Bharara Has Power To Clean Up Wall Street “Dirty Business”
Francine McKenna
Jun. 28 2011 - 7:57 am
source blogs.forbes.com/francinemckenna/
An Open Letter To U.S. Attorney Preet Bharara On The Occasion of His Profile In The New Yorker
Dear Mr. Bharara,
I wonder if you know your own strength.
There’s a lovely article about you in the latest issue of The New Yorker. You’ve joined author George Packer’s pantheon of tough guys in even tougher places – Iraq, Africa, and Sierra Leone, to name a few. Packer calls the piece, “A Dirty Business: New York City’s top prosecutor takes on Wall Street crime.”
Most of the article is about your successful conviction of Raj Rajaratnam in the Galleon insider trading case.
Congratulations!
Well done, sir.But that’s a sweep of only one small dirty corner of Wall Street.
About half way through the article, the author gives your critics a chance to air their grievances. Packer tells us that before you became the U.S. Attorney for the Southern District of New York in August of 2009, the Justice Department decided to spread the cases of many of the obvious potential financial crisis defendants around to other offices.
That’s a shame. You would have been half way home had you arrived to find the office already investigating Lehman Brothers, Washington Mutual, AIG, Merrill Lynch and Countrywide – none of which have yet been subject to any criminal indictments.
Packer cites Eliot Spitzer, columnist Joe Nocera, and documentary filmmaker Charles Ferguson who complain of misdirection, “phony toughness,” and ambition beyond your current station. I’m going to give you the benefit of the doubt and assume you’ve just been very busy trying your best to enforce the law.
But there’s no excuse for you, the Superman of federal prosecutors, to misunderstand the law.
Did you really mean to say this?
“…In between, there are other scenarios—for example, an accountant involved in a conspiracy won’t flip. “So now we know, if we’re omniscient, that a crime was committed, that the accountant was involved, that the taxpayer was involved. Maybe there’s a lot of smoke—now comes the proof. This guy’s going to testify, ‘My accountant’s a smart guy—I just relied on my accountant.’ The accountant’s going to say, ‘I just relied on what he gave me,’ and everyone has plausible deniability. That’s a simple example of a way in which people can get away with even criminal activity when they’re making false certifications to the government.”
Section 302 of the Sarbanes-Oxley Act of 2002 made it a criminal offense for CEOs and CFO’s to make false financial statements to the government, regardless of the complicity of their accountants. Are auditors now paid to whitewash bold-faced lies instead of guard shareholders’ interests?
When Roger Lowenstein used pretzel logic to proclaim Wall Street not guilty – there must have been no fraud because there’s been no prosecutions – I could excuse him. He’s just Clark Kent, a journalist.
But you, Mr. Bharara, wear the cape.
Lowenstein misunderstood the real problem with the Lehman Repo 105 transactions. It’s the lack of disclosure not bad accounting.
If there was ever a clearer example of fraud and stronger support for claims of fraud regarding a crisis transaction than Repo 105, I don’t know what it is. Not only did Jenner & Block chairman, non-armchair prosecutor, and corporate defense attorney Anton Valukas, the Lehman Bankruptcy Examiner, provide unequivocal evidence for prosecutors of “colorable claims” against Lehman executives and Ernst & Young for disclosure fraud, the New York Attorney General followed up with a lawsuit that uses the word “fraud” to describe the audit firm’s contribution to Lehman’s failure.
When a CEO and CFO sign off on financial statements that tell a lie, that’s fraud. Violations of Section 302 of the Sarbanes-Oxley Act, signing off on financial statements that tell a lie, are criminal acts.
Surely the CEOs and CFOs of the mortgage originators, banks, and other financial institutions that were bailed out, forcibly acquired, or effectively nationalized didn’t really believe the internal controls over financial reporting were flawless and the disclosures they signed off on were full and true?
Not one of those failed, bailed out, or effectively nationalized institutions received a “going concern” qualification from their auditors prior to the federal cash infusions or forced final dispositions that averted systemic failure. Aiding, abetting, and complicity on the part of the auditors does make corporate executive prosecution more challenging.
So messy.
But when the U.S. Attorney in Manhattan tells white-collar criminals they can get away with financial system murder by relying on their accountants, he may be misrepresenting the law. And it says a lot about why so many on Wall Street have walked away scot-free in the wake of obvious frauds.
New York Times reporter Louise Story is tracking the crisis cases and says very few have been brought against executives of large companies. The cases that have been made are almost entirely civil fraud, rather than criminal charges.
If the Department of Justice didn’t make individual criminal cases related to the crisis a high priority early on, it’s no surprise you’re not producing complex prosecutions now. The financial crisis prosecutions scoreboard is going to stay sparse if you’re overly influenced by the self-serving version of the truth coming from accountants and lawyers. The myth of a “crisis too complicated to see it coming” is perpetuated when you insist it’s too hard to prosecute cases as anything other than perpetrator –free frauds.
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