A recent Washington Post article title recently caught my eye: Five Myths About White Collar Crime. As I read the article, all I could think of was that this is a fairy tale by Grimm. Surely no one would believe such dribble! Then I realized yes they would, they have and they will continue to do so unless some of us speak up.
So I’m speaking up as have others I’ll bring into this conversation.
The author, Nicolas Bourtin, is a former federal prosecutor, a litigation partner at Sullivan & Cromwell and a managing partner of the firm’s criminal defense and investigations group. Sullivan & Cromwell represents some of the largest most “successful” Wall Street banks, J.P. Morgan Chase, Wells Fargo; Bank of America and Citigroup, to name just a few.
Mr. Bourtin claims that, according to the U.S. Sentencing Commission 2013 Report on Sentencing trends, nearly 70% of all offenders sentenced under the guidelines for fraud received some prison time for their crimes in 2012, compared to about 40% in 1958. He notes that the Special Inspector General’s Office for the Troubled Asset Relief Program sentenced about 56 bankers and Wall Street traders, which included 13 chief executives. So who are all of these bankers who are being put behind bars?
In an opinion piece in Corporate Crime Reporter (CCR) about the article, the authors state that Mr. Bourtin tries to make a case that the federal government is tough on white-collar crime. And yes, there is a lot of prosecution going on – of less powerful banks, corporations and their executives.
The authors in the CCR article comment that the larger and more powerful “get to sidestep the guilty pleas.” They poke at Mr. Bourtin’s Myth number 1- Prosecutors fear prosecuting powerful defendants. Really?
Or, is it the revolving door issue all over again? Witness Eric Holder and Lanny Breuer, former Attorney General and head of the DOJ Criminal Division, respectively, who rejoined their firm, Covington & Burling, after leaving the DOJ. This is the same pattern that Nicholas Burtin and many other prosecutors followed when they left their government roles.If they prosecuted their former clients when they are in a prosecutor role, will they be able to return to the firm they left when their tenure is over? It would be foolish to not play the game if you intend to bank (pun intended) on a future payoff.
Jesse Eisinger, author of The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives, quoted in the article, calls Bourtin’s arguments “laughable.”
“He gives up the game entirely when he grasps for examples of financial crisis cases and has to point to the CEO of the Bank of the Commonwealth as evidence,” Eisinger said. “Yes, we all remember the Bank of the Commonwealth cratering the global economy.”
“He completely ignores all the evidence. White collar cases, by the Department of Justice’s own admission, are down to about 10% of total cases from 20% in the early 1990s. White collar prosecutions of individuals are at a 20-year low. And that understated the seriousness of the problem because they aren’t going after top corporate executives at the major companies. There is simply nothing mythical about this. These are facts.”
The article goes on to quote David Dayen, author of Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud, “This is written by a corporate lawyer for one of Washington’s biggest white-collar defense firms who is currently representing Barclays Bank,” Dayen said. “Most of the bankers cited here who were actually jailed were investigated by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) not by the Justice Department.”
In a 2014 Guardian article, the editors commented, “Eric Holder didn’t send a single banker to jail for the mortgage crisis.” In fact, the so-called investigations of financial institutions after the crash accomplished nothing but get cash settlement fines, which by the way were not paid by the guilty executives but by their shareholders. Ironically in 2014, Time magazine named Mr. Holder to its list of 100 Most Influential People, noting that he had “worked tirelessly to ensure equal justice.”
Now there’s a myth worth talking about.
Federal Judge Jed S. Rakoff has continually asked Why Have Top Executives Escaped Prosecution? In a March of 2014 article, he asks, “Who was to blame? Was it simply a result of negligence…or was it the result, at least in part, of fraudulent practices, of dubious mortgages portrayed as sound risks and packaged into ever more esoteric financial instruments, the fundamental weaknesses of which were intentionally obscured?”
Judge Rakoff noted that in the 70’s after the “junk bond” bubble, we prosecuted, “right up to Michael Milken.” In the 1980s, we prosecuted more than eight hundred individuals, including Charles Keating. And there was Enron and WorldCom, and we prosecuted, Jeffrey Skilling and Bernie Ebbers. However, “In striking contrast with these past prosecutions, not a single high-level executive has been successfully prosecuted in connection with the recent financial crisis.”
So the question may be, was fraud committed? “The Financial Crisis Inquiry Commission (FCIC), in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior.” And the FCIC obviously found compelling evidence and sent eleven criminal referrals to the DOJ, all of which were ignored. In spite of this, in his myths fairy tale, Mr. Bourtin attempts to redefine fraud several different times.
Judge Rakoff states, “the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that needs to be addressed.”
In a 2015 Atlantic article, “How Wall Street’s Bankers Stayed Out of Jail,” William D. Cohan asks, “the probes into bank fraud, leading to the financial industry’s crash have been quietly closed. Is this justice?”
Cohan notes we conveniently overlook that in the 1980’s financial crisis over 1,000 bankers were jailed, not let off with just a fine. They paid for their fraud and financial wrongdoing. To date, the 2008 crisis has resulted in nearly $190 billion in fines and settlements from 49 separate financial institutions (Keefe, Bruyette & Woods analysis. However, only the little guys have gone to jail!
I have also written in “Were Bank Payments Really Payments of Extortion to the Justice Department,” that, in my opinion, the settlements are merely payments to the DOJ to hide the evidence of the massive fraud from the public. And, not one penny of the billions paid to the DOJ coffers went to the investors who lost the money!
Regardless of Mr. Bourtin’s attempt to debunk the “Myths,” the message is clear. In spite of what our past and present Attorneys General and prosecutors claim, of which Mr. Bourtin is one, that the lack of prosecutions are not a result of their lack of effort. To date, the DOJ has not displayed the desire to seek punishment for the misconduct on the part of individual bankers.
Mr. Cohan, who is a former Wall Street investment banker and author of numerous bestsellers, including Why Wall Street Matters, states in an article in the New York Times, “The truth is that contrary to the writers’ convoluted logic, bankers and traders did not go to prison, as certainly some should have, because federal prosecutors failed to even try to bring cases against them.”
As far back as 2004, the FBI warned of an “epidemic” of mortgage fraud, which they said would have “as much impact as the Savings & Loan crisis.” They were wrong; it was worse.
The truth is banks and lenders carried that fraud through to every level of the mortgage process. They committed origination fraud through faulty appraisals and undisclosed trickery.
They committed servicing fraud through illegal fees and unnecessary foreclosures.
They committed securities fraud by failing to inform investors of the poor underwriting on loans they packaged into securities.
They committed mass document fraud when they failed to follow the steps to create mortgage-backed securities, covering up with fabrications and forgeries to prove the standing to foreclose.
In fact, the entire banking sector’s get-out-of-jail-free card gives them confidence that they can commit the same crimes again, with little if any legal implications.
Is our current judicial system broken? Frankly, I believe the answer is more destructive than that.
The inmates are not only running the prison, they are running the system.
Mr. Bourtin’s Myths:
Myth 1-Prosecutors fear prosecuting powerful defendants.
Myth 2- White-collar defendants never serve real time.
Myth 3- Trump’s administration won’t enforce anti-corruption laws.
Myth 4-No one went to prison as a result of the financial crisis.
Myth 5-Financial crime is the same as robbery or theft.
Bankers Haven’t Gone to Jail Because They Are Innocent…Of Crimes?!
Were Bank Settlements Really Payments of Extortion to the Department of Justice??
Senator Warren Calls Out the DOJ – They Ignored 11 Congressional Commission Criminal Referrals!
How Bankers Avoid the Slammer