Wall Street Law Blog

Reconcile This: Former Bear Stearns Exec. Either Lied to FCIC or Pulled An Ollie North

Lying Under Oath to The Financial Crisis Inquiry Commission is the Equivilent of Perjury.

The Law:

United States Code, Title 18, Section 1001:

"Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals work covers up by any trick, scheme or device, a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined under this title, imprisoned not more than five years, or both."

FROM THE RECORD OF PROCEEDINGS BEFORE THE FINANCIAL CRISIS INQUIRY COMMISSION.

Excerpted from the FCIC Official Transcript

Hearing date: May 5, 2010, Session One.

Sworn Testimony of Witness Samuel H. Molinaro, Jr., (former CFO / COO/ EXECUTIVE COMMITTEE MEMBER, The Bear Stearns Companies Inc.)

FCIC TESTIMONY (from the official transcript):

Some context here is crucial. In the same FCIC hearing, Molinaro testified that Bear Stearns knew that falling home prices was one of the biggest risks the company faced. And yet, according to the former CFO and COO, Bear Stearns did not model the impact of a "nationwide decline in housing prices." Moreover (as far as Molinaro could recall), there were no concerns or even discussions at Bear Stearns about the possibility of a drop home in prices across the United States.

Wait! Pause. Take a deep breath. Go back and re-read the previous paragraph. Good? Good.

Now answer this question: DO YOU BELIEVE THE TESTIMONY OF SAM MOLINARO?

We, the trusting staff at Wall Street Law Blog, do not. But, to be fair, we have reviewed a few documents that we are willing to bet came to the attention of Molinaro and the other members of senior management at Bear Stearns.

Consider, for instance, this excerpt from a research report about the housing bubble that Bear Stearns published in September 2006. In it, Bear warns that the ratio of home prices to income was "[a]bout as stretched as it has ever been!"

And how about this conclusion from the same Bear Stearns report?

The report - which was one of many warnings Bear issued about the bubble - is from the fall of 2006. That's about a year and a half before Bear Stearns collapsed. Note that Bear Stearns specifically states that home prices were already falling, but cautions that "housing conditions have barely begun to normalize, and it will likely be some time before we begin to see signs of a trough."

 

Now, again we ask: DO YOU BELIEVE MOLINARO?

By Brett Sherman

Fraudulent AAA Credit Ratings Have Many Tentacles, Don't They?

Food for thought...

Isn't there a direct relationship between bogus AAA credit ratings and fraudulent SEC filings?

 

Let’s say, circa January 2006, a hypothetical investment bank’s mortgage securitization group solicited and obtained AAA credit ratings (via ratings shopping) for RMBS (or related structured products) even though the bankers KNEW that, in reality, the mortgage bonds were far riskier than AAA rated investments are supposed to be. 

Now, let’s say that the same bank is holding some (or even a lot) of these dubious AAA rated mortgage-backed securities at the end of the 2006. 

 

 

AAA Credit Ratings Like Octopi?

 

 

Wouldn’t Bear Stearns - er Lehman - er Merrill ...  I mean, wouldn’t the hypothetical bank - knowing that the AAA ratings were bogus - account for the bonds in the annual report as if the bonds were virtually, if not entirely, riskless?  And, if so, how could the annual report be anything other than materially misleading (i.e., securities fraud and accounting fraud)? 

Just asking...

By Brett Sherman

The Sherman Law Firm, Publishers: Wall Street Law Blog