| Lehman Liable in Predatory Lending Case
Reports say company liable for 10% of First Alliance, FTC settlement June 19, 2003 By ANNE LINEBERRY |
| A federal jury has found an investment banker partially liable for a mortgage company’s alleged predatory lending scheme, according to wire reports.
Lehman Bros. Holdings Inc. was found by the jury to be liable for 10 percent of the $51 million in damages it awarded to plaintiffs that claimed they were defrauded by First Alliance Corp. of Irvine, California, the Associated Press (AP) said. The New York Times reported that the jurors answered in the affirmative to questions including whether Lehman Brothers “substantially assisted First Alliance in perpetrating the fraud.” The AP also reported that the jury assessed 85 percent of the damages to First Alliance and the remaining five percent to MBIA insurance, which was not a defendant in the suit. This judgement represents the first time an investor has been held accountable for the practices of a lender, the Los Angeles Times said. The New York Times report included evidence presented to the jury. Specifically cited was a memorandum from a Lehman executive which described First Alliance as a place where “It is a requirement to leave your ethics at the door.” “This is going to slow down somebody who’s thinking about funding a predatory lending scheme. There’s now a jury verdict that Wall Street can be held liable for failing to supervise the use of their money,” plaintiff’s lead attorney Richard Scruggs said to the LA Times in an interview on the courthouse steps. According to press reports, Lehman released a statement denying company knowledge of any wrongdoing by loan officers at First Alliance. A lawyer for Lehman told AP that the company would appeal. The Wall Street Journal reported Wednesday that Lehman might have bigger problems ahead. According to the Journal, the bankruptcy trustee handling the First Alliance liquidations is asking for Lehman to return $83 million it has received as one of First Alliance’s creditors. First Alliance filed for bankruptcy in 2000, shortly after the news magazine 20/20 aired a story detailing practices at the mortgage lender. The television investigation piece used information from both ABC and The New York Times. The New York Times said that First Alliance charged up to 25 points on its loans. Two customers appearing in the news magazine investigative report described how they were charged $13,000 in origination fees, for relatively small loans. In early 2002, First Alliance reached a settlement with the Federal Trade Commission stemming from predatory lending allegations. In the agreement, which the FTC says may result in up to $60 million in restitutions, chief executive officer Brian Chisick and his wife were to personally pay $20 million to borrowers. Other terms banned either of them from originating mortgages in California, Florida and Illinois. |
|
Anne Lineberry is MortgageDaily.com‘s editor. She previously worked as an online editor/producer for DallasNews.com and on the Metropolitan desk for the print edition of The Dallas Morning News. Email Anne at AnneLineberry@MortgageDaily.com |
