Documentation Fraud Key to FBI Investigations of Mortgage Industry (Wall Street Journal)

"The FBI's investigations represent an added dimension to the bureau's decade-long focus on mortgage fraud, which spiked during the housing boom. For years, the FBI has targeted fraud cases involving real-estate agents, appraisers and fake buyers. More recently, FBI officials and local prosecutors have set up teams to investigate mortgage fraud in several states where they have noted high fraud activity, including California, Texas, Florida and Arizona, all of which saw fast-growing rates of home-value appreciation.

Now, the FBI is taking a closer look at possible fraud in the secondary market for mortgages, which could implicate well-known financial firms. The faltering U.S. housing market and a rise in defaults and foreclosures, particularly among low-end borrowers, has whipsawed global stock and bond markets, led to the dismissal of Wall Street chiefs and resulted in losses by banks, hedge funds and securities firms."

One potential angle is whether real loans were used to create mortgage securities. Typically, a mortgage security might hold thousands of mortgages. Among other things, the Justice Department is likely to look at whether one mortgage was replicated across multiple securities as underwriters sought to meet high investor demand.

"On Jan. 17, the Florida Attorney General issued a subpoena to Countrywide. Among other things, the subpoena asks Countrywide to describe the standards it used to determine whether borrowers qualified for a prime, subprime or Alt-A mortgage and for no and low documentation loans. The subpoena -- which covers the period from Jan. 1, 2005, to the present -- also asks the company to explain how its underwriting standards may have changed over time. It also asks Countrywide for copies of "promotional advertisements, literature, booklets" and other materials aimed at subprime customers as well as for copies of any scripts or instructions given to Countrywide employees."

"The attorney general is "looking for information regarding whether or not consumers have been taken advantage of and whether or not any of these business practices may potentially violate Florida law," says a spokeswoman for Florida attorney general Bill McCollum. The attorney general is conducting "a widespread review of the mortgage industry," she says."

Low-Level Société Générale Insider’s Forgeries Cost Bank $7.2 Billion

This week Economist.com reports that Jérôme Kerviel, the Société Générale employee who sparked the world's biggest-ever trading loss, was so low on the bank's totem pole that some didn't consider him a trader at all. That may have been what allowed him to pull it off. According to preliminary inquiries into the trading fraud that cost Société Générale €4.9 billion ($7.2 billion), Mr. Kerviel allegedly placed hundreds of thousands of unhedged real trades on stock-index futures markets. For months, Mr. Kerviel avoided detection because -- even as he allegedly built up massive positions -- he always managed to square his books as a low-level trader in the "Delta One" desk: never make a big profit or loss. When one trade caught the attention of a supervisor last week, and the system collapsed, myriad small losses compounded into a huge financial hole for the bank.

Large Percentage of Emails Found Unusable in Court Cases

Janie Davies reports in last week's issue of Computing Magazine that less than one in four UK businesses are confident that they could rely on email as legal evidence in the event of a harassment or unlawful dismissal lawsuit. While 44 percent said they could not prove whether their emails had been tampered with, 35 percent could not even detect whether or not changes had been made, says a survey by research group Vanson Bourne on behalf of archiving and compliance supplier Forensic and Compliance. Financial services organizations are only slightly better prepared, with at least 45 percent still unable to prove interference with emails, compared with 58 percent of retail, distribution and transport groups.

Citigroup Pays Up, Big Time, for E-Discovery Software

Apparently, the sub-prime crisis is good news for somebody... Especially if you're a legal discovery software vendor. Autonomy recently scored a $70 million order for "Desktop Legal Hold", one of the products that came into their portfolio with last year's acquisition of e-disvovery specialist Zantaz.

The customer wasn't identified by Autonomy, but insiders say that it's the global bank Citigroup. Autonomy bought Zantaz for $375 million in July, 2007. The company makes products for archiving, compliance and e-discovery. Desktop Legal Hold (DLH) enables customers to quickly identify, set aside and organize documents and emails pertinent to lawsuits. Could it be that Citigroup bought DLH to prep for the onslaught of lawsuits it is facing from investors and others over the sub-prime mortgage lending crisis? Hmmm...

Free Download! Gartner's E-Discovery Vendor Market Analysis

Thanks to Guidance Software, who received Gartner's highest rating as a "Strong Positive", you can download Gartner's research note, "MarketScope for E-Discovery and Litigation Support Vendors, 2007", dated Dec. 14, 2007 for free. Among the very interesting findings in the report: "STRATEGIC PLANNING ASSUMPTION(S) By the end of 2008, there will be four viable categories of vendors in the e-discovery market: platform players, review and analysis platforms, collection, preservation and processing and full service outsourcers. By the end of 2008, there will be 25% fewer vendors claiming to have e-discovery functionality."

ProofSpace's Dave McClellan

ProofSpace's Dave McClellan discusses why current data integrity strategies may be inadequate and what to do about them.


Part 1



Part 2

Countrywide Tells Judge It 'Recreated' Letters

It's early in the year, but we agree with our friend Steve Teppler when he says this statement, from Countrywide's spokesman is an early contender for most obfuscatory spin of 2008: "A spokesman for the lender said: 'It is not Countrywide's policy to create or 'fabricate' any documents as evidence that they were sent if they had not been. We believe it will be shown in further discovery that the Countrywide bankruptcy technician who generated the documents at issue did so as an efficient way to convey the dates the escrow analyses were done and the calculations of the payments as a result of the analyses.'" English translation: It's not our custom to create or fabricate, except where we think no one will notice. In such instances, we will pile on the technical language in an attempt to blindside any inquiry. Also: "They were not generated to prove that they had been sent" Translation: They were generated to make people believe they were sent, not to prove they were sent. Jeez, can't you guys get it?

Amateur Time Hackers Play With Atomic Clocks at Home

Wired Magazine reports that with the end of the Cold War, and with telecommunications technology advancing rapidly, surplus stores and eBay have filled up with discarded precision time equipment once exclusive to government labs. Cesium clocks, rubidium clocks and even the occasional hydrogen maser can be had for less than a decent laptop. A recent search on eBay turned up an HP 5061B cesium standard for sale for $2,000, and you can get a telecom surplus rubidium standard for less than $400. Some of this equipment costs upwards of $50,000 new. Their access to once-forbidden technology lets the time hackers play in a realm of precision that underpins the modern technological world. A select few, like Tom Van Baak, have started exploring the underpinnings of the universe.

Cabinet NG Partners With ProofSpace to Authenticate Document Management

Cabinet NG, the preeminent automated document management and workflow solution for small enterprise businesses, and ProofSpace today announced an agreement to embed ProofSpace's patented ProofMark™ digital tamper-detection technology into Cabinet NG's flagship document management solution, CNG-SAFE. The ProofMark technology will be initially made available as an advanced authentication plug-in to CNG-SAFE, which consolidates all of a company's information into one organized and easy-to-use system. Targeted at Cabinet NG's financial industry customers, the ProofMark enhancement package will enable companies to better protect high-value documents and transaction records, and prove the authenticity of those records to regulators, auditors, clients and courts. You can read more about the deal right here.

Law.com Posts Great List of E-Discovery Blogs and Tools

Robert J. Ambrogi, writer for Law Technology News writes in a two-part column that no lawyer today can afford to ignore electronic data discovery. "No matter the case, digital data is likely to be implicated. That means lawyers urgently need to understand EDD and keep abreast of developments in the field." In the first column, he looks at some of the more useful Web sites for learning about and keeping current with this essential area of practice. In the second, he surveys blogs about e-discovery and look at some vendor sites that include useful resources. Both are great bookmarks for any of you out there who are trying to catch the tiger-by-its-tail that is modern E-discovery.