William K. Black on Fraud
April 23, 2010
On Thursday, April 22, President Barack Obama made the case for increased regulation of the financial industry in a televised speech at Cooper Union in New York City. It was widely billed as President Obama's chance to harness the momentum behind reforming Wall Street and move forward the bills being considered in the House and Senate. Those measures face stiff opposition from most of the Republican Party and an army of lobbyists from Wall Street
who have the ear of members of Congress on both sides of the aisle.
William K. Black thinks President Obama didn't acknowledge a key component in the financial crisis that the bills before Congress won't address fraud. A former regulator who helped crack down on massive fraud during the savings and loan crisis in the 1980s, Black tells Bill Moyers on THE JOURNAL that, despite evidence of fraud at the top banks, prosecutions seem far away. "If you go back to the savings and loan debacle, we got more than a thousand felony convictions of the elite. These are not, you know, tellers or something. We today have zero convictions, zero indictments, zero arrests of any of the elite, non-prime lenders that, through their fraud, drove this crisis."
The Case Against Goldman Sachs
On Friday April 16, the U.S. Securities and Exchange Commission seemed to agree, charging
Goldman Sachs with fraud in its representation of collatoralized debt obligations (CDOs)
to its investors. At the heart of the case is whether Goldman Sachs was completely honest with potential investors about how the portfolio of CDOs was chosen. The SEC alleges that Goldman Sachs didn't acknowledge that the portfolio was assembled with the help of hedge fund manager John Paulson, who was planning on betting against the portfolio. Black explained why it could be a criminal matter:
It has nothing to do with the buyer being dumb. Any buyer would have wanted to know that this portfolio was set up to fail. That would have been material information within the language of the securities laws. And they were not only not told that, they were told the opposite, that it was picked so that it would succeed. That, if it's true, is a misrepresentation, or in English, a lie. And that would establish securities fraud. And that, by the way, is a felony, not just a civil wrong.
William K. Black
William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the executive director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.
Black was litigation director of the Federal Home Loan Bank Board, deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC), senior vice president and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.
Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
Published April 23, 2010. Guest photos by Robin Holland
Moyers on Banks and Bailouts
View our complete coverage of the banking and bailout crisis from early warning from THE NEW YORK TIMES' Gretchen Morgenson in 2007 to James K. Galbraith and George Soros.
William K. Black
The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout. (April 3, 2009)
Simon Johnson and James Kwak
How did Big Finance grow so powerful that its hijinks nearly brought down the global economy and what hope is there for real reform with Washington politicians on Wall Street's payroll? Bill Moyers talks with authors Simon Johnson and James Kwak, two of the nation's most respected economic experts and authors of the new book 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN. (April 16, 2010)
William K. Black
William Black's testimony before the House Financial Services Committee
Testimony before the House Financial Services Committee hearing on the collapse of Lehman Brothers. You can watch the full panel discussion, including Lehman Brother's former CEO Richard Fuld's testimony, on C-SPAN.
William K. Black articles on HUFFINGTON POST
William K. Black articles on FIREDOG LAKE
The SEC case against Goldman Sachs
"Well-connected Goldman Sachs uniquely positioned to fight fraud allegations"
By Kevin Bogardus and Silla Brush, THE HILL, April 22, 2010.
"A Difficult Path in Goldman Case"
By Binyam Appelbaum, THE NEW YORK TIMES, April 19, 2010.
"The Best Thing I Have Read on SEC-Goldman (So Far)"
By James Kwak, THE BASELINE SCENARIO, April 20, 2010.
"New Revelations Complicate SEC v Goldman"
By Amir Efrati, WALL STREET JOURNAL LAW BLOG, April 21, 2010.
Read Goldman Sachs' Abacus pitch book
Reuters has posted the "pitch book" Goldman Sachs used to sell the deal at the heart of the SEC investigation to investors.
The Money Opposing Reform
"Special Interests Continue Federal Lobbying Blitz, New Reports Indicate"
By Michael Beckel, CAPITAL EYE BLOG, April 21, 2010.
"Rent-A-Front: New Group Wages Stealth Battle Against Wall Street Reform"
By Justin Elliott, TALKING POINTS MEMO, April 21, 2010.
More on Citizens United
Special Feature: BILL MOYERS JOURNAL on FEC v. Citizens United.
Interactive timeline: SEC History
Securities and Exchange Commission Historical Society.
"Congress Passes Wide-Ranging Bill Easing Bank Laws"
By Stephen Labaton, THE NEW YORK TIMES, November 5, 1999.
The Savings and Loan Crisis
"Special Report: The Savings And Loan Crisis,"
By Barbara Rudolph, Gisela Bolte and Richard Hornik, and Thomas McCarroll, TIME, Feb. 20, 1989.
"Ryan: S&L crisis a guide for meltdown,"
By Victoria Mcgrane, POLITICO, February 2, 2009.
"The S&L Crisis: A Chrono-Bibliography,"
FDIC Web Site.