On March 14 the 45-year-old Democrat filed suit against New Century Financial Corp.— an Irvine, California–based real estate investment trust that is one of the biggest subprime lenders in the U.S. — charging it with, among other things, “making false and misleading statements” and “failing to act in good faith.” Says Dann, “They were on the verge of bankruptcy, and we wanted to get the state court involved before a bankruptcy filing.” Later he obtained a court order prohibiting the lender from foreclosing against Ohio homeowners without his consent. Last month Dann’s office announced it had issued a series of subpoenas to other companies in the industry for information to assist its investigation of possible violations of antitrust, civil rights and consumer protection laws. State law prohibits Dann from disclosing the names of the companies, but he says the list is extensive, befitting what he regularly calls “one of the largest financial scams in American history.” Institutional Investor Staff Writer Dan Freed interviewed Dann last month.
1 What drew your attention to the subprime debacle?
There are hundreds of thousands of people in Ohio being thrown out of their homes. The homes are sitting empty. Neighborhoods are declining. Crime rates are going up. Property values are going down. It’s a serious crisis — not just in the urban centers of our state, but in the smaller communities and in the suburbs.
2 Who’s to blame?
You look to the people who committed the direct fraud — the mortgage brokers and appraisers, the Realtors, in some cases, who were involved, and you work your way up the food chain to the people who were buying the mortgages from the mortgage brokers, those who were financing the efforts of the companies that were buying those mortgages — the whole process of securitization and all of the players in that realm: the lawyers, the accountants, the bond rating agencies — everybody who was involved.
3 Are you likely to bring a suit against a lender bigger than New Century?
I’d say it’s very likely. It’s probably 100 percent likely.
4 How do the rating agencies fit into this?
Look at what we know. We know that the bond rating agencies only get paid if a bond is actually issued. We know that they created models for securitization that were employed by investment banks. We know that they were engaged in a symbiotic relationship with those investment banks securitizing subprime-mortgage-loan collateralized debt obligations, that they [the investment bankers] would go back literally ten, 20, 30 times — you know: Is it soup yet? — to the bond rating agencies. We also know that but for the high ratings on some tranches of these bonds, the deals wouldn’t have made financial sense — they would have never happened, and hence the appetite for fraudulently obtained loans would have been reduced, and fewer Ohioans would have been screwed . . . I need to find a better word than that.
5 You’ve been accused of much talk but little action. What do you say to that?
We have five lawyers on my staff working full-time on the cases that we’re going to bring, and there are six criminal law task forces operating under the auspices of our Ohio organized crime commission investigating and prosecuting mortgage fraud cases. We’re proceeding smartly and with caution because we certainly don’t want to bring an action against somebody who doesn’t deserve to be sued, and we want to make sure that we gather the evidence necessary to support these cases.
