Frontline: The Untouchables – Exposes how Wall Streeters Commit Fraud but Escape Jail

UPDATE 1-23-13 5pm: The Washington Post is reporting the DOJ’s Lanny Breuer, who was highlighted in The Untouchables, is stepping down. Now reporters had heard he was on his way out for a bit so WAPO could be reporting old news but it sure makes the Frontline film and my reporting seem to have made quite a stink at the DOJ today. Is this a case were great investigative journalism actually went to work for the American people?

1-23-13: There is a live chat with The Untouchables film maker Martin Smith today. I’d ask him if he thinks DOJ’s Lanny Breuer should still have his job.

Original Text
Tom Marano and his team of bandits at Bears Stearns mortgage trading desk took Wall Street for a ride in the last decade. I first broke news about them stealing billions from their own clients, which included pension funds, in January 2011 for The Atlantic. Tonight you’ll see how widespread their action went in a Frontline documentary film called The Untouchables.

Emmy winning documentary film maker Martin Smith contacted me this summer about my reporting on the Bear Stearns traders and the saga it entailed for JP Morgan. A bank who is now facing a Civil fraud suit by the NY AG, has $140 billion in civil RMBS fraud suits against them, and has setteled with the SEC for the double dipping scheme that attorney Eric Haas at Paterson Belknap first figured out.

When I first came about this story in early 2010 Reuters and Fortune, who asked me to pitch them, passed on it because they said the topic was too complicated. But it took only 24 hours for Dan Indivilgo (who is now writing for Reuters BreakingViews) to figure out this was a blockbuster piece of reporting and as a business editor at The Atlantic he convinced them to buy it. I only made $150 selling the story to The Atlantic instead of the few thousand dollars I’d make if I had sold it to a trade publication behind a paywall but I knew this story just had to printed online for the world to read. And they did.

Hundreds of Wall Streeters started to email or call me after they read it. People who might have never read my byline at the New York Post or Hearst Newspapers were calling to see what else I had on the outright fraud these financial titans committed. Their big takeaway was “I knew those Bear traders were always making too much money but I could not figure out how.” And the civil securities lawyers who called just wanted to play catch up to the sordid details the lawyers at Patterson Belknap had already figured out for their clients the mortgage bond insurers. Even the FHFA had an analyst call me to find out behind the scenes info and then copied Patersons Belknap’s suit when then filed for around $22 billion in civil fraud against JP Morgan.

You can see whistleblowers on camera tonight telling details I first reported about the level of due diligence Bear (and other banks) hired to mask the level of out right fraudulent loans the traders were aware of before they even put them into the mortgage securities they sold to the public.

Yet still we saw the NY AG only sue for civil fraud and not criminal fraud. Filmmaker Martin Smith got people to admit the DOJ was afraid if they actually charged these Wall Street bad boys with criminal fraud it would rock the financial system. An absurd notion for the DOJ to even consider. They are not bank regulators or butt boys for the banks like Tim Geithner. They are suppose to go after crime regardless of how it effects an industry. I consider this fraud against the American people– the DOJ didn’t do their job when the evidence was handed to them by reporters like me and Nick Verbitsky and sharp lawyers like the team at Patterson Belkanp.

But the real want-to-make-me-throw-up moment in the film came when I saw the DOJ’s Lanny Breurer tell Martin Smith he didn’t think journalist had found any whistleblowers who the DOJ hadn’t already interviewed. That’s was either an out right lie or he’s really in denial because as Nick Verbitsky said in the film he knows his unnamed whistleblowers were never contacted by the DOJ even though the lawyers at Paterson Belknap eventually got some them on the record for their civil suit against Bear Stearns/ JP Morgan. I second that…the DOJ has flat out not tried to reach a single whistleblower in my series of reporting on Bear Stearns/ EMC / JP Morgan.

The failure of the DOJ is the real crime we should never forget.

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Comments

  1. Thank you for your efforts. Obama has these guys in his pocket. I expect nothing from him in this next term. The DOJ guy on the program tonight was pure sleaze.

  2. I just donated. The world needs more journalist like you Teri.

  3. I am the George Hartzman Rolling Stone’s Matt Taibbi wrote of the other week, and it appears that I am aware of a name/story that has not passed the Statute of Limitations.

    Wachovia CEO Robert Steel bought Wachovia’s stock in a breach of trust, confidence and his fiduciary duty to my clients and shareholders while in possession of material, nonpublic information.

    On July 9, 2008, Robert Steel became president and CEO of Wachovia after working for Goldman Sachs from 1976 to 2004 and the US Treasury under former Goldman Sachs CEO Henry Paulson from October 10, 2006 until July 9, 2008. Mr. Steel was “the principal adviser to the secretary on matters of domestic finance and led the department’s activities regarding the U.S. financial system, fiscal policy and operations, governmental assets and liabilities, and related economic matters,” according to Wikipedia’s biography. Mr. Steel most likely knew about other firm’s borrowings via his time spent at the U.S. Treasury Department.

    On July 22, 2008, Mr. Steel personally purchased 1,000,000 shares of Wachovia’s stock as the company’s TAF borrowing reached $12.5 billion, which appears not to have been disclosed in securities filings audited by KPMG.

    In an interview with CNBC’s Jim Cramer On Monday, September 15, 2008, Robert Steel said “I think it’s really about…transparency. People have to understand the assets and really be able to say, this is what I own… Complete disclosure. …we can work through this with transparency, liquidity and capital. …Our strategy was to give you all the data so you could make your own model. We tell you what we’re doing… …we’re raising capital ourselves by basically shrinking the balance sheet, cutting the dividend, cutting expenses. We can create more capital ourselves that way… for now, we feel like we can work through this…” After Jim Cramer asked “Should there be any sort of quick regulatory relief from the SEC that would make life easier to be able to make your bank much stronger?”, Mr. Steel responded “I don’t think it’s about my bank.”

    After not reporting TAF loans, Wachovia’s CEO wrote “I, Robert K. Steel, certify that: I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 of Wachovia Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report” on October 30, 2008.

    Mr. Steel was at least aware of Wachovia’s Federal Reserve loans since July, 2012, if not the undisclosed loans to multiples of other financial institutions.

    If Mr. Steel was “the principal adviser…on matters of domestic finance and led the department’s activities regarding the U.S. financial system, fiscal policy and operations”, how could he not have known and acted on undisclosed material information?

    On June 22, 2010, Robert Steel was appointed Deputy Mayor for Economic Development by New York City Mayor Michael Bloomberg, after which, Steel resigned his seat on the Wells Fargo board. According to Morningstar data, Mr. Steel owned 601,903 shares of Wells Fargo in 2010, which would be worth $20,446,644.91 as of October 26, 2012.

    George Hartzman
    Greensboro , North Carolina

  4. John Titus says:

    “the DOJ has flat out not tried to reach a single whistleblower in my series of reporting on Bear Stearns/ EMC / JP Morgan.”

    That fact was transmitted very clearly last night by Breuer’s body language and facial expressions (not to mention his mealy-mouthed equivocation) about the DOJ’s attempts to reach whistleblowers. (Martin Smith’s stunned incredulity when this happened was priceless.) It was likewise clear that the DOJ has altogether ignored the superhighways of information that have been paved by civil lawsuits.

    While I would like to have seen Smith ask Breuer about his law firm, Covington & Burling, and its leading role in creating MERS, I thought “The Untouchables” was a fantastic introduction to the REAL crisis threatening the U.S., which legal, not financial.

    You hit the nail on the head with your closer: “The failure of the DOJ is the real crime we should never forget.”

  5. What are the statutes of limitations for the possible criminal acts that have been committed by the banksters?

  6. Too bad there wasn’t more of your reporting in the Frontline piece—but I’m glad you and your work were included.

    There’s so much more to cover there could be a new Frontline doc on this every week.

  7. Although I agree getting Breuer out of any responsible position in the US government is probably a step in the right direction, we’re fooling ourselves if we believe he was or is the problem. The next person to step in will have the same loyalties, values, and ethics. Mary Jo White is a creature of the Wall St elite. I wouldn’t hold my breath waiting for prosecution of banksters. The SEC helps develop the very systems that allow banks and High Speed Traders to steal from investors.

  8. When the Wall Street banks have the best lawyers, and there is a revolving door between WS and Washington, you can rest assured that none of those senior WS executives will be seeing well-earned jail time.

    It may be disgusting, but it is indeed reality.

  9. The putrid stench of corruption reaches from Wall Street to Main Street from the boardrooms of both Large financial institutions to the small privately held banks all insiders who shield themselves with the top law firms covered in a very expensive paper blanket of protection bought and sold in the legal system we call justice…I should know…I’m living it.

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