No Defense to Securities Fraud: "We just did what everyone else was doing..." (updated)

The Industry Standards or Industry Practices Defense is No Defense At All in Securities Litigation.

 

"That's just the way the industry worked" is just another version of the "I was just following orders" defense that the world rightly rightly rejected at Nuremburg.

• Nearly every client we represent in securities fraud cases related to the financial crisis asks the same question - "Aren't the banks just going to say that everyone on Wall Street was doing the same thing?"  (**Note - former Bear Stearns executives did, in fact, assert a so-called industry standards defense to explain their misconduct during testimony before the Financial Services Inquiry Commission on May 5, 2010).

 

• Our answer is always the same - "Sure they will, but it won't work."

 

• For instance: If all the major Wall Street banks knowingly securitized crappy loans and misrepresented them as AAA quality (regardless of credit rating), that just means there was a whole lot of fraud on Wall Street.

 

• And a whole lot of fraud is not an acceptable defense in any jurisdiction. For reference, you may want to google Henry Blodget and the rest of the pay for play analysts from the 1990s tech IPO boom.  

 

                           HENRY BLODGET, FORMER MERRILL LYNCH INTERNET ANALYST

• So, in conclusion:

Securities fraud at Merrill Lynch, Lehman Brothers, AIG, CITI does not excuse securities fraud at Bear Stearns or Goldman Sachs or JP Morgan.

And Vice Versa.

By Brett Sherman, The Sherman Law Firm

Comments

[Ron Benjamin, MFP]

I agree, and as the old saying goes "ignorance of the law is no defense," I would like to add, "ignorance of ethics and morality is no defense." I hope that character building does not go by the wayside in search of the next dollar!

[complianecpro]

Agree "I was just keeping up with traffic officer" is an admission not a defence

[Jim Lally]

Here is what I belive may be the "trust" buster on the securitization packaged MBS and even some CMBS packages. You would definately be more in tune , but here goes. When these are "placed" or pre sold the secuirties are drafted and dated. However, often times the assets were yet not fully acquired. Meaning the actualy borrowers have no closed. The lender has represented to the securities house that the loan is being done and it gets put into the pool before it even gets executed.
Now may take is that creates a dual problem. One, the obvious misrepresentation to the borrower thinking he is signing a standard mortgage and note when in fact he is party to a complex predisposed securities transaction for which he was never disclosed. The second one tho is more devious and potentially catastrophic to the industry. The margins on these pools are very slimg, one way to raise the yield is by invoking "REMIC" (sp) status with the IRS on the pool. The rules specifically require the assets ot be OWNED which of course if some loans are not yet closed then the pool is NOT owned yet at the time of filing for the status. We have tax fraud at this point. A case in Miami was successfully defended in foreclosure on this statutes and the lender/Trust immediately settled the case. I believe this invocation could potentially break the trusts wide open.
What say you?
Man Im glad I am back in consumer paper, lol

[Stock Fraud Attorney]

Not every poor investment constitutes securities fraud. In some cases, people lose money they've invested due to market fluctuations, inaccurate predictions, and other causes that do not involve malpractice on the part of their advisers.

Nice to share.....

http://www.stockfraudattorney.info

[Per Kurowski]

If the bank regulators had regulated and supervised instead of arrogantly assuming the role of risk-managers and trough arbitrarily set risk-weights interfered in the capital markets this crisis would not have happened.

Who are these bank regulators who believe they had a right to set up capital requirements for banks that bet the house on the credit ratings being correct, while in fact they should primarily be concerned with the possibility of the credit ratings being wrong? http://bit.ly/mQIHoi