The Men Who Stole the World (and got away with it)

it was July 1st 2009 I was living in Hamburg Germany at the time I was in my flat with my wife that I had just married two men came to the door I did not recognize them did not answer the door minutes later I left the building walked to the car and two unidentified Deutsche police officers showed up in front of me and in German basically identified themselves and said they were there interpo FBI warrant come with us that was not at all what he was expecting obviously he looked at his wife and blew her

a kiss and was pretty sure he would never see her again that's a feeling of total fear because you have the total unknown of what the future holds Philip Baker was taken on a plane to [Music] Chicago which is where he had been criminally charged and entered the United States justice system which is a really scary place to [Music] be I was facing charges of absconding with $460 million from the FBI for fraud [Music] my name is Philip James Baker and I'm the former managing partner of a billion dollar investment fund who collapsed during the

financial crisis my story is a rise and fall to Redemption [Music] story I've been Rich I've been on the top I've been behind bars I know what it is to be called a financial criminal I admit my guilt but now I'm free and I want to speak out because of what I saw because I've been there I can tell that if we do nothing everything can happen again they had no Consequence the titans of Wall Street basically face nothing for my life I went to prison some people would say well you know what you did

wrong it's fair it's just the argument could be I agree but what about the people and the titans of Wall Street I was born here in Toronto Canada in uh August of 1965 Philip started in our home downstairs he didn't tell us a lot about it other than there was a partnership and they were when he started to to get investors etc etc the business started in the basement of my parents and this company grew to be a billion dollar Company Lake Shore was a hedge fund firm Philip Baker set up a hedge fund that

was designed to trade in Commodities so prices of oil coal things like that he was a marketer he was the client guy he was the one who would go out to wealthy individuals or institutions and get them to put their money with Lakes short our clients were Global investment Banks from around the world Goldman Sachs Royal Bank of Canada Canadian P Bank of Commerce HSBC Bank of Nova Scotia credit Swiss UBS so that's quite a list we operated in close to 40 different countries around the world Brazil Peru Panama Colombia Japan Taiwan Hong Kong obviously

throughout Europe he was for a time a very successful hedge fund manager he set up offices in Switzerland and London in the United States and Canada and the marketing and Business Development was based in London so I was based in Mayfair which is the hedge fund capital of the [Music] world he was living a very nice life for himself he was always trying to prove himself to people who doubted that he had the capacity to succeed so he built this life where you know he had a a chauffeur driven luxury car that would take him

all over London he had a beautiful apartment on the banks of the river temps the Life I Lived was a life of luxury having a butler not worried about an expenses of anything I ever everything I ever wanted I could have I sponsored an ocean racing team competing against Hugo Boss UBS and that was just for [Music] fun he was not a sailor so he would that meant he had to basically pay his way onto these Elite sailing Crews and would do these very comp itive races I believe from New Zealand to Australia we're making

millions per month offshore accounts not paying taxes I was living a dream weren't worried about anything but in my particular instance I had something to worry about all sorts of investors all over the world were very eager to put their money with them because he was generating very good returns and that's what investors want he turned out to be doing something else which was he was misappropriating the investors money and the investors thought they were achieving these excellent returns in reality they were not Philip Baker and his Partners were essentially making it up they were

[Music] lying the second thing and in some ways the more damaging issue is that as they sought to recruit additional investors new investors which were essential because they needed to paper over the L the money that they'd already lost they were in their prospectuses in the documents that they provided to investors to show investors how well they'd been doing they were lying there too and they were saying instead of having lost 50% of their Assets in the first year they were saying oh look at us we've got this long track record of very impressive returns

they were lying not only about the returns but they were lying about the longevity of the fund so they were saying they had I believe a 14-year track record which just wasn't true that they had not been trading for 14 years trading results were falsely reported and hence that was a fraud you cannot do that one penny not reported properly is wrong the victims were everyone who had invested with him investors who lost their money initially investors who put their money in after the initial fraud had occurred and so there were hundreds of millions of

dollars that vanished as a result of this I've been asked why did I break the line I wanted to protect what I had money family power everybody does that don't they what do you mean how many people say no I don't want the power I don't want the money and walk away we had to accept that he had made a a terrible mistake and uh there was a penalty for for making that mistake and uh that'll be something he'll have to live with the rest of his life would you say that you are right color

criminal yes it's very interesting when you see your name Philip James Baker versus the United States of America it's overwhelming then you face the assistant us attorney as he's looking you in the eye and when you go through that circumstance there are no words that really can describe the depths of the loneliness you feel at that moment I ultimately completed a plea deal with the United States government I was sentenced to 20 years for wire fraud there's no way to really describe the process and the life of when you're held in a maximum security pre-trial

Federal Institution in the United States you have gangs you have gangs amongst the gangs you have violent offenders there is no separation between a white collar criminal and very hardened criminals they're all put together there is no explanation for the world that you are uh left to enter it's about survival the days just come and they go becomes the routine of doing nothing you have no hope you have absolutely no future and you have no reason to continue no reason to look forward Phil bigger is a criminal is he uh the type of financial Mastermind

that caused the financial crisis absolutely not this is a guy who is was not very sophisticated about his crime was not very uh malicious about his crime and but he admitted that he committed a crime this is a classic example of where the justice department takes a shortcut they want to generate publicity for themselves as going after Financial Crooks and everyone wants them to do that and yet time and time again the people that they're going after are these little minnows they're not going after the big fish they're not going after the bankers for the

most part they're certainly not going after the senior Executives at the banks or other big financial institutions that were the decision maker ERS leading up to the financial [Music] crisis 10 years after the financial crisis except Iceland how many white color criminals are behind bars Kareem selan from credit Swiss he's the only Banker of Wall Street to go to jail related to the crisis he lost just a few million not really big fish not a true Al Capone could you tell me only one big Bank top executive name here are the number of people convicted

of crimes linked to the crisis in the US according of the financial times 324 people from Main Street zero Wall Street Chief Executives have been to [Music] prison even though there is today absolutely no doubt That Wall Street Executives and politicians were complicit in creating the [Music] crisis this is the story of how massive Global Banks made billions by packaging toxic mortgage loans and financial products and sold them all around the world the American politicians pulled the trigger it all started with the political philosophical Grand ambition of allowing everyone to own a [Music] home our

government is supporting homeownership because it is good for America it is good for our families it is good for our economy part of the American dream dream that was pushed by you know all sorts of presidents Clinton Bush whatever for years was uh home ownership authorities kept interest rates very low in order to make money very easy to borrow Wall Street and politicians had agreed to work together Wall Street with the pursuit of profits the politicians with the pursuit of government inter on economic growth which could be turned into election victories for years to come

this was the beginning of the housing bubble when the bubbles expanding everybody is a winner everybody is a genius the lender make money the real estate development companies make money the construction workers make money everybody loves a bubble but this was a devil's deal between politicians and Wall Street the setting to a perfect storm what happens in a boom is lenders take more and more risk and borrowers take more and more risk because they both think things are safer than they appear to be and one of the ways they persuade themselves to take more risk

is through financial Innovations Wall Street created the risky loans called subprime to Americans who could ill afford to pay the bank loans that they had just applied for the public were given access to zero low income and even no job loans so if you wanted the absolute craziness it would be the ninja loan so ninja stands for no income no job and no assets so um the idea is that you would lend money to people that gave you no information about whether they had any income whether they had any job or they had any assets

it will allow you to grow enormously cuz now you can loan in the US context to tens of millions of people that can't repay the [Music] loan how many people out there are there who can't can't get aan tens of millions of people in the United States tens of millions of people in France in these circumstances this goes under the general category of predation in the United States the people that were targeted for the worst loans were overwhelmingly a combination of the four demographic factors black Latinos the uh elderly and females that is incredibly immoral

this is why almost everywhere in the world these things are [Music] crimes these toxic loans became a gold rust for the whole us Banking and Financial industry all the major actors of Wall Street wanted a piece of a some prime party Goldman Sachs Leman Brothers Morgan Stanley maror Lynch Bear Sterns JP Morgan City group and so [Music] on the frenzy extended itself when loans were sought by the public by falsifying their own financial situation on loan applications therefore the public and Banks were complicit in committing bank [Music] fraud my name is Richard Bowen I was

senior vice president and business Chief underwriter for City Group at the time City group was the largest bank in the [Music] world it was my responsibility to make sure that the 90 billion a year that we were purchasing in mortgage loans that were originated by other Banks and mortgage companies these met our policy standards in early 2006 um I discovered that over 60% of these mortgages did not meet our guidelines they were by definition defective when I discovered this uh in this was June of 2006 um silly me I thought it was my job job

I started issuing warnings because I was supposed to make sure that these met our policy guidelines and I sent email I put it in my weekly report I made committee presentations I mean I'm not a shy guy I cornered people in the hallways at the water fountain and everyone say yeah yeah we we we we know we need to fix that but nothing would happen and through 2006 and 2007 the volumes kept increasing and the rate of defective mortgages increased from 60 to an excess of 80% 80% 80% of these mortgages that we were in

turn selling and giving our representations and warranties that they were that met our policy guidelines did not meet our policy guidelines this is misrepresentation that is true as a matter of fact it was fraud I've seen plenty of uh alone documents with my own eyes uh that were falsified uh and the borrowers still signed them uh as if they were correct people who were typically hairdressers gardeners and such reporting incomes of over $100,000 a year now their actual incomes would be in the range of about 16,000 in those cases their income is inflated by it

six times you would have waiters in a restaurant showing that they made $150,000 a year I mean that clearly is uh uh is out of line but nonetheless the loan type permitted that to happen rich Bowen and his staff very carefully very professionally are documenting that these loans their reps and warranties are false but city is overwhelmingly turning around and reselling these loans City Group didn't want to know because if it looked at these places it couldn't possibly continue to use them it was all about generating the revenue the people who worked on Wall Street

conceived of the idea of securitizing mortgages packaging mortgages up into Securities they actually uh uh arranged to buy the mortgages uh they would uh package them up into Securities they would file documents with the security Exchange Commission that they had to be able to call them security and then they would sell them to investors all around the world and all along the way they were making money it was almost like uh uh it was a perfect product that anybody who touched a mortgage made money off of [Music] it November the 2nd of 2007 sitting at

my kitchen table I put together an email and I sent the email to Robert Ruby who the next day on Sunday at the board meeting was named chairman of the board I also sent it to the chief risk officer the Chief Financial Officer and the chief auditor I said urgent read immediately Financial issues I put that in all capital letters I call for an outside investigation I said come in here from the outside and investigate what is is going on here because everybody here already knows and no one contacted me throughout November throughout December there

was no contact no one said a word I will tell you that that particular point in time before I would even get in my car I was doing what they do in the movies I was looking underneath my car and opening the hood and looking uh it was a very frightening time February the 6th I received uh there was an email that went out with regard to reorganization and in that reorganization I was stripped of all my underwriting responsibilities that next week I was put on an administrative leave and told I'm not to come back

to the [Music] bank greed was definitely the driver on all of this as it is on most fraud I'm told City group was not the only one a comparable level of fraudulent mortgage loans have been seen in all the Big Wall Street Banks ignoring the risk of bankruptcy Banks began to borrow a mass amount of money to buy more and more mortgage loans and packag them into derivatives the top underwriter in the peak years of 2005 and 2006 was Leman Brothers at $106 billion Leman was one of the largest makers and sellers of the absolute

most toxic loans in the entire world Leman Brothers was one of the largest fraud vectors in the history of the world [Music] my name is uh Anton vcas I go by the name Tony in the year 2009 about 3 months after the Leman bankruptcy I was appointed by the federal court in New York to act as an examiner I was independent of any of the parties and among the responsibilities the court charged me and my team with was to determine how and why Leman went into bankruptcy and when you're talking about the Leman bankruptcy you

are talking about the largest single bankruptcy in the history of financial institutions total amount of the bankruptcy $693 billion so we told the story of what happened lman brothers were the fourth largest global Investment Bank in the world led by famous CEO Dick fold hi my name is Dick fold I'm the chairman and chief executive officer of Leman Brothers now is a terrific time to be joining Leman Brothers I've been here 30 years but I can't think of a better time for you to take part the changes and opportunities that are going on here if

I tell you dick food what would be the first thing that cross your mind a person who was viewed as a lion on Wall Street uh I believe that in the year 2008 the very year of the bankruptcy was named by Forbes is one of the top 10 Executives in the country they called him the gorilla and I think they called him that for a reason he was brusk borish take no prisoners kind of guy you know run through a wall for Leman Brothers uh hyperco competitive uh hyper narcissistic squeeze some of those shorts squeeze

them hard not that I want to hurt him don't get that please cuz that's just not who I am I am soft I'm lovable but what I really want to do is I want to reach in rip out their heart and eat it before they die The Man Who Lost Lumen Brothers the man who presided over its de L and fall the man who could have done something about it but chose not to the man who refused to see the writing on the wall the man who uh you know kicked off in many ways what

became the Great [Music] Recession My Name is Oliver Buddha and I was an in-house lawyer at Leman Brothers for8 years I just discovered many things that were at least unethical if not illegal and eventually I decided to quit I was earning a lot of money but it was not enough for me to turn a blind eye to all that was happening around me the tone coming from the top dick fold the guys around him were go for it push it go beyond the limits the key at Leman was to evaluate the risk and the reward

and never mind the law that might be in between there if if the reward is high enough and the risk is low enough we will do it and we will sort it out later this was a culture of risk and this was all about money Leman Brothers risk analysis program was considered a model on Wall Street I mean it was brilliantly conceived the problem was it was simply ignored you have to understand you talking about dick fol dick folz made his fortune at Leman Brothers he was a billionaire so if you say well I think

he had it wrong he'd ask you are you a billionaire have you made a billion dollars trading I have and he [Music] had in the Years leading up to the crisis everything the the Financial Health of Leman Brothers could not have been better at least on [Music] paper they expanded the use of their toxic deras and the ratio of lending expanded in 2008 LeMans was massively leveraged Leman Brothers had one of the highest leverag ratios in American financial institutions a leverage ratio is a ratio of your debt to your Equity another word for Equity is

capital its ratio depending on the exact time was 30 to 40 to1 in other words for every dollar of supposed Capital it had it had $3 to $40 in debt Leman became the focus of worldwide attention because they were perceived as the next weakest link they were the next Domino to fall so Leman engaged in a scheme a an accounting scheme to make it look better and what they did was involved what was called rbo 105s this was something that Leman used every quarter to hide some of the borrowed money you see Leman would borrow

money and they would pledge Securities that they had as collateral at the end it was $50 billion each quarter they would borrow $50 billion and they would give $50 billion in collateral but they would actually say that this was a sale this was not a pledge for a loan but this was a sale of those assets for $50 billion and they would treat the $50 billion not as debt but as cash that they just got and by doing that and using that cash to pay Down Still other debt they could they could materially significantly move

that leverage ratio down then as soon as the quarter was over and they had published their number they would undo that transaction and Presto they would uh give back the money take back the Securities and again be leveraged just as high as they were before they did this only to fool the public and no other reason the effect of that was in June they were able to show that their leverage had been dropped dramatically and the streets said wow leman's doing okay our firm is strong today and we will emerge from this cycle even stronger

we've done it before and we will do do it again so they fudged the number yes in my opinion they absolutely fudged the numbers they they engaged in the trans even within their own emails they referred to it as a drug they were on uh a sham uh an accounting gimmick to make themselves look better so they knew what they were doing so they were adding information to the public yes that's my that was the opinion we can reached in the report isn't it against the law well if you file a misleading statement and you

knowingly file a misleading statement and a judge concludes that you have done so or jury does that is against the law yes there was a basis by which such a claim could be made yes we did including against dick the CE yes yes but nobody was arrested or charged for the no there were no arrests there were no charge there was no jury trial there was no uh civil case brought in which the jury heard the case and then decided the case none of those things took place no let me start by saying that I

have absolutely no recollection whatsoever of hearing anything about or seeing documents related to repo 105 transactions while I was the CEO of Leman do you think it's possible that dick didn't know no is of course not of course not there were senior Executives at lhan who were interviewed by Mr wcas and others who said that yes he did know that emails were sent to him that showed the repo 105 uh portion of the financials to show the effect of this and then dick fold's answer was well they might have sent me emails but I don't

know how to work a computer I don't know how to open an attachment that would have a spreadsheet to show this so I never saw it I was never a this was his story one more time Wall Street misrepresented its Financial condition at the same time Millions were spent in bonuses for Traders this was a jackpot the place to make money and the most money was Wall Street the bonuses reached levels that had never been even approximated in the world millions of dollars a year it's like the greatest job that you could ever imagine getting

without putting any of your own Capital At [Music] Risk you name it beautiful apartment on Park Avenue and Fifth Avenue beautiful house in the Hampton beautiful art collection buy the house you want have a nice vacation house have two or three cars have a boat have what whatever you wanted I mean once you're in the millions there are no limits they had uh excessive Lifestyles they were willing to take risk to support that lifestyle there's a great bit of narcissism and antisocial personality disorders and with this they might feel like they have a sense of

entitlement or they're Above the Law or they're too good to get caught so it's dominance it's power it's status I'm bigger tougher better endowed than you are I got a bigger swinging dick than you they're Thrill Seekers they derive some sort of high from taking risks they do that in in their career so naturally it spills into their personal lives uh lots of drugs lots of cocaine use even prostitution indiscriminate sex people were spending a lot of money on sex people were spending uh a few hundred to a few thousand a week this this whole

culture is all just swimming in a sea of greed but the the big thing is who's going to be dominant in this sea of greed that's the real thing who's going to have the power who's going to be able to face down the other guy on Wall Street these CEOs they can they pull in some of them would pull in $100 million a year and Dick fold had several years where it was 70 80 90 $100 million in one year he had a multi-million dollar home in Greenwich and that's where he lived most of the

time but he also kept a very fancy multi-million dollar apartment on Park Avenue he had another home down in Florida also worth $105 million another place in Idaho a Sun Valley uh some sort of a cabin in the woods there but again multi-million dollar property since 2000 you've taken home more than $480 million that's almost half a billion dollars your company is now bankrupt our economy is in a state of Crisis but you get to keep $480 million I I have a very basic question for you is this fair I would say to you the

500 number is not accurate and I believe the amount that I took out of the company over and above that was I believe a little bit less than 250 million still a large number though still a large Mone in fact both numbers were wrong and both numbers were low the true number was 530 million for 2000 to 2007 and Dick F said yeah I only made 310 that's over $200 million that he took off his total under oath I swear to tell the truth the whole truth he did it on television to the world and

uh this stood up take him away take him away I don't even think I could resist if you gave me the opportunity to make $550 million and all I had to do was hurt six billion people I would think about it the Temptation is there people are simple they do what they're rewarded to do so if you're rewarded to take big risk with other people's money that's what you're going to do I believe it was voler in candid who wrote about uh a British general who lost a battle in France and when he came back

to uh England he was killed an examp you know voler is a very smart guy right that's human nature people do what they're rewarded to do the real message is we don't care how you did it we don't care whether it's real we don't care whether it's honest just do it because you'll be rich and I'll be rich in the financial context modern executive compensation didn't just create the most criminogenic environment it created the biggest crimes in in financial history and there's nothing close this is absolutely stunning Wall Street has seen very very few days

like this the inevitable happened the house of cards came falling down Lan Brothers a 158 year-old firm filed for bankruptcy brought down by bad mortgage Investments Leman which has 25,000 employees will be liquidated someone said you know corporations die of cancer investment Banks die of heart attacks there was a time when these assets were completely toxic and when they're completely toxic anybody owns it has a terrible problem and that's the situation lhan found itself in people basically ran on it ceased to lend to it and the government didn't stand behind it so it collapsed the

15th of September 2008 Leman Brothers goes bankrupt the New York Stock Exchange had its biggest drop in a single day since 911 Banks began to stop lending money to each other the collapse of Leman Brothers triggered turmoil in markets around the globe stocks tumbled in Taiwan and India then plummeted in Europe the 2008 financial crisis displayed what the world now identifies as Financial contagion there was a worldwide recession you know the value of real estate plummeted people lost their homes you could go through Southwest side of Chicago and see foreclosure foreclosure foreclosure home after home

after home that were going belly up as a result of that numerous businesses went out of business this is a fraud this is not random it's not oops everybody got hurt I mean the impact across the world was measured into trillions of dollars the value of uh what was lost during that period of time is almost incalculable we had never seen anything like that since [Music] 1929 this crisis has uh changed our world in many longlasting ways without the crisis brexit would not have happened and Donald Trump would not be president of the United States

this is a a major turning point you never know what it will be but the 30s transformed the world because it of course it brought us the second world war Hitler would certainly not have become chancellor of Germany without the great depressions so it changes everything no of the leading company Executives were ever brought to Justice I lost everything all the money everything I had my wife my family connections I lost everything I still owe money to the US government I have 154 million reasons to know what I did wrong you owe how much 54

million plus interest I'm just a small fish and I was brought to Justice they all went free the system is is what it is and until the system changes the powerful continue to walk you've seen that there were some very large settlements that were made but they never admitted that they did anything [Music] [Music] wrong there was no admission of guilt there was no charge of any any criminal activity and I have always represented that those payments were nothing more than payments of extortion to the Department of Justice to seal the evidence to lock up

the evidence so the public would never see how widespread and pervasive the fraud was that was committed and I truly believe that these crimes are so vastly larger than any bluecolor crimes it's just off the charts noncomparable in terms of these things it's um what Balzac actually said behind every fortune that you can't explain lies not just a fraud but one a a fraud executed so well that it wasn't prosecuted you're now uh in uh Midtown Manhattan on Park Avenue um this is the old uh this is where Leman was after 911 and this building

across the street is where dick F the CEO is working today in his new company Matrix Capital nothing has changed he's in the same business he always was some people may think of him as some sort of uh you know guy that was banished forever but no he is just fine the world's collapsed there were trillions of dollars of damage it didn't cost dick fold a dollar the man put $550 million into his pocket he kept it all and presumably he's probably grown that pile quite considerably perhaps he has a billion by now the stock

market has been doing very well since the [Music] crisis what is the difference between a gster who rob a bank and this Banker oh the gangster that Robs a Bank a gets an average about $2,000 and B uh is virtually always successfully uh prosecuted and C uh spends 20 years in prison and the CEO has none of those things happen and is immensely wealthy and gets to keep his uh reputation prison was the beginning of the Redemption the judge told me do something good with your life and that's why I'm trying to make a difference

by speaking to the public about my failures and how that they can be aware of what the world is facing as someone described it to me you drive down the street in a school zone and you see a sign that says you know 30 km an hour you see a police car you slow down right you go slow and you drive a little further you drive a little further police car is in your back you forget about that police office and all of a sudden you start to speed up and start to speed up you

start to speed up right that's what happens it's human nature we forget the disaster and we keep moving forward you know like that so do I think it can happen again do I think that that's I think that's yes I do the seeds of the next financial crisis have already been planted they're growing we can't see them yet but there are plenty of signs all around of of trouble Brewing I think there is no doubt that we are going into another crisis of a greater severity than we have just been through I can't predict what

the instruments are going to be I can't predict the specifics but I know it will be driven by greed and misbehavior has no consequence we have shown that we the public and decision makers basically haven't learned because we never much understood the crisis but the bankers have learned the lessons and the lesson was this is sweet this is perfect this is a sure thing I will be fabulously wealthy and I will not pay any price for it thank you Lord [Music]