Wall Street Traders Are Being Ordered to Hand Over their Personal Phones for Examination by the Firm’s Lawyers: How Is This Legal?

By Pam Martens and Russ Martens: May 24, 2022 ~

Frightened Wall Street TraderLast Wednesday Bloomberg News reported, without citing a source, that the Securities and Exchange Commission was “forcing Wall Street banks to embark on a systematic search through more than 100 personal mobile phones carried by top traders and dealmakers….”

But according to Bloomberg’s report, SEC lawyers were not actually examining the phones themselves for evidence of insider trading or rigging markets. Instead, Bloomberg reports that “banks are arranging for outside attorneys to help conduct the reviews, acting as intermediaries and preserving some semblance of privacy.” (If an outside lawyer being paid by one’s employer is reading sexting messages between a trader and his girlfriend on his personal phone, there is zero “semblance of privacy” and that trader has every right to feel his privacy has been violated.)

If the SEC is actually allowing serially-charged Wall Street banks to pay big bucks to their own outside attorneys to act as “intermediaries” for a federal law enforcement agency, and allowing those outside law firms – who owe attorney-client privilege to the banks that hired them – to be the arbiters of what gets handed over to the SEC, then the SEC under Gary Gensler’s leadership is as bad as it was under his predecessor, Jay Clayton.

It’s a real possibility that the SEC continues to be Wall Street’s lapdog. But what is also a possibility is that someone has fed a story to Bloomberg News reporters in order to provide cover for what the Wall Street banks are doing on their own – which is effectively confiscating personal property and violating personal privacy laws to potentially root out government whistleblowers. The SEC’s Whistleblower Office is, after all, paying out tens of millions of dollars in awards to Wall Street insiders and others to report fraudulent acts on Wall Street.

The Bloomberg article is quite noteworthy in that it doesn’t raise a peep about the Wall Street bank violating personal privacy issues; it doesn’t mention the possibility that the Wall Street banks might have their own impure agenda; it doesn’t offer a scintilla about the legality of seizing personal property from an employee; and it seems to be the only news outlet to ferret out that this is all at the behest of the SEC.

A federal law enforcement agency outsourcing an investigation to lawyers working for the target of an investigation was the topic of a decision by a Federal District Court Judge for the Southern District of New York, Colleen McMahon, in May of 2019. The case was U.S. v Connolly (16-cr-00370) and involved Libor-rigging charges against two former employees of Deutsche Bank. On October 17, 2018, the two were convicted following a month-long jury trial. Matthew Connolly, Deutsche Bank’s former Director of the Pool Trading Desk in New York, was convicted of one count of conspiracy and two counts of wire fraud. Gavin Black, a Director on Deutsche Bank’s Money Market and Derivatives Desk in London, was convicted of one count of conspiracy and one count of wire fraud.

Judge McMahon wrote as follows in her decision:

“During the course of Deutsche Bank’s nearly five-year internal investigation Paul Weiss lawyers conducted nearly 200 interviews of more than fifty Bank employees – including, of course, of Black – and shared the results of these interview with the Government. In addition to conducting interviews Paul Weiss extracted and reviewed 158 million electronic documents…As the investigation proceeded, counsel ‘interacted with [the Government] on hundreds if not thousands of occasions.’ This included some 230 phone calls and 30 in-person meetings with Government officials. For the final 14 months of the Bank’s internal investigation, counsel held joint ‘weekly update calls’ to provide the Government with the latest developments and afford it an opportunity to ‘make new requests.’ Included on these calls were, among others, representatives from the DOJ Antitrust Division…the DOJ Criminal Division…the CFTC; and the Federal Bureau of Investigation…”

Judge McMahon also noted 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, including Black.”

For additional background on the law firm Paul Weiss, see our reports: The Untold Story of the Paul Weiss Internal Investigation that Didn’t Catch a Massive Stock Fraud and Meet the Lawyer Who Gets Citigroup Out of Fraud Charges.

Wall Street has been allowed by Congress to run its own private justice system for decades, effectively locking the court house doors to both its customers and employees. Wall Street megabanks also staff up a high-tech surveillance center in downtown Manhattan together with New York City police personnel where they can, ostensibly, monitor the comings and goings of Wall Street employees. If the Bloomberg report is accurate, Wall Street is now being allowed to confiscate personal property from workers and spy into their text messages.

All of this while members of Congress continue to take large campaign contributions from Wall Street and look the other way at a tragically decaying democracy and metastasizing corruption in the heart of the U.S. financial center.

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