Guest Post: Department of Justice “Crackdown” On Wall Street Is Just a P.R. Stunt Targeting Small-Time Crooks

Washington’s Blog

Alan Greenspan, William Black, James Galbraith, Joseph Stiglitz, George Akerlof, Chris Whalen and many other economists and financial experts all say that the economy cannot truly recover unless those who committed fraud are prosecuted.

So we should be ecstatic that the Justice system is finally prosecuting fraud, right?

As the Washington Post notes:

At a news conference headlined by Attorney General Eric H. Holder, authorities unveiled “Operation Broken Trust,” a collection of unrelated criminal and civil cases involving Ponzi schemes, foreign currency frauds, investment scams and other market cons.

The announcement drew attention to President Obama’s Financial Fraud Enforcement Task Force, a group of agencies working to hold accountable people and companies accused of financial wrongdoing during difficult economic times. The task force has struggled to pursue high-profile prosecutions connected to the financial crisis of 2007-09.

Authorities said the operation involved 343 defendants facing criminal charges and 189 facing civil charges, though some will be counted in both categories. The cases represent more than $8.3 billion in investor losses and 120,000 victims.


“With this operation, the Financial Fraud Enforcement Task Force is sending a strong message,” Holder said. “To anyone operating or attempting to operate an investment scam: Cheating investors out of their earnings and savings is no longer a safe business plan. We will use every tool at our disposal to find you, to stop you and to bring you to justice.”

The schemes often targeted communities, churchgoers and the vulnerable, including the elderly, a blind man and the bereaved family of a recently deceased man, Holder and other law enforcement officials said.

That may sound impressive at first.

But $8 billion divided by 343 (the number of criminal prosecutions) only averages around $24 million per prosecution, which is small potatoes given that financial fraud by the big banks has cost the country trillions.

As Andrew Ross Sorkin writes in the New York Times:

To hear Eric H. Holder Jr. tell it, the Justice Department is aggressively cracking down on financial fraud.


It all sounded quite important, and the program’s slogan is pretty catchy. But after you get past the pandering sound bites, a question comes to mind: is anyone in the corner offices of Wall Street’s biggest firms or corporate America’s biggest companies paying any attention to Mr. Holder’s “strong message”?

Of course not. (I actually called some chief executives after Mr. Holder’s news conference, and not one had heard of Operation Broken Trust.)

That’s because in the two years since the peak of the financial crisis, the government has not brought one criminal case against a big-time corporate official of any sort.

Instead, inexplicably, prosecutors are busy chasing small-timers: penny-stock frauds, a husband-and-wife team charged in an insider trading case and mini-Ponzi schemes.

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”


Fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.

Shawn J. Chen, a partner in the Washington office of Cleary Gottlieb Steen & Hamilton, called the announcement by Mr. Holder “a public relations push more than anything else.” Mr. Chen went so far as to suggest that the number of cases Mr. Holder cited as evidence of the department’s crackdown were somewhat fictional.

“It’s hard to believe that they built up all these cases in the past four months,” since the task force was created, Mr. Chen said, suggesting it was more likely that Mr. Holder counted every case that had anything to do with financial fraud and put them all under the Operation Broken Trust umbrella.

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George Washington is the head writer at Washington’s Blog. A busy professional and former adjunct professor, George’s insatiable curiousity causes him to write on a wide variety of topics, including economics, finance, the environment and politics. For further details, ask Keith Alexander…


  1. F. Beard

    Every fictional reserve banker in the country is guilty of theft of purchasing power. They are also guilty of the boom-bust cycle and of the current unemployment.

    I’m sure we have a vast patch-work of unenforceable laws to give a SEMBLANCE of justice to a fundamentally unjust system. Maybe a few of the crooks have run afoul of these and will be convicted, so a little accidental justice may result.

  2. sandorgb

    The entire financial system of so-called capitalism is one giant ponzi scheme. With each iteration of boom and bust the losses are distributed further and further out until every single human being is left holding the bag, working for the benefit of the capital cartel. It has always been designed to work this way. Regardless of the ideology, whether it is capitalism, socialism, or communism, there are masters and slaves.

    Justice is a sideshow to the power play. The entire system is predicated on fraud. The criminals effectively control all three branches of US Federal state apparatus, therefore crime is now legal. Accounting fraud is now legal. Torture is now legal. Or if putatively illegal, the statutes are not enforced, a worse outcome than no laws at all.

    Once every citizen has been loaded up with debt and every citizen is holding four bags, one for each hand and foot, there will be no one left to ensare in the trap. The system will have reached terminal debt and will implode. It will end the way all ponzi schemes end — in tears.

  3. Hoi Polloi

    There’s no difference between banksta’s and polticians. Both get rich by using taxpayers money.

    Old bank joke: Bank CEO on stockholders meeting: “I have a bad message and a good message. The bad news is that we lost 35 Billion. The good news is that it’s not our money”.

  4. call me ahab

    The cases represent more than $8.3 billion in investor losses and 120,000 victims.

    what a joke-

    more like hundreds of billions in losses and hundreds of millions of victims-

    and that Wall Street went back to multi-million $$$ bonuses while on the USG dime (within months of beings “saved”)-

    shows you who’s running the show

  5. Jimbo

    Even Bush’s Justice Dept was more tenacious. It prosecuted “Kenny Boy” and Skilling. President Obama refuses to indict Steven Rattner, his golf buddy.

    What does Joe Klein (Time) say of his buddy, Rattner?

    “I know Steve pretty well; I’ve had dinner at his house; we’ve had good conversations; our kids have played together. He also is lucky that he’s not going to jail.”

  6. Mannwich

    A classic gov’t (or any large powerful entity) response. Fix not the real problems or put away the real criminals. In these entities, it’s the APPEARANCE of something that matters, not reality behind the appearance. Quick, pull that curtain back on OZ before the Sheeple ask any more thoughtful questions.

  7. Paul Jurczak

    Too big to fail, too big to face criminal prosecution. The script to the sequel to this economy-buster is being written right now.

    1. PunchnRun

      No doubt Czar Alexander’s cronies saw things the same way about a hundred years ago. I fear for the innocents.

  8. Tao Jonesing

    “So we should ecstatic that the Justice system is finally prosecuting fraud, right?”

    Some of us knew the Goldman Sachs civil lawsuit was a sham when it was filed, and we said so at the time. We weren’t ecstatic then, and there’s no reason to be ecstatic now.

  9. Fannie Collateral Damage

    Eric Holder? I thought he was persuing the Assange with his broken condom. Earlier this year, he mentioned he would “unleash police state hell” if pot became legal in California. I’m not sure why we pretend that Government agencies, many who allowed and profited from the bubble, will magically transform into some fantasy Elliot Ness that will go after the gangsters. set things right, housing, food, healthcare and jobs for everyone. To quote Biff from ‘Back to the Future II’ – “Kid!! I OWN the police!!”

  10. Jim the Skeptic

    We don’t really need prosecutions.

    We have all been warned off by the bankers actions leading up to 2008. Do business with them at your own risk! Better to find a mafia loan shark instead.

    If you shake hands with a banker you better count your fingers as you walk away! :^)

  11. karen1p

    This post is exactly why the populace is so excited about what Wikileaks is about. We all feel like we need a “Robin Hood” and Julian is the closest to a modern day hero we have.

  12. cynictoo

    I’m all for being cynical but can’t we at least give Holder some credit. These scammers probably cost real people real damage and stole their money, so I think it’s kinda nice that they’re _probably_ going to jail.

    As for the real crooks, well ya, no argument here, a little justice would be nice

    1. karen1p

      “Give Holder some credit”????

      You’ve got to be kidding… has been TWO F***ING YEARS AND THESE BANKS ARE CONTINUING THE CRIMES and Holder is NO WHERE TO BE FOUND. Give him credit *eye roll*

      1. matthew slaughter

        what if part of the problem is that a lot of this stuff was legal. IE the monolines selling CDS on CDO tranches… someone on this very board said they got specific authorization to do that from the NY State Insurance Department, using ‘transformers’? ie, Magnetar’s Constellation program, which i believe Yves Smith points out was meeting the letter of the law, except possibly the CDO managers, nobody legally had a duty to disclose a lot of this stuff, and ‘sophisticated investors’ skipped a lot of fine print that said things like ‘this deal might suck’.

        how did they get Capone? tax evasion. how long did that take? years. im not willing to discount holder , copletely,

        1. psychohistorian

          The World Court is probably not going to prosecute the US for killing innocent civilians in Iraq and now Afghanistan but that doesn’t make us any more moral about it.

          I guess it is ok if imperialists do it…..

      2. Paul Tioxon

        April 21, 2010

        The Republican Strategy for Obama
        Marc Ambinder explains the two-part Republican strategy to deal with President Obama and the Democrats.

        First, “obstruct and delay” which “has the practical effect of gumming up the works of government, which makes the Democrats look impotent.”

        Second, “portray everything Mr. Obama does as being the avatar of European socialism. This discredits the very idea that government ought to do anything at all.”

        “Republicans have created a feedback loop: every Obama accomplishment is shunted to the ‘Socialism’ box, and every Obama failure is designated as a sign that Democrats can’t govern.”

  13. Random Blowhard

    It will take a full blown currency crisis, triggered by the endless printing of the Fed, the “gorge the beast” spendulus of the best Congress money can buy and a second Wall Street Meltdown before ANY action will be taken against the fraud’s and treason commited against the American people by the “Ruling class” and it’s enablers. Of course should this happen, it will not be pitchforks but assault rifles and a declaration of war againt Wall Street. That is the Hope and Change we need.

  14. Francois T

    “Instead, inexplicably, prosecutors are busy” blah blah blah.



    Is this guy for real or is he mocking the readers by insulting their collective intelligence?

    Mr Sorkin, I got a couple of questions for ya:

    1) Who contribute the most to the electoral war chests of the politicians in DC? (Take a guess smarty pants!)

    2) How many electoral cycles does it take for the total expenses related to said election double? (Answer = 1)

    3) How much cost the last presidential election? (Answer = ~900 millions USD)

    You may now edit the sentence:

    Instead, inexplicably, prosecutors are busy chasing small-timers: penny-stock frauds, a husband-and-wife team charged in an insider trading case and mini-Ponzi schemes.”

    this way:

    Although it would be necessary and proper to prosecute those most responsible for the financial debacle, the political realities of our times forces our leaders to make sure that prosecutors are busy chasing small-timers: penny-stock frauds, a husband-and-wife team charged in an insider trading case and mini-Ponzi schemes.”

    1. attempter

      Your glass is too half-empty! I was gonna say you know the scam’s really pathetic when Sorkin of all people is publicly scoffing at it and suggesting they need to aim their sights higher.

      So it seems there’s a level of suckitude so low that even Errand Boy Sorkin is too embarrassed and feels constrained to be publicly skeptical and suggest they need some higher-level prosecutions. That must mean the NYT’s feeling some heat from below.

  15. jake chase

    Nothing new here. Holder, Obama, empty suits with black faces, shuffling and cheerleading, pandering to the suits who own them, blowing smoke up the ass of the idiots who elected them, many of whom still think, inexplicably, that they mean well. How can black politicians not mean well? After all, they’re black! Looks like Reconstruction all over again, with the US playing the role of South Carolina.

    Incidentally, white collar prosecutions have always been a joke. Guiliani was a joke. Guy sat on his ass in his office for years until Dennis Levine stumbled in with a shopping bag full of cash, singing like a thousand canaries. What was the net result? Four guys went to jail. Guiliani became a hero, now he’s making millions, hundreds of millions, as a security consultant. Can’t argue about his knowledge of security. His ass is secure for one hundred lifetimes.

  16. Norman

    Look at this as a little black book. Depending on where one is listed, i.e. front, middle, back, denotes whether or not you will fall. Give up a name or some, we will let you stay out of jail. Simple as that. Who has these “Little Black Books”? Why, the people who run the show. It doesn’t matter what level one is on, there is always someone higher. Considering the performance that the “O” administration has shown so far, it’s quite obvious that they are in someones “Little Black Book”. I look for “O” to be a 1 termed POTUS if he lasts that long.

  17. Harold Barnett

    Operation Broken Trust follows on the heels of an earlier announced Operation Stolen Dreams which may or may not include the same cases. I do not fault the Justice Department for going after the perpetrators of mortgage fraud. I do fault them for not following these frauds up the food chain to the lenders, providers of warehouse lines, and securitizers who facilitated and funded the scams. This could get the attention of the executives that Yves found in the dark regarding the program. The Wall Street Journal noticed and stated editorially that the Justice Department was finally going after the “real bad guys” as opposed to pursuing “arcane corporate accounting cases” (Dec 7, 2010)
    The numbers involved in the cases reported by Justice are very small compared estimated losses alleged by investors in mortgage backed securities. They are also dwarfed by the debt of homeowners in foreclosure. Investors are attempting to dig down to the loan file that would prove misrepresentation on the part of the securitizers. What would happen if the Justice Department made a concerted effort to dig up? They might provide additional evidence on the intentional or negligent actions of the originators and securitizers that funded premeditated fraud and loans that were clearly unsustainable. It was opined that Goldman Sachs settled with the SEC to avoid being tagged as a criminal and that the SEC allowed Goldman to settle without admitting or denying guilt in an attempt to rebuild its tarnished reputation. If servicers and their bank owners knew that they would be subject to investigation by Justice, would they be more inclined to offer modifications involving serious reductions in principal to show their good citizenship? It has been argued that banks avoid such modifications because it would require them to write down the value of loans on their books and they fear investor suits (recall Countrywide). Investors may be pleased to see effective modifications rather than a loss due to foreclosure in a declining real estate market. Action by Justice could similarly provide leverage to cases being brought by state AGs.
    There is a high bar to bringing a successful criminal case against a big bank or big banker. If prosecutors could not get a conviction in the case of Bear Stearns traders Cioffi and Tannin what would happen in a more complex case? More to the point, would Justice take its best shot at using the courts to transfer billions from too big to fail banks to victimized homeowners and investors? That would be a story.

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