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December, 2012

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VISIT US ONLINE @ DSNEWS.COM Mineola, New York, in Manhattan federal court. In addition to his prison sentence he was also ordered to give up $7.2 million. Through Finger's scheme, he and his coconspirators fraudulently obtained more than $9 million in mortgage loans to purchase dozens of residential properties throughout New York City and Long Island, with most of the loans going into default, according to a release. "Eric Finger's sentence is a fitting conclusion for a man who abused his license to practice law and disgraced the bar by helping to facilitate a multi-million dollar fraud scheme. He has now lost his liberty and will forfeit millions in ill-gotten gains," said Bharara. According to the indictment and statements made in court proceedings, Finger and his co-conspirators used "straw buyers" to fraudulently obtain mortgages from lenders. Finger was retained to act as the lender's counsel on many of the fraudulent transactions, but instead of representing the lender's interest at closing, he disbursed fraudulently obtained mortgage proceeds to co-conspirators and lied to his clients about the transactions. The identities of those who received the loan proceeds and the amounts received were also misrepresented. The co-defendants in the case, Jeffrey Larochelle, Denise Parks, Frederick Warren, Joell Barnett, Foriduzzaman Sarder, Sakat Hossain, Mikael Huq, Fritz Bonaventure, Dorian Brown, and Reginald Johnson, pled guilty previously. Sarder was sentenced to 78 months in prison; Hossain was sentenced to 29 months in prison; Huq was sentenced to 42 months in prison; Parks was sentenced to time served; Warren was sentenced to 51 months in prison; Bonaventure was sentenced to three months in prison; Brown was sentenced to four months in prison; and Johnson was sentenced to 51 months in prison. Larochelle and Barnett are still awaiting sentencing. Judge Disagrees with JPMorgan's Argument to Dismiss FHFA MBS Suit A U.S. district judge in Manhattan squashed an attempt by JPMorgan Chase to fully dismiss a lawsuit from the Federal Housing Finance Agency (FHFA) over alleged misrepresentation of mortgage-backed securities (MBS). In its case, FHFA contends that Fannie Mae and Freddie Mac purchased approximately $33 billion of MBS sponsored or underwritten by JPMorgan, Bear Stearns, or Washington Mutual—the latter two entities were acquired by JPMorgan Chase in 2008. The offering documents for the certificates sold to the GSEs contained false or misleading statements or omissions, FHFA alleges. The loans contained in those securities were improperly underwritten, FHFA says, leading to losses when they defaulted in the housing crash. In its motion to dismiss, JPMorgan argues, among other things, that FHFA's complaint does not contain enough factual support to show the loans in question were not underwritten properly. Judge Denise Cote disagreed. "The Amended Complaint devotes over 60 of its 321 pages to . . . factual support," Cote said in her ruling. "Taken together, these allegations amply support FHFA's assertion that the offering documents for the securitizations contained false statements regarding originators' compliance with underwriting standards." Cote cited heavily a decision she made in May, when UBS tried to dismiss a similar case from FHFA. That motion was also denied. The matter wasn't a total loss for JPMorgan, however. Cote did agree with the bank that FHFA failed to prove fraud on JPMorgan's part regarding statements on owner-occupancy rates and loan-to-value ratios for the mortgages in the securities. Cote's ruling will almost certainly affect other defendants in the case, including Credit Suisse, Citigroup, and Goldman Sachs. A spokesperson for JPMorgan did not return requests for comment. Citigroup Reports Net Income Down in Q3 Citigroup reported a net income of $468 million, or $0.15 per share, for the third quarter of 2012, down from $3.8 billion in the same quarter a year ago. The New York-based bank said its thirdquarter results included a pre-tax loss of $4.7 billion after the company decided to sell its remaining stake in Morgan Stanley Smith Barney (MSSB) to Morgan Stanley. MSSB, a retail brokerage formed in 2009, is a joint venture between Citigroup and Morgan Stanley. In addition, Citi reported a negative credit valuation adjustment (CVA)/debt valuation adjustment (DVA) of $776 million in the third quarter, compared to a positive $1.9 billion last year. Citi reported revenues of $14 billion in the third quarter. When excluding the MSSB loss and negative CVA/DVA adjustment, revenues were $19.4 billion, up 3 percent from the prior quarter and up 26 percent from the same period a year ago. In a release, Vikram Pandit, Citi's CEO, said, "Last month's price agreement on MSSB has given us more certainty on our exit from that business and added to the reduction of Citi Holdings, which is now only 9 percent of our balance sheet. We generated additional capital during the quarter and our Tier 1 Common Ratio was estimated at 8.6% on a Basel III basis at the end of the period. We are managing risk very carefully given global economic conditions so we can continue to grow our businesses safely and soundly." The bank's North American consumer banking revenues improved 6 percent from the previous year to $5.4 billion. Consumer banking revenues were partially offset by international consumer banking revenues, which fell 2 percent to $4.8 billion. Higher mortgage revenues helped the bank see retail banking revenues increase 35 percent to $1.7 billion from the third quarter of 2011. The bank also reported about $635 million in incremental mortgage charge-offs, which was substantially offset by a reserve release of about $600 million. Cumulative CMBS Defaults Up But Slowed by New Issuances The cumulative default rate for commercial mortgage-backed securities (CMBS) in the United States rose over the third quarter, largely due to an increase in defaults among office loans, according to the latest data from Fitch Ratings. The New Yorkbased ratings agency reported the CMBS delinquency rate rose from 13.2 percent in the second quarter of this year to 13.5 percent in the third quarter. The total amount of CMBS loans that defaulted in the third quarter was $2.2 billion. The total number of newly defaulted loans during the quarter was 119. Office loans made up more than half of both newly defaulted loans in the third quarter and year-to-date defaults, according to the ratings agency. Of the $2.2 billion newly defaulted CMBS loans in Q 3, $1.4 billion were office loans. Despite the slight increase in defaults, Fitch says new issuances of CMBS loans are staving off the CMBS default rate somewhat. "The increase in new CMBS issuance over 115

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