Manhattan DA Cy Vance has indicted a bank, a very small bank, for mortgage fraud. The first bank to be indicted in the foreclosure crisis is Abacus Bank, along with some of its executives.

From the press release:

Manhattan District Attorney Cyrus R. Vance, Jr., today announced the indictment of ABACUS FEDERAL SAVINGS BANK (“ABACUS” or the “Bank”) and eleven of its former employees in a false document mortgage fraud scheme resulting in the sale of hundreds of millions of dollars worth of fraudulent loans to the Federal National Mortgage Association, commonly known as “Fannie Mae.” The District Attorney also announced that an additional eight former employees have already waived indictment and admitted their guilt in connection with this conspiracy.

FINALLY, we get a prosecutor with a working set of gonads. You can watch the press conference here.

I realize that this is a teeny tiny bank so you may be asking yourself, “What’s the big deal?” Let me explain: By bringing this case, the Manhattan DA’s Office (actually New York County DA’s Office) is demonstrating that all that bullshit nonsense that POTUS and Geithner have been spouting about “sloppy paperwork” and non criminal lack of best practices is a lie. It also shows up the Preet Bharara excuse that intent is too hard to prove.

Knowing how small the investigative staff at the NYC DA’s office is, I think it is very prudent of them to take on a small bank that cannot overwhelm them with truckloads of paper and armies of lawyers. This is closer to an even fight, though the bank still has many more resources than the DA’s Office. I think it is also telling that the bank is literally a neighbor of the DA’s office, so investigators and DA’s can walk to their target.

The indictment, representing the culmination of a two-and-a-half-year investigation, charges that ABACUS, its employees, and its managers engaged in a conspiracy involving the regular and systematic falsification of residential mortgage application documents. The defendants falsified these documents so that they could earn commissions and fees by ensuring that otherwise unqualified borrowers would receive loans, which ABACUS then sold to Fannie Mae pursuant to an ongoing agreement. After purchasing these fraudulent mortgages, Fannie Mae repackaged them into mortgage-backed securities and sold them to outside investors. As a result of the hundreds of millions of dollars in charged fraudulent loans, ABACUS earned many millions of dollars in loan origination, purchasing, and servicing fees over the five-year period covered by the indictment.

They were aided in this investigation by two agencies you might not expect: FHFA, the Federal Housing Finance Agency and, of all folks, the IRS.

Where is the FBI? Well actually under resourced according to Bill Black, the man who cleaned up the Savings & Loan mess. He blames the bank regulators most of all for failing to do the preliminary work and for failing to file criminal referrals. According to Black, Office of Thrift Supervision has made zero referrals, the Comptroller of the Currency has made zero referrals, the Federal Reserve has made zero or 3 referrals, depending on which spokesperson you talk to, and the FDIC refuses to even answer the question.

You MUST watch this amazing Bloomberg news interview with Bill Black who does the best job I’ve seen so far of explaining why DOJ is not bringing criminal cases.  He explains all the institutional wheels and cogs that are not turning in the bank regulatory system and in the criminal justice system. It’s 15 minutes of “must know” information.