By Pam Martens: April 17, 2013
When dazzlingly credentialed consultants are paid over $2 billion by some of the largest banks in the country to ostensibly restore trust among consumers by making a serious effort to root out foreclosure fraud and provide just restitution to the victims, what one doesn’t expect is for the exorbitantly paid consultants to trigger a Senate investigation, national media probes, two critical reports by the General Accountability Office and an explosion of outrage by foreclosure victims on hot social media sites.
While the government’s so-called Independent Foreclosure Review resulted in seven firms being hired by banks and mortgage servicers, the consultancy firm taking the brunt of the scrutiny, and rightfully so, is Promontory Financial Group. Its business model is only slightly less dangerous than the too-big-to-fail banks that employ it for everything from cost-cutting to regulatory reviews.
Promontory Financial Group was founded in 2001 by Eugene Ludwig and Alfred Moses, two long term partners of Covington & Burling, a law firm with intimate ties to Wall Street banks. Ludwig, who serves as CEO at Promontory today, had worked at Covington for two decades before being plucked by President Clinton to head the Office of the Comptroller of the Currency (OCC), the Federal agency overseeing national banks. Ludwig is not the only former partner of Covington to serve as chief of the OCC. John Dugan, who has returned to Covington to chair its Financial Institutions Group, headed the OCC from 2005 to 2010 – the critical period leading up to and including the collapse of major Wall Street banks.
Ludwig headed the OCC from 1993 to 1998. He, along with other Wall Street sycophants like Robert Rubin, Larry Summers and Alan Greenspan, championed the deregulation of Wall Street and the repeal of the Glass Steagall Act. Ludwig testified as follows before the House of Representatives on March 5, 1997 on the topic of deregulation and banks enjoying a subsidy from their FDIC insured deposits:
“…we should not let an unsupported hypothesis that banks enjoy a subsidy dissuade us from pursuing financial modernization. And we should not let an unsupported hypothesis dissuade us from adhering to a fundamental principle that should underlie modernization: Financial institutions need the freedom to manage their activities and structure their operations in a way that best suits their needs and the needs of their customers. Allowing these institutions to engage in new activities on the one hand but imposing an artificial structure on the other will impede rather than promote safety and soundness. It will not limit any more effectively their use of the alleged subsidy, even if the subsidy actually existed. And it will impose substantial costs and inefficiencies on the financial services industry that limit the industry’s ability to prosper, to serve America’s consumers and communities, and to compete in the global marketplace.”
Ludwig’s now completely discredited logic and fist pumping for Wall Street, which ushered in the greatest economic collapse since the Great Depression, has thus far done nothing to dent his rising star. Promontory has offices in far flung cities around the world. Ludwig lives on an $11.5 million estate in the ritzy Foxhall section of Washington, D.C. His property taxes for 2013, $54,789.12, are more than twice the household income of 46 million Americans living below the poverty level, many of whom have lost all of their life savings and their homes as a result of Wall Street scams.
Moses, the co-founder of Promontory and currently listed as its Senior Partner and Chief Strategy Officer, has worked for Covington & Burling for over four decades. Curiously, the Promontory web site says Moses “was” employed as a partner at Covington. The Covington web site says he is currently employed there as senior counsel, “practicing in the areas of litigation, corporate and securities matters.” Why does that matter?
Promontory is styling itself as a regulator’s regulator – willing to bring its vast personnel roster of former regulators to do internal reviews at banks to quash or pacify any unfolding fraud investigations. If the co-founder is still employed at a law firm enmeshed in shielding Wall Street from prosecutions, that raises red flags.
And enmeshed in Wall Street is an apt description of Covington & Burling. The firm was founded in 1919 and states on its web site that its founders “foresaw the pervasive effects of the forthcoming era of federal legislation, regulation, and taxation.”
According to the Legal 500, Covington & Burling in is the top ranks of law firms with major financial services practices, singling its lawyers out as follows:
“Covington & Burling LLP’s ‘preeminent’ regulatory expertise and ‘unparalleled service’ have helped it become a ‘go-to firm in the field.’ Civil litigator Sonya Winner has a robust record of defending US banks in consumer credit cases, including representing Wells Fargo Bank in 12 class actions suits concerning overdraft fees, and acting for Bank of America in an antitrust action relating to interchange fees on ATM transactions…The ‘timely’ and ‘unfailingly courteous’ Stuart Stock guided Wells Fargo Bank through a compliance investigation by the Federal Reserve Board (FRB). Stock had a busy year for regulatory representations in the mortgage sector, and he also acted for new clients Citigroup and Citibank in connection with consent orders issued by the Office of the Comptroller of the Currency (OCC) and FRB. This ‘client-friendly’ team – led by D. Jean Veta – also represented the former CEO of IndyMacBancorp in bankruptcy and MBS litigation.”
Moses’ dual roles at Promontory and Covington & Burling will hopefully be probed by the Senate panel investigating the serial conflicts of interest on the part of consultants hired to deliver restitution to defrauded homeowners in foreclosure. Bank of America and Wells Fargo, listed above as clients of Covington & Burling, were two of the firms for which Promontory had a contract to root out foreclosure abuse under the government’s Independent Foreclosure Reviews.
In the meantime, Moses is quite comfortable in a mansion in McLean, Virginia on 14 acres and a penthouse near Sutton Place in Manhattan.
The U.S. Senate’s Subcommittee on Housing, Transportation and Community Development, part of the Senate Banking Committee, will meet today at 10 a.m. to take up the matter of the foreclosure review process.
The Independent Foreclosure Review (IFR) was created in 2011 by the OCC and the Federal Reserve under consent orders with banks and mortgage servicers. It mandated that the institutions hire independent consultants to review foreclosure files from 2009 and 2010 to determine where illegal activity occurred and to recommend appropriate monetary remedies. As last Thursday’s Senate hearing revealed, the banks themselves conducted the final phase of the process, making their own determinations on injuries.
Early this year, the IFR was abruptly halted with only 100,000 out of a potential 4 million case files reviewed. The new plan calls for paying out 80 percent of the 4 million potential victims a check for under $1,000. A small percentage will receive larger amounts up to $125,000.