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September 24, 2015 By Richard Bowen

A Test Case for the DOJ’s New Policy?

US Department of Justice - Licensed under CC BY-SA 3.0 via Wikimedia Commons
US Department of Justice – Licensed under CC BY-SA 3.0 via Wikimedia Commons

In my last post: New DOJ Policy to Prosecute…Real or Smokescreen?, I commented that the DOJ’s new policy to go after  individuals who commit financial crimes — not just settle for fines, was a step in the right direction. I also expressed some cynicism, given their track record so far.

While it’s my belief that the new DOJ stance is a defensive smokescreen and a public relations ploy to shield itself from widespread criticism, I would dearly love to be proven wrong.

In that policy statement, Deputy Attorney General Sally Yates stated unequivocally that the DOJ will now pursue criminals “regardless of whether they commit their crimes on the street corner or in the boardroom,”… “A crime’s a crime.” As she said in her memo, “We mean it when we say, “You’ve got to cough up the individuals.””

Perhaps, but the DOJ is known for its frequent changes in position. As my cohort, Michael Winston, author of World–Class Performance: The Commitment; The Pursuit; The Achievement, commented in the Huffington Post , they throw up “a smokescreen activated every six months or so to create the illusion of law enforcement.”

Well, it looks as if the DOJ may be facing an early test of its long overdue policy change and Deputy Attorney General’s Yates’ demand that attorneys play hardball with corporations, and to pursue individual executives from the outset of any investigation.

It looks as if some attorneys are doing just that. And what the DOJ does in responding and taking action on this case, may set a new precedent.

Last week, Bloomberg reported that private plaintiffs have filed two suits alleging bid-rigging by 22 primary dealers. The 115-page lawsuit was filed in a Manhattan federal court on Aug. 26, by Quinn Emmanuel Urquhart & Sullivan, LLP and other law firms. The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading, which include Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley.

Using the same analytical techniques which identified cheating involving LIBOR rates and the currency markets and using data from an expert in rigging cases, the plaintiffs said there’s evidence of cheating from at least 2007 through earlier this year, when press reports revealed the Justice Department investigation into the auction process. The expert witness’ conclusion: “… the defendants coordinated artificially to influence the results of the auctions in the primary market.”

In Will Banks “Cough Up Executives” in the Treasury Bid-Rigging Scandal, Yves Smith openly questions if the DOJ will really take to heart the new pronounced policy in pursuing this case, while cautioning that investigations and litigation are still underway. Nothing has yet to be proven. Still this could be “the case” that provides a breakthrough.

I don’t need to remind you that in the last six plus years, 49 financial institutions have paid out nearly $190 billion in fines and settlements, and only one banker, a mid-level trader at Credit Suisse, has received any jail time for activities linked to mortgage fraud. Yet, if we take Ms. Yates’ position, “one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,” and the DOJ at face value, it could well be that finally individuals will be found guilty. The playing field will change.

As it is, corporations are fined, yet the individuals who committed the crime go scot free. In some cases, they even get raises. So what do we expect if the crime is repeated? Heck – it’s not even treated as a crime.

Cases like the one cited are critical to watch. This could be a decided turning point for stopping the blatant rewarding of greed we’ve had on Wall Street for decades. It might be, as my colleague William Black says, “the end of the wave of recidivism in which elite bankers continued to defraud the public after promising to cease their crimes.”

[tweetthis url=”http://bit.ly/1Lz5ECd”]Will the #DOJ finally play hard ball with guilty execs from the #TBTF megabanks? ~ @RichardMBowen #wallstreet[/tweetthis]

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Tagged With: Department of Justice, DOJ, Financial Crisis

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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.

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  • Were Bank Settlements Really Payments of Extortion to the Department of Justice??Were Bank Settlements Really Payments of Extortion to the Department of Justice??
  • Should the Big Banks Be Nervous?Should the Big Banks Be Nervous?

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Presentation Topics

Playing for High Stakes: The Principles and Practice of Ethical Leadership

Dark Citi: The Story of a Whistleblower

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Now an ethical leadership speaker, Richard Bowen was Citigroup's Business Chief Underwriter during the housing bubble.

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