DOJ: OPERATION BROKEN TRUST IS CONTINUING TO BREAK TRUST WITH AMERICA

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“It all sounded quite important, and the program’s slogan is pretty catchy. But after you get past the pandering sound bites, a question comes to mind: is anyone in the corner offices of Wall Street’s biggest firms or corporate America’s biggest companies paying any attention to Mr. Holder’s “strong message”?

Of course not. (I actually called some chief executives after Mr. Holder’s news conference, and not one had heard of Operation Broken Trust.)” — Sorkin, NY Times

“Mr. Einhorn, who had his own run-ins with the government when he tried to reveal fraud at Allied Capital and wrote about them in his book, “Fooling Some of the People All of the Time,” says he believes the government consciously and strategically does not pursue cases against big companies and officers.

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Editor’s Note: Keep fighting, the Courts are moving in your direction. But the larger context is still not changing. None of us are fooled anymore. The bank oligopoly controlling finance, controlling 40% of our national gross domestic product, and most of all controlling our government, has been growing power throughout the period of pain and suffering inflicted on America and dozens of countries around the world. The government will not police itself nor any of the real perpetrators of our real system problems. In so doing we are allowing our societal organization and government to collapse.

As more and more state and local governments cut government services, the leverage that government has — i.e., consent of the people — is correspondingly reduced. As consent and confidence of the people in “the system” diminishes it is inevitable that people will find ways to organize themselves locally to avoid the consequences of further harm inflicted on them from people and companies far away who see them as something lower down on the food chain worth eating to satisfy an unending appetite for greater wealth and greater power.

As Ireland is learning, they will be under foreign domination now for decades because of the financial disaster. This is but a hint of what is to come as we go through a familiar cycle of domination, rebellion, and changes in structure. The mistake being made is that most people don’t realize that there is absolutely nothing standing in the way of the same thing happening in good old America. And besides actual foreign powers dictating our rules and restrictions, the central government will be seen increasingly as a foreign power, or at least in league with them.

Those policy makers who believe that they have everything under control need to take a closer look at history. There isn’t support for their position. Ordinary people are already taking matters into their own hands. It won’t be long before they organize and that these organizations operate independently of central rule. The big catalyst that I see is that when, not if, the dollar weakens beyond recognition, people are going to be looking for a currency they can believe in, whether it’s god or something else. THAT is going to emanate locally and spread out. And with it, power and politics are going to change.

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December 6, 2010, 8:59 pm Legal/Regulatory | DealBook Column

Pulling Back the Curtain on Fraud Inquiries

By ANDREW ROSS SORKIN
Chip Somodevilla/Getty Images
Attorney General Eric H. Holder Jr. said his new task force had brought cases involving more than $8 billion in estimated losses.

To hear Eric H. Holder Jr. tell it, the Justice Department is aggressively cracking down on financial fraud.

On Monday in Washington, Mr. Holder, the United States attorney general, announced with much fanfare the results of a new enforcement program: Operation Broken Trust. “With this operation, the Financial Fraud Enforcement Task Force is sending a strong message,” Mr. Holder declared, highlighting the Ponzi schemes, affinity frauds and investment scams his department had prosecuted.

In all, Mr. Holder said his new task force had brought cases against 343 criminal defendants and 189 civil defendants for fraud schemes that harmed more than 120,000 victims throughout the country, involving more than $8 billion in estimated losses.

It all sounded quite important, and the program’s slogan is pretty catchy. But after you get past the pandering sound bites, a question comes to mind: is anyone in the corner offices of Wall Street’s biggest firms or corporate America’s biggest companies paying any attention to Mr. Holder’s “strong message”?

Of course not. (I actually called some chief executives after Mr. Holder’s news conference, and not one had heard of Operation Broken Trust.)

That’s because in the two years since the peak of the financial crisis, the government has not brought one criminal case against a big-time corporate official of any sort.

Instead, inexplicably, prosecutors are busy chasing small-timers: penny-stock frauds, a husband-and-wife team charged in an insider trading case and mini-Ponzi schemes.

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”

That is not to suggest that the government should not enforce the law just because certain crimes are smaller than others. The markets won’t work unless the public believes that the playing field is level and that someone is enforcing the rules.

But fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.

Shawn J. Chen, a partner in the Washington office of Cleary Gottlieb Steen & Hamilton, called the announcement by Mr. Holder “a public relations push more than anything else.” Mr. Chen went so far as to suggest that the number of cases Mr. Holder cited as evidence of the department’s crackdown were somewhat fictional.

“It’s hard to believe that they built up all these cases in the past four months,” since the task force was created, Mr. Chen said, suggesting it was more likely that Mr. Holder counted every case that had anything to do with financial fraud and put them all under the Operation Broken Trust umbrella.

At the moment, by the looks of the headlines, the government’s next big crackdown will be insider trading cases at hedge funds. The government is bringing to bear all its resources, including the F.B.I., which is using wiretaps and raiding offices. But when in recent years have you heard of such maneuvers used on the chief executive of a major corporation?

For those wondering why the government seems to have studiously avoided taking on big companies, I stumbled on a novel theory worth sharing.

Mr. Einhorn, who had his own run-ins with the government when he tried to reveal fraud at Allied Capital and wrote about them in his book, “Fooling Some of the People All of the Time,” says he believes the government consciously and strategically does not pursue cases against big companies and officers.

His theory is intriguing. Any case against a big company or officer, he says, inherently “penalizes the shareholders.” And the shareholders are the “little guys” whom the government is supposedly seeking to protect. Mr. Einhorn makes a good point. While the public lusts for the hanging of a corporate executive, the shareholders would also most likely take the big hit in the wallet.

To Mr. Einhorn, however, the government’s approach means shareholders look the other way instead of raising red flags themselves.

He said: “The problem with trying to give existing shareholders a free ride on whatever’s going on” — that’s what he argues the government is doing — “is that it takes away the incentive for existing shareholders to be worried when they see management misbehaving. It would be a much stronger, self-reinforcing, positive system if when shareholders saw management misbehaving, they were incentivized to call up management and say, ‘Please stop misbehaving or something bad is going to happen to my investment.’

“Instead, what they do, implicitly, is encourage the further misbehavior.”

He may be taking his theory a bit too far, but he says he believes the government’s strategy, if you want to call it that, stems from “an embedded belief that they did the wrong thing with Enron and with Arthur Andersen — the criminal prosecution, particularly of Andersen.”

Of course, Mr. Holder and the Justice Department do not agree with Mr. Einhorn’s assessment.

But, ultimately, Mr. Holder’s Operation Broken Trust should be as much about restoring faith in the markets as it is in the government’s ability to police them properly.

11 Responses

  1. This so-called government has not been American for a long time. Read the Bill of Rights and compare the two. Every founding father would have called them worst than the English they rejected.

    This so-called government gave $289 Billion of taxpayers future tax payments to Deutsche Bank, to survive long enough past Nov 2008, to foreclose many American Homes. This government is foreign indeed, particularly to the Bill of Rights.

    I don’t believe in Santa Clause anymore, nor that this government cares or is constitutional. It is covering up mass criminality for its banker CEO’s.

    Watch the video called ‘Freedom to Fascism’ on Google video, to understand what they are covering up.

    I heard the new movie “Inside Job” is very good too.

    Great commentary Neil

  2. PELUCHEVEN,
    I went on my own because you are correct, I hear people complaining, crying, losing their mind over losing their home but no one is willing to show up and ask to be heard. I went on my own and was pretty much dismissed and ignored. I was asked to leave my letter and got a letter in response saying Senator Wedd does not get involve with private corporations.
    why cannot we show up and demand to be heard? what will it take? One doesn’t cut it, I know!

  3. BofA settling with SEC for municipal bond trading fraud. Where is the SEC for us — when we need them??? Heard gentleman speak today with Kathleen Hayes – that only way to stop the fraud is criminal prosecution.

    There has been no criminal prosecution — but this is up to AGs — not, necessarily the SEC’s role.

    And, President Obama – speaking today about cave-in to extension of wealthy tax cuts. NOT ONCE does the President mention the mortgage lending fraud fiasco as a “problem” this country is facing. Repeatedly – the President does not mention. Yes, he stood up for extension of unemployment benefits — but not once does he mention the mortgage lending fraud. Lost credibility.

  4. Hey, does anybody out there know how to use a rocket launcher? I am afraid that violent insurrection is the only thing that is going to work. The deck is stacked against us. They have everything on their side including the DOJ. As far as I can tell, the DOJ is toothless and full of krap. Yes. I am all for marches on the county courthouse or the capital in Washington, DC. Should have done it this summer. Yes. How about a moratorium on foreclosures for the rest of December. http://www.challengingforeclosure.com Sirak@challengingforeclosure.com

  5. One must be aware that the mortgage industry is 99% small players. The criminals who created all those bad mortgages had no fear because they didn’t think anyone would go after the small guys.

    I agree that the big Mozilos whould be hung in the public square, but a strategic part of the real estate racket is spreading the crime over 1,000s of small guys.

  6. GUYS IT IS ALL ABOUT RESOURCES AND BUDGETS, IN OTHER WORDS, MONEY.

    THEY KNOW THE SMALL MORTGAGE ORIGINATING OPERATION, THE SMALL REAL ESTATE FIRM, THE INDIVIDUAL BROKER, REALTOR APPRAISER ARE EASIER TO PROSECUTE AND THEIR FINANCIAL CAPACITY TO DEFEND THEMSELVES IS LIMITED TO WHATEVER LITTLE THEY HAVE AT HAND.

    THEY WILL NOT GO AFTER THE BIG BANKS AND OFFICERS BECAUSE IT WOULD DECIMATE THEIR ANNUAL BUDGETS, INSTEAD, THE PEOPLE WITH THE BOOTS UNDER THEIR DESKS AND THE TREASURY, DOJ, ETC. THEY RATHER RACK UP THE NUMBERS. IT LOOKS BETTER IN THEIR RESUME WHEN THEY TELL THE STORY OF 100 CONVICTIONS OF SMALL FISH, THAN IF THEY GO AFTER TWO BIG FISH FOR ONE YEAR AND THE CASE IS STILL NOT IN COURT.

    AS YOU CAN SEE, IT IS UP TO US. IF IT HAD BEEN UP TO THESE HYPOCRITES AND INCOMPETENT PEOPLE, THE TRUTH ABOUT ALL THE FRAUD, FORGERIES, FABRICATION OF DOCUMENTATION, LACK OF PROPER SERVICE , UNLICENSED PRACTICE OF LAW, LACK OF PROPER ACCOUNTING, IMPROPER OR LACK OF DISCLOSURES, TILA VIOLATIONS, RESPA VIOLATIONS, ILLEGAL DEBT COLLECTION PRACTICES AND ABUSES, ETC., WOULD HAVE NEVER BEEN MADE PUBLIC.

    ALL THESE POLITICIANS AND DESK CAREER LAWYERS ARE ONLY INTERESTED IN THE NEXT GIG AND THE NEXT JOB OPPORTUNITY, YOUR CASE IS NOT RELEVANT TO THEIR CAREERS.

    IT ONLY UP TO US. THE MORE PRESSURE WE APPLY AT ALL LEVELS. I KNOW IT IS TIRING, I KNOW IT IS FRUSTRATING, I KNOW WE ALL AT THE END OF THE DAY ARE DRAINED AND CANNOT SEE BEYOND OUR OWN TROUBLES, HOWEVER WE DO MATTER, AND IF WE ADD EACH ONE OF OUR INDIVIDUAL FIGHTS AND FIGHT TOGETHER, WE CAN ACCOMPLISH MORE THAT A BUNCH OF GUYS AND LADIES WHOSE ONLY INTEREST LIES IN THE POSSIBILITY OF WORKING FOR THE ENEMY MAKING TWICE AS MUCH, SO WHY FIGHT THEM WHEN YOU CAN JOIN THEM AND BRING ALONG ALL YOUR INSIDE CONNECTIONS TO PLAY.

    WE NEED TO WAKE UP, I HAVE NOT HEARD ANY ONE TALKING ABOUT A FORECLOSURE WALK IN AMERICA, I HAVE NOT HEARD ANY ONE TALKING ABOUT COMING TO WASHINGTON ON A WORK DAY, 100,000 OF US, 500,000 OF US WHO ARE FIGHTING FOR OUR HOMES DEMAND RESPECT AND ANSWERS FROM THOSE WHO ARE LIVING OFF OUR TAX DOLLARS AND HAVE MADE DECISIONS THAT HAVE MADE MY KIDS POOR FOR YEARS TO COME.

    ARE WE REALLY WILLING TO RALLY IN FRONT OF OUR COURT HOUSES IN LARGE GROUPS?, ARE WE REALLY WILLING TO RALLY IN FRONT OF OUR CITY AND COUNTY GOVERNMENTS?, ARE WE REALLY WILLING TO GO TO OUR STATE LEGISLATORS OFFICES AND DEMAND TO BE HEARD, THEY HANDLE OUR STATE LAWS, ARE WE WILLING TO GO IN LARGE GROUPS TO SEE OUR STATE SENATORS AND OUR STATE CONGRESS PEOPLE, ARE WE REALLY THAT COMMITTED TO THIS FIGHT? OR WE ARE JUST WAITING FOR SOME OTHER PERSON TO GO THROUGH THAT SO WE CAN BENEFIT AT THE END, ARE WE THAT BLIND AND SELFISH?.

    WE ALL CANNOT SLEEP WELL AT NIGHT, WE ALL HAVE HAD A TERRIBLE TIME DEALING WITH THE THIEVES OF AMERICA. BUT LET ME REMIND YOU THAT WHILE WE ARE GOING THROUGH THIS PAIN, THE BANKERS ARE HAVING THE TIME OF THEIR LIVES, THEY ARE DINING AT THE COUNTRY CLUB AND PLANNING THEIR NEXT FRAUD, AND ALL AT YOUR FAMILIES EXPENSE AND WITHOUT RISK AND REGRETS, THEY BELIEVE THAT STEALING YOUR HOME MAD MAKING YOU HOMELESS THEY ARE DOING THEIR JOBS AND SERVING THE COUNTRY WELL.

    THAT IS WHY I SAY THAT IT IS UP TO YOU, YOU MAKE THE DIFFERENCE. WE NEED TO MAKE MORE NOISE. HAVE YOU HEARD ANY OF THESE POLITICIANS, BANKERS, PROSECUTORS, OFFICIALS EVEN DARING TO MENTION THE WORD MORATORIUM AT LEAST FOR THE HOLIDAYS?

  7. “…harm inflicted on them from people and companies far away who see them as something lower down on the food chain worth eating to satisfy an unending appetite for greater wealth and greater power.”

    In a nutshell, this is where we are.

  8. the government should go prosecute the “BIG FISH”. the media is now understanding the foreclosure fraud, but the judges and the court are not. judges refusing to grant TRO , dismissing case with prejudice, not reading complaints esp. if you are pro-se. Making mistakes entering the name of defendants on their final judgment but was signed anyway by the judge. incompetency by the judges and lawyers are common practice in a foreclosure case. with my experience as a pro- se, iv’e seen a lot how the court treated a pro-se with prejudice. but we still keep fighting on because t the only one that these criminals has not taken from us is our “dignity and spirit”. keep on fighting.

  9. your exactly right Neil. the DOJ and the attorney general here in Ca is going only after the small FISH.

  10. GEORGIA RESIDENTS: Are you like me & getting foreclosed on even though you are not behind on your payments. BAC is targeting anybody with a mortgage. If you live in GEORGIA & this is happening to you, please contact me & lets compare notes. sonya36767@yahoo.com. I think I am going to stand in front of 11 ALIVE’S building with a sign until they start reporting what is really going on. The media needs to start reporting the TRUTH!!!!!!

  11. Wall street operate in a vacuum all safe n cozy a law unto themselves. But for how much longer
    somethings gotta give

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