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Just under two months ago, when the $13 billion settlement for JP Morgan Chasewas coming down the chute, word leaked out that that the deal was no sure thing. Among other things, it was said that prosecutors investigating Chase’s role in the Bernie Madoff caper – Chase was Madoff’s banker – were insisting on a guilty plea to actual criminal charges, but that this was a deal-breaker for Chase.
Something had to give, and now, apparently, it has. Last week, it was reported that the state and Chase were preparing a separate $2 billion deal over the Madoff issues, a series of settlements that would also involve a deferred prosecution agreement.
The deferred-prosecution deal is a hair short of a guilty plea. The bank has to acknowledge the facts of the government’s case and pay penalties, but as has become common in the Too-Big-To-Fail arena, we once again have a situation in which all sides will agree that a serious crime has taken place, but no individual has to pay for that crime.
As University of Michigan law professor David Uhlmann noted in a Times editorial at the end of last week, the use of these deferred prosecution agreements has explodedsince the infamous Arthur Andersen case. In that affair, the company collapsed and28,000 jobs were lost after Arthur Andersen was convicted on a criminal charge related to its role in the Enron scandal. As Uhlmann wrote:
From 2004 through 2012, the Justice Department entered into 242 deferred prosecution and nonprosecution agreements with corporations; there had been just 26 in the preceding 12 years.
Since the AA mess, the state has been beyond hesitant to bring criminal charges against major employers for any reason. (The history of all of this is detailed in The Divide, a book I have coming out early next year.) The operating rationale here is concern for the “collateral consequences” of criminal prosecutions, i.e. the lost jobs that might result from bringing charges against a big company. This was apparently the thinking in the Madoff case as well. As the Times put it in its coverage of the rumored $2 billion settlement:
The government has been reluctant to bring criminal charges against large corporations, fearing that such an action could imperil a company and throw innocent employees out of work. Those fears trace to the indictment of Enron’s accounting firm, Arthur Andersen . . .
There’s only one thing to say about this “reluctance” to prosecute (and the “fear” and “concern” for lost jobs that allegedly drives it): It’s a joke.
Yes, you might very well lose some jobs if you go around indicting huge companies on criminal charges. You might even want to avoid doing so from time to time, if the company is worth saving.
But individuals? There’s absolutely no reason why the state can’t proceed against the actual people who are guilty of crimes.
If anything, the markets might react positively to that kind of news. It certainly did so in the Adelphia case, in which the government dragged cable company executives John, Timothy and Michael Rigas out of their beds and publicly frog-marched them in handcuffs on the streets of the Upper East Side at 6 a.m.
The NYSE had been on a four-day slump up until those arrests. After they hit the news, it surged to its second-biggest one-day gain in history. From the AP report on July 25, 2002:
Although stocks began the day by extending a four-day losing streak, the arrest of top Adelphia Communications Corporation executives for allegedly looting the cable TV company triggered a broad rally that intensified as the session wore on.
Of course, that was an isolated example, and the broad market rally that day didn’t save Adelphia, which had already gone bankrupt by the time of the Rigas arrests. But certainly it gave credence to the sensible argument that the markets generally would rather see the government punish criminals than not.
Anyway, it’s hard to not notice the fact that crude Ponzi schemers like Madoff (150 years)and Allen Stanford (110 years) drew enormous penalties – essentially life terms for both – while no one from any major firm has drawn any penalty at all for abetting those frauds.
That’s an enormous discrepancy, life versus nothing. But it makes an awful kind of sense. Madoff and Stanford were safe prosecutorial targets. There was no political fallout to worry about for sending up two guys who mostly bilked other rich people out of money. Also, there were no “collateral consequences” in the form of major job losses that had to be considered, just a couple of obnoxious families that would lose their jets and their ski vacations.
But most importantly, Madoff and Stanford were simple scam artists who could have come from any generation. There was nothing systemic about their crimes. It was possible to throw them in jail without exposing widespread corruption in our financial system.
That’s what’s so disturbing about this latest Justice Department cave. It underscores the increasingly obvious fact that the federal government is not interested in getting to the bottom of our financial corruption problem. They seem more to be treating bank malfeasance as a PR issue for the American financial markets that has to be managed away, instead of a corruption problem to be thoroughly investigated and fixed.
In a way, the administration seems to have the same motivation as Chase itself – as CEOJamie Dimon put it last week, “We have to get some of these things behind us so we can do our job.”
Madoff’s con was comically crude: He never executed a single trade for a client, and instead just dumped all of their money into a single checking account. To say, as Madoff himself did, that his bank “had to know” what he was up to seems a major understatement.
Remember, independent investigator Harry Markopolos figured the whole thing outyears before the Ponzi collapsed without the benefit of complete access to Madoff’s financial information. Markopolos really needed just one insight to penetrate the Madoff mystery.
“You can’t dominate all markets,” Markopolos said, years ago. “You have to have some losses.”
That this basic truth eluded both the SEC (which somehow failed to notice the world’s largest hedge fund never making a single trade) and Madoff’s own banker for years on end points to horrific systemic problems. A prosecutor who actually cared would floor it in court against everyone who made that fraud possible until he or she got to the bottom of how these things can happen.
Our response was different. We gave 150 years to the main guy, and now it seems we’re quietly taking a check to walk away from the rest of it. It’s not going to be a surprise when it happens again.
Three ex-General Electric traders are seeing the outside sooner than anyone expected after their convictions were overturned. Photographer: Daniel Acker/Bloomberg
The `GE Three’ Go Free
It wasn’t long after three former General Electric Co. executives were convicted of rigging auctions for municipal-bond investment contracts that they received the ultimate sendoff: A 7,400-word torching in Rolling Stone magazine by Matt Taibbi, the writer who branded Goldman Sachs Group Inc. with the nickname “vampire squid.”
“Someday, it will go down in history as the first trial of the modern American mafia,” Taibbi began his June 2012 opus about Dominick Carollo, Steven Goldberg and Peter Grimm. “Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.”
Then came a surprise last week, right before Thanksgiving. A federal judge ordered the men released from prison. An appeals court had reversed their convictions the day before, without explanation. An opinion would be issued “in due course,” it said. Bloomberg News ran a short story this week. The rest of the news media barely noticed.
Americans tend to like their crime stories simple: Good guys catching bad guys and sending them to jail. Nuances and complexities can complicate morality tales. The country is still baying for blood after the financial crisis. Folks want the people who they think helped crash the economy locked up and fed bread and water in place of Cristal and lobster.
The case against the former GE bankers is a reminder that high-profile financial-crime cases rarely are cut and dry. Even when prosecutors win, they still might lose later, especially if the defendants can afford top-notch appellate lawyers. Until last week the GE Three were considered criminals. Now they are innocent in the eyes of the law, and we don’t even know why yet. It’s possible that the government will appeal further and win in the end. A resolution seems far from final.
A reversal like this helps explain why some prosecutors might hesitate to bring difficult white-collar cases to trial. The Justice Department seemed to pull back from pursuing financial-crisis cases after two former Bear Stearns Cos. hedge-fund managers were acquitted of fraud charges in 2009. (One of the jurors said after their trial that she would invest with them if she had the money.) It’s easier to rack up wins by going after small fry for simpler crimes.
Carollo, Goldberg and Grimm each had been convicted on multiple counts of conspiracy to commit wire fraud. Prosecutors accused them of paying kickbacks to brokers hired by cities and towns to oversee the bidding on municipal-investment contracts, which local governments use to invest the proceeds from bond sales. Goldberg was sentenced to four years in prison. Carollo and Grimm got three years each.
Although the appeals court hasn’t yet explained its decision, the defendants claimed that the statute of limitations had elapsed by the time they were indicted in 2010. They also complained that they hadn’t been allowed to finish cross-examining one of the government’s key witnesses after he attempted suicide during a break. The government said he couldn’t return for further questioning.
What should we make of their sudden freedom? Sometimes justice is rough. Sometimes it seems random. It’s often messy. Some judges disagree with other judges’ rulings. Some crooks get pinched while others who seem guilty as sin never get charged. Mysteries abound as to why. Insider-trading cases get hot, so other frauds get put on the backburner. The government rarely explains why it chose not to prosecute someone, leaving the public to speculate.
And what are we now to make of GE’s own decision in 2011 to enter a non-prosecution agreement with the Justice Department, under which it paid $70 million? As part of that deal, GE made this admission: “From 1999 to 2004, certain former traders who bid on municipal contracts on behalf of the company entered into unlawful agreements to manipulate the bidding process on certain relevant municipal contracts, and caused the company to make payments and engage in other related activities in connection with those agreements through at least 2006.”
In other words, the company turned against its former employees. Maybe GE could have beaten the government’s rap, given that the former executives’ convictions have been overturned. We’ll never know. Even if it turns out they got off on a technicality, Carollo, Goldberg and Grimm deserve respect for having the guts to demand that the government prove its case in court. That is something large financial institutions rarely try. Perhaps more should.
One final note: The Justice Department issued news releases to trumpet the former GE executives’ indictments, convictions and sentencings. It didn’t issue a news release to say that their convictions had been reversed. That sure doesn’t look like fair play or justice to me.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)
You Can’t Frack France | Motherboard. (FULL ARTICLE)
After a constitutional court review, France’s ban on hydraulic fracturing for natural gas and oil has become “absolute,” in the words of Environment Minister Phillipe Martin. In its decision, the court found that the ban, which dates back to 2011 but was challenged by fossil fuel companies companies, was not “disproportionate.”
The method companies used to challenge the ban was to challenge the fact that hydraulic fracturing was and is still permitted to be undertaken in production of geothermal power. After reviewing the state of the technology involved, the court found that there is enough difference in the practice and potential environmental harm caused when applied to geothermal versus fossil fuels that prohibiting the latter and permitting the former did not violate France’s constitution.
For opponents of fracking around the world, it’s being hailed as a victory, rightly so. But the thing I find most interesting in this all is that it’s a perfect example of what is the most direct, if in some ways rockiest, method of preventing climate change—simply deciding, and mandating, that a certain resource, or extraction method in this case, will not be used.
As Bill McKibben famously pointed out in his Rolling Stone article two years ago, “Global Warming’s Terrifying New Math,” and has been brought back to the fore by former Irish president Mary Robinson, we have to leave the vast majority of fossil fuel reserves in the ground to avoid the worst of climate change. We need to leave the oil in the soil. (Well, rock… but the principle remains sound even if the rhyming doesn’t align with geology.) …
- France’s Ban On Fracking Is ‘Absolute’ (thinkprogress.org)
- France cements fracking ban (theguardian.com)
- France’s Fracking Ban ‘Absolute’ (peakoil.com)
- French high court upholds ban on fracking (kansascity.com)
- French court upholds ban on fracking (thejournal.ie)
- France’s Fracking Ban ‘Absolute’ After Court Upholds Law – Bloomberg (bloomberg.com)
“A Scam Of Unmatchable Balls And Cruelty” – Matt Taibbi On Wall Street’s “Triple-Fucking Of Ordinary People” | Zero Hedge
- Taibbi’s Latest Expose: How Teachers, Cops and Firemen Are Getting Their Pensions Fleeced at Lightning Speed (wolfessblog.wordpress.com)
- Matt Taibbi: How Wall Street Hedge Funds Are Looting Pension Funds (crooksandliars.com)
Jesse’s Café Américain: Matt Taibbi Discusses the Market Rigging in the Swaps and LIBOR Markets By the Banks
- Matt Taibbi on Wall Street’s Astronomical “Space-Age Stealing” (alternet.org)
- Biggest Financial Scandal yet worth $379 trillion (harounkola.com)
- Matt Taibbi: Big Bank Dishonesty Shows The Illuminati Were Amateurs (notthesingularity.com)
- Matt Taibbi: Everything in the Financial World is Rigged (aquariusparadigm.com)
- The Biggest Price-Fixing Scandal Ever – and the VESTS Solution (oneworldchronicle.com)