Now the DOJ Admits They Got it Wrong

William K. Black

September 10, 2015

By issuing its new memorandum the Justice Department is tacitly admitting that its experiment in refusing to prosecute the senior bankers that led the fraud epidemics that caused our economic crisis failed. The result was the death of accountability, of justice, and of deterrence. The result was a wave of recidivism in which elite bankers continued to defraud the public after promising to cease their crimes. The new Justice Department policy, correctly, restores the Department’s publicly stated policy in Spring 2009. Attorney General Holder and then U.S. Attorney Loretta Lynch ignored that policy emphasizing the need to prosecute elite white-collar criminals and refused to prosecute the senior bankers who led the fraud epidemics.

It is now seven years after Lehman’s senior officers’ frauds destroyed it and triggered the financial crisis. The Bush and Obama administrations have not convicted a single senior bank officer for leading the fraud epidemics that triggered the crisis. The Department’s announced restoration of the rule of law for elite white-collar criminals, even if it becomes real, will come too late to prosecute the senior bankers for leading the fraud epidemics. The Justice Department has, effectively, let the statute of limitations run and allowed the most destructive white-collar criminal bankers in history to become wealthy through fraud with absolute impunity. This will go down as the Justice Department’s greatest strategic failure against elite white-collar crime.

The Obama administration and the Department have failed to take the most basic steps essential to prosecute elite bankers. They have not restored the “criminal referral coordinators” at the banking regulatory agencies and they have virtually ignored the whistleblowers who gave them cases against the top bankers on a platinum platter. The Department has not even trained its attorneys and the FBI to understand, detect, investigate, and prosecute the “accounting control frauds” that caused the financial crisis. The restoration of the rule of law that the new policy promises will not happen in more than a token number of cases against senior bankers until these basic steps are taken.

The Justice Department, through Chris Swecker, the FBI official in charge of the response to mortgage fraud, issued two public warnings in September 2004 — eleven years ago. First, there was an “epidemic” of mortgage fraud. Second it would cause a financial “crisis” if it were not stopped. The Department’s public position, for decades, was that the only way to stop serious white-collar crime was by prosecuting the elite officials who led those crimes. For eleven years, however, the Department failed to prosecute the senior bankers who led the fraud epidemic. The Department’s stated “new” position is its historic position that it has refused to implement. Words are cheap. The Department is 4,000 days late and $24.3 trillion short. Economists’ best estimate is that the financial crisis will cause that massive a loss in U.S. GDP — plus roughly 15 million jobs lost or not created.

Americans need to come together to demand that the Department act, not just talk, to restore the rule of law and prosecute the bankers that led the fraud epidemics that drove the financial crisis. There is very little time left to prosecute, so the effort must be vigorous and urgent and a top priority.

Here is an example, in the cartel context, of the Department’s long-standing position that deterrence of elite white-collar crimes requires the prosecution and incarceration of the businessmen that lead the crimes. It contains the classic quotation that the Department has long used to explain its position. Note that the public statement of this position was early in the Obama administration (April 3, 2009), but plainly was already long-standing. The Department’s official made these passages her first two paragraphs in order to emphasize the points – and the fact that deterrence through the criminal prosecution of elite white-collar criminals works.

“It is well known that the Antitrust Division has long ranked anti-cartel enforcement as its top priority. It is also well known that the Division has long advocated that the most effective deterrent for hard core cartel activity, such as price fixing, bid rigging, and allocation agreements, is stiff prison sentences. It is obvious why prison sentences are important in anti-cartel enforcement. Companies only commit cartel offenses through individual employees, and prison is a penalty that cannot be reimbursed by the corporate employer. As a corporate executive once told a former Assistant Attorney General of ours: “[A]s long as you are only talking about money, the company can at the end of the day take care of me . . . but once you begin talking about taking away my liberty, there is nothing that the company can do for me.”(1) Executives often offer to pay higher fines to get a break on their jail time, but they never offer to spend more time in prison in order to get a discount on their fine.

We know that prison sentences are a deterrent to executives who would otherwise extend their cartel activity to the United States. In many cases, the Division has discovered cartelists who were colluding on products sold in other parts of the world and who sold product in the United States, but who did not extend their cartel activity to U.S. sales. In some of these cases, although the U.S. market was the cartelists’ largest market and potentially the most profitable, the collusion stopped at the border because of the risk of going to prison in the United States.”

As prosecutors, (real) financial regulators, and criminologists, we have known for decades that the only effective means to deter elite white-collar crimes is to imprison the elite officers that grew wealthy by leading those crimes (which include the largest “hard core cartels” in history – by three orders of magnitude). In the words of a Deutsche Bank senior officer, the bank’s participation in the Libor cartel produced a “mountain of money” for the bank (and the officers). Holder’s bank fines were useless – and the Department’s real prosecutors told him why they were useless from the beginning. No one, of course, thinks Holder went rogue in refusing to prosecute fraudulent bank officers. President Obama would have requested his resignation six years ago if he were upset at Holder’s grant of de facto immunity to our most destructive elite white-collar criminals.

Our saying during the savings and loan debacle was that in our response we must not be the ones “chasing mice while lions roam the campsite.” Holder, and his predecessors under President Bush, chased mice – and fed them to the lions. They overwhelmingly prosecuted working class homeowners who had supposedly deceived the most fraudulent bankers in world history – acting like a collection agency for the worst bank frauds.

As a U.S. attorney, Loretta. Lynch failed to prosecute any of the officers of HSBC that laundered a billion dollars for Mexico’s Sinaloa drug cartel and violated international and U.S. anti-terrorism sanctions. The HSBC officers committed tens of thousands of felonies and were caught red-handed, but now Attorney General Lynch refused to prosecute any of them – even the low-level fraud “mice.” Dishonest corporate leaders are delighted to trade off larger fines – which are paid for by the shareholders – to prevent the prosecution of even low-level officers who might “flip” and blow the whistle on the senior banksters that led the fraud schemes. To its shame, the Department’s senior leadership, including Holder and Lynch, have pretended for at least 11 years that the useless bank fines were a brilliant success. Those bank fines are paid by the shareholders. The Department’s cynical sweetheart deals with the elite criminals allowed them to keep their jobs and massive bonuses that they received because of the frauds they led. The Department compounded its shame by bragging that it was working with Obama’s (non) regulators to create guilty plea “lite” in which banks that admitted they committed tens of thousands of felonies involving hundreds of trillions of dollars of fraud were relieved of the normal restrictions that a fraud “mouse” is invariably subjected to for committing a single act of fraud involving $100.

The Department’s top criminal prosecutor, Lanny Breuer, publicly stated his paramount concern about the fraud epidemics that devastated our nation – he was “losing sleep at night over worrying about what a lawsuit might result in at a large financial institution.” That’s right – he was petrified of even bringing a civil “lawsuit” – much less a criminal prosecution – against “too big to prosecute” banks and banksters. I lose sleep over what fraud epidemics the banksters will lead against our Nation. The banksters have learned to optimize “accounting control fraud” schemes and learned that they can grow immensely wealthy by leading those fraud epidemics with complete impunity. None of them has a criminal record and even those that lost their jobs are overwhelmingly back in financial leadership positions. In the aftermath of the savings and loan debacle, because of the prosecutions and criminal records of the elites that led those frauds, no senior S&L fraudster who was prosecuted was able to become a leader of the fraud epidemics that caused our most recent financial crisis.

We have known for decades that repealing the rule of law for elite white-collar criminals and relying on corporate fines always produces abject failure and massive corporate fraud. We have known for millennia that allowing elites to commit crimes with impunity leads to endemic fraud and corruption. If the Department wants to restore the rule of law I am happy to help it do so. We have known for over 30 years the steps we need to take to succeed against elite white-collar criminals through vigorous regulators and prosecutors. We must not simply prosecute the current banksters, but also prevent and limit future fraud epidemics through regulatory and supervisory changes. I renew my long-standing offers to the administration to, pro bono, (1) provide the anti-fraud training and regulatory policies, (2) help restore the agency criminal referral process, and (3) embrace the whistleblowers and the scores of superb criminal cases against elite bankers that they have handed the Department on a platinum platter. We can make the “new” Justice Department policy a reality within months if that is truly Obama and Lynch’s goal.

12 responses to “Now the DOJ Admits They Got it Wrong

  1. Your light never dims. I hope the DOJ accepts your offer to help.

  2. I am currently prosecuting PHH Mortgage for these crimes, qui tam USAG, on behalf of myself and my class. I only have standing vs. PHH, as they are the only ones who have stolen money from ME. The DOJ actually put Ebrahim Shahudin in jail last week, for 9 different counts, about $111B, and he was forced to restitute about $423K, all he had left. He’ll be in jail for 67 months or so, if he behaves. We’re currently on appeal at 5USAC; maybe we’ll be at SCOTUS around 2017 or 2018. I’m hoping Trey Gowdy will be USAG by then, and we may make some real progress. As this actually appears to be ‘ongoing criminal activity’ the statute of limitations may extend a little further back. I’m sure we’ll discuss it. This is fun! We’ll get them one by one…

  3. “We have known for decades that repealing the rule of law for elite white-collar criminals and relying on corporate fines always produces abject failure and massive corporate fraud. We have known for millennia that allowing elites to commit crimes with impunity leads to endemic fraud and corruption. If the Department wants to restore the rule of law I am happy to help it do so. ”

    The problem is that there the DOJ probably doesn’t want to do that, regardless of what its representatives may say for public consumption. They would apparently have to ask the permission from the Deep State to do that, and the Deep State (which includes Wall Street) somehow always denies permission. See the book: The American Deep State: Wall Street, Big Oil, and the Attack on U.S. Democracy (War and Peace Library) by Peter Dale Scott.

    According to the book, the deep state is ” a second order of government, behind the public or constitutional state, that has grown considerably stronger since World War II. (The author) marshals convincing evidence that the deep state is partly institutionalized in non-accountable intelligence agencies like the CIA and NSA, but it also includes private corporations like Booz Allen Hamilton and SAIC, to which 70 percent of intelligence budgets are outsourced. Behind these public and private institutions is the traditional influence of Wall Street bankers and lawyers, allied with international oil companies beyond the reach of domestic law. With the importance of Gulf states like Saudi Arabia to oil markets, American defense companies, and Wall Street itself, this essential book shows that there is now a supranational deep state, sometimes demonstrably opposed to both White House policies and the American public interest.”

    From wikipedia page on the author “In 2013, the founder of Salon news website, David Talbot, included Deep Politics in his list of top seven “best books on the subject”, describing the work as a “masterpiece, a meticulously detailed examination of the deep network of power that underlies the events in Dallas…. filled with provocative insights about how the upper circles of U.S. power actually operate.”

    So, according to this, the DOJ can not control the Deep State, which includes Wall Street. The book says that the Deep State controls the president, the DOJ, and the rest of the government.

  4. Pingback: More on the DOJ's Prosecution Policy - New Economic PerspectivesNew Economic Perspectives

  5. I hope no one really thinks things are really going to change for the better without an accidental billion to one black swan cataclysm that would be mistaken for divine intervention.

    The reality is that lot of sociopaths, starting at the top of the food chain need to be killed or captured and know why they are being killed or captured as soon as possible to even have a chance of avoiding a world wide “civil” war.

    Even with enough assassins with the dedication of those in the Old Man on the Mountain legends; willing to die for their mission, there is simply not time to put them in place to penetrate the security systems of the elite.

    Long before these pro-active missions could be accomplished time will be called as the life support systems of the planet begin to fail and spaceship earth begins to quickly shed the suicidal parasites that killed their once beautiful and gracious host, or if you will; their home…, the home that protected then with breathable air that warded off meteorites where once there were only poisonous gasses or a vacuum and protected them from the rays and ravages of cold empty space.

    So, we get world wide “civil war” followed by an Arthur C. Clarke, “Childhood’s End”…, ding.

    Whoop de do! The DOJ admits they got it wrong.

    But, what does that mean to me, Al Fran…, er…, Mike Adams, Mr. Natural?

    To be continued…, 😉

  6. Bill, I was one of those “criminal referral coordinators” that you speak of. (You and I collaborated on a project in the late 80’s). As a current .gov employee, I couldn’t agree with you any more. Please contact me to discuss ways to collaborate once again. Hook up with me over at Daily Kos, where I visit regularly. Thanks, Bill. /Scottsdalian/

  7. “We can make the “new” Justice Department policy a reality within months if that is truly Obama and Lynch’s goal.”

    …within months…?!?!

    [jaw drop…]

  8. spixleatedlifeform

    “Statute of Limitations” was originally promoted to accomplish one thing–motivate self-reform.

    If a crook or criminal gang (and the entire host of those implicated in this article qualify) wanted to avoid answering for their criminal activity (including benefiting from the criminal activity of others), they needed to stop perpetrating crimes — ALL criminal activity (the whole philosophy behind the three-strikes laws*) and do so uninterruptedly for a specified period of time and — WITHOUT BEING CALLED TO ACCOUNT FOR ANY ACT IN THE INTERIM.

    *Yet another hypocrisy perpetrated by the conservatives was the three-strikes laws that had no statute of limitations component OR categorization of what qualified and what did not in comprising any of the three-strikes.

    Any crime in that time period resets the clock to begin again.

    These crooks and their collective gang are still at it. It may be technically different crimes but they are still perpetrating them, still creating victims, still benefiting from both new criminal activity as well as the whole host of their past activities.

    Ergo: The statute of limitations clock has been reset. All past criminal activity is still to be accounted for. No mitigating circumstances qualify as such.

    As long as the victims must continue to endure the consequences of the acts of these crooks, there will be no statute of limitations!

    The clock is NOT ticking and NOTHING has expired.

    Even the IRS should be in on their prosecution. Why would any of these crooks have filed accurate returns (FOR THEMSELVES or THEIR BUSINESSES) if in doing so they had to ADMIT TO CRIMINAL ACTIVITY IN THE PRODUCTION OF THOSE INCOMES?


  9. If the crimes were so egregious why has no reporter ever done any expose of the criminals who acted in the crisis. Should be fairly easy if it was so obvious.

    • spixleatedlifeform

      “why has no reporter ever done any expose of the criminals who acted in the crisis”

      Where have you been?

      Other than having access to the actual names of all the perps because they lack the authority of an AG or PA or DA to go directly to a judge for a search warrant, there have been many expose’ articles. Remember, too, the reporters do NOT own the media. They are employees at best.

      For example: There is the matter of the creators of CDS and ABS and an attendant host of derivatives sold under advisers who worked FOR those same instrument creators who ALSO made significant bets AGAINST those same positions, in effect betting against their very customers, doing so without disclosing that fact to those customers. That these same creators deliberately and knowingly made these “financial instruments” so they WOULD invariably fail was also reported on. That in and of itself constitutes fraud on a scale unimaginable in the minds and black hearts of any mob of criminals throughout the history of crime and that’s saying a lot. Even the 16th-19th Centuries’ rape of the New World’s wealth doesn’t compare. These thieves robbed the entire World, the consequences of which shall hang over everyone for generations. The longer we wait to hold them accountable, the worse the fallout when it does come to the fore.

      It doesn’t take too sharp a pencil to discover these crimes. What it DOES take is a will to serve justice which is totally lacking in the spines of the whores of Wall Street: in the halls of Congress; the Courts; and the Executive Branch offices of DAs, PAs, and AGs, mainly because of fiat interference in the matter of funding by the same whores of Wall Street who control the purse strings (The Conservative Congress). No budget? No hiring. No investigations/No prosecutions.


  10. Some interesting research referenced in this Atlantic article which asks; Can Bankers Behave

  11. What are you comments on this paper

    A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012
    Fernando Ferreira, Joseph Gyourko

    NBER Working Paper No. 21261
    Issued in June 2015