The Justice Department is investigating whether the credit ratings agency Standard & Poor’s improperly rated dozens of mortgage securities in the years before the financial crisis, the New York Times reported.
According to sources who spoke with the Times after being questioned by the government, the DOJ has been asking about whether business managers ever overruled company analysts who wanted to lower ratings on mortgage bonds.
If the department filed a case alleging such incidents, it would certainly damage the company’s claim that its analysts act independently. The case would likely be a civil lawsuit, according to people interviewed by the Times.
S&P, the nations’ largest credit ratings agency, faced sharp public criticism after the financial crisis for reaping record profits while handing out high ratings to bundles of troubled mortgage loans. And the agency’s cut to the U.S.’s AAA credit rating earlier this month has refocused lawmakers and the public on its ratings practices, particularly after an error was found in the company’s debt projections.
But the department’s investigation began before the downgrade, according to the Times.
It was unclear if the investigation also involves other ratings agencies.
The Securities and Exchange Commission has also been investigating S&P for possible wrongdoing, according to the Times, and may be looking at the other two major agencies, Moody’s and Fitch Ratings.
People with knowledge of the investigation also told the Times that investigators had mentioned several individuals at S&P – including co-director for CDO ratings David Tesher and former executive Richard Gugliada – but it was unclear whether anyone would be named in a potential case.
In an email to the Times, S&P spokesman Ed Sweeney said, “S&P has received several requests from different government agencies over the last few years. We continue to cooperate with these requests. We do not prevent such agencies from speaking with current or former employees.”
Glenn L. Archer Jr., who retired as chief judge of the U.S. Court of Appeals for the Federal Circuit in Washington in 1997, died July 27 in Tempe, Ariz., the Washington Post reported.
Archer, 82, was named as an appellate judge for the Federal Circuit by President Ronald Reagan in 1985; he became chief judge in 1994. He took senior status in 1997.
Archer was born in Densmore, Kan., graduated from Yale University in 1951 and received a law degree in 1954 from George Washington University. Between 1954 and 1956, he served he served in the Judge Advocate General’s office of the Air Force; he returned to Washington and became a partner in Hopkins & Sutter, specializing in corporate law and taxation.
The Post reported that survivors include his wife of 21 years, Carole Thomas Archer of Tempe; four children from his first marriage, and eight grandchildren.
Correction: An earlier version of this story said Archer retired and took senior status in 1977; the correct year is 1997.
Former Assistant Attorney General Elisebeth C. Cook, who worked her way up through the Justice Department’s Legal Policy Office during the second term of the George W. Bush administration, has moved to the Washington, D.C., office of WilmerHale LLP, the firm announced Wednesday.
Cook came to the Office of Legal Policy in 2005, rising to Deputy Assistant Attorney General in 2006.
Elisebeth C. Cook
In 2008, the Senate confirmed her as Assistant Attorney General for the office, charged with advising Attorney General Michael Mukasey and other senior officials. She also worked as a Regulatory Policy Officer for the department.
Cook helped develop the FBI’s current domestic operating guidelines, the Attorney General Guidelines for Domestic FBI operations and other legislative initiatives, including the reauthorization process for the USA PATRIOT Act.
Before joining the department, Cook worked as a litigator for the Washington firm Cooper & Kirk, PLLC, working on trial and appellate litigation, particularly in constitutional law. She was also a partner at the Illinois firm Freeborn & Peters LLP.
At WilmerHale, Cook will focus on civil litigation, administrative action and legal policy, according to a release.
The Office of White House Counsel has taken on another new hire, adding another to the flood of relatively new personnel under the leadership of former Justice Department official Kathryn Ruemmler, the Blog of Legal Times reported.
Leslie Kiernan will start on Monday as a deputy counsel to President Barack Obama. Kiernan, a long-time partner at Zuckerman Spaeder LLP, has spent most of her career in private practice, focusing on white-collar defense and congressional investigations that included representing Rep. Charles Rangel (D-N.Y.) during a House ethics probe.
She is expected to focus on ethics compliance and vetting presidential appointees, according to the Legal Times.
Kiernan’s introduction marks the latest in a series of relatively recent hires, including deputy counsels Kimberley Harris and Avril Haines. Also recently hired as senior counsel are Steven Croley, from the White House’s Domestic Policy Office, and Chris Kang, from Obama’s legislative affairs staff.
Ruemmler, a former Principal Associate Deputy Attorney General, took over the office after former White House Counsel Robert Bauer announced in June he would return to Perkins Coie LLP to advise Obama’s reelection campaign. She worked as a prosecutor at the department for almost 10 years before making the jump to White House Counsel.
Statements made by a man suspected of attempting to bomb a Martin Luther King, Jr., Day parade in Spokane, Wash., won’t be used in court because FBI agents failed to advise him of his Miranda rights after his arrest, Talking Points Memo reported.
Keven Harpham, who has ties to white supremacist groups, was subjected to “the functional equivalent of interrogation” for several hours before being told his rights, wrote District Judge Justin Quackenbush of the Eastern District of Washington in a ruling last week.
Responding to the judge’s disapproval of the failure to follow criminal procedure, prosecutors agreed not to use any of the statements made by Harpham before being told his rights.
Harpham’s arrest in January came the month after the Justice Department issued a memo saying that in special circumstances FBI agents could question terrorism suspects without first advising them of their rights. But because Quackenbush sealed the courtroom during an FBI agent’s testimony earlier in the trial, questions remain about any connection between the incident and memo.
Firearms sold during Operation Fast and Furious have turned up at scenes of at least 11 violent crimes in the U.S., in addition to a shootout with Border Patrol that ended in the slaying of an agent in southern Arizona last year, the Los Angeles Times reported.
Information from a Justice Department letter obtained by the Times on Tuesday expands the apparent danger posed by the Bureau of Alcohol, Tobacco, Firearms and Explosives’ operation and renews questions about when the agency’s acting Director Kenneth E. Melson knew about the operation.
The July 22 letter, signed by Assistant Attorney General Ronald Weich and sent to Senate Judiciary Committee Chairman Sen. Patrick Leahy (D-Vt.) and ranking member Sen. Charles Grassley (R-Iowa), does not give details on the crimes or say how many guns turned up at each scene. But the Times reported that they occurred in several Arizona cities and El Paso, Texas.
An anonymous source speaking with the Times said that weapons began turning up at crime scenes in Phoenix, Nogales, Douglas and Glendale in Arizona and in El Paso as early as January 2010, adding that in one instance, 40 weapons were recovered at a crime scene in El Paso.
The letter also says that ATF officials advised the Justice Department that Melson “likely became aware on or about Dec. 9, 2009 as part of a briefing following a seizure of weapons in Douglas, Ariz.”
If accurate, that means Melson learned of the program about a month after it started, contradicting his own account that he didn’t learn about the operation until January of this year when it was discontinued.
Weich wrote that ATF had told the department that, although Melson was given regular briefings, “periodic updates were provided to the acting director as determined to be necessary by the [ATF] Office of Field Operations. These briefings typically coincided with planning field visits or in preparation for meetings.”
Weich added that Attorney General Eric Holder first spoke to Melson about the program “in or about late April” of this year during a regular briefing, and he reemphasized that DOJ official didn’t know about the tactics being used in the operation until this year.
Supervisors from the ATF’s Phoenix Field Office, where Operation Fast and Furious originated, have said their efforts were meant to identify and build a case against gun-trafficking leaders and members of Mexican drug cartels. But the operation ended with little progress against either target, and in the process, circulated a total of 1,418 firearms, according to Weich’s letter.
That number is much lower than earlier estimates from authorities, who said that at least 2,000 guns had vanished. It is unclear how many remain missing.
Former Justice Department attorney Alexander K. Haas has joined the Washington office of King and Spalding, the law firm announced Tuesday.
Haas served for eight years with the DOJ, working the last two years as counsel for the Office of Law and Policy in the DOJ’s National Security Division. He was also selected as a founding member of the division’s appellate section, and before that, worked for six years in the Civil Division.
Alexander Haas
“I am thrilled to be entering private practice at one of the most dynamic and well-respected law firms,” Haas said in a statement. “King & Spalding’s litigation and antitrust practice is unparalleled, and I could not be more excited to join such a talented group of lawyers.”
Haas will focus on civil litigation with a focus on regulatory enforcement proceedings and government investigations, according to the release.
“During his time at the Department of Justice, Alex has cultivated a diverse expertise that will benefit King & Spalding clients across a number of practices areas,” said Kevin R. Sullivan, practice leader for the firm’s litigation and antitrust group in Washington, D.C. “He is a significant addition to our Washington office.”
Correction: An earlier version of this story said that Haas had spent six years in the DOJ Civil Rights Division.
The trustee trying to clean up the financial wreckage left by Ponzi-schemer Bernard L. Madoff won an important ruling on Tuesday in the U.S. Court of Appeals for the 2nd Circuit, which affirmed the trustee’s method of determining who can recover money lost in the fraud.
A three-judge panel of the 2nd Circuit upheld the approach of trustee Irving Pickard, who determined earlier that Madoff investors who thought they were “net winners,” meaning they withdrew more money from their Madoff accounts than they put in, are not entitled to share in the pool of money Pickard has managed to recover for Madoff’s victims.
The appeals court in New York said Picard can calculate losses by subtracting the amount withdrawn from an investor’s account from the total placed with Madoff, “the so-called net investment method,” Bloomberg reported.
Some of Madoff’s victims had argued that Picard should use their final account statements – which reflected fictitious profits – to determine losses. But to proceed that way would have “the absurd effect of treating fictitious and arbitrarily assigned paper profits as real,” Chief Judge Dennis Jacobs wrote for the panel. In other words, those who thought they made money with Madoff are out in the cold.
The ruling will limit the number of victims who can claim money from the fund Picard oversees and reduces the monetary amount of many eligible claims, Bloomberg reported.
“Picard’s loss calculation method also reduces the amount of payouts to Madoff investors by the Securities Investor Protection Corp., which reimburses defrauded investors up to $500,000 per account,” Bloomberg said. Picard represents SIPC.
“The Second Circuit’s ruling will destroy investor confidence in the capital markets because the promise of SIPC insurance is illusory,” Helen Chaitman, a lawyer for many Madoff victims, said, according to Bloomberg. “The message to every American who invests in the stock market is clear: Invest at your own risk and assume that SIPC insurance does not exist.”
But Amanda Remus, a spokeswoman for Picard, said in a statement that the trustee has “maintained all along that our definition of net equity — which is supported by longstanding precedents in bankruptcy and securities laws — is the fairest approach to the determination of claims,” Bloomberg reported.
Bloomberg said that, by suing investors, banks and others who profited from Madoff or should have known of his fraud, Picard is seeking a total of about $100 billion. He has raised more than $8.6 billion, or almost half the $17.3 billion in principal he calculates investors lost in the fraud, Bloomberg reported. (See Main Justice report from December.)
Madoff, 73, was sentenced to 150 years in prison for what has been described as the largest Ponzi scheme in U.S. history.
The Bureau of Alcohol, Tobacco, Firearms and Explosives has promoted three key figures in the controversial gun-trafficking operation that allowed U.S. firearms to illegally cross into Mexico, the Los Angeles Times reported.
The three supervisors – ATF Deputy Director William G. McMahon and Phoenix field office supervisors William D. Newell and David Voth – have all been given new management positions at the ATF’s headquarters in Washington despite continued controversy over their role in carrying out Operation Fast and Furious from November 2009 to January 2011.
Congressional investigators say the men moved forward even as ATF agents lost track of more than 2,000 firearms, nearly 200 of which were recovered at crime scenes in Mexico. Two of the guns were also found at the scene of a shootout that ended with the killing of a U.S. Border Patrol agent in Arizona.
McMahon and Newell attended a congressional hearing on the operation last month, where they acknowledge making serious mistakes.
“The advantage of hindsight and the benefit of a thorough review of this case clearly points me to things that I would have done differently,” McMahon told congressional investigators. “We made mistakes.”
But Newell, who was the special agent in charge of the Arizona field office where the operation reportedly originated, bore the brunt of lawmakers’ condemnation for insisting that agents never let guns “walk” into Mexico. Instead, he said agents never intended for firearms to cross the border, and he defended the intention of the operation: to build cases against gun-trafficking higher ups.
Newell had planned to take over as the ATF’s attaché to Mexico, but the agency announced this month that he would instead become special assistant to the assistant director of the ATF’s Office of Management in Washington.
According to Newell’s attorney, Paul Pelletier, the attention of Congress made the attaché assignment untenable.
“The way the investigation and his public service has been unfairly maligned publicly, it would be imprudent to send him to Mexico as the attaché at this time,” Pelletier said earlier this month.
McMahon, who supervised Newell during Fast and Furious, has been promoted to deputy assistant director for the ATF’s Office of Professional Responsibility and Security Operations, which investigates misconduct by agency employees.
Voth, a team supervisor for the operation, moved to Washington last month to become branch chief for the ATF’s tobacco division.
The American Bar Association is calling for stricter rules for federal and state prosecutors to disclose evidence that could help defendants.
In the latest development in a decades-long debate, the ABA’s House of Delegates called for the adoption of a tougher standard for so-called exculpatory evidence, according to an account by Thomson Reuters. Those who favor the tougher standard say there is too much uncertainty that surrounds current case law, subject to varying interpretation by judges in different jurisdictions.
“In order to give real meaning to the 6th Amendment right to counsel, you have to make sure the counsel has the building blocks to build a defense,” said William Shepherd, former statewide prosecutor for Florida and one of the driving forces behind the resolution, according to the Thomson Reuters report.
Stephen Saltzburg, a law professor and former federal prosecutor who helped write the report that led to the resolution, said defense lawyers and prosecutors may have very different ideas about what evidence is significant. “The line between what’s material and what’s not is fuzzy,” he said, according to Thomson Reuters. “There’s no magic line. That’s part of the problem.”
“The Justice Department has signaled it does not favor the resolution, arguing that it has already issued new guidelines to its prosecutors and provided supplemental training in response to the reversal of the corruption conviction of Ted Stevens,” Thomas Reuters said, referring to the prosecution of the late Republican senator from Alaska, which was undone when a federal judge ruled that prosecutors had failed to disclose important evidence.
Current law is based largely on the 1963 U.S. Supreme Court case Brady v. Maryland, in which a defendant challenged his murder conviction after learning that prosecutors had withheld a confession from a co-defendant.
