The Untouchables (full documentary) | FRONTLINE

[Music] tonight fraud and potential criminal conduct were at the heart of the financial crisis more than four years later no one going to jail no individuals being held accountable this is totally about what went on on wall street frontline investigates why no wall street executives have gone to jail the fbi wasn't aiming high enough there was a definite sense that justice backed off did the government fail a number of people told us that you didn't make this a top priority well i'm sorry if they think that because i made it an incredibly top priority so you're telling me that not one executive on wall street committed provable fraud i mean i just don't believe that tonight on frontline the untouchables [Music] although this downturn started in the housing sector and in the financial sector you're seeing a lot of things being hit today's numbers suggest job losses are almost 600 biggest loss since 1974. in 2009 wall street bankers were on the the great defensive mortgage bubble had burst a huge amount of money the economy was in ruins and wall street bankers were being blamed during a time of worry about a giant bankers admitted they had miscalculated but they were also worried that they could be held criminally liable for fraud with a new administration arriving in washington bankers and their attorneys expected investigations and at least some prosecutions in mortgage-backed security was there a sense that there were going to be prosecutions of alleged fraud related to the mortgage crisis i think there was that expectation i think people had seen the financial crisis there was obviously a lot of conduct that had gone on that was improper and i think people were expecting to see some substantial prosecutions the men and women who duped would-be homeowners who defrauded the american investor need to be identified prosecuted convicted and thrown in jail in washington there was broad support for prosecuting wall street i was really upset about what went on on wall street that brought about the financial crisis not only destroyed the finance almost destroyed the financial system united states almost destroyed the financial system of the world that doesn't happen if there isn't something bad going on but today more than four years since the financial crisis of 2008 there have been no arrests of any senior wall street executives chief of the criminal division of justice lanny brewer says the problem is that greed is not necessarily criminal i am personally offended by much of what i've seen i think there was a level of greed a level of excessive risk taking in this situation that i find abominable and i find very upsetting but that is not what makes a criminal case what makes a criminal case is that i can prove beyond the reasonable doubt every element of a crime some former prosecutors believe the problem is a lack of effort justice department failed they have not done what needed to be done they didn't ever try to bring together in one coherent narrative laying out the entirety of the story against one of the major players and demand sanctions that are meaningful that to me is what has been fundamentally lacking the story of how the big banks amassed enormous fortunes packaging home loans into securities and selling them to investors all over the world began of course on the ground with mortgage originators what my econ one prof taught us was business goes in cycles my name is michael winston i work for countrywide financial corporation from 2005 to 2008. they said their goal was um world class goldman sachs on the pacific and they wanted me to realize their vision if you can reach up with both fists michael winston once lived inside the bubble at mortgage originator countrywide at first winston was impressed by ceo angelo mazzillo and how he had turned countrywide into america's number one mortgage company but just a few months into the job winston had an encounter in the company parking lot i'd been there five months when i happened to park next to a car with personalized vanity plates and the personalized plates said fund them and i had a conversation with the person nearest the car i didn't know if it was the owner or just some guy walking by and i just said um fund him that's an interesting plate what do you suppose that means and he said that's angelo mozillo's growth strategy for 2006. no cost refi and he said uh we have a loan for every customer a growing family with a lot of debt and i said alone for every customer how can that be a business owner whose income was hard to document what if the person doesn't have a job fundam the the guy said i said what if he has no income fund him what if he has no assets and he said fund one of them was turned down for a home loan by three different lenders i'm with countrywide and i got them all approved i 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 him a loan my name is christopher cruz i was a trainer of mortgage loan originators throughout the country there was a plano texas office in countrywide and people would sidle up to me saying uh you wouldn't believe what's happening around here you wouldn't believe the loans i've been getting approved here they were just flabbergasted uh at what would what was going through the pipeline these are still on the books did you know that christopher cruz describes an industry driven to loosen its standards by demand from new york you've got the sense that wall street was in control of underwriting standards and not the mortgage industry what do you mean well if the underwriting was acceptable to wall street if the underwriting was acceptable to the ratings agencies that's all that counted and so my sense is it was probably a game among the people in the mortgage business to say let's come up with one of the worst loans we can possibly imagine and see if wall street will buy it new homes are selling at the second highest rate on record and then that type of mentality translates into don't worry about whether the the documents are valid don't worry about whether we can verify income don't worry if your appraisal is any good just worry about getting the damn loan closed because if you can get that closed we can get that securitized and then turn around and do another loan don't worry about it there's too much money out there just get the loan closed 36 billion in bonuses this year this is totally about what went on in wall street was in fact wall street going out into california and saying hey just put the mortgage together don't worry whether they're good or not you get a fee i'll take them i'll bundle 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 even during the bubble years the department of justice had arrested and prosecuted many small mortgage brokers loan appraisers and even home buyers but to go after wall street bankers would prove to be much harder the justice department has indicted something like two to three thousand people that were making the loans the loan right originators right shooting fish in a barrel that's what that is no bankers have gone to jail that surprised you no it doesn't surprise me to prosecute wall street investigators needed to find proof of what the bankers knew and what they intended this meant identifying people on the inside who were willing to talk [Music] i always believed you started the bottom up in a bank you started the credit department go to the credit department find out what the credit department knew those are the guys wearing green eye shades who don't get the big bonuses who want to make sure that the loans the underwritings are legitimate they actually crunch the numbers they're the ones who send the memos up to the folks who get the big bucks how the folks at the top react to those memos is what determines whether the bank acts properly at the big investment banks the credit departments hired contractors known as due diligence underwriters my name is tom leonard i was a due diligence underwriter my name is eileen luiacono and i was a contract underwriter my name is chico morton and i was a due diligence underwriter what does a due diligence underwriter do a due diligence underwriter assesses the risk of buying loan portfolios so a company on wall street they're going to buy a loan pool or a portfolio of loans and we would be hired to go in and take a sample of the loans and review them so you were contract workers yes and then what would you do how would you go about doing the due diligence well we would travel to the location where the loans were stored and we'd have a room either a hotel room conference room or some work room where we could set up tables and our laptop computers so these loans would come in in banker's boxes yes a lot of times we were doing the manual labor of moving the boxes of loans back and forth load all these boxes on vans and drive them to the hotel unload them at the hotel into the room where the due diligence underwriters were working and they could be stacks all the way up to the ceiling and there could be anywhere from 10 to 20 separate mortgages within each banker's box 30 underwriters crammed at a table you know bumping shoulders and you know sometimes we're in there 6 30 sometimes we're out at 10 11 12 at night i've been on jobs where we've we've worked late and so what was it like what was the atmosphere like um it was like a party you know we were all in hotels together so you know it was definitely a party atmosphere we were getting through these loans as quick as we can they were not being looked at like they should have been looked at it wasn't uncommon to have an underwriter on one side of the room start to laugh and say you know hey get a load of this you know here's a guy that's moving from 500 a month in rent to a 650 000 house and he's a um electrician and his wife is a waitress everybody in the room laughing somebody else would have another story school teacher making you know 10 000 a month or a waitress making you know 12 000 a month you're supposed to exercise some common sense and you know like say okay well is it reasonable that they could make xyz a month but a lot of times we didn't do that you didn't do that on the instruction of your supervisor your lead right so the lead would say what um looks reasonable to me the lead would say uh that waitress making 12 thousand dollars a month looks reasonable to me yeah you're kidding me depending on the area you know if it's what area does a waitress make 12 000 las vegas you know if it's vegas then you know possibly with tips and all that stuff or i can't do the math but that sounds pretty high right it is high you couldn't say the word fraud because we couldn't prove that it was fraud well if you saw something that was a misrepresentation yes you were expressly told don't write fraud or mention use the word fraud all the time even if we suspected we had to say this appears to be incorrect you would never say this looks fraudulent were you told to ignore loans that you clearly knew contained fraud um well fraud in the due diligence word world fraud was the f word or the f bomb um you didn't use that word even if a loan was clearly you stated income loan that made no sense there was no support but you didn't use the word fraud but it was fraud uh you saw by your terms and my terms yes it was fraud by the due diligence terms it was something else and it wasn't just outside contract underwriters who were finding fraud insiders at the big banks were finding problems my name is richard bowen i was with citigroup and i was a senior vice president and business chief underwriter in the commercial lending group and the overall operations i had purview over involved about 90 billion dollars a year of mortgages we were purchasing from other mortgage companies and what were you to do with those 90 billion dollars worth of mortgages i had responsibility to make sure that those mortgages met our credit policy guidelines so the bank had agreed to buy these loans subject to their meeting our credit policy but you found out that the loans that you your team was looking at didn't meet the credit policy we found that approximately sixty percent of the loans did not meet our policy sixty percent sixty percent yes sixty percent of the loans didn't meet our policy your policy yes and the volumes increased through 2007 and the rate of defective mortgages increased from 60 percent to an excess of 80 percent on november 3rd 2007 bowen wrote an email to four senior citibank executives including board chairman and former secretary of the treasury robert rubin since mid-2006 i have continually identified breakdowns and internal controls i must now communicate these concerns i am deeply distressed i actually included in that email my cell phone told them i was available this weekend to please call me and in that email i also requested an outside investigation and in december i sent another email and i said please contact me you need to know the details behind this there are risks to the company just a few months ago they were giants but now they need rest there were risks to the entire country by 2008 highly leveraged banks stuffed with bad loans began to fail what did you think when bear stearns went down i couldn't believe it like i thought the whole banking system was about to go down billions drained from the economy overnight the party was over july and said was having a temper tantrum on his show where he was going off about you know why didn't i hear about this why didn't somebody tell me about all this that was going on i almost threw my shoe through the television set look stop the bs if i was screaming and yelling i did try to let you know because he had been one of the ones that i'd sent emails and never received any response lots of american taxpayers are still wondering how did we get ourselves into this economic mess and is there someone truly to blame hello everybody to help prosecute those who were to blame president obama signed a new bill four months ago today we took office amidst unprecedented economic turmoil it was designed to amend america's fraud statutes signed the fraud enforcement recovery act to make prosecution easier and also to increase funding for the sec the fbi and the department of justice senator ted kaufman is a democrat from delaware the man who now holds the seat vacated by vice president joe biden senator senator ted kaufman was a co-sponsor of the bill he was an unusual senator when this particular term is up what are you going to do oh i'm going to leave i i would i would never run for office appointed to replace senator joe biden he had taken no campaign money and was beholden to no lobbyists i want to see people who committed such fraud and the havoc that's caused to this country frankly i want to see them go to jail out who can invest in early 2009 kaufman joined his colleagues on the senate judiciary committee to discuss bolstering the fbi and justice department's financial crimes units i'm going to ask some questions to each of you my feeling and senator lee's feeling is that you know if you're going to stop crime the best way is to punish crime and the best way to do that is put people in jail senator kaufman senators were surprised by how unprepared the government was to investigate wall street the deputy director of the fbi gave an incredible testimony after 9 11 we moved almost 2 000 criminal investigative resources over to national security matters he said what happened was the government had transferred a great deal of the fbi agents over to anti-terrorism but they didn't replace them so we're basically down to 200 fbi agents we have about 240 agents and what he said was essentially during the savings and loan crisis there were a thousand fbi agents working on fraud charles keating banker after the s l crisis of the eighties the government responded forcefully back then justice convicted over one thousand bankers a third of them top executives scandal was let off in handcuffs today you've introduced a bill that you believe in the wake of the financial crisis of 2008 say more about actually kaufman wanted the government to respond as it had in the past we should find them and if they're guilty of a crime they should go to jail why should people hearing you have any confidence that there will be serious investigations and serious penalties to some of the biggest and most powerful people in corporate america trust me it's going to happen i talked to uh kauffman became front man for the new fraud enforcement bill ted began giving speeches and writing op-eds about how important it was you know we came up with this sort of slogan that you know when people rob a bank they know they're going to go to jail somebody robs a store they get caught they go to jail if somebody robs hundreds of millions of dollars they should go to jail when bankers rob people they should know they're going to go to jail commit a big crime go to jail for big time these people should go to jail lots of people on wall street said what are you doing you're trying to destroy the banks there's no crime up here we didn't commit any crimes there's no reason to come up here and start talking about crimes plus we're very very fragile and you know something could happen if in fact you start talking about crime which was just totally completely ridiculous there was one case already in the pipeline it had been started under the bush administration and involved two bear stearns hedge fund managers charged with deceiving investors it was seen as a test case aha finally we're beginning to see the criminal cases that will evidence a determination by the justice department to bring to justice those individuals who misled the public who misled investors who knowing that an investment was bad still said it's good at first prosecutors were optimistic the knee-jerk reaction when this case was brought was that since people were incensed about what was happening with the economy it would be a simple type of prosecution i think there was that general perception and so they figured that they have a an easy conviction and you know i mean i think they believed in what they're doing i'm not going to say they were malevolent but they were naive it wasn't the strongest case the government says with no whistleblowers talking prosecutors had to rely on the interpretation of a few emails no way for us to make money ever three days eighteen wall street defense attorneys went to work well it's been a fast-moving trial and after a three-week trial the government failed to convince a jury that the hedge fund managers were guilty not guilty of charges that they defeated were you surprised by the outcome of the bear stearns hedge fund manager's case i was a little surprised but i wasn't shocked these are hard cases to win was the justice department wrong to go after those two guys no i thought that that was a reasonable case for the government to bring um now the fact it's a reasonable case to bring doesn't mean you're always going to win the acquittal in that case left many of us feeling a little empty got to put a big wrench in the government's prosecution scheme there was a definite sense that justice backed off and that they became timorous when it came to making the cases that would really have gone to the heart of what did happen in the crisis of owed senator kaufman was worried he wanted to make sure that justice wouldn't shy from the next opportunity and that the money congress had appropriated would not go to waste ted said to chairman leahy i would like to chair an oversight hearing to ensure that these funds are being spent effectively we met with lanny brewer who was the head of the criminal division we met with rob kazami who was head of enforcement for the sec we met with a senior deputy in the fbi kevin perkins we sat down and we sort of got down to business and ted said chairman leahy has asked me to hold an oversight hearing that will provide me with a public forum to explore you know just what you're doing on this front of investigating wall street well that certainly got their attention they started telling me about about this great thing they had out in california this web to catch the mortgage brokers who had given out the loans and we made it clear to them i made it clear to them that absolutely positively i don't i'm not this is not about l.a this is totally about what went on on wall street that's what the bill says and that's the emphasis is we said you know don't just come back here a couple of years from now and say you know look at all the small fry we we nailed the wall you know we're talking about also investigating senior level people at wall street firms even at the board level i think we might have been a little bit concerned at this meeting that that the fbi wasn't necessarily at that point this is now fall of 2009 aiming high enough shortly before the hearing the justice department made an announcement president obama has established the financial fraud enforcement task force to investigate and to prosecute fraud and financial crime this is the value of oversight hearings a week before our hearing they announce the fraud task force and we will not hesitate to bring charges where appropriate for criminal misconduct somebody had to come to that hearing and talk about what they were doing and so that was the impetus i am convinced the day i die that the only reason that fraud task force was announced at that point was because somebody had to go to the hearing mr brewer last month we saw a jury acquit the two bear stearns hedge fund managers are there lessons we can learn from that is that just a one-off i'm a big believer in the jury system and juries are going to do what you always feel are right these are tough cases but we're going to continue to bring them it's not a deterrence at all uh we're we're marching forward one of the things that oversight hearings do is it holds folks feet to the fire we wanted to get them to say what they could in public that paralleled what they had said to us in private why don't why have we seen more you know boardroom uh prosecutions senators are complicated cases don't for a moment think that they're not being pursued and investigated from main street to wall street and beyond we are focused on that and we will bring the cases where we where where it's appropriate isn't this a bit of theater i mean they had the questions in advance well i thought it was fair theater because you know we were asking tough questions if we come back a year from now and we're having this hearing how much progress do you think we've made on i do think it served a purpose i mean do i wish we had been even more aggressive yes but we were willing to give them the benefit of the doubt and we felt like okay let's sit back and let them do their jobs but over the next year it would be others not the justice department who put bankers on the witness stand we are audited and reviewed and subject and we have due diligence practices was your due diligence adequate beginning in january 2010 a fact-finding commission established and funded by kaufman's fraud enforcement and recovery act held a series of public hearings in mortgage underwriting somehow we just missed you know that home prices don't go up forever we held 19 public hearings we reviewed millions of pages of documents corporate documents regulatory documents most of which had never seen the light of day mr bowen thank you mr chairman i witnessed business risk practices which made a mockery of city credit policies if you take a organization like citigroup for example people involved in due diligence like richard bowen substantial risk of loss signaled up the line all the way up to robert rubin that something was wrong but they were finding that some 60 of mortgages that they were buying weren't meeting their standards mr bowen sent you an email in one exchange the commission asked citibank's robert rubin to respond to bowen's email did you ever act on that uh mr chairman i i do recollect this and that either i or somebody else i truly don't remember who but either i or somebody else sent it to the appropriate people reuben told angelitis that actions were taken to improve the bank's due diligence operations but his recollections were vague i certainly don't remember today whether i knew at the time or not i honest i truly do okay if the excuse at the top was we didn't know that's a pretty poor excuse from people who are hauling down 10 20 30 or in robert rubin's case 115 million dollars bowen was demoted and eventually left the bank but later citigroup admitted wrongdoing in a civil fraud suit for failing to perform basic due diligence between 2004 and 2010. another focus of the commission was the work of a due diligence company named clayton holdings you know one piece of information that we released were documents from clayton holdings who performed due diligence for two dozen banks who were buying mortgages from the countrywide the ameriquest the new centuries packaging those loans up and selling them to investors if you look at those documents what they show is in each of these banks clayton holdings was finding that a substantial portion of the loans did not meet the standards of the bank buying those loans and bank after bank after bank they took those loans they knew they were defective and notwithstanding that they never told the investors in fact they told investors quite the opposite so you look at that pattern of behavior and i think it raises various serious questions about whether this is criminal conduct this was among several referrals the commission made to the justice department for further investigation we asked chief of the criminal division lanny brewer why such referrals hadn't led to charges i can't really talk about any specific case but phil angelidis and i've had very direct and very good conversations but in reality in a criminal case we have to prove beyond a reasonable doubt not a preponderance not 51 percent beyond any reasonable doubt that a crime was committed if we cannot establish that then we can't bring a criminal case but we don't let these institutions go we've brought civil cases we've brought regulatory cases and the entire approach here is to have a multi-pronged comprehensive approach to what gave rise to the financial crisis in april 2010 goldman sachs ceo lloyd blankfein was summoned to the hill by senator carl levin this would be the biggest showdown between congress and a major wall street banker blankfein was unapologetic clients know our activities and they understand what market making is do you think they know that you think something is a piece of crap when you sell it to them and then bet against it you think they know that nature of the principal business and market making lloyd blankfein argued it was perfectly okay at the same time we were selling securities to you we were betting on the fact these securities were going to go down but that's okay because we're a market maker and we're allowed to do that that sounds like fraud to me in the first half of 2007 goldman sachs told long positions cdos to its clients right we sold we reduced our risk so you were selling cdos at the same time you were taking short positions on the same cdo's the best way of reducing your risk is to sell what you have i believe in a free market it's going to be truly free it cannot be designed for just a few people it must be free of deception it's got to be free of conflicts of interest it needs a cop on the beat and it's got to get back on wall street we stand adjourned senator levin referred his committee's findings to justice but again the department declined to bring any criminal charges no one going to jail no individuals being held accountable for anything other than relatively paltry fines the justice department says these are very difficult cases to bring showing intent and proving every step of the crime beyond a reasonable doubt is a difficult thing to do i think that is without a doubt a factor in the difficulty of improving intent but i'm sorry i just don't believe there was enough effort just doesn't make common sense so you're telling me that not one banker not one executive on wall street not one player in this entire financial crisis committed provable fraud i mean i just don't believe that kauffman and connaughton were running out of patience i've talked to senator kaufman i've talked to senator grassley i've talked to staffers i've talked to a number of people they told us that they felt that you didn't make this a top priority well i'm sorry if they think that because i made it an incredibly top priority but when we can't bring a case we have a we have an ethical obligation not to bring those cases but it's not for lack of trying our lawyers are working incredibly hard and it's a disservice for anyone to suggest otherwise in all of this was there a case that you thought could have gone forward as a criminal prosecution that didn't you know there were a lot of discussions along those lines um and i i talked to lanny when i was in the criminal division on daily did you argue with him yes and we would argue this back and forth and then we but when we finally came to a decision sometimes i would be frustrated sometimes i would be disappointed you always accepted the decision i accepted it as a professional as a professional did you accept it as a citizen well that's i mean that's that's a bit different because as a citizen i would hope that something would happen to them somehow some way frontline spoke to two former high-level justice department prosecutors who served in the criminal division under lanny brewer in their opinion brewer was overly fearful of losing we spoke to a couple of sources from within the criminal division and they reported that when it came to wall street there were no investigations going on there were no subpoenas no document reviews no wiretaps well i don't know who you spoke with because we have looked hard at the very types of matters that you're talking about these sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting wall street for financial crimes well martin if you look at what we and the u.s attorney community did i think you have to take a step back over the last couple of years we have convicted raj rasharatnam now you'll say that's an insider trading case but it's clearly going after wall street but it has nothing to do with the financial crisis the meltdown the packaging of bad mortgages that led to the collapse that led to the recession well first of all i think that the financial crisis martin is multifaceted and what we've had is a multi-pronged multi-faceted response and it's simply a fiction to say that where crimes were committed we didn't pursue the cases and that's why where crimes were committed you have more people in jail today for securities fraud bank fraud and the like than ever before but no wall street executive no wall street executives by september 2010 senator kaufman's term was nearing its end before leaving he held a second oversight hearing criminals on wall street must be held to account ted decided he wanted to have a second hearing before he left office so that he could question brewer perkins and kazami we're now nearing the final quarter of 2010 without the sort of prosecutions that i had fully expected we would hope to see by this time what was the thinking i mean if you can recount any conversations that you had with uh senator kaufman about you know let's pull these guys back into the room from our perspective it was a big mystery you know we really believed that there was sufficient evidence of fraud that there should have been some cases if heads don't roll nobody makes any changes i'm disappointed that in all of the wrongdoing that went on and all the fraud that went on that there wasn't an effort to go after bigger fish than the evidence shows they went after i think many times you have very sophisticated parties on both sides mr brewer basically kept his testimony at the level of generalities you know where the right balance is and i was sitting there behind the senator thinking you're dancing around the central question did the department undertake a purposeful concerted timely investigation of higher level wall street executives for very complicated cases there are lots of different issues and at that point i just began to feel like okay i feel like i'm being gamed here they take time they take the review not only was no one going to be held to account for the financial crisis but and i don't say this lightly no one was being held to account for the failure to hold wall street to account i really think this was a stain on the american justice system and i did not want to be an accomplice to that so i packed my bags sold my house and left town the day ted kaufman's term was over i mean i literally was driving down i-95 the day he left office [Music] meanwhile a freelance journalist and blogger named terry buell was sipping cocktails in connecticut i was actually at a fundraiser in greenwich and i met a man running for congress and he told me about a documentary filmmaker nick verbitsky who had been collecting a lot of interviews from bear stearns employees so i go out and i find a borrower and i lend this borrower a hundred thousand dollars i actually had a friend who put me in touch with a couple of people who ended up in the film um people that worked at emc mortgage which was bear's mortgage conduit it was really the factory floor few million of their entire mortgage operation what due diligence is it's very costly we went through about three to four hours of multiple whistleblower tape detailing a massive fraud at the highest level inside of bear stearns against its own clients bill wrote a story for the atlantic monthly's website featuring two bear stearns insiders verbitsky had interviewed and the first call i got after that story came out was from a few lawyers that wanted to meet our whistleblowers and they were representing a group of mortgage insurers called monolines what did they tell you they told us that they were working on a massive fraud suit against bear stearns and that it's critical that our whistleblowers help build their case the lawyers worked at the new york firm patterson belknap webb and tyler they were suing bear stearns and its successor jp morgan chase on behalf of companies that had ensured the quality of the loans bear was selling in january of 2011 they filed a 161-page complaint and within 160 pages that document essentially summed up what looks to be the core of the credit crisis mark palmer has poured through the bear stearns lawsuit and a dozen other private suits now pending against other wall street banks for fraudulently misrepresenting the mortgages they packaged and sold you say this is the core of the credit crisis i believe so based on what we've seen thus far frankly i think there's some pretty decent evidence that the mortgage securitization industry was brought to the core do you think the government should have brought criminal cases against these players i would find it difficult to believe that there wasn't sufficient evidence to at least indict many of the players involved here in building their cases attorneys at patterson belmap spoke to over 35 whistleblowers many of them due diligence supervisors and underwriters among them tom leonard it was patterson belknap that first got in touch with you about it yes yes leonard told the lawyers how due diligence was compromised and you told the truth to them about what you had seen yes sir and you were a supervisor yes and you saw what your your underwriters were doing yes and you saw the instructions yes coming down from the banks yes what was the highest defect rate you ever saw on a job oh gosh we had a job that was like 50 but then the word came down everything got renegotiated and redone in other words you would come into a job you'd find 50 of the loans were defective but then then the standards would be loosened so that you could qualify those loans right um and mark them as uh not defective right isn't that fraudulent yes is this something you think is important for the government now to be prosecuting the kind of fraud that you saw yeah i mean if it's still within the statute of limitations the department of justice says that it's very hard to prosecute these kinds of crimes because you have to prove criminal intent yes sir how do you respond to that i think if i was sitting on the jury and i saw this information that i could pretty well assure myself that there'd been criminal intent were you ever contacted by anybody in law enforcement or the justice department not until just recently we are going to step up on the principle of one set of rules for everyone equal justice under law finally in late 2012 the state of new york sued a wall street bank for fraudulently misrepresenting the mortgages they packaged and sold very simply we're investigating the misconduct of folks who caused the bubble the man who brought the suit was new york attorney general eric schneiderman co-chair of a new state federal working group that included the department of justice the sec and others securities fraud against j.p morgan chase as successors to bear stearns and company and emc mortgage corporation although the case centered on bankers fraudulent and deceptive practices no individuals were named the suit was a civil not criminal case you've alleged in the case of bear stearns that they passed these things on knowingly intentionally knowing they were bad yes we think the facts as alleged in our complaints make it very hard to conclude that by 2006 and 2007 the folks at these banks did not know what was going on and that they were putting more and more bad loans into these securities i guess i still don't understand if this was so clear and so intentional and so many commissions and hearings brought this forward why is this taking so long uh you know it's it's hard for me to address the specifics of what happened before i got here believe me we've moved as fast as we could you have to ask others about what happened before then what gave you the confidence that you would have results given that the government had gone for three years with really very little to show we were able to do some work uh more quickly by subpoenaing the records of private parties that had brought actions you were drawn to the work of a private law firm patterson belknap oh eric haas and his team of attorneys at patterson belknap well we had when we started our investigation we took a look at what what other complaints had been filed and there were a whole series of private complaints that had been brought and patterson bellnap had brought a couple of those cases the complaint that was filed by new york attorney general schneiderman was based largely on work done by private law firms work that goes back several years what does that tell us about the work that the justice department was doing all this time i do i think it's unusual for but but not unprecedented for the justice department to sort of follow on to the work of private litigants but it does raise the question you know why didn't the government develop it first that's a real question it is given all the pushing that you were doing senator kaufman was doing i think yeah i think it's an absolutely fair question to ask attorney david boyes whose firm has represented both banks and plaintiffs suing financial institutions has also reviewed schneiderman's complaint schneiderman is bringing a civil case alleging fraud yes couldn't it be filed as a criminal case i think that if you took every allegation that's made in uh schneiderman's complaint and you accepted that as true and believe that you could prove that beyond a reasonable doubt that could have been filed as a criminal case it was like 2.6 billion in one month filmmaker nick verbitsky was finally contacted by the justice department this past august about the whistleblowers he found for his film about bear stearns it had been more than a year since those lawyers at patterson belnap first called him i think you know the the ease with which i found these people and the things that they were telling me uh you know it wouldn't have taken a lot of effort on the part of a regulatory entity in washington to have done this i'm an independent filmmaker you know i'm not a financial regulator i'm not somebody who's running the sec it's like you know what have you guys been doing what have you been looking at i mean i went out and found these people myself and you know in my spare time basically um you know and and it it was work but it wasn't that hard we have been able to contact a number of people who were inside the banks doing due diligence work as contractors who all told us that they were never contacted by the justice department well look i i can't talk in general about non-descript anonymous whistleblowers but here's what i can tell you whenever i personally have been in any public setting i've invited whistleblowers to come forward but it shouldn't be so easy for journalists uh to go out and find whistleblowers that at this point four years after the the meltdown that haven't been contacted by justice no i don't accept for one moment that you all are finding whistleblowers that we're not what i do let me continue what i do believe is that when we speak to the whistleblowers we have to make a determination whether what they say is really a criminal case we've talked to whistleblowers we've talked to people inside the banks who've told me yes there was fraud that went on and we've talked to hundreds and hundreds and hundreds of people in these investigations and you're saying in not one of those cases having interviewed hundreds of people and looked at these things you can't find one person in this whole mess that you can establish beyond a reasonable doubt that was selling these things knowingly intentionally and defrauded the investors we were not able to to reach a level of that would sustain beyond a reasonable doubt we were not able to show criminal intent sufficiently enough to obtain what we believe to obtain a conviction do you think the banks did all this unintentionally no i personally don't but in the end sure i was frustrated lanny was frustrated and he was disappointed i'm sure he was and so was i but we knew professionally this was the decision that needed to be made the jobs of tens of thousands of employees can literally be at stake in september 2012 lanny brewer gave a speech explaining his reluctance to indict a major bank the kinds of considerations and white collar cases that literally keep me up at night you gave a speech before the new york bar association and in that speech you made a reference to losing sleep at night worrying about what a lawsuit might um result in at a large financial institution is that really the job of a prosecutor to worry about anything other than simply pursuing justice well i think i am pursuing justice and i think the entire responsibility of the department is to pursue justice but in any given case i think i and prosecutors around the country being responsible should speak to regulators should speak to experts because if i bring a case against institution a and as a result of bringing that case there's some huge economic effect if it creates a ripple effect so that suddenly counterparties and other financial institutions or other companies that had nothing to do with this or affected badly it's a factor we need to know and understand that was very disturbing to me very disturbing that was never raised at any time during any of our discussions that is not the job of a prosecutor to worry about the health of the banks in my opinion job of prosecutors to prosecute criminal behavior it's not to lie awake at night kind of decide the future of the banks so is wall street breathing a sigh of relief i don't think people are breathing a sigh of relief given the the level of other litigation that's out there however i think they're probably a lot of individuals who have breathed signs of relief over the last two or three years so far in civil proceedings the government has levied several billion dollars in penalties for misconduct in a crisis that's cost investors and homeowners many hundreds of billions of dollars but to date not one senior wall street executive has been held criminally liable by the department of justice for activities related to the financial crisis [Music] for more on this and other frontline programs visit our website at pbs.org frontline front lines the untouchables is available on dvd to order visit shoppbs.org or call 1-800 play pbs frontline is also available for download on itunes [Music] you

Channel: FRONTLINE PBS | Official

Views: 1,949,981

Keywords:

Id: B4TWN54KqfQ

Length: 53min 17sec (3197 seconds)

Published: Tue Feb 22 2022

Reddit Comments

[u/mal3cho]

This is from 2013.

[u/a1b2c3d4e5_1]

Any TL;DR

[u/magicsonar]

The Violation Tracker project is making an attempt to track all criminal violations in the US by large corporations. Here is what is interesting.

Out of the 20 largest criminal corporations in the US, 11 are banks and 6 are pharma companies. There have been 502,000 civil and criminal cases from more than 300 agencies with penalties of $774 billion over the last 20 years. But that's not the full story - because almost half of the fines, more than $334 BILLION have been levied on the banks. Bank of America, for example has alone paid out more than $80 Billion in fines. These are effectively organizations carrying out criminal activities as a regular part of their business. And given that there have been very very few people convicted and sent to prison, it seems clear the US Govt sees "fines" as a means to get a percentage or "their cut" of the criminal activities banks are involved in.

The US Govt (and many other Western Govts followed) put in place a requirement for the banks to send in Suspicious Activity Reports (SARs) – documents that banks file with the US Financial Crimes Enforcement Network (FinCEN) when a potentially suspect financial transaction is identified. What became clear with the FinCEN leaks is that the Government was taking this data but not doing much with it. And by filing a report, it absolved the banks from prosecution and they could continue profiting from the "suspicious" money movements. And in all likelihood, this data is ending up with US intelligence , which would find this information quite valuable in tracking activities of politicians, corrupt businesses, drug barons etc. SAR's aren't about trying to stem money laundering, they are about better controlling it.

In 2013, Antonio Maria Costa, head of the UN Office on Drugs and Crime, said

he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

There have long been allegations that covert branches of the United States government have been involved in facilitating drug trafficking. This most infamously was exposed with the Iran Contra scandal. The illicit drug trade produces enormous amounts of cash that needs to be moved and laundered - that typically flows through the big banks. It's estimated that the illicit drug trade is worth between US$426 billion to $652 billion annually.

In 2000, drug (opium/heroin) production in Afghanistan had been dramatically reduced. In 2001, approximately 7,606 hectares was dedicated to opium production. After the 2001 US invasion, production started ramping up. By 2017, production had grown to 328,000 hectares under cultivation, producing approximately 9900 tons of opium in a year - all while the US/NATO effectively controlled many parts of Afghanistan, and were supposedly engaged in trying to eradicate production.

Afghanistan soon became the source for 95% of all heroin consumed in Europe. It was generating enormous profits, for those along the value chain - much less for the Afghani famers. It's not known just how much of that money flowed through the world banking system, but it must have been sizeable. It's estimated the heroin trade in Europe alone is worth up to $8 billion annually. The main drug route, to get the drugs from Afghanistan to Europe goes through Turkey and then through the Balkans. The drug route is controlled by Albanian mafia in Kosovo and Albania.

In 2000, the United States creates an enormous military base in the heart of the drug route. Camp Bondsteel in Kosovo. It covers 955 acres. In fact, it's not just a military base - it's also one of the CIA's largest "black sites" in the world, that was used in the CIA rendition programme.

Hashim Thaçi was a senior leader of the Kosovo Liberation Army (KLA), which had extensive links with and was intertwined with the Albanian mafia that controlled the main drug route. In fact intelligence reports have stated they think he is one of the leaders of the Albanian mafia in Kosovo. The BBC reported in 2000 that Thaçi is allegedly central to the criminal activities of the Kosovo Protection Corps (KPC), which extorted money from businessmen under the guise of "taxes" for his self-appointed government. In 2008, with full US backing, Thaçi declared the independence of Kosovo and became its first prime minister. In 2016 he was elected President of Kosovo. He has kept very close ties with the United States.

So when you think about the global illicit drug trade there are 3 key levels:

• Production
• Trafficking/Distribution
• Money Laundering

The United States is also the world's largest tax money and laundering havens - and states like South Dakota make it simple for organized crime, corrupt politicians, billionaires and millionaires to hide their money through secret trusts that are beyond the scrutiny of law enforcement.

So is all this one big system designed to pour money into the US system?

[u/FO_Steven]

I'm sure they did an in depth look into the entire case 🙄

[u/goldencityjerusalem]

This is enraging. Nothing has changed.

[u/Lentlord]

In a capitalistic organisation of the economy, capital, or rather the people with capital, are protected.

They're the people the system is built for, no wonder they are free from consequences, lol.

[u/minos157]

Money. The answer is always money. There, saved you an hour.

[u/PanchoVilla4TW]

No investigation into the judges who let them go/rule in their favor every time. Must be a coincidence!

[u/forzion_no_mouse]

It's a rigged system and everyone knows it.