Congress, finally, has turned its attention to mortgage fraud. According to the New York Times, The F.B.I. is presently investigating more than 2,800 mortgage fraud cases, almost five times the 534 inquiries in 2004. Attorney General, Eric Holder, feels the current efforts to fight financial crime will foster confidence in the system.
But merely increasing the number of prosecutions isn’t enough–the feds must address the quality of their mortgage fraud cases. According to the Times, “Of the 2,800 mortgage fraud investigations under way at the Federal Bureau of Investigation, most — 1,842 — were classified as major cases, which meant they involved more than $1 million in losses.”
Guess how much money was lost in the five real estate deals at the center of the Alvin Clay prosecution? When all five properties had been re-sold, the total loss to buyers, sellers and the financial system was $16,000.
This doesn’t mean that the Donny McCuien and Ray Nealy, the two men at the heart of the Little Rock scam, weren’t worthy candidates for prosecution. They were. But small-time hustlers like McCuien and Nealy were always incidental to the FBI. They G-men were after an attorney and real estate broker named Alvin Clay.
Nealy and McCuien turned to real estate fraud because government oversight was virtually non-existent. Banks were willing to make “stated” loans and the con artists came running. In a stated loan, a financial institution agrees to believe that a prospective buyer possesses the assets indicated in a loan application. Call it the honor system. This extreme degree of credulity was driven by a desire to make as many loans as possible, a dynamic fueled by greedy managers and corporate executives hell-bent on maximizing bonuses. Nobody was paying attention–it was bad for business.
The financial institutions involved in the McCuien-Nealy scam were begging to be exploited. Alvin Clay made the same mistake the banks and trust companies were making–he took McCuien and Nealy at their word.
On the sixth day of Alvin Clay’s trial, I said that t federal government was avoiding embarrassing questions because it didn’t have any good answers.
•Why has the government hitched its wagon to a man who lies when the truth would sound better?
•Why has the government spent five years and a million dollars pursuing an innocent man?
•Why did the government initiate an investigation of Alvin Clay before they had any evidence of wrongdoing?
•Why has the government used the threat of pain and the promise of relief to suborn perjury from its star witness?
•Why did FBI agent Rodney Hayes lie to a judge to get a search warrant and perjure himself before a grand jury to get an indictment?
•When the Eastern District of the US Attorney’s Office was forced to recuse itself from this case; why did the Western District pick it up?
The answer to most of these questions is the same: the federal government, represented by Assistant US Attorney Bob Govar, noticed that a combative defense attorney named Alvin Clay was involved in a series of real estate deals and decided to look into it. There was no initial evidence of wrongdoing; FBI agent Rodney Hayes was sent on a fishing expedition. The goal was to nail Clay, an attorney with a longstanding adversarial relationship with Govar. The ambitious Hayes understood the nature of the game.
It never occurred to the feds that the McCuien-Nealy scam was driven by systemic regulatory gaps, or that financial industry was willing to tolerate a high degree of corruption if it increased the overall level of activity. The real crime was staring the FBI in the face; but they were so intent on busting a single black attorney they couldn’t see the obvious.
Hopefully we have all learned something from the mortgage fiasco. The Clay case demonstrates how much there is to learn.