Is Goldman CEO Lloyd Blankfein Facing Possible Prison Time?Posted: August 24, 2011 Filed under: Corporate Crime, Crime, The Bonus Class, U.S. Economy, U.S. Politics | Tags: corporate crime, corruption, Goldman Sachs, Lloyd Blankfein, Naomi Prins, Reid Weingarten, Senate Permanent Subcommittee on Investigations 4 Comments
That’s the question Naomi Prins, a former managing director of Goldman Sachs and author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals From Washington to Wall Street, asked yesterday at The Daily Beast.
I posted in a comment yesterday that I’d heard Blankfein hired a well-known Washington criminal defense attorney. Since then, the business media has been buzzing about why Blankfein hired attorney Reid Weingarten.
Big-shot Washington defense attorney Reid Weingarten, of the firm Steptoe & Johnson LLC, has represented former Enron chief accounting officer Richard Causey (who pleaded out), former Rite Aid vice chairman and chief counsel Franklin Brown (found guilty by a jury on 10 counts of conspiring to falsely inflate his company’s value), and former WorldCom CEO Bernie Ebbers (convicted on nine felony counts by a jury). All three are in jail. Two of them, Ebbers and Causey, had undergone congressional panel investigations beforehand. Another of Weingarten’s clients, former Tyco counsel Mark Belnick, was acquitted, though Tyco CEO Dennis Kozlowski, who was not represented by Weingarten, was convicted and remains in jail.
Prins speculates that Blankfein may be in trouble for two possible reasons. The first is because of his own “loose lips,” when he testified before the Senate Permanent Subcommittee on Investigations in April.
Recall that Blankfein emphatically told the subcommittee, “We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.” The 650-page subcommittee report (PDF) presented on April 13, 2011, which cites Blankfein 79 times, begs to differ.
The report accused Goldman of trading against its clients by simultaneously shorting certain subprime mortgage securities (a.k.a. “cats and dogs”) while stuffing them into the collateralized debt obligations it sold. It also suggested that Goldman executives, including Blankfein, misled Congress in testimony surrounding the Abacus CDO, Hudson, Timberwolf, and other deals, by saying it didn’t have a big short.
The second possibility is that Blankfein’s colleagues are distancing themselves from him in order to protect themselves and Goldman Sachs. Prins writes:
The top lesson I learned before leaving Goldman in the wake of Enron was Goldman’s foremost internal policy is to protect Goldman. It’s also to protect the most powerful members. When cracks manifest in the corporate armor, those two policies are at odds.
The executives running Goldman are exceedingly wealthy, not least because when the firm faced its darkest hour and lowest stock price in years during the bank-created crisis of fall 2008, the government provided it billions of dollars in the form of cheap loans, FDIC debt guarantees, TARP, AIG make-wholes, and a late-night moniker change from investment bank to bank holding company, giving the firm access to excessive Federal Reserve aid.
After the news came out that Blankfein had hired Weingarten, Goldman’s shares fell 6%, and according to Prins, that kind of thing is “frowned upon.” So Blankfein may be be trying to protect himself from being stabbed in the back by his co-workers in addition to fighting anything the Justice Department has planned for him.
I doubt if Obama and Geithner will let Blankfein go to prison, but it will be fun to watch him and the wealthy Goldman partners feeling a little bit of discomfort.
Two Reuters columnists speculated about this story today. Leigh Jones writes:
If you need to hire Reid Weingarten, your career has probably hit a rough patch.
The rule now applies to Goldman Sachs (GS.N) CEO Lloyd Blankfein, who Reuters reported on Monday has retained Weingarten, a partner at Steptoe & Johnson in Washington.
With that move, Blankfein becomes the latest in a long line of executives and high-profile people in trouble who have turned to Weingarten for help. They range from Tyco (TYC.N) corporate counsel Mark Belnick, for whom Weingarten won an acquittal, to ex-Enron accounting officer Richard Causey, who pleaded guilty to fraud and conspiracy, to film director Roman Polanski, who tapped Weingarten to fight extradition to the Unites States for sexually assaulting a 13-year-old girl in 1977.
Jones spends most of the piece providing background on Weingarten, but he also points out that Blankfein’s choice of attorney is telling, and like Prins he notes the market reaction:
Blankfein’s choice of Weingarten as his lawyer has raised questions about what kind of trouble the Goldman Sachs CEO might be in. The DOJ, where Weingarten once worked, is investigating the bank for mortgage-related investments it made.
While it is not unusual for company leaders to arm themselves with their own lawyers, Weingarten’s reputation as a litigator — as opposed to a lawyer who guides clients through investigations — is making Goldman investors nervous. The day that Blankfein’s hiring of Weingarten broke, the bank’s stock dropped nearly 5 percent to its lowest level since March 2009. By late Wednesday afternoon, the shares were at $109.92, up 3.2 percent from Monday’s close at $106.51.
Alison Frankel is more sanguine, arguing that Blankfein hiring an outside attorney is really no big deal.
The market assumed the worst on Monday after Reuters’ great scoop on Goldman Sachs (GS.N) CEO Lloyd Blankfein bringing in Reid Weingarten of Steptoe & Johnson to represent him in the Justice Department’s investigation of the bank. Goldman’s share price fell almost 5 percent on the fear that Weingarten’s entrance signals that DOJ is getting serious about its follow-up to the April 2011 Senate subcommittee report on the financial crisis.
In one sense, that’s reading way too much into the mere fact that Blankfein has brought in his own lawyer. It’s standard operating procedure for corporate executives at companies under investigation to have separate counsel. Consider the example of other alleged villains of the financial meltdown. Richard Fuld of Lehman (LEHKQ.PK), Joseph Cassano of AIG (AIG.N), Angelo Mozilo and David Sambol of Countrywide, John Thain of Merrill Lynch, Kenneth Lewis of Bank of America (BAC.N): They all have their own lawyers, and none of them have faced any criminal charges. Only Mozilo and Sambol even had to answer to the SEC.
She provides a number of examples of other executives doing just that. But…
Nevertheless, Blankfein’s choice of Weingarten is very intriguing. Weingarten is a great lawyer with close ties to the Justice Department, where he once worked in the Public Integrity section, and to Attorney General Eric Holder, whom he actually represented when Congress grilled Holder about President Bill Clinton’s eleven-hour pardon of financier Marc Rich. Weingarten is not, however, part of the club of white-collar defense counsel who typically get referrals from New York firms like S&C. (That group includes Andrew Levander of Dechert; Mary Jo White of Debevoise & Plimpton; Patricia Hynes of Allen & Overy; and Gary Naftalis of Kramer Levin Naftalis & Frankel, all of whom represent high-profile Wall Streeters in financial crisis cases.)
One white-collar defense lawyer who gets referrals from Wall Street firms told me it could be significant that Blankfein went outside the usual circle, turning to a lawyer best known for his trial work. “For many people, the choice of Reid Weingarten would be unusual to represent someone in a simple interview,” he said. “He’s often retained when an investigation is going to lead to a case that would go to trial.”
Hmmmm…. Okay, I’ll believe it when I see it, but I can dream, can’t I?
Thursday Reads: Molly Ivins, Governor Goodhair, Corporate Crime, and HeroesPosted: August 18, 2011 Filed under: 2012 presidential campaign, Corporate Crime, George W. Bush, morning reads, Republican presidential politics, U.S. Economy, U.S. Politics | Tags: Antonio Diaz Chacon, Bill Clinton, Bush-Perry feud, Citi, corporate crime, George W. Bush, Governor Goodhair, heroes, Howard Dean, Indonesia, Jesus Lara, Karl Rove, Matt Taibbi, Mexican border, Molly Ivins, murder, Predator drones, Republican presidential wannabes, Rick Perry, SEC, Texas 45 Comments
Good Morning!! I’m going to be leaving for a two-day drive to Indiana either today or tomorrow, so I’m a bit meshugge this morning. Please be patient with me. Let’s see what’s in the news.
From what I can see, it’s mostly Rick Perry. And I must say, I find “Governor Goodhair” endlessly fascinating. He’s more of a gaffe-machine than Joe Biden–and that’s really saying something. Molly Ivins gave Perry that nickname. I miss her so much. So I was thrilled when I cam across this article in the Sacramento Bee:
Molly can’t say that about Rick Perry, can she? It’s a collection of quotes on Perry from Ivins. Here’s one:
June 24, 2001
First, we Texans would like to salute the only governor we’ve got, Rick “Goodhair” Perry, the Ken Doll, for vetoing the bill to outlaw executing the mentally retarded.
We are Texas Proud.
Such a brilliant decision – not only is Texas now globally recognized for barbaric cruelty, but a strong majority of Texans themselves (73 percent) would prefer not to off the retarded.
Gov. Goodhair’s decision – in the face of popular opinion, the Supreme Court and George W. Bush’s recent conversion on this subject – is a testament to his strength of character.
His Perryness announced, anent the veto, that Texas does not execute the retarded. I beg your pardon, Governor. Johnny Paul Penry, now on Death Row for a heart-breaking murder and the subject of two Supreme Court decisions, has an IQ between 51 and 60, believes in Santa Claus and likes coloring books.
We will never have another political writer like Molly.
Yesterday Perry “challenged” Obama on border security.
Perry, who was on his second trip to New Hampshire as a presidential candidate, criticized President Obama for his assertion during a speech in El Paso, Tex. in May that his administration had “strengthened border security beyond what many believed was possible.”
“Six weeks ago the President went to El Paso and said the border is safer than it’s ever been,” Perry said. “I have no idea, maybe he was talking about the Canadian border.”
Perry thinks we should use Predator Drones to deal with illegal immigration.
“I mean, we know that there are Predator drones being flown for practice every day because we’re seeing them, we’re preparing these young people to fly missions in these war zones that we have. But some of those, they have all the equipment, they’re obviously unarmed, they’ve got the downward-looking radar, they’ve got the ability to do night work and through clouds. Why not be flying those missions and using (that) real-time information to help our law-enforcement? Becuase if we will commit to that, I will suggest to you that we will be able to drive the drug cartels away from our border.”
Apparently the Governor of Texas did not know that the Department of Homeland Security has already been using Drones to patrol the Mexican border for years.
I’m not that up on Texas politics, but I’m beginning to get the idea that the Bush crowd doesn’t care much for Rick Perry. According to Elspeth Reeve at The Atlantic, Bush’s Crew Is Gunning for Rick Perry
Is Rick Perry “another George W. Bush”? In reality, Bush was more of a fake Perry, the Texas version of a studio gangster, clearing brush in his cowboy boots despite his prep school background. It helps explain why Bush’s allies and Perry’s allies don’t like each other very much: the Bush-loving Republican establishment sees Perry as “the low-rent country cousin,” the Los Angeles Times reports. And it explains why Karl Rove (who once worked for Perry, before helping Bush become president) went on Fox News to criticize Perry for calling the Federal Reserve treasonous — and to wish for more candidates to enter the 2012 race.
You’ll need to go to the link to read all about the Bush-Perry feud. In addition, Howard Dean told The Hill that the “Bush camp will take Perry out.”
Former Democratic National Committee Chairman Howard Dean predicted that prominent political supporters of former President George W. Bush will deal a critical blow to Texas Gov. Rick Perry’s (R) presidential campaign.
“The Bush people don’t fool around, as you know,” Dean said Tuesday night on MSNBC. “You can say a lot of things about Bush’s presidency and his failures as president, but one thing nobody should say [anything] bad about [is] his political team. They know what they’re doing, and they are ruthless, and they are going to take Perry out.”
Here’s Bill Clinton’s opinion on Rick Perry’s presidential ambitions:
Do you have a Citi credit card? Better watch out
TANGERANG, Indonesia — Irzen Octa, a down-on-his-luck Indonesian businessman, suffered a torment familiar to millions of Americans struggling with debts racked up in better times: He feared losing his home.
In the end, he managed to keep the ramshackle two-story house where he and his wife raised their two now-teenage daughters. Instead, Octa, pursued by Citibank over a $5,700 debt on his platinum credit card, lost his life.
The 50-year-old businessman, invited to a Citibank office in Jakarta in late March, collapsed in a tiny room set aside by the U.S. bank for questioning of deadbeat debtors. He died shortly afterward — a casualty of a “harsh interrogation,” said Jakarta police spokesman Baharudin Djafar.
Noting that Indonesian debt collectors have a reputation for sometimes aggressive persistence, Johansyah, the central bank official, said: “The best thing to do is just pay.”
Octa’s widow said she first discovered that her husband had money problems when five men showed up uninvited at their Tangerang home one night in October and said they had come to get money. Unable to collect, they slept on a terrace outside the front door.
In the following months, debt collectors kept calling — and Octa’s debts kept rising because of hefty interest.
Sounds like a Mafia movie! Will that start happening here after the Republicans remove all regulations?
Matt Taibbi has a new article at Rolling Stone: Is the SEC Covering Up Wall Street Crimes?
Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – “Hey, chief, didja know this guy had two wives die falling down the stairs?” No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.
That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”
I haven’t finished the article yet, but it sounds like an important story.
I’m going to end with a couple of feel-good stories.
Father of 2 becomes hero in abducted girl’s rescue
ALBUQUERQUE, N.M. — The timing was just right for saving the life of a 6-year-old girl and for turning a 24-year-old mechanic and father of two young daughters into a hero.
It was coincidence that Antonio Diaz Chacon had come home from work early to spend time with his family Monday afternoon. It was also a coincidence that the family’s washing machine had just gone out, forcing them to do laundry a block down the road at a relative’s home.
Had it not been for that, Diaz Chacon wouldn’t have been there to see the girl thrown into a van as another neighbor yelled for the would-be kidnapper to let the child go.
Diaz Chacon is credited with saving the girl after chasing the van through a maze of neighborhoods to the edge of where Albuquerque’s sprawling housing developments meet the desert. It was there where the van crashed into a pole, the suspect fled and Diaz Chacon was able to rescue the girl and take her home.
Go read the whole thing. It’s good to know there are still brave and generous people out there who act selflessly just because someone needs help. And here’s another story about a heroic rescue–by an 8-year-old boy.
Just 8 years old and a novice swimmer, Jesus [Lara] reacted quickly last weekend to save a drowning infant from the bottom of a pool. On Thursday morning, the Plano Fire Department recognized his life-saving actions and explained how grateful they were for his quick reaction.
Jesus has only been swimming for two months. His father Henry began teaching him to swim in the pool at the Estancia Apartments where they live. Henry said after a long day of work Friday, Aug. 5, he kept his promise to take his son to the pool that night.
While Jesus was swimming, he noticed some bubbles coming from an object under the water.
The bubbles were coming from a 21-month-old toddler who had stumbled into the water.
“I grabbed a quick breath, and I dove under,” he said.
Jesus resurfaced holding a 21-month-old boy and arms outstretched, he yelled for his father to help.
“It was what he said that spoke volumes to me,” Henry said, remembering the boy’s words, “I found him at the bottom of the pool.”
Jesus’ father knew CPR and was able to resuscitate the child, who is now “doing fine.”
Those are my recommended reads for today. What are you reading and blogging about?