Matt Taibbi: Why isn't Wall Street in jail?

[Winehole23]

The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=2

[coyotes_geek]

Sherman Act.

[Winehole23]

Howzat?

[coyotes_geek]

We have a justice department and an anti-trust act. Breaking up the TBTF's is well within the government's ability. But they're not interested.

[Winehole23]

The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency's failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America's most powerful bankers.


Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. "It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalls. "And he wasn't just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day." A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.


After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg's who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg's case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. "Mack is busting my chops" to give him a piece of the action, Samberg told an employee in an e-mail.


A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank's clients, as it happened, was a firm called Heller Financial. We don't know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter's annual salary for just a few minutes of work.


The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn't likely to fly, explaining that Mack had "powerful political connections." (The investment banker had been a fundraising "Ranger" for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)


Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank's regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.


Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target's firm is being represented not only by Eliot Spitzer's former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC's enforcement division — not Aguirre's boss, but his boss's boss's boss's boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.


Aguirre didn't stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=3

[Winehole23]

Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=4

[Winehole23]

Another clue that something was amiss with AIGFP's portfolio came when Goldman Sachs demanded that the firm pay billions in collateral, per the terms of Cassano's deadly contracts. Such "collateral calls" happen all the time on Wall Street, but seldom against a seemingly solvent and friendly business partner like AIG. And when they do happen, they are rarely paid without a fight. So St. Denis was shocked when AIGFP agreed to fork over gobs of money to Goldman Sachs, even while it was still contesting the payments — an indication that something was seriously wrong at AIG. "When I found out about the collateral call, I literally had to sit down," St. Denis recalls. "I had to go home for the day."


After Cassano barred him from valuating the derivative deals, St. Denis had no choice but to resign. He got another job, and thought he was done with AIG. But a few months later, he learned that Cassano had held a conference call with investors in December 2007. During the call, AIGFP failed to disclose that it had posted $2 billion to Goldman Sachs following the collateral calls.


"Investors therefore did not know," the Financial Crisis Inquiry Commission would later conclude, "that AIG's earnings were overstated by $3.6 billion."


"I remember thinking, 'Wow, they're just not telling people,'" St. Denis says. "I knew. I had been there. I knew they'd posted collateral."
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=5

[Winehole23]

A year later, after the crash, St. Denis wrote a letter about his experiences to the House Government Oversight Committee, which was looking into the AIG collapse. He also met with investigators for the government, which was preparing a criminal case against Cassano. But the case never went to court. Last May, the Justice Department confirmed that it would not file charges against executives at AIGFP. Cassano, who has denied any wrongdoing, was reportedly told he was no longer a target.


Shortly after that, Cassano strolled into Washington to testify before the Financial Crisis Inquiry Commission. It was his first public appearance since the crash. He has not had to pay back a single cent out of the hundreds of millions of dollars he earned selling his insane pseudo-insurance policies on subprime mortgage deals. Now, out from under prosecution, he appeared before the FCIC and had the enormous balls to compliment his own business acumen, saying his atom-bomb swaps portfolio was, in retrospect, not that badly constructed. "I think the portfolios are withstanding the test of time," he said.
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=5

[Winehole23]

Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that "there is simply no way for us to make money — ever" just three days before assuring investors that "there's no basis for thinking this is one big disaster." Yet the case still somehow ended in acquittal — and the Justice Department hasn't taken any of the big banks to court since.http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=5

[Winehole23]

So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It's not a crime. Prison is too harsh. Get them to say they're sorry, and move on. Oh, wait — let's not even make them say they're sorry. That's too mean; let's just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don't make them pay it out of their own pockets, and don't ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=6

[Stringer_Bell]

Here's an economics lesson for you liberals: More regulation means more restrictions on the financial sectors ability to make money and lend money. There's no reason to make things harder for banks when they're trying to recover from all the idiots that the government made banks loan money to. If banks had to cut some corners to make ends meet, use some creative accounting techniques - so be it!

You know, if people are so intent on bitching about bank bailouts and scandals...why didn't the government just bail out the American people's debts to lenders? You know why? Becuase people are stupid and banks know what they're doing. So let the banks do their thing, you just keep doing yours.

[LnGrrrR]

The important thing to take out of this discussion, is whether or not it's fair to tax rich people more than poor people. :stirpot:

[LnGrrrR]

You know, if people are so intent on bitching about bank bailouts and scandals...why didn't the government just bail out the American people's debts to lenders? You know why? Becuase people are stupid and banks know what they're doing. So let the banks do their thing, you just keep doing yours.

Not to mention that if America just gave normal people money, they wouldn't know what to do with it, and would probably just spend it on heroin and strippers.

[greyforest]

You know, if people are so intent on bitching about bank bailouts and scandals...why didn't the government just bail out the American people's debts to lenders? You know why? Becuase people are stupid and banks know what they're doing. So let the banks do their thing, you just keep doing yours.

Just let the banks do their thing
http://farm6.static.flickr.com/5260/5437291545_c17d0555b5.jpg

You just keep doing yours

[Winehole23]

We have a justice department and an anti-trust act. Breaking up the TBTF's is well within the government's ability. But they're not interested.The government is not only not interested in prosecution but, as decribed in the OP, the regulatory apparatus mostly exists to shield the regulated companies from the legal consequences of their own behavior.

[clambake]

i liked his characterization of people working in the justice system move into positions with these firms.

[Marcus Bryant]

Here's an economics lesson for you liberals

WH, I believe that was meant as a pejorative.

I guess "the rule of law" is so 20th Century. As long as the mythical God Econos is satisfied, who needs it?

[Stringer_Bell]

Anyone know who Aguirre's SEC boss was (the one that stopped the Morgan Stanley case cold)? I'd like to give him a job, sounds like a loyal fellow.

Tbh, all this crossover between the SEC and the financial sector reminds me of how former food industry CEO's go off and de-regulate things while working for the FDA. It's really sickening, but it's just another reminder of why social movements like the Tea Party are completely clueless and ineffective. No one has the balls to take these people down, plus they're surrounded by lawyers that have spent their lives manipulating the law rather than protecting it.

[LnGrrrR]

Look, banking is REALLY HARD. You can't really blame the people who run stuff for misplacing a few decimals here and there.

My proof, you ask? It's so hard to find good bankers that when the whole system collapsed, the only people who were essential to fixing it were the people who broke it in the first place!

Sure, these people may have created the byzantine structure that led to the collapse, but that's all in the past. We're here to move forward and look beyond that.

[Winehole23]

Here's an economics lesson for you liberals: More regulation means more restrictions on the financial sectors ability to make money and lend money. There's no reason to make things harder for banks when they're trying to recover from all the idiots that the government made banks loan money to. If banks had to cut some corners to make ends meet, use some creative accounting techniques - so be it!God forbid any harm should ever befall a bank, even as a due consequence of its own actions.

(amen)

[boutons_deux]

"from all the idiots that the government made banks loan money to"

Shill, You Lie.

The govt can't force the banks to do anything.

The CRA bullshit was a VRWC "it wasn't us".

A vast majority of the toxic loans were made by non-bank, non-regulated lenders who were in the game to make the closing fees, then sell the shit, in perfect bad faith, into the MBS/derivatives casino.

[Winehole23]

(pass the grits, please)

[ElNono]

WH, I believe that was meant as a pejorative.

I guess "the rule of law" is so 20th Century. As long as the mythical God Econos is satisfied, who needs it?

:lol

Where you been? I miss posts like that one...

[boutons_deux]

Big Banks Face Fines on Role of Servicers


A review of mortgage-servicing practices by U.S. regulators found serious problems with internal controls and staffing levels at the companies, which are likely to result in formal enforcement action against more than a dozen major financial institutions, according to people familiar with the situation.

The penalties against Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co. and 11 other home-loan servicers being investigated since last fall over breakdowns in procedures for payment collection, loan modifications and foreclosures could include fines and changes in how the companies operate, these people said.

While regulators haven't agreed on exact ...

http://online.wsj.com/article/SB10001424052748703961104576148714202500304.html

[boutons_deux]

Short-term Delinquencies Fall to Pre-Recession Levels, Loans in Foreclosure Tie All-Time Record in Latest MBA National Delinquency Survey

http://www.mbaa.org/NewsandMedia/PressCenter/75706.htm

The criminal mortgage crisis will go on for years, and none of perps will go to jail, "settlements" will be round-error hand-slaps, and the next financial bubble is certainly already in the planning stages.

But be black and lie about getting your kids into a public school, you go to jail.

btw, the MBA walked away from an underwater mortgage on their HQ building, but the MBA and the financial that says homeowners have a moral obligation not to walk away from their underwater mortgages.

Do as I say, not as I do.

[boutons_deux]

Despite Finding Big Problems in Mortgage Industry, Regulators’ Punishment Unclear

Federal regulators say they're going to crack down after finding "critical deficiencies [1]" with how banks and mortgage servicers have been handling struggling homeowners. But it's an open question just what form a punishment will take, with one regulator reportedly pushing lighter penalties than the others.

Both The Wall Street Journal [3] and Huffington Post [4] reported this morning that the OCC wants to go easier on the banks than other regulators, specifically the FDIC. The OCC has proposed "relatively modest fines," reports the Journal.

===========

It was the OCC that dubya used to block 19 states' attempts to stop predatory mortgage lending, including New York's Spitzer, at the height of Greenspan's irrationally exuberant housing bubble.

Then Wall St, esp AIG's Spitzer-outed Hank Greenberg, with dubya's DoJ complicity, took Spitzer down.

[EVAY]

The "Citizen's United" case decision from SCOTUS pretty much solidified the premise that any idiot politician who would dare to try to actually regulate the financial sector in any meaningful way (where meaningful way = accountability for risks taken) would be outspent in his/her next campaign in favor of one who understood his/her proper role vis-a-vis the oligarchs.

[boutons_deux]

The 2012 Prez election will approach $3B.

[Winehole23]

The "Citizens United" case decision from SCOTUS pretty much solidified the premise that any idiot politician who would dare to try to actually regulate the financial sector in any meaningful way (where meaningful way = accountability for risks taken) would be outspent in his/her next campaign in favor of one who understood his/her proper role vis-a-vis the oligarchs.Obama declining public campaign funding foreshadowed this too, but it's true enough to say Citizens United turned the lobbying/campaign money of corporations and trade unions into enforceable free speech rights and quasi-citizenship, with momentous implications for the role of money in the electoral process.

[Winehole23]

updated: http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214

[boutons_deux]

SEC Prosecutor Says SEC Top Brass Are Corrupt


Prosecutor calls out institutional corruption.


Bloomberg News reported, on April 8, that a Securities and Exchange Commission prosecuting attorney, James Kidney, said at his recent retirement party on March 27, that his prosecutions of Goldman Sachs and other mega-banks had been squelched by top people at the agency, because they "were more focused on getting high-paying jobs after their government service than on bringing difficult cases." He suggested that SEC officials knew that Wall Street would likely hire them after the SEC at much bigger pay than their government remuneration was, so long as the SEC wouldn't prosecute those megabank executives on any criminal charges for helping to cause the mortgage-backed securities scams and resulting 2008 economic crash.

His "remarks drew applause from the crowd of about 70 people," according to the Bloomberg report. This would indicate that other SEC prosecutors feel similarly squelched by their bosses.

Kidney's speech said that his superiors did not "believe in afflicting the comfortable and powerful."

Referring to the agency's public-relations tactic of defending its prosecution-record by use of what he considered to be misleading statistics, Kidney said, "It's a cancer" at the SEC.

Two recent studies have provided additional depth to Kidney's assertions, by showing that Obama and his Administration had lied when they promised to prosecute Wall Street executives who had cheated outside investors, and deceived homebuyers, when creating and selling mortgage-backed securities for sale to investors throughout the world.
President Obama personally led in this lying.

However, two years later, the Inspector General of the U.S. Department of Justice issued on March 13, 2014 its "Audit of the Department of Justice's Efforts to Address Mortgage Fraud," and reported that Obama's promises to prosecute turned out to be just a lie. DOJ didn't even try; and they lied even about their efforts. The IG found: "DOJ did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with its public statements. For example, the Federal Bureau of Investigation (FBI) Criminal Investigative Division ranked mortgage fraud as the lowest criminal threat in its lowest crime category. Additionally, we found mortgage fraud to be a low priority, or not [even] listed as a priority, for the FBI Field Offices we visited." Not just that, but, "Many Assistant United States Attorneys (AUSA) informed us about underreporting and misclassification of mortgage fraud cases." This was important because, "Capturing such information would allow DOJ to ... better evaluate its performance in targeting high-profile offenders."

Privately, Obama had told Wall Street executives that he would protect them. On March 27, 2009, Obama assembled the top executives of the bailed-out financial firms in a secret meeting at the White House and he assured them that he would cover their backs; he promised "My administration is the only thing between you and the pitchforks". It's not on the White House website; it was leaked out, which is one of the reasons Obama hates leakers. What the DOJ's IG indicated was, in effect, that Obama had kept his secret promise to them.

http://www.alternet.org/news-amp-politics/sec-prosecutor-says-sec-top-brass-are-corrupt

How did Wall St repay Obama? they gave to Bishop Gecko 10x what they gave to Obama.

[Winehole23]

The government is not only not interested in prosecution but, as decribed in the OP, the regulatory apparatus mostly exists to shield the regulated companies from the legal consequences of their own behavior.Evergreen

GE slapped on the wrist:


When the Luckin Coffee enforcement action was announced (https://www.sec.gov/news/press-release/2020-319) a week after GE’s, on December 16, 2020, I tweeted this:



https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:s teep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F fe57ab6f-dd81-4a05-a4b7-c77c41aec36b_696x748.png (https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F fe57ab6f-dd81-4a05-a4b7-c77c41aec36b_696x748.png)


A lot of people liked that take, but one well-known short-seller disagreed and we debated a bit on Twitter. Then he wrote a blog post (https://brontecapital.blogspot.com/2020/12/delusion-fraud-and-role-of-sec-general.html?spref=tw) with this conclusion:



The Luckin case was criminal - and all it got was a fine. That was because the malefactors were in China.
GE was probably not even fraud - and they got a fine.
That is because they were American. Nothing more.
Yeah, it is not fair.
But that is the world we are in.
Francine McKenna pontificating just exaggerates that unfairness. But whatever.



I hope you will stay tuned for more pontificating. Try not to cry if it reminds you of how unfair it all is.

One company was charged because it “materially misled investors about how it was generating reported earnings and cash growth as well as its latent risks…violating the antifraud, reporting, disclosure controls, and accounting controls provisions of the securities laws.”

The other company was charged with “defrauding investors by materially misstating the company’s revenue, expenses, and net operating loss in an effort to falsely appear to achieve rapid growth and increased profitability and to meet the company’s earnings estimates…violating the antifraud, reporting, books and records, and internal control provisions of the federal securities laws.”
Can you clearly discern which company is which?
https://thedig.substack.com/p/a-tale-of-two-sec-enforcement-actions