In 1998, a young account manager working for a mortgage company in Malibu, California, stumbled across what may be the largest, most pervasive, destructive financial scam in history. Although it’s steeped in absolute secrecy, this racket operates in full view. In fact, its machinations are carried in news media accounts topped by dead-giveaway headlines.
The account manager, M. Cary O’Neal, routinely processed Broker’s Price Opinions for real estate properties serviced by The Federal Home Loan Mortgage Corporation. Known more familiarly as ‘Freddie Mac”, the public government-sponsored enterprise was established to “keep mortgage capital flowing by purchasing mortgage loans from lenders so they, in turn, can provide more loans to qualified borrowers,” according to its website.
Its self-proclaimed mission is “to provide liquidity, stability, and affordability to the U.S. housing market in all economic conditions….” Home buyers trust Freddie Mac, because it’s associated with the U.S. federal government.
O’Neal flagged a number of inflated claims, but was told to go ahead and use what he knew were bogus numbers. Then he spotted a news story stating that Freddie Mac had increased profits by $400 million over a specific time. That didn’t make sense, based on what O’Neal knew. He again relayed concerns about possible illegalities to his boss, who dismissed them out of hand.
Without the mind-numbing details of mortgage-bundling transactions, suffice to say that O’Neal soon uncovered gross misconduct. “I was being forced to use false criteria demanded by Freddie Mac to inflate the ‘as is’ sales price of properties, so they could package groups of properties located in several states and sell them…as foreclosures or short sales.”
The mortgage company executive expected his employee would meekly accept a direct order to “forget it” and simply look the other way. But O’Neal wasn’t just any drone employee. He possessed an uncanny photographic memory backed by a strong sense of fairness rooted in soul-deep personal integrity. Quietly, he kept digging.
He was intrigued by several discoveries. Freddie Mac wasn’t the only entity to be tossing about the “$400 million” figure. O’Neal was seeing it in myriad news reports. Then another number kept appearing: $1.7 billion. Suddenly, those two figures seemed to appear everywhere. But why?
Casually, he mentioned the discovery to a reporter, who immediately tossed cold water on O’Neal’s suggestion that $1.7 billion and $400 million repeatedly appearing in the financial and general press might be meaningful. “Pick about any number and you’ll start seeing it everywhere!” the reporter scoffed. “Unless you can show they’re statistically significant, those two numbers mean nothing.”
O’Neal was convinced he hadn’t merely keyed on two random numbers. He started keeping a log of news accounts, financial reports and other documents that mentioned $1.7 billion and $400 million. A very long list was soon in hand.
The time-constrained reporter wasn’t able to investigate O’Neal’s theory, but suggested it might be time to talk with an attorney. If he’d uncovered a massive case of fraud, O’Neal should ensure he wasn’t inadvertently caught up in it.
The reporter admitted being intrigued by O’Neal’s discovery, and the men periodically brainstormed about reasons for the two numbers’ prevalence. O’Neal took his data to a Pepperdine University mathematics professor, who performed a cursory analysis. His conclusion was staggering: The probability of more than 40 corporations stating they lost $400 million within a two-year period being a coincidence was “hideously less than one out of a trillion.” Although the statement was documented in an e-mail message, the professor later denied making it. Why remains unclear.
Over the next few years, O’Neal and a fellow mortgage company employee worked with a powerful Southern California lawyer, filing whistleblower “relator claims” and reams of documents with federal law enforcement agencies under the False Claims Act—Department of Justice; Security and Exchange Commission; Internal Revenue Service, and four U.S. Attorneys. Investigators from the FBI and Freddie Mac came and went, repeatedly interviewing O’Neal and his colleague, often asking for more documentation. A great deal of activity ensued, but no progress on the whistleblower case. And no answers to the overriding question: Why so many occurrences of $1.7 billion and $400 million claims in the news?
A year later, an FBI agent delivered the coup de grace: “We found a fish too big to go after—Freddie Mac—and a fish too small to go after—[your mortgage broker boss].” Stunningly, federal agencies charged with protecting American citizens and stockholders were claiming to be helpless. Regardless of wrongdoing, the too-big-to-fails that tanked the stock market and financial industry in the late 2000s were also too big to prosecute. So much for the rule of law applying to all.
Meanwhile, O’Neal and the reporter continued to search for correlations among those making $1.7 billion/$400 million claims. Initially, no pattern emerged. Large companies, government agencies, international nongovernmental organizations and completely random entities seemed to show up in news reports featuring those two numbers.
On a hunch, the reporter suggested O’Neal look for “interlocking directorates”. Bingo. Time and again, the same people appeared on boards of directors overseeing entities associated with the $1.7 billion/$400 million figures. That might imply illegal collusion, but why those numbers consistently appeared remained a mystery.
O’Neal also found a correlation between companies making these claims and subsequent “deals” that eventually proved to be disastrous for shareholders and employees. He and the reporter estimate that thousands of executives and employees lost jobs and had their lives disrupted by mergers, bankruptcies, buyouts or closures linked to $1.7 billion and $400 million claims. Several corporate executives swept up in these events went to prison or died of heart attacks and other stress-induced ailments.
Millions of small investors saw double-digit percentages of their 401Ks evaporate, during the Big Recession, often a result of corporate maneuvers associated with $1.7 billion/$400 million claims. Even top executives—those earning millions in compensation—were casualties, when banks and companies collapsed. These included large corporations and financial behemoths, such as Global Crossing, Sunbeam, Lehman Brothers, Worldcom and Countrywide.
However, it’s probably safe to assume that few global elites—multinational billionaires, financial powerhouses and top government leaders—suffered significant losses. Most became wealthier as Americans were losing their homes and retirement nest eggs.
Almost 20 years have passed, since M. Cary ONeal first spotted those two numbers. They’re still prominent in news stories, though—particularly the $1.7 billion figure—as a recent cursory search of headlines revealed:
Platinum Fund co-founder Mark Nordlicht indicted in $1.7 billion fraud case
JPMorgan Chase To Pay $1.7 Billion To Madoff Victims
ExxonMobil Earns $7.8 Billion in 2016; $1.7 Billion During Fourth Quarter
Top House Republican demands Kerry explain $1.7 billion Iran payment
IBM Boosts Cloud Business With $1.7 Billion Deal
New Zealand government received $1.7 billion in duty on tobacco sales in 2016
Shaw Sells ViaWest Server Unit to Peak 10 for $1.7 Billion
O’Neal and the reporter still have few credible theories. One of the more intriguing is that making a public claim of $1.7 billion or $400 million might signal a company or organization is “in play”—open to a merger or buyout, for example. But why would government agencies and political parties also employ the same numbers?
Maybe it’s time to go the “wiki” route and have millions of people searching for an answer to these questions: Are global elites openly sending signals to each other via $1.7 billion/$400 million claims in the news media? If so, what’s the message?
William B. Scott is a former bureau chief for Aviation Week & Space Technology magazine and the author of five books. His latest novel is “The Permit”, a thriller based on the murder of his eldest son. (www.williambscott.com)