Skip Navigation

Close and don't show again.

Your browser is out of date.

You may not get the full experience here on National Journal.

Please upgrade your browser to any of the following supported browsers:

Legal Washout? Legal Washout?

This ad will end in seconds
Close X

Want access to this content? Learn More »

Forget Your Password?

Don't have an account? Register »

Reveal Navigation



Legal Washout?

Crisis commission fails to uncover significant new criminal or civil evidence, two GOP members say.


Former Federal Reserve Board Chairman Alan Greenspan testifies during a hearing before the Financial Crisis Inquiry Commission.(Getty Images)


Referrals of evidence by the Financial Crisis Inquiry Commission to law-enforcement authorities are not expected to result in any major new criminal or civil cases, two Republican commission members told National Journal on Thursday.


“There’s no there there,” said Douglas Holtz-Eakin, a Republican economist and member of the divided commission. “The Justice Department already has this information. It’s all these cases that have already been pursued.”

Holtz-Eakin said that the referrals involved, among other firms, Goldman Sachs, whose dispute with the Securities and Exchange Commission over allegations of fraud was settled for $550 million last July; and Magnetar, a hedge fund reportedly under investigation by the SEC over whether it improperly selected assets for a $1.1 billion deal backed by subprime mortgages.

On Friday, Holtz-Eakin clarified that panel members did not view Magnetar itself as a possible target of investigation, but rather Merrill Lynch for its role in a deal in which Magnetar had  been an investor.


Another Republican on the commission, Peter Wallison, suggested that the Democratic members were eager to generate headlines from legal cases stemming from the volumes of testimony and evidence that the commission turned up during the year and a half investigation. “My reaction was, none of these things look like they’re serious enough to be sent over to the Justice Department,” Wallison said. “The argument from the Democratic side was, ‘Well, you have to look at this as not very important, but it is additional information. We are under obligation in our statute to report’ ” it.

Wallison said that almost all of the evidence that the commission referred was related to civil cases at the SEC. Agency spokesman John Nester said that the SEC would have no comment on how many referrals were made and what individuals they named.

The details on the referrals - and the skepticism that they would amount to much - were another example of the commission's deep partisan divisions.

Asked on Thursday how many referrals there were and what kind of evidence was turned up, the commission’s Democratic chairman, Phil Angelides, told a news conference at which he presented the findings of the 10-member commission, “We will not comment on any specific referrals.”


The commission was divided between the majority six Democrats, who issued one report on the causes of the financial crisis; three Republicans, including Holtz-Eakin, who issued a dissenting report; and Wallison, who submitted his own individual dissent.

In a telephone conference call on Thursday, a Republican member, former George W. Bush adviser Keith Hennessey, said that one of the GOP members' several problems with the Democratic majority report was that it sought to blame particular “bad actors” for the crisis, especially Wall Street. “I didn’t see [that] as being a significant cause,” he said.

Criminal and civil investigations in the wake of the financial crisis have not, in general, fared very well. Last year, the SEC and the Justice Department, lacking evidence of fraud, declined to file charges against Joseph Cassano, the former AIG financial products chief whom the writer Michael Lewis once called “the man who crashed the world.” (Cassano, in testimony to the Financial Crisis Inquiry Commission on June 30, insisted that he had been “prudent” in selling billions of dollars in credit-default swaps, despite the government’s $130 billion bailout of AIG.)

On June 25, a U.S. District judge in New York threw out the SEC’s first-ever insider-trading case in credit-default swaps against a Deutsche Bank trader, saying that the SEC had no evidence.

Last October, in one of the few cases that assigned individual culpability in the subprime mortgage securitization scandal, former Countrywide Financial CEO Angelo Mozilo agreed to pay $67.5 million to settle a civil fraud case.

The SEC accused Goldman Sachs of defrauding its clients by selling them a complex, mortgage-backed security that was secretly designed to plummet in value so that “short-sellers” would make a bundle on the market drop. But the SEC agreed to settle the case without forcing an admission of wrongdoing from Goldman, although the investment bank conceded that it had made a "mistake" in marketing the security.

comments powered by Disqus