A Tale of Two Classes of Defendant and Lanny Breuer
By R Tamara de Silva
January 28, 2013
"swaying power such as has never in the world's history been trusted in the hands of mere private citizens,...after having created a system of quiet but irresistible corruption-will ultimately succeed in directing government itself. Under the American form of society, there is now no authority capable of effective resistance."
Henry Adams writing about the corruption of the Erie Railroad for the Westminster Review in 1870, he described corporate influence growing to the point of being uncheckable with political parties that would sacrifice principle for accommodation.
Last week, the Head of the Department of Justice's Criminal Division, Lanny Breuer, announced his resignation. His resignation is remarkable only in so far that it draws attention to the enormity of what he would not do. Under Breuer's watch, leaving aside some high profile and related insider trading prosecutions, not one senior Wall Street executive was prosecuted or even charged (by some accounts- not even investigated) with anything having to do with the worst financial crisis in American history-a crisis that resulted in a bailout of Wall Street banks and the financial sector at a cost to American taxpayers of between $43.32-$59.75 billion. A day before Lanny Breuer's resignation, PBS' Frontline aired an investigation about the failure of the Justice Department to prosecute a single senior banker involved in the mortgage crisis called, "The Untouchables." During this same time that the Department of Justice refused to go after a single head of a Wall Street firm, they took a particularly hard line on a torture whistleblower (not the torturers), and many financial criminals responsible for not the billions caused by elite Wall Street firms but between thousands to hundreds of thousands like elderly couples for possible pension fraud, an appraiser in Florida, individuals who committed bank fraud by lying on mortgage applications and other criminals like pot smokers and Aaron Swartz. It is not that I condone wrong-doing, only a record of selective prosecution on steroids. Lanny Breuer's Justice Department exposed its full fury to the chubs of the criminal justice systems while systematically saving the titans and whales.
Prosecutorial Discretion and Sympathy for the Titan
One of the reasons, Lanny Breuer gave for the non-prosecution of a senior Wall Street executive is sympathy for employees and shareholders. In his interview with Martin Smith of Frontline, Mr. Breuer repeated a specific if selective, empathy, wholly at odds with the charge he had been given by Senator Kaufman to investigate and hold to account all those responsible for the financial crisis. This selective empathy is also wholly at odds with the unbiased way in which most of us naively think justice is administered and prosecutions are sought. By the way, after this interview aired, Martin Smith states that he was called by the Justice Department and told that they would never cooperate with PBS again.
September of last year, Mr. Breuer admitted his particular empathy towards the
plight of the largest of Wall Street banks when he addressed the New York Bar
Association and said,
In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes - though, let me stress, not always - these presentations are compelling. In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders, just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct. I personally feel that it's my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets are a real factor. Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement.
When the only tool we had to use in cases of corporate misconduct was a criminal indictment, prosecutors sometimes had to use a sledgehammer to crack a nut.
It is odd that this same Justice Department did not take sympathy into account in demanding that Aaron Swartz serve 35 years or for that matter, the plight of all smaller defendants. The omnibus catchall Computer Fraud and Abuse Act ("CFAA") could make criminals of many of us because it seeks to criminalize the use of a computer without authorization but no where defines what "authorization" means.
When the government freezes a defendant's assets or seizes property even before a filing of charges making it impossible for them to pay for a decent lawyer (assuming they can even afford one), does it really care how the defendant (before being proven guilty) manages to eat or live in the interim of years it can take from investigation to sentencing?
Where was the sympathy for Senator Ted Stevens? Was it anything but a sheer lack of empathy that led to the career-ending prosecution of a six term Senator and the deliberate withholding of exculpatory evidence in his case? What about the many cases where defendants are exonerated by physical evidence that the prosecution possessed but did not reveal at the time? Where is the sympathy for the years or decades of a life that are lost because exculpatory evidence is not released or DNA evidence kits are not processed? Or is the empathy that Lanny Breuer refers to, as selectively held as its application under Lanny Breuer's tenor suggests?
Conflicts of Money
Money influences prosecutions. Consider the tale of two men performing the identical act in the criminal law Jon Corzine and Russell Wasenfdorf, Sr. Corzine was one of President Obama's elite bundlers in 2011 and 2012. He campaigned heavily for the President as governor of New Jersey, and held private fundraisers for President Obama in his home even after MF Global went bankrupt and $1.6 billion of customer funds went missing in October 2011. The Justice Department announced that they would not prosecute him.
It was discovered in June 2012 that Peregrine Financial Group CEO, Russell Wasendorf Sr., like Corzine at MF Global, had tapped into customer segregated funds to the tune of $215 million. Russell Wasendorf Sr was arrested and criminally charged later same that month. Same act-missing customer funds that were by law not to touched-but a far disparate prosecution.
Under Lanny Breuer, the Justice Department announced it would not go after Goldman Sachs. Goldman Sachs' employees were the second largest single contributor to President Obama in 2008 contributing $1,013,091. Goldman Sachs is also one of the largest clients of Mr. Eric Holder's lawyer firm Covington & Burling.
Speaking of Covington & Burling, Lanny Breuer worked at Covington along with Attorney General Eric Holder. Their firm's largest clients were many of the Wall Street banks that were involved in the securitization of mortgage debt that contributed to the financial crisis.
According to Reuters, Attorney General Holder and Lanny Breuer were expected to recuse themselves (a functional impossibility) under federal conflict of interest laws from Department of Justice decisions related to many of Wall Street's largest banks. Of course they have not admitted to doing so in any instance of which I am aware.
Abacus and Such
Goldman's Abacus scheme would fit into the most selective definitions of fraud. Goldman invented Abacus, according to an SEC civil complaint and an investor, to fail so that one of its largest hedge fund clients, Paulson & Co, could short it. In the meantime, Goldman sold Abacus bonds to many other investors all the while allowing Goldman to take in large investment banking fees from the sale and from the purchase. The problem is, the investors were not aware that Goldman's largest hedge fund client along with Goldman Sachs was betting against them and that as such Goldman Sachs may have a conflict of interest in designing what went into Abacus. Goldman claimed that somewhere within all the disclosure statements was a reference to all this. The Department of Justice announced it would not seek any criminal fraud charges against Goldman. Goldman Sachs settled the civil suit for $550 million, which is not a lot for a company that earns billions of dollars per quarter.
On November 28, 2011, Judge Jed S. Rakoff rejected what would have been the sixth civil settlement agreement between Citigroup Global Markets Inc. and the SEC since 2003 for $285 million. Citigroup had sold $1 billion in mortgage-bonds through a vehicle called Class V Funding III, without disclosing that it was betting against $500 million of those assets-in essence offering something to its customers and not disclosing that it would be betting against its customers. The Department of Justice was not about to seek criminal fraud charges against Citigroup either.
Civil settlements between the SEC and other parties are alternatively called consent decrees and they are a far cry from criminal prosecution. Nor do they deter misconduct because no admission of wrong-doing is required and the fines are pin money to the banks.
It is in the public's interest to prevent fraud upon the market and to prevent the type of financial engineering solely for the sake of fees that can lead to catastrophic losses ultimately borne by society as a whole. The type of hyperleveraged machinations, not understood by the banks themselves that wind up privatizing profit and publicizing loss. The problem with selective prosecution of financial crime or any crime, is that it undermines the very idea of justice, whose force and majesty lie in its fair and unbiased application. When the Executive branch's justice department seeks fines from banks which fees are so small as to be written off as a rational and good cost of doing business, while simultaneously pursuing prosecutions against smaller parties and the comparatively disenfranchised, it is no longer dealing out justice. It is selectively doling out punishments to those not in its favor.@
R. Tamara de Silva
 Detailed explanation of MF Global is available at: http://www.timelyobjections.com/2011/12/why-mf-globals-last-days-may-have-been-criminal.html