Yves here. Upon occasion, we’ve commented on the critically important role that attorneys and accountants too often play as enablers of fraud and criminal activity. In essence, if you are an individual or business and you can get a lawyer to sign off on dubious conduct, the attorney has provided a critically important liability shield to you. Even worse, it is well-nigh impossible for wronged parties, such as victims of stock frauds, to sue the advisors, that make the investment look attractive. As we wrote in ECONNED:

Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.

One of the lines of defense is for attorneys general and regulators to intervene. Sadly, almost none have pursued this angle; a rare exception is New York Superintendent of Financial Services Benjamin Lawsky, has had the guts to go after one of the very most prestigious law firms in the US, Sullivan & Cromwell, for essentially making another firm, PriceWaterhouseCoopers, the bagholder for “scrubbing” a report to regulators on illegal wire transfers.

But for the most part, regulators and judges rely on state bar associations to police their own. One area where the abuses were large-scale and flagrant, robosiging, show how this sort of private regulation is a joke. Tom Cox, the Maine attorney who exposed GMAC’s document fabrications and made “robosigning” a national topic, shows how unwilling state bar associations are to make a serious go of punishing persistent, clearly documented misconduct.

By Thomas Cox, a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney’s Saving Homes (MASH) program. He has received national awards and recognition for his efforts to combat foreclosures and foreclosure fraud

Jeffrey Stephan was the 41 year old Penn State graduate who, in 2010 was the “Team Lead” of the GMAC Mortgage “Document Execution Team” in Fort Washington, Pennsylvania. When I deposed him on June 7, 2010 in the course of defending a GMAC foreclosure against Nicolle Bradbury of Denmark, Maine, Stephan admitted that he was signing about 8,000 documents a month for use by GMAC’s attorneys all over the country in prosecuting residential foreclosure cases. He had an apparent productivity had decline since, six months earlier in a Florida deposition, he testified that he was signing about 10,000 documents a month.

In the case in which I deposed Stephan, he had filed an affidavit, supposedly under oath, stating that he was the custodian of GMAC’s records relating to its mortgage on Bradbury’s property, that he had personal knowledge of the minute details relating to her loan and that he was attaching to his affidavit what he asserted were “true and correct copies” of her note, mortgage and related documents. As a career litigator, I knew the moment that I saw Stephan’s affidavit that it was false. When I deposed him, he admitted that it was false, that he did not have custody of and of Bradbury’s mortgage documents, that he did not read the affidavits that he signed and did not know what statements were in them, except that he claimed that he checked the numbers stating the amount due on the loan. He even admitted that, when the notarial certificate at the end of the affidavit stated that he appeared before the notary to swear to the truth of the affidavit, he did not bother to do that, and the notary just signed the certification anyway.

As a result of these revelations, and the appearance of Stephan’s deposition transcript on the Internet, the so-called “robo-signing” scandal erupted. GMAC Mortgage suspended its foreclosure activities and was followed in this by most of the other major mortgage servicers who were forced to admit that they were doing the same thing. This was widely reported in the press, and was ultimately followed by the $25 billion National Mortgage Settlement, barring GMAC and the other four largest servicers from continuing this and other serious mortgage servicing misconduct. The Maine Supreme Court called Stephan’s affidavits “a disturbing example of a reprehensible practice,” “fraudulent” and “ethically indefensible.”

What was not so widely reported in the press was the unseemly role of the lawyers who filed Stephan’s affidavits. At his deposition on June 7, 2010, I asked Stephan if the exhibits identified in his affidavit were even attached to the affidavit when he signed it. The GMAC lawyer from Maine wouldn’t let him answer that, making the absurd claim that such information is protected by the attorney client privilege. Stephan admitted that he did not look to see if all of the exhibits referred to, and which he was purporting to authenticate, in the affidavits, were there when he signed them, and no one else in his department did that for him. He admitted that he did not inspect exhibits attached to his affidavits even though he was purporting to swear that the exhibits were true and accurate copies of the original documents. I know from the Bradbury case and others that the exhibits attached to Stephan’s affidavits were sometimes not true and correct copies of the originals.

Other litigation against GMAC in Maine revealed that the law firm, which was representing GMAC when I deposed Stephan, had filed over the previous five years about 1,000 similar affidavits, in foreclosure cases that had earned that law firm probably in excess of $1 million in legal fees. I had also learned that GMAC Mortgage was sanctioned in Florida in 2006 for the exact same conduct that I uncovered in the Maine case in 2010. The GMAC affiant whose conduct was sanctioned in Florida had been promoted by GMAC and was Stephan’s boss at the time that I deposed him. Obviously, the 2006 sanction for her misconduct made no impression upon her or her employer.

After I deposed Stephan on June 7, 2010, the GMAC law firm in Maine went right on filing those fraudulent affidavits in new foreclosure cases. As to cases that they had filed before that date, the lawyers knew that they had deceived judges into entering foreclosure judgments based upon Stephan’s fraudulent affidavits, yet they fiddled for almost two months, until early August when they started sending new affidavits from a different person to clerks of courts, stating that there were technical problems with Stephan’s affidavits. They did not file motions in any cases to ask the courts to vacate judgments entered into on the basis of Stephan’s fraudulent affidavits. They did nothing to inform any Maine judge that they, in using the fraudulent Stephan affidavits, had presented fraudulent evidence to those Maine judges and had induced those judges to entering judgments taking away the homes of Maine residents based upon fraudulent evidence.

Having represented banks in foreclosure cases during the savings and loan crisis, I prepared a lot of summary judgment motions and a lot of bank witness affidavits. In my opinion, it was impossible for GMAC’s lawyers in Maine to not have not known that Stephan’s affidavits were false, because those lawyers drafted those affidavits in such a way that they could not be true. The objections of the GMAC lawyers at Stephan’s deposition to my inquiries to whether he looked at the exhibits attached to his affidavits, along with other portions of Stephan’s testimony, led me to suspect that GMAC’s lawyers were attaching those exhibits after Stephan signed them down in Pennsylvania and they were sent back to Maine. If that suspicion was true, then that conduct would be a crime.

All of this was sufficiently disturbing that I felt that the Maine Board of Bar Overseers should investigate. For the first time in my forty-year career, I filed formal grievances–against three of the lawyers in GMAC’s law firm. I am sickened by the outcome of that uncomfortable process. The lawyer primarily responsible for the preparation and filing of these affidavits was let off with a dismissal with a warning. The so-called ethics partner in the law firm escaped with a complete dismissal. The lawyer supervising the firms foreclosure department was sanctioned for continuing to file the fraudulent Stephan affidavits after he knew about Stephan’s testimony, but now a Maine Supreme Court judge has exonerated him too, accepting his inherently unbelievable testimony that the did not believe Stephan’s sworn deposition testimony when Stephan said that he did not bother to read his affidavits, and thought that Stephan would change it by filing corrections to his deposition transcript.

It is my opinion that these outcomes are in significant part due to failures of the office of Maine’s Bar Counsel to adequately prepare and prosecute these cases. Astonishingly, even though the office of Maine Bar Counsel had subpoena power to conduct investigations, it did absolutely nothing to investigate whether GMAC’s lawyer committed criminal acts by tampering with his affidavits by attaching exhibits to them after he signed them. They presented no evidence at all on this issue to the grievance panel. I testified at the grievance proceeding and was deeply disturbed by the poor quality of the presentations of the Bar Counsel lawyers. They were hopelessly outmatched by the high priced and highly experienced litigation lawyers hired by the lawyers from the GMAC firm.

It is also my opinion that the Maine grievance system and even the Maine Supreme Court justice handling the final step of this ugly process are too willing to excuse lawyers’ misconduct, too willing to accept unacceptable excuses, and too unwilling to hold them to sufficiently high standards of conduct.

The practice of law should be considered to be a privilege, reserved to those able and willing to conduct themselves with care, honesty and professionalism. The profession must recognize that, just as a careless surgeon can kill or maim a patient, a careless or dishonest lawyer can injure a homeowner, or even hundreds of homeowners. Discipline should be severe. Once lawyers have licenses to practice, there should be no hesitation in suspending or revoking the licenses of lawyers who fail to conduct themselves in accordance with established rules of professional conduct. Lawyers should demand that the profession assess annual registration fees sufficient in amount for disciplinary authorities to pay highly competent lawyers to prosecute lawyers who abuse the legal system. In my opinion, the Maine lawyer disciplinarily system has failed miserably in this case. Unfortunately, this failure is an example of a profession-wide failure of the legal profession to adequately police itself.

Pause and think about it for a moment: The lawyers who were directly responsible for the creation of the robo-signing scandal are not being held accountable for enabling it to occur. There has been no meaningful prosecution of criminal conduct of the bankers or servicers from federal or state prosecutors, and it is now apparent that there will be no disciplinary actions against their lawyers from bar discipline authorities. Senator Elizabeth Warren is right—the system is rigged against the little guys.