to the 'framework of rights', this isn't merely a framework by which one operates a legal system but the very foundation of one. If we drop the notion of rights (and the less mentioned but just as important duties) we end up with no system at all.
If we do not have rights (nor duties) then what point is there to a system to is there to ensure my rights are respected (by both the system and by others) and that I perform the duties required of me? We have to start over to ask why we even need a legal system to begin with. It quickly ends up being 'because the guys with guns say so' and any distinction between government and organized crime quickly dissolves.
Consider a simple case of theft. I take your money. Why is this wrong? Because you have a right to do with your money? But we have tossed out rights.
Now if instead you don't mean to toss out all rights, but to eliminate a few that you consider unproductive to our legal system functioning, it is thus quite a fair question to ask which rights are you in favor of tossing. Such as the right to a fair trial. If you want the prosecutor to be able to cheaply lock up guilty people, you can toss the right to a fair trial and then define guilty based off of being declared such. Ergo everyone convicted is guilty and convictions are quite cheap. Even cheaper if we toss the right to counsel. No innocent people locked up and you can put someone in prison in under an hour. Just go up to the jury and say 'we have proof did X, Y, Z', offer up some fabricated evidence, and then offer the jury a forged signed statement from the defendant saying they did it. No cross examination, no actual defense, no need for honesty because the rights to all that has been tossed. And no innocent people are locked up because they are by definition not innocent.
Without the framework of rights, there are cons to balance.
Theft is illegal. Wrong is a different topic.
> any distinction between government and organized crime quickly dissolves.
The difference between organized crime and government has nothing to do with rights. Think about the range of governments that exist.
> If you want the prosecutor to be able to cheaply lock up guilty people, ...
I haven't spelled it out, but the goal of the legal system is to separate the guilty from the innocent. Percentage of innocent punished, percentage of guilty freed, and cost are all factors for evaluating how well the system works.
Rights are a foundation for a legal system in the same way that religion is a foundation for a system of morality. That is, lots of people use them/it as a foundation, but that's neither necessary nor ideal.
Any plea deal should now represent 50% of the maximum fine. So if the prosecution offers a plea deal of 6months, then the best they can get out of a guilty verdict is 1 year.
Make there be a downside to offering a plea deal that is rejected.
http://www.nybooks.com/articles/archives/2014/nov/20/why-inn...