Breuer tried his best to dodge questions about why he violated his promise to Senator Kaufman that he was actually conducting an investigation of Wall Street fraud. Martin Smith, the interviewer, asks:
We spoke to a couple of sources from within the fraud section of the Criminal Division, and through mid-2010 they reported that when it came to Wall Street, there were no investigations going on; there were no subpoenas, no document reviews, no wiretaps.
Breuer responds: “we looked very hard at the types of matters that you’re talking about.” He doesn’t deny that there were no investigations; no subpoenas, no document reviews, no wiretaps. Instead, he tries to shift the subject to his pointless insider trading cases, his Ponzi cases, the Lee Farkas case (the mortgage firm Taylor, Whitaker and Bean), and a few hapless mortgage originator cases, and even a policeman defrauded by some fraud or other. Smith won’t let that pass. Eventually we get to the heart of the problem to Breuer:
But in those cases where we can’t bring a criminal case — and federal criminal cases are hard to bring — I have to prove that you had the specific intent to defraud. I have to prove that the counterparty, the other side of the transaction, relied on your misrepresentation. If we cannot establish that, then we can’t bring a criminal case.
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. And I have to prove not only that you made a false statement but that you intended to commit a crime, and also that the other side of the transaction relied on what you were saying. And frankly, in many of the securitizations and the kinds of transactions we’re talking about, in reality you had very sophisticated counterparties on both sides.
Smith says “You do have plaintiffs who will come forward and say that they relied on the reps and warranties, and they relied on the due diligence claims that were made by the bank.”
Breuer keeps talking, but he can’t worm out of this one. Smith then says:
“We’ve spoken to people inside the Residential Mortgage-Backed Securities Working Group who said that when they began their work in January, February, March of 2012 that they found nothing at the Justice Department in the pipeline, no ongoing cases looking at securitization.”
And lest we forget, Lanny reminds us that these cases have ramifications for the rest of the bank. I don’t know who told Breuer that indicting the investment banking arm of a megabank would destroy the bank, but that’s a piece of idiocy that he claims to believe. This is from a speech he gave last September:
In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling. In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders, just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct. I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets are a real factor. Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement.