An Ex-FBI Official Explains Lack of Convictions Tied to Financial Crisis

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The Wall Street Journal on December 6, 2011 released the following:

“By Joe Palazzolo

There was a time, after the financial crisis, when federal agents and prosecutors thought they had another savings-and-loan type situation on their hands. Those criminal probes in the 1980s and 1990s landed more than 1,000 bankers in prison.

But their hopes slowly gave way to frustration over how to prove criminal intent, according to David Cardona, who was a deputy assistant director at FBI until he left last month for a job at the SEC.

“A lot” of the Justice Department’s criminal investigations “hinge on disclosure. . . . What does adequate disclosure mean? And those are really technical arguments that sometimes get lost with a jury,” Cardona told The Wall Street Journal’s Jean Eaglesham, offering one of the starkest explanations yet for the government’s track record in prosecuting possible wrongdoing tied to the crisis.

“That’s what makes these cases difficult to charge many times. And that certainly was the case with” a criminal investigation into two collateralized debt obligations created by Goldman Sachs in 2007 that soon plummeted in value, he said. A spokesman for Goldman declined to comment.

Many of the FBI’s criminal probes stemming from the crisis have gone nowhere, including investigations of AIG, mortgage lender Countrywide Financial (now part of Bank of America), Washington Mutual and Goldman. The SEC, meanwhile, has filed crisis-related civil-fraud cases against 81 firms and individuals, and it has negotiated almost $2 billion in penalties in cases that have been settled.

U.S. officials also are wary of bringing to trial criminal prosecutions where a jury might decide the losses were due to bad judgment or market conditions, not deceit. Cardona said the 2009 acquittal in the Bear Stearns case was part of a “learning curve on which cases we . . . feel we have the ability to convince a jury that criminality has occurred.”

Thus, cases that turn on technical issues such as disclosure are being left for civil-enforcement actions, he said. The SEC still is pursuing civil-fraud charges against the two former hedge-fund managers. Their lawyers declined to comment.

A Justice Department spokeswoman said, “We have brought hundreds of criminal cases for mortgage fraud, investment fraud and other white-collar crimes. When we find evidence to prove beyond a reasonable doubt that a crime was committed, we will not hesitate to pursue criminal charges.””


Douglas McNabb – McNabb Associates, P.C.’s
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