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“Crime Does Pay”: U.S. Appeals Court Throws Out Fraud Charges Against Bank of America

Yesterday the 2nd U.S. Circuit Court of Appeals in New York demonstrated why prosecuting banks for committing fraud in the lead-up to the Great Recession is such a difficult proposition. Here’s the background on one of the biggest government enforcement cases to go to trial in connection with the U.S. housing meltdown and financial crisis.:

A federal jury had in 2013 found Bank of America and Rebecca Mairone, a former midlevel Countrywide executive, liable for fraudulently selling shoddy loans originated through its “High Speed Swim Lane” program, also called HSSL or “Hustle.”…

Following the verdict, U.S. District Judge Jed Rakoff in 2014 imposed a $1.27 billion penalty on Bank of America and ordered Mairone to pay $1 million.

That decision was appealed and a ruling issued yesterday.

The 2nd U.S. Circuit Court of Appeals in New York found insufficient proof under federal fraud statutes to establish Bank of America’s liability over a mortgage program called “Hustle” run by the former Countrywide Financial Corp…

In a 3-0 decision, U.S. Circuit Judge Richard Wesley said the evidence at most showed that Countrywide breached contracts to sell investment-quality loans, and that there was no proof it intended any deception.

“The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises,” Wesley wrote.

This has always been the challenge. In order to prosecute banks and/or individuals, the most likely charge is that they committed fraud. But federal statutes require proof of intent in order to find a business or person guilty of fraud. In other words, the prosecution not only has to prove that the defendant committed fraud – but that they intended to do so. The dismissal of this case demonstrates what a high hurdle that can be.

We often hear about the “meager” financial settlements the Justice Department negotiated in similar cases. It’s worth noting that in this instance, Bank of America and Rebecca Mairone got away with having to pay nothing.


By: Nancy LeTourneau, Political Animal Blog, The Washington Monthly, May 24, 2016

May 25, 2016 Posted by | Bank Of America, Big Banks, Financial Crisis | , , , , , | Leave a comment

Bank Of America Cuts Off Credit To Some Small Businesses

Bank of America Corp., under pressure to raise capital and cut risks, is severing lines of credit to some small-business owners who have used them to stay afloat.

The Charlotte, N.C., bank is demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can’t pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

Business owners complain that BofA’s credit squeeze is abrupt and could strain their small companies and even put them out of business. The credit cutoff is coming at a time when the California economy can’t seem to catch a break, and bucks what the financial industry says is a new trend of easing standards on business loans.

One such customer, Babak Zahabizadeh, was told in a letter that the $96,000 debt carried by his Burbank messenger service must be repaid Jan. 25. A loan officer offered multiple alternatives over the phone that Zahabizadeh called unaffordable, including paying off the debt at 12% interest over two years. That’s about $4,500 a month, nearly 10 times his current interest-only payment.

Zahabizadeh, known as Bobby Zahabi to his customers, said he has cut the staff of his Messengers & Distribution Inc. to 80 from 200 to nurse his business through tough times.

“I was like, ‘Dude, you’re calling a guy who’s barely surviving!’ ” he said. “My final word was that I can double my payment — but not triple or quadruple it. I told them if they apply too much pressure they’re going to push me into bankruptcy.”

The capped credit lines stem from a corporate overhaul launched by Brian Moynihan, who became Bank of America’s chief executive in 2010. He promised to address losses caused by loose lending and rapid expansion by reining in risks and shedding investments deemed non-core.

BofA spokesman Jefferson George said a “very small percentage” of small-business customers have been affected by the changes. He would not provide exact numbers except to say it wasn’t in the hundreds of thousands. Some of the affected businesses had been customers of other banks that Bank of America acquired, but most were BofA customers from the start, George said.

“These changes were explained in letters to customers, and they were necessary for Bank of America to continue prudent lending to viable businesses across the U.S.,” he said.

The bank still has 3.5 million non-mortgage loans to small businesses on its books. The affected business owners were notified a year in advance that their credit lines were being called, George said, although Zahabi and several others said they had not received the early warnings.

The changes also include added annual reviews of borrowers and annual fees, and often reductions in the maximum amount of credit. George said the aim was to reduce Bank of America’s risks and to bring the loan terms in line with more stringent standards imposed after the 2007 mortgage meltdown and 2008 credit crisis.

Scott Hauge, president of the advocacy group Small Business California, called the credit cuts “a tragedy” for longtime BofA clients left vulnerable by years of struggle in a sour economy.

“If small businesses are going to lead the way out of the economic doldrums we now face in this country, they must have access to capital, not only to hire more people but to protect the jobs they are currently providing,” Hauge said.

Bank of America was a leader in the banking industry’s abortive attempt to impose debit card fees. But it appears to be a laggard in tightening business lending standards. Most other banks, having tightened lending standards in the aftermath of the financial crisis, had eased credit last year as competition for small-business customers heats up, bank analysts say.

“Everyone … is targeting commercial and particularly small-business lending as the real focus area for growth,” said Joe Morford, an analyst in San Francisco for RBC Capital Markets.

While Bank of America is advertising its own commitment to small businesses, it needs to send another message to its government supervisors because it has less of a capital cushion against losses than major rivals, said FBR Capital Markets bank analyst Paul Miller.

Restricting credit lines “is a way to show the regulators they are serious about addressing risks,” Miller said. “Bank of America is under great pressure, especially with another round of [Federal Reserve] bank stress tests coming up, as the regulators say: ‘We want you to tighten up.’ ”

The analysts said all banks monitor business customers and restrict credit on a case-by-case basis. But they said they were unaware of any other large bank systematically capping credit at this time.

Customers interviewed by The Times said they could understand how the turbulent economy might result in some restrictions. But they complained that the credit cutoffs threatened to undo businesses they shepherded through the downturn by slashing costs, hoping to expand when brighter days return.

Several small-business owners indicated that they had nearly used up all the available credit on their Bank of America lines. However, George said maxing out the lines wasn’t a major factor in the bank’s reevaluation of the credit terms.

Kathleen Caid’s Antique Artistry Studio in Glendale sells elaborately beaded, Victorian-style shades that she makes for lamps, chandeliers and sconces. She said she had understood that her $85,000 credit line would remain in place “as long as I wasn’t in default,” and she hadn’t missed any payments.

Caid and her husband, Tim Melchior, a video producer with a Burbank media company, insist they are not in serious financial trouble despite having laid off her eight full-time employees and downsized her business space by two-thirds during the recession.

Yet Bank of America says that her credit-line debt, totaling $80,000, is due in May.

“I wouldn’t have run it up if I knew what was in store,” she said, adding that she would be speaking to an attorney and other banks about her options.


By: E. Scott Reckard, Los Angeles Times, Jamuary 3, 2012

January 3, 2012 Posted by | Bank Of America, Businesses, Class Warfare | , , , , , | Leave a comment

American Businesses: Success Is Because Of Government, Not In Spite Of It

While big business whimpers about high statutory tax rates, the effective tax rate paid by most corporations in America is often far lower than most other developed nations (thanks to loopholes and accounting tricks). Meanwhile, corporate tax receipts accounted for 30 percent of US federal revenues in the mid-1950s. In 2009, they made up just 6.6 percent of federal revenue streams.

In other words, not only are big corporations funding a smaller percentage of our shared social safety net, they’re paying a smaller percentage into funding the future infrastructure that they desperately need.

Imagine if big business got its way and corporate taxes were slashed even further. How would businesses suffer?

What would Oprah and Henry Ford have done?

Imagine if, when Henry Ford wanted to start the Ford Motor Company, he had to not only drill for oil himself but also oversee the laying of pipelines and production infrastructure across government-owned land so his cars could have gas to make them go. And when the American auto industry was expanding in the 1940s and 50s creating jobs throughout the nation, imagine if Chrysler and General Motors had to not only build their own factories and assembly lines but actually plan and construct the roads and interstate highways for cars to drive on.

Imagine if Oprah had to regulate the television spectrum for herself and that at random, bandwidth pirates could intrude on broadcasts of the Oprah Winfrey Show because there was no Federal Communications Commission monitoring ownership of and access to the public airwaves.

Imagine if every restaurateur today had to invest in his or her own food safety teams to make sure the meat served isn’t toxic. Imagine if every small business in remote rural communities had to generate its own electricity on site because the government wouldn’t have helped fund the expansion of power lines to those distant places. Imagine if every corporation had to educate its entire workforce from childhood to adulthood because there were no public schools.

Bill Gates would have had to run phone lines.

What if, when Alexander Graham Bell invented the telephone, he couldn’t get a patent from the United States government to protect his idea? Or for that matter, if there had been no laws to protect private property and no law enforcement, Bell might have had to sit up all night with a gun guarding his invention – instead of going out in the world and figuring out how to use it. When Bill Gates wanted to start Microsoft, consider if instead of drawing on the government-created infrastructure of the original Internet (which he accessed early on in high school through the publicly funded University of Washington), Mr. Gates not only had to invent Windows, but also invent the entire World Wide Web and run the wiring for the phone lines that originally connected all his potential consumers.

When Warren Buffet launched his investing career that ultimately earned him billions, imagine if in addition to hiring lawyers to run his business, Mr. Buffett had to hire judges, too, and create entire court systems to oversee and enforce the types of binding contracts on which the stock market relies. For that matter, imagine if Buffet had to print his own currency and negotiate its value against the currencies of all other individual investors.e infrastructure of private sector success

Taxes fund the infrastructure of private sector success

Businesses in the United States don’t succeed in spite of our government, in many ways, they succeed because of our government. Through our taxes, we fund the legal and economic infrastructure of private sector success. By definition, those businesses that get the most out of that infrastructure are those that should give the most back.

At a time when economic conservatives want to slash spending that helps the poor and middle class rather than raise the already-low effective taxes of big business, it’s shameful that corporations like General Electric and Bank of America effectively pay no taxes. In the context of the larger American story, where successful businesses of today support the public infrastructure for the businesses of tomorrow, saying that corporations should pay even less is downright un-American.

By: Sally Kohn, AlterNet, July 22, 2011

July 24, 2011 Posted by | Bank Of America, Big Business, Budget, Businesses, Congress, Conservatives, Corporations, Debt Ceiling, Debt Crisis, Deficits, Economic Recovery, Economy, Federal Budget, General Electric, GOP, Government, Government Shut Down, Ideologues, Ideology, Politics, Regulations, Republicans, Right Wing, Tax Increases, Tax Loopholes, Taxes, Uncategorized | , , , , , , , , , , | 2 Comments

The People Revolt: Reverse Robin Hood Visits Banks Near Wisconsin Capitol

This afternoon, the People’s Rights Campaign, a coalition of labor and community organizations, organized a community action on Madison’s Capitol Square. Activists scrounged for their last pennies and taped them to “deposit slips” so that they could be deposited directly into the accounts of the CEOs of M&I Bank, Bank of America and JPMorgan ChaseBank.

“Why should they have to pay any taxes at all when grubby peasants and working stiffs still have a few pennies left in their pockets?” asked the group’s press release.

Kim Grveles of Wisconsin Resists”What we’re trying to do here is call a spade a spade,” National Nurses United organizer Pilar Schiavo said. “Walker’s budget takes from the poor, seniors, students and workers at a time when people most need help. Walker is taking our last pennies and giving them to the rich and to corporations.”

Kim Grveles of Wisconsin Resists added, “We’re demonstrating Walker’s agenda to transfer money from people to corporate sponsors of the governor and other GOP members of the legislature. Every bill is making us poorer and making the big corporate campaign contributors wealthier just like a reverse Robin Hood– stealing from the working class poor and giving to the rich.

“The corporations aren’t paying their fair share in taxes, they’re getting bailout money and they’re making millions in profits every year.”

Organizers referenced a May 1st article in the Wisconsin State Journal that pointed out that “changes to a corporate tax law proposed in Walker’s budget may mean businesses would pay the state about $46 million less in taxes over the next two years– and $40 million less each year after that.”

Reverse Robin Hook Mike Amato speaks in front of M&IGroups of protestors spread out and took their pennies and deposit slips to the branches of M&I Bank, Bank of America and JPMorgan Chase Bank closest to the Capitol.

At M&I, security guards locked the front door as soon as the group of a dozen or so approached. Mike Amato of the Teaching Assistants’ Association, who was dressed as a Reverse Robin Hood, tried giving his deposit slip to a guard, saying, “They want to create a peasant system, so we’re helping them out by being reverse Robin Hoods, stealing pennies from the poor to give to the rich.”

The security guard seemed unimpressed, later blocking off the entrance to the drive-thru teller window as well, saying that it was “private property” and making deposits to the CEO’s account would not be allowed, but he was later seen with a bank manager, discussing the text of one of the deposit slips the group had left behind.

Reverse Robin Hood’s BandAccording to Schiavo, a group of protestors succeeded in getting into the local Bank of America investment branch, where they deposited their pennies into CEO Brian Moynihan‘s account. Protesters were locked out of JPMorgan Chase Bank’s branch but were able to deposit their slips through the slit between the glass doors and leave them in a pile in the entryway.

Schiavo noted that the People’s Rights Campaign seeks, through this action, to call attention to their platform, which calls for “restored rights to living wage jobs, access to healthcare and retirement security rather than giving back to corporations that have already received money from the government and continue to give huge bonuses to their CEOs.”

By: Rebecca Wilce, Center for Media and Democracy, May 11, 2011

May 12, 2011 Posted by | Bank Of America, Banks, Businesses, Collective Bargaining, Conservatives, Consumers, Corporations, Financial Institutions, GOP, Gov Scott Walker, Ideologues, Ideology, Income Gap, Jobs, Middle Class, Politics, Public Employees, Republicans, Taxes, Union Busting, Unions, Wealthy, Wisconsin, Wisconsin Republicans | , , , , , , , , , , , , , , , | Leave a comment

Another Inside Job: The Continuation Of Banker Bad Behavior

Count me among those who were glad to see the documentary “Inside Job” win an Oscar. The film reminded us that the financial crisis of 2008, whose aftereffects are still blighting the lives of millions of Americans, didn’t just happen — it was made possible by bad behavior on the part of bankers, regulators and, yes, economists.

What the film didn’t point out, however, is that the crisis has spawned a whole new set of abuses, many of them illegal as well as immoral. And leading political figures are, at long last, showing some outrage. Unfortunately, this outrage is directed, not at banking abuses, but at those trying to hold banks accountable for these abuses.

The immediate flashpoint is a proposed settlement between state attorneys general and the mortgage servicing industry. That settlement is a “shakedown,” says Senator Richard Shelby of Alabama. The money banks would be required to allot to mortgage modification would be “extorted,” declares The Wall Street Journal. And the bankers themselves warn that any action against them would place economic recovery at risk.

All of which goes to confirm that the rich are different from you and me: when they break the law, it’s the prosecutors who find themselves on trial.

To get an idea of what we’re talking about here, look at the complaint filed by Nevada’s attorney general against Bank of America. The complaint charges the bank with luring families into its loan-modification program — supposedly to help them keep their homes — under false pretenses; with giving false information about the program’s requirements (for example, telling them that they had to default on their mortgages before receiving a modification); with stringing families along with promises of action, then “sending foreclosure notices, scheduling auction dates, and even selling consumers’ homes while they waited for decisions”; and, in general, with exploiting the program to enrich itself at those families’ expense.

The end result, the complaint charges, was that “many Nevada consumers continued to make mortgage payments they could not afford, running through their savings, their retirement funds, or their children’s education funds. Additionally, due to Bank of America’s misleading assurances, consumers deferred short-sales and passed on other attempts to mitigate their losses. And they waited anxiously, month after month, calling Bank of America and submitting their paperwork again and again, not knowing whether or when they would lose their homes.”

Still, things like this only happen to losers who can’t keep up their mortgage payments, right? Wrong. Recently Dana Milbank, the Washington Post columnist, wrote about his own experience: a routine mortgage refinance with Citibank somehow turned into a nightmare of misquoted rates, improper interest charges, and frozen bank accounts. And all the evidence suggests that Mr. Milbank’s experience wasn’t unusual.

Notice, by the way, that we’re not talking about the business practices of fly-by-night operators; we’re talking about two of our three largest financial companies, with roughly $2 trillion each in assets. Yet politicians would have you believe that any attempt to get these abusive banking giants to make modest restitution is a “shakedown.” The only real question is whether the proposed settlement lets them off far too lightly.

What about the argument that placing any demand on the banks would endanger the recovery? There’s a lot to be said about that argument, none of it good. But let me emphasize two points.

First, the proposed settlement only calls for loan modifications that would produce a greater “net present value” than foreclosure — that is, for offering deals that are in the interest of both homeowners and investors. The outrageous truth is that in many cases banks are blocking such mutually beneficial deals, so that they can continue to extract fees. How could ending this highway robbery be bad for the economy?

Second, the biggest obstacle to recovery isn’t the financial condition of major banks, which were bailed out once and are now profiting from the widespread perception that they’ll be bailed out again if anything goes wrong. It is, instead, the overhang of household debt combined with paralysis in the housing market. Getting banks to clear up mortgage debts — instead of stringing families along to extract a few more dollars — would help, not hurt, the economy.

In the days and weeks ahead, we’ll see pro-banker politicians denounce the proposed settlement, asserting that it’s all about defending the rule of law. But what they’re actually defending is the exact opposite — a system in which only the little people have to obey the law, while the rich, and bankers especially, can cheat and defraud without consequences.

By: Paul Krugman, Op-Ed Columnist, The New York Times, March 13, 2011

March 15, 2011 Posted by | Bank Of America, Banks, Citibank, Foreclosures, Mortgages, Regulations | , , , , , , , , , | Leave a comment


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