The VAST American Looting has been EXPOSED by Many Many People … I’ve tried very hard to Name and Include as Many As I Can. TONS of Americans have worked very hard to SHUT DOWN , EXPOSE and Hold the Guilty Parties ACCOUNTABLE. I thank every last One of YOU …. Down the Hole with ” No Pants ” Scammed America the Schneiderman https://youtu.be/q2qxsQbdAYM
Regulating the Subdivided Land Market
This Page Dedicated to Paul Friggens
AND DEDICATED TO DON BOLLES
And of Course Brian Quig DCIA
PROPAGATE!! PROPAGATE!! Date: 4/20/01 8:18:22 AM US Mountain Standard Time From:firstname.lastname@example.org (Brian Downing Quig) To: WalterBurien@aol.com …
Never Forget Mark Lombardi
Related Posts. Mark Lombardi’s work in The Nation · Pierogi Press No. 11: Kristin Prevallet, “From The People Database: ‘After Mark Lombardi‘” · Mark …
Oct 3, 2015 – 10_16_Lombardi_01 Patrons view one of Mark Lombardi’s massive and highly detailed “narrative structures,” as the artist called his creations.
Nov 1, 2003 – Mark Lombardi’s elaborate drawings chart the complex relationships behind some of the world’s biggest and most complex scandals …
Oct 14, 2015 – A new Mark Lombardi biography by Patricia Goldstone investigates the conspiracies surrounding the artist, who allegedly committed suicide in …
That said, this is not a comprehensive look at Mark Lombardi’s work, nor is it especially scholarly, intelligent, or insightful. It’s mostly a rough first draft that I’m …
Sep 12, 2012 – The intricate Conceptualist drawings of Mark Lombardi attempted to map the vast, convoluted networks of money and power behind the likes of …
The Land Swindles are ANCIENT and the Crime Spree NEVER ENDING
Appraisers in the Poconos allegedly colluded with interested parties to …… of course, to the infamous Walk- ing Purchase of 1737, a swindle pulled off by Colonial Secretary … This beautiful land has been plagued by crooked deals ever since.
26 Wilson, Almus, Founder and CEO, Pocono Homeowners Defense …. to influence appraisers to make the value on properties being appraised. …… I am referring, of course, to the infamous Walking Purchase of 1737, a swindle pulled off by …
Jul 23, 1973 – Step right up, folks. Hurry, hurry. Get some land and build your dream house for those declining years: golf in your backyard, tennis two blocks …
But later, when she and other Seminoles were relocated to government … cases of fraud, bribery, perjury, forgery, land swindles, and theft on the part of agents and … but the cry of outrage from that body was too loud and persistent, and the …
The Sad Sad Sad REALITY of America’s Banksters and Land Swindlers The … Financial System an INSIDE JOB BUY NOW AND CRY LATER Step right up, folks …
It is strange how quickly people forget calamity, and a few months later lose their … which showed just 500 of these swindling building and investment companies. … building and investment company commenced with a roaring war cry of NO … of land at acreage prices, charged the people for whom they built homes the …
The Low Down DIRT on the Low Down DIRT DEALERS
And lets NOT leave out the Big Kahuna …. Bobby Harmon ….. The Biggest Catbird of them all.
WELCOME TO THE CATBIRD’S FORUM!
The Catbird Seat
- DIRTY GOLD IN GOLDMAN SACHS! — Bobby N. Harmon, CPCU, 12:50:13 09/06/09 Sun
- ACTIVISTS FIGHT FOR RIGHT TO GET TO BEACHES — Mynah Bird, 20:41:08 02/02/08 Sat
- CROOKED DEVELOPERS & BANKING COLLAPSE — Judson Witham, 22:21:55 12/05/07 Wed
- Re: CROOKED DEVELOPERS & BANKING COLLAPSE — No name, 23:50:25 12/05/07 Wed
- WHY WON’T HAWAII PUBLIC RADIO AIR LOCAL COQUI FROG STORY? — Bob O. Link, 23:45:42 12/26/07 Wed
- Re: WHY WON’T HAWAII PUBLIC RADIO AIR LOCAL COQUI FROG STORY? — The Catbird, 14:47:21 12/29/07 Sat
- THE LONELY SAILOR — Bobby N. Harmon, 02:18:46 12/06/07 Thu
- NAM SENSE: SURVIVING VIETNAM WITH THE 101st AIRBORNE DIVISION — Bobby N. Harmon, 03:44:23 05/13/08 Tue
- Re: NAM SENSE: SURVIVING VIETNAM WITH THE 101st AIRBORNE DIVISION (NT) — RVN, 10:46:25 12/26/10 Sun
- Re: HOW I CAME TO CRITIQUE THE ISRAEL LOBBY, by Rabbi Michael Lerner — No name, 13:57:12 11/29/10 Mon
- Marten Frankel — Linde (He was strange as a kid), 00:32:57 07/31/10 Sat
- THE PUNA CONNECTION — Bobby N. Harmon, 18:18:28 10/09/07 Tue
- The Catbird Seat — No name (inquisitive), 18:32:07 12/07/09 Mon
- GOOGLE SEARCH FOR MARSH & MCLENNAN + FRAUD + KYCBS.NET — Bobby N. Harmon, 02:11:36 06/02/09 Tue
- Re: GOOGLE SEARCH FOR MARSH & MCLENNAN + FRAUD + KYCBS.NET — ninja cat (Eureka!), 11:04:20 11/20/09 Fri
- US DEPT OF JUSTICE vs HARMON – WITNESS: NORMAN MINETA — Bobby N. Harmon, 21:05:41 11/17/09 Tue
- Dolphin bubble ring — TARIQ KHAN (LOVE), 03:39:04 10/29/09 Thu
- ALOHA AIRLINES: FLYING WITH THE BANKRUPTCY BUZZARDS — Bobby N. Harmon, 21:47:07 09/23/09 Wed
- My EMail to; Senator Baucus[Montana] — Chuck_Glisson, 16:56:02 09/18/09 Fri
- Forex Trading Tips And Tricks — Imad Mehmod, 13:19:51 09/15/09 Tue
- Tea gives me a headache — Tea Pea, 15:02:57 09/11/09 Fri
- FROM THE CATBIRD’S NEST: BROKEN TRUST — Bobby N. Harmon, CPCU, 12:58:55 09/07/09 Mon
- VULTURE NESTS ALONG WALL STREET — Bobby N. Harmon, 12:46:07 09/06/09 Sun
- KAMEHAMEHA SCHOOLS OBLIGATED TO REPORT ALLEGED SEX ASSAULT TO POLICE… — Bobby N. Harmon, 16:18:32 09/05/09 Sat
- AN OCTOPUS NAMED WACKENHUT — Bobby N. Harmon, 00:52:50 09/03/09 Thu
- AIG: THE AMERICAN IDOL OF GREED! — Bobby N. Harmon, CPCU, 12:16:06 08/30/09 Sun
- EX-DHS SECRETARY TOM RIDGE LINKS POLITICS TO TERROR ALERTS — Bobby N. Harmon, CPCU, 01:29:43 08/30/09 Sun
- CIA HIRED BLACKWATER USA TO KILL AL-QAIDA — Bobby N. Harmon, 03:31:33 08/21/09 Fri
- Re: CIA OUTSOURCED ASSASSINATIONS TO BLACKWATER: MSNBC COUNTDOWN — No name, 03:40:24 08/21/09 Fri
- BROKEN TRUST BOOK REVIEW BY DAVID C. FARMER — Bobby N. Harmon, 03:01:37 08/21/09 Fri
- RICK PITINO: TRUTH OR CONSEQUENCES? — Bobby N. Harmon, CPCU, 03:09:57 08/19/09 Wed
- THE ARBITRATION TRAP! — Bobby N. Harmon, 02:13:30 08/19/09 Wed
- GOOGLING FOR CV05-00030 – FARMER VS HARMON — Bobby N. Harmon, CPCU, 21:42:14 07/13/09 Mon
- Re: GOOGLING FOR EXHIBITS IN CV05-00030 – FARMER VS HARMON — Bobby N. Harmon, CPCU, 03:56:53 07/14/09 Tue
- Re: GOOGLING FOR WITNESSES IN CV05-00030 – FARMER VS HARMON — Bobby N. Harmon, CPCU, 04:05:10 07/14/09 Tue
- GOOGLING FOR WITNESSES BARACK OBAMA + JOHN WAIHEE + BILL CLINTON IN CV05-00030 – FARMER VS HARMON — Bobby N. Harmon, CPCU, 06:39:18 07/14/09 Tue
- Re: CV05-00030 – U.S. DEPT OF JUSTICE vs. HARMON – WITNESS WAYNE BERMAN — Bobby N. Harmon, CPCU, 22:44:48 07/30/09 Thu
- Re: CV05-00030 – U S DEPT OF JUSTICE VS HARMON – WITNESS: JUDGE SAMUEL KING — Bobby N. Harmon, CPCU, 14:12:01 07/31/09 Fri
- Re: “AIG: THE AMERICAN IDOL OF GREED” – (An Exhibit in CV05-00030 – U S Dept of Justice vs Harmon) — Bobby N. Harmon, 14:30:01 08/06/09 Thu
- Re: DOCUMENTS: ROVE INVOLVED IN US ATTORNEY FIRING — Bobby N. Harmon, CPCU, 19:32:19 08/11/09 Tue
- GOOGLING FOR CLINTON + LIPPO + RIADY + SUKAMTO SIA + BANK OF HONOLULU — Bobby N. Harmon, CPCU, 11:40:03 08/08/09 Sat
- FLASH: OBAMA’S KENYAN BIRTH CERTIFICATE REPORTED FOUND! — Bobby N. Harmon, CPCU, 18:20:44 08/02/09 Sun
- Airlines — imran khalid khan (happy), 12:30:26 07/30/09 Thu
- GOOGLING FOR BANKRUPTCY BUZZARD DAVID C. FARMER — Bobby N. Harmon, CPCU, 00:04:57 07/29/09 Wed
|[ Archives: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 ]|
This south Florida land boom collapsed in 1926 as a result of speculation, overbuilding, land frauds, bank failures, a major hurricane, and resultant bad publicity. … population soared from about 6,500 in 1930 to over 28,000 in 1940. Similarly …
Nov 6, 2005 – Fred Bernstein article recounts real estate scam perpetrated on his father in 1965 when salesman from Horizon Land Corp convinced him to …
Swampland in Florida is a figure of speech referring to real estate scams in which a seller … Those evolved in the 1960s and 1970s to include fraudulent sales of near-worthless swampland real estate in Florida. Though the term originates in …
More than 50,000 acres of land in east El Paso County are undevelopable.jpg … In fact, when KFOX14 looked through newspaper archives from the 1960s, an article came up that highlighted … “It was essentially a scam, I suppose,” he said.
Jan 10, 2005 – Another Frieden-Friedman company, Real Estate Disposition Corp., … “We are riding on the coattails of developers from the ’50s and ‘60s,” …
With land deals come regrets
Many buyers find affordability, but at a price
ALTURAS, CALIF. – In the evergreen-cloaked hills and sagebrush flats near this Northern California outpost, dreams are for sale. Visions of a vacation getaway, a nest for retirement or an investment in rural land have lured thousands of buyers to California Pines.
But more than three decades after a now-departed developer filed plans for a subdivision here, the promise appears little more than a mirage in the high desert.
In a development platted for 15,000 lots, fewer than 400 houses dot the hills or surround the glorified lake, a muddy cattle reservoir that shrivels in the heat. That hasn’t stopped Jeffrey Frieden and Robert Friedman, two Orange County entrepreneurs who once sold stereos and back rubs, from resurrecting sales in this and other left-for-dead subdivisions across the country.
From Florida to Washington state — and coming soon to developments in other states — their Irvine-based company has sold thousands of lots in subdivisions that mostly predate planning laws requiring sewer, water and power.
“We are riding on the coattails of developers from the ’50s and ’60s,” Friedman said. “We identify these things, we re-expose them to the world, and our clients in the long run get incredible values.”
Through the Internet and television infomercials in English and Spanish featuring faded actor Erik Estrada, their company, National Recreational Properties Inc., is aggressively marketing land that looks cheap to distant buyers.
But prices are often steeply inflated compared with surrounding land.
Although in some cases prosecutors have charged misrepresentation and forced compensation, many real estate experts and consumer advocates offer simple advice to those pondering the appealing ads: Buyer beware.
More than half the taxable lots in remote Modoc County lie in California Pines, but only a few hundred people live in the subdivision.
Most of those who have bought land in Cal Pines live hundreds of miles away — too far to commute and too far for weekend visits. All the lots have sold at some point and many have changed hands.
Still, the flocks of prospective buyers keep coming on NRPI’s fly-before-you-buy promotional weekends.
In 2000, the Rev. Vika Wills led about 10 members of her Bay Area congregation to buy their own lots in what she hoped would be a heaven on earth.
“They said it’s a good deal,” Wills said of the NRPI sales force. “They said it would be fast growth. I thought maybe it’s a good idea to buy when it’s still cheap.”
Wills spent more than $64,000 on four lots that would probably sell on the open market for $3,000 to $6,000 apiece, according to local real estate agents.
“My gosh,” Wills said with a sigh when notified of the going price. She’s now thinking of selling.
It’s an all-too-common reaction. In California and some other parts of the nation, the prospect of spending five figures for land is alluring to those trying to achieve the American dream.
Yet, in Modoc County, where the population shrank in the last census and unemployment is high, real estate is as affordable. Three-bedroom houses near Alturas can sell for $70,000.
$1,000 an acre for raw land
For unfarmable raw land, “$1,000 an acre … would be a fair amount,” said Cheryl Knoch , the county treasurer and tax collector. “I guess people don’t research what property values are in the county.”
Speaking of land sales in general, Stephen Brobeck, executive director of the Consumer Federation of America, said: “If the land is marked up by over 50 percent, that would probably represent a consumer rip-off. And if the price is marked up five to 10 times that, then the consumer is simply being fleeced.”
William Dudas of Norwalk, Conn., bought land in Lehigh Acres, Fla., in 1966 for $2,095. He sold it in 2002 for $700 to NRPI, which sold it four days later for $10,900 to a couple from Lawrence, Mass., according to Lee County, Fla., property records.
“I feel sorry for that person,” Dudas said about the buyer. “It was a dud, a real dud. That was the worst deal I ever made in my life.”
The same lot was taken back by NRPI in November last year after the buyer defaulted on the mortgage, according to court records. It was resold in January for $14,900.
Lehigh Acres, a 30-minute drive inland from Fort Myers on Florida’s Gulf Coast, was among the many poorly planned subdivisions that lured uninformed buyers in earlier decades.
Known as “antiquated subdivisions” to land experts, they are vestiges of land speculation and planning before the dawn of modern zoning.
Most such subdivisions are located in Florida, the desert Southwest, the Poconos of Pennsylvania and several counties in Texas, according to a report by Bill Spikowski, a planning consultant, and Hubert Stroud, a geography professor at Arkansas State University.
Friedman and Frieden said they run NRPI according to state and federal regulations and personally resolve buyers’ rare complaints.
Five years ago, prosecutors in Santa Cruz County, Calif., targeted a company they operated, Land Disposition Co., for claiming buyers could build estates in the Happyland subdivision where a previous developer platted lots in the early 20th century.
Buyers complained that they couldn’t find the properties because the roads on the maps didn’t exist. Friedman said brochures warned buyers to inspect the property in advance.
“The people we talked to were mostly immigrants,” prosecutor Morgan Taylor said. “They wanted part of the American dream.”
County prosecutors sued the company for misleading advertising, saying the mountainside land was unbuildable. The company denied the allegations, but quickly settled, offering refunds to buyers who came forward.
After the settlement, a buyer who paid $6,000 for a lot in 1997 got a refund. Three years later, however, Santa Cruz property records show, the company sold the lot to another buyer for $11,500.
The brochures also provide better warnings, he said.
Another Frieden-Friedman company, Real Estate Disposition Corp., hit similar problems in Santa Monica in 1992, by promising ocean views at 56 condominiums, the city attorney’s office said. Newspaper ads showed the beach and what appeared to be Malibu Pier, which was miles away. The city attorney’s office accused the company of false and deceptive advertising, unfair competition and bait-and-switch to lure consumers, according to court papers.
Admitting no wrongdoing, the company quickly settled, agreeing to a permanent injunction and paying $7,400 in costs and penalties.
“We’re not looking to fight with anybody,” Friedman said. “If we make a mistake — and we do every now and again, we’re not perfect — if we make a mistake, our goal is to make it right.”
Where’s the canal?
Friedman said he wanted to know more about a couple from Brooklyn, N.Y., who said they were misled about land they bought in Lehigh Acres.
Judy Rajkumar said she and her husband, Junior, bought there with retirement in mind. But when they learned someone on their tour bus bought “waterfront” land along a canal, they wanted the same.
The salesman sent a videotape depicting canal-side lots, and the Rajkumars, natives of Trinidad who wanted something near water, liked what they saw. They traded in the other property and purchased two adjoining lots, each more expensive than their first.
An aerial photo from the Lee County Property Appraiser’s Office, however, shows no canal on the property.
The couple paid $24,300 for the two lots that cost NRPI $5,000 just three months earlier, records show.
“You think if we were aware of that we would go for it?” Judy Rajkumar said.”You think we’re that stupid?”
If the story was true, the salesman would probably be fired, Friedman said.
Friedman and Frieden, both 43, took a roundabout path into the real estate business.
They started after high school with a string of stereo businesses. Frieden tried selling cars and phones, and both even tried to set up a chain of chiropractic massage businesses.
Throughout, they dabbled in real estate, eventually founding an online auction company that sells raw land across that West. That led to NRPI.
Seeking a high-profile spokesman, the two flipped through a talent agency’s portfolio and picked Estrada.
Estrada, remembered as a likable motorcycle cop on CHiPs, was also the star of a popular Mexican soap opera that also airs on U.S. Latin networks. TV ads featuring him appear throughout the country.
“They approached me because they were looking for somebody who dealt with people on the street,” Estrada said in an interview.
Estrada got pay, lots
In addition to getting paid, Estrada was given a lot in each of the subdivisions.
In Cal Pines promotional material, Estrada exclaims: “This place is gorgeous! Take my word for it because I own property there myself.”
A sign along California Pines’ main road touts “Erik Estrada’s Home Site.”
But Estrada said he had no plans for building on any of his NRPI lots.
Privately held NRPI doesn’t have to release its earnings, but a statement filed by Frieden in an Orange County lawsuit against a software company said the company earned profits of $562,828 a month between January and June 2002.
Last November, Frieden bought an oceanfront house in posh Laguna Beach for $4.3 million, according to property records in Orange County.
In struggling Modoc County, officials said they have reservations about NRPI’s land sales, but those deals help pay for county services.
Fewer than 10,000 people live in the county and nearly a fifth of its taxes come from California Pines owners, most of them mailed across the state.
County workers sometimes field calls from unsatisfied buyers; they usually refer the complaints to a state agency.
“We get a lot of, ‘This isn’t quite what was advertised to me,’ ” said Knoch, the county treasurer. “People complain, ‘This isn’t fair, they didn’t tell the truth.’ ”
THERE ARE THOUSANDS OF OTHER ACCOUNTS of these Clintonian Style Banking, Mortgage, Foreclosure Swindles ….. The List Is ENDLESS
First Texas had colonias along the border with Mexico. Now “non–bordercolonias” are an emerging issue. A colonia, in Texas terms, is a subdivision, either legally or illegally subdivided, located in an unincorporated part of a county.texashousers.net/2008/07/11/the-present-day-saga-on-one-texas-non-border-colonia/
AMERICA’S OUT OF CONTROL REAL ESTATE AND BANKING CRIME SPREES
Hillary Clinton and the Whitewater Controversy: A Close-Up
By David Maraniss and Susan Schmidt
Washington Post Staff Writers
Sunday, June 2, 1996; Page A01
|The First Lady and Whitewater: Who’s WhoJAMES B. McDOUGAL
Friend of Bill Clinton and gubernatorial aide during Clinton’s first term, he was a partner with the Clintons in the Whitewater real estate venture and owned the failed Madison Guaranty Savings & Loan. He was convicted last week on federal fraud and conspiracy charges.SUSAN McDOUGAL
James McDougal’s former wife and partner in the Whitewater real estate venture. She was also convicted last week in the Whitewater-related fraud trial.RICHARD MASSEY
Young associate at the Rose Law Firm when Madison Guaranty became a client in 1985. Hillary Rodham Clinton has said Massey played a key role in bringing in Madison as a Rose client, but he does not remember the events in the same way.RONALD CLARK
Current managing partner of the Rose Law Firm. While Hillary Clinton has said Massey asked for her help in getting McDougal to pay his outstanding legal bills in April 1985, Clark maintains that they were already paid by November 1984.GARY BUNCH
Onetime president of Madison Bank & Trust, another McDougal-owned financial entity that owed money to the Rose Law Firm.BEVERLY BASSETT SCHAFFER
A Gov. Bill Clinton appointee to the Arkansas Securities Commission, she took a telephone call from Hillary Clinton in April 1985, six days after McDougal put Rose Law Firm on retainer.SETH WARD
Arkansas businessman hired by McDougal to assist in land acquisition for the Castle Grande project, and Webster Hubbell’s father-in-law. Hillary Clinton worked with Ward on certain legal details of the project she knew as IDC.WEBSTER L. HUBBELL
President Clinton’s appointee as associate U.S. attorney general and former partner in the Rose firm, he pleaded guilty to defrauding the firm and its clients through false billings.JIM GUY TUCKER
Arkansas governor convicted last week on mail fraud and conspiracy charges linked to the Castle Grande deal. He announced his intention to resign this summer.DAVID HALE
Former Arkansas municipal judge and owner of a small business investment company, he pleaded guilty to defrauding the federal Small Business Administration and was the chief government witness in the trial of the McDougals and Gov. Tucker.SAM BRATTON
An aide to Gov. Clinton who oversaw regulatory issues, he was alerted by Arkansas Securities Commissioner Schaffer that McDougal’s S&L was in trouble with federal authorities.VINCENT FOSTER
Former Rose Law Firm partner who went to the Clinton White House as deputy counsel. At Rose, Foster had been billing partner in work the firm did for Madison Bank & Trust.
DAVID R. GERGEN
In the four years that Hillary Rodham Clinton has been
questioned about her role in the related events known as Whitewater, her public posture has changed very little. She has asserted that she has done nothing wrong and that “at the end of the day, the American people will know that we have nothing to cover up.” There is no connection, she has said, between anything she did and the criminal cases being pursued by the Whitewater independent counsel, including the trial that ended last week with the fraud convictions of the couple who brought the Clintons into the original Whitewater land deal and the man who succeeded Bill Clinton as governor of Arkansas.
Her partisan critics, the first lady has said, are so intoxicated by what they believe is the scent of scandal that they ignore exculpatory evidence and are impossible to satisfy; as soon as one accusation dissolves, they grasp for another line of inquiry that might embarrass her and President Clinton. Whatever mistakes she might have made, she says, were the result of naivete. If she appeared secretive or defensive, she says, it was because she overestimated the “zone of privacy” that is allowed public figures. And exacerbating her troubles, she has concluded, has been a Washington culture that “thrives on rumor, gossip and innuendo.”
In a television interview with Barbara Walters in January, the first lady recited a favorite children’s verse to explain her predicament:
As I was standing in the street as quiet as could be,A great big ugly man came up and tied his horse to me.
The image is of a mere bystander, a good person victimized. But an examination of Hillary Clinton’s public statements suggests someone less passive in her behavior, less consistent in her answers, and less committed to full disclosure than the figure in her own self-portrait. Some of her responses have been thrown into doubt by newly released documents or the testimony of other Whitewater figures. Her wording seems alternately terse and lawyerly, providing the narrowest possible answers, and unabashedly political, ornamented with asides and anecdotes.
What is less clear from the documented record is why Hillary Clinton has responded the way she has. Has she been rattled – less calculating and more confused? Is she hiding something? If so, is it a potential legal problem of her own or her husband’s? Or is it simply an embarrassment? Or is the whole thing, as her lawyer said in a somewhat different context, another of the meaningless mysteries of Whitewater?
When considered in isolation, many of the questions to which Hillary Clinton has had to respond – especially those involving small-time transactions in provincial Arkansas more than a decade ago – might appear minor. Many people, perhaps most people, forget events that occurred long ago and say things occasionally that are later contradicted by records or the memories of others. But when the questions and answers involving her are viewed in their totality, they appear more significant. One minor issue sets the context for the next and, stitch by stitch, a pattern emerges. That larger pattern has drawn the scrutiny of independent counsel Kenneth W. Starr, whose investigators are engaged, among other things, in a task unprecedented in modern times: determining whether the president’s wife committed perjury, made false statements or obstructed justice.
Hillary Clinton’s role in Whitewater has been a source of constant debate and helped make her one of the most controversial first ladies in American history. Her business and legal dealings, of Byzantine complexity in the first place, have become even harder to assess because of the intense politics of the situation: Every statement and event is seen through the partisan filters of Washington.
This article is an attempt to analyze her responses to Whitewater inquiries. It is not a complete study of her involvement in the events that have come to be known as Whitewater, but focuses on one aspect: her legal representation of James B. McDougal and Madison Guaranty Savings & Loan. Based on an examination of the relevant public documents, it lays out at length the details necessary to try to evaluate the different statements she has made. It also addresses questions about her possible motivations. The first lady declined to be interviewed for this report. White House lawyers Jane Sherburne and Mark Fabiani were interviewed and provided documents that they felt supported Hillary Clinton’s statements.
For all but two years between 1979 and 1992, Bill Clinton was the governor of Arkansas and Hillary Rodham Clinton was the state’s first lady. She was also practicing law in Little Rock at the Rose Law Firm, the oldest in the state and one with deep and effective connections to the state’s power elite. Shortly after joining the firm, Hillary Clinton was made a partner, but how much work she did was determined by her outside activities. She spent most of 1983 on leave heading an education reform task force for her husband, and devoted large chunks of 1984 campaigning for his reelection. It was just after that period, in early 1985, that she became a senior lawyer, called a billing partner, in Rose Law Firm’s account with James McDougal and his Madison savings and loan. Since 1978, she and her husband had been partners with McDougal and his wife, Susan, in the Whitewater real estate venture.
Why and how did Hillary Clinton take on McDougal and Madison as her client? It seems like a minor question, but in fact goes to the heart of how she conducted herself as a lawyer who happened to be the wife of the state’s most powerful political figure. One issue is whether she sought out business that carried with it questions of conflict of interest. Another is whether McDougal, who was already carrying the bulk of the financial burden of the Whitewater land deal with the Clintons, tried to throw savings and loan work to Hillary Clinton at a time when his thrift was in danger of collapsing at taxpayer expense.
In the first three years of the Whitewater controversy, between 1992 and 1995, when she was asked how she became the billing partner on the Madison account, Hillary Clinton said that it came about because Richard Massey, a young Rose Law Firm associate, asked her to help him out. That happened in 1985, at a time when Madison was in troubled financial condition and looking for ways to raise new capital. Massey, according to the first lady, had talked to John Latham, Madison’s chief executive officer, about ways the firm could help the thrift, then went to her to talk about it. The first lady offered a detailed description of this episode at her nationally televised news conference in April 1994:
“There was a very bright, young associate in our law firm who had a relationship with one of the officers at Madison, a young man whom he had known. They began talking. . . . Those two young men thought that it would be legal under Arkansas law for a savings and loan to issue preferred stock, but there was absolutely no law on that. And so they couldn’t be sure. But they decided that what they wanted to do was to ask the person who regulated the savings and loans whether it was legal. . . . The young attorney in question [Massey] needed a partner to serve as his backstop, and that was one of the rules of our firm. He knew that I knew Jim McDougal. He also knew that Jim had been a client of our firm in the past. This was not a new representation. So he came to me and asked me if I would talk with Jim to see whether or not Jim would let the lawyer and the officer go forward on this project. I did that, and I arranged that the firm would be paid a $2,000 retainer. And that was ordinary and customary.”
The following year, in an interview with Resolution Trust Corp. (RTC) investigators, Hillary Clinton added new details to this account. She said Massey asked her to help him because McDougal owed the law firm money from a previous case and she was the person who could most effectively get him to pay the outstanding bills. As she put it: “. . . certain lawyers of the law firm were opposed to doing any work for Jim McDougal or any of his companies until he paid his bill and then only if Madison Guaranty agreed to prepay a certain sum to the firm once a month to cover fees and expenses. . . . I believe Massey approached me about presenting this proposal to Jim McDougal because he was aware that I knew him. I agreed to see McDougal. I visited him at his office on April 23, 1985, and told him that I understood Latham wanted Massey to do some work for Madison Guaranty, but that our firm would not let Massey proceed until the previous bill was paid and some kind of prepayment arrangement was worked out for new work the firm might do.”
Massey for the most part remembered the events differently when he was asked about them in an appearance before the Senate Whitewater committee on Jan. 11, 1996. He said that he did not believe he was responsible for signing up Madison as a client and that he could not recall having a conversation with Hillary Clinton in which he asked her to help him bring in the Madison work. In questioning by Michael Chertoff, the Republican counsel, Massey said he did not remember any discussion in which he said there was a problem with McDougal and his past debts to the law firm that could be resolved if Hillary Clinton became the billing partner.
“That is not my recollection. I do not remember . . . a proposal in hand to her and discussing with her that there were partners in the firm that were dissatisfied with McDougal, and here’s a proposal and let’s work it out. I have no recollection of that,” Massey testified.
Later in his testimony, when he was questioned by the Democratic counsel, Richard Ben-Veniste, Massey said it was possible that he talked with Hillary Clinton about McDougal. He also characterized the recruitment of Madison as a team effort.
One month after Massey’s testimony, when Hillary Clinton was interviewed again by lawyers for the RTC, she modified her story. She said it was not Massey but Vincent Foster, another Rose partner, who went to her originally to discuss how they could sign up Madison despite McDougal’s past billing troubles. Foster had been the billing partner in earlier work Rose had done for McDougal’s first financial institution, Madison Bank & Trust.
“I believe it was Vince Foster who came to me, who said that Mr. Massey wanted to do this work, but the partners didn’t want him to do it,” Hillary Clinton said in her sworn interview with the RTC. “We had a very high regard for Mr. Massey, who was quite an energetic and accomplished first-year associate, already teaching a securities course at the law school and attracting people who wanted his advice, like Mr. Latham. And I was asked, as someone who knew McDougal, if I could intervene and perhaps set up an opportunity for Mr. Massey to do this work.”
Foster committed suicide in 1993.
On the question of whether Hillary Clinton was brought into the case because, as she said, she knew McDougal and could get him to pay back his old debts, the testimony conflicts somewhat, but much of it throws her version into doubt. Documents show that she had been involved in 1983 in helping the law firm recover overdue payments from McDougal. And in questioning by Ben-Veniste, the Democratic counsel, David Knight, who headed Rose’s securities division, said that he had a brief conversation with senior partner C. Joseph Giroir before Rose resumed its relationship with Madison. Giroir, he said, mentioned to him that “there had been some sort of billing problem on work” previously done by the firm for McDougal. Several others involved recalled the overdue bills situation differently from the first lady.
Ronald Clark, Rose Law Firm’s chief operating officer, said in an interview that McDougal’s outstanding legal bills – amounting to $5,000 – were paid off in November 1984, several months before Hillary Clinton said she became involved in the matter.
Gary Bunch, president of Madison Bank & Trust, formerly known as the Bank of Kingston, the McDougal enterprise that had owed the money to Rose Law Firm, said Hillary Clinton was not involved in getting the bank to pay off the outstanding bill. He also said in an interview that he believed the bill was paid in the fall of 1984, not the spring of 1985, when the first lady became involved with Madison. The bank was “a little draggy” paying it, Bunch said, because the bank had lost a lawsuit in which Rose had represented it and then had lost the appeal.
McDougal, whose animosity toward the first lady colors anything he says about her, also recently disputed her description of their conversation on overdue bills. In an interview with the Associated Press, he told a reporter: “For your story, say – ‘When asked: Do you recall the conversation [about paying old bills] in Mrs. Clinton’s answer?’ – McDougal answered no.”
It was McDougal who first disputed Hillary Clinton’s account of the genesis of her legal representation of him. In several press interviews over the past four years, he told the same story: that one day in August 1984 then-Arkansas Gov. Clinton jogged over to the Madison offices in Little Rock, plopped down in a leather chair and told McDougal that his wife needed some new clients because she was not bringing enough money into the firm. McDougal said he agreed that he would try to find legal work for Hillary Clinton. That satisfied the governor, who departed, leaving behind a sweat stain on the new chair.
McDougal revised part of his story last month when he testified at his trial in Little Rock. Now he said that he – not Gov. Clinton – first broached the subject of Madison sending some work Hillary Clinton’s way. But he left unchanged the rest of the scene. His suggestion, he said, came during a visit where Clinton mentioned that his wife needed to recruit more clients. During his videotaped testimony as a defense witness at McDougal’s trial, President Clinton said he did not recall the meeting. When the prosecuting attorney asked him if that meant McDougal was lying, Clinton said no, it was possible for people to have different recollections.
For his part, Latham offered testimony that presented yet another version, though it seemed to correspond most closely with McDougal’s on one point. In an interview with the RTC’s inspector general’s office on July 12, 1995, he said the Madison work did not simply result from a discussion with Massey, his friend from their days at Central Arkansas University, about the issuance of preferred stock, as Hillary Clinton had said. According to the RTC report: “Latham said that at one time, date not recalled, James McDougal suggested that Madison Guaranty use Rose for some of the legal work at the institution. Latham said that, ‘McDougal had friends over there, he suggested we use them.’ Latham said when asked who the friends were that it was Hillary Rodham Clinton and others.”
In the end, then, many of the details in Hillary Clinton’s version of how and why she took on the Madison account differ from the recollections of the others, though no one seems to remember the events precisely like anyone else. Perhaps the first lady in this case has the most accurate memory. Perhaps she shaped her answers to make it appear that she played a passive role and was only helping out others, when that was not the reality. If that is the case, what might have motivated her to tell that story?
By the time she was asked questions about her legal relationship with McDougal, he was a notorious figure. He brought the Clintons into the Whitewater land deal, which raised the first questions about conflicts of interest and cozy relationships in Arkansas. His savings and loan had long since gone under, costing the government as much as $60 million, another symbol of the expensive savings and loan scandal that infuriated taxpayers across the nation. He had been indicted and acquitted for his various land deals, and would later be indicted again, and convicted. He had become an embarrassment to the first lady. According to her versions, her relationship with McDougal was indirect and almost incidental.
MAKING THE CALL
It is an undisputed fact that Hillary Clinton became the billing partner for Rose Law Firm in its representation of James McDougal and Madison Guaranty on April 23, 1985, the day she visited McDougal at his office and arranged for him to pay the firm the $2,000-a-month retainer. Rose billing records show she began charging hours to the account that day. But what did she do for Madison? Did she in any way take advantage of her position as a powerful lawyer and wife of the governor? That issue arises in questions about the first telephone call she made on behalf of McDougal to a state agency.
Since the question first received national attention when it was raised in a New York Times article in March 1992, Hillary Clinton has disputed any accusations that she might have taken advantage of her status as the governor’s wife in her dealings with the Arkansas Securities Commission, the state agency that oversees savings and loans.
The Times article noted that the Clintons were partners with McDougal in a land deal and that Hillary Clinton represented him in some dealings before the state agency that was under her husband’s patronage. Hillary Clinton responded that the work she did for Madison was “minimal,” adding that her encounters with state regulators regarding the thrift’s attempts to explore new ways of raising capital to stay afloat were utterly trivial. The record shows there was an exchange of routine letters between her law firm and the state agency and that she called state Securities Commissioner Beverly Bassett Schaffer (then known as Beverly Bassett) on April 29, 1985, six days after McDougal put the Rose firm on retainer.
In interviews before her billing records were made public in January 1996, the first lady could not remember anything that was said during the telephone call. Even after the billing records were released, she said she could not remember who she talked to at the securities commission. The purpose of the call was perfunctory, she told lawyers for the RTC: “I was seeking public information as to who in the securities department would handle savings and loan inquiries.” She offered a somewhat more detailed version in a Jan. 13, 1996, interview with Scott Simon of National Public Radio:
“Well, my memory about that is that I called the office. I do not believe I ever talked with the commissioner. And the reason I called is that we didn’t know – namely, Mr. Massey and the law firm – who in the securities office was to handle this kind of work, because it was something new for Arkansas. Other states had done it, and the idea was to find out whether it was legal under state law. And the securities commissioner under Arkansas law at that time had responsibility for supervising savings and loans. But I never knew who that person was, and so I called to find out.”
Later in the interview, she added: “. . . perhaps in retrospect I would never have even picked up the phone to call and say, ‘Gee, who handles S&L matters in the securities commission?’ I didn’t think that was anything that was inappropriate, and then to tell Mr. Massey who he should call and who he should deal with.”
But in his testimony before the Senate Whitewater committee, Rose lawyer Richard Massey said that he already knew who to talk to in the state government. He said he knew it several days before Hillary Clinton made her call to Schaffer’s office. Madison officials had briefed him already, he said, and given him a memo stating that he should deal with Charles Handley, the assistant to Schaffer in charge of such questions. The memo was based on discussions with associates at Madison Bank & Trust, the other McDougal-affiliated financial institution, which had been making a similar effort to move into new financial realms to build capital. Michael Chertoff, the committee’s Republican counsel, questioned Massey further on the matter:
Chertoff: And you didn’t need Mrs. Clinton to call up Beverly Bassett, the commissioner of Arkansas securities, in order to get an address or the name of a person because you had prior, the bank had a prior course of dealing with Mr. Handley, correct?Massey: Sir, I don’t have an explanation for the call on the 29th. I don’t have a recollection of being involved in it and I can’t help you.
Chertoff: Did you ask Mrs. Clinton to call up the Arkansas securities department and say a letter’s coming over?
Massey: I don’t think so. It would, you know, it would be more likely for a partner to ask an associate to perform a task.
While Hillary Clinton said she could not remember whether she talked to the Arkansas securities commissioner or someone else in that office, Schaffer recalled the telephone conversation in some detail when she testified later before the Whitewater committee. She said Hillary Clinton asked in passing whom the law firm should work with in the department. But the essence of the call, as Schaffer remembered it, was more substantive: Hillary Clinton told her “that they had a proposal and what it was about.”
She added that the governor’s wife’s call had no influence on her eventual decision. Her assistant, Handley, wrote a memo detailing his opinion that the Madison proposal was too risky because of the thrift’s precarious financial condition. Schaffer disagreed and overruled him, saying that federal officials were encouraging savings and loans to undertake plans like Madison’s to improve their financial bases.
Why would Hillary Clinton remember asking who Madison should talk to, but not remember that she asked that question of Schaffer? And why would she forget what Schaffer testified was the major point of the call: a discussion of the substance of the Madison proposal? It could be that she was trying to avoid any appearance that she was misusing her position as the governor’s wife. The subject of the call to Schaffer arose during the 1992 presidential campaign, when the press was raising questions about conflicts of interest involving the Clintons. The Clinton team was beset by questions about the candidate’s sex life and draft history. Was Hillary Clinton trying to avoid opening up another set of damaging questions?
From the time of the original Whitewater stories in 1992 until her Rose Law Firm billing records were discovered in the White House residence last January, little was known about what legal work Hillary Clinton did for Madison Guaranty beyond the question involving preferred stock and the state securities commission. She characterized her representation overall as “very limited” and essentially supervisory. Associates or other attorneys, she said, attended to the details.
The billing records showed that she put in about 60 hours of work on the Madison account over a 15-month period. She billed Madison more than $6,000 at the firm’s top rate of $120 an hour. The first lady and her lawyers calculated her time on Madison as averaging about an hour a week and said that proved her contention that it was minimal. On the other hand, an hour a week on a project might be minimal for a low-level associate, but not necessarily for a partner.
And most of her work came in a concentrated period of those 15 months. What may be most significant about the billing records in any case was not the amount of time Hillary Clinton put into her Madison representation, but the nature of the work itself and when it took place. What was she actually doing during most of the hours she billed to the Madison account?
According to the billing records, most of Hillary Clinton’s hours on the Madison account involved not the securities issue but a development in the swampland south of Little Rock that James McDougal pursued during a period from the fall of 1985 to the summer of 1986. His associate in that effort was Seth Ward, a cantankerous, semiretired businessman, who worked as a consultant to McDougal and helped him purchase the property. Ward also was the father-in-law of Webster L. Hubbell, Hillary Clinton’s partner and friend at the Rose Law Firm. The land enterprise was on a 1,050-acre tract where McDougal envisioned developing a microbrewery and a trailer park, among other things. It was commonly known as Castle Grande.
Before the billing records were discovered, the first lady, when questioned by two separate federal agencies, said she was not involved in anything called Castle Grande.
“I don’t believe I knew anything about any of these real estate parcels and projects. . . . ” she said in an RTC interrogatory in May 1995 when asked about several of McDougal’s projects, including Castle Grande.
When the billing records revealed that she charged Madison for about 30 hours of time on work involving Ward and issues related to the development in a four-month period between late 1985 and early 1986, she and her lawyers attributed it to a semantic confusion. She knew the development as IDC, they said, because that is how it was referred to in internal Rose records and by other Rose lawyers.
IDC was the company that sold the property to Madison Financial, a development offshoot of Madison Guaranty. The only Castle Grande she knew was Castle Grande Estates, she said. Castle Grande Estates was one part of the larger proposed development, a trailer park, for which she did no work.
“Castle Grande was a trailer park on a piece of property that was about a thousand acres big. I never did work for Castle Grande,” she told Barbara Walters on ABC in a Jan. 12, 1996, interview. “And so when I was asked about it last year [in the May 1995 RTC interrogatory], I didn’t recognize it, I didn’t remember it. The billing records show I did not do work for Castle Grande. I did work for something called IDC, which was not related to Castle Grande.”
“Was that Seth Ward?” Walters asked.
Hillary Clinton: “And Seth Ward was involved in that on behalf . . . “Barbara Walters: “Separate deal?”
Hillary Clinton: “Separate deal completely. . . . “
When RTC lawyers interviewed the first lady a month later in the White House, on Feb. 14, 1996, they asked her to explain her response to Walters:
Q: Can you explain to me what you mean by IDC and Castle Grande are, in your mind, a separate deal completely?A: Well, my understanding is that the work for Madison concerned property that was referred to then at the time and continually by the Rose Firm as IDC or Industrial Development Corporation property. I know that work as IDC. That’s how it was billed. And I did not know that there was something called Castle Grande, to the best of my recollection, until it came to my attention through these investigations, the entire thousand acres that we referred to as IDC was being called Castle Grande . . .
“I was informed sometime within the last year or two that there was a trailer park on the IDC property called Castle Grande Estates. To the best of my recollection, that was the first I had ever heard of Castle Grande Estates.”
Yet there is evidence that the larger development was commonly referred to as Castle Grande. Minutes of a board meeting at which Madison officers discussed the purchase of the tract of land refer to it in its entirety as Castle Grande. H. Don Denton, a senior loan officer at Madison, said that within 30 days of the purchase, “it was known as Castle Grande by everyone that was involved in it.”
Castle Grande was part of the Arkansas lexicon during that era. McDougal’s first fraud trial was a news event in Little Rock in 1990. It drew the interest of Bill Clinton, who at one point conferred with McDougal’s lawyer about it. It likely would have attracted some measure of interest from Hillary Clinton, his former lawyer and partner in the Whitewater land deal. Articles in the Arkansas newspapers about that trial consistently referred to the entire property as Castle Grande.
Government officials also called it Castle Grande. For example, a Federal Home Loan Bank Board document prepared in 1986 began its overview with this sentence: “The Castle Grande project involves approximately 1,100 acres of land located about ten miles south of Little Rock, Arkansas.”
To support their argument that IDC and Castle Grande were separate entities, and that Hillary Clinton was not alone in knowing the property only as IDC, White House lawyers pointed to the testimony, among others, of Davis Fitzhugh, an official of Madison Guaranty.
Fitzhugh told the Senate committee that “to my mind, Castle Grande was a separate segment within the entire IDC purchase. . . . ” When asked whether people at the savings and loan referred to the entire property as Castle Grande, he responded, “That, I don’t know.” The power of that testimony was diminished when Chertoff, the majority counsel, produced a check paid to Fitzhugh as his commission for a transaction on the property. On the check is the notation: “sale of building C, Castle Grande.”
It is possible that Hillary Clinton called it IDC, vaguely knew that others called it Castle Grande, but chose in her legalistic responses to differentiate between the two. But what would be her motivation? Why not say she knew what Castle Grande was if she did know?
Castle Grande was a possible source of embarrassment for Hillary Clinton more serious than anything she did on the Madison securities issue, and perhaps more than anything else connected to the larger Whitewater affair. It has now been established that real fraud was committed here. Transactions related to Castle Grande were at the heart of McDougal’s first trial in 1990, at which he was tried and acquitted on fraud charges.
What bank examiners call the “sham transactions” at Castle Grande – intended to artificially boost the profits at McDougal’s ailing thrift and allowing insiders to rake off huge commissions – were a major part of the federal criminal case that led to last week’s convictions on fraud charges of the McDougals and Arkansas Gov. Jim Guy Tucker.
In a sense, it was Castle Grande that is the connection between Hillary Clinton and the national savings and loan scandal that ultimately cost American taxpayers billions of dollars.
Hillary Clinton has not been accused of wrongdoing in connection with Castle Grande and was not implicated in the trial. Her name was barely mentioned, coming up only when McDougal was asked about how the Rose Law Firm was retained. Lawyers often work legitimately on the edge of transactions that later prove to be questionable. But for the first lady of Arkansas, who would become the first lady of the United States, the expectations were different.
She had been heralded as one of the top 100 lawyers in America by a legal magazine. She was known for her public interest work on behalf of children and education. For her to be associated in any way with a questionable real estate deal that contributed to the failure of an S&L would fly in the face of her public reputation.
BREWERS AND SEWERS
By whatever name, Castle Grande or IDC, what did Hillary Clinton actually do in the 30 hours of work the billing records show she did for Madison in connection with the property? Here, her answers have differed, becoming more or less precise depending on the venue.
Among the issues that Rose Law Firm lawyers dealt with concerning the property was whether Madison could sell water and sewer service to nearby properties and whether it could build a microbrewery there with a tasting room. One unresolved issue was whether the original township in which the land was situated was dry, making it illegal for alcoholic beverages to be sold there.
During an interview with the Federal Deposit Insurance Corp.’s inspector general’s office at the White House on Nov. 10, 1994, the first lady, according to an official record of the interview, “was asked about the Castle Grande sewer project and indicated she was familiar with the name but had no other knowledge of the matter.”
Also during that interview she was asked about a Jan. 23, 1986, memo to her from another Rose attorney, Rick Donovan, “re Madison Guaranty and IDC” and the microbrewery project. The inspector general’s report noted: “She recalled the issue pertained to researching township and the topic of wet/dry licensing approval for alcohol consumption. She stated this matter was handled by Rick Donovan.”
After the billing records came out in January, Hillary Clinton told RTC lawyers and others something that seemed to contradict her earlier statements. She said that most of the hours she charged to Madison during that 1985-86 period were in fact for work she did on the sewer project and the microbrewery. She explained her apparently conflicting statements about the sewer project by again citing semantic confusion. Her questioners at the FDIC had called it Castle Grande, a name with which she said she was unfamiliar.
But how could she explain her answer concerning the microbrewery? In that case, the questioners used the precise term with which she claimed to be familiar: IDC.
In characterizing her work for Madison as minimal, Hillary Clinton had often said that she did no “day-to-day” work in representing the thrift. Yet when RTC lawyers asked her why the billing records show she added 14.5 hours of billing time to the Madison account during a short period in January 1986, she said that it was because she did some detailed research on the microbrewery issue instead of delegating it to Donovan.
“Well, if you go back and look at the time records,” she said, “I have an entry showing that I was the first one to search for a map, that I made a call to the Election Commission. . . . In the midst of this period, there’s a handwritten memo where I had a meeting about the dissolved township theory that would have allowed the sale of beer on the property].” All of this, she said, showed that her representation during that period “entailed my involvement in a much more direct way.”
Here Hillary Clinton seems to present two contradictions. She said, at first, that she did not know about the microbrewery and the sewers, then said she did. At first she said that she did not do day-to-day work for Madison, then later she said she was directly involved in mundane tasks like finding maps. The change in her version has not been explained. The 14.5 hours of work recorded in January 1986 were added to the billing records manually and, unlike the rest of her billings, came with no notation of what they were for.
The legality of some other transactions related to Castle Grande was later called into question by federal investigators. In its final report on the Rose Law Firm, the RTC said the 14.5 hours on Hillary Clinton’s time sheet “must apparently remain somewhat of a mystery, but there is no persuasive reason not to credit Mrs. Clinton’s explanation.”
DEALING WITH SETH WARD
In the middle of the action at Castle Grande was Seth Ward, the Little Rock businessman and in-law of Webster Hubbell who had been retained by James McDougal for $25,000 a year plus commissions to assist with the enterprise. Ward, the government has said, was used by McDougal to buy or sell parcels of Castle Grande property at grossly inflated rates. The sales allowed Ward and others to collect hefty commissions that were later questioned by regulators. Federal investigators later characterized him as McDougal’s “straw” man. He was also involved in pushing the microbrewery and water and sewer ideas. What was Hillary Clinton’s relationship with Ward?
When the first lady was first asked to explain her relationship with Ward during her interview with the FDIC inspector general’s office in November 1994, more than a year before the billing records were found, Hillary Clinton omitted saying in her answer that she had worked with him on IDC or Castle Grande. She knew Ward professionally: she had worked with him for years when he was on the Little Rock Airport Commission and she was the commission’s attorney. But she did not say that.
“Regarding Webster Hubbell and the Ward family, Mrs. Clinton said she knew Seth Ward as Mrs. Susie Hubbell’s father,” the report of her FDIC interview stated. The report added that Hillary Clinton said she knew vaguely about some of Ward’s business and legal relationships with her colleague Hubbell, but she did not mention her own legal relationship with him and specifically denied knowing anything about Castle Grande.
When the RTC issued its first report on its investigation of the Rose Law Firm on Dec. 28, 1995 – just a week before the billing records were revealed at the White House – it said that “little was known” about what the firm did for Madison after the IDC or Castle Grande property was purchased. After examining the billing records and interviewing Hillary Clinton again, the RTC said in a revised report: “The new evidence illuminates this period to a considerable extent, revealing that the firm in general and Mrs. Clinton in particular had far more contact with Ward than was previously known.”
In fact, the billing records disclosed that among the 60 hours of work that Hillary Clinton billed Madison were 14 meetings or telephone conversations she had with Ward in late 1985 and early 1986 concerning the IDC or Castle Grande property. Far from her earlier glancing description of Ward as “Susie Hubbell’s father,” the first lady described him in the later interview in unforgettable terms.
She told the RTC investigators: “I would say he was a persistent, demanding client, someone who pushed very hard for lawyers to respond to him, to get his work done, and by this, I mean anything he was involved in, whether it was for Little Rock Airport or for Madison, someone who wasn’t at all shy about showing up at your office unannounced and demanding that you give him the time he wanted right then, no matter what else you were involved in. So he was a client who really required attention whenever he showed up, and that was not infrequently.”
The billing records, the first lady said in the RTC interview, “certainly . . . [showed] there was a period of time when I had . . . intense contact with Mr. Ward on some matters.”
It was Ward, she now said, who was the person she dealt with in all of her IDC or Castle Grande activities. “He was the person I dealt with on the brewery issue. He was the person that we dealt with on the utility issue. He was Madison as far as I was concerned.”
In all her dealings with Ward during that period, Hillary Clinton said, she did not know that McDougal might have been using him to circumvent the law. As federal bank examiners later described it, Ward was used as a “straw” buyer to hold property in his own name for Madison because the thrift, as a regulated institution, faced restrictions on the amount of property it could own directly. She was unaware of this, Hillary Clinton said, because her work dealt with the sewer and microbrewery questions. Through all the investigations of these transactions, Ward has never been charged with any wrongdoing.
The billing records showed her involvement extended beyond those issues. On May 1, 1986, she had a two-hour conference with Ward at which she drafted an option agreement for him to sell back to Madison a 22-acre parcel on the IDC or Castle Grande property. The option gave Ward the right to sell the land back to Madison for $400,000. The RTC later said the land was worth about one-eighth of that amount: $47,000. A Madison official later testified that the option, though never exercised, was designed so that Ward would receive a sales commission at a time the failing thrift was short of cash and could not pay him directly.
When asked by the RTC about the May 1 option, Hillary Clinton said she had “no recollection of doing this,” but acknowledged that records indicated she did. The RTC concluded in its final report on Rose that “Mrs. Clinton prepared this option in two hours and probably without much discussion as to its purpose.”
Looking at the Records
The billing records also showed that she spent nearly an hour with Ward on Feb. 28, 1986. It was on that day when one of the biggest and most legally problematic deals transpired involving Castle Grande. In a complicated maneuver that day, Jim Guy Tucker, the future governor who was then practicing law, bought the sewer system from Ward for $1.2 million, fully financed by a Madison loan and $150,000 from David Hale of Capital Management Services Inc. At the same time, Hale netted $500,000 from a Madison loan, which he used to leverage $1.5 million from the Small Business Administration. Of that, he then loaned $300,000 to Susan McDougal. Everyone involved benefited from these loan swaps.
That intricate transaction was an important part of the trial that ended last week in the convictions of Tucker and the McDougals. Hale testified that his loan to Susan McDougal came only after Bill Clinton asked him to make it during a meeting at McDougal’s Castle Grande sales trailer. Clinton has denied the allegation, and repeated his denial under oath during videotaped testimony at the White House that was shown later at the trial.
There is one other tangential connection between that trial and the Clintons. Some of the money from the loan swaps – $50,000 – ended up in the Whitewater Development account jointly held by the Clintons and McDougals. Documents do not show Rose lawyers involved in any of the transactions. The RTC concluded that McDougal and his business pals put the deals together on their own and that there was no larger conspiracy involving the law firm.
When Hillary Clinton was asked what she was doing with Ward during their Feb. 28, 1986, meeting, she told RTC lawyers: “I do not recall what I did on that day.” She said she did not know that the utility was sold that day. To the best of her recollection, she said, her discussion with Ward would have involved her research on the sewer issue. In its final report, the RTC said “there is no persuasive reason not to credit Mrs. Clinton’s answer.”
Why was Hillary Clinton not more forthcoming about her work with Ward from the beginning? Whatever the reason, Ward was her strongest connection to Castle Grande, the enterprise that had the most potential to embarrass her.
Fifteen months after Hillary Clinton paid her first visit to James McDougal to secure Madison Guaranty’s business with the $2,000-a-month retainer, she wrote – and had hand-delivered to McDougal – a letter declaring that the Rose Law Firm was dropping him as a client as of July 14, 1986. Her explanation of how and why this happened was that it was simply a business decision.
The firm wanted to minimize its representation of banks and thrifts so that it could take on a new enterprise: representing the federal government in cases arising out of failed financial institutions.
RTC lawyers concluded that this explanation was reasonable. Yet the Whitewater records show a series of events leading up to that letter that suggest another possible reason for the decision.
Jim McDougal’s savings and loan, Madison Guaranty, had been closely supervised by federal regulators since 1984, when it showed the first signs of failing. In March 1986, the Federal Home Loan Bank Board began an examination of Madison and its vast array of shaky investments, including the Castle Grande project. Three months later, on June 19, federal examiners wrote to Madison’s board of directors notifying them that their thrift was violating its supervisory agreement by not complying with minimum net worth requirements; in other words, it was making deals without the financial resources to back them up.
The federal regulators ordered the thrift to take a series of actions, including stopping all direct investments. The directors were also summoned to Dallas for a meeting at the FHLBB regional office. A copy of the letter was sent to Beverly Bassett Schaffer, the state securities commissioner.
On July 2, she sent a copy of the federal letter to Sam Bratton, an aide to Gov. Clinton who oversaw regulatory issues. It read: “Sam – Madison Guaranty is in pretty serious trouble. Because of Bill’s relationship w/ McDougal, we probably ought to talk about it. The meeting referred to in the attached letter has been moved up to July 11, 1986, and the FHLBB has asked me to be at the meeting. Please note that while all of the FHLBB restrictions in the letter are serious, # 5 and 6 effectively put Madison out of business. Thank you for your support. BB.”
Over at the Rose Law Firm eight days later, on July 10, Herb Rule, a partner, wrote a memo to all staff lawyers reporting that federal savings and loan regulators were about to require law firms that had been retained to recover losses from failing thrifts to stop representing any banks or savings and loans.
On July 14, in the governor’s office at the state capitol, Betsey Wright, Clinton’s chief of staff, who had been informed of the note that Schaffer sent to Bratton, dispatched a memo to Clinton. It said: “Whitewater stock, McDougal’s company, do you still have? Pursuant to Jim’s current problems, if so I’m worried about it.”
Clinton sent the memo back to Wright with his handwritten response: “No, don’t have any more. B.” The reference was to the Whitewater partnership between the McDougals and the Clintons. Contrary to Clinton’s answer, the Clintons were in fact still in the partnership.
That is the same day Hillary Clinton sent the hand-delivered letter over to McDougal severing Rose’s relationship with him and returning an unearned retainer check for $4,622.53. Did her swift action have anything to do with the possible public embarrassment she and her husband might suffer because of their financial and legal connections to McDougal, who according to federal examiners was running his thrift like a private piggy bank?
Along with everything else, Clinton was in the middle of a nasty reelection campaign in which his primary opponent, former governor Orval Faubus, and his likely Republican opponent, Frank White (who had defeated him six years earlier), were both pounding him for possible conflicts of interest involving his wife’s law firm’s business with the state.
Hillary Clinton told the RTC lawyers that she knew nothing about the FHLBB meeting in Dallas with the board of directors. She said she knew nothing about the restrictions placed on Madison. She said her husband did not talk to her about the letter from Schaffer to Bratton or the note from Wright to him.
Q: As of July 14, 1986, had you learned from any source, including your husband, that the federal regulators were about to take action or contemplating action with respect to Madison Guaranty or McDougal?A: I do not recall learning that from any source.
Q: Were you aware that an examination of Madison Financial was underway and had been underway for some months?
A: I do not recall knowing that.
It is possible that Hillary Clinton did not know about any of these connected events at the time. But given that she was her husband’s closest political adviser, more astute financially than he was, more active in their Whitewater deal with McDougal, and one of Madison’s lawyers, why would she not pick up on all the regulatory warnings sent to Clinton at the governor’s office?
It is possible that Clinton did not tell her because he paid no attention to the Whitewater investment, truly thought they were no longer involved in it, and saw no reason to tell his wife. If, on the other hand, she was informed of what was going on, why would she not acknowledge the regulatory warnings years later? Embarrassment is one answer – embarrassment for being associated with McDougal and for getting inside information through her connections with state officials, especially her husband.
An addendum to this part of the story: In July 1988, two years after cutting off her legal representation of McDougal, Seth Ward and Madison, Hillary Clinton received an internal Rose memo stating that the firm was undertaking a thorough housecleaning and getting rid of old files that took up needed storage space. In response, she authorized the destruction of some of her Madison files, including one concerning the “Ward Option” on the parcel at Castle Grande. She said later that the tossing of those Madison papers was a meaningless act, just routine housecleaning. The RTC study of the Rose Law Firm said there did not seem to be any more to it than that, adding: “The worst that might be said is that Mrs. Clinton should have checked with her client before discarding files that belonged to it.”
Lawyers normally try to protect themselves by retaining records in disputed matters, especially matters involving potential litigation. If, as she has maintained, and as the RTC report concluded, her involvement in the May 1 option was minimal, then it is possible that she thought these files were harmless and unneeded.
There is another context to consider, however. The files were destroyed at a time when federal regulators were poring through Madison’s financial history in the preliminary stages of an investigation that led to McDougal’s indictment on fraud charges. It was also a time when Ward, after a falling out with Madison over the payment of commissions, was taking his dispute to court in a civil suit.
There was a chance that Hillary Clinton’s work for Ward could have been revealed in that case. She said she did not know about the Ward lawsuit, which when it went to trial drew wide attention in Little Rock’s legal community.
THE BILLING RECORDS
The first lady has said she never tried to hide her Rose Law Firm billing records and that they exonerated her once they were found after a mysterious two-year disappearance. Whitewater investigators in Congress and in the independent counsel’s office regard the billing records differently. They have used them as a field map in exploring the ancient ground of Castle Grande. Did Hillary Clinton see the records back in 1992 when questions were first raised about her legal work? If she did, why did she not release them to the public then – before they were missing – or at least summarize them in discussions with the press? Has she truly been committed to full disclosure? What role did she play, if any, in their disappearance and rediscovery?
During a Jan. 15, 1996, interview on Diane Rehm’s talk show on WAMU-FM radio in Washington, the first lady was asked a typical question about the extent to which she had fully disclosed all pertinent information on Whitewater. Her answer revealed an apparent contradiction in her overall handling of inquiries into her past conduct.
Rehm: In the last few days, it’s been reported a number of times that early on in the administration, David Gergen, adviser to President Clinton, advised you both to go to The Washington Post, lay out all the documents and just put it all out on the table. Number one, did he advise you that? And number two, do you now think maybe that would have been a good idea?Hillary Clinton: Yes, David did, and I certainly understand why he gave us that advice and I have a very high regard for him. David was not with us in the ’92 campaign. We actually did that with the New York Times. We took every document we had, which again I have to say were not many. We laid them all out, but the New York Times was getting many documents; they were getting many stories. They were getting, you know, accusations from other people. So when they would ask us a follow-up question, we’d have to say, we don’t know anything about that, and then they would say, well, then, maybe you can’t answer our question.
The impression Hillary Clinton conveyed with that answer was that from the very beginning she was eager and willing to respond to questions and to provide every possibly relevant document to the press, but that she quickly came to realize it was an impossible task to satisfy her questioners, a frustration that she appears to have felt many outsiders, and even some close advisers such as Gergen, did not fully understand. That is why inside the White House she opposed Gergen’s recommendation to put everything on the table for the press to examine.
But her answer to Rehm was inaccurate. The Clintons had not, as she had claimed, taken “every document” they had and “laid them all out” when questions first arose about Whitewater. Five days after the Rehm interview, the White House issued a clarification which said the first lady “mistakenly suggested that the New York Times was provided access to all of the Whitewater-related documents in the possession of the 1992 campaign.” According to the statement, Hillary Clinton “believed that the campaign had turned over all the documents in its possession” but had since learned that some records were withheld.
Among the documents that could have been, but were not, made public in that initial 1992 press inquiry, or at least characterized, were the billing records detailing the amount of work Hillary Clinton had done for McDougal and Madison Guaranty. Those billing records were subpoenaed later by federal investigators and seemed to be missing until they happened to show up one day in 1995 in a reading room on the third floor of the White House residence. But they were not missing years earlier when the first questions about them were being asked.
On Feb. 12, 1992, at a time when Bill Clinton was in New Hampshire, struggling to save his nascent campaign for the Democratic presidential nomination, besieged by questions about his marital infidelity and avoidance of the draft, the billing records were printed out at the Rose Law Firm in Little Rock. Hillary Clinton’s two closest associates at the firm, Webster Hubbell and Vincent Foster, were assigned to examine them to see what they revealed about her work.
In testimony later before the Senate Whitewater committee, Hubbell said: “I recall in 1992 that the issue regarding our representation of Madison, and specifically our work before the Arkansas Securities Department, was of interest to Mr. [Jeff] Gerth of the New York Times, and that our firm was being questioned by people within the campaign about her work in that regard. We did some work, and tried to organize and pull up the files, and in connection with that bills were pulled and reviewed by myself and Mr. Foster.”
Among the markings on the billing records, Hubbell testified, was a red-pen notation made in Foster’s handwriting that read “HRC – this suggests first matter.” HRC are Hillary Rodham Clinton’s commonly used initials. The notation was on a page where the bills showed she first called the Arkansas Securities Commission. Asked whether Foster’s notation was meant for someone else, Hubbell testified: “I really don’t know. I mean, I would hate to guess. It looks like it’s directed to Mrs. Clinton, but I do not know; probably somebody in the campaign.”
Did Foster show Hillary Clinton the billing records during the 1992 campaign? David Kendall, the first lady’s personal lawyer on Whitewater issues, said in January 1996: “She recalls discussing this legal work in the spring of 1992 with Mr. Foster and Mr. Hubbell as she sought accurately to answer press questions during the presidential campaign about the Madison Guaranty work. It is possible they showed her the billing records then, but she does not recall.”
If Hillary Clinton knew about the billing records then, she chose not to release them or refer to them in her 1992 responses. The Washington Post was also making repeated requests to the campaign during that period for any documents showing the extent of her legal work for McDougal and Madison.
One year into the Clinton presidency, there was renewed interest in the billing records. This time it was from federal investigators. In December 1993, one month before the appointment of an independent counsel on Whitewater, Justice Department investigators sought the billing records. They were among the first documents subpoenaed in early 1994 by Robert B. Fiske Jr., the original special counsel.
The Rose Law Firm could not provide them, nor could the White House. Rose officials said they were missing. For two years, Fiske and then his replacement, Kenneth Starr, tried to get them, as did the RTC and the Senate Whitewater committee. Where were they? Who had them?
One day in late July or early August 1995, Carolyn Huber was in the reading room on the third floor of the White House residence, an area she often trolled for letters, newspapers and magazine clippings that needed to be filed. Huber was a longtime friend and trusted helper of the Clintons. She had been the office manager at the Rose Law Firm for 12 years. When the Clintons reached the White House, she came along to handle personal correspondence and other private matters for them.
On that summer day, she found a sheaf of records lying on a table in the middle of the book room – 116 pages of records. She said later that these had the appearance of law firm records. But it did not connect that these might be the long-sought Rose billing records of Hillary Clinton. She has said that she put them in a box with some “knickknacks,” took the box back to her office and stuck it under a table.
What were the billing records doing up in the book room that summer day, folded and resting on a table? Were they being studied by someone who put them down for a moment? That was the primary question Starr wanted to ask the first lady when she appeared before the Whitewater federal grand jury in Washington last January. Her response to Starr’s inquiry is secret, but she has said many times in public that she did not know where the records were during the two years they were missing and had no idea how they got to the reading room. The context again raises questions.
During that first week of August last year, the RTC’s inspector general issued a report revealing for the first time that Rose Law Firm did legal work for Madison on the Castle Grande enterprise and that Hillary Clinton apparently was one of 11 Rose lawyers who worked on the case. This report would likely have provoked curiosity among people involved in Rose and Castle Grande, including the first lady and Webster Hubbell.
What could satisfy that curiosity more than the billing records? Was it simply coincidence that they appeared in the reading room right then? Hubbell was still in Washington, but on his way out. He had been tried and convicted on fraud charges related to his practice of double billing Rose Law Firm clients. One week later he would be heading off to prison.
It was also during that period in early August, shortly after the RTC inspector general’s report came out, that David Kendall, Hillary Clinton’s lawyer, invited Little Rock lawyer Alston Jennings to visit her at the White House. Jennings was Seth Ward’s lawyer, the one who represented him in his civil suit against Madison Guaranty after the falling out involving Castle Grande commissions.
What did Jennings, the first lady and her lawyer talk about? When reports of the meeting surfaced months later, Jennings said Ward’s name never came up in his conversation with Hillary Clinton, and that they discussed what Jennings might say to writers who were doing stories about the first lady’s legal skills when she practiced in Little Rock. Kendall, in the words of White House associate counsel Mark Fabiani, “has not provided an explanation for the meeting.”
But the rediscovery of the billing records was not public knowledge that August. Huber packed them up and forgot about them, she said later, until Jan. 4, 1996, when she was moving things around in her East Wing office and came across the knickknack box and there they were. This time she realized their importance. She called her own attorney and Kendall, not Hillary Clinton. She was, according to Kendall and Jane Sherburne, a White House lawyer who was also present, shaken and distraught after finding the records.
“Mrs. Huber said to me that she was really upset and she didn’t know if she had done the right thing” by turning the records over to the lawyers, Sherburne later testified. When Sherburne asked her what she meant, Huber replied: “I didn’t know what to do when I found those today and maybe I should have just thrown them out.” Sherburne assured her that she “did the right thing.”
Kendall and Sherburne made copies of the billing records, announced to the press that they had been rediscovered, and turned them over to the independent counsel’s office. Kendall said the question of how the records turned up in the White House book room was likely never to be answered. He called it “another of the meaningless mysteries of Whitewater.”
And the first lady, who had chosen not to release or summarize the billing records back in 1992 when they were readily available, now reacted as though she wished they could have been made public from the start.
“I was delighted when these documents showed up. I want everybody to know everything because frankly there’s a lot about this I don’t remember. It happened 10, 11 years ago. I’ve done the best I can,” she told Diane Rehm in the Jan. 15 interview.
“There would be no reason for anyone I know, including myself, not to have wanted them to come out years ago,” she told interviewer Harry Smith on the CBS Morning News on Jan. 19, adding: “Why on earth would I not want them out? I would have published them in the paper if I’d known.”
Why, if Hillary Clinton saw the records in 1992, as appears likely, would her position on their release change so clearly from then to this year? In 1992, publication of the records would have raised questions that might have sunk her husband’s nascent presidential campaign. Some of his political advisers later acknowledged that a third area of controversy – involving money, following earlier ones about sex and war – would have proved fatal. It is the peculiar fate of the Clintons and Whitewater that the controversy has been around for two presidential election cycles. By 1996, the safer course for the White House became a posture of full disclosure.
How a public figure reacts to a controversy can be as important as what happened in the first place. Hillary Clinton certainly understands this truism of modern American politics. In her first job out of Yale Law School in 1974, she worked on Capitol Hill as a junior lawyer for the House Judiciary Committee’s impeachment inquiry staff, where she examined the inner workings of the Nixon White House during the Watergate coverup.
From the beginning of the Whitewater controversy, Hillary Clinton has maintained a public posture seemingly at odds with her actions. She was reluctant to release records during the 1992 campaign. She fought David Gergen’s recommendation to turn over all the records in 1993. She led White House opposition to the appointment of a special counsel in early 1994.
There appears to be a four-year pattern of Hillary Clinton avoiding full disclosure, occasionally forgetting places and events that might embarrass her, and revising her story as documents emerge and the knowledge of her questioners deepens. This article examined only one of several areas where her answers could be analyzed. Similar studies could be done in other areas, including the original Whitewater investment itself and the extent to which the Clintons were equal yet passive partners with the McDougals, as they have maintained. Another area that Whitewater investigators are probing concerns Hillary Clinton’s role in the White House travel office controversy.
Does it add up to anything? Is it just a series of unfortunate coincidences that make things seem suspicious, a string of meaningless mysteries, as her lawyer said? Perhaps her favorite children’s verse truly fits and a great big ugly man did come up and tie a horse to her. McDougal was the proverbial ugly man and the horse was everything she got involved in through her connection to him. What she did in Arkansas did not live up to her own ideal as an earnest Methodist doing “all the good you can, by all the means you can,” nor did it match her public image as one of the nation’s leading lawyers. In answering questions later about her Arkansas past, she was placed in the position of denying part of her essential self. Since her days at Yale Law School when her brain power and savvy carried her to the finals of the moot court contest, she had always had the edge of a Chicago lawyer: sharp, aware, keenly attentive to detail, on top of things. Now her answers made her seem detached if not forgetful.
Why? She was walking around tied to a horse, it seems, and did not want the world to see it.
White House Lawyers Take Exception to Points of Article
This report is based on an examination of statements Hillary Rodham Clinton has made on Whitewater-related events. Over the past four years, she has responded to a variety of questioners: the Resolution Trust Corp., the Federal Deposit Insurance Corp., the General Accounting Office, two independent counsels, a grand jury and the national press corps. Most of what she has said is public: There are thick transcripts recounting her interviews, depositions and interrogatories. The exceptions are her testimony to the Whitewater grand jury, which is secret, and her depositions taken at the White House by the independent counsel, only one small section of which was released.
Testimony from scores of witnesses who appeared before the Senate Whitewater committee or who were interviewed by the federal agencies investigating aspects of Whitewater was also examined for this article.
Two lawyers on the White House staff who have been assigned to handle Whitewater-related matters, Jane Sherburne, special counsel to the president, and Mark Fabiani, associate special counsel to the president, were informed about the scope of the article and asked to offer responses to each of its eight main sections. David Kendall, the Clintons’ personal lawyer, was present for part of the meeting.
Fabiani and Sherburne dismissed the main points of the article as trivial and disputable and accused The Post of following a partisan Republican agenda. “Let’s take everything the first lady said about 10-year-old events, and let’s compare them and find discrepancies. That’s the [Republican] game,” Fabiani said. “This story is part of that game. Under each of these issues there is nothing wrong.”
Read’em and Weep
BUY NOW AND CRY LATER
Step right up, folks. Hurry, hurry. Get some land and build your dream house for those declining years: golf in your backyard, tennis two blocks away, water all around, and fish—suckers—everywhere
The case of Mrs. Gomer Jones, widow of the Oklahoma athletic director and football coach, is simple and instructive for potential buyers of vacation homesites. When Mrs. Jones went to see the New Mexico lots that her husband had bought for retirement, she broke down and cried and subsequently gave her lots away.
There are an estimated 10,000 developers in the vacation home business in the U.S. Some have projects that are well conceived both financially and environmentally. But unfortunately, there are too many projects that are bad on either one count or the other or both. Indeed, the vacation home business, especially undeveloped lot sales, is rife with deceptive practices, and state and federal agencies have their hands full running down complaints from the victimized. There is so much fraud rampant that Vince Conboy, a real estate broker in Naples, Fla. and a crusader against the bunco artists roaming his state, says, “It’s the single biggest swindle in the country.”
George K. Bernstein, who recently took over and shook up the Office of Interstate Land Sales Registration in the U.S. Department of Housing and Urban Development, says of the industry, “Though there are many reputable developers who have every intention of performing their promises, there are those who are not reputable. We are dealing with salesmen—across the board, even among the reputable companies—who promise you the world and who are working on a commission, and thus have an incentive to sell and lie through their teeth.”
For all the warnings by responsible public officials, it is almost impossible for any American with a postal address or a telephone to escape the hard-sell salesmen. Slick brochures bursting with color photographs of the great outdoors pour through the mail, and the phone rings with unsolicited calls about your chance for a second home in the wilderness—that retreat by the lake, your own beach on the sea. There are all sorts of come-ons, ranging from free plastic dishes to a free dinner at a local restaurant. The gullible who accept are met by an army of salesmen who wear bell-bottom trousers and have more teeth than Bert Parks. They pin a card on your lapel proclaiming you “Mr. V.I.P.,” and within two minutes they are calling you by your first name. The pitch varies, but essentially it has the same opener. After dinner a movie is shown about the paradise you can buy. Both the film and the salesmen emphasize that Sleazy Acres is “totally planned,” down to the new lake stuffed with bass built along the lines of Chicago aldermen. If the project is in Florida, anywhere in Florida, it is always “near Disney World.” Wherever the locale, there almost always are swimming, water skiing (and maybe skiing, too), sauna baths, a yacht club, horseback riding, sailing, golf and, if you’re lucky, a kiddie zoo! You can’t miss. The salesmen have an assortment of lines. “Why I’m buying here myself just as an investment.” “Sail into coves no one else knows about.” “Go out in the early morning, breathe deeply and catch a whiff of the American dream.” In too many cases the dream turns out to be a nightmare. That desert “ranchette” turns out to be a quarter-acre lot miles from nowhere, and the water only 800 feet away is just that, straight down. The southern hideaway is just that, too; many buyers can never find theirs behind the stands of swamp grass. Resale value is often nil. But then again, you have to have vision, as the salesman says.
Whenever a land-development scheme is announced, conservationists are usually the first to protest. Aside from any rip-off of the public—and there may be none at all involved—a development might not only put a stress on the environment but become a tax burden. Last year the Northern Environmental Council in Duluth, which takes in a host of organizations from Michigan to the Dakotas, issued a paper noting that “Local and county zoning regulations have, with very few exceptions, shown themselves to be almost useless when dealing with large-scale developments. These mass recreational promotions suddenly create vast new urban communities without adequate local government or public services.” As the study points out, the promoter departs when the lots are sold, and “Left behind is usually a weak landowners association and the same rural township government to deal with mounting demands imposed by hundreds of new homeowners who expect road maintenance, sanitary-waste disposal, fire and police protection, lake and (often) dam management and miscellaneous public services including schools for those who become permanent residents. In fact, a whole new urban community arises overnight, too large and complex for the capabilities of local governments to deal with.”
When the NOREC made a study of a shore development on Lake Superior in Minnesota it reported that 40% of the shore surveyed was “unsuitable for soil absorption sewage disposal systems because the soil is too heavy or underlain with rock to permit percolation. And an additional 27% of Minnesota shoreline…is so permeable that it permits too rapid a percolation rate for complete neutralization of sewage contaminants before reaching the lake water.” In Wisconsin, Senator Gaylord Nelson warned, “With vast areas of the state still un-zoned, and weak controls on the massive new leisure living developments now being planned throughout the state, we are about as well equipped to deal with the recreation revolution as someone planning to shoot spitballs at a tornado. If we don’t act decisively now, in a decade the once pristine environment of northern Wisconsin will be turned into a recreation slum….”
Senator Nelson is working on an amendment to Senator Henry Jackson’s federal land use bill that would make developers prove that their projects are environmentally justified, but the fact is that even where there are laws some developers will do their best to bend them. In New York, for example, it is not just a matter of legislative statute but an actual state constitutional amendment that forest preserve lands in the Catskills and Adirondacks must remain “forever wild.” This constitutional amendment, adopted in 1894 after destructive logging of lands owned by the state since colonial days, has been upheld time after time by the voters. Even so, battles crop up, and there are several fights going on now. In the Catskills, John H. Adams, a former assistant U. S. attorney who is now the executive director of the Natural Resources Defense Council, has personally filed suit, along with Friends of the Earth, the Atlantic chapter of the Sierra Club and the Theodore Gordon Flyfishers, against Rockland Town authorities to prevent Mr. and Mrs. Fred Haas from developing Edgewood Lakes, Inc., a 400-acre property divided into half-acre vacation lots. Adams alleges that the town unlawfully amended zoning to allow the subdivision and, moreover, he charged that sewage from the development would pollute Waneta Lake and the Beaver Kill, which are designated as forever wild areas under the state constitution. The Haases filed a counterclaim against Adams alleging that he was indulging in malicious prosecution and had prompted newspaper articles to appear that caused them financial harm. Decisions in the case may be a year off, but the New York State Department of Environmental Conservation has ruled, as the result of a hearing requested by petition, that although it is not opposed to the project, no sewage effluent could be placed either in Waneta Lake or the Beaver Kill.
In the Adirondacks, the largest wilderness area east of the Mississippi, conservationists have been contesting two proposed mammoth developments. The first of these, dubbed “Ton-Da-Lay” by promoter Louis Papparazzo, would house 20,000 people on 18,500 acres near Tupper Lake. The second, as yet unnamed by the Horizon Corporation, is supposed to be set on 24,000 acres in the northern section of the mountains. Now, however, both projects may come to naught, at least as envisioned in the eyes of the developers. Following the recommendations of the Adirondack Park Agency, the state legislature last May passed a bill imposing strict rules on development of privately owned land, so strict in fact that one conservationist says, “Massive second-home developments in the Adirondacks will be a thing of the past.”
In part, the Horizon Corporation’s announcement of its purchase of land in the Adirondacks prompted the legislative action. In an open letter to New York newspaper editors and state officials, Harvey Mudd II, director of the Central Clearing House, a conservation group in Santa Fe, N.Mex., wrote in June 1972, “The people of New York will get no ‘bargain’ if the Horizon Corporation is allowed to develop the 24 thousand acre property in the Adirondack State Park…. Horizon Corporation controls nearly a quarter of a million acres of land in New Mexico in or near two gigantic parcels known as Paradise Hills and the Rio Communities (Rio del Oro, Rio Grande Estates, Rancho Rio Grande). Their massive sales organization in New York State sells these ‘sure fire investments’ to thousands of New Yorkers every year who are led to believe that they are buying a lot on the edge of a verdant golf course, when in fact they are getting a piece of worthless desert half a dozen miles from the nearest utility tie-up or community services.
“Horizon Corporation sends many thousands of letters urging people to invest successfully in real estate. Horizon Corporation itself is the successful investor. They purchase large tracts of land in New Mexico, the price often under $200 an acre, cover the land with lot grids and sell it to the gullible in small size lots at prices that usually exceed $4,000 an acre…. The real estate section of the Albuquerque Journal is full of Horizon Corporation resales, which are well under the original price paid. The market is glutted with second-sale subdivision lots, and the company is certainly making no repurchases itself.
“…Horizon’s largest holding in New Mexico exceeds 145 thousand acres. As of July 16, 1971 (when the latest Property Report was filed), only 154 homes had been built. In this operation, core unit development, a few houses, a golf course, and a sales office is used as the bait to sell the remote desert land.”
In New Mexico, a Nirvana for big-city dwellers, more than one million acres have been scissored into small lots on paper. This land, if built upon, could accommodate more than eight million people, eight times the present state population. New Mexico’s landscape is now ticktacked with roads bulldozed out of the desert (state law requires developers to provide access to lots), and the dust they raise contributes to air and stream pollution. In essence most of the parcels are ghost lots, peddled to people far away. Often the sales theme is investment. Horizon has advertised, “You can make money here even if you can’t spell Albuquerque.” When various civic, consumer-protection and conservation groups banded together last year to back a bill in the legislature that would have allowed the state to reject new developments that lacked sufficient water supply, they were soundly beaten, even though the legislation was supported by Governor Bruce King and leading newspapers. As State Senator Eddie Barboa argued in debate, “I don’t see why we should spend hours worrying about somebody in New York spending $1,500 or $2,000 on a worthless piece of New Mexico land that doesn’t have water. If they’re that stupid, let them spend it…. I have a friend who is a stewardess with one of the airlines that flies them in and she tells me these people don’t even drink water.”
Many out-of-staters who buy lots are surprised to discover that it can rain heavily in the desert. A South Carolina man who bought a Deming ranchette after reading an ad in the Washington Post later decided to sell. He wrote a realtor in New Mexico, and the realtor replied, “…I am very sorry to inform you that I have been unable to interest anyone in [your property] at any price…. I don’t know if you have seen the lots or not, but all the access roads, as well as the lots themselves, are under water during wet weather…when it is wet not even four-wheel drive vehicles can reach them.”
Land sales in Florida are often an impossible mess. Robert J. Haiman, managing editor of the St. Petersburg Times, which has run a series of exposés, says, “The sale of Florida swampland to unsuspecting Northerners has long been a national joke. But it’s not funny. It’s a national scandal.” With all deference to conservationists, Vince Conboy points out that the state has spent more money to protect alligators than it has to prevent buyers from being devoured by salesmen. Florida is crisscrossed with paper lots that are either under water or unreachable or hold no likely prospect of development for several hundred years, as Conboy makes clear in a book he wrote and published, Exposé, Florida’s Billion Dollar Land Fraud. Conboy is no anarchist slinging mud at the real-estate establishment. He has short hair and belongs to Kiwanis and the Knights of Columbus. Now 70 years of age, he is a native of Wisconsin who moved to Florida 15 years ago as a real-estate broker. In Wisconsin he had worked for the Federal Government as an appraiser, and what he found going on in Florida real estate shocked him into becoming a crusader. When the St. Petersburg Times assigned Staff Writer Elizabeth Whitney to check Conboy’s allegations in Exposé, it found him “virtually unimpeachable on almost every point.” Conboy, who has gotten little help from either state or federal authorities, is particularly outraged by Golden Gate Estates near Naples in Collier County. GAC Properties, formerly the Gulf American Land Corporation, noted in a recent report that it had sold almost all the 113,000 acres in the subdivision. “They paid $100 to $150 an acre and sold it for as much as $1,800 an acre,” Conboy says. “They went in and drained it so there are fires now. In fact, it’s a forest-fire nightmare. The company boasted it would be the largest subdivision in the world, but in all this 113,000 acres there are just three houses after 10 years.”
One of the houses is occupied by Wald and Mary Mitchell from Akron. The Mitchells, who are in their 70s, sank almost $6,000 of their savings into their lot, and rather than lose most of that trying to sell, they decided to build. However, they are so far out in the boondocks that they cannot afford a telephone. The phone company said the house was so remote that it would cost the Mitchells $2,880 to bring in a line. Even if the Mitchells could afford a phone, they would have little time to chat on it since fire fighting is a full-time job. In a two-month period they had to fight off fires on four fronts that threatened to engulf their little home.
Conboy says, “More than $100 million has been invested in that drained swamp by wonderful people. Some might call them suckers or fools for buying lots there, but these buyers were people who had been reared in a trusting way, people who couldn’t believe that human beings could be so low as to steal their life savings.” According to Conboy, Florida has more than two million lots that have little or no resale value even though many were purchased at fancy prices as an investment. When he began making noises about this, a General Development Corp. subsidiary wrote to his wife offering a $2,000 profit on lots she owned in Port Charlotte. Conboy replied that he would be happy to sell if General Development would repurchase all similar lots owned by other buyers for $1,500 each. The company refused.
The hard-sell hucksters peddling second home lots in Florida, New Mexico and other parts of the U.S. are having a feast on U.S. servicemen overseas. The European edition of Stars and Stripes last December devoted three special eight-page news supplements to U.S. land sales companies doing about $30 million a year of business in Europe with GIs. “All companies plead innocence of wrongdoing,” Stars and Stripes said, “but exhaustive research in Europe turned up case after case of misrepresentation and half-truths, sins of omission and commission, advertising exaggerations and high-pressure sales tactics.” Misrepresentation went so far that a salesman told one soldier that Discovery Bay was in Florida and not Mississippi.
Although European Command regulations prohibit land companies from operating on posts, the companies make the regulations a farce by routinely hiring military personnel as salesmen or scouts to find buyers. One master sergeant admitted he had collected $5 for every husband and wife “unit” that he steered to GAC. The former U.S. Army Europe commander-in-chief. General Bruce C. Clarke, has gone to work for Horizon to handle public relations. General Clarke, who last fall invited key military authorities to have lunch with him at various locations in Germany, prepared a mail-order flyer for Horizon entitled, “Why the Military Man Should Acquire Land—by General Bruce C. Clarke, U.S. Army, Retired.” General Clarke was hopeful that authorities would allow salesmen who “qualify” to solicit on posts, but, as Captain David Naugle, chief of the Army’s legal assistance division in Europe, advised Stars and Stripes, the best way to handle land salesmen is to “boot them into the North Sea.”
For all the fraud and misrepresentation going on, relatively few of the swindled realize that they have recourse to a federal agency that has recently started going after the swindlers. The agency is the Office of Interstate Land Sales Registration run by George Bernstein and his deputy, John McDowell, in the Department of Housing and Urban Delopment. The agency, usually abbreviated as OILSR, came into being in 1968, primarily because Senator Harrison Williams Jr. of New Jersey was angered at seeing the elderly victimized while buying retirement lots. Still, until Bernstein took over the agency had accomplished little and was considered a lap dog of the land-sales industry.
A lawyer by profession, Bernstein is unusual in that he wears two hats; before he took over as OILSR chief, he was, and still is, the Federal Insurance Administrator, a position in which he caused some flap by going after Blue Cross. When he assumed controls at OILSR, he adopted the policy that he has followed to this day. “I publicly called our relationship with the land-sales industry an adversary relationship. They said we should ‘work together.’ My constituency is not the regulated industry but the public.” That is rather a mild statement for Bernstein, who is given to such comments as “This is a bad industry—it’s an industry not used to being regulated,” or “I cut the big red apple and watch the worms crawl out.” An aide has said, “Around here we rate developers from zero to minus 10.”
The law under which Bernstein operates, the Interstate Land Sales Full Disclosure Act, requires developers selling subdivisions of 50 or more unimproved lots less than five acres in size, in interstate commerce, to file a detailed Statement of Record with OILSR. They must also give purchasers a Property Report that contains 19 items taken from the Statement of Record on such matters as the availability of sewer and water service or septic tanks and wells, distances to nearby communities over paved or un-paved roads, the number of homes currently occupied, soil conditions that could cause problems in construction, utility services and other matters. If the developer fails to give the buyer a copy of the Property Report either before or when he buys, the buyer may void the purchase. Moreover, should the developer fail to comply with the Full Disclosure Act in any way or indulge in fraud, the buyer may sue for damages, which are often measured by the purchase price and court costs. In addition, OILSR can seek criminal penalties of up to five years in prison, a fine up to $5,000, or both. Even if a developer is operating only within one state, Bernstein and OILSR can get him if he has used the U.S. mails. There are some drawbacks to the law. For one, if a buyer fails to understand the Property Report and fails to understand or doesn’t read the fine print saying no water is available, he is in tough luck. As they say at OILSR, “The law will light the threshold but not unlock the door.” Then again, as Bernstein puts it, “A developer could be raping the land ecologically, and there’s not a thing we could do as long as there is full disclosure.”
Still, the law can be effective, and to make certain that the public became aware of it and his office, Bernstein and McDowell made a nationwide swing of 17 cities last year to hold public hearings on the law and to listen to the aggrieved. They heard one horror story after another. The company that drew the most complaints was GAC, one of the largest developers. Most of the complaints concerned misleading sales practices and misrepresentation.
Last October Bernstein really stunned the American Land Development Association when he announced that a federal grand jury in Atlanta had returned a 22-count criminal indictment against four individual corporate officers, three corporations and eight land salesmen. One of the corporate officers indicted was Frank A. Carcaise, president of Great Northern Development Corporation and also chairman of the board of the American Land Development Association. Adding salt to the wound, Bernstein said, “If we were looking for a case illustrating all the abuses about which we have been warning the public at our abuses hearings we couldn’t have found a more frightening example.” Among the charges by the grand jury, all of which revolved around a development known as Treasure Lake of Georgia, Inc., were that the defendants had failed to register and file a Statement of Record prior to initial sales and that there was misrepresentation after they finally did; obtained by fraud the signatures of buyers on documents which showed that a Property Report had been received when it had not; showed buyers phony pictures of a lake, a golf course and other recreational improvements in a conspiracy consisting of “devices, schemes and artifices to defraud and establish a practice and course of business which would operate as a fraud and deceit.”
In response to the land swindles and in answer to bad planning, several states—notably Vermont, California and Maine—have recently passed legislation to protect both the buyer and the environment. In California, Boise Cascade recently agreed to a $58.5 million settlement of lawsuits brought against the company for false and misleading sales practices, following a halt last July of recreational land sales. The Sierra Club Bulletin noted, “What sort of enterprise is it where a large, financially responsible corporation, with millions of dollars in assets, thousands of stockholders and a large staff of experts should fall so low while dozens of tacky operations continue to thrive? Boise’s experience confirms what many have known all along—that the recreational land business, dealing in a largely unnecessary product that few people can afford, usually must rely for its success on glib salesmen and naive customers.”
New legislation is pending on the federal level. Congressman Morris K. Udall of Arizona has introduced a bill that would, among other things, prohibit interstate advertising, and Congressman Barry Goldwater Jr. of California is drawing up a bill that would create a Securities and Real Estate Commission patterned on the Securities and Exchange Commission. Such a commission would regulate interstate land sales, not simply administer the Full Disclosure Act.
Yet for all the laws now on the books or aborning, much of the grief involved in land sales could be avoided if potential buyers used common sense. Any buyer interested in land should personally inspect it, carefully read the Property Report, have the land independently appraised and then confer with a lawyer before signing anything. As with any major purchase, but with land especially, let the buyer beware.
VALLEY OF THE LAKES RACKETEERING TRIAL PNC BANK
By Scot J. Paltrow
JACKSONVILLE, Florida (Reuters) – Lender Processing Services is riding the waves of foreclosures sweeping the United States, but in late October its CEO, Jeff Carbiener, found himself needing to reassure investors in the $2.8 billion company.
Although profits were rolling in, LPS’s stock had taken a hit in the wake of revelations that mortgage companies across the country had filed fraudulent documents in foreclosures cases. Earlier in the year, the company, which handles more than half of the nation’s foreclosures, had disclosed that it was under federal criminal investigation and admitted that employees at a small subsidiary had falsely signed foreclosure documents.
Still, Carbiener told the Wall Street analysts in an October 29 conference call that LPS’s legal concerns were overblown, and the stock has jumped 13 percent since its close the day before the call.
But a Reuters investigation shows that LPS’s legal woes are more serious than he let on. Public records reveal that the company’s LPS Default Solutions unit produced documents of dubious authenticity in far larger quantities than it has disclosed, and over a much longer timespan.
Questionable signing and notarization practices weren’t limited to its subsidiary, called DocX, but occurred in at least one of LPS’s own offices, mortgage assignments filed in county recorders’ offices show. And rather than halt such practices after the federal investigation got underway, the company shifted the signing to firms with which it has close business ties. LPS provided personnel to work in the new signing operations, according to information from an LPS spokeswoman and court records including an October 21 ruling by a judge in Brooklyn, New York. Records in county recorders’ offices, and in the judge’s opinion, show that “robosigning” and preparation of apparently false documents went on at these sites on a large scale.
In one instance, it helped set up a massive signing operation at the nearby office of a major client, a spokeswoman for the client, American Home Mortgage Servicing, confirmed. LPS-hired notaries who worked there said in interviews that troves of documents were improperly handled. They said that about 200 affidavits per day were robosigned during the two months the two notaries remained there.
A spokeswoman for LPS confirmed to Reuters that it had helped other firms establish operations that performed the same function. LPS spokeswoman Michelle Kersch didn’t specify which firms. But beginning early in 2010, county recorders’ records show, signing shifted also to law firms under contract with LPS.
Interviews with key players and court records also show that pending investigations and lawsuits pose a bigger threat to the company than Carbiener let on.
The criminal investigation in Jacksonville by federal prosecutors and the Federal Bureau of Investigation is intensifying. The same goes for a separate inquiry by the Florida attorney general’s office. Individuals with direct knowledge of the federal inquiry said that prosecutors have impaneled a grand jury, begun calling witnesses and subpoenaed records from LPS.
The company confirmed to Reuters that it has hired Paul McNulty, former deputy U.S. attorney general in the George W. Bush administration, to represent it in the investigation. A spokeswoman for the U.S. Attorney’s office declined to comment on the probe.
The U.S. Comptroller of the Currency’s office, which is responsible for supervising national banks, also announced in November that it had teamed up with the Federal Reserve to conduct an on-site examination of LPS.
Meanwhile, the threats from four class action lawsuits filed in federal courts appear to be greater than the company has indicated, especially one filed in Mississippi. In a highly unusual move, a unit of the U.S. Justice Department has joined that suit as a plaintiff. The lawsuit alleges that LPS extracted many millions of dollars in kickbacks from law firms through an illegal fee-sharing arrangement, in exchange for doling out lucrative foreclosure work to them.
The lawsuit also charges that LPS illegally practices law and routinely misleads homeowners and federal bankruptcy judges. Carbiener has said there is little reason to worry about the Mississippi suit because the company already prevailed in a federal lawsuit in Texas that had made nearly identical accusations. But court records in that case show that the lawsuit was dropped without any ruling on the merits of the allegations.
Copies of LPS internal documents obtained by Reuters and testimony in lawsuits shed new light on the company’s unusual dealings with its vast network of law firms. LPS relentlessly pressed them for speed. The result was almost instant filing of foreclosure documents, mostly prepared by clerical workers, not lawyers, according to court records, including deposition testimony by LPS officials. Several judicial opinions from around the country and evidence from investigations in Florida show that these documents often were riddled with inaccurate information about the amount homeowners owed, and were signed and notarized en masse without anyone at the firms checking the information in them.
Under LPS’s system, law firms that were slower, often because their lawyers carefully prepared and reviewed court documents before filing them, were effectively punished, according to deposition testimony and other sources. The computer automatically assigned bad ratings to these firms, and the flow of work assignments to them dried up.
A BOOMING BUSINESS
Few firms benefited more from the collapse of the U.S. housing boom than LPS. Spun off as an independent company in 2008, the company has seen its profits, with big help from its mortgage default services business, reach $232 million for the first nine months of 2010. That is a nearly 15 percent increase from the same period in 2009. Its revenue last year was $2.4 billion, up from $1.8 billion in 2008.
And business continues to surge. Carbiener told analysts on the October 29 call that “we continue to gain market share across all key business segments.” In a November 23 report prepared for investors and clients, LPS said banks are pushing to foreclose on properties as rapidly as possible, driving “the foreclosure inventory rate to all-time highs.” It said that at the end of October, the number of properties going into foreclosure is “7.4 times historical averages and rising.”
The banks’ push to evict homeowners faster and in bigger numbers than ever before makes LPS’s services even more crucial to them. LPS’s success is built on its advanced, super-automated system that is highly efficient, low-cost, and speeds foreclosures through to completion. The “LPS Desktop” starts foreclosure actions, assigns work to law firms and supervises the cases to conclusion with almost no intervention by humans. (LPS says foreclosure actions are started by its clients, the loan servicers. But copies of agreements with servicers obtained by Reuters show that LPS has direct access to the banks’ and other servicers’ computer systems, and LPS detects defaults and initiates foreclosures based on parameters given to it by the banks.)
Few loan servicers could resist handing over key tasks to the company. Today, LPS boasts a client list that includes 14 of the 15 biggest loan servicers, with household names such as Wells Fargo and JPMorgan Chase — its two biggest clients, according to LPS’s most recent 10K filing with the Securities and Exchange Commission. The company has said that Bank of America joined as a client earlier this year. LPS says that all 50 of the nation’s largest banks use at least some of its services.
In essence, LPS is a giant electronic butler for the big banks and other companies in the industry. It attends to routine tasks the loan servicers prefer not to do themselves. These include tracking mortgage payments, calculating amounts owed to investors who purchased bundles of mortgages, ensuring that property taxes and insurance get paid — and automatically filing foreclosure actions when homeowners go into default.
The pending investigations and lawsuits, however, are focusing on whether LPS, in its zeal to serve its clients, broke the rules, in part by replacing missing bank documents with fictitious ones to make foreclosure cases go through.
The first sign of legal problems for LPS emerged earlier this year, when the company disclosed that federal prosecutors in Florida had opened a criminal investigation into apparently forged signatures on foreclosure documents prepared by DocX, the shuttered subsidiary located in a small office park in Alpharetta, Georgia.
Fidelity National Financial, LPS’s former parent, had bought DocX in 2005. The unit soon became a high-speed mill, churning out mortgage assignments — many of which are now known to be of doubtful validity — on behalf of banks and investor trusts, helping them to foreclose on homeowners.
Mortgage assignments are documents transferring ownership, usually from the original lenders to trusts owned by investors who bought securitized packages of mortgages. Loan servicers typically file foreclosure actions on behalf of the trusts when any of their mortgages go into default. But cases popping up all over the country show that the original lenders never handed over ownership of mortgages to the trusts. Assignments establishing ownership of a mortgage are required as evidence in foreclosure cases.
DocX turned out tens of thousands of newly-minted mortgage assignments, purporting to show transfers of ownership long after the mortgages should have been handed over to the trusts, according to the standard provisions in trust agreements.
Thousands of these bore the signature of DocX employee Linda Green. The signatures didn’t look alike, however, and LPS eventually confirmed that multiple DocX employees had signed her name. Some of the assignments stood out because they listed the new owner of the mortgages as “bogus assignee” or “bad bene.”
LPS spokeswoman Michelle Kersch said “bogus assignee” and “bad bene” were simply standard placeholders on document templates which the employees inadvertently had neglected to fill in with the proper names.
In his October 29 conference call with analysts, Carbiener said that when the company discovered the DocX wrongdoing in December 2009, it immediately stopped it and soon shut DocX down. But it turns out that DocX continued operating much longer than LPS originally had acknowledged. In a written response last week to questions from Reuters, LPS’s Kersch confirmed that DocX actually wasn’t closed until August 2010. She said: “The last document signed by DocX was on May 14, 2010.” But she said no improper signing had occurred there since 2009.
Hundreds of public records examined by Reuters show that production of suspect mortgage assignments was not limited to DocX.
The records indicate that employees in one of LPS’s own offices, in Mendota Heights, Minnesota, signed and notarized large numbers of documents which for multiple reasons appear invalid. Records filed with county recorders’ offices show that the Minnesota office continued to turn out these documents at least through the end of January 2010.
Dozens of assignments were signed by LPS Minnesota office employees who listed themselves as corporate officers of banks and other loan servicers, a sampling of public records from counties in five states shows. As at DocX, the assignments were signed years after the mortgages should have been transferred to the investment trusts.
The signature of one of these LPS employees, Liquenda Allotey, appears on thousands of mortgage assignments. Homeowners’ lawyers and at least one judge — federal bankruptcy judge Joel B. Rosenthal in Massachusetts — have noted that Allotey’s signature is a simple zigzag line, raising questions about whether other individuals may have signed his name. Titles listed below the signature identify him variously as “vice president” or “attorney in fact” for at least 13 banks and mortgage companies.
LPS spokeswoman Kersch said Allotey signed all of the documents himself, and said all mortgage assignments prepared in the Minnesota office “were executed under a lawful grant of authority.” She didn’t spell out, however, how such authority was given.
In any event, two other aspects of many mortgage assignments signed by Minnesota employees raise strong doubts about the documents’ legitimacy.
State laws, backed up by court decisions, require that mortgage investment trusts and others filing to foreclose on houses possess a valid mortgage assignment at the time they file for foreclosure. If it doesn’t, the laws require that the case be dismissed.
An examination of county recorders’ records turned up dozens of mortgage assignments signed and notarized by the Minnesota office weeks or months after a foreclosure case had been filed. Records show that even though invalid, the belated mortgage assignments often enabled foreclosure cases to sail through.
April Charney, an attorney who represents homeowners at Jacksonville Area Legal Aid, said in a Reuters interview that in most instances homeowners can’t afford lawyers and don’t challenge the foreclosures.
In many states, judges often approve the foreclosures without carefully examining the documents, she said. And at least until recently, when widespread questions were raised about the legitimacy of mortgage documents, judges routinely accepted belated mortgage assignments — even in cases contested by the homeowners, she said.
Equally difficult to explain are mortgage assignments signed by LPS Minnesota employees purporting to be officers of lenders that no longer existed. For example, in January 2010, two Minnesota employees jointly signed one as officers of Encore Credit Corp., defunct since 2008.
On other occasions, LPS employees signed as authorized officers of American Brokers Conduit, well after the subprime lender had been liquidated in bankruptcy. And in many instances they signed as officers of Sand Canyon Corp. In a March 18, 2009 affidavit, Sand Canyon’s president, Dale M. Sugimoto, said the company had completely exited the mortgage business in 2008 and had no mortgages to assign.
In written answers to questions, LPS spokeswoman Kersch didn’t respond directly to questions about the employees signing mortgage assignments after the foreclosures had been filed, or about signing on behalf of defunct companies. Instead, she said that the LPS employees signed mortgage assignments because lawyers who had filed foreclosure cases asked them to. She said the lawyers “decide when and if an assignment of mortgage is required.”
Shortly after the federal investigation was launched in December 2009, LPS began moving to curtail document-signing activities at the company itself. LPS says that the Minnesota office stopped signing mortgage assignments at the end of January 2010, and public records appear to confirm that. Carbiener said during the analysts meeting that LPS has now ended all signing of mortgage assignments and affidavits at the company.
Without someone to draw up replacement documents, though, LPS’s clients faced potential hardship, because so many mortgages were never assigned by lenders, as required, in the first place. Without these documents, thousands of foreclosures all over the country would come to a halt.
Reuters has learned that rather than stamping out the practice, LPS in December 2009 began transferring signing operations out of its own offices and into those of firms it has close relationships with. Kersch confirmed that LPS sent personnel to work “at client locations to assist clients during this period.”
For example, LPS arranged through a local employment service to hire about a dozen notaries, sending them to work at a new signing operation set up in the Jacksonville office of American Home Mortgage Servicing, one of LPS’s biggest clients.
Records from county recorders’ offices show that at least as recently as October, American Home Mortgage Servicing employees signed exactly the same type of questionable mortgages assignments that LPS staffers at DocX and in Minnesota had signed. These included assignments done on behalf of defunct companies like American Brokers Conduit, and after foreclosure actions already had been filed. Reuters obtained a partial list of the names of the LPS-hired notaries. Copies of mortgage assignments available publicly show that these notaries notarized many of these assignments, including ones signed on behalf of defunct companies.
In interviews, two of the notaries, who asked that they not be identified, said the American Home Mortgage Servicing office also set up a “robosigning” operation for affidavits, another type of document required in foreclosure cases. The employees who signed the affidavits were swearing that they had verified the facts listed in them, such as the specific amounts owed by homeowners.
But the two notaries, who said they were dismissed after raising questions with supervisors about the practices, said that each morning about a half-dozen American Home Mortgage Servicing employees in about an hour would sign some 200 affidavits received via LPS’s computer system, without reading them, let alone verifying the facts they contained. “In that time, come on, you have not verified figures in 200 documents. That’s impossible,” one of the notaries said.
Philippa Brown, spokeswoman for American Home Mortgage Servicing, said in an e-mailed statement that “We recently had independent audits conducted on our processes and it was found that at no time was AHMSI (American Home Mortgage Servicing Inc.) ‘robosigning’.” She confirmed that the company had used DocX until December 2009, and then “contracted with LPS” to provide it with notaries “in connection with execution of affidavits and other documents” in American Home Mortgage Servicing’s office. Concerning assignments the company signed for defunct lenders, Brown said American Home Mortgage Servicing “obtains authorization from the previous parties,” but did not explain how.
LPS acknowledged that it had sent notaries to several companies to help them set up signing operations. Kersch said: “When LPS Default Solutions group transitioned away from signing documents on behalf of its customers, in some cases it employed notaries who worked on-site at client locations to assist clients during this period.” The spokeswoman confirmed that LPS provided training at these sites, but said it was only “technical” training on using the LPS Desktop system.
TROLLING FOR CASES
It remains unclear whether LPS faces more legal risks because of its document-signing operations or because of its odd arrangement with the lawyers assigned to file foreclosure actions.
Reuters has obtained new details of how the relationship worked from copies of the “network agreements” the law firms sign with LPS, among other sources. Interviews and records from court cases show that this system often worked to the detriment of homeowners struggling to keep their homes.
LPS says that clients are the ones who pick law firms to represent them in foreclosure cases. But copies of its agreements with clients reviewed by Reuters state that the company’s clients sign up to use LPS’s network of lawyer. The agreements and depositions from lawsuits show that when a homeowner goes into default, the LPS system automatically selects a law firm in its network, sometimes using criteria set by a client, and transmits an offer of work that pops up on the law firm’s LPS Desktop screen.
The firm has no more than a couple of hours to accept the job. And if it does, it immediately agrees to pay an up-front fee to LPS. The law firms also pay LPS a monthly fee for use of the LPS Desktop system.
The company denies that it charges fees to lawyers in exchange for assignments of work. Kersch said the company charges fees strictly for the use of LPS’s computer system. Carbiener on October 29 said: “Our services are nonlegal, and are similar to any other operational cost of a law firm such as the licensing costs they pay for word-processing software or accounting software.”
But in a lawsuit deposition on January 13, 2010, Christian Hymer, an LPS first vice president, testified that the company often signs up the law firms that are part of its network. In addition, until recently, lawyers signed work agreements only with LPS, not with the loan servicers. Kersch said that currently lawyers are required to sign separate agreements both with LPS and the servicers.
Laws in nearly all states forbid lawyers to share legal fees with nonlawyers. The laws are intended to prevent kickbacks for funneling legal work to an attorney, the cost of which would be passed on to unsuspecting clients or, as in foreclosure cases, billed to homeowners.
LPS isn’t a law firm. The Mississippi class action suit alleges that LPS is a nonlawyer middleman between the servicers (acting on behalf of trusts that own the mortgages) and the lawyers. It alleges that the company illegally decides which law firms get to file foreclosure cases, and makes decisions about what they file.
RED, YELLOW, GREEN
Interviews, deposition transcripts and LPS’s own records underline that the company keeps its clients happy and maximizes its own fee income by whipping law firms to gallop cases through the courts.
The law firms are on a stopwatch: Kersch confirmed that the LPS Desktop system automatically times how long each firm takes to complete a task. It assigns firms that turn out work the fastest a “green” rating; slower ones “yellow” and “red” for those that take the longest.
Court records show that green ratings go to firms that jump on offered assignments from their LPS computer screens and almost instantly turn out ready-to-file court pleadings, often using teams of low-skilled clerical workers with little oversight from the lawyers. Copies of company newsletters from shortly before LPS was spun off show that the company each year gave awards to the law firms that were consistently the fastest.
Firms that move more slowly were slapped with “red” designations. For them, work offers dried up.
LPS denies that the rating system is used to punish slower firms. Kersch said the ratings are generated so that law firms can compare their speed and efficiency with an average calculated for a wide group of firms.
The term “robosigners” was coined to describe the low-level clerical workers who signed many thousands of affidavits for foreclosure cases, swearing to the truth of facts they had never checked. But it turns out that the professionals at these firms — the attorneys who have strict legal and ethical obligations to file truthful documents in court — have carried out similar activities on a large scale. They allowed others to sign their names to multiple types of court pleadings they had never read or bothered to check, involving many types of documents.
In an April 2009 court decision, Diane Weiss Sigmund, a federal bankruptcy judge in Philadelphia, specifically faulted lawyers whose firm filed LPS-transmitted documents in court using clerical workers to sign the name of a lawyer who hadn’t looked at them.
In that case, it turned out that, contrary to the documents supplied via the LPS system, the homeowners weren’t in default on their mortgage.
Referring to the LPS computer system, the judge stated, “the flaws in this automated process become apparent.” She added: “An attorney must cease processing files and act like a lawyer.”
Jacksonville legal aid attorney Charney says that carelessly prepared documents, containing basic errors, have been used to foreclose on a big portion of the homeowners who have lost their houses.
LPS denies that its system encourages carelessness by law firms. In the October 29 conference call, Chief Executive Carbiener said that based on routine internal reviews, “we are not aware of any defects in our signing and review processes that resulted in the wrongful foreclosure of any borrower.”
(Editing by Jim Impoco and Claudia Parsons)