[T]he resolution of two cases last week clearly indicates that enforcement actions for conduct leading up to the crisis are pretty much done, with no real finding of liability for violations.
When the fourth estate is so firmly wrapped in the arms of EM08, it's little wonder the biggest crime spree in history was successful. I've written about how the sin of omission is the msm press' main act, but here's one I'd never anticipated: the truth! By coming out and telling us that those entrusted with protecting us are basically done, well, how can we argue with that, right? Let's just move on now, shall we? Like leaving the Lakers game after a loss. There's always tomorrow. Between this nonsense and the statute of limitations, EM08 puts another feather in its cap, and the evil empire can get back to yachting in the south of France.
One bit of important data emerged: Ernst & Young will go stand in the corner for a minute for its role as Lehman's accountant. Since Enron, this has been a topic never broached in either the msm or indies: who were the banks' accountants? GM's? Chryslers? AIG's? Fannie's?
Once again, the blogosphere beat the press. "Beat the Press" ... has the ring of a show.
Oh, Ernst & Young's fine? $10 mil. It's just more cause for national embarrassment and shame, at least for those of us who can still feel.
NYT's Dealbook
Financial Crisis Cases Sputter to an End
April 20, 2015
Yogi
Berra once said that “it ain’t over ‘til it’s over.” Unlike
the final out or winning run in a baseball game, determining when
cases arising from the 2008 financial crisis will end is a bit harder
to discern. But the resolution of two cases last week clearly
indicates that enforcement actions for conduct leading up to the
crisis are pretty much done, with no real finding of liability for
violations.
In
one case, the Securities
and Exchange Commissionresolved
fraud charges against Richard F. Syron, the former chief executive of
the mortgage giant Freddie
Mac,
and two other senior executives related to statements regarding the
company’s exposure to subprime mortgages. The case did not even end
with the usual settlement in which the defendants neither admitted
nor denied liability. Instead, it concludedonly
with an acknowledgment “that
no party is the prevailing party.”
In
the other case, the New York State attorney general, Eric
T. Schneiderman,
reached a $10 million settlement of accounting fraud charges against
Ernst & Young for its role as the auditor for Lehman Brothers,
whose collapse in September 2008 in the largest bankruptcy in
American history ignited the near meltdown of the financial system.
Although Mr. Schneiderman asserted
that the resolution showed
that auditors can be held accountable for violations, DealBook
reported the
accounting firm’s statement that
“after many years of costly litigation, we are pleased to put this
matter behind us, with no findings of wrongdoing by E.Y. or any of
its professionals.”
Both
cases took direct aim at conduct at the center of the financial
crisis, and neither yielded anything close to a finding of actual
wrongdoing.
The
S.E.C. dropped its investigation into Lehman Brothers in 2012
despite an
extensive report by
Anton R. Valukas that concluded that management was aware of
accounting maneuvers used to make its finances look stronger than
they were. No one at the firm ever faced a civil action, much less
criminal charges, and the modest payment by Ernst & Young looks
more like a nuisance settlement.
In
addition to the Freddie Mac defendants, three Fannie Mae executives,
including its former chief executive, Daniel H. Mudd, were
charged by the S.E.C. in
December 2011 with the same type of violations regarding the
company’s exposure to subprime loans. These were among the few
cases to take aim at the management of a top player in the subprime
mortgage market for its role in the financial crisis.
The
problem the S.E.C. faced in the Freddie Mac case was that there was
no accepted definition of a subprime mortgage, so proving that Mr.
Syron and others intentionally made misstatements about the effect
of those loans on the company’s portfolio was almost impossible.
The case against the Fannie Mae defendants remains outstanding, but
it is unlikely the S.E.C. will obtain much more than what it
obtained from the Freddie Mac executives, which included total
payments of $350,000 that were covered by the company’s insurance
policy.
Prosecutors
have been successful in
using a provision of
the Financial Institutions Reform, Recovery and Enforcement Act,
better known as Firrea, to pursue civil cases against banks for
violations of the mail and wire fraud statutes for misstatements
about subprime loans bundled into securities that were sold to
investors. JPMorgan Chase, Bank of America and Citigroup all paid
multibillion-dollar settlements for Firrea violations. The law
carries a 10-year statute of limitations, so cases from the
financial crisis remain viable.
In
February, Attorney General Eric H. Holder Jr. said
in a speech at
the National Press Club that he had given federal prosecutors 90 days
to decide whether to file charges against executives for misconduct
related to mortgage-backed securities. That deadline is fast
approaching, and there has been no indication yet that a case will be
filed against any individuals.
Banks
have been willing to settle with hefty payments, but to date only
one individual, a former executive at Countrywide Financial, has
been found liable for a violation. Although Firrea remains a potent
tool, evidence from the financial crisis is undoubtedly becoming
stale because fraud cases, unlike fine wine, do not age well.
DealBook reported
last November that
prosecutors were considering filing civil charges against Angelo
R. Mozilo,
Countrywide’s former chief executive, but nothing has
materialized. Mr. Holder’s 90-day deadline may push prosecutors to
file a few cases against individuals, but the likelihood of any
being pursued against a top Wall Street executive looks to be almost
nil.
For
all the billions of dollars paid in penalties by banks and Wall
Street firms, the sense of dissatisfaction with how prosecutors
investigated those involved in the financial crisis remains
pervasive, especially when companies enter into multiple agreements
that allow them to avoid charges for repeated misconduct but no
individuals are named. The Justice Department has
threatened to
“tear up” a deferred or nonprosecution agreement if a company
commits additional violations, but whether that will happen remains
to be seen.
Even
that shift drew a rebuke from Senator Elizabeth Warren, who described
it in
a speech last week as
a “timid step.” For corporate misconduct, she said, “no firm
should be allowed to enter into a deferred prosecution or
nonprosecution agreement if it is already operating under such an
agreement — period.”
With
the era of financial crisis cases drawing to a close, the main lesson
the Justice Department seems to have taken away is that the focus
should be more on individuals who cause corporations to engage in
misconduct rather than just the organizations themselves. In a
speech last Friday at
New York University, the head of the Justice Department’s criminal
division, Leslie R. Caldwell, reiterated the point that the primary
target will be those inside the company who are responsible for
wrongdoing.
Federal
prosecutors expect cooperation for corporate misconduct, but
self-reporting will no longer be enough to consider a company to be
cooperative. “True cooperation, however, requires identifying the
individuals actually responsible for the misconduct — be they
executives or others — and the provision of all available facts
relating to that misconduct,” Ms. Caldwell said.
If
anyone still had a notion that companies should be loyal to their
employees, the Justice Department is trying to send a message that
such feelings should fall by the wayside as prosecutors focus on
culpable individuals in organizations. For companies, the
dissatisfaction with the lack of signature cases from the financial
crisis means increased pressure to cooperate, lest they be made an
example of a new “get tough” policy.
