Stern Words for Wall Street’s Watchdogs, From a Judge

In the New York Times – By Published: December 16, 2013

NTBTGTJWASHINGTON — It used to be common for the federal government to prosecute prominent people responsible for debacles that rattled the financial system. Michael R. Milken, the junk bond artist, went to prison in 1991; Charles H. Keating Jr., the face of the savings-and-loan crisis, pleaded guilty to four counts of fraud in 1999; and it looks like Jeffrey K. Skilling, the former chief executive of Enron, will be in prison until 2017.

And what of the recent financial crisis? The statute of limitations on most plausible charges is running out, and it seems there will not be a single prosecution of a prominent figure in the entire mess.

Judge Jed S. Rakoff wants to know why. In a blistering essay in the issue of The New York Review of Books that arrives this week, he argues that the Justice Department has failed in its rudimentary responsibilities, offering excuses instead of action.

MI-BM129_RAKOFF_D_20111108174714Judge Rakoff, who sits on the Federal District Court in Manhattan, has long been outspoken, idiosyncratic and iconoclastic. In 2002, in a decision that was promptly overturned, he ruled the federal death penalty statute unconstitutional. More recently, he has presided over a series of big financial cases and has blocked proposed settlements as too opaque or lenient, to the frustration of both Wall Street and prosecutors.

I asked him what had prompted his unusual essay.

“As a judge, I got to see many cases that grew out of the financial crisis and to see situations that gave me pause,” he said. “When I added my own background as both a prosecutor and defense counsel, I was struck by how things were proceeding in a different way than they had in the past.

“That caused me to think about it more than I otherwise would have,” he said, “and I thought my views as a citizen might commend themselves to others.”

Senate Crisis ReportIn his essay, Judge Rakoff is careful to say that he does not know if high-level executives committed crimes as they presided over the collapse of the market for mortgage-backed securities. That would seem to keep him out of judicial-ethics trouble and available to hear future cases. But he seems inclined to credit the conclusions of the Financial Crisis Inquiry Commission, which found rampant incompetence, mendacity and fraud.

Judge Rakoff is more direct in critiquing the Justice Department’s principal reasons for failing to prosecute top executives. He acknowledges that it can be hard to prove criminal intent, particularly against people several levels removed from those who constructed and marketed the securities.

But the legal doctrine of “willful blindness” could be put to valuable use, he writes, adding that “the department’s claim that proving intent in the financial crisis is particularly difficult may strike some as doubtful.”

A second argument against prosecution is even weaker, the judge writes, singling out statements by Lanny A. Breuer, an assistant attorney general in charge of the department’s criminal division, in a 2012 interview with the PBS program “Frontline.” Mr. Breuer said there were “very sophisticated counterparties on both sides” on many transactions and that proving fraud is hard if they did not accept what they were told at face value.

“I have to prove,” Mr. Breuer said, “not only that you made a false statement but that you intended to commit a crime, and also that the other side of the transaction relied on what you were saying.”

That last phrase, Judge Rakoff writes, “totally misstates the law.”

“In actuality, in a criminal fraud case the government is never required to prove — ever — that one party to a transaction relied on the word of another,” he writes.

(Mr. Breuer told me that he had meant to describe a different and uncontroversial requirement in fraud prosecutions — that prosecutors must prove the statements at issue were material.)

Judge Rakoff also has no patience with Attorney General Eric H. Holder Jr.’s statement to Congress that some prosecutions should be approached with caution because they may monopoly go to jail“have a negative impact on the national economy, perhaps even the world economy.”

Judge Rakoff says that “this excuse — sometimes labeled the ‘too big to jail’ excuse — is disturbing, frankly, in what it says about the department’s apparent disregard for equality under the law.”

Brian Fallon, a Justice Department spokesman, said Judge Rakoff “does not identify a single case where a financial executive should have been charged, but wasn’t.”

“The department has criminally prosecuted thousands of defendants for financial fraud and other related crimes in the last five years, and there are a number of active investigations still ongoing,” he added. “Even in striking the nation’s largest-ever settlement with JPMorgan last month, the department preserved its ability to investigate and potentially charge individuals at the company if the evidence supports it.”

Having found the department’s rationales unconvincing or worse, Judge Rakoff asks: “What’s really going on here?”

Freely admitting that he is speculating, he offers three theories. One was that the department had other priorities, including terrorism, the Madoff scandal and insider trading cases. A second was that the government’s own role in the financial crisis complicated matters.

“This would give a prudent prosecutor pause in deciding whether to indict a C.E.O. who might, with some justice, claim that he was only doing what he fairly believed the government wanted him to do,” he writes.

lazy americanThe third reason is the most interesting: An institutional shift toward prosecuting companies rather than individuals. This has yielded some enormous monetary settlements but has, Judge Rakoff writes, “led to some lax and dubious behavior on the part of prosecutors, with deleterious results.”

The fear of prison concentrates the mind in a way the prospect of writing a check on a corporate account does not. “And from a moral standpoint,” Judge Rakoff writes, “punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.”  [Read more on THE NEW YORK TIMES HERE]

8 thoughts on “Stern Words for Wall Street’s Watchdogs, From a Judge

  1. Reblogged this on TIERRA LIMPIA by Charles Lincoln and commented:
    EITHER the Federal Government needs to FOLLOW and ENFORCE its own laws, or it needs honestly to abandon and seek through the democratic process to rewrite those laws. Recent and current wild variations in “prosecutorial discretion” create a lack of predictability in enforcement of laws against Banks and other Financial Institutions, aka “Wall Street” (broadly defined). This unpredictability, in turn, leads to the impression that the Government jails those who do not support its agenda fully or sufficiently, and lets those who do run “hog wild” (in the vernacular slang of Dixie and Texas, which seems particularly appropriate when speaking of Wall Street and the Federal Reserve system. A government which only arbitrarily and capriciously enforces its laws is a government of no “law” whatsoever.

  2. Glenn can anyone of your contacts OR YOU determine whether it is as illegal as it sounds that I must seek a notary in order to file a BAR COMPLAINT????? First maybe a trip to Pike County so you can help me search for a non-existent notary here. It seems an unnecessary bar to justice that I have to find a notary to file a bar complaint. Just wondered if that is as borderline illegal as it stinks

  3. Go now and find a notary. Good luck. The only notary located within fifty miles of the Pike Courthouse who will notarize “anything” copies EVERY DOCUMENT THEY NOTARIZE. Sorry we’re unwilling to display our most personal lives for a stranger with unknown motivations for copying EVERY DOCUMENT he or she notarizes. Won’t happen. So we witness each other signing. Until PIKE COUNTY changes this situation no one should be held to that task nor should anyone have to hunt down a notary to file a legitimate complaint against a member of the KY BAR.

  4. OH I have found what I definitely believe to be the same people involved together using slightly different names in FLORIDA. And TENNESSEE. (and multiple other locales I’m talking same leo same attorneys same players same intimidators) ALSO … one should discount minor spelling differences if you think one person may be another person. THEY PROBABLY ARE. I say this because I am witness to the fact that PUBLIX CORP not only “accidentally” hid America’s Most Wanted in their Deerfield warehouse in FLORIDA BUT also planted a Johnsey Humphrey to follow myself and son around only on the TIME CLOCK where all punched in they named him a Mumphrey. to disguise him. NOT SURE how his paychecks were issued but he and his father stalked me into the publix federal credit union in lakeland florida. After that and one time before that I saw him constantly. At some point I said to him … “WOW I see you EVERY TIME I redact redact” It was a pointed comment you understand. LIKE WHY ARE YOU FOLLOWING ME AND LEAPING INTO MY PATH BUDDY??? He replied with some long-winded thing about how he was related to JOHNSEY HATFIELD and proudly proclaimed his direct descendancy from Devil Anse Hatfield. You must understand that my Greasy Creek born daddy was murdered when he was 36. His only son “aneurysm” when he was 35 !! that son’s mother died VERY YOUNG also around teh same time as the son, my brother. MY NEPHEW was chased to death. Their names are all Lawrence Thacker. I would have and DID HAVE NO IDEA who devil anse hatfield or the feud participants were. Obviously MY FATHER was murdered long before I had a chance to even SEE HIM. There was foreshadowing of this insanity also. It can sound as crazy as it wants to. I am merely reporting the events much as an objective observer would do. I was trained in a former career to stand back from any situation and evaluate it objectively in the case I would need to later identify the perpetrators. This is the skill I employ when I make these observations. He purposefully stepped into my path in tampa and in lakeland florida to drag me into some hate that some maniac must be fostering. I still have NO IDEA who or why. REDACT REDACT. THAT is what led to all of this in PIKE COUNTY …. not an exclusive or comprehensive list. I am writing this with my son’s help.

  5. Michael Nierenberg, CEO of New Residential (“NRZ”)(sub of Newcastle) and his “gang” have announced the “purchase” of certain Mortgage Servicing Rights (“MSR’s”) and certain “advance funding obligations” (“AF’s”) from Nationstar Mortgage. The AF “debt” purchase is for $3.2 Billion and the MSR’s represent $58 Billion in terms of mortgage obligations.

    This deal was done not even after the ink was dry from the Nationstar/Bank of America deal, which essentially washed BAC’s hands of mortgage servicing and got them unstuck from the “49 state” Settlement orchestrated wonderfully by the OCC. It’s a classic hide the Salami, Whack-A-Mole all balled up in one.

    But there’s more…

    Nierenberg was a (arguably controlling) board Member of Bear Stearns up until it completely shit the bed in 2008. His *specialty* there was….wait for it……securitized mortgage loan products!

    So, here you have ther fuquer who did the shitty deals, arguably blew up the non-agency biz and was not a minor factor in sinking the entire economy of the world…..who now for pennies on the dollar is buying the frikin Servicing debt from the other fuquers and stands to reap yet ANOTHER ridiculous windfall. This shit is just too unreal to believe. I commend the links to the deals below to you all.

    I am agog. And I’ve seen a lot. There is no end to it.

    https://www.snl.com/Cache/1500055130.PDF?Y=&O=PDF&D=&FID=1500055130&T=&I

    http://www.newresi.com/about/leadership/executive-management/index

    http://ir.newresi.com/file.aspx?IID=4347089&FID=21326634

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