How to prosecute bank and other corporate fraud


One of the excuses that the Obama administration and its Department of Justice have given for the lenient way that they have treated the corporate sector and its top executives despite the clear evidence of fraud is that prosecuting them is hard and has a low chance of success.

Of course the more likely reason is the cozy relationship between the Obama administration and the corporate sector. Former Attorney General Eric Holder came from, and immediately returned to, the law and lobbying firm Covington and Burling that has as its clients many of the big banks and other entities. Current Attorney General Loretta Lynch was also noted for her lenient treatment of corporate criminality in her previous positions and no doubt will be well rewarded when she leaves office.

But David Dayen writes that a group of whistleblowers has laid out a blueprint for how it can be done.

A new group called Bank Whistleblowers United have just pushed out a comprehensive plan they think would put the executive branch back in the business of enthusiastically identifying, indicting, and convicting financial fraudsters — restoring accountability while protecting the public.

The cumulative credibility of the group’s four founders is extremely strong. Richard Bowen is the Citigroup whistleblower who unsuccessfully warned top management about the rotten condition of loans inside mortgage-backed securities. Michael Winston spoke out about similarly corrupt practices at non-bank mortgage originator Countrywide. Gary Aguirre, a Securities and Exchange Commission attorney, was fired for refusing to let a Wall Street banker out of an insider trading investigation.

And their ringleader is William Black, an outspoken fraud-fighter and longtime white-collar criminologist who was a two-fisted bank regulator during the savings and loan crisis and now teaches at the University of Missouri–Kansas City (UMKC).

“The common theme,” Black said with characteristic bluntness, “is the unbelievably pathetic job of the Department of Justice and the FBI.”

One of the first steps the group proposes – echoing the recommendations Senator Elizabeth Warren made last week – involves appointing aggressive leadership at federal agencies with no conflicts of interest with the entities they regulate, and hiring enough staff trained in criminology and financial fraud to attack the problem.

“You don’t have to reinvent the wheel,” said Black. “The Justice Department forgot there was a wheel.”

The template for the plan is the saving and loan crisis of the late 1980s, when just one federal agency, the now-defunct Office of Thrift Supervision (OTS) issued over 30,000 criminal referrals and over 1,000 major bank executives went to prison.

By comparison, in the 2008 financial crisis, OTS and their bank regulator counterparts made zero outside criminal referrals on financial crimes. And more recently, the rate of corporate prosecutions has been pathetic.

Frankly, I cannot see anyone other than Bernie Sanders implementing such reforms as president. All the others, including Hillary Clinton, will continue business as usual.

Comments

  1. says

    One of the excuses that the Obama administration and its Department of Justice have given for the lenient way that they have treated the corporate sector and its top executives despite the clear evidence of fraud is that prosecuting them is hard and has a low chance of success

    The only reason we hired them is because, yes, it is hard. What do you expect, taking a job at the Department of Justice? It’s not all canapes and conga lines and open and shut cases against stoners you caught with trunks of weed.

    Whenever I think of this crap I am tempted to file a $0 income tax return and request a full refund of all my taxes. I am not getting what I paid for (and please stop buying weapons with my money and using them on people that are no threat to me) kthx.

  2. ramen says

    Bringing back criminal referral coordinators at every federal agency? Hiring staff trained in criminology and financial fraud? Sounds like job creation to me!

  3. lorn says

    The next president, likely a Democrat, has no need to worry about implementing reform. It isn’t going to happen. Whichever it is, Hillary or Bernie, won’t be passing any laws. Whichever it is will be lucky to be able to pass enough of a budget to maintain the present rate of national deterioration. There is no realistic way that there will be enough of a Democratic congress to create, or change, any law.

    Bold pronouncements are an announcement of a lack of reality based orientation and a predictor of future disappointment.

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