Lawyers as Crime Enablers: Maine Bar Counsel Punts on Sanctioning Foreclosure Attorneys for Bogus Affidavits

Yves here. Upon occasion, we’ve commented on the critically important role that attorneys and accountants too often play as enablers of fraud and criminal activity. In essence, if you are an individual or business and you can get a lawyer to sign off on dubious conduct, the attorney has provided a critically important liability shield to you. Even worse, it is well-nigh impossible for wronged parties, such as victims of stock frauds, to sue the advisors, that make the investment look attractive. As we wrote in ECONNED:

Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.

One of the lines of defense is for attorneys general and regulators to intervene. Sadly, almost none have pursued this angle; a rare exception is New York Superintendent of Financial Services Benjamin Lawsky, has had the guts to go after one of the very most prestigious law firms in the US, Sullivan & Cromwell, for essentially making another firm, PriceWaterhouseCoopers, the bagholder for “scrubbing” a report to regulators on illegal wire transfers.

But for the most part, regulators and judges rely on state bar associations to police their own. One area where the abuses were large-scale and flagrant, robosiging, show how this sort of private regulation is a joke. Tom Cox, the Maine attorney who exposed GMAC’s document fabrications and made “robosigning” a national topic, shows how unwilling state bar associations are to make a serious go of punishing persistent, clearly documented misconduct.

By Thomas Cox, a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney’s Saving Homes (MASH) program. He has received national and for his efforts to combat foreclosures and foreclosure fraud

Jeffrey Stephan was the 41 year old Penn State graduate who, in 2010 was the “Team Lead” of the GMAC Mortgage “Document Execution Team” in Fort Washington, Pennsylvania. When I deposed him on June 7, 2010 in the course of defending a GMAC foreclosure against Nicolle Bradbury of Denmark, Maine, Stephan admitted that he was signing about 8,000 documents a month for use by GMAC’s attorneys all over the country in prosecuting residential foreclosure cases. He had an apparent productivity had decline since, six months earlier in a Florida deposition, he testified that he was signing about 10,000 documents a month.

In the case in which I deposed Stephan, he had filed an affidavit, supposedly under oath, stating that he was the custodian of GMAC’s records relating to its mortgage on Bradbury’s property, that he had personal knowledge of the minute details relating to her loan and that he was attaching to his affidavit what he asserted were “true and correct copies” of her note, mortgage and related documents. As a career litigator, I knew the moment that I saw Stephan’s affidavit that it was false. When I deposed him, he admitted that it was false, that he did not have custody of and of Bradbury’s mortgage documents, that he did not read the affidavits that he signed and did not know what statements were in them, except that he claimed that he checked the numbers stating the amount due on the loan. He even admitted that, when the notarial certificate at the end of the affidavit stated that he appeared before the notary to swear to the truth of the affidavit, he did not bother to do that, and the notary just signed the certification anyway.

As a result of these revelations, and the appearance of Stephan’s deposition transcript , the so-called “robo-signing” scandal erupted. GMAC Mortgage suspended its foreclosure activities and was followed in this by most of the other major mortgage servicers who were forced to admit that they were doing the same thing. This was , and was ultimately followed by the , barring GMAC and the other four largest servicers from continuing this and other serious mortgage servicing misconduct. The Maine Supreme Court called Stephan’s affidavits “”

What was not so widely reported in the press was the unseemly role of the lawyers who filed Stephan’s affidavits. At his deposition on June 7, 2010, I asked Stephan if the exhibits identified in his affidavit were even attached to the affidavit when he signed it. The GMAC lawyer from Maine wouldn’t let him answer that, making the absurd claim that such information is protected by the attorney client privilege. Stephan admitted that he did not look to see if all of the exhibits referred to, and which he was purporting to authenticate, in the affidavits, were there when he signed them, and no one else in his department did that for him. He admitted that he did not inspect exhibits attached to his affidavits even though he was purporting to swear that the exhibits were true and accurate copies of the original documents. I know from the Bradbury case and others that the exhibits attached to Stephan’s affidavits were sometimes not true and correct copies of the originals.

Other litigation against GMAC in Maine revealed that the law firm, which was representing GMAC when I deposed Stephan, had filed over the previous five years about 1,000 similar affidavits, in foreclosure cases that had earned that law firm probably in excess of $1 million in legal fees. I had also learned that GMAC Mortgage was sanctioned in Florida in 2006 for the exact same conduct that I uncovered in the Maine case in 2010. The GMAC affiant whose conduct was sanctioned in Florida had been promoted by GMAC and was Stephan’s boss at the time that I deposed him. Obviously, the 2006 sanction for her misconduct made no impression upon her or her employer.

After I deposed Stephan on June 7, 2010, the GMAC law firm in Maine went right on filing those fraudulent affidavits in new foreclosure cases. As to cases that they had filed before that date, the lawyers knew that they had deceived judges into entering foreclosure judgments based upon Stephan’s fraudulent affidavits, yet they fiddled for almost two months, until early August when they started sending new affidavits from a different person to clerks of courts, stating that there were technical problems with Stephan’s affidavits. They did not file motions in any cases to ask the courts to vacate judgments entered into on the basis of Stephan’s fraudulent affidavits. They did nothing to inform any Maine judge that they, in using the fraudulent Stephan affidavits, had presented fraudulent evidence to those Maine judges and had induced those judges to entering judgments taking away the homes of Maine residents based upon fraudulent evidence.

Having represented banks in foreclosure cases during the , I prepared a lot of summary judgment motions and a lot of bank witness affidavits. In my opinion, it was impossible for GMAC’s lawyers in Maine to not have not known that Stephan’s affidavits were false, because those lawyers drafted those affidavits in such a way that they could not be true. The objections of the GMAC lawyers at Stephan’s deposition to my inquiries to whether he looked at the exhibits attached to his affidavits, along with other portions of Stephan’s testimony, led me to suspect that GMAC’s lawyers were attaching those exhibits after Stephan signed them down in Pennsylvania and they were sent back to Maine. If that suspicion was true, then that conduct would be a crime.

All of this was sufficiently disturbing that I felt that the Maine Board of Bar Overseers should investigate. For the first time in my forty-year career, I filed formal grievances–against three of the lawyers in GMAC’s law firm. I am sickened by the outcome of that uncomfortable process. The lawyer primarily responsible for the preparation and filing of these affidavits was let off with a dismissal with a warning. The so-called ethics partner in the law firm escaped with a complete dismissal. The lawyer supervising the firms foreclosure department was sanctioned for continuing to file the fraudulent Stephan affidavits after he knew about Stephan’s testimony, but now accepting his inherently unbelievable testimony that the did not believe Stephan’s sworn deposition testimony when Stephan said that he did not bother to read his affidavits, and thought that Stephan would change it by filing corrections to his deposition transcript.

It is my opinion that these outcomes are in significant part due to failures of the office of Maine’s Bar Counsel to adequately prepare and prosecute these cases. Astonishingly, even though the office of Maine Bar Counsel had subpoena power to conduct investigations, it did absolutely nothing to investigate whether GMAC’s lawyer committed criminal acts by tampering with his affidavits by attaching exhibits to them after he signed them. They presented no evidence at all on this issue to the grievance panel. I testified at the grievance proceeding and was deeply disturbed by the poor quality of the presentations of the Bar Counsel lawyers. They were hopelessly outmatched by the high priced and highly experienced litigation lawyers hired by the lawyers from the GMAC firm.

It is also my opinion that the Maine grievance system and even the Maine Supreme Court justice handling the final step of this ugly process are too willing to excuse lawyers’ misconduct, too willing to accept unacceptable excuses, and too unwilling to hold them to sufficiently high standards of conduct.

The practice of law should be considered to be a privilege, reserved to those able and willing to conduct themselves with care, honesty and professionalism. The profession must recognize that, just as a careless surgeon can kill or maim a patient, a careless or dishonest lawyer can injure a homeowner, or even hundreds of homeowners. Discipline should be severe. Once lawyers have licenses to practice, there should be no hesitation in suspending or revoking the licenses of lawyers who fail to conduct themselves in accordance with established rules of professional conduct. Lawyers should demand that the profession assess annual registration fees sufficient in amount for disciplinary authorities to pay highly competent lawyers to prosecute lawyers who abuse the legal system. In my opinion, the Maine lawyer disciplinarily system has failed miserably in this case. Unfortunately, this failure is an example of a profession-wide failure of the legal profession to adequately police itself.

Pause and think about it for a moment: The lawyers who were directly responsible for the creation of the robo-signing scandal are not being held accountable for enabling it to occur. There has been no meaningful prosecution of criminal conduct of the bankers or servicers from federal or state prosecutors, and it is now apparent that there will be no disciplinary actions against their lawyers from bar discipline authorities. .

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23 comments

  1. Llewelyn Moss

    Ok so I guess we Robo-ed some folks. Need to look forward, because that backward view is kinda ugly — so don’t ruin my Obama-Buzz. Plus laws are for Commoners, not for Lawyers and such.

    I’d like to know what happened to all those toxic, worthless CDSs (or CDOs or whatever they were) the gubmint bought off the banks for 100 cents on the dollar. Where are the now? And who is on the hook to take all the loses?

    1. MartyH

      Actually, the Public Sector side of the Fed went out and bought all the “Troubled Assets” from the Private Sector (especially the Private Sector holders of local Federal Reserve Bank capital stock who, because of their size, would be the biggest players) because it wouldn’t have been seemly for those Private Sector folks to be seen buying the assets from themselves … would it?

      That help? /winks/

      1. Llewelyn Moss

        Thanks. I didn’t realize the Fed had ‘sides’ (ie Public Sector side). I guess I have to review my notes from the Banksters 101 class.

      2. Yves Smith Post author

        No, it didn’t buy bad assets. It just made loans against them when banks were desperate for liquidity.

        The assets the Fed bought for QE were all very high quality, Treasuries or Fannie/Freddie/Ginnie paper, which is actually or effectively government guaranteed.

        The way it made bad assets look good was indirect. Both ZIRP and QE lowered interest rates. which goosed the prices of all financial instruments, the dodgiest ones the most.

        1. Bud in PA

          OK. So where are all those worthless CDO’s/CDS? Who owns them now? And what’s still in Maiden Lane I, II, III and whose owns that stuff.

          1. GuyFawkesLives

            I was under the impression after reading many articles that the Fed had purchased the worthless shit from the banks and made them whole, while the homeowners were hung out to dry.

  2. “There has been no meaningful prosecution of criminal conduct of the bankers or servicers from federal or state prosecutors, and it is now apparent that there will be no disciplinary actions against their lawyers from bar discipline authorities.”

    We are moving into a phase of this kleptocratic regime’s rule, where the pretense that we enjoy “liberty and justice for all” is being dropped like a hot potato. While there are still lawyers, like those in the ACLU, fighting the good fight for men and women of modest means and limited power, the “justice” system as a whole has become mostly about terrorizing the weak and protecting the powerful.

    Poor people have never expected anything better, but formerly middle-class U.S. citizens –who thought they were secure in their own property rights– are waking up to the fact the banksters can do as they please with impunity.

    Regime change begins at home!

    1. trinity river

      Are there any organizations out there who are targeting this kind of crime. ACLU is not doing it. CCR is not doing it.

    2. trinity river

      Is there an organization that fights this type of crime? The ACLU does not do it. CCR does not do it. We need a new organization that uses full time and retired lawyers, accountants and academics to protect the rest of us.

    3. fresno dan

      It really is amazing that “street justice” is the enforcement not only of laws but whatever the police want. On the other hand, financial and legal ethics rules are not enforced, whatever the 1% want (or is that “don’t want”?).
      It seems to me our legal system is now equivalent to the inquisition – the highest sounding rhetoric justifying the greatest evil…

  3. Martin Finnucane

    I speak from personal experience: there are two classes of private practice lawyers. Members of one class represent “the general public” – people off the street in criminal defense, work comp, personal injury, etc. cases. Members of the other class represent “business” – insurance companies, investment banks, high wealth individuals in tax matters, etc.. The ethical guidelines for both classes are identical, but the application of those guidelines are completely distinct. The “general public” lawyer is held to very high standards and potentially subject to severe penalties for even de minimus infractions. The “business” lawyer is not. Suffice it to say that if a “general public” attorney – say a small town divorce lawyer – were caught fabricating or passing off a fraudulent affidavit, he or she would likely lose their license, at least for a year.

    True story: a small-time, solo practitioner divorce lawyer I know of had to travel out of town to attend a hearing. He didn’t bring his credit card and didn’t have much gas, but he did have the check book for his escrow account. He nearly ran out of gas and had to gas up in order to get back home. He got some gas and paid for it out of the escrow account, which is a no-no. Once he got home a few hours later, he immediately replaced the funds in the account, penny for penny. Long story short, the net result was a suspension from practice of the law for one year. That effectively ruined his practice and his career. To my knowledge, that gentlemen no longer practices law.

    Corruption is a disease that has infected all areas of American life. Our only defense against it is a retreat into fantasy, white peoples’ fantasy, the fantastic construal of reality which would have it that corruption only a problem for (principally dusky hued) foreigners. The 1%-ers coup is protected by a cloak of invisibility.

  4. Jesper

    I’ve worked for a couple of US multinationals since SOX came into being. I wouldn’t trust any of those companies to be in control of what is happening internally. Senior executives in large multinationals are above both law and ethics with one caveat: As long as they do not embarrass or hurt any of the powers that be then they can do whatever they like.

    Rule of law? Meritocracy? Yes, that exists for small companies. For the ‘elite’? Not so much.

    But at least there is plenty of money for SOX and ethics professionals…

  5. andy synonymous

    Bar counsel work for the state bar associations. The bar associations are funded by a license fee or tax on lawyers, called different things in different jurisdictions. They are dominated by lawyers from larger, more business-oriented firms. In most states a few, influential, big firms call the shots in the governance structure of the state bar association. Mega props to Mr Cox for all his good work, but the bar associations are going to continue to fund bar counsel just enough for the persecution of solo practitioners; they are never, never going to provide enough resources to go after the big firms whose lawyers systematically abuse the legal system.

  6. McMike

    The headline begs some sort of clever reply, but none are forthcoming.

    The fact that people continue to give money to investment advisers, though, is beyond my comprehension. Thanks, but there’s a three-card monty game down on the corner that I trust more.

    I would add that of the three, accountants seem most likely to be held accountable. Which happens rarely, but from time to time. Both audit firms and CFO/Controllers. Frankly, CFOs are frequently the fall guy when a company collapses. While the corporate counsel snickers and the CEO flits off to Aruba. And CPA firms get whacked from time to time for teaching companies how to cheat on their taxes.

    Attorneys, meanwhile, I have never, ever, heard of an attorney taking the fall. And of course the banks and their advisers are well established with their get out of jail free cards, no matter what the nature of their serial crimes.

  7. fresno dan

    “Having represented banks in foreclosure cases during the savings and loan crisis, I prepared a lot of summary judgment motions and a lot of bank witness affidavits. In my opinion, it was impossible for GMAC’s lawyers in Maine to not have not known that Stephan’s affidavits were false, because those lawyers drafted those affidavits in such a way that they could not be true. The objections of the GMAC lawyers at Stephan’s deposition to my inquiries to whether he looked at the exhibits attached to his affidavits, along with other portions of Stephan’s testimony, led me to suspect that GMAC’s lawyers were attaching those exhibits after Stephan signed them down in Pennsylvania and they were sent back to Maine. If that suspicion was true, then that conduct would be a crime.

    All of this was sufficiently disturbing that I felt that the Maine Board of Bar Overseers should investigate. For the first time in my forty-year career, I filed formal grievances–against three of the lawyers in GMAC’s law firm. I am sickened by the outcome of that uncomfortable process. The lawyer primarily responsible for the preparation and filing of these affidavits was let off with a dismissal with a warning. The so-called ethics partner in the law firm escaped with a complete dismissal. The lawyer supervising the firms foreclosure department was sanctioned for continuing to file the fraudulent Stephan affidavits after he knew about Stephan’s testimony, but now a Maine Supreme Court judge has exonerated him too, accepting his inherently unbelievable testimony that the did not believe Stephan’s sworn deposition testimony when Stephan said that he did not bother to read his affidavits, and thought that Stephan would change it by filing corrections to his deposition transcript. ”

    Perhaps it was ever thus. I know for myself, having worked in the government, and being proud of my knowledge of all sorts of regulations, their rationale, intent, and why they are necessary, it was a real and true shock to discover that those higher up in the food change really pay no attention to that stuff – it has been, and always will be the expedient…

    If there is any justice in this life, it is purely inadvertent…. probably somebody forgot to debug the Microsoft and Google that runs the reality simulacrum ….

  8. Jim A

    Doesn’t filing knowingly false affidavits constitute perjury? Certainly any future affidavits by him or others with a similar history should be strongly challenged by opposing council. I know in criminal cases AGs sometimes maintain a list of police shown to have perjured themselves and don’t use them as witnesses.

    1. Thomas Cox

      Interestingly, the Maine Supreme Court held in a separate action that Stephan’s “affidavits” were not affidavits at all because they were not sworn, thus leaving real question of whether he committed perjury. Not that any prosecutor, in Maine or in Pennsylvania ever stepped forward with any interest in prosecuting.

      1. GuyFawkesLives

        We presented perjured documents to our Attorney General…..and there was silence emanating from his office. The government is in collusion with the banksters.

      1. GuyFawkesLives

        The banksters’ attorneys, all the Stephen Baums, David Sterns, Lance Olsons, Kevin McCarthys of the lawyer world are the true bottom of the barrels….they are the law firms that are defending the banksters. They are the true crime rings. They need one thing: a fucking guillotine.

        Yet, what do our elected officials do? Check out the news reports that Attorney General Rob McKenna took MONEY (campaign contributions……more easily known as a bribe) from Lance Olson and Lance’s wife…..rather than investigating his law firm as he was supposed to. So, the gobmint wants the lucrative CASH rather than actually doing their job and prosecuting these criminals.

        1. John Zelnicker

          Small point: C’mon, Guy. You know the “gobmint” and the corrupt Attorney General are not the same thing. The government is not, in itself, corrupt. That’s an ethical issue and institutions don’t have ethics or morality. Only the people who act for the government have, or don’t have, ethics and morality. Mostly, they don’t, at least at higher levels.

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