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Archives for September 2011

28 Sep

SEC Charges NIR Group Ribotsky with Massive Fraud Scheme

NIR Group founder Corey Ribotsky was finally charged with creating a scheme to defraud investors in his hedge funds. Today the SEC filed a 34-page lawsuit detailing how Ribotsky lied to investors in 2008 about the value of the assets when he could not meet redemption request. The federal regulator, who DealFlow Media has been reporting is investigating Ribotsky for over a year, also detailed how this Long Island hedgie used investor funds to buy himself some fancy cars and watches while gating their money.

Nathan Vardi at Forbes was the first reporter to highlight the Ribotsky scheme in 2007 and has a great write up of all the lies Ribotsky and his lawyers have told journalist while we’ve been reporting on this alleged fraud.

Stay tuned as DealFlow Media will be reporting an update on the Master Fund liquidation, run by PwC, and the maneuvers Ribotsky has been making to continue to reap fees from his gated investors. I have been covering NIR Group’s fraud for three years now and while it was disappointing to see the New York Post hold stories on Ribotsky in November 2008; I applaud my editors at DealFlow for buying story after story from me on NIR Group’s scheme to defraud, steal, and cheat his investors and the penny stock companies he did PIPE deals with. Today we see the SEC thinks most of my reporting is correct and wants to try and get money back for the investors Ribotsky (age 40) allegedly cheated.

It’s unclear if the Brooklyn DOJ will also charge Ribotsky on criminal fraud but I can report investors in the fund have been interviewed by the FBI this summer so their case appears to still be alive.

Meanwhile if you want to see what appears to be Ribotsky’s exit plan click here. He seems to have convinced a Long Island political strategist to help him start a think tank because he believes he “can provide important guidance during these troubling economic times.”

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16 Sep

Wells Fargo Suit against JP Morgan Highlights Rampant Missreps in Bear Stearns RMBS

Wells Fargo is fighting back for investors in a toxic 2007 Bear Stearns mortgage security. On Wednesday, the bank acting on behalf of investors as the trustee of the security, filed a breach of representations suit against J.P. Morgan and its subsidy EMC. The suit is over $560 million of loans investors believe should be repurchased because they did not measure up to what the pool and servicing agreements said they would be. The security showed early signs of default which is strong evidence originators did not follow under writing standards laid out in the P&SA.

Court documents filed in Delaware Chancery Court shows the Trustee first asked for loan level documents related to the security in August 2010. EMC refused to turn them over so Wells Fargo sued in January to get access to loan level details of the residential mortgages that made up the security. Landis Rath & Cobb , attornies for EMC, played some dirty legal tricks to avoid turning over this data even though Wells, as trustee, has a contractual right to it.

Wells said they initiated the litigation after RMBS noteholders, who owned more than 25% of the certificates in the trust, asked them to investigate the nature of the loans. Wells then hired a third party firm, Barrent Group; to run a forensic accounting of the loans and found around 800 of them grossly misrepresented the underlying mortgages. Wells, as trustee, says EMC has to buy back the loans now because they don’t meet underwriting standards.

The security in question, Bear Stearns Mortgage Funding Trust 2007-AR2, was packed with Alt-A loans bought from Quicken, EMC Mortgage Corp, and Bear Stearns Residential Mortgage Corporation that would have been sold through Mike Nierenberg’s trading desk. Nierenberg is now head of mortgages at Bank of America and the subject of multiple fraud suits against his former employer Bear Stearns.

Wells says the third party review of the loans shows about half of the 2000 loans in the trust were refinancing on existing mortgages. Instead of EMC using the sale price of the home, the values assigned to the property was based solely on the appraised value. When the homes were later sold it was for below the appraised values at refinancing. EMC is subject to multiple lawsuits detailing the lack of due diligence in their securitization and analysis process.

J.P. Morgan picked up ownership of EMC when it bought Bear Stearns in 2008 and assumed their liabilities. Last month the FHFA filed a suit against JPM/Bear/EMC loaded with some pretty serious common law fraud claims against Bear executives including Nierenberg. The Wells Fargo suit doesn’t list a fraud claim or security law violations so far, which means they can’t ask for punitive damages.

Wells spokesperson, Elise Wilkinson, says this is the largest RMBS putback case the bank has brought acting as a trustee.

In 2007, Moody’s believed that the mortgage losses to the deal would be basically less than 1% of the original principal balance of the mortgage loans (0.85%-1.05%). This would have corresponded to credit enhancement of about 8-10% for the Aaa bonds and about 3% for the Baa2 bonds.

Many asset-backed traders expect these sorts of option ARM deals to incur about 20-30% of cumulative losses to original principal balance when they are done. Which would mean Moody’s was off by a factor of 20-30 times.

In May 2010, I reported for The Atlantic EMC whistleblowers said they were directed by the Bear Stearns mortgage team, working under Tom Marano, to make up loan level detail for the raters before they issued a rating on the bond. Three months latter large investors began presuring Wells Fargo to use its power as trustee and force EMC/JPM to show them what they really knew about the construction of the collateral in the security.

Wells Fargo’s attorney Tom Bayliss of Delaware-based Abrams and Bayliss declined to comment on the lawsuit. JPM/EMC has not picked counsel yet for this case.

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8 Sep

DOJ Ask Judge to Thrown RBS Embezzler James Glover in Jail

Former RBS executive James Glover could be sent to jail today. The Connecticut office of the Dept. of Justice filed papers this week asking the judge to thrown Jamie in the slammer. On June 1st 2011, Glover plead guilty to stealing more than $600,000 from RBS’s Greenwich Capital division.

We reported at Greenwich Time last year Glover had stolen because he was over leveraged in a commercial real estate project and USA Bank was about to call in the loan. Early last February, RBS admitted they had to fire Glover over these illegal transactions and told the press the case had been referred to the authorities. Except today we learn the DOJ says they didn’t get the case from RBS until Glover returned all the money, which according to the original charge wasn’t till March 2010.

I always found it odd (and frustrating) that the British subsidized bank, RBS, wouldn’t tell U.S. reporters which authorities they turned the case over to last winter. When we first got the story in early February 2010, I and other Hearst CT News reporters called our state and federal government sources; who all admitted on background they didn’t have the case. Some of Glover’s peers who worked with him on the Greenwich Capital team even called into the paper saying they were told RBS wouldn’t press charges if Glover returned all the money. Still it took the DOJ over a year to file charges against Glover even though we now learn he admitted guilt in early 2010. A RBS spokesperson would not comment on the inside negotiations the firm engaged in before they sent the case to the DOJ.

Since Glover’s charges were filed in court this summer his attorney has argued he didn’t steal between $400,000 and a million dollars in an attempt to get his sentence reduced. Their argument is because he gave back the largest transfer of funds, $359,000, right away after he was confronted by RBS that’s not really stealing. Thankfully the DOJ wasn’t buying this argument and told the court even though Glover returned some of the funds within a few days of getting caught last January he still orchestrated an embezzlement scheme for a year. As a result, the DOJ’s probation office recommended 30 to 37 months jail time and the DOJ submitted to the court they’re ok with this time being slightly reduced but Glover still must be incarcerated.

U.S. Attorney Richard Schechter wrote to the judge, “Glover’s willingness to accept responsibility and to pay back the stolen funds should not be a basis to completely eliminate imprisonment as part of the sentencing process.”

Schechter also thinks because Glover reported in excess of $400,000 on his joint tax returns in 2007 and 2008, ,the years before the thefts began, that there is no compelling economic justification for Glover to abuse his position to steal from RBS. Glover was in charge of Greenwich Capital’s back office trading operations that dealt with settlements and reconciliations.

Cleary U.S. Attorney Schechter hasn’t tried to raise a family living in the wealthy enclave of West Harrison, NY if he thinks a gross income of $400,000, on top of a $3 million commercial real estate balloon payment breathing down Glover’s neck, isn’t enough to drive the guy to take money from RBS.

Update: Glover was sentenced to a year and a day in jail with a two year probation after he serves time.

Update 10-9-2011: How did I miss this? James Glover set up a Tumbler blog after Bess Levin (DealBreaker) and I first reported on RBS removing him from his job because they found out he stole from the UK bank. He used Tumbler to promote his back office management skills and brags he actually saved RBS Greenwich Capital $2 million in the firms clearing and futures agreements per year. So maybe that’s why he thought lifting around $600k from the bank was just awarding him the bonus he deserved?

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