By Pam Martens and Russ Martens: April 28, 2021 ~
The only thing worse than SEC Chairman Gary Gensler’s pick for Director of Enforcement at Wall Street’s so-called watchdog is the way corporate media is attempting to spin it.
On April 22 Gensler announced that he had appointed Alex Young K. Oh to be his top Wall Street crime fighter. Reuters (and numerous other media outlets) spun the announcement like this:
“The U.S. Securities and Exchange Commission on Thursday named former federal prosecutor Alex Oh as its new head of enforcement, the first woman of color to lead the division, which plays a crucial role in policing U.S. financial markets.”
Yes, Alex Young K. Oh was a former federal prosecutor, but one of numerous assistant U.S. Attorneys working in the Southern District of New York more than two decades ago. What Oh has been doing for the past two decades is working as an attorney for Paul, Weiss, Rifkind, Wharton & Garrison, the law firm that major Wall Street banks repeatedly choose to fight their serial fraud charges.
Oh has been with Paul Weiss since October 2000. She became a partner in January 2004. Her stint as an assistant U.S. Attorney was for a brief three and one-half years, from January 1997 to June 2000, according to her LinkedIn profile.
Career attorneys at the SEC are disgusted that someone from their own ranks is never selected as Director of Enforcement to make a genuine effort at fighting crime on Wall Street.
James Kidney, a former 25-year veteran trial lawyer at the SEC, worked under another Wall Street revolving door appointee, Robert Khuzami, who served as Director of Enforcement under President Obama. In 2018, Kidney described that experience with Wall Street On Parade’s readers as follows:
“I was one of several trial lawyers at the SEC involved in the Commission’s investigations into conduct of the big banks and their employees. I can say, based on my experience and that of other trial lawyers, that there was an inexplicable reluctance on the part of the Division of Enforcement to utilize conspiracy theories to investigate – let alone sue – higher ups at Goldman Sachs, Bank of America, Morgan Stanley and other large banks.
“Yet, it was obvious to many talented lawyers at the SEC, both senior and junior, that the products offered by these banks to investors were developed cooperatively and approved by knowledgeable men (almost exclusively men) of Wall Street far above the levels of those few who were unfortunate enough to be sued. It is very likely that at least some participated in a scheme to defraud – a conspiracy. But the Division of Enforcement under Khuzami chose to pursue cases almost exclusively on a much narrower ‘false statement’ theory, which courts have increasingly interpreted to mean liability solely for the individual who actually misrepresented to an investor a fraudulent product. In effect, the SEC applied at the outset the narrowest legal theory available to restrict the investigation and, therefore, protect higher-ups from questioning, let alone possible charges. Conspiracy theories were rejected at the outset of most investigations and not pursued.”
Brad Karp is the Chairman of Paul Weiss. Max Moran, writing for the American Prospect in February 2020, had this to say about Karp:
“But if the Democrats do nominate a candidate of the old guard, the traditional school of money-for-access politics, chances are high that one name will be at the top of their list of advisers: Brad Karp. After all, Karp’s name shows up on almost every bundler [fundraiser] list the 2020 race has seen so far. If money is seductive in politics, then Karp is a master of seduction. And he’s in it for a reason: to make sure the next president doesn’t appoint regulators and prosecutors who will bring his corporate clients to heel…”
In terms of both billable hours and serial crimes, one of Karp’s biggest clients has been Citigroup – the bank that imploded in the 2008 Wall Street collapse only to be resuscitated by government bailouts and $2.5 trillion in secret, cumulative loans from the Fed from 2007 to the middle of 2010.
We outlined the relationship between Karp and Citigroup for our readers in 2012, writing:
“It’s one of the few things predictable on Wall Street; an immutable signature on the reply briefs whenever Citigroup is charged with fraud – and that is quite often.
“Brad Karp, a partner at the 737-attorney-strong Wall Street law firm, Paul, Weiss, Rifkind, Wharton & Garrison LLP, has been Citigroup’s go-to guy for fraud allegations since the company was born out of the too-big-too-fail merger of Travelers Group insurance, its myriad Wall Street investment banks, brokerage units, and Citicorp, parent of Citibank.
“When the London-based private equity firm, Terra Firma, claimed it had been lied to and defrauded by Citigroup, making it overpay for the purchase of EMI, a British music label, in 2007, Karp and colleagues wrung an 8-0 decision from the jury in favor of Citigroup. Karp was also on hand to witness victory when the trustee for the bankrupt Italian dairy giant, Parmalat, charged Citigroup with fraud. Then there were fraud charges connected to Citigroup’s involvement in the collapse of WorldCom and Enron – along with auction rate securities, rigged stock research and understating its exposure to subprime debt by $39 billion. Karp, Karp, and more Karp.”
When Citigroup was under investigation by the Financial Crisis Inquiry Commission (FCIC) for its role in the 2008 financial collapse, it was Karp who penned Citigroup’s 21-page response in an effort to get Citigroup off the hook. Nonetheless, the FCIC referred three of Citigroup’s former top executives to the Justice Department for potential criminal charges: the former Chairman of the Executive Committee of Citigroup, Robert Rubin; former Citigroup CEO Charles (Chuck) Prince; and former Citigroup CFO Gary Crittenden. (The Justice Department failed to pursue any criminal referrals against Wall Street titans from the FCIC.)
Then there is the matter of all of those internal investigations that Paul Weiss so obligingly conducts for its corporate clients. In May of 2019 the Chief Judge for the U.S. District Court for the Southern District of New York, Colleen McMahon, wrote a decision finding that the U.S. Justice Department had outsourced a criminal investigation to the target of the investigation – Deutsche Bank – and Deutsche Bank’s outside law firm…(wait for it)…Paul Weiss.
Judge McMahon wrote in her decision that “…there are profound implications if the Government, as has been suggested elsewhere, is routinely outsourcing its investigations into complex financial matters to the targets of those investigations, who are in a uniquely coercive position vis-à-vis potential targets of criminal activity.”
The Judge wrote that the government didn’t take any investigative depositions on its own unless it had “first passed through the maw of Paul Weiss’s five-year, $10 million investigative machine and been fully digested for the Government by the target of the investigation…It is hard not to conclude that the Government did not conduct a single interview of its own without first using a road map that Paul Weiss provided – illuminating just how the Government should ‘investigate’ the case against certain Deutsche Bank employees…”
In 2011, Paul Weiss was named in an SEC Inspector General report that delved into claims from a whistleblower inside the SEC that alleged that the then Director of Enforcement, Khuzami, had spoken on the phone on June 28, 2010 with Mark Pomerantz, a partner at Paul Weiss who was representing the bank in connection with SEC charges that it had misled investors about its exposure to subprime debt. Pomerantz and Khuzami knew each other from their work at the U.S. Attorney’s office in the Southern District of New York.
According to the unnamed whistleblower, SEC attorneys working under Khuzami had already decided to bring fraud claims against Citigroup’s CFO, Gary Crittenden, for misstating the amount of Citigroup’s exposure to subprime debt by almost $40 billion. But during the phone call, Pomerantz told Khuzami that Citigroup would experience collateral damage if a key executive were charged with fraud.
Shortly after this call, another Citigroup lawyer, Lawrence Pedowitz of Wachtell, Lipton, Rosen & Katz (the law firm that helped former Citigroup CEO Sandy Weill maneuver the repeal of the Glass-Steagall Act in order to merge his casino trading firms with the federally-insured Citibank) told SEC Associate Enforcement Director, Scott Friestad, that Khuzami had agreed to drop the fraud charges against Crittenden. The Inspector General’s report says that Khuzami denies ever making this promise.
Nonetheless, the fraud charges were dropped and the deeply redacted Inspector General’s report does not inform the public as to how they came to be dropped.
If you’re not sick to your stomach that Wall Street’s top watchdog has been a completely captured regulator under both Democrat and Republican administrations for decades, then you’re simply not paying attention.