Inside Stories of
by Uri Dowbenko
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HUD Fraud, Spooks and the Slumlords of Harvard
by Uri Dowbenko
Catherine Austin Fitts is still trying to figure out what happened.
Her company, Hamilton Securities, Inc., was the lead financial
advisor to the US Department of Housing and Urban Development (HUD).
Hamilton was hired to manage the sales of $10 billion worth of
mortgages on houses, apartment buildings and nursing homes.
By all accounts, Hamilton's new program was a resounding success.
In fact, the HUD loan sales program team was even given a Hammer
Award for Excellence in Re-engineering Government by Vice President Al
Gore's Reinventing Government Initiative. By cutting red tape and
improving the resale value of HUD owned mortgages, Hamilton Securities
was a case study of a public-private partnership that saved US taxpayers
lots of money.
The firm was ambushed by a series of lawsuits, audits and
unsubstantiated rumors which destroyed the business.
Catherine Austin Fitts -- Maverick Banker
In the arcane but stodgy world of investment banking, Catherine
Austin Fitts is a revolutionary.
Before founding her own firm, Fitts, a Wharton graduate, was the
first woman to be promoted to managing director of Dillon, Read and Co,
Inc., the prototypical elitist men's club Wall Street investment bank.
To her credit, Fitts was instrumental in building a new market for
Dillon Read. She began underwriting previously unrated municipal bonds,
in essence, financing large government projects which other Wall Street
firms said couldn't be done.
These novel bond sales helped revive New York City's crumbling subway
system, and they provided funding for the City University of New York
and other major projects.
The market in unrated and low-rated muni bonds took off, earning
Fitts the title of "Wonder Woman of Muni Bonds," in a glowing Business
Week article (February 23, 1987).
In 1989, she was asked to become the Federal Housing Administrator
under HUD Secretary Jack Kemp. Fitts moved to Washington to undertake
the monumental task of reforming the scandal-ridden, fraud-plagued
After her stint in government, she was invited to be a Governor of
the Federal Reserve Board. She declined.
Instead she founded Hamilton Securities Group, an employee-owned
investment banking firm, which created an innovative system for saving
taxpayers billions of dollars in the sale of government-guaranteed
mortgage-loan sales from HUD.
By promoting open disclosure in the HUD financial transactions, Fitts
undoubtedly, and unknowingly, must have stepped on a lot of toes.
The Crony Capitalists (or Old Boys' Network -- or the Octopus) must
have seen Hamilton's program of financial transparency as a major threat
to their system of bid rigging and insider trading.
HUD Cost Savings Lead to Hamilton's Demise
In this extremely complex case, newly disclosed evidence indicates
that powerful forces conspired to destroy the financial equity of
employee-owned Hamilton Securities, as well as the personal life savings
of the firm's president, Catherine Austin Fitts.
Why? Because Hamilton Securities had opened up the market for
defaulted HUD mortgages. In simple terms, the established network of
insiders would be susceptible to -- horrors! -- open competition, not to
mention an entire universe of new bidders.
In fact, Hamilton's plan for optimization of sales of defaulted
mortgages resulted in a savings of over $2.2 billion for US taxpayers.
The numbers are staggering. Every year HUD issues about $70 billion
of mortgage insurance which guarantees the mortgages used to finance
homes, apartment buildings, nursing homes, assisted living facilities
and hospitals. HUD then pays out about $6 billion on claims for
defaulted mortgages, which the agency has to then manage at great cost
Prior to Hamilton's involvement, HUD was recovering about 35 cents
on the dollar of mortgage insurance payments made on defaulted
When Hamilton instituted their new program, HUD's recovery rate
soared to about 70 to 90 cents on the dollar. How? Hamilton introduced a
proprietary optimization bidding software and an on-line database of
information, accessible to all investors, so that the defaulted
portfolio could be bid upon in an open auction.
In October 1997, the Chairman of one Congressional oversight
committee referred to the Hamilton-based loan sales at HUD as generating
In fact from 1994-97, HUD saved about $2.2 billion in HUD's $12
billion mortgage portfolio. These savings then allowed HUD to issue far
more new mortgage insurance at a lower cost.
When Hamilton's successful loan sales-auction program was suspended
due to the investigation, the old levels of government inefficiency and
fraud were resumed. Call it "Business As Usual."
That means HUD is now losing about $4 billion per year on its $6
billion of defaulted mortgages -- instead of just $2 billion. That's the
equivalent of 20,000 taxpayers working their whole lives to pay for this
boondoggle for just one year.
Anatomy of a Corporate Murder
Targeted by criminal elements in the Department of Justice (DoJ),
Housing and Urban Development (HUD), as well as a cartel of private
investment companies, Hamilton Securities has undergone an onslaught of
unimaginable harassment and intimidation.
There had been a SWAT-like attack on Hamilton's office in Washington,
19 audits, countless subpoenas as well as ongoing litigation against HUD
to force them to pay monies owed on their contract. It's been a 4-year
long financially and emotionally draining "investigation." To date,
there has been no evidence of any wrongdoing -- just rumors, innuendo,
and lots of character assassination.
First, in June 1996, a sealed qui tam lawsuit, a phoney
whistle-blower suit, as well as a Bivens action was filed by John Ervin
of Ervin & Associates, Inc., a HUD subcontractor, notorious for filing
nuisance lawsuits and "bid protests" -- 37 of them in the recent past.
In the Bivens suit, he sued HUD itself, as well as several former HUD
In fact, Ervin's lawsuits have cost a good-sized fortune in legal
fees and overhead, estimated -- from 1995 to date -- to be as high as
$40 to $50 million. An insider claims that during that time Ervin had up
to 17 in-house personnel working full time on mountains of paperwork
regarding this and other cases.
So who's bankrolling Ervin? Nobody has offered any explanations, but
for a small time HUD sub-contractor like Ervin, this has turned out to
be a serious investment.
Under the False Claims Act, a private party like Ervin, who files suit
on behalf of the government, can receive 15-30% of any recovery, if the
government's claim is successful. That percentage (15-30%) would have
covered asset seizures of up to $4.7 billion of loan sales won by
Goldman Sachs and its partners.
Is somebody just playing the odds? In this version of government
"greenmail", or state-sponsored extortion, any asset seizures could be
part of this 15 to 30% bounty.
The Spooky Life of Stanley Sporkin
Then, it just so happened that the judge presiding over the Hamilton
case was the former CIA Counsel -- Federal Judge Stanley Sporkin
According to Rodney Stich, author of "Defrauding America," "Sporkin
was involved with the 1980 October Surprise scheme and his judicial
appointment was probably his reward by the Reagan-Bush administration
for helping carry it out, and to block any judicial exposure or
(The October Surprise was the Reagan-Bush black-ops/covert action to
delay the release of the hostages in Iran, resulting in the electoral
victory of Reagan as US President.)
Sporkin was appointed to the bench by Ronald Reagan in 1985. His
spooky roots, however, go back to the days when he was a director of the
SEC's Division of Enforcement, while the infamous Bill Casey was
practicing his Wall Street shakedown techniques as Chairman of the
Securities and Exchange Commission.
Sporkin's other claim to fame was to encourage Casey to go after the
infamous scamster Robert Vesco. Was Vesco more competition -- or just
Casey, who like George H. W. Bush, neglected or "forgot" to put his
assets in a blind trust later also became director of CIA. His shares
-- controlling stock in Capitol Cities Communications -- were eventually
used to take over ABC in a $3.5 billion merger deal.
In the words of Joseph Persico, author of "Casey", "the director of
the Central Intelligence Agency was soon to be a substantial shareholder
in one of the country's major forums of free expression, with wondrous
opportunity for managing the news."
Also according to Persico, Casey further employed Sporkin's specious
reasoning by claiming that killing "suspected terrorists" was not
Reagan's infamous Executive Order 12333 which privatized US National
Security State dirty tricks was ostensibly the reason.
"Striking at terrorists planning to strike at you was not
assassination," wrote Persico referring to Sporkin's logic, "it was
Then Sporkin became the general counsel for the CIA (1981-86) and
his mastery of coverup skills increased dramatically. For instance, in
keeping the Oliver North Cocaine Trafficking Operation under wraps, it
was Sporkin who invented another ingenious method of lying by omission.
Persico writes that "North's insistence that the oversight committees
be cut out troubled the CIA people. But the adroit Sporkin found a
loophole. The President was required to inform the oversight committees
of a covert action presumably in advance of the action, except when the
urgency of the situation required that notification be delayed." Result?
Everybody was notified 48 hours after the operation.
According to Persico, Sporkin also perfected the techniques of
writing retroactive "findings" for Congress, so that CIA criminality
could always be disguised or covered up -- after the fact.
Stich concludes that "to protect the incoming Reagan-Bush teams and
many of the federal officials and others who took part in October
Surprise, the Reagan-Bush team placed people, including those implicated
in the activities, in control of key federal agencies and the federal
courts. Some, like attorneys Stanley Sporkin, Lawrence Silberman, and
Lowell Jensen were appointed to the federal bench defusing any
litigation arising from the October Surprise or its many tentacles...
Organized crime never had it so good."
Ironic Postscript Dept.: In Feb. 2000, retired spooky judge Stanley
Sporkin (Yale Law School, 1957) joined the global powerhouse law firm
Weil, Gotshal & Manges LLP. The company, which boasts 750 attorneys in
12 offices worldwide, is considered one of the leading law firms in the
country on bankruptcy.