Page 8 - White-Collar Crime

S8 | MONDAY, SEPTEMBER 28, 2015 | White-Collar Crime
| NYLJ.COM

Abacus Federal Savings Bank
among other things, revise its Bank Secrecy

Act and Anti Money Laundering compliance
Cooperation program, and engage a third party to conduct a
And the Dangers of review of its managers’ qualiications.6 But the
OTS did not impose a ine, and did not demand
any wholesale changes to senior management.7
Meanwhile, the customer whose closing
Without Representation
was canceled iled a police report complaining
about the loss of her deposit. The DA’s ofice
began investigating, and the bank eventually

provided prosecutors with over 900,000 pages
of documents.8
On May 31, 2012, the DA’s ofice announced
that a grand jury had returned a 184-count
indictment charging Abacus Federal Savings
Bank and 19 current and former employees
with mortgage fraud, conspiracy, and relat-
ed counts. The indictment alleged that the

employees had participated in a “systematic
and pervasive” scheme to falsify and fabricate
loan documents to help unqualiied borrow-
ers obtain mortgages, and that at least two
managers were aware of and encouraged the
fraud. The indictment further alleged that
Abacus was motivated by the fees it generated
in issuing fraudulent mortgages, then selling
them to Fannie Mae.9 At the press conference

announcing the indictment, District Attorney
Vance directly linked the alleged conduct to
the inancial crisis, stating: “The lessons of
the inancial crisis are still being learned. The
public must have conidence that when a bank
issues a loan that it later re-sells to Fannie
Mae, and by extension the nation’s investors,
it will engage in honest and ethical practices
and follow the rules set by regulators.”
10
But the case against Abacus differed from
other post-inancial crisis investigations in at
least two respects. First, Abacus loans actually
performed extremely well. The reported igures
vary, but it is undisputed that Abacus had one
of the lowest default rates in the country.11 It
was dificult to characterize Fannie Mae and
downstream investors as victims when they

made $2.5 million in interest on the loans
enumerated in the indictment.12 Even Vance
conceded that the “irony of this case is the
majority of the loans originated by Abacus have
continued to perform.”13 Reading between the
lines of the indictment and reported testimony
from the trial, it appears that the real story
was that Abacus’s customers had signiicant
unreported income; i.e., they had the income K
OC
to support their borrowing, but didn’t have the GST
tax returns and employment forms to justify it.
BI
Second, Abacus Federal Savings Bank was
never offered a deferred prosecution agree-
ment.14 By contrast, between 2009 and 2012 minority-owned bank, and a misplaced use of Monday. The loan oficer later pleaded guilty
the Manhattan DA’s ofice reached deferred BY JAMES GLASSER post-inancial crisis investigative resources. to grand larceny, fraud, and falsifying business
prosecution agreements with six banks for AND JENNY CHOU
But it also serves as a cautionary tale about records; he apparently was taking kickbacks
amounts totaling $2.4 million, primarily relating the lurking dangers of self-reporting and for falsifying mortgage applications.2
to sanctions violations.The U.S. Department cooperation without the assistance of counsel The next sequence of events is disputed. ‘W
e cooperated with them, not real-
15
of Justice has also reached well-publicized civil and the importance of always considering Abacus has said that “the bank itself discov- izing we were the target,” said Vera
settlements with banks relating to their roles potential liability.
ered, investigated and reported the results of Sung, a director of Abacus Federal
in issuing and selling fraudulent mortgages Abacus Federal Savings Bank was founded its investigation to law enforcement authori- Savings Bank, about the bank’s interactions
and mortgage-backed securities: $7 billion in New York City’s Chinatown in 1984. In May ties, its regulator, and Fannie Mae.”3 But the with prosecutors at the start of a two-and-a-
from Citigroup, $13 billion from JPMorgan, 2012, it became the irst and only bank to DA’s ofice has said that the bank hired out- half year investigation that led to the bank’s
and $16.65 billion from Bank of America.16
be indicted for mortgage fraud in the wake side consultants only after the DA’s ofice indictment, trial, and inally, acquittal this past
Abacus Federal Savings Bank went to trial, of the 2008 inancial crisis. The case began started investigating, and District Attorney June.1 The prosecution, led by the Manhattan
together with its chief credit oficer and loan with a routine real estate closing at the bank’s Cyrus Vance described the bank’s coopera- DA’s ofice, has been variously assailed as

origination supervisor, on 80 of the 184 counts Chinatown branch on a Friday in December tion as “too little, too late.”4
a political expediency, the persecution of a
in late January 2015. The prosecution’s star 2009. When the borrower started asking In any event, Abacus’s then-primary regula-
witness was the loan oficer caught and ired about extra checks she had written for the tor, the Ofice of Thrift Supervision, completed
by the bank.17 After a four month trial, and JAMES GLASSER is a partner at Wiggin and Dana and loan oficer, Vera Sung grew suspicious and a Report of Examination in April 2010, and
nine days of deliberations, the jury returned chair of the litigation department. JENNY CHOU is a called off the closing. The bank investigated, entered a stipulated cease and desist order in
its verdict: an acquittal on all counts.18
partner in the department.
and terminated the loan oficer the following
February 2011.5 The order required Abacus to,