There’s a fine new piece by Matt Taibbi on the utter lack of criminal prosecutions on Wall Street, particularly of the big perps. He goes through a series of well known instances of actual (to everyone save the prosecutors) cases of chicanery, ranging from Freddie Mac accounting fraud, the protection of Morgan Stanley CEO from insider trading charges, Lehman’s misleading reporting of restricted stock payments, and gives the sordid details of how whistleblowers were ignored and aggressive SEC staff like Gary Aguirre were fired.
To my mind, the juiciest and most depressing part of the story comes fairly late in the piece, when Aguirre attends a day long conference last November (with a $2200 price tag) on financial law enforcement. This is what “enforcement” looks like:
Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police….
The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White [now a partner at white shoe law firm Debevoise & Plympton] introduced [Preet} Bharara, her old pal from the U.S. attorney’s office [the Southern District of New York].
“I want to first say how pleased I am to be here,” Bharara responded. Then, addressing White, he added, “You’ve spawned all of us. It’s almost 11 years ago to the day that Mary Jo White called me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein.”
Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. “I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year,” he said. “They’ve done a real service to the country, to the financial community, and not to mention a lot of your law practices.”
Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC’s director of enforcement, talked about a new “cooperation initiative” the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.
“We are going to try to get those individuals answers,” Khuzami announced, as to “whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client.”
Aguirre, listening in the crowd, couldn’t believe Khuzami’s brazenness. The SEC’s enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. “First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC,” Aguirre says. “Then the Justice Department commits itself to pass, so that the player knows he’s ’safe.’ Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department.”
It’s now so well understood that we have two systems of law in the US that not only does no one pretend otherwise, but we now institutionalize the process and have big ticket conferences to explain how it works. At least in the past, this sort of protection for the rich and powerful was kept under wraps and you had to be inside the tent to even know who the high level fixers were, much the less get to them.
I do recommend you read this piece in full. And remember, Taibbi is reporting on well known cases. The crisis happened for the most part in much less well visible area of the financial services industry, at least as far as the public at large is concerned. This site and other have tried to pull the veil back as far as the bad practices in the structured credit and CDO businesses are concerned. If things are this bad in cases that at least became somewhat visible, how much more examined crooked behavior is out their by virtue of dogs that didn’t bark?
Originally published at naked capitalism and reproduced here with permission.