Bill Black: DOJ Says it Cannot Prosecute “Rocket Science” Frauds

Yves here. The excuse that Deputy Attorney General James Cole offered for DoJ’s failure to prosecute financial fraud, that they were overmatched by “rocket science” isn’t just pathetic, it’s a flat out lie. I know people personally who were experts in mortgage backed securities and collateralized debt obligations who offered not just their expertise, but specific legal theories to state attorneys general, as well as members of the famed Mortgage Fraud Task Force and were ignored. Individuals with similar skills offered to train the SEC and were also turned down. The idea that prosecutors and regulators were up against complicated technology above their pay grade is a self-serving canard. They were repeatedly offered ways to get down the learning curve and rejected them.

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Originally published at New Economic Perspectives

This is the way the Department of Justice’s (DOJ) greatest strategic prosecutorial failure ends, not with a bang but a whimper that it is too hard to prosecute “rocket science” frauds.  The context is the ritual Bloomberg exit interview with the senior DOJ official going off to make his new fortune.  The lucky fellow this week is Deputy Attorney General James Cole.  This genre of interview is designed to allow the man in the revolving door to announce his great accomplishments as a prosecutor, or in this case, non-prosecutor.  Cole gamely claims that zero prosecutions constitutes a brilliant success because DOJ’s civil cases “have resulted in banks paying huge fines and altering their behavior.”

“Holder today praised Cole as his ‘indispensable partner’ since taking the deputy’s job in January 2011. ‘Jim’s leadership and ingenuity have been critical in attaining historic results on behalf of the American people,’ Holder said in a statement.”

Holder is correct, DOJ produced “historic results” under the Holder/Breuer/Case team’s leadership.  Never in modern history has DOJ suffered such an abject defeat.  They didn’t simply fail to prosecute the elite bankers – they never even indicted them and rarely investigated them.

The exit interview ground rules call for softball questions only, but Cole does get asked why zero prosecutions represents a “historic” triumph.  His answer, is the final whimper.

“Proving individual bankers broke the law was extremely difficult because it was hard to show criminal intent and because they may not have violated laws in effect at the time. ‘We are dealing with financial rocket science,’ he said.”

There are two essential responses to Cole’s whimper.  Both responses are so important that I have to divide my comments into two columns.  In this column I assume solely for purposes of analysis that Cole is correct that DOJ could not “show criminal intent” because “we are dealing with financial rocket science.”  (My second column will eviscerate that claim and any claim that there were not laws “in effect at the time.”)

Cole’s claim screams out for a follow-up sentence by him – and failing that – for a follow-up question from the Bloomberg reporter.  Let’s review the bidding: hundreds of financial executives led the three most destructive epidemics of financial fraud in history, aided and abetted by thousands of professionals.  The epidemics of accounting control fraud hyper-inflated the real estate bubbles and drove the Great Recession.  The Great Recession caused an estimated $21 trillion in lost U.S. GDP and over 10 million American jobs – and both numbers are far larger in Europe.  Leading those frauds made the elite bankers and the professionals wealthy.  DOJ does not simply refuse to prosecute these “financial rocket scientists” – it refuses to bring civil suits against them to recover the fraud proceeds.  It has brought one – yes, one – successful civil suit to trial against a senior Bank of America officer (and she was not remotely in the C-Suites).  Cole’s claim, which we assume to be true for purposes of analysis, is that DOJ was unable to find a single case in which it could prosecute the “financial rocket scientists” who led the fraud epidemics that caused the global crisis and that DOJ was able to find only one “financial rocket scientist” that it could sue successfully in a civil case.

The series of facts (remember, we’re assuming here that Cole’s claims about DOJ’s total helplessness against the “financial rocket scientists”) contained in the paragraph immediately above is among the most important and frightening conceivable.  Any Deputy Attorney General that believed those facts to be true would have dedicated his career to changing those facts before they caused the next, vastly worse crisis.  Under Cole’s “facts,” the elite fraudsters (aka “financial rocket scientists) were left in power at the world’s largest banks by DOJ and now know that they can loot with absolute impunity.  The ability to become wealthy through the “sure thing” of accounting control fraud with absolute impunity makes the banking environment among the most criminogenic in existence.

Cole must have been sending dozens of memoranda to Attorney General Holder and President Obama alerting them to the impending catastrophe and providing them with his recommendations on specific changes that needed to be made immediately to avert the next, even more catastrophic epidemics of fraud and resultant crises.  Cole must also be warning the public repeatedly of the coming catastrophe and asking them to support the emergency measures he has recommended to end the ability of the financial rocket scientists to loot with impunity.

Even if Cole, inexplicably, failed to use his exit interview with Bloomberg to reiterate this public warning that he is famous for making repeatedly about the banksters’ ability to loot with impunity and failed to explain to the public, and ask for their support, the emergency measures urgently needed to end this ability to loot with impunity, surely the Bloomberg reporter would ask him a follow-up question!

Just kidding, of course.  Cole is famous for never warning the public that DOJ had decided that the fraudulent “financial rocket scientists” were so far above their IQ grade that they could never be prosecuted and virtually never even sued by DOJ for their hundreds of thousands of felonies that looted “their” banks and caused the global financial crisis and the Great Recession.  Cole is famous for never formulating a means to end the financial rocket scientists’ ability to loot with impunity.

Cole (and Lanny Breuer and Holder, and Obama – all lawyers) never even thought in these terms.  They all knew that they were not going to prosecute or even sue the financial rocket scientists that led the frauds that caused the catastrophe.  They all knew that the financial rocket scientists grew wealthy by looting with impunity.  They all knew that this primed the powder for the next great global catastrophe and made wealthy and politically dominant the Nation’s worst financial sociopaths.  They all knew that it was essential, under the oaths of office they took, for them to bend every effort on an emergency basis to end the ability of the financial rocket scientists to loot with impunity.  They all knew that there is nothing in the Dodd-Frank Act – and nothing that the administration proposed for that Act that was killed by Congress – that ends the ability of the financial rocket scientists to loot with impunity.  They all failed to even try to do their duty.

Bloomberg’s failure to even see the vital question scream the loudest.  One cannot ask the right questions if one’s analytical powers are on the same plane as DOJ’s leadership.

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  1. sd

    RSS feed – did it change? The feed from Naked Capitalism stopped working two days ago. All of the other feeds are working on the reader.

  2. MyLessThanPrimeBeef

    Ignored by the Mortgage Fraud Task Force and the SEC???

    I am more convinced than ever that even a small government, but one dedicated to the people, not just the 0.01%, can vastly improve our world. These people, Yves mentioned, they are not part of the government, but offer to help the DOJ & SEC, in the spirit of serving our country. They are not asking billions that will worsen our deficit. That’s the great potential of this country. Here is something we can do to better the nation without spending more money.

    On the other hand, we have a big government that has been captured by the elites, spending trillions on imperial adventures, but not able to prosecute ‘rocket science’ frauds.

    The size of the government is not important – small and dedicated can do way better than big and captured. Lack of money to spend is not the issue – there is enough money waiting to be re-directed. It’s what the people do with the government they have.

    1. GuyFawkesLives

      I spent hours on the phone with an Asst Deputy prosecutor of the Criminal Fraud Division of the DOJ, sent him all the documents I had showing all kinds of criminal fraud. He seemed interested until of course, until he retired with no action taken. He told me on his retirement that he’s been golfing with Obama occasionally……so what that means to me is the Executive in charge knows exactly what has gone on and what continues to go on…..and approves of this criminal activity.

      1. MaroonBulldog

        The Executive in charge is a Chicago machine politician, so, there’s a question I have to ask: was there ever reason for doubt in the first place?

      2. Nathanael

        Then the problem is to explain to the executive why condoning this vast network of criminal activity is corrosive to society and will lead, in the long run, to his daughters being brutally killed. (He might live long enough to escape the guillotine; his daughters won’t.) I’m not sure he’s smart enough to understand this aspect of history.

  3. LifelongLib

    The intro mentions “Deputy Attorney General Juan Cole”. I assume it’s supposed to be “James Cole”. AFAIK Professor Juan Cole is still informing us about the Middle East…

    1. proximity1

      Right you are. Deputy Attorney General James M. Cole:

      Wikipedia: “James Michael Cole[1] (born May 2, 1952) is an American attorney who has served as United States Deputy Attorney General since December 29, 2010.”

      I put it down to Yves’ doing almost single-handedly the reading/research/writing of a group of twelve MBA graduates students who also have a day job.

  4. kimsarah

    Re: “Proving individual bankers broke the law was extremely difficult because it was hard to show criminal intent and because they may not have violated laws in effect at the time.”
    Cole sounds just like Lanny Breuer in that memorable 60 Minutes interview.
    First Holder says prosecuting individuals could bring down the banking system, then Breuer tells us nobody will ever have enough proof for prosecutors to get a case. Now Cole with his rocket scientist remark tells us the DOJ is simply incompetent. Lie, lie and another lie.
    As you have previously pointed out, the DOJ hasn’t even lifted a finger to try and prosecute anyone even though they may believe they’d lose. At least they could pretend to be trying.
    Begging, cajoling them or embarrassing these lapdogs to prosecute hasn’t worked work because they obviously don’t give a flying —k what anyone else — besides their bankster bosses — think. They know who they work for and grin from ear to ear.

    1. vlade

      I may be wrong, but I do not believe that criminal intent is required to prosecute. If you run over a person w/o intending so, you can still end up in jail (at least here in the UK, maybe in US it’s considered self-defence).

      That said, fraud tends to have criminal intent (enrich yourself), and there were few cases of fraud persecuted.

      Not to mention it entirely ignores SoX stuff, which should be sooo easy to do… But maybe SEC never heard of SoX, wchich would be in line with admitting the incompetence.

      1. wbgonne

        Federal fraud convictions require proof of criminal intent. But it is axiomatic that intent is almost never proved directly. It is done circumstatially. The feds can and have prosecuted all manners of defendants under the fraud statutes, often to excess and against hapless screwups, as “Three Felonies A Day,” by Harvey Silverglate, demonstrates. It is disingenuous at best for the DOJ to claim an inability to prosecute the banksters. The DOJ could have easily proved intent just by pointing out the dollar amounts involved. Motive and intent are often inseparable.

        1. susan the other

          Courts will admit as evidence an record of behavior because it has long been recognized that actions are a clear indication of intent. Otherwise you’re a blithering idiot and it’s doubtful if you could have been such a “rocket scientist.”

          1. wbgonne

            If you intend an insult you should be coherent. Try again please. Better yet: quit while you’re ahead.

            1. susan the other

              No, I didn’t mean you are blithering, I meant they, as in the fraudsters. Sorry. I wrote it up with ambiguous pronouns!

              1. wbgonne

                No problemo. As to your point: there is no doubt — zero — that the DOJ would have found numerous juicy tidbits in emails to parade before the jury and make the banskter defendants look like the thieves they are. Couple that with the defendants’ enormous personal gains and the terrible losses to others and you had at least a good chance of convictions. If you were so inclined, that is.

    2. Ulysses

      “They all failed to even try to do their duty.” I think your comment explains exactly why this happened. Very few people in the DOJ, SEC, or anywhere else in “public service” see their “duty” as serving the public anymore.

      Government by the people, for the people, and of the people has, in fact. perished from the face of the earth. The illegitimate, unrepresentative, neoliberal regime– that dominates most of the globe– exists only to serve the interests of a handful of kleptocrats. The only meaningful political struggles left, outside of phony cultural wedge issue debates, are between the victors in the class war against us as to how to divvy up the loot.

      While we obviously need to resist current trends, and struggle to restore popular sovereignty, the likelihood of success any time soon is low. What we can do, as exemplified in this post, is document the atrocities and maintain at least the memory of a better way.

      Free speech will not by itself save us, yet is a necessary component of any struggle to make this world a far better place. Once we recognize that the current regime cannot be shamed by our words into doing the right thing, we are liberated to use our words to inspire people to throw over this kleptocracy and begin the urgent business of healing our planet.

      1. Nathanael

        They’ll be overthrown, because they’re such fools that they don’t know the first thing about running a country; they know less than the Pharoahs of ancient Egypt. The question then is who will overthrow them. We want nice democratic-minded people to overthrow them; could just as easily be fascists.

  5. vlade

    If the “rocket science” is meant to be legal rocket science, then it’s an admission from SEC that they are incompetent, and can’t even hire anyone competent. Or it’s a lie.
    If the “rocket science” is a math/econ bit, that’s a lie, because if Australia could prosecute S&P (and others) for CDO misseling bringing in expert witnesses on the credit structuring, then surely SEC can. Or again, they admit that they are too dumb. Or that US judges are way too dumb to undestand an expert witness.

    Either way, there are only two explanations – admitted stupidity and incompetence (and you know, I’d think that this should ring some bells with legislators), or lie. Take your pick.

    1. Garrett Pace

      Either way, it plays into a narrative that these finance people are special, geniuses that ordinary people should not judge or question.

      I see “data scientists” claiming power over the same sort of inaccessible wizardry, when mostly it’s just appeals to authority and inscrutable spreadsheets.

      1. Gaylord

        They are financial RACKET scientists, they have co-opted the government and the media, and none of these will be JETTISONED until after the next cataclysmic collapse, when the people’s revolt will begin in earnest.

  6. Paul Tioxon

    In the Philadelphia Legal Directory there are full page adds for expert witness testimony firms to provide any kind of expert witness, to help in making a legal case. Lawyers can’t know everything, but they do get involved in everyone’s business at one time or another and they go out and hire the smart people who will explain the mysteries of the subject at hand. I guess the thousands of economists who work for the government and the Federal Reserve system’s various regional banks are ALSO not smart enough to work with the government that pays them to research and understand the financial system that DOJ’s attorneys are not clever enough for.

  7. Yan

    Just as a reminder and to dispel all the classic “it’s impossible to prosecute the people that committed the crime within the organization” bs…for example in Brazil, and I believe this is copied from French Law, organizations and corporations are not prosecutable for fraud or embezzlement; the people working there are. A “simple” change in the law is all it takes.
    In a country as abjectly corrupt as Brazil you do see people going to jail for fraud, corruption, etc while the organization stays intact. This gets rid of too big to prosecute in one simple stroke.

  8. John F. Opie

    And this comes as a surprise? No one goes to jail because it’s too complicated?

    TARP enabled the fraud. The fraud required corruption. Incompetence enabled corruption.

    Seriously: it’s how the culture of corruption in Chicago works. Appalling that it has reached the mainstream, but given who is nominally in charge, not particularly surprising.

    Of course there’s no excuse. Literally none.

    1. Nathanael

      This is not how the culture of corruption in Chicago works. It’s close… but Chicago has a fundamental feature where you keep your graft down to the level where the system keeps working. Perhaps the corrupt Chicago guys who bailed out the crooked banksters don’t understand that the banksters are actually bringing down the entire system. The whole damn thing.

      Actually I think they don’t understand that. If they woke up to that, they might actually have the banksters killed.

  9. Formerly T-Bear

    At the point in time that the L. B. Johnson administration came to a close appears to be the the end of the American ancien régime. Since, the legislative branch has fallen to partisan politics of the nature that brought down the Spanish Republic resulting in the notorious horrors of the Spanish Civil War; the judicial branch has fallen to an ideological orthodoxy resplendent in their ability to countenance contradiction without so much as a blink of an eye; and an executive totally enveloped in imperial fantasy. The Republican representatives in Congress marching to their party’s orders would put the finest troupe of Nazi Storm-troupers to shame without the slightest regard to their constituencies, the democrats hot on their successful trail; a private think-tank has become the gatekeeper for candidates for judicial position, supplanting the traditional non-partisan commendation of the American Bar Association; and the presidency is determined by the Audacity of the Lie. The system is broke, the combination accessing both power and the public treasury has been breached, the system has become incapable of self-correcting, great power has corrupted greatly and will not be relinquished until those hands holding power are cold and dead. It is doubtful that any of what is can be saved, the combination is known and the treasury is empty. Those who refuse to learn economics will remain in bondage until they do.

    1. susan the other

      I think it came down in the 50s under Eisenhower. It became only too obvious and pathetic with LBJ. During Eisenhower’s tenure the most important objective was to create a world that functioned (yes, for big corporations) and to make war a thing of the past. But our war mongers in Congress were always after him to off on global expeditions to save their bacon and he resisted as much as he could. And on the other side was Khruschev claiming “We will bury you!” Ike gave a lot of speeches about peace and the MIC. The tipping point (imo) came in the mid 50s when the US had been under pressure from France to buy back its dollars with gold and silver. We were already broke by then and in 1954 the banksters of the day threw a big party in D.C. and called it the bankruptcy ball. Very in-your-face, no? Catherine Graham’s autobio.

      1. Formerly T-Bear

        I would amend:

        “Those who refuse to learn economics will remain in bondage until they do.”

        to read:

        “Those who refuse to learn history and economics will remain in ignorance and bondage until they do”

        The given display of historical knowledge is unrecognisable for one who lived through it. Burn whatever book you got that pile of rubbish out of. About the only fact you have in all that is the name Eisenhower, otherwise all the rest isn’t even wrong, it’s not even related to history.

      2. Formerly T-Bear

        @ Susan whatever

        I would add, since you seem short of a response. When I write something, I am usually quite careful of the words I use. It is offensive to have those words corrected, twisted or adulterated with some idea that goes through your head. If you have anything at all on the subject being discussed, please in future, make your additions in a form that can stand on its own – Do Not use my work to propel your ideas, I will respond, particularly to those who don’t add information or enlightenment or make to muddy an issue with patent non-sense, do try to become something other than an intellectual remora.

        1. Yves Smith Post author

          Even though your comment is mild, it is also out of line. You make no substantive response to what Susan the other said, and she DID make a substantive point: that she dated the end of the American ancien regime earlier than you did. You basically say you didn’t think her comment was well enough written for her to have the right to respond to your remark.

          Sorry, that is for the site admins to determine. And your comment is particularly out of line since Susan’s tone was perfectly agreeable.

          1. Formerly T-Bear

            Point taken and shall refrain. It is commentary such as “I think it came down in the 50s under Eisenhower. It became only too obvious and pathetic with LBJ.” that distorts history. The object mentioned was the effective end of FDR’s policies. The subsequent Nixon administration apparently opened the doors to adherents of what became known as the neoliberal thought collective. I have no intention of arguing otherwise. Since one cannot disparage fair and equal for what it is. It is your history and will be what you make of it. This matter is closed. Thank you for permitting my observations; I shall not be intruding here further.

    1. Ben Johannson

      No need to misquote: Krugman is so incoherent he’ll inevitably hang himself within 24 hours.

    2. Alejandro

      “misquote Krugman”? Can you be more specific? What, when & where? ‘Fly’by psittacism, doesnt count.

  10. cnchal

    The excuse that Deputy Attorney General James Cole offered for DoJ’s failure to prosecute financial fraud, that they were overmatched by “rocket science” isn’t just pathetic, it’s a flat out lie.

    Cole does us a favor by using the “we are stupid” defense. If you are going to have a cop on the beat that conspires with the criminals, that cop is worse than useless.

    The SEC needs to be shut down. Fire everyone there, close the doors and turn out the lights.

    It is worse to have the illusion that this agency does it’s job, and to think they can protect you somehow when they are self admitting as too stupid to do their job. Might as well get rid of them.

  11. TedWa

    This really all does come down to Obama. Bush wanted strings attached to the bailouts, Obama, on the cusp of his election, said No, no strings attached. He then hired those he vetted to insured they would do this and his will in the matter. I believe Obama also called it the “Christian” thing to do. Chameleon
    In the halls of hypocrisy, Obama reigns as king.

    1. Ulysses

      Bingo!! The revolving door is a very big part of the problem– it explains why the system is so irreparably broken and cannot save itself. There is no more urgent task facing humanity today than to break the evil power of criminal banksters to corrupt and co-opt social, economic, and political institutions.

    2. TheCatSaid

      What laws exist–elsewhere, in our past, or proposed for the future–to shut the revolving doors?

  12. impermanence

    It’s all about lying, cheating, and stealing. Although everybody knows this, it seems as if people’s ability to confront this reality [their complicity] is inversely proportional to their income.

  13. James Cole

    Just for the record, I am not the James Cole that is the subject of this column. . . I am actually the main character of Terry Gilliam’s movie, Twelve Monkeys (played by Bruce Willis!) & was using this pseudonym since before the Obama administration.

  14. Clifford Johnson

    The industry’s own well-understood jargon being “liar loan” and IBGYBG, even a defrauded pro per (like me) could win a jury trial against the highest entities–if only treated fairly by the courts. Never underestimate the incompetence of the government or the unfairness of the courts. Nevertheless, I agree that such prosecutions in these cases should be slam-dunk.

  15. Vatch

    I hope the potential future employers of Deputy Attorney General James M. Cole will take note of the fact that he does not believe that he is competent to handle complex legal cases that he considers to be metaphorical rocket science.

  16. Walter K

    The whole claim that banking fraud cases are too complex to prosecute is nonsense. In the past decade Justice has been quite successful in prosecuting tax shelter fraud cases, including ample jail time for the most aggressive promoters. If these deals aren’t rocket science situations, I dont know what are. This is a huge unsung success story.
    It seems that the Administration made a political decision, at the top, to protect the banking class from prosecution. The unforgettable line about protecting Wall Street from the pitchforks was prescient. Tax shelter promoters didn’t enjoy this protection, so they ended up doing time.

    1. Nathanael

      You can’t protect the same criminals from pitchforks twice in a decade. Maybe not twice in two decades. You can run it a little longer if you use certain identity politics techniques, but they can’t. You can run it a little longer if the criminals you’re protecting are an armed gang who can protect themselves, but these aren’t.

      They are playing with fire here.

      As Bush said, “Fool me once, shame on — shame on you. Fool me — you can’t get fooled again.”

      There are a lot of people falling for the fantasy bullshit excuses like James Cole is spreading. Next time the banking system collapses, however, nobody will fall for it.

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