A Closer Look at the Eric Holder “Doctrine” and the $1.87 Billion CDS Settlement

By Pam Martens and Russ Martens: September 13, 2015

Sally Quillian Yates, Deputy Attorney General, U.S. Department of Justice

Sally Quillian Yates, Deputy Attorney General, U.S. Department of Justice

Two key legal events occurred last week and were reported as separate news items when, in fact, they are highly correlated.

First, the U.S. Justice Department’s Deputy Attorney General, Sally Quillian Yates, released a memo on Wednesday effectively reversing former Attorney General Eric Holder’s standard operating procedure of big money settlements on Wall Street with no individuals being charged. Yates launched the new think in a speech the next day at NYU’s School of Law – not exactly the most auspicious of venues for setting a higher moral tone.

Yates lost much of her credibility in the first five minutes of her talk. First she told the audience that was packed with Wall Street’s white collar defense attorneys that in “the few years since its launch, the Program on Corporate Compliance and Enforcement has made its mark here in New York.”

What has actually made its mark in New York are nonstop crimes and cartel activity on Wall Street culminating in two of the largest banks in America, JPMorgan Chase and Citigroup, admitting to criminal felony charges in May of this year – a first in their more than a century of banking – with more criminal investigations in progress.

More credibility evaporated when Yates attempted to rewrite Eric Holder’s legacy. Yates stated:

“And it is our obligation at the Justice Department to ensure that we are holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the boardroom.  In the white-collar context, that means pursuing not just corporate entities, but also the individuals through which these corporations act. Few people understood this better – or were more committed to ensuring equal justice – than our former Attorney General, Eric Holder.”

In reality, after the worst episode of corruption on Wall Street since the era leading up to the 1929 crash and Great Depression, Holder brought no indictments against any major Wall Street bank executive. As crimes involved in the 2008 financial collapse were being settled by Holder for billions of dollars, new Wall Street criminal activity was spewing out of London trading rooms and Bloomberg chat rooms. So brazen was the Wall Street cartel activity in the chat rooms that the gang of thieves even called themselves “The Bandits’ Club” and “The Cartel.”

Yates did deliver one nugget of truth in her speech to the legions of Wall Street lawyers: “…if the citizens of this country don’t have confidence that the criminal justice system operates fairly and applies equally – regardless of who commits the crime or where it is committed – then we’re in trouble.”

In terms of confidence in America as a level playing field, we are, indeed, “in trouble.” A June Gallup poll showed public confidence in Congress at 8 percent. Confidence in the criminal justice system stood at just 23 percent while confidence in banks stood at 28 percent versus an historical average of 40 percent.

Americans will simply give up trying to advocate for change if the system appears hopelessly corrupted and beyond their ability to reform it. They will work less hard for a country that has no respect for hard work and honesty and tolerates the unrestrained looting of savings by Wall Street with impunity. Americans will simply wait for the system to collapse under the weight of its own corruption – just as it did in 2008. Whistleblowers will stop coming forward when they put themselves on the line only to watch the “Justice” Department settle for money without charging the guilty.

One thing that Yates did say in her speech at NYU suggested that corporations and their internal review teams of lawyers had been less than forthcoming in the past. Yates stated:

“Effective immediately, we have revised our policy guidance to require that if a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct.  It’s all or nothing. No more picking and choosing what gets disclosed. No more partial credit for cooperation that doesn’t include information about individuals.”

Of course, this raises the serious question as to why Eric Holder was allowing corporations to engage in “picking and choosing what gets disclosed.” Holder had the power of wiretaps and subpoenas backed up by the ability to bring charges of obstruction of justice if evidence was withheld. Instead, Holder seemed to rely on corporations and their own lawyers conducting the investigations. According to a PBS Frontline report in January 2013, when it came to Wall Street, there “were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.” According to Martin Smith who produced the Frontline program, “sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting Wall Street for financial crimes.”

Holder, of course, returned to his former corporate law firm, Covington & Burling, as did the head of the Justice Department’s criminal division, Lanny Breuer.

Yates was smart enough in her speech to warn the public not to expect too much too soon under her new plan to prosecute individuals. Said Yates: “And I should be clear: while these policy shifts are effective immediately, the public won’t see the impact of these steps over night.  Some of these policies will affect cases that are only beginning now and may take years to become public.”

The other major legal event last week was the announcement on Friday that 12 major Wall Street banks had agreed to a $1.87 billion settlement in a case brought by various public pensions and other investors involving the allegation that the 12 firms had colluded to rig prices on Credit Default Swaps – derivatives that played a key role in the 2008 implosion of Wall Street.

That huge dollar figure is not something you see every day, especially when the plaintiffs were lined up against 17 of the most powerful Wall Street law firms: names that include Sullivan and Cromwell; Davis Polk; Wilmer Cutler Pickering Hale & Dorr; Sidley Austin; Jones Day; Winston & Strawn; Cravath, Swaine & Moore, and so forth.

The noteworthy part of the $1.87 billion settlement and a continuance of a disturbing trend embraced by the former highest law enforcement officer in our land, Attorney General Eric Holder — none of the millions of documents and emails unearthed in discovery in the Credit Default Swap lawsuit will be released to the public — ever. They are under a Protective Order agreed to by both sides and the Federal Judge in the case, Denise Cote of the Southern District of New York.

It is worth noting that Holder frequently settled cases in a similar manner – with the skimpiest of details disclosed to the public as if we the people are children to be protected from meaningful knowledge of just how insidious Wall Street’s crimes have become courtesy of the revolving doors that spin between white shoe law firms, Wall Street and the corridors of power in Washington.

Until that revolving door stops swinging, until campaign finance laws are reformed, until Wall Street is brought to heel, trust in America’s major institutions will continue to erode – as will the country itself.

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