Mirabile Dictu! The SEC is Getting Disgusted With Lawyers Pulling the Same Tricks in SEC Investigations that They Pull in Foreclosure Land Every Day

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The Wall Street Journal has an entertaining account, if your taste runs to black humor, of how legal chicanery has reached such high levels that the SEC is toying with the idea of going after it directly (hat tip reader Andrea). Officials at the securities watchdog suspect that the way lawyers have instructed clients to behave in its investigations constitutes obstruction of justice:

….some SEC officials have grown frustrated by what they claim is direct obstruction of a few investigations and a larger number of probes where lawyers coach clients in the art of resisting and rebuffing. The tactics include witnesses “forgetting” what happened and companies conducting internal investigations that scapegoat junior employees and let senior managers off the hook, agency officials say.

We’re not entirely sympathetic with the SEC’s problem. With the exception of HealthSouth, it has not used false certifications under Sarbanes-Oxley as grounds for going after the certifying officers, who customarily include the CEO and CFO. Sarbox was designed, among other things, to end the use of the “I’m the CEO and I know nothing” defense.

Nevertheless, the SEC’s conundrum illustrates a serious decay standards in the legal profession and in social values generally. Readers of this blog are welcome to take issue, but attorneys tell me that state bar associations will sanction or disbar only small players. The large firms all make a point of being active in the organization. That makes it socially awkward to suggest a fellow country club member peer might be up to no good, much the less to move forward with charges.

Florida demonstrates how heavy-hitter law firm miscreants go undisciplined by the bar. One particular egregious example of influence-peddaling involves the foreclosure mill Shapiro & Fishman. The firm has been under investigation by the Florida attorney general’s office (initiated under the last incumbent, Bill McCollum). Shapiro & Fishman is a regular user of mortgage assignments prepared by Lender Processing Services, the employer of the notorious robosigner “Linda Greene” and an avid practicer of “surrogate signing” which is NewSpeak for forgery. Nevada and Missouri have indicted LPS employees. The firm is operating under a consent order from the Federal Reserve Board, the FDIC and the OCC.

So to deal with its wee problem, Shapiro & Fishman hired “superlawyer” Gerald Richman. Richman (among other things) was on the Host Committee for a $1500 a ticket fundraiser held on April 30 for three incumbent Florida Supreme justices (3 of the 7 judges are up for “merit renewal” votes this year). It also happens that on May 10, the Florida Supreme Court will hear oral arguments in Pino v. Bank of New York, a foreclosure fraud case. Needless to say, the outcome will be of very keen interest to Shapiro & Fishman.

Now it may sound crass to say that the three justices will be influenced by the participation of Richman, and no doubt well heeled members of the bank side of the foreclosure bar. But research by social psychologist Robert Cialdini says they will be. He has found that a gift as small as a can of soda will make the listener more likely to say “yes” to a sales pitch. And the fundraiser is only an illustration of the influence bigger firms wield. Their partners travel in more elevated social circles, belong to the same clubs, backscratch their colleagues, and may have worked directly together in the past (in law school, as junior members of white shoe firms, and as members of committees in the bar association. The prohibitions against criticizing colleagues in these tight social networks are high.

Any profession that was serious about conduct should have done some serious soul-searching when the robosiging scandal revealed widespread misconduct. But it has taken AGs like the ones in Nevada and Missouri, and courts like New York’s, which imposed certification requirements on attorneys in foreclosure cases, to do anything about it (note that going after LPS is certain to lead it to try to shift blame to the foreclosure mills).

Back to main thread. The SEC is considering going after lawyers who approved certain mortgage bond transactions before the crisis or have been stonewalling investigations:

The SEC enforcement staff has recently reported more lawyers to the agency’s general counsel, who can take administrative action against lawyers for alleged professional misconduct.

So far, it looks like the SEC is just barking. The Journal points out that it lacks the power that the CFTC has to go after attorneys who make “any false or misleading statement of a material fact.” The SEC has gotten one lifetime ban against an attorney who coached his client to have her memory “fade” if she got a year of severance pay and has another case underway. But it also points out that judges have set the bar high as far as criminal prosecutions are concerned (note the SEC can only bring civil cases, so this isn’t an apples to apples comparison).

I’m surprised that this article does not get at one legitimate reason to be leery of this SEC effort: any investigation, to really get at what happened, would have to breach attorney/client privilege, unless it had already been compromised. This is critical to the legal process working correctly. Further erosion of attorney-client privilege hurts clients far more than lawyers, which is why the bar won’t take this wake-up call as seriously as it should.

These are all bad remedies for the real problem: the lack of secondary liability. As we wrote in ECONNED:

Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.

Unfortunately, fraud now seems to have become such a large percentage of the GDP that lawmakers would no doubt see it as dangerous to employment and growth to restrict it. And the SEC is so preoccupied with winning cases (as opposed to making miscreants afraid that they might be dragged into court and have their dirty linen exposed) that the risk is high that they will file an election-year “we need to look tough” case, and be deterred, as they were with the Bear Stearns hedge fund prosecution, if it goes against them.

Put it another way: if the usually limp-wristed SEC is so upset with legal misconduct that it is considering action, even if that action is likely to add up to very little, it shows how deep the rot is among the American elites.

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  1. Hugh

    To pre-empt Beard perhaps, re the SEC, “Ye blind guides, which strain at a gnat, and swallow a camel.” (Matthew 23:24) comes to mind. The SEC pretty much does the banksters bidding but apparently some who work there dislike having their intelligence insulted as they do so.

  2. Max424

    YS: “…fraud now seems to have become such a large percentage of the GDP that lawmakers would no doubt see it as dangerous to employment and growth to restrict it.”

    Interesting concept. Fraud is what’s necessary now to sustain (reinvigorate, please!) the Exponentially Expanding Perpetual Growth Model.

    Krugman should plug fraud into one of his signature Double-EPG models, see what happens. It might blow up, or it might give the old school economist a new set set of eternal truths.

    It’s never too late to try something –an old dog can learn new tricks, I believe. And a courageous intellectual journey into the unpleasant, at this late stage of his life, might just garner our Professor another Nobel!

    Note: Doubled Nobels! Exponential Nobel growth!

    1. craazyman

      Yea I was watching Revelation Station Noouspheric Television yesterday and they had a reporter on that tried to get our “authorities” to say the word Fraud.

      They had Geithner on and the reporter said “We’re here with Treasury Secretary Geithner to see if he can say the word Fraud. Mr. Secretary . . .”

      “Frah . . . Frah . . . Frahlllll . . . Frewwahhhh . . . Freeahahaha . . . fruh . . . frah”

      He couldn’t say it. Then they got Bernanke in front of the camera. and it he went

      “Furrrr . . . . Furrrr . . . Furrraaaallll . . . . Fryeeyeye . . . Freennnn . . . Frararear ahahahah.

      He made some funny faces twisting his mouth around.

      he couldn’t say it either. then they cut to a parrot in a cage and the parrot said

      “Bwaaaaaak. He’s a fraud. He’s a fraud. Bwaaaaak”

      That was pretty funny. A bird could say it but high govermint officials can’t. So they cut back and asked Bernanke about Krugman. And he said immediately

      “oh yeah, he’s a huge fraud.” Oooops. You could see the shock on his face when he realized he could say Fraud.

      It’s amazing what mental blocks can do!

  3. Conscience of a Conservative

    It would be useful to list the ABA code of conduct and get a response on the issue. Lawyers can’t legally tell their clients to lie in court. What’s the legal standard here? I think you need to revisit this topic from that point of view.

    1. LucyLulu

      Not only can attorneys not advise their clients to lie in court (suborn perjury, learned from Law and Order), but attorneys are certainly not allowed to lie themselves….. or falsify documents.

      From the WSJ article:
      “In December, a federal grand jury in Los Angeles indicted lawyer David Tamman on 10 criminal counts related to helping a former client cover up an alleged $20 million fraud. Prosecutors claim Mr. Tamman changed and backdating documents, removed incriminating documents from investor files and lied to SEC investigators in sworn testimony.

      “The truth is that my client was set up and made a scapegoat,” says Stanley Stone, a lawyer for Mr. Tamman, adding that his client acted under the advice and guidance of senior lawyers at his former law firm, Nixon Peabody LLP. “We’re going to prove at trial that what was done was not criminal,” Mr. Stone says.”

      So…… was it not criminal because the senior partners said it was okay? And why would senior partners at a large, well-known law firm think it was okay? Or was it that Tamman was part of the price of doing business, a loss to be written off?

      “A lawyer should never fear prosecution because of advice that he or she has given to a client who consults him or her,” U.S. District Judge Roger Titus in Maryland ruled when dismissing all six charges against Lauren Stevens, a former lawyer at drug maker GlaxoSmithKline PLC. GSK +0.19%

      Ms. Stevens was accused by prosecutors of lying to the FDA and concealing and falsifying documents related to an investigation by the U.S. agency.

      Even if the attorney breaks the law in the process of “giving advice”? Unf’ingbelievable. Should we allow witnesses with potentially incriminating testimony to be killed off, too?

      Some former government officials say stepping up regulatory scrutiny of lawyers for their work on cases snared in investigations by the SEC could send a chilling message. “The government needs to be careful not to deter lawyers from being zealous advocates for their clients,” says John Wood, a former U.S. Attorney for the Western District of Missouri.

      The chilling message here is that the message is being sent out that regulators should overlook attorneys who break the law and their oath to coverup their clients’ misdeeds.

      I didn’t find the article entertaining at all. I found it quite depressing. Hardcore evidence of corruptness in yet another profession, with the blessing of the judiciary system.

  4. jake chase

    During the forty odd years I have been watching the SEC I have never seen it get tough in anything but a press release, except where the miscreants involved were penny market boiler room operators. The real mission of the agency is to provide cover for establishment Wall Street pump and dump operations, while selling the absurdity that “disclosure” provides investors with protection against fraud.

    I would guess that less than one percent of those who buy stocks are even capable of understanding the average prospectus or 10K report, and very few of that one percent could read through one in a single day. I stopped reading them twenty years ago and do not believe I have missed a thing except lawyerly misrepresentations and accounting fantasies.

  5. Paul Tioxon

    The institutionalization of fraud has reached the SEC, as the enabler of last resort. When Moodys and S&P have gone unscathed as the official of patina of respectability ushering in financial disasters as AAA investments, smaller more earnest ratings companies get the grand inquisition over e mail back up protocols and not filling in all of the blanks on their Federal forms. Take the case of Egan-Jones credit rating agency in PA or the attorney for the city of Harrisburg, capitol of PA, that is bankrupt and about to be taken over by a private manager for its own good and that of the bond holders of its hugely expensive and unnecessary trash to cash for Wall St muni bond hucksters.

    From from what’s left of The Inquirer:
    “Plaintiffs’ lawyers famously chase society’s “deep pockets,” suing not the worst among us, but rich, slow-moving companies, people and institutions, on any convenient pretext, in hopes of grabbing enough dollars to get them to go away.

    Government does the reverse. Too often, agencies walk carefully around powerful potential malefactors and instead target people with relatively shallow pockets — brave, or just careless — who challenge the powerful.

    Two examples:

    – Sean Jones, the founder of Haverford’s Egan-Jones credit rating agency, who the SEC is pursuing for allegedly inflating his little firm’s resume, while it still hasn’t done anything about Standard & Poor’s and Moody’s failure to blow the whistle on bad mortgage debt and the resulting credit crisis of 2008;

    – Mark Schwartz, the Bryn Mawr lawyer who Gov. Corbett’s outside lawyers are suing to stop him from representing Harrisburg City Council, while failing to act on ex-Harrisburg receiver David Unkovic’s plea for a government investigation of the bond deals – and bond dealers – leading to that city’s financial collapse.”


    Enabling fraud and attacking the legal recourse to expose and stop it has political power at work night and day groaning under the weight of the financial fiction.

  6. John Medcalf

    Any way to get those links like “certification”, “lawyers”, … to stop interfering with the reading process ?
    Thank you.

  7. Old Ebbit Meat

    The agencies are all mixed up, wouldn’t the Justice Dept proceed forth with this type of “going after”? Maybe the whole affair is made for the gossip column. The Keystone Stooges provide hours of entertainment. ‘Member when Goldman accused the Gub’mint of downloading adult entertainment while the economy burned? Some of these lawfirms own DC, so they’ll need to behave properly at the dinner table.

  8. chitown2020

    They are just mad that their perps are not doing a good job covering up the fraud. In foreclosure court last time I was there the Judge asked the bank attorney why the property taxes are not being paid? She said she had no idea…She is a blankety-blanking liar because this info was in the receivers report….the Judge told her so. They are even making the Judges look bad….BTW.. that bank attorney “used to work ” as an assisstant for the State AG. Talk about blatant conflict of interest issues. An attorney told me a while back she should recuse herself from the case. She did last time I was in court. She told me that she wont be back for the hearing in June and she is glad because this case is a mess. She also said the Judge is mean. Truth is, you cant fool all of the people all of the time.

    1. chitown2020

      The courts have ruled that once fraud enters a transaction fraud vitiates everything. Foreclosures are being granted by deception. For example, if there is no legal assignment attached to the foreclosure complaint. if they don’t have the legal assignment. AKA the trust agreement, then they have no legal standing to take your home or business or collect any money from you. If they don’t have the note, demand a satisfaction of mortgage or sue them for it.

  9. Susan the other

    Another huge eye opener. Never aware of the law preventing prosecution of secondary liability. How can we keep up with all of these loopholes which our disgusting “Congress” passes? The only congress going on is one big conjugal cluster between corporation interests, including the corporations that control our currency, and their call girls and boys, otherwise known as Congress.

    I’m not as unaware as a lot of other people but every time I hear a new oligarch-fact like this I get re-depressed. I wish we could just hose off the whole damn deck. Except we don’t have fire departments anymore…

  10. Andy

    Lol @: “…legal chicanery has reached such high levels that the SEC is toying with the idea of going after it directly…”

    Hahahahaha!!! Yeah, right! Those clowns couldn’t find their own asses with both hands, a map, and the eager assistance of a Blood Hound, much less devise some beyond-brilliant means of out-lawyering the kinds of rabid, sociopathic, prodigy-level Law Sharks that are being paid fortunes (and by ‘fortunes’ I mean our collective former 401K monies) to formulate these kinds of maneuvers.

    They. Still. Don’t. Get. It. …Let me break it down…

    Dear SEC,

    You have been CAPTURED. Furthermore, if you work at the SEC, are reading this, and feel it doesn’t apply to you because you are secretly some sort of a noble justice seeker, then you’re right! It doesn’t apply to you because, unfortunately, you are one of the pansies allowed to hold your position specifically because you lack either, A.) the brains, or B.) the balls, or some combination thereof, to afford you the capacity to successfully pursue matters such as these from within your organization in a manner that would actually be of any real consequence whatsoever to those in power. Oh, and pssst…here’s another secret, Lone Ranger…they know you feel this way. They are not afraid of what you can do. In fact, it is exactly because of what you CANNOT do that has convinced them to put you exactly where you are right now, dopey!!!

    Sorry, to be the bearer of this non-secret, but the problem at this point is systemic and cannot be handled from within a failed regulatory body whose shady, incompetent, possibly criminal performance up to this point bears as much if not more responsibility for the mess we’re in now as any other person, place, thing, or group involved in these matters since the advent of economics.

    You really wanna do something meaningful, oh lowly SEC employee/anonymous justice seeker? Ok, have I got an action plan for you!: Type up a very candid resignation letter that blows the whistle on the specifics of what, in your opinion, causes your organization to be so utterly impotent at accomplishing the one f’ing thing it literally exists only to accomplish, (You know, Greg-Smith-Leaving-Goldman-via-the-media style!), forward it to the finance desk at the NY Times, flip your boss the bird, go to the beach, then simply wait for the book offers to roll in!

    If enough people in positions such as yours do that sort of thing, we’ll be on our way to solving these issues quicker than one might imagine. All it takes is a little courage to be free and do what is right.

    Besides, what’s the worst that could happen?! You end up with a job you actually don’t COMPLETELY HATE with every cell in your body? The risk is worth the reward by far, IMHO.

  11. chunga

    My blood is boiling right now.

    This appeal was filed in Federal Court yesterday responsive to a Federal Stay Order halting all foreclosures in the state of Rhode Island.

    This is the part of the order the bankers are most afraid of:

    “Order the appearance of any persons necessary to settle any claims completely and/or order the appearance of any non-parties, including but not limited to municipal and other governmental officials and lien holders, that may be essential for a total resolution of the claims;”

    So, NO “Motions of Protective Order” allowed. The banks and their lawyers LOVE leveraging others but HATE being leveraged themselves!

    This will be opposed with full vigor.

    Foreclosure Happy Bankers Change Venue For Their Benefit. Federal Judge McConnell Orders Stay On All Foreclosures. Bankers Join Forces. File Appeal.


    1. chitown2020

      Out of the entire list of Plaintiffs in the Foreclosure Complaint re my home foreclosure there is not one secured creditor. That includes the servicer who filed the complaint. These fraudclosures are weapons of mass deception otherwise the complaint would state clearly that….THIS IS AN ATTEMPT TO COLLECT AN _UNSECURED_ DEBT….BECAUSE IF THERE IS NO LEGAL ASSIGNMENT ATTACHED…THAT MEANS THEY DONT HAVE THE NOTE….AND THEIR MORTGAGE AND NOTE ARE THEREFORE A NULLITY..THEY ARE COMMITTING FRAUD UPON THE COURT BY TRYING TO TAKE YOUR PROPERTY FOR AN UNSECURED DEBT…NOT TO MENTION ALL OF THE OTHER FRAUDS..The same thing is true with the car loans…the only difference is the pretender lender holds the piece of paper…..THE TITLE… If they don’t cut you a check for the money they are lending you then THAT IS FRAUD and I would demand the TITLE to
      the car or I would walk away. You have more right than they do to hold that title. You lent them the money. They are all double crossers.

      1. chunga

        I hope Judge McConnell goes all sua sponte with this.

        Defendants have repeatedly attempted to defy the Judge’s Order.

        1. chitown2020

          I agree chunga. It is up to the judges to do their jobs and uphold the law. The blatant cover up for bank fraud crimes, which are felonies, has been going on for years in civil court rooms and it needs to stop.

  12. chitown2020

    The TBTF were funded by the the U.S. taxpayers and went bust. All of their overseas bank accounts should have been siezed by the U.S. GOVERNMENT and used to pay back the U.S.taxpayers first..with big fat checks issued to all of us….and the sheisters should all have been jailed. Same with the corrupt politicians who are taxing us out of existence.

  13. Ishmael

    As I have mentioned here before, I was having lunch with an old “live-in” girl friend from college who is labeled a “super lawyer” and at the end of lunch, she said, “Well I guess I better get back to the office and come up with some lie why my client blah blah blah.” I just about fell out of my chair. I get most of my work because as my partner, an attorney from Univ of Texas, said “You are uncharming.” That is the new code that I am a guy who will start talking about the 10,000 pound elephant in the room and how to solve it.

    Lies, lies and more lies that applies to CEO, CFO’s, legal counsel and outside attorneys especially the bigger firms. No one can believe anything any more.

    The US has become a bananna republic.

  14. chitown2020

    They are worried the day they always dreaded is almost here. The day the masses wake up and realize psychopaths are running the world and everything they were told to believe is a lie and a fraud. One of their biggest lies is that we owe them money. We dont..they are the debtors. That is when their house of cards will fall.

    1. tiebie66

      “The day the masses wake up…”
      The price of civilization is eternal vigilance (to paraphrase). We have been less than vigilant, abrogated our responsibility to watch and speak out, and some have taken advantage of our negligence. Should we blame them or ourselves? Did the Nuremberg trials not establish where the ultimate responsibility rested? Why all the katzenjammer? Do we think so little of our most cherished principles that we wish to take refuge in having been hoodwinked? I do not have religiosis, but sometimes I think I understand the despair that drove God to call on Noah. The masses have not woken up and, from personal experience, seemingly do not wish to wake up. Presently one is being vilified for being a troublemaker when one speaks, afterward, one will be vilified again, this time for not having spoken sooner.
      Dear friends, sorry for the primonero mood, but I fear there is more to come.

      1. chitown2020

        Tiebe66..I don’t believe the victims should be blamed. The greedy have for decades used Secrets, Lies and Deceptions to defraud us. They have covered it all up and killed anyone who got in their way. How many still believe the Governments version of the J.F.K. assassination and 9/11…? How many have died trying to expose the lies? Remember what they did to Jesus for exposing the money changers and the liars of his day? They crucified him. There is a great you tube video by Bill Cooper entitled Jesus was a dangerous man. The assassinations, depressions, the wars, the media, FED MONETARY SYSTEM, 9/11, the war on terror, the Patriot Act, the bailouts the Healthcare Bill, NDAA are all tools of mass deception used to control us.. It is a war on our minds and their only real control is in what they can make us believe. Like they own us…they don’t and AMERICA IS NOT BROKE. THE U.S. GOVERNMENT IS ALLOWING THE VATICAN/WORLD BANK TO FRAUDULENTLY BANKRUPT

      2. chitown2020

        If you know the truth you know that you are free. That is what they are hiding. The truth is dangerous to them. I wont EVER accept their microchip mark of the beast. It is coming if the people don’t wake up. Their microchip is hidden in their healthcare bill and their gold backed dollar. I am not Bible propheceying, this is their plan. WE NEED A REFERENDUM ON THE 2012 BALLOT TO ….ABOLISH THE FED…RESTORE THE U.S. CONSTITUTION AND ISSUE OUR OWN CURRENCY…AS THE CONSTITUTION REQUIRES…U.S. BANK NOTES BACKED BY OUR OWN NATURAL RESOURCE REVENUES ….OUR OWN NATURAL GAS AND ELECTRIC…REMOVE OURSELVES FROM THE U.N./NATO UNHOLY ALLIANCE….THEN WE WILL BE FREE AND INDEPENDENT AND MAINTAIN OUR NATIONAL SOVEREIGNTY.

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