Crime and punishment (or the lack thereof) for financial fraud in the subprime mortgage meltdown: Reasons and remedies for legal and ethical lapses

American Business Law Journal

Volumn 51, Issue 3, 2014, Pages 515-597

  Mayer, Don ^a   Cava, Anita ^b   Baird, Catharyn ^c  

^a UNIVERSITY OF DENVER   (United States)

^b UNIVERSITY OF MIAMI   (United States)

^c REGIS UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 84904755451     PISSN: 00027766     EISSN: 17441714     Source Type: Journal    
DOI: 10.1111/ablj.12033     Document Type: Article

References (231)

1. See, e.g., Paul Krugman, Op-Ed., Defining Prosperity Down, N.Y. Times, July 8, 2013A21, http://www.nytimes.com/2013/07/08/opinion/krugman-defining-prosperity-down.html?_r=0
2. Other economists are slightly more sanguine, even while noting that the United States has experienced a "systemic crisis, "the first since the Great Depression of the 1930s and similar to the crises in 1873, 1893, and 1907
3. Carmen M. Reinhart & Kenneth S. Rogoff, Sorry, U.S. Recoveries Really Aren't Different, Bloomberg (Oct. 15, 2012 http://www.bloomberg.com/news/2012-10-15/sorry-u-s-recoveries-really-aren-t-different.html
4. Jessica Silver-Greenberg & Ben Protess, Banks Find More Wrongful Foreclosures Among at B1 Military Members, N.Y. Times, Mar. 3, 2013
5. Marian Wang, What Is a Wrongful Foreclosure?, ProPublica 9:35 AM), (Nov. 24, 2011, http://www.propublica.org/blog/item/primer-what-is-a-wrongful-foreclosure
6. In 2012, the five largest mortgage service companies (Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup, Inc., and Ally Financial, Inc., formerly GMAC) settled with forty-nine state attorneys general and the Department of Justice in response to allegations of shoddy loan servicing, illegal robo-signing and faulty foreclosure processing. The settlement was for $25 billion. Collectively, the five banks had been servicing nearly sixty percent of the nation's mortgages. National Association of Attorneys General, NAAG News, State Attorneys General, Feds Reach $25 Billion Settlement with Five Largest Mortgage Servicers on Foreclosure Wrongs, availablehttp://naag.org/state-attorneys-general-feds-reach-25-billion-settlement-with-five-largest-mortgage-servicers-on-foreclosure-wrongs.php
7. Phillip Swagel, The Cost of the Financial Crisis: The Impact of the 2008 Economic Collapse, The Pew Charitable Trusts (Apr. 28, 2010), http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/Cost-of-the-Crisis-final.pdf?n=6727
8. U.S. households lost on average nearly $5, 800 in income due to reduced economic growth during the acute stage of the financial crisis from September 2008 through the end of 2009
9. Costs to the federal government due to its interventions to mitigate the financial crisis amounted to $2, 050, on average, for each U.S. household. Also, the combined peak loss from declining stock and home values totaled nearly $100, 000, on average per U.S. household, during the July 2008 to March (last visited Feb. 28, 2014). 2009 period. The Impact of the September 2008 Economic Collapse, The Pew Charitable Trusts (Apr. 28, 2010http://www.pewtrusts.org/our_work_report_detail.aspx?id=58695
10. These prosecutions, however, leave the leading figures from Wall Street and the major subprime lenders untouched by criminal sanctions
11. Matt Taibbi, Why Isn't Wall Street in Jail?, Rolling Stone (Feb. 16, 2011http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216
12. Gretchen Morgenson & Louise Story, In Financial Crisis, No Prosecution of Top Figures, N.Y. Times, Apr. 14, 2011, at A1.
13. Charles Ferguson, a documentary filmmaker whose movie Inside Job examined the backroom collegiality of bankers, regulators, and academics connected to the 2008 financial collapse, accepted his Oscar for Best Documentary Film in February 2011 with the comment, "Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that is wrong." Alexandra Cheney, 'Inside Job' Oscar-winner Says More Financial Executives Should Be Jailed, WSJ Blogs (Mar. 1, 2011http://blogs.wsj.com/speakeasy/2011/03/01/inside-job-oscar-winner-says-more-financial-executives-should-be-jailed
14. Jake Tapper, Wall Street Corruption, Solyndra, and Fast & Furious: Today's Q's for O-10/6/2011, ABC News Blogs (Oct. 6, 2011http://abcnews.go.com/blogs/politics/2011/10/wall-street-corruption-solyndra-and-fast-furious-todays-qs-for-o-1062011
15. Alan Greenspan, Youtube (Nov. 7, 2010), http://www.youtube.com/watch?v=731G71Sahok
16. This article will use the phrase "Wall Street" to include not only investment banks and brokerage firms physically headquartered near Wall Street in New York City, but also the various private institutions devoted to raising investment capital, originating securities, pricing assets and securities, brokering, investment advice, market-making, and rendering advice about corporate mergers, acquisitions, and restructurings
17. Michael Santoro & Ronald J. Strauss, Wall Street Values: Business Ethics and the Global Financial Crisis 12 (2013)
18. These functions are performed in major U.S. cities (Chicago, St. Louis, San Francisco, and Dallas), in financial capitals such as London, Frankfurt, Milan, and Tokyo, and also in other growing financial hubs including Mumbai and Sao Paulo
19. See infra notes 220-36 and accompanying text.
20. See infra notes 67-135 and accompanying text (discussing ethical blind spots, and the excuses or "vocabularies of adjustment" made by business organizations and individuals that engage in unethical acts).
21. See infra notes 232-65 and accompanying text.
22. There is no lack of warnings that "too big to fail" and "too big to jail" remain serious possibilities, even after Dodd-Frank legislation, formally known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (an Act to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail, "to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes). Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010)
23. This independent, 10-member panel was composed of private citizens with experience in areas such as housing, economics, finance, market regulation, banking, and consumer protection. Six members of the Commission were appointed by the Democratic leadership of Congress and four members by the Republican leadership. The Commission's statutory instructions set out 22 specific topics for inquiry and called for the examination of the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government. This report fulfills these mandates. In addition, the Commission was instructed to refer to the Attorney General of the United States and any appropriate state attorney general any person that the Commission found may have violated the laws of the United States in relation to the crisis. Where the Commission found such potential violations, it referred those matters to the appropriate authorities. The Commission used the authority it was given to issue subpoenas to compel testimony and the production of documents, but in the vast majority of instances, companies and individuals voluntarily cooperated with this inquiry. FCIC Report at xi.
24. Lack of effective regulation of the subprime mortgage industry, together with Wall Street's appetite for securitizing subprime loans, expedited the rapid expansion of companies like Ameriquest. The introduction to the FCIC Report ("Conclusions of the Financial Crisis Inquiry Commission") notes, You will read about mortgage brokers who were paid "yield spread premiums" by lenders to put borrowers into higher-cost loans so they would get bigger fees, often never disclosed to borrowers. The report catalogues the rising incidence of mortgage fraud, which flourished in an environment of collapsing lending standards and lax regulation. The number of suspicious activity reports-reports of possible financial crimes filed by depository banks and their affiliates-related to mortgage fraud grew twenty-fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. One study places the losses resulting from fraud on mortgage loans made between 2005 and 2007 at $112 billion
25. According to Black's Law Dictionary, fraud consists of "some deceitful practice or willful device, resorted to with intent to deprive another of his right, or in some manner to do him an injury. As distinguished from negligence, it is always positive, intentional." Black's Law Dictionary 322-324 (4th pocket ed. 2011).
26. Eli Lehrer, Subprime Borrowers: Not Innocents, Business Week, (Dec. 12, 2007), http://www.businessweek.com/debateroom/archives/2008/03/subprime_borrowers_not_innocents.html
27. And I said, "What if he has no income?" "Fund 'em." "What if he has no assets?" And he said, "Fund 'em." Winston said, "I'm confused. What are the standards you use, the criteria against which you make lending decisions?" And the guy looked at me, smiled smugly and said, "If they can fog a mirror, we'll give 'em a loan." Transcript of The Untouchables, at 2-3, available at http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/transcript-37/
28. Senator Ted Kaufman, of Delaware, who took Joseph Biden's remaining Senate term after the 2008 election, told Frontline, This is totally about what went on on Wall Street. Was, in fact, Wall Street going out into California and saying, "Hey, just put the mortgages together. Don't worry whether they're good or not. You get a fee. I'll take them. I'll bundle them up. I'll sell them off to somebody else. I'll make my money on that. And whatever happens to the mortgages doesn't really matter."Transcript of The Untouchables at 3, http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/transcript-37/
29. See infra notes 165-80 and accompanying text.
30. See infra notes 190-217 and accompanying text.
31. "Robo-signing" was the practice among many agents of foreclosing parties foreclosing on subprime loans gone bad to create sworn affidavits that were not based on the personal knowledge of the affiant
32. Infra notes 191-205 and and accompanying text.
33. See infra notes 136-236 and accompanying text. As Judge Rakoff put it in January of 2014, without giving further examples, the point is that, in the aftermath of the financial crisis, the prevailing view of many government officials (as well as others) was that the crisis was in material respects the product of intentional fraud. In a nutshell, the fraud, they argued, was a simple one. Subprime mortgages, i.e., mortgages of dubious creditworthiness, increasingly provided the chief collateral for highly leveraged securities that were marketed as AAA, i.e., securities of very low risk. How could this transformation of a sow's ear into a silk purse be accomplished unless someone dissembled along the way?
34. 18 U.S.C. §§ 1341, 1343 (2012).
35. 15 U.S.C. § 78j(b) (2012); 18 U.S.C. § 1348 (2012); 17 C.F.R. § 240.10b-5 (2013)
36. Prosecutors have a variety of statutes to combat white collar crime depending on the circumstances, such as 18 U.S.C. section 371 (conspiracy to defraud the United States), 18 U.S.C. section 1344 (defrauding a financial institution), and 18 U.S.C. section 1014 (making false statements in regard to loan, credit, or insurance applications); however, the majority of charges fall under the broader reach of the mail and wire fraud and securities fraud statutes
37. Anita Cava & Brian M. Stewart, Quid Pro Quo Corruption is "So Yesterday": Restoring Honest Services Fraud After Skilling and Black, 12 U.C. Davis L. Rev. 1, 5 (2011) ("The use of the mail and wire fraud statutes to combat white collar crime became so prevalent that one prosecutor referred to them as 'our Stradivarius, our Colt .45, our Louisville slugger, our Cuisinart-and our true love.'" (quoting Jed S. Rakoff, The Federal Mail Fraud Statute (1980)). (PART I), 18 Duq. L. Rev. 771
38. N.Y. Gen. Bus. Law § 352 (McKinney 2005). On the use of the Martin Act by then Attorney General Elliot Spitzer against alleged abuses by Wall Street firms
39. Aaron M. Tidman, Note, Securities Enforcement in the Twenty-First Century: Why States Are Better Equipped Than the Securities and Exchange Commission to Enforce Securities Law, 57 Syracuse L. Rev. 379, 392-96 (2007)
40. The purpose of the Martin Act is to "arm the New York attorney general to combat financial fraud. It empowers him to subpoena any document he wants from anyone doing business in the state; to keep an investigation totally secret or to make it totally public; and to choose between filing civil or criminal charges whenever he wants." Nicholas Thompson, The Sword of Spitzer, Legal Affairs, May/June 2004http://www.legalaffairs.org/issues/May-June-2004/feature_thompson_mayjun04.msp
41. For example, California's Attorney General, in suing Standard & Poor's, made use of California common law on misrepresentation
42. Bob Egelko, CalPERS Suit Against Credit-Rating Firms Advances, S.F. Gate (Jan. 14, 2012, 4:00 AM), http://www.sfgate.com/business/article/CalPERS-suit-against-credit-rating-firms-advances-2520706.php
43. The CalPERS complaint is available at http://www.thestreet.com/tsc/v2008/photos/all-pics/pdfs/Complaint-7-9-2009.pdf
44. Jack E. Robinson, The Federal Mail and Wire Fraud Statutes: Correct Standards for Determining Jurisdiction and Venue, 44 Willamette L. Rev. 479 (2008)
45. ("The federal mail and wire fraud statutes, particularly since their amendment in 2002, have become the most prevalent and lethal weapon in the federal prosecutor's arsenal in the post-Enron and WorldCom efforts of the United States Department of Justice (DOJ) to be tough on white-collar and financial crimes.").
46. Both mail fraud and wire fraud are felonies punishable by fine, imprisonment up to twenty years, or both. 18 U.S.C. §§ 1341 (2012)
47. United States v. Briscoe, 65 F.3d 576, 583 (7th Cir. 1995) ("The elements of wire fraud under 18 U.S.C. § 1343 directly parallel those of the mail fraud statute, but require the use of an interstate telephone call or electronic communication made in furtherance of the scheme."); United States v. Frey, 42 F.3d 795, 797 (3d Cir. 1994) ("The wire fraud statute ... is identical to the mail fraud statute except it speaks of communications transmitted by wire.").
48. United States v. Maxwell, 579 F. 3d 1282, 1299 (11th Cir. 2009
49. United States v. Maxwell, 920 F.2d 1028, 1036 (D.C. Cir. 1990
50. See infra note 256 and accompanying text.
51. See United States v. Hawkins, 905 F.2d 1489, 1496 (11th Cir. 1990) ("The Government need not produce direct proof of scienter in a fraud case ... circumstantial evidence of criminal intent can suffice."); United States v. Alston, 609 F.2d 531, 538 (D.C. Cir. 1979) ("The requisite intent under the federal mail and wire fraud statutes may be inferred from the totality of the circumstances and need not be proven by direct evidence.")
52. United States v. Bermes, 9 F. App'x 207, 209 (4th Cir. 2001) (quoting United States v. Cusino, 694 F.2d 185, 187 (9th Cir. 1982)
53. United States v. Kennedy, 714 F.3d 951, 958 (6th Cir. 2013) (finding intent to be shown through a "reckless ... disregard for the truth of the statements ... made to victims to obtain their money").
54. United States v. Reid, 533 F.2d 1255, 1264 (D.C. Cir. 1976).
55. See Phillips v. United States, 356 F.2d 297, 307-09 (9th Cir. 1965).
56. United States v. Maxwell, 579 F.3d 1282, 1301 (11th Cir. 2009) (quoting United States v. Cooper, 132 F.3d 1400, 1405 (11th Cir. 1998)).
57. The definitions of the term "security" in the 1933 and 1934 Acts are virtually identical to each other and also are nearly identical to the definition in section 2(a)(36) of the 1940 Act, and each would certainly include these mortgage based securities.(1) The term "security" means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The Securities Act of 1933, 15 U.S.C. § 77b(1) (2012). Residential-backed mortgage securities (RMBS) are what loan originators like Ameriquest and Countrywide provided for Wall Street to "securitize" into Collateralized Debt Obligations (CDOs). Securitization involves pooling areas debt obligations and issuing new securities backed by those obligations. David Baron, Business and Its Environment 292 (7th ed. 2013
58. C.F.R. § 240.10b-5 (2013).
59. U.S.C. § 78j(b) (2013)
60. U.S.C. § 1348 (2013)
61. Samuel W. Buell, What Is Securities Fraud?, 61 Duke L.J. 511 (2011)
62. United States v. Mahaffy, No. 05-CR-613, 2006 WL 22245182006
63. United States v. Teyibo, 877 F. Supp. 846, 861 (S.D.N.Y. 1995
64. Juries in fraud cases are often given conscious avoidance instructions that allow the jury to find guilt where the "surrounding circumstances were such that reasonable persons could have concluded that the circumstances alone should have apprised defendants of the unlawful nature of their conduct." United States v. Stinn, 379 F. App'x 19, 21 (2d Cir. 2010) (quoting United States v. Civelli, 883 F.2d 191, 195 (2d Cir. 1989)). The government does not need to choose between an actual knowledge theory and a conscious avoidance theory and the jurors are free to choose which standard to apply
65. United States v. Ferguson, 676 F.3d 260, 278 (2d Cir. 2011
66. Emily Flitter, Exclusive: U.S. Seeks New Tactic in Financial Crisis Prosecutions, Reuters (July 17, 2013, 5:00 PM), http://www.reuters.com/article/2013/07/17/us-financialcrisis-fraud-probes-idUSBRE96G13620130717
67. The causes of the subprime mortgage financial crises are complex, and pointing solely to regulators, Fannie Mae, Freddie Mac, Congress, or the big financial firms as "the cause" of the "Great Recession" is pointless. The FCIC Report pointed to an array of bad actors, institutions, and decisions. See generally Gretchen Morgenson & Joshua Rosner, Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon (2011) and Bethany McLean & Joe Nocera, All the Devils are Here: The Hidden History of the Financial Crisis (2010), both of which strongly indict Fannie Mae, Freddie Mac, and congressional complicity as significant causes of the subprime mortgage mess. Although the crisis largely took place during the administration of George W. Bush and during the tenure of Alan Greenspan as Chairman of the Federal Reserve, those looking for its roots in the politics and policies of William J. Clinton often attribute the root cause as pressure from Clinton-era regulators to make subprime loans for purposes of meeting government's "affordable housing goals" and pressuring Fannie Mae and Freddie Mac in the process
68. Phil Gramm & Mike Solon, The Clinton-Era Roots of the Financial Crisis, Wall St. J., Aug. 13, 2013
69. Ben Protess & Mark Scott, Bank Scandal Turns Spotlight to Regulators, N.Y. Times (July 9, 2012, 10:30 PM), http://dealbook.nytimes.com/2012/07/09/libor-scandal-intensifies-spotlight-on-bank-regulators/?_r=0
70. Peter J. Henning, HSBC's Rising Legal Liability, N.Y. Times (Aug. 28, 2012, 9:36 AM), http://dealbook.nytimes.com/2012/08/28/hsbcs-mounting-legal-liability ("HSBC has been ensnared by some of the largest federal inquiries into the banking industry. The government is looking into whether the bank ran afoul of restrictions on dealings with countries subject to economic sanctions, including Iran and Cuba. It is investigating HSBC for possible violations of regulations against money laundering. Authorities are also focusing on HSBC as part of the broad inquiry into rate rigging.").
71. Charlie Savage, Wells Fargo Will Settle Mortgage Bias Charges, N.Y. Times, July 12, 2012, http://www.nytimes.com/2012/07/13/business/wells-fargo-to-settle-mortgage-discrimination-charges.html
72. See infra notes 67-113 and accompanying text.
73. John C. Bogle, The Battle for the Soul of Capitalism 7 (2005)
74. The individual who seeks exploit others' efforts without adding value to society is the polar opposite. Yet powerful forces in the United States "are threatening to drive America away from a meritocratic equilibrium toward a nonmeritocratic one" because the benefits most people derive from markets are being reduced and because the markets are becoming delegitimized as a good method of rewarding merit
75. John Cassidy, After the Blowup: Laissez-Faire Economists Do Some Soul-Searching-and Finger-Pointing, New Yorker, Jan. 11, 2010, at 28.
76. Stanley Milgram is best known for his experiments at Yale University, where human subjects as "teachers" were instructed to administer shocks of greater and greater intensity to help the "learner" (an actor who was in no way harmed) master a series of word-pairs. Stanley Milgram, Obedience to Authority: An Experimental View (1974). A surprisingly high percentage of people were willing to administer dangerous and potentially deadly levels of electric shock based on instructions from a tall "authority figure" cloaked in a white laboratory coat, wielding a clipboard, and speaking in an authoritative manner (comments included "the experiment must continue, "and "the experiment requires that you continue to administer the entire series of shocks.")
77. Zimbardo is often cited for his "prisoner-guard" experiment with students at Stanford, where students in his psychology class were randomly chosen as prisoners or guards; the prisoners were put in a makeshift jail in the basement of the psychology building, and as each group took on their respective roles, deep hostilities emerged. Philip Zimbardo, The Lucifer Effect: Understanding How Good People Turn Bad (2007). In short order, the "prisoners" became very stressed and depressed as they were verbally abused and humiliated by the "guards, "who seemed to sadistically relish their roles as persecutors; some observers believed that the experiment got out of hand within just a few days
78. Stanford Prison Experiment, http://www.prisonexp.org
79. Bloomberg Markets named Dan Ariely one of 2013's fifty most influential individuals in the world for his work in behavorial economics
80. Robert S. Dieterich, Most Influential 50's New Names Show Shakeup in Finance, Bloomberg News (Sept. 3, 2013,http://www.bloomberg.com/news/2013-09-03/most-influential-50-s-new-names-show-shakeup-bloomberg-markets.html
81. Ariely publishes widely in psychology, business, and ethics. For a list of his publications
82. The Research, DanAriely.com,http://danariely.com/the-research/ 2014
83. Ariely has often focused on how assumptions of rationality in economic theory are contradicted by experimental evidence. See generally Dan Ariely, Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions (2010) (providing an array of behavioral experiments that reveal how humans are predictably and systematically irrational in making important decisions).
84. Max H. Bazerman & Ann E. Tenbrunsel, Ethical Breakdowns: Good People Often Let Bad Things Happen. Why?, Harv. Bus. Rev.,2011, at 58-65
85. Finding that when faced with an ethical dilemma, most individuals are subject to distortions that limit their ability to make the correct choice; these might include both implicit biases and external pressures, for example to meet sales goals, to keep their job or to protect a peer).
86. Chana Joffe-Walt & Alix Spiegel, Psychology of Fraud: Why Good People Do Bad Things, NPR.org (May 1, 2012http://www.npr.org/2012/05/01/151764534/psychology-of-fraud-why-good-people-do-bad-things
87. Ronald R. Sims, Ethics and Corporate Social Responsibility: Why Giants Fall 115-117 (2003) (discussing not only the symptoms of group-think but also the flaws in the decision process that result).
88. Max H. Bazerman & Ann E. Tenbrunsel, Blind Spots: Why We Fail To Do What's Right and What To Do About It 21 (2011)
89. Sam Harris, The Moral Landscape: How Science Can Determine Human Values 85(noting two oppositional modes of thinking about moral problems, one that is intuitive, and the other, scientific; he argues that moral questions can be better resolved more scientifically). 2010
90. Joseph Heath, Business Ethics and Moral Motivation: A Criminological Perspective, 83 J. Bus. Ethics 595 (2008)
91. Edwin H. Sutherland, Crime of Corporations, in White-Collar Criminal 57, 58 (Gilbert Geis ed., 2006
92. John Doris, Lack of Character: Personality and Moral Behavior 32-34, 39-51 (2005) (arguing that people often grossly overestimate the importance of character routinely underestimate the behavioral impact of specific situations in shaping their actions).
93. Robert Jackall, Moral Mazes: The World of Corporate Managers (delving into the minds and manners of two 1980s Fortune 500 companies and finding that the corporate bureaucracy has become a world unto itself, a moral maze in which luck and appearances often trump merit and hard work). 1989
94. Greg Smith, Op-Ed., Why I Am Leaving Goldman Sachs, N.Y. Times, Mar. 14, 2012A27http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=all&_r=0
95. Business Principles and Standards, Goldman Sachs, http://www.goldmansachs.com/who-we-are/business-standards/business-principles/index.html
96. Mark Gongloff, Greg Smith's Goldman Book Portrays Dystopian Horror Via Cheesy Anecdotes, Huff Post (Oct. 19, 2012,http://www.huffingtonpost.com/mark-gongloff/greg-smith-goldman-sachs-book_b_1988304.html
97. Senate Hearing: Lloyd Blankfein vs. Sen. Levin; Goldman Sachs, YouTube (May 31, 2011http://www.youtube.com/watch?v=oOpFbjHcxF0
98. Investment Banks and the Financial Crisis, Goldman Sachs Chair and CEO, C-Span Video Library (Apr. 27, 2010http://www.c-spanvideo.org/program/293196-3
99. Mr. Blankfein's testimony appears to astonish Senator Levin, and it appears that they are speaking two entirely different languages. We suggest that the "neutralization techniques" that Sykes and Matza noted are clearly at work here: denial of the victim and denial of the injury. Senator Levin was not convinced. In releasing the findings of the two-year inquiry by his panel, Senator Levin requested federal prosecutors to consider bringing perjury charges against Lloyd Blankfein and others associated with Goldman Sachs based on statements made by them before his committee. "In my judgment, Goldman clearly misled their clients and misled the Congress, Levin said...." Robert Schmidt, Goldman Sachs Misled Congress After Duping Clients Over CDOs, Levin Says, Bloomberg (Apr. 14, 2011, 6:36 PM), http://www.bloomberg.com/news/2011-04-14/goldman-sachs-misled-congress-after-duping-clients-over-cdos-levin-says.html
100. see infra notes 164-67 and accompanying text (describing Lloyd Blankfein's view of clients and their alleged appetite for risk).
101. Labaton Sucharow, Wall Street in Crisis: A Perfect Storm Looming 3 (2013), http://www.secwhistlebloweradvocate.com/LiteratureRetrieve.aspx?ID=182189&A=SearchResult&SearchID=4865706&ObjectID=182189&ObjectType=6
102. Michael W. Hudson, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America-And Spawned a Global Crisis 1 (2010)
103. Kristin Downey, Mortgage Lender Settles Lawsuit, Wash. Post (Jan. 24, 2006http://www.washingtonpost.com/wp-dyn/content/article/2006/01/23/AR2006012301523.html
104. Roland Arnall (1939-2008), U.S. Dep't of State, (last visited Dec. 31, 2013http://history.state.gov/departmenthistory/people/arnall-roland
105. Jeff Madrick & Frank Partnoy, Should Some Bankers Be Prosecuted?, N.Y. Rev. of Books (Nov. 10, 2011http://www.nybooks.com/articles/archives/2011/nov/10/should-some-bankers-be-prosecuted/?pagination=false&printpage=true
106. Joe Bel Bruno & Brett Philbin, Blankfein Defends Goldman's Ethics, Wall St. J. (May 5, 2010http://online.wsj.com/article/SB10001424052748703961104575226522119986874.html
107. In 2012, Arthur Levin, former SEC Chairman serving as an advisor to Goldman Sachs, commented that Goldman should not hold itself out as putting clients' interests first because "nobody really puts customers first." Christine Harper & Eric Schatzker, Goldman Should Stop Saying Clients Come First, Levitt Says, Bloomberg (Mar. 29, 2012, 9:26 AM) http://www.bloomberg.com/news/2012-03-29/goldman-should-stop-saying-we-put-customers-first-levitt-says.html
108. Frank Ahrens, Blankfein Speaks Martian, Levin Speaks Venutian, Wash. Post (Apr. 27, 2010, 6:18 PM), http://voices.washingtonpost.com/economy-watch/2010/04/sen_levin_opens_assault_on_gol.html
109. Complaint, SEC v. Goldman Sachs & Co., 790 F. Supp. 2d 147 (S.D.N.Y. 2011) (No. 1:10CV03229), 2010 WL 1508202 [hereinafter SEC Complaint].
110. Jonathan Stempel & Steve Eder, Goldman Sachs Charged with Fraud by SEC, Reuters (Apr. 16, 2010, 6:39 PM), http://www.reuters.com/article/2010/04/16/us-goldman-idUSTRE63F3JX20100416
111. Felix Salmon, Op-Ed., Goldman's Abacus Lies, Reuters (Apr. 16, 2010), http://blogs.reuters.com/felix-salmon/2010/04/16/goldmans-abacus-lies
112. Michael Lewis, Boomerang: Travels in the New Third World 152-153 (2011) (describing the misplaced trust that Germans had in Wall Street bankers).
113. Press Release, SEC, Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO (Jul. 15, 2010), http://www.sec.gov/news/press/2010/2010-123.htm
114. James R. Barth et al., Guardians of Finance: Making Regulations Work for Us 76 (2012)
115. Nan Ellis et al., Is Imposing Liability on Credit Rating Agencies a Good Idea?: Credit Rating Agency Reform in the Aftermath of the Global Financial Crisis, 17 Stan. J.L. Bus. & Fin. 175, 181 (2012)
116. Frank Partnoy, The Paradox of Credit Ratings 1 (U. San Diego, Res. Paper No. 20 available at, 2001), http://papers.ssrn.com/abstract=285162
117. Roger Lowenstein, The End of Wall Street 40 (2010)
118. Between 1960 and 2000, he writes, "the combined capitalization of the ten largest investment banks in the United States had grown from $1 billion to $179 billion ... This structural consolidation was not confined to investment banking; it affected every segment of the financial sector and reached across segments via the creation of enormous financial conglomerates. And the main source of this broader consolidation was not the organic growth of the successful; rather, it was mergers." Id
119. A lawsuit by fourteen states and the District of Columbia against Standard & Poor's has been consolidated in a New York federal district court
120. Reuters, Lawsuits Against S&P Sent to One Court, N.Y. Times (June 6, 2013http://www.nytimes.com/2013/06/07/business/15-lawsuits-against-s-p-moved-to-one-court.html
121. Bob Egelko, CalPERS Suit Against Credit-rating Firms Advances, S. F. Chron. (Jan. 14, 4:00 AM), http://www.sfgate.com/business/article/CalPERS-suit-against-credit-rating-firms-advances-2520706.php2012
122. Karen Gullo, Moody's S&P Lose Bid to End Calpers Lawsuit Over Ratings of SIV Vehicles, Bloomberg (Jan. 11, :46 PM), http://www.bloomberg.com/news/2012-01-12/moody-s-s-p-lose-bid-to-end-calpers-lawsuit-over-ratings-of-siv-vehicles.html2012
123. Nelson D. Schwartz & J.B. Silver-Greenberg, Bank Officials Cited in Churn of Foreclosures, N.Y. Times, Mar. 13, at A1. 2012
124. The Inspector General's reports on each of the five lenders were done to determine whether the banks had complied with applicable foreclosure procedures when processing foreclosures on FHA-insured loans
125. Ronald J. Hosking, Off. of Inspector Gen., CitiMortgage, Inc. Foreclosure and Claims Process Review available at (2012),http://www.hudoig.gov/Audit_Reports/2012-KC-1801.pdf
126. The Inspector General's reports on each of the five banks were filed the day after the $25 billion settlement between banks, the forty-nine Attorneys General and the federal government was filed in federal court on March 12, 2012
127. Ben Hallman, Mortgage Investigation Consistently Hindered by Major U.S. Banks: HUD IG, Huff Post (Mar. 13, 2012,http://www.huffingtonpost.com/2012/03/13/mortgage-settlement-investigation-banks-hud_n_1342091.html
128. Dan Rivoli, Banks Stonewalled Probe of Foreclosure Practices: Housing Agency, Int'l Bus. Times (Mar. 15, 2012), http://www.ibtimes.com/articles/314155/20120314/bank-america-foreclosures-report.htm
129. Press Release, U.S. Dep't of Justice, Former Executive at Florida-Based Lender Processing Services Inc. Admits Role in Mortgage-Related Document Fraud Scheme (Nov. 20, 2012http://www.justice.gov/opa/pr/2012/November/12-crm-1400.html
130. Andrew Harris, Ex-DocX Head Gets at Least 40 Months in Robo-Sign Case, Bloomberg (May 3, 2013, 12:12 PM), http://www.bloomberg.com/news/2013-05-03/ex-docx-head-gets-at-least-40-months-in-robo-sign-case.html
131. Barry Ritholtz, Foreclosure Settlement a Failure of Law, a Triumph for Bank Attorneys, Wash. Post (Feb. 25, 2012http://www.washingtonpost.com/foreclosure-settlement-a-failure-of-law-a-triumph-for-bank-attorneys/2012/02/23/gIQAe7feaR_story.html
132. (Observing that "robo-signing" is, in essence, perjury, and that perjury to the courts used to be punished as a felony).
133. "Regulatory capture" is the phrase most often used to capture the notion that "the fox is guarding the henhouse, "implying that regulation favors the regulated, who have "captured" the levers of regulatory policy. Examples abound in many industries and regulatory agencies. For the financial sector in particular, see generally Int'l Ctr. for Fin. Regulation, Making Good Financial Regulation-Towards a Policy Response to Regulatory Capture (Stefano Pagliari ed., 2012
134. William K. Black, The Department of Justice "Chases Mice While Lions Roam the Campsite": Why the Department Has Failed to Prosecute the Elite Frauds that Drove the Financial Crisis, 80 UMKC L. Rev. 987-988 (2012)
135. Mortgage Fraud, http://www.fbi.gov/about-us/investigate/white_collar/mortgage-fraud/mortgage_fraud (last visited Feb. 18, 2014
136. See U.S. Dep't of Justice, United States Attorneys' Manual § 8-28.100 ("By investigating allegations of [corporate] wrongdoing and by bringing charges where appropriate for criminal misconduct, the Department promotes critical public interests. These interests include, to take just a few examples: (1) protecting the integrity of our free economic and capital markets; (2) protecting consumers, investors, and business entities that compete only through lawful means; and (3) protecting the American people from misconduct that would violate criminal laws safeguarding the environment."). The Manual warns prosecutors to "be mindful that confidence in the Department is affected both by the results we achieve and by the real and perceived ways in which we achieve them." Id
137. Vivian Williams, Ed Ahmad Pleads Guilty ... Faces 10-year Minimum Jail Term, Fines Totaling US$42.5M, Kaieteur News (Oct. 11, 2012http://www.kaieteurnewsonline.com/2012/10/11/ed-ahmad-pleads-guilty-faces-10-year-minimum-jail-term-fines-totaling-us42-5m
138. Editorial, On the Trail of Mortgage Fraud, N.Y. Times, Jan. 16, at A22, available at http://www.nytimes.com/2012/01/16/opinion/on-the-trail-of-mortgage-fraud.html?_r=12012
139. Charlie Savage, Countrywide Will Settle a Bias Suit, N.Y. Times (Dec. 21, 2001), http://www.nytimes.com/2011/12/22/business/us-settlement-reported-on-countrywide-lending.html?_r=0
140. United States Attorney's Office, Central District of California, Justice Department Reaches $335 Million Settlement to Resolve Allegations of Lending Discrimination by Countrywide Financial) (noting that over 200, 000 African-American and Hispanic borrowers were charged higher fees or placed into subprime loans). (last visited Apr. 8, Corporation, Justice.gov http://www.justice.gov/usao/cac/countrywide.html2014
141. Financial Crisis Criminal Investigation Act, H.R. 1350, 112th Cong. (2011)
142. Not every judge approves of these "secret settlements" that leave the judge (and the public) in the dark as to what actually happened
143. James Downie, Judge Jed Rakoff Courageously Rejects SEC-Citigroup Settlement, Wash. Post 1:49 PM), (Nov. 28, 2011,http://www.washingtonpost.com/blogs/post-partisan/post/judge-jed-rakoff-courageously-strikes-down-sec-citigroup-settlement/2011/11/28/gIQAIpaS5N_blog.html
144. Peter J. Henning, Behind Rakoff's Rejection of Citigroup Settlement, N.Y. Times, (Nov. 28 5:14 PM), 2011,http://dealbook.nytimes.com/2011/11/28/behind-judge-rakoffs-rejection-of-s-e-c-citigroup-settlement/#ruling
145. (Internal quotation marks omitted) (commenting on Rakoff's concerns in "reluctantly" approving a 2009 settlement with Bank of America, which he believed was at the "expense, not only of the shareholders, but also of the truth"). The typical nonadmission of wrongdoing may be changing. Mary Jo White took the helm of the SEC in April, and in August 2013 a settlement with Philip A. Falcone required him to admit wrongdoing2013
146. Alexandra Stevenson, Falcone to Admit to Wrongdoing as S.E.C. Takes a Harder Line, N.Y. Times 5:15 PM), (Aug. 19, 2013, http://dealbook.nytimes.com/2013/08/19/hedge-fund-manager-to-admit-to-wrongdoing-in-revised-deal-with-s-e-c/?_r=0
147. Atif Mian et al., The Political Economy of the Subprime Mortgage Credit Expansion, 8 Q. J. Pol. Sci. 373 (2013)http://faculty.arts.ubc.ca/ftrebbi/research/mst2.pdf
148. Gregory J. Wallance, The Wall Street-Washington Revolving Door is as American as Apple Pie, Forbes (Mar. 14, 2013), http://www.forbes.com/sites/forbesleadershipforum/2013/03/14/the-wall-street-washington-revolving-door-is-as-american-as-apple-pie
149. Sarah Childress, Holder: Big Banks' Clout "Has an Inhibiting Impact, "Prosecutions, PBS 2:15 p.m.) (Mar. 6, 2013, http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/holder-big-banks-clout-has-an-inhibiting-impact-on-prosecutions
150. William K. Black, Fiat Justitia Ruat Caelum, Credit Writedowns (Apr. 17 (criticizing the very notion that prosecutions would weaken the economy)., 2011 https://www.creditwritedowns.com/2011/04/fiat-justitia-ruat-caelum.html
151. John Steele Gordon, Speculators, Politicians and Financial Disasters: How Washington Created a Financial Panic-In 1836, and in (Nov. 10, Noting that Fannie Mae and Freddie Mac-both financial institutions based in Washington, D.C.-"made generous political contributions, especially to those members of Congress who sat on oversight committee[s], "many of which were later deemed illegal). 2008, Wall St. J. 2008, http://online.wsj.com/news/articles/SB122626062814011765
152. Heath uses this term to describe many business organizations. The term is used in criminology to refer to an environment laden with dynamic factors that predict to crime or produce criminal behaviors. According to the USLegal.com definition, a person may become criminogenic because of a criminogenic environment. "A criminogenic environment is as an environment that contributes to the formation of predatory criminal morals, thinking, and behavior. Actors in such an environment not only do not guard against or thwart criminal activity but are rewarded for it."
153. Criminogenic Law and Legal Definition, USLegal.com http://definitions.uslegal.com/c/criminogenic/ 2014
154. William Black, The Best Way to Rob a Bank Is to Own One (2005).
155. With respect to the 2008 crisis, Black states: "the regulators were the problem. They became a self-fulfilling prophecy of failure because they ... hated regulation. I call them the anti-regulators." Interview by Bill Moyers with William Black, Prof. of Econ. and L., Univ. of Missouri-Kansas School of L. (Apr. 23, 2010http://www.pbs.org/moyers/journal/04232010/transcript1.html
156. Wall Street Fraud and Fiduciary Duties: Can Jail Time Serve as an Adequate Deterrent for Willful Violations?: Hearing Before the S. Comm. on the Judiciary, Subcomm. on Crime and Drugs, 111th Cong. 49-80 (2010) (statement of William K. Black, associate professor of economics and law, University of Missouri-Kansas City School of Law).
157. William K. Black, Associate professor of economics and law, University of Missouri-Kansas School of Law (May 18, 2012
158. William K. Black, The Incredible Con the Banksters Pulled on the FBI, New Econ. Perspectives (Aug. 16, 2013http://neweconomicperspectives.org/2013/08/the-incredible-con-the-banksters-pulled-on-the-fbi.html
159. William K. Black, The OCC's Tragic Response to the Frontline Expose: The Untouchables, Huff Post (Jan. 26, 2013, http://www.huffingtonpost.com/william-k-black/frontline-banking-crisis_b_2557146.html
160. "So where were the police in the current financial crisis? The FBI did investigate and warned in 2004 that an epidemic of mortgage fraud was underway. The Bush administration took the FBI's white collar experts, however, and reassigned them to terrorism cases. The inquiries under way in 2004-and the public cries of alarm that accompanied them-largely disappeared." June Carbone, Why Do Dangerous Financial Criminals Roam Free?, Huff Post (Feb. 6, 2012, 1:46 PM), http://www.huffingtonpost.com/june-carbone/why-do-dangerous-financia_b_1257105.html
161. Criminal Prosecutions for Financial Institution Fraud Continue to Fall, TRAC Reports (Nov. 15, 2011), http://trac.syr.edu/tracreports/crim/267
162. Fraud-Financial Institution Prosecutions for January 2014, TRAC Reports (Apr. 8, 2014http://tracfed.syr.edu/results/9x7053445f2b75.html
163. What is the Financial Fraud Enforcement Task Force?, STOPFRAUD.GOV http://www.stopfraud.gov/about.html (last visited May 30, 2012). According to a recent press release issued by the FBI and the DOJ, The interagency Financial Fraud Enforcement Task Force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.Press Release, FBI, Twenty South Florida Residents Charged in $40 Million Bank and Mortgage Fraud Scheme (Sept. 29, 2011), http://www.fbi.gov/miami/press-releases/2011/twenty-south-florida-residents-charged-in-40-million-bank-and-mortgage-fraud-scheme
164. Matt Taibbi, DOJ Compounds Stat Screwup by Whitewashing Old Eric Holder Speech, Rolling Stone (Aug. 14, 2013,http://www.rollingstone.com/politics/blogs/taibblog/doj-compounds-stat-screwup-by-whitewashing-old-eric-holder-speech-20130814
165. James Saft, Save Capitalism from the Banks-Nassim Taleb, Reuters, Jan. 30, 2009http://blogs.reuters.com/james-saft/2009/01/30/save-capitalism-from-the-banks-nassim-taleb/
166. Nassim Taleb, The Banks Should Be Treated as Utilities (Oct. 24, 2011http://amairate.blogspot.com/2011/10/nassim-taleb-banks-should-be-treated-as.html.
167. Nassim Nicholas Taleb, Op-Ed., End Bonuses for Bankers, N.Y. Times, (Nov. 7, 2011http://www.nytimes.com/2011/11/08/opinion/end-bonuses-for-bankers.html
168. Tomas Hoenig, Former president of the Federal Reserve Bank of Kansas City and currently on the board of the Federal Deposit Insurance Corporation, echoed these sentiments in a speech delivered in July of 2012
169. Mark Davis, Hoenig Continues His Fight to Break up the Big Banks, Kan. City Star, July 28, 2012, http://www.garp.org/home/news/NewsDetails.aspx?newsId=50362
170. (Stating that Hoenig "argues for separating commercial banking, which is the business of taking deposits and making loans, from investment banking, which involves securities markets and trading"). Michael Hudson, professor of economics at the University of Missouri in Kansas City, frames the notion in terms of a "public option":[T]he demand isn't simply to make a public bank, but to treat the banks generally as a public utility, just as you treat electric companies as a public utility.... [T]here should be a public option in banking. Three should be a government bank that offers credit card rates without punitive 30% interest rates, without penalties, without raising the rate if you don't pay your electric bill. This is how America got strong in the 19th and early 20th century, by essentially having a public infrastructure, just like having roads and bridges .... The idea of public infrastructure was to lower the cost of living and to lower the cost of doing business." Ellen Brown, The Public Option in Banking: Another Look at the German Model, Truthout (Oct. 14, 2011,http://truth-out.org/index.php?option=com_k2&view=item&id=3937:the-public-option-in-banking-another-look-at-the-german-model
171. This is bank policy more than Swiss government regulation. For example, at Swiss bank UBS, certain bankers "were allocated a bonus pool of 900 million Swiss francs, which would pay out in equal parts in 2010, 2011 and 2012 provided explicit profit targets were met. Following a loss for the 2009 fiscal year, UBS clawed back 300 million from the pool." Brian Bell & John Van Reenen, Bankers' Bonuses: Claw-back Clauses Are Critical, Vox (May 3, 2010), http://www.voxeu.org/article/bankers-bonuses-claw-back-clauses-are-critical. More recently, under rules implemented by the board after the financial crisis, the board can "claw back between 10 per cent and 50 per cent of the deferred portion of an equity bonus if the division where the banker works posts an operating loss." John Kehoe, Local UBS Chief Pays Dearly for UK Rogue, Fin. Rev. (Apr. 13, 2012http://www.afr.com/p/business/financial_services/local_ubs_chief_pays_dearly_for_6FlNAnVoNbTNRZNkYIW6PL
172. (UBS chief banker in Australia loses fifty percent of his bonus allocation shares in wake of rogue trader scandal that resulted in $2.3 billion in losses).
173. Nisam NicholasTaleb, How Bank Bonuses Let Us All Down, Fin. Times (Feb. 24, 2009http://www.ft.com/cms/s/0/fa89be08-02aa-11de-b58b-000077b07658.html#axzz2tjATrcak
174. (Taleb believes "the incentive system put in place by financial companies has produced the worst possible economic system mankind can imagine: capitalism for the profits and socialism for the losses.")
175. Bryan Appleyard, Books That Helped Change the World, The Sunday Times (July 19, 2009), http://www.thesundaytimes.co.uk/sto/culture/books/article178618.ece
176. In 2012, Hoenig became the vice chairman of the Federal Deposit Insurance Corp., the agency given authority to supervise banks under the Dodd-Frank Act, a post he holds as of this publication
177. Board of Directors-Thomas M. Hoenig, Fed. Deposit Ins. Corp., http://www.fdic.gov/about/learn/board/hoenig
178. Thomas M. Hoenig, President and CEO, Federal Reserve Bank of Kansas City, Speech to the National Association of Attorneys General: Too Big Has Failed 2 (Mar. 6, 2009http://www.kc.frb.org/speechbio/hoenigPDF/Omaha.03.06.09.pdf
179. Daniel Indiviglio, Should Big Banks Be Regulated as Public Utilities?, The Atlantic (Apr. 14, 2011, 2:30 PM), http://www.theatlantic.com/business/archive/2011/04/should-big-banks-be-regulated-as-utilities/237342
180. Joe Rauch, Big Banks are Government-backed: Fed's Hoenig, Reuters (Apr. 12, 2011, 2:21 PM), http://www.reuters.com/article/2011/04/12/us-fed-hoenig-idUSTRE73B3S820110412
181. (Reporting that Hoenig says Bank of America and Citigroup "should be reclassified as government-sponsored entities and have their activities restricted")
182. Greg Robb, Fed's Hoenig Slams Bank-rescue Efforts, Wall St. J. (Mar. 6, 2009, 3:59 PM), http://articles.marketwatch.com/2009-03-06/news/30759661_1_insolvent-banks-weak-banks-thomas-hoenig
183. (Interpreting Hoenig's remarks to support the notion that banks should be broken up, not so much nationalized-despite headline kicker stating Hoenig "calls for nationalizing all insolvent banks, big or small").
184. Jim Brunsden & Ben Moshinsky, Bonuses Under Threat in EU Vision of Banks as Utilities, Bloomberg (Apr. 25, 2012http://www.bloomberg.com/news/2012-04-24/bankers-on-a-different-planet-face-bonuses-backlash-from-eu.html
185. Mutually Assured Existence: Public and Private Banks Have Reached a Modus Vivendi, The Economist (Special Report) (May 13, 2010http://www.economist.com/node/16078466
186. Big Banks Becoming 'Public Utilities': Strategist, CNBC (June 28, 2011http://www.cnbc.com/id/43557528/Big_Banks_Becoming_Public_Utilities_Strategist
187. (Don Luskin, chief investment officer at Trend Macrolytics, reflecting on increased regulation of banking industry).
188. Gramm-Leach-Bliley Financial Modernization Ac, Pub. L. No. 106-102, 113 Stat. 1338 (1999) (codified at 15 U.S.C. §§ 6801-6809, 6821-6827 and 12 U.S.C. § 1831u) [hereinafter GLB Act]
189. C.F.R. pt. 313 (2012) (implementing privacy rules pursuant to GLB Act).
190. Barry Ritholz, A Brief History Lesson: How We Ended Glass Steagall, The Big Picture (May 17, 2012http://www.ritholtz.com/blog/2012/05/how-we-ended-glass-steagall
191. Barry Ritholz, Repeal of Glass Steagall: Not a Cause, But a Multiplier, The Big Picture (Aug. 11, 2012http://www.ritholtz.com/blog/2012/08/repeal-of-glass-steagall-not-a-cause-but-a-multiplier
192. Robert Weissman, Reflections on Glass-Steagall and Maniacal Deregulation, Common Dreams (Nov. 12, 2009), http://www.commondreams.org/view/2009/11/12-8
193. Hearing Before the H. Comm. on Banking & Fin. Servs., 111th Cong. (2009), http://financialservices.house.gov/media/file/hearings/111/volcker9_24_2010.pdf. (Statement of Paul Volcker, Former Def. Reserve Chairman calling on Congress to reaffirm the principle separating banking from commerce as our approach to financial regulation). Op-Ed., No Bondholder Left Behind, Wall St. J. (Nov. 23, 2009, 12:01 AM),
194. (Largely concerned with the failure of Dodd-Frank to deal with "too big to fail, "the Op-Ed notes that any bailout from government "must also include the guarantee of punishment for firms that come looking for help. The first step in discouraging excessive risks is that the risk-takers understand they will suffer the consequences of their bad bets. Former SEC Chairman Richard Breeden proposes a special bankruptcy court, like the FISA court for intelligence, where experienced judges with ample resources could handle large financial cases
195. The other way to reduce moral hazard is to limit certain kinds of risk-taking by institutions that hold taxpayer-insured deposits, as suggested by ... Paul Volker.").
196. Shahien Nasiripour, Congressmen to Call for Break-up of Biggest Banks, Huff Post (May 25, 2011, 3:50 PM), http://www.huffingtonpost.com/2009/12/07/congressmen-to-call-for-b_n_383128.html
197. (Reporting that five House Democrats call for a return to the Glass-Steagall era where commercial banking and investment banking were separate).
198. Robert Reich, Op-Ed., The Man Who Invented "Too Big to Fail" Banks Finally Recants. Will Obama or Romney Follow?, NationofChange (July 26, 2012http://www.nationofchange.org/man-who-invented-too-big-fail-banks-finally-recants-will-obama-or-romney-follow-1343312607
199. (Describing Sandy Weill and Robert Rubin's role in lobbying the Clinton Administration for repeal and later capturing extraordinary personal gains as a result).
200. Steffanie Marchese, CNBC Excerpt: Sanford Weill, Former Citigroup Chairman & CEO Speaks with CNBC's "Squawk Box" Today, CNBC (July 25, 2012, 9:55 AM), http://www.cnbc.com/id/48249789
201. Section 925 of the Dodd-Frank Financial Reform Act expanded the reach of the SEC with respect to suspensions and bars:Prior to Dodd-Frank, the SEC could only suspend or bar a securities violator from associating with the type of regulated entity that the violator was associated with at the time of the violation.... [T]he SEC now has authority to impose collateral bars, which would prohibit the violator from associating with a much larger group of regulated entities. For example, a securities violator who was associated with an investment adviser at the time of the violation can now be barred from associating with an investment adviser as well as a broker-dealer, municipal securities dealer, transfer agent, or nationally recognized statistical rating organization. Alan J. Bruder et al., Financial Reform Expands SEC Enforcement Authority, Paul Hastings Stay Current 2 (July 2010http://www.paulhastings.com/assets/publications/1684.pdf
202. Steadman v. SEC, 603 F.2d 1126, 1139 (5th Cir. 1979) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195 (1976)
203. Rizek v. SEC, 215 F.3d 157, 160 (1st Cir. 2000) (citations omitted).
204. Geiger v. SEC, 363 F.3d 481, 488 (D.C. Cir. 2004) (citing Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 186-87 (1973)).
205. Pierce v. SEC, 239 F.2d 160, 163 (9th Cir. 1956) ("The Commission is given the duty to protect the public. What will protect the public must involve, of necessity, an exercise of discretionary determination.").
206. KPMG, LLP v. SEC, 289 F.3d 109, 121 (D.C. Cir. 2002) (internal quotation marks omitted); WHX Corp. v. SEC, 362 F.3d 854, 859 (D.C. Cir. 2004)
207. Vernazza v. SEC, 327 F.3d 851, 862 (9th Cir. 2003) ("We will find a Commission sanction to be an abuse of discretion only if we find that such a sanction is unreasonable or that it is unwarranted in law or without justification in fact.") (internal citations omitted).
208. PAZ Sec., Inc. v. SEC, 566 F.3d 1172, 1175-76 (D.C. Cir. 2009).
209. Steadman v. SEC, 450 U.S. 91, 101-03 (1981) ("While the language of § 7© suggests, therefore, that Congress intended the statute to establish a standard of proof, the language of the statute is somewhat opaque concerning the precise standard of proof to be used. The legislative history, however, clearly reveals the Congress' intent .... Any doubt as to the intent of Congress is removed by the House Report, which expressly adopted a preponderance-of-the-evidence standard ... Our view of congressional intent is buttressed by the Commission's longstanding practice of imposing sanctions according to the preponderance of the evidence.").
210. Kornman v. SEC, 592 F.3d 173, 188 (D.C. Cir. 2010
211. Consent of Defendants Philip A. Falcone; Harbinger Capital Partners LLC; Harbinger Capital Partners Offshore Manager, L.L.C.; and Harbinger Capital Partners Special Situations GP, L.L.C., SEC v. Harbinger Capital Partners LLC, No. 12 Civ. 5028 (PAC) (S.D.N.Y. Aug. 16, 2013http://www.sec.gov/litigation/litreleases/2013/consent-pr2013-159.pdf
212. Jonathan Weil, Did Falcone Commit "Wrongdoing" Without Breaking the Law?, Bloomberg View (Aug. 19, 2013, 5:33 PM) http://www.bloomberg.com/news/2013-08-19/did-falcone-commit-wrongdoing-without-breaking-law-html
213. ("Yes, it's good that the SEC got the defendants here to make specific factual admissions and penalized Falcone with a five-year ban from the securities industry.").
214. Emily Flitter, Falcone Agrees to Industry Ban in New SEC Settlement, Reuters (Aug. 19, 2013, 6:49 PM), http://www.reuters.com/article/2013/08/19/us-sec-falcone-settlement-idUSBRE97I0VR20130819
215. Juliet Chung, Falcone Admits Wrongdoing, Agrees to Five-year Ban, Wall St. J. (Aug. 19, 2013, 8:04 PM), http://online.wsj.com/article/SB10001424127887323608504579023123351192450.html
216. Alexandra Stevenson, Falcone to Admit to Wrongdoing as S.E.C. Takes a Harder Line, N.Y. Times (Aug. 19. 2013, 5:15 PM), http://dealbook.nytimes.com/2013/08/19/hedge-fund-manager-to-admit-to-wrongdoing-in-revised-deal-with-s-e-c/?ref=business&_r=0
217. Juliet Chung, Falcone Barred from Securities Industry for Five Years Under SEC Settlement, Wall St. J. (Aug. 19, 2013http://online.wsj.com/article/BT-CO-20130819-708944.html
218. Sealed Indictment, United States v. S.A.C. Capital Advisors, L.P., 13 Crim. 541 (S.D.N.Y. July 13, 2013), available at http://www.justice.gov/usao/nys/pressreleases/July13/SACChargingAndSupportingDocuments/SAC%20Indictment%20%28Stamped%29.pdf
219. See Corrected Order Instituting Administrative Proceedings Pursuant to Section 230(f) of the Investment Advisors Act of 1940 and Notice of Hearing, In re Steven A. Cohen, No. 3-15382 (SEC July 19, 2013), available at http://www.sec.gov/litigation/admin/2013/ia-3634.pdf
220. Ordering a public hearing to determine whether any remedial action is appropriate). "If the S.E.C. prevails in its action against Mr. Cohen, there are a range of possible penalties, including ... barring Mr. Cohen from managing money for clients, or banning him from the financial services industry for life." Peter Lattman & Ben Protess, S.E.C. Charges Are the Latest Test for SAC's Cohen, N.Y. Times (July 19, 2013http://dealbook.nytimes.com/2013/07/19/s-e-c-files-civil-case-against-steven-cohen-of-sac/?_php=true&_type=blogs&_r=0
221. Benjamin Weiser, Same Walk, Nicer Shoes; Parading of Executives in Custody Fuels New Debate, N.Y. Times (Nov. 26, 2002http://www.nytimes.com/2002/11/26/nyregion/same-walk-nicer-shoes-parading-of-executives-in-custody-fuels-new-debate.html
222. Examining the role of the perp walk from various perspectives, including defense counsel, federal prosecutors, and constitutional scholars. One of the latter, John Coffee, opined, "The jury pool sees this, and you look like you're guilty
223. John Cassidy, What Good Is Wall Street?, New Yorker, Nov. 29, 2012, at 49
224. Economist Joseph Stiglitz, among others, made this comment
225. Stephen C. Webster, Nobel-winning Economist Supports 'Occupy Wall Street, ' The Raw Story (Oct. 4, 2011, http://www.rawstory.com/rs/2011/10/04/nobel-winning-economist-supports-occupy-wall-street
226. Critics objected to the terms of the settlement, referring to the $1, 800 to $2, 000 homeowners might receive as "chump change, "Hannah Cho, Mortgage Settlement Has Shortcomings, Critics Say, The Baltimore Sun (Feb. 9, 2012http://articles.baltimoresun.com/2012-02-09/business/bs-bz-mortgage-deal-reax-20120209_1_mortgage-settlement-underwater-mortgages-freddie-and-fannie
227. In fact, the average recovery by individuals was less. In a June 4, 2013, announcement, the settlement administrator noted, "The date for the distribution of checks to borrowers who submitted valid claims has been set. Checks will begin mailing on June 10 and will be completed by June 17, 2013, and the payment amount for each loan is approximately $1, 480." Payments to Borrowers Begin June 10, 2013, National Mortgage Settlement, http://www.nationalmortgagesettlement.com
228. See Michael M. Grynbaum, Greenspan Concedes Error on Regulation, N.Y. Times (Oct. 23, 2008http://www.nytimes.com/2008/10/23/business/worldbusiness/23iht-24greenspan.17202367.html?_r=0
229. Why Is Wall Street Full of Psychopaths?, The Week (Mar. 1, 2012http://theweek.com/article/index/225046/why-is-wall-street-full-of-psychopaths
230. John C. Bogle, Financial Reform: Will It Forestall a Future Crisis of Ethic Proportions?, Huff Post (July 22, 2010http://www.huffingtonpost.com/john-c-bogle/financial-reform-will-it_b_656043.html
231. Rakesh Khurana & Nitin Nohria, It's Time to Make Management a True Profession, Harv. Bus. Rev., Oct. 2008, at 70-72 ("True professions have codes of conduct, and the meaning and consequences of those codes are taught as part of the formal education of their members. A governing body, composed of respected members of the profession, oversees members' compliance. Through these codes, professional institutions forge an implicit social contract with other members of society: Trust us to control and exercise jurisdiction over this important occupational category. In return, the profession promises, we will ensure that our members are worthy of your trust-that they will not only be competent to perform the tasks they have been entrusted with, but they will conduct themselves with high standards and integrity. On balance we believe that a profession, with well-functioning institutions of discipline, will curb misconduct because moral behavior is an integral part of the identity of professionals-a self-image most are motivated to maintain.").