Jesse Eisenger at ProPublica had a long article on why only one minor investment banker has been prosecuted so far for their role in the financial meltdown that devastated so many people.
Over the past year, I’ve interviewed Wall Street traders, bank executives, defense lawyers and dozens of current and former prosecutors to understand why the largest man-made economic catastrophe since the Depression resulted in the jailing of a single investment banker — one who happened to be several rungs from the corporate suite at a second-tier financial institution. Many assume that the federal authorities simply lacked the guts to go after powerful Wall Street bankers, but that obscures a far more complicated dynamic. During the past decade, the Justice Department suffered a series of corporate prosecutorial fiascos, which led to critical changes in how it approached white-collar crime. The department began to focus on reaching settlements rather than seeking prison sentences, which over time unintentionally deprived its ranks of the experience needed to win trials against the most formidable law firms.
Indeed, the department now effectively outsources many of its investigations of corporate executives to outside firms, which invariably produce reports that exculpate those at the top. Jed Rakoff, the U.S. District Court judge and former federal prosecutor who has become the most prominent legal critic of the Justice Department, explained the process to me this way: “The report says: ‘Mistakes were made. We are here to take our lumps'” — in other words, settlements and, if the transgressions are particularly bad, further oversight. “Lost in that whole thing,” Rakoff said, “was anyone trying to investigate whether the individuals did something wrong.”
Today prosecutors are prohibited from even asking companies to waive their attorney-client privilege. They are also prohibited from pushing a company to cut off the legal fees for indicted executives or pressuring it to forgo joint defense agreements. “It was very much a game-changer in the business of investigating and defending in those cases,” says Michael Bromwich, a top white-collar lawyer and former inspector general of the Department of Justice.
The Justice Department decided to focus more on the easier insider-trading cases involving lower-level people than to go after the top bankers at the big investment firms. The revolving door between top Justice Department official and private law firms adds to the lack of prosecutorial zeal.
Top governmental lawyers generally don’t want to spend their entire careers in the public sector. Many want to score marquee victories and avoid mistakes and eventually leave for prominent corporate firms with starting salaries at 10 times what they make at the Department of Justice. According to numerous former criminal-division employees, Breuer almost immediately signaled his interest in bigger things.
The Breuer referred to is Lanny Breuer, former head of the criminal division of the Justice Department in the Obama administration, second to attorney General Eric Holder, who was the key person who should have been vigorously prosecuting these frauds. Instead he was shown up in the Frontline documentary The Untouchables as being most adept at finding reasons not to do so. The day after the program was broadcast, he resigned and is now Vice Chairman of the high-powered corporate law firm of Covington & Burling. What is his job description?
He specializes in helping clients navigate corporate crises, anti-corruption matters, money laundering investigations, cybercrime incidents, Congressional investigations, securities enforcement actions, and other criminal and civil matters presenting complex regulatory, political, and public relations risks.
A perfect fit, you might say, helping his clients navigate the friendly system that he helped set up. You can be sure that his firm and their clients are grateful to him for his services to their industry while supposedly serving the public interest. Holder too came from that same law firm and is likely to return there once he has completed his stint as the nation’s top law enforcement officer.
And that is where we are now, where the top bankers feel that they can get away with anything by having their institutions pay the huge legal fees and fines to settle cases with a toothless Justice Department. Since they are at no risk of going to jail and do not suffer even any personal financial loss, they can continue to act with impunity.