Justice unit to probe mortgage-backed securities

Posted Jan. 27, 2012, at 8:01 p.m.
Last modified Jan. 27, 2012, at 8:48 p.m.

WASHINGTON — Federal and state law enforcement officials announced Friday they have launched a fraud-fighting unit, starting with 55 prosecutors and investigators, to root out wrongdoing in the market for residential mortgage-backed securities.

Attorney General Eric Holder told a news conference the team will benefit from existing probes and disclosed that investigators have issued civil subpoenas to 11 financial institutions in recent days, with the prospect that “more will follow.” He said bringing full enforcement resources to bear will help expose abuses and hold violators accountable.

Residential mortgage-backed securities are the huge investment packages of what turned out to be near-worthless mortgages that bankrupted many investors and contributed to the nation’s financial crisis.

The new effort was disclosed Tuesday night in the State of the Union address by President Barack Obama. The president has been criticized by some in his own party who have said that, despite a federal bailout of large Wall Street institutions begun under President George W. Bush, no Wall Street executives have gone to prison for fraudulent conduct in the mortgage meltdown and financial crisis.

Banks closed in Tenn, Fla, Minn; 7 failures in ’12

WASHINGTON — Regulators have closed banks in Tennessee, Florida and Minnesota, lifting to seven the number of U.S. bank failures this year following 92 closures in 2011.

The Federal Deposit Insurance Corp. on Friday seized Tennessee Commerce Bank, based in Franklin, Tenn., with $1.2 billion in assets and $1.1 billion in deposits.

It also closed BankEast, based in Knoxville, Tenn., with $272.6 million in assets and $268.8 million in deposits, plus First Guaranty Bank and Trust Co. of Jacksonville, in Jacksonville, Fla., with $377.9 million in assets and $349.5 million in deposits.

And it seized Patriot Bank Minnesota, based in Forest Lake, Minn., with $111.3 million in assets and $108.3 million in deposits.

NY inmate guilty of seeking $890M in tax refunds

SYRACUSE, N.Y. — A jury has convicted a New York prison inmate of falsely filing tax returns seeking $890 million in refunds.

Prosecutors say the man filed the bogus returns from 2006 to 2010 while at various state prisons. They say he even was issued a refund for $327,000 — but prison officials intercepted the check and returned it to the Internal Revenue Service, which led the investigation.

The man was convicted Thursday of 11 counts of filing false claims and one count of helping another inmate file bogus returns.

He was serving two to four years for possession of stolen property when he was charged last February. He faces up to five years in prison and a fine of up to $250,000 on each count when he’s sentenced in May.

Venezuelan gets 14 months in Conn. fraud cover-up

BRIDGEPORT, Conn. — A real estate manager who tried to cover up a Connecticut-based pyramid scheme involving hundreds of millions of dollars from a Venezuela state pension fund has been sentenced to 14 months in prison.

Forty-one-year-old Juan Carlos Horna Napolitano is a citizen of Venezuela and Italy living in Pembroke Pines, Fla. He pleaded guilty last year to conspiracy to obstruct a Securities and Exchange Commission investigation of hedge fund adviser Francisco Illarramendi.

At sentencing Friday in federal court in Bridgeport, Horna was ordered to forfeit $935,000 prosecutors said Illarramendi gave him to fake documents. A co-conspirator was sentenced in December to 14 months and ordered to forfeit $315,000 he received.

Illarramendi is a Venezuelan-American financier living in New Canaan. He pleaded guilty last year to fraud and conspiracy to obstruct justice and awaits sentencing.

Calif. couple pleads guilty to bank scam

SANTA ANA, Calif. — A Southern California couple has pleaded guilty to federal fraud charges for bilking banks out of nearly $5 million.

Federal prosecutors said Thursday that 63-year-old Thomas Chia Fu and his 60-year-old wife, Cheri L. Shyu, owned Galleria, a home décor business that imported wares from China.

Prosecutors accuse the Newport Beach couple of obtaining a $130 million line of credit by overstating the Anaheim-based company’s income by tens of millions of dollars.

Seven banks estimate they lost $4.7 million on the revolving line of credit from October 2008 to July 2009.

The Fu’s each face a maximum sentence of 30 years in federal prison.

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