his summer I wrote a story for DealFlow’s The Distressed Debt Report warning more whistleblowers have come forward to spell out how Tom Marano’s mortgage team at Bear Stearns knowingly threw out any form of loan level due diligence while packaging and selling residential mortgage backed securities years before the 2008 financial crisis. When investors complained about early defaults in the RMBS they’d bought from Marano’s traders, the Bear executives simply instructed their servicing and due diligence underlings to massage the numbers or mislead the trustee of the securities about the real health of the loans. Viewers of RT’s The Keiser Report heard me warn this summer about upcoming litigation that would detail the alleged pre-planned scheme designed by Bear’s mortgage team to cheat their own clients in the name of sales and fee revenue –now those details have been made public in an amended complaint filed late Friday by monoline insurer Assured Guaranty against Bear Stearns, EMC, and it’s current owner J.P. Morgan.
“Bear don’t Care” was the mantra spread throughout the halls of outside underwriter firms Bear hired to review the mortgage loans for its residential mortgage securities, says the Assured lawsuit. It spells out a callous disregard to create products that could perform and then shows how Bear allegedly executed a widespread fraud to cover it up when their investors started to question the legitimacy of the product they were sold.
Over 30 whistleblowers from an outside due diligence firm hired by Bear Stearns, Watterson Prime, have come forward since I first warned about possible fraud and criminal acts by the Bear traders in two stories for The Atlantic. But what is really telling is the fact that this complaint has people speaking out from every part of the Bear mortgage securitization machine admitting Team Marano knew from the start the RMBS they were selling to pension funds and the monolines were not packed with gold platted performing loans. Emails obtained by Assured’s lawyers during discovery show Tom Marano sold personal investments in the mortgage insurance companies that are now suing Bear. Yet at the same time, in late 2007, his team was assuring these companies the RMBS they sold them were a quality product. This should be of interest to the New York authorities who I reported are now building a case against his Bear team.