Posted by Karl Denninger
Feds find little fraud at big Wall Street firms
While the American public and Capitol Hill lawmakers appear to blame wrongdoing on Wall Street as the primary cause of the global financial crisis, federal law enforcement agencies have had little success in finding and prosecuting instances of fraud at the nation’s major investment firms.
That’s because they’re not looking – that is, they’re willfully blind.
The article goes on to assert:
“Originating risky mortgages on its own does not violate the federal securities law,” Ms. Shapiro said
But lying about the quality of what you’re selling both violates Federal Securities Law and in addition violates ordinary fraud statutes. When such solicitations are sent over wires (e.g. electronically) or via the mail both wire and mail fraud statutes are violated. If and when two or more people collude to take such an action federal racketeering statutes may be violated as well.
Ms. Shapiro testified that the SEC had reached settlements with six Wall Street dealers to settle charges of fraud in connection with the auction-rate securities. The SEC secured $60 billion through the settlements to provide full refunds for investors in the securities.
But Ms. Shapiro (and Eric Holder of the Department of Justice) didn’t and still won’t pursue the larger issue, which was the issuance of literal trillions in securitized debt in 2004, 2005, 2006, 2007 and 2008 following FBI and HUD warnings that very high percentages of mortgages contained in these securities were rife with fraud – yet the offering circulars omitted any mention of these findings and warnings.
Indeed, the “auction rate security” issue – and the “pursuit” of Wall Street on these securities – rests on the precise same issue as does the above – that is, the willful and intentional misrepresentation of risks in the offering circulars for these securities in which self-dealing and the understatement of risk associated with same was intentionally omitted from the prospectuses.
The simple fact of the matter is that there’s no crime in speculating and being wrong.
But there are multiple crimes committed when one intentionally obscures, either through omission or commission, risks that one knows of and/or has been explicitly warned about.
Henry Boerner, chairman of the Governance and Accountability Institute, said the publics rage against Wall Street is focused not so much on suspected criminal activity as on the unfairness, lack of ethics and irresponsibility of bankers. However, he said, it is the regulators who should be faulted for allowing Wall Street bankers to take risks, shatter the economy and walk away with big bonuses.
“Voters, constituents, investors, employees, borrowers, homeowners, public officials, entrepreneurs — all have been impacted by the risky and at times reckless behavior of the leaders of the nations largest financial services organizations,” he said.
Those who choose to accept risk, knowing fully what they’re doing, are not now and never have been the issue. Such people deserve what they get – either for good or bad.
Attention is, has been, and should be focused on the willful and intentional lack of disclosure of known risks. Given the fact that The FBI was warning of an epidemic of fraud in “alternative” mortgage loan products as far back as 2004 and there were multiple investigations and disclosures in both the media and by HUD in 2006 and 2007 there is absolutely no excuse for the lack of full, fair and proper disclosure in the “products” that Wall Street created and sold on in the years 2004, 2005, 2006, and 2007 – without which neither the bubble or collapse would have occurred.
It has been and is my assertion that massive violations of the law were in fact committed during this faux “boom” and the ensuing bust, that the so-called “earnings” reported during that period in fact were not earned, and that buyers of this “debt” were in fact sold securities that, had the actual known characteristics of the loans contained in them been disclosed, were utterly unmarketable.