A tip of the cap to 60 Minutes for an excellent report Sunday asking about the lack of criminal prosecutions on Wall Street in the wake of the financial crisis.
Steve Kroft gets a half hour of TV time primarily to talk to two whistleblowers from Countrywide and Citigroup who say they witnessed crimes by management at their respective firms.
Kroft speaks first to Eileen Foster, whom we met a few months ago via Michael Hudson’s reporting at the Center for Public Integrity. Foster was a senior executive at Countrywide in charge of their fraud investigations and won a million-dollar whistleblower-retaliation judgment against Bank of America for firing her in 2008.
Back in September, I wrote this about Hudson’s report, which found thirty former Countrywide employees to say that executives there “encouraged or condoned fraud”:
You have to marvel at how a reporter can put this stuff together but the SEC/Department of Justice/FTC/FHA etc. can’t.
Kroft reports that the Justice Department has never talked to Foster. This would remarkable even if she hadn’t won a whistleblowing case against BofA/Countrywide and gone public in the CPI report. But as Kroft notes, incredulously, the most glaring reason is that she was head of fraud investigations at Countrywide. If you were at all interested in finding fraud at Countrywide, the head of fraud investigations would be one of the first people you would want to talk to. None of the implications of this omission are good for prosecutors.
I’m going to put a reminder in my calendar for February 6 to call up Foster and see if any of the authorities have since bothered to ask her questions. She’s practically waving her arms and shooting off flares here:
Steve Kroft: Do you believe that there are people at Countrywide who belong behind bars?
Eileen Foster: Yes.
Kroft: Do you want to give me their names?
Foster: No.
Kroft: Would you give their names to a grand jury if you were asked?
Foster: Yes.
Watch the actual video of her interview and try not to believe her:
Foster comes off as the perfect source/witness: honest, smart, and credible. Let’s add this: Brave. We don’t think enough about the courage it takes for sources like Foster to go on the record, but it’s worth applauding. It takes no small amount of nerve to go on national television and say that you could testify about the crimes of former colleagues and “systemic” fraud at her company. Would that more people in positions of power had this kind of steel.
In the second half of Kroft’s package, he talks to Richard Bowen, a former vice president at Citigroup, who raised serious concerns about wrongdoing in 2006 and was ignored and ostracized.
Bowen learned that 60 percent of the loans his unit was processing were defective, and he started raising the alarm:
I did everything I could, from the way– in the way of e-mail, weekly reports, meetings, presentations, individual conversations, yes.
The next year, Citigroup’s defective-mortgage rate had risen to 80 percent. Bowen wrote to a group of executives that included Robert Rubin, the CFO, the chief risk officer, and the top auditor to tell them of a “breakdown of internal controls.” It’s unclear whether they responded, but the next day CEO Chuck Prince signed a Sarbanes-Oxley certification standing behind the company’s internal controls.
Kroft zeroes in on the Sarbox certification angle as a possible way to get at the plausible-deniability defense of senior executives, and he puts tough questions to the Justice Department in the person of assistant attorney general Lanny Breuer about why so few cases have been forthcoming.
Has anybody at Treasury or– or the Federal Reserve or the White House come to you and said, ‘Look, we need to go easy on the banks. That– there are collateral consequences if you bring prosecutions…
The perception. I mean, it doesn’t seem like you’re trying. It doesn’t seem like you’re making an effort. That the Justice Department does not have the will to take on these big Wall Street banks.
It’s worth contrasting that to James B. Stewart’s New York Times column this weekend, which runs down how hard it supposedly was for the SEC to go after Citigroup on CDO fraud (a piece Yves Smith and Tom Adams noticed, in shredding it, quoted one person: SEC enforcement director and ex-Deutsche Bank top lawyer Robert Khuzami). And here’s an interview in The Wall Street Journal today with a former FBI deputy assistant director on why it’s so hard to prosecute financial crimes. ProPublica’s Marian Wang sums it up: “Why No Financial Crisis Prosecutions? Ex-Justice Official Says It’s Just too Hard.”
Good work by Kroft and 60 Minutes.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.