Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Wednesday, June 06, 2012

Mortgage Fraud Investigation Pushes Forward, Hires Criminal Prosecutor

The investigation into widespread fraud on Wall Street leading up to the financial crisis will now have a proseucting attorney to help the effort. Virginia Chavez Romano,a former assistant US attorney in New York, was hired  by Eric Schneiderman, the New York attorney general and co-chair of the task force. She is not an official hire of the working group, but rather will assist Schneiderman in his efforts as co-chair.

Romano participated in the criminal indictments of Credit Suisse employees earlier this year for falsifying prices tied to collateralized debt obligations. This is just the sort of fraud the working group wants to go after, though you can look at Romano’s case history in two different ways.

While it’s terrific to go after mispricing CDOs—this is really at the heart of the crisis—Credit Suisse itself was not charged in that case, but rather relatively lower-level employees were indicted. If the working group is now interested in actually going after institutions for this behavior and Romano can help, great. If we’re just going to see indictments of folks on the trading desk, that’s generally not the sort of prosecutions that force systemic change on Wall Street.

But Romano’s hiring is no doubt another step forward, and it shouldn’t go unnoted that she has experience prosecuting criminal cases of financial fraud. The addition of Romano comes after Matthew Stegman was hired as coordinator in May and also on the heels of an all–working group meeting in Washington late last week.

That meeting drew over 250 agents, analysts and investigators from several states and law enforcement agencies to the Securities and Exchange Commission headquarters.

I spoke with Acting Associate Attorney General Tony West during the meetings, and he said there is definitely forward momentum. “We’ve been discussing a number of cases that are ongoing, a number of investigations that have been going on for some time, as well as new targets, new areas of opportunity, new legal theories that we want to bring to bear to certain specific factual scenarios, specific targets—and it’s proving to be quite a productive meeting,” he said.

I asked West if criminal prosecutions were being discussed at the meetings, and he said they are “very much a part of this working group” and added that “we will not be deterred from pursuing wrongoing by individuals or insitutions.” But he also sounded cautious notes about the difficulty of actually winning.

“I sometimes wish that we could do what you see on TV in terms of these courtroom dramas and just say ‘something is wrong’ and then get a conviction,” West said. “If you’re talking about these cases, you’re talking about fraud that you have to prove in a criminal case beyond a reasonable doubt, you have to prove criminal intent—that someone intended to mislead someone, you have to prove there was a misrepresentation, a lie, that someone lied and that lie mattered, it was material, and they intended to deceive whoever it was they were deceiving.

“That can be quite tricky in these cases where so much of what went on was siloed so that people were necessarily separated and the process was broken up, but that’s not deterring us from looking for criminal violations of the law, looking for fraud,” West said. “But wherever we find it, whether it’s criminal or civil, we’re going to pursue it.”

Meanwhile, the Department of Justice is on the defensive about its record of prosecuting financial fraud, which no doubt raises the stakes for the RMBS group. The heat is coming from an unlikely source this time: Republican Senator Chuck Grassley.

In March, Grassley criticized DOJ officials in a hearing for the department’s “terrible” record of prosecuting high-ranking Wall Street officials and institutions. DOJ later responded that it had brought “thousands of mortgage fraud cases over the past three years, and secured numerous convictions against CEOs, CFOs, board members, presidents and other executives of Wall Street firms and banks for financial crimes.”

This is news to pretty much everyone, so Grassley demanded a list. He just received that list today—past the deadline he gave, as JD Supra notes—and while it was extensive, it didn’t break down any specific cases of mortgage fraud, because DOJ said it “does not maintain [such] statistical data.”

Absent from the list, in any case, was any high-profile prosecution of Wall Street mortgage fraud that led to the financial crisis, because it doesn’t exist. Grassley said the response “substantiates my suspicion” that it “isn’t going after the big banks, big financial institutions or their executives.” The RMBS working group certainly has the power to change that, and despite some clearly positive developments, it still remains to be seen when—or if—it will.

Original Article
Source: the nation
Author: George Zornick 

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