During his State of the Union Address, President Obama announced the establishment of a Financial Crimes Unit that will consist of federal prosecutors and leading state attorneys general.
Their mission will be to expand federal investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. President Obama, appointed New York Attorney General Eric Schneiderman to co-chair the task force.
However, it is common knowledge that President Obama has not been serious regarding prosecution of banks, after months of pressuring Attorneys General Kamala Harris and Eric Schneiderman to accept a multi-state deal that amounted to only $25 billion and no criminal prosecution,
For the past three years, there have been no prosecutions filed by Treasury, the Justice Department, nor the Security Exchange Commission (SEC).
Obama’s announcement may signal that he is no longer accepting the counsel of Attorney General Eric Holder, and Holder’s conflict of interest issues could be the reason.
Attorney General Holder, along with Lanny Breuer, head of the Justice Department’s criminal division, were partners for years at Covington & Burling, a Washington law firm that represented the four largest U.S. banks – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co, Freddie Mac and Virginia-based Mortgage Electronic Registration Systems (MERS) Corp, which is a computerized registry of mortgages and has been at the center of complaints about false or erroneous mortgage documents.
Tracy Schmaler, a Justice Department spokeswoman said “that Holder and Breuer have conformed with all financial, legal and ethical obligations under law as well as additional ethical standards set by the Obama Administration.”
Yet both the Justice Department and Covington have declined to say whether either Holder or Breuer personally worked on matters for the big mortgage industry clients. In addition, Holder and Breuer declined to say if they have recused themselves from any matters concerning former clients.
After Obama’s announcement, Holder said: “Behavior that is unethical or reckless may not necessarily be criminal.”
Holder’s comment suggests that he remains protective of his past clients. As of December, the Justice Department headed by Holder has not brought any criminal cases against big banks or other companies involved in mortgage servicing, even though there is evidence of widespread forgery, perjury, obstruction of justice and illegal foreclosures on the homes of thousands of active-duty military personnel.
In recent weeks, the Justice Department has come under renewed pressure from members of Congress, state and local officials and homeowners’ lawyers to open a wide-ranging criminal investigation of mortgage servicers, the biggest of which have been Covington clients.
Attorney O. Max Gardner III, one of the best known consumer bankruptcy attorney in country, said although he believes that the Obama White House has been reluctant to prosecute banks or their executives because it might harm the economy, he thinks Holder and Breuer’s relationship with Covington and their failure to act on foreclosure fraud or recuse themselves, “doesn’t pass the smell test.”