It’s been a little less than three months since President Barack Obama announced the creation of a new task force to investigate the mortgage and banking industries that wrecked the economy, but some liberal activists are already declaring the effort a “sham.”
“The promises of the President have led to little or no concrete action,” wrote Mike Gecan and Arnie Graf of the Metro Industrial Areas Foundation in an opinion piece for the New York Daily News earlier this week. New York State Attorney General Eric Schneiderman should “distance himself from this cynical arrangement,” they said.
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As evidence that the government is insufficiently committed to the effort, Gecan and Graf said they met with Schneiderman a month after the announcement, and the attorney general told them he “had no phones, no staff and no executive director.”
“None of the 55 staff members promised by Holder had materialized,” they wrote. “On April 2, we bumped into Schneiderman on a train leaving Washington for New York and learned that the situation was the same.”
It doesn’t appear that the DOJ has secured office space or hired an executive director. The Nation reported Thursday that the DOJ plans to make “specific staffing announcements in the near future.” Reuters reported last week, meanwhile, that the task force hasn’t yet secured office space, though DOJ officials say they have identified space “and will move some personnel there.”
In Washington, D.C. on Thursday, Campaign for a Fair Settlement, Occupy Our Homes DC and homeowner advocates will protest a visit by lobbyists for the Mortgage Bankers Association to Capitol Hill, in part because the mortgage task force is “moving slowly and not getting off the ground,” according to a press release announcing the protest.
But Schneiderman’s office says this assessment is not accurate. “The working group already includes more than 50 attorneys, investigators and analysts across the country,” said Danny Kanner, a spokesman for Schneiderman, in an email. Schneiderman and the four other co-chairs of the group “meet weekly and speak daily,” Kanner said. (The other co-chairs are Lanny Breuer and Tony West, assistant attorneys general at the Department of Justice; Robert Khuzami, the SEC’s director of enforcement; and John Walsh, U.S. Attorney for the district of Colorado.)
“[U]nlike some of our public policy debates, this is a law enforcement exercise that must proceed in a thorough and deliberate fashion,” Kanner said. “Given most investigatory matters are privileged and confidential, it is simply premature to draw conclusions about the working group’s scope and scale of inquiry. Op-eds and e-mail appeals from activists, while important contributions to the dialogue, do not constitute fact.”
As the leader of a state attorney general insurgency that nearly derailed the recent $25 billion mortgage settlement, Schneiderman courted progressive groups to help him make the case that the deal that was shaping up, as he saw it, would close the door on future prosecutions.
In doing so, Schneiderman alienated many would-be Democratic allies, but won a leading role on a new federal-state task force that would seek to prosecute Wall Street for its part in creating, marketing and rating toxic mortgage securities. Now he is in the unfamiliar position of defending the pace of government action from these same groups.
In law enforcement time, three months isn’t very long — investigations typically take months or even years. But the skepticism is hardly surprising, given the Obama administration’s scattershot and largely underwhelming law enforcement response to the financial crisis. It’s been five years since the subprime market crashed, and federal authorities mostly haven’t prosecuted the individuals and institutions that created, marketed and rated the financial products that nearly brought down the American economy.
An official at the Department of Justice told The Huffington Post that the task force has “up to 16 subpoenas and have 50 staff working on active investigations.” Most of them are “residential mortgage-backed security specific.” But the Department also has a “separate mortgage fraud working group targeting ‘street’ mortgage fraud.” The staff, the official added, are under the umbrella of the DOJ and not Schneiderman’s office.
“If working group members uncover evidence of fraud or other illegal conduct, we will pursue such conduct aggressively,” DOJ spokeswoman Adora Andy said in an email.
It’s not just legal experts and advocates that have taken notice. A recent New York Times/CBS poll found that 36 percent of respondents approve of the president’s handling of the mortgage crisis, while 49 percent disapprove.
“The government’s response is inexplicable to me,” said Arthur Wilmarth, a law professor at Georgetown University who served as a consultant to the Financial Crisis Inquiry Commission, the body established by Congress to report on the causes of the financial crisis. “After [the accounting scandals] at WorldCom and Enron, the government made a concerted effort to hold senior individuals responsible, and you don’t see that in this crisis.”
In a January interview with The Huffington Post, SEC enforcement director Khuzami defended his agency’s record, noting that it had collected a record-breaking amount of fines in 2011: $2.8 billion in penalties and disgorgements for harmed investors, including a $67.5 settlement with former Countrywide chief Angelo Mozilo. But while the agency has brought cases against a handful of mid-level employees at the major banks that created the securities, including Goldman Sachs and Citigroup, senior executives have not been charged with wrongdoing.
The Justice Department, meanwhile, which has the authority to bring criminal cases, has mostly stood on the sidelines. It successfully prosecuted several former officers of the mortgage lender Taylor, Bean & Whitaker, but has infuriated critics by passing up some other opportunities. For example, the agency dropped a criminal investigation of Mozilo after determining his misdeeds were not criminal in nature — despite a series of damning emails in which he trashed his own mortgages. (“In all my years in the business I have never seen a more toxic prduct [sic],” reads a line from one of those emails.)
It remains possible that the government will bring a bevy of civil and criminal cases against Wall Street bankers that bet against the same securities they were hawking to customers, or against the accounting firms that helped banks like Lehman Brothers hide dodgy assets from the eyes of investors, or against the rating agencies who bestowed subprime mortgage securities with the highest grades. But it is also possible that they are almost out of time.
There is a five-year statute of limitations on most civil and criminal lawsuits. Those entities that could potentially be named in lawsuits will undoubtedly try to get any cases involving alleged wrongdoing that that happened longer ago than that dismissed. It isn’t clear, though, whether they would be successful.
James Cox, a securities law professor at Duke University, says courts have differed in the past on whether the statute of limitations clock starts running from the moment a law is violated, or from when the wrongdoing is discovered. The government, undoubtedly, will argue for the latter interpretation.
There may be another option: As Reuters first reported, authorities are also considering dusting off a little-known statute passed in the wake of the savings-and-loan scandals in the 1980s that requires a lower burden of proof than criminal charges and has a longer statute of limitations. The law, FIRREA — the Financial Institutions Reform, Recovery and Enforcement Act — allows for civil penalties of up to $1 million for each violation and up to $5 million for continuing violations, with a 10-year statute of limitations.
The Justice Department did not respond to a question about whether authorities were worried about bumping up against a statute of limitations. The White House referred questions to the DOJ.
Whatever the government’s approach, “it is intuitive that they have complicated their task by waiting so long,” Wilmarth said.
In addition to New York, attorneys general in California, Nevada, Connecticut, Massachusetts, and Delaware have agreed to assist with the investigations. Most of these offices did not respond to requests for comment, or declined to comment.
A Nevada spokeswoman emailed this response: “Since the beginning Nevada Attorney General Catherine Cortez Masto has offered her support and that of her team to the [working group]. Nevada will remain supportive. In the meantime, AG Masto continues to fight for justice for Nevada homeowners who have been devastated by the foreclosure crisis and remains in close contact with fellow AGs on the issues.”
