Tommy K and the Shitpile

by emptywheel

I'm still trying to sort through what it might mean that, after signing an unlikely plea agreement with the government, Duke Cunningham briber Tommy K has continued to engage in mortgage fraud, at the expense of the company most deeply buried in the shitpile, Washington Mutual (WaMu).

But let's start with the description John Michael's lawyers gave of Tommy K's method.

Kontogiannis would have a loan application prepared in the name of a putative home purchaser, sometimes with the knowledge of the person (who might be paid a fee) and sometimes without the person’s knowledge, for a property that Kontogiannis either had developed or had planned to develop. Fraudulent paperwork would be prepared related to, for example, income, assets, or appraisal. (Kontogiannis presumably would pay a kickback to the individual preparing these documents.) Applications would then otherwise be submitted for approval to various financial institutions in accordance with normal industry practices. At closing, all title documentation (such as the mortgage and note, the uniform settlement statement (HUD-1 form), title-insurance paperwork, and affidavits pertaining to the purchaser’s identity and intent of occupancy) would be fraudulently executed by a loan officer controlled by Kontogiannis. The settlement agent, using money that had been forwarded by the lender and placed in escrow, would issue checks to cover mortgage taxes, transfer taxes, recording fees, title insurance, and lender fees, as well as the net proceeds (the balance of the loan money), all of which (with the exception, sometimes, of lender fees) would go to Kontogiannis-controlled entities, including companies ostensibly owned by one of Kontogiannis’s daughters and controlled by Kontogiannis. The mortgage and note, however, would never be recorded, the taxes never paid, and title insurance never purchased. Instead, the funds that had been disbursed for these purposes would eventually be steered to another company ostensibly owned by one of Kontogiannis’s daughters but controlled by Kontogiannis.

These fraudulent loans would ultimately be sold into the secondary-mortgage market to a lender who would be led to believe, based on the loan documentation provided by Kontogiannis’s agent, that the loan had been sent for recording and that all taxes and recording fees had been paid. A Kontogiannis controlled financial-services company, typically Parkview Financial, Inc. (“Parkview”), would assume responsibility for making monthly payments on the loan. So long as timely payments were made, the loan would be viewed by the new owner as performing and, consequently, never questioned.

Kontogiannis’s greed, however, did not stop there. He would then market the property to an end-user, whose financing was often out of Kontogiannis’s control. Upon closing with the end-user, Kontogiannis would take a second bite from the mortgage-fraud apple: iin light of the fact that the first mortgage on the property had never been recorded, the settlement
agent would release the net proceeds of the second loan directly to a Kontogiannis-controlled company without paying off the existing loan because the latter had never been recorded. For
its part, the lender who had purchased the first mortgage would not know that the property had been sold again and that, consequently, its position in the chain of title had been compromised. [my emphasis

So basically, Tommy K would double dip on mortgages on houses that no one (except for at least one corrupt Congressman) was really buying. Here's where we get into WaMu's role in this. The "one company alone" in the following paragraph must be WaMu, given the government's assertion that WaMu had purchased $50 million in Tommy K's fraudulent loans.

The volume of Kontogiannis’s fraudulent loans as of June 1995 is shown by one of Parkview’s bank-account statements. See Exhibits 12 and 13. The statement reveals mortgage payments on 140 different properties. One company alone had purchased over 100 of the loans in the secondary market, with an average loan amount of approximately $500,000. That publicly traded and federally chartered bank thus had approximately $50,000,000 in loans that were potentially worthless because, as a result of Kontogiannis’s scams, none of the mortgages were recorded in primary position as the bank had assumed. That, in turn, meant that if any of the loans defaulted, the bank would not be able to foreclose on any real property and thereby recoup any of the losses. Needless to say, the impact of such losses would be profound both on the individual bank and on the shareholders of the company. Even scarier, that bank may have since purchased many more such loans from Kontogiannis. [my emphasis]

Note, Michael's lawyers are citing how many bad mortgages WaMu had bought in 1995, not how many they bought by 2007. And, as they helpfully point out, Tommy K may well have continued this fraud after he signed his plea deal in February. That's certainly the implication of this passage from yesterday's filing.

...as a direct result of being contacted by Michael's defense counsel, Washington Mutual contacted the government with information regarding Mr. Kontogiannis's continued illegal activity.  [my emphasis]

Michael's filing was in August, which would leave several months after Tommy K's plea deal for him to continue to sell Greek shitpile to WaMu. And of course, the government didn't bother to tell anyone that Tommy K had been selling Greek shitpile until June, which appears to have allowed WaMu to continue to buy up Tommy K's fraudulent loans. Five or seven months of Greek shitpile, depending on how you're counting--that might be a significant amount of shitpile.

Now, I might feel bad for WaMu. Except for the fact that they're pretty damned corrupt themselves, and seem to have been in the business of making sure they didn't know if they bought shitpile. Here's what Andrew Cuomo alleges them to have done.

WaMu retained eAppraiseIT in Spring 2006, after WaMu decided to close its internal appraisal office and terminate its staff appraisers. WaMu quickly became eAppraiseIT’s largest client, providing nearly 30 percent of its business in New York. Over the course of the business relationship, eAppraiseIT conducted more than 260,000 appraisals for WaMu, receiving over $50 million from WaMu.

[snip]

In February 2007, WaMu directed eAppraiseIT to stop using its usual panels of staff and fee appraisers to perform WaMu appraisals. Instead, WaMu’s loan origination staff demanded that eAppraiseIT use a Proven Panel of appraisers selected by the loan origination staff, who were chosen because they provided high values.

[snip]

Even beyond picking the Proven Panel, WaMu’s loan officers at times also directly selected specific individual appraisers on the panel to conduct their appraisals.

In other words, after the Federal government passed a law requiring appraiser independence, WaMu set up a scheme where it could rely exclusively on a bunch of appraisers hand-picked because they would appraise house values on the high side, thereby ensuring WaMu could continue to make loans on houses that were over-valued.

Now, there is nothing in Cuomo's complaint that says WaMu was using select appraisers to allow it to buy fraudulent loans--there'd be no reason (at least none that I can think of) for them to do that. But I'll bet you that WaMu's efforts to ensure there was inadequate oversight over the loans they were making made it a lot easier for Tommy K to continue to sell them Greek shitpile. And I'm a little curious about the timing. The government says they just got more information from (presumably) WaMu.

(8) Within the past two weeks, we obtained clearer indications that Mr. Kontogiannis was engaged in post-plea illegal activity

Cuomo filed his suit against First American and eAppraiseIT on November 1--so just two weeks before the government got this additional information from WaMu.

If this convergence of the Cunningham scandal and the shitpile scandal weren't already giving you vertigo, here's something that is almost certainly just a creepy coincidence.

That star is where Brent Wilkes' former office for ADCS was located. And eAppraiseIT and First American--those companies allowing WaMu to buy mortgages it shouldn't have? They're located right at the end of First American Way--just around the corner in corrupt Poway, CA (h/t Citizen 92 and chrisc; and I used to live there so I can call it corrupt). It's probably a coincidence. But it's pretty remarkable, nevertheless.

Comments

[skimble]

Very impressive reporting. Shitpile's backstory could keep us all busy for years. Thanks.

[Gary]

I live in Brooklyn, and the local media (NYC-wide, Queens, Newsday, etc.) have completely ignored every aspect of the Kontogiannis story.

I have emailed the Times, the Daily News, even the Post, as well as local Queens papers in the past several months . . . and nothing but crickets.

What the fuck is up with that?

[pinson]

Wow, that takes some stones. Continuing to run a major bank fraud while you're cutting a deal with the feds. So it turns out that Tommy K is kinda like Omar on the Wire - stealing from the bad guys. But a whole lot less admirable and stylish, and one would assume that he worked without a sawed-off 12 gauge.

[anon]

...Wow, that takes some stones...

Yes, but I still think the Greek vacation is the bigger stone. And, hey, Tommy K's still walking around free. That, by itself, is pretty impressive.

And speaking of Tommy K., did anyone every run down who the "influential" Congressman is in the school board report on TK's school swindle? He shows up in the report as a participant in several meetings with TK but he's not named for some reason.

[anon]

Oh, and if you want to do some interesting mapping, try sorting out the tenants in TK's office building at One Cross Island Plaza in Queens.

[Citizen92]

The settlement agent is key here - he is the one that oversees execution of the loan documents and their eventual filing and recording -- not the loan agent... So this would depend on having a settlement agent that was in on this whole scheme too.

Also, regarding WAMU, their appraisal scheme is confusing. Why overappraise properties they're lending $ on? Sure, that leads to bigger fees since bigger mortgages carry more points, fees, etc to close. But if WAMU were keeping their loans in portfolio, then they *eventually* would take the hit when buyers lost money on their homes. So they were either stupid, or....

WAMU was also playing fraudulently? If they were to sell their over-valued loans into the Secondary Market, then their hands would be clean and those loan investors are left holding the bag.

WAMU had its fish to fry -- I guess Tommy just saw an opportunity. Still, who was his settlement agent?

[dead last]

FYI, eappraiseit is a division of First American of First American Title Insurance. So the physical location probably is a coincidence.

In terms of the subprime meltdown and the shift toward WAMU-approved appraisers, this is interesting from market perspective. I doubt many have not made the connection between First American's financial stability (one of the largest title insurers in the world) and the fact that they may have been involved in offering faulty appraisals. Watch for their stock to tank if anyone shows a link. I doubt they realize they have a potential conflict of interest underwriting property title insurance and providing appraisals. I am sure no one in the media or regulatory bodies have made this connection yet. Give it six months then short their stock.

And we think the mudflows and firestorms are bad here in California. Just wait for the pending financial deriviative disaster to hit!!! I wonder what corporate entities are not involved? We have banks, developers, title insurance, realtors, what about casualty/fire/loss insurance companies?

[ignoreland]

Pardon my ignorance, but where were the title insurers in all this? Shouldn't they have been following up on these transactions?

[prostratedragon]

Oh hallellujah, I have got to pore over this! I'v been wating for the outright guys to start showing up in this mortgage beez-ness.

[Neil]

Gladly Muhammad the cross I'd -eyed bare bear

[TheOtherWA]

But if WAMU were keeping their loans in portfolio

Uh, no, they didn't plan to keep any of these loans. That's the point. Pump up the price, sell the loan, get the money and never look back.

That way it's someone else's problem when it blows up.

[Citizen92]

Why don't we call Kontigiannis' making fruaudulent loans through WaMu the "Cunningham Method?"

Why? Take a jump to page 40 of this affadavit from the Cunningham case:

170. Michael told federal agents that his company Coastal Capital made two separate mortgage loans (nos. 7161401 and 7161725) related to Cunningham's Rancho Santa Fe home purchase in late November 2003. The first mortgage was for $595,000 and the second mortgage was for $500,000.

Michael stated that Coastal sold the $595,000 loan (bearing a 5.85 percent interest rate) to Washington Mutual Bank, and the $5OO,OOO loan (bearing a 10 percent interest rate) to Parkview Financial, a company owned or controlled by Tommy Kontogiannis.

I think we can be pretty certain that Coastal Capital was a mortgage broker with some sort of warehouse line of credit (or at least a conduit) to WaMu.

WaMu is a huge and siginificant company.

[Henry Holland]

I live in Los Angeles and starting working in 1992 for a popular local bank called Great Western in their loan department as a clerk. Great Western was bought by WaMu in 1997 after a hostile take-over bid failed from Ahmanson (see: the Ahmanson family, huge wingnut welfare providers). Great Western was a cool company to work for, WaMu was a total freaking nightmare.

I'm loving all the WaMu bad news as it comes out in one sense, but it's the lowly employees like I was that get screwed.

Great stuff, Emptywheel [polite golf applause]

[emptywheel]

Citizen92

It's really funny--all that WaMu stuff has been sitting out there for a year. But it didn't really make sense until Auugst, when WaMu started to meltdown, that they'd be the ones holding Cunningham's empty bag.

[radiofreewill]

Is the 'Cunningham Method' related to the "Pemberton Model'?

http://en.wikipedia.org/wiki/Coca_cola

By 1888, three versions of Coca-Cola — sold by three separate businesses — were on the market. Asa Griggs Candler acquired a stake in Pemberton's company in 1887 and incorporated it as the Coca Cola Company in 1888.[8] The same year, while suffering from an ongoing addiction to morphine, Pemberton sold the rights a second time to four more businessmen: J.C. Mayfield, A.O. Murphey, C.O. Mullahy and E.H. Bloodworth. Meanwhile, Pemberton's alcoholic son Charley Pemberton began selling his own version of the product.[9]

In an attempt to clarify the situation, John Pemberton declared that the name Coca-Cola belonged to Charley, but the other two manufacturers could continue to use the formula. So, in the summer of 1888, Candler sold his beverage under the names Yum Yum and Koke. After both failed to catch on, Candler set out to establish a legal claim to Coca-Cola in late 1888, in order to force his two competitors out of the business. Candler purchased exclusive rights to the formula from John Pemberton, Margaret Dozier and Woolfolk Walker. However, in 1914, Dozier came forward to claim her signature on the bill of sale had been forged, and subsequent analysis has indicated John Pemberton's signature was most likely a forgery as well.[10]

In 1892, Candler incorporated a second company, The Coca-Cola Company (the current corporation), and in 1910, Candler had the earliest records of the company burned, further obscuring its legal origins.

---

[chrisc]

I've just reread the filing from the San Diego USAs. And I am just a little curious. I am not sure just how much Kontogiannis shared with the USAs before his plea agreement regarding his fraudulent mortgages. Nevertheless, the FBI report had made it very clear that they suspected K was a major money laundering. I was surprised at the time that the SD USAs didn't investigate what else K's laundered money was all about. Even after John T Michael told them about it, they sort of blew it off saying it was someone else's jurisdiction and they didn't know about it, etc.

They seem ready to go after him this time. Has something changed? What happened to those guys from the CIA or whatever other agency they were from? There was so much secrecy involved but I had the suspicion that they were keeping Judge Burns and the USAs in the dark a bit. So was somebody holding them back before and have the changes at the justice dept changed the way this case is proceeding?

[Jemand von Niemand]

Tommy The K is a predator. Of course, many of the players at WaMu and elsewhere in the real estate 'industry' were just as greedy and ready to feed off each other, and off of you and me.

I'm laughing my ass off after reading this. And, in the background, Little Dana Perino is saying how really Strong and Pretty our economy is.

Jesus Christ On A Stick.

[orionATL]

so -

tommy k is a (greek) con artist.

no surprise there.

but that observation misses the most important point (for me)

what does tommy k know or what did he do,

that made it worthwhile for the federal govt to allow him to vacation in the greek isles this summer?

while under indictment!

it never ceases to amaze me the idiots that the

federal "police" (cia included) will engage with

who turn out to be flakes.

so

the fundamental question for me is:

what did tommy k do for the federal gov't that secured him a trip out of this country, to his homeland, while he was under judicial sanction?

or more generally,

what does this guy know that warrants such "soft gloves" treatment?

[jwp]

Agree with OrionATL

who are the officers of WAMU?

[prostratedragon]

Go here and click on "Corporate governance," underneath the nice tandem bike.

Did I ever say how violently I detest cheap sentiment?

[zorro]

Actually your star on the map is a little bit off. Wilkes' former company headquarters was located on the north side of the Stowe/Danielson intersection, which puts it even closer to First American Way.

[prostratedragon]

More on WaMu. Gotta love those Occasio branches!

Expandig the scope of retail consumer banking per The Bank Formerly Known as Washington Mutual is part of the business rationale for specialty shops that subcontract out work to local suppliers, like eAppraisit or whatever the f!0! their name is.

[William Ockham]

Another coincidence?
http://www.signonsandiego.com/news/business/20070309-9999-1b9adcs.html

[hauksdottir]

Secret Offshore Trusts named "Banyan"?

Hmm...

I wonder if there are any funds named "Aspen"?

People connected by the roots might also be connected by the pocket, and setting up a trust fund to pay for members' expenses is another way to launder money or hide the involvement of those wealthy enough to conceal their political activities.

[big brother]

Marcy this is so on message. Selling worthless derivitives (CDOs) is a big bank crimes like selling worthless CDOs to Pension funds. CITIBank, Morgan Stanley, Merrill Lynch and Goldman & Sachs are being bailed out by taxpayer dollars from the fed infusion with new greenbacks making the dollar fall, and Oil money as the debt is transferred through the big bailout fund to liquidate it to relieve the credit cruch as the capital position of these big banks dissolved into thin air. The ecomomy is going South but big money is jacking up the markets with desperate capital infusions. The CDO scam makes the greek look like a saint. The housing bubble was secured with no equity and they played hot potato with the debt passing it to the nexr sucker. Using a mortgage technique of bundling. reecords were buried as derivitives were resold at higher yield obligation like Florida swampland

[jwp]

This story reminds me of EW's moral of the story of Iran-Contra. Bad guys never punished, and so they came back 15 years later.

Many nefarious characters and connections in the S&L story of the 80s. Brewer and Pizzo wrote interesting books, among others.

I see Western Mutual is a conglomeration of many thrifts.

Makes me wonder. Who?

I remember Jeb Bush had ties to S&L crooks, and the guy caught monkeying with absentee ballots in Seminole County in 2000 was ex-CIA who had worked for thrift guys for 15 years.

some sort of ponzi scheme by guys with connections, is my guess

but it is the details that count and I doubt we'll ever see any

[Citizen92]

William Ockham - that's quite a story...!

First American Title owns Wilkes old ADCS headquarters building in Poway. That's just TOO much of a coincedence!

[freepatriot]

so let's talk about "Plea Agreements" for a minute (that's something I'm slightly familiar with)

there is a standard clause in every plea agreement whereby the defendant agrees TO OBEY ALL LAWS

so it would seem that we have a violation of a signed agreement here

what did this guy plead guilty to ???

and what's the Max Sentence for that offense ???

participation in an on-going criminal operation would seem to qualify the defendant for the maximum sentence

[scribe]

In response to a couple questions:
1. "Why haven't the local media picked up on this (in NYC)?"
(a) financial scams like this are difficult to explain in newspaper length columns;
(b) reporters don't understand the scams (if the lawyers have trouble unwinding them, why should we expect the reporters to?)
(c) the real estate scams which have been getting attention are the ones where someone comes along and offers to "help" a stressed homeowner meet their mortgage, and winds up walking away with a deed in their name. That, people understand.
(d) this abuse of the recording system is pretty subtle, but no less effective.

2. "Where are the title insurers on this?"
(a) the title insurers rely upon the validity and accuracy of the recording system -

(I) if the documents do not get recorded (step two in Tommy K's scheme), then the title companies do not know the transaction took place; and
(II) the title companies do not, as a matter of course, record transactions in their own internal records by the location of the property (addresses may or may not change, and one need not live at the address to do the deal), the legal description (Tax Lot and Block in my state)(properties can be subdivided, and then what?) or persons/entities involved (ever see a company named after the street address? goes on all the time). Usually, they have their own internal numbering system which might, or might not, cross-reference to information about the property.
(b) this assumes the title insurers are working 100% on the up and up. You oughta see the havoc one guy in hock to the mob for his gambling/drug/hooker habit, or who's looking for a scheme to make himself (and his buddies) a bundle, can do if that one guy works in the underwriting department of a title insurance company. All that business is done on trust. And the title insurance companies are extremely loath to admit the potential existence of any such problems, to the point of absurdity.
(c) The processors through the line of bank, title insurer, appraiser, etc. are not necessarily either the brightest bulbs, or the most suspicious, and they only catch stuff when the papers look out of line. If the papers are within the bounds of the appropriate appearance and there is no glaring error or incongruity, they'll (I) shrug off the issue as a peculiarity in the way the parties structured their deal, or (II) be told to shrug it off by management, more interested in getting the papers processed quickly or (III) shrug it off because the company, not they, will bear the loss.

Fact is - someone determined on beating the system and sufficiently canny, will beat it.

[bartcopfan]

I remember Jeb Bush had ties to S&L crooks

That may be true, jwp, but I think you're thinking of Bush Brother Neil (he of freebie (for him) Asian hooker fame).

[bartcopfan]

Silverado S&L in Colorado, to the tune of a cool $1 Billion US.

[jwp]

No, different guys. There was some small scandal that Jeb got caught up in in the late 80s, but the real scandal was the association with folks with wide connections across the TX and FL S&L scene.

Forget the names, but we could look it up.

The point, for me, is that I have never quite figured out phase 2 to the S&L saga.

Phase 1, you could buy property, flip it several times to send the "value" up, get the loan from S&L (Uncle Sam guarantee), then shoot your $$ through a few corporate dummies, and then wait for the collapse later, when you are far away and the money long gone. This was done in an organized way, in many places, and there were a surprising number of connections to intelligence "community" types (people who had some connection, but you were never sure they were really still connected -- but you wonder sometimes). Anyway, Brewer's book talked a lot about that.

What is phase 2? Why are S&Ls so seemingly attractive?

Not sure. But I bet that there is an answer.

[parrot]

Marcy,

Thanks for following up on this. Sadly, this whole affair may reflect on what is going on in the US of A in all of the 50 states. At least New York has had AGs willing to look into this in the past seven years...otherwise, who would have found this stuff out? Well, I suppose when the whole rotten structure collapses, we'd know then...at least now a handful of us have an inkling that the foundations are rotten...and so begins the work of the next generation to try to salvage the sun set economy of the Bush era.

[blognround]

this is the real reason BushCo is throwing some chum at a few 'special' subprime demographics. the fraud charges could bring down some big banks, and BushCo doesn't want that on his watch.

like almost everything the administration, does, no accountability,
partial, no and/or assymetric disclosure and stalling + a sprinkle of obfuscation.

corruption ... which could create the the worst recession in America's history.

welcome to the new America
the Beltway culture of corruption, Demos and Repubs alike.