The Untouchables - Wall Street Fraud and Accountability

Overview

• Focus on fraud and potential criminal conduct central to the 2008 financial crisis
• No Wall Street executives jailed or held accountable over four years later

Expectations and Reactions

• Public expected prosecutions for fraud related to the financial crisis
• Bankers on the defensive, admitting miscalculations but worried about criminal liability
• General public and Congress demanded prosecutions

Conduct and Accountability

• Lanny Brewer, Chief of DOJ's Criminal Division, argued greed isn't necessarily criminal
• Justice Department criticized for lack of coherent narrative against major players

Mortgage Originators and Underwriting Standards

• Countrywide Financial: "Fund'em" strategy for loans
  • Michael Winston's experience: originations without strict criteria
  • Christopher Cruz described lax standards influenced by Wall Street
• Due Diligence Underwriters: Contracted to assess loan portfolios
  • Often found and ignored fraudulent loans
  • Adjusted standards to push loans through
• Clayton Holdings: Findings of defective loans disregarded by banks

Inside the Banks

• Richard Bowen at Citigroup: 60-80% loans didn't meet policies
• Sent emails to senior execs but no action taken
• Citi later admitted wrongdoing in civil fraud suit

Congressional and Government Actions

• Senator Ted Kaufman: Advocated for robust investigations and punished fraud
  • Co-sponsored the Fraud Enforcement Recovery Act
  • Participated in Judiciary Committee hearings pushing for bank fraud investigations
  • Urged justice on investigating senior Wall Street executives
• Failures in prosecuting higher-level executives despite ample evidence
• Oversight hearings revealed DOJ's hesitation
• Fraud Enforcement Task Force announced but with limited impact
  • Mostly small players targeted, high-level prosecutions lacked

Private Lawsuits and Whistleblowers

• Law firm Patterson Belknap sued Bear Stearns and JP Morgan Chase for fraud
  • Utilized whistleblowers and due diligence underwriter testimonies
• Attorney General Eric Schneiderman's civil suit against JP Morgan Chase
  • Based heavily on private lawsuits, lacking individuals' criminal charges

Challenges of Prosecution

• DOJ's difficulty proving criminal intent and beyond reasonable doubt
• Internal debates within DOJ on pursuing higher-level prosecutions
• Concerns about economic implications of prosecuting major institutions

Conclusion

• Billions paid in civil penalties, but no senior Wall Street executives criminally charged
• Criticism of DOJ's reluctance and perceived failure in holding accountable those responsible for the financial crisis.