We will not see a Wall Street chief or big bank CEO go to jail for their crimes. Perhaps ever.
That’s the upshot of a new book by ProPublica staff writer Jesse Eisinger, who has penned a work that was waiting to be written: The Chickens*** Club: Why the Justice Department Fails to Prosecute Executives (Simon & Schuster 2017). It’s so juicy and outrageous, I wish I had written it.
Let’s review the last two decades of corporate scandals, starting with Enron, Arthur Andersen, AIG, Goldman Sachs, HSBC, Bernie Madoff, and the rigging of interest rates and currency markets. Why were no top bankers put in prison after the financial crisis of 2008? Why do Wall Street CEOs — and all CEOs to some extent — seem to commit wrongdoing with impunity? Wells Fargo, anyone?
Two chief reasons, Eisinger finds: a once-famously tough Department of Justice no longer wants to prosecute certain CEOs, for fear of losing cases or of upsetting financial markets. And the federal appeals courts don’t want to render justice against Wall Street corporations. The Chickens*** Club specifically addresses the Second Circuit court in New York, which handles Wall Street, and how its judges have rolled back white-collar criminal convictions.
Here’s one head-slapper ruling from just last week: The three-judge panel of the Second Circuit dismissed charges against Anthony Allen and Anthony Conti, both former traders for Rabobank, who were convicted on conspiracy and wire-fraud charges in November 2015. They and about two dozen others manipulated interest rates both up and down, in particular, the interest rate on our adjustable-rate mortgages, credit cards, and student loans.
But convictions of the two British traders were “tainted” because a witness against them may have been influenced by testimony to authorities in their native U.K.
So, they were found guilty in Britain, but that doesn’t count here. On a technicality, both got off.
Where does the book title come from? None other than President Trump’s recently fired FBI director, James Comey.
In the revolving door that is government and Big Law, DOJ prosecutors today seem to fear filing lawsuits against Wall Street, because they might lose, thus blemishing their resumé. As the U.S. attorney for the Southern District in New York in 2002, Comey famously called federal prosecutors who never had a hung jury or lost a case “the chickens*** club,” hence the title.
“What Comey meant by that was — I want you guys to go out to work on the hardest, most important cases, the most righteous cases, and not worry about whether you are going to lose them,” Eisinger noted. Prosecutors’ job “is to do justice. It’s not to worry about winning or losing.”
Even after the financial crisis, then-Attorney General Eric Holder and DOJ’s criminal division head Lanny Breuer didn’t bring significant cases, and have since returned to white-shoe law firms.
As a result, DOJ prosecutors have little or no trial experience. Cases instead are negotiated to wrest million- or even billion-dollar fines from banks and Wall Street corporations (never paid by the perpetrators, but by shareholders). Instead of jail time for individuals, banks receive “deferred prosecution agreements.” Many of the interest-rate and currency-rigging banks signed these toothless DPAs, which are essentially softball probation: The government won’t prosecute unless you screw up again. And even then, probably not.
I witnessed this legal contortion first-hand covering Bernie Madoff and the many Wall Street firms and investment banks abetting his billion-dollar Ponzi scheme.
Investors accused JPMorgan Chase of enabling Madoff’s fraud and of ignoring red flags, having served as his bank from 1986 until his arrest in 2008. The investors invoked RICO, or racketeering, which was rejected by … you guessed it: the Second Circuit. Instead, JPMorgan signed a two-year deferred prosecution agreement and paid $2.6 billion to the U.S. government and Madoff victims to settle allegations that the bank failed to tell authorities about its suspicions of fraud at Madoff’s fund.
“The bank connected the dots when it mattered to its own profit but was not so diligent when it came to its legal obligations,” U.S. Attorney of the Southern District Preet Bharara said in 2014, at the time of the deal. “In part because of that failure, for decades, Bernie Madoff was able to launder billions of dollars in Ponzi proceeds essentially through a single set of accounts at JPMorgan.”
Madoff alone went to prison for 150 years. But no bankers who invested with him and perpetuated the scam did.
Here’s the message to rule-breaking bankers, Wall Street criminals, and assorted pump-and-dumpers: If you’re a boss, steal away. You won’t be seeing the inside of a prison any time soon.