To my loyal readers. I have been on leave from letterofapology.com for the past few weeks while guest blogging on Professor Podgor’s White Collar Crime Prof Blog. See my posts there today on the Supreme Court’s honest services fraud trilogy.
Have things really changed at the SEC? Michael Barbaro reports here, in today’s NYTimes, that the SEC and mega-wealthy financier Steven L. Rattner are at loggerheads over whether Rattner should be barred from working in the securities industry for up to three years. This obviously means that civil settlement talks between Rattner and the SEC have been in the works for some time. Rattner is said to have ”fiercely resisted” the proposed bar.
According to Barbaro, the SEC and New York AG Andrew Cuomo ”have suggested that Mr. Rattner improperly paid off a political operative to win lucrative business from the New York state pension fund — in one case, by arranging to help distribute a low-budget film for the brother of a pension fund official.” Rattner’s former company, Quadrangle Group, settled with the SEC in April, characterizing Rattner’s conduct as “inappropriate, wrong, and unethical.”
I posted on that settlement here, noting that:
“Rattner is under investigation by the SEC and the New York Attorney General’s Office as part of the New York State Common Retirement Fund ‘pay to play’ scandal, in which certain money-management firms allegedly paid kickbacks to middlemen in order to gain Retirement Fund business.”
According to the SEC’s press release at the time of the Quadrangle Group settlement:
“The SEC alleges that Quadrangle Group LLC and Quadrangle GP Investors II, L.P. secured a $100 million investment from the New York State Common Retirement Fund. The investment came only after a then-executive at Quadrangle arranged for an affiliate to distribute the DVD of a low-budget film that former New York State Deputy Comptroller David Loglisci and his brothers had produced.
The SEC further alleges that the Quadrangle executive also agreed to pay more than $1 million in purported ‘finder’ fees to Henry Morris, the top political advisor and chief fundraiser for former New York State Comptroller Alan Hevesi. The SEC previously charged Morris and Loglisci for orchestrating the fraudulent scheme that extracted kickbacks from investment management firms seeking to manage the assets of the Retirement Fund.”
If SEC enforcement types really believe all of this stuff, but decide to cave in on a three-year bar for Rattner, then they have no guts and nothing has changed. And if they don’t believe all of this stuff, then they have no business smearing Rattner in press releases.
Rattner has an impressive resume–onetime NYTimes reporter, monster Democratic fund-raiser, former Obama Administration car czar, Michael Bloomberg intimate, Manhattan socialite, and all-around beautiful person. By most accounts he is a nice guy and a super-competent Wall Street money man. Does the SEC have what it takes to go after him?
By the way, the conduct that Rattner is alleged to have engaged in would typically generate a DOJ investigation in virtually any federal district in which it occurred. But that apparently did not happen here. And I had not realized, until reading it in Barbaro’s story, that Cuomo has granted immunity to Rattner, which ”has complicated Mr. Cuomo’s case against Mr. Rattner.” You don’t say!
This brings up some interesting questions. Is there a federal criminal investigation of Rattner? If not, why not? (It may just be that Cuomo got his hands first on the the NY State Pension “pay to play” probe.) If Rattner has an immunity deal with Cuomo, how broad is it and how will it effect any current or future federal investigation, assuming that such an investigation would survive DOJ’s Petite Policy? Why was Rattner given immunity? Did Cuomo really need his testimony that badly?
Look, I don’t wish an SEC or FBI investigation on anybody. But the conduct Rattner allegedly engaged in is garden variety fodder for the feds. If you or I or anybody else engaged in such conduct, a file would be opened at a minimum. Prosecutorial discretion is one thing. Favoritism is another. The rich, famous, and politically connected should not be singled out for special abuse or special favors.
But I digress. Let’s get back to the SEC. We are just talking about a civil settlement here. If the SEC really believes its press releases, this one should be a no-brainer.
Attorney General Eric Holder issued a Department Policy on Charging and Sentencing on May 19, 2010. The new policy modifies and supersedes three prior DOJ memos on charging and/or sentencing, one from then AG Ashcroft (issued 9-22-03) and two from then Deputy AG Comey (7-2-04 and 1-28-05). The May 19 memo calls for prosecutors to consider “the merits of each case” when making decisions regarding charging, plea agreements, and sentencing advocacy, “taking into account an individualized assessment of the defendant’s conduct and criminal history and the circumstances related to the commission of the offense (including the impact of the crime on victims), the needs of the communities we serve, and federal resources and priorities.” Here is a copy of the memo, via Ellen Podgor’s White Collar Crime Prof Blog. The memo clearly gives prosecutors greater leeway to consider the individual circumstances and characteristics of particular defendants and targets, within an overall framework of treating those who commit similar crimes, with similar culpable mental states, similarly. Professor Podgor’s detailed analysis is here. Main Justice’s take is here, in a story by Ryan J. Reilly.
Notably, pursuant to the memo, “[c]harges should not be filed simply to exert leverage to induce a plea.”
I also note that certain U.S. Attorney Offices and units within DOJ have developed policies in the post-Booker era requiring defendants entering into plea agreements to forego arguing for Booker-Gall-Kimbrough downward variances. It would seem that the May 19 memo implicitly prohibits any such unvarying policy by a DOJ unit or OUSA. If each individual defendant and case must be examined on a particularized basis, then no DOJ prosecutor should ever tell a defense attorney that ”our policy” prohibits plea agreements that leave defendants free to argue for a downward variance.
Not a sermon. Just an obsession.
The criminal defendant formerly known as Sir Allen has fired one of his recently hired attorneys, Mike Essmyer. The Houston Chronicle’s Mary Flood has the story here.
Here is a great letter from conservative legal genius Miguel Estrada supporting Elena Kagan for the Supreme Court, even though their constitutional views differ markedly. Hat tip to How Appealing and The Volokh Conspiracy for posting about it. Estrada’s letter refers to Justice Alito’s confirmation hearings as ranging “from the anodyne and uninformative to the utterly disgraceful.” Spoken like someone who has experienced the process. Estrada himself was put through the meat-grinder when President George W. Bush nominated him to the D.C. Circuit. The White House inadequately prepared Estrada for the proceedings and then refused to mount a fight for him when the going got tough. Estrada points out that elections have consequences and the President gets to nominate judges who share his governing philosophy. True enough, but Senators have the absolute right and power to reject a judicial nominee if they disagree with her legal philosophy. I would just like to be spared the charade of another meaningless confirmation hearing. And I guess I will be spared. HGTV is highly unlikely to interrupt its programming in order to televise the proceedings.
Plenty of press stories are circulating about joint SDNY/SEC investigations of Wall Street Investment Banks over their marketing of mortgage-backed securities and synthetic CDOs. The primary question being asked is apparently whether all material facts were revealed to potential investors. I don’t expect much in the way of ultimately successful major prosecutions. When the alleged fraud in question is endemic to an entire industry, it starts getting difficult to make a case. Besides, from what I can gather, Goldman Sachs and the others were pretty careful about making the required disclosures. Ditto for New York A.G. Cuomo’s inquiry into whether credit rating agencies were deceived. You were deceived? Why did you post your rating methods online? As usual in these post-fiasco financial investigations, prosecutors should focus their vision on the most egregious examples of lying, cheating, and stealing. There will be enough of those, but if some AUSA thinks DOJ is going to let him/her indict a major investment bank–get real. This doesn’t mean that the criminal investigations should not go forward. Not to inquire would constitute a dereliction of duty on the part of DOJ.
I was disappointed in the general lack of press commentary on the utter stupidity of letting Fabrice Tourre testify. I say that without having read his testimony. Anyone in his position, a defendant in an SEC civil fraud suit who is also the subject/target of a criminal investigation, has no business talking about the facts of the case to anyone other than his attorney. He certainly has no business testifying under oath to U.S. Senators and their staffers. A person in Tourre’s position will inevitably be accused of perjuring himself, making false exculpatory statements, admitting key facts, or all of the above. He should have taken five. Of course, Goldman needed him in its publicity war. Maybe Goldman would have fired him if he invoked the privilege. So what. Better to be fired than in FCI Butner.
Here is a thoughtful analysis on the SEC case against Goldman Sachs by Taesik Yoon of Forbes.com.
Today the National Association of Criminal Defense Lawyers and the Heritage Foundation released a joint report about the alarming number of federal criminal laws containing no mens rea element. Entitled Without Intent: How Congress Is Eroding the Criminal Intent Requirement in Federal Law, the report is available online from both organizations. Here is a copy.
According to this story from today’s WSJ, former Paulson & Co. executive Paolo Pellegrini informed ACA Management LLC that Paulson intended to short the ABACUS 2007 AC1 synthetic CDO. Pellegrini apparently told the SEC all about it before the Commission filed civil fraud charges against Goldman Sachs and Fabrice Tourre.
If Pellegrini tipped off ACA, what does it mean? For one thing, it helps to explain why Paulson & Co. wasn’t added to the SEC’s suit based on aider and abettor liability. For another, it will substantially weaken the SEC’s case. If key players at ACA knew that Paulson was going short, it will be virtually impossible for the Government to show that ACA was misled. Even if Goldman misled and intended to mislead ACA as to Paulson’s role, such activity would have been rendered immaterial once ACA in fact learned of Paulson’s role.
Although the Pellegrini revelation, if substantiated, may not theoretically affect the part of the SEC’s suit related to the alleged misleading of investors, ACA’s knowledge of Paulson’s role, along with its participation in the deal, will undoubtedly change the atmospherics of the case.