(Reuters) – If there is any silver lining to the lingering black cloud of the mortgage crisis, it’s the incredibly creative legal theories devised by investors who lost hundreds of billions of dollars in overhyped mortgage-backed securities. In a decade of MBS litigation, investors figured out how to hold banks, mortgage issuers and even credit rating agencies accountable for misrepresenting the quality of the mortgages underlying the complex instruments they were peddling. It took ingenuity and persistence, but MBS investors, including hedge funds betting on the eventual success of the litigation, managed to get past contractual and procedural obstacles to recover tens of billions of dollars.
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On Monday, the trustees of a union pension fund that invested in MBS filed a prospective class action against the mortgage servicer Ocwen and related defendants, accusing them of breaching their duties to ERISA beneficiaries. And according to Brad Miller of Guttman Buschner & Brooks – a crusading former North Carolina congressman who is a leading architect of the new suit – mortgage servicers’ exposure to ERISA claims could be vast. The Ocwen suit is apparently the first of its kind, Miller told me in an email, but he is hoping it won’t be the last.
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According to the complaint, Ocwen and the other defendants were obligated, as MBS mortgage servicers, to work with homeowners to modify their mortgages rather than hurting investors by allowing homes to go into foreclosure. But the ERISA plan trustees claim Ocwen and the other defendants put their own interests ahead of the interests of MBS investors. The mortgage servicers, according to the complaint, “profited more from mortgages in default or foreclosure than from performing mortgages,” so they allegedly “sabotaged mortgage modifications and otherwise pushed struggling homeowners into needless default.”
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Miller, the ex-congressman, said he expects the defendants to contest the assertion that they have ERISA duties to pension funds that invested in mortgage-backed securities. “I can’t imagine that Ocwen and other servicers won’t contest that they have a fiduciary duty, because the stakes are too high — there’s no way to square their conduct with a fiduciary duty,” he said in an email. But he said he’s confident the fund’s reading will hold up because of the authority mortgage servicers wielded in managing the pooled investments.
“Servicers have a world of discretion over mortgages,” he said. “The governing documents give them the authority to do ‘anything and everything’ they see fit. And the statutory definition is functional – not what power the person had contractually, but what power the person exercised.”
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Read the full article here.
These interdisciplinary invaders have come to dominate the faculties of the elite law schools and to influence a great many of the other law schools. The interdisciplinarians are valuable additions to law faculties, but they should not be allowed to displace faculty who bring to the teaching of and research into law a rich background of legal practice in lieu of expertise in a scholarly field or fields outside of law.
—Richard A. Posner, The Federal Judiciary Strengths and Weaknesses, Harvard University Press 2017
Think about this: some of the largest drug companies in the world—the one’s that we rely on for life saving treatments—are convicted criminals.1 Hospital chains and large entities that distribute drugs to the elderly have been charged with defrauding the government and have paid fines, or entered guilty pleas to resolve allegations of conduct that have placed patients at risk. Healthcare fraud is so rampant that each year the government has recovered billions of dollars under the False Claims Act from companies whose television advertising attempts to portray a different image; an image of a benevolent and caring corporate citizen.
Yet, with so many employees inside the company, how do these entities do what they do for so many years before their wrongful conduct is exposed, perhaps by a whistleblower who wakes up one day and questions what others have never thought about questioning? The answer to this question involves an analysis of how people behave when they are part of an institution—or in this case, a large corporation.
The 2018 ACS Student Convention will be hosted by the Northwestern University Pritzker School of Law in Chicago March 9-10, 2018. Plan to join us for two days of networking and dynamic discussions with leading scholars, advocates, and policymakers, including keynote remarks by Lisa Madigan, Illinois Attorney General, Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights, and Jason Kander, president of Let America Vote and Missouri’s 39th Secretary of State. For a list of confirmed speakers and more information, click here.
In the past two decades the federal budget has tripled. However, popular wisdom to the contrary, the number of full-time civil servants has remained relatively constant. How does the government manage? In keeping with the American ethos that private is better than public, a large part of the business of government has been contracted out to accounting firms, think tanks, management consultants, and industrial corporations like McKinsey and Co., Peat, Marwick, Mitchell, and Co., the Stanford Research Institute, the RAND Corporation, Booz, Allen, and Hamilton, Westinghouse, and the Brookings Institution, among many others. The contractors do not merely build hardware and carry out a myriad of mundane tasks. They increasingly perform the functions of government itself, albeit in the guise of private efficiency and disinterested expertise, without accountability to the public. They make and implement policy recommendations, staff and restructure government agencies, reorganize railroads and hospitals, and produce the findings that allocate the spending of the federal budget dollar.
What is their track record? How well is the public interest served by the burgeoning and costly private bureaucracy which government contracting has spawned? Is it proper to delegate public affairs to a shadow government of private, corporate, and governmental constituents? These are the questions at the core of this important study, which was prepared for Ralph Nader’s Center for Study of Responsive Law.