Busting Wall Street, by the numbers

How many FBI agents does it take to bust one Wall Street crook?

This isn’t the beginning of a joke. It’s one way to measure how serious the Obama’s administration latest highly touted financial fraud task force is about tackling its beat.

The task force is staffed with 10 FBI agents, according to U.S. Attorney General Eric Holder.

You can get some idea of whether that’s an adequate number by comparing it to the law enforcement effort in the wake of the Savings and Loan crisis in the 1980s, a major but vastly smaller financial collapse.

It only cost the taxpayers a mere $150 billion in bailout money, compared to the 2008 banking collapse, which cost us trillions.

Bill Black, a former S&L regulator turned white-collar criminal law expert and law professor at University of Missouri at Kansas City, has been one of the sharpest critics of the administration’s sharpest critics.

Black makes the point that regulators investigating S&L fraud two decades ago made thousands of criminal referrals, and the FBI assigned 1,000 agents to follow up on those referrals. Black says the referrals led to more than 1,000 felony convictions, including the executives of the S&Ls.

Black is just one of many who have noticed that President Obama’s heart has not really been into the task of putting top bank executives in jail.

As recently as December 11, the president told 60 Minutes in an interview: “I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.”

Black points out that this at best a non-answer; at worst it’s double-talk. The president says that “some of the most damaging behavior on Wall Street, in some cases some of the least ethical behavior on Wall Street, wasn’t illegal.”

So the reasonable follow-up question would be: where are the prosecutions, over the past 3 years, of the rest of the behavior, the part that was illegal?

The other aspect of Obama’s answer that I find worrisome is the president’s perspective – he acknowledges that he’s making a judgment based on a view from 40,000 feet.

That’s a distance of 7.5 miles. The president isn’t predicting the weather here; he’s talking about whether crimes were committed in the process of the worst financial disaster in almost a century.

Good prosecutors and FBI agents don’t investigate from 7.5 miles away. They get in a suspect’s face, and into their history, find out who their friends and associates are. They dig into their family lives if they need to.

That’s how they operate when their hearts are in it if they want to make the case.

But even when their hearts are in it, good law enforcement people can’t do their jobs without resources.

And that’s a decision the president can make. He doesn’t have to ask Congress.

Call the president today and let him know that we won’t be fooled by faux enforcement efforts, and the we know the difference between what 10 FBI agents can do and what 1,000 can do – even from seven miles away.

 

 

 

 

 

 

 

 

 

 

 

 

Task Force Deja Vu

MoveOn.org and other groups are declaring President Obama’s announcement of a new task force to investigate foreclosure fraud a significant victory.

These groups deserve credit and thanks for mobilizing people to call the White House and state attorneys general and organizing protests to push back against a weak proposed settlement of foreclosure fraud charges against big banks, without having first fully investigated the allegations.

But before we get too carried away with the celebrations, I think it’s worth examining the president’s announcement with a healthy dose of skepticism.

Because we’ve heard it all before.

In 2009, the Obama administration convened, with great fanfare, the “”Financial Fraud Enforcement Task Force,” which included officials from the Justice Department, Treasury, Housing and Urban Development, and the Securities and Exchange Commission.

Announcing the task force, U.S. Attorney General Eric H. Holder said it mission was to the mission was to prosecute the financial fraud that led to the 2008 economic collapse.

“Mortgages, securities and corporate fraud schemes have eroded the public's confidence in the nation's financial markets and have led to a growing sentiment that Wall Street does not play by the same rules as Main Street,” Holder said.

State attorneys general then formed their own mortgage fraud working group to work with federal authorities.

These previous efforts haven’t produced noteworthy results – no criminal charges have been brought against major bank executives, and no major policy changes have been put in place to force banks to help homeowners.

The 2009 task force was not exactly targeting the titans of Wall Street. As these high-profile task forces like to do, this one gave its “operations” hokey names like Operation Stolen Dreams and Operation Broken Trust that make everybody but the prosecutors cringe.

Touting Operation Broken Dreams in 2010, prosecutors bragged that it had netted 330 convictions related to mortgage fraud  – but it focused on borrower, not bank fraud. While Operation Broken Trust focused on investment fraud, among its 343 criminal cases, it focused on lower-level fraudsters.

There was not a single case against a Wall Street banker.

While prosecutors often build cases against higher-ups using those lower in the food chain, that doesn’t seem to be the case with the 2009 task force.

In other words, the 2009 task force hasn’t done anything that would interfere with the flow of political contributions from Wall Street.

Evaluating the task force’s work, the Columbia Journalism Review found it more publicity stunt that real prosecution effort.

Meanwhile, the state AG’s efforts stirred MoveOn.org and other organizations to action. A handful of state AGs are balking at the inadequate proposed settlement, and California’s attorney general, Kamala Harris has joined with Nevada’s attorney general in walking away from the proposed settlement and pledging a real investigation into the foreclosure mess.

There are plenty of other reasons to be skeptical of the President’s newly- anointed task force, rounded up here by Dave Dayen on Firedoglake. While one of its co-chairs, New York Attorney General Eric Schneiderman, appears to be the genuine deal in his intention to crack down on financial crime, he’s being babysat (co-chaired) by two administration lawyers with dubious backgrounds when it comes to getting tough on bankers.

Robert Khuzami, head of enforcement at the SEC, used to be general counsel at Deutsche Bank, overseeing its huge risky investments in mortgages. Shouldn’t Deutsch Bank be a prime target of the task force?

At the SEC, he’s presided over several settlements that appeared to be overly generous to banks. Another other co-chair is the head of Justice’s criminal division, Lanny Breuer, who has been apologist in chief for the agency’s lack of aggressiveness in going after too big to fail bankers.

As a private lawyer, Breuer worked at the Washington D.C. law firm Covington & Burling, which represented too big to fail banks Bank of America, Well Fargo, Citgroup and JPMorgan Chase as well as MERS, the Mortgage Electronic Registration Service, a concoction of the real estate finance industry that runs a vast computerized registry of mortgages that has been at the center of complaints about false and fraudulent documents in the foreclosure process.

Breuer and Khuzami both played prominent roles in the president’s previous financial fraud task force, as members of its securities and commodities fraud working group.

The bottom line is that the new task force is only needed because of the abject failure of the administration’s previous efforts to prosecute the fraud at the heart of the financial meltdown.

According to statistics gathered by Syracuse University’s Transactional Records Access Clearinghouse, despite all the prosecutors’ puffery about their inanely named operations, financial fraud prosecutions fell to a 20-year low in 2011, continuing a decade-long downward trend.

If this new task force is not going to be a fraud itself, Khuzami and Breuer have to go. They should be replaced by real prosecutors without close ties to the big bankers.

Though you wouldn’t know it from the Obama administration, people like that do exist.

Blogger Abigail Field nominates two crackerjacks – Neil Barofsky, the tough former inspector general of the bailout, and Patrick Fitzgerald, U.S. attorney for the northern district of Illinois, who has successfully pursued several high-profile cases, including the perjury conviction of Scooter Libby, former VP Dick Cheney’s chief of staff.

So after you finish that glass of champagne celebrating the new task force, it’s time to get back on the phone. Here’s the president’s number.

Tell the president we don’t need another task force. We need prosecutors who aren’t compromised and who aren’t afraid to do their jobs.

 

 

Financial Regulator Makes Itself the Target

You might think that after missing the Bernard Madoff scandal despite repeated warnings, going soft on the big banks and other questionable decisions, the Securities and Exchange Commission couldn’t get any more embarrassed.

You would be wrong.

By now you know just how lax federal authorities have been in holding any of the too big to fail bankers accountable for our economic meltdown.

The chief culprits in looking the other way on financial fraud are the Justice Department and the Securities and Exchange Commission.

But never fear, the Justice Department has leaped into action – to investigate the SEC itself for possible fraud!

Even if it doesn’t turn out to be actual criminal fraud, the mess the SEC got itself into is likely to undermine whatever remaining shred of confidence you’ve got in the troubled financial regulator and undermine its credibility.

The SEC’s latest debacle stems not from one of its investigations but from some internal agency business. It seems that agency officials signed a $557 million lease for office space it didn’t need and couldn’t afford in downtown Washington D.C. – without competitive bidding.

Among the gory details: the agency’s chief, Mary Schapiro, apparently approved the lease in a 10-minute meeting without asking any questions. Also, the agency’s inspector general found that a key document justifying the lease was dated a couple of days after the lease was made, but was actually created a month later.

When the SEC realized the Congress wasn’t going to fund it at the optimistic levels the agency had projected, SEC officials tried to back out of the lease and the owner of the office space demanded $94 million in damages.

Of course, congressional Republicans couldn’t be happier to find such ineptitude on the part of top Obama administration officials.

For Schapiro, the leasing fiasco is only the latest to raise serious questions about her leadership and judgment. Earlier, when the SEC finally did get on then Madoff case, she allowed the SEC general counsel to make crucial recommendations to increase how much Madoff’s victims would be compensated – even though the general counsel’s mother was among the victims. Schapiro told a congressional hearing that she knew of the general counsel’s personal Madoff link but allowed him to stay on the case.

When he appointed Schapiro in December 2008, President Obama praised her as “smart and tough.” She may well be. But in her performance at the SEC, she hasn't demonstrated it.

If President Obama wants to continue to signal that he’s in bed with the big banks, that he’s clueless when it comes to the notions of accountability and government ethics, and that government actually is just a cesspool of waste and incompetence, he should hang on tight to Schapiro.

But if he doesn’t, he should sack her immediately and find somebody who can do the job.