CommunityFDL Main Blog

FCIC Will Refer Report to Authorities for Potential Criminal Prosecution

Financial Crisis Inquiry Commission meeting in February, 2010. (photo: antisocialtory via Flickr)

Shahien Nasiripour reports that the Financial Crisis Inquiry Commission will forward multiple individuals responsible for the financial meltdown to state and local authorities for potential criminal prosecution, in accord with the imminent release of their report. If we wanted to understand why Republicans on the commission suddenly begged off the report a month or so ago, this could be the reason.

The sources, who spoke on condition they not be named, declined to identify the people implicated or the names of their institutions. But they characterized the panel’s decision to make referrals to prosecutors as a significant escalation in the government’s response to the financial crisis. The panel plans to release its final report in Washington on Thursday morning […]

According to the law that created the Financial Crisis Inquiry Commission, the panel has a responsibility to refer for prosecution any evidence of lawbreaking. The offices that have received the referrals — the Justice Department, state attorneys general, and perhaps both — must now determine whether to prosecute cases and, if so, whether to pursue criminal or civil charges.

Though civil charges appear a more likely outcome should prosecution result, one source familiar with the panel’s deliberations said criminal charges should not be ruled out.

As Shahien notes, this is a multi-stage process. The FCIC simply has the authority to refer recommendations for prosecution, along with the relevant evidence. They can’t make a citizen’s arrest here. So it’s up to the Justice Department or the state Attorneys General in question – and this would almost certainly fall to the new Attorney General of New York, the very progressive Eric Schneiderman – to pick up from where the FCIC leaves off.  [cont’d.]

Many have found themselves disappointed in the FCIC’s work to this point, be it their inability to gain headlines, their inability to issue subpoenas without bipartisan cooperation, or even the commission’s personnel. But lest we forget that the FCIC uncovered, virtually by itself, the enormous mortgage bond scandal, based on testimony they gathered from Clayton Holdings in October. William D. Cohan said at the time that this strong, if pulled properly, could lead to justice:

I predict that not only will the commission’s report — and accompanying documents — reveal numerous causes of the crisis that others have overlooked, but also that it will have a significant impact on the regulations that still must be written by the Securities and Exchange Commission and the Treasury as part of the implementation on the Dodd-Frank financial reform law. In fact, the inquiry commission may have already played an essential role in beginning to bring fraudsters to justice.

A much-derided federal panel has produced clear evidence that investment banks kept secret from their clients the shaky nature of many mortgage-backed securities […] did Wall Street throw all those mortgages back into the pond as being too risky for securities they were going to sell to clients? Of course not — many were packaged right into their product.

In fact, the banks probably weren’t disappointed at all by the shaky status of many of these loans: in part because they could use the information that some of the mortgages were rotten to get a discount from the mortgage originators on the price paid for the entire portfolio. The people who should have been concerned were the investors who bought the securities from the Wall Street firms. But the amazing revelation of the Sacramento hearing was that the investment banks did not pass this very valuable information on to their customers.

This could be the building block for the criminal referrals, or it could be something deeper. But we know it will be backed up by a voluminous amount of evidence. In addition to their long report on the origins of the crisis, Yves Smith notes that the FCIC will release audio archives of all of their interviews with hundreds of witnesses. She was one of them. They will also release all the source documents, which is crucial.

As for the report itself, the Democratic version promises to be extremely satisfying to those who recognize quickly that corporate greed, deregulation and a financial industry determined to sidestep oversight entirely with the shadow banking system caused the crisis. One official told Reuters that Commission Chair Phil Angelides subscribed to the “vampire squid” view of the crisis, recalling the famous turn of phrase Matt Taibbi used to describe Goldman Sachs.

Apparently Republican commission member Peter Wallison will write his own big-government-did-it report, and the other three Republicans, who even think Wallison has gone too far, will write a third report aiming somewhere for the “middle” as they define it. I think it’s clear that Republicans find a lot of benefit to rejecting what should be a very tough report, instead writing their own pabulum and turning it into a he said/she said political debate rather than a recounting of clear facts.

And these facts continue to this day. The report looks at the origins of the crisis, one that remains with us:

JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even while resisting calls that it buy back the loans from bonds created by Bear Stearns Cos., an insurer said in court papers.

Ambac Assurance Corp., the debt guarantor partly seized last year by Wisconsin’s insurance commissioner, made the claim in a proposed amended complaint in its lawsuit against Bear Stearns’s EMC Mortgage unit, now owned by JPMorgan. Ambac, seeking to add a fraud claim to the case, referenced depositions, e-mail and letters in the filing, which was unsealed Jan. 14 in Manhattan federal court.

Mortgage-bond investors and other insurers, including Allstate Corp., Pacific Investment Management Co. and MBIA Inc., have accused loan sellers or bond underwriters of sometimes misrepresenting the quality of the underlying debt enough to trigger contractual or legal provisions requiring repurchases. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan bond analysts said in an October report.

JPM demanded that their lender buy back mortgages AT THE SAME TIME that they were denying repurchases from Ambac on the exact same loans. This is only the most recent example of Wall Street exposed as essentially a criminal enterprise. I can’t wait until Thursday morning to see a bunch more.

CommunityThe Bullpen

FCIC Will Refer Report to Authorities for Potential Criminal Prosecution

Shahien Nasiripour reports that the Financial Crisis Inquiry Commission will forward multiple individuals responsible for the financial meltdown to state and local authorities for potential criminal prosecution, in accord with the imminent release of their report. If we wanted to understand why Republicans on the commission suddenly begged off the report a month or so ago, this could be the reason.

The sources, who spoke on condition they not be named, declined to identify the people implicated or the names of their institutions. But they characterized the panel’s decision to make referrals to prosecutors as a significant escalation in the government’s response to the financial crisis. The panel plans to release its final report in Washington on Thursday morning […]

According to the law that created the Financial Crisis Inquiry Commission, the panel has a responsibility to refer for prosecution any evidence of lawbreaking. The offices that have received the referrals — the Justice Department, state attorneys general, and perhaps both — must now determine whether to prosecute cases and, if so, whether to pursue criminal or civil charges.

Though civil charges appear a more likely outcome should prosecution result, one source familiar with the panel’s deliberations said criminal charges should not be ruled out.

As Shahien notes, this is a multi-stage process. The FCIC simply has the authority to refer recommendations for prosecution, along with the relevant evidence. They can’t make a citizen’s arrest here. So it’s up to the Justice Department or the state Attorneys General in question – and this would almost certainly fall to the new Attorney General of New York, the very progressive Eric Schneiderman – to pick up from where the FCIC leaves off.

Many have found themselves disappointed in the FCIC’s work to this point, be it their inability to gain headlines, their inability to issue subpoenas without bipartisan cooperation, or even the commission’s personnel. But lest we forget that the FCIC uncovered, virtually by itself, the enormous mortgage bond scandal, based on testimony they gathered from Clayton Holdings in October. William D. Cohan said at the time that this strong, if pulled properly, could lead to justice:

I predict that not only will the commission’s report — and accompanying documents — reveal numerous causes of the crisis that others have overlooked, but also that it will have a significant impact on the regulations that still must be written by the Securities and Exchange Commission and the Treasury as part of the implementation on the Dodd-Frank financial reform law. In fact, the inquiry commission may have already played an essential role in beginning to bring fraudsters to justice.

A much-derided federal panel has produced clear evidence that investment banks kept secret from their clients the shaky nature of many mortgage-backed securities […] did Wall Street throw all those mortgages back into the pond as being too risky for securities they were going to sell to clients? Of course not — many were packaged right into their product.

In fact, the banks probably weren’t disappointed at all by the shaky status of many of these loans: in part because they could use the information that some of the mortgages were rotten to get a discount from the mortgage originators on the price paid for the entire portfolio. The people who should have been concerned were the investors who bought the securities from the Wall Street firms. But the amazing revelation of the Sacramento hearing was that the investment banks did not pass this very valuable information on to their customers.

This could be the building block for the criminal referrals, or it could be something deeper. But we know it will be backed up by a voluminous amount of evidence. In addition to their long report on the origins of the crisis, Yves Smith notes that the FCIC will release audio archives of all of their interviews with hundreds of witnesses. She was one of them. They will also release all the source documents, which is crucial.

As for the report itself, the Democratic version promises to be extremely satisfying to those who recognize quickly that corporate greed, deregulation and a financial industry determined to sidestep oversight entirely with the shadow banking system caused the crisis. One official told Reuters that Commission Chair Phil Angelides subscribed to the “vampire squid” view of the crisis, recalling the famous turn of phrase Matt Taibbi used to describe Goldman Sachs.

Apparently Republican commission member Peter Wallison will write his own big-government-did-it report, and the other three Republicans, who even think Wallison has gone too far, will write a third report aiming somewhere for the “middle” as they define it. I think it’s clear that Republicans find a lot of benefit to rejecting what should be a very tough report, instead writing their own pabulum and turning it into a he said/she said political debate rather than a recounting of clear facts.

And these facts continue to this day. The report looks at the origins of the crisis, one that remains with us:

JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even while resisting calls that it buy back the loans from bonds created by Bear Stearns Cos., an insurer said in court papers.

Ambac Assurance Corp., the debt guarantor partly seized last year by Wisconsin’s insurance commissioner, made the claim in a proposed amended complaint in its lawsuit against Bear Stearns’s EMC Mortgage unit, now owned by JPMorgan. Ambac, seeking to add a fraud claim to the case, referenced depositions, e-mail and letters in the filing, which was unsealed Jan. 14 in Manhattan federal court.

Mortgage-bond investors and other insurers, including Allstate Corp., Pacific Investment Management Co. and MBIA Inc., have accused loan sellers or bond underwriters of sometimes misrepresenting the quality of the underlying debt enough to trigger contractual or legal provisions requiring repurchases. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan bond analysts said in an October report.

JPM demanded that their lender buy back mortgages AT THE SAME TIME that they were denying repurchases from Ambac on the exact same loans. This is only the most recent example of Wall Street exposed as essentially a criminal enterprise. I can’t wait until Thursday morning to see a bunch more.

Previous post

Early Morning Swim: Glenn Greenwald Discusses Justice Scalia's Closed Meeting with Tea Party Caucus on Lawrence O'Donnell

Next post

Rove and the (Escape) Hatch Act: Report Shows Government Politicized (But You Knew That)

David Dayen

David Dayen