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Defending Mortgage Cases 1

Defending Mortgage Fraud Cases

Jodi L. Avergun1 Jeannine F. D’Amico2 Cadwalader, Wickersham & Taft LLP Washington, D.C.

I. In t r o d u c t i o n rhinestones. The couple was serenaded by Patti LaBelle. Their guests dined on lobster, shrimp, Mortgage fraud takes many guises but can be and four wedding cakes, while drinking Moët and succinctly classified as either fraud for profit or Cristal champagne. Reportedly, the couple gave fraud for housing. In general, this article concerns select members of the wedding party a Porsche, a fraud for profit, as the vast majority of mortgage house, and a $10,000 check. All told, the wed- fraud cases concern this type of fraud. Industry ding’s price tag was close to $800,000.3 All the insiders such as brokers and appraisers, while, Jackson’s lavish lifestyle and fairytale wed- lenders, loan originators, mortgage underwriters, ding were funded by a widespread mortgage fraud and settlement and title company employees have scheme run by Jackson, Fordam and others through all been targets of FBI investigations in the wake which they lured distressed homeowners with the of the financial crisis. However, perhaps as a re- promise of help and financial assistance and then sult of political pressure or the desire to make a fleeced them of their assets and what little money big impact quickly, prosecutors and investigators they had left. also have focused on criminal charges stemming Just two years later, on June 12, 2008, Jackson from investment that packaged and sold and her husband, along with several others, would mortgage-backed securities (“MBS”) in, at least in face criminal charges. They were indicted in the the government’s view, a fraudulent manner. District of Maryland and charged with conspiracy This article explores two such cases and the to commit , mail fraud, and differing results in each. It then explores strate- in connection with their efforts gies and tactics that can be used to defend similar to obtain money and from homeown- cases and potentially any other type of mortgage ers and lenders through a “ reversal” fraud investigation—from the straightforward scheme that lasted from September 2004 through scammers taking advantage of the financial cri- June 2007.4 The indictment alleged that the de- sis to sophisticated investment bankers and their fendants used a foreclosure prevention scheme to managers against whom it is exceedingly difficult cheat homeowners out of the remaining equity in to prove scienter. their houses by transferring their homes to straw buyers. The defendants then defrauded lenders by inducing them to make new loans based on inflat- II. Jo y Ja c k s o n a n d Ku r t Fo r d a m v e r s u s ed appraisals and fraudulent credit applications.5 Ra l p h Ci o ffi a n d Ma t t h e w T a n n i n Beginning in September 2008,6 the eight named defendants began pleading guilty, with Jackson’s In June 2006, Joy Jackson and Kurt Fordam were guilty plea for conspiracy to commit mail and wire married in an extravagant ceremony in Washing- fraud finally entered on March 25, 2009.7 Jackson ton, D.C., at the historic Mayflower Hotel. Jackson was sentenced to 151 months in prison and 5 years wore a handmade oriental silk wedding gown with of supervised release, and was ordered to pay res- a 42-foot train and a tiara with Swarovski crystal titution in the amount of $16,880,884.86 and to 2 Jodi L. Avergun and Jeannine F. D’Amico

forfeit residential and personal property.8 Her hus- ers and defrauded countless lenders. At the other band, Fordam, was sentenced to 10 years in prison extreme, Cioffi and Tannin stand as examples of for his participation in the scheme.9 The docket the complexities inherent in sophisticated finan- reveals little about whether, when faced with the cial fraud cases, and the pitfalls of trying to make somewhat daunting allegations in the case, the de- all investment bankers scapegoats for the financial fense was able to mount much of a challenge. distress that resulted from the subprime mess. At the same time that a grand jury in Maryland How does a lawyer go about defending the was issuing its indictment of Joy Jackson and Kurt charges brought against the Joy Jacksons and Kurt Fordam, Ralph Cioffi and Matthew Tannin were Fordams that walk through her door? How does being hauled out of their New York and New Jer- a defense attorney counsel her financial institu- sey homes in handcuffs, accused of lying to Bear tion clients to help them avoid falling victim to Stearns’ investors about the downturn of several such schemes? What strategies will work at trial? Bear Stearns mortgage-backed securities.10 As Where are the inherent weaknesses in these types former Bear Stearns hedge fund managers, Cioffi of investigations? and Tannin were indicted for mail fraud and With 18 mortgage fraud task forces and 53 FBI conspiracy and charged with misleading inves- working groups focused on ferreting out mortgage tors about the strength of two Bear Stearns hedge fraud schemes,14 plus the hyper-vigilant SIGTARP funds that later collapsed, allegedly initiating the making every effort to track and trace every dollar . Cioffi was also charged of taxpayer money paid out in the financial recov- with insider trading. They faced as much as 20 ery,15 mortgage fraud cases are becoming more years in prison each if convicted of conspiracy, and more prevalent. Consequently, it is increas- and Cioffi faced an additional 20 years if found ingly important for defense counsel to have an un- guilty of insider trading.11 derstanding of basic mortgage fraud defenses. Cioffi and Tannin succeeded in convincing a jury that the concerns they expressed in a series III. In v e s t i g a t i o n of e-mails over the future performance of certain funds did not amount to criminal conduct. The government’s argument that the e-mails clearly A. Conducting Interviews. showed that Cioffi and Tannin knew that the funds One of the most effective defenses to mort- were performing poorly, and failed to disclose this gage fraud cases can be challenging the information to investors, was not persuasive to government’s assertion that the defendant the jury. After a mere six hours of deliberation, knowingly acted in a fraudulent manner. the jury returned not guilty verdicts on all counts. By interviewing eyewitnesses, underwriters, Defense counsel successfully argued that the gov- managers, appraisers, and others, it ernment’s “silver bullet” e-mails were just the op- may be possible to demonstrate that the de- posite—when read in their entirety, they proved fendant did not have the requisite intent, but that Cioffi and Tannin, at best, felt uncertain about rather was misled or unaware that he or she the performance of the funds at issue in the case, was a party to mortgage fraud. but that they had not intentionally committed a crime.12 In fact, one juror in the case later stat- B. Hiring the Right Experts. ed that she felt the market collapse could not be Unlike more traditional white collar fraud blamed on two people; another described Cioffi cases where hiring a forensic accountant may and Tannin as “scapegoats for Wall Street.”13 be enough, additional experts may be re- Joy Jackson and Kurt Fordam stand as extreme quired to investigate and defend a mortgage examples of one type of mortgage fraud— preda- fraud case. For example, property valuation tory actions by a select group of industry insiders and ownership are likely to be critical com- who took advantage of unsuspecting homeown- Defending Mortgage Fraud Cases 3

ponents of any defense. Thus, both forensic 7. Title Opinion. A title opinion will ex- accounting experts and forensic appraisal ex- amine all public records, laws and court perts may be required.16 decisions to confirm that the seller has a valid claim to the property. It will in- C. Tracing the Documents. clude past and current facts about the A typical mortgage fraud prosecution includes property. certain key documents, which together may 8. Mortgage documents and , includ- amount to critical evidence in the case. It is ing warranty and quitclaim deeds, will key that defense attorneys and their experts demonstrate title transfers and the terms examine these documents for telltale signs of of any collateral pledged to the lender. fraud and .17 9. Public filings, public statements, rating 1. Loan Application. Borrowers must com- agency reports, company financials, plete a loan application to qualify for the and e-mails and other correspondence loan. The application will include infor- are likely to be other key types of docu- mation such as social security number, ments associated with financial institu- income, employment information, the tion prosecutions or regulatory actions. purpose of the loan, debts and assets.

2. HUD-1 Form. Also called settlement IV. pr e -Tr i a l a n d T r i a l T a c t i c s : Su g g e s - sheets, HUD-1 Forms detail the amount t i o n s f o r Su c c e s s f u l Mo t i o n s of funds paid at , including com- missions, taxes, escrow amounts, and loan fees. HUD-1 Forms are issued by A. Seeking a Bill of Particulars. the Department of Housing and Urban Rule 7 of the Federal Rules of Evidence may Development. be used to seek out additional specifics con- 3. IRS Form 4506. Form 4506 authorizes cerning the alleged misstatements made or the release of prior tax returns for in- scheme charged. Furthermore, successfully come verification purposes. obtaining a bill of particulars allows the de- fense to argue variations therefrom at trial 4. Appraisal. Property valuation at the and can thereby limit the government’s abil- time of the purchase (or foreclosure) ity to introduce an evolving theory at trial. can be assessed by obtaining appraisal documents. B. Challenging the Other Party’s/Govern- ment’s Experts. 5. Verification of Employment (VOE). VOEs are sent to the borrower’s employ- In mortgage fraud prosecutions and private er to confirm his or her employment and actions, it is important to remain vigilant in income. It is important to compare any challenging the government’s experts. Con- VOE disclosures to the information pro- sider using Federal Rule of Evidence 702 to vided by the borrower on his or her loan challenge conclusory statements made by the application. government’s expert concerning the “role” or “intent” of alleged mortgage fraud partici- 6. Verification of Deposit. Verifications of pants or determinations that documents were Deposit are sent to the borrower’s bank “fraudulently” created or used for a “fraudu- to confirm that he or she possesses the lent” purpose. It is not proper for an expert necessary funds for the down payment. to usurp the jury’s role in determining these 4 Jodi L. Avergun and Jeannine F. D’Amico

ultimate issues of guilt.18 In addition, defense in dismissing the complaint filed against ACA counsel should be on guard for government Capital Holdings, Inc. (“ACA”), the Southern accounting experts who also provide prop- District of New York held that the negative de- erty valuation testimony. Not only must the cline in ACA’s share price was not attributable government show the defendant’s conduct to the alleged misstatements regarding collat- amounted to a fraud or a conspiracy, for mon- eralized debt obligation transactions. Judge ey laundering charges, forfeiture, sentencing Robert W. Sweet held that the complaint and and damages it must also show the amount the public filings “establish[ed] that the de- actually lost. To do so, testimony from both cline in ACA’s stock price was not caused by a forensic accounting expert and a forensic the allegedly false and misleading statements appraiser may be necessary. in the Prospectus.” Thus, ACA’s “negative causation” defense contributed to the court’s C. Moving to Prevent the Use of the Phrase decision to dismiss the complaint.20 “Mortgage Fraud” and Related Terms. E. Challenging the Search Warrant. Mortgage fraud is not a federal offense. De- fense counsel should be wary of allowing Often, part of the evidence that the govern- the government to characterize the alleged ment seeks to introduce in a mortgage fraud scheme as a “mortgage fraud.” Similar terms case involves evidence seized as a result of a such as “fraudulent ” are equally prej- search warrant for electronic records. Several udicial and likely to lead to jury confusion as cases in the past six months have addressed they are not likely to accurately characterize the appropriate scope of a search warrant the alleged conduct. for such records,21 and have suppressed evi- dence resulting from overbroad warrants that D. Raising Loss Causation Issues in Civil Cases. did not specifically particularize the informa- Loss causation is the causal connection be- tion to be searched for or seized. In fact, as tween a defendant’s material misrepresenta- commentators have pointed out,22 at least tion and a plaintiff’s loss. A required element until the Supreme Court decides to hear one of any civil case is that the of these e-records cases, this can be an effec- company’s share price fell significantly “af- tive tactic to exclude prejudicial evidence. ter the truth became known.”19 Loss cau- Indeed, this strategy worked well in the Cioffi sation challenges have arisen in the myriad and Tannin case.23 cases brought under both the Securities Act of 1933 and the Securities Exchange Act of V. se n t e n c i n g : Ca l c u l a t i n g Lo s s 1934 against investment banks, underwriters and auditors, among others, whose firms in- The law requires that loss to investors be cal- sured, offered for sale, or audited firms that culated by “determining the outstanding principal sold MBS. The argument that loss causation balance of the loan less the amount the victims has not been established has been successful were able to recover through liquidation of the in a number of recent cases. Indeed, courts collateral provided to secure the loan.”24 To chal- have reacted favorably to the argument that lenge an upward departure based on a substantial plaintiffs cannot hold defendants liable for loss calculation, defendants should engage a valu- the financial crises that resulted in the dimi- ations expert to assist in computing the principal nution of value of MBS, absent a specific un- amount of the loans at issue, interest rates prom- true representation about the value of those ised to investors, appraisal values of the assets, due to which, when the truth was re- at the time of the loan and at foreclosure, and ac- vealed, the assets lost value. Most recently, tual amounts realized through the sale of the prop- Defending Mortgage Fraud Cases 5 erties.25 It may be the case that gains have been The government also may seek to prove that realized through a foreclosure sale, since increas- corporations and their executives acted crim- ing property values may have offset any loss on inally by demonstrating wrongdoing in the the interest or principal. Likewise, forensic trac- valuation of mortgage-related securities. Un- ing will isolate the properties tied to the alleged der federal law, those who aid, abet, counsel, fraud and thereby restrict loss calculations to those command, induce or procure a crime can properties on which fraudulent loans were in fact be found criminally liable in its commission obtained. The amount of loss should be calculated as long as there is active participation in the based on the value of the loans procured through crime. In the case of mortgage lenders, pros- fraud, not including outstanding legitimate loans.26 ecutors may seek to demonstrate that lenders Finally, forensic appraisers and accountants will be relaxed their oversight of loan applications in able to assist in identifying any amounts recovered order to increase profits, but this would not by lenders through liquidation or payments toward prove that lenders or their executives were the loan collateral, which must be subtracted from complicit in fraud. More likely that not, the loss calculation.27 corporations and their employees likely will claim that independent mortgage brokers, VI. re p r e s e n t i n g t h e Co r p o r a t i o n who prepared the loan applications, were responsible for any fraudulent applications.31 Even where prosecutors are able to establish A. Lack of Knowledge or Intent by the that employees knew of widespread mort- Corporation gage fraud and were complicit in approving fraudulent applications, they may still face Much of the fraud for profit world involves obstacles in pursuing more high-profile ac- acts of individuals who were incentivized by tions against high-level executives and cor- their employers to write ever more loans, re- porations.32 In the case of criminal charges gardless of the underlying risk of default. In against an individual, absent the existence of some instances, employers might have turned explicit directives that promoted fraud, it may a blind eye to the indicia of fraud,28 but there be difficult to show that any criminal acts may be an equal number of instances in were taken at the instruction of a director or which employers had no idea that their em- officer or with their knowledge. ployees were writing bad loans. Defending corporations in this regard entails relying on Defense attorneys should focus in searching traditional principles of corporate liability. for evidence indicating that employees were acting alone, perhaps in violation of compli- For criminal actions against corporations ance rules of the company. While respondeat themselves, criminal liability may attach un- superior liability may nonetheless pose a risk der principles of respondeat superior if any for corporations, proof of a comprehensive employees committed criminal acts within compliance program, including employee the scope of their employment for the benefit compliance training, is helpful evidence that of the corporation.29 If these two conditions rogue employees, and not the company or its are met, a corporation can be held liable for officers, are the appropriate targets. the conduct of a broad range of employees and agents: (1) executive officers and direc- B. The Cooperation Card tors; (2) non-executive managers and super- visors; (3) low-level, menial employees; and If a company cannot establish lack of knowl- (4) independent contractors.30 edge or responsibility for its employees’ conduct, cooperation needs to be carefully 6 Jodi L. Avergun and Jeannine F. D’Amico

considered. On January 13, 2010, the SEC C. Don’t Blame the Banks for the Housing announced its expansion of the Seaboard Re- Crisis! Case Study: Mayor and City of port,33 through the adoption of several new Baltimore v. Wells Fargo Bank N.A. policies designed to encourage individuals The City of Baltimore brought an action (and companies) to cooperate in SEC inves- against Wells Fargo Bank for violations of tigations.34 Its arsenal now includes proffer, the Fair Housing Act, 42 U.S.C. §§ 3601 et cooperation, and deferred prosecution and seq., for alleged predatory and discrimina- non-prosecution agreements, as well as the tory lending practices that the City claimed authority to submit witness immunity requests led to economically damaging . to the DOJ for witnesses “who have provided The City alleged that Wells Fargo engaged in or have the potential to provide substantial “reverse redlining,” which involves the mar- assistance in the Commission’s investigations keting and sale of more expensive and risky and related enforcement actions.”35 The SEC mortgage products to low-income, primarily intends to evaluate individual cooperation minority communities. The City alleged that based on the following four factors: (1) the Wells Fargo’s practices had led to an increase assistance provided by the cooperating indi- in foreclosures in low income and predomi- vidual, (2) the importance of the underlying nantly African American neighborhoods matter in which the individual cooperated, which in turn resulted in decreased tax reve- (3) the societal interest in ensuring that the nues, increased city expenditures for city ser- individual is held accountable for his or her vices such as fire, police, and administrative misconduct, and (4) the appropriateness of and social services. Wells Fargo successfully cooperation credit based upon the risk profile argued that the City had no standing to bring of the cooperating individual.36 It remains to such a claim because the injuries claimed be seen how the SEC will handle situations by the City were a “result from ‘the indepen- where a corporate executive attempts to earn dent action of some third party not before the individual cooperation credit by reporting court.’”38 In essence, the court recognized possible wrongdoing at the same time that that a myriad of other factors led to the “de- the company is seeking cooperation credit terioration of the inner city, such as extensive pursuant to the Seaboard Report. unemployment, lack of educational opportu- An additional note of caution should be sound- nity and choice, irresponsible parenting, dis- ed. To date, the Cioffi and Tannin prosecution respect for the law, widespread drug use, and seems to be one of the very few brought by violence.”39 The court also was persuaded by the government in response to the financial the low number of foreclosures that could be collapse of the MBS markets and the resulting traced back to Wells Fargo mortgaged prop- economic crisis. The FBI continues to bemoan erties— “This fact alone demonstrates the the lack of resources available to it to investi- implausibility of any alleged causal connec- gate and prosecute complex fraud.37 Accord- tion between Wells Fargo’s alleged reverse ingly, defense counsel must carefully weigh redlining activities and the generalized type whether cooperation in this context is actually of damages claimed by the city.”40 valuable—in other words, if a prosecution is While the City has stated that it intends to not inevitable, and because of the complexi- amend its lawsuit rather than appeal the ties of these investigations, or the success of court’s decision to dismiss the case, the court arguments involving loss causation in the civil has made a strong statement that it is not suf- context, government prosecutors and regula- ficient to try to lay the economic downturn tors cannot meet their burden of proof, is con- in the laps of individual banks.41 A clear fessing to misconduct the right move? Defending Mortgage Fraud Cases 7

and distinct causal connection must exist to Ahead of any inquiry, TARP recipients would be prove that practices in fact well advised to implement internal controls that resulted in the economic injuries suffered. allow for the tracking, recording, and monitoring of all TARP funds. This will allow for increased VII. In v e s t i g a t i o n s b y t h e Offi c e o f t h e transparency in the use of the funds, should SIG- TARP seek information. Sp e c i a l In s p e c t o r Ge n e r a l f o r t h e T r o u b l e d If an inquiry or audit does materialize, in light As s e t Re l i e f Pr o g r a m (SIGTARP) of SIGTARP’s commitment to proactively ferret out issues before fraud arises, companies can ex- Companies that applied for and received funds pect that the inquiry or audit quickly may prog- committed through the Troubled Asset Relief Pro- ress to an investigation and, in turn the investi- gram (“TARP”) are not only feeling the watchful gation may move more quickly than traditional eye of the American people but also may feel more DOJ, SEC or FINRA investigations.48 As with any immediate pressure from the government itself. investigation, to stay ahead of the game, compa- The scrutiny accompanying the government’s deci- nies would be wise to set up a process in advance sion to commit such vast amounts of money has for responding to SIGTARP inquiries, which may led it to initiate a series of audits and criminal in- include setting up an independent committee, 42 vestigations of lenders who received TARP funds. such as an audit committee, retaining indepen- SIGTARP’s directive is to promote transparency in dent outside professionals, including accountants TARP, through “coordinated oversight” of TARP and counsel, and designating sufficient internal in cooperation with other relevant oversight bod- resources who can work collaboratively with the ies, and by robust criminal and civil enforcement company’s retained professionals. “against those, whether inside or outside of Gov- ernment, who waste, steal, or abuse TARP funds.”43 o n c l u s i o n To accomplish this, SIGTARP has the authority to VIII. C (1) conduct, supervise, and coordinate audits and investigations; (2) subpoena documents and infor- The simultaneous occurrence of the banking mation from government agencies as well as non- crisis, the collapse of the housing market and the governmental institutions and individuals; and (3) resulting economic downturn, has created a breed- undertake law enforcement functions without first ing ground for mortgage fraud. In response, there obtaining approval from the United States Attorney has been a definitive blip on the government’s radar General.44 SIGTARP has also been instructed to screen, which has led to a sharp increase in law en- work cooperatively with other inspectors general forcement initiatives, regulatory investigations and on oversight of TARP-related activities and to reg- Congressional oversight. Within this ever evolv- ularly report to Congress on how TARP recipients ing landscape, defense counsel must be equipped have used TARP funds.45 with the tools and best practices to navigate a way In connection with its investigative efforts, SIG- through for their individual and corporate clients. TARP has issued audit questionnaires, which in- Given the countless number of mortgage fraud clude questions concerning internal controls and schemes and the uniqueness of each case, mount- the use of TARP funds, to at least 300 institutions ing a successful defense can be challenging even that received TARP money.46 Simultaneously, SIG- for the most experienced white collar defense TARP has launched 61 criminal and civil investiga- attorney. Thus, in these complex cases, counsel tions, as of September 30, 2009, including complex would be wise to engage industry experts to assist issues concerning mortgage fraud.47 In light of this in the investigation and analysis required to effec- increased scrutiny, companies that have received tively prepare a defense. Armed with the above or relied on TARP funds in any way should be pre- strategies and assistance from qualified experts, pared to respond quickly to SIGTARP inquiries. counsel can begin to formulate a defense for indi- viduals and corporate clients alike. 8 Jodi L. Avergun and Jeannine F. D’Amico

En d n o t e s : 7. Id. at 191-2.

1. Ms. Avergun is a partner in the Business 8. Press Release, Federal Bureau of Inves- Fraud and Complex Litigation Practice at Cad- tigation, Baltimore, President of Metropolitan walader, Wickersham & Taft LLP, resident in the Money Store Sentenced to Over 12 Years in Prison Washington, D.C. office. Prior to joining Cad- for $37 Million Mortgage Fraud Scheme (Nov. 16, walader, Ms. Avergun served in senior or execu- 2009) (available at http://baltimore.fbi.gov/doj- tive service positions in the Drug Enforcement Ad- pressrel/pressrel09/ba111609a.htm). ministration and the Criminal Division of the U.S. Department of Justice. Ms. Avergun also served as 9. Id. an Assistant U.S. Attorney for 12 years in the East- ern District of New York, where she was ultimate- 10. Patricia Hurtado & Thom Weidlich, ly appointed Senior Litigation Counsel and Chief Ex-Bear Stearns Fund Managers Indicted for of the Long Island Division. While in New York, Fraud (Update 4), Bl o o m b e r g .c o m , June 19, Ms. Avergun oversaw and conducted a variety of 2008, http://www.bloomberg.com/apps/ money laundering and financial fraud investiga- news?pid=20601087&sid=aZjI.EgNDuFQ. tions and prosecutions, including mortgage and securities fraud matters. 11. Indictment, United States v. Cioffi, No. 1:08-cr-00415-FB (E.D.N.Y. 2008). 2. Ms. D’Amico is an associate in the Busi- ness Fraud and Complex Litigation Practice at 12. Grant McCool & Michael Erman, Jury Cadwalader, Wickersham & Taft LLP. The authors acquits ex-Bear Stearns hedge fund managers, would like to thank G. Robert McLain, Jr., and Re u t e r s .c o m , Nov. 11, 2009, http://www.reuters. Taylor Ebling, associates at Cadwalader, for their com/article/idUSTRE5A94RW20091111. research assistance in connection with the prepa- ration of this article. 13. Zachary Kouwe & Dan Slater, 2 Bear Stearns Fund Leaders Are Acquitted, N.Y. Ti m e s , 3. Keith L. Alexander & Ovetta Wiggins, Nov. 10, 2009, available at http://www.nytimes. Prince George’s Fairy Tale Unravels For Wom- com/2009/11/11/business/11bear.html; McCool an at Center of Fraud Probe, Wa s h . Po s t , Aug. & Erman, supra note 12. 6, 2007, available at http://www.washington- post.com/wp-dyn/content/article/2007/08/25/ 14. Fe d e r a l Bu r e a u o f In v e s t i g a t i o n , 2008 AR2007082501362.html. Mo r t g a g e Fr a u d Re p o r t “Ye a r in Re v i e w ” (2008), available at http://www.fbi.gov/publications/ 4. Indictment, United States v. Jackson, fraud/mortgage_fraud08.htm. Crim No. RWT-08-CR-00288 (D. Md. 2009). 15. See discussion infra § VII and accompa- 5. Press Release, Department of Justice, nying notes. Eight Indicted in Major Mortgage Fraud Scheme (June 12, 2008) (available at http://baltimore.fbi. 16. Holly A. Pierson, Mortgage Fraud Boot gov/dojpressrel/pressrel08/ba061208.htm). Camp: Basic Training on Defending a Criminal Mortgage Fraud Case, Th e Ch a m p i o n , September/ 6. Dkt. at 112, Jackson, Crim No. RWT-08- October 2007 at 14. CR-00288. 17. See generally, Id. Defending Mortgage Fraud Cases 9

18. See, e.g., United States v. Perkins, 470 26. Coghill, 2006 WL 3327057, at *2; Unit- F.3d 150, 157–60 (4th Cir. 2006) (“conclusory tes- ed States v. Wilson, 980 F.2d 259, 262 (4th Cir. timony that a company engaged in ‘discrimina- 1992) (“When the offense involves making a false tion,’ that a was ‘negligent,’ or that an statement, the inquiry to determine loss must fo- investment house engaged in a ‘fraudulent and cus on the amount of loss related to the false state- manipulative scheme’ involves the use of terms ment.”). with considerable legal baggage; such testimony nearly always invades the province of the jury.”) 27. Coghill, 2006 WL 3327057, at *2.

19. Dura Pharms., Inc. v. Broudo, 544 U.S. 28. See Chris Arnold, Auditor: Supervi- 336, 342 (2005). sors Covered Up Risky Loans, NPR.o r g , May 27, 2008, http://www.npr.org/templates/story/story. 20. Blackmoss Investments Inc. v. ACA Capi- php?storyId=90840958. tal Holdings, Inc., 07 Civ. 10528 (S.D.N.Y.), 2010 WL 148617, at * 11 (S.D.N.Y. Jan. 14, 2010). 29. Andrew J. Ceresney, Gordon Eng, & Sean R. Nuttall, Regulatory Investigations and the Cred- 21. See, e.g., United States v. Comprehen- it Crisis: The Search for Villians, 46 Am. Cr i m . L. sive Drug Testing, 579 F.3d 989 (9th Cir. 2009). Re v . 225, 241–242 (2009).

22. See, e.g., Michael Horowitz, Jodi Aver- 30. Joel Androphy, Wh i t e Co l l a r Cr i m e § 3:12 gun, & April Oliver, The Blurring of Plain View, 24 (2009). Wh i t e -Co l l a r Cr i m e (Nov. 2009). 31. Ceresney, et al., supra note 29, at 241– 23. Cioffi, 2009 WL 3738314, at *9–10(find- 242. ing search warrant for defendant’s personal email account unconstitutionally overbroad and exclud- 32. Id. ing evidence seized pursuant to overbroad war- rant as not admissible under either good-faith 33. Report of Investigation Pursuant to Sec- exception or inevitable discovery exceptions to tion 21(a) of the Securities Exchange Act of 1934 exclusionary rule); see also James M. Keneally, and Commission Statement on the Relationship Bear Stearns Case Highlights Issue of Warrants for of Cooperation to Agency Enforcement Deci- E-mails, N.Y.L.J. (Dec. 8, 2009). sions, Exchange Act Release No. 44969 (Oct. 23, 2001). 24. United States v. Coghill, 204 Fed. Appx. 328, No. 06-4354, 2006 WL 3327057, at *1 (4th 34. See Press Release, U.S. Securities and Cir. Nov. 15, 2006). Exchange Commission, SEC Announces Initia- tive to Encourage Individuals and Companies to 25. George Levie, Mortgage Fraud: Unfortu- Cooperate and Assist in Investigations, (Jan. 13, nate Growth Industry – Defending the Mortgage 2010) (available at http://www.sec.gov/news/ Fraud Defendant and Minimizing Sentencing Time, press/2010/2010-6.htm). http://www.levie-opper.com/MORTGAGE%20 FRAUD%20UNFORTUNATE%20GROWTH%20 35 Delegations of Authority to the Director INDUSTRY%20Statistics,%20FERA,%20Add- of its Division of Enforcement, Exchange Act Re- ing%20Mortgage%20Fraud%20to%20Your%20 No. 34-61339 (Jan. 19, 2010). Practice%20and%20Mortgage%20Fraud%20 Types%20w%202030.htm. 10 Jodi L. Avergun and Jeannine F. D’Amico

36. Michael J. Rivera & Michelle L. Ramos, 42. William J. Schwartz, et al., Be Careful The SEC’s New Carrot: Cooperation Incentives What You Wish For: Best Practices for Preparing for Individuals, Jan. 14, 2010, available at http:// and Responding to Investigations by the Office www.martindale.com/members/Article_Atach- of the Special Inspector General for the Troubled ment.aspx?od=648825&id=893358&filename=as Asset Relief Program, Bl o o m b e r g La w Re p o r t s , at r-893398.Cooperation.pdf. 1 (2009), available at http://www.cooley.com/ files/BloombergTARPSchwartzStephensAttanasio- 37. The Need for Increased Fraud Enforce- Durbin.pdf. ment in the Wake of the Economic Downturn: Hearing Before the Senate Comm. on the Judicia- 43. See Off i c e o f t h e Sp e c i a l In s p e c t o r Ge n e r a l ry, 110th Cong. (2009) (statement of John Pistole, f o r t h e Tr o u b l e d As s e t Re l i e f Pr o g r a m , Qu a r t e r l y Deputy Director of the Federal Bureau of Inves- Re p o r t t o Co n g r e s s Oc t . 21, 2009 (2009) [herein- tigation of the United States Department of Jus- after SIGTARP October Report]. tice). 44. Off i c e o f t h e Sp e c i a l In s p e c t o r Ge n e r a l f o r 38. Mayor and City of Baltimore v. Wells Far- t h e T r o u b l e d A s s e t Re l i e f Pr o g r a m , Qu a r t e r l y Re p o r t go Bank, Civ No. JFM 1:08 CV-00062, 2010 WL t o Co n g r e s s Ap r . 21, 2009 11 (2009) [hereinafter 46401, at *2 (D. Md. Jan. 6, 2010). SIGTARP April Report].

39. Id. at *3. 45. See Id.

40. Id. 46. Schwartz, et al., supra note 42, at 3.

41. Brendan Kearney, Baltimore Will Amend 47. SIGTARP October Report, supra note 43, Wells Fargo Reverse Redlining Suit, Th e Da i l y Re- at 6.. c o r d , Jan. 7, 2010, available at 2010 WLNR 964616. 48. See SIGTARP April Report, supra note 44; SIGTARP October Report, supra note 43.