A troubling truth about today's white collar crime wave is that wherever there is a complicated fraud, there is usually a lawyer helping make it happen -- or even a whole firm of lawyers.
That was the case in the dotcom era, where Enron and other companies cooked their books with the help of top law firms. It was also true with subprime mortgages and predatory lending, where lawyers helped generate the loan contracts that hoodwinked consumers and, on Wall Street, helped structure some of the shady deals that securitized mortgage debt.
So it should come as no great surprise that lawyers are now implicated in some of the bad behavior that has surrounded the collapse of the housing market and the epidemic of foreclosures. Specifically, a number of law firms have been accused of generating false documentation for banks intent on repossessing homes as fast as possible. These so-called "foreclosure mills" are said to have created paper trails to prove bank ownership of homes in those cases where proper record-keeping was ignored during boom times.
New insights into how foreclosure mills operate have emerged in Florida, where the state attorney general is going after David Stern, a lawyer known as the "Foreclosure King." Stern's business model was based on volume and his firm was paid $1,400 to produce documents for each foreclosure. That put a premium on churning out the documents fast and the firm became adept at doing exactly that. According to a deposition of a key Stern employee, taken by the attorney general's office, over 1,000 foreclosure documents were sometimes signed in a single day without being reviewed and without any witnesses present, as required by notarization rules. Often signatures were forged. (Read the deposition to get an inside look at how a foreclosure mill operates.) One paralegal claims she was fired after refusing to falsify documents. Asked about the investigations into foreclosure fraud, the paralegal, Tammie Lou Kapusta, told ABCNews.com: "This is just the beginning really. . . . It's the tip of an extreme iceberg."
Stern's firm filed a staggering 70,382 foreclosure cases in 2009 and reportedly billed nearly $100 million. As explained by the deposed employee, Kelly Scott, the firm was always under heavy pressure from lenders -- including Fannie Mae and Freddie Mac -- to speed up the processing of documents.
The case against Stern is still under investigation and no charges have been filed against him. Stern's lawyer says that the campaign to vilify him is unfair and advances the interests of "a well-organized defense bar who is making a lot of money keeping people in their homes." Others say that it's the banks that are to blame for the existence of foreclosure mills in the first place, which is a good point.
One thing that is clear, though, is that Stern has done very well for himself thanks to the misery of others. He reportedly owns a $20 million yacht, a $15 million mansion, and several other expensive properties. Along with the bankers who have made record profits due to the Fed's zero interest lending, Stern is an example of those who have prospered as a result of the financial crash. Greed, it turns out, thrives in both good times and bad.
David Stern may, in fact, not be a bad guy. But it can be pretty tempting to forget about ethics when there's the potential to make tens of millions of dollars by systematically cutting corners. Especially when the chances of punishment are pretty slim.
Beyond the investigation by the state attorney general, Stern may eventually face judgment before his peers in the Florida State Bar Association. But don't expect much there, even if it turns out that Stern has been unethical. State bars have a spotty track record at best of disciplining their own wayward members.
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