Bank of America Escapes Criminal Charges for Securities Fraud

Bank of America Escapes Criminal Charges for Securities Fraud

Bill Black: Bank of America facing civil charges but BOA and other major financial fraudsters off the hook from criminal charges -   August 8, 2013
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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.


Bank of America Escapes Criminal Charges for Securities FraudJAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore. And welcome to this latest edition of The Black Financial and Fraud Report.

On Tuesday, the Department of Justice announced that it's suing Bank of America for mortgage-backed securities fraud conducted in 2008. In a public statement, U.S. attorney Anne M. Thompson said, "Bank of America's reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors."

Now joining us to talk more about this is Bill Black. He's associate professor of economics and law at the University of Missouri-Kansas City. He's a white-collar criminologist and a former financial regulator, author of The Best Way to Rob a Bank Is to Own One. And he's a regular contributor to The Real News.

Thank you so much for joining us, Bill.


NOOR: So, Bill, can you summarize this latest news and give us your reaction to it?

BLACK: Yes. So this, first, is a civil suit, not a criminal prosecution. And even in a civil suit, the Department of Justice has refused to sue any of the senior officers who, according to this complaint, became wealthy through leading this massive fraud by Bank of America.

The fraud allegation are that Bank of America, very late in the game, as you are emphasizing--so these were put together, these mortgage-backed securities, very late in 2007--now, that's a year after the housing bubble has already begun to collapse--and actually being sold, these securities, in 2008 to two particular entities. And those are Wachovia, a very large bank that also failed and had to be acquired, and the Federal Home Loan Bank of San Francisco, which is a quasi-governmental entity. And in terms of full disclosure, I used to be the senior vice president and general counsel of the Federal Home Loan Bank of San Francisco, but a long time ago, so none of this, you know, involves me even remotely directly.

The allegation of the nature of the fraud is that Bank of America knew that it was selling product that was often fraudulent and was--mortgage product that was often fraudulent and was, in any event, of very poor quality, and that it lied in its representations to Wachovia and the Federal Home Loan Bank of San Francisco in order to induce them and others to purchase the alleged best portion of this mortgage-backed security. These portions are something that in the trade we call tranches. And this was the AAA tranche, in other words, the highest credit rating you can get that is supposedly reserved for the absolute bestest stuff with very low risk and such. And instead, the loans blew up at a rate where they caused very substantial losses and suffered a huge rating downgrade.

And there are some more interesting allegations along the way, interesting because I think the Department of Justice doesn't explain how--understand how embarrassing they are to the Department of Justice. So one of the allegations, for example, says that Bank of America, after it realized that one of its loan officers was working with a borrower to commit a fraud, fired the loan officer, made a criminal referral to the Department of Justice. That loan officer, former loan officer, is under indictment (in other words, he's going to be criminally prosecuted), and that they still--they being Bank of America--still sold that loan under representations and warranties that it was a great loan, even though they knew it was in fact a product of multiple frauds. And, of course, the loan blew up and caused substantial losses.

Now, of course, the question that everyone in the world except the Justice Department would ask is the complaint goes on to say that Bank of America employees came under intense pressure from senior officials at the Bank of America to deliberately make bad loans and to approve bad loans made by loan brokers, that they were specifically instructed that their job was not to find fraud, that their bonus packages depended on approving really crappy loans. And they got extra big bonuses if they exceeded their quotas. And the only way to do that was to approve all kinds of terrible loans.

So how come the Department of Justice is prosecuting the littlest people in the involved, the minnows, the loan officers who are making maybe $45,000 a year, for fraudulent loans where the Justice Department is stressing that the loans only occur because senior management was pressuring the employees to make those loans. And then turns around and it makes criminal referrals on them when they approve them. And they still--the senior officials the Department of Justice still get complete immunity from the criminal laws and, as I said, don't even get sued civilly by the Department of Justice to recover the bonuses that they got for forcing the little folks to make the bad loans and in some cases actually prosecuting the little folks for doing exactly what Bank of America wanted them to do.

NOOR: So, Bill, also on Tuesday, four former directors of failed Premier Bank were arraigned on criminal charges of defrauding the government of $70 million while participating in the TARP bank bailout. Following last week's jury conviction of Fabrice Tourreii, a young mid-level Goldman Sachs trader, Dennis Kelleher of Better Markets was quoted in The New Republic as saying the SEC must stop chasing minnows while letting the big whales of Wall Street go free. Your response.

BLACK: Yeah. They're probably actually mostly chasing the bacteria that live in the minnows. So Fab wasn't even really mid-level in any serious sense within Goldman Sachs. And note that he was specifically charged with aiding and abetting Goldman Sachs fraud. So why isn't Goldman Sachs being sued--I'm sorry, prosecuted criminally for its fraud, just like the current complaint, which, by the way, is the second civil complaint filed by the Justice Department alleging that the Bank of America's senior officials committed fraud? So these are multiple-time losers, and that both complaints show that they committed these frauds over a very long time period. And apparently they are too big to prosecute. The fact that that other prosecution occurred because of alleged crime against TARP is also significant, 'cause that is the only folks allegedly even remotely involved in the crisis--and as you say, they're pretty small-time--who are being prosecuted. There was also an earlier case against Taylor, Bean, a mortgage bank, and that occurred only because the special inspector general of TARP, Neil Barofsky, forced, virtually, the Justice Department to prosecute.

In other words, the criminal referrals that get action have come from this tiny little entity called SIGTARP, special inspector general for the TARP program, because criminal referrals have ceased virtually entirely from the Federal Banking Agency. And the administration--and this means both administrations, Obama and Bush--have refused to do even the most basic thing if you are serious about prosecuting, which is to require the banking regulatory agencies to renew their former practice of making criminal referrals against these elite frauds. Again, our agency made over 30,000 criminal referrals in the savings and loan crisis. In the current era, the largest banking regulatory agencies made zero criminal referrals. It is a scandal of epic proportions.

NOOR: And finally, Bill, all this news comes on the heels of Michael Bresnick's resignation as head of President Obama's financial fraud task force. He'll be joining a private boutique lobbying firm. Now, do you interpret his departure as a signal of mission accomplished by the Obama administration, or a civil servant frustrated by the lack of prosecution at the Department of Justice? What do you make of this?

BLACK: It's the mission accomplished in the same sense as when President Bush appeared on the aircraft carrier and declared victory before, you know, Iraq further went into the hellhole.

Of course, this task force was announced with big publicity just before the election season, because the Obama administration had received, rightfully, so much criticism for its refusal to prosecute any of the major players. And now, a year later, it has prosecuted zero of the--in fact, it's prosecuted no one. So it's been a complete failure. It has only brought civil actions and only brought civil actions against companies for--in essence to try to get fines. It refuses to hold any of the senior bankers who grew wealthy through these frauds and drove this economic crisis accountable criminally for their actions. Indeed, it refuses to even hold them individually responsible civilly. So they're allowed to keep the wealth they got for destroying the global economy. Again, if you wrote it up in a novel, people would say, you know, that's not realistic. Surely the government would prosecute some of them. Well, no, the answer is, at this date, zero.

NOOR: Bill black, thank you so much for joining us.

BLACK: Thank you.

NOOR: Thank you for joining us on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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