Mortgage Fund Investment Fraud

Financial advisors and dishonest hedge fund managers are having a tough time defending themselves for committing mortgage fraud. Mortgage fund investment fraud has become rampant and investors are blaming the financial advisors for misleading them. The subprime mortgage crisis resulted due to several reasons. Undoubtedly, the most important was subprime lending. To aggravate the crisis, there were credit card defaults. Greed gave way to the mortgage fund investment manipulation when financial advisors taking care of investment portfolios wrongly guided investors.

Scenario 1

To site an example, a scenario has been explained here. An incident occurred when there was manipulation of mortgage related securities. Two former managers of Bear Stearns were blamed for misleading investors about hedge funds. The managers had given a wrong impression to the investors and had assured them that the return on investment from the hedge funds is good. In reality this was not the case. In fact, they had also assured investors that they had their own money invested in the hedge fund. The former managers claimed that the hedge funds were not risky and were backed by debt securities which included mortgages. However, hedge funds fared miserably and several investors were duped and lost their money.

Scenario 2

There is another incident related to mortgage fund investment fraud. It occurred in Canada (Province of British Columbia). As many as 3000 investors had invested in Eron Mortgage. Eron losses amounted to USD$300 million. Investment was aimed at providing fund for retirement benefits. Investors were mainly men and women who would be retiring shortly and did not have adequate resources. Reports suggest that majority of the investors had used their existing funds, had borrowed cash and had mortgaged their homes as a probable means of investment. The aftermath of the investment fraud was phenomenal. The investors not only lost their money but they were also subjected to a lot of mental agony.

The FBI announced its Operation Malicious Mortgage in 2008. As many as 406 people were found to be involved in mortgage fraud in approximately 144 cases. A total loss of USD$1 billion was recorded. In addition to mortgage fund investment fraud, there were other forms of fraudulent activities e.g. manipulating borrower’s financial status, lending scams, foreclosure rescue scams etc.