Make No Mistake: Eric Holder Chose Not to Jail the Bankers
In the wake of Eric Holder’s announcement that he’d be stepping down as U.S. Attorney General (once his replacement has been nominated and confirmed by the Senate, that is), various news outlets have looked back on his tenure, assessing his legacy as the nation’s chief law enforcement officer. But the coverage misses a key point: an Attorney General that’s ruthlessly pursued whistleblowers and fought hard to justify the extra-judicial killing of Americans abroad could have applied this same ferociousness to prosecuting Wall Street. But he chose not to.
Some coverage ignored Holder’s legacy in (not) policing Wall Street altogether. Others mentioned the Justice Department’s lackluster record on policing financial fraud, but focused instead on the headline-grabbing settlement numbers negotiated during his tenure. Others still, like John Dickerson on Slate’s Political Gabfest, had an eager, credulous view of Holder’s legacy, repeating the Administration’s view that while populist anger is righteous, the blood-thirsty mobs calling for banker justice just don’t have the law on their side.
This last point is most important to explore, as the Obama Administration wants us to believe that the Department of Justice really wanted to jail the bankers, but couldn’t. The Administration has forcefully maintained that a lack of clear legal authority, and blurred lines between unethical and illegal behavior during the crisis, thwarted their attempts. But despite the frequent invocation of this talking point, it remains wrong.
First, let us recall that insiders have claimed that prosecutors had strong cases against the banks, but were thwarted in their efforts to pursue investigations. As one example: James Kidney, a former SEC enforcement lawyer, contends he was stymied in pursuing higher-ups at Goldman Sachs during his investigation into the Abacus deal. Theoretically, a strong SEC civil investigation – which Kidney wasn’t permitted by his superiors to undertake – could’ve been used as fodder for a Department of Justice criminal probe. This is reinforced by the sentiments of Senator Carl Levin, whose Senate Permanent Subcommittee on Investigations relentlessly investigated the Abacus deal, and referred the information to the Department of Justice. The Senator, echoing Mr. Kidney, publicly slammed the Administration’s decision not to pursue a criminal case.
Similarly, many commentators were confused by the Department’s decision in 2011, after two years of investigation, to drop a criminal investigation against former Countrywide CEO Angelo Mozilo. Oddly, the Justice Department decided to drop the case even after the SEC received a favorable, $67.5 million verdict in their civil case. And this comes in the face of some very public whistleblower accounts, documented by journalist Michael Hudson, which outline behavior suggesting that systemic and long-standing fraud occurred within Countrywide. And while an August Bloomberg article indicated that the U.S. Attorney’s office in Los Angeles may soon bring civil charges against Mozilo, we have still seen no criminal charges against this poster child of the 2008 meltdown.
The Administration also had the power, under the Servicemember Civil Relief Act (SCRA), to bring criminal cases when there’s been an illegal foreclosure against a servicemember, if it occurred during their military service, or up to 3 months thereafter. Violations of SCRA are punishable by a sentence of up to a year of imprisonment. Banking regulators’ own investigation into SCRA violations, whose results were released last year, uncovered 1,082 instances of illegal SCRA foreclosures. None of those led to criminal convictions, with the Department and banking regulators opting instead for monetary settlements with the largest mortgage-servicing banks.
Beyond these specific examples of Justice Department forbearance on our largest financial institutions, Holder recently reinforced this passive attitude the Administration took towards the banks in a speech at New York University Law School.
Holder lamented that in corporate America, “the buck still stops nowhere” when wrongdoing occurs. Why? Because “responsibility remains so diffuse, and top executives so insulated, that any misconduct could again be considered more a symptom of the institution’s culture than a result of the willful actions of any single individual.”
His remarks on diffuse responsibility are very curious, since Congress and the Bush Administration passed the Sarbanes-Oxley Act (SOx) of 2003 to mitigate against this exact problem in the wake of corporate accounting scandals.
If the Justice Department thought that the certifications signed by executives – which again only apply to financial reporting – were too narrow, or too hard to prove, they could’ve requested that Congress act to broaden the certification requirement. But the Department never did that in the wake of the crisis.
Holder points to the blurry lines of responsibility at American banks as if it’s a legitimate, intractable frustration blocking his investigations. It’s hard not to see the absurdity of Holder’s complaint.
It’s as if Holder is saying “if only someone with power would do something about these oversized, unaccountable banks!”
Holder is wrong to complain about this issue as if the Administration has no power to fix it. Taking JPMorgan Chase as one example, Holder is right that’s it’s probably a diffuse organization with many lines of reporting, making it difficult to pinpoint individual employees engaged in wrongdoing. With activities ranging from providing credit cards, to selling complex swaps to municipalities, to servicing mortgages, to trading in energy markets, to managing pension funds, to (until recently) vaulting and trading in precious metals (all activities for which they’ve run into regulatory trouble, as Josh Rosner documents in a report on the bank), the bank is probably hard to manage. All told, according to the NY Fed, the bank has more than 3,300 subsidiaries and $2.4 trillion in client assets.
But the size and complexities of U.S. banks are things that the Administration has the capacity to change.
If Holder was truly concerned that some organizations are too opaque, too complex, and have lines of responsibility that are too fuzzy to allow prosecutions against culpable individuals, it begs the question: why didn’t the Administration work to reduce the size and complexity of the largest U.S. banks? And why didn’t they do so when many in the Congress were ready to undertake such an effort? And why did Holder back down from his comments of last year, where he stated that some banks may just be Too Big to Jail?
This is an Administration that understands how to wield power. And Eric Holder is no exception, presiding over an unprecedented crackdown on whistleblowers and journalists, demonstrating a tremendous willingness to consolidate executive authority, and providing legal cover for an Administration searching for a justification to conduct airstrikes in foreign lands, even as those airstrikes kill Americans without due process. Rightly or wrongly, Eric Holder’s Justice Department has demonstrated that where there’s a will, there’s a way. So in the face of these credible chances to bring Wall Street prosecutions, it stands to reason that the missed opportunities weren’t because of a lack of legal authority, but instead a lack of political will.
Image credit: Ben Sutherland, Creative Commons.