Obama And The Rule Of Law On Wall Street
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Guest post from Jeff Connaughton, former Chief of Staff to Sen. Ted Kaufman.
Long silent and now contradictory, President Obama needs to deliver a clarifying speech about our financial markets and the rule of law. Speaking in Kansas on December 6, he said, "Too often, we've seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there's no price for being a repeat offender." Just five days later on 60 Minutes, he said, "Some of the least ethical behavior on Wall Street wasn't illegal." Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?
The President is confusing "legal" with "difficult to prosecute successfully." The Justice Department's repeated decisions not to risk losing at trial against Wall Street executives don't make these person's actions legal. (If a district attorney can't prove the actual thief stole your wallet, that doesn't make stealing legal. It simply means that, regrettably, a malefactor goes unpunished.) As Securities and Exchange Commission Enforcement Director Robert Khuzami said in Senate testimony in 2009, Wall Street perpetrators "are smart people who understand that they are crossing the line" and "are plotting their defense at the same time they're committing their crime."
Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don't pay relatively paltry -- and therefore painless -- penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.'s latest settlement with Citigroup, an action even the Wall Street Journal called "a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan."
The Obama Justice Department hasn't tried a single Wall Street executive in a criminal court. Against a handful, it decided to let the S.E.C. bring civil charges of fraud, which are easier to prove. So if defendants' wrists are merely being slapped by the S.E.C. instead of cuffed by the Justice Department, Obama has only his appointees to blame.
For three important reasons, the President needs to explain why the Justice Department has filed away its investigations of big banks and Wall Street firms without indicting anyone. First, American confidence in the system is deeply shaken. Second, it strains credulity for millions of Americans -- and has impelled thousands of them to occupy public places in protest -- that no banking or insurance executive deserves criminal prosecution for the actions that brought on the financial crisis. Third, by failing to prosecute a single high-profile Wall Street actor today, the Administration is failing to deter financial fraud tomorrow.
The jury is out (alas, only metaphorically) on whether Wall Street practices that accompanied the financial crisis amounted to criminal fraud. Some legal commentators have concluded that the causes of the crisis were systemic and not the result of malfeasance or conspiracy. The debate about whether practices were illegal or simply unethical will never be resolved because only a jury can render a verdict after weighing the evidence, presented by opposing counsel, for each element of an alleged crime. That said, independent fact-finders like the Financial Crisis Inquiry Commission, the Senate Permanent Committee on Investigations, and the bankruptcy examiner for Lehman Brothers have compiled compelling evidence of what, to many, certainly looks like fraud.
But did the Justice Department's senior leadership even make targeting high-level fraud a top priority? Did it plan, staff, fund, and direct a thorough, probing investigation of each of the primary potential defendants? While I was working in the Senate, conversations I had with Justice Department officials led me to believe that it didn't. As the New York Times and New Yorker have reported, the Department's leadership never organized or supported strike-force teams of bank regulators, F.B.I. agents, and federal prosecutors for each of the potential primary defendants and ignored past lessons about how to crack financial fraud. When Senator Ted Kaufman (D-DE) and I met privately with Department officials in September 2009, one of them explained they were dependent on investigators to bring them cases (which typified, I believed, their passive approach). And, for their part, the investigators were receiving no help from bank regulatory agencies (in the 1990s, successful prosecutions after the savings-and-loan scandal hinged on referrals from the responsible supervising agencies, which provided key roadmaps for F.B.I. investigations).
The Justice Department, F.B.I., and bank regulatory agencies failed to design a prosecutorial strategy that would've indicted and perhaps convicted many top executives who knew that their banks were selling fraudulent securities that bundled together thousands of largely bad loans. These loans, known in the industry as stated-income loans and (more glibly and more accurately) as liar loans, were issued without verifying the borrowers' income. A former executive in charge of fraud investigations at mortgage lender Countrywide Financial told 60 Minutes that mortgage fraud at her firm was "systemic," but federal investigators never contacted her. The U.S. attorney in Los Angeles has already declined to prosecute Countrywide executives. The Senate's Permanent Subcommittee on Investigations found that approximately 90 percent of WaMu's home-equity loans were stated-income loans, creating, in the words of Treasury Department Inspector General Eric Thorson, a "target rich environment for fraud." Yet the U.S. Attorney in Seattle decided not to indict anyone at WaMu.
Failure to disclose material information is another form of potential fraud. Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. Executives at Lehman Brothers assured investors in the summer of 2008 that the company was sound, even though the bankruptcy examiner later concluded that Lehman had engaged in "actionable balance-sheet manipulation."
Yes, with financial fraud, criminal intent is difficult to prove, especially when a defendant relied on professional advice from accountants and lawyers (and in some cases may even have been acting with the knowledge of the bank's regulator, who was apparently more concerned about the bank's financial soundness than about full disclosure to investors). But we shouldn't outsource the interpretation of fraud laws to a potential defendant's accountant and lawyers. And why haven't prosecutors used provisions in the Sarbanes-Oxley Act, which put in place tough criminal sanctions in the wake of Enron and other cases of massive corporate frauds? In the absence of an aggressive, targeted effort by the Justice Department, we'll never know whether crimes may have been proved beyond a reasonable doubt.
Why didn't this happen? I wish I knew. At the Senate oversight hearings, Justice Department officials assured the Judiciary Committee that every lead was being pursued and every rock turned over. Doubtless they'll continue to claim this. Yet in Ron Suskind's book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, "The confidence in the system is so fragile still... a disclosure of a fraud... could result in a run, just like Lehman." The Obama Administration is pushing hard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama's top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.
In 1986, speaking about the failure of another president's Justice Department to vigorously prosecute white-collar crime, former Chairman of the Senate Judiciary Committee and current Vice President Joseph Biden said that "people believe that our system of law and those who manage it have failed, and may not even have tried, to deal effectively with unethical and possibly illegal misconduct in high places." Until this president stops calling Wall Street's deleterious actions "not illegal," he's failing to deter -- and therefore effectively encouraging -- future financial fraud. And until he gives a clear and full explanation of the inadequate response of his Justice Department and S.E.C., he and his appointees are helping to undermine the public's faith in equal justice under the law.
Jeff Connaughton is the former chief of staff to former U.S. Senator Ted Kaufman (D-DE), who chaired two Senate Judiciary Committee oversight hearings on financial fraud prosecutions in 2009 and 2010.
Originally appeared at Huffington Post.
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Dec 28, 2011 at 12:37 PM
Reader Comments (18)
He has never ever tried a case, did a budget, let alone run a business with Cost accounting! WTF! His money management is a Fricken F report card for Fucken opposite of FRUGAL! F is for Foolish... I sent him over 300 hard back books on Finance, Economics, Sales, Marketing, Taxes, Investments, real estate, cost accounting, management, sales, employee mgt., budgeting & such. 300+ hard back books with no thanks.... WTF is wrong with this ILLEGAL ALIEN???
http://www.huffingtonpost.com/2011/12/28/social-security-disability-unemployment_n_1172682.html
This is not a positive trend but still unsurprising.
http://www.businessinsider.com/institutions-bought-munis-back-in-february-2011-12
http://www.businessinsider.com/ubss-george-magnus-prevent-the-zombification-of-europe-2011-12
He did it to make signing indefinite detention easier. he has done it with his right wing, medical health care industry serving "health care", He is just a slippery con man. Pelosi is really good at it too, always segwaying into rah rah red white and blue smoke screen when asked the hard questions. But Obama has brought the art of conning to a new state of the art.
http://www.businessinsider.com/google-search-ads-2011-12
The lesson that all Americans are now learning too. It's a sad day in America when these things are allowed to happen and our leaders spin the truth and out right lie to us. There is no honor in Congress anymore, just out right greed.
The lesson Wall Street and Washington just learned, hide what they do better from the public.
Treat us all like Ostriches and keep providing us with the sand to keep our head in so we don't see what they're doing to us. Our rights, freedoms and liberty are all being taken away and there seem to be nothing we can do about it.
SAD BAD SAD!!
http://abcnews.go.com/blogs/politics/2011/10/wall-street-corruption-solyndra-and-fast-furious-todays-qs-for-o-1062011/
The man is a marionette that can be made to say anything, however ridiculous, depending on who's yanking his strings on a given day. As a person, he is trivial--the ultimate lightweight--the plaything of invisible handlers. Championship show dogs exhibit more independence than Obama. He is a pitiful human being and a public disgrace.
This of course would be easy to demonstrate in a massive campaign of tragicomic 30-second ads. But does anyone seriously believe this will happen if the alternative to Obama is a Goldman milque toast like Mitt Romney?
http://www.zerohedge.com/news/bill-daley-barely-lasts-one-year-under-obama
Jacob Lew, Obama Nominee And Former Citigroup Executive, Doesn't Believe Deregulation Led To Financial Crisis
http://www.huffingtonpost.com/2010/09/21/obama-nominee-jacob-lew-f_n_732594.html
http://www.counterpunch.org/2009/07/02/the-wall-street-white-house/
[snip]
Among the familiar Wall Street faces that Hormats will encounter in his new post will that of Deputy Secretary of State Jacob Lew, lately Chief Financial Officer of Citigroup Alternative Investments Group which lost $509 million in the first quarter of 2008 alone. On visits to the White House he is sure to bump into Michael Froman, who also tore a swath through the Citi balance sheet at the alternative investments shop (they specialized in “esoteric” investments such as private highways) but is now Obama’s Deputy National Security Adviser for International Economic Affairs. If Froman is otherwise engaged, Hormats can interface with Froman’s deputy, David Lipton, who was until recently running Citi’s global country risk management effort.
OMB nominee got $900,000 after Citigroup bailout
Bonus issued after 2008 report
http://www.washingtontimes.com/news/2010/jul/28/omb-nominee-got-900000-after-citigroup-bailout/?page=all
Former Citi Alt Exec Tabbed for WH Post
http://news.hedgefund.net/default.aspx?story=13218
[snip]
However, various news outlets this week are pointing out that the unit invested $18 million in a fund run by hedge fund titan John Paulson in 2007. Specifically, this was during the time of the housing market collapse when Paulson made a fortune from betting on mortgage securities, especially those of the subprime variety.
http://boston.cbslocal.com/2012/01/12/lawyer-for-obamas-uncle-gets-framingham-officers-driving-record/
I see why Romney (who hired a firm that used Illegal Aliens) decided to drop the jobs issue suddenly (that new video) and focus on immigration.... I need a drink now....
Ron Paul 2012!
http://www.ijreview.com/2015/08/396854-hillary-clinton-15-years-ago-coming-back-haunt-fbi-probes-email/
“Hillary has problems far greater than the nomination. If you look at what’s going on with the emails, it’s a fraud if you think about it. This looks like Watergate on steroids, frankly…
This isn’t something we’re going to solve tomorrow. This could go on for years. You can’t have a nominee who is under investigation. What are they going to do, run and then two nights before the presidential race she gets indicted?
General Petraeus, for doing 5 percent of what she did, his life has been destroyed. And it goes up to 20 years in prison. It’s from one to 20 years for what she did!”
According to federal law, that is what Clinton would be looking at if convicted of wrongdoing in the ongoing scandal surrounding her private email accounts and personal server.
And, as The Daily Mail points out, Clinton’s history with the regulation in question goes back much further than that. 18 U.S.C. 1519 was originally signed into law as part of the Sarbanes-Oxley Act of 2002, while then-Senator Hillary Clinton represented the people of the New York state.
Clinton’s vote on that bill: Yea.
http://www.guidestar.org/Articles.aspx?path=/rxa/news/articles/2003/sarbanes-oxley-act-and-implications-for-nonprofit-organizations.aspx
Main Provisions of the Sarbanes-Oxley Act
With two notable exceptions, the Sarbanes-Oxley Act affects only American publicly traded companies and regulates what boards must do to ensure auditors' independence from their clients. The Act also creates and defines the role of the Public Company Accounting Oversight Board, a new entity empowered to enforce standards for audits of public companies. The Act explains processes for electing competent audit committee members and for ensuring that adequate reporting procedures are in place. In addition, it calls for regulations, and closes most of the loopholes, for all enterprises—for-profit and nonprofit—relating to document destruction and whistle-blower protection.
http://www.wsj.com/articles/ronald-d-rotunda-hillarys-emails-and-the-law-1426547356
It is a crime—obstruction of justice—to destroy even one message to prevent it from being subpoenaed.
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That applies to both her foundation and acting as Sec. of State.
http://philanthropy.com/article/Charity-Navigator-Removes/234700
Better put her back on….
http://www.wnd.com/2015/05/how-did-17-million-disappear-from-clinton-foundation/
http://www.youtube.com/watch?v=GMG2TA7EPpc