
A Tiny Bank’s Surreal Trip Through a Fraud Prosecution - jessaustin
http://www.nytimes.com/2015/07/19/business/a-tiny-banks-surreal-trip-through-a-fraud-prosecution.html
======
CPLX
Of note, Vance is also the legal genius who decided to carry water for Goldman
Sachs, doggedly pursuing the prosecution of Sergey Aleynikov (familiar to
those who read Michael Lewis' Flash Boys book) even after his federal case had
been completely thrown out. He's also responsible for the Dominique Strauss-
Kahn debacle.

Hopefully he'll get some actual opposition in an election soon, he's an
embarrassment to the city at this point.

------
hga
There are certain areas where you just don't want to do business unless you're
connected. Here we have a Pampered Prince, son of President Jimmy Carter's
arguably worst Cabinet member
([https://en.wikipedia.org/wiki/Cyrus_Vance](https://en.wikipedia.org/wiki/Cyrus_Vance))
who's obviously targeting the vulnerable instead of connected criminals like
Jon Corzine of MF Global infamy. I'm sure the Sungs are wondering why they
aren't operating in the PRC where the racket is more open and honest (granted,
escaping in 1952 was a very good idea, but nowadays...).

------
protomyth
"The prosecution against Abacus appears to be Mr. Vance’s only mortgage-
related prosecution against a bank since he won election as Manhattan district
attorney and took office in January 2010."

Uhm... I deeply hate pulling the race card, but I would be tempted for this
individual. Particularly, when the prosecution's star witness is the fraud
master himself.

~~~
TazeTSchnitzel
To clarify: are you thinking Vance picked on them because they're not white?

~~~
Lazare
Not the guy you asked, but...

If I had to guess, it probably had a lot to do with them being relatively
weak, small, mostly serving an immigrant community, and having no connection
to the local power structure. Going after JP Morgan would be, well...awkward.
Going after Abacus was easy.

It's not because Jamie Dimon is white and Thomas Sung is not; that was just a
more-or-less inevitable consequence. (In employment law, this is called a
"disparate impact".)

~~~
scoggs
It almost seems to me like this one fell into their laps. They might not have
been in their sights initially but upon the initial fraud investigation they
must have identified a weakness in them. Maybe their willingness to cooperate
which I imagine is unheard of in that sector, seemingly?

------
Zigurd
TSTHC: Too Small To Hire Covington, so go ahead and prosecute.

~~~
aagha
Covington?

~~~
Zigurd
It's where the AG is going back to after he is out of office. They work for a
lot of big firms in the finance industry.

------
coldcode
It's usually easier to prosecute a small fish than tackle a great white bank
with their armies of lawyers. Thankfully the jury saw through the whole thing.
I love the "escrow account" which was nothing more than a slush fund for the
prosecutor's office. Now we know that Law & Order was fake, clearly this guy
is not Sam Waterston.

~~~
jessaustin
I think L&O: _CI_ is actually to blame: everybody thought they were voting for
Courtney B. Vance, but instead they got Cyrus R. Vance, who obviously isn't as
talented.

------
rayiner
The article is heavy on narrative, light on facts. The punchline is buried in
the middle:

> “When confronted with loan after loan in which the paperwork was allegedly
> falsified, a grand jury voted to indict the bank and other individuals,” her
> statement said. “Eight individuals publicly accepted criminal responsibility
> for their roles in this conspiracy by admitting to crimes they committed
> while employed in Abacus Bank’s loan department.”

A different article has more details on the indictment:
[http://www.bloomberg.com/bw/articles/2013-01-31/mortgage-
fra...](http://www.bloomberg.com/bw/articles/2013-01-31/mortgage-fraud-
prosecutors-pounce-on-a-small-bank).

> Abacus lied about applicants, Vance charged, because otherwise its loans
> wouldn’t have met Fannie Mae’s income requirements, and the bank depended on
> Fannie’s money for a significant chunk of its profit. The indictment stated
> that between 2005 and 2010, Abacus sold hundreds of millions of dollars of
> fraudulent mortgages to Fannie, reaping many millions of dollars in
> commissions and fees.

The other article also has descriptions about the "cooperation" missing from
the NYT article:

> The Abacus clients whose aborted closing sparked Ken Yu’s termination lost
> their deposit on the property when the loan fell through. They went to the
> police and filed a complaint, mentioning that Yu had falsified their
> mortgage application. The police referred the matter to the DA. Abacus says
> it had already launched its own inquiry at this point, and that by mid-2010
> it had hired two well-regarded fraud consultants, Vitale AML and the
> Mercadien Group, to do external investigations. The DA’s office declines to
> specify when its own investigation started, but says the bank only brought
> in the outside consultants after prosecutors started asking questions.

The NYT article also leaves out the gist of the reason the bank was indicted
rather than just the individual employees:

> In April 2011, Yu pled guilty to grand larceny, fraud, and falsifying
> business records, and is cooperating with the investigation. Six others have
> also taken pleas. The DA’s argument is that fraud was standard operating
> procedure at Abacus, that it was taught there, not just tolerated. New
> employees with no banking knowledge and rudimentary English were instructed
> that mortgage origination was an act of financial sleight-of-hand: fake gift
> letters, fake verification of employment forms, blatant misrepresentations
> on loan application forms. The accused employees include Yiu Wah Wong, the
> bank’s chief credit officer, who reported directly to Jill Sung; and Wai
> Hung “Raymond” Tam, the loan origination supervisor, who trained the bank’s
> loan officers and processors. According to the indictment, the two managers
> “falsely told employees that the exceptionally low default rate of Abacus-
> originated loans made the underlying accuracy of loan documents
> insignificant.”

~~~
FireBeyond
There's a lot of "the DA says", and "the prosecutor says", and "the DA
argues".

And on the opposite side is a myriad of proceedings, of which the bank was
exonerated, on every. single. charge.

~~~
rayiner
The Bloomberg article relies a lot on quotes from the DA, but many of the
underlying facts do not seem seriously disputed. For example:

> The Abacus clients whose aborted closing sparked Ken Yu’s termination lost
> their deposit on the property when the loan fell through. They went to the
> police and filed a complaint, mentioning that Yu had falsified their
> mortgage application. The police referred the matter to the DA.

> its loans wouldn’t have met Fannie Mae’s income requirements, and the bank
> depended on Fannie’s money for a significant chunk of its profit.

> In April 2011, Yu pled guilty to grand larceny, fraud, and falsifying
> business records, and is cooperating with the investigation

> The accused employees include Yiu Wah Wong, the bank’s chief credit officer,
> who reported directly to Jill Sung; and Wai Hung “Raymond” Tam, the loan
> origination supervisor, who trained the bank’s loan officers and processors

The NYT article in contrast spins this whole utterly irrelevant narrative
about an immigrant-founded bank.

Note also that there are two separable questions: 1) why was the bank
prosecuted; 2) was the bank guilty. The two questions are related, but
distinct. The NYT article is about (1) not (2). What's relevant to (1) is what
facts and testimony the prosecutor has available when he decides to prosecute.
There was plenty of facts and testimony to justify this prosecution. If this
were HSBC instead of a small bank people on HN would be furious if the
prosecutor didn't go after the bank with the kind of evidence he had.

The fact that the prosecution ultimately lost does not mean, as the article
suggests, that the prosecutor was wrong to bring the case in the first place.
If prosecutors could predict what evidence juries would credit at the end of
the day, there would be no need for trials.

~~~
hga
_The Abacus clients whose aborted closing sparked Ken Yu’s termination lost
their deposit on the property when the loan fell through. They went to the
police and filed a complaint, mentioning that Yu had falsified their mortgage
application. The police referred the matter to the DA._

Besides the unfortunate but I suppose inevitable detail that the applicants
lost their deposit to the property owner, nothing new or unacknowledged by the
bank.

 _its loans wouldn’t have met Fannie Mae’s income requirements, and the bank
depended on Fannie’s money for a significant chunk of its profit_

The jury, AKA the finders of fact, disagreed with the allegation at the
beginning of that snippet, the latter is just gilding the ragweed.

ADDED: as FireBeyond notes, ~30K/year isn't much profit. Per this
[http://www.ibanknet.com/scripts/callreports/getbank.aspx?ibn...](http://www.ibanknet.com/scripts/callreports/getbank.aspx?ibnid=usa_762773)
its most current annual net income is 430,000, but that's certainly weighed
down by the 10 million the NYT article reports they had to spend defending
themselves. So ~30K/year is, as our intuition suspects, minuscule, certainly
not "a significant chunk of its profit".

 _In April 2011, Yu pled guilty to grand larceny, fraud, and falsifying
business records, and is cooperating with the investigation_

Entirely congruent with the claimed actions and position of the bank, and
mentioned in less detail in the NYT article.

 _The accused employees include Yiu Wah Wong, the bank’s chief credit officer,
who reported directly to Jill Sung; and Wai Hung “Raymond” Tam, the loan
origination supervisor, who trained the bank’s loan officers and processors_

Well, yeah, and mentioned to some degree in the NYT article, but, again, the
finders of fact disagreed with the prosecutor's allegations.

------
aagha
If you're innocent, is there EVER a reason to plead guilty?

And, the DA's was going to manage the $2M collateral? What a sham!

~~~
thesteamboat
Sadly, yes. Trials can be ruinously expensive even if you win. 97% of federal
criminal prosecutions end in plea bargaining [0]. Prosecutors often make
offers that are coercive. Consider the Aaron Swartz case [1]. After his death
the prosecutor released a statement saying that they would have recommended to
the judge 6 months in jail. While they were trying to secure a plea bargain
they said he faced up to 35 years in jail and a $1 million fine.

Quoted from the Forbes article:

> If Ortiz thought Swartz only deserved to spend 6 months in jail, why did she
> charge him with crimes carrying a maximum penalty of 50 years? It’s a common
> way of gaining leverage during plea bargaining. Had Swartz chosen to plead
> not guilty, the offer of six months in jail would have evaporated. Upon
> conviction, prosecutors likely would have sought the maximum penalty
> available under the law. And while the judge would have been unlikely to
> sentence him to the full 50 years, it’s not hard to imagine him being
> sentenced to 10 years.

> In this hypothetical scenario, those 10 years in prison would, practically
> speaking, have consisted of six months for his original crime (the sentence
> Ortiz actually thought he deserved) plus a nine-and-a-half-year prison term
> for exercising his constitutional right to a trial.

[0]: [http://www.thecrimereport.org/viewpoints/2014-01-how-plea-
ba...](http://www.thecrimereport.org/viewpoints/2014-01-how-plea-bargains-are-
making-jury-trials-obsolete)

[1]: [http://www.forbes.com/sites/timothylee/2013/01/17/aaron-
swar...](http://www.forbes.com/sites/timothylee/2013/01/17/aaron-swartz-and-
the-corrupt-practice-of-plea-bargaining/)

~~~
Lawtonfogle
>In this hypothetical scenario, those 10 years in prison would, practically
speaking, have consisted of six months for his original crime (the sentence
Ortiz actually thought he deserved) plus a nine-and-a-half-year prison term
for exercising his constitutional right to a trial.

This is really the core of it. You are punished for daring to exercise your
right to a trial. The only solution for this that I've been able to see is to
end plea bargains. This, combined with a right to speedy trial, will result in
prosecutors only being able to go after a small fraction of the cases they
currently pursue. Which means less focus on victim less crimes (assuming the
prosecutors have any morals left which is admittingly a dubious assumption).

~~~
shasta
Why is it so terrible to be punished for exercising your right to trial?
Phrased another way, why not offer an incentive for avoiding an expensive
trial? The outrageous thing is the 20:1 ratio of punishment risked at trial to
plea punishment. Offhand, it seems like there should be a cap of 2:1 or
thereabouts on this ratio.

~~~
FireBeyond
How about for those factually innocent of the charges they face? There should
not be a perverse incentive to "plead guilty (to something you did not do), or
risk (even with your cap) twice the sentence if you exercise your rights. In
this case, it is bad enough to be sentenced to _x_ for a crime you did not
commit, and insult to injury to be sentenced to _2x_, let alone _20x_ for
having the gall and audacity to demand a trial.

Lesser, but still valid issues may remain when you are indeed guilty, but feel
that plea bargaining or sentencing recommendations are out of proportion,
unrealistic or whatever. "Hey, contest it. If you lose, you suffer. If you win
you suffer, 'less'."

Meanwhile the burden of "expensive" trials, lets be honest, falls largely on
the accused, not the state, who has (for all intents and purposes) and
unlimited budget (especially at the federal level) - while not strictly
accurate, I realize, if there's enough determination, you will suffer that -
how often does the government dismiss cases because they are "too expensive to
prosecute"? Compare and contrast to the myriad of people who have no option
but public defenders.

~~~
shasta
> How about for those factually innocent of the charges they face?

For them, I'm ok leaving the punishment at _1x_. :)

You're not being realistic. Structuring the court system so that the most
expensive option to the public is also the option with best expected outcome
for the one selecting options is obviously inefficient. And an inefficient
justice system is a bad justice system. Many of the problems with the justice
system today stem from lack of funding and you're just proposing to make the
situation much worse.

~~~
FireBeyond
No, there's a middle ground. We are also removing people of their liberty. The
wholesale use of plea deals (which elsewhere in the world are not allowed, or
massively limited) is driven by multiple, flawed priorities:

1) the re-election of DAs and / or prosecutors, and;

2) the desire to minimize the cost of prosecuting cases, with a lack of
acknowledgement of the massive disparity in power and little to no concern for
those steamrolled in the name of such efficiencies.

Many of today's problems with the justice system do indeed stem from funding
issues, but rarely on the prosecutorial side. Instead you have overworked,
underpaid public defenders who may many times only meet their clients just
before opening statements, even on more complex trials.

Leaving aside the question of zealotry in things like The Innocence Project,
many of these cases have issues related to defense ineptitude, not (just)
prosecutorial misconduct or misguidance. And by ineptitude, I don't mean
active or otherwise incompetence (though there are certainly instances of
this), but instead, details and problems that slipped through the cracks
because a defendants counsel was too unfamiliar, too overworked to be able to
provide the best or necessary defense. Tales abound of missed submission
dates, witnesses not interviewed or called, and the like.

If there's funding issues to be found, it's this, rather than 'how do we make
the prosecution's life easier/better?'.

~~~
shasta
My proposal of a 2:1 cap on sought sentence to plea sentence makes the
prosecution's life harder, not easier. I think I was pretty clear that I find
the present situation with 20:1 ratios wrong.

But I'm troubled by the apparent consensus here that offering plea deals
violates a defendant's rights. I find that thinking in terms of rights isn't
even helpful. Think in terms of outcomes.

You seem to believe that a bigger portion of the pie should be shifted to
public defenders from prosecutors. Fine, I'm not arguing that you're wrong,
but the money comes from the same pot. Having an incentive to spare the public
the cost of a trial when the defendant acknowledges his own guilt is common
sense.

