Facing Down the Bankers
The New York Times by Annie Lowrey - May 30, 2012
WASHINGTON, D.C. — Sitting in a corner office high above K Street here, Dennis M. Kelleher, one of the most powerful lobbyists on financial regulatory reform, looks every bit the corporate lawyer and high-ranking Senate aide he formerly was: tailored suit, quick smile, assertive tone. But Mr. Kelleher does not work for banks. He works against them. “What is at stake is whether the American people are at risk of another Great Depression,” Mr. Kelleher, who is 54, said in a recent interview. “We exist to fight back against the forces trying to make us forget just how bad it was.” Mr. Kelleher is the president of Better Markets, a nonprofit organization that pushes for a stringent interpretation of the Dodd-Frank financial regulatory law, which passed in 2010 but whose specific rules and regulations are currently the focus of an intense, complex and expensive behind-the-scenes battle. Think of Better Markets as Occupy Wall Street’s suit-wearing cousin. Mr. Kelleher, a Harvard Law School alumnus and a former partner at Skadden, Arps, Slate, Meagher & Flom — is a wisecracking, fast-talking operator who just happens to think that banks would devastate the economy if given the chance. The financing for the K Street office comes not from small donations but from millions contributed by Michael Masters, an Atlanta-based hedge fund manager who believes that the markets are as imperfect as the people participating in them, and therefore need stricter rules. Better Markets does not march against banks, or bring loudspeakers to their lobbies. It instead writes detailed comment letters to regulators, meets with them, files friend-of-the-court briefs, puts out studies and testifies before Congress. The goal, Mr. Kelleher said, was to present an alternative argument to the one made by the banks and their small army of lobbyists. “For a long time, there had been no organization dedicated solely to going to toe-to-toe with the financial industry, on any issue, no matter how complex or obscure,” he said. “That’s what we do.” Still, Better Markets and the handful of other advocates for the public interest — Americans for Financial Reform, the A.F.L.-C.I.O. and a few think tanks among them — remain seriously outmanned. Take lobbying on the Volcker Rule, a controversial portion of the Dodd-Frank law that would prevent depository institutions from making certain speculative bets. From July 2010 to October 2011, financial institutions met with federal agencies to discuss it some 351 times, according to an analysis by Kimberly D. Krawiec, a law professor at Duke. Public interest groups, including Better Markets, held just 19. “It’s David versus Goliath,” said Byron Dorgan, the former North Dakota senator and Mr. Kelleher’s former employer. “But at least David’s there.” Since JPMorgan Chase announced that it had lost $2 billion or more on a failed hedge, Mr. Kelleher has made an effort to be everywhere: in its crisis, he saw his opportunity to stress that banks need tougher controls. “Jamie Dimon’s poor fortune is good news for financial reform and taxpayers,” said Mr. Kelleher, referring to the bank’s chief executive. “Because, as it is unendingly noted, he’s the best banker in the world,” he said wryly. “The universe, maybe. It can get intergalactic with the compliments.” He raced to New York for a television appearance. He spoke with more than two dozen reporters, and corresponded with several more. In Better Markets’ 16 months of existence, Mr. Kelleher has become a favorite source for the media, speaking in long, quotable peals and in a broad-voweled Massachusetts accent. In his sound bites, the JPMorgan affair is a “debacle.” Investment banks need to remember the “hierarchy of guilt” for the crisis. (They are at the top.) A weak rule on swaps is an “indefensible retreat” from tougher regulation and a “poster child for the pernicious effect of industry’s army of lobbyists.” He also met with the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission. “It’s good to get some balance into the mix,” said Gary S. Gensler, the chairman of the commodities commission. “My mom and your mom don’t usually have somebody who’s going to spend the time reading the detailed rules, and do not necessarily have the same resources or desire to be into the minute details that the large financial interests on the other side of this debate do.” The industry’s lobbyists argue that they, too, are on the side of reform — just not excessive reform. “The industry is in favor of better regulation,” said T. Timothy Ryan Jr., the president of the Securities Industry and Financial Markets Association. Excessive regulation, he argues, would raise costs for businesses and individuals. “The banks are in much better shape, because many of them have been earning some money, retaining those earnings, and upping their capital,” Mr. Ryan said. “If we produce through regulations banks that make no money, it’s not going to strengthen the financial system.” If any thread runs through Mr. Kelleher’s career, it is a knack for showing up just after a crisis. After growing up in modest circumstances in central Massachusetts, Mr. Kelleher enlisted in the Air Force and served as a crash rescue firefighter. As a corporate lawyer, he specialized in the legal cleanup after a scandal — as when an executive was caught committing fraud, or a company was caught cooking its books. A partner in Skadden’s Boston office, he had been quietly involved in Democratic politics while working in corporate law. In 1996, he took a year off to work on one of Senator Edward M. Kennedy’s committee staffs. In 2004, he came back to Washington and never left, working for Senator Barbara A. Mikulski, the liberal aggressive Maryland Democrat and then Mr. Dorgan. On Capitol Hill, Mr. Kelleher worked on a broad range of issues — Afghanistan, health care and safety-net programs. He won a reputation as loquacious and assertive, twisting arms for Mr. Dorgan and wearing down interlocutors in long negotiations. “Dennis was generally acknowledged to be a star,” said Ted Kaufman, the former Delaware Senator who served as an adviser to Vice President Joseph R. Biden Jr. for years before taking his vacated Senate seat in 2009. “He was really, really smart, and really knew how to make an argument,” he said. When Mr. Dorgan retired, Mr. Kelleher fielded calls from lobbyists and law firms, but decided to keep working for the public. Mr. Masters, the hedge fund manager who had met Mr. Kelleher when he testified on Capitol Hill, convinced him to help him start a nonprofit, Better Markets. Both Mr. Masters and Mr. Kelleher felt that there were too few public intellectuals or research groups capable of giving detailed counterpoints to the investment banks and other financial firms. So Mr. Masters agreed to finance Better Markets for a minimum of five years. His financial contribution — the organization shows $3 million in financing in a 2010 regulatory filing — has raised speculation that he built the organization to soak up information in Washington or to influence the rule-writing process. (Hedge funds may reap the benefits if investment banks are strictly regulated, after all.) But Mr. Masters said he had been shocked by the poor understanding of financial markets on Capitol Hill, and said the crisis proved the need for more regulation. He dismissed the notion that his motivations were financial. “If I wanted to alter my portfolio positions, I could do it in 24 hours,” he said. The odds remain against Better Markets and fellow public-interest advocates, Mr. Kelleher concedes. “It’s a battle in which the Wall Street lobbying and public-relations machine will have a decisive advantage,” said Mr. Kaufman, the former Delaware senator. “With the regulators, you don’t have to win. You just have to gum them up. And that is exactly what Wall Street has done.”
Cyrus R. Vance, Jr.
District Attorney, New York County - For Immediate ReleaseMay 31, 2012
DA VANCE: ABACUS BANK AND 19 INDIVIDUALS CHARGED IN LARGE-SCALE MORTGAGE FRAUD CONSPIRACY
- Employees and Managers Charged With Routinely Submitting False Documents to Fannie Mae
- Prosecution Marks the First Time a Bank Has Been Indicted in Manhattan Since 1991
Manhattan District Attorney Cyrus R. Vance, Jr., today announced the indictment of ABACUS FEDERAL SAVINGS BANK (“ABACUS” or the “Bank”) and eleven of its former employees in a false document mortgage fraud scheme resulting in the sale of hundreds of millions of dollars worth of fraudulent loans to the Federal National Mortgage Association, commonly known as “Fannie Mae.” The District Attorney also announced that an additional eight former employees have already waived indictment and admitted their guilt in connection with this conspiracy. The 184-count indictment charges eleven individuals and ABACUS itself with residential mortgage fraud, securities fraud, grand larceny, conspiracy, and falsifying business records, among other related charges.[1] The defendants include former senior managers, as well as former employees who worked in various capacities for the Bank’s lending business. Each defendant faces charges related to his or her involvement in the criminal conspiracy, which the indictment charges occurred between May 2005 and February 2010. “The lessons of the financial crisis are still being learned,” said District Attorney Vance. “The public must have confidence that when a bank issues a loan that it later re-sells to Fannie Mae, and by extension the nation’s investors, it will engage in honest and ethical practices and follow the rules set by regulators,” said District Attorney Vance. “Loan schemes based on fraud inevitably will unravel, as this one did. Today’s indictment re-affirms our commitment to transparency and straight dealing in the financial markets. We cannot settle for less.” Steve A. Linick, Inspector General of the Federal Housing Finance Agency, said: “We are proud to have contributed to this effort, which to date has produced multiple indictments of individuals who allegedly engaged in this significant fraud scheme. My office is committed to ferreting out fraud throughout the housing system, and partnering with law enforcement agencies making a similar commitment.” Charles R. Pine, Director of Field Operations for IRS-Criminal Investigation, said: “The public has the right to expect security and integrity from the banks they entrust their money to, regardless of their size. The protection of the nation’s financial system remains a top priority for IRS-Criminal Investigation.” The indictment, representing the culmination of a two-and-a-half-year investigation, charges that ABACUS, its employees, and its managers engaged in a conspiracy involving the regular and systematic falsification of residential mortgage application documents. The defendants falsified these documents so that they could earn commissions and fees by ensuring that otherwise unqualified borrowers would receive loans, which ABACUS then sold to Fannie Mae pursuant to an ongoing agreement. After purchasing these fraudulent mortgages, Fannie Mae repackaged them into mortgage-backed securities and sold them to outside investors. As a result of the hundreds of millions of dollars in charged fraudulent loans, ABACUS earned many millions of dollars in loan origination, purchasing, and servicing fees over the five-year period covered by the indictment. ABACUS is a federally-chartered deposit and lending institution headquartered at 6 Bowery Street in Chinatown. The Bank operates seven branches across New York City, New Jersey, and Pennsylvania, and primarily serves the Chinese-American community. The loan department at ABACUS consisted of three separate units: loan origination, processing, and underwriting. All of these units and several of the branches were implicated in the conspiracy. Charged in the indictment is YIU WAH WONG, who served as the Bank’s Chief Credit Officer, Vice President, and Underwriting Supervisor. WONG was the most senior Loan Department manager and reported directly to the Bank’s CEO. Also charged in the indictment is WAI HUNG “RAYMOND” TAM, the Loan Origination Supervisor. According to the indictment, these ABACUS managers trained lower level employees that the accuracy of loan application information was immaterial; what mattered was making sure that borrowers were able to obtain Fannie Mae-backed mortgages. Managers also encouraged loan officers and processors to be discreet by making sure that the falsified information would be believable in the eyes of the Bank’s regulator, the Office of the Comptroller of the Currency, as well as Fannie Mae. ABACUS loan originators, also called loan officers, are accused of regularly instructing prospective borrowers to make misrepresentations in their loan applications and often authored falsified documents themselves. According to the indictment, originators coached borrowers to inflate their income, assets, and job titles, and to falsify Verification of Employment forms. Loan officers are charged with creating false gift letters to obscure the source of the borrowers’ down payments and disguise borrowers’ liabilities as assets. The loan originators charged in the indictment were: WEN FANG “FANNY” WANG, YING CHUAN “SHELLEY” WANG, JIE QIONG “MICHELLE” NAN, CHI FUNG “DANNY” LAU, and PHOEBE LEE. Loan officers QIBIN “KEN” YU, RUO LAN “JULIE” CHEN, LIEN “LILY” QUACH, XIAOMIN “JANE” HUANG, and YIM “KATY” CHENG all previously pleaded guilty to felonies for their participation in this scheme. Loan officer JIN HUA “JENNY” ZHANG has been charged by felony complaint with Falsifying Business Records in the First Degree and related charges. Loan processors, including defendants WAI CHING “ALICE” WONG and YUK YIN “LORETTA” LAM CHENG, are accused of helping originators concoct inflated incomes for borrowers. Specifically, processors manipulated loan origination software in order to calculate how much income borrowers needed to show in order to qualify for loans. According to the indictment, processors also facilitated the falsification of borrowers’ employment information by providing blank Verification of Employment forms to originators and loan applicants instead of mailing the forms directly to employers. Processor MICHELLE WONG LI previously pleaded guilty to Falsifying Business Records in the First Degree in connection with her conduct. According to today’s indictment, loan underwriters approved loans they knew contained falsehoods, and knowingly failed to conduct adequate scrutiny of obviously false documents. Former underwriters VICTORIA TSUI and YI YI ZHAO were charged in the indictment. ANDY CHEN, who served as an underwriter, previously pleaded guilty to Falsifying Business Records in the First Degree. Between 2005 and 2010, ABACUS is charged with selling hundreds of millions of dollars worth of fraudulent loans to Fannie Mae. Notwithstanding the fact that these loans were replete with misrepresentations and falsified information, ABACUS represented to Fannie Mae that the loan documents were accurate and truthful, a prerequisite for purchases made by Fannie Mae. ABACUS knew that once the loans were in Fannie Mae’s portfolio, the mortgages would be bundled together with other loans and sold by Fannie Mae as securities in the secondary loan market. Over the course of the fraud, ABACUS and its employees earned many millions of dollars in commissions, origination and servicing fees. The District Attorney’s investigation into this misconduct continues. Anyone with information should call the District Attorney’s Office at (212) 335-3600. Assistant District Attorneys Edward Starishevsky, Senior Investigative Counsel, and Julieta V. Lozano led the investigation under the supervision of Polly Greenberg, Chief of the Major Economic Crimes Bureau, and Adam Kaufmann, Chief of the Investigation Division. Investigative Analyst Steven Koch and Trial Preparation Assistants Marisa Calleja, Elisabeth Daniels, Melissa Brown, and Kathleen Dougherty assisted in the investigation. In addition, Investigator Jason Malone of the District Attorney’s Investigations Bureau participated in the investigation under the supervision of Supervising Investigator Santiago Batista. District Attorney Vance thanked the Office of Comptroller of the Currency, Fannie Mae, IRS Criminal Investigations, the Federal Deposit Insurance Corporation, Federal Housing Finance Agency, and the Federal Housing Finance Agency Office of the Inspector General, whose work on this matter was part of the Residential Mortgage-Backed Securities Working Group formed by President Obama and Attorney General Holder, for their respective contributions to this investigation.
Indicted Defendants:
ABACUS FEDERAL SAVINGS BANK
New York, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Scheme to Defraud in the First Degree, a class E felony, 1 count
• Violation of G.B. L. §352-C(5), a class E felony, 1 count
• Violation of G.B. L. §352-C(6), a class E felony, 27 counts
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 27 counts
• Falsifying Business Records in the First Degree, a class E felony, 100 counts
• Attempted Grand Larceny in the Second Degree, a class D felony, 1 count
• Residential Mortgage Fraud in the First Degree, a class B felony, 1 counts
• Residential Mortgage Fraud in the Second Degree, a class C felony, 14 counts
• Attempted Residential Mortgage Fraud in the Second Degree, a class D felony, 1 counts
YIU WAH WONG, D.O.B. 11/6/1950
Flushing, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Scheme to Defraud in the First Degree, a class E felony, 1 count
• Violation of G.B. L. §352-C(5), a class E felony, 1 count
• Violation of G.B. L. §352-C(6), a class E felony, 27 counts
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 27 counts
• Falsifying Business Records in the First Degree, a class E felony, 100 counts
• Attempted Grand Larceny in the Second Degree, a class D felony, 1 count
• Residential Mortgage Fraud in the First Degree, a class B felony, 1 counts
• Residential Mortgage Fraud in the Second Degree, a class C felony, 14 counts
• Attempted Residential Mortgage Fraud in the Second Degree, a class D felony, 1 counts
WAI HUNG “RAYMOND” TAM, D.O.B. 5/22/1955
Brooklyn, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 27 counts
• Falsifying Business Records in the First Degree, a class E felony, 100 counts
• Attempted Grand Larceny in the Second Degree, a class D felony, 1 count
• Residential Mortgage Fraud in the First Degree, a class B felony, 1 counts
• Residential Mortgage Fraud in the Second Degree, a class C felony, 14 counts
• Attempted Residential Mortgage Fraud in the Second Degree, a class D felony, 1 counts
WEN FANG “FANNY” WANG, D.O.B. 6/18/1972
Little Neck, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 9 counts
• Falsifying Business Records in the First Degree, a class E felony, 36 counts
• Residential Mortgage Fraud in the First Degree, a class B felony, 1 counts
• Residential Mortgage Fraud in the Second Degree, a class C felony, 5 counts
YUK YIN “LORETTA” LAM CHENG, D.O.B. 5/21/1948
Fresh Meadows, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 5 counts
• Falsifying Business Records in the First Degree, a class E felony, 12 counts
CHI FUNG “DANNY” LAU, D.O.B. 10/13/1983
Flushing, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
PHOEBE LEE, D.O.B. 6/13/1966
Flushing, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
JIE QUIONG “MICHELLE” NAN, D.O.B. 11/14/1980
Flushing, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 1 counts
• Falsifying Business Records in the First Degree, a class E felony, 3 counts
VICTORIA TSUI, D.O.B. 8/16/1975
Brooklyn, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 7 counts
• Falsifying Business Records in the First Degree, a class E felony, 30 counts
• Residential Mortgage Fraud in the First Degree, a class B felony, 1 counts
• Residential Mortgage Fraud in the Second Degree, a class C felony, 6 counts
YING CHUAN “SHELLY” WANG, D.O.B. 6/11/1968
College Point, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 2 counts
• Falsifying Business Records in the First Degree, a class E felony, 6 counts
• Residential Mortgage Fraud in the Second Degree, a class C felony, 2 counts
WAI CHING “ALICE” WONG, D.O.B. 5/24/1958
Brooklyn, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 10 counts
• Falsifying Business Records in the First Degree, a class E felony, 44 counts
• Attempted Grand Larceny in the Second Degree, a class D felony, 1 count
• Residential Mortgage Fraud in the First Degree, a class B felony, 1 counts
Residential Mortgage Fraud in the Second Degree, a class C felony, 3 counts
Attempted Residential Mortgage Fraud in the Second Degree, a class D felony, 1 counts
YI YI ZHAO, D.O.B. 9/6/1964
Brooklyn, NY
Charges:
• Conspiracy in the Fourth Degree, a class E felony, 1 count
• Grand Larceny in the First Degree, a class B felony, 1 count
• Grand Larceny in the Second Degree, a class C felony, 6 counts
• Falsifying Business Records in the First Degree, a class E felony, 19 counts
• Residential Mortgage Fraud in the First Degree, a class B felony, 1 counts
• Residential Mortgage Fraud in the Second Degree, a class C felony, 3 counts
Jin Hua “Jenny” Zhang
• Charged by felony complaint with Falsifying Business Records in the First Degree and related charges.
Previously charged defendants who have pled guilty:
Andy Diansi Chen
• Pled guilty to one count of Falsifying Business Records in the First Degree, a class E felony.
Ruo Lan “Julie” Chen
• Pled guilty to one count of Falsifying Business Records in the First Degree and one count of Scheme to Defraud in the First Degree, both class E felonies.
Yim “Katy” Cheng
• Pled guilty to one count of Falsifying Business Records in the First Degree and one count of Scheme to Defraud in the First Degree, both class E felonies.
Xiaomin “Jane” Huang
• Pled guilty to one count of Falsifying Business Records in the First Degree, a class E felony.
Michelle Wong Li
• Pled guilty to one count of Falsifying Business Records in the First Degree a class E felony.
Lien “Lily” Quach
• Pled guilty to one count of Falsifying Business Records in the First Degree a class E felony.
Qibin “Ken” Yu
• Pled guilty to: one count of Grand Larceny in the Third Degree, a class D felony, one count of Falsifying Business Records in the First Degree, a class E felony and one count of Scheme to Defraud in the First Degree a class E felony.
[1]The charges contained in the indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty. ###
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New York County District Attorney | duggane@dany.nyc.gov| 212-335-9400
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