DEFINITIVE ILLEGALITY OF SECURITISATION IS RECONFIRMED

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IT IS ILLEGAL TO ASSIGN AN ASSET WITHOUT THE ASSET-OWNERS’S PRIOR WRITTEN PERMISSION. ALL ENGAGED IN THIS RACKETEERING KNOW IT.

Sunday 18 April 2010 00:01

• ANY CONTRACT ENTERED INTO FOR AN ILLEGAL PURPOSE IS NULL AND VOID

• THE TEXT OF THE S.E.C.’S COMPLAINT AGAINST GOLDMAN SACHS & CO. FILED ON 16TH APRIL 2010 IS AVAILABLE IN THE REPORT ALSO DATED 18TH APRIL. TO ACCESS THE S.E.C. COMPLAINT, PLEASE PRESS ‘BACK TO ARCHIVE’ OR THE ARCHIVE BUTTON [HOME PAGE]. THE REPORT CONTAINS A BRIEF COMMENTARY IN NOTE FORM, THE S.E.C.’S RELATED PRESS RELEASE, AND THE COMPLAINT TEXT. THIS CASE SPECIFICALLY ILLUSTRATES MANY OF THE ISSUES EXPOSED IN THE PRESENT REPORT, WITH DEVASTATING EFFECT AND IMPACT.

• Securitisation is ABSOLUTELY ILLEGAL, and all those talking heads from the City of London and Wall Street who have been treating, for example, the Goldman Sachs scandal (that we warned you about years ago) as just ‘the inevitable fall-out after a period of financial crisis’, rather than the corrupt cause of the crisis, are KNOWINGLY MISLEADING THE GENERAL PUBLIC EXACTLY LIKE GOLDMAN SACHS, CITIBANK, BANK OF AMERICA, WACHOVIA, WELLS FARGO and the other US and foreign financial enterprises engaged in this racketeering. Which the IMF CONDONES.

And before you start shouting at the screen, if you’re reading this from Wall Street or the City of London, or from within the IMF and the World Bank, why don’t you pay attention to the fact that the Notes and References, as originally published in our journal Economic Intelligence Review, run to FIVE AND A HALF PAGES. SECURITISATION IS ABSOLUTELY ILLEGAL: AND THEY KNOW IT.

MISPRISION OF FELONY: U.S. CODE, TITLE 18, PART 1, CHAPTER 1, SECTION 4:
‘Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some Judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both’.

‘Seeing what’s at the end of one’s nose requires constant effort’. George Orwell.

• Please be advised that the Editor of International Currency Review and associated intelligence services cannot enter into email correspondence related to this or to any of the earlier reports.

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Christopher Story FRSA, Editor and Publisher, International Currency Review, World Reports Limited, London and New York. For earlier reports, press the ARCHIVE. Order your intelligence subscriptions and ‘politically incorrect’ [i.e., correct] intelligence books online from this website.

• CMKM/CMKX CASE DOCUMENTS:
Press Archive for this report [29th January 2010]
Case Number CV10-00031 JVS (MLGx):
SERVICE OF CMKM.CMKX $3.87 TRILLION SUIT VS. S.E.C.
You can also access the CMKM/CMKX text at: http://viewer.zoho.com/docs/paKdda
The biggest lawsuit in world legal history: The phantom share giga-scandal.

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NEW REPORT STARTS HERE:

EDITOR’S INTRODUCTION:
That Asset-Backed Securitisation [ABS] is fraudulent has been amply demonstrated by our website reports, in this service and in successive issues of International Currency Review. In the following uncompromising analysis, Mr Michael Nwogugu CPA, who is based in Maryland, demonstrates with pinpoint technical proficiency how accurate this assessment has been – inspired for our part inter alia by the US securities and technical expertise of Michael C. Cottrell, B.A., M.S.

The author has looked at securitisation from every legal angle, and finds securitisation under US law to be absolutely illegal, with no redeeming features whatsoever.

Given this state of affairs, it would damage the integrity of the English language to observe that it is astonishing that, far from paying attention to this glaring state of affairs, US investment banks, intermediaries, organised criminal syndicates, Intelligence Power cadres, officials in high places, and their counterparties abroad, further encouraged inter alia by the railroading behaviour of the Depository Trust and Clearing Corporation (DTCC), have been proceeding to gear up for ‘business as usual’ securitisation operations as though there had been no discontinuity.

In addition to being ILLEGAL UNDER U.S. LAW, securitisation is ILLEGAL UNDER COMMON LAW. If the prior written permission of the mortgagor (or other type of asset-holder) has not been obtained in writing, and in such a manner that the party IS FULLY AWARE THAT THEY HAVE GRANTED SUCH PERMISSION, the transfer and all subsequent transactions are ILLEGAL.

• Moreover, the legal axiom that ‘the money you make from exploitaing and abusing my money is my money’ likewise applies. PLUS:

• ANY CONTRACT ENTERED INTO FOR AN ILLEGAL PURPOSE IS NULL AND VOID.

Self-evidently, this study focuses on the US legal position. But the same basic principles apply in all Common Law Countries. So far, the talking heads in the so-called ‘Mainstream’ Media’ have chosen to ignore the fact that securitisation is ILLEGAL. Reality will soon be catching up with them, just as it is at last catching up with the likes of Goldman Sachs and other ‘protected’ enterprises.

REPRODUCED FROM:
ECONOMIC INTELLIGENCE REVIEW, VOLUME 12, NUMBERS 7 & 8, FIRST QUARTER 2010: pages 4-21. World Reports Limited, 108 Horseferry Road, Westminster, London SW1P 2EF, UK.

EXECUTIVE SUMMARY [REPRODUCED FROM OUR REPORT DATED 10TH MARCH 2010]:

WHY SECURITISATION IS ILLEGAL UNDER U.S. AND COMMON LAW
Securitisation is illegal under US legislation – primarily because it is fraudulent and causes specific violations of R.I.C.O., usury, Antitrust and bankruptcy laws. And it flies in the face of public policy in numerous ways, as was expounded in extensive detail in this analysis published in our journal Economic Intelligence Review 2009Q1 with several pages of book, article and case references.

To begin with, securitisation violates US State usury legislation. Secondly, all ‘true-sale’, ‘disguised loan’ as well as ‘assignment’ securitisations are essentially tax evasion schemes, and the penalties for tax evasion in the United States are excessively severe.

Thirdly, in all ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations, the conflict of interest inherent in the sponsor also serving as the servicer constitutes fraud and conversion. In the fourth place, in all ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations where the Special Purpose Vehicle [SPV] is a trust, the declaration of trust is void, as it exists for an illegal purpose.

In the fifth place, off-balance sheet treatment of asset-backed securities (both for ‘true-sale’ and for assignment transactions) constitutes fraud.

Sixth, all ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations involve blatant fraudulent conveyances. In the seventh place, securitisation usurps United States bankruptcy laws and is accordingly illegal, as well as being also demonstrably contrary to public policy.

SECURITISATION ENTAILS GROSS VIOLATIONS OF R.I.C.O. STATUTES
In ‘true-sale’, ‘disguised loan’ and ‘assignment’ securitisations, there are fraudulent transactions which serve as ‘predicate acts’ under US Federal R.I.C.O. statutes.

The specific R.I.C.O. sections are: Section 1341 (mail fraud); Section 1343 (wire fraud); Section 1344 (financial institution fraud); Section 1957 (engaging in monetary transactions improperly derived from specified unlawful activity) [‘the money you make from the illegal exploitation of my money, is my money’]; and Section 1952 (racketeering).

Furthermore, securitisation constitutes violations of American antitrust statutes through market integration, syndicate collusion, price formation, vertical foreclosure, tying, price-fixing, predatory pricing, and the rigging of allocations.

Securitisation also involves void contracts, given the lack of consideration, illusory promises, the absence of any actual bargain, the absence of mutuality – and finally illegal subject matter and the contravention of public policy.

Securitisation is riddled with Fraudulent Transfer, Fraud in the Inducement, Fraud in Fact by Deceit, Theft by Deception (Fraudulent Concealment) and Fraudulent Conveyance: see the US securities regulations routinely breached in such activity, listed at the foot of this report and of most of these reports for THE PAST THREE++ YEARS, and other laws also routinely flouted in this context.

NOTWITHSTANDING THAT IT’S ILLEGAL, U.S. AUTHORITIES
CONTINUE TO PROMOTE AND ENCOURAGE SECURITISATION
Yet notwithstanding such crystal-clear indications that securitisation is 100% ILLEGAL under US Law, as well as under Common Law generally (so that these findings are largely applicable in all Common Law countries), US authorities from the highest level downwards, financial institutions, intermediaries, Intelligence Power operatives and others are gearing up for what they doubtless hope will be intensified racketeering and trading activity with (corrupt) foreign counterparties.

This behaviour is being fine-tuned ‘as we speak’, despite the reality that the securitisation activity being planned and implemented violates innumerable US statutes in the manner we summarise above, and notwithstanding that such activity is contrary to public policy. TAnd the International Monetary Fund knows all this perfectly well, yet sits idly by, accommodating this racketeering.

Indeed, it’s as though the Rule of Law did not exist. From the highest level of the US Treasury, the White House, the US State Department and the Central Intelligence Agency and its subsidiaries such as the lethal Office of Naval Intelligence (ONI), the mindset, intention and perverse primary objective has all along been to resume Fraudulent Finance based on securitisation, as quickly and as seamlessly as possible. The IMF and World Bank are parties to thus aberrant behaviour.

SUMMARY FORENSIC ANALYSIS PROVING THE ILLEGALITY OF SECURITISATION
From whichever angle securitisation is considered, it is ILLEGAL. For example, the contracts are themselves VOID. This is because the process of securitisation involves several contracts that are either signed simultaneously, or within a short timeframe – many of which are rendered void inter alia because there is no consideration in contracts used in effecting the securitisations.

Many such contracts involve unilateral executory undertakings containing illusory promises. A unilateral executory promise is not a consideration. Such promises typically include a promise made by the Special Purpose Vehicle to pay out periodic interest, whether contingent or non-contingent on whether the collateral pays cash interest.

Collateral-substitution agreements contain a promise whereby the sponsor agrees to substitute impaired collateral. An assignment agreement of future (not yet existing) collateral may well be deemed a unilateral executory promise by the sponsor.

Illusory promises are not valid consideration for a contract. Such promises may be found in the Subscription/Purchase Agreement, whereby an existing asset is being exchanged for a future asset that does not exist as of the date of the subscription/purchase agreement. To make matters worse, none of the agreements typically signed by the investor as part of his/her purchase of the Special Purpose Vehicle’s Asset-Backed Securities expressly incorporates the (typically illusory) promises embodied in the offering prospectus.

OR: The Special Purpose Vehicle’s promise to pay interest and/or dividends on Asset-Backed Securities ‘Interest-Onlys’, Preferreds and ‘Pincipal-Onlys’ are essentially illusory promises because the underlying collateral may not produce any cash flows at all: so there won’t be any interest/dividend payments.

Moreover the lack of mutuality characterising such contracts renders them null and void, by definition. In any such contract, each party must have firm control of the subject matter of the contract and the underlying assets (consideration), and there MUST be a direct contractual relationship between the parties concerned.

But this is not the case, especially as the Special Purpose Vehicle’s corporate documents (trust indentures or bylaws or articles of incorporation) may typically limit the right of each Asset-Backed Security investor; while there is typically no mutuality at all between the Special Purpose Vehicle and the sponsor/originator, because both entities are essentially the same, and are controlled by the sponsor before and after the securitisation takes place.

SECURITISATION: A COVER FOR TAX EVASION
In addition to their multiple violations of American State usury laws, all ‘true-sale’, ‘disguised loan’ and ‘assignment securitisations’ are essentially tax evasion arrangements. In the United States, the applicable tax evasion statute is the US Internal Revenue Code Section 7201 7 which reads: “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution”.

Under this statute and related case law, prosecutors
must prove three elements beyond any reasonable doubt:

(1): The actus reus (the guilty conduct) – which consists of an affirmative act (not merely an omission or failure to act) that constitutes evasion or an attempt to evade either: (a) the assessment of a tax or (b) the payment of a tax.

(2): The mens rea or “mental” element of willfulness – the specific intent to violate an actually known legal duty. In the case of ‘true sale’ transactions, the tax evasion occurs because:

(a): The sponsor determines the price at which the collateral is transferred to the SPV, and hence, can arbitrarily lower/increase the price to avoid capital gains taxes – it being assumed here that the sponsor is a profit-maximising entity and will always act to minimise its tax liability and to avoid any tax assessment;

(b): The sponsor typically retains a ‘residual’ interest in the SPV in the form of IOs, POs and “junior pieces”, which are typically taxed differently and on a different tax-basis compared with the original collateral: hence, the sponsor can lower the price of the collateral upon transfer to the SPV, and convert what would have been capital gains, into a non-taxable basis in the SPV “residual”;

(c): There is typically the requisite “intent” by the sponsor – evidenced by the arrangement of the transaction and the transfer of assets to the Special Purpose Vehicle;

(d): Before securitisation, collateral is typically reported in the sponsors’ financial statements at book value (that is, lower-of-cost-or-market: under both the US and the international accounting standards, loans and accounts receivable are typically not re-valued to market-value unless there has been some major impairment in value) which does not reflect true Market Values, and results in effective tax evasion on transfer of the collateral to the SPV, as any unrealised gain is not taxed;

(e): The actus reus is manifested by the execution of the securitisation transaction and transfer of assets to the Special Purpose Vehicle (SPV);

(f): The mens rea or specific intent is manifested by the elaborate arrangements implicit in securitisation transactions, the method of determination of the price of the collateral to be transferred to the SPV, the aims of securitisation, and the sponsor’s transfer of assets to the SPV;

(g): The unpaid tax liability consists of foregone tax on the capital gains from the collateral (the transaction is structured to avoid recognition of capital gains), and tax on any income from the collateral which is ‘converted’ into basis or other non-taxable forms;

(h): Income (from the collateral) that would have been taxable in the sponsor’s own financial statements, is converted to a non-taxable basis in the form of the SPV’s Interest-Only (IO) and Principal-Only (PO) securities: part of the Interest-Spread (the difference between the SPV’s income and what it pays as interest and operating costs) is paid out to PO-holders, and this transforms interest into return-of-capital or just capital repayment, with no tax consequences.

In cases of ‘disguised loan’ or ‘assignment’ securitisation transactions, tax evasion occurs:

(a): Because the sponsor determines the price at which the collateral is transferred to the SPV, and hence can lower/increase the price of the collateral to avoid capital gains taxes;

(b): Because the sponsor typically retains a ‘residual’ interest in the SPV which is normally taxed differently and on a different tax-basis compared to the original collateral: hence, the sponsor can lower the price upon transfer to the SPV, and convert what would have been capital gains, to a non-taxable basis for tax purposes;

(c): Because the transfer of collateral to the SPV and the creation of Interest-Only and Principal-Only securities converts what would have been taxable capital gains into non-taxable basis;

(d): Because gain in the value of the collateral is not recognised for tax purposes, because there has not been any ‘sale’;

(e): Where the Asset-Backed Security (ABS) is partly amortising, any capital gains are converted into interest payments;

(f): Because actus reus is manifested by the execution of the securitisation transaction and transfer of assets to the SPV;

(g): Because the mens rea or specific intent is manifested by the elaborate arrangements implicit in securitisation transactions, the objectives of securitisation and the sponsor’s transfer of assets to the Special Purpose Vehicle;

(h): Because the unpaid tax liability consists of tax on the capital gains from the transfer of the collateral (the transaction is structured to avoid recognition of a sale, whereas the transfer to the Special Purpose Vehicle is effectively a sale), and tax on any income from the collateral which is ‘converted’ into basis or other non-taxable forms, by securitisation.

SECURITISATION VIOLATES THE U.S BANKRUPTCY CODE
AND THEREFORE ALSO CONTRAVENES PUBLIC POLICY
Any transfer or conveyance of the assets of a debtor that is deemed to be made for the purposes of hindering, delaying or defrauding actual or potential creditors, may be determined by Courts to be a Fraudulent Conveyance under Section 548 of the US Bankruptcy Code or under a relevant theory of Constructive Fraud.

Although each US State has its own laws regarding the appropriate elements of proof of Constructive Fraud, Section 548(a)(2) of the US Bankruptcy Code permits an inference of Constructive Fraud if the following factors exist:

(1): The debtor received less than reasonably equivalent value for the property transferred; and:

(2): The debtor was insolvent or became insolvent as a result of the transfer, or else retained unreasonably small capital after the transfer, or made the transfer with the intent or belief that it would incur debts beyond its ability to pay.

The following theories of Fraudulent Conveyance within the context of securitisation may apply:

• Where the sponsor/originator receives insufficient value for assets transferred.

• Where there is an ‘intent to hinder, delay or defraud’ creditors (representing an implicit pre-petition waiver of one’s right to file for bankruptcy), with regard to the originator’s transfer of assets to the SPV, or the originator’s transfer of assets to the SPV has clearly not been undertaken on an arms’-length basis.

• Where securitisation increases the originator’s bankruptcy risk; and:

• In all instances where securitisation usurps the United States’ bankruptcy laws and is therefore illegal on such a basis alone.

SECURITISATION VIOLATES FEDERAL R.I.C.O. STATUTES
Turning now to the reality that securitisation constitutes a violation of US Federal R.I.C.O. Statutes [see Legal Notes below], we can state without equivocation that the entire securitisation process constitutes violations of Federal R.I.C.O. statutes, because:

(1): There is the requisite criminal or civil ‘enterprise’ – consisting of the sponsor/issuer, the trustees and the intermediary bank. These three parties work closely together to effect the securitisation transaction.

(2): There are ‘predicate acts’ of:

(a): Mail fraud – using the mails for sending out materials among themselves and to investors.

(b): Wire fraud – using wires to engage in fraud by communicating with investors.

(c): Conversion – where there isn’t proper title to collateral.

(d): Deceit: misrepresentation of issues and facts pertaining to the securitisation transaction.

(e): Securities fraud: disclosure issues.

(f): It entails loss of profit opportunity.

(g): It involves the making of false statements and or misleading representations
about the value of the collateral.

(h): It entails stripping the originator/issuer of the ability to pay debt claims or judgment claims in bankruptcy court – a state of affairs that may apply where the sponsor is financially distressed and the cash proceeds of the transaction are significantly less than the value of the collateral.

There is also typically the requisite ‘intent’ by members of the enterprise – evident in knowledge (actual and inferable), acts, omissions, purpose (actual and inferable) and results. Intent can be reasonably inferred from:

(a): The existence of a sponsor that seeks to raise capital – and cannot raise capital on better terms by other means;

(b): The participation of an investment bank that has very strong incentives to consummate the transaction on any agreeable (but not necessarily reasonable) terms.

SECURITISATION ALSO VIOLATES U.S. ANTITRUST LEGISLATION
Securitisation further constitutes violations of US Antitrust laws, because the American Asset-Backed Securities and Mortgage-Backed Securities markets are dominated by relatively few large entities such as FNMA (Fannie Mae), Freddie Mac, the top five investment banks (all of which have conduit programs), and the top five credit card issuers (MBNA, AMEX, Citigroup, etc.), etc.. As a consequence, the top five ABS/MBS issuers control more than 50% of the US ABS/MBS market.

• This constitutes illegal market concentration under US Antitrust legislation.

THE ‘PHILIPPINES EXCEPTION’ BURIED IN THE CLAYTON ACT
In the Antitrust context, however, observe the following text from the Clayton Act, which specifically EXCLUDES transactions undertaken with The Philippines. Isn’t that interesting?

It provides a blanket rationale for the massive past and ongoing US clandestine focus on The Philippines, the CIA’s need for ‘black hole’ conditions there in connection with successive US operations to relieve Presidents Marcos and Aquino of the stolen and hidden ‘Yamashita’s gold’, the US Fraudulent Finance operations using Philippine institutions and related operations based in that territory, an aborted US operation to convert The Philippines into a new US State (as had been planned under Clinton for Somalia), and the frequent visits of operatives known to ourselves to The Philippines under cover of attending to ‘orphanages’:

§ 1 Clayton Act, 15 U.S.C. § 12 Definitions; short title:
(a) “Antitrust laws”, as used herein, includes the Act entitled:
‘An Act to protect trade and commerce against unlawful restraints and monopolies’, approved July second, eighteen hundred and ninety; sections seventy-three to seventy-seven, inclusive, of an Act entitled ‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes’, of August 27th, eighteen hundred and ninety-four; an Act entitled ‘An Act to amend sections seventy-three and seventy-six of the Act of August twenty-seventh, eighteen hundred and ninetyfour’, entitled ‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes’, approved February twelfth, nineteen hundred and thirteen; and also this Act.

‘Commerce’, as used herein, means trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions or other places that are under the jurisdiction of the United States, or between any such possession or place and any US State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States:

Provided, That nothing in this Act contained shall apply to the Philippine Islands. The word ‘person’ or ‘persons’ wherever used in this Act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

FANNIE MAE, FREDDIE MAC ENGAGED IN FURTHER ILLEGAL SECURITISATION:
RE-SECURITISING ALREADY SECURITISED ‘DUD’ ASSETS TO DUMP BACK ON THE BANKS
Even so, it became apparent in early March that Fannie Mae and Freddie Mac, both controlled by the US Government, were planning to force financial enterprises such as the CIA’s Bank of America Corporation, JP Morgan Chase & Co, Wells Fargo and Citigroup, Inc., to buy back further waves of newly securitised packages of mortgages – i.e., the former Government-Sponsored Enterprises are reportedly engaged again in repackaging mortgage securities already marked down to ‘true’ value.

In other words, they are trying to dump faulty securitised loans, as well as straight loans, back on the participating banks – under cover of such fantasies as the double-minded statement attributed to Sharon McHale, spokes‘person’ for Freddie Mac, located adjacent to the CIA in McLean, Virginia, on 5th March 2010: ‘We are trying to be good stewards of taxpayer dollars and as part of that, it’s important that those dollars not go to loans that should not have been sold to us in the first place’ – throwing the blame for Freddie Mac’s own scandalous racketeering behaviour back at the banks.

• Being interpreted, what this woman was saying was: this:

‘We are covering ourselves with a mantle of rectitude by posing as protectors of the taxpayer’s dollars in order to obfuscate our own ongoing racketeering behaviour, even as we prepare further Fraudulent Finance securitisations in violation of the relevant US legislation: and we couldn’t care less because we are owned by the Government itself, which is up to its neck in such violations’.

And Paul Miller, a former examiner for the Federal Reserve (hardly a guarantee of integrity, given the Fed’s own reputation for Fraudulent Finance), based in Arlington, VA, let the cat out of the bag with: ‘If you want to originate mortgages and keep that pipeline running, you have to deal with the push-backs. It doesn’t matter how much you hate Fannie and Freddie’ – and neither, apparently, does it matter to what extent the Rule of Law is cynically violated ‘in order to keep the pipeline (of Fraudulent Finance) running’. It doesn’t matter that securitisation is a form of racketeering.

GARY GENSLER IS NOT AS OPPOSED TO FRAUDULENT FINANCE AS HE SEEMS
The appointment of Gary Gensler as Chairman of the Commodity Futures Trading Commission under President Obama was greeted with signs of relief on Wall Street. Here was a hardened former Goldman Sachs trader with 18 years’ experience with that cynical, ruthless money shop, who could be relied upon to act at all times in the interests of Wall Street, not the investor and taxpayer.

But, as has since been reported elsewhere, over a private lunch at the Waldorf Astoria in midtown Manhattan on 6th January 2010, the 52-year-old Gary Gensler caused indigestion among the self-satisfied guests at the luncheon – Timothy O’Hara, head of global credit at Crédit Suisse Holdings USA, Inc.; Robert P. Kelly, CEO at Bank of New York Mellon Corporation; David B. Heller, co-head of the securities division at Goldman Sachs; and Seth Waugh, CEO of Deutsche Bank Americas.

Because when one banker asked Gensler what or whom he saw as the biggest obstacles to reform in the securities and commodities sectors, he replied: ‘You’.

Mr Gensler has been seeking derivatives control legislation that goes beyond current proposals, including what President Obama put forward during the summer of 2009. Notwithstanding the fact that if the derivatives situation is not addressed, the forthcoming crash will be so horrific as to be likely to tip the world into open, rather than covert, warfare, a certain Dr Samuel Hayes, Professor Emeritus of Investment Banking at Harvard Business School, Boston, told Bloomberg in February 2010 that ‘Gensler is going to raise real concerns’ for financial firms.

‘Derivatives are absolutely central to what is Wall Street in the 21st century’ – namely, a casino. ‘Nobody wants the regulations to affect them’.

‘GREATER TRANSPARENCY’ IS EVIDENTLY ALL HE‘S AFTER
On closer examination, Mr Gensler has actually been pushing for ‘more transparency’ in the over-the-counter derivatives market, so as to lower spreads between buyers and sellers and to make it easier for new competitors to enter the market – which the big banks aren’t keen on, as more participants will deprive them of profit.

So, Gary Gensler is not actually in the business of tackling the underlying crisis arising from the determination of financial institutions to continue playing Russian roulette, using the model first developed by the US Intelligence Power as it sought what it thought were foolproof methods of ensuring its financial independence from Congress and the open-ended funding pipelines that it considered appropriate to buttress its usurped status as a recalcitrant ‘State within the State’ impervious to reform and determined to brook no interference with its stolen hegemony.

INVESTORS’ MONEY USED TO REMUNERATE WALL STREET
In any case, the derivatives institutions and their back-up infrastructure have not the slightest intention of adopting any course other than ’business as usual‘ – and on a far larger scale than in the past. This obtuse madness WILL lead to a global collapse, as derivatives products are usually without real value. As a noted article in The New York Times of 7th February 2010 at last stated, investment banks trading derivatives do not own the mortgage bonds, the obligations from home owners, notes signed by home owners or the mortgage deeds of the deeds of trust.

The ‘structured products’, consisting of bundled documents ostensibly relating to the above but having NO RECOURSE to underlying real value, were, however, invested with ‘value’ arising from the name of the institution marketing the ‘asset’ – that is to say, arbitrary ‘value’ arising from the fact that, as a Goldman Sachs compliance officer actually admitted to the Editor of this service: ‘A structured product is worth what someone is prepared to pay for it’ – a penetrating statement which encapsulates the possibility that it may be (is) worthless: which is indeed the case.

‘THE MONEY YOU MAKE BY MISUSING MY MONEY IS MY MONEY’ – I.E., THE HOME OWNER’S
The money sloshing around between investment banks in this dirty market was investors’ money unwittingly advanced into pools of capital which winds up being used primarily to finance the fees, profits, insurance proceeds, insurance premia, and so forth – all for the benefit of Wall Street, paid to the investment banks, and not to investors who stumped up the money in the first place.

These fees and relationships are not and have never been disclosed to the home owner despite, in the United States, clear legislation requiring such transparency, including the Truth in Lending Act, and Deceptive Lending – which require full transparency and disclosure.

• Further legislation applicable to the securities sector in the United States is re-listed below – in the list that we have republished at the foot of our website reports for the past three years.

• The list of applicable securities regulations and laws is augmented by a legal tutorial which, again, we have published for the past three years at the foot of these reports,

It would appear that, notwithstanding such reminders, Wall Street and its compliant infrastructure, as well as its co-conspiring portfolio of dubious foreign trading counterparty institutions, has every intention of continuing to violate the relevant US rules and legislation – while at the same time continuing to abuse, in the mortgage sector, the home owner with the same cynicism as in the past.

Given the legal principle that ‘the money you make from misusing my money is my money’, it is quite clear that undisclosed fees, profits, kickbacks and other financial abuses perpetrated by these big speculative financial entities which produce no real wealth at all, but simply move money around between themselves, are payable to the home owner who signed the ‘loan’ papers in the first place.

THE ILLEGALITY OF SECURITIZATION
A legal analysis by MICHAEL NWOGUGU,
Certified Public Accountant (Maryland, USA); B.Arch.
(City College of New York). MBA (Columbia University).
Attended Suffolk Law School (Boston, USA).

Abstract:
Under US laws, securitization is illegal, primarily because it is fraudulent and causes very specific violations of R.I.C.O., usury, and antitrust laws. Securitization of many types of assets (loans, credit cards, auto receivables, intellectual property, etc.) has become and remains prevalent, particularly for financially distressed companies and companies with low or mid-tier credit ratings. This analysis focuses on securitization as it pertains to asset-backed securities and mortgage-backed securities, and analyzes critical legal and corporate governance issues.

Editor’s Note: This analysis does not elaborate that the illegal securitization model was developed and hijacked by the criminalised Intelligence Power, which is our contribution to the issue; but that is the sum of the matter, to be kept in mind at all times.

Keywords:
Securitization; antitrust; R.I.C.O.; constitutional law; capital markets; complexity; fraud.
[Some American English spelling has been retained].

Main abbreviations:
ABS = Asset-Backed Securities; SPV = Special Purpose Vehicle.

EDITOR’S INTRODUCTION
Under US legislation, securitization is illegal. Indeed many authors have illustrated the deficiencies in securitization (1). This analysis focuses on securitization as it pertains to asset-backed securities and mortgage-backed securities (2), (3).

The existing literature on legal and corporate governance issues pertaining to securitization is extensive, but has several gaps that have not been addressed at all or sufficiently:

• Whether securitization is legal.
• Whether securitization causes usury.
• The standards for usurious loans/forbearance.
• The specific components of cost-of-capital, for purposes of assessing usury violations.
• Antitrust liability in securitization transactions.
• Federal/State R.I.C.O. liability in securitization transactions.
• The constitutionality of securitization transactions.
• The validity of contracts used in effecting securitization transactions.
• Whether securitization usurps the purposes of the US Bankruptcy Code.

This analysis seeks to fill these significant gaps in the literature [and to answer questions vexing the US and international financial markets, for the definitive elimination of doubt – in support of our long-standing demonstration that securitization and the creation and marketing of ‘structured products’ represents serious fraud – Ed.].

Although the following analysis is supported with US case law, the principles derived are applicable to securitization transactions in both common-law countries and civil-law countries – which means that they are applicable in, for instance, the United Kingdom. In analyzing the legality of securitization, the following criteria are relevant:

• Origins and history of securitization – legislative history, evolution of securitization processes, and current practices. Carlson (1998), Janger (2002) and Lupica (2000) (4) trace the known history of US securitization to direct and specific efforts/collaborations to avoid the impact of US bankruptcy laws. Klee & Butler and other authors have traced the history of securitization to attempts to handle the problem of non-performing debt.

• Types of contracts used in securitization:

The primary criteria for enforceability.

• Purposes, wording and scope of applicable laws – state contract laws, State trusts laws, US Bankruptcy Code, and State/Federal securities laws. The legislative intent of the US Congress in drafting and revising the US Bankruptcy Code.

• How the applicable laws are applied in securitization processes – by market participants, regulators and lawyers that represent investors.

•The people, markets, and entities and organizations affected by securitization.

• The usefulness of existing (if any), possible and proposed (if any) deterrence measures designed to reduce fraud/crime/misconduct [such as has been extensively reported by this service, and in International Currency Review – Ed.].

• Transaction costs.

• The results and consequences of the application (or non-application) of relevant laws.

A: SECURITIZATION VIOLATES STATE USURY LAWS
Securitization violates State usury laws, because the resulting effective interest rate typically exceeds legally allowable rates (set by State usury laws) (5). There is substantial disagreement (conflicts in case-law holdings) among various US court jurisdictions, and also within some judicial jurisdictions, about some issues; and these conflicts have not been resolved by the US Supreme Court 6. On these issues, even the cases for which the US Supreme Court denied certiorari, vary substantially in their holdings. The pertinent issues are as follows:

1: What constitutes usury.
2: What costs should be included when calculating the effective cost-of-funds.
3. What types of forbearance qualify for applicability of usury laws.
4: Conditions for pre-emption of state usury laws. Where the securitization is deemed an assignment of collateral, the effective cost-of-funds for the securitization transaction is not the advertised interest cost (investor’s coupon rate) of the ABS securities, but rather the sum of the following elements:

• The greater of the sponsor’s/originator’s annual cost-of-equity (in percentages) or the percentage annual cash yield from the collateral (in a situation where the SPV’s corporate documents expressly state that the Excess Spread should be paid to the sponsor, the Excess Spread should be subtracted from the resulting percentage). The Excess Spread is defined as the Gross Cash Yield From The Collateral, minus the interest paid to investors, minus the Servicing Expense (paid to the servicer), minus Charge-offs (impaired collateral).

• The Amortized Value Difference:
The difference prevailing between the Market Value of the collateral, and the amount raised from the ABS offering (before bankers’ fees), which is then amortized over the average life of the ABS bonds (at a discount rate equal to the US Treasury Bond rate of same maturity) and then expressed as percentage of the market value of the collateral. This difference can range from 10-30% of the Market Value of the collateral, and is highest where there is a senior/junior structure, and the junior/first-loss piece serves only as credit enhancement.

• Amortized Total Periodic Transaction Cost:
The Pre-offering Transaction Costs are amortized over the average life of the ABS, a rate equal to the interest rate on an equivalent-term US Treasury bond. The Periodic Transaction Costs are then added to the Amortized Pre-offering Transaction Costs to obtain Total Periodic Transaction Cost which is expressed as a percentage of the value of the pledged collateral.

The Pre-offering Transaction Costs include external costs (underwriters’ commissions/fees, filing fees, administrative costs (escrow, transfer agent, etc.), marketing costs, accountant’s fees, legal fees, etc.) and internal costs incurred solely because of the securitization transaction (namely, costs incurred internally by the sponsor/originator, viz. direct administrative costs, printing, etc.). Periodic Transaction Costs = admin. costs, servicing fees, charge-off expenses, escrow costs.

• Foregone Capital Appreciation:
The foregone average annual appreciation/depreciation of the value of the collateral minus the interest rate on demand deposits, with the difference expressed as a percentage of the Market Value of the collateral.

The sum of these four elements is typically greater than state-law usury benchmark rates.

Where the securitization is deemed a ‘true-sale’, there is an implicit financing cost which is typically usurious, because it is equal to the sum of the following:

• Base Cost of Capital:
The greater of the sponsor’s or originator’s annual weighted-average-cost-of-capital, or the annual percentage yield from the collateral.

• The Amortized Total Periodic Transaction Cost:
The Pre-Securitization Transaction Costs paid by the sponsor or originator and directly attributable to the offering is amortized over the life of the ABS, at a rate equivalent to the interest rate on an equivalent-term US Treasury bond, and the result (the Amortized Pre-Securitization Costs) is then added to the Periodic Transaction Costs for only one period in order to obtain the Total Periodic Transaction Cost, which is then expressed as a percentage of the market value of the collateral. This is the Amortized Total Periodic Transaction Cost.

The Pre-Securitization Transaction Costs include external costs (underwriters’ commissions/fees, filing fees, administrative costs (escrow, transfer agent, etc.), marketing costs, accountant’s fees, legal fees, etc.) and internal costs incurred solely because of the securitization transaction (viz. costs incurred internally by the sponsor/originator, namely direct administrative costs, printing). Periodic Transaction Costs = admin. costs, servicing fees, charge-off expenses, escrow costs.

• The Value Difference:
This is the difference between the Market Value of the collateral, and the amount raised from the ABS offering (before bankers’ fees), is amortized over the average life of the ABS bonds and the result is then expressed as percentage of the Market Value of the collateral.

• This difference can range from 10 to 30%, and is highest where the senior/junior structure is used and the junior piece serves only as credit enhancement.

• Amortized Unrealized Losses:
Any unrealized loss in the carrying amount of the collateral, is amortized over the estimated average life of the ABS, and the result for one period is expressed as a percentage of the book value of the collateral. Most Asset-Backed Securities collateral data are recorded in financial statements at the lower-of-cost-or-market.

• Foregone Capital Appreciation:
foregone average annual appreciation/depreciation of the value of the collateral minus the interest rate on demand deposits, with the difference expressed as a percentage of the Market Value of the collateral. The sum of these elements is typically greater than state-law usury benchmark rates.

B: ALL ‘TRUE-SALE’, DISGUISED LOAN’ AND ‘ASSIGNMENT
SECURITIZATIONS ARE ESSENTIALLY TAX-EVASION SCHEMES
In the United States, the applicable tax evasion statute is the US Internal Revenue Code Section 7201 7 which reads as follows: “…….Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution………”.

Under this statute and related case law, prosecutors
must prove three elements beyond a reasonable doubt:

(1): The actus reus (the guilty conduct) – which consists of an affirmative act (and not merely an omission or failure to act) that constitutes evasion or an attempt to evade either: (a) the assessment of a tax or (b) the payment of a tax.

(2): The mens rea or “mental” element of willfulness –
the specific intent to violate an actually known legal duty.

In the case of ‘true sale’ transactions, the tax evasion (8) occurs because:

(a): The sponsor determines the price at which the collateral is transferred to the Special Purpose Vehicle and hence, can arbitrarily lower/increase the price to avoid capital gains taxes – it being assumed here that the sponsor is a profit-maximizing entity and will always act to minimize its tax liability and to avoid any tax assessment;

(b): The sponsor typically retains a ‘residual’ interest in the SPV in the form of IOs, POs and “junior pieces”, which are typically taxed differently and on a different tax-basis compared with the original collateral: hence, the sponsor can lower the price of the collateral upon transfer to the SPV, and convert what would have been capital gains, into a non-taxable basis in the SPV “residual”;

(c): There is typically the requisite “intent” by the sponsor – evidenced by the arrangement of the transaction and the transfer of assets to the Special Purpose Vehicle;

(d): Before securitization, collateral is typically reported in the sponsors’ financial statements at book value (lower-of-cost-or-market: under both American and international accounting standards, loans and accounts receivable are typically not re-valued to market-value unless there has been some major impairment in value) which does not reflect true Market Values, and results in effective tax evasion upon transfer of the collateral to the SPV because any unrealized gain is not taxed;

(e): The actus reus is manifested by the execution of the securitization transaction and transfer of assets to the Special Purpose Vehicle;

(f): The mens rea or specific intent is manifested by the elaborate arrangements implicit in securitization transactions, the method of determination of the price of the collateral to be transferred to the Special Purpose Vehicle, the objectives of securitization, and the sponsor’s transfer of assets to the Special Purpose Vehicle;

(g): The unpaid tax liability consists of foregone tax on the capital gains from the collateral (the transaction is structured to avoid recognition of capital gains), and tax on any income from the collateral which is ‘converted’ into basis or other non-taxable forms;

(h): Income (from the collateral) that would have been taxable in the sponsor’s financial statements, is converted into non-taxable basis in the form of the SPV’s Interest-Only (IO) and Principal-Only (PO) securities: part of the Interest-Spread (the difference between the SPV’s income and what it pays as interest and operating costs) is paid out to PO-holders, and this transforms interest into return-of-capital or just capital repayment, with no tax consequences.

In the case of ‘disguised loan’ or ‘assignment’ securitization transactions,
the tax evasion occurs because:

(a): The sponsor determines the price at which the collateral is transferred to the SPV, and hence can lower/increase the price of the collateral to avoid capital gains taxes;

(b): The sponsor typically retains a ‘residual’ interest in the SPV which is typically taxed differently and on a different tax-basis compared to the original collateral: hence, the sponsor can lower the price upon transfer to the SPV, and convert what would have been capital gains, into non-taxable basis for tax purposes;

(c): The transfer of collateral to the SPV and the creation of interest-only and principal-only securities essentially converts what would have been taxable capital gains into non-taxable basis;

(d): Any gain in the value of the collateral is not recognized for tax purposes, because there has not been any ‘sale’;

(e): Where the ABS is partly amortizing, any capital gains are converted into interest payments;
(f): The actus reus is manifested by the execution of the securitization transaction and transfer of assets to the Special Purpose Vehicle;

(g): The mens rea or specific intent is manifested by the elaborate arrangements implicit in securitization transactions, the objectives of securitization and the sponsor’s transfer of assets to the Special Purpose Vehicle;

(h): The unpaid tax liability consists of tax on the capital gains from the transfer of the collateral (the transaction is structured to avoid recognition of a sale, whereas the transfer to the Special Purpose Vehicle is effectively a sale), and tax liability on any income from the collateral which is ‘converted’ into basis or other non-taxable forms (Interest-Onlys and Principal-Onlys), by securitization.

C – 1: IN ALL ‘TRUE-SALE’, ‘DISGUISED LOAN’ AND ‘ASSIGNMENT’ SECURITIZATIONS, THE
CONFLICT OF INTEREST INHERENT IN THE SPONSOR ALSO SERVING AS THE SERVICER,
CONSTITUTES FRAUD AND CONVERSION: SEE OUR STANDARD LEGAL NOTES BELOW.
In most securitization transactions, the sponsor eventually serves as the servicer of the Special Purpose Vehicle asset pool.

As servicer, the sponsor: (a) determines when there has been impairment of collateral; (b) selects collateral for replacement; and (c) monitors collateral performance.

To prove fraud, prosecutors must prove several elements beyond a reasonable doubt:

(1): The actus reus (the guilty conduct) – which consists of an affirmative act (and not merely an omission or failure to act) of misrepresentation of material facts. In securitizations, the sponsor typically makes material misrepresentations:

(a) The sponsor/servicer selects the assets to be transferred to the SPV, and the terms of the offering Prospectus typically misrepresent the level of objectivity and fairness of the servicer/sponsor;

(b) The sponsor/servicer selects collateral for substitution where there are problems – the past and present disclosure statements and ABS offering documents materially misrepresent the sponsor/servicer’s objectivity/fairness.

(2): The mens rea or ‘mental’ element of willfulness – the specific intent to misrepresent the sponsor/servicer’s acts, truthfulness and objectivity/fairness, is manifested by the dual rôle of sponsor/servicer which constitutes a conflict-of-interest. Mens rea is also clearly inferable from the facts and circumstances: the sponsor/servicer clearly has significant economic, psychological and ‘legal’ incentives to maximize its profits by:

(a): Delaying substitution of collateral for as long as possible;

(b): Delaying recognition of collateral impairment, and:

(c): Substituting impaired collateral with sub-standard collateral; all of which make the sponsor highly unsuitable for the rôle of servicer;

(3): The reliance element: ABS investors rely heavily on the structure/arrangements, contracts and disclosure statements in securitizations, which are always relatively complex. These form the primary source of knowledge and valuation terms for the investor;

(4): The victim(s) suffer(s) loss as a result of the misrepresentations (whether of direct or proximate causation). Investors suffer losses because of the sponsor’s/servicer’s misrepresentations of its obligations, fairness, objectivity and fiduciary duties:

Specifically:

(a) Investors’ estimates of the values of Asset-Backed Securities are inaccurate and too high due to the servicer’s/sponsor’s misrepresentations;

(b) Investors incur unnecessary trading costs to re-balance their portfolios as the Asset-Backed Security becomes riskier;

(c) Investors and the sponsor/servicer incur additional monitoring costs whenever there is any report of impairment of collateral or substitution. Furthermore, in the ABS sales process, the underwriter makes certain representations concerning the effectiveness and predictability of the collection process. Under certain conditions, investors relying on such representations may have a securities fraud claim if the servicer fails to perform, such as in bankruptcy.

C-2: IN ALL ‘TRUE-SALE’, ‘DISGUISED LOAN’ AND ‘ASSIGNMENT’ SECURITIZATIONS WHERE
THE SPECIAL PURPOSE VEHICLE IS A TRUST, THE DECLARATION OF TRUST IS VOID AS IT EXISTS FOR AN ILLEGAL PURPOSE. [ALL CONTRACTS STRUCK FOR AN ILLEGAL PURPOSE ARE NULL AND VOID, SOMETHING THE CRIMINAL ENTERPRISES DON’T WANT YOU TO KNOW].
The declaration of trust relating to the SPV is void because the intent and purpose of the SPV is illegal and unconstitutional as described in this analysis and in Nwogugu (2006).

D: OFF-BALANCE SHEET TREATMENT OF ASSET-BACKED SECURITIES (BOTH
FOR ‘TRUE-SALE’ AND FOR ‘ASSIGNMENT’ TRANSACTIONS) CONSTITUTES FRAUD
Under prevailing accounting rules in the United States and most countries, if certain criteria were met, the debt raised by the Special Purpose Vehicle in securitization can be treated as off-balance sheet debt. However this requires compliance with three criteria:

(i) The Special Purpose Vehicle should be truly independent from the sponsor and the directors, fiduciary administrative duties notwithstanding.

(ii) The sponsor’s transfer of the assets to the SPV should be a ‘true sale’ and the sponsor should not have any ongoing economic interest in the assets.

(iii) The form and substance should transparently be identical, and the structure should not appear to be illusory or deceptive.

Nevertheless, these off-balance-sheet treatment criteria have been recently reformed by changes in accounting standards. The British-based International Accounting Standards Board and the US FASB are moving towards stricter reporting standards. Specifically:

• FIN 46 (FASB): Effective in 2003, FIN 46 applies only to companies subject to regulation by the FASB. Its objective is to substantially tighten the criteria necessary to obtain off-balance-sheet treatment for Special Purpose Vehicles, and its main thrust is capital adequacy.

• FIN 46 also imposes an obligation on originators to consolidate the accounts of an SPV (denying off-balance-sheet treatment) unless the total equity at risk is regarded as sufficient to enable the SPV to finance its own activities.

• IAS 32, IAS 39, and IFRS 7: International Accounting Standards (IAS) 32 covers the disclosure and presentation of financial instruments, but from 2007 onwards the disclosure aspects were replaced by the introduction of International Financial Reporting Standard (IFRS) (7). IAS 39 deals with the recognition and measurement of financial instruments, and has been challenged in two aspects:

(1): Introducing the concept of “fair value” accounting for financial instruments and (2): whether SPVs should be consolidated back into the balance sheet of the originator. Like Fin 46, IAS 32 may result in consolidation of most SPVs on-balance-sheet of the sponsors.

• Basel II: The Basel II disciplines are aimed at the global banking industry and call for a more scientific measurement of risk and of capital requirements for banks in order to support that risk. Since the general expectation has been that, in overall terms, the proposals could require the banking industry to maintain a higher rather than lower capital base, the proposals have met resistance from many banks. The Basel Committee’s rules/codes are not binding because the Committee is not a regulator: a situation exploited by the racketeering institutions.

But off-balance sheet treatment of ABS (Asset-Backed Securities) debt in securitizations, constitutes fraud because:

(1): The mens rea or ‘mental’ element of willfulness – the specific intent to misrepresent the true ‘Trust’ nature of the Special Purpose Vehicle debt – is manifested by the elaborate arrangements and structure of the securitization transaction.

(2): The actus reus (the guilty conduct): This consists of the affirmative act of misrepresentation of materials facts by not consolidating the Special Purpose Vehicle on the sponsor’s Balance Sheet.

In securitization, consolidation of the Special Purpose Vehicle onto the sponsor’s financial statements is warranted because the sponsor:

(a) Typically retains a residual economic interest in the Special Purpose Vehicle;

(b) Functions as servicer of the Special Purpose Vehicle asset pool – which grants the sponsor significant control over the assets and the SPV’s operations;

(c) Determines recognition of impairment of collateral, and selects and provides assets for ‘substitution’ of collateral; and:

(d) Typically misrepresents the level of objectivity and fairness of the servicer/sponsor in disclosure statements.

Taken together, these factors and all the aforementioned new accounting standards constitute sufficient actus reus.

(3): The reliance element:
The sponsor’s current and his prospective shareholders and other investors rely heavily on the structure/arrangements of securitizations, associated disclosure statements and assurances of off-balance sheet treatment of SPV debt in securitizations, which are relatively complex. These form the primary source of knowledge and valuation terms for the investor.

(4): The victim suffers loss as a result of the misrepresentation (direct or proximate causation): Investors suffer loss because of the sponsor/servicer’s misrepresentations of its obligations:

(a) Investors’ estimates of the values of the sponsor’s equity are inaccurate and excessively high due to the servicer’s/sponsor’s misrepresentations of the SPV debt;

(b) Investors incur unnecessary trading costs to re-balance their portfolios as the sponsor is deemed more risky;

(c) The investor and the sponsor/servicer incurs additional monitoring costs whenever there is any report of impairment of collateral or substitution.

E: ALL ‘TRUE-SALE’, ‘DISGUISED LOAN’ AND ‘ASSIGNMENT’
SECURITIZATIONS INVOLVE FRAUDULENT CONVEYANCES

Any transfer or conveyance of the assets of a debtor that is deemed to be made for the purposes of hindering, delaying or defrauding actual or potential creditors, may be determined to be a Fraudulent Conveyance (9).

In the United States, three sets of laws cover potential Fraudulent Conveyances:

(a) Section 548 of the US Bankruptcy Code (the Code); or

(b) Most States have adopted the Uniform Fraudulent Transfer Act (UFTA) (10) or else the older Uniform Fraudulent Conveyance Act (UFCA); or

(c) Fraudulent Transfers claims can also be made under a theory of constructive fraud, in which circumstantial evidence may warrant a finding that Fraudulent Transfers were made with the primary purpose of shielding assets from current or future creditors. Although each US State has its own laws regarding the appropriate elements of proof of constructive fraud, Section 548(a)(2)
of the US Bankruptcy Code permits an inference of constructive fraud if the following factors exist:

(1): The debtor received less than reasonably equivalent value for the property transferred; and:

(2): The debtor either: was insolvent or became insolvent as a result of the transfer, retained unreasonably small capital after the transfer, or made the transfer with the intent or belief that it would incur debts beyond its ability to pay.

The following are the various theories of Fraudulent Conveyance
within the context of securitization.

E-1: Sponsor/Originator receives insufficient value for assets transferred:

All ‘true sale‘ as well as ‘assignment’ securitizations involve Fraudulent Conveyances (as defined within the US Bankruptcy Code and the Uniform Fraudulent Transfer Act) because the originator receives insufficient value for assets that it transfers to the Special Purpose Vehicle (11), (12):

(i): Horizon mismatch:
In the case of receivables and fixed income assets, since the originator/sponsor sells these assets before their maturities, their effective yields and values are much lower than their stated yields, and hence, the originator receives less-than-normal value for assets transferred.

(ii): The originator always incurs substantial cash and non-cash transaction costs in such transfers, which reduces the net-value it receives from the transfer to the Special Purpose Vehicle. These costs include all legal fees, accounting fees, underwriting fees, monitoring costs, administrative costs, regulatory compliance costs, capital-budgeting costs (because the decision to securitize has inherent negotiation costs), conflict costs and resource allocation costs, etc.;

(iii): In these asset transfers, the originator loses all the future appreciation of the transferred assets: the transfers are done at book values or stated adjusted costs. The asset valuations for the transfers don’t consider future increases in asset value, and hence are an implicit undervaluation.

(iv): Where the assets transferred have residual values (as in computer leases and equipment leases), the originator often cannot accurately calculate such residual values and does not incorporate them in asset valuation, and loses such residual value; and hence, receives less than normal value for the assets transferred;

(v): In some securitizations, the originator’s transfer of assets to the SPV is backed by recourse (to the originator’s assets) and such recourse has economic value that reduces the net-value that the originator receives from the transfer. [Higgin & Mason (2004), Pantaleo et al. (1996) and Plank (1991) (13) describe the basis for the value of such recourse].

(vi): Where the originator and sponsor is financially distressed, securitization is often the chosen form of financing, and under Fraudulent Conveyance laws, securitizations are illegal because:

(1): Securitizations increase the bankruptcy risk of the originator/sponsor;

(2): The distressed company’s assets are typically valued at higher interest rates (which yield lower asset values) and hence, the originator loses value in the transfers.

(vii): The originator’s/sponsor’s net-cash proceeds from the securitization transaction is often significantly less than either the pre-transaction carrying value of the collateral, or the net realizable value of the collateral (liquidation value in a supervised open auction) – primarily because of transaction costs, over-collateralization, etc..

E-2: ‘Intent to hinder, delay or defraud creditors’:
Implicit pre-petition waiver of right to file for bankruptcy:

All ‘true sale‘ as well as ‘assignment’ securitizations involve Fraudulent Conveyances (as defined in the US Bankruptcy Code and the Uniform Fraudulent Transfer Act) because as described in this analysis, such securitizations are the equivalent of illegal pre-petition waivers of the right to file bankruptcy, and the waiver of the bankruptcy stay – all of which are sufficient evidence of ‘intent to hinder, delay, or defraud any creditor of the debtor’, which is the major element of Fraudulent Conveyance under the UFTA and the US Bankruptcy Code.

E-3: ‘Intent to hinder, delay or defraud creditors’:
originator’s transfer of assets to the Special Purpose Vehicle:

All ‘true sale‘ and ‘assignment’ securitizations involve Fraudulent Conveyances (as defined in the US Bankruptcy Code and the Uniform Fraudulent Transfer Act) because the originator‘s/sponsor‘s mere act of transferring assets to an SPecial Purpsoe Vehicle reduces the values of any of its unsecured creditors’ claims – i.e. trade creditors, holders of any unsecured loans, holders of certain preferred stock, etc.. (14).

Without such transfers, the unsecured creditors would have had access to such assets. This is sufficient evidence of ‘intent to hinder, delay or defraud’ existing creditors.

[It follows that the Rule of Law has been comprehensively flouted,
with the rot starting and condoned at the highest levels – Ed.].

E-4: ‘Intent to hinder, delay or defraud creditors’:
Originator’s transfer of assets to the SPV has not been undertaken on an arms’-length basis:

The originator’s transfer of assets to the SPV via a ‘true sale’ or ‘assignment’ is typically not done by means of arms’-length transactions. Most originators have substantial influence/control over the valuation of collateral, the selection of the appraiser and valuers, the choice of appraised collateral, the corporate form and life of the SPV, and the selection of the officers/trustees of the SPV. Hence, the originator can manipulate the values of collateral for accounting and economic purposes. The originator typically creates, funds and staffs the SPV – hires the SPV’s officers and directors and determines the SPV’s corporate governance policies. The combination of such excessive control, and the originator’s transfer of assets to the SPV is prima facie evidence of ‘intent to hinder, delay or defraud’ the originator’s existing and future creditors.

E-5: Securitization increases the originator’s bankruptcy risk:
Securitization can increase the bankruptcy risk of an originator (15), where:

(a) The cash proceeds from the securitization transaction are significantly less than either the carrying value of the collateral, or the net realizable value of the collateral (liquidation value in a supervised auction); or:

(b) Management reinvests the cash proceeds of securitization in projects that yield returns that are less than what the collateral would have yielded, or less than the company’s cost of debt.
Securitization via ‘assignments’ or else ‘disguised loans’ increases the risk to be borne by the originator/sponsor, and also increases its post-transaction cost of capital primarily because:

(a) The amount raised is less than the assets pledged;

(b) The pledge of assets to the SPV reduces the originator’s borrowing
capacity and financial flexibility;

(c) The pledge of assets to the Special Purpose Vehicle reduces the originator’s ability to repay other debt. Hence, the originator/sponsor loses value in the transfer of assets to the SPV.

F: SECURITIZATION USURPS UNITED STATES BANKRUPTCY LAWS AND HENCE IS ILLEGAL
Securitization undermines US Federal bankruptcy policy, because it is used (in lieu of secured financing) as a means of avoiding certain bankruptcy-law restrictions (16). Indeed, the origins of securitization in the United States can be traced directly to attempts by banks and financial institutions to avoid bankruptcy law restrictions.

An analysis of the legislative intent of the US Congress with regard to the US Bankruptcy Code confirms that securitization contravenes most policies of the US Bankruptcy Code (17).

• IT ALSO CONTRAVENES PUBLIC POLICY, WHICH EMBRACES:

(a): Recognition of financial distress;
(b): Stay of bankruptcy proceedings;
(c): Determination of claims and priorities of security interests;
(d): Fair division of value;
(e): The continuance or liquidation decision;
(f): Efficient reorganization.

In most cases, insolvency often occurs before management decides to file for bankruptcy. Many firms that are either financially distressed and or technically insolvent continue to operate as if they are normal companies, and enter into securitization transactions. often, securitization enables them to reduce the effect of actual and or perceived low credit ratings. Securitization is often a major strategic choice for financially distressed corporations (18). Under the US Internal Revenue Tax Code, securitization qualifies as a reorganization. The underlying issues are as follows.

F-1: Implicit waiver of right to file for bankruptcy and/or Stay of Bankruptcy:

Securitization involves an implicit (and often an express) waiver of the debtor’s, originator’s, sponsor’s right to file for voluntary bankruptcy. This is achieved by using a bankruptcy-remote Special Purpose Vehicle and segregating the assets that otherwise would have been part of the bankruptcy estate (19), (20). Securitization involves an implicit (and very often an express) waiver of the creditor/Asset-Backed Securities-investor’s right to file for involuntary bankruptcy (21), (22).

US Courts have repeatedly held that such waivers are void as against public policy. In the absence of securitization, these same investors/creditors would have been creditors/ a.k.a. lenders to the sponsor/originator. This implicit waiver is achieved by employing a Special Purpose Vehicle and segregating the assets that otherwise would have been part of the bankruptcy estate; and by various forms of credit enhancement.

Without the automatic stay of the Bankruptcy Code, the debtor/sponsor would not need to transfer assets to an SPV. Carlson (1998) traces the history of securitization to direct and specific efforts/collaborations to avoid the impact of US bankruptcy laws (23).

Furthermore, there is a distinct difference of opinion among US courts about the enforceability of pre-petition waivers (of rights to file for voluntary or involuntary bankruptcy) which has not been resolved by the US Supreme Court (24). However, the standard securitization processes diverge substantially from the conditions in cases where the courts held that pre-petition waivers (or rights to file for bankruptcy) were unenforceable.

F-2: The U.S. Bankruptcy Code expressly invalidates certain pre-filing transfers:

Sections of the US Bankruptcy Code expressly invalidate certain types of pre-filing transfers, payments and transactions (that occur within a specific time period before the filing of bankruptcy). Most securitizations fall under the classes of voidable pre-filing transfers.

• Hence, under these foregoing circumstances/conditions, bankruptcy laws and associated principles are implicated and apply where the firm has not filed for bankruptcy.

Therefore, any pre-bankruptcy filing transactions that invalidate or contravene the principles of Bankruptcy Codes are illegal. The bankruptcy-remoteness characteristic of securitizations prevents the efficient functioning of US bankruptcy law, and jeopardises the law.

G: NEW THEORIES ON THE EFFECTS OF SECURITIZATION ON BANKRUPTCY EFFICIENCY
The following are new theories that explain how securitization
contravenes the basic principles of US bankruptcy laws:

G-1: The illegal wealth-transfer theory:

Securitization can result in Fraudulent Conveyance and in illegal transfer of wealth where the transaction effectively renders the originator/issuer company technically insolvent; or fraudulently transfers value to the SPV (in the form of low collateral values) and then to the ABS/MBS [Mortgage-Backed Securities] bond holders (in the form of low bond prices, and or high interest rates) (25). Courts have held that stripping a company of the ability to pay judgment claims is a ‘predicate act’ that is actionable under Federal R.I.C.O. statutes (26). Securitization can also result in illegal wealth transfers to the intermediary bank where it retains a residual interest in the Trust/SPV (residual securities) or is over-compensated (excessive cash fees, trustee positions, underwriter is granted a percentage of securities offered, etc.).

G-2: The Priority-changing theory:

To the extent that bankruptcy laws are designed to facilitate rehabilitation of troubled companies, and increase efficient allocation of debtor assets to creditors, securitization enables the debtor to defeat the Absolute-Priority principle; and effectively to re-arrange priorities of claims, particularly where the debtor/originator does not have any secured claims (but has only unsecured claims). This is achieved by securitizing unencumbered assets and applying credit enhancement to provide higher-quality securities (which is the equivalent of higher priority) to other creditors.

G-3: The Facilitation of inefficient-continuance theory:

Securitization enables the debtor/originator to change the progression of financial distress, by supplying cash that typically lasts for short periods of time, and often at a high effective cost of funds. This implicates the principles of ‘inefficient continuance’ (where an otherwise non-viable company that should be liquidated, sold/merged or substantially reorganized, continues to operate solely as a result of short-term solutions and or bankruptcy court orders), and hence, the sections of the Sarbanes-Oxley Act (‘SOX’) – which require certification of solvency of the company and adequacy of internal controls, and also carry criminal penalties for non-compliance (27).

The question of whether ‘inefficient continuance’ has occurred is a matter of law that should be decided by judges. Thus, all else remaining constant, where the necessary elements occur, (a securitization and ‘inefficient continuance’ and management’s certification of solvency and adequate internal controls), management and the company become criminally liable.

G-4: The information-content effect theory:

Securitization changes and distorts the perceived financial position of the originator/sponsor, because various forms of credit enhancement (senior/junior pieces, loan insurance, etc.) are used to achieve a high credit rating for the Special Purpose Vehicle – which may be misconstrued by stock-market investors as evidence of good prospects for the originator-company. To the extent that all securities offerings have relevant information content and associated signalling, then securitization by financially distressed companies effectively conveys the wrong signals to capital markets and hence, changes the expectations of creditors and shareholders (and in the case of bankruptcy, makes it more difficult to form consensus efficiently on a plan of reorganization once the bankruptcy petition is filed). In this realm, investor and creditor expectations are critical and have utility value and typically form the basis for investment/disinvestment and for negotiations about restructuring or any plan of reorganization.

US Courts have held that persons that create false impressions about the financial condition of a company are potentially liable under Federal R.I.C.O. statutes (28).

G-5: The information-content effect theory:

To the extent that securitzation defers or eliminates a potential creditor’s rights to file for involuntary bankruptcy, then securitization can be deemed to be fraudulent, and gives rise to criminal causes of action such as deceit, conversion, etc. The creditor’s right to file for a debtor’s involuntary bankruptcy is a valid property right that arises from State property law, State contract law, State constitutional laws, and Federal bankruptcy laws (29). Deprivation of, or interference with, this property right is a violation of the US Constitution. Securitization can defer or eliminate this property right, and hence violate the US Constitution where the transaction:

(a): Effectively rearranges priority of claims; or:

(b): Reduces the debtor-company’s borrowing capacity (value of unencumbered/unpledged collateral) to the detriment of secured and or unsecured creditors; or:

(c): Uses the proceeds of the transaction to pay-off some (but not all) members of a potential class of creditors that can file an involuntary bankruptcy petition.

H: SECURITIZATION CONSTITUTES A VIOLATION OF FEDERAL R.I.C.O. STATUTES
In ‘true-sale’, ‘disguised loan’ or ‘assignment’ securitizations, there are fraudulent transactions which serve as ‘predicate acts’ under Federal R.I.C.O. statutes (30).

The specific R.I.C.O. sections implicated are:
• Section 1341 (mail fraud)
• Section 1343 (wire fraud)
• Section 1344 (financial institution fraud)
• Section 1957 (engaging in monetary transactions in property
derived from specified unlawful activity).
• Section 1952 (racketeering).

The prices of the collateral are determined in negotiations between the sponsor/issuer and the intermediary bank and on occasion, the SPV’s trustees. This presents opportunities for ‘predicate acts’ (ie. fraud, conversion, etc.) because:

(1): The collateral could be under-valued or over-valued. There are no State or Federal laws that require independent valuation of collateral or appointment of independent/certified trustees in securitization transactions. The parties involved are often business acquaintances.

The originatorsponsor controls the entire process.

(2): The trustees can be, and are influenced by the sponsor/originator and or intermediary investment-bank.

(3): The required disclosure of collateral is sometimes insufficient. Specifically:

(a): It does not include historical performance of collateral pools;
(b): It does not include criteria for selection of collateral and for substitution of collateral;
(c) Criteria for replacement of impaired collateral are sometimes not reasonable;

(4): Mail and wire are used extensively in communications with investors and participants
in the transaction; and:

(5): There is compulsion – because the intermediary or investment bank has very substantial incentives to under-price the securities, and to inflate/deflate the value of the collateral in order to consummate the transaction and earn fees.

The entire securitization process constitutes violations of Federal R.I.C.O. (31) statutes because:

(1): There is the requisite criminal or civil ‘enterprise’ – consisting of the sponsor/issuer, the trustees and the intermediary bank. These three parties work closely together to effect the securitization transaction.

(2): There are ‘predicate acts’ (32) of:

(a): Mail fraud – using the mails for sending out materials among themselves and to investors.
(b): Wire fraud – using wires to engage in fraud by communicating with investors.
(c): Conversion – where there isn’t proper title to collateral.
(d): Deceit: Misrepresentation of issues and facts pertaining to the securitization transaction.
(e): Securities fraud: disclosure issues.
(f): Loss of profit opportunity.
(g): Making false statements and or misleading representations about the value of the collateral.
(h): Stripping the originator/issuer of the ability to pay debt claims or judgment claims in bankruptcy court – a state of affairs that may apply where the sponsor is financially distressed and the cash proceeds of the transaction are significantly less than the value of the collateral.

(3): There is typically the requisite ‘intent’ by members of the enterprise – evident in knowledge (actual and inferable), acts, omissions, purpose (actual and inferable) and results. Intent can be reasonably inferred from:

(a): The existence of a sponsor that seeks to raise capital – and cannot raise capital on better terms by other means;
(b) The participation of an investment bank that has very strong incentives to consummate the transaction on any agreeable (but not necessarily reasonable) terms.

I: SECURITIZATION CONSTITUTES VIOLATIONS OF U.S. ANTITRUST LAWS
The various processes in securitization constitute egregious violations
of the US Antitrust statutes (33), (34), (35). Specifically:

I-1: Market concentration:

The American Asset-Backed Securities and Mortgage-Backed Securities markets are dominated by relatively few large entities such as FNMA, Freddie Mac, the top five investment banks (all of which have conduit programs), and the top five credit card issuers (MBNA, AMEX, Citigroup, etc.), etc.. As a consequence, the top five ABS/MBS issuers control more than 50% of the US ABS/MBS market.
This constitutes illegal market concentration under US Antitrust legislation

I-2: Market integration:

The American Asset-Backed Securities and Mortgage-Backed Securities markets are essentially both national and international (that is to say, geographically-diverse entitiesand individuals participate in each transaction). Each Asset-Backed Securities (ABS) transaction/offering typically involves a ‘roadshow’ which consists of presentations to investors in various cities.

The cost of the roadshow is often paid by the underwriter(s) before its fees are paid by the sponsor. In addition, there are printing, mailing, traveling and administrative costs that increase with the greater geographical dispersion of investors. This has two main effects:

(a): It reduces competitive pressure on dominant investment banks and groups of investment banks (to the detriment of smaller investment banks); and:
(b): It raises market-entry barriers by making it more expensive to conduct ‘roadshows’ for new offerings. Hence, the market integration created by the industry practices of securities underwriters is anti-competitive and violates the Sherman Act, and the FTC Antitrust statutes.

I-3: Syndicate collusion:

The syndicates (of investment banks) used in distributing Asset-Backed Securities and Mortgage-Backed Securities (ABS/MBS) essentially collude to determine:
(a): The price at which each ABS tranche is sold;
(b): Which investors can purchase different tranches.

Collusion occurs because:

(a): In the typical Asset-Backed Securities (ABS) offering, the price determination process is not transparent or democratic because the lead underwriters typically negotiate the offering price with the originator/sponsor and the prospective investors (although some underwriters use auctions).

The lead underwriters purchase most of the new-issue ABS, and the balance is typically sold to ‘junior’ syndicate members (who presumably can arrange to buy more Asset-Backed Securities from the lead underwriters than were allocated to them).

In essence, the true price-demand characteristics and negotiability of junior underwriting-syndicate members are hidden simply because of the structure of the underwriting/bidding process. Hence, the existing syndicate-based ABS distribution system for new issue Asset-Backed Securities distorts the true demand for the ABS, clearly reduces competition, and facilitates and results in collusion, and therefore constitutes violations of the Sherman Act and the Federal Trade Commission (FTC) Antitrust statutes.

(b) Similarly, the ABS allocation process is not transparent. The lead underwriter and junior underwriters allocate new-issue ABS to investors based on subjectively determined ‘suitability’ and also ‘in-house criteria’. There are no established or generally accepted important guidelines for such ‘in-house’ criteria and associated allocation.

The lead and junior underwriters can typically collude to determine that only certain investors deemed appropriate are allocated the Asset-Backed Securities in question. Hence, the antitrust violation (collusion) occurs solely because of the underwriters’ discretionary choice of investors to whom ABS are allocated. This is more evident where the poll of investors consists mostly of institutional investors – so that final offering prices are more sensitive to choice of investors, and prices can change significantly simply by changes in allocation to investors. In such circumstances, the collusion is reasonably inferable here, so long as there are no statutory or generally accepted allocation criteria that have been approved by the NASD or other trade associations.

I-4: Price formation:
The prices of ABS securities may often be linked to the prices/yields of US Treasury bonds – the credit risk of ABS/MBS being priced relative to the risks of US Treasury bonds.

• This system distorts the true demand and supply balance for the ABS/MBS, and erroneously incorporates the demand/supply relationships of the US Treasury Bond market, into the ABS/MBS markets. The key question then, is whether there are conditions under which the US Treasury Bond market is completely de-coupled from the ABS market: or, phrased differently, whether there is sufficient justification for actual or perceived de-coupling of the US Treasury Bond market and the US ABS market. These conditions are as follows:

(1): The credit fundamentals of the US Treasury market differ substantially from those of the ABS market. (The Treasury market is much more sensitive to US Federal Reserve actions, currency fluctuations, consumer spending, Federal/State fiscal policies, etc.). The ABS market tends to be more sensitive to industry-specific and sometimes company-specific risks/factors.

(2): The use of various credit enhancement techniques and products further exacerbates the differences in the credit trends and/or quality in the US Treasury and ABS markets. In Asset-Backed Securities transactions, most forms of credit enhancement create a floor, but do not limit or affect other industry exposures or company exposures. In the US Treasury market, investors are subject to a greater variety of risks.

(3): Investors’ objectives in the US Treasury Bond markets differ from those of investors in Asset-Backed Securities markets. Hence, investors are very likely to view these two markets and the underlying risks differently, and should value the securities differently.

I-5: Vertical foreclosure:

In the ABS/MBS markets, some investment banks and commercial banks are active in almost all phases of the securitization process: origination (through in-house conduits); due diligence; disclosure and pricing; new issue securities offerings; and also in secondary-market trading. Similarly, non-bank entities can use their own asset portfolios (the origination of credit card receivables or mortgage receivables), shelf-registration and marketing procedures and/or Regulation-D/Rule 144A procedures (pricing and new-issue offerings) and in-house trading (secondary-market trading) to participate in almost all aspects of securitization processes.

Hence, these companies have almost no incentive to, and are not required to make their infrastructure and relationships available to competitors.

• Such vertical foreclosure constitutes violation of US antitrust laws.

I-6: Tying (36):

This arises in the following manner:

(a): The sponsor is sometimes formally or informally required to purchase other financial services (loans, letters of credit, custody services, etc.) from the investment bank, in order to effect the securitization transaction;

(b): The investors are sometimes required simultaneously to purchase two or more tranches of an ABS offering, or to promise to buy the same or similar ABS/MBS securities in order to be allocated ABS in new offerings;

(c): The sponsor and or investment bank may formally or informally require investors to purchase minimum dollar volume of ABS in specific offerings in order to be eligible for ‘allocations’ in future offerings. These acts constitute tying, which is anticompetitive and therefore illegal.

I-7: Price-fixing (37):

The Locus-shifting Theory is introduced here. Locus-shifting occurs when a potential and obvious party to a price-fixing scheme is effectively replaced (in pricing negotiations) by a third party that has the resources and willingness to alter dramatically the pricing of goods and services in either the transaction, or via a series of transactions or in the sector or the industry as a whole. Normally, price-fixing would occur between two sponsors or two intermediary banks.

Since the intermediary-investment bank is central to ABS offerings, and associated pricing and negotiations, the price fixing should be deemed to occur between the sponsor/originator and the investment bank (or between two sponsors).

Since each active investment binstitution typically underwrites many offerings simultaneously, and essentially controls the pricing of each new-issue ABS, the investment banks are the locus of said price fixing and are potentially liable for the associated antitrust violations. Further evidence of price fixing maybe obtained by analysing:

(a): The yield differentials of various ABS offerings in various asset classes (ie. automobiles, home equity, mortgages, etc.) by different sponsors within a specific block of time;

(b): The price differentials of various ABS offerings in various asset classes (autos, home equity, credit cards, mortgages, etc.) with the same rating, within a specific block of time.

I-8: Price-fixing (38):

Exclusive contracts facilitate and enhance anti-competitive behavior by contractually restricting conduct by and trade among participants in the market. In the US ABS/MBS markets, existing illegal exclusive contracts include:

(a) Contracts preventing the intermediary investment bank from providing financial services to other prospective securitization sponsor-companies in the same industry/sector;

(b) Contracts (by the sponsor, underwriter(s) or third parties) that prevent or limit the formation of a syndicate of securities dealers;

(c) Contracts that prevent the sponsor from selling securities through other underwriters, other than an appointed intermediary investment bank. These types of contract constitute direct violations of US Antitrust statutes.

I-9: Price-fixing (39):

There are several classes of Asset-Backed Securities:

(1): Securities that involve pure ‘pass-through’ of cash- flows, and hence rights to payment of cash from the SPV pool, but no ownership interest in the pool to:

(a): Interest-Only (IO) securities;
(b): Principal-Only (PO) securities; and:
(c): ‘Traditional’ Asset-Backed Securities that pay both interest and principal.

(2): Securities that confer ownership interests in the underlying pool to:

(a): Interest-Only (IO) securities;
(b): Principal-Only (PO) securities; and:
(c): ‘Traditional’ Asset-Backed Securities that pay both interest and principal.

(3): Debt-type securities that involve a security interest in the underlying collateral:
these manifest themselves as:

(a): Interest-Only (IO) securities;
(b): Principal-Only (PO) securities; and:
(c): ‘Traditional’ Asset-Backed Securities that pay both interest and principal.

In many instances, the Special Purpose Vehicle (SPV) offers many tranches in each of the above-mentioned classes of ABS. The tranches within each class typically vary by term, interest rate, duration, and bond-rating/risk-rating. Hence, in any situation where the tranches don’t have any priority as to security interests or rights-to-payment of cash flows from the pool, such stratified offerings within each class (‘IO’, or ‘PO’ or ordinary; or ‘pass-through’, collateral-type or equity-interest) constitute price discrimination because the underlying ‘asset’ and risk is essentially the same, although different securities are being offered in the same transaction (or in a series of transactions), at different prices to investors, based on the same underlying pool of assets.

• The distinguishing and critical element is that there is no contractually agreed-upon priority of claims as to security interests or right-to-payment of cash from the pool of assets.

I-10: Predatory pricing (40):

This occurs when investment banks under-price ABS offerings in order to obtain more investors, and to build name recognition for a particular issuer (that does or intends to come to the ABS market regularly). Evidence of predatory pricing may be inferred or established by:

(a): Comparing the offering prices of various new-issue ABS bonds sold by one sponsor/originator, in the same asset class (auto loans, home equity, credit cards, etc.), but at different times of the year, to offering prices of similar ABS bonds sold by other regular ABS sponsors/originators in the same time periods.

(b): Running regressions to identify any statistically significant relationship between:

(1): The difference in the yield of company XYZ’s ABS bond and the yields of other similar Asset-Backed Securities bonds; and:

(2): Various independent variables such as yield, price, asset type, bond rating, duration, industry, amount of offering, frequency of ABS offerings, types of investors, etc..

(c): Comparing the offering prices of various new-issue ABS bonds underwritten by one investment bank (in the same asset class, but at different times of the year) to offering prices of similar Aset-Back Securities bonds underwritten by other investment banks in the same time periods.

I-11: Rigging of allocations:

Most Asset-Backed Securities offerings are done via allocations of securities by investment banks to their brokerage customers:

(1): Most sponsors issue their Asset-Backed Securities or Mortgage-Backed Securities through bids by investment banks. Most bids for ABS securities are won by a few investment banking firms.

• This may suggest that customers have been ‘allocated’ among investment banks, which is also an indication of collusion.

(2): On occasion, the primary underwriters subcontract work (re-sell securities)
to secondary underwriters.

J: SECURITIZATION INVOLVES VOID CONTRACTS
The process of securitization involves several contracts that are either signed simultaneously or are all signed within a short timeframe. Many of these contracts are void and wholly illegal due to:

(a) Lack of consideration (41): There is no consideration in many contracts used in effecting securitizations. Many of these contracts are unilateral executory undertakings and contain illusory promises. There are three main issues:

(1): Unilateral Executory Promise (42): A unilateral executory promise is not consideration.
The following are some unilateral executory contracts in securitizations:

• The promise made by the Special Purpose Vehicle to pay out periodic interest, whether contingent or non-contingent on whether the collateral pays cash interest.

• Collateral-substitution Agreements contain a promise whereby
the sponsor agrees to substitute impaired collateral.

• Assignment Agreement: Assignment of future collateral (not yet existing)
may be deemed a unilateral executory promise by the assignor.

• Transfer Agreement: The sponsor agrees to transfer the collateral to the Special Purpose Vehicle, and the SPV in return pays cash to the sponsor.

(2): Illusory Promises (43): An illusory promise is not a valid consideration for a contract.

The following are some illusory promises inherent in securitization transactions:

• The Subscription/Purchase Agreement: The SPV’s promises to acquire the collateral with the cash raised from investors are essentially illusory promises. These promises are embedded in the offering Prospectus, but are typically not included other corporate documents. In most cases, the offering Prospectuses don’t state the exact steps in the SPV’s promised purchase of the collateral.

• The Purchase or Subscription Agreement: The Special Purpose Vehicle’s investors purchase beneficial interests in the SPV or the SPV’s debt. These beneficial interests evidence:

(a): The right to receive payments from the SPV; or:
(b): An ownership interest in the underlying collateral, or:
(c): A ‘participation’ in the underlying collateral.

However, at the time of executing this agreement, the only consideration that the SPV can grant to investors in exchange for the purchase amount, consists of promises to purchase the collateral in the future, and to make payments from the SPV’s assets.

Hence, an existing asset is being exchanged for a future asset that does not exist as of the date of the purchase/subscription agreement.

• Furthermore, all securitization offerings are done pursuant to ‘Subscription Agreements’ and likewise pursuant to Investor Questionnaires – both of which documents have to be signed by the prospective investor. None of the agreements signed by the investor as part of his/her purchase of the Special Purpose Vehicle’s Asset-Backed Securities expressly incorporates the promises that are embodied in the offering Prospectus. What typically exists is an implied agreement to subject the investor to the SPV’s articles of incorporation, Trust Indenture, and or Trustees’/Board of Directors’ (or Board of Trustees’) decisions.

• The SPV’s promise to pay interest/dividends on ABS IOs, Preferreds and POs are essentially illusory promises because the underlying collateral may not produce any cash flows: so there won’t be interest/dividend payments.

(3): No Bargain: Some courts have held that there is no consideration (and hence, the contract is void) where one party was not allowed to bargain for the alleged agreement (44).

In some securitizations, the process of setting offering prices for new Asset-Backed Securities issues does not afford all parties the opportunity to negotiate terms of the offering, especially individual investors, because the price of the ABS is typically determined primarily by the sponsor and the lead underwriters. Furthermore, in securitizations, the originator sets the terms of the Special Purpose Vehicle (trust documents, articles of incorporation, bylaws, etc.).

(4): No mutuality (45): In the securitization context, for there to be mutuality:

(a): Each party must have firm control of the subject matters of the contract and the underlying assets (consideration), and:
(b): There should/MUST be a direct contractual relationship between the parties concerned. At time of the Subscription Agreement, the Special Purpose Vehicle typically does not own or have rights to the collateral, and hence, there is not mutuality.

Furthermore, the concept of ‘piercing the SPV veil’ is introduced here (similar to ‘piercing the corporate veil’) and applies, since the following conditions exist:

• The economics of the transaction are an asset transfer from the sponsor/originator party to the Special Purpose Vehicle investors, in exchange for a loan to the sponsor.

• However, there is no direct contractual relationship.

• The sponsor typically controls the Special Purpose Vehicle before the Asset-Backed Securities offering and thus determines (or very substantially influences) the SPV’s post-offering operating characteristics. Since the prospective ABS investors don’t have firm pre-offering control of the SPV and cannot influence its post-offering policies, there is no mutuality between the SPV and the ABS investors; and securitization is accordingly void.

• The sponsor influences the appointment of the SPV’s Trustees or Board of Directors.
Thus, under contract law, the use of the Special Purpose Vehicle in securitization effectively eliminates any mutuality between the two main contracting parties: the sponsor and the investors. Secondly, there is no mutuality between the Special Purpose Vehicle and the investors:

• The Special Purpose Vehicle’s corporate documents (trust indentures or bylaws or articles of incorporation) typically limit the rights of each ABS investors and the group of Asset-Backed Securities investors.

Thirdly, there is no mutuality at all between the Special Purpose Vehicle and the sponsor/originator, because both entities are essentially the same, and are controlled by the sponsor before and after the securitization takes place.

(5): Illegal subject matter and contravention of public policy 46: As explained in preceding sections of this analysis, securitization constitutes violations of the Antitrust laws and US Federal R.I.C.O. statutes; and hence, the contracts used to effect securitizations are void and illegal.

CONCLUSION:
Under US legislation, Securitization is MANIFESTLY ILLEGAL.

Notes and References:

(1): Yamazaki Kenji, What makes Asset Securitization Inefficient? (2005); Berkeley Electronic Press, Working Paper #603; Steven Schwarcz, Enron and The Use and Abuse of Special Purpose Entities In Corporate Structures, 70 U. Cin. L. Rev. 1309 (2002); See further: Carlson D. (1998), The Rotten Foundations of Securitization, William & Mary Law Review, 39; Lupica L (2000), Circumvention of The Bankruptcy Process: The Statutory Institutionalization of Securitization, Connecticut Law Review, 33: 199-210; Thomas Plank, 2004, The Security of Securitization and The Future of Security, 25 Cardozo L. Rev. 1655 (2004).

(2): On securitization, see: Eastgroup Properties v. Southern Motel Association, Ltd., 935 F.2d 245 (11th Cir. 1991); Union Savings Bank v. Augie/Restivo Baking Co. (In Re Augie/Restivo Baking Co.), 860 F.2d 515 (2d Cir. 1988); In Re Bonham, 229 F.3d 750 (9th Cir. 2000); In Re Central European Industrial Development Company LLC, 288 B.R. 572 (Bankr. N.D. Cal. 2003); Special Report by the TriBar Opinion Committee, Opinions in the Bankruptcy Context: Rating Agency, Structured Financing, and Chapter 11 Transactions, 46 Business Lawyer 717 (1991); Sargent, Bankruptcy Remote Finance Subsidiaries: The Substantive Consolidation Issue, 44 Business Lawyer 1223 (1989). See In re Kingston Square Associates, 214 B.R. 713 (Bankr. S.D.N.Y. 1997). On “True-sale” and “signment” distinctions, see: Major’s Furniture Mart, Inc. v. Castle Credit Corporation, Inc., 602 F.2d 538 (3rd Cir. 1979); In re Major Funding Corporation, 82 B.R. 443 (Bankr. S.D. Tex. 1987); Fox v. Peck Iron and Metal Company, Inc., 25 B.R. 674 (Bankr. S.D. Cal. 1982); Carter v. Four Seasons Funding Corporation, 97 S.W.3d. 387 (Ark. 2003); A.B. Lewis Co. v. Nat’l Investment Co. of Houston, 421 S.W.2d 723 (Tex. Civ. App. – 14th Dist. 1967); Resolution Trust Corp. v. Aetna Casualty and Surety Co. of Illinois, 25 F.3d 570, 578 (7th Cir. 1994); In re Royal Crown Bottlers of North Alabama, Inc., 23 B.R. 28 (Bankr. N.D. Ala. 1982) (addressing ‘reasonably equivalent value’ in transfer by parent to subsidiary); Butner v. United States, 440 U.S. 48 (U.S. 1979); In re Schick, 246 B.R. 41, 44 (Bankr. S.D.N.Y. 2000): (State law determines the extent of the debtor’s interest; bankruptcy law determines whether that interest is “property of the estate”).

See specifically: Homburger & Andre, Real Estate Sale and Leaseback Transactions and the Risk of Recharacterization in Bankruptcy, 24 Real Property, Probate and Trust Journal 95, (1989). See: In re Integrated Health Services, Inc., 260 B.R. 71 (Bankr. Del. 2001).

See: HSBC Bank v. United Air Lines, Inc., 317 B.R. 335 (N.D. Ill. 2004). See: Jonathan C. Lipson, Enron, Asset Securitization and Bankruptcy Reform: Dead or Dormant?, 11 J. Bankr. L. & Prac. 1 (2002). See: Peter J. Lahny IV, Asset Securitization: A Discussion of the Traditional Bankrupt Attacks and an Analysis of the Next Potential Attack, Substantive Consolidation, 9 Am. Bankr. Inst. L. Rev. 815 (2001). See: Lois R. Lupica, Revised Article 9, Securitization Transactions and the Bankruptcy Dynamic, 9 Am. Bankr. Inst. L. Rev. 287 (2001). See: Lois R. Lupica, Circumvention of the Bankruptcy Process: The Statutory Institutionalization of Securitization, 33 Conn. L. Rev. 199 (2000). See further: Lois R. Lupica, Asset Securitization: The Unsecured Creditors Perspective, 76 Tex. L. Rev. 595 (1998). See: Stephen I. Glover, Structured Finance Goes Chapter 11: Asset Securitization by the Reorganizing Companies, 47 Bus. Law 611, 627 (1992). See: Thomas J. Gordon, Securitization of Executory Future Flows as Bankruptcy-Remote True Sales, 67 U. Chi. L. Rev. 1317, 1322-23 (2000).

See: In Re Kingston Square Assocs., 214 B.R. 713 (Bankr. S.D.N.Y. 1997) (creditors brought an involuntary petition against an SPV).

(3): On corporate governance issues pertaining to SPVs and securitization see the following materials: See: In Re Buckhead America Corp., #s 91-978 through 91-986 (Bankr. D. Del, Aug. 13, 1992); In Re Minor Emergency Center of Tamarac Inc., 45 BR 310 (Bankr. SD.FL., 1985); Revlon Inc. v. Mac andrews & Forbes Holdings, 506 A2d 173 (Del. 1986); In Re Kingston Square Associates, 214 BR 713 (Bnakr. SDNY 197).

See: Sheryl Gussset, A Not-So-Independent Director In A Bankruptcy Remote Structure, 17 Am. Bankr. Inst. J. 24 (1998). See: Roberg Dean Ellis, Securitization, Fiduciary Duties and Bondholders Rights, 24 J. Corp. L. 295 (1999). See: Richard Graf, Use of LLCs As Bankruptcy Proof Entities Widens, National L. J. , April 10, 1995 at B16. See: Schwarcz Steven, Enron and The Use and Abuse of Special Purpose Entities In Corporate Structures, 70 U. Cin. L. Rev. 1309 (2002). See: Schwarcz, Steven, Securitization Post-Enron, 25 Cardozo L. Rev. 1539 (2004). See also: Thomas Plank, 2004 Symposium: The Security of Securitization and The Future of Security, 25 Cardozo L. Rev. 1655 (2004). See: Thomas H, Effects of Asset Securitization On Seller Claimants, Journal of Financial Intermediation, 10: 306-330. See also: Nolan, Anthony, Synthetic Securitizations and Derivatives Transactions by Banks: Selected Regulatory Issues, Journal of Structured Finance, Fall 2006.

See: American Securitization Forum, ASF Securitization Institute: The Securitization Legal and Regulatory Framework, 2006. See: Yamazaki, Kenji, What makes Asset Securitization Inefficient? Working Paper # 603, Berkeley Electronic Press.

(4): See: Schwarcz S. (1999). Rethinking Freedom of Contract: A Bankruptcy Paradigm, Texas Law Review, 77: 515-599. See: Klee K & Butler, Asset-Backed Securitization, Special Purpose Vehicles and Other Securitization Issues. Uniform Commercial Code Law Journal, 35( 2). See: Carlson D (1998). The Rotten Foundations of Securitization, William & Mary Law Review, 39: See: Janger, Edward J, Muddy Rules For Securitizations, Fordham Journal of Corporate & Financial Law, 2002. See: Lois R. Lupica, Circumvention of the Bankruptcy Process: The Statutory Institutionalization of Securitization, 33 CONN. L. REV. 199 (2000). See: Steven L. Schwarcz, The Inherent Irrationality of Judgment Proofing, 52 STAN. L. REV. 1 (1999). See: S. 420, 107th Cong. 912 (2001); H.R. 333, 107th Cong. 912 (2001). See: Steven L. Schwarcz, The Impact on Securitization of Revised UCC Article 9, 74 Cm. KENT L. REV. 947 (1999) (“Revised Article 9 attempts to broaden its coverage to virtually all securitized assets”). See: Claire A. Hill, Securitization: A Low-Cost Sweetener for Lemons, 74 WASH. U. L.Q. 1061 (1996). See: Yamazaki Kenji, What makes Asset Securitization Inefficient? (2005); Berkeley Electronic Press, Working Paper #603. See: Saayman, Andrea, Securitization and Bank Liquidity In South Africa, Working Paper, Potchefstroom University, South Africa.

See: Sargent Patrick, Structural and Legal Issues in Commercial Mortgage Securitization Transactions, November 1, 2004.

(5): See: Schwarcz S. (2004). Is Securitization Legitimate? International Financial Law Review, 2004 Guide To Structured Finance, pp.115. See additionally: Schwarcz S (2002). The Universal Language of International Securitization, Duke (University) Journal of Comparative and International Law, 12:285-300. See: Frankel T., Cross-Border Securitization: Without Law But Not Lawless, Duke Journal of Comparative and International Law, 8: 255-265.

See further: Kanda H. Securitization In Japan, Duke Journal of Comparative and International Law, 8: 359-370. See: Klee K & Butler B. Asset-Backed Scuritization, Special Purpose Vehicles and Other Securitization Issues, Uniform Commercial Code Law Review, 35(3):23-33. See: Higgin E & Mason J. (2004). What Is The Value of Recourse To ABS? A Study of The Credit Card Bank ABS Rescue, Journal of Banking & Finance, 28(4):857-874. See: Carlson D (1998), The Rotten Foundations of Securitization, William & Mary Law Review, 39: See: Elmer P., Conduits: Their Structure and Risk, FDIC Banking Review, pp. 27-40.

See: Dawson P. Ratings Games With Contingent Transfer: A Structured Finance Illusion, Duke Journal of Comparative & International Law, 8: 381-391.

(6): See: Fogie v. Thorn, 95 F3d 645 (CA8, 1996) (cert. den.) 520 US 1166; Police v. National Tax Funding LP, 225 F3d 379 (CA3, 2000); Najarro v. SASI Intern. Ltd, 904 F2d 1002 (CA5, 1990) (cert. den.) 498 US 1048; Video Trax v. Nationsbank NA, 33 Fsupp2d 1041 (S.D.Fla.,1998) (affirmed) 205 F3d 1358(cert. den.) 531 US 822; In Re Tammy Jewels, 116 BR 290 (M.D.Fla., 1990); and: ECE technologies v. Cherrington Corp., 168 F3d 201 (CA5, 1999); Colony Creek Ltd. v. RTC, 941 F2d 1323 (CA5, 1991) (rehearing denied); Sterling Property Management v. Texas Commerce Bank, 32 F3d 964 (CA5, 1994); Pearcy Marinev. Acadian offshore Services, 832 Fsupp 192 (S.D.TX, 1993); In Re Venture Mortgage Fund LP, 245 BR 460 (SDNY, 2000); In Re Donnay, 184 BR 767 (D.Minn, 1995); Johnson v. Telecash Inc., 82 FSupp2d 264 (D.Del., 1999) (reversed in part) 225 F2d 366 (cert. denied) 531 US 1145; Shelton v. Mutual Savings & Loan Association, 738 FSupp 50 (E.D.Mich., 1990); S.E.C. v. Elmas Trading Corporation, 638 F. Supp 743 (D.Nevada, 1987) (affirmed) 865 F2d 265; contrast: J2 Smoke Shop Inc. v. American Commercial Capital Corp., 709 FSupp 422 (SDNY 1989) (cost of funds); In Re Powderburst Corp., 154 BR 307 (E.D.Cal. 1993) (original issue discount); In Re Wright, 256 BR 626 (D.Mont., 2000) (difference between the face amount and amount actually recovered or owed by debtor); In Re MCCorhill Pub. Inc., 86 BR 283 (SDNY 1988); In Re Marill Alarm Systems, 81 BR 119 (S.D.Fla., 1987) (affirmed) 861 F2d 725; In Re Dent, 130 BR 623 (S.D.GA, 1991); In Re Evans, 130 BR 357 (S.D.GA, 1991); contrast: In Re Cadillac Wildwood Development, 138 BR 854 (W.D. Mich., 1992) (closing costs are interest costs); In Re Brummer, 147 BR 552 (D.Mont., 1992); In Re Sunde, 149 BR 552 (D.Minn., 1992); Matter of Worldwide Trucks, 948 F2d 976 (CA5,1991) (agreement concerning applicable interest rate may be established by course of conduct); Lovick v. Ritemoney Ltd, 378 F3d 433 (CA5, 2004); In Re Shulman Transport, 744 F2d 293 (CA2, 1984); Torelli v. Esposito, 461 NYS2d 299 (1983) (reversed) 483 NYS2d 204; Reschke v. Eadi, 447 NYS2d 59 (NYAD4, 1981); Elghanian v. Elghanian, 717 NYS2d 54( NYAD1, 2000) (leave to appeal denied) 729 NYS2d 410 (here, there was no consideration in exchange for loan, and transaction violated usury laws); Karas v. Shur, 592 NYS2d 779 (NYAD2, 1993); Simsbury Fund v. New St. Louis Associates, 611 NYS2d 557 (NYAD1, 1994); Rhee v. Dahan, 454 NYS2d 371 (NY.Sup., 1982); Hamilton v. HLT Check Exchange, LLP, 987 F. Supp. 953 (E.D. Ky. 1997); Turner v. E-Z Check Cashing of Cookeville, TN, Inc., 35 F.Supp.2d 1042 (M.D. Tenn. 1999); Hurt v. Crystal Ice & Cold Storage Co., 286 S.W. 1055, 1056-57 (Ky. 1926); Phanco v. Dollar Financial Group., Case No. CV99-1281 DDP (C.D. Cal., filed Feb. 8, 1999). See: Van Voris, B. (May 17, 1999) ‘‘Payday’ Loans Under Scrutiny’, National Law Journal, p. B1.

(7): See: 26 U.S.C. § 7201. 26 USC Subtitle F, Chapter 75.
See: Cheek v. United States, 498 U.S. 192 (1991).

(8): SEC v. Towers Financial Corp. et al., 93 Civ. 744 (WK) (S.D.N.Y.)

(9): See: Schwarcz Steven, Enron and The Use and Abuse of Special Purpose Entities In Corporate Structures, 70 U. Cin. L. Rev. 1309 (2002). See: Schwarcz, Steven, Securitization Post-Enron, 25 Cardozo L. Rev. 1539 (2004). See: Thomas Plank, 2004 Symposium: The Security of Securitization and The Future of Security, 25 Cardozo L. Rev. 1655 (2004).

See further: Thomas H., Effects of Asset Securitization On Seller Claimants, Journal of financial Intermediation, 10: 306-330. See: Yamazaki, Kenji, What Makes Asset Securitization Inefficient? Working Paper # 603, Berkeley Electronic Press.

(10): The Uniform Fraudulent Transfer Act reads as follows:

SECTION 4: TRANSFERS FRAUDULENT AS TO PRESENT AND FUTURE CREDITORS:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if:

(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(i): was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or:
(ii): intended to incur, or believed or reasonably should have believed that he [or she] would incur, debts that would be beyond his [or her] ability to pay as they became due.

(b) In determining actual intent under subsection (a)(1), consideration may be given, among other factors, to whether:

(1): The transfer or obligation was to an insider;
(2): The debtor retained possession or control of the property transferred after the transfer;
(3): The transfer or obligation was disclosed or concealed;
(4): Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5): The transfer was of substantially all the debtor’s assets;
(6): The debtor absconded;
(7): The debtor removed or concealed assets;
(8): The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9): The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10): The transfer occurred shortly before or shortly after a substantial debt was incurred; and:
(11): The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. Under both the US Bankruptcy Code and UFTA (Section 544 of the US Bankruptcy Code also allows unsecured creditors to sue in Federal Bankruptcy Court using applicable State), judges must determine whether there has been Fraudulent Conveyance. Courts have developed a series of factors as criteria for proving the requisite intent. The factors to be considered (“badges of fraud”) in determining Fraudulent Conveyance include:

• Whether the transfer represented substantially all of the debtor’s assets.
• Whether the transfer was made around the time a substantial debt was incurred.
• Whether the debtor received reasonable consideration equivalent to the value of the assets conveyed or the obligation incurred.
• Whether the debtor became insolvent soon after the transfer.
• Whether the transfer was made to insiders or family members.
• Whether the transfer or the assets were concealed

(11): See: Roman Dan, Sarlito M & Mukhtiar A (Winter 2007), Risks to Consider when purchasing Technology-based IP for Securitization, Working Paper. See additionally: Nolan Anthony, Synthetic Securitizations and Derivatives Transactions by Banks: Selected Regulatory Issues, The Journal of Structured Finance, Fall 2006. See: Lucas Douglas, Goodman Laurie & Fabozzi Frank, Hybrid Assets in an ABS CDO: Structural Advantages and Cash Flow Mechanics, Journal of Structured Finance (Fall 2006). See further: Prince, Jeffrey, A General Review of CDO Valuation Methods, Journal of Structured and Project Finance (Summer 2006).

(12): See: Peter V. Pantaleo et al., Rethinking the Role of Recourse in the Sale of Financial Assets, 52 Bus. Law. 159, 159-63 (1996) (discussing types of permissible and impermissible recourse for sale treatment). See: Thomas E. Plank, The True Sale of Loans and the Rôle of Recourse, 14 GEO. MASON L. Rev. 287 (1991). See: Gordon T (2000). Securitization of Executory Future Flows As bankruptcy-Remote True Sales, University of Chicago Law Review, 67:1317-1322. See: Higgin E & Mason J (2004). What Is The value of Recourse To Asset-Backed Securities? A Study of Credit Card Bank ABS Rescues, Journal of Banking & Finance, 28(4); 857-874.

(13): See: Peter V. Pantaleo et al., Rethinking the Rôle of Recourse in the Sale of Financial Assets, 52 Bus. Law. 159, 159-63 (1996) (discussing types of permissible and impermissible recourse for sale treatment); See: Thomas E. Plank, The True Sale of Loans and the Role of Recourse, 14 GEO. MASON L. Rev. 287 (1991). See: Higgin E. & Mason J. (2004), What Is The value of Recourse To Asset-Backed Securities? A Study of Credit Card Bank ABS Rescues, The Journal of Banking & Finance, 28(4); 857-874. See: Lois R. Lupica, Revised Article 9, Securitization Transactions and the Bankruptcy Dynamic, 9 AM. BANKR. INST. L. REV. 287, 291-92 (2001). See: Carol M. Rose, Crystals and Mud in Property Law, 40 STAN. L. REV. 577, 600 (1988). See: Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 Duke L.J. 557 (1992).

(14): See: Yamazaki, Kenichi, What makes Asset Securitization Inefficient?, 2005.
Working Paper #603, Berkeley Electronic Press.

(15): See: Yamazaki (2005), supra.

(16): See: Schwarcz (2002), supra. See: Schwarcz (2004), supra. See: Klee & Butler, supra. See: Lipson J C (2002). Enron, Asset Securitization and Bankruptcy Reform: Dead or Dormant? Journal
of Bankruptcy Law & Practice, 11: 1-15. See: Lupica L (2001). Revised Articles Nine, Securitization Transactions and The Bankruptcy Dynamic, American Bankruptcy Institute Law Review, 9:287-299. See: Garmaise M (2001), Rational Beliefs and Security Design, Review of Financial Studies, 14(4):1183-1213. See: David A (1997), Controlling Information Premia by Repackaging Asset Backed Securities, Journal of Risk & Insurance, 64(4):619-648. See: DeMarzo P (2005), The Pooling and Tranching of Securities: A Model of Informed Intermediation, Review of Financial Studies, 18(1):1-35. See further: Report by The Committee On Bankruptcy and Corporate Reorganization of The Association of The Bar of The City of New York (2000): New Developments In Structured Finance, The Business Lawyer, 56: 95-105. See: Lupica L (2000), Circumvention of The Bankruptcy Process: The Statutory Institutionalization of Securitization, Connecticut Law Review, 33:199-209.

See further: Glover S (1992), Structured Finance Goes Chapter Eleven: Asset Securitization by the Reorganizing Companies, The Business Lawyer, 47:611-621. See: Gordon T (2000), Securitization of Executory Future Flows as bankruptcy-Remote True Sales, The University of Chicago Law Review, 67:1317-1322. See: Elmer P., Conduits: Their Stricture and Risk, FDIC Banking Review, pp.27-40. See: Lois R. Lupica, Revised Article 9, Securitization Transactions and the Bankruptcy Dynamic, 9 AM. BANKR. INST. L. REV. 287, 291-92 (2001). See: Steven L. Schwarcz, The Inherent Irrationality of Judgment Proofing, 52 STAN. L. REV. 1 (1999). See: Lynn M. LoPucki, The Irrefutable Logic of Judgment Proofing: A Reply to Professor Schwarcz, 52 STAN. L. REV. 55 (1999). See: Steven L. Schwarcz, The Impact on Securitization of Revised UCC Article 9, 74 Cm.KENT L. REV. 947 (1999) (“Revised Article 9 attempts to broaden its coverage to virtually all securitized assets”).

See: Christopher W. Frost, Asset Securitization and Corporate Risk Allocation, 72 TUL. L. REV. 101 (1997); See: Claire A. Hill, Securitization: A Low-Cost Sweetener for Lemons, 74 WASH. U. L. Q. 1061 (1996). See: Steven L. Schwarcz, Judgment Proofing: A Rejoinder, 52 STAN. L. REV. 77 (1999).

(17): See: Reams B & Manz W (eds.), FEDERAL BANKRUPTCY LAW: A LEGISLATIVE HISTORY OF THE BANKRUPTCY REFORM ACT OF 1994. See further: The Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005; (FRB Leg. Hist); (S. 256 -LoC); Pub. L. 109-8, April 20, 2005, 119 Stat, 23. http://www.llsdc.org/sourcebook/leg-hist.htm.

See: Bankruptcy Reform Act of 1978: A Legislative History, Hein. See: Federal Bankruptcy Law: A Legislative History of The Bankruptcy Act of 1994; Pub. L. No. 103-394, 108 Stat. 4106, including the National Bankruptcy Commission Act and Bankruptcy Amendments (1987-1993).

See further: Ahern, Lawrence (Spring 2001). “Workouts” Under Revised Article Nine: A Review of Changes and Proposal For Study, American Bankruptcy Institute Law Review, 9:115-125.

See also: Ribstein, Larry & Kobayashi, Bruce (1996), An Economic Analysis of Uniform State Laws, Journal of Legal Studies, 25(1):131-199.

(18): See: Ashta A & Tolle L (2000), Criteria for Selecting Restructuring Strategies for Distressed or Declining Enterprises, Cahners Du Ceren, 6:1-20. See: Carlson D (1998). The Rotten Foundations of Securitization, William & Mary Law Review, 39. See: Higgin E & Mason J (2004), What is the value of Recourse to Asset-Backed Securities? A Study of Credit Card Bank ABS Rescues, in the Journal of Banking & Finance, 28(4); 857-874. See: Albany Insurance v. Esses, 831 F2d 41 (CA2, 1987) (making false statements about value of asset was a “predicate act”); Howell Hydrocarbons v. Adams, 897 F2d 183 (CA5 1990) (under Federal R.I.C.O. statutes, making a company look solvent when its not, constitutes a ‘predicate act’); The Matter of Lewisville Properties, 849 F2d 946 (CA5, 1988) (under Federal R.I.C.O., false pretenses constitutes ‘predicate acts’). See also: Bens D & Monahan S (Feb. 2005), Altering Investment Decisions to [conform to] Management Financial Reporting Outcomes: Asset Backed Commercial Paper Conduits and FIN 46, Working Paper.

(19): In the following cases, the named courts held that pre-petition waivers of the right to file for voluntary/involuntary bankruptcy, were unenforceable. See: In Re Huang, 275 F3d 1177 (CA9, 2002) (it is against public policy for a debtor to waive the pre-petition protection of the Bankruptcy Code); In Re South East Financial Associates, 21 BR 1003 (M.D.Fla, 1997); And: In Re Tru Block Concrete Products Ins., 27 BR 486 (E.D.Pa., 1995) (advance agreement to waive the benefits of bankruptcy law is void as against public policy); In Re Madison, 184 BR 686, 690 (E.D.Pa, 1995) (even bargained-for and knowing waivers of the right to seek bankruptcy protection must be deemed void); In Re Club Tower LP, 138 BR 307 at 312 (N.D.Ga, 1991); In Re Graves, 212 BR 692 (BAP, CA1, 1997); In Re Pease, 195 BR 431 (D.Neb., 1996); And: In Re Jenkins Court Associates Ltd. Partnership, 181 BR 33 (E.D.Pa., 1995); In Re Sky Group International Inc., 108 BR 86 (W.D.Pa., 1989); Association of St.Croix Condominium Owners v. St. Croix Hotel Corp., 692 F2d 446 (CA3, 1982).

But contrast: In Re University Commons LP, 200 BR 255 (M.D.Fla.) (debtors agreement that in the event debtor enters bankruptcy proceedings, the secured lender shall be entitled to court order dismissing the case as ‘bad faith’ filing an determining that: (i) no rehabilitation or reorganization is possible, and (ii) dismissing all creditor/ ABS-investor’s right to file for involuntary bankruptcy 21, 22: US courts have repeatedly asserted that bankruptcy proceedings are in the best interests of parties and all other creditors, and this is binding); In Re Little Creek Development, 779 F2d 1068 (CA5, 1986). See: 124 Congr. Record H 32, 401 (1978).

(20): There are several cases that hold that pre-petition waivers of the right to file for voluntary or involuntary bankruptcy, are enforceable: thus: In Re Shady Grove tech Center Associates Limited Partnership, 216 BR 386 (D.Md., 1998) (waiver of the right to file for bankruptcy is unenforceable) (opinion supplemented) 227 BR 422 (D.Md., 1998); In Re Atrium High Point Ltd. partnership, 189 BR 599 (MDNC 1995); In Re Darrell Creek Associates, 187 BR 908 (DSc, 1995); In Re Cheeks, 167 BR 817 (D.Sc, 1997); In Re McBride Estates, 154 BR 339 (N.D.Fla., 1993); In Re citadel Properties, 86 BR 275, MD.Fla., 1988); In Re Gulf Beach Development Corp., 48 BR 40 (M.D.Fla., 1985).

However, these cases are very distinguishable from standard securitization transactions because the following characteristics and/or conditions existed in these cases: (a) they involve only single-asset entities; (b) these entities had no employees; (c) the timing of filing of bankruptcy petition indicates an intent to delay or to frustrate creditors’ proper efforts to enforce their rights after a workout had failed; (d) there were no or few unsecured non-insider creditors (those existing had small claims); (e) there was no realistic chance of rehabilitation or reorganization; (f) the assets did not produce any cashflow.

(21): See cases cited in Notes 5, 6, 19 and 20.

(22): On pre-petition waivers of right to file for bankruptcy and waivers of bankruptcy stays, see: In re Huang, 275 F.3d 1173, 1177 (9th Cir. 2002) (“It is against public policy for a debtor to waive the pre-petition protection of the Bankruptcy Code”); In re Shady Grove Tech Center Assocs. Limited Partnership, 216 B.R. 386, 389 (Bankr. D. Md. 1998) (“The courts have uniformly held that a waiver of the right to file a bankruptcy case is unenforceable”); In re Tru Block Concrete Prods., Ins., 27 B.R. 486, 492 (Bankr. E.D. Pa. 1995) (advance agreement to waive the benefits conferred by bankruptcy law is void as against US public policy); In re Madison, 184 B.R 686, 690 (Bankr. E.D. Pa. 1995) (even bargained-for and knowing waivers of the right to seek bankruptcy protection must be deemed void); In re Club Tower L.P., 138 B.R. 307, 312 (Bankr. N.D. Ga. 1991); further, In re Orange Park S. Partnership, 79 B.R. 79, 82 (Bankr. M.D. Fla. 1987); In re Aurora Invs., 134 B.R. 982, 985 (Bankr. M.D. Fla. 1991) (debtor’s agreement that petition, if filed, would be in “bad faith” if its primary purpose is to delay foreclosure sale, is binding); In re University Commons, L.P., 200 B.R. 255, 259 (Bankr. M.D. Fla. 1996) (debtor’s agreement that in the event that debtor becomes subject of bankruptcy case secured lender shall be entitled to order dismissing case as “bad faith” filing and determining that (i) no rehabilitation or reorganization is possible, and (ii) dismissing all court proceedings is in the best interest of parties and all other creditors, is binding); In Re Little Creek Dev. Co., 779 F.2d 1068, 1073 (5th Cir. 1986). 47212 B.R. 1003, 1005 (Bankr. M.D. Fla. 1997). See: 124 Cong. Rec. H 32, 401 (1978) (“The explicit reference in Title-11 forbidding the waiver of certain rights is not intended to imply that other rights, such as the right to file a voluntary bankruptcy case under section 301, maybe waived”). See further: Klee, Kenneth & Butler, Brendt, Asset-backed Securitization, Special Purpose Vehicles and Other Securitization, Working Paper. Cases that enforced pre-petition waivers of the automatic stay focus upon:

(i): The financial sophistication of the borrower;
(ii): The creditor’s demonstration that significant consideration was given
for the pre-petition waiver;
(iii): The effect of the enforcement of the pre-petition waiver upon other
parties having legitimate interests in the outcome;
(iv): Circumstances of the parties at the time enforcement of the pre-petition waiver is sought;
(v): The enforcement of the pre-petition waiver being consistent
with public policy of encouraging out of court restructurings and settlements with creditors; and:
(vi): Other indicia which support granting relief from stay, such as “bad faith” criteria (i.e. single-asset case, two-party dispute, long history of pre-petition workouts, newly formed entity, filing on eve of foreclosure, no ongoing business to reorganize, few employees, no unencumbered funds, etc.). Cases that held that pre-petition stay waivers were enforceable include: In Re Shady Grove Tech Ctr. Assocs., L.P., 216 B.R.386, 390 (Bankr. D. Md. 1998); In Re Atrium High Point L.P., 189 B.R. 599, 607 (Bankr. M.D.N.C. 1995); In Re Darrell Creek Assocs., L.P., 187 B.R. 908, 910 (Bankr. D.S.C. 1995); In Re Cheeks, 167 B.R. 817, 818 (Bankr. D.S.C. 1994); In Re Powers, 170 B.R. 480, 483 (Bankr. D. Mass. 1994); In Re McBride Estates, Ltd., 154 B.R. 339, 343 (Bankr. N.D. Fla. 1993); In Re Citadel Properties, Inc., 86 B.R. 275, 276 (Bankr. M.D. Fla. 1988); In Re Gulf Beach Development Corp., 48 B.R. 40, 43 (Bankr. M.D. Fla. 1985).

Several courts, however, have refused to enforce pre-petition waivers
for any of the following reasons:

(i): The pre-petition waiver is the equivalent to an ipso facto clause;
(ii): Such clause is void as against public policy by depriving the debtor
of the use and benefit of property upon the filing of a bankruptcy case;
(iii): The borrower lacks the capacity to act on behalf of the debtor in possession;
(iv): The debtor has a business with a reasonable chance at reorganization and enforcement of the waiver would otherwise prejudice third-party creditors;
(v): The automatic stay is designed to protect all creditors and may not be waived by the debtor unilaterally to the detriment of creditors; and:
(vi): The waiver was obtained by coercion, fraud or mutual mistake of facts. Courts that have refused to enforce pre-petition waivers of the automatic stay have reasoned that the automatic stay protects not only debtors but also other creditors. US Courts disagree sharply about the utility, benefits and desirability of the enforcement of pre-petition waivers, and relevant criteria. Some courts have held that a pre-petition automatic stay waiver may be considered as a factor in determining whether cause exists for relief from the stay.

See aslo: In Re Darrell Creek Assocs., L.P., 187 B.R. 908, 913 (Bankr. D.S.C. 1995) (“out of court workouts are to be encouraged and are often effective”); In Re Cheeks, 167 B.R. 817, 819 (Bankr. D.S.C. 1994) (“the most compelling reason for enforcement of the forbearance agreement is to further the public policy in favor of encouraging out of court restructuring and settlements”);
In Re Club Tower L.P., 138 B.R. 307, 312 (Bankr. N.D. Ga. 1991) (“enforcing pre-petition settlement agreements furthers the legitimate public policy of encouraging out of court restructurings and settlements”). Cases holding pre-petition automatic stay waivers unenforceable include: In Re Southeast Financial Assocs., Inc., 212 B.R. 1003, 1005 (Bankr. M.D. Fla. 1997); In Re Graves, 212 B.R. 692, 694 (B.A.P. 1st Cir. 1997); In Re Pease, 195 B.R. 431, 433 (Bankr. D. Neb. 1996); In Re Jenkins Court Assocs. L.P., 181 B.R. 33, 37 (Bankr. E.D. Pa. 1995);Farm Credit of Cent. Fla., ACA v. Polk, 160 B.R. 870, 873-74 (M.D. Fla. 1993); Farm Credit of Cent. Fla., ACA v. Polk, 160 B.R. 870, 873-74 (M.D. Fla. 1993) (”The policy behind the automatic stay is to protect the debtor‘s estate from being depleted by creditor’s lawsuits and seizures of property before the debtor has had a chance to marshal the estate’s assets and distribute them equitably among creditors“); In Re Sky Group Int’l, Inc., 108 B.R. 86, 89 (Bankr. W.D. Pa. 1989) (”To grant a creditor relief from stay simply because the debtor elected to waive the protection afforded the debtor by the automatic stay ignores the fact that it also is designed to protect all creditors and to treat them equally“) (citing Assoc. of St. Croix Condominium Owners v. St. Croix Hotel Corp., 682 F.2d 446 (3d Cir. 1982)). Also see: In re Shady Grove Tech Ctr. Assocs., L.P., 216 B.R. 386, 393-94 (Bankr. D. Md. 1998); In re S.E. Fin. Assocs., Inc., 212 B.R. 1003, 1005 (Bankr. M.D. Fla. 1997); In re Darrell Creek Assocs., L.P., 187 B.R. 908, 910 (Bankr. D.S.C. 1995); In re Powers, 170 B.R. 480, 483 (Bankr. D. Mass. 1994); In re Cheeks, 167 B.R. 817, 819 (Bankr. D.S.C. 1994); In Re Shady Grove Tech Ctr. Assocs., L.P., 216 B.R. 386, 393-94 (Bankr. D. Md. 1998) (granting a stay relief for cause based upon a finding which included debtor’s pre-petition agreement not to contest request for stay relief given as part of pre-petition restructuring in which debtor was afforded substantial consideration). See: Steven L. Schwarcz, Rethinking Freedom of Contract: A Bankruptcy Paradigm, 77 Tex. L. Rev. 515 (1999). See: In Re Club Tower L.P., 138 B.R. 307, 311-12 (Bankr. N.D. Ga. 1991).

(23): See: Schwarcz S. (1999). Rethinking Freedom of Contract: A Bankruptcy Paradigm, Texas Law Review, 77: 515-599. See: Klee K & Butler B Asset-Backed Securitization, Special Purpose Vehicles and Other Securitization Issues, Uniform Commercial Code Law Journal, 35(2):. See: Carlson D (1998), The Rotten Foundations of Securitization, William & Mary Law Review, 39:

(24): See notes 5, 6, 19 and 20, supra.

(25): See: Shakespeare C (2003). Do Managers Use Securitization Volume and Fair Value Estimates To Hit Earning Targets? Working Paper, University of Michigan (School of Business). See further: Shakespeare C (2001), Accounting For Asset Securitizations: Complex Fair Values and Earnings Management, Working Paper, University of Michigan.

(26): Wooten v. Loshbough, 649 Fsupp 531 (N.D.Ind. 1986) (on reconsideration) 738 Fsupp 314 (affirmed) 951 F2d 768 (under Federal R.I.C.O. statutes, the stripping of a company’s ability to pay a Court-ordered judgment claim was a ’predicate act‘).

(27): See: Kulzick R (2004). Sarbanes-Oxley: Effects on Financial
Transparency, S.A.M. Advanced Management Journal, 69(1): 43-49.

(28): See: Albany Insurance v. Esses, 831 F2d 41 (CA2, 1987) (under Federal R.I.C.O. statutes, making false statements about the value of asset was a ‘predicate act’); Howell Hydrocarbons v. Adams, 897 F2d 183 (CA5 1990) (under Federal R.I.C.O. statutes, making a company look solvent when its not, constitutes a ‘predicate act’).

(29): See: Lockheed Martin v. Boeing, 357 Fsupp2d 1350 (M.D.Fla., 2005) (bidder violated competitor’s property rights to proprietary information by using it to produce winning bids).

(30): See: Colloff M (2005), The Rôle of the Trustee in Mitigating Fraud in Structured Financings, Journal of Structured Finance, 10(4):73-85. See further: Shakespeare C (2003), Do Managers Use Securitization Volume and Fair Value Estimates to Hit Earning Targets? Working Paper, University of Michigan (School of Business).

See: Shakespeare C (2001), Accounting For Asset Securitizations: Complex Fair Values and Earnings Management. Working Paper, University of Michigan. See: Katyal K (2003), Conspiracy Theory, The Yale Law Journal, 112(6):1307-1398.

See: Geary W (2002), The Legislative Recreation of R.I.C.O.: Reinforcing The ‘myth’ of Organized Crime, Crime, Law & Social Change, 38(4):311-315. See: Kulzick R (2004), Sarbanes-Oxley: Effects on Financial Transparency, S.A.M. Advanced Management Journal, 69(1): 43-49. See: Painter R (2004), Convergence and Competition In Rules Governing Lawyers and Auditors, The Journal of Corporation Law, 29(2):397-426. See: Jordans R. (2003), The legal approach to investment advisers in different jurisdictions, Journal of Financial Regulation and Compliance, 11(2):169-171.

See: Blanque P. (2003), Crisis and Fraud, Journal of Financial Regulation & Compliance, 11(1):60-70. See: Pickholz M & Pickholz J (2001), Manipulation, Journal of Financial Crime, 9(2):117-133. See: Zey M(1999), The subsidiarization of the securities industry and the organization of securities fraud networks to return profits in the 1980s, Work and Occupations, 26(1):50-76.

See: Aicher R, Cotton D & Khan T (2004), Credit Enhancement: Letters of Credit, Guaranties, Insurance and Swaps, The Business Lawyer, 59(3):897-973. See: Brief T & Ms Sweeney T (2003), Corporate Criminal Liability, The American Criminal Review, 40(2): 337-366. See: Landrum D (2003), Governance of limited liability companies – Contrasting California and Delaware models, The Real Estate Finance Journal, 19(1).

(31): See: 18 USC 1961-1968.

(32): See: Alexander v. Thornbough, 713 FSupp 1271 (D.Minn. 1989) (appeal dismissed) 881 F2d 1081; Mira v. Nuclear Measurements Corp., 107 F3d 466 (CA7, 1997); US v. Manzella, 782 F2d 533 (CA5, 1986)(cert. Denied.) 476 US 1123; Cadle Co v. Flanagan, 271 Fsupp2d 379 (D.Conn., 2003); Seale v. Miller, 698 Fsupp 883 (N.D.G.A., 1988); Georgia Gulf Corp. v. Ward, 701 Fsupp 1556 (NDGA 1988); Wooten v. Loshbough, 649 FSupp. 531 (N.D.Ind. 1986) (on reconsideration) 738 Fsupp 314 (affirmed) 951 F2d 768 (stripping of company’s ability to pay judgment claim was ‘predicate act’ under R.I.C.O. statutes); Formax v. Hostert, 841 F2d 388 (CAFed, 1988); Abell v. Potomac Insurance, 858 F2d 1104 (CA5, 1988) (appeal after remand) 946 F2d 1160 (cert. denied) 492 US 918; Aetna Ca. Ins. Co. v. P & B Autobody, 43 F3d 1546 (CA1, 1994); Albany Insurance v. Esses, 831 F2d 41 (CA2, 1987) (making false statements about value of asset was a “predicate act”); Alfadda v. Fenn, 935 F2d 475 (CA2, 1991)(certiorari denied) 502 US 1005; Laird v. Integrated Resources, 897 F2d 826 (CA5, 1990); Shearin v. E F Hutton, 885 F2d 1162 (CA3, 1989); Bank One of Cleveland v. Abbe, 916 F2d 1067 (CA6, 1990); BancOklahoma Mortgage Corp. v. Capital Title Co., 194 F3d 1089 (CA10, 1999); Howell Hydrocarbons v. Adams, 897 F2d 183 (CA5 1990) (under Federal R.I.C.O. statutes, making a company look solvent when its not, constitutes a ‘predicate act’); Matter of Lewisville Properties, 849 F2d 946 (CA5, 1988) (false pretenses constitutes ‘predicate acts’).

See: Securities Investor Protection Corp. v. Vigman, 908 F2d 1461 (CA9, 1990); International Data Bank v. Zepkin, 812 F2d 149 (CA4, 1987); Warner v. Alexander Grant & Co., 828 F2d 14528 (CA11, 1987); Mauriber v. Shearson/American Express, 546 FSupp 391 (SDNY, 1982); Farmers Bank F Delaware v. Bell Mortgage Corp., 452 FSupp 1278 (D.Del, 1978); Moss v. Morgan Stanley Inc., 719 F2d 5 (CA2, 1983); USACO Coal v. Carbomin Energy Inc., 689 F2d 94 (CA6, 1982); Binkley v. Shaeffer, 609 FSupp 601 (E.D.Pa., 1985); Sedima v. Imrex Co., 473 US 479 (1985) . See: Glanz M (1983). R.I.C.O. and Securities Fraud: A Workable Limitation, Columbia Law Review, 6:1513-1543. See: Masella J (1991), Standing to Sue In A Civil R.I.C.O. Suit Predicated On Violation OF SEC Rule 10b-5: The Purchase Or Sale Requirement, Columbia Law Review, 91(7):1793-1812. See: Coffey P (1990), The Selection, Analysis and Approval of Federal R.I.C.O. Prosecutions, Notre Dame Law Review, 65: 1035-1055. See: Matthews A (1990), Shifting The Burden of Losses In The Securities Markets: The Rôle of Civil R.I.C.O. In Securities Litigation, Notre Dame Law Review, 65: 896-906.

(33): See: Bradford National Clearing Corp. v. SEC, 590 F2d 1085 (DCCir, 1978); In Re Stock Exchanges Options Trading Antitrust Litigation, 317 F3d 134 (CA2, 2003); Gordon v. NYSE, 422 US 659 (1975); National Gerimedical Hospital v. Blue Cross of Kansas City, 452 US 378 (1981); Silver v. NYSE, 373 US 341 (1963) (no Antitrust immunity); Strobl v. NY Mercantile Exchange, 768 F2d 22.

(34), (35):
§ 1 Sherman Act, 15 U.S.C. § 1:

Trusts, etc., in restraint of trade illegal; penalty:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by a fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

§ 2 Sherman Act, 15 U.S.C. § 2:

Monopolizing trade a felony; penalty:

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in discretion of the court.

§ 3 Sherman Act, 15 U.S.C. § 3:

Trusts in Territories or District of Columbia illegal; combination a felony:

Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia (DC), or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

3. CLAYTON ACT, 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53:

• § 1 Clayton Act, 15 U.S.C. § 12 Definitions; short title:

§ 1 Clayton Act, 15 U.S.C. § 12 Definitions; short title:
(a) “Antitrust laws”, as used herein, includes the Act entitled:
‘An Act to protect trade and commerce against unlawful restraints and monopolies’, approved July second, eighteen hundred and ninety; sections seventy-three to seventy-seven, inclusive, of an Act entitled ‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes’, of August 27th, eighteen hundred and ninety-four; an Act entitled ‘An Act to amend sections seventy-three and seventy-six of the Act of August twenty-seventh, eighteen hundred and ninetyfour’, entitled ‘An Act to reduce taxation, to provide revenue for the Government, and for other purposes’, approved February twelfth, nineteen hundred and thirteen; and also this Act.

‘Commerce’, as used herein, means trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions or other places that are under the jurisdiction of the United States, or between any such possession or place and any US State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States:

Provided, That nothing in this Act contained shall apply to the Philippine Islands. The word ‘person’ or ‘persons’ wherever used in this Act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

(b) This Act may be cited as the “Clayton Act”.

• § 2 Clayton Act, 15 U.S.C. §§ 13(2):

Discrimination in price, services, or facilities:

(a) Price; selection of customers:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered:

Provided, however, That the Federal Trade Commission may, after due investigation and hearing to all interested parties, fix and establish quantity limits, and revise the same as it finds necessary, as to particular commodities or classes of commodities, where it finds that available purchasers in greater quantities are so few as to render differentials on account thereof unjustly discriminatory or promotive of monopoly in any line of commerce; and the foregoing shall then not be construed to permit differentials that are based on differences in quantities greater than those so fixed and established: and provided further, That nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade: and provided further, That nothing herein contained shall prevent price changes from time to time where in response to changing conditions affecting the market for or the marketability of the goods concerned, such as but not limited to actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned.

(b) Burden of rebutting prima-facie case of discrimination:

Upon proof being made, at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima-facie case thus made by showing justification shall be upon the person charged with a violation of this section, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination: Provided, however, That nothing herein contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor.

(c) Payment or acceptance of commission, brokerage, or other compensation: It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

(d) Payment for services or facilities for processing or sale:

It shall be unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the benefit of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

(e) Furnishing services or facilities for processing, handling, etc.: It shall be unlawful for any person to discriminate in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale, with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale, or offering for sale of such commodity so purchased upon terms not accorded to all purchasers on proportionally equal terms.

(f) Knowingly inducing or receiving discriminatory price:
It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section. Discrimination in rebates, discounts, or advertising service charges; underselling in particular localities; penalties:

• 15 U.S.C. § 13a:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to be a party to, or assist in, any transaction of sale, or any contract to sell, which discriminates to his knowledge against competitors of the purchaser, in that, any discount, rebate, allowance, or advertising service charge is granted to the purchaser over and above any discount, rebate, allowance, or advertising service charge available at the time of such transaction to the said competitors in respect of a sale of goods of like grade, quality, and quantity; to sell, or to contract to sell, goods in any part of the United States at prices lower than those exacted by said person elsewhere in the United States for the purpose of destroying competition, or of eliminating a competitor in such part of the United States; or, to sell, or contract to sell, goods at unreasonably low prices for the purpose of destroying competition or eliminating a competitor.

• Any person violating any of the provisions of this section shall, upon conviction thereof, be fined not more than $5,000 or imprisoned not more than one year, or both.

• 15 U.S.C. § 13b:

Cooperative association; return of net earnings or surplus:
Nothing in sections 13 to 13b and 21a of this title shall prevent a cooperative association from returning to its members, producers, or consumers the whole, or any part of, the net earnings or surplus resulting from its trading operations, in proportion to their purchases or sales from, to, or through the association.

• § 3 Clayton Act, 15 U.S.C. § 14:

Sale, etc., on agreement not to use goods of competitor:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, whether patented or unpatented, for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, or fix a price charged therefor, or discount from, or a rebate upon, such price, on the condition, agreement, or the understanding that the lessee or the purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.

• FTC Regulations: Section 5 of the Federal Trade Commission Act outlaw ”unfair methods of competition“ but do not define unfair. The Supreme Court has ruled that violations of the Sherman Act are also violations of Section 5, but Section 5 covers some practices that are beyond the scope of the Sherman Act. It is the FTC’s job to enforce Section 5.

(36): See: Eastman Kodak Co v. Image technical Services, 504 US 451 (1992); Jefferson parish Hospital v. Hyde, 466 US 2 (1984); Zenith Radio Corp. v. Hazeltine Research, 395 US 100 (1969).

(37): See: Business Electronics Corp. v. Sharp Electronics Corp, 485 US 717 (1988); Copperweld Corp. v. Independence Tube, 467 US 752 (1984); Monsanto Co. v. Spray-Rite Service Corp., 465 US 752 (1984); US v. Arnold, Schwin et al, 388 US 365 (1967); USPS v. Flamingo Industries, #02-1290 (2004); Brown v. Pro Football, 518 US 213 (1996); FTC v. Ticor Title Insurance Company, 504 US 621 (1992); Allied Tube & Conduit Corp. v. Indian head Inc., 486 US 492 (1988).

(38): See: Standard Oil Co v. US, 337 US 293 (1949); See: US v. Griffith, 334 US 100 (1948). See: Brooke Group Ltd. V. Brown & Williamson Tobacco, 509 US 209 (1993).

(39): See: Texaco v. Hasbrouck, 496 US 543 (1990); J Truet Payne Co v. Chrysler Motors, 451 US 557 (1981); Great Atlantic & Pacific Tea Co. v. Federal Trade Commission, 440 US 69 (1979); US v. United States Gypsum, 438 US 422 (1978); FTC v. Sun Oil Co., 371 US 505 (1963).

(40): See: Brooke Group Ltd. V. Brown & Williamson Tobacco, 509 US 209 (1993); Matsushita Electric v. Zenith Radio, 475 US 574 (1986); Utah Pie Co. v. Continental Baking Co. et al, 386 US 685 (1967).

(41): See: Parmenter v. FDIC, 925 F2d 1088 (CA8,1991); Ace-Federal Reporters v. Barram, 226 F3d 1329 (Ca.Fed., 2000)(on remand) 2002 WL 1292032; Workman v. UPS, 234 F3d 998 (CA7, 2000); Dibrell Brothers v. Banca Nazionale Del Lavoro, 383 F3d 1571 (CA11, 1999); Gibson v. Neighborhood Health Clinics, 121 F3d 1126 (CA7, 1997); Floss v. Ryans Family Steakhouses, 211 F3d 306 (CA6, 2000)(cert. denied) 531 US 1072; Heinig Furs, 811 Fsupp 1546 (M.D.Ala., 1993); Flanders Medeiros v. Bogosian, 88 Fsupp 412 (DRI, 1994)(affirmed in part) 65 F3d 198; Johnson Enterprises v. FPl Group, 162 F3d 1290 (CA2, 1998); Hoffman v. Bankers Trust, 925 Fsupp 315 (M.D.Pa, 1995); Prudential Insurance v. Sipula, 776 F2d 157 (CA7, 1985); In Re Sulakshma, 207 BR 422 (E.D.Pa, 1997).

(42): See: Gordon T (2000), Securitization of Executory Future Flows as bankruptcy-Remote True Sales, University of Chicago Law Review, 67:1317-1322.

(43): See: Valdiviezo v. Phelps Dodge, 995 Fsupp 1060 (D.Ariz., 1997). Johnson enterprises v. FPL Group, 162 F3d 1290 (CA2, 1998). Ryan v. Upchurch, 474 Fsupp 211 (SND, 1979)(reversed) 627 F2d 836. See: Rose J & Dawson P (Sept. 1997), Contingent Transfer: The Illusory Promise of Structured Finance. S&P Structured Finance, page 10.

(44): Prudential Insurance v. Sipula, 776 F2d 157 (CA7, 1985) (no consideration where party to contract could not bargain for alleged agreement).

(45): See: Tampa Pipeline Transport v. Chase Manhattan Service Corp., 928 Fsupp 1568 (MD.Fla., 1995) (affirmed) 87 F3d 1329.

(46): See: Imel v.Laborer’s Pension Fund Trust, 904 F2d 1327 (CA9, 1990) (cert. den.) 498 US 939 (contract should not alter statutory duties); Truck Ins. Exchange v. Ashland Oil, 951 F2d 787 (CA7, 1992); Cramer v. Consolidated Freightways, 255 F3d 806 (CA9, 2001) (cert. denied) 122 SCt 806; Lake James Community v. Burke County NC, 149 F3d 277 (CA4, 198) (cert. denied) 525 US 1106; Davis v. Parker, 58 F3d 183 (CA5, 1995); In Re NWFx, 881 F2d 530 (on rehearing) 904 F2d 469 (cert. denied) 498 US 941; Biomedical Systems v. GE Marquette, 287 F3d 707 (CA8, 2002) (cert. denied) 123 SCt 636 (post-contract formation failure to obtain statutorily required license invalidated agreement).

THE FOLLOWING DATA HAS BEEN PUBLISHED AT THE FOOT OF MOST OF THESE REPORTS FOR THE PAST THREE YEARS++. IT WAS COMPILED BY MICHAEL C. COTTRELL, B.A., M.S..

• THEY ARE 100% CONSISTENT WITH THE FOREGOING ANALYSIS, AND VICE VERSA:

LIST OF U.S. STATUTES, SECURITIES REGULATIONS AND LEGAL PRINCIPLES OF WHICH THE CRIMINALISTS, ASSOCIATES AND ALL THE MAIN FINANCIAL INSTITUTIONS REMAIN IN BREACH:

LEGAL TUTORIAL: The Steps of Common Fraud:

Step 1: Fraud in the Inducement: “… is intended to and which does cause one to execute an instrument, or make an agreement… The misrepresentation involved does not mislead one as the paper he signs but rather misleads as to the true facts of a situation, and the false impression it causes is a basis of a decision to sign or render a judgment”. Source: Steven H. Gifis, ‘Law Dictionary’, 5th Edition, Hauppauge: Barron’s Educational Series, Inc., 2003, s.v.: ‘Fraud’.

Step 2: Fraud in Fact by Deceit (Obfuscation and Denial) and Theft:

• “ACTUAL FRAUD. Deceit. Concealing something or making a false representation with an evil intent [scanter] when it causes injury to another…”. Source: Steven H. Gifis, ‘Law Dictionary’, 5th Edition, Happauge: Barron’s Educational Series, Inc., 2003, s.v.: ‘Fraud’.

• “THE TORT OF FRAUDULENT DECEIT… The elements of actionable deceit are: A false representation of a material fact made with knowledge of its falsity, or recklessly, or without reasonable grounds for believing its truth, and with intent to induce reliance thereon, on which plaintiff justifiably relies on his injury…”. Source: Steven H. Gifis, ‘Law Dictionary’, 5th Edition, Happauge: Barron’s Educational Series, Inc., 2003, s.v.: ‘Deceit’.

Step 3: Theft by Deception and Fraudulent Conveyance:

THEFT BY DECEPTION:

• “FRAUDULENT CONCEALMENT… The hiding or suppression of a material fact or circumstance which the party is legally or morally bound to disclose…”.

• “The test of whether failure to disclose material facts constitutes fraud is the existence of a duty, legal or equitable, arising from the relation of the parties: failure to disclose a material fact with intent to mislead or defraud under such circumstances being equivalent to an actual ‘fraudulent concealment’…”.

• To suspend running of limitations, it means the employment of artifice, planned to prevent inquiry or escape investigation and mislead or hinder acquirement of information disclosing a right of action, and acts relied on must be of an affirmative character and fraudulent…”.

Source: Black, Henry Campbell, M.A., ‘Black’s Law Dictionary’, Revised 4th Edition, St Paul: West Publishing Company, 1968, s.v. ‘Fraudulent Concealment’.

FRAUDULENT CONVEYANCE:

• “FRAUDULENT CONVEYANCE… A conveyance or transfer of property, the object of which is to defraud a creditor, or hinder or delay him, or to put such property beyond his reach…”.

• “Conveyance made with intent to avoid some duty or debt due by or incumbent or person (entity) making transfer…”.

Source: Black, Henry Campbell, M.A., ‘Black’s Law Dictionary’, Revised 4th Edition, St Paul: West Publishing Company, 1968, s.v. ‘Fraudulent Conveyance’.

U.S. SECURITIES REGULATIONS OF WHICH INSTITUTIONS
HAVE BEEN SHOWN TO BE IN BREACH [SEE REPORTS]:

• NASD Rule 3120, et al.
• NASD Rule 2330, et al
• NASD Conduct Rules 2110 and 3040
• NASD Conduct Rules 2110 and IM-2110-1
• NASD Conduct Rules 2110 and SEC Rule 15c3-1
• NASD Conduct Rules 2110 and 3110
• SEC Rules 17a-3 and 17a-4
• NASD Conduct Rules 2110 and Procedural Rule 8210
• NASD Conduct Rules 2110 and 2330 and IM-2330
• NASD Conduct Rules 2110 and IM-2110-5
• NASD Systems and Programme Rules 6950 through 6957
• 97-13 Bank Secrecy Act, Recordkeeping Rule for funds transfers and transmittals of funds, et al.

U.S. LAWS ROUTINELY BREACHED BY THE CRIMINAL OPERATIVES AND INSTITUTIONS:

• Annunzio-Wylie Anti-Money Laundering Act
• Anti-Drug Abuse Act
• Applicable international money laundering restrictions
• Bank Secrecy Act
• Crimes, General Provisions, Accessory After the Fact [Title 18, USC]
• Currency and Foreign Transactions Reporting Act
• Economic Espionage Act
• Hobbs Act
• Imparting or Conveying False Information [Title 18, USC]
• Maloney Act
• Misprision of Felony [Title 18, USC] (1)
• Money-Laundering Control Act
• Money-Laundering Suppression Act
• Organized Crime Control Act of 1970
• Perpetration of repeated egregious felonies by State and Federal public employees and their Departments and agencies, which are co-responsible with the said employees for ONGOING illegal and criminal actions, to sustain fraudulent operations and crimes in order to cover up criminalist activities and High Crimes and Misdemeanours by present and former holders of high office under the United States
• Provisions pertaining to private business transactions being protected under both private and criminal penalties [H.R. 3723]
• Provisions prohibiting the bribing of foreign officials [F.I.S.A.]
• Racketeer Influenced and Corrupt Organizations Act [R.I.C.O.]
• Securities Act 1933
• Securities Act 1934
• Terrorism Prevention Act
• Treason legislation, especially in time of war.

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• This is a very old, malevolent US counterintelligence DIRTY TRICK.

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This should come as no real surprise since the cynical spooks even assert this ‘in-your-face’ by advertising ‘INTEL INSIDE’, which says exactly what it means. More specifically, NSA have made great strides in this direction by having a back door built into Microsoft VISTA. Certain computers, especially those labelled with the logo of the ‘fully collaborating’ firm Hewlett Packard, have hard-core setups which facilitate the remote monitoring and controlling of personal computers by NSA, Fort Meade. We now understand that if you are using VISTA* you MUST NOT enable ‘file and printer sharing’ under any circumstances. If you say ‘YES’, so to speak, to ‘file and printer sharing’, your computer becomes a slave at once to NSA’s master computers. DO NOT ENABLE SHARING.

Unfortunately, this abomination is so far advanced that this may not be the only precaution that needs to be taken. As long as Microsoft continues its extensive cooperation with NSA and the NSC (National Security Council), the spying system which assists the criminalised structures, and thus hitherto the Bush-Clinton ‘Box Gang’ and its connections, with their fraudulent finance operations, NSA may be able to steal data from your computer. The colossal scourge of data theft is associated with this state of affairs: data stolen usually include Credit Card data, which the kleptocracy regards as almost as good as real estate for hypothecation purposes. Even so, you can make life very much more problematical for these utterly odious people by NOT USING U.S.-sourced so-called Internet Security and anti-virus software. Having been attacked and abused so often, we offer a solution.

We use a proprietary FOREIGN Internet Security program which devours every PC Trojan, worm, scam, porn attack and virus that the National Security Agency (NSA) throws at us. We are offering this program (CD) to our clients and friends, at a premium. The program comes with our very strong recommendation, but at the same time, if you buy from us, you will be helping us finance ongoing exposures of the DVD’s World Revolution and the financial corruption that has been financing it.

The familiar US proprietary Internet Security programs are by-products of US counterintelligence, and are intended NOT to solve your Internet security problems, but to spy on you and to report what you write about, to centralised US electronic facilities set up for the purpose. You can now BREAK FREE from this syndrome while at the same time helping us to MAINTAIN THE VERY HEAVY PRESSURE UPON THE CRIMINALISTS WE HAVE BEEN EXPOSING, by ordering this highest quality FOREIGN (i.e., non-US) INTERNET SECURITY SOLUTION that we have started advertising on this website. This offer has been developed in response to attacks we have suffered from the NSA nerds who appear to have a collective mental age of about five years, judging by their output.

• To access details about the INTERNET SECURITY SOLUTION, just press THE LIVE LINK YOU HAVE JUST READ, or else press SERIALS in the red panel below. This opens up our mini-catalogue of printed intelligence publications. Scroll right down to the foot of that section, where you will see details of this service. When you buy this special product, you will also, as we clearly state above, be paying a special premium by way of a donation to help us finance these exposures.

The premium contains a donation for our exposure work and also covers our recommendation based on the Editor’s own experience that this INTERNET SECURITY SOLUTION will make your Internet life much easier. The program has an invaluable ‘Preview before downloading’ feature.

• It is suitable for PC’s but not for Mac computers. As with all such programs, the License is renewable at a modest fee annually. This is done on-line in the usual way [with the supplier direct].

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