Monday, December 27, 2010

Financial Regulators Scramble Ahead of WikiLeaks

Not since former Treasury Secretary Henry Paulson pulled off a $700 billion raid of taxpayer dollars to shore up Wall Street have Washington regulators scurried so quickly to ferret out evidence of collusion between the feds and the nation's major banks and other financial services firms.
The last minute push by regulators comes ahead of a threatened WikiLeaks data dump.
According to WikiLeaks founder Julian Assange, the soon-to-be-released materials will focus on a major American bank -- possibly Bank of America. Mr. Assange claims to have enough incriminating evidence to force the resignation of top bank executives.
But sources in Washington say they expect there will be very little surprising in the WikiLeaks disclosures, which were apparently taken from a computer hard drive.
"As far as any bank is concerned, we're probably in for another 'Casablanca' moment," said one source. He was referring to the famous film starring Humphrey Bogart in which a police inspector is "shocked" to discover gambling going on in Bogie's supper club.
"The [WikiLeaks] dump may turn up a few new cons, or some old ones. We know how the banks operate. The material may be embarrassing to a bank only because the media will make a big deal of it. But don't count on seeing lots of red faces in a shameless environment."
The federal regulators, however, do anticipate no small degree of harsh exposure. Especially sensitive to the possibility of embarrassment is the Securities and Exchange Commission (SEC) and its rumored links to Ponzi swindler Bernard Madoff. Both Mary Schapiro, current head of the commission, and former SEC Chairman Christopher Cox are in line for possible charges of conflict of interest or willful negligence.
The industry group formerly headed by Ms. Schapiro, the Financial Industry Regulatory Authority, also may be in the cross hairs for more than a few potential shockers, including the apparent insider sale of nearly $600 million in auction rate securities before the market crashed in February 2008.
Andrew Ross Sorkin, writing in The New York Times Dealbook, speculated that the big surprise would be that such "chicanery" was documented "and that regulators haven't found it yet -- or worse, they found it and did nothing about it."
"Imagine the public relations hassle," suggested one source. "How do explain away what's been there, right in front of you, in black and white, and yet you did nothing about it?"
Robert A. Mintz, a former public prosecutor, says much of the dumped information, when and if it is made public, will not be well understood by the public. And then there's the problem of the material as actual court-worthy evidence. WikiLeaks documents may not hold up as legally sound.
Attorney General Eric Holder, now at the helm of the somewhat embarrassing Project Broken Trust, has promised to investigate State Department documents released earlier by WikiLeaks. But General Holder has lost face running Project Broken Trust, which thus far has netted about 300 small time con artists and other swindlers while neglecting the $136 billion auction-rate securities fraud.
General Holder has remained relatively silent on WikiLeaks presumed financial disclosures.
"We don't know the details of the documents," a Capitol Hill source said. "It's possible much of the information will date back to the Bush years and the 2008 meltdown. If that's the case, republicans will have quite a mess to deal with."
For now, however, Mr. Assange holds the high ground, despite threats from General Holder to seek prosecution for the State Department leaks. None of this has shaken the determination of Mr. Assange, who promises to go public in early 2011 with the financial disclosures.

Sunday, December 12, 2010


We're pleased that Justice Department investigators have rounded up more than 300 minor crooks and con artists who bilked honest citizens out of $8.3 billion. Justice was served. But with respect, sir, this is cold comfort to the victims who will not get their money back.

We are heartened that Robert Khuzami, director the Securities and Exchange Commission's enforcement division, assures us that the minor fraudsters are now in the crosshairs along with the major crooks on Wall Street. Earlier this week, Mr. Khuzami observed that fraud by high-profile players grab the biggest headlines, "but other scams are equally devastating to hardworking families and retirees."

Size matters. But is the size of a headline supposed to make us feel safer? I don't think so.

General Holder, perhaps we'd feel excited if you and the SEC ramped up your efforts to stop the epidemic of financial crime before more people lose their savings. We're happy you're showing a pulse (it's overdue) and slamming the smaller weasels. We don't mean to be pushy, but how about stopping the swindlers of all sizes before they've stripped their victims to the bone?

As you know, President Obama set up the federal Financial Fraud Enforcement Task Force, which ran Operation Broken Trust. The idea was to prevent another financial meltdown. We emphasis the word "prevent." The unfortunate fact is that Operation Broken Trust prevented only an expansion of certain ongoing financial shenanigans. It amounts to a glass half full. We need much more.

Operation Broken Trust is a step in the right direction, yet it has produced a disappointing outcome for a crime-fighting crew of 20 federal agencies, 94 U.S. attorney's offices, plus a wide variety of state and local law enforcement assets. Surely, Mr. Holder, we can do better.

We call your attention to Michelle Singletary's "The Color of Money" column in the December 9 edition of the Washington Post, in which she commented on Operation Broken Trust:

"It all sounds proactive," Ms. Singletary wrote. "In many cases, however, the fraud didn't just start recently. Some of the scams began well before the latest financial scandals."

The idea is to get in front of the swindlers before they get into the pockets of their victims. Is that too much to hope for?

We are pleased by your comment, General Holder, that "cheating investors out of their earnings and savings is no longer a safe business plan." There is a degree of nobility in your sentiment. Yet we wonder if it will shake up the major fraudsters on Wall Street. Will your words send the executives of Goldman Sachs, Pimco, Oppenheimer, Charles Schwab, Merrill Lynch, E*Trade and others in search of salvation? We don't think so.

Here's food for thought: A recent study by the Financial Industry Regulatory Authority (FINRA), an outfit owned and paid for by broker-dealers, revealed that most Americans are financially "irresponsible" and naïve about money. Out of a possible top score of five on a financial literacy scale, not one state in the Union scored above 3.5. That's pretty revealing. According to FINRA, the savviest citizens were found in New York and New Jersey. The lowest scores came from residents of Kentucky and Montana.

There are proposals in the House of Representatives designed to improve this sad situation. Both the Financial Education in the Classroom Act (H.R. 5165) and the Preventing Affinity Scams on Seniors Act (H.R. 6305) have promise. (An "affinity scam" is one in which a charismatic person uses his or her relationship to defraud trusting seniors.) Neither of these proposals appears to be going anywhere. Perhaps the DOJ might step in and give them a boost.

Another suggestion, General Holder: How about publicizing your website Sorry to report that we can't find anyone who has ever heard of it. It's a fine website with lots of anti-fraud tips for consumers, and links to people who can actually step up and do something to stop an ongoing scam.

DOJ and SEC need to be more involved with the public. That means holding financial literacy workshops, advertising anti-fraud websites and other resources, reaching out to people before the weasels get to them.