The Manhattan District Attorney thinks Tom Marano and his star mortgage traders cheating their own clients out of billions constitutes criminal behavior. I reported today at DealFlow Media, an active investigation is under way and the D.A. plans to use the Martin Act to charge these former Bear traders.
I first reported in late January at TheAtlantic.com exactly how the Marano-led traders took profits onto their own trading books and withheld the funds from the investors who were contracted to receive the money. Since then, many of you have written in questioning how these actions did not constitute serious illegalities. Well, now we know it’s not just the D.A. but at least one elected official that agrees with you and is trying to do something about it.
Recently, Joseph Morelle, New York State Assemblyman and Chair of the State’s Insurance committee, went on the record for me. Morelle stated he believes that if the allegations in the Ambac suit against Tom Marano, Mike Nierenberg, and Jeff Verschleiser, are proven true, this would flat out constitute insurance fraud. Morelle has even gone so far as to contact the New York Attorney General and to ask him to look into this. You see for the insurers, like Ambac, to prove Bear Stearns (now owned by J.P. Morgan) committed insurance fraud it could be burdenson. The insurers have a higher standard to meet in a civil case because they have to prove they had justifiably relied on the representations Team Marano was spewing out to encourage them to insure and buy their toxic RMBS.
Defense lawyers will argue Ambac is a sophisticated party and should have done more homework before they jumped into bed with the Bear mortgage traders. And although the evidential standard in a criminal case is beyond a reasonable doubt- if you can prove that someone knowingly made materially false statements to get an insurance contract- you have virtually cleared the burden proof hurdle. Therefore as strong of a case they appear to have in the Ambac civil suit I think an ambitious D.A. or A.G would have an even better shot at criminal prosecutions.
Marano, Nierenberg, and Verschliser are all working executives now at ResCap, Bank of America, and Goldman Sachs, respectively. I’d imagine a criminal investigation would sting their reputations and cause some discomfort with their institutional clients. However, for now the SEC is not involved and their security licenses are not currently in jeopardy. In fact, I’d image guys like Nirenberg , who’s known on The Street as having a bloated ego and operating with sharp elbows, are breathing a collective sigh of relief that it’s only the State (not Federal) regulators who have a bulls eye on his back.
So for now we’ll have to wait and see if the political powers that be will be brow beaten by Wall Street lawyers and contributors into ignoring this alleged abuse of our financial system. Or, will they do the right thing and be the first one to slam the hammer and charge Marano and his cabal for making millions in personal fortunes illegally off the backs of their clients. I’m sure a few more Bear or EMC whistleblowers coming forward would help, but then again someone would have to explain to them that J.P. Morgan can not actually take away their severance for telling the truth about criminal behavior.