In Fraud, Big Boys Walk Free

Two years after the federal government bailed it out, Bank of America Corp. continues to pop up in the news with ugly and unflattering allegations about its longtime business practices, this time its municipal bond business.

Like many Wall Street financial institutions post bailout including, of course, Goldman Sachs Group Inc., Bank of America continues to pay fines to regulators and restitutions to wronged clients, this time $137 million. But what mysteriously hasn’t happened, despite fines against Bank of America and others, is the prosecution of leading Wall Street executives.

The Big Boys, it seems, get to walk free.

The more recent case involving Bank of America stems from its former broker-dealer unit, Banc of America Securities LLC., which just last month took the name Merrill Lynch Pierce Fenner & Smith Inc.

What’s fascinating about the case is that the self dealing and greed that was part and parcel of the mortgage crisis was firmly part of Banc of America Securities’ culture years before the mortgage meltdown.

The misdeeds took place between 1998 and 2002, and Banc of America Securities scored points with the Securities and Exchange Commission for self-reporting the bid rigging and kickbacks. In fact, the Department of Justice in 2007 gave the firm amnesty for criminal prosecution because of its self-tattling.

Regardless, Banc of America’s action endangered the muni-bond marketplace, which means that the firm put thousands of investors’ savings at risk. “This conduct threatened the integrity of the municipal marketplace, affecting not only the municipal issuers who were directly defrauded, but also the thousands of investors nationwide who purchased their tax-exempt municipal securities,” said Elaine Greenberg, chief of the SEC’s Municipal Securities and Public Pensions Unit. The broker-dealer, as is customary in such matters, didn’t admit or deny the SEC’s findings.

Still, the revelation of muni-bond shenanigans begs a couple of questions. What on earth is going on at Bank of America? And why aren’t senior executives targets for prosecution?

The feds went after Arthur Andersen LLP as a repeat offender with criminal charges in the Enron matter. Perhaps the feds should consider that precedent and take a careful look at BOA. The Bank of America/Merrill Lynch merger was spawned in deceit; executives didn’t disclose billions in dollars of bonuses to Merrill executives before the official merger of the two at the end of 2008. All this while BOA/Merrill was taking tens of billions in federal bailout money and also losing billions each quarter because of bad mortgage bets.

In the most recent Banc of America litigation, one executive, Douglas Lee Campbell, was barred from the industry after pleading guilty to charges of fraudulent misconduct. But that was it. No higher ups at the parent company, Bank of America. “Everyone is wondering: where are the investigations related to the financial crisis?” the New York Times asked this week.

“Nobody from Lehman, Merrill Lynch or Citigroup has been charged criminally with anything. No top executives at Bear Stearns have been indicted,” the Times noted. “All former American International Group executives are running free. No big mortgage company executive has had to face the law.”

That’s the way it goes with fraud these days. It pays to be one of the Big Boys.

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John Montague and the Prosecution of Securities Fraud

Former presidential candidate  Senator John Edwards is hardly someone to be cited in a blog post about morality and fairness, but he was spot on in his rallying cry about there being two Americas.  This painful reality was driven home to me in recent weeks while pursuing a case in New Jersey’s Gloucester County, a predominantly working class area in the backyard of my hometown, Philadelphia.

The case involves a purported “financial advisor” named John R. Montague, who was a registered representative with Questar Capital Corporation. The FBI has been investigating Montague since at least last August and possibly longer, but there appears to be no movement in the case.  I represent some elderly investors who Montague defrauded for over $1 million. Given that there are likely many other victims of  Montague’s alleged wrongdoing, it’s quite possible that Montague’s misappropriation of funds is well in excess of what  has already been documented.

My firm has long been a source of leads and other information for prosecutors and law enforcement agents, however, the Montague case doesn’t appear to be a priority for the FBI. For example, the US Attorney’s office is handling the investigation of Kenneth Starr, a money manager whose well heeled clients reportedly included a litany of bold-faced names such as Al Pacino, Uma Thurman, and Neil Simon.  With miraculous speed, prosecutors managed to nearly double the $30 million originally thought to be allegedly swindled by Starr. “In the less than two weeks since Kenneth Starr’s arrest, this investigation has maintained its velocity,” Manhattan US Attorney Preet Bharara told reporters last week.

Furthermore, Bernie Madoff, who orchestrated the biggest Ponzi scheme of all time, was convicted and sentenced in less time that it has taken the FBI to complete its investigation of Montague. The receiver overseeing the liquidation of the fraudster’s enterprise is reportedly expected to recover more monies than originally anticipated — so much so that some vulture funds are already buying up the claims.

The Montague case isn’t the only example of the wheels of justice grinding to a near halt when working class investors are defrauded of their monies.  I represent some working class investors in Long Island who were defrauded by a convicted felon named Peter Dawson more than three years ago.  Although Dawson sits in prison, Bank of America, Washington Mutual and other financial institutions who enabled Dawson’s fraud have yet to be held accountable.

There is a disturbing lesson here: When it comes to prosecuting securities fraud and garnering restitution for investors, working-class people shouldn’t expect the same level of prosecution and recovery as their wealthy brethren.

Morgan Stanley Real Estate Investment Fund Losses

Zamansky & Associates has launched an investigation into losses stemming from Morgan Stanley’s multi-billion dollar real estate investment funds.  One fund, labeled MSREF VI, reportedly lost $5.4 billion; nearly two-thirds of the fund’s entire assets.  Beginning in 1991, Morgan Stanley formed various real estate funds including MSREF I, MSREF II, MSREF III Domestic, MSREF IV and MSREF V and more recently, they have attempted to raise money for a seventh fund, known as MSREF VII.

Among the claims Zamansky & Associates is investigating is whether Morgan Stanley misled investors about the strategy of its real estate funds, the value of its holdings and the  value of their investment prior to Morgan Stanley’s recent announcement of staggering losses.

Morgan Stanley also reportedly paid itself hefty fees including $104 million in “transaction fees,” $22 million in “fund-management fees,” $13 million in “financing fees,” $36 million in “real-estate management fees,” and $21 million in “financial advisory fees.”  Zamansky & Associates is examining whether these fees were appropriate and if they should be returned to investors.

Investors who suffered losses related to Morgan Stanley’s real estate investment funds are urged to contact Zamansky & Associates.