Truthdig
When It Comes to Prosecuting Wall Street, Preet Bharara Is No Hero
http://www.truthdig.com/report/item/when_it_comes_to_wall_street_preet_bhara
ra_is_no_hero_20170313/
Posted on Mar 13, 2017
By Jesse Eisinger / ProPublica
(https://www.propublica.org/article/when-it-comes-to-wall-street-preet-bhara
ra-is-no-hero)
Azi Paybarah (https://www.flickr.com/photos/azipaybarah/) / CC BY-NC-ND 2.0
(https://creativecommons.org/licenses/by-nc-nd/2.0/)
After his election in 1968, President Richard Nixon asked Robert Morgenthau,
the US Attorney for the Southern District of New York, to resign. Morgenthau
refused to leave voluntarily, saying it degraded the office to treat it as a
patronage position.
Nixons move precipitated a political crisis. The president named a
replacement. Powerful politicians lined up to support Morgenthau. Morgenthau
had taken on mobsters and power brokers. He had repeatedly prosecuted Roy
Cohn, the sleazy New York lawyer who had been Senator Joe McCarthys
right-hand man. (One of Cohns clients and protégés was a young New York
City real estate developer named Donald Trump.) When Cohn complained that
Morgenthau had a vendetta against him, Morgenthau replied, A man is not
immune from prosecution merely because a United States Attorney happens not
to like him.
Morgenthau carried that confrontational attitude to the world of business.
He pioneered the Southern Districts approach to corporate crime. When his
prosecutors took on corporate fraud, they did not reach settlements that
called for fines, the current fashion these days. They filed criminal
charges against the executives responsible.
Before Morgenthau, the Department of Justice focused on two-bit corporate
misdeedsPonzi schemes and boiler room operations. Morgenthau changed that.
His prosecutors went after CEOs and their enablersthe accountants and
lawyers who abetted the frauds or looked the other way. How do you justify
prosecuting a nineteen-year old who sells drugs on a street corner when you
say its too complicated to go after the people who move the money? he once
asked.
Morgenthaus years as United States Attorney were followed by political
success. He was elected New York County District Attorney in 1974, the first
of seven consecutive terms for that office.
There are parallels between Morgenthau, and Preet Bharara, the U.S. attorney
for the Southern District who was fired by President Trump this weekend.
Like Morgenthau, the 48-year old Bharara leaves the office of US Attorney
for the Southern District celebrated for taking on corrupt and powerful
politicians. Bharara prosecuted two of the infamous three men in a room
who ran New York state: Sheldon Silver, the Democratic speaker of the
assembly and Dean Skelos, the Republican Senate majority leader.
He won convictions of a startling array of local politicians, carrying on
the work of the Moreland Commission, an ethics inquiry created and then
dismissed by New Yorks Gov. Andrew Cuomo. (This weekend, Bharara
cryptically tweeted that I know what the Moreland Commission must have felt
like, a suggestion that he was fired as he was pursuing cases pointed at
Trump or his allies.)
But the record shows that Bharara was much less aggressive when it came to
confronting Wall Streets misdeeds.
President Obama appointed Bharara in 2009, amid the wreckage of the worst
financial crisis since the Great Depression. He inherited ongoing
investigations into the collapse, including a probe against Lehman Brothers.
He also inherited something he and his young charges found more alluring:
insider-trading cases against hedge fund managers. His office focused
obsessively on those. At one point, the Southern District racked up a record
of 85-0 in those cases. (Appeals courts would later throw out two prominent
convictions, infuriating him and dealing blows to several other cases.)
Hedge funds are safer targets. The firms arent enmeshed in the global
financial markets in the way that giant banks are. Insider trading cases are
relatively easy to win and dont address systemic abuses that helped bring
down the financial system.
Even there his record was more mixed than is popularly understood. As
Sheelah Kolhatkar demonstrates in her propulsive and riveting Black Edge,
(https://www.amazon.com/Black-Edge-Inside-Information-Wanted/dp/0812995805)
when it came to bringing his biggest whale to justice, Steve Cohen of SAC
Capital, the Southern District blinked. They did not charge him, only
securing a guilty plea from his firm.
Present and former prosecutors say Bharara did not give much emphasis to
investigations arising from the financial meltdown, an approach shared by
his boss, Attorney General Eric Holder. Justice Department insiders say many
of those inquiries withered not because they were unpromising, but because
they had little support
(https://www.propublica.org/article/the-rise-of-corporate-impunity) .
Bharara missed an opportunity by not bringing any significant criminal
charges against individuals in the wake of the collapses of Lehman,
investment bank Merrill Lynch, the insurer AIG, the mortgage securities and
collateralized debt obligation businesses
(https://www.propublica.org/article/banks-self-dealing-super-charged-financi
al-crisis) , or the myriad public misrepresentations from bank CEOs about
their finances.
Bharara and senior officials in Washington argue that there were no criminal
cases to file after the 2008 crisis. But the U.S. attorneys office in
Manhattan did pursue significant civil cases against the banks for their
mortgage activities, cases that had to prove misconduct by the
preponderance of the evidence. And DOJ did win guilty pleas from the banks
themselves, an indication that prosecutors might have been able to charge
individuals for their part in crimes their institutions had acknowledged.
Academics who studied those years, including Columbias Tomasz Piskorski and
James Witkin and Chicagos Amit Seru found widespread patterns of fraud
(file://localhost/Users/jesseeisinger/Downloads/Misrepresentation_MBS.pdf)
in the mortgage business.
The exception makes this failure all the more puzzling. As I detailed in
2014, Bhararas office brought one case for misconduc
(https://www.nytimes.com/2014/05/04/magazine/only-one-top-banker-jail-financ
ial-crisis.html) t during the financial crisis against a mid-level banker.
Prosecutors charged Kareem Serageldin of Credit Suisse with overseeing
traders who knowingly misrepresented the value of mortgage securities.
Serageldin pleaded guilty and went to prison.
Serageldins colleagues in the industry and others familiar with Credit
Suisse found it hard to believe that he was the only person involved in that
particular fraud.
Bhararas reluctance to pursue senior executives was seen in other
investigations of big banks. His office wrested a $1.7 billion fine from
JPMorgan Chase over its complicity in the Bernie Madoff Ponzi scheme, but it
brought no charges against individual bankers.
One odd aspect of his tenure was the Southern Districts willingness to
defer to other jurisdictions when it came to Wall Street cases.
Historically, the SDNY has been the leading enforcers of securities laws,
nicknamed the sovereign district for its propensity to grab corporate
fraud cases from elsewhere on the flimsiest of jurisdictional pretexts.
Under Bharara, the southern district let other U.S. attorneys claim
investigations into residential mortgage-backed securities, the instruments
at the heart of the financial crisis. Those other offices were not nearly as
versed in complex financial cases as their colleagues in Manhattan. In
addition, Bhararas office ceded post-financial crisis investigations into
foreign exchange and global interest rate manipulation to prosecutors
working from the Justice Departments headquarters.
Like Morgenthau, Bharara was a prominent figure in the New York landscape,
given to well-orchestrated press conferences and memorable sound bites. Like
Morgenthau, he did not leave office quietly, even thought the president has
a longstanding right to name his own U.S. attorneys. And like Morgenthau, he
may try to parlay his martyrdom into elective office.
But if he runs on his record of convictions, as prosecutors often do, voters
might want to consider as well the list of possible targets he never
pursued.
ProPublica is a Pulitzer Prize-winning investigative newsroom.
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