After Financial Crisis, Wheels Of Justice Turn Slowly
This week, a federal jury in Virginia convicted mortgage executive Lee Farkas of fraud and conspiracy charges that could send him to prison for life.
Authorities say Farkas tried to defraud banks out of almost $3 billion, in one of the biggest cases to come out of the mortgage crisis. And that, critics say, is the problem.
Almost three years after the economy nearly collapsed, most top Wall Street banks and their executives have emerged with no criminal trouble. And that's making people angry.
Madoff And More
The argument that prosecutors have gone light on the nation's largest banks for their role in the financial meltdown has become really popular — so popular that Charles Ferguson, the winner of this year's Oscar for Best Documentary for his scathing Wall Street film, Inside Job, brought down the house at the awards ceremony with this line:
When we don't believe we can prove a case beyond a reasonable doubt, we're not going to do it, no matter ... how popular it would be.
"I must start by pointing out that three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail, and that's wrong."
While there hasn't been a major government victory against a brand name banker connected to the mortgage disaster, Justice Department officials say that's not fair.
In 2009, they got a guilty plea from Bernard Madoff, who carried out one of the biggest Ponzi schemes in history. He's serving a 150-year prison sentence.
Federal prosecutors also convicted two other Ponzi schemers: Thomas Petters in Minnesota and Scott Rothstein in Florida. And the U.S. attorney in New York is wrapping up a huge insider trading trial against Raj Rajaratnam, who founded the hedge fund giant Galleon Group.
There were some more modest mortgage cases along the way. But some of the most publicly reviled figures in the mortgage mess, including former Countrywide Chief Executive Angelo Mozilo and former AIG executive Joseph Cassano, won't face any criminal reckoning.
Not so for Farkas, 58, who cut a larger-than-life figure in his North Florida community. In his heyday, Farkas collected cars — including a 1963 Rolls-Royce and a Ford Model A. He served caviar in the dining room at his mortgage lending company, Taylor Bean and Whitaker, or TBW.
Justice Department officials say Farkas did something else, too.
"Farkas was really the mastermind of one of the largest bank fraud schemes in history," says Lanny Breuer, who runs the criminal division at the Justice Department. "What he did led not only to the downfall of TBW, perhaps the second-largest mortgage lending company in the United States, but also led to the failure of one of the country's largest commercial banks, Colonial."
Late Tuesday, a federal jury in Virginia convicted Farkas of all 14 charges against him. A judge immediately ordered Farkas into custody. He could get life in prison when he's sentenced July 1.
William Cummings, who defended Farkas, says the government is overselling the importance of the case.
"They haven't tackled the larger cases, which I think is not a good thing for the Justice Department," he says. "They should have been going after larger cases where there was much more evidence of fraud."
Walking Away Unscathed?
Justice Department and state probes of major banks are moving slowly. The deals are complicated, and it's hard to reconstruct what happened so many years after the meltdown. High-profile acquittals in 2009 against two former Bear Stearns hedge fund managers may have slowed the government's momentum.
And few people in the financial world expect prosecutors to do much about findings last week by Michigan Democratic Sen. Carl Levin. Levin asked the Justice Department to investigate whether Goldman Sachs executives may have misled Congress about its mortgage stock bets at the expense of the firm's clients.
All that just adds to the popular if uncomplicated sense that the little guys lost their homes while the big players in the market walked away unscathed.
Breuer says public opinion doesn't influence his decisions.
"When we believe we have a criminal case where we can prove each of the elements beyond a reasonable doubt, we're going to do it," he says. "When we don't believe we can prove a case beyond a reasonable doubt, we're not going to do it, no matter ... how popular it would be."
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