Former Airline Executives Indicted in Conspiracy to Fix Fuel Surcharges

FBI PR

Conspiracy Alleged to Have Taken Place Following Hurricanes Katrina and Rita

A Miami grand jury returned an indictment today against four former airline executives of competing air cargo carriers for participating in a conspiracy to fix surcharges on air cargo shipments from the United States to South and Central America following Hurricanes Katrina and Rita, the Department of Justice announced today.

The one-count indictment, returned today in U.S. District Court in Miami, charges Guillermo “Willy” Cabeza, George Gonzalez, Rodrigo Hernan Hidalgo, and Luis Juan Soto with conspiring to suppress and eliminate auto transport competition by agreeing to impose an increase to their fuel surcharges on air cargo shipped from the United States to locations in South and Central America. Each former airline executive is charged with participating in the conspiracy beginning in or around late September 2005 until at least November 2005.

According to the indictment, Cabeza, Gonzalez, Hidalgo, and Soto, along with co-conspirators, carried out the conspiracy by engaging in discussions, including at a meeting in an office in the area of Miami’s Kendall-Tamiami Executive Airport, and agreeing to impose an increase to the fuel surcharge applied on flights from the United States to South and Central America. As part of the conspiracy, Cabeza, Gonzalez, Hidalgo, Soto and their co-conspirators engaged in communications to implement and monitor the agreement and accepted payments at collusive and noncompetitive rates.

Cabeza is the former president of a Miami-based air cargo carrier, Gonzalez is the former chief commercial officer of a Peruvian air cargo carrier, Hidalgo is the former vice president of sales and marketing of a Miami-based air cargo carrier, and Soto is the former president of a Miami-based air cargo carrier.

Air cargo carriers transport a variety of cargo shipments, such as heavy equipment and car transport, perishable commodities, and consumer goods, on scheduled international flights.

Cabeza, Gonzalez, Hidalgo, and Soto are charged with price fixing in violation of the Sherman Act, which carries a maximum penalty for each individual of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

A total of 18 airlines and 14 executives, including the four individuals charged today, have been charged in the Justice Department’s ongoing investigation into price fixing in the air transportation industry. To date, more than $1.6 billion in criminal fines have been imposed and four executives have been sentenced to serve prison time. Charges are pending against 10 executives, including the four individuals charged today.

Today’s charge is the result of a joint investigation into the air transportation industry being conducted by the Antitrust Division’s National Criminal Enforcement Section and the Chicago Field Office, the FBI’s field offices in Miami and Washington, the Department of Transportation’s Office of Inspector General and the U.S. Postal Service’s Office of Inspector General. Anyone with information concerning price fixing or other anticompetitive conduct in the air transportation or vehicle transport industry is urged to call the Antitrust Division’s National Criminal Enforcement Section at 202-307-6694.

4-Year-Old Can Be Sued, Judge Rules in Bike Case

NY Times

 

 

Citing cases dating back as far as 1928, a judge has ruled that a young girl accused of running down an elderly woman while racing a bicycle with training wheels on a Manhattan sidewalk two years ago can be sued for negligence.

The ruling by the judge, Justice Paul Wooten of State Supreme Court in Manhattan, did not find that the girl was liable, but merely permitted a lawsuit brought against her, another boy and their parents to move forward.

The suit that Justice Wooten allowed to proceed claims that in April 2009, Juliet Breitman and Jacob Kohn, who were both 4, were racing their bicycles, under the supervision of their mothers, Dana Breitman and Rachel Kohn, on the sidewalk of a building on East 52nd Street. At some point in the race, they struck an 87-year-old woman named Claire Menagh, who was walking in front of the building and, according to the complaint, was “seriously and severely injured,” suffering a hip fracture that required surgery. She died three weeks later.

Her estate sued the children and their mothers, claiming they had acted negligently during the accident. In a response, Juliet’s lawyer, James P. Tyrie, argued that the girl was not “engaged in an adult activity” at the time of the accident — “She was riding her bicycle with training wheels under the supervision of her mother” — and was too young to be held liable for negligence.

In legal papers, Mr. Tyrie added, “Courts have held that an infant under the age of 4 is conclusively presumed to be incapable of negligence.” (Rachel and Jacob Kohn did not seek to dismiss the case against them.)

But Justice Wooten declined to stretch that rule to children over 4. On Oct. 1, he rejected a motion to dismiss the case because of Juliet’s age, noting that she was three months shy of turning 5 when Ms. Menagh was struck, and thus old enough to be sued.

Mr. Tyrie “correctly notes that infants under the age of 4 are conclusively presumed incapable of negligence,” Justice Wooten wrote in his decision, referring to the 1928 case. “Juliet Breitman, however, was over the age of 4 at the time of the subject incident. For infants above the age of 4, there is no bright-line rule.”

The New York Law Journal reported the decision on Thursday.

Mr. Tyrie had also argued that Juliet should not be held liable because her mother was present; Justice Wooten disagreed.

“A parent’s presence alone does not give a reasonable child carte blanche to engage in risky behavior such as running across a street,” the judge wrote. He added that any “reasonably prudent child,” who presumably has been told to look both ways before crossing a street, should know that dashing out without looking is dangerous, with or without a parent there. The crucial factor is whether the parent encourages the risky behavior; if so, the child should not be held accountable.

In Ms. Menagh’s case, however, there was nothing to indicate that Juliet’s mother “had any active role in the alleged incident, only that the mother was ‘supervising,’ a term that is too vague to hold meaning here,” he wrote. He concluded that there was no evidence of Juliet’s “lack of intelligence or maturity” or anything to “indicate that another child of similar age and capacity under the circumstances could not have reasonably appreciated the danger of riding a bicycle into an elderly woman.”

Mr. Tyrie, Dana Breitman and Rachel Kohn did not respond to messages seeking comment.

U.S. Supreme Court Increasingly Favors Business, Study Says

Bloomberg

 

 

The U.S. Supreme Court is more business-friendly today than it was 25 years ago, according to a study conducted by a group that advocates for environmental safeguards and civil rights.

The study by the Constitutionality Accountability Center in Washington takes issue with comments by Justice Stephen Breyer in a Bloomberg News interview earlier this month. Breyer said business groups aren’t doing any better than they have historically.

The group concluded that from 1981 to 1986 the U.S. Chamber of Commerce won less than half its cases at the Supreme Court, compared with about two-thirds over the past five years. Numbers compiled by the chamber show a more limited increase in the business trade group’s success rate.

“Justice Breyer’s flat wrong in suggesting that the chamber has always done well before the court,” said Doug Kendall, the Constitutionality Accountability Center’s president. “The Supreme Court’s modern pro-corporate tilt -- and particularly its sharp ideological split in favor of the U.S. Chamber of Commerce -- are relatively new developments, traceable to the court’s current conservative majority.”

The Chamber of Commerce’s high court record in recent years has fueled contentions that the court harbors pro-business sympathies. The business lobby won at least a partial victory in 13 of the 16 cases in which it filed a brief during the court term that ended in June. Since the 1997-98 term, the group has won 74 percent of its cases, according its figures.

Breyer Correct?

That success isn’t driven by favoritism, according to Robin Conrad, the head of the chamber’s litigation unit. She pointed to recent decisions giving workers more power to sue employers for illegal retaliation.

Much of the chamber’s recent success stems from concerns among the justices about “lawyer-driven litigation,” Conrad said. “I just don’t think that translates into pro-business, and I think Justice Breyer was correct when he rejected that notion,” she said.

Breyer said in the interview that he had done his own historical research and concluded that the modern-day court doesn’t rule in favor of companies any more frequently than it has in the past.

“Business groups have always done well, winning a little bit more than half,” he said.

The Constitutionality Accountability Center study concludes that isn’t the case, at least during the 1981-86 period. The group says the Chamber of Commerce won 15 of the 35 cases in which it participated during that time.

Ideological Split?

The Chamber of Commerce faulted the study for basing its conclusions on only a small fraction of the 800 cases resolved by the court during the five-year period.

“This is a perplexingly small sample size,” Conrad said. “To me this looks like a theory in search of evidence.”

The study, which will be released later today, was provided in advance to Bloomberg News.

Kendall said his group chose the 1981-86 period because it immediately preceded the appointment of Justice Antonin Scalia, now the longest-serving current member. The group based its figures on searches of legal databases, casebooks collecting Supreme Court rulings and briefs on file at the Library of Congress.

A separate Constitutionality Accountability Center study released earlier this year said that business issues often divide the justices ideologically, with Chief Justice John Roberts and Justices Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito tending to side with companies.

Campaign Spending

The court divided on those lines in January in a 5-4 decision that overturned decades-old restrictions on corporate campaign spending. The same five were in the majority in a 5-3 decision in 2008 limiting shareholder suits against a company’s banks and business partners. Breyer didn’t take part in that case.

Other business issues don’t produce an ideological breakdown. Thomas and Scalia have rejected business calls for limits on punitive damages, saying the Constitution doesn’t provide any protection against large awards. Breyer supports some limits on damage awards.

New York Bans Manatt Law Firm From Pension-Fund Placements for Five Years

Bloomberg

 

 

Law firm Manatt Phelps & Phillips LLP agreed to be banned for five years from appearing before any New York public pension fund and will pay $550,000 to the state, Attorney General Andrew Cuomo said.

The accord stems from Manatt’s representation of financial firms seeking investments from public pension funds without a securities license, Cuomo said today in an e-mailed statement.

Manatt, based in Los Angeles, secured meetings on behalf of firms seeking investments from pension funds in states such as New York and California. From 2004 to 2006, Manatt and a California-based lobbyist partner, Platinum Advisors, each received $187,500 in fees for helping place a $25 million investment by the California Public Employees’ Retirement System in Levine Leichtman Capital Partners Fund, Cuomo said.

“Unlicensed agents are untrained, unsupervised and typically traffic in political and personal connections to get access to public money,” Cuomo said in the statement. “We have seen all varieties of this risky behavior and now it includes a prominent national law firm.”

Manatt also made or tried to make introductions to pension funds for New York state and city employees and to the state teachers retirement system, though no investments resulted from those efforts and the firm received no compensation, Cuomo said.

The firm is quoted in Cuomo’s statement saying it is “pleased to put this matter behind us.”

Cuomo, the Democratic candidate for governor, started in 2007 investigating corruption at New York’s Common Retirement Fund, the third-largest in the U.S., recently valued at $124.8 billion. At least seven people have pleaded guilty to criminal charges, 15 investment firms have settled and more than $139 million has been paid to the fund and to the state.

Manatt, like others who have come to terms with Cuomo, agreed to adopt reforms that include a ban on placement agents obtaining investments from public pension funds and limits on campaign contributions to those with the power to assign investment business.

“We commend Attorney General Cuomo for investigating the placement process for pension fund investments and we embrace his new Reform Code of Conduct,” the firm said.

Jury Pool quizzed about Politics at DeLay Trial

Associated Press

 

 

Potential jurors in the corruption trial of former House Majority Leader Tom DeLay were quizzed Tuesday about whether their political beliefs could interfere in their ability to make an impartial decision in the case.

Jury selection began Tuesday some five years after DeLay was indicted on charges he illegally funneled corporate money to help Republicans in Texas legislative races in 2002.

DeLay smiled and held the hand of his wife, Christine, as he entered a courthouse in Travis County earlier in the day.

"I feel great, absolutely great," said DeLay, one of the most polarizing politicians during former President George W. Bush's administration. "I'm not worried at all."

DeLay's attorneys tried to get his trial moved, fearing he could not get a fair trial in Austin, the most Democratic city in one of the most Republican states. DeLay has said the charges were politically motivated by Ronnie Earle, the Democratic former Travis County district attorney who originally brought the case and retired in 2008.

Gary Cobb, the lead prosecutor, told the jury pool his office has prosecuted all kinds of politicians, pointing out that a Democratic state lawmaker was being tried in an adjacent courthouse on Tuesday.

"Mr. DeLay is a Republican. I'm a Democrat. This case has nothing to do with that. All that matters is, 'Can you put political feelings you may have (aside) and give both sides a fair trial?'" Cobb said.

Most in the jury pool said they could be fair, but one man who said he was a Democrat doubted his own impartiality because of his "distaste for the Republican Party and the way they behave."

The jury was expected to be chosen from a group of nearly 90 people, part of an initial pool of 320 people. A jury could be chosen by late Tuesday, if not Wednesday.

Testimony in the case was set to begin Monday, the eve of Election Day, with the trial lasting at least three weeks.

DeLay, who has been pressing for a trial, says he committed no crime. His case was slowed down by appeals of pretrial rulings.

The 63-year-old DeLay is charged with two crimes: money laundering and conspiracy to commit money laundering. If convicted of money laundering, he faces from five years to life in prison. The conspiracy charge carries a prison term of two to 20 years. DeLay has chosen for the judge, not the jury, to sentence him if he's convicted.

DeLay and two associates - Jim Ellis and John Colyandro - are accused by prosecutors of taking $190,000 in corporate money collected by a state political action committee DeLay started and illegally funneling it through the Republican National Committee in Washington to help elect GOP state legislative candidates in 2002. Under Texas law, corporate money cannot be directly used for political campaigns.

In 2002, the GOP won a majority in the Texas House of Representatives for the first time since the Civil War era. That majority helped Republicans push through a congressional redistricting plan engineered by DeLay that sent more Texas Republicans to Congress in 2004.

Ellis and Colyandro, who face lesser charges, will be tried later. A previous charge alleging the three men had engaged in a conspiracy to violate campaign finance laws was dismissed.

DeLay was once one of the most powerful Republicans in Congress, earning the nickname "the Hammer" for his heavy-handed style.

The criminal charges in Texas, as well as a separate federal investigation of his ties to disgraced former lobbyist Jack Abramoff, forced DeLay to step down as majority leader and eventually to resign after representing suburban Houston for 22 years. The Justice Department has since ended its federal investigation into DeLay's ties to Abramoff without filing any charges against DeLay.

Since his indictment in 2005, DeLay has been mostly out of public view except for a stint competing on ABC's hit show "Dancing With the Stars." He withdrew after an injury. DeLay now runs a consulting firm based in the Houston suburb of Sugar Land.

EPA Rules target Truck Emissions, Fuel Efficiency

LA Times

The proposed standards would cut pollutants from heavy vehicles 20% by 2018. 

 

 

 

The Obama administration announced new rules Monday to reduce greenhouse gas emissions and other pollutants by requiring greater fuel efficiency for big trucks, buses and other heavy-duty vehicles starting with 2014 models.

The regulations, the first of their kind, call for a 20% reduction in heavy-vehicle emissions by 2018, which would require boosting fuel efficiency to an average of 8 miles per gallon, compared with 6 mpg now, experts estimate.

Trucks and other heavy vehicles make up only 4% of the U.S. vehicle fleet, but given the distance they travel, the time they spend idling and their low fuel efficiency, they consume 20% of all vehicle fuel, said Don Anair, a senior analyst with the Union of Concerned Scientists' clean vehicles program.

The standards, issued by the Environmental Protection Agency and the Transportation Department, are the latest in a series of measures designed to chip away at greenhouse gas emissions at a time when a sharply divided Congress has been in a stalemate over climate change legislation.

"These new standards are another step in our work to develop a new generation of clean, fuel-efficient American vehicles that will improve our environment and strengthen our economy," EPA Administrator Lisa P. Jackson said in a telephone news conference.

"In addition to cutting greenhouse gas pollution, greater fuel economy will shrink fuel costs for small businesses that depend on pickups and heavy-duty vehicles, shipping companies and cities and towns with fleets of these vehicles," she said.

Jackson said that manufacturers could achieve the required cuts in emissions by using what she called "off-the-shelf" technology such as improvements to engines, tires, aerodynamics and idling efficiency.

Environmentalists welcomed the decision, and truck manufacturers said they had consulted with the federal agencies in advance to make the changes work.

But truck makers and dealers expressed concern that higher prices might drive some truckers and companies out of the market. The changes could add about $5,900 to the price of a new tractor-trailer that typically costs about $100,000, a senior Transportation Department official said during the news conference.

"An operator of a semi-truck could pay for the technology upgrades in under a year, and have net savings up to $74,000 over the truck's useful life," the EPA and Transportation Department said.

That claim could not be independently verified.

Fuel efficiency standards stagnated for years under Republican and Democratic administrations alike. But in two sets of rules issued this year, the EPA called for cars and light trucks to boost fuel efficiency into the range of 47 to 62 mpg by 2025. The EPA is expected to issue rules in early 2011 that would seek to reduce greenhouse gas emissions from stationary sources like power plants.

The new regulations would save the trucking industry about 500 million barrels of oil over the life of vehicles made between 2014 and 2018, and reduce greenhouse gas emissions by nearly 250 million metric tons, according to government estimates.

Regulators and environmentalists in California approved of the new rules. More than 40% of containerized cargo arriving in the U.S. moves through the ports of Los Angeles and Long Beach. The ports, with their variety of diesel-powered transport and equipment, are among the biggest sources of pollution in the Los Angeles area, and trucks contribute greatly to the toxic mix.

California regulators have tightened clean air requirements for the ports, and a spokesman for the California Air Resources Board said the new federal rules complemented state efforts.

Florida State Legislators approve Federal Guidelines for Health Insurance

Orlando Sentinel

 

 

Over the protests of the insurance industry, state insurance regulators meeting in Orlando today endorsed a proposed federal regulation that would guarantee a certain portion of your health-insurance premium is spent on medical care.

In a vote Thursday at the National Association of Insurance Commissioners' fall meeting, state regulators agreed to forward their proposal to the U.S. Department of Health and Human Services, which will either adopt or modify the recommendations.

The proposed regulations would require health-insurance companies to spend at least 80 percent of a customer's premium on providing health care and medicines. For customers covered by large-group plans, the insurance company must spend 85 percent of the premium on health-care.

These spending ratios, known as "medical loss ratios," have been the subject of contentious debates for months. Under the Patient Protection and Affordable Care Act passed by Congress in March, the insurance commissioners' association is responsible for recommending definitions and calculations of the ratios to federal officials.

For months, a committee of insurance commissioners held several conference calls with insurance industry officials and others while hammering out their recommendations for how the ratios should be calculated and implemented. The new rules will go into effect in January 2011.

"I commend the work of our regulators and staff as we considered a number of very challenging issues as it moved through the committee process," said Jane Cline, the West Virginia insurance commissioner and current president of the insurance commissioners' association.

HHS Secretary Kathleen Sebelius applauded the insurance commissioners' vote and pledged to work quickly to get a new MLR regulation into place.

"These recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers," Sebelius said. "Not only do they ensure consumers receive better value for their health-care dollar, they recognize special circumstances in different markets to preserve market stability and employee coverage as we transition to the new marketplace in 2014."

Immediately after the vote, Karen Ignagni, president of the health-insurance lobbying group America's Health Insurance Plans, criticized the insurance commissioners' move.

"The current MLR proposal will reduce competition, disrupt coverage and threaten patients' access to health plans' quality-improvement services," Ignagni said.

Insurance industry experts and top attorneys have said insurers may not be able to operate at those levels — and have voiced concerns that some insurers may stop selling health-insurance policies in some areas.

But Timothy Jost, a health-law professor at Washington and Lee University in Virginia — and a consumer representative to the insurance commissioners' association — said some states, such as Washington state, already have these higher ratios.

"Washington's MLRs are in the 90s — and they still have health insurance companies operating in their state," he said. "And there are states that have regulated MLRs for years. They still have insurance industries."

He said the new rules would force insurers to spend less on marketing and administration — and to be efficient.

"There are insurers who are still processing with paper — and they're spending 35 percent of their premiums on administration," Jost said. "If we had an airline that was still printing tickets on paper, and charging higher prices, we wouldn't be using them."

SDNY U.S. Attorney Promises Credit for Tips From White Collar Defense Lawyers

Main Justice

Southern District of New York U.S. Attorney Preet Bharara, speaking to an audience of top white collar defense lawyers in New York Wednesday, said early cooperation from defense lawyers will burnish their reputations within the office and earn them and their clients credit.

Bharara told the defense veterans that tipping prosecutors early will enable the government to get a jump on getting authorizations for all-important wiretaps and other tools law enforcement now uses to track down sophisticated insider trading scams employing anonymous cell phones, bank robberies at the click of a mouse, global financial frauds tied to corrupt foreign officials, corporate intellectual property thefts by rivals and ex-employees, and old-school crime syndicates involved in Medicare fraud.

Whether your bad actor is is an individual or a business entity, “a reputation for intransigence or willful blindness will inevitably not help,” Bharara told a rapt audience of veteran defense lawyers — including many former SDNY prosecutors — attending the New York City Bar Association event. But a reputation for coming clean as soon as misconduct surfaces, even before an internal whistleblower comes forward, “is like gold in the bank,” Bharara said.

“So, please don’t be strangers. Come and see us, and tell us about crimes. I promise we will be all ears,” he added.

Bharara said the investigation and prosecution of illegal insider trading is a top priority for his office, the FBI and the Securities and Exchange Commission as well. He compared trading on inside information to using steroids. And since Galleon- type insider trading scams have proliferated, it’s incumbent on prosecutors to use “every lawful investigative tool available to investigate and prosecute,” he said.

“Recordings are the absolute best evidence, and so we will not shrink from using them,” he told the defense attorneys. “The question of why we use wiretaps to investigate illegal insider trading is, to my ear, like asking a defense lawyer, ‘Why do you cross examine the government’s witness at trial?’ In bothcases you do it to get at the truth.”

Bharara referred to an appellate argument on Oct. 4 in which the lawyer for Galleon hedge fund founder Raj Rajaratnam challenged the legality of investigators’ recording his private conversations in the insider trading probe; Rajaratnam’s lawyers argued the government could not meet the burden of showing the necessity of the tap, Bharara said. And just a few floors above in the same courthouse, another well-known defense lawyer was arguing equally strenuously to a jury that his client, ex-Jeffreys Group trader Joseph Contorinis, should be acquitted because the government had no recordings to prove its insider trading case against him.

“So I am here to tell you that court-authorized wiretaps, so long as all the legal requirements can be met, will continue to be in our toolbox in insider trading cases,” he said.

Bharara reiterated earlier comments about taking his responsibility to be independent seriously. The issue arose this summer in the Russian spy case, when some worried that his office became a rubber stamp for the White House. At the time, Bharara and two of his aides monitored the arrests from an FBI command center, and SDNY prosecutors appeared in courtrooms in Alexandria, Va., and Boston to handle the arraignments, while the lead prosecutor on the case and co-chief of the office’s terrorism unit, Michael Farbiarz, oversaw the efforts in Manhattan. Farbiarz, his deputy Boyd M. Johnson III and Criminal Division Chief Richard B. Zabel met in his office and conducted a review of earlier spy swap cases. Bharara said the review was helpful because it indicated that his office was not “in uncharted territory.”

On the political corruption front, SDNY prosecutors are currently pursuing a criminal investigation of Afghan President Hamid Karzai’s eldest brother, Mahmoud Karzai. The team assigned to the case draws from different units in the office and most likely includes the public corruption unit is headed by Daniel Stein, 35, who has exposure to Afghanistan issues through his previous job in the former International Narcotics Trafficking unit. It may also involve prosecutors from the newly combined unit, Terrorism and International Narcotics, a new 21-prosecutor unit headed by Farbiarz, 36, who had served as a deputy in the former terrorism unit, and Anjan Sahni, 33, formerly the chief of former International Narcotics unit. Jocelyn Strauber, 36, is their deputy. The unit handled all the Iraqi Oil-For-Food cases.

Niche Lawyers Spawned Housing Fracas

The Wall Street Journal

Lawyer Michael Gaier switched his focus to foreclosure defense.

 

 

The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer's gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.

Lillian and Robert Jackson stopped paying on their home in Jacksonville, Fla., in 2004 when business dropped off at their cleaning company. Eviction might have seemed inevitable when they faced a foreclosure hearing two years later.

But their lawyer, James Kowalski, had the idea of taking a deposition from the signer of the mortgage papers. When a document processor for GMAC Mortgage admitted she routinely signed such papers without being familiar with details of the loans, she was tagged as one of a species now known as robo-signers.

It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner's legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn't.

The housing-market uncertainty stemming from the foreclosure fracas is unabated, despite moves by Bank of America Corp. and GMAC to resume some suspended foreclosure sales. In Florida, with over half a million foreclosure cases, banks that are reviewing their documentation have canceled hundreds of court hearings in recent weeks. Big banks that have said they are finding few or no flaws in the foreclosure process have encountered skepticism from some of the state attorneys general probing the mess, and those authorities are pushing ahead.

The great majority of delinquent borrowers don't hire lawyers but leave the home right before getting evicted. Some lawyers who represent financial institutions take a dim view of the growing ranks of lawyers pushing for a different outcome.

"There is a movement afoot by [state attorneys general] and private lawyers to use technical problems to avoid foreclosures where the borrower is in default and the foreclosure is in all respects substantively appropriate. These are lawyers where the best job they can do for their clients is to keep them in their houses without paying the mortgage," said Andrew L. Sandler, a Washington securities lawyer who represents banks and firms that service mortgages.

Mr. Sandler added: "The class-action lawyers are swarming around this issue right now, because they perceive that it can result in significant fees for them. But they're not well-founded cases, and the banks will vigorously contest any class action around these issues."

The big risk to banks and the housing market, indeed, is that more homeowners and lawyers come to see such cases as attractive to fight.

Mr. Kowalski in Jacksonville has already filed a suit seeking class-action status, in circuit court in St. Johns County, Fla., naming Deutsche Bank AG and Citigroup Inc. mortgage unit Citi Residential Lending, accusing them of violating Florida laws and seeking nonmonetary relief. On Tuesday, a New Jersey law firm filed a damage suit in federal court in New Jersey accusing Bank of America of breaching contracts with borrowers at settlement.

A spokesman for Citi called the suit "without merit." B of A declined to comment. Deutsche Bank didn't have any immediate comment.

It isn't clear how significant the suits ultimately will be. Lenders say paperwork problems can easily be fixed, and foreclosures can proceed. "The homeowner might get to live in the house for a few more months free. But these people do not have a right to a free house," said Laurence E. Platt, an attorney who represents mortgage lenders.

The suits, probes and foreclosure freezes are the culmination of a legal drama that has been unfolding, largely unnoticed by the public, since the case against the Jacksons was thrown out in 2006 by Florida state-court Judge Bernard Nachman.

He ordered GMAC Mortgage, a unit of Ally Financial Inc., to pay the $8,000 fee of the Jacksons' attorney after finding GMAC had filed false testimony, an affidavit in which a document signer, Margie Kwiatanowski, said she had personal knowledge of the details of loans such as the Jacksons'. GMAC declined to make Ms. Kwiatanowski available for an interview.

The judge also ordered GMAC to confirm that it had changed its policies to make sure anyone signing a document on its behalf read and fully understood the instrument. "Do not sign unless you have that comfort level," a GMAC memo then advised employees. "Do not sign verifications on court pleading documents unless you have independently checked the facts."

GMAC, which serviced the Jacksons' loan but didn't hold the mortgage, said: "As a servicer we try to avoid foreclosure whenever possible and work with the borrower on forbearance and home-preservation options before pursuing foreclosure." The firm wouldn't comment on cases still to be litigated.

GMAC also said it is reviewing all mortgages it services to make sure documents are properly prepared. It has never re-filed the case involving the Jacksons' house.

The Jacksons, still living there, are seeking a settlement. "What we want to do is to take the foreclosure off the credit report and dissolve it completely, so we can refinance the home and start over," said Ms. Jackson, 57.

In 2009, three years after the Jackson ruling, other Florida lawyers got into the act. Unaware of that case, a small law firm called Ice Legal took a deposition from another GMAC employee, who also testified to routinely signing foreclosure documents without reviewing the loans.

That testimony came about because the small law firm's founder, Thomas Ice, was searching for a way to help his bankruptcy clients.

Mr. Ice founded his firm in 2008 to focus on consumer bankruptcy, after a career at big law firms defending companies against plane-crash and SUV-rollover suits. With his wife, Ariane, a paralegal, he set up Ice Legal in a strip mall in Royal Palm Beach, Fla., next to a dentist.

As the economy frayed, bankruptcy clients appeared. Mr. Ice would help them with Chapter 13 filings that enable individuals, with a judge's blessing, to get rid of credit-card, car-payment and other debt. But the law doesn't let judges reduce someone's mortgage.

Searching for a way to defend clients facing foreclosure, Mr. Ice began researching English case law and the history of property rights. He ran across Sheldon v. Hently, a 1680 case that said an indebted merchant owed his debt to the person who had lent him the money, not to a debt collector who came around bearing a note.

While the English case didn't bear specifically on his work, it got Mr. Ice thinking about the concept of ownership of a debt, he says. A little more than a year after opening his firm, in the case of Boca Raton woman facing foreclosure, he decided to depose the GMAC employee who had actually signed documents concerning her indebtedness.

It was while grilling that employee, Jeffrey Stephan, that the firm discovered faulty documentation was more common than people had realized. Mr. Stephan testified he regularly signed more than 10,000 court affidavits a month without doing the required review of loan files.

Mr. Stephen also mentioned the name of his boss: Ms. Kwiatanowski, the woman whose failure to review loans before signing off had enabled the Jackson family in Florida to escape foreclosure for years.

Mr. Ice mentioned the deposition testimony to a fellow lawyer, Matthew Weidner. "Tom and I were talking, and it was, 'Jesus, they're like robots!'" Mr. Weidner says.

Mr. Weidner is also a blogger, and on Jan. 8 he wrote a blog post with an appellation for the routine signers. "We know from depositions taken of these 'robo signers,'" he wrote, "that they don't even read the documents placed in front of them and the notaries and witnesses that are supposed watch them as they sign are not present."

A GMAC spokeswoman, asked how Mr. Stephan could have submitted such affidavits years after a company memo had admonished employees to check the facts, said: "Obviously the policy wasn't being followed, and we discovered this procedural error. We became aware of the breakdown recently." Mr. Stephan couldn't be reached for comment. The woman in the Boca Raton case remains in her home.

Mr. Ice, recounting the suit and the legal steps he took, said it shows "the need for the complex litigation that is required to win these foreclosure cases."

Mr. Stephan re-emerged in June, in a case that helped spark the current foreclosure turmoil. A pro bono lawyer in Maine, Thomas Cox, took another deposition from Mr. Stephan, who again acknowledged routinely signing documents without reviewing the loans.

GMAC tried to sanction the lawyer on grounds he had embarrassed its employees, a maneuver that could have kept him from using the Stephan deposition as evidence. The motion was denied by Maine's Ninth District state court, which also ruled, late last month, that GMAC had submitted the Stephan affidavits "in bad faith." The court ordered GMAC to pay Mr. Cox $27,000, a sum it said he might have earned for his legal work if he hadn't been working pro bono.

GMAC suspended its foreclosure sales in 23 states in September and widened the freeze in October, before saying on Monday that it would again push forward with some of them. It has been replacing court affidavits that Mr. Stephan signed with documents signed by others.

At Ice Legal in Royal Palm Beach, attorneys are working through a load of several hundred foreclosure cases. Mr. Ice has hired three new lawyers and says he's so busy he has stopped playing golf and spends most of his time at the office. The firm has deposed alleged robo-signers at three other lenders or mortgage-serving companies besides GMAC.

Michael Gaier, on of the top lawyers in Philadelphia, switched to foreclosure defense last year after years of representing patients in malpractice suits and consumers who said they had purchased faulty products. His new legal practice "is academically challenging, and I'm hoping it'll be financially rewarding. I'm hoping the banks rewrite the mortgages, cover my fees. That's my end game," said Mr. Gaier.

Mr. Kowalski, the lawyer who in 2006 unearthed a robo-signer before that term was common, said, "I don't think the [mortgage] servicers ever thought that their process was going to see the light of day. It's just that so many of us have taken so many of these so far, that now, in 2010, we finally have some traction."

Banks Face Mortgage Scrutiny as $49 Billion in Value Vanishes‏

Bloomberg

 

 

Citigroup Inc., Bank of America Corp. and Wells Fargo & Co., set to report earnings this week, face investors groping for answers after evidence of flawed foreclosure documents triggered a selloff of U.S. bank stocks.

The banks plus JPMorgan Chase & Co. saw $49.3 billion in market value shaved off in the three days ended Oct. 15 amid concern that rising costs of faulty foreclosures will eat into profits. JPMorgan set aside $2.3 billion of reserves to cover mortgage repurchases or litigation expenses, including some for “mortgage-related matters,” the lender said Oct. 13.

“We’ve had two banks report good earnings in terms of credit-quality costs coming down,” said Erik Oja, an equity analyst at Standard & Poor’s in New York, referring to JPMorgan and First Horizon National Corp. “But people don’t care. They say ‘Well, how many foreclosures do you have in the pipeline? And what are you seeing?’ And they answer that we’re looking at each one. And people say ‘All right, sell.’”

An investigation by attorneys general in all 50 states into foreclosure practices has fueled speculation that banks will have to purchase billions of dollars in loans from mortgage-bond investors who will challenge the paperwork. Lenders have suspended foreclosures in some states and started reviews after court documents surfaced showing employees at several large mortgage firms signed papers without ensuring their accuracy.

Oja cut his recommendation on Charlotte, North Carolina- based Bank of America to “hold” from “strong buy” on Oct. 15 because of uncertainty about mortgage costs.

Dimon’s ‘Blip’

JPMorgan Chief Executive Officer Jamie Dimon, 54, faced analysts’ questions about foreclosures on the company’s third- quarter conference call Oct. 13. Dimon said the New York-based lender probably will pay an “incremental” sum to review and fix foreclosure documents.

“If you’re talking about three or four weeks, it will be a blip in the housing market,” Dimon told investors. “If it went on for a long period of time, it will have a lot of consequences, most of which will be adverse on everybody.”

Analysts differ in their cost estimates. Compass Point Research and Trading LLC’s Chris Gamaitoni estimated in August that lenders may suffer as much as $179.2 billion in losses tied to soured mortgages they will be forced to repurchase from mortgage-bond insurers and investors. Last week, Mike Mayo, an analyst at Credit Agricole Securities USA in New York, estimated a cost of $20 billion for repurchases when including government- sponsored entities Fannie Mae and Freddie Mac. Goldman Sachs Group Inc.’s Richard Ramsden said a worst-case scenario would be $84 billion, while Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, said it could cost the banks as much as $91 billion.

‘A Lot of Uncertainty’

“There’s a lot of uncertainty surrounding what the eventual cost of mortgage repurchases will be,” Deutsche Bank AG analysts led by Matthew O’Connor wrote in a note last week. “The bad news is we (and the banks) won’t know the answer for some time. The good news is the banks should have time to absorb the losses.”

Bank of America, JPMorgan and Wells Fargo have the most at stake, O’Connor wrote.

Citigroup today said third-quarter profit rose to $2.17 billion, beating analyst estimates, as it reduced loan-loss reserves. The New York-based bank set aside $322 million to repurchase mortgages, compared with $347 million in the second quarter. Bank of America, which has halted foreclosure sales in 50 states, is scheduled to report third-quarter results tomorrow, and San Francisco-based Wells Fargo will announce results Oct. 20.

‘Messy Process’

The four banks control more than 55 percent of the market for billing and collections on U.S. home loans, according to Barclays Capital Inc. When borrowers default, the firms handle the foreclosure process.

Wells Fargo, which said it is proceeding with foreclosures, may have litigation and repurchase expenses of $15 billion over the next four years, according to Anthony Polini, a banking analyst at Raymond James & Associates Inc.

“Litigation expenses are going to be high,” Polini said in a phone interview. “Foreclosures are a messy process and one that will provide a headwind to earnings, but it doesn’t mean this recovery is postponed. It just means it happens at a slower pace.”

‘Grossly Distorted’

Barbara Desoer, 57, head of home lending at Bank of America, said Oct. 15 that estimates of added costs from foreclosures have been “grossly distorted.” The bank, the largest in the U.S. by assets, stands by the accuracy of its process, she said in an interview.

Mark C. Rodgers, a spokesman for Citigroup, said in an e- mailed statement last week that the bank has safeguards in place to prevent improper filings. Wells Fargo has enacted an additional review of pending foreclosures in 23 states to provide “further assurance” that information is correct, a spokeswoman, Vickee Adams, said last week.

Bank of America dropped $1.54, or 11.4 percent, in the three days ended Oct. 15, while Citigroup fell 29 cents, or 6.8 percent, the biggest three-day drop for the stocks since July. Wells Fargo declined $2.39, or 9.2 percent, the largest such falloff since May. JPMorgan fell $3.25, or 8 percent, over the same three days, the worst such period since the three days ended Jan. 22.

The market value of the 24 lenders in the KBW Bank Index fell by a combined $58.5 billion in the three days, according to data compiled by Bloomberg.

“People are trying to sort out who’s going to bear the costs,” said James Barth, a professor of finance at Auburn University in Alabama and senior finance fellow at the Milken Institute in Santa Monica, California. “Someone has to pay for this, and that’s going to be the lenders.”

Saudi Mortgage Law Could Spark $32 Billion of Lending a Year‏

Bloomberg / BusinessWeek

 

 

After five years of searching for a mortgage in the Saudi Arabian capital, Riyadh, 28-year-old Abdulaziz Al Salem has some advice for his peers: Forget it.

“Home ownership in this country is nothing short of a nightmare,” said the father of one. “If you’re not descended from a wealthy family or have an extremely successful business, you probably should give the whole thing a pass.”

Frustrated young Saudis like Al Salem could spark a lending market that Capitas Group International estimates at $32 billion a year for the next decade if the kingdom passes a mortgage law that’s been a decade in the making. Saudi Arabia is literally millions of homes short of meeting its needs, after housing finance failed to keep up with a population that has quadrupled over 40 years to 28.7 million.

The proposed law is part of a planned overhaul of the kingdom’s home finance market, regulating all parts of the industry: from registering mortgages to allowing judges to prosecute police officers who refuse to carry out eviction orders. The changes are aimed at easing the concerns of lenders discouraged by unclear regulation that could lead to lengthy court disputes.

“You can’t function as a mortgage finance business without having a law that regulates all activities,” said Henry Azzam, chairman of Deutsche Bank AG in the Middle East and North Africa. The new law will encourage banks to lend by making it easier to take action when a borrower doesn’t pay, he said.

Vote Imminent

A vote by the country’s Shura Council on disputed sections of the law is expected within the next few weeks, said Abdulaziz Al Gasim, a partner at Al Gasim Law Firm who was involved with drafting the mortgage law alongside Allen & Overy LLP. If the government and the council can’t agree, King Abdullah will have to make the decision himself.

Credit Suisse Group AG estimates that 2 million homes must be built by 2014. Saleh Al-Shoaibi, head of the Shura Council’s Economic Affairs and Energy Committee, says the country will need 18 million to 20 million homes over 10 years.

“The demand is huge and can’t be easily met,” Al-Shoaibi said. “It will require a system that facilitates home ownership.”

Saudi authorities began drafting the new property laws about a decade ago. Provisions about evictions and home foreclosures led to disagreements between the government and the Shura Council, delaying its passage for years. The latest hurdle involves the way Islamic products should be regulated and which authorities will be responsible, Al Gasim said.

Islamic Law

Saudi Arabia, the most populous of the Gulf Cooperation Council countries, favors a strict interpretation of Islamic law that’s overseen by religious authorities. Lending for the purpose of receiving interest payments is banned, prompting Islamic finance arrangements akin to shared ownership or payment by installments. Sixty percent of the country’s 28.7 million people are below the age of 25.

Less than 1 percent of all Saudi home purchases are financed by mortgages. That compares with 7 percent in neighboring United Arab Emirates and 66 percent in the United States, Deutsche Bank estimated in November.

Banks have avoided lending because the Saudi notary public doesn’t recognize conventional loans and conflicts with non- paying buyers would lead to battles in an untested legal system, said Glenn Lovell, an associate at law firm Al Tamimi & Co.

Delays in passing the mortgage law haven’t damped the enthusiasm of all lenders. Deutsche Bank formed a $110 million joint venture for mortgages compliant with Islamic sharia law in April and it’s already giving out 5-year to 20-year mortgages to both Saudis and foreigners living in the kingdom.

Young Couples

“The segment that we’re targeting is the 500,000 riyal ($133,000) home mortgage,” said Paul Loiacono, chief operating officer at Deutsche Gulf Finance. “The person looking for that is part of a young up-and-coming couple looking to buy a first home.”

Builders in the Persian Gulf region, hit by slumping orders in their home countries, are eager to expand in Saudi Arabia when lending picks up. Sorooh Investment of Kuwait started its property development unit in the kingdom after the financial crisis hit the region in mid-2008. It’s now building two projects in the country’s eastern province, gaining a foothold in the market ahead of the law.

“When a mortgage law passes, Saudi Arabia will pull in most of the region’s real estate developers and construction companies,” said Tariq Ali Al-Binali, Sorooh’s vice president of investment. “Every company will be looking to do business in Saudi.”

Strings Attached

Though mortgages are available to young Saudis, they tend to come with strings attached that are unpopular with borrowers. Lenders often demand the title to the property, stress their right to evict defaulters and seek complete control over borrowers’ accounts to prevent them from obtaining loans elsewhere.

“I’ve been renting for the past 10 years and that’s money down the drain,” said Badr Abdulla, a 29-year-old resident of Riyadh. “But that’s still better than putting my life and bank account under the direct control of banks.”

Right now, most buyers pay cash or get interest-free loans from the country’s Real Estate Development Fund, which can’t keep up with the large number of applicants, according to Deutsche Bank. Some use money provided by the fund to buy land before tapping into consumer loans, end-of-service pay or pensions to fund the construction of homes. Others rely on cash gifts from their families combined with personal loans to build or buy homes.

No Collateral

Banks are “simply looking at the pay of an individual, mostly in the high-income segment, because they don’t have direct recourse to an asset,” said Naveed Siddiqui, chief executive officer of Capitas Group International, a Saudi Arabia-based holding company focused on Islamic financing. “The law will give them that recourse and that’s a big, big stimulus.”

Most of Saudi Arabia’s demand is centered in the low-and mid-income segment with prices of about 500,000 riyals. Most projects under construction are at the upper end of the market, where prices are three times higher, according to Imad Damrah, country director at property consultants Colliers International.

“It’s virtually impossible to find a good-quality apartment at a reasonable price,” said Al Salem, who is still no closer to making purchase. “Most buildings lack proper facilities and the designs are very old. The finishing in many of the new developments is also not worth the money they are demanding.”

Mismatch

The mismatch is unlikely to be resolved without government intervention through public-private partnerships that would subsidize developers, said Al Gasim, who sits on the mortgage law committee.

“The government may have to finance the building of low-to mid-income housing the same way it financed petrochemical projects,” he said. “Effectively, it would have to lead both supply and demand.”

The Saudi government may extend an experimental program that allows some developers to sell properties before they are built to help secure funding for construction. Previously, companies had to finance projects in full before offering properties for sale, according to Credit Suisse.

It may take a couple of years for a new mortgage law to have a significant impact on the market, analysts say. Banks may remain wary of courts overseen by religious judges, especially in cases involving interest, which is prohibited under Islamic law. Regulations on originating and securitizing loans will also take time to work out.

Lending ‘Flat’

“When you look at Saudi banks’ loan growth, it has been flat or contracting,” said Tarik El Mejjad, a London-based analyst at Nomura International Plc. “Banks have to first deal with issues of loan securitization if they are to broaden their funding sources.”

Though there are many hurdles to overcome, passing a mortgage law is a matter of when, not if, Deutsche Gulf Finance’s Loiacono said.

“There are huge social pressures that I see every day with my customers,” he said. The law “is the only way to free up the real estate market and bring it to the masses. It has to happen.”

Al Salem plans to wait a few years before resuming his long search for an affordable mortgage.

“Maybe in five years home prices will have come down and mortgages will be more affordable as more banks get into the market and compete for my business,” he said.

Banks Restart Foreclosures

The Wall Street Journal

 

 

Two major lenders at the center of the foreclosure crisis took steps Monday to put the mess behind them by restarting home seizures that were frozen by documentation concerns.

Bank of America Corp. reopened more than 100,000 foreclosure actions, declaring that it had found no significant problems in its procedures for seizing homes. GMAC Mortgage, a lender and loan servicer, said that it also is pushing ahead with an unspecified number of foreclosures that came under intense pressure.

Monday's moves are part of a growing counterattack by lenders scrambling to stem a financial and political threat over allegations that certain employees signed hundreds of documents a day without carefully reviewing their contents when foreclosing on homes.

Bank of America, the nation's largest bank in assets, which imposed on Oct. 8 a nationwide moratorium on the sale of foreclosed homes, said it has begun preparing new affidavits for pending foreclosures in 23 states where a judge's approval is required. The paperwork will be submitted to courts by next Monday, and foreclosure sales will resume in those states starting in November, according to the bank.

"This is an important first step in debunking speculation that the mortgage market is severely flawed," said Bank of America spokesman James Mahoney. More details will be disclosed when the company reports quarterly results Tuesday.

Citigroup Inc. Chief Financial Officer John Gerspach said the bank has found no reason to halt foreclosures, calling its internal procedures "sound." "We have not identified any system issues," he said Monday.

Restarting the nation's foreclosure machine puts the lenders on a collision course with state attorneys general, who announced last week a nationwide investigation of foreclosure practices. Some state officials have been pushing for a wider halt to foreclosure sales, but Bank of America's moves show determination by at least some lenders to get back to business while the investigation proceeds.

A Bank of America spokesman said the bank has found "no cases" thus far of foreclosures that should not have "gone through." Last week, James Dimon, J.P. Morgan Chase & Co. chairman and chief executive, said that no one has been "evicted out of a home who shouldn't have been."

Some top attorneys general said they have little confidence that problems with foreclosures have been fixed. "We've been in discussions with some of the major servicers, and as part of that they've assured us that they are fixing this problem, but we're not just going to take their word for it," said Patrick Madigan, a spokesman for Iowa Attorney General Tom Miller.

It will be hard for lenders to declare the foreclosure crisis over and get back to business as usual. Bondholders are escalating efforts to recover losses on soured mortgage-bond deals containing loans with flawed paperwork. Meanwhile, federal banking regulators are assigning additional employees to an ongoing review of large mortgage-servicing operations, according to people familiar with the situation. Officials want to make sure that documentation procedures are being followed and companies are meeting all legal foreclosure requirements.

Bank stocks surged Monday as investors reassessed last week's outlook for the cost of the foreclosure mess. Citigroup shares jumped 23 cents, or 5.8%, to $4.18 a share in New York Stock Exchange composite trading at 4 p.m., on better-than-expected earnings. Bank of America rose 36 cents, or 3%, to $12.34, while J.P. Morgan was up $1.05, or 2.8%, to $38.20.

Bank of America is the only major U.S. bank that announced a halt to all foreclosure sales while it reviewed documents for errors. Bank officials say they're readying new affidavits for 102,000 pending foreclosure actions.

A company spokesman said the largest investors in mortgages serviced by Bank of America have signed off on the new timetable. The bank will continue delaying foreclosure sales in the 27 states where court approval isn't required until a review is completed "on a state by state basis." The bank expects delays on fewer than 30,000 foreclosure sales nationwide.

"Now it may be legal, but I am not sure it's ethical," said Robert Quigley, a 68-year-old retired commercial fisherman, who received a legal notice last week that Bank of America is proceeding with foreclosure on his home in Lake City, Fla. A bank spokesman said the bank never said it would stop all foreclosure proceedings, just final sales.

GMAC, a unit of Ally Financial Inc., declined to comment on the number of foreclosures it has reviewed so far, but said they included loans with affidavits signed by employee Jeffrey Stephan. His testimony in a deposition that he signed 10,000 foreclosure affidavits a month without reviewing the underlying documentation led GMAC to halt evictions in 23 states last month while it scrutinized its procedures.

Several lawyers representing borrowers facing foreclosure by GMAC said affidavits signed by Mr. Stephan were replaced by similar filings with the signature of a different employee.

Michael Holmes, an antiques dealer in Belfast, Maine, thought he would get a chance to save his home because the affidavit used by GMAC to substantiate his loan amount was signed by Mr. Stephan. Instead, GMAC replaced Mr. Stephan's document in the courthouse file for the foreclosure proceeding with an affidavit signed by employee Davida Harriott. Her name also appears on substitute paperwork in pending foreclosure cases in Florida, according to court documents and lawyers representing the borrowers.

Gina Proia, a spokeswoman for Ally, said on Monday: "As each case is reviewed and remediated, it moves on." None of the revised foreclosure documents being filed by the company will bear the signature of Mr. Stephan, though he still works for GMAC, she said. Mr. Stephan and Ms. Harriott couldn't be reached for comment.

Ohio Attorney General Richard Cordray, who last week filed a lawsuit against GMAC alleging hundreds of counts of fraud related to foreclosure documents, said he is suspicious of efforts to replace paperwork. "Substituting new evidence in [cases] where there's been fraud won't help prevent the court from sanctioning them for the fraud that has already been committed," he said. "It doesn't unring the bell."

Bank Sues Government over Debit Card Amendment

The Washington Post

A Minnesota bank filed a lawsuit Tuesday claiming that a law overseeing debit card swipe fees is unconstitutional and requested that it be overturned.

The legislation, which Congress passed this summer as part of the wide-reaching financial overhaul package, directs the Federal Reserve to study the fees that banks receive from retailers each time a shopper uses a debit card to make sure they are "reasonable and proportional." But in the first legal challenge to the law, TCF National Bank says that the language does not allow the Fed to consider all the costs of providing and maintaining consumer debit cards. It also argues that the legislation is unfair because it applies only to banks with $10 billion or more in assets.

"TCF is going to take an aggressive position on it," chief executive William A. Cooper said. "We believe we're going to be successful."

The swipe fees typically average about 2 percent of the price of a purchase and have long been a point of contention among retailers, banks and card processors, including MasterCard and Visa, that set the rates. The swipe fees apply to debit and credit cards, but the law covers only debit cards. Retailers organized a massive campaign to push for the legislation, which was sponsored by Sen. Richard J. Durbin (D-Ill.), arguing that reducing swipe fees would allow them to lower prices for strapped shoppers.

"There's no doubt consumers will see benefit from this," said Doug Kantor, counsel to the Merchants Payments Coalition, a trade group. "There is zero legal merit to their suit."

The legislation does not require retailers to pass on savings from lower swipe fees to their customers, though Kantor said intense price competition in the industry makes that inevitable. But Cooper said the legislation was designed to help retailers and hurt banks.

"It is nothing but blatant lobbying by one industry to take advantage of the political weakness of another in an economic distress time," he said.

Swipe fees, which are also referred to as interchange, have become an increasingly important source of revenue for banks as strict new regulations restrict other fees and charges, such as overdraft and credit card interest rates. In its lawsuit, TCF said its customers used their debit cards 200 million times last year, generating about $100 million in fees.

The bank receives 1.35 percent of the price of each transaction from merchants, the suit said. Though the Fed has yet to issue its regulations, TCF estimated its rate would drop to 0.26 percent of transactions. A Fed spokeswoman declined to comment on the case.

Like other banks, TCF said that it would have to raise other fees to make up for any lost revenue. That could mean an end to popular free-checking programs.

"The banking consumer is going to pay for this," Cooper said.

TCF said it considered asking other banks to join in the suit but opted against it. Many of the banks affected by the swipe fee legislation also issue credit cards, which are not covered by the law. TCF offers only debit cards.

Still, the American Bankers Association, a trade group, issued a statement Tuesday in response to the lawsuit, calling the legislation "poorly thought out."

"There is no justification for the government providing a direct subsidy to large retailers by legislating a price for a service," ABA chief executive Edward L. Yingling said.

In a statement Tuesday, Durbin said his legislation did not seek to set the rate of swipe fees, only to ensure that they are fair.

"Congress approved this language by a wide bipartisan margin," Durbin said. "I look forward to this provision's day in court and am confident that our language will be found to be fair and constitutional."

Meanwhile, the Federal Trade Commission is challenging the contracts that card processors have with merchants to accept credit cards. Last week, it settled with Visa and MasterCard to allow merchants to give customers discounts for using cards with lower swipe fees. American Express refused to settle the investigation, and the FTC has filed an antitrust suit against the company.

California struggles with Pot Legalization

International Business Times

Marijuana is, in all likelihood, the largest cash crop in the United States, at an estimated $35.8 billion a year. Corn, at $23.3 billion is second. Pot brings in more than grapes in California, more than cotton in Alabama, more than tobacco in the Carolinas. Nationally, marijuana earns more than corn and wheat combined.

A 2006 report by NORML, a pro-marijuana legalization organization, used U.S. Drug Enforcement Administration estimates to arrive at the $35.8 billion figure. The DEA, in its cannabis eradication program, estimated that there were 22 million pounds of marijuana in the U.S. that it had not eradicated. Using a conservative figure for the going price of marijuana -- roughly $100 an ounce - NORML obtained the estimate.

Of course, there is no official figure because, with the exception of the 14 states and the District of Columbia where it is permitted for prescribed medical use, marijuana is illegal.

That could change for at least one state this November 2. The Regulate, Control and Tax Cannabis Act of 2010, known as Proposition 19, is on the ballot in California.

If approved by the state electorate, the law would authorize local governments, if they choose, to regulate and tax the commercial cultivation of the plant. Commercial growth would remain illegal in those cities and counties that did not opt in. Nonetheless, the law would allow individuals 21 years and older to grow 25 square feet of marijuana plants, process and possess the substance, and transport and share up to an ounce.

Passage is no sure thing. Campaigns for and against Prop 19 have been neck-and-neck in the polls, with the legalization side showing a slight edge through the summer. But an announcement last week by the U.S. Department of Justice is likely to have an impact on the outcome this November 2, although how much of one remains to be seen.

U.S. Attorney General Eric Holder said the Department of Justice strongly opposes Prop 19 and intends to enforce the federal Controlled Substances Act in all states, including California.

Holder was responding to a letter from former DEA chiefs who oppose legalization and urged the government to take a stand.

"We will vigorously enforce the CSA against those individuals and organizations that possess, manufacture or distribute marijuana for recreational use, even if such activities are permitted under state law," Holder wrote.

Opponents of Prop 19 hailed the Attorney General's statement as the impetus they need to defeat the measure.

"It takes the smoke right out of their hookah," said Roger Salazar, a spokesman for the No On 19 campaign.

Salazar said the threat of action by the federal government against anyone involved in selling marijuana undermines proponents' promise of big tax revenues for the state following legalization, and that situation will drain support for Prop 19.

NORML issued a report on the California initiative in 2009, which claimed that the state could realize over $1.2 billion annually in tax revenues and reduced enforcement costs by legalizing marijuana.

According to NORML, a $50 per ounce excise tax - roughly a dollar per joint -- would yield between $770 and $900 million per year, and another $240 to $360 million would be gained in sales taxes. In addition, the state would save over $200 million in enforcement costs for arrests, prosecutions and prison.

Basing their estimates on the experience of the California wine industry, NORML says the marijuana industry, replete with Amsterdam-style coffee houses generating jobs and tourism, would bring in four times as much as retail sales. Industrial hemp could generate another $3.4 billion a year, the organization said.

While opponents say the Department of Justice's statement cripples such expectations, proponents say they're wrong.

Tom Angell, spokesperson for Yes On 19, said the Attorney General's position "very much helps us."

"Californians aren't going to let politicians from Washington tell them how to vote," Angell said. "Just the opposite. It will feed into the widespread antiestablishment mood out there."

Many members of California's law enforcement community oppose Prop 19 and are pleased with Holder's stance.

Los Angeles County Sheriff Lee Baca, accompanied by two former DEA chiefs and the district attorney, released Holder's letter at a news conference Friday.

"He is saying it is an unenforceable law and the federal government will not allow California to become a rogue state on this issue," Baca said. "You can't make a law in contradiction to federal law as a state. Therefore Proposition 19 is null and void and dead on arrival."

But there are also members of the law enforcement community in favor of Prop 19.

"As we saw with the repeal of alcohol prohibition, it takes action from the states to push the federal government to change its policies,"  Joseph McNamara, a retired San Jose chief of police, said in a release.

"Passing Proposition 19 in California will undoubtedly kick start a national conversation about changing our country's obviously failed marijuana prohibition policies. If the federal government wants to keep fighting the nation's failed 'war on marijuana' while we're in the midst of a sagging economic recovery and two wars it just proves that the establishment politicians' priorities are wrongly focused on maintaining the status quo," he said.

Former LAPD deputy chief Stephen Downing responded directly to Sheriff Baca.

"It's shocking to hear that Sheriff Lee Baca said that he will disregard the will of the voters if Proposition 19 passes," Downing said. "When I was policing the beat with LAPD, I enforced marijuana laws that I disagreed with, simply because it was my job to enforce the law.  Sheriff Baca should focus on doing his job instead of spending his time chest beating at press conferences and undermining the will of the voters of California.  He should be ashamed of himself. Police in California have no obligation to enforce federal law."

Salazar from No On 19 noted that almost all of California's newspapers came out against the measure even before the Attrorney General's statement.

The most recent poll, in early October by Reuters/Ipsos, showed those opposed gaining a lead for the first time, at 53 percent. The poll also preceded Holder's remarks. There are no results yet available from polls taken after the federal government's opposition was announced.

Proponents dismissed the latest poll as an anomaly.

"Through the summer, it's been 47 percent for and 42 percent against," said Allen St. Pierre, executive director of NORML. "The last California field poll, which we consider the gold standard, had us actually gaining two points. It's looking pretty strong."

"It's still pretty much neck-and-neck," Salazar said, prior to the Department of Justice announcement. "But that works in our favor, because it means that a lot of people are still undecided. When people are undecided or uncertain, they tend to vote No when they get in the booth."

Also prior to Holder's statement, Salazar said that the notion of big tax revenues pouring in because of legalization was mere speculation, because Prop 19 sets no tax rate and, since it allows jurisdictions to opt in or out, there is no way of knowing how much revenue would be generated.

"The way the proposition is written it is less than vague," Salazar said. "It proposes to regulate, control and tax cannabis, but in reality it does none of those things."

Salazar said that, judging how the state's cities and counties reacted to the medical marijuana law passed in 1996, there will be little control and not a lot of tax revenue.

There are 536 jurisdictions in California and the great majority of them, said Salazar, have never adopted laws to tax and regulate medical marijuana.

"I expect much the same thing will happen if Prop 19 is approved," Salazar said. "If a county or city takes no steps to regulate and tax marijuana, it will remain illegal to sell it in that jurisdiction. But marijuana will still be legal, to grow, to possess, to process, to store, to smoke, to transport and to share with friends everywhere in the state."

Salazar said it will create a "marijuana free-for-all" atmosphere with no regulation and, for most jurisdictions, no tax revenues.

Salazar said that, of the opposition coalition, many are against marijuana because they consider drug use morally objectionable. Others oppose it on health grounds. But No On 19 chooses to fight the proposal on its legal and economic merits, or lack thereof.

"If they had written the law correctly, if it provided for a statewide regulatory system, with uniform standards and uniform taxation, then we might be having a different conversation right now," Salazar said. "But the law is poorly written and will only cause headaches."

Proponents, however, say the measure will be adjusted and bolstered once it becomes law.

Democratic State Assemblyman Tom Ammiano has introduced legislation that would establish a uniform statewide regulatory system for marijuana under the California Department of Alcoholic Beverage Control. The bill would leave cities and counties the option to regulate marijuana sales themselves.

Ammiano has introduced legislation to deal with legalized commercial marijuana before, only to see it die in the state legislature. But he has pledged to introduce up-dated legislation to ensure that marijuana is taxed for the benefit of residents.

In anticipation of the passage of Prop 19, a number of California cities -- including San Jose, Oakland, Long beach, Richmond and Sacramento - have initiatives on the Nov. 2 ballot asking voters to decide on taxation rates for commercial marijuana.

"Prop 19 is rather amorphous," St. Pierre said. "We expect that, within the next election cycle, the state legislature will pass laws affirming legalization and better defining regulation and taxation."

St. Pierre noted that many California jurisdictions still prohibit the medical marijuana business and his group expects resistance even after Prop 19 is approved by voters.

"It will be contentious. It will be problematic, like any adult commerce," he said. "We hope the legislature will act quickly to clarify matters where necessary."

But how the state legislature will behave in light of the federal government's opposition is not known. Neither is it known how voters will react knowing Uncle Sam frowns on legalization. 

Chicago Hilton Workers Start 3-Day Strike

Associated Press

Hundreds of Hilton Chicago Hotel workers started a three-day strike Saturday that union officials say is in protest of the hotel chain's efforts to "lock workers into cheap recession contracts."

Unite Here Local 1 spokeswoman Annemarie Strassel told The Associated Press workers began striking in Chicago early Saturday and won't return to their jobs until early Tuesday. The union represents about 600 workers at the Hilton Chicago downtown.

Strassel said the employees have joined striking workers in San Francisco, who went out Wednesday, and in Honolulu, who went out Thursday. The Chicago workers include housekeepers, dishwashers, cooks, bell staff and food servers.

"Hilton wants to lock workers into cheap recession contracts even as the hotels rebound," she said early Sunday in a phone interview. "Workers simply want a share in the recovery."

The AP could not immediately reach hotel officials. But Hilton Chicago told the Chicago Tribune that the hotel is "operating as normal."

"Union tactics such as work stoppages and demonstrations will do nothing to bring us closer to a new contract," Hilton said in a statement. "They are harmful to employees, to the hospitality industry and to the City of Chicago."

Hilton said the wages and benefits its workers receive are "competitive" and that it offered wage increases and other advantages during negotiations.

More than 8,000 Chicago area hotel workers, including ones at five Hiltons, saw their contracts expire in August 2009. The sides have been unable to reach a deal.

Strassel said the strike is only affecting the Hilton Chicago, which is both owned and operated by Hilton Worldwide. One of the world's largest buyout firms, Blackstone Group LP, owns Hilton Worldwide.

"We've been calling this strike a taxpayers' strike because Hilton finagled $180 million in bailout funds when Hilton Worldwide was able to write off debt for the federal reserve that it owed American taxpayers," Strassel said.

Workers are picketing in shifts around the clock, carrying signs that read "Unite Here!" and "Taxpayers on Strike."

In Honolulu, members of the Unite Here Local 5 are striking for five days at the Hilton Hawaiian Village. A union contract there expired June 30.

Citigroup Accused of Sexual Discrimination

Telegraph UK

Executives at Citigroup, one of America's biggest banks, have been accused of running the company as a "boy's club" and of sacking female employees to save the jobs of less qualified men.
 

 

 

Citigroup is being sued by a group of six female employees, who allege that bosses underpaid them, punished them for having children and used the economic crisis as an excuse to fire them.

They allege that an outdated "boys club" mentality "filters down through the management ranks to affect all senior and junior level professional positions." This results in the "systematic and pervasive discrimination and retaliation" against women across the bank, they claim.

The women are attempting to bring a class-action lawsuit on behalf of thousands of current and former female employees, meaning the bank could be forced to pay huge sums in compensation.

Their action comes soon after another former Citigroup worker, Debrahlee Lorenzana, alleged that she was fired by the company for being "too sexy" and for wearing figure-hugging clothes. The case was dismissed because her employment agreement said that such disputes would be settled out of court; she said she would continue the case in private arbitration. Last month three former female employees of Goldman Sachs sued their bank, also alleging systematic gender discrimination. The case, which Goldman Sachs says is "without merit", is ongoing.

The women in the latest Citigroup action are from New York, New Jersey, Florida and Chicago. Five have left the bank while one, Dorly Hazan-Amir, still works for the company.

Ms Hazan-Amir alleges that "throughout the course of her employment with Citigroup she has been subjected to inappropriate and offensive comments based on her gender", and has been underpaid.

She also claims to have been demoted to a "less prestigious and less lucrative position" days after returning from maternity leave.

"There is a glass ceiling adversely affecting female employees, especially those female employees who become pregnant, take a maternity leave, or have childcare obligations, at Citigroup in all facets of their employment," the lawsuit alleges.

Rejecting Ms Hazan-Amir's claims, a Citigroup spokesman said: "Many of her allegations are false, unsupported or taken completely out of context." Her co-claimants allege that they and other women were disproportionately targeted when Citigroup axed a tenth of its workforce in November 2008 after being bailed out by the US government.

The number of women who were fired "was unlikely to have occurred by chance, and instead was the result of intentional gender discrimination", the lawsuit alleges. "In most circumstances Citigroup retained less qualified male employees."

The claimants also allege that throughout their employment, the company failed "to promote females at the same rate and on the same terms and conditions as similarly-situated male employees".

Just five women serve on Citigroup's 44-member senior leadership committee, their lawsuit claims, while the executive committee is made up of 19 men.

The Citigroup spokesman said the women had been made redundant for "legitimate business reasons, not based on their gender".

"Many of their allegations are either totally inaccurate or selectively incomplete," the spokesman said. "The facts do not support their claims of gender discrimination."

Citigroup, which employees about 250,000 people, is one of the "big four" consumer banks in the US and also operates a large financial services arm.

It is still part-owned by the US government, having almost collapsed during the financial crisis.