Lanny A. Breuer, the outgoing head of the Justice Department’s criminal division, can boast of a number of prominent notches in his belt after years of government service.
He extracted guilty pleas on 14 criminal counts in the BP Deepwater Horizon oil spill case. He nailed over 100 people in a celebrated Medicare fraud case. He prosecuted members of La Costra Nostra in one of the largest takedowns of organized crime in U.S. history. And he prosecuted banks involved in rigging the global interest rate known as Libor that so far has led to almost $2 billion worth of settlements and fines.
But Breuer and his lawyers have almost nothing to show for what some say was at best a half-hearted probe of perhaps the most shameful and tawdry performance ever by Wall Street in the run-up to the 2008 financial collapse.
Breuer has argued in effect that it is difficult to prove fraudulent intent beyond a reasonable doubt in cases like this, which makes any criminal case against a high ranking corporate executive a legal high-wire act. He said the government must weigh the value of waging a long and costly criminal investigation that might not pay off against the possibility it would destabilize a financial institution, to the detriment of the employees and investors.
He noted during a speech before the New York Bar Association last September that since the 1990s, the Justice Department has had better success by agreeing to defer prosecution against corporations in exchange for an admission of wrongdoing, cooperation with the government’s investigation, including against individual employees, and payment of monetary penalties. “The result has been, unequivocally, far greater accountability for corporate wrongdoing – and a sea change in corporate compliance efforts,” Breuer said. “Companies now know that avoiding the disaster scenario of an indictment does not mean an escape from accountability.”
But Breuer’s arguments about the legal and financial tradeoffs of going after the heads of some of the major banks responsible for the financial crisis haven’t satisfied his critics. And as Breuer, 54, prepares to step down from his position on March 1, two prominent U.S. senators have questioned whether executives of the half-dozen megabanks have become “too big to jail.”
The senators – Democrat Sherrod Brown of Ohio and Republican Chuck Grassley of Iowa – questioned in a letter sent to Attorney General Eric Holder on Tuesday whether the “too big to fail” status of certain Wall Street megabanks undermined the ability of the federal government to prosecute wrongdoing and led to unsatisfactory settlements and penalties. They also want to know if the government can still prosecute those banks and impose penalties on them.
“Already, the nation’s six largest megabanks enjoy what amounts to taxpayer-funded guarantee by virtue of their size, making it harder for regional and community banks to compete. Now, these megabanks may also enjoy some impunity when they violate the law by laundering money or illegally foreclosing on homeowners. Wall Street should pay the full price of its wrongdoing, not pass the costs along to taxpayers,” Brown said.
“The best deterrent to crime is to put people in prison,” Grassley added. “That includes those at powerful banks and corporations. Unfortunately, we’ve seen little willingness to charge these individuals criminally. The public deserves an explanation of how the Justice Department arrives at these decisions.”
Much has been written about what New York Times financial reporter Gretchen Morgenson and co- author Joshua Rosner called “Reckless Endangerment” in their 2011 book of the same name, which focused on the self-serving Wall Street high rollers and mortgage company executives who helped bring about the crisis.
In the aftermath of the blatant malfeasance, ordinary Americans watched their holdings disappear in the stock market, while hundreds of billions of taxpayer dollars were funneled into rescuing major megabanks, mortgage companies and insurance companies that were deemed too big to fail.
Last week, a PBS “Frontline” program sharply criticized Breuer and the Justice Department for not bringing criminal charges against a single Wall Street executive or trader in connection with the 2008 financial collapse. Producers of the show said they spoke to a couple of sources at the Criminal Division, and they reported that when it came to Wall Street, there were no ongoing investigations– no subpoenas or document reviews or wiretaps.
“I understand why people are upset,” Breuer told “Frontline” in an interview. “But we have 94 U.S. attorneys and they don’t report to me. Not one of them determined that there was a criminal case to be had. These are very complicated cases and they were just simply, on the merits, not cases that could be brought criminally.”
The Christian Science Monitor reported in 2011 that there were at least two convictions stemming from investigations of the financial meltdown, although neither involved a big fish. Michael J. McGrath Jr., former president of U.S. Mortgage Corp., got 14 years in prison for orchestrating a conspiracy that defrauded credit unions and Fannie Mae of $136 million, while Lee B. Farkas, former chairman of Taylor, Bean & Whitaker Mortgage Corp., got 30 years in prison and was ordered to forfeit $38.5 million for his role in a $3 billion scheme to rip off banks through the sale of fake mortgage assets.
Attorney General Eric Holder and Lanny Breuer were partners for years at a Washington law firm that represented a sort of ‘Who's Who’ of big banks and other companies at the center of alleged foreclosure fraud, according to a report last year by Reuters. The firm, Covington & Burling, is one of Washington's biggest white shoe law firms, and law professors and other federal ethics experts said that federal conflict-of-interest rules required Holder and Breuer to recuse themselves from any Justice Department decisions relating to law firm clients they personally had done work for.
Breuer told The Washington Post that he’ll probably return to private practice. His government service has been praised by, among many others, Neil McBride, the U.S. attorney for the Eastern District of Virginia who said, “Lanny leaves a real legacy of accomplishment and success.”