We’d be remiss to not flag Frontline‘s outstanding investigation into the shameful failure of the Obama administration to pursue, much less prosecute, Wall Street for financial crisis fraud.
Less than 24 hours after “The Untouchables” aired on PBS, its main target, Justice Department criminal-division head Lanny Breuer, abruptly resigned. Perhaps that’s a coincidence, but I seriously doubt it after seeing the program, which you should watch in its entirety.
Watch The Untouchables on PBS. See more from FRONTLINE.
Frontline‘s Martin Smith just nails Breuer, and by extension, his boss Eric Holder and Obama for their baffling failure to indict anyone on Wall Street for financial crisis fraud.
It’s hard to remember now, but there was a point when it seemed likely that financial-crisis prosecutions would make the S&L scandal look minor. Recall back in March 2009 when The New York Times reported that “Spurred by rising public anger, federal and state investigators are preparing for a surge of prosecutions of financial fraud.”
Within a year and a half of that story, even Andrew Ross Sorkin was sneering at Holder and the DOJ about the lack of prosecutions.
Since then, no Wall Street executive has been indicted or prosecuted for the crisis. Breuer, in his Frontline interview, as in previous interviews like this one with 60 Minutes, professes moral outrage about bankers’ actions, but says immorality isn’t illegal–that his hands are tied.
But Frontline has Breuer’s number here thanks to its deep reporting, which exposes the DOJ’s marked lack of aggressiveness. Smith tells viewers that two high-ranking prosecutors who worked under Breuer said he “was overly fearful of losing” and asks him about it:
MARTIN SMITH: We spoke to a couple of sources from within the Criminal Division, and they reported that when it came to Wall Street, there were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.
LANNY BREUER: Well, I don’t know who you spoke with because we have looked hard at the very types of matters that you’re talking about.
MARTIN SMITH: These sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting Wall Street for financial crimes.
Now, if it’s actually true that there “were no investigations going on” that’s an outright scandal. I suspected that wording was somewhat overstated, but look at the full transcript of the Smith-Breuer interview:
SMITH: We’ve spoken to people inside the Residential Mortgage-Backed Securities Working Group who said that when they began their work in January, February, March of 2012 that they found nothing at the Justice Department in the pipeline, no ongoing cases looking at securitization.
BREUER: So I don’t know with whom you spoke. Here’s what I can tell you. We looked hard at — it’s public — we looked hard at Goldman Sachs. We looked at it for years, and we made a determination. Our colleagues in the West Coast looked hard at issues like WaMu [Washington Mutual]. They looked at it for years, and they looked at others for years…
It’s simply a fiction to say that we haven’t looked at it, and it’s simply a fiction to say they weren’t in the pipeline.
This reporting is compounded by an interview with Kevin Perkins, an associate deputy director of the FBI, whom Smith gets to admit that Breuer shot down investigations the FBI thought should have been prosecuted:
Yes. And we would argue this back and forth. And then we– but when we finally came to a decision, sometimes I would be frustrated. Sometimes I would be disappointed.
Now, granted, it’s hardly exceptional that a cop would want a prosecution that the prosecutors don’t, but it’s still pretty remarkable that Frontline got a sitting, high-ranking FBI official to say that on camera.
Adding to Frontline‘s case against Breuer and DOJ are the whistleblowers Smith digs up who have never been contacted by the feds. This is becoming something of a running theme of these televised exposés. In the 60 Minutes piece I noted above, Steve Kroft talked to Eileen Foster, who not only had been the top fraud-investigations executive at Countrywide, but had won a whistleblower suit against the company. Michael Hudson of the Center for Public Integrity had spotlighted her in a standout piece months earlier, but by the time Kroft got to her, she had never been contacted by the Justice Department.
Frontline‘s whistleblowers were dug up by attorneys for private litigants. One due-diligence supervisor, Tom Leonard, said he had never heard from the feds until “just recently.”
So why not? Why haven’t there been tough investigations, much less indictments? Is it the promise of post-government riches or the incestuous ties of the power elite?
It’s worth remembering this Reuters report from a year ago looking at how Breuer and Holder were both partners at white-shoe D.C. law firm Covington & Burling, which represented a “Who’s Who” of the Wall Street banks and mortgage companies that caused the crisis. “Both the Justice Department and Covington declined to say if either official had personally worked on matters for the big mortgage industry clients,” reported Scot Paltrow.
Frontline goes another route, using Breuer’s own words:
SMITH: … in that speech, you made a reference to “losing sleep at night over worrying about what a lawsuit might result in at a large financial institution.” Is that really the job of a prosecutor, to worry about anything other than simply pursuing justice?
BREUER: I think I am pursuing justice. And I think the whole entire responsibility of the department is to pursue justice. But in any given case, I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case there’s some huge economic effect, it affects the economy so that employees who had nothing to do with the wrongdoing of the company…
Back in 2011, this tremendous NYT investigation showed how Tim Geithner warned then-New York AG Andrew Cuomo about pushing too hard on financial fraud:
According to three people briefed at the time about the meeting, Mr. Geithner expressed concern about the fragility of the financial system.
His worry, according to these people, sprang from a desire to calm markets, a goal that could be complicated by a hard-charging attorney general.
And here’s Breuer, in September, in the speech Smith refers to above:
We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. 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.
So there you have it. Whatever the corrupting effects of the revolving door, at base Wall Street is too big to jail. This is at least in part the hangover from the Arthur Andersen prosecution. At the same time, you can indict subsidiaries and executives of companies without indicting the whole corporation, so this hardly explains the government-wide reticence to prosecute individuals. We may never know what really happened there.
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.