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Libel trial begins over mortgage scam charges

A libel trial scheduled to begin Monday is the latest chapter in a Texas-sized legal battle between a mortgage-servicing firm and a wealthy family that has raged for years.
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On the surface, the trial scheduled to begin Monday morning in the Dallas courtroom of U.S. District Judge Jane J. Boyle is your basic libel suit. Orix Capital Markets, a $1 billion financial services company, says its reputation is being seriously damaged by allegations posted on a Web site that mocks its very name.

Indeed, the Web site’s shocking claims of massive fraud and deceit by a prominent member of the mortgage-servicing industry have captured the attention of high-powered attorneys and others immersed in the current foreclosure crisis.

But lurking beneath the case at hand is a Texas-sized struggle that has snaked through state and federal courts for years, churning out a forest in documents, consuming a fortune in attorneys’ fees and spawning claims on both sides that could be put to good use by John Grisham, the best-selling author of fictional legal thrillers.

Charges of everything from conspiracy and fraud to spying and destruction of evidence spew  forth from the plaintiffs and defendants in courtroom filings and comments.

“This case and these fights are completely out of control and have been since the beginning,” Judge Boyle told attorneys for both sides at the outset of a pre-trial evidentiary hearing.

Key defendant only 20
Cyrus Rafizadeh, a defendant in the libel case, says the lawsuit is the work of an evil corporate giant determined to silence him, a 20-year-old law student, “computer nerd” and self-taught expert on mortgage securitization and trusts.

Rafizadeh says he is using his Web site,, to expose a vast scam by Dallas-based Orix, information that is directly related to the current U.S. mortgage meltdown and is of vital interest to investors, regulators and taxpayers.

In one posting on his Web site, he bemoans the nation's likely loss of its position as "the undisputed banking and investment center of a worldwide capitalist system" because of misdeeds throughout the asset-backed securities markets, including mortgage trusts. Discovering and revealing the big picture and Orix's part in it, he told, is his “fate,” “destiny” and “calling.”

“I’d like to somehow hold these companies accountable and make them fix all this damage they’ve done to all these investors, homeowners and taxpayers,” Rafizadeh said. That damage even includes the deaths of a distraught investor and two brothers who drowned in a pool at a building seized by Orix, according to posts on his Web site.

Led by senior counsel Greg May, Orix attorneys say Cyrus Rafizadeh is merely the point man in a family conspiracy led by Rafizadeh’s father, Schumann Rafizadeh, a multimillionaire software developer, business owner and real estate investor from Houston.

They say the family is seeking revenge against Orix for foreclosing in 2001 on a family-owned apartment complex in Louisiana and eventually winning a nearly $11 million judgment against Cyrus’ mother, Mondona Rafizadeh. Orix says the Web site is just one of many outrages in the Rafizadehs’ “long and sordid” dealings with the company.

'They cannot do that'
“It’s one thing to express an opinion,” May told “It’s another thing to accuse us of killing people and breaking the law. They cannot do that. That’s libel and we intend to prove it.”

The libel suit was filed as a counterclaim to a 2006 suit against Orix by a company called Super Future Equities, in which Cyrus Rafizadeh was a corporate officer. SFE owned shares in the securitized mortgage trust that held the loan on his family’s foreclosed apartment complex.

Rafizadeh said much of the material in SFE’s lawsuit, which was dismissed by Judge Boyle in December 2007, was the fruit of his thousands of hours of research into Orix, the mortgage-servicing industry, real estate trusts and the securitization process.

Rafizadeh, who said he graduated from high school at 16 and received his bachelor’s degree in business from the University of Houston last year before starting law school in Australia, told that he became interested in the topics after Orix foreclosed on the family’s Louisiana property. Orix, “engineered the default because they figured out you make more money in foreclosure and default than if the borrower makes all the principal and interest payments,” which his family was doing, he said.

Because his company was an investor in the securitized mortgage trust in which the Louisiana loan was held, Rafizadeh’s research was aided by access to information only available to participants. He says that helped him to assemble the breathtaking string of allegations against Orix and its executives that were encapsulated in SFE’s 95-page lawsuit and repeated on his Web site.

The suit alleged a scheme in which Orix “targeted” certain trusts, “covertly” seized control of them and used this power to force undeserving borrowers into foreclosure to reap millions in ill-gotten gain at the expense of the borrowers and investors. Orix was paid four times as much to service loans in default as loans that were performing in the trust at issue, the suit said.

Suit dismissed
The suit was dismissed when Judge Boyle ruled that SFE, Rafizadeh’s company, had not shown that it suffered any damages because of its investments in the trust.

But the Web site stayed online for all the world to see, including lawyers who are at the forefront of the nation’s current foreclosure crisis and journalists who are covering it. Rafizadeh said logs from the site also indicate it has been widely visited by computer users at large banks, the U.S. Department of Justice, the Securities and Exchange Commission and other federal agencies.

And the libel suit stayed online in the court system, pressing Orix’s claims that and SFE’s legal maneuvering were the Rafizadeh family’s vicious proxy attacks on its good name.

It's all about revenge, Orix says
In bankruptcy court filings related to Orix’s battles with the Rafizadehs, attorneys for the company say the family's “capacity for deceitful conduct and their contempt for proper business practices are truly boundless.”

Recounting the “tortuous” legal battle between the Rafizadehs and Orix that began with the Louisiana foreclosure, the libel suit alleges that SFE was incorporated in the thick of that fight and selected “to seek revenge against Orix Capital” when the company won that case.

Orix attorney May acknowledged to, as noted by Cyrus Rafizadeh, that principal and interest payments were not in arrears when Orix foreclosed on the Louisiana property. “The monthly payments of principal and interest were being made but there were big deferred maintenance and life-safety issues on the property,” May said. “It was a slum and they were running it as a slum.”

A state court judge agreed with Orix that the Rafizadehs had failed to maintain the property as required by the loan and, further, ruled that fraud had been committed in obtaining financing for its purchase. In 2004, the court entered a judgment of nearly $11 million for Orix.

'Crooked' Louisiana
But Cyrus Rafizadeh says the family was railroaded in that case and another, involving an office tower in New Orleans, by a corrupt system. “Louisiana is the most crooked state, everyone knows that,” he said. “My parents had no idea what was happening. They were naïve. They were making all their payments. They never even had a chance back then. It was like a gazelle trying to run from a cheetah.”

Rafizadeh says what Orix did in the Louisiana case involved far more than a simple foreclosure. Phony foreclosures are just one example of how the company uses its role as “special servicer” of mortgage trusts to generate all kinds of illegal revenue, he says. He says Orix has also figured out how to receive double repayments with interest for advances made to investors, and engages in extortion of loan originators who are forced via technicalities to buy back, at face value, notes that Orix has bought at steep discounts.

Orix says those claims are among numerous instances of libel and defamation that remain on “These statements expose Orix Capital to public hatred, contempt, ridicule or financial injury,” the company said in its complaint.

Rafizadeh said he is eager for the trial to get under way because he will now get a chance to prove his allegations before a jury. And his attorney, Tim Gavin of Dallas, said a resolution of the libel case is necessary before he and his clients decided whether to appeal the original case. The trial that begins Monday is expected to last a week.

“They really did themselves in by countersuing my Web site,” Rafizadeh said. “They didn’t realize they’re giving us two shots to explain our story. Even though they got the original suit dismissed, I’m still getting to prove all those statements in the counterclaim. By then the court will be mad because they will know this whole counterclaim is just a distraction impeding justice.”

Defendants sanctioned
The court, however, has already ruled that Rafizadeh and a co-defendant impeded justice themselves by destroying evidence in the case. Boyle has said she will permit the jury to be told that and allowed to draw “an adverse inference that they did so because the contents of those documents were unfavorable to them.”

“That was totally bogus,” Rafizadeh said, maintaining that the other side’s expert was incompetent at searching computers owned by SFE and refused offers of help. “They totally snowed the court because they knew the judge wouldn’t understand this.”

Rafizadeh said Orix’s allegations about the evidence and his family’s past in the real estate business are simply “part of their litigation strategy: Make a lie, see how far it gets you. If it works, great, lie again and point to the previous lie as foundation for the second lie. If it doesn’t work, make a different lie.”

In explaining her ruling, Boyle expressed numerous other concerns over the behavior of Rafizadeh and other defendants in the case, saying, among other things, that “their testimony was not credible” and that Rafizadeh continued to post information on the Web site “in direct violation of what I had directed him to do.”

Orix attorney May said the family has a “notorious” reputation both in and out of court. “These are the most extensively sanctioned litigants I’ve ever come across,” he said. “The degree to which they have been found to have disregarded and abused the discovery process is unequaled in my experience.”

Orix: Web site users beware
The company will prove that Rafizadeh’s sweeping conspiracy theory about his firm is nothing more than a retaliatory lie, he said. Readers of the Web site should keep that in mind if they are tempted to draw any conclusions about Orix, the loan servicing industry or mortgage securitization from it, he added.

“It’s too easy for the Rafizadehs of the world to make broad allegations and throw a bunch of numbers behind them that a typical reader is not going to take the time to understand, and convey an impression of guilt when we haven’t done anything wrong,” May said. “We’re doing the job that we’re contractually bound to do.”

May also takes issue with Rafizadeh’s attempts to connect this case, which involves a commercial mortgage pool, with the securitized trusts that are filled with subprime residential loans, seen as a catalyst in the nation’s current foreclosure crisis.

Rafizadeh brushed that aside. “The timing of this lawsuit is amazing,” he said. “All these millions of people have been foreclosed on, there are these multi-trillion-dollar losses. It’s clear that I was right. As far as I’m concerned, this whole thing is like fate and destiny. I feel like this was totally my calling. I was the one who was supposed to expose this.”