Data from RealtyTrac indicated that May foreclosures were way down  compared to April.  Hold the party hats and noise-makers because even this bit of good news, May was the third straight month with foreclosures exceeding 300,000 with Nevada and Arizona leading the pack.

A “normal” market typically sees less than 100,000 foreclosures per month.  RealtyTrac estimates the number of filings to increase over the next few months as we see the impact of the end of the various foreclosure moratoriums implemented by various lenders and states.

As foreclosure filings remain high, there remains the ever-growing chance of foul play by law firms that handle foreclosures.  For these law firms, business can be very profitable in dire economic times.  It would be very tempting for some law firms to take up a large load of foreclosure filings and unlawfully handle them, for example, consider the investigation the Connecticut AG is conducting right now – which we blogged on earlier this month.

For more on the statistics, click here.

Now more ‘feeder fund’ investors are suing Madoff along with others.  These two feeder funds are looking to recoup approximately $3.5 billion in alleged losses.  Kingate Global Fund Ltd. and Kingate Euro Fund Ltd. filed their lawsuit in US District Court in Manhattan this week.

The lawsuit alleges that “[r]eportedly, over $3 billion was invested in Kingate Global and Kingate Euro, and virtually all of those moneys were funneled to Madoff.”  A few months ago these two Kingate funds were sued by the trustee of Madoff’s investment company.  The trusteee, Irving Picard sued to recover $255 million withdrawn from Madoff’s firm between October and November 2008.  Picard’s lawsuit named fund manager Kingate Management Ltd.; Grosso’s FIM Advisers LLP, which acted as a consultant to the funds; and others as defendants.

The feeder fund lawsuit is an attempt to deflect the allegations made by the Madoff investment firm trustee Irving Picard that these two funds illegally profited from their association with Madoff.

The feeder funds will try to defend by saying they were victims too.

Time will tell, but if these money managers are half as astute as they (used to) like the public to believe I am not sure they will make a strong case.

The Securities and Exchange Commission charged an investment adviser in Armonk, N.Y  for stealing more than $6 million in investor funds for himself.  He exploited clients that were mentally ill and handicapped, the SEC reports.

Matthew D. Weitzman used clients money for his own personal use by selling securities through clients’ accounts and transferring their money to a personal bank account.  Clients received false account statements, often showing false account balances and inflated securities.  Weitzman also engaged in broker-dealer foul play as letters would be fabricated by Weitzman on behalf of his clients to complete money transfers.

Weitzman also took money from his clients’ Individual Retirement Accounts (IRAs) in order to maintain a minimum amount of cash to engage in the unauthorized transfers.  Weitzman chose clients from AFW Asset Management, the company that he co-founded based in Purchase, N.Y, to exploit.  He targeted clients that were less likely to check their account statements, like $430,000 total transfers from a client that was terminally ill.  He took $85,000 from said client in two unauthorized transfers from the widow of the client.

Weitzman has been accused violating many industry rules click for more detail here.

Any intervention by the government in our world economy will inevitably end.  As such the Fed’s (and other central banks) plan to exit their intervention in this financial mess has come to fruition, amidst the scrutiny of many high-ranking officials.

Angela Merkel, the German chancellor, attacked the Fed along with the European Central Bank and the Bank of England for their “loose” policies.  The Fed has done the best it can to quell long-term interest rates, which has unfortunately failed.  It has failed because although interest rates were lowered temporarily, in that time, the public bought up assets (regardless of risk) , which flows money out of the treasuries and makes bond yields increase.  These bond yields are also an enemy to economic equilibrium, so the Fed creates money in order to balance out these yields.  Now the increase of the quantity of currency in the market itself makes investors nervous about inflation.  To which the Fed reacts by printing more money to reduce bonds. Keeping this cyclical nature of how the Fed operates, how viable is the Fed’s exit strategy.  Because it began the action of reducing interest rates the way it did, it is hard to believe that the Fed will get out of this crisis without leaving some kind of inflationary effect.

For more on the article from the Economist.com, click on this link.

Although many auto industry experts predicted the inevitable collapse of GM several months to a year early, it still does not erase the fact that it was the biggest industrial collapse in history. The 101 year old company produced over 9 million cars in 34 different countries. It employed nearly a quarter million people worldwide, 91,000 jobs were in America. The problem behind a company this big was that against its 82.2 billion in assets, GM had liabilities of 172 million.

Fritz Henderson. the  CFO of GM a year ago, realized that GM was losing money and attempted to organize several bonds or shares to put up for sale in order to raise 3 billion. Eventually the collapse of Lehman Brothers led Henderson to sell non-core assets as well. But this attempt was also in vain. This situation in combination with an economic situation where there were no lenders willing to support their assets at a level where they could do business.

GM’s bankruptcy is one in a long line of “quick-rinse” bankruptcies that the government believes is necessary for stakeholders to renounce their claims. This poses the question, although GM is essential for American financial growth, to what degree is temporary fix bankruptcy going to preemptively prevent the causes of GM’s downfall? Because if this quick-fix will inevitably lead to economic problems in the near future for GM, what is the excuse for filing Chapter 11?

For more information, an article by the Economist.com sheds light on the situation.

Connecticut AG Richard Blumenthal has asked Fannie Mae and Freddie Mac (along with other organizations) why only a couple of law firms in Connecticut are handling foreclosures.  In a June 4th letter to the companies that were suspect, Mr. Blumenthal had reason to believe that consumers were being charged excessive fees on foreclosure actions and that marshals were being charged extensively in connection to the foreclosures.

In a statement Blumenthal said:

“Dominance over foreclosure service by a few select law firms and marshals has spurred complaints about improper or illegal practices: wrongfully allocating work to non-marshals, forging papers, failing to serve papers, and making kickbacks..A scarce few are spinning foreclosures into fortunes, and perhaps deepening homeowner despair.”

This is a story we will be hearing about in other states as well.  When one or two firms control huge portions of an industry that is called competition, wait, it is called oligopoly…not the best thing in these trying times.

For more on the story…click here.

New York Attorney General Andrew Cuomo closed down two debt collection companies in Western New York.  The two Buffalo-based firms engaged in a variety of illegal activities to achieve their ends, through various forms of harassment. The Attorney General’s office have delivered subpoenas to over 15 collection agencies due to complaints received in the wake of this investigation.

Debt Collection agencies that engage in illegal means of collection often use coercion and harassment to collect money that sometimes a customer might not even owe.  These two Buffalo firms, for example, allegedly forced individuals to pay debts that they didn’t even owe.

This issue has achieved nationwide importance, as the Federal Trade Commission has received three times the amount of complaints regarding debt collection agencies in 2008 in comparison to 2002.  There is no doubt that this investigation will lead to the downfall of more debt collection agencies that engage in illegal means to collect.

Tough business this debt collection – significant rules about their activities, serious penalties if they get it wrong.  I am sure that most are on the up and up and are aware of the costs of dropping the ball.  As in any industry, a few bad apples can ruin the whole thing.  The bad ones should be shut down but the good ones do provide a valuable service.

For more on this investigation…click here.

Today, the SEC charged Peter C. Son and Jin K. Chung guilty of conducting an 80 million dollar Ponzi Scheme that involved nearly 500 investors.  The scheme targeted Korean-American investors with the false promises of giant returns from forex (foreign currency) trading.

The investment scheme was a classic example of the Ponzi scheme. The funds that were supposed to be invested in foreign currency exchange were used to pay “returns” to select investors. Investor money was also used for the Son’s personal expenditures, including mortgage payments on a multi-million dollar house. The money also provided Son’s wife a salary she did not work for.

SNC Asset Management, Inc. (SNCA) and SNC Investments, Inc. (SNCI), were the two companies that Son and Chung coordinated to get the attention of investors. Manipulated profits and fabricated annual returns attracted many investors. The forex trading profits were fabricated and investors had monthly account statements with fake returns.

As the Ponzi scheme collapsed, Son and Chung drained the money out of these two companies and transfered investor funds into accounts overseas. The SEC is taking court orders to prevent these men and their companies from violating laws in the future and is also taking steps to provide emergency relief for investors. The Commodity Futures Trading Commission has announced civil fraud charges against Son, Chung, SNCA, and SNCI.

For more on the story, click here.

Following Merrill Lynch, Citigroup,  UBS, and Wachovia it is now BofA, Deutsche Bank and RBC’s turn to settle their potentially huge Auction Rate Securities settlements with the SEC as they did on June 3rd.  The SEC claims that more than $50 billion in liquidity are being made available to customers of those organizations who have invested in auction rate securities.  The SEC is taking action due to the false promises made by these three financial groups regarding the viability of Auction Rate Securities as a form of investment.  These groups quickly stopped supporting the market in early 2008, which left these securities completely illiquid.  These settlements, supposedly made in the interest of wronged investors, “will restore approximately $4.5 billion in liquidity to Bank of America customers, $800 million in liquidity to RBC customers, and $1.3 billion in liquidity to Deutsche Bank customers.” In order to avoid getting caught up in significant broker-dealer fraud problems with the SEC, these entities have agreed to:

• Each firm will offer to purchase ARS at par from individuals, charities, and small or medium businesses that purchased those ARS from the firm, even if those customers moved their accounts.
• Each firm will use its best efforts to provide liquidity solutions for institutional and other customers and will not take advantage of liquidity solutions for its own inventory before making those solutions available to these customers.
• Each firm will pay eligible customers who sold their ARS below par the difference between par and the sale price of the ARS.

The SEC is clearly trying to do its job by increasing accountability especially in these difficult financial times.  But as the economic outlook looks brighter for the coming years, the propensity of fraud is only going to increase.

It is an unfortunate set of circumstances that permitted these ARS ‘markets’ to exist for such a long time when at any point the broker/dealers that sustained the markets could back away causing exactly what happened.  If perhaps the SEC had had the true authority and legislative/executive mandate in years past they could have intervened to create a more ordered dismantling of the

Quotations/information on this event was obtained from the SEC’s website, linked here.

Well said by the SEC’s enforcement director when he said it was a ‘tale of two companies.’ Apparently Angelo Mozilo was sending e-mail messages describing Countrywide loan products as “toxic” and “poison” at the same time as he was, guess what? Wait for it. Right, he was telling the public that Countrywide was underwriting mainly prime-quality mortgage and using strong underwriting protocols.

Countrywide did not reveal to shareholders that in fact it was, according to the SEC, “an increasingly reckless lender assuming greater and greater risk.”

But at least Mozilo did not make too much profit. Oh, wait, yes he did! He made a nice tidy little sum of $140 million in profits by selling stock in the company. At least that’s what the S.E.C. says, but what do they know?  And other top Countrywide execs involved in the company at the relevant time are named in the allegations too.

I again ask the question – did any of these very well compensated executives do any of it legitimately? More evidence here that the answer is, emphatically, no.