March 28, 2017
What We’re Reading This Week
Last week, I wrote about Goldman Sachs finding an odd way to satisfy its requirement to provide mortgage relief. At the time, I thought it might be the most interesting iteration of satisfying that kind of penalty. It turns out I was wrong. Deutsche Bank wins that contest:
“Deutsche Bank AG has been offering attractive financing terms to help investors and other banks buy soured mortgages, a bid by the German lender to help fulfill terms of its recent $7.2 billion mortgage settlement with the U.S. government, according to people familiar with the matter.”
That’s right…Deutsche Bank can get credit for lending money to companies like Goldman to go buy bad debt and restructure it later. Essentially, you can get credit for your mortgage settlement just by being near someone that modifies a mortgage. Unfortunately, both Goldman and Deutsche cannot get credit on the same debt. Meaning, Deutsche cannot lend money to Goldman to buy and modify debt to the extent that they would both receive credit for the debt modification. For Goldman and others modifying loans the hard part is deciding which loans should be modified to allow the bank to still turn a profit. For Deutsche the hard part is finding banks that do not also owe the government money related to mortgage settlements.
Sometimes I write about insider trading and the silly things traders did during that process. My approach is if you find yourself stuffing cash into a duffel bag, something has gone wrong in your life. Insider trading can be difficult to prosecute and often the charges come down to securities fraud. Of course, there are other types of fraud and scams in the finance world but they are not very interesting to me. The most common type of fraud is phishing. This is when a fraudulent person or persons email legitimate people or companies and pretend to be another legitimate person. The email campaigns are designed to elicit personal information or money from the target.
This case is like that but is unique in terms of the targets and the amount of money. 48-year-old Evaldas Rimasauskas tricked two large, American, technology companies into wiring him $100 million. Unfortunately, we do not have a lot of information on the targets.
“The indictment specifically describes the companies in vague terms. The first company is ‘multinational technology company, specializing in internet-related services and products, with headquarters in the United States,’ the documents read. The second company is a ‘multinational corporation providing online social media and networking services.’”
To me that mostly sounds like Apple and Facebook but that’s just speculation. That is what makes this unique, but it is not what makes it interesting. See, Rimasauskas created fake contracts, invoices, and other documents to convince these companies to wire him the money. I would assume that he did not actually develop a product that they were interested in buying. My point is, he potentially made it through several layers of protection and sold $100 million of something to huge tech companies that legitimate providers would kill to present to. The more likely scenario is that he just pretended to be from a company already doing business with the tech companies. Doesn’t part of you wish it was the former? I kind of like the idea of a criminal so good at perpetrating fraud that they accidently honed a valuable skill.
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