DOJ should end secret selection process for corporate watchdogs

Thomas Perrelli just won quite a plum assignment. The former U.S. associate attorney general, who resumed his partnership at the law firm Jenner & Block in 2012, was appointed Monday to serve as Citigroup’s independent monitor as part of the bank’s $7 billion settlement with the Justice Department and five state attorneys.

Perrelli and the team of Jenner lawyers who will undoubtedly join him in watching over Citigroup will be paid by the bank, as is customary in corporate monitorships. The specifics on what Citi will pay him aren’t public, and, to be sure, Perrelli’s mandate under the settlement agreement is limited. But rest assured: He and his firm are going to earn a lot of money as Citi’s monitor. As a federal judge who has overseen a corporate monitor told my Reuters colleague Casey Sullivan, “It is a huge cash cow. These are very, very lucrative appointments.”

Perrelli also bears enormous responsibility. His charge, according to the Citi settlement agreement, is to make sure that the bank properly distributes $2.5 billion in mortgage relief to homeowners who were allegedly injured by Citi’s voracious appetite for loans to bundle into mortgage-backed securities. It’s up to Perrelli to verify that the bank follows through with promises to modify and refinance mortgages for borrowers struggling to make payments or paying mortgages on houses worth less than the loans.

How was Perrelli picked for this important and lucrative job? We don’t really know, at least not in any official way from the Justice Department or the bank. Unofficially, sources have told Reuters reporters that after the Justice Department informed Citi that the bank had to hire an independent monitor, Citi suggested Perrelli, who was then approved by his former Justice colleague Tony West. West, after all, could hardly question the integrity and credentials of the lawyer who preceded him as associate attorney general.

It’s entirely possible, even probable, that Perrelli is the best possible steward of the public’s interest in Citi’s distribution of $2.5 billion. When he was at Justice, Perrelli led negotiations of the government’s $25 billion global mortgage servicing settlement with the biggest banks in the country, including Citigroup. He also oversaw the Justice Department’s deal with BP after the Deepwater Horizon spill, in which BP agreed to set aside $20 billion for spill victims. Perrelli certainly appears to be above reproach.

But the process that led to his appointment is not. Secrecy breeds cynicism. If the Justice Department wants the public to trust the watchdogs it appoints to safeguard the public’s interest in megasettlements like the one with Citigroup, it should tell us why it selected the monitors it did and how they’ll be held accountable.

Read on.

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