Holder's Legacy on Financial Crime Cemented in Final Year

By Tom Schoenberg Sep 25, 2014 8:34 PM ET

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Sept. 25 (Bloomberg) –- Former U.S. Senator Robert Torricelli, a Democrat from New Jersey, and Bloomberg’s Peter Cook discuss the legacy of Attorney General Eric Holder and who might replace him. They speak on "Street Smart." (Source: Bloomberg)

Attorney General Eric Holder spent the past year making up for lost time in an effort to hold banks accountable for their role in the 2008 financial crisis.
Under fire during his tenure for shying away from prosecuting the largest banks and their top executives, Holder since last fall has rolled out a series of multibillion-dollar penalties against financial institutions culminating with Bank of America Corp.’s record $16.7 billion settlement last month.
“No attorney general has ever done anything of this magnitude in keeping the banks in check,” Maryland Attorney General Douglas Gansler, who worked on the Bank of America case, said in an interview.
Holder, who said yesterday he plans to leave office, spent much of his almost six year-tenure defending the Justice Department’s record of few Wall Street prosecutions even as President Barack Obama promised to hold banks accountable.

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Holder’s legacy on financial crime is shaped in part by his own U.S. Senate testimony last year that some banks may be too large to prosecute for fear of harming the global economy.
Even after racking up $37 billion in penalties from banks for hiding toxic mortgages packaged into securities in the past 10 months, critics say he either hasn’t done enough or has gone too far. Holder has been especially blamed for not bringing cases against bank executives.

Holder, 63, who served as deputy attorney general in the Clinton administration, was confirmed as Obama’s first attorney general in 2009 as the country struggled to rebound from the worst financial crisis since the Great Depression.

Guilty Pleas

Earlier this year, the department secured guilty pleas -- once viewed as a death penalty for a bank -- from Credit Suisse Group AG and BNP Paribas SA for breaking the law and then not fully cooperating with the government’s probes.
“It’s unclear what they accomplished other than to extract a pound of flesh,” said Mike Piazza, a former Securities and Exchange Commission trial attorney who is now a partner with Greenberg Traurig LLP in California.
“It’s curious that the department has chosen to pursue multibillion settlements with large banks, and yet we haven’t seen any serious effort to go after individuals,” Piazza said.
In a speech in New York last week, Holder said prosecuting individuals in corporate cases is the best deterrent and that the department was poised to charge people in an investigation into the rigging of currency rates.
The Justice Department suffered setbacks early in Holder’s tenure. It lost a 2009 criminal case against two Bear Stearns Cos. hedge-fund managers accused of misleading investors about the health of their funds.

Lacking Evidence

In probes against former American International Group Inc. executive Joseph Cassano and Angelo Mozilo, former chief executive officer of mortgage lender Countrywide Financial Corp., prosecutors concluded there wasn’t enough evidence to bring charges, people familiar with the matter have said.
Even financial cases unrelated to the recession were criticized by Republicans and Democrats alike as being too lenient. Two senators in January 2013 cited a deferred prosecution agreement with HSBC Holdings Plc. to end allegations that included money laundering for criminal organizations. In a letter, the lawmakers asked the attorney general whether large banks were “too big too jail.”
After criticism for his testimony on the risks of prosecuting big banks, Holder recorded a video in May saying the cases could be made.
“There is no such thing as ‘too big to jail,’” Holder said in the message posted on the department’s website. “When laws indeed appear to have been broken, and the evidence supports the allegations, a company’s size will never be a shield from prosecution or penalty.”

Bank Pleas

Guilty pleas by Credit Suisse for helping U.S. citizens evade taxes, and BNP over-trade sanctions violations, were announced soon after.
Holder’s record on prosecuting mortgage fraud, one of the causes of the financial crisis, was faulted by the agency’s inspector general earlier this year.
The department “did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with DOJ’s public statements about the importance of pursuing financial fraud cases in general, and mortgage fraud cases in particular.”
In August 2013, Holder retracted a public statement after Bloomberg News reported that the department had inflated its track record of mortgage-fraud prosecutions. The Justice Department said it overstated its performance, sometimes attributing older mortgage-fraud prosecutions to an initiative that began in 2011.

Civil Cases

In the absence of criminal cases against individuals, the department pursued civil cases against banks after Obama promised in his 2012 State of the Union address to take a tougher line.
Holder became personally involved in a group created by the president to look at mortgage-backed securities -- ordering prosecutors to build cases that could be brought to court quickly.
From that effort sprung record settlements with Bank of America, JPMorgan Chase & Co. and Citigroup Inc. for their role in hiding toxic mortgages.
William Black, who served as deputy director of the Federal Savings and Loan Insurance Corp. during the S&L crisis of the 1980s, said Holder will forever be known for failing to charge bank executives.
“I always thought he would prosecute at least one of these bankers as a token ’legacy’ case,” said Black, who is now a professor at the University of Missouri, Kansas City. “Holder refused to indict any elite banker for leading any of these frauds. That is well-known and represents the worst strategic failure against elite white-collar crime in the history of the Department of Justice.”
Michael Bresnick, former head of the Justice Department’s financial fraud task force under Holder, and now a lawyer at Stein Mitchell Muse Cipollone & Beato LLP in Washington, said the attorney general has to bring cases based on the law, not public opinion.
“He can’t be all things to all people,” Bresnick said. “All he can do is keep an eye on the ultimate goal, which in this case is the pursuit of justice, and I think he’s done a terrific job,” Bresnick said.
To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net
To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Justin Blum

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