Elizabeth Warren Releases Blistering Report on Corporate Criminality – Singles Out SEC Uselessness

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I was really disappointed by Elizabeth Warren’s recent vote against auditing the Federal Reserve, but I’ve decided to forgive her following the release of an extremely powerful and important 12-page report on corporate criminality titled: Rigged Justice: 2016 – How Weak Enforcement Lets Corporate Offenders Off Easy. In fact, this may be the most meaningful report I’ve read since Princeton and Northwestern published a study proving the U.S. is an oligarchy.

The report encapsulates the meaning of public service, and demonstrates what U.S. Senators could be doing if they weren’t busy constantly whoring themselves out to the highest bidder. The fact of the matter is if Congress was filled with more individuals with the smarts, ethics and courage of Elizabeth Warren, this country would not be in the mess it’s in.

I know many of you will see that statement as an exaggeration, but it’s not. As I’ve maintained time and time again, the single biggest issue destroying America, the one that towers above all others, is the diminishment of the rule of law. Specifically, the fact that rich and powerful players in this country have amassed so much economic and political control they have created an untouchable class for themselves which is completely above the law. The definition of this sort of political arrangement is tyranny. As I noted in the piece, New Report – The United States’ Sharp Drop in Economic Freedom Since 2000 Driven by “Decline in Rule of Law.”

In my opinion, the U.S. is living on borrowed time. The entrepreneurial spirit is still very much alive, and a lot of innovative things are happening in the tech area, but other than that, the U.S. economy looks very much like a third word oligarchy. From my perspective, we need to reinstate the rule of law at once. The bad actors amongst the rich and powerful will continue to feast relentlessly on the productive parts of the economy so long as they they are never held accountable for their crimes. Simply put: The rule of law must be restored immediately.

That is not an exaggeration. Nothing, I mean nothing, will get sustainably better in this nation until the criminals in charge are either jailed or their influence obliterated from the entire social and economic structure. Thankfully, Senator Elizabeth Warren sees this problem as the core cancer that it is. Don’t believe me? Read the opening paragraphs to her report:

Laws are effective only to the extent they are enforced. A law on the books has little impact if prosecution is highly unlikely.

This country devotes substantial resources to the prosecution of crimes such as murder, assault, kidnapping, burglary and theft, both in an effort to deter future criminal activity and to provide victims with some degree of justice. Strong enforcement of corporate criminal laws serves similar goals: to deter future criminal activity by making would-be lawbreakers think twice before breaking the law and, sometimes, by helping victims recover from their injuries.

When government regulators and prosecutors fail to pursue big corporations or their executives who violate the law, or when the government lets them off with a slap on the wrist, corporate criminals have free rein to operate outside the law. They can game the system, cheat families, rip off taxpayers, and even take actions that result in the death of innocent victims—all with no serious consequences.

The failure to punish big corporations or their executives when they break the law undermines the foundations of this great country: If justice means a prison sentence for a teenager who steals a car, but it means nothing more than a sideways glance at a CEO who quietly engineers the theft of billions of dollars, then the promise of equal justice under the law has turned into a lie. The failure to prosecute big, visible crimes has a corrosive effect on the fabric of democracy and our shared belief that we are all equal in the eyes of the law.

Under the current approach to enforcement, corporate criminals routinely escape meaningful prosecution for their misconduct. This is so despite the fact that the law is unambiguous: if a corporation has violated the law, individuals within the corporation must also have violated the law. If the corporation is subject to charges of wrongdoing, so are those in the corporation who planned, authorized or took the actions. But even in cases of flagrant corporate law breaking, federal law enforcement agencies – and particularly the Department of Justice (DOJ) – rarely seek prosecution of individuals. In fact, federal agencies rarely pursue convictions of either large corporations or their executives in a court of law. Instead, they agree to criminal and civil settlements with corporations that rarely require any admission of wrongdoing and they let the executives go free without any individual accountability.

The Securities and Exchange Commission (SEC) is particularly feeble, often failing to use the full range of its enforcement toolbox. Not only does the agency fail to demand accountability, the SEC frequently uses its prosecutorial discretion to grant waivers to big companies so that those companies can continue to enjoy special privileges despite often-repeated misconduct that legally disqualifies them from receiving such benefits. Lax enforcement at other agencies, such as the Occupational Health and Safety Administration (OSHA), stems primarily from a lack of important legal tools and persistent underfunding by Congress that often turn the legal rules into little more than suggestions that companies can freely ignore. 

Of course, the uselessness of the SEC should not be surprising. The moment Mary Jo White was nominated three years ahgo, I published the following: Meet Mary Jo White: The Next SEC Chief and a Guaranteed Wall Street Patsy.

Now back to Warren…

The contrast between the treatment of highly paid executives and everyone else couldn’t be sharper. The U.S. has a larger prison population than any nation in the world. People are locked up for long stretches for crimes that involve thousands—or even hundreds—of dollars. Even the settlement process is different. For most people accused of a crime, prosecutors may be willing to plead out the cases, but they typically require admission of guilt and, if the crime involves more than a trivial amount of money, time in jail. Various three-strikes rules frequently put people away for life for non-violent crimes involving modest amounts of money. Politicians routinely get elected promising to be “tough on crime,” and both federal and state governments devote immense resources to put and keep criminals in prison.

The Obama Administration has made repeated promises to strengthen enforcement and hold corporate criminals accountable, and the DOJ announced in September that it would place greater emphasis on charging individuals responsible for corporate crimes. Nonetheless, both before and after this DOJ announcement, accountability for corporate crimes is shockingly weak. 

This report prepared for Sen. Warren – the first of an annual series on enforcement – highlights twenty criminal and civil cases in 2015 in which the federal government failed to require meaningful accountability from either large corporations or their executives involved in wrongdoing. These twenty cases are not the only examples of prosecutorial timidity when dealing with well-financed corporate defendants. Instead, they illustrate patterns across a range of areas from financial crimes to personal injury to environmental disasters. Despite the fact that the twenty cases listed here were among the most highly publicized cases of corporate misconduct settled in 2015, in only one case was a corporation taken to trial and an individual indicted or otherwise required to answer for their contributions to corporate wrongdoing—and that case involved multiple deaths. 

Because prosecutors took only one of these twenty cases to trial and, in many cases, did not even require an admission of guilt as part of the settlement, it is not possible to officially tag most of these corporations and their executives for crimes. Even so, each case is based on widely reported—and widely admitted—facts that, on their face, raise a prima facie case of unlawful conduct. These corporations paid millions—or billions—of dollars to make these cases disappear before any public hearing. If each of these cases had gone to trial, it is possible that some of the companies might have raised a defense that would have created reasonable doubt in jurors’ minds, but that is precisely the problem here: because the prosecutors never took any of these corporations or their executives to trial, there was never a need for anyone to answer in court under oath for their actions. 

The report goes on to highlight 20 instances in which corporate criminals escaped justice with barely a slap on the wrist. David Dayen at the Intercept did an excellent job of summarizing a few of them. He writes:

Of the 20 cases, which span Wall Street, the auto industry, pharmaceuticals, natural resources, and more, only one resulted in any convictions to executives, and that was for a misdemeanor — in the Upper Big Branch mine case, where 29 Americans died.

In virtually all the cases she cites – from Standard and Poor’s delivering inflated credit ratings to defraud investors during the financial crisis, to Novartis giving kickbacks to pharmacists to steer customers to their products, to an explosion at a Bayer CropScience pesticide plant that killed two employees – the Department of Justice declined to prosecute individual executives or the corporations themselves, resorting to settlements with minuscule fines that barely disrupt the corporations’ business models.

The report also gives new meaning to the term “1 percent.”

JPMorgan’s settlement for giving conflicted advice to its clients over wealth management products was less than 1 percent of annual operating profits.

GM paid under 1 percent of company revenue to settle claims on the faulty ignition switch that killed multiple vehicle passengers.

For-profit college EDMC ripped off students with false promises of well-paying jobs, and paid below 1 percent of its student loan revenue over the period of violations.

Warren further documents how in some settlements, the headline dollar figure looks tough until you read the fine print. A settlement with Graco Children’s Products for selling defective car seats yielded $10 million, but $7 million of it went toward developing safety programs, which any responsible manufacturer would do in their normal course of business. The BP civil settlement over the Deepwater Horizon for $20.8 billion sounds massive until you learn that $5 billion could be deducted as an ordinary business expense for tax purposes.

Warren singles out the Securities and Exchange Commission (SEC) as “particularly feeble,” letting corporate offenders off the hook with weak civil settlements, and then routinely granting the wrongdoers waivers from automatic penalties triggered by the violations. Senator Warren has been at odds with the SEC and its chair, Mary Jo White, whose tenure has been “extremely disappointing,” in her view.

Warren insists that the bigger problem is a failure to “use the tools Congress has already provided to impose meaningful accountability on corporate offenders.” She even argues that bank regulators had the tools they needed to stop the 2008 financial crisis, but chose not to.

Bingo. This is where Sanders could actually make a huge difference, as opposed to the other candidates who will most certainly be surrounded by Wall Street advisors.

Despite multiple promises by President Obama’s Department of Justice to stiffen enforcement of corporate misconduct, including a 2015 memo creating new guidelines for prosecutions of individuals, almost all major instances lead to toothless settlements, she writes. “Accountability has been shockingly weak.”

Warren also published an op-ed in the New York Times on Friday discussing her report. “Enforcement isn’t about big government or small government,” she writes there. “It’s about whether government works and who it works for.”

Indeed, and if you’re a Democrat it should be absolutely clear who Hillary Clinton works for…and it’s not you.

For related articles, see:

Shots Fired – Jamie Dimon Questions Elizabeth Warren’s “Understanding of the Global Banking System”

Four “Too Big to Fail/Jail” Banks Threaten to Hold Back Funds to Democrats Over Elizabeth Warren

Video of the Day – Elizabeth Warren Torches Janet Yellen on TBTF

Stunning Quote – Larry Summers to Elizabeth Warren in 2009: “Insiders Don’t Criticize Other Insiders”

Elizabeth Warren Confronts Eric Holder, Ben Bernanke and Mary Jo White on Bankster Immunity

In Liberty,
Michael Krieger

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11 Comments

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  1. “I was really disappointed by Elizabeth Warren’s recent vote against auditing the Federal Reserve, but I’ve decided to forgive her following the release of an extremely powerful and important 12-page report ….”

    No report about anything can equal giving a pass to the root of everything that’s wrong in the US, the (non)Federal (no)Reserve.

  2. Case Sheds Light on Goldman’s Role as Lender in Short Sales

    It would be easy to overlook the case against Goldman Sachs filed by the Securities and Exchange Commission on Jan. 14. It involved a complex piece of Wall Street plumbing, levied a minuscule $15 million fine, and came on the same day that Goldman agreed to pay up to $5 billion to settle prosecutors’ claims that it sold faulty mortgage securities to investors.

    But the smaller settlement merits close study because it sheds light on one of Wall Street’s most secretive and profitable arenas: securities lending and short-selling.

    Although the firm settled the matter without admitting to or denying the S.E.C.’s allegations, some of Goldman’s customers may now be able to recover damages from the firm, securities lawyers say.

    Essentially the regulator said Goldman advised its clients that it had performed crucial services for them when it often had not. Customers who paid handsomely for those services may want their money back.

    The $15 million punishment is just petty cash for Goldman, but this case tells us a lot about one of the most important duties that Wall Street firms perform for their clients — executing trades for hedge funds and other large investors. When these clients want to bet against a company’s stock, known as selling it short, they rely on brokerage firms to locate the shares they must borrow and deliver to a buyer.

    Selling stock short without first locating the shares for delivery is known as naked shorting. It is a violation of Regulation SHO, a 2005 S.E.C. rule. Goldman’s failure meant that some of its clients were unknowingly breaching this important rule.

    The S.E.C. has said that naked shorting can be abusive and may drive down a company’s shares. Therefore, brokerage firms are barred from accepting orders for short sales unless they have borrowed the stock or have “reasonable grounds” to believe it can be secured. This is known as the “locate” requirement.

    Goldman violated the rule from November 2008 through mid-2013, the S.E.C. said. Through that period, which included the precipitous market decline of early 2009, the firm was “improperly providing locates to customers where it had not performed an adequate review of the securities to be located.”

    In an interview, Mr. Shapiro, a former federal prosecutor and United States attorney, questioned the recent S.E.C. settlement. “I’m very curious to understand what Goldman Sachs admitted to the S.E.C.,” he said, “and why $15 million was considered to be an adequate punishment.”

    http://www.nytimes.com/2016/01/31/business/case-sheds-light-on-goldmans-role-as-lender-in-short-sales.html?

  3. I was really disappointed by Elizabeth Warren’s recent vote against auditing the Federal Reserve, but I’ve decided to forgive her following the release of an extremely powerful and important 12-page report on corporate criminality titled: Rigged Justice: 2016 – How Weak Enforcement Lets Corporate Offenders Off Easy. In fact, this may be the most meaningful report I’ve read since Princeton and Northwestern published a study proving the U.S. is an oligarchy.

    Really? She’s O.K now? What a tool

  4. I am no fan of Elizabeth Warren, by any stretch, but what she has said here is indubitably the crux of our problems here in the Oligarchic States of America Add in the fact that the courts are not a viable means of “redress of grievances”, as ” Average Joe” has no standing, and you can see the source of much of We The People’s disgust and fury at the Establishment. This is a contributing factor in the meteoric rise of the populists Donald Trump and Bernie Sanders. Well written piece, keep up the good work!

  5. This report is remarkably thin on names. Only a few of the sleazy corporate criminals are mentioned by name. Why didn’t Warren specifically identify the names of prosecutable persons in the HSBC et al. case, for example?

  6. Maybe you should change the name of our blog. You seem to like Warren and government in general. They are antithetical to Liberty.
    Liberty = (1/gov)

  7. I am not a troll. Just rough around the edges. Too much zerohedge. But seriously, the government has screwed our economy and justice system into the ground along with us. Both the system and the people that are running it are corrupt and ignorant so when anybody throws them a bone I get very upset. Please do not trust any of them. I believe there is a good chance they are going to get us all killed.

  8. If Warren really cares about issues with these banks why is her office ignoring claims of further wrongdoing at Citigroup in this whistleblower lawsuit:
    Case Name: Jaludi v. Citigroup
    Case Number: 3:15-cv-02076-MEM-JFS

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