A Culture of Corruption: Chalk up the week of Dec. 8, 2008, as the week that will go down in infamy. It was the week of a contest in which an Illinois governor, Wall Street titan and Florida mortgage manipulator competed for Scam Artist of the Year. It was a short work week, too. In the span of four days federal authorities charged:
- Gov. Rod Blagojevich trying to sell Barack Obama's vacant senate seat to the highest bidder for personal gains.
- Bernard L. Madoff, a legendary Wall Street mogul, bilking an estimated $50 billion from investors.
- Steven Gordon, former partner in a Coral Gables, Florida, mortgage firm, fraudulently earning $2.8 million in commissions by using a pen converting credit scores of mobile home owners to single-family houses.
And, that skims only the cream from the top of this barrel of greed and cultural corruptness. The federal charges give us a hint at what motivated these violators of the public trust.
Bills, Bills, Bills: Gov. Goofus, as the Chicago Tribune editorial page describes him, is, of course, the poster child of this group. Blagojevich has been a target of federal investigators for several years and owes more than $500,000 in legal bills from the federal inquiry. He also owes more than $900,000 on homes in Chicago and Washington D.C. The open Senate seat was a way out of his troubles, according to government allegations. One day after the presidential election, Blagojevich was taped by federal authorities saying, "I've got this thing and it's f -- -ing golden. I'm just not giving it up for f -- -ing nothing," according to the federal criminal complaint. The document refers to taped conversations in which Blagojevich talks about using the Senate appointment to win a job making $250,000 to $300,000 a year. The governor also weighed the option of appointing himself to the Senate seat, the affidavit said, with the chance at even better opportunities.
Fraud Of Epic Proportions: Madoff, meanwhile, had a fistfull of money parlayed 40 years ago from savings as a Long Island lifeguard into the largest market maker on the electronic Nasdaq market, regularly operating as both a buyer and seller of a host of widely traded securities. Andrew M. Calamari, an associate director for enforcement in the Security and Exchange Commission's regional office in New York, said the case involved “a stunning fraud that appears to be of epic proportions.” Early estimates is Madoff by his own admission bilked a score of investors of $50 billion, according to investigating regulators. They said he told them that his money-management business was “all just one big lie” and “basically, a giant Ponzi scheme.” In that conversation, according to the criminal complaint, Madoff “stated that he was ‘finished,’ that he had ‘absolutely nothing.’ ” According to the S.E.C., Madoff confessed to an F.B.I. agent that there was “no innocent explanation” for his behavior and he expected to go to jail. He had lost money on his trades, he told the agent, and had “paid investors with money that wasn’t there.”
"Mistake in Judgement"?: And, then there's the Stephen Gordon scam prosecutors say goes to the heart of the mortgage meltdown in the housing industry. He simply used a pen to alter credit scores and reclassify mobile homes and vacant lots as single-family homes. Gordon, a former director of residential acquisitions at Bayview Financial, inflated the value of 2,800 loans. He repackaged and sold them to investors, earning more than $2.8 million in additional commissions, according to documents filed by prosecutors in U.S. District Court in Miami. Bayview said in a securities filing that after it discovered the fraud, it bought out or substituted potentially fraudulent loans valued at $66 million. It said there were no investor losses. "I am appalled at how easy it was for him to do this," U.S. Attorney R. Alexander Acosta said. "You would think there would be more due diligence." The case comes as Justice Department and Federal Bureau of Investigation officials push to determine the role fraud may have played in the inflation and subsequent collapse of sophisticated mortgage-backed securities, which have deepened the turmoil facing Wall Street firms. Federal investigators say Gordon reviewed portfolios of Bayview loans and plucked out certain mortgages that he wanted to make more valuable before securitization. On some, he simply used a pen to increase the credit scores of borrowers, making the loans appear less risky and more valuable to investors, according to investigators. On others, he changed internal codes used to classify mobile homes or vacant land and reclassified them as single-family homes, investigators said. Marty Steinberg, the lawyer for Gordon, said the conduct was "aberrant behavior" for his client. "When it occurred, Steve admitted he made a mistake in judgment. He has made full restitution," Steinberg said.
As we can see, greed comes in all sorts of flavors.
(Sources: The New York Times and Wall Street Journal)
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