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Further Proof the Justice Department is Protecting JP Morgan from Criminal Prosecution | A Lightning War for Liberty
In what may be the least surprising article of 2013, we find out from Newsweek that the Department of Justice is going out of its way to protect the poor little babies at JP Morgan from criminal prosecution in the Bernie Madoff case. While we know all too well about the institutionalized practice of “Too Big to Jail” that dominates the current fraud system of so called “justice” in America, it is still of the utmost importance that we spread these stories far and wide. Amazingly, in this instance the DOJ is actively blocking the Treasury Inspector General from doing his job in order to protect the mega-bank.
Bernard Madoff’s principal bank, JPMorgan Chase, has for years obstructed federal bank examiners trying to ascertain what it knew about his gigantic Ponzi scheme, an official document obtained by Newsweek shows.
The Justice Department refused in September to back up Treasury inspector general staff who wanted a court order to enforce a subpoena, in effect shielding JPMorgan from law enforcement, the October 8 document shows.
The Justice Department told the Treasury Inspector General “that they were denying the request for enforcement of the subpoena,” which means officials “could not undertake further actions regarding this matter,” wrote Jason J. Metrick, the inspector general special-agent-in-charge.
The memo revealing that Justice protected JPMorgan from an obstruction complaint raises anew questions about how much the Obama administration has done to protect the big banks, whose lies about mortgage securities and other investments they sold sank the economy in 2008.
Only minor players have been prosecuted, in contrast with the more than 3,000 felony convictions the FBI says it obtained in the much smaller savings and loan scandals two decades ago.
The JPMorgan memos Justice declined to pursue are almost certain to show that years earlier the bank had grounds to suspect Madoff was running a fraud. A separate inquiry by the U.S. Attorney in Manhattan is looking into JPMorgan, which may include what the 90 bank employees knew and when they knew it.
Banana Republic Justice.
Full article here.
Judicial Watch Defends North Carolina Voter ID Law, Election Integrity
Wouldn’t it be nice if American citizens could depend on the Department of Justice (DOJ) to actually enforce the law? It really doesn’t seem like much to ask of the nation’s top law enforcement agency. And yet, when it comes to a wide range of issues, perhaps most notably election integrity, the DOJ is much worse than a bystander. Under this president, the DOJ has become a partisan tool to undermine the rule of law.
And that’s why Judicial Watch is now in court in North Carolina. We are defending a client who has a very simple mission: to ensure that every vote cast is legitimate. (Unfortunately this mission is at odds with the DOJ’s seeming mandate to ensure that the electoral process remains mired in fraud and chaos.)
JW recently filed a Motion for Intervention with our client Christina Kelley Gallegos-Merrill to defend North Carolina against a DOJ lawsuit. The DOJ seeks to prevent enforcement of HB 589, which requires, among other election integrity measures, that voters present a photo ID before casting a ballot. (Yes, the DOJ is actively fighting in court to “prevent enforcement” of the law.)
In addition to representing Judicial Watch members in North Carolina, the Intervention seeks to protect the interests of Ms. Gallegos-Merrill, a former Republican candidate for local office in North Carolina who likely lost her race because of voting irregularities that would be addressed by the HB 589.
Here’Here’s a squib from Judicial Watch’s motion, which argues that by failing to enforce Voter ID laws and other election integrity measures “impairs or impedes” fair elections:
In 2012, [Gallegos-Merrill] ran for County Commissioner of Buncombe County and lost a very close election. She alleges that this loss was due to same-day registration during early voting and to improperly cast ballots…. Merrill has made concrete plans to run again for that office in 2014 and has taken steps to make that happen…. Any ruling from this Court reversing the repeal of same-day registration during early voting or enjoining the enforcement of North Carolina’s photo ID law, would “impair or impede” Merrill’s interests including her immediate electoral prospects for 2014.
Let’s review the timeline of how we ended up in court on behalf of both our members and Ms. Gallegos-Merrill.
On July 25, 2013, both houses of the North Carolina Legislature passed the Voter Information Verification Act (HB 589), popularly known as the “voter ID law,” overhauling the state’s election laws. The bill’s provisions require photo identification for in-person voting; eliminate same-day registration during early voting; reduce the number of days of early voting; and require provisional ballots to be cast in the proper precinct.
All sensible election integrity measures, wouldn’t you say? Not to Attorney General Holder and his DOJ.
On the day the bill passed, Holder said in a speech to the National Urban League concerning the Supreme Court’s decision in Shelby Co. v. Holder, which effectively eliminated a major barrier for election integrity measures in the state, that a DOJ voting rights lawsuit against Texas, “is the Department’s first action to protect voting rights following the Shelby County decision, but it will not be our last.”
This statement was widely seen as a reference to a potential lawsuit against North Carolina over its new photo ID law. Indeed, former Holder spokesman, Matt Miller, said the next day: “From everything I’ve read, the writing’s on the wall that the North Carolina law is going to draw a DOJ challenge.”
On July 29, 2013, a group of political activists were granted an audience at the White House with Attorney General Holder, Labor Secretary (and former Assistant Attorney General for Civil Rights) Tom Perez, and President Obama. The meeting attendance list represented a “who’s who” of voter fraud apologists and unofficial Obama administration “policy consultants,” including the ACLU, the NAACP, and Rev. Al Sharpton.
Sharpton subsequently told MSNBC that, based upon what he heard at the “unprecedented” meeting, he expected action regarding North Carolina “when this governor signs the bill.” And he was right.
When HB 589 was signed into law on August 12, 2013, two private lawsuits were filed in U.S. District Court. A complaint by the National Association of Colored People (NAACP) alleged violations of the 14th and 15th Amendments and the Voting Rights Act (VRA). A complaint by the League of Women Voters also alleged violations of the 14th Amendment and the VRA. On September 30, the DOJ filed its complaint, asking the court to require federal pre-clearance before the state could enforce the HB 589 provisions. On November 26, the DOJ moved to consolidate all three cases.
In our Motion for Intervention, we argue that the negative impact of voter fraud extends beyond the candidates themselves to the voters of North Carolina:
The photo ID law at issue seeks, among other things, to prevent voter fraud. Where there is such fraud, North Carolina voters are harmed by having their votes diluted. In considering Indiana’s photo ID law, the Court of Appeals for the Seventh Circuit noted that “[t]he purpose of the Indiana law is to reduce voting fraud, and voting fraud impairs the right of legitimate voters to vote by diluting their votes – dilution being recognized to be an impairment of the right to vote.”… North Carolina’s voters, including Merrill, are threatened with the same kind of injury.
You’ll note we reference Indiana in our motion. As I mentioned to you in October, JW and its client True the Vote are in court to force Indiana to clean up its dirty voter registration rolls. Our efforts there and in North Carolina are part of our continuing Election Integrity Project, which got a huge boost last month when former DOJ Deputy Chief of the Voting Section of the Civil Rights Division Robert Popper joined the team. (Popper is the lead attorney in the North Carolina case, assisted by Christopher Coates, former Chief of the Voting Rights Section of the DOJ and local counsel Gene Johnson. As one election law observer noted, we brought the big guns to this legal fight.)
Our election integrity team certain has its work cut out. As JW has shown through a comprehensive nationwide investigation, many states appear to have problems with inaccurate voter registration lists, including: Mississippi, Iowa, Missouri, Texas, Ohio, Pennsylvania, West Virginia, Alabama, and California. We’ve told election officials in no uncertain terms that they must maintain accurate voter registration lists consistent with Section 8 of the NVRA or face litigation to enforce the federal law. In addition to North Carolina and Indiana, we’ve already taken legal action in Ohio and Florida.
And rather than getting assistance from the nation’s top law enforcement agency, what do we get instead? Obstruction, interference and outright undermining of the law.
The Obama DOJ is clearly hostile to the idea of one person, one vote, one time. It is shameful that the DOJ is now in court trying to stop North Carolina from fulfilling its legal obligation to prevent ineligible voters from committing voter fraud. Candidates, such as our client Ms. Gallegos-Merrill, have a right to expect to compete in clean elections. And we look forward to defending the voting rights of our supporters in North Carolina and throughout the nation. Our work is essential as the rule of law and election integrity are under unprecedented attack from this highly politicized Justice Department and its liberal allies (such as the ACLU).
New Records Show: Panetta Revealed “Top Secret” Information to Hollywood Filmmaker
The Obama administration has a very simple flow chart for the release of government information. Does the information make the administration look good? If “yes,” then release. If “no” then keep secret and stonewall. This policy – certainly not Freedom of Information Act (FOIA) or the president’s many promises of transparency – provides the guiding principle for government bureaucrats responding to open records requests.
And this is why we are in federal court so often.
Take, for example, the Obama administration’s “role” in producing the film “Zero Dark Thirty.” This movie, directed by Academy Award winning filmmaker Kathryn Bigelow and written by Mark Boal, glowingly showed Obama as an in-command president during the bin Laden raid. The film was originally set to hit theaters just prior to the 2012 elections, ostensibly to aid the Obama re-election efforts, but the premiere was delayed after the filmmakers sustained heavy criticism for the apparent political timing of the film’s release.
Of course, the timing of the film aside, there was another key question that dogged the film. Just how did the filmmakers get “top-level access to the most classified mission in history from an administration that has tried to throw more people in jail for leaking classified information than the Bush administration”?
This question became the focal point of a JW investigation and was partially answered this week, when we released records from the Central Intelligence Agency (CIA), including a previously unreleased CIA internal report confirming that former CIA Director Leon Panetta revealed classified information at a June 24, 2011, bin Laden assault awards ceremony attended by “Zero Dark Thirty” filmmaker Mark Boal.
The documents were produced in response to a June 21, 2013, FOIA lawsuit against the CIA.
Significantly, the entire transcript of the Panetta speech provided to Judicial Watch by the CIA is classified “Top Secret.” More than 90 lines are redacted for security reasons, further confirming that significant portions of the speech should not have been made in front of the filmmaker who lacked top security clearance.
At the conclusion his speech, the transcript shows Panetta told the audience at the ceremony, “You have made me proud of the CIA family. And you have made me proud as an Italian to know that bin Laden sleeps with the fishes.”
Now, during the speech, according to a draft Pentagon inspector general’s report released earlier this year, “Director Panetta specifically recognized the unit that conducted the raid and identified the ground commander by name.” Subsequent to the ceremony, Rep. Peter King (R-NY) said, “CIA was very sloppy and the administration was very sloppy in enforcing security procedures when it came to Hollywood. It almost seems as if they were star-struck.” Significantly, for some reason, the final IG report omitted any reference to Panetta’s disclosure of “TOP SECRET” and other sensitive information at an event.
Also, included in the documents provided to Judicial Watch is an October 22, 2012, internal “Review of UBL Awards Ceremony Attendance” written by the CIA Office of Security (OS) concluding that, “The Agency’s security policy and administrative procedures were not followed in allowing Mr. Boal, a member of the media, access to the classified bin Ladin Operation Award Ceremony.” The three-page review also states, “The review conducted by OS leads to the conclusion that the failure to follow stipulations in ARs [redacted] resulted in the disclosure of classified information to a member of the media, without benefit of any documentation to reflect a waiver to the above policies.”
Here are some other highlights from the records:
- A letter from the Director of Operations of the Joint Chiefs of Staff to the Department of Defense Inspector General stating: “It is my determination, as the Original Classification Authority, that both of these transcripts [from the ceremony] contain SECRET / [REDACTED] information. The information in each transcript was classified at the time each incident occurred.”
- Information revealing that there were actually two classification reviews conducted by the Original Classification Authority (OCA) because the original transcript of Panetta’s speech provided by the CIA to the DOD Inspector General was inaccurate and incomplete: “ISPA [Intelligence and Special Program Assessments] discovered proof of inconsistencies and lack of information on the original transcript received by the CIA in comparison to the video recording. As a result of the inaccurate transcript, OGC determined the OCAs determination are not valid and must been resubmitted for another OCA determination to include the verbatim information.”
- A CIA Review reference suggesting that former CIA Chief of Staff (then DOD Chief of Staff) Jeremy Bash as the individual responsible for directing the CIA’s Office of Public Affairs to allow Boal to attend the ceremony: “… OS [Office of Security] did speak with an OPA [Office of Public Affairs] representative who was involved in the ceremony, who advised that the ODCIA [Office of the Director of the Central Intelligence Agency] directed Mr. Boal to attend the ceremony.” This appears to confirm information provided in the DOD IG report: “[T]he CIA PAO contacted the DOD PAO to state that efforts failed and the ‘Chief of Staff’ directed that the Hollywood executive be given access to the event.”
The inclusion of Boal at the CIA ceremony was not the only instance of the Obama administration apparently attempting to influence the production of the “Zero Dark Thirty” movie.
You may recall, in August 2012, Judicial Watch released records it obtained from the CIA and the Department of Defense pursuant to a FOIA lawsuit regarding meetings and communications between government agencies, Boal, and Bigelow, as they prepared to shoot “Zero Dark Thirty.” According to a June 15, 2011, email from Benjamin Rhodes, Deputy National Security Advisor for Strategic Communications, the Obama White House was intent on “trying to have visibility into the UBL [Usama bin Laden] projects and this is likely a high profile one.”
Mission accomplished there.
Back to that flow chart. The Obama administration obviously thought that the bin Laden raid details – secret or not – would make them look good, so they released them. Clearly these new internal CIA documents show that CIA Director Panetta breeched national security in order to curry favor with Hollywood filmmakers who the Obama administration hoped would make a pro-Obama film.
And what is particularly infuriating is that, at the same time the administration was releasing these classified secrets to Hollywood, it was stonewalling a JW request for details regarding bin Laden’s burial at sea, as well as images of the raid. Obviously there is something in those records – which do not carry with them the same sensitivity as the identities of those who conducted the raid – that is embarrassing to the president. So “do not release” remains the official Obama policy. (The courts have thus far acquiesced to the administration with the Supreme Court mulling over our petition to hear the case.)
In our view, this new information we uncovered should provide the impetus for a criminal probe of this dangerous leak. But we’re not holding our breath. Our investigation continues, as well as our pursuit of the bin Laden raid records at the Supreme Court.
In the meantime, Americans might wonder why some leakers, such as Edward Snowden, are aggressively pursued for leaks by Obama’s Justice Department while high level political hacks such as Panetta skate by free and clear.
JW Report: ‘U.S. Government Purges of Law Enforcement Training Material Deemed “Offensive” to Muslims’
One of the great things about our work at Judicial Watch is that virtually everything we say is backed up by documents and facts. DC is full of fact-free opinion, but our analysis is backed up by documents from the government and other verifiable sources. Judicial Watch has produced a number of special reports over the years that add educational context to our investigations and litigation.
This Monday we released a new special report on a dangerous campaign of political correctness that is ongoing within the federal government that threatens our safety and national security. This report is entitled: “U.S. Government Purges of Law Enforcement Training Material Deemed ‘Offensive’ to Muslims: Documentation and Analysis of Islamist Active Measures and Influence Operations Targeting Anti-terrorism Training.”
At 26 pages, this special report includes a detailed chronology; identifies specific Islamic propaganda organizations; and identifies the five top “Islamist influence operators” associated with the Obama administration. More than 12 years of Judicial Watch work on national security issues is featured in the report, highlighting information from government documents exclusively obtained by JW.
In other words, you will not find this information anywhere else.
The report centers on the Federal Bureau of Investigation’s (FBI) purge of anti-terrorism training material and curricula deemed “offensive” to Muslims. The curricula purge – documented through a Judicial Watch Freedom of Information Act (FOIA) lawsuit in June 2013 – occurred following a February 8, 2012, meeting between FBI Director Robert Mueller and various Islamic organizations.
The purge was part of a “broader Islamist influence operation” designed to “influence the opinions and actions of persons, institutions, governments and the public at-large.” The report also documents incidents of “Islamic influence operations” at the Departments of Justice and State, the Joint Chiefs of Staff, and the Obama White House.
Check out some of the material deemed “offensive” and the reasons given by the FBI for purging the information:
- “Article is highly inflammatory and inaccurately argues the Muslim Brotherhood is a terrorist organization.” [Editor’s Note: The Special Report reveals that in 2011, Mueller had described the Muslim Brotherhood as a group that supports terrorism in the U.S. and overseas.]
- “The Qur’an is not the teachings of the Prophet, but the revealed word of God.”
- “Remove sweeping generality of ‘Those who fit the terrorist profile best (for the present at least) are young male immigrants of Middle Eastern appearance.’”
- “[A]uthor seems to conflate ‘Islamic Militancy’ with ‘terrorism’ and needs to define the difference and use it in their analysis.”
So now our government is supposed to endorse the idea that the Qur’an is the “revealed word of God?” (This at a time when the U.S. military is banning Bibles and persecuting Christians for their beliefs.)
With respect to the “Chronology of Recent Developments in Influence Operations” the report details the following incidents, among others:
- July 2011: State Department and OIC meetings on “Istanbul Process,” Secretary Hillary Clinton tells Organization of Islamic Cooperation that U.S. government will use “old fashioned techniques of peer pressure and shaming” against “Islamophobia.”
- October 2011: 57 Muslim groups send a letter to White House demanding “purge” of all counterterrorism training materials and “re-education” of all FBI agents exposed to “Islamophobic” training.
- October 2011: DOJ Civil Rights Division meeting with Islamic groups to discuss criminalizing criticism of Islam as “discrimination.”
- November 2011: White House responds to Muslim groups’ “purge” demand letter, agrees to set up inter-agency task force, including extremist Muslim groups, to oversee FBI counterterrorism training development.
- February 2012: Islamic groups meet with FBI to ensure compliance with demanded “Islamophobia” purge.
The report also shows how this purge campaign is possible: “The Obama administration has been penetrated by Islamist influence operators, seeking to advance an ideological agenda completely at odds with our constitutional system. The penetration is, in many cases, by the Obama administration’s invitation.” Some of the more public and controversial figures associated with the Obama administration have included:
- “Rashad Hussain – U.S. Special Envoy to the OIC … has a history of participating in events connected with the Muslim Brotherhood.
- “Huma Abedin – Long-time personal aide to former Secretary of State Hillary Rodham Clinton [whose] late-father, mother and brother are all connected to Muslim Brotherhood organizations or operatives.
- “Daliah Mogahed – An advisor to the White House Office of Faith-Based and Neighborhood Partnerships. Mogahed’s 2009 book Who Speaks for Islam? is viewed by many as an apologia for the growing power and influence of radical Islamists. Mogahed is an unapologetic defender of unindicted terrorist conspirator organizations such as CAIR and ISNA.
- “Momamed Elibiary – A Texas-based security consultant and Islamic cleric who was named to President Obama’s Homeland Security Advisory Council in 2010. He has close ties to a convicted Hamas fundraiser and other radical Islamist causes ….
- “Mohamed Magid – … President of the ISNA, an unindicted terrorist conspirator organization. Magid was appointed by President Obama to the Department of Homeland Security’s Countering Violent Extremism Working Group. From that position, Magid was key in influencing and directing the purge of training materials and policies in the FBI and other federal agencies.”
The Report includes a riveting section on Anwar al-Aulaqi, a U.S. citizen and militant imam who has been described as the “spiritual leader” and inspiration of the 9/11 hijackers; the Fort Hood murderer, U.S. Army Major Nidal Hassan; and the 2009 Christmas Day (attempted) airline bomber, Umar Farouk Abudulmutallab of Nigeria, and others. Killed by a U.S. drone strike in September 2011, al-Aulaqi had been the subject of Judicial Watch litigation resulting in the release of more than 1,800 pages of records revealing a highly questionable relationship between the terrorist leader and the U.S. government.
Our report hit a nerve and your Judicial Watch was called a “hate group” by a spokesman for the Council on American-Islamic Relations (CAIR), which is one of the terrorist-front groups we further expose in our new report.
Rest assured we will continue to investigate, analyze and pursue additional lines of inquiry concerning Islamist influence operations targeting the law enforcement and intelligence agencies, the Defense Department and the media. This Report is a steppingstone for further inquiries by Congress, government watchdogs, and the media. The American people deserve complete, accurate, factual information concerning the threats of subversion and terror posed to our country. And that’s what we intend to provide.
In the meantime, please get the word out about this report and demand from your elected representatives that our federal national security establishment start dealing with the truth rather than politically-correct fantasies about the Islamic basis for the terrorist threat.
Until next week…
Why Has Nobody Gone To Jail For The Financial Crisis? Judge Rakoff Says: “Blame The Government” | Zero Hedge
By US District Judge Jed S. Rakoff (pdf)
Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis?
Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope. Who was to blame? Was it simply a result of negligence, of the kind of inordinate risk-taking commonly called a “bubble,” of an imprudent but innocent failure to maintain adequate reserves for a rainy day? Or was it the result, at least in part, of fraudulent practices, of dubious mortgages portrayed as sound risks and packaged into ever-more-esoteric financial instruments, the fundamental weaknesses of which were intentionally obscured?
If it was the former – if the recession was due, at worst, to a lack of caution – then the criminal law has no role to play in the aftermath. For, in all but a few circumstances (not here relevant), the fierce and fiery weapon called criminal prosecution is directed at intentional misconduct, and nothing less. If the Great Recession was in no part the handiwork of intentionally fraudulent practices by high-level executives, then to prosecute such executives criminally would be “scapegoating” of the most shallow and despicable kind.
But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years. Indeed, it would stand in striking contrast to the increased success that federal prosecutors have had over the past 50 years or so in bringing to justice even the highest level figures who orchestrated mammoth frauds. Thus, in the 1970’s, in the aftermath of the “junk bond” bubble that, in many ways, was a precursor of the more recent bubble in mortgage-backed securities, the progenitors of the fraud were all successfully prosecuted, right up to Michael Milken. Again, in the 1980’s, the so-called savings-and-loan crisis, which again had some eerie parallels to more recent events, resulted in the successful criminal prosecution of more than 800 individuals, right up to Charles Keating. And, again, the widespread accounting frauds of the 1990’s, most vividly represented by Enron and WorldCom, led directly to the successful prosecution of such previously respected C.E.O.’s as Jeffrey Skilling and Bernie Ebbers.
In striking contrast with these past prosecutions, not a single high level executive has been successfully prosecuted in connection with the recent financial crisis, and given the fact that most of the relevant criminal provisions are governed by a five-year statute of limitations, it appears very likely that none will be. It may not be too soon, therefore, to ask why.
One possibility, already mentioned, is that no fraud was committed. This possibility should not be discounted. Every case is different, and I, for one, have no opinion as to whether criminal fraud was committed in any given instance.
But the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior. As the Commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising 20-fold between 1998 and 2005 and then doubling again in the next four years. As early as 2004, FBI Assistant Director Chris Swecker, was publicly warning of the “pervasive problem” of mortgage fraud, driven by the voracious demand for mortgagebacked securities. Similar warnings, many from within the financial community, were disregarded, not because they were viewed as inaccurate, but because, as one high level banker put it, “A decision was made that ‘We’re going to have to hold our nose and start buying the product if we want to stay in business.’”
Without multiplying examples, the point is that, in the aftermath of the financial crisis, the prevailing view of many government officials (as well as others) was that the crisis was in material respects the product of intentional fraud. In a nutshell, the fraud, they argued, was a simple one. Subprime mortgages, i.e., mortgages of dubious creditworthiness, increasingly provided the sole collateral for highly-leveraged securities that were marketed as triple-A, i.e., of very low risk. How could this transformation of a sow’s ear into a silk purse be accomplished unless someone dissembled along the way?
While officials of the Department of Justice have been more circumspect in describing the roots of the financial crisis than have the various commissions of inquiry and other government agencies, I have seen nothing to indicate their disagreement with the widespread conclusion that fraud at every level permeated the bubble in mortgage-backed securities. Rather, their position has been to excuse their failure to prosecute high level individuals for fraud in connection with the financial crisis on one or more of three grounds:
First, they have argued that proving fraudulent intent on the part of the high level management of the banks and companies involved has proved difficult. It is undoubtedly true that the ranks of top management were several levels removed from those who were putting together the collateralized debt obligations and other securities offerings that were based on dubious mortgages; and the people generating the mortgages themselves were often at other companies and thus even further removed. And I want to stress again that I have no opinion as to whether any given top executive had knowledge of the dubious nature of the underlying mortgages, let alone fraudulent intent. But what I do find surprising is that the Department of Justice should view the proving of intent as so difficult in this context. Who, for example, were generating the so-called “suspicious activity” reports of mortgage fraud that, as mentioned, increased so hugely in the years leading up to the crisis? Why, the banks themselves. A top level banker, one might argue, confronted with increasing evidence from his own and other banks that mortgage fraud was increasing, might have inquired as to why his bank’s mortgage-based securities continued to receive triple-A ratings? And if, despite these and other reports of suspicious activity, the executive failed to make such inquiries, might it be because he did not want to know what such inquiries would reveal?
This, of course, is what is known in the law as “willful blindness” or “conscious disregard.” It is a well-established basis on which federal prosecutors have asked juries to infer intent, in cases involving complexities, such as accounting treatments, at least as esoteric as those involved in the events leading up to the financial crisis. And while some federal courts have occasionally expressed qualifications about the use of the willful blindness approach to prove intent, the Supreme Court has consistently approved it. As that Court stated most recently in Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060, 2068 (2011), “The doctrine of willful blindness is well established in criminal law. Many criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine of willful blindness hold that defendants cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances.” Thus, the Department’s claim that proving intent in the financial crisis context is particularly difficult may strike some as doubtful.
Second, and even weaker, the Department of Justice has sometimes argued that, because the institutions to whom mortgage-backed securities were sold were themselves sophisticated investors, it might be difficult to prove reliance. Thus, in defending the failure to prosecute high level executives for frauds arising from the sale of mortgage-backed securities, the then head of the Department of Justice’s Criminal Division, told PBS that “in a criminal case … I have to prove not only that you made a false statement but that you intended to commit a crime, and also that the other side of the transaction relied on what you were saying. And frankly, in many of the securitizations and the kinds of transactions we’re talking about, in reality you had very sophisticated counterparties on both sides. And so even though one side may have said something was dark blue when really we can say it was sky blue, the other side of the transaction, the other sophisticated party, wasn’t relying at all on the description of the color.”
Actually, given the fact that these securities were bought and sold at lightning speed, it is by no means obvious that even a sophisticated counterparty would have detected the problems with the arcane, convoluted mortgage-backed derivatives they were being asked to purchase. But there is a more fundamental problem with the above-quoted statement from the former head of the Criminal Division,which is that it totally misstates the law. In actuality, in a criminal fraud case the Government is never required to prove reliance, ever. The reason, of course, is that would give a crooked seller a license to lie whenever he was dealing with a sophisticated counterparty. The law, however, says that society is harmed when a seller purposely lies about a material fact, even if the immediate purchaser does not rely on that particular fact, because such misrepresentations create problems for the market as a whole. And surely there never was a situation in which the sale of dubious mortgage-backed securities created more of a huge problem for the marketplace, and society as a whole, than in the recent financial crisis.
The third reason the Department has sometimes given for not bringing these prosecutions is that to do so would itself harm the economy. Thus, Attorney General Holder himself told Congress that “it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute – if we do bring a criminal charge – it will have a negative impact on the national economy, perhaps even the world economy.” To a federal judge, who takes an oath to apply the law equally to rich and to poor, this excuse — sometimes labeled the “too big to jail” excuse – is disturbing, frankly, in what it says about the Department’s apparent disregard for equality under the law.
In fairness, however, Mr. Holder was referring to the prosecution of financial institutions, rather than their C.E.O.’s. But if we are talking about prosecuting individuals, the excuse becomes entirely irrelevant; for no one that I know of has ever contended that a big financial institution would collapse if one or more of its high level executives were prosecuted, as opposed to the institution itself.
Without multiplying examples further, my point is that the Department of Justice has never taken the position that all the top executives involved in the events leading up to the financial crisis were innocent, but rather has offered one or another excuse for not criminally prosecuting them – excuses that, on inspection, appear unconvincing. So, you might ask, what’s really going on here? I don’t claim to have any inside information about the real reasons why no such prosecutions have been brought, but I take the liberty of offering some speculations, for your consideration or amusement as the case may be.
At the outset, however, let me say that I totally discount the argument sometimes made that no such prosecutions have been brought because the top prosecutors were often people who previously represented the financial institutions in question and/or were people who expected to be representing such institutions in the future: the so-called “revolving door.” In my experience, every federal prosecutor, at every level, is seeking to make a name for him-or-herself, and the best way to do that is by prosecuting some high level person. While companies that are indicted almost always settle, individual defendants whose careers are at stake will often go to trial. And if the Government wins such a trial, as it usually does, the prosecutor’s reputation is made. My point is that whatever small influence the “revolving door” may have in discouraging certain white-collar prosecutions is more than offset, at least in the case of prosecuting high-level individuals, by the career-making benefits such prosecutions confer on the successful prosecutor.
So, one asks again, why haven’t we seen such prosecutions growing out of the financial crisis? I offer, by way of speculation, three influences that I think, along with others, have had the effect of limiting such prosecutions.
First, the prosecutors had other priorities. Some of these were completely understandable. For example, prior to 2001, the FBI had more than 1,000 agents assigned to investigating financial frauds, but after 9/11 many of these agents were shifted to anti-terrorism work. Who can argue with that? Eventually, it is true, new agents were hired for some of the vacated spots in fraud detection; but this is not a form of detection easily learned and recent budget limitations have only exacerbated the problem.
Of course, the FBI is not the primary investigator of fraud in the sale of mortgage-backed securities; that responsibility lies mostly with the S.E.C. But at the very time the financial crisis was breaking, the S.E.C. was trying to deflect criticism from its failure to detect the Madoff fraud, and this led it to concentrate on other Ponzi-like schemes, which for awhile were, along with accounting frauds, its chief focus. More recently, the S.E.C. has been hard hit by budget limitations, and this has not only made it more difficult to assign the kind of manpower the kinds of frauds we are talking about require, but also has led S.E.C. enforcement to focus on the smaller, easily resolved cases that will beef up their statistics when they go to Congress begging for money.
As for the Department of Justice proper, a decision was made around 2009 to spread the investigation of these financial fraud cases among numerous U.S. Attorney’s Offices, many of which had little or no prior experience in investigating and prosecuting sophisticated financial frauds. At the same time, the U.S. Attorney’s Office with the greatest expertise in these kinds of cases, the Southern District of New York, was just embarking on its prosecution of insider trading cases arising from the Rajaratnam tapes, which soon proved a gold mine of good cases that absorbed a huge amount of the attention of the securities fraud unit of that office. While I want to stress again that I have no inside information, as a former chief of that unit I would venture to guess that the cases involving the financial crisis were parceled out to Assistants who also had insider trading cases. Which do you think an Assistant would devote most of her attention to: an insider trading case that was already nearly ready to go to indictment and that might lead to a high-visibility trial, or a financial crisis case that was just getting started, would take years to complete, and had no guarantee of even leading to an indictment? Of course, she would put her energy into the insider trading case, and if she was lucky, it would go to trial, she would win, and she would then take a job with a large law firm. And in the process, the financial fraud case would get lost in the shuffle.
Alternative priorities, in short, is, I submit, one of the reasons the financial fraud cases were not brought, especially cases against high level individuals that would take many years, many investigators, and a great deal of expertise to investigate. But a second, and less salutary, reason for not bringing such cases is the Government’s own involvement in the underlying circumstances that led to the financial crisis.
On the one hand, the government, writ large, had a hand in creating the conditions that encouraged the approval of dubious mortgages. It was the government, in the form of Congress, that repealed Glass-Steagall, thus allowing certain banks that had previously viewed mortgages as a source of interest income to become instead deeply involved in securitizing pools of mortgages in order to obtain the much greater profits available from trading. It was the government, in the form of both the executive and the legislature, that encouraged deregulation, thus weakening the power and oversight not only of the S.E.C. but also of such diverse banking overseers as the O.T.S. and the O.C.C. It was the government, in the form of the Fed, that kept interest rates low in part to encourage mortgages. It was the government, in the form of the executive, that strongly encouraged banks to make loans to low-income persons who might have previously been regarded as too risky to warrant a mortgage. It was the government, in the form of the government-sponsored entities known as Fannie Mae and Freddie Mac, that helped create the for-a-time insatiable market for mortgage-backed securities. And it was the government, pretty much across the board, that acquiesced in the ever greater tendency not to require meaningful documentation as a condition of obtaining a mortgage, often preempting in this regard state regulations designed to assure greater mortgage quality and a borrower’s ability to repay.
The result of all this was the mortgages that later became known as “liars’ loans.” They were increasingly risky; but what did the banks care, since they were making their money from the securitizations; and what did the government care, since they were helping to boom the economy and helping voters to realize their dream of owning a home.
Moreover, the government was also deeply enmeshed in the aftermath of the financial crisis. It was the government that proposed the shotgun marriages of Bank of America with Merrill Lynch, of J.P. Morgan with Bear Stearns, etc. If, in the process, mistakes were made and liabilities not disclosed, was it not partly the government’s fault?
Please do not misunderstand me. I am not alleging that the Government knowingly participated in any of the fraudulent practices alleged by the Financial Inquiry Crisis Commission and others. But what I am suggesting is that the Government was deeply involved, from beginning to end, in helping create the conditions that could lead to such fraud, and that this would give a prudent prosecutor pause in deciding whether to indict a C.E.O. who might, with some justice, claim that he was only doing what he fairly believed the Government wanted him to do.
The final factor I would mention is both the most subtle and the most systemic of the three, and arguably the most important, and it is the shift that has occurred over the past 30 years or more from focusing on prosecuting high-level individuals to focusing on prosecuting companies and other institutions. It is true that prosecutors have brought criminal charges against companies for well over a hundred years, but, until relatively recently, such prosecutions were the exception, and prosecutions of companies without simultaneous prosecutions of their managerial agents were even rarer. The reasons were obvious. Companies do not commit crimes; only their agents do. And while a company might get the benefit of some such crimes, prosecuting the company would inevitably punish, directly or indirectly, the many employees and shareholders who were totally innocent. Moreover, under the law of most U.S. jurisdictions, a company cannot be criminally liable unless at least one managerial agent has committed the crime in question; so why not prosecute the agent who actually committed the crime?
In recent decades, however, prosecutors have been increasingly attracted to prosecuting companies, often even without indicting a single individual. This shift has often been rationalized as part of an attempt to transform “corporate cultures,” so as to prevent future such crimes; and, as a result, it has taken the form of “deferred prosecution agreements” or even “non-prosecution agreements,” in which the company, under threat of criminal prosecution, agrees to take various prophylactic measures to prevent future wrongdoing. But in practice, I suggest, it has led to some lax and dubious behavior on the part of prosecutors, with deleterious results.
If you are a prosecutor attempting to discover the individuals responsible for an apparent financial fraud, you go about your business in much the same way you go after mobsters or drug kingpins: you start at the bottom and, over many months or years, slowly work your way up. Specifically, you start by “flipping” some lower level participant in the fraud whom you can show was directly responsible for making one or more false material misrepresentations but who is willing to cooperate in order to reduce his sentence, and – aided by the substantial prison penalties now available in white collar cases – you go up the ladder. For a detailed example of how this works, I recommend Kurt Eichenwald’s well-known book The Informant, which describes how FBI agents, over a period of three years, uncovered the huge price-fixing conspiracy involving high-level executives at Archer Daniels, all of whom were successfully prosecuted.
But if your priority is prosecuting the company, a different scenario takes place. Early in the investigation, you invite in counsel to the company and explain to him or her why you suspect fraud. He or she responds by assuring you that the company wants to cooperate and do the right thing, and to that end the company has hired a former Assistant U.S. Attorney, now a partner at a respected law firm, to do an internal investigation. The company’s counsel asks you to defer your investigation until the company’s own internal investigation is completed, on the condition that the company will share its results with you. In order to save time and resources, you agree. Six months later the company’s counsel returns, with a detailed report showing that mistakes were made but that the company is now intent on correcting them. You and the company then agree that the company will enter into a deferred prosecution agreement that couples some immediate fines with the imposition of expensive but internal prophylactic measures. For all practical purposes the case is now over. You are happy because you believe that you have helped prevent future crimes; the company is happy because it has avoided a devastating indictment; and perhaps the happiest of all are the executives, or former executives, who actually committed the underlying misconduct, for they are left untouched.
I suggest that this is not the best way to proceed. Although it is supposedly justified in terms of preventing future crimes, I suggest that the future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing. Just going after the company is also both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.
These criticisms take on special relevance, however, in the instance of investigations growing out of the financial crisis, because, as noted, the Department of Justice’s position, until at least very, very recently, is that going after the suspect institutions poses too great a risk to the nation’s economic recovery. So you don’t go after the companies, at least not criminally, because they are too big to jail; and you don’t go after the individuals, because that would involve the kind of years-long investigations that you no longer have the experience or the resources to pursue.
In conclusion, I want to stress again that I have no idea whether the financial crisis that is still causing so many of us so much pain and despondency was the product, in whole or in part, of fraudulent misconduct. But if it was — as various governmental authorities have asserted it was –- then, the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that need to be addressed.
There’s a dark side to the flurry of reports and testimony on drones, helpful as they are in many ways. When we read that Amnesty International and Human Rights Watch oppose drone strikes that violate international law, some of us may be inclined to interpret that as a declaration that, in fact, drone strikes violate international law. On the contrary, what these human rights groups mean is that some drone strikes violate the law and some do not, and they want to oppose the ones that do.
Which are which? Even their best researchers can’t tell you. Human Rights Watch looked into six drone murders in Yemen and concluded that two were illegal and four might be illegal. The group wants President Obama to explain what the law is (since nobody else can), wants him to comply with it (whatever it is), wants civilians compensated (if anyone can agree who the civilians are and if people can really be compensated for the murder of their loved ones), and wants the U.S. government to investigate itself. Somehow the notion of prosecuting crimes doesn’t come up.
Amnesty International looks into nine drone strikes in Pakistan, and can’t tell whether any of the nine were legal or illegal. Amnesty wants the U.S. government to investigate itself, make facts public, compensate victims, explain what the law is, explain who a civilian is, and — remarkably — recommends this: “Where there is sufficient admissible evidence, bring those responsible to justice in public and fair trials without recourse to the death penalty.” However, this will be a very tough nut to crack, as those responsible for the crimes are being asked to define what is and is not legal. Amnesty proposes “judicial review of drone strikes,” but a rubber-stamp FISA court for drone murders wouldn’t reduce them, and an independent judiciary assigned to approve of certain drone strikes and not others would certainly approve of some, while inevitably leaving the world less than clear as to why.
The UN special rapporteurs’ reports are perhaps the strongest of the reports churned out this week, although all of the reports provide great information. The UN will debate drones on Friday. Congressman Grayson will bring injured child drone victims to Washington on Tuesday (although the U.S. State Department won’t let their lawyer come). Attention is being brought to the issue, and that’s mostly to the good. The U.N. reports make some useful points: U.S. drones have killed hundreds of civilians; drones make war the norm rather than an exception; signature strikes are illegal; double-tap strikes (targeting rescuers of a first strike’s victims) are illegal; killing rather than capturing is illegal; imminence (as a term to define a supposed threat) can’t legally be redefined to mean eventual or just barely imaginable; and — most powerfully — threatened by drones is the fundamental right to life. However, the U.N. reports are so subservient to western lawyer groupthink as to allow that some drone kills are legal and to make the determination of which ones so complex that nobody will ever be able to say — the determination will be political rather than empirical.
The U.N. wants transparency, and I do think that’s a stronger demand than asking for the supposed legal memos that Obama has hidden in a drawer and which supposedly make his drone kills legal. We don’t need to see that lawyerly contortionism. Remember Obama’s speech in May at which he claimed that only four of his victims had been American and for one of those four he had invented criteria for himself to meet, even though all available evidence says he didn’t meet those criteria even in that case, and he promised to apply the same criteria to foreigners going forward, sometimes, in certain countries, depending. Remember the liberal applause for that? Somehow our demands of President Bush were never that he make a speech.
(And did you see how pleased people were just recently that Obama had kidnapped a man in Libya and interrogated him in secret on a ship in the ocean, eventually bringing him to the U.S. for a trial, because that was a step up from murdering him and his neighbors? Bush policies are now seen as advances.)
We don’t need the memos. We need the videos, the times, places, names, justifications, casualties, and the video footage of each murder. That is to say, if the UN is going to give its stamp of approval to a new kind of war but ask for a little token of gratitude, this is what it should be. But let’s stop for a minute and consider. The general lawyerly consensus is that killing people with drones is fine if it’s not a case where they could have been captured, it’s not “disproportionate,” it’s not too “collateral,” it’s not too “indiscriminate,” etc., — the calculation being so vague that nobody can measure it. We’re not wrong to trumpet the good parts of these reports, but let’s be clear that the United Nations, an institution created to eliminate war, is giving its approval to a new kind of war, as long as it’s done properly, and it’s giving its approval in the same reports in which it says that drones threaten to make war the norm and peace the exception.
I hate to be a wet blanket, but that’s stunning. Drones make war the norm, rather than the exception, and drone murders are going to be deemed legal depending on a variety of immeasurable criteria. And the penalty for the ones that are illegal is going to be nothing, at least until African nations start doing it, at which point the International Criminal Court will shift into gear.
What is it that makes weaponized drones more humane than land mines, poison gas, cluster bombs, biological weapons, nuclear weapons, and other weapons worth banning? Are drone missiles more discriminate than cluster bombs (I mean in documented practice, not in theory)? Are they discriminate enough, even if more discriminate than something else? Does the ease of using them against anyone anywhere make it possible for them to be “proportionate” and “necessary”? If some drone killing is legal and other not, and if the best researchers can’t always tell which is which, won’t drone killing continue? The UN Special Rapporteur says drones threaten to make war the norm. Why risk that? Why not ban weaponized drones?
For those who refuse to accept that the Kellogg Briand Pact bans war, for those who refuse to accept that international law bans murder, don’t we have a choice here between banning weaponized drones or watching weaponized drones proliferate and kill? Over 99,000 people have signed a petition to ban weaponized drones at http://BanWeaponizedDrones.org Maybe we can push that over 100,000 … or 200,000.
It’s always struck me as odd that in civilized, Geneva conventionized, Samantha Powerized war the only crime that gets legalized is murder. Not torture, or assault, or rape, or theft, or marijuana, or cheating on your taxes, or parking in a handicapped spot — just murder. But will somebody please explain to me why homicide bombing is not as bad as suicide bombing?
It isn’t strictly true that the suffering is all on one side, anyway. Just as we learn geography through wars, we learn our drone base locations through blowback, in Afghanistan and just recently in Yemen. Drones make everyone less safe. As Malala just pointed out to the Obama family, the drone killing fuels terrorism. Drones also kill with friendly fire. Drones, with or without weapons, crash. A lot. And drones make the initiation of violence easier, more secretive, and more concentrated. When sending missiles into Syria was made a big public question, we overwhelmed Congress, which said no. But missiles are sent into other countries all the time, from drones, and we’re never asked.
We’re going to have to speak up for ourselves.
- Amnesty International and Human Rights Watch Blast U.S. Drone Strikes (world.time.com)
- US defends drone strikes despite Amnesty report (abc.net.au)
Currency Markets Are Rigged
Currency markets are massively rigged.
Bloomberg reports today:
The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said.
The Federal Bureau of Investigation, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential.
Swiss regulators last week said they were “coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.”
The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it was reviewing potential manipulation of exchange rates….
- U.S. Said to Open Criminal Probe of Currency Market Rigging (bloomberg.com)
- Three Banks Are Reportedly Cooperating With A New Justice Department Criminal Probe Into Currency Market Manipulation (businessinsider.com)
- US And European Regulators Probing FX Market Rigging (zerohedge.com)
- UPDATE 1-U.S. looking at alleged forex manipulation -source (xe.com)
- New rules urged over FBI drone use (bbc.co.uk)
- Domestic drones aren’t new: the FBI has used them since 2006 (techi.com)
- Justice Department spent nearly $5M on drones (cbsnews.com)
- Jacob Chamberlain – ACLU Slams DOJ Over Unchecked Drone Program (prn.fm)
- Vote: Was justice done with JPMorgan? | Jon Talton (blogs.seattletimes.com)
- Robert Prasch: The “Lessons” that Wall Street, Treasury, and the White House Need You to Believe About the Lehman Collapse (nakedcapitalism.com)
- What Exactly is “Too Big to Fail”? (epluribusuno.wordpress.com)
- Halliburton to plead guilty on spill (bbc.co.uk)
- Halliburton Admits Destroying Evidence Over BP Spill (newser.com)
- Halliburton to plead guilty to destroying evidence in Gulf spill case (fuelfix.com)
- Halliburton pleads guilty to destroying Gulf oil spill evidence (rawstory.com)
- Leading Australian Telco storing data on behalf of US government (smh.com.au)
- U.S. “compelled” Australia’s Telstra to give FedGov “surveillance access” to its undersea cables. Original PDF doc: http://t.co/NNnt5H3bgf (crikey.com.au)
- Telstra’s secret US surveillance deal (theage.com.au)