The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“WALL STREET VS. MAIN STREET” mentioning the U.S. Dept. of Justice was published in the House of Representatives section on pages H2673-H2676 on April 20, 2010.
The publication is reproduced in full below:
WALL STREET VS. MAIN STREET
The SPEAKER pro tempore. Under a previous order of the House, the gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
Ms. KAPTUR. Mr. Speaker, Wall Street speculation and the disaster it caused have been clear since the bailout in the fall of 2008. More foreclosures on Main Street, higher profits for Wall Street.
I fought against that bailout, and I continue to fight for Main Street and the people who are not high powered gamblers nor high paid investors nor the mega banks. My fight is for people to regain their jobs, for people to save their homes, and for people to have their hope restored.
I've been observing the U.S. Securities and Exchange Commission taking a baby step, long overdue, as watchdog of the markets that they are supposed to be regulating as enforcers of securities law.
As the New York Times reports today, rather than asserting that Goldman misrepresented a product it was selling, the most commonly used grounds for securities fraud, the Securities and Exchange Commission said in a civil lawsuit filed on Friday that the investment bank misled customers about how the product was created. In fact, the SEC can only file civil cases, so it's high time to look, rather, at the apparent criminal fraud involved in and around the hidden works of Wall Street and the financial crisis it precipitated.
Last year I introduced H.R. 3995, the 2008 Financial Crisis Investigation and Prosecution Act, authorizing the Director of the FBI to hire 1,000 additional agents and additional forensic accounting experts to probe down into the misdeeds that brought down the economy of our Nation.
Though the FBI is slightly beefing up their ranks on investigating fraud, during the savings and loan scandal of the late 1980s and early 1990s 1,000 agents, as well as forensic experts, exacted justice. Today, if there are even 300 over there doing part-time work on this, that would be a high number.
Back in the eighties and nineties, that savings and loan crisis cost the people of our country $170 billion placed right squarely on the back of our taxpayers. The 2008 financial crisis could cost our people trillions of dollars. So it must be the focus of the Department of Justice to find and fight the fraud in our financial system. And they simply need more financial white collar crime agents to do so.
Citizens following the law have nothing to fear. Those committing criminal acts should know they will be caught. That is why, in addition to authorizing more FBI agents, H.R. 3995 also authorizes the hiring of more prosecutors in the Department of Justice to take those cases to trial.
In addition, the SEC has an important role in enforcement, as shown on Friday of last week, and H.R. 3995 strengthens the SEC by authorizing the hiring of more investigators.
Many groups support this effort and recognize the necessity of ensuring our financial system is rid of these criminals, and also pointing out who's profited from the harm that has been caused to the American people through their moral hazards.
No one knows exactly how much the financial crisis of 2008 will cost our taxpayers, but one way to lessen that blow to them is to claw back to the assets of those who rigged the system to their benefit and our Republic's detriment. Our citizens want those who committed crimes to be held accountable, and H.R. 3995 supports the agencies who can work for real justice.
I ask my colleagues to support this bipartisan bill and work to support the agencies tasked with finding and fighting massive fraud in our financial system.
Furthermore, Congress should be assured that the Department of Justice is on task to find and fight this fraud.
The charges against Goldman Sachs, the speculators there, by the SEC have released a wave of response across this country. And in today's New York Times Letters to the Editor, Oliver Revell, who served for 30 years as Special Agent and Senior Executive of the FBI and as an Associate Deputy Director, wrote to the Times, ``It is clear to me that the SEC charges should be held in abeyance, and that the FBI and Justice Department should immediately open an investigation in the apparent fraud that occurred in this area.''
He states that out of concern that the SEC's civil charges might result in future criminal actions being impossible, as evidence in civil trials can be excluded as inadmissible from criminal trial if it is used first in a civil trial.
I agree. And I'm circulating a letter among my colleagues asking Attorney General Holder to investigate Goldman Sachs and other related cases to find and fight fraud in our financial system.
Many questions are yet to be answered and situations investigated. How much of this was under the watch of then CEO of Goldman Sachs, Henry Paulsen, the former Secretary of the Department of the Treasury, who then bailed out the big banks with which he was so intimately implicated?
AIG must be one of these cases since Goldman Sachs was the largest domestic recipient of counterparty payments through AIG. Goldman's excessive profits in this first quarter have gone up more than $3.5 billion. Imagine if you could borrow at one-half percent interest from the Federal Reserve and then lend that money out at 3.5 percent interest rate. You'd be making billions, too.
And it's not just all about Goldman Sachs. It's about Lehman Brothers, Washington Mutual, other banks, our speculative firms, hedge funds, mortgage companies. Fraud is against the law, and right now fraud appears to be rampant and getting away with it. We need to be investigating and catching the criminals and leaving those who abide the law alone.
I fought the bailout in part because I was concerned that rampant fraud was highly likely. And Congress needs to fight for Main Street and support those agencies that are responsible for fighting fraud in our system.
I ask my colleagues to join me by also signing the letter we have composed to Attorney General Holder asking for a criminal investigation with fraud related to these institutions; and also invite my colleagues to cosponsor H.R. 3995.
The Uproar Over Goldman Sachs
To the Editor:
It is clear to me that the Securities and Exchange Commission charges should be held in abeyance and that the F.B.I. and the Justice Department should immediately open an investigation into the apparent fraud that occurred in this situation.
Goldman Sachs officials who approved of this insider manipulation, including Fabrice Tourre, the apparent creator of the Abacus 2007-AC1 fund, should be the immediate targets of this investigation, as should John A. Paulson, the apparent beneficiary of the fund.
If the S.E.C. proceeds with a civil case, much of the evidence may be inadmissible in a criminal proceeding because of Fifth Amendment issues. In my experience as an agent and former associate deputy director of the F.B.I. who was in charge of criminal investigations, this case should go to the top of the F.B.I.'s priority list. There should be an intensive investigation of all potentially criminal acts in this apparent scam.
Oliver Revell,
Zurich, April 17, 2010.
To the Editor:
Re ``S.E.C. Accuses Goldman of Fraud in Housing Deal''
(front page, April 17):
The securities fraud lawsuit against Goldman Sachs exposes a serious flaw in modern Western capitalism.
Adam Smith taught us that the point of a robust capital market is to direct capital to its best and highest use, where, combined with labor, it will produce the goods and services most valued by society. Asset bubbles are a problem, but at least mortgage-backed securities enabled people to live in their overvalued houses.
The Goldman ``Abacus'' transaction involved ``synthetic'' collateralized debt obligations, derivatives whose value rose and fell with the value of real C.D.O.'s elsewhere. It produced no goods or services, financed no consumption--nothing at all. Money that could, and should, have been used to add value to society was not invested; it was squandered as surely as if the parties had wagered on a horse race.
Legitimate hedging is one thing. Gambling with people's savings, university endowments and municipal funds, on the other hand, should be a crime.
Caroline Poplin,
Bethesda, Md., April 18, 2010.
To the Editor:
Goldman Sachs's ethical failures and hypocrisy are more important than whether it is legally guilty of fraud. Goldman presents itself as having higher standards than other Wall Street firms. It even posts ``Our Business Principles'' on its Web site, something most firms do not do. Among these are
``Our clients' interests always come first'' and ``Integrity and honesty are at the heart of our business.''
In the Abacus 2007-AC1 transaction, according to the Securities and Exchange Commission lawsuit, Goldman knowingly sold a product that was designed to fail, favoring its own interests and the interests of one client (John A. Paulson, a hedge fund manager) over the interests of other clients. Further, it failed to fully disclose how the Abacus portfolio was assembled. Goldman clearly did not adhere to its stated business principles in this deal.
Jeffrey Cohen,
Arroyo Seco, N.M., April 18, 2010.
To the Editor:
As a real estate agent on the North Fork of Long Island in the roaring housing market here from 1998 to 2005, I was puzzled by the willingness of banks to give ``no doc'' (no documentation) and ``liars'' (self-explanatory) bans. Some of these buyers were borrowing more than the cost of their new homes.
Today we can see why the banks were so generous. The Securities and Exchange Commission charges that at least one bank, Goldman Sachs, knowingly sold packages of subprime loans that were meant to fail so that a savvy investor could most profitably short a pool of them.
Some subprime mortgage borrowers who are underwater, owing more on their homes than they are worth, are walking away, leaving their homes and the payments they have already made to the banks.
These days the North Fork real estate sales market isn't roaring anymore, but many of those former homeowners are keeping the rental market purring.
Janice Keller,
Mattituck, N.Y., April 17, 2010.
To the Editor:
Re ``In a Rush to Judge Goldman?'' (column, April 17):
In questioning a rush to judgment against Goldman Sachs, William D. Cohan seemingly tries to turn the table by asking: if ``Goldman had lost billions instead of making billions, would the S.E.C. have filed a lawsuit against Abacus's investors?''
This ignores the fundamental issue in this case: fraud is fraud, whether the perpetrator profits from his misdeeds or not. The Securities and Exchange Commission is alleging that Goldman omitted material information from a prospectus that it was required by law to disclose so that the investors could make an informed decision about whether to buy the securities being offered.
Moreover, if Goldman did lose money--whether from the actual trades or the recent drop in share price--and the S.E.C. proved that Goldman had committed fraud, then Goldman's shareholders have been hurt by this activity and would have a right to sue to recoup their losses from those responsible.
James O. Chamberlain,
Forest Hills, Queens, April 17, 2010.
To the Editor:
Re ``So Many Ways to Almost Say I'm Sorry'' (Week in Review, April 18):
Its the ``say you're sorry'' season for highly compensated bankers, but the apologies ring hollow. An apology without a commitment to make amends by way of financial reparations is similar to the ``thank you'' note that arrives six months after the gift has been received.
It's better than nothing, but not by much.
Joan Evangelisti,
Racine, Wis., April 19, 2010.
____
[From the New York Times, April 19, 2010]
A Difficult Path in Goldman Case
(By Binyamin Applebaum)
Washington.--In accusing Goldman Sachs of defrauding investors, regulators are not only taking aim at a company with deep pockets and a will to fight--they are also pursuing an unusual claim that could be difficult to prove in court, legal experts said.
Rather than asserting that Goldman misrepresented a product it was selling, the most commonly used grounds for securities fraud, the Securities and Exchange Commission said in a civil suit filed Friday that the investment bank misled customers about how that product was created.
It is the rough equivalent of asserting that an antiques dealer lied about the provenance, but not the quality, of an old table.
To a layperson, the case against Goldman may seem clear cut.
After all, investors did not know some information about the product that they might have considered vital, and they lost $1 billion in the end. But the rules that govern these kinds of transactions are not so plain.
Several experts on securities law said fraud cases like this one, which focuses on context rather than content, are generally more difficult to win, because it can be hard to persuade a jury that the missing information might have led buyers to walk away.
They added, however, that the strength of the S.E.C.'s case is impossible to gauge until the agency discloses more of the evidence it has assembled. So far it has provided only a sketch.
The stakes are huge. The S.E.C., battered by its failure to identify or prevent several major frauds in recent years, is eager to re-establish its credibility as an enforcer. But in choosing such a difficult battlefield, the commission also risks losing a case at a time when it is trying to re-establish its reputation as a tough watchdog.
Goldman's sterling reputation, a foundation of its financial success, is also on the line. Rather than settling with the government, it has so far chosen to fight back. The company says it provided its investors with all the information required by law. It has also stressed that it sold the securities to financial firms that were sophisticated investors.
The commission's core accusation is that while Goldman provided to those firms a detailed list of the assets contained in a security it built and sold in 2007, it concealed the role of John Paulson, a hedge fund manager who worked with Goldman to pick what assets went into the security. Mr. Paulson then placed bets that the security would lose value.
In essence, the buyers bet that housing prices would go up, while Mr. Paulson bet that prices would fall.
Goldman was not legally required to provide any information to the investors, because Goldman found the buyers without offering them on the open market. But for any information that Goldman chose to provide, it was required by law to give a complete and accurate account.
Goldman outlined its likely defense arguments in two letters sent to the S.E.C. in September in response to a notice from the agency that the company was under investigation and could be sued.
In the letters, Goldman's lawyers at Sullivan & Cromwell wrote that the company Goldman hired to manage the deal, ACA Management, was ``no mindless dupe that could be easily manipulated.'' Furthermore, the letters said that the downturn of the housing market was not a foregone conclusion, and that it was therefore misleading for the S.E.C. to consider the transaction through the lens of ``perfect hindsight.''
The letters went on to argue that, contrary to the S.E.C.'s assertions, Goldman disclosed all information about the deal that was material. In particular, the letters drew a sharp distinction between information about the security, which the company said it provided in full, and information about Mr. Paulson's role.
The second letter said, ``It is this concrete information on the assets--not the economic interest of the entity that selected them--that investors could analyze and use to inform their decisions.''
To win its case, the S.E.C. must prove that Goldman was not merely silent about Mr. Paulson's role but actually gave investors the wrong impression, experts in securities law said. Then it must prove that the missing information was material, a legal term meaning that investors armed with that knowledge might have decided not to buy the product from Goldman, or to do so at a lower price.
Allen Ferrell, a law professor at Harvard, said the suit rested on an unusual definition of material information.
``We normally think of material information as specific to the mortgages, not somebody's prediction about the future course of macroeconomic events,'' Professor Ferrell said.
``So who cares whether Paulson is bullish or bearish? Whatever his personal opinion is about the future course of housing prices, the question is, did the investors have access to the underlying mortgages?''
But Donald C. Langevoort, a law professor at Georgetown University, said the case was consistent with other government efforts in past years to broaden the definition of material information. ``The S.E.C. has long insisted that context is important,'' Professor Langevoort said. ``If you think of it more broadly in that way, this isn't an unprecedented case.''
Professor Langevoort cited as an example the commission's 2003 settlement with 10 investment banks over accusations that their research departments were providing recommendations to investors without disclosing that favorable reviews were used to attract underwriting business from the companies issuing the stock.
Adam C. Pritchard, a law professor at the University of Michigan, said that the S.E.C.'s focus on the construction of Goldman's security reflected the increased complexity of financial instruments. Construction has simply become a more important part of the process, he said. But he added, ``The basic idea that an undisclosed conflict of interest could be misleading is pretty much as old as stockbrokers.''
In pursuing a new twist on an old idea, however, the S.E.C. has deeply unsettled the financial markets, opening the way for investors to file claims against banks that sold similar products, and forcing firms to reconsider their own liability.
Richard W. Painter, a corporate law professor at the University of Minnesota, said the novel nature of the fraud charges made it important for the S.E.C. to disclose more details quickly, so that markets were not paralyzed by uncertainty over the boundaries.
``The S.E.C. needs to step to the plate with very specific facts and make it clear what they think Goldman did that was wrong,'' Professor Painter said. letters
The Uproar Over Goldman Sachs
To the Editor:
It is clear to me that the Securities and Exchange Commission charges should be held in abeyance and that the F.B.I. and the Justice Department should immediately open an investigation into the apparent fraud that occurred in this situation.
Goldman Sachs officials who approved of this insider manipulation, including Fabrice Tourre, the apparent creator of the Abacus 2007-AC1 fund, should be the immediate targets of this investigation, as should John A. Paulson, the apparent beneficiary of the fund.
If the S.E.C. proceeds with a civil case, much of the evidence may be inadmissible in a criminal proceeding because of Fifth Amendment issues. In my experience as an agent and former associate deputy director of the F.B.I. who was in charge of criminal investigations, this case should go to the top of the F.B.I.'s priority list. There should be an intensive investigation of all potentially criminal acts in this apparent scam.Oliver RevellZurich, April 17, 2010
To the Editor:
Re ``S.E.C. Accuses Goldman of Fraud in Housing Deal''
(front page, April 17):
The securities fraud lawsuit against Goldman Sachs exposes a serious flaw in modern Western capitalism.
Adam Smith taught us that the point of a robust capital market is to direct capital to its best and highest use, where, combined with labor, it will produce the goods and services most valued by society. Asset bubbles are a problem, but at least mortgage-backed securities enabled people to live in their overvalued houses.
The Goldman ``Abacus'' transaction involved ``synthetic'' collateralized debt obligations, derivatives whose value rose and fell with the value of real C.D.O.'s elsewhere. It produced no goods or services, financed no consumption--nothing at all. Money that could, and should, have been used to add value to society was not invested; it was squandered as surely as if the parties had wagered on a horse race.
Legitimate hedging is one thing. Gambling with people's savings, university endowments and municipal funds, on the other hand, should be a crime.Caroline PoplinBethesda, Md.,April 18, 2010
To the Editor:
Goldman Sachs's ethical failures and hypocrisy are more important than whether it is legally guilty of fraud. Goldman presents itself as having higher standards than other Wall Street firms. It even posts ``Our Business Principles'' on its Web site, something most firms do not do. Among these are
``Our clients' interests always come first'' and ``Integrity and honesty are at the heart of our business.''
In the Abacus 2007-AC1 transaction, according to the Securities and Exchange Commission lawsuit, Goldman knowingly sold a product that was designed to fail, favoring its own interests and the interests of one client (John A. Paulson, a hedge fund manager) over the interests of other clients. Further, it failed to fully disclose how the Abacus portfolio was assembled. Goldman clearly did not adhere to its stated business principles in this deal.Jeffrey CohenArroyo Seco, N.M.,April 18, 2010
To the Editor:
As a real estate agent on the North Fork of Long Island in the roaring housing market here from 1998 to 2005, I was puzzled by the willingness of banks to give ``no doc'' (no documentation) and ``liars'' (self-explanatory) loans. Some of these buyers were borrowing more than the cost of their new homes.
Today we can see why the banks were so generous. The Securities and Exchange Commission charges that at least one bank, Goldman Sachs, knowingly sold packages of subprime loans that were meant to fail so that a savvy investor could most profitably short a pool of them.
Some subprime mortgage borrowers who are underwater, owing more on their homes than they are worth, are walking away, leaving their homes and the payments they have already made to the banks.
These days the North Fork real estate sales market isn't roaring anymore, but many of those former homeowners are keeping the rental market purring.Janice KellerMattituck, N.Y.,April 17, 2010
To the Editor:
Re ``In a Rush to Judge Goldman?'' (column, April 17):
In questioning a rush to judgment against Goldman Sachs, William D. Cohan seemingly tries to turn the table by asking: if ``Goldman had lost billions instead of making billions, would the S.E.C. have filed a lawsuit against Abacus's investors?''
This ignores the fundamental issue in this case: fraud is fraud, whether the perpetrator profits from his misdeeds or not. The Securities and Exchange Commission is alleging that Goldman omitted material information from a prospectus that it was required by law to disclose so that the investors could make an informed decision about whether to buy the securities being offered.
Moreover, if Goldman did lose money--whether from the actual trades or the recent drop in share price--and the S.E.C. proved that Goldman had committed fraud, then Goldman's shareholders have been hurt by this activity and would have a right to sue to recoup their losses from those responsible.James O. ChamberlainForest Hills, Queens,April 17, 2010
To the Editor:
Re ``So Many Ways to Almost Say `I'm Sorry' '' (Week in Review, April 18):
It's the ``say you're sorry'' season for highly compensated bankers, but the apologies ring hollow. An apology without a commitment to make amends by way of financial reparations is similar to the ``thank you'' note that arrives six months after the gift has been received.
It's better than nothing, but not by much.Joan EvangelistiRacine, Wis., April 19, 2010
____________________
