Smoking Guns
Smoking Guns
Goldman Sachs, Wirecard, Tesla, Insys, Fake Lawyers, Travel Insurance Arbitrage, and Pizza Trucks.
Hello again! I appreciate those of you who stuck with me through the last three weeks, as we dove into systemic racism and racial inequality in America. It was a lot. Three weeks doesn’t seem like a long time, but so much has happened in the world of scams and fraudsters, I’m going to do a bunch of short recaps, just to get us caught up.
Goldman Sachs
In the aftermath of the housing crisis in 2008, Goldman Sachs made a deal with the federal government that it would provide $1.8 billion dollars in relief to impacted homeowners. Rather than, I don’t know, just giving that money out to people who needed it because they’d lose their houses without it, what Goldman did was buy “distressed” mortgages - loans in danger of default, or with buyers unable to make their payments - and rework them. Oh, also, they sometimes just took the homes:
Four years after agreeing to help homeowners in a civil settlement with federal prosecutors, the Wall Street firm has become one of the biggest buyers of distressed mortgages, an area of investing that deals in loan modifications and foreclosures for borrowers who can’t make their payments.
And while Goldman has reworked loans to make it possible for thousands of homeowners to avoid foreclosure, it has also taken back more than 10,000 homes — properties it has started to sell to help offset the cost of the assistance it provides, a review of data shows.
Ah, of course. So what they’ve done is buy distressed mortgages, offer loan modification or reduced payments to some of the homeowners, and then foreclose on some of the properties to help recoup their losses. But is it actually that simple?
Well, it turns out that they bought the loans at deep discounts - as little as 50 cents on the dollar - and turned around and forgave unpaid money on those loans, then received credit from the government towards their legal settlement. Some of the loans weren’t workable - in some cases they were vacant properties or had owners who did not intend to repay the mortgages - so they foreclosed. But they also tried to foreclose on real people, as the NYT story mentions:
Mr. Daly, a retired auto mechanic who has lived in the home for 22 years, said the firm that Goldman had contracted to manage his mortgage — Shellpoint Mortgage Servicing — was unwilling to consider a loan modification unless he made a $14,000 payment upfront. Then, just a few months after his wife, Susan, died of complications from cancer, he heard from lawyers for Goldman’s mortgage subsidiary — MTGLQ Investors, short for mortgage liquidation. They told him that they were pushing ahead with foreclosure.
Goldman defends itself by saying that it does slightly better than its peers in the distressed mortgage space, but Goldman is not supposed to be a competitor to other predatory lenders and debt collectors - it is supposed to be doing community service:
“One would assume that if Goldman’s main purpose is to satisfy the settlement, their numbers would be better than their peers’,” [Jim] Baker said. “They do not look much worse, but not much better, either.”
In fact, they’ve foreclosed on more homeowners than they’ve helped:
Of the 30,000 loans Goldman bought, the monitor’s report said, the bank had modified 7,800 mortgages and erased an average of $103,000 in debt owed on them. In some cases, the report said, Goldman has gotten repeat credits for “multiple modifications of the same loan.”
But the bank has also foreclosed on more than 10,000 of the delinquent mortgages, and has resold thousands of homes so far, at an average price of $170,000, according to Attom Data.
It’s a good reminder that - in the shadow of the 2008 financial crisis - the government negotiated these eye-popping settlements with the banks who took down the global economy, but the purpose of those settlements was not necessarily to help the people who suffered in the crisis. In some cases - like this one - it was so prosecutors could issue a press release, while not causing Goldman any real financial harm.
So, Goldman got hit with a $1.8 billion dollar punishment, and it went out and bought mortgages, and now it’s kicking people out of their homes and potentially making a profit on the deal. Cool.
Wirecard
German “fintech” - financial tech, or in this case an online payments company - company Wirecard has become embroiled in an accounting scandal. For years, stock market short sellers and financial journalists have questioned its underlying finances. The company fought back - German financial regulators took the extreme step of investigating those making the claims, and banning short selling of Wirecard’s stock. Then, results of an audit revealed that Wirecard was actually lying. About, well, a lot of money:
The company’s auditor for the last decade, EY, said it was unable to confirm that €1.9bn in company cash was really there.
The missing cash was equivalent to all the profits the group had declared since 2012, and Wirecard said if it failed to file audited financial statements on Friday, it would be at the mercy of lenders who could terminate €2bn worth of loans.
Whoops! What I find the most unusual about this story is the degree to which the German government stepped in to protect Wirecard from those who tried to expose the fraud. It is easy to think, as an American, that governments take a mostly hands-off approach when it comes to private companies and their stock - in fact, we probably take too lenient an approach to regulation. But, a government stepping in to go after people trying to blow the whistle on fraud is something I’d expect to see in a corrupt developing country, not Germany!
Tesla
It’s been an exciting month for Elon Musk and Tesla. I’ve written about how his deeply irresponsible behavior has put his employees’ health at risk. Well, it turns out the workers are indeed testing positive for COVID-19 and some are being fired after assurances they wouldn’t be if they stayed home. Musk - because he doesn’t actually do any sort of job that I can discern - has been tweeting coronavirus conspiracy theories and other moronic shit. Meanwhile, Tesla has become the world’s most valuable car company, because we live in Hell. So, how is the most valuable car company in the world doing at actually building cars? Not great:
The forums are flooded with new buyers reporting issues with their new Model Y, refusing deliveries, and in some cases, Tesla proactively canceling deliveries due to issues.
[…]
There’s not a day that goes by without Model Y owners reporting to us that Tesla attempted delivery of an unacceptable vehicle and I am seeing a surprising number of people communicating similar issues on forums.
It looks to me that the “rectification needs” Elon mentioned are overwhelming Tesla’s quality control, but the automaker is still trying to deliver the Model Y vehicles with defects in order to save their quarter.
Tesla is attempting to juice their quarterly sales numbers by delivering large numbers of defective cars. Cool!
J.D. Power has included Tesla in its Initial Quality Survey for the first time and it’s pretty bad:
Yes, that’s Tesla running away with the worst spot, with 250 problems per 100 vehicles. In fact, the company has attempted to prevent any sort of quality review of its cars for years:
Although to be entirely accurate, Tesla isn't officially ranked last, because the brand won't allow J.D. Power to survey its customers in 15 states where OEM permission is apparently required. "However, we were able to collect a large enough sample of surveys from owners in the other 35 states and, from that base, we calculated Tesla's score," said Doug Betts, president of the automotive division at J.D. Power.
Seems like normal behavior for the world’s most valuable car company - barring anyone from surveying your customers about the quality of your cars.
Anyhow, Elon thinks the whole thing is hilarious. I’m sure his sick workers feel the same way.
Insys Pharmaceuticals
Very few pharma executives have gone to jail for the opioid epidemic. Many, like the Sacklers, have paid fines and gone about their business, despite killing hundreds of thousands of people in pursuit of profits.
Well, some people from a company called Insys did actually go to jail:
Seven of the Insys executives and employees on trial were found guilty of masterminding and participating in a scheme to bribe doctors to prescribe the drug. Kapoor was sentenced to five and a half years on charges that included racketeering conspiracy. Michael Babich, Insys’ former chief executive, and Alec Burlakoff, former vice-president of sales, co-operated with prosecutors and received two and a half, and 26 months, respectively.
You may remember Insys because they made a rap video about fentanyl spray. Their sales tactics were similar to others in the industry - where companies use Not Technically Bribery to funnel money to doctors in exchange for prescriptions, such as speakers’ fees or meals - but Insys took it a step farther and demanded a return on their bribery:
The criminal conspiracy went right to the top. While many pharmaceutical companies pay speakers’ fees to doctors, they don’t officially expect them to prescribe more of their drug. Kapoor insisted on a clear return on investment. “Dr Kapoor doesn’t lose. He made that very clear. He did not want to lose a penny,” Burlakoff recalls. Insys sales representatives were instructed to deliver at least a 2:1 return. “The only way that I knew how to do it, to get that guarantee, is to bribe doctors.”
This clarity was to prove the company’s downfall. Prosecutors discovered a spreadsheet — which they dubbed a “smoking gun” — that showed calculations of the return Insys was getting from its investment in speakers’ fees. Insys also deceived insurers so they would pay for prescriptions. The company created an internal reimbursement centre, giving staff carefully worded scripts known as “The Spiel” that would convince insurers to pay up, often by implying — or even claiming — that a patient had cancer when they did not.
I have said it before - don’t put your crimes in writing. Definitely do not put them in a spreadsheet. Do not create scripts for your employees to lie to insurance companies. Do not do any of this, unless you are okay with doing jail time! Also, while we’re at it, do not make rap videos about your fentanyl spray. That is more of an aesthetic choice, but as I’ve also said before, you sometimes have to think about how it’s going to look to a jury.
Bad Legal Advice
One of the founders of “Students for Trump” has plead guilty to posing as a lawyer online and dispensing legal advice. Here’s the thing, though:
He ran the scheme from August 2016 to April 2018 and made several appearances on news shows, prosecutors said.
He went…on TV? As the fake lawyer? Here is what he looks like:
And here is what his website said:
[…] claimed to have 15 years' experience in corporate and patent law. They also allege Lambert pretended to be a graduate of New York University's law school.
I, uh, would have a hard time believing my lawyer, who looks like that, has 15 years’ law experience, but okay! He only made $46,0000 on the deal and is facing at least a couple years in jail, which seems harsh to me, but maybe he’s angling for a pardon.
Better Late Than Never
A woman in China has been arrested for making over $400,000 booking flight delay insurance on flights she hoped would take off late, cashing in on the policies:
The 45-year-old woman, surnamed Li, booked hundreds of flights from 2015 to 2019. She had no intention of actually taking these trips. Instead, her only goal was to purchase flight delay insurance to turn the flight into a money-making opportunity.
Before buying the insurance, Li would analyze local weather conditions and online reviews to judge which flights would be most likely to be delayed or canceled.
This is fantastic. I’m also unclear how this is illegal, though it’s China so the authorities don’t need much of a reason to arrest you. It was just a creative loophole in travel insurance policies. I applaud her entrepreneurial spirit. Free Li!
How is Zume Pizza Doing?
Remember Zume? They have auctioned off the pizza bus:
If I had $50,000 burning a hole in my pocket - and a way to get to San Francisco - it’d have made a great mobile food truck and hydration station for protesters. Hopefully whoever bought it has the same idea.
Holy Shit, There’s a Lot of Corona Stuff
ProPublica dives deeper into the world of illicit PPE dealers, enabled by our corrupt government’s response to the pandemic.
Payday lenders are bypassing advertising bans by Facebook and Google to target people affected by the pandemic recession.
One third of unemployment payments haven’t arrived yet, Bloomberg estimates.
The Trump administration paid millions for test tubes and got mini soda bottles instead.
Up to $26 billion in US unemployment benefits may have been diverted by fraudsters.
Criminal charges are being filed against people attempting to defraud the Paycheck Protection Program.
Millions of dollars’ worth of hospital gowns were sold to the Bureau of Prisons by a White House “volunteer” with no experience.
A Silicon Valley investor used gig workers to repackage non-medical masks to sell to state health systems.
Tips, mini soda bottles, or pizza trucks to scammerdarkly@gmail.com.