How the SEC Covers Up Large Scale Financial Crimes

[FayeforCure]

Lack of oversight and accountability and downright illegal activity on the part of the "regulators" have allowed the crimes and abuses to go unpunished. All this, while America prides itself on being tough on street crime, just not if it's on Wall Street.

Aug 18, 2011
Report: SEC has destroyed Wall Street probe records for 20 years

A former Securities and Exchange Commission lawyer has told Congress the Wall Street regulator has routinely destroyed records of initial investigations over the past 20 years, obliterating evidence of possible financial crimes by some of the same firms and individuals involved in the 2008 meltdown, Rolling Stone reports.

One top agency official estimated that 18,000 investigations were involved, including two aborted inquiries into the activities of Bernard Madoff, who in 2009 pleaded guilty to a $20 billion Ponzi scheme that sent him to prison for 150 years.

Rolling Stone writes, "By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. ..."

The magazine's Matt Taibbi explains:

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records -â€" "including case files relating to preliminary investigations" â€"- are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases -â€" known as MUIs, or "Matters Under Inquiry" -â€" was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission's internal website. "After you have closed a MUI that has not become an investigation," the site advised staffers, "you should dispose of any documents obtained in connection with the MUI."

Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

The whistle-blower is identified as Darcy Flynn, an agency lawyer for 13 years who in July alerted Congress. He was responsible for helping manage the records and said the destruction of preliminary investigations had been happening since at least 1993. He said senior SEC staff have scrambled to hide the agency's actions.

Read the entire RS piece here.

Wednesday, in response to the article, Sen. Chuck Grassley of Iowa, the ranking Republican on the Judiciary Committee, wrote to SEC Chair Mary Shapiro asking for a response to the allegations.

Last week, the agency announced a new whistle-blower program to report violations and collect rewards.

http://content.usatoday.com/communities/ondeadline/post/2011/08/report-sec-has-destroyed-wall-street-probe-records-for-20-years/1

[FayeforCure]

Is the SEC Covering Up Wall Street Crimes?
Matt Taibbi: A whistle blower says the agency has illegally destroyed thousands of documents, letting financial crooks off the hook.

By Matt Taibbi

August 17, 2011 8:00 AM ET Pete Gardner/Getty

Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file â€" "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.

That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations â€" "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction â€" has apparently disappeared forever into the wormhole of history.

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records â€" "including case files relating to preliminary investigations" â€" are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases â€" known as MUIs, or "Matters Under Inquiry" â€" was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission's internal website. "After you have closed a MUI that has not become an investigation," the site advised staffers, "you should dispose of any documents obtained in connection with the MUI."

Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

The widespread destruction of records was brought to the attention of Congress in July, when an SEC attorney named Darcy Flynn decided to blow the whistle. According to Flynn, who was responsible for helping to manage the commission's records, the SEC has been destroying records of preliminary investigations since at least 1993. After he alerted NARA to the problem, Flynn reports, senior staff at the SEC scrambled to hide the commission's improprieties.

As a federally protected whistle-blower, Flynn is not permitted to speak to the press. But in evidence he presented to the SEC's inspector general and three congressional committees earlier this summer, the 13-year veteran of the agency paints a startling picture of a federal police force that has effectively been conquered by the financial criminals it is charged with investigating. In at least one case, according to Flynn, investigators at the SEC found their desire to bring a case against an influential bank thwarted by senior officials in the enforcement division â€" whose director turned around and accepted a lucrative job from the very same bank they had been prevented from investigating. In another case, the agency farmed out its inquiry to a private law firm â€" one hired by the company under investigation. The outside firm, unsurprisingly, concluded that no further investigation of its client was necessary. To complete the bureaucratic laundering process, Flynn says, the SEC dropped the case and destroyed the files.


 Read more: http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817#ixzz1dXPbq2vA

[buckethead]

This cannot be!

Our government officials complicit in fraud?

Quick! Give them more authority!... and funding.

(Don't "occupy" me... just a little quip.)

[FayeforCure]

Judges across America take note! Stand up STRONG against corporate crimes!! Lets crack down on REPEAT OFFENDERS!

Finally, a Judge Stands up to Wall Street
Taibblog
by: Matt Taibbi
A courtroom sketch of Judge Jed Rakoff.SHIRLEY SHEPARD/AFP/Getty Images
Federal judge Jed Rakoff, a former prosecutor with the U.S. Attorney’s office here in New York, is fast becoming a sort of legal hero of our time. He showed that again yesterday when he shat all over the SEC’s latest dirty settlement with serial fraud offender Citigroup, refusing to let the captured regulatory agency sweep yet another case of high-level criminal malfeasance under the rug.

The SEC had brought an action against Citigroup for misleading investors about the way a certain package of mortgage-backed assets had been chosen. The case is very similar to the notorious Abacus case involving Goldman Sachs, in which Goldman allowed short-selling billionaire John Paulson (who was betting against the package) to pick the assets, then told a pair of European banks that the “designed to fail” package they were buying had been put together independently. 

This case was similar, but worse. Here, Citi similarly told investors a package of mortgages had been chosen independently, when in fact Citi itself had chosen the stuff and was betting against the whole pile.

This whole transaction actually combined a number of Goldman-style misdeeds, since the bank both lied to investors and also bet against its own product and its own customers. In the deal, Citi made a $160 million profit, while its customers lost $700 million.

Goldman, in the Abacus case, got fined $550 million. In this worse case, the SEC was trying to settle with Citi for just $285 million. Judge Rakoff balked at the settlement and particularly balked at the SEC’s decision to allow Citi off without any admission of wrongdoing. He also mocked the SEC’s decision to describe the crime as “negligence” instead of intentional fraud, taking the entirely rational position that there’s no way a bank making $160 million ripping off its customers can conceivably be described as an accident.

“Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?” And this: “How can a securities fraud of this nature and magnitude be the result simply of negligence?”

Rakoff of course is right â€" the settlement is nuts. If you take Citi’s $160 million profit on the deal into consideration, what we’re talking about then is a $125 million fine for causing $700 million in damages. That, and no admission of wrongdoing.

Just imagine a mugger who steals $70 from some lady’s wallet being sentenced to walk free after paying back twelve bucks. Magritte himself could not devise a more surreal take on criminal justice.

It gets worse. Over the last decade, Citi has repeatedly been caught committing a variety of offenses, and time after time the bank has been dragged into court and slapped with injunctions demanding that they refrain from ever engaging the same practices ever again. Over and over again, they’ve completely blown off the injunctions, with no consequences from the state â€" which does nothing except issue new (soon-to-be-ignored-again) injunctions.

In this current case, this particular unit at Citi had already been slapped with two different SEC cease-and-desist orders barring it from violating certain securities laws. Here’s a summary from Bloomberg:

The commission already had two cease-and-desist orders in place against the same Citigroup unit, barring future violations of the same section of the securities laws that the company now stands accused of breaking again. One of those orders came in a 2005 settlement, the other in a 2006 case. The SEC’s complaint last month didn’t mention either order, as if the entire agency suffered from amnesia.

The SEC’s latest allegations also could have triggered a violation of a court injunction that Citigroup agreed to in 2003, as part of a $400 million settlement over allegedly fraudulent analyst-research reports. Injunctions are more serious than SEC orders, because violations can lead to contempt-of-court charges.

But the SEC avoided the issue of the 2003 injunction by charging Citi with a different type of fraud. But, as Bloomberg points out, it probably wouldn’t have mattered much if they had accused Citi of violating the 2003 injunction, since the bank had already done that once and not been punished for it:

In December 2008, the SEC for the second time accused Citigroup of breaking the same section of the law covered by the 2003 injunction, over its sales of so-called auction-rate securities. Instead of trying to enforce the existing court order, the SEC got yet another one barring the same kinds of fraud violations in the future.

So to recap: a unit of Citigroup, having repeatedly violated the same laws and having repeatedly violated the SEC’s own cease-and-desist orders and injunctions, is dragged into court one more time for committing a massive fraud.

And what does the SEC do? It doesn’t even bring up Citi’s history of ignoring the SEC’s own order, slaps the bank with a fractional fine, refuses to target any individuals, allows the bank to walk away without an admission of wrongdoing, and puts a cherry on the top by describing the $160 million heist not as a crime, but as unintentional negligence.


BRING OUT THE SOFT CUSHIONS! The SEC gets rough with Citigroup.

Imagine a car thief who, when caught driving a stolen Lexus, tells the police he simply stepped into the wrong car and drove off by mistake. Now imagine he tells the same story when, two years later, he’s caught screaming over the GW bridge in a stolen Mercedes.

Then, two years after that, he’s caught on the Cross-Bronx Expressway blasting the stereo in a boosted 7-series BMW. Cops ask him for an explanation. “I must have gotten in the wrong car by mistake,” he says, shrugging. And the cops buy the story and send him home without a charge.

That’s roughly what we’re dealing with with this SEC action. To extend the metaphor just a little further â€" let’s say that BMW wasn’t even the only car he accidentally drove away that day, but the cops didn’t bother with the others. In the latest Citi case, the $700 million fraud was just one of many dicey CDOs marketed by that unit of Citi. But the SEC chose to address just that one case in its settlement.

Rakoff quite correctly took issue with all of this. From Jonathan Weil’s Bloomberg piece:

“What does the SEC do to maintain compliance?” Additionally, [Rakoff] asked: “How many contempt proceedings against large financial entities has the SEC brought in the past decade as a result of violations of prior consent judgments?” We’ll see if the SEC finds any.

Rakoff gained some notoriety a few years ago when he rejected as inadequate an SEC settlement with Bank of America, which was accused of misleading shareholders about the size of the bonuses paid out by Merrill Lynch, the investment bank BofA was in the process of acquiring. Rakoff dismissed the original $33 million fine as “half-baked justice,” although he eventually approved a $150 million fine.

The amazing thing about the wave of corruption that has overtaken the financial services industry is that most of it couldn’t happen without virtually every player at every level signing off on these deals. From the ratings agencies to the law firms to the accounting firms to the regulators to the bank executives themselves, everybody had to be on board in order for a lot of these fraud schemes to work.

Judges are a part of that picture, and too often, members of the bench sign off on dirty deals made between banks and regulators when the law says that such settlements must be “fair, reasonable, adequate and in the public interest.”

It’s great that Rakoff is behaving as any decent human being would and rejecting these disgusting settlements. But equally disturbing is the fact that more judges haven’t done the same thing. Are people with backbones really that rare?

http://www.rollingstone.com/politics/blogs/taibblog/finally-a-judge-stands-up-to-wall-street-20111110

[Dog Walker]

You want to get a really highly paid job in the financial industry?  Absolutely the best qualification you can have is to have worked at the SEC for a year or two.  I am sure that knowing this, the staff at the SEC takes a really hard line with the investment banks and brokerages.   NOT!

[FayeforCure]

You want to get a really highly paid job in the financial industry?  Absolutely the best qualification you can have is to have worked at the SEC for a year or two.  I am sure that knowing this, the staff at the SEC takes a really hard line with the investment banks and brokerages.   NOT!

So True!!

What Will Reform Wall Street?
It's time to actually hold bank CEOs accountable for financial fraud
By Jeffrey Sachs | @JeffDSachs | November 28, 2011 | 4inShare18 Sachs's latest book is The Price of Civilization: Reawakening American Virtue and Prosperity.

The SEC recently fined Citigroup for $285 million for selling CDOs (collateralized debt obligations) tied to bad mortgages. Goldman Sachs and JP Morgan have both recently paid large fines ($500 million and $154 million) to the SEC for similar misbehavior, in each case teaming up with a hedge fund to create securities designed to fail, in order to defraud unsuspecting purchasers while the hedge fund bets against the securities.

The hedge fund makes a large profit; the Wall Street firm earns a large fee; and the unsuspecting purchasers incur great losses. While the fines seems tough, they are merely a slap on the wrist. Citigroup, for example, made an estimated $160 million on the transactions, while investors lost $700 million. The firms do not even have to admit wrongdoing, which is why Federal Judge Jed Rakoff recently rejected the Citigroup settlement, writing, “In any case like this that touches on the transparency of the financial markets whose gyrations have so depressed the economy and debilitated our lives, there is an overriding public interest in knowing the truth.”

(MORE: 25 People to Blame for the Financial Crisis)

Moreover, the Wall Street CEOs who were the architects of this illegal behavior have pocketed vast personal riches in recent years and have lost nothing themselves from the SEC fines, which are basically passed down to the shareholders as the companies as a whole foot the bill. What is worse is that CEOs who were in charge while these deals were cooked in the first place are still in charge today.

If we want to truly reform Wall Street, we must hold these leaders accountable. When companies commit financial fraud, the responsible senior management team should step aside, accepting responsibility for the serious misdeeds of their companies and apologizing to the American people for the heavy costs they and their colleagues have imposed on the entire economy. If they do not voluntarily step down, and if the shareholders do not remove them, then the government should remove them. Bankers are required to exercise probity and responsibility vis-à-vis the markets as well as their shareholders. It is the job of bank regulators to ensure that top bankers measure up to these basic standards.

Bizarrely, the hedge funds that teamed up with the investment banks have paid no price at all for their behavior. The theory seems to be that these hedge funds are innocent bystanders when the banks peddle the toxic securities to the investors. This is a doubtful proposition. They have knowingly assisted the banks in violating financial laws.

In addition to the quick and hopefully voluntary departure of errant CEOs, the Justice Department should undertake an investigation into the legal responsibilities of the CEOs, senior managers and the corporate boards to see if criminal charges or other civil charges should be brought.

It seems preposterous that the Justice Department has been almost mute on a calamitous storm of illegal behavior on Wall Street. An investigation into Wall Street’s behavior in the lead-up to 2008 should be launched immediately, perhaps best led by an apolitical special prosecutor.

(MORE: The Straw Man Comes to Zuccotti Park)

Wall Street and much of the mainstream media have claimed not to understand the Occupy Wall Street protests, often stating that the young people in Liberty Plaza are simply acting out their envy. This is false. They are expressing their dismay at the impunity, lawlessness and arrogance displayed by Wall Street’s leading financial institutions, even after those institutions have nearly brought down the world economy.

They are looking for justice and the rule of law, recognizing that unless serious financial malfeasance is punished the odds are that it will quickly reappear, as will a more general contagion of cynicism and violating the law. And in this regard, they have more foresight than our highest statesmen and wisest government economists.


Sachs is an economist and professor at Columbia University in New York City. The views expressed are his own.

Read more: http://ideas.time.com/2011/11/28/what-will-reform-wall-street/#ixzz1fQSbidFz