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SEC Shows Abject Incompetence in Toxic CDO Case Against Citi Staffer

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The verdict is in: nearly 20 years of keeping the SEC budget starved and cowed have rendered a once competent and feared agency incapable of doing more than winning cases on illegal parking, um, insider trading.

The SEC’s performance in the case at issue, SEC v. Stoker, was such a total fail that the odds are high that any motivated member of the top half of the NC readership would have done a better job of arguing this case pro se than the SEC did. Even though this case was argued before a jury (ooh, scary! They might go into My Eyes Glaze Over mode on CDO details), the basic issues were simple. The CDO squared that Citigroup director Brian Stoker marketed to investors was presented as having its assets selected by an independent asset manager. This is crucial. Just as investors in mutual funds understand they are hiring a fund management firm, and they compete on track records, so to were managed CDOs sold on the notion that the managers were serving the interests of the investors. And this is particularly important for CDOs, since the fact that the final asset list is made available shortly before closing makes it pretty much impossible for investors to evaluate a CDO on their own even if they had the skills and motivation. As we wrote in an earlier post:

The Alternative Banking Group of Occupy Wall Street’s amicus brief in support of Judge Rakoff’s position in the pending appeal makes clear what would be involved in assessing them (boldface original):

The Citigroup CDO at issue in this case was a “hybrid” – this meant that the CDO included cash bonds, and simultaneously made it possible (through CDS) to bet against the housing market. The fact that the security was also a “CDO squared” meant that it was a repackaging of approximately sixty bonds issued by other CDOs, which in turn were backed by fifty to one hundred tranches of MBS bonds, making the leverage on the mortgage market even greater. It appears that this single CDO transaction was backed by approximately three thousand MBS bonds which, by a conservative estimate, were backed by approximately fifteen hundred MBS transactions. Each MBS transaction contained, on average, over two thousand mortgage loans, with an average balance of approximately $160,000. Therefore, in aggregate, the Class V Funding III transaction referenced approximately three million subprime mortgage loans with an aggregate balance of around five hundred billion dollars.

In fact, the manager on the deal in question (Credit Suisse) was NOT independent, but was chosen because it would go along with Citi’s plan to design the CDO to satisfy the interest of short investors, most important, Citi itself, which took down over half the CDS in the deal, and also stuffed $92 million of its toxic bonds in the cash portion (the non-CDS component). Citi made $160 million while investors lost roughly $700 million.

So what did the SEC’s strategy appear to be? This seems to have been a parallel to the approach in the Goldman suit against Goldman’s Fabrice Tourre: to target an non-executive and get him to roll the higher ups. But Tourre and Stoker were both enough made men to be willing to fight. Stoker had a $2.2 million guarantee for 2007. Guys like that do not want to lose their access to the industry meal ticket.

So what was Stoker’s defense? That he was being scapegoated, and Citi should really be on trial. Huh? In prosecutions, whether other parties are being charged is irrelevant. The question at hand is: did the party on trial engage in the conduct in question or not? Saying, “I was only the car driver in the robbery, I didn’t enter the convenience store” does not get you off of being an accessory to a crime. It’s pretty bloomin’ obvious that Stoker misrepresented the deal to investors. He had held securities industry licenses; he knew what the standards were.

I have a raft of disgusted messages from attorneys in my inbox. This one is typical:

We might as well give up the notion that anyone can ever be held accountable by the SEC if they can’t win this case. It was a lay up and they blew it.

A seasoned trial attorney remarked that the note from the jury was “just sad”. The note in question:

This verdict should not deter the S.E.C. from investigating the financial industry, to review current regulations and modify existing regulations as necessary.

But it will do precisely that. Having been exposed as inept, the SEC is guaranteed to avoid another public embarrassment. So they will continue to draft claims that get good PR and settle cases. And it is a no brainer that the Obama Administration will refer to this decision as further proof that it is just too hard to pin anything on those bank executives. One has to wonder, given SEC enforcement chief Robert Khuzami’s deep involvement in the CDO business (he was general counsel of the Americans at Deutsche Bank from 2004 to 2009) and the Administration’s insistence that it’s pointless to even try to prosecute bank executives, whether this case was thrown, as opposed to merely lost. But absent evidence, never attribute to malice that which can be explained by incompetence.

Charles Ferguson and Eliot Spitzer are right. If anyone was really serious about going after bank misdeeds, the path of action would be to go after how bankers pay for drugs and prostitutes on the company dime. This would not be hard to prove and the threat of jail time would get them to sing. But it’s long been apparent that the problem is not the lack of viable courses of action, but lack of will to undermine the rule of our financial overlords.

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48 comments

  1. KnotRP

    When the fighter takes a dive and loses
    on a whiffed punch, the fix is in.

    The only way out is to stop playing
    a known rigged game. The economy
    is going to shrivel up and die…..a slow,
    grinding halt.

    1. psychohistorian

      Agreed!

      America is the drunk rich uncle of the elite who has been in control of all until now but chinks are showing in the armor and other parts of the world are actively exploring ways to not be controlled by the Western financial system and the US Reserve Currency status. The leveraged control of the world’s “wealth” that is going to be attempted with the next crash by derivatives will be telling in its outcome.

  2. C

    All day my inbox has been stuffed with appeals for me to donate to the cause and help the dems win so they can outspend Romney and fend off the R’s presumably evil plans. Even at the state level contests turn on Islamic Terrerism not, say, the crumbling roads.

    In brief what this case and those e-mails say to me is that the actual functions of government (prosecuting real crime and fixing infrastructure) are not being done and never will be, not at least while K-Street Shore is still on.

  3. Gerard Pierce

    There is a rule called Hanlon’s razor: Never attribute to malice that which is adequately explained by stupidity.

    In the case of today’s “regulators”, perhaps the rule should be the opposite. It might make more sense to believe that the fix was in than to assume incompetence.

    1. ex-PFC Chuck

      You could call the rule “Nolnah’s Rozar;” “Hanlon’s Razor” spelled backwards.

  4. Hugh

    I go with malice. Schapiro and Khuzami are creatures of the financial industry and have shown no interest in doing anything other than going through the motions on a few cases like these. Remember all this involves the largest frauds in human history. So their attitude is beyond lackadaisical. It is more like deeply comatose. So the real question on a prosecution like this is why did they even bother to let it go forward? And I think the answer is that deliberately bungling a gimme like this one lets them off the hook to pursue all the other cases of this kind. So this wasn’t incompetence from stupidity. It was incompetence by design. It was malice. The SEC threw the case because it had no reason to win it and every reason to lose it. And that’s what they did.

  5. MichaelC

    Conflicting priorities at the SEC gets my vote.

    This was tried in Rakoff’s court, so one would expect the SEC had an advantage, over and above the obvious merits of the case.

    The case for the position that the SEC fixed the fight (in which the SEC is aligned with CITI for Pete’s sake)in order to strengthen their pending existential battle with Rakoff to retain their authority to dispense justice through low ball fines without interference from meddling jurists seems plausible.

    But as Yves makes clear, absent evidence… Who’s to say either way without sounding like a nutter?

    It’s revolting but at least the jurors felt enough shame and were disgusted enough to apologize for their decision and scold the prosecutors in this case. At least one holdout understood the significance of the case and must have insisted on the statement.

    1. MichaelC

      Correction:

      Conflicting priorities at the SEC gets my vote.

      This was tried in Rakoff’s court, so one would expect the SEC had an advantage, over and above the obvious merits of the case.

      The case for the position that the SEC fixed the fight in order to strengthen their pending existential battle with Rakoff (in which the SEC is aligned with CITI for Pete’s sake) to retain their authority to dispense justice through low ball fines without interference from meddling jurists seems plausible.

      But as Yves makes clear, absent evidence… Who’s to say either way without sounding like a nutter?

      It’s revolting but at least the jurors felt enough shame and were disgusted enough to apologize for their decision and scold the prosecutors in this case. At least one holdout understood the significance of the case and must have insisted on the statement.

  6. hermanas

    “he followed the bank’s best practices” was his defense, the jury wants a different target:citi’s boss.

    1. Yves Smith Post author

      The claim makes clear that Stoker had held 2 SEC licenses in the past: a Series 7 (the bread and butter license) and I forget what the other was. He can’t say he didn’t know what the law was.

      This was against SEC rules and common sense understanding of fraud (what attorneys call “good faith and fair dealing”). It’s never accepted as a defense that your company thought it was OK when you knew better. But the SEC muffed explaining that basic concept. Help me.

      1. hermanas

        Dear Yves,
        “But the SEC muffed explaining that basic concept. Help me.”
        You got it.That’s it.
        love.

      2. hermanas

        Citi sells a billion $ security investment to clients,
        then bets 1/2 billion $ short’n it.
        “Best banking practices” huh?

      3. hermanas

        “Pretty to walk with, witty to talk with”.
        That’ld be you, Yves.
        Walking and talking, always risky.
        “Lower than a worm’s navel on a subway under the East River” also comes to mind.
        Stoker’s new problem. Risk analysis,topside.

  7. JGordon

    While the upper half of the elite NC readership may indeed have handled this case much more brilliantly than the SEC, it’s important to keep in mind that it’s the lower half of the NC readership who would have exercised the better strategic option by just ignoring it completely.

    Since this government and legal system is irredeemably corrupt, trying to redeem it is a foolish waste of effort, by definition! Just sit back and watch this pig go down–stressing out over the inevitable will just lead to a lot of useless health problems.

  8. Warren Celli

    s Hollywood losing its sting?

    PROPOSAL: “SEC BLOODS”

    The SEC needs a PR, apologist propaganda TV cops show, like Blue Bloods, that glorifys and portrays gangster law breaking cops as caring family men who really have the public interest at heart. Its a great ‘family’ cop show that is so nauseatingly transparent and formula in its apologist PR that you almost want to barf. But the rubes, especially cop rubes, are lapping it up.

    In each episode there is always a Jack Bauer scene where the ‘perp’, if not busted in on and ‘taken out’ immediately, will kill an innocent victim. And so the rightious dialogue goes “Screw the warrant we’ll clean it up later!”

    Then there is always the big family dinner table scene in each episode, with scum bag sell out ‘Viet Nam veteran Marine’, Tom Sellick, grovelling and obsequiously sucking system butt so fast and furious it takes your breath away. And then there is the plea bargaining, the covered up transgressions justified by goodness, the obligatory FBI interagency struggle excuses, the Harvard Law School connection, the investigation and arrest of “dirty cops”, etc. What a sewer of bullsh!t!

    That’s all the SEC needs — a little warm and fuzzy apologist PR. There is a great opportunity here for some corrupt Xtrevilist sell out producer to suck system balls and make some brownie points. Where IS Jerry Bruckheimer? Maybe some casting suggestions will smoke him out.

    Or maybe OWS should dump the useless as teats on a bull amicus brief effort and spend some time writing and producing it own show — “SEC CORRUPT!”

    Deception is the strongest political force on the planet.

      1. Yalt

        Please do. You can call it Yalt’s razor.

        I thought of calling it Yalt’s guillotine but I don’t want to be unnecessarily inflammatory in my choice of cutting tool.

  9. Skeptical

    All of these CDO cases suffer from the same weakness. Any so called sophisticated investor could examine the underlying collateral and see that it was toxic, irrespective of who selected, or benefitted from, such collateral.

    In addition, all subordinate tranches of CDOs and subprime bonds got wiped out, not only the particular ones in a particular CDO. So it’s hard to establish that the selection process was critical to the final outcome.

    None of this diminishes the deeply immoral behavior of Citi, which preyed on investors who did not realize that they were in over their heads.

    I’d bet that Citi used a jury consultant, since the caveat emptor defense is very much a rorschach test.

    1. Yves Smith Post author

      Google “hindsight bias”. Your comment is a textbook example of a cognitive bias which Wikipedia defines as “pattern of deviation in judgment that occurs in particular situations, leading to perceptual distortion, inaccurate judgment, illogical interpretation, or what is broadly called irrationality”

      Please reread the post. It was not generally recognized that these deals were toxic in February 2007. You should go read my blog posts of that era. I was sticking my neck out in being skeptical. Big sophisticated investment banks were keen to buy servicers back then. Merrill had just closed on First Franklin. So that was a signal they thought the subprime market had bottomed.

      The stupid part was buying something so complicated that it was in effect impossible to evaluate.

      1. Skeptical

        Apparently, “hindsight bias” proved to be a very effective courtroom strategy for the defendants. And the SEC was unable to overcome jurors’ bias toward hindsight bias.

        Anyone accused of fraud will challenge the claim that concealment of such information caused the investors to lose money, because the toxic attributes of the deal were disclosed, albeit in the fine print.

    2. Ms G

      Wasn’t the whole point of slapping AAA ratings on these toxic packages to tell buyers that their due diligence was “done” once they saw the AAA rating? I.e., that it was not necessary under investor due-diligence “best practices”to open up the box and sift through the thicket of information on the underlying junk? As well, when was the last time you heard about a buyer being able to do adequate due diligenec on instruments as complicated as these at the last minute before closing the purchase? Last-minute is when the reviewable information was turned over . . . and because of the phony AAA ratings it was clearly understood that ain’t nobody was gonna be lookin’ to deep at what was inside the package.

      The lesson I took away from The Big Short was that the only real due diligence — actually looking at the crap mortgages that were shoved into the CDO packages — was done by one guy (and then a few others).

      Do you really believe your own words?

      1. Skeptical

        Yes, the buyers were duped by fraudulent AAA ratings. But the rating agencies were not on trial (though their fraud would be easier to trace.)

  10. Greg R

    Message to the jurors: Take your note and shove it. Your job was not to produce unsolicited notes. It was to be jurors. Think about how well you did that job.

    1. PL

      The jurors got snookered. They were wondering about people not in the courtroom instead of concentrating on the defendant in front of them. Even if other people were involved, the actions of this individual were at issue.

      1. scraping_by

        That’s the prosecution’s job. Any defense will try to muddy the waters, the state has to keep to its theory of the crime.

        Indeed, prosecutors have been known to use the defense’s smokescreening to turn the jury toward conviction. Not right, but normal human thought process. The suspiscion that the accused has no defense but distraction.

  11. Peripheral Visionary

    I have read several articles on this case now, and all of them, this one included, are missing any serious analysis of the facts of law in question.

    The SEC had a sympathetic jury and a very sympathetic judge, and the case was all but thrown out of court. If the SEC had had any kind of a case, with this judge and this jury, all they would have had to do is show up. They showed up and the case got shut down, which strongly suggests that there was no real case to begin with.

    I realize this is not the message people want to hear, but it’s entirely possible that this crisis was brought about by a long string of incompetence and selfishness, but very little by way of actual criminal behavior. Matt Levine at Dealbreaker hits it right on the head:

    “That is in microcosm the problem that the SEC deals with: everyone in America, even Eliot Spitzer, is really really convinced that there was widespread wrongdoing in the financial industry, and that that wrongdoing caused the financial crisis. The problem is that nobody really knows what it was.”

    And further:

    “But the other possibility is that the crisis was less directly tied to deliberate fraudulence than people think, and that these jurors – who, I’ll just assume, Speak For All Americans – are a little like those people (all of them) who hate Congress but re-elect their congressmen. The jury was pretty sure that the financial industry is full of crooks who conspired to throw the world into recession and evict everyone from their homes. But the one financial industry executive they got to pass judgment on, the one who sold derivatives based on misrated packages of subprime mortgage tranches to German banks that later failed because of their mortgage exposure? Obviously he didn’t do anything wrong. It was those other guys who were the crooks. Good luck finding them, SEC.”

    Exactly.

    If society wanted to hold the financial industry accountable, they would have let the banks fail, taking down with them the wealth and reputations of their leaders. But the Federal Reserve and Congress and the President(s) already made the decision that that was not going to happen.

    1. Hugh

      This is drinking the koolaid. It completely ignores that the policy stance of this Administration is not to investigate the largest frauds in human history. They don’t look for anything. Unsurprisingly, they don’t find anything. And then spinmeisters proclaim there is nothing to see here, maybe some bad behavior but nothing criminal, certainly nothing prosecutable, chalk it down to animal spirits and move on.

      One step down in the hierarchy there are agencies like the SEC completely owned by those they are supposed to oversee. They stage a handful of kabuki prosecutions, small fish, pitiful settlements, thrown cases, and declare in turn their job is done. They can do no more. Their resources are better used elsewhere.

      And as lame, pathetic, and obvious as this all is, there are a lot of gullible people out there who swallow it whole. They may wave their finger at Wall Street and the SEC, but they buy the underlying message, nothing to see here, move along, lock, stock, and barrel.

    2. MichaelC

      All right. The decision was hard enough to take but to see this impossibility being echoed again is beyond endurance.

      You paraphrase Levine:

      “It’s entirely possible that this crisis was brought about by a long string of incompetence and selfishness, but very little by way of actual criminal behavior.” so let’s have a closer look at Levine’s piece.

      Re
      ‘That is in microcosm the problem that the SEC deals with: everyone in America, even Eliot Spitzer, is really really convinced that there was widespread wrongdoing in the financial industry, and that that wrongdoing caused the financial crisis. The problem is that nobody really knows what it was.”

      No,the problem is that the many frauds need precedent cases for each particular element of the fraud. In Stokers case the element on trial was negligent disclosure. The SEC needed to define that standard in this case, so it could pursue subsequent cases for each of the securitization involving this particular fraudulent element.

      Have a look at the footnotes (**** to be specific) in Levine’s piece. ‘Citi might be naked short the deal, so it’s hard to find that Stoker failed to tell clients that Citi was naked short the deal.

      What’s so hard?

      ‘Might’ and ‘actually are’, big time,are hardly the same thing. The SEC merely had to prove that failing to make that distinction was a negligent act.

      The conclusion that ‘the (first)other possibility is that the crisis was less directly tied to deliberate fraudulence than people think’. is complete nonsense.

      That possibility flies in the face of previous settlements w the SEC and runs counter to just about every investigative analysis of the crisis, including much of Levine’s previous and usually good (and irreverent) reporting.

      If you accept that the “might be” disclaimer is adequate disclosure given that the entire deal was structured to guarantee that CITI was short, then the Goldman Abacus fine was equally unwarranted and that the pathetically small proposed CITI settlement on this same deal is also unwarranted. The SEC has apparently let the jury set that standard for them.

      The fact that the SEC failed to make the case that ‘might be’ is not an acceptable level of disclosure in this case, given its precedent setting importance is a travesty and the blame falls squarely on the SEC’s shoulders, not the jurors.

      The other major flaw that the rest of the piece relies on,
      “Look. We got the guy responsible for the financial crisis. Turns out it was Brian Stoker.” is ludicrous.

      Stoker is the first to be tried for this element of the overall fraud. He was meant to be at the head of the line for negligent disclosure.

      Contra Levine ,anyone who buys the line that enforcement game should be over because the SEC tapped the wrong guy as the mastermind and failed to prosecute is an idiot.

      If the SEC or the administration try to use this line to avoid taking another stab at trying the banksters then that’s another story, but there’s more than ‘very little’ in the way of criminal activity at the root of this crisis.

    3. Doug Terpstra

      Nice circular logic here, Peripheral. “If society wanted to hold the financial industry accountable, they would have let the banks fail, taking down with them the wealth and reputations of their leaders.” Gee, if only.

      And too bad the SEC didn’t actually show up for this case. Too preoccupied?

      http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544

      (April 2010) “…a new government report … has concluded that some senior employees spent hours on the agency’s computers looking at sites such as naughty.com, skankwire and youporn as the financial crisis was unfolding.

      “‘These guys in the middle of a financial crisis are spending their time looking at prurient material on the Internet,’…

      “‘It’s reckless, and indicates a contempt for the taxpayer and the taxpayer’s interest in monitoring financial markets,’ [Peter] Morici said.

      “The investigation, which was conducted by the SEC’s internal watchdog at the request of Sen. Chuck Grassley, R-Iowa, found 31 serious offenders during the past two and a half years…17 of the alleged offenders were senior SEC officers whose salaries ranged from $100,000 to $222,000 per year.”

      It’s time for an eye test, Visionary, or maybe lose the ideological blinders.

    4. Peter Pinguid Society

      Didn’t they used to call you Peripheral Reactionary?

      You sound like our kind of guy, as the Peter Pinguid Society is an extreme right-wing group that takes its name from the first U.S.-Russia military encounter in history.

      We’re a pro-Wall Street, pro-banker, pro-Goldman Sachs, pro-Larry Summers, pro-Tim Geithner, anti-99 percent organization that takes pride in the fact that we’re even to the right of the John Birch Society.

      In fact, we’re so anti-communist that we’re even opposed to capitalism but we have no problem supporting crony capitalism.

      Come join us, Peripheral Reactionary, sounds like you would fit right in.

    5. Mr. B.

      Peripheral Visionary’s comment, of course, is a variation of the justifications given by Secretary Geithner, President Obama and Attorney General Holder, that the while conduct related to the financial crisis might be unethical, it does not arise to the level of personal culpability. This is a cop out. This was a straight-forward case (misrepresentation about independence) albeit in a complicated fact pattern. Having tried cases like this myself, it is the job of the gov’t attorney to keep the jury’s focus on the core misrepresentation, and not be distracted by the bells and whistles offered by defense counsel. Those offered here (scapegoat! the other guys were responsible!) were not particularly creative, and the SEC should have been well prepared to knock them down. The note from the jury in this case tells it all, the jury bought the “wrong guy” argument hook, line and sinker. Bad lawyering by the SEC did this case in, and as a colleague of mine noted, it is a stark reminder that the historically bad trial attorneys at the SEC provide little or no incentive for any individual to settle with the SEC on anything other than the most generous terms.

    6. LucyLulu

      They showed up and the case got shut down, which strongly suggests that there was no real case to begin with.

      No, it suggests that the SEC didn’t prove its case. The reason for this failure to prove the case remain unknown. While you might speculate that there was no case to be proven, others, like myself, speculate there was no will to prove the case.

      I would further speculate that PV did not read the case, as the evidence spoke for itself. Alternatively, he, and Levine, have a unusually high threshold for what constitutes proof of (civil) fraudulent behavior. Would criminal fraud even be a prosecutable offense in their world?

      “According to the SEC’s complaints, filed in the U.S. District Court for the Southern District of New York (SDNY), in or around October 2006, personnel from Citigroup’s CDO trading and structuring desks had discussions about possibly having the trading desk establish a short position in a specific group of assets by using credit default swaps (CDS) to buy protection on those assets from a CDO that Citigroup would structure and market. Following the institution of discussions with CSAC about having CSAC act as the collateral manager for a proposed CDO transaction, Stoker sent an e-mail to his supervisor in which he stated that he hoped that the transaction would go forward and described the transaction as the Citigroup trading desk head’s “prop trade (don’t tell CSAC). CSAC agreed to terms even though they don’t get to pick the assets.”

      As further set forth in the complaints, Citigroup and CSAC agreed to proceed with the Class V III transaction. During the time when the transaction was being structured, CSAC allowed Citigroup to exercise significant influence over the selection of assets included in the Class V III portfolio. The Class V III transaction marketed primarily through a pitch book and an offering circular. Stoker was primarily responsible for these documents. Both the pitch book and the offering circular included disclosures that CSAC, the collateral manager, had selected the collateral for the Class V III portfolio and that Citigroup would act as the initial CDS counterparty. The disclosures, however, did not provide any information about the extent of Citigroup’s interest in the negative performance of the Class V III collateral or that, by the times when the pitch book and the offering circular were prepared, Citigroup already had short positions in $500 million of the collateral. The pitch book and the offering circular were materially misleading because they failed to disclose that Citigroup had played a substantial role in selecting the assets for Class V III, Citigroup had taken a $500 million short position in the Class V III collateral for its own account, and Citigroup’s short position was comprised of names it had been allowed to select, while Citigroup did not short names that it had no role in selecting. Nothing in the disclosures put investors on notice Citigroup had interests that were adverse to the interests of investors.”
      http://www.sec.gov/litigation/litreleases/2011/lr22134.htm

  12. damian

    the level of transactions and velocity of money continue to go down – in every market – no one believes anything anymore – these events show even the sophisticated clients that they have NO chance with the banks on any transactions nor even in the court house with plenty of firepower after the fact – only solution is not to play and take your ball and go home –

    the barbarians at the gate finally took over and own the market – now what will they do with it?

  13. indio007

    The case probably hinged on Mens Rea. They couldn’t prove criminal intent beyond a reasonable doubt so he walks.

    That being said Mens Rea isn’t necessary for some crimes. That doesn’t mean it didn’t make it into jury instructions without objection.

    1. Yves Smith Post author

      This wasn’t a criminal case. The SEC can’t file criminal cases. The standard was preponderance of evidence. That’s why this outcome is so appalling.

  14. craazyman

    Now and then I think of how we tried to screw them over
    Made so much money that I thought it was a lie
    Told myself that you were right for me
    Now my lawyer is my company
    But it was work and it’s an take I still remember

    You can get addicted to a certain kind of madness
    Indoctrination to the end, always the end
    I never saw that it did not make sense
    My only duty was obediance
    I’ll admit that I was sad when it was over

    But you didn’t have to cut me off
    Sayin it was all just me, and you were nothing
    We could never get enough
    Now you treat me like a stranger and it feels so rough
    Why’d you have to stoop so low
    lookin through all the records for the worst numbers
    I guess I did’t need that though
    Now you’re just some banksters that I used to know
    somebody
    Now you’re just some banksters that I use to know
    sombody
    da na na na naaa
    Now you’re just some banksters that I used to know

    with profound apologies to Gotye

    http://www.youtube.com/watch?v=8UVNT4wvIGY

  15. Ms G

    I agree with Hugh. A perfect example is the failure of anyone (DOJ, SEC, whatever) to bring a Sarbanes Oxley case against Corzine for the fraudulent sign-offs at MF Global. I’m waiting to see how Occupy the SEC’s letter on this subject fares.

    There is also an “small box of tricks” among prosecutors and enforcement agencies. A lot of the “creme de la creme” at the DOJ and the various local US Attorneys’ Offices who know how to do drug-dealer and weapons-dealer conspiracy cases — these involve wiring people up and running down a few bank accounts, and there’s a healthy dose of “cops * robbers” running around as well. The AUSA’s get very excited about doing wire taps, undercover ops, etc. (or directing the agents in these). It gives them a certain “frisson” and it is easy for them to feel like they are wearing Shiny White Hats because the defendants do not look like any of them.

    Piecing together white-collar/financial fraud cases takes a lot of elbow grease, even if there are a couple of “smoking guns” lying around. And while there are a lot of gray areas between how the criminal fraud statutes are written adn what prosecutors/enforcement personnel are willing to go after, there is a lot of, er, reticence to take on time-intensive, often grueling and non-flashy work to build financial fraud cases. Not great for “docket clearing” brownie points or adding little discrete medals to your resume. Not to mention there is just as wide and deep an ignorance among our erstwhile prosecutors about how business and finance works as there is in the broader population (myself included, but less so since I started trying to educate myself) — in the face of this ignorance, there is no motivation or curiousity to dig in and learn it. It’s part laziness, part herd-mentality, part spinelessness, and of course, the tone is set at the top, so if there’s a “policy” not to do certain cases, they won’t get logged.

    1. Ms G

      Well, and obviously (as has been discussed often on NC), the boys and girls at the AUSA and DOJ offices are (for the most, but not all, part) aiming to do their 5-6 years and then land a partner gig at one of the big white collar defense firms. Imagine wrecking that job prospect by going after Covington and Burling clients — nah.

      And, I forgot to add as well, just as the defendants in the Drugs-and-Guns cases do not look like the prosecutors (except the odd insider-trading fall-fish picked off to bolster DOJ P.R. that “we are tough on financial crime”) whereas the defendants in the finance-bank fraud arena would tend to look a lot like friends, family and professional colleagues. I never understimated this aspect of what can only charitably be called a “blind spot” in the range of cases these offices chose to pursue.

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