U.S. sees challenges in some financial cases
The government is continuing an aggressive drive to hold accountable those responsible for the 2007-2009 financial crisis, but prosecutors may find it tough to prove criminal intent in some cases, a top Justice Department official said in an interview.
Assistant Attorney General Lanny Breuer, head of the department's criminal division, rejected criticism that the Justice Department has dragged its heels in prosecuting possible fraud by Goldman Sachs
Breuer declined to comment on any specific cases, but said some cases just took longer to develop given the high threshold of proving criminal intent to commit fraud.
A lot of these cases take a long time to investigate. The mere fact that there was either excessive greed -- which there clearly was, or excessive risk taking, which there was probably as well -- doesn't mean that a particular matter was criminal, Breuer told Reuters.
Criminal cases remained a big piece of the government's strategy, but some cases were more appropriately handled by the department's civil division, tough regulatory action, or through private lawsuits, said Breuer, who helped defend former President Bill Clinton during his Senate impeachment trial.
Breuer, who now oversees nearly 600 attorneys at the Justice Department, began his career as an assistant district attorney in Manhattan, where he worked on cases ranging from armed robbery and gang violence to white collar crime.
That experience gave him a deep appreciation of aggressive investigative approaches like wire-tapping and undercover sting operations, that are increasingly being used in financial crime cases.
AGGRESSIVE SAYS BREUER
Breuer said the department had already brought hundreds of fraud cases involving banks, mortgage companies, mortgage-backed securities fraud, and investment companies.
He said federal prosecutors had also won convictions and prison terms for a wide range of fraudsters who hurt middle class Americans, as well as bigger fish like Lee Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corp, who was sentenced in July to 30 years in prison.
In addition, Breuer also cited the insider trading conviction of hedge fund billionaire Raj Rajaratnam -- who was convicted of 14 criminal counts and is due to be sentenced October 13 -- and Donald Johnson, a former managing director of the NASDAQ stock market, who was sentenced to 42 months in jail for insider trading.
If you objectively look, the department has been incredibly aggressive, Breuer told Reuters, although he also emphasized the high bar that prosecutors had to meet in proving criminal intent to commit fraud in financial crime cases.
He said federal officials must conduct hundreds of interviews and review thousands of pages of documents to ensure that they can prove a criminal case beyond a reasonable doubt.
James Cox, a law professor at Duke University, said there was a perception that the Obama administration was unwilling to aggressively pursue convictions of financial executives for fear of alienating a key source of funding for the 2012 presidential election. But the Justice Department's lack of engagement could also reflect the sheer enormity of the task.
It could also be that transactions at Goldman Sachs are inherently complex and therefore overwhelm the limited investigative forces that the FBI can put into it, he said.
Laurie Levenson, a law professor at Loyola Law School, said it was premature to criticize the department for not taking stronger action, but also saw some merit in holding their feet to the fire.
They are going to be running up against the clock soon, she said, noting that such cases generally died a natural death about five years after the date of the alleged crime.
Breuer and the Justice Department may also be proceeding more cautiously after some recent setbacks, such as a mistrial in the case against former Major League Baseball pitcher Roger Clemens, said one former senior Justice Department official.
OFFICIALS SEE HIGH BAR
Federal officials say the devil is in the details when preparing complex cases against big investment banks -- who have armies of defense attorneys working for them.
In many cases those institutions were dealing with each other, not private individual investors, and both sides arguably knew the risks of the complex mortgage-backed securities they were trading, officials note.
In some cases, one individual may have misstated the facts, but they were corrected by another individual, or the company itself. In other cases, the banks could reasonably argue that they were protected by their disclosures, and that someone who understood the market would have also understood its risks.
Such thinking may be particularly relevant as it relates to Goldman's sale of a $2 billion collateralized debt obligation to Morgan Stanley and other investors, a deal examined closely by the Senate Permanent Subcommittee on Investigations.
That deal, known as Hudson Mezzanine Funding 2006-1, was seen by some as among the most promising possible fraud cases that could be brought against Goldman. The bank picked all the assets in the deal, then bet against it, and made a $1.35 billion profit at the expense of its clients, the subcommittee report said.
One Senate investigator acknowledged the case was tough to sell to prosecutors because it did not harm ordinary citizens, adding that prosecutors could still pursue civil charges, which are easier to prove in court than criminal charges.
Goldman has said it disagrees with many of the subcommittee's conclusions, but took seriously the issues addressed.
Breuer declined comment on any specific investigation or a timetable for either bringing charges or moving on.
Whatever time it takes for those things to happen, our goal is to bring the cases as we see them, he said.
It's easy to be critical, but there's a reason that our constitutional system makes it such a high priority to prove beyond a reasonable doubt that a crime occurred.
(Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn)
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