this martin case number sixteen dash one one zero zero two mr  may please the court counsel good morning once again is jerry correctly on behalf of need this martin who's present today in court in this case the district court aerate in determining that bank of america home loans was a victim under the m v ira and the government changed their position on why bank of america home loans was a victim from the first appeal to you know the restitution hearing the second restitution hearing initially going back to the court's opinion in this case the reason why bank of america home loans was determined to be a victim under the end the ira was because they were a successor lender so that's the position that the government took the first time now they're taking the position that this is excuse me this is the bank of america loan for lack of a better term originated with whom who started with that one that was with first frankly ok and now they're taking the position that bank of america home loans basically acquired the loss through a series of mergers and acquisitions when they took over merrill lynch but it became apparent in the evidentiary portion of the  restitution hearing that we really don't know who the owner of these this loan actually was and the reason why i say that is because the government called the witness miss davids from bank of america that that basically had the servicing part of the file and i specifically asked her if we knew who the owner of the loan was and she's all she could testify to was that bank of america home loans was the service or a loans so is that the time of the second resolution hearing on remand correct correct and at the end of the day the government took the position that there was a short sale which there was in that because it showed on the hud in the short sale that first franklin loan services received the payment that the loan was never sold however i think for this entity called first franklin loan services clearly shows that they were a service or and that's how bank of america acquired the file i think it's important for the court to determine that how bank of america came in possession of the file they became came in possession of the file because home loan services which may or may not be the same entity as first franklin loan services hat was servicing this loan for first franklin and skiffs i thought that at the time of the short sale first franklin received the proceeds and the different indeed this homeland services was the service there is no way that and that's what's unclear about this whole thing and that's why if first langton got the proceeds then it seems to me that that is at least some evidence that it owns the loan right but what it says on the hud is first franklin loan services not first franklin we don't know if that's the same entity that home loan services was the service correct at that time at the time of the short sale correct that's what it appears from the records that home loan services was the servicer at the time of this the short sale well we don't know if cameras to service a first franklin loan services may be a different maybe the same entity as home loan services this payment to go to first franklin all it says on the hud is first franklin loan services and when you review the servicing records in the case there's no indication of who actually own the loan and it goes back to the testimony at the trial one of the underwriters from first franklin testified and i specifically as first franklin selling these subprime loans which is the loan in question here were they all being resold to wall street you say that page twelve of your brief and i looked at the section that you cite page one eighty three of record entry to eighteen and it doesn't say that it's a general reference to these loans generally but not to these specific loans you know i other such patient of the record that supports that position now that the question was asked that trial and in a general fashion and not to this specific loan at these are questions about general questions about packaging subprime loans not these particular loans well this particular loan was a not refer to these particular loans it referred to generally packaging subprime loans right packaging all of the witness said she didn't have specific information about these loans right as to who suffered the loss on these loans that's exactly what the underwriters sad but at the end of the day we have to go back to the original the original sentencing in our original position back in april twenty ninth two thousand and fourteen i was objecting at the original sentencing asking for some type of affidavit showing ownership of these loans and we just don't have that in the case and that's why we believe that there's not a sufficient evidence for the government to prove by a preponderance of the evidence that bank of america actually own this loan at any point as a successor and then try what did the district court mean and you obviously think the district court got it wrong but what was the district court's rationale on the bank of america side why did the district court believe that there was enough mainly because my opinion is because that miss davids testified that bank of america suffered suffered the loss in this case because of their relationship of acquiring this from merrill lynch acquiring the loan servicing from merrill late as it was there was their testimony either at the first or second restitution hearing with regards to what the specific brights duties and responsibility of b away a service are were in this case and you can obviously we all have an idea of what a general service or does but you can certainly contract out certain rights duties or responsibilities you can say i'll do x y and z but not a b and c and i'll pay less ford or pay more for it was there any testimony about what bank of america's duties were as a service or not not to the best of my recollection judge i think we got into that level of detail on what their rights and duties were as a service or and that brings me to and basically that the fact that the government first argued that bank of america was the successor lender and now they're saying that basically they're entitled to the last of his takeover i think goes to show that the government doesn't really know who the human are of these loans were i don't think anyone does based on this record and you know that's also evident with this other loan that's it issue government came before the court and said that one west is the owner of the loan and then we come to find out at the second restitution hearing that it's not one west it's f d i c is the receiver i mean that just goes to the whole confusion as to who actually owns these loans to be a victim under the m v reg getting to the well would you think you think putting aside for a moment the government's change of position do you think the district court got it wrong with regards to the so called f d i c loan and acquiring it through its receivership yet the f d i c loan is a interesting issue and i think it's a question of first impression so with respect to the f d i c being a victim under the m v are a documentary to twenty eight point one was a memorandum of understanding that the government  argues in the district court except that in finding the f d i c is a victim but looking at that memorandum of understanding zf rationale i agree with most of it but i don't agree with the legal conclusion basically if you go along with the proposition that that the proceeds from the or the loss of subsidies for by the bank fraud is property of the institution and not its depositors creditors or shareholders you have the f d i c being a victim based on those same individuals those depositors creditors are shareholders and therefore i believe it's to an attenuated to be a victim under the m v you have any case authority rather authority that in the case of the if the is a can't be a victim and the i've haven't found any cases or you are now i think it's a question of first impression it's an interesting issue but i just believe it's too attenuated in this case to be a victim under the m v r a and once again just going back to i think the whole theme of these case we don't really know who owns these loans i mean and originally the government got up in front of this court and argued in the district court and argue that one west was the owner of these loans with respect to the valuation basically in the first appeal this court was very specific and said that the district court just can't the fault to the original loan  and determining restitution and basically that's exactly what happened when we went back down on remand in the second restitution hearing the government the district court just put aside assuming argue end of that bank of america is the owner and wasn't just the service are assuming that we don't know how much bank of america paid to acquire merrill lynch and whether bank of america's ultimately going to get a windfall in this particular case and so because of how did this is a really difficult i think conceptual issues are critically ill but if you if you have a bank that buys another entity as for a package sum and that includes all of its rights and liabilities including a portfolio of loans how does a district court even begin the process of figuring out valuation right and center us in the court says that because the government cited a case u s versus richie and i think the dissenting a judge actually had it right and noted that it's  evidentiary issue how does the government go about proving that i mean bottom line is the government has the burden to go about proving that i mean i would think the way i would do it if i was a prosecutor would try to figure out how much bank of america paid to purchase  merrill lynch value the and somehow get that valuation and try to prorate it out sort of like have to go that far i mean we have a situation that the n c either buys assets specific assets and there may be a dollar number attached to those w the entity in which case doesn't it just simply stand in the shoes of the entity it's acquired the entity and did not make an assessment as to each asset it within the entity right and if you if you take it from that perspective we need to know how much you know what it specifically acquired when and acquired the entity and how much of paid for it and it was the government's burden to do that and put on evidence and what the government didn't do in the second restitution hearing other than the testimony  good morning may please the court assistant united states attorney shawn cronin not behalf of the government your honour's the district court did not commit clear error in determining by a preponderance of the evidence a reasonable estimate of the loss suffered by the victims in this case nor did it err in determining who those victims were with respect to the bank of america loan i disagree with mr krueger live that we don't know who owns that loan the evidence in the file demonstrates that it was originally funded by first franklin and thereafter first franklin was quickly acquired by merrill lynch when the short sale happens its first franklin one service is that approves the short sale in its first franklin loan services that according to the hud one is supposed to receive the payoff of the mortgage loans as a result of that short sale in terms of the chronology one is a short sale compared to the purchase for lack of a better term of first franklin by merrill lynch first franklin was purchased by maryland in two thousand and six i believe december of two thousand and six the short sale happens in october of two thousand and eight so when when first franklin was acquired it sort of kept its name as a subsidiary or related entity i believe that's what ms davids is testimony was at the second restitution hearing the first franklin continued to function as a subsidiary of merrill lynch so at the time of the short sale it was first franklin that suffered the loss at the time of the restitution hearing over by that point the first or second resolution here both ok first merrill lynch had been acquired by bank of america and at that point there was no active loan owned by anybody there was a fully realized loss that had been suffered by first franklin as a subsea division or subsidiary of merrill lynch and that loss in its entirety flew down the stream to bank of america is the sole legal entity that had a right to acquire that loss so it never purchased a loan indeed nobody ever purchased the loan and there is no evidence in the record to suggest that first franklin ever sold the loan prior to the short sale it's excuse me but didn't david testify during the second hearing both cross and on redirect that first franklin had never sold a loan that was testimony that was presented that was the basis for the district court's decision that is correct and i absolutely agree with that and there is no contrary there is no evidence contrary to that testimony therefore the court could not have clearly erred when it relied upon that testimony to determine it was first franklin that owned the loan at the time of the short sale and then it was bank of america that is the true victim in this case as a result of this series of corporate mergers by which it acquired merrill lynch where where does the evidence if it is evidence of be zero am as a service or come in testimony was that even after the losses realized there's still a service are on the loan in the sense that there has to be somebody maintaining the records so originally the servicer was home loan servicing which was owned by merrill lynch in two thousand auto were two thousand and ten b a c home loan services services purchased home loan servicing and then in july of two thousand eleven i believe be a see home loan services was merged into bank of america so bank of america through corporate acquisitions acquired both the gloss suffered on the loan as well as the servicing history from home loan services to be a c to finally bank of america or his let me make sure i have your your theory correct you're saying that with regards to the loan itself bank of america is a victim because that purchase merrill lynch correct and with regard to the servicing because b a c home loans took over home loan servicing or act and ultimately who who serve who is the service or of the loan really isn't a matter of import in terms of who determine who the victim is it's important in terms of determining where we go to get the records as a practical matter but in terms of who suffered the loss and who restitution is owed to that only concerns who owns the loan or in this case the fully actualized loss on the loan that was acquired by bank of america when it purchased merrill lynch and similarly with respect to the f d i c loan it stands in the shoes of any mac bank just in the same way that bank of america stood in the shoes of merrill lynch suffering the loss that indy mac has suffered as a result of this loan although at the time if the i c acquired the loan it was still an active loan and the short sale in that case doesn't happen until after f d i c is appointed receiver of any mack bank and with respect to an evaluation of the loss for that loan the court did not clearly error in setting as a starting point for the reasonable estimate of the loss the face value of the loan which was one million eighty five thousand dollars this is a case where loan city almost immediately turned around and sold the loan to any mac bank as part of a bulk loan acquisition indeed the loan was funded on december fifteenth of two thousand and six within five days or there's a letter in the file dated five days later december twentieth of two thousand and six indicating that the loan would be transferred to any bank a letter to the borrower it's unclear if that letter was ever sent but the fire also demonstrates that by january third of two thousand and seven about two weeks after the loan funds any mac bank is already begun the process of underwriting the loan to determine whether or not it's going to purchase it and it underwrites the loan under based upon the exact same information that loan city under  the loan the same value of the property the same assets an income of the borrowers as well as their credit reports nothing changes in the valuation from loan city to fund the loan to when any mac decides to purchase  business model was to make money by immediately turning around and selling its loans if it funded a loan for one million eighty five thousand dollars and then sold it for less than that a couple of weeks later it would be losing money as a matter of business that's not how it spins operated it would turn around and sell these loans presumably at least for full value otherwise it would constantly be losing money on its loans and the reason why indy mac bank would pay for face value at least for the loan is because over the course of the loan based upon the amateur zation schedule in the loan file it was going to make over one point eight million dollars in interest payments in addition to the over one million dollars in principle under those facts the court was a principal is a wash exactly but that indicates why in the back was willing to pay the principal amount to acquire the loan because he was expecting to be recoup an additional one point eight million dollars in interest payments over the subsequent thirty years under those circumstances where there's no indication or evidence that there was any change in circumstance between the funding of the loan and the sale of the loan the court did not clearly err in determining that the loan was sold for the face value of the loan did the government attempt to obtain the actual purchase price for the loan and was not able to do it that is correct so therefore we were forced to attempt to offer the court a reasonable estimate of what the purchase price was and based upon the timing of the loan judge cond i believe correctly found that a reasonable estimate was the face value of the loan  is there is an agreement i believe on your part that the court did err in determining the amount of restitution it was the first corrected itself about twenty six dollars or so i believe twenty seven dollars and so you are asking this co to affirm with the exception of remanding to correct the math errors correct position yes you are one last thing is your current what evidence testimony or documentary is there concerning the purchase of merrill going back to the first loan the purchase of merrill lynch by bank of america there is where does that come from there was testimony at the original trial from falco nhu or a i pod i said leave was at the second restitution hearing this david's testified that bank of america purchased merrill lynch and that that transaction occurred in two thousand and nine i believe that's where the record evidence was in terms of bank of america merrill lynch and i don't believe the appellant has ever contested the fact that bank of america purchased merrill lynch he simply argued that because of that purchase that affects how we calculate the loss suffered by bank of america and as the fourth circuit case in ritchie sets forth it really has no impact because bank of america now stands in the shoes of merrill lynch miss davids testified that there was no information about the price that was paid that is correct page forty three of record in two to forty four i agree with that you are let me go back to the question i asked you a few minutes ago i thought that an indy mac employee testified at trial that there was an excel spreadsheet that would show the amount that indy mac paid for each and right yes we've never been able to acquire that's pretty your honor but you did try to track that down yes i think this is simply a case of it's very difficult when there are a number of entities involved some of which no longer exist to try and get the documentation certainly when we reached out to the f b i see for instance they did not provide us with any such spreadsheet when we reached out to one west bank to acquire the loan file it was not in that was maintained by one west bank for the inference you're trying to draw about the proximity of the sale of the loan to the making of the law and it seems to me there might be a line drawing problem there how long after other words if if it is it three months is it six months after that we would be able to make that inference i don't think there is a line that you draw on the set i think it's a case by case determination and i think one of the key factors is is there any indication in the evaluation of the purchaser the downstream purchaser that there has been a change in circumstances with respect to either the valuation of the loan or the credit worthiness of the lender and their ability to pay back here or there is no change based upon the loan file in the bank agrees to purchase this loan based upon the exact same information that was originally submitted to the original lender but there are all sorts of reasons why the purchaser might pay less there might be a volume discount of some sort there might be an assumption that some percentage of the loans are going to go bad but that wouldn't explain why the seller would agree to sell for less than the face value the seller here has just funded a loan for one million eighty five thousand dollars if it sells it for anything less than that it's losing money on the deal it just consummated and if the seller sells every loan it knows that some percentage of those loans are going to go bad and it's not going to recoup its interest right or at least willing should be willing to discount those lines when it sells them in bulk i just because you have also knows it also knows if it's if it's selling just one loan file then i think you're exactly right because you'd be a pretty bad you know student of economics if you were selling loans for less than you bought them for you'd be bankrupt pretty soon but if you're selling a thousand loans you probably realize i think this which is probably be getting at that within that portfolio with thousand loans you probably made some mistakes even in the subprime market and that some of them are not going to be sold at face value so if the entire amount just to use around number of the portfolio principal value was ten thousand you know you may not sell it for a lot more than that if you think that your analysts really went crazy and started even going below your prime sub prime standards and that goes to the issue that mr corigliano was trying to assert or at least one of them that without having an idea of what this transferred for your sort of in the world of  those circumstances it wouldn't make sense for it would make sense that the original lender might not sell it for a greater or substantially greater than the face value of the ten thousand dollars but it would make no sense for to sell less for anything less sure yet because you're selling books so how do you know if you're selling them all together and there's no differentiation between one or another of the thousand loans you may well be selling several of those loans for less than face value and some other ones you might be selling way over face value but ultimately you're still making money right so ultimately if you're selling twenty million dollars worth of total loans for twenty million dollars there really is no differentiation moan my loan you're just selling the bulk at twenty million dollars and you're in that is the total face value of all the loans and you're not going to sell it for less than twenty million dollars because you're losing because ultimately you're losing money right but how do you know that and again maybe the district court and you did not the government didn't have to go down this far in the details but how do you know that of that group of portfolio loans one of them wasn't just a huge mistake by first franklin and they said listen we're going to sell this for pennies on the dollar but these other three we're going to go way over because they're great loans they shouldn't even be subprime so these are great loans and so will recoup the loss on this loan with the other two or three i'll say it this way there is no evidence that that occurred in this case and the government's burden was by a preponderance of the evidence and by the proponents of the evidence in the map reviewed this loan determined it  was just as worth buying as it was really worth funding and the court did not clearly err in determining that was the proper evaluation for a situation purposes according to mr corigliano brief and i haven't gone to the record to review this so i'm just going on his representation he says that mr sellers one of the government's analyst explained that he did not know where the loan first went after first flying first franklin funded it if he is right about that testimony how do you know that the loan belonged to first franklin when bank of america acquired merrill lynch which had acquired first franklin because at that time keep in mind it's not when bank of america acquires merrill lynch and that loss is fully realized at the time of the short sale and the records from the short sale indicate it is first franklin who owns the loan at that time based upon the hud one indicating that first franklin is getting the proceeds from the short sale based upon the documents indicating first franklin was approving the short sale therefore at the time of the short sale first franklin owns the loan and therefore bank of america is the one that suffers the loss when it eventually acquires merrill lynch thank you thank you very much as you  the government's argument that there's no indication of evidence of any change in circumstances completely misses the mark and shifts the burden here the burden the court already had the information with respect to  transaction for which f d i c is now the victim and it basically in the first opinion sent it back to the district court to conduct an evidentiary hearing if it wished to actually put on evidence or of how much that indy mac actually paid to acquire this this loan and the government concedes that they can't do that but what happened at the second restitution  crone and instead of providing evidence just provided argument and tried to shift the burden to the defense i mean the court in the first opinion laid out some factors that the government could show could use to try to demonstrate a reasonable estimate in this case you know is there a change in the market conditions two and a half months later being being one of them so the government had the opportunity at the second restitution hearing to actually meet their burden to show that there was no change in circumstances or with that wasn't because at the second restitution hearing there was evidence that there was a different victim that the first indication was incorrect that first franklin never sold of with regard to the first loan so you have different factors that would apply to that situation isn't that really what happened the district court said no i was this was all incorrect the first time we got it right the second time well the first franklin i it this whole confusion is i think just goes to underscore my point that we really don't know who on these loans but first franklin with respect to the f d i c it wasn't first franklin it was in the max so they  for present any at finance to show that there was no change in circumstances and on the defense it's the government's burden and with respect to your honor's point going back to first franklin and the record at the  second restitution hearing the question by the prosecutor was is there any evidence that first franklin so this long at any time answer not in my review no but that's misleading because the only records that miss david's had was the servicing part of the file that's how lou sellers actually obtained the file he went on this merge database and actually got the file from bank of america and he had no idea of how it got from first franklin to bank of america so when miss davis is reviewing the records she's reviewing the service records and specifically i asked her the question did she review of records showing who the owner of the loan was and she just said it wasn't relevant to my inquiry and that goes to show you that we have no idea who on this loan he testified that there was no evidence in the record that she had reviewed the loans were that the loans were ever so right but she only reviewed a limited record so that she's maybe accurate but it's still misleading if it only goes to the way the evidence then doesn't that the court had to base its decision on well yeah it does go to the weight of the evidence thank you thank you mr  thank you we know that you are court appointed and we certainly do appreciate your service not only for your client but to the court and we really do appreciate it thank you thank you