The Untouchables (full documentary) | FRONTLINE

00:53:17
https://www.youtube.com/watch?v=B4TWN54KqfQ

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TLDRThe video titled "The Untouchables" investigates the lack of accountability of Wall Street executives in the aftermath of the 2008 financial crisis. Despite significant evidence of widespread financial misconduct, no senior executives from major Wall Street firms faced criminal charges. The documentary highlights the failure of the Department of Justice to prosecute top figures, with officials like Lanny Breuer explaining the difficulty in proving criminal intent beyond a reasonable doubt. The video also features perspectives from financial insiders, whistleblowers, and lawmakers like Senator Ted Kaufman, who pushed for thorough investigations. There are acknowledgments of fraud at lower levels, but significant figures like the heads of banks remained uncharged. The segment also covers efforts by private law firms to pursue cases against major financial institutions for fraudulent activities. Ultimately, the documentary examines systemic challenges and decisions within the Justice Department that resulted in no major Wall Street executive being held accountable for the crisis.

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  • ๐Ÿ” Investigations focused on why Wall Street executives weren't jailed post-2008 crisis.
  • ๐Ÿ•ต๏ธโ€โ™‚๏ธ Fraud was identified at lower levels, but proving executive intent was challenging.
  • ๐Ÿข Major Wall Street firms avoided criminal charges despite evidence of misconduct.
  • ๐Ÿ’ผ No top executives faced criminal liability, fueling public frustration and distrust.
  • ๐Ÿ’ฌ Whistleblowers like Richard Bowen reported internal issues but led to civil, not criminal, consequences.
  • ๐Ÿšซ Department of Justice struggled to prove fraud beyond reasonable doubt.
  • ๐Ÿ’ฅ Documentary highlights failures in accountability at higher levels of financial institutions.
  • ๐Ÿ“ˆ Significant financial misconduct occurred with systemic lack of top-level prosecutions.
  • ๐Ÿงพ Private firms pursued legal actions, highlighting gaps in government enforcement.
  • ๐Ÿ—ฃ๏ธ Ongoing public discourse on the necessity of accountability for financial crimes.

ๆ—ถ้—ด่ฝด

  • 00:00:00 - 00:05:00

    The documentary investigates why no Wall Street executives were prosecuted for fraud following the financial crisis. Despite evidence of misconduct and a public outcry, the Justice Department did not indict any senior figures. Former Justice officials suggest a lack of effort and fear of losing high-profile cases contributed to this outcome.

  • 00:05:00 - 00:10:00

    In 2009, amid economic ruin and job losses, there was an expectation of prosecutions for financial misconduct. Yet, no senior Wall Street executives were arrested. The Justice Department cited the difficulty in proving criminal intent as a major obstacle. Critics argue that greed and misconduct should have led to more aggressive investigations.

  • 00:10:00 - 00:15:00

    Mortgage originators like Countrywide played a key role in the crisis by approving risky loans. However, the Justice Department mainly targeted small players rather than the big banks. The large financial institutions like Countrywide and Bear Stearns lowered lending standards to meet Wall Street's demands, leading to massive fraud.

  • 00:15:00 - 00:20:00

    Investigators needed insiders willing to expose the fraud within banks but had difficulty obtaining concrete evidence. Due diligence underwriters were pressured to approve faulty loans without questioning them. Fraud was rampant, yet legal action against Wall Street figures remained elusive.

  • 00:20:00 - 00:25:00

    Richard Bowen, a former Citigroup executive, warned his superiors about risky loan practices, but his pleas were ignored. The banking system eventually collapsed, leading to significant economic turmoil. Wall Street figures largely avoided prosecution, failing to hold anyone accountable for the crisis.

  • 00:25:00 - 00:30:00

    Senator Ted Kaufman and others called for increased funding and resources to investigate financial crimes. However, efforts were stymied by the lack of FBI resources and political will. Despite legal reforms, meaningful prosecutions of senior Wall Street figures were still lacking years after the crisis.

  • 00:30:00 - 00:35:00

    The Justice Department struggled to secure convictions in financial crisis-related cases, such as the acquittal of Bear Stearns hedge fund managers. Many believe political and legal hesitance prevented a more forceful pursuit of Wall Street executives, resulting in little accountability.

  • 00:35:00 - 00:40:00

    Attorney General Eric Schneiderman's civil suit against Bear Stearns successor JP Morgan Chase marked a significant legal challenge, yet no individuals were criminally charged. The suit highlighted the widespread fraud in mortgage securities, but the fundamental accountability concerns were largely unaddressed.

  • 00:40:00 - 00:45:00

    Despite new regulations, private litigation drove legal challenges against Wall Street more than government efforts. Government entities often lagged behind in addressing fraud, relying on private suits for legal foundations. This lack of prompt response exacerbated public distrust in financial oversight.

  • 00:45:00 - 00:53:17

    Reports suggest the Justice Department prioritized financial stability over criminal prosecutions. High-level officials feared legal action might destabilize major banks. This approach protected large institutions but left many asking why no one was criminally charged despite clear evidence of wrongdoing.

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Mind Map

ๅธธ่ง้—ฎ้ข˜

  • What is the main topic of the video?

    The video discusses why no Wall Street executives were jailed following the 2008 financial crisis.

  • Were there any prosecutions related to the financial crisis?

    Yes, there were prosecutions of small mortgage brokers and loan appraisers, but no top Wall Street executives were prosecuted.

  • Who was the chief of the Criminal Division at Justice during the crisis period?

    Lanny Breuer was the chief of the Criminal Division at Justice.

  • Did any insider at banks report fraudulent activities?

    Yes, Richard Bowen reported issues at Citigroup, indicating many loans did not meet policy guidelines.

  • Were any Wall Street banks investigated by the Department of Justice?

    Investigations were carried out, but the Department of Justice found it difficult to prove criminal intent beyond a reasonable doubt.

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  • 00:00:00
    [Music]
  • 00:00:04
    tonight fraud and potential criminal
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    conduct were at the heart of the
  • 00:00:08
    financial crisis more than 4 years later
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    no one going to jail no individuals
  • 00:00:13
    being held accountable this is totally
  • 00:00:15
    about what went on in Wall Street
  • 00:00:17
    Frontline investigates why no Wall
  • 00:00:19
    Street Executives have gone to jail the
  • 00:00:21
    FBI wasn't Aiming High Enough there was
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    a definite sense that Justice backed off
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    did the government fail a number of
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    people told us that you didn't make this
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    a top priority well I'm sorry if they
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    think that because I made it an
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    incredibly top priority so you're
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    telling me that not one executive on
  • 00:00:38
    Wall Street committed provable fraud I
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    mean I just don't believe that tonight
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    on front line The
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    [Music]
  • 00:00:50
    Untouchables although this downturn
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    started in the housing sector and in the
  • 00:00:54
    financial sector you're seeing a lot of
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    things being hit today's numbers suggest
  • 00:00:59
    job losses are 600,000 biggest loss
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    since
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    1974 in 2009 Wall Street Bankers were on
  • 00:01:09
    the defensive seen one and the Great
  • 00:01:11
    American Mortgage bubble had burst this
  • 00:01:13
    is a huge amount of money the economy
  • 00:01:15
    was in Ruins and Wall Street Bankers
  • 00:01:18
    were being blamed Market s during a time
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    of worry about a giant Bankers admitted
  • 00:01:22
    they had miscalculated crippled us Eon
  • 00:01:25
    but they were also worried that they
  • 00:01:26
    could be held criminally liable for
  • 00:01:28
    fraud
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    and President
  • 00:01:31
    Obama trilon with a new Administration
  • 00:01:33
    arriving in Washington bankers and their
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    attorneys expected
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    investigations and at least some
  • 00:01:40
    prosecutions billion in mortgage back
  • 00:01:42
    security was there a sense that there
  • 00:01:44
    were going to be prosecutions of alleged
  • 00:01:48
    fraud related to the mortgage crisis I
  • 00:01:51
    think there was that expectation I think
  • 00:01:53
    people uh had seen the financial crisis
  • 00:01:57
    there was obviously a lot of conduct
  • 00:01:59
    that had gone on uh that was improper
  • 00:02:03
    and I think people were expecting to see
  • 00:02:06
    some substantial
  • 00:02:09
    prosecutions the men and women who duped
  • 00:02:11
    would be homeowners who defrauded the
  • 00:02:13
    American investor need to be identified
  • 00:02:16
    prosecuted convicted and thrown in
  • 00:02:19
    jail in Washington there was broad
  • 00:02:22
    support for prosecuting Wall Street I
  • 00:02:25
    was really upset about what went on on
  • 00:02:28
    Wall Street that brought about the
  • 00:02:29
    financial crisis
  • 00:02:30
    not only destroyed the fin almost
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    destroyed the financial system of the
  • 00:02:32
    United States almost destroyed the
  • 00:02:33
    financial system of the world at the end
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    of the that doesn't happen the fin if
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    there isn't something bad going
  • 00:02:40
    on but today more than four years since
  • 00:02:43
    the financial crisis of 2008 there have
  • 00:02:46
    been no arrests of any senior Wall
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    Street
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    Executives chief of the Criminal
  • 00:02:52
    Division at Justice Lanny Brewer says
  • 00:02:55
    the problem is that greed is not
  • 00:02:57
    necessarily criminal I am person
  • 00:02:59
    personally offended by much of what I've
  • 00:03:01
    seen I think there was a level of greed
  • 00:03:04
    a level of excessive risk-taking in this
  • 00:03:07
    situation that I find abominable and I
  • 00:03:10
    find very upsetting but that is not what
  • 00:03:13
    makes a criminal case what makes a
  • 00:03:16
    criminal case is that I can prove beyond
  • 00:03:18
    the Reasonable Doubt every element of a
  • 00:03:22
    crime some former prosecutors believe
  • 00:03:25
    the problem is a lack of
  • 00:03:27
    effort justice department failed
  • 00:03:30
    they have not done what needed to be
  • 00:03:32
    done they didn't ever try to bring
  • 00:03:35
    together in one coherent narrative
  • 00:03:37
    laying out the entirety of the story
  • 00:03:40
    against one of the major players and
  • 00:03:42
    demand sanctions that are meaningful
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    that to me is what has been
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    fundamentally
  • 00:03:49
    lacking the story of how the big Banks
  • 00:03:51
    amassed enormous fortunes Packaging home
  • 00:03:54
    loans into Securities and selling them
  • 00:03:56
    to investors all over the world began of
  • 00:03:59
    course on the ground with mortgage
  • 00:04:02
    Originators what my econ one Prof taught
  • 00:04:06
    us was business goes in Cycles my name
  • 00:04:10
    is Michael Winston I work for
  • 00:04:12
    Countrywide Financial Corporation from
  • 00:04:14
    2005 till 2008 they said their goal was
  • 00:04:20
    um world class Goldman Sachs on the
  • 00:04:22
    Pacific and they wanted me to realize
  • 00:04:24
    their Vision now if you can reach up
  • 00:04:27
    with both fists Michael Winston once
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    lived inside the bubble at mortgage
  • 00:04:31
    originator
  • 00:04:33
    Countrywide at first Winston was
  • 00:04:35
    impressed by CEO Angelo Millo and how he
  • 00:04:38
    had turned Countrywide into America's
  • 00:04:40
    number one mortgage company how you
  • 00:04:44
    doing but just a few months into the job
  • 00:04:47
    Winston had an encounter in the company
  • 00:04:49
    parking lot I'd been there 5 months when
  • 00:04:53
    I happened to park next to a car with
  • 00:04:57
    personalized vanity plates and the
  • 00:05:00
    personalized plates said
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    fundom and um I had a conversation with
  • 00:05:07
    the person nearest the car I didn't know
  • 00:05:09
    if it was the owner or just some guy
  • 00:05:11
    walking by and I just said um fundam
  • 00:05:14
    that's an interesting plate what do you
  • 00:05:15
    suppose that
  • 00:05:17
    means and he said that's Angelo millo's
  • 00:05:20
    growth strategy for 2006 noost ref and
  • 00:05:23
    he said uh we have a loan for every
  • 00:05:25
    customer a growing family with a lot of
  • 00:05:27
    debt and I said a loan for every
  • 00:05:28
    customer how can that be a business
  • 00:05:31
    owner whose income was hard to document
  • 00:05:33
    what if the person doesn't have a
  • 00:05:36
    job fund them the the guy said I said
  • 00:05:40
    what if he has no
  • 00:05:43
    income fund him what if he has no assets
  • 00:05:46
    and he said fund them one of them was
  • 00:05:47
    turned down for a home loan by three
  • 00:05:49
    different lenders I'm with Countrywide
  • 00:05:52
    and I got them all approved I said I'm
  • 00:05:54
    confused what are the standards you use
  • 00:05:56
    the criteria against which you make
  • 00:05:59
    Lending
  • 00:06:00
    decisions and the guy looked at me
  • 00:06:03
    smiled smugly and said if they can fog a
  • 00:06:06
    mirror we'll give him a loan my name is
  • 00:06:09
    Christopher Cruz I was a trainer of
  • 00:06:11
    mortgage loan Originators throughout the
  • 00:06:15
    country there was a Plano Texas office
  • 00:06:18
    in Countrywide and people would Sidle up
  • 00:06:19
    to me saying uh you wouldn't believe
  • 00:06:22
    what's happening around here you
  • 00:06:23
    wouldn't believe the loans I've been
  • 00:06:25
    getting approved here they were just
  • 00:06:27
    flabbergasted uh at at what would what
  • 00:06:29
    is going through the pipeline these are
  • 00:06:31
    still on the books did you know that
  • 00:06:33
    Christopher Cruz describes an industry
  • 00:06:35
    driven to loosen its standards by demand
  • 00:06:38
    from New York you got the sense that
  • 00:06:40
    Wall Street was in control of
  • 00:06:42
    underwriting standards and not the
  • 00:06:44
    mortgage industry what do you mean well
  • 00:06:46
    if the underwriting was acceptable to
  • 00:06:48
    Wall Street if the underwriting was
  • 00:06:50
    acceptable to the ratings agencies
  • 00:06:52
    that's all that counted and so my sense
  • 00:06:55
    is it was probably a game among the
  • 00:06:58
    people in The Mortgage business to say
  • 00:07:00
    let's come up with one of the worst
  • 00:07:01
    loans we can possibly imagine and see if
  • 00:07:05
    Wall Street will buy it new homes are
  • 00:07:07
    selling at the second highest rate on
  • 00:07:09
    record and then that type of mentality
  • 00:07:11
    translates into don't worry about
  • 00:07:14
    whether the the documents are valid
  • 00:07:16
    don't worry about whether we can verify
  • 00:07:19
    income don't worry if the appraisal is
  • 00:07:21
    any good just worry about getting the
  • 00:07:23
    damn loan
  • 00:07:24
    closed because if you can get that
  • 00:07:26
    closed we can get that securitized and
  • 00:07:29
    and then turn around and do another loan
  • 00:07:31
    don't worry about it there's too much
  • 00:07:33
    money out there just get the loan closed
  • 00:07:36
    expected to out 36 billion do in bonuses
  • 00:07:39
    this year this is totally about what
  • 00:07:42
    went on in Wall Street was in fact Wall
  • 00:07:44
    Street going out into California and
  • 00:07:46
    saying hey just put the mortgage
  • 00:07:47
    together don't worry whether they're
  • 00:07:49
    good or not you get a fee I'll take them
  • 00:07:51
    I'll bum them up I'll sell them off to
  • 00:07:52
    somebody else I'll make my money on that
  • 00:07:54
    and whatever happens to the mortgages
  • 00:07:56
    doesn't really matter
  • 00:08:01
    even during the bubble years the
  • 00:08:02
    Department of Justice had arrested and
  • 00:08:04
    prosecuted many small mortgage brokers
  • 00:08:07
    loan appraisers and even home
  • 00:08:10
    buyers but to go after Wall Street
  • 00:08:12
    Bankers would prove to be much harder
  • 00:08:15
    the justice department has indicted
  • 00:08:17
    something like two to 3,000 people that
  • 00:08:19
    were making the loans the loan right
  • 00:08:22
    Originators right shooting fish in a
  • 00:08:24
    barrel that's what that is no Bankers
  • 00:08:26
    have gone to jail that surprise you
  • 00:08:30
    no it doesn't surprise
  • 00:08:33
    me to prosecute Wall Street
  • 00:08:36
    investigators needed to find proof of
  • 00:08:38
    what the bankers knew and what they
  • 00:08:42
    intended this meant identifying people
  • 00:08:44
    on the inside who were willing to
  • 00:08:47
    talk I always believed you started the
  • 00:08:50
    bottom up in a bank you started the
  • 00:08:51
    credit department go to the credit
  • 00:08:53
    department find out what the credit
  • 00:08:55
    department knew those are the guys
  • 00:08:56
    wearing green eye shades who don't get
  • 00:08:58
    the big bonuses who want to make sure
  • 00:09:01
    that the loans the underwritings are
  • 00:09:04
    legitimate they actually crunch the
  • 00:09:05
    numbers they're the ones who send the
  • 00:09:07
    memos up to the folks who who get the
  • 00:09:09
    big bucks how the folks at the top react
  • 00:09:12
    to those memos is what determines
  • 00:09:15
    whether the bank acts
  • 00:09:18
    properly at the big investment Banks the
  • 00:09:21
    credit departments hired contractors
  • 00:09:23
    known as due diligence
  • 00:09:26
    Underwriters my name is Tom Leonard uh I
  • 00:09:30
    was a due diligence underwriter my name
  • 00:09:32
    is Eileen Lou aino and I was a contract
  • 00:09:36
    underwriter my name is Chico
  • 00:09:38
    Morton and I was a due diligence
  • 00:09:40
    underwriter what does a due diligence
  • 00:09:42
    underwriter do a due diligence
  • 00:09:44
    underwriter assesses the risk of buying
  • 00:09:47
    loan
  • 00:09:49
    portfolios so a Company on Wall Street
  • 00:09:52
    they're going to buy a loan pull or a
  • 00:09:56
    portfolio of loans and would be hired to
  • 00:10:00
    go in and take a sample of the loans and
  • 00:10:03
    review them so you were contract workers
  • 00:10:06
    yes and then what would you do how would
  • 00:10:07
    you go about doing the due diligence
  • 00:10:10
    well we would um travel uh to the
  • 00:10:14
    location where the loans were stored and
  • 00:10:18
    we have a room either a hotel room
  • 00:10:20
    conference room or uh some work room
  • 00:10:23
    where we could set up tables and our uh
  • 00:10:26
    laptop
  • 00:10:28
    computers so the these loans would come
  • 00:10:30
    in in in Banker boxes
  • 00:10:33
    yes a lot of times we were doing the
  • 00:10:35
    manual labor of of moving the boxes of
  • 00:10:38
    loans back and forth load all these
  • 00:10:40
    boxes on Vans and drive them to the
  • 00:10:43
    hotel unload them at the hotel into the
  • 00:10:46
    room where the due diligence
  • 00:10:48
    Underwriters were working and they could
  • 00:10:50
    be Stacks all the way up to the ceiling
  • 00:10:53
    and there could be anywhere from 10 to
  • 00:10:56
    20 separate mortgages within each
  • 00:10:58
    banker's box
  • 00:11:00
    30 Underwriters crammed at a table you
  • 00:11:03
    know bumping shoulders and you know
  • 00:11:07
    sometimes we're in there 6:30 sometimes
  • 00:11:09
    we're out at 10: 11: 12 at night I've
  • 00:11:12
    been on jobs where we we've worked
  • 00:11:15
    late and so what was it like what was
  • 00:11:17
    the atmosphere
  • 00:11:19
    like um it was like a
  • 00:11:22
    party you know we were all in hotels
  • 00:11:24
    together so you know it it was
  • 00:11:27
    definitely a party atmosphere we were
  • 00:11:29
    getting through these loans as quick as
  • 00:11:31
    we can they were not being looked at
  • 00:11:33
    like they should have been looked
  • 00:11:34
    at it wasn't uncommon to have an
  • 00:11:37
    underwriter on one side of the room
  • 00:11:39
    start to laugh and say you know hey get
  • 00:11:42
    aell Lo to this you know here's a guy
  • 00:11:44
    that's moving from $500 a month in rent
  • 00:11:47
    to a
  • 00:11:48
    $650,000 house and he's a um
  • 00:11:52
    electrician and his wife is a
  • 00:11:55
    waitress everybody in the room laughing
  • 00:11:58
    somebody else would have another story
  • 00:12:00
    school teacher making you know 10,000 a
  • 00:12:03
    month or a
  • 00:12:05
    waitress making you know 12,000 a
  • 00:12:09
    month you're supposed to exercise some
  • 00:12:12
    common sense and you know like say okay
  • 00:12:15
    well is it reasonable that they could
  • 00:12:17
    make XYZ a month but um a lot of
  • 00:12:22
    times we didn't do that you didn't do
  • 00:12:25
    that on the instruction of your
  • 00:12:27
    supervisor your lead right so the lead
  • 00:12:30
    would say what
  • 00:12:34
    um looks reasonable to
  • 00:12:36
    me the lead would say uh that waitress
  • 00:12:40
    making $112,000 a month looks reasonable
  • 00:12:42
    to me yeah you're kidding well depending
  • 00:12:45
    on the area you know if it's what area
  • 00:12:48
    does a waitress make 12,000 a month Las
  • 00:12:50
    Vegas you know if it's Vegas then you
  • 00:12:54
    know
  • 00:12:55
    possibly with tips and all that stuff or
  • 00:13:00
    I can't do the math but it sounds pretty
  • 00:13:02
    high right it it is
  • 00:13:05
    high you couldn't say the word fraud
  • 00:13:09
    because we couldn't prove that it was
  • 00:13:10
    fraud well if you saw something that was
  • 00:13:12
    a misrepresentation yes you were
  • 00:13:15
    expressly told don't write fraud or
  • 00:13:18
    mention use the word fraud all the time
  • 00:13:22
    even if we suspected we had to say this
  • 00:13:25
    appears to
  • 00:13:27
    be incorrect you would never say this
  • 00:13:31
    looks
  • 00:13:32
    fraudulent were you told to
  • 00:13:35
    ignore loans that you clearly knew um
  • 00:13:40
    contained
  • 00:13:43
    fraud
  • 00:13:46
    um well fraud in the due diligence world
  • 00:13:50
    world fraud was the fword or the f
  • 00:13:54
    bomb um you didn't use that word even if
  • 00:13:57
    a loan was clearly
  • 00:14:00
    you know stated income loan that made no
  • 00:14:02
    sense there was no support but you
  • 00:14:03
    didn't use the word fraud when but it
  • 00:14:06
    was
  • 00:14:07
    fraud uh you saw Lo by your terms and my
  • 00:14:10
    terms yes it was fraud by the due
  • 00:14:13
    diligence terms it was something
  • 00:14:17
    else and it wasn't just outside contract
  • 00:14:20
    Underwriters who were finding fraud
  • 00:14:23
    insiders at the big Banks were finding
  • 00:14:25
    problems my name is Richard Bowen I was
  • 00:14:29
    with City group and I was a senior vice
  • 00:14:32
    president and business Chief underwriter
  • 00:14:36
    in the commercial lending
  • 00:14:39
    group and the overall operations I had
  • 00:14:42
    purview over involved about 90 billion a
  • 00:14:45
    year of mortgages we were purchasing
  • 00:14:47
    from other mortgage companies and what
  • 00:14:49
    were you to do with those 90 billion
  • 00:14:52
    worth of mortgages I had responsibility
  • 00:14:56
    to make sure that those mortgages met
  • 00:14:58
    our credit policy guidelines so the bank
  • 00:15:02
    had agreed to buy these loans subject to
  • 00:15:06
    their meeting our credit policy but you
  • 00:15:08
    found out that the loans that you were
  • 00:15:11
    your team was looking at didn't meet the
  • 00:15:13
    credit policy we found that
  • 00:15:15
    approximately 60% of the loans did not
  • 00:15:18
    meet our policy 60% 60% yes 60% of the
  • 00:15:23
    loans didn't
  • 00:15:24
    meet our policy your policy yes and the
  • 00:15:27
    volumes increased
  • 00:15:30
    through
  • 00:15:31
    2007 and the rate of defective mortgages
  • 00:15:34
    increased from 60% to an access of
  • 00:15:38
    80% on November 3rd 2007 Bowen wrote an
  • 00:15:43
    email to four senior City Bank
  • 00:15:45
    Executives including board chairman and
  • 00:15:48
    former Secretary of the Treasury Robert
  • 00:15:50
    Rubin since mid2 2006 I have continually
  • 00:15:54
    identified breakdowns in internal
  • 00:15:56
    controls I must now communicate these
  • 00:16:00
    concerns I am deeply
  • 00:16:02
    distressed I actually included in that
  • 00:16:06
    email myself phone told them I was
  • 00:16:08
    available this weekend to please call me
  • 00:16:11
    and in that email I also requested an
  • 00:16:14
    outside investigation and in December I
  • 00:16:18
    sent another email and I said please
  • 00:16:21
    contact me you need to know the details
  • 00:16:25
    behind this there are risk to the
  • 00:16:27
    company
  • 00:16:29
    just a few months ago they were giants
  • 00:16:31
    but now they need restur there were
  • 00:16:33
    risks to the entire country is simply
  • 00:16:36
    too big by 2008 highly leveraged Banks
  • 00:16:39
    stuffed with bad loans began to
  • 00:16:44
    fail is gone what did you think when
  • 00:16:47
    Bear Sterns went
  • 00:16:48
    down I couldn't believe it like I
  • 00:16:51
    thought the whole banking system was
  • 00:16:52
    about to go
  • 00:16:54
    down old brothers filed for bankrupcy
  • 00:16:57
    billions drained from the economy
  • 00:16:59
    overnight the party was over and said
  • 00:17:03
    everything and a lot of
  • 00:17:06
    people was having a temper tantrum on
  • 00:17:09
    his show where he was going off about
  • 00:17:13
    you know why didn't I hear about this
  • 00:17:15
    why didn't somebody tell me about all
  • 00:17:17
    this that was going on this industry
  • 00:17:19
    deined 90% 90% And I almost threw my
  • 00:17:23
    shoe through the television set just
  • 00:17:25
    heard the words look stop the BS here if
  • 00:17:27
    I was screaming and yelling
  • 00:17:29
    I did try to let you
  • 00:17:32
    know cuz he had been one of the ones
  • 00:17:34
    that I'd sent emails and never received
  • 00:17:37
    any response millions of American
  • 00:17:38
    taxpayers are still wondering how did we
  • 00:17:41
    get ourselves into this economic mess
  • 00:17:43
    and is there someone truly
  • 00:17:52
    blame hello
  • 00:17:55
    everybody to help prosecute those who
  • 00:17:57
    were to blame President Obama signed a
  • 00:18:00
    new bill four months ago today we took
  • 00:18:03
    office amidst unprecedented economic
  • 00:18:06
    turmoil it was designed to amend
  • 00:18:08
    America's fraud statutes sign the fraud
  • 00:18:11
    enforcement Recovery Act to make
  • 00:18:12
    prosecution easier and also to increase
  • 00:18:15
    funding for the SEC the FBI and the
  • 00:18:18
    Department of Justice Senator Ted
  • 00:18:21
    Kaufman is a Democrat from Delware the
  • 00:18:23
    man who now holds the seat vacated by
  • 00:18:25
    Vice President Joe Biden Senator Senator
  • 00:18:27
    Ted Kaufman was a CO sponsor of the bill
  • 00:18:30
    he was an unusual Senator when this
  • 00:18:32
    particular term is up what are you going
  • 00:18:34
    to do oh I'm going to leave I I I would
  • 00:18:36
    I would never run for office appointed
  • 00:18:38
    to replace Senator Joe Biden he had
  • 00:18:40
    taken no campaign money and was beholden
  • 00:18:43
    to no lobbyists want to see people who
  • 00:18:46
    have committed such fraud and the Havoc
  • 00:18:48
    that's caused to this country frankly I
  • 00:18:51
    want to see them go to jail out who can
  • 00:18:53
    invest in early 2009 Kaufman joined his
  • 00:18:56
    colleagues on the Senate Judiciary
  • 00:18:57
    Committee to discuss bolstering the FBI
  • 00:19:00
    and Justice Department's Financial
  • 00:19:02
    crimes units uh I'm going to ask some
  • 00:19:04
    questions to each of you my feeling and
  • 00:19:07
    Senator Le's feeling is that you know if
  • 00:19:10
    you're going to stop crime the best way
  • 00:19:12
    is to punish crime and the best way to
  • 00:19:14
    do that is put people in jail Senator
  • 00:19:17
    cofman senators were surprised by how
  • 00:19:20
    unprepared the government was to
  • 00:19:22
    investigate Wall Street the deputy
  • 00:19:25
    director of the FBI gave incredible
  • 00:19:27
    testimony after 911 we moved almost
  • 00:19:29
    2,000 criminal investigative resources
  • 00:19:32
    over to National Security matters he
  • 00:19:33
    said what happened was the government
  • 00:19:35
    had transferred a great deal of the FBI
  • 00:19:38
    agents over to anti-terrorism but they
  • 00:19:40
    didn't replace them so we basically down
  • 00:19:42
    to 200 FBI agents have about 240 agents
  • 00:19:46
    and what he said was essentially during
  • 00:19:47
    the Savings and Loan crisis there were a
  • 00:19:50
    thousand FBI agents working on fraud
  • 00:19:53
    Charles K millionaire Banker after the
  • 00:19:55
    SNL crisis of the 80s the government
  • 00:19:58
    respond
  • 00:19:59
    forcefully back then Justice convicted
  • 00:20:02
    over 1,000 Bankers a third of them top
  • 00:20:05
    Executives was leted off in handcuffs
  • 00:20:08
    today you've introduced a bill that you
  • 00:20:11
    believe will in the wake of the
  • 00:20:13
    financial crisis of 2008 say more about
  • 00:20:16
    actually Kaufman wanted the government
  • 00:20:18
    to respond as it had in the past we
  • 00:20:20
    should find them and if they're guilty
  • 00:20:21
    of a crime they should go to jail why
  • 00:20:23
    should people hearing you have any
  • 00:20:24
    confidence that there will be serious
  • 00:20:27
    investigations and serious penalties to
  • 00:20:29
    some of the biggest and most powerful
  • 00:20:31
    people in Corporate America trust me
  • 00:20:33
    it's going to happen I talked to uh kman
  • 00:20:36
    became frontman for the new fraud
  • 00:20:38
    enforcement
  • 00:20:39
    Bill Head began giving speeches and
  • 00:20:42
    writing up EDS about how important it
  • 00:20:44
    was you know we came up with this sort
  • 00:20:47
    of slogan that you know when people rob
  • 00:20:49
    a bank they know they're going to go to
  • 00:20:50
    jail somebody Robs a store they get
  • 00:20:52
    caught they go to jail if somebody robs
  • 00:20:54
    hundreds of millions of dollars they
  • 00:20:55
    should go to jail when Bankers Rob
  • 00:20:57
    people they should know they're going to
  • 00:20:58
    go to jail commit a big crime go to jail
  • 00:21:01
    for Big Time these people should go to
  • 00:21:02
    jail lots of people on Wall Street said
  • 00:21:04
    what are you doing you're trying to
  • 00:21:05
    destroy the banks there's no crime up
  • 00:21:06
    here we didn't commit any crimes there's
  • 00:21:08
    no reason to come up here and start
  • 00:21:09
    talking about crimes plus we're very
  • 00:21:11
    very fragile and you know something
  • 00:21:13
    could happen if in fact you start
  • 00:21:14
    talking about crime which was just
  • 00:21:17
    totally
  • 00:21:18
    completely ridiculous you believe you're
  • 00:21:21
    being used as a state there was one case
  • 00:21:24
    already in the pipeline it had been
  • 00:21:26
    started under the Bush Administration
  • 00:21:28
    and involved two be Sterns hedge fund
  • 00:21:31
    managers charged with deceiving
  • 00:21:33
    investors it was seen as a test case aha
  • 00:21:37
    finally we're beginning to see the
  • 00:21:39
    criminal cases that will evidence a
  • 00:21:41
    determination by the justice department
  • 00:21:44
    to bring to Justice those individuals
  • 00:21:47
    who misled the public who misled
  • 00:21:48
    investors who knowing that an investment
  • 00:21:51
    was bad still said it's good at first
  • 00:21:55
    prosecutors were optimistic the need
  • 00:21:58
    reaction when this case was brought was
  • 00:22:01
    that since people were ins sensed about
  • 00:22:03
    what was happening with the economy
  • 00:22:05
    would be a simple type of prosecution I
  • 00:22:07
    think there was that General perception
  • 00:22:09
    and so they'd figure that they'd have an
  • 00:22:12
    easy conviction and you know I mean I
  • 00:22:14
    think they believed in what they're
  • 00:22:15
    doing I'm not going to say they were
  • 00:22:17
    malevolent uh but they were naive in
  • 00:22:19
    documents unsealed by the strongest Cas
  • 00:22:22
    the government says that the emails are
  • 00:22:24
    direct with no whistleblowers talking
  • 00:22:26
    prosecutors had to rely on the interpret
  • 00:22:28
    of a few emils us to M 18 Wall Street
  • 00:22:33
    defense attorneys went to work well it's
  • 00:22:36
    been a f moving trial and after a 3we
  • 00:22:38
    trial the government failed to convince
  • 00:22:40
    a jury that the hedge fund managers were
  • 00:22:42
    guilty involing those not guilty of
  • 00:22:45
    charges that they def were you surprised
  • 00:22:46
    by the outcome of the bear Stern hedge
  • 00:22:48
    fund manager's case I was a little
  • 00:22:51
    surprised but I wasn't shocked um these
  • 00:22:54
    are hard cases to win was the justice
  • 00:22:56
    department wrong to go after those two
  • 00:22:58
    guys no I thought that that was a
  • 00:23:01
    reasonable case uh for the government to
  • 00:23:03
    bring um now the fact it's a reasonable
  • 00:23:06
    case to bring doesn't mean you're always
  • 00:23:07
    going to win the quiddle in that case
  • 00:23:10
    left many of us feeling a little empty
  • 00:23:13
    got to put a big Ranch in the
  • 00:23:14
    government's prosecution scheme there
  • 00:23:16
    was a definite sense that Justice backed
  • 00:23:19
    off and that they became timorous when
  • 00:23:22
    it came to making the cases that would
  • 00:23:25
    really have gone to the heart of what
  • 00:23:27
    did happen
  • 00:23:29
    in the crisis of
  • 00:23:32
    o08 Senator Kaufman was worried he
  • 00:23:36
    wanted to make sure that Justice
  • 00:23:37
    wouldn't shy from the next opportunity
  • 00:23:40
    and that the money Congress had
  • 00:23:41
    appropriated would not go to
  • 00:23:44
    waste headed said to Chairman Ley I
  • 00:23:48
    would like to chair an oversight hearing
  • 00:23:51
    to ensure that these funds are being
  • 00:23:52
    spent effectively we met with Lanny
  • 00:23:54
    Brewer who was the head of the Criminal
  • 00:23:56
    Division we met with Rob kazami who was
  • 00:23:58
    head of uh enforcement for the SEC we
  • 00:24:01
    met with a senior Deputy in the FBI
  • 00:24:03
    Kevin
  • 00:24:05
    Perkins we sat down and we sort of got
  • 00:24:07
    down to business and Ted said chairman
  • 00:24:09
    Ley has asked me to hold an oversight
  • 00:24:11
    hearing that will provide me with a
  • 00:24:13
    public form to explore you know just
  • 00:24:16
    what you're doing on this front of
  • 00:24:18
    investigating Wall Street well that
  • 00:24:19
    certainly got their attention they
  • 00:24:21
    started telling me about uh about this
  • 00:24:23
    great thing they had out in California
  • 00:24:25
    this web to catch the mortgage brokers
  • 00:24:27
    who had giv out the loans and we made it
  • 00:24:30
    clear to them I made it clear to them
  • 00:24:31
    that absolutely positively I don't I'm
  • 00:24:33
    not this is not about La this is totally
  • 00:24:35
    about what went on on Wall Street that's
  • 00:24:37
    what the bill says and that's what the
  • 00:24:39
    emphasis is we said you know don't just
  • 00:24:40
    come back here a couple of years from
  • 00:24:42
    now and say you know look at all the
  • 00:24:44
    small fry we we nailed the wall you know
  • 00:24:47
    we're talking about also investigating
  • 00:24:50
    senior level people at Wall Street firms
  • 00:24:54
    even at the board level I think we might
  • 00:24:57
    have been a little bit concerned at this
  • 00:24:59
    meeting that um that the FBI wasn't
  • 00:25:02
    necessarily at that point this is now
  • 00:25:04
    fall of 2009 Aiming High
  • 00:25:08
    Enough shortly before the hearing the
  • 00:25:10
    justice department made an announcement
  • 00:25:13
    President Obama has established the
  • 00:25:15
    financial fraud enforcement task force
  • 00:25:17
    to investigate and to prosecute fraud
  • 00:25:20
    and financial crime this is the value of
  • 00:25:23
    oversight hearings a week before our
  • 00:25:24
    hearing they announced the fraud task
  • 00:25:26
    force and we will not hesitate to bring
  • 00:25:27
    charges where appropriate for criminal
  • 00:25:29
    misconduct somebody had to come to that
  • 00:25:31
    hearing and talk about what they were
  • 00:25:32
    doing and so that was the impetus I am
  • 00:25:34
    convinced of the day I die that the only
  • 00:25:36
    reason that fraud task force was
  • 00:25:37
    announced at that point was because
  • 00:25:39
    somebody had to go to the hearing Mr
  • 00:25:40
    Brewer last month we saw a jury acit the
  • 00:25:42
    two Bear Sterns hedge fund managers are
  • 00:25:44
    there lessons we can learn from that or
  • 00:25:46
    is that just a oneoff I'm a big believer
  • 00:25:48
    in the jury system and juries are going
  • 00:25:49
    to do what juries feel are right these
  • 00:25:51
    are tough cases but we're going to
  • 00:25:53
    continue to bring them it's not a
  • 00:25:55
    deterrence at all uh we're we're we're
  • 00:25:57
    marching
  • 00:25:58
    one of the things that oversight
  • 00:25:59
    hearings do is it holds folks feet to
  • 00:26:02
    the fire we wanted to get them to say
  • 00:26:04
    what they could in public that
  • 00:26:06
    paralleled what they had said to us in
  • 00:26:08
    private why don't why haven't we seen
  • 00:26:10
    more you know
  • 00:26:12
    boardroom uh prosecutions Senator these
  • 00:26:15
    are complicated cases don't for a moment
  • 00:26:17
    think that they're not being pursued and
  • 00:26:19
    investigated from Main Street to Wall
  • 00:26:21
    Street and Beyond we are focused on that
  • 00:26:24
    and we will bring the cases where we
  • 00:26:26
    where where where it's appropriate isn't
  • 00:26:27
    this a bit of the I mean they had the
  • 00:26:29
    questions in advance well I thought it
  • 00:26:31
    was fair theater because you know we
  • 00:26:34
    were asking tough questions if we come
  • 00:26:36
    back a year from now and we're having
  • 00:26:37
    this hearing how much progress do you
  • 00:26:39
    think we''ll made on uh I do think it
  • 00:26:42
    served a purpose I mean do I wish we had
  • 00:26:45
    been even more aggressive yes but we
  • 00:26:47
    were willing to give them the benefit of
  • 00:26:49
    the doubt and we felt like okay let's
  • 00:26:51
    sit back and let them do their
  • 00:26:55
    jobs going to go this door the left but
  • 00:26:58
    over for the next year it would be
  • 00:26:59
    others not the justice department who
  • 00:27:02
    put Bankers on the witness stand we are
  • 00:27:04
    audited and reviewed and subject and we
  • 00:27:07
    have due diligence practices was your
  • 00:27:09
    due diligence adequate beginning in
  • 00:27:11
    January
  • 00:27:12
    2010 a fact finding commission
  • 00:27:14
    established and funded by Kaufman's
  • 00:27:16
    fraud enforcement and Recovery Act held
  • 00:27:19
    a series of public hearings ingage
  • 00:27:21
    underwriting somehow we just missed uh
  • 00:27:25
    you know that home prices don't go up
  • 00:27:26
    forever we held 19 public hearings we
  • 00:27:29
    reviewed millions of pages of documents
  • 00:27:32
    uh corporate documents regulatory
  • 00:27:34
    documents most of which had never seen
  • 00:27:37
    the light of day Mr
  • 00:27:39
    Bowen thank you Mr chairman I witnessed
  • 00:27:42
    business risk practices which made a
  • 00:27:45
    mockery of City Credit policy if you
  • 00:27:48
    take a organization like City group for
  • 00:27:50
    example people involved in due diligence
  • 00:27:52
    Like Richard Bowen to substantial risk
  • 00:27:54
    of loss signaled up the line all the way
  • 00:27:58
    up to Robert Rubin that something was
  • 00:28:00
    wrong that they were finding that some
  • 00:28:02
    60% of mortgages that they were buying
  • 00:28:05
    weren't meeting their standards Mr Bowen
  • 00:28:08
    sent you an email in one exchange the
  • 00:28:11
    commission asked City bank's Robert
  • 00:28:12
    Rubin to respond to Bowen's email did
  • 00:28:15
    you ever act on that um Mr chairman I I
  • 00:28:18
    I do recollect this and that either I or
  • 00:28:21
    somebody else I truly do not remember
  • 00:28:23
    who but either I or somebody else sent
  • 00:28:24
    it to the appropriate people Ruben told
  • 00:28:26
    Angeles that actions were taken to
  • 00:28:28
    improve the bank's due diligence
  • 00:28:31
    operations but his Recollections were
  • 00:28:33
    vague I certainly don't remember today
  • 00:28:36
    whether I knew at the time or not I I
  • 00:28:37
    truly do know if the excuse at the top
  • 00:28:40
    was we didn't know that's a pretty poor
  • 00:28:43
    excuse from people who were hauling down
  • 00:28:44
    10 20 30 or in Robert rubin's case $15
  • 00:28:50
    million Bowen was demoted and eventually
  • 00:28:53
    left the bank but later City Group
  • 00:28:56
    admitted wrongdoing and civil fraud suit
  • 00:28:59
    for failing to perform basic due
  • 00:29:01
    diligence between 2004 and
  • 00:29:05
    2010 another focus of the commission was
  • 00:29:08
    the work of a due diligence company
  • 00:29:10
    named Clayton Holdings you know one
  • 00:29:12
    piece of information that we released
  • 00:29:15
    were documents from Clayton Holdings uh
  • 00:29:18
    who performed due diligence for two
  • 00:29:21
    dozen Banks uh who were buying mortgages
  • 00:29:24
    from the Countrywide the Ameriquest the
  • 00:29:27
    new centuries packaging those loans up
  • 00:29:29
    and selling them to
  • 00:29:31
    investors I mean if you look at those
  • 00:29:33
    documents what they show is in each of
  • 00:29:36
    these Banks Clayton Holdings was finding
  • 00:29:38
    that a substantial portion of the loans
  • 00:29:41
    did not meet the standards of the bank
  • 00:29:43
    buying those loans and bank after Bank
  • 00:29:46
    after bank they took those loans they
  • 00:29:49
    knew they were defective and not
  • 00:29:52
    withstanding that they never told the
  • 00:29:54
    investors in fact they told investors
  • 00:29:56
    quite the opposite
  • 00:29:58
    so you look at that pattern of behavior
  • 00:30:00
    and I think it raises very serious
  • 00:30:02
    questions about whether this is Criminal
  • 00:30:06
    conduct this was among several referrals
  • 00:30:09
    the commission made to the justice
  • 00:30:11
    department for further investigation
  • 00:30:13
    okay we asked chief of the Criminal
  • 00:30:15
    Division Lenny Brewer why such referrals
  • 00:30:18
    hadn't led to charges I can't really
  • 00:30:20
    talk about any specific case but Phil
  • 00:30:22
    Angeles and I have had very direct and
  • 00:30:25
    very good
  • 00:30:26
    conversations but in real ity in a
  • 00:30:28
    criminal case we have to prove Beyond A
  • 00:30:31
    Reasonable Doubt not a preponderance not
  • 00:30:34
    51% Beyond any reasonable doubt that a
  • 00:30:37
    crime was committed if we cannot
  • 00:30:39
    establish that then we can't bring a
  • 00:30:41
    criminal case but we don't let these
  • 00:30:42
    institutions go we've brought civil
  • 00:30:45
    cases we've brought regulatory cases and
  • 00:30:48
    the entire approach here is to have a
  • 00:30:50
    multi-prong comprehensive approach to
  • 00:30:53
    what gave rise to the financial crisis
  • 00:30:58
    to go to jail in April
  • 00:31:00
    2010 Goldman Sachs CEO Lloyd blank fine
  • 00:31:04
    was summoned to the hill by Senator Carl
  • 00:31:06
    Levan Martha Stewart can go to
  • 00:31:09
    jail this would be the biggest showdown
  • 00:31:11
    between Congress and a major Wall Street
  • 00:31:15
    Banker blank fine was
  • 00:31:18
    Unapologetic clients know our activities
  • 00:31:20
    and they understand what Market making
  • 00:31:22
    is do you think they know that you think
  • 00:31:24
    something is a piece of crap when you
  • 00:31:26
    sell it to them and then bet against it
  • 00:31:28
    you think they know that nature of the
  • 00:31:29
    principal business and Market making
  • 00:31:31
    Lloyd blankin argued was perfectly okay
  • 00:31:34
    at the same time we were selling
  • 00:31:35
    securities to you we were betting on the
  • 00:31:37
    fact these Securities were going to go
  • 00:31:38
    down but that's okay because we're a
  • 00:31:39
    market maker and we're allowed to do
  • 00:31:41
    that that sounds like a fraud to me in
  • 00:31:43
    the first half of
  • 00:31:45
    2007 Goldman Sachs told long position
  • 00:31:48
    cdos to its clients right we sold uh we
  • 00:31:51
    reduced our risk so you were selling
  • 00:31:53
    cdos at the same time you were taking
  • 00:31:55
    short positions on the same cdos the
  • 00:31:58
    best way of reducing your risk is to
  • 00:32:01
    sell what you
  • 00:32:04
    have I believe in a free market if it's
  • 00:32:08
    going to be truly free it cannot be
  • 00:32:11
    designed for just a few people it must
  • 00:32:13
    be free of deception it's got to be free
  • 00:32:16
    of conflicts of interest it needs a cop
  • 00:32:18
    on the beat and it's got to get back on
  • 00:32:20
    Wall
  • 00:32:21
    Street We Stand
  • 00:32:25
    adjourned Senator Levan referred his
  • 00:32:27
    committee's findings to justice but
  • 00:32:30
    again the department declined to bring
  • 00:32:32
    any criminal charges no one going to
  • 00:32:35
    jail no individuals being held
  • 00:32:37
    accountable for anything other than
  • 00:32:38
    relatively poultry fines the justice
  • 00:32:40
    department says these are very difficult
  • 00:32:42
    cases to bring showing intent and
  • 00:32:44
    proving every step of the crime Beyond A
  • 00:32:47
    Reasonable Doubt is a difficult thing to
  • 00:32:48
    do I think that is without a doubt a
  • 00:32:50
    factor in the difficulty of proving
  • 00:32:53
    intent but I'm sorry I just don't
  • 00:32:55
    believe there was enough effort
  • 00:32:59
    just doesn't make common sense so you're
  • 00:33:00
    telling me that not one
  • 00:33:03
    Banker not one executive on Wall Street
  • 00:33:06
    not one player in this entire financial
  • 00:33:11
    crisis committed provable fraud I mean I
  • 00:33:15
    just don't believe
  • 00:33:19
    that Kaufman and conon were running out
  • 00:33:22
    of
  • 00:33:23
    patience I've talked to Senator Kaufman
  • 00:33:25
    I've talked to Senator Grassley I've
  • 00:33:27
    talked to staff I've talked to a number
  • 00:33:28
    of people they told us that they felt
  • 00:33:31
    that you didn't make this a top priority
  • 00:33:35
    well I'm sorry if they think that
  • 00:33:37
    because I made it an incredibly top
  • 00:33:39
    priority but when we can't bring a case
  • 00:33:41
    we have a we have an ethical obligation
  • 00:33:43
    not to bring those cases but it's not
  • 00:33:46
    for lack of trying our lawyers are
  • 00:33:49
    working incredibly hard and it's a
  • 00:33:51
    disservice for anyone to suggest
  • 00:33:54
    otherwise in all of this was there a
  • 00:33:57
    case that you you thought could have
  • 00:33:58
    gone forward as a criminal prosecution
  • 00:34:00
    that
  • 00:34:01
    didn't you know there were a lot of
  • 00:34:03
    discussions along those lines um and I I
  • 00:34:06
    talked to Lanny when I was in the
  • 00:34:08
    Criminal Division daily did you argue
  • 00:34:10
    with him yes and we would argue this
  • 00:34:14
    back and forth and then we but when we
  • 00:34:16
    finally came to a
  • 00:34:19
    decision sometimes I would be frustrated
  • 00:34:22
    sometimes I would be disappointed you
  • 00:34:23
    always accepted the decision but I
  • 00:34:25
    accepted it as a professional as a
  • 00:34:27
    professional did you accept it as a
  • 00:34:29
    citizen well that's I mean that's that's
  • 00:34:31
    a bit different because as a citizen I
  • 00:34:34
    would hope that something would happen
  • 00:34:35
    to them somehow some
  • 00:34:37
    way Frontline spoke to two former
  • 00:34:40
    highlevel justice department prosecutors
  • 00:34:42
    who served in the Criminal Division
  • 00:34:44
    under Lanny
  • 00:34:46
    Brewer in their opinion Brewer was
  • 00:34:49
    overly fearful of
  • 00:34:51
    losing we spoke to a couple of sources
  • 00:34:54
    from within the Criminal Division and
  • 00:34:57
    they reported that when it came to Wall
  • 00:34:59
    Street there were no investigations
  • 00:35:01
    going on there were no subpoenas no
  • 00:35:03
    document reviews no wir Taps well I
  • 00:35:06
    don't know who you spoke with because we
  • 00:35:08
    have looked hard at the very types of
  • 00:35:11
    matters that you're talking about these
  • 00:35:12
    sources said that at the weekly
  • 00:35:14
    indictment approval meetings that there
  • 00:35:17
    was no case ever mentioned that was even
  • 00:35:19
    close to indicting Wall Street for
  • 00:35:24
    financial crimes well Martin if you look
  • 00:35:26
    at what we in the US attorney community
  • 00:35:28
    did I think you have to take a step back
  • 00:35:31
    over the last couple of years we have
  • 00:35:34
    convicted Raj Raj chatam now you'll say
  • 00:35:36
    that's an insider trading case but it's
  • 00:35:39
    clearly going after Wall Street but it
  • 00:35:41
    has nothing to do with the financial
  • 00:35:42
    crisis the Meltdown the packaging of Bad
  • 00:35:45
    Mortgages that led to the collapse that
  • 00:35:46
    led to the recession well first of all I
  • 00:35:48
    think that the financial crisis Martin
  • 00:35:51
    is multifaceted and what we've had is a
  • 00:35:53
    multi-pronged multifaceted response and
  • 00:35:56
    it's simply a fiction to say that where
  • 00:35:58
    crimes were committed we didn't pursue
  • 00:36:00
    the cases and that's why where crimes
  • 00:36:03
    were committed you have more people in
  • 00:36:05
    jail today for Securities fraud bank
  • 00:36:08
    fraud and the like than ever before but
  • 00:36:10
    no Wall Street Executives no Wall Street
  • 00:36:16
    Executives by September 2010 Senator
  • 00:36:20
    Kaufman's term was nearing its
  • 00:36:22
    end before leaving he held a second
  • 00:36:25
    oversight hearing Criminal on Wall
  • 00:36:28
    Street must be held to account head
  • 00:36:30
    decided he wanted to have a second
  • 00:36:31
    hearing before he left office so that he
  • 00:36:34
    could question Brewer Perkins and kazami
  • 00:36:37
    we're now nearing the final quarter of
  • 00:36:39
    2010 without the sort of prosecutions
  • 00:36:41
    that I had fully expected we would hope
  • 00:36:42
    to see by this time what was the
  • 00:36:44
    thinking I mean if you can recount any
  • 00:36:46
    conversations that you had with uh
  • 00:36:48
    Senator Kaufman about you know let's
  • 00:36:50
    pull these guys back into the room from
  • 00:36:52
    our perspective it was a big mystery you
  • 00:36:54
    know we really believed that there was
  • 00:36:56
    sufficient evidence of fraud that there
  • 00:36:58
    should have been some cases if uh heads
  • 00:37:01
    don't roll nobody U makes any changes
  • 00:37:04
    I'm disappointed that in all of the
  • 00:37:06
    wrongdoing that went on and all the
  • 00:37:08
    fraud that went on that there wasn't an
  • 00:37:10
    effort to go after bigger fish than the
  • 00:37:15
    evidence shows they went after I think
  • 00:37:17
    many times you have very sophisticated
  • 00:37:18
    parties on both sides of the Mr Brewer
  • 00:37:21
    basically kept his testimony at the
  • 00:37:22
    level of generalities you know where the
  • 00:37:25
    right balance is I think is and I was
  • 00:37:27
    sitting there there behind the senator
  • 00:37:28
    thinking you're dancing around the
  • 00:37:30
    central question did the department
  • 00:37:33
    undertake a purposeful concerted timely
  • 00:37:38
    investigation of higher level Wall
  • 00:37:40
    Street Executives for very complicated
  • 00:37:43
    cases there lots of different issues and
  • 00:37:45
    at that point I just began to feel like
  • 00:37:48
    okay I I feel like I'm being gamed here
  • 00:37:50
    they take time they take the review Not
  • 00:37:53
    only was no one going to be held to
  • 00:37:55
    account for the financial crisis
  • 00:37:58
    but and I don't say this lightly no one
  • 00:38:02
    was being held to account for the
  • 00:38:04
    failure to hold Wall Street to
  • 00:38:06
    account I really think this was a stain
  • 00:38:10
    on the American justice
  • 00:38:12
    system and I did not want to be an
  • 00:38:16
    accomplice to
  • 00:38:19
    that so I packed my bags sold my house
  • 00:38:22
    and left town the day Ted Kaufman's term
  • 00:38:24
    was over
  • 00:38:27
    I literally was driving down
  • 00:38:31
    I95 the day he left
  • 00:38:34
    office reported a 47% increase in income
  • 00:38:38
    for the fourth quarter and Bank of
  • 00:38:39
    America said
  • 00:38:47
    [Music]
  • 00:38:50
    they meanwhile a freelance journalist
  • 00:38:52
    and blogger named Terry bule was sipping
  • 00:38:55
    cocktails in Connecticut I was actually
  • 00:38:57
    at a fundraiser in Greenwich and I met a
  • 00:39:00
    man running for congress and he told me
  • 00:39:03
    about a documentary filmmaker Nick
  • 00:39:05
    verbitsky who had been collecting a lot
  • 00:39:07
    of interviews from be Stern's employees
  • 00:39:10
    so I go out and I find a borrower and I
  • 00:39:12
    lend this borrower $100,000 I actually
  • 00:39:15
    had a friend who who put me in touch
  • 00:39:17
    with a couple of people who ended up in
  • 00:39:18
    the film um people that worked at EMC
  • 00:39:21
    mortgage which was Bear's mortgage
  • 00:39:23
    conduit I was really the factory floor
  • 00:39:26
    million of their entire mortgage
  • 00:39:28
    operation problem with due diligence is
  • 00:39:29
    it's very costly we went through about
  • 00:39:32
    three to four hours of multiple
  • 00:39:34
    whistleblower tape detailing a massive
  • 00:39:38
    fraud at the highest level inside of be
  • 00:39:40
    Sterns against its own clients bu wrote
  • 00:39:44
    a story for the Atlantic monthly's
  • 00:39:45
    website featuring two be Sterns insiders
  • 00:39:48
    verbitsky had interviewed in the first
  • 00:39:51
    call I got after that story came out was
  • 00:39:53
    from a few lawyers who wanted to meet
  • 00:39:55
    our whistleblowers
  • 00:39:57
    and they were representing a group of
  • 00:40:00
    mortgage insurers called monolines what
  • 00:40:02
    did they tell you they told us that they
  • 00:40:05
    were working on a massive fraud suit
  • 00:40:06
    against Bear Sterns and that it's
  • 00:40:09
    critical that our whistleblowers help
  • 00:40:12
    build their case the lawyers worked at
  • 00:40:15
    the New York firm Patterson bellnap web
  • 00:40:17
    and Tyler they were suing Bear Sterns
  • 00:40:20
    and its successor JP Morgan Chase on
  • 00:40:23
    behalf of companies that had ensured the
  • 00:40:25
    quality of the loans bear was selling
  • 00:40:28
    in January of 2011 they filed a 161 page
  • 00:40:33
    complaint and within 160 pages that
  • 00:40:36
    document essentially summed up what
  • 00:40:40
    looks to be the core of the credit
  • 00:40:42
    crisis Mark Palmer has poured through
  • 00:40:45
    the be Sterns lawsuit and a dozen other
  • 00:40:47
    private Suits now pending against other
  • 00:40:49
    Wall Street banks for fraudulently
  • 00:40:52
    misrepresenting the mortgages they
  • 00:40:54
    packaged and sold you say this is the
  • 00:40:56
    core of the credit crisis I believe so
  • 00:40:58
    based on what we've seen thus far uh
  • 00:41:01
    frankly I think there are some pretty
  • 00:41:03
    decent evidence that uh the mortgage
  • 00:41:06
    securitization industry was rot to the
  • 00:41:09
    core do you think the government should
  • 00:41:11
    have brought criminal cases against
  • 00:41:13
    these
  • 00:41:14
    players I would find it difficult to
  • 00:41:16
    believe that there wasn't sufficient
  • 00:41:19
    evidence to at least Indi many of the
  • 00:41:22
    players involved
  • 00:41:24
    here in building their cases a Attorneys
  • 00:41:27
    at Patterson bmap spoke to over 35
  • 00:41:30
    whistleblowers many of them due
  • 00:41:32
    diligence supervisors and
  • 00:41:35
    Underwriters among them Tom Leonard it
  • 00:41:38
    was Patterson bellnap mhm that first got
  • 00:41:41
    in touch with you about this
  • 00:41:43
    yes Leonard told the lawyers how due
  • 00:41:46
    diligence was
  • 00:41:48
    compromised and you told the truth to
  • 00:41:50
    them about what you had seen yes sir and
  • 00:41:52
    you were a supervisor yes and you saw
  • 00:41:54
    what your your Underwriters were doing
  • 00:41:57
    yes yes and you saw the instructions yes
  • 00:41:59
    coming down from the banks yes what was
  • 00:42:02
    the highest defect rate you ever saw on
  • 00:42:04
    a job oh gosh we had a job that was like
  • 00:42:07
    50% but then the word came down
  • 00:42:10
    everything got renegotiated and redone
  • 00:42:14
    in other words you would come into a job
  • 00:42:16
    you'd find 50% of the loans were
  • 00:42:18
    defective but then then the standards
  • 00:42:20
    would be loosened so that you could
  • 00:42:22
    qualify those loans right um and mark
  • 00:42:26
    them as not affected
  • 00:42:29
    right isn't that fraudulent yes is this
  • 00:42:33
    something you think is important for the
  • 00:42:35
    government now to be prosecuting the
  • 00:42:37
    kind of fraud that you saw yeah I mean
  • 00:42:40
    it's if if it's still within the statut
  • 00:42:43
    limitations the Department of Justice
  • 00:42:45
    says that it's very hard to prosecute
  • 00:42:48
    these kinds of crimes because you have
  • 00:42:49
    to prove Criminal
  • 00:42:52
    Intent yes sir how do you respond to
  • 00:42:54
    that I think if I was sitting on the
  • 00:42:57
    jury and I saw this information that I
  • 00:42:59
    could pretty well assure myself that
  • 00:43:01
    there had been Criminal Intent were you
  • 00:43:04
    ever contacted by anybody in law
  • 00:43:05
    enforcement or the justice department um
  • 00:43:08
    not until just
  • 00:43:11
    recently we are going to step up on the
  • 00:43:14
    principle of one set of rules for
  • 00:43:15
    everyone Equal justice under law finally
  • 00:43:17
    in late 2012 the state of New York sued
  • 00:43:21
    a Wall Street Bank for fraudulently
  • 00:43:23
    misrepresenting the mortgages they
  • 00:43:25
    packaged and sold very simply were
  • 00:43:27
    investigating the misconduct of folks
  • 00:43:29
    who caused the bubble the man who
  • 00:43:31
    brought the suit was New York Attorney
  • 00:43:33
    General Eric Schneiderman co-chair of a
  • 00:43:36
    new state federal working group that
  • 00:43:38
    included the Department of Justice the
  • 00:43:40
    SEC and
  • 00:43:42
    others Securities fraud against JP
  • 00:43:45
    Morgan Chase as successors to Bear
  • 00:43:47
    sternen company and EMC mortgage
  • 00:43:49
    Corporation although the case centered
  • 00:43:51
    on Bankers fraudulent and deceptive
  • 00:43:54
    practices no individuals were named the
  • 00:43:57
    suit was a civil not criminal case
  • 00:44:01
    you've alleged in the case of be Sterns
  • 00:44:03
    uh that they passed these things
  • 00:44:05
    unknowingly intentionally knowing they
  • 00:44:07
    were bad yes we think the facts as
  • 00:44:10
    alleged in our complaints make it very
  • 00:44:13
    hard to conclude that by 2006 and 2007
  • 00:44:17
    the folks at these Banks did not know
  • 00:44:19
    what was going on and that they were
  • 00:44:21
    putting more and more bad loans into
  • 00:44:22
    these Securities I guess I still don't
  • 00:44:24
    understand if this was so clear and so
  • 00:44:26
    int ention and so many commissions and
  • 00:44:28
    hearings brought this forward why is
  • 00:44:31
    this taking so long uh you know it's
  • 00:44:34
    it's hard for me to address the
  • 00:44:35
    specifics of what happened before I got
  • 00:44:37
    here believe me we've moved as fast as
  • 00:44:40
    we could uh you have to ask others about
  • 00:44:43
    what happened before then what gave you
  • 00:44:45
    the confidence that you would have
  • 00:44:46
    results given that the government had
  • 00:44:48
    gone for 3 years with really very little
  • 00:44:51
    to show we were able to do some work uh
  • 00:44:56
    more quickly by subpoena the records of
  • 00:44:59
    private parties that had brought actions
  • 00:45:01
    you were drawn to the um work of a
  • 00:45:04
    private Law Firm Patterson bellnap oh
  • 00:45:07
    Eric hos and his team of Attorneys at
  • 00:45:10
    Patterson
  • 00:45:12
    bellnap well
  • 00:45:14
    we had when we started our investigation
  • 00:45:18
    we took a look at uh what what other
  • 00:45:21
    complaints had been filed and there were
  • 00:45:23
    a whole series of private complaints
  • 00:45:25
    that had been brought and and uh
  • 00:45:27
    Patterson bnpp had brought a couple of
  • 00:45:29
    those cases the complaint that was filed
  • 00:45:32
    by New York attorney general
  • 00:45:33
    Schneiderman was based largely on work
  • 00:45:36
    done by private law firms work that goes
  • 00:45:39
    back several years what does that tell
  • 00:45:41
    us about the work that the justice
  • 00:45:43
    department was doing all this time I do
  • 00:45:45
    I think it's unusual for but but not
  • 00:45:47
    unprecedented for the justice department
  • 00:45:49
    to sort of follow on to the work of
  • 00:45:52
    private litigants but it does raise the
  • 00:45:55
    question you know why didn't the
  • 00:45:57
    government develop it
  • 00:45:58
    first that's a real question it is given
  • 00:46:02
    all the pushing that you were doing
  • 00:46:04
    Senator Kaufman was
  • 00:46:06
    doing I think yeah I think it's an
  • 00:46:08
    absolutely fair question to ask attorney
  • 00:46:11
    David boy whose firm has represented
  • 00:46:13
    both Banks and plaintiff's suing
  • 00:46:16
    financial institutions has also reviewed
  • 00:46:18
    Schneiderman's complaint Schneiderman is
  • 00:46:21
    bringing a civil case alleging fraud yes
  • 00:46:26
    could wouldn't it be filed as a criminal
  • 00:46:29
    case I think that if you took every
  • 00:46:31
    allegation that's made in uh
  • 00:46:34
    Schneiderman's complaint and you
  • 00:46:36
    accepted that as true and believe that
  • 00:46:38
    you could prove that Beyond A Reasonable
  • 00:46:40
    Doubt um that could have been filed as a
  • 00:46:42
    criminal case was like $2.6 billion in
  • 00:46:46
    one month filmmaker Nick fiszki was
  • 00:46:49
    finally contacted by the justice
  • 00:46:50
    department this past August about the
  • 00:46:52
    whistleblowers he found for his film
  • 00:46:54
    about Bear Sterns it had been more than
  • 00:46:57
    a year since those lawyers at Patterson
  • 00:46:59
    bellnap first called him I think you
  • 00:47:02
    know the the ease with which I found
  • 00:47:04
    these people and the things that they
  • 00:47:05
    were telling me uh you know it it
  • 00:47:07
    wouldn't have taken a lot of effort on
  • 00:47:09
    the part of a regulatory entity in
  • 00:47:11
    Washington to have done this I'm an
  • 00:47:13
    independent filmmaker you know I'm not a
  • 00:47:16
    financial regulator I'm not somebody
  • 00:47:17
    who's running the SEC it's like you know
  • 00:47:19
    what have you guys been doing what have
  • 00:47:21
    you been looking at I mean I went out
  • 00:47:23
    and found these people myself in you
  • 00:47:24
    know in my spare time basically um you
  • 00:47:27
    know and and it it was work but it
  • 00:47:29
    wasn't that hard we have been able to
  • 00:47:31
    contact a number of people who were uh
  • 00:47:34
    inside the banks doing due diligence
  • 00:47:37
    work as
  • 00:47:38
    contractors who all told us that they
  • 00:47:41
    were never contacted by the justice
  • 00:47:43
    department well look I I can't talk in
  • 00:47:46
    general about the nondescript Anonymous
  • 00:47:49
    whistleblowers but here's what I can
  • 00:47:51
    tell you whenever I personally have been
  • 00:47:53
    in any public setting I've invited
  • 00:47:56
    whistleblowers to to come forward but it
  • 00:47:57
    shouldn't be so easy for
  • 00:47:59
    journalists uh to go out and find
  • 00:48:01
    whistleblowers that at this point four
  • 00:48:03
    years after the the Meltdown that
  • 00:48:06
    haven't been contacted by Justice Mar I
  • 00:48:08
    don't accept for one moment that you all
  • 00:48:10
    are finding whistleblowers that we're
  • 00:48:12
    not what I do what let me continue what
  • 00:48:15
    I do believe is that when we speak to
  • 00:48:17
    the whistleblowers we have to make a
  • 00:48:19
    determination whether what they say is
  • 00:48:21
    really a criminal case we've talked to
  • 00:48:23
    whistleblowers we've talked to people
  • 00:48:25
    inside the banks who told me yes there
  • 00:48:28
    was fraud that went
  • 00:48:30
    on and we've talked to hundreds and
  • 00:48:32
    hundreds and hundreds of people in these
  • 00:48:34
    investigations and you're saying in not
  • 00:48:37
    one of those cases having interviewed
  • 00:48:40
    hundreds of people and looked at these
  • 00:48:41
    things you can't find one person in this
  • 00:48:43
    whole mess that you can establish Beyond
  • 00:48:47
    a reasonable doubt that was selling
  • 00:48:48
    these things knowingly intentionally and
  • 00:48:51
    defrauded the investors we were not able
  • 00:48:54
    to to reach a level
  • 00:48:57
    of um that would
  • 00:48:59
    sustain Beyond a reasonable doubt we
  • 00:49:02
    were not able to show Criminal Intent
  • 00:49:05
    sufficiently enough to obtain what we
  • 00:49:07
    believe to obtain a conviction do you
  • 00:49:09
    think the banks did all this
  • 00:49:11
    unintentionally no I personally don't
  • 00:49:14
    but in the end sure I was frustrated
  • 00:49:17
    Lanny was frustrated Lanny was
  • 00:49:20
    disappointed I'm sure he was and so was
  • 00:49:22
    I but we knew professionally this was
  • 00:49:24
    the decision that needed to be made
  • 00:49:27
    the jobs of tens of thousands of
  • 00:49:29
    employees can literally be at stake in
  • 00:49:32
    September
  • 00:49:33
    2012 Lanny Brewer gave a speech
  • 00:49:36
    explaining his reluctance to indict a
  • 00:49:38
    major Bank those are the kinds of
  • 00:49:39
    considerations in White Collar cases
  • 00:49:42
    that literally keep me up at night you
  • 00:49:45
    gave a speech before the New York Bar
  • 00:49:47
    Association and in that speech you made
  • 00:49:49
    a reference to losing sleep at night
  • 00:49:51
    worrying about what a lawsuit might um
  • 00:49:55
    result in uh at a large financial
  • 00:49:58
    institution is that really the job of a
  • 00:50:02
    prosecutor to worry uh about anything
  • 00:50:05
    other than simply pursuing Justice well
  • 00:50:08
    I think I am pursuing Justice and I
  • 00:50:10
    think the the entire responsibility of
  • 00:50:12
    the department is to pursue justice but
  • 00:50:14
    in any given case I think I and
  • 00:50:17
    prosecutors around the country being
  • 00:50:19
    responsible should speak to Regulators
  • 00:50:22
    should speak to experts because if I
  • 00:50:24
    bring a case against Institution
  • 00:50:27
    and as a result of bringing that case
  • 00:50:30
    there's some huge economic effect If it
  • 00:50:32
    creates a ripple effect so that suddenly
  • 00:50:35
    counterparties and other financial
  • 00:50:38
    institutions or other companies that had
  • 00:50:40
    nothing to do with this or affected
  • 00:50:42
    badly it's a factor we need to know and
  • 00:50:45
    understand that was very disturbing to
  • 00:50:47
    me very disturbing that was never raised
  • 00:50:49
    at any time during any of our
  • 00:50:51
    discussions that is not the job of a
  • 00:50:52
    prosecutor to worry about the health of
  • 00:50:54
    the banks in my opinion job of
  • 00:50:56
    prosecutors to prosecute criminal
  • 00:50:58
    Behavior it's not to lie awake at night
  • 00:51:00
    and kind of decide the future of the
  • 00:51:02
    banks so is Wall Street breathing a sigh
  • 00:51:05
    of
  • 00:51:06
    relief um I don't think people are
  • 00:51:08
    breathing a sigh of relief given the the
  • 00:51:11
    level of other litigation that's out
  • 00:51:14
    there however I think they're probably a
  • 00:51:17
    lot of
  • 00:51:18
    individuals uh who have breathed size of
  • 00:51:21
    relief over the last 2 or three
  • 00:51:25
    years so far in civil proceedings the
  • 00:51:29
    government has levied several billion
  • 00:51:30
    dollars in penalties for misconduct in a
  • 00:51:34
    crisis that's cost investors and
  • 00:51:35
    homeowners many hundreds of billions of
  • 00:51:40
    dollars but to date not one senior Wall
  • 00:51:43
    Street executive has been held
  • 00:51:45
    criminally liable by the Department of
  • 00:51:47
    Justice for activities related to the
  • 00:51:49
    financial crisis
  • 00:51:58
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ๆ ‡็ญพ
  • financial crisis
  • Wall Street
  • Justice Department
  • prosecution
  • mortgage fraud
  • Lanny Breuer
  • Richard Bowen
  • Senator Kaufman
  • Bear Sterns
  • Citigroup