“Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case.” Taibbi argues this is exactly how the Securities and Exchange Commission has been treating the Wall Street bankers who helped cause the ongoing global economic crisis.
Matt Taibbi talking:
The SEC had a number of different levels of investigation. They had a thing called a MUI, which is a “Matter Under Inquiry,” and this is basically any preliminary investigation, any tip that came in from a whistleblower or from a self-regulating organization like the Stock Exchange or FINRA, if they—suspicious trades, anything like that. If they investigated it and they did not get permission from the people up above in the SEC to proceed to a full-blown investigation, they then shredded all that evidence they gathered in the preliminary stage. So they destroyed all the evidence of all MUIs dating back to 1993, and that might be as many as 18,000 cases.
Under the authority of the enforcement division. Now, this—there’s no legal authority to do this. This was illegal. You can’t just unilaterally shred any government document, no matter how insignificant. And these are significant law enforcement investigatory files that they were unilaterally destroying.
Securities and Exchange Commission police the financial markets. They’re the main cops on the beat on Wall Street. It’s basically a two-tiered structure. It’s—you know, for Wall Street crime, it’s the SEC and the U.S. Attorney’s Office in the Southern District of New York are the two main sort of policing organizations that prevent things like insider trading, market manipulation, securities fraud. They also make sure that all publicly traded corporations—they have to make regular disclosures, you know, every year, and they make sure that those disclosures are accurate, that you don’t have an Enron situation, for instance, where a company is reporting profits that they don’t have and hiding losses that they do have. The SEC is supposed to be the number one cop on the beat preventing all of this stuff. And if they’re not doing their job, which they apparently haven’t been, you know, what results is a situation like 2008, where just corruption overwhelms the markets, and you have this explosion of, a lack of confidence all around the globe.
Darcy Flynn is the whistleblower who started to expose what was taking place. He’s a 13-year veteran of the SEC. He had a variety of positions in the SEC, but most recently, he is an attorney who worked, and part of his responsibilities were to maintain the records, within the agency. Now, when he took this new job in 2010, he discovered this policy that the SEC had been destroying all of its preliminary investigations. And he was, you know, understandably upset. And he started this whole process of coming forward. He contacted the National Archives, because he wanted guidance on the issue. And he only came forward publicly because he couldn’t get reassurances from the SEC that they wouldn’t take action against him for coming forward. And so, that’s why he came forward.
Senator Grassley said the files include “important cases such as the investigation of [Bernard] Madoff, Goldman Sachs trading in AIG credit default swaps in 2009, financial fraud at Wells Fargo and Bank of America in 2007 and 2008, and insider trading investigations at Deutsche Bank, Lehman Brothers, [and] SAC Capital.”
One of the criticisms of my article, after it came out, was, well, you know, all of these cases, these MUIs that got destroyed, they were insignificant cases, that’s why they didn’t proceed to full-blown investigations in the first place. Well, we know that this isn’t true. We know that at least a couple of these cases involved Bernie Madoff in the years before the Madoff story came out.
Also, Darcy Flynn, this whistleblower, he also came forward with revelations about his own experience as an investigator. One of the first cases that he talked about was one where he was trying to pursue a case involving Deutsche Bank, a very promising securities fraud case, but it was rejected by the chief of the enforcement division, who shortly thereafter took a job as the general counsel of Deutsche Bank. So we know that this is part of the culture at the SEC. There’s a whole problem where there is this dichotomy. There’s the lower-level investigators, who were the sort of career bureaucrats, they’re more like cops, basically. And the guys on the upper level are more like political appointees who come from all these high-priced Wall Street banks, and they’re rejecting a lot of these important cases.
can you imagine if the DEA, for instance, destroyed the files on 18,000 cases of drug enforcement? How could anybody seriously argue that this wouldn’t have an effect on ongoing investigations? Every—you know, law enforcement these days is increasingly dependent upon this intelligence-based model of enforcement, where you piece together bits of information from all kinds of investigations, and you identify patterns that grow over time. So, if you have a company—and there were a number of these companies, like Lehman Brothers and AIG and Goldman Sachs, that had multiple complaints against them in the last 10 years if you’re an investigator and you don’t have the opportunity to go back and look at those cases and see what patterns might have been there or not been there, I don’t know how you can say that that doesn’t have a serious effect on all enforcement.
they have stopped the policy of shredding the files. Last year, after Darcy Flynn came forward, they did adjust the policy. But the thing that was really troubling about that is that when he came forward and made—and brought this to the attention of the people in the enforcement division, they did not immediately admit it, and, you know, admit the problem to the National Archives. They tried to cover it up. And so, we know that there—the culture problem at the SEC that caused this in the first place is—it’s still there. It’s still the same people who are running the SEC, the same bad instincts that got us to this place in the first place, are still—are still a problem.
Obama administration reportedly putting increasing pressure on New York Attorney General Eric Schneiderman to agree to a broad state settlement with banks over questionable foreclosure tactics. The federal settlement has been widely criticized because it would insulate the nation’s largest banks, including Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, from all criminal investigations in exchange for civil fines. Schneiderman and others have opposed the settlement because they say it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.
This whole issue of securitization was central to the cause of the financial crisis. All of the banks—not just a few of them, all of them—were engaged in this wide-scale fraud scheme to take worthless and/or extremely risky subprime mortgages and sell them as AAA-rated investments to unsuspecting investors all over the world, including, you know, pension funds here in the United States and foreigners in Scandinavia, China, Saudi Arabia. Basically, this was a fraud scheme where you’re selling garbage as gold. And they were all engaged in this fraud scheme. They all knew that they were selling extremely risky stuff as AAA-rated investments.
And the Schneiderman investigation is targeting this whole—the root of this process, the securitization process, where they took the subprime mortgages and chopped them up and then waved their magic pixie dust on it to turn it into AAA-rated investments. The national deal is seeking to cover this up and try to insulate all the banks from liability, especially civil liability, for what they did. If they do that, then they’re going to get away with this, and we’re not really going to fix the problem. And I think Schneiderman is really the only law enforcement official out there right now who is seriously trying to uncover this mess.
One is Lloyd Blankfein, head of Goldman Sachs, now retaining a top lawyer known for defending Enron defendants. His name, Reid Weingarten.
Goldman’s now stock price has now plummeted to $104, which is unbelievable. It was, you know, in the $160s just earlier this year. And I think this news that Blankfein has retained Weingarten is a serious indication that they’re expecting serious prosecution.
Standard & Poor’s and Moody’s and all these ratings agencies are going to come under increased scrutiny for their role in creating the financial crisis, after they downgrade the United States. I think it’s time to start taking a look at them again.
Discussion with Matt Taibbi.
Matt Taibbi, political reporter for Rolling Stone magazine. His latest piece is called “Is the SEC Covering Up Wall Street Crimes?”
– from democracynow.org