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That’s Where the Money Is

Posted by Larry Doyle on April 13, 2009 6:47 AM |

On the heels of the fraud known as Enron, Congress passed legislation requiring CEOs to validate the integrity of their financial reporting. This legislation, Sarbanes-Oxley, and its effectiveness are still hotly contested. Is it universally accepted? Does it truly promote best practices within companies and across industries? Does it produce results? Well, the fact of the matter is that it is the law of the land. However, what good is a law if it isn’t applied? I can count on one hand, without need of my thumb, claims by law enforcement authorities of companies’ violating Sarbanes-Oxley.

Will Sarbanes-Oxley be dusted off and put to use now? The Financial Times reports that it will not be for lack of opportunity that Sarbanes-Oxley is not used. In regard to bank earnings, TARP investigator Neil Barofsky offers:

“I hope we don’t find a single bank that’s cooked their books to try to get money but I don’t think that’s going to be the case,” said Mr Barofsky, who has been dubbed the “Tarp cop”.

If this is in fact the case, what about some perp walks? Is white collar crime still an activity tolerated by the system? Who is providing the cover? Are the perpetrators in bed with the legislators? Don’t tell me that cooking the books is a victimless crime. Every taxpayer is being victimized in terms of lessened credit, higher taxes, a growing deficit, and outrageous fees. Victimless? I don’t think so.

If bank executives’ “cooking the books” is the ultimate inside job, is the TALF (Term Asset-Backed Lending Facility) the equivalent of having the tellers throw on a smile while the banks’ back doors are wide open?  To wit, Barofsky shares:

Mr Barofsky also said the Treasury’s expanded term asset-backed securities loan facility (Talf) was ripe for fraud.

The former New York prosecutor said the decision to expand the Talf to encourage investors to buy distressed, or “legacy”, assets from banks could put public money behind investments that were backed by fraudulent mortgages.

“One of our strongest recommendations of the last report was do not expand the Talf to buying legacy assets. If its structure is not changed considerably it’s very, very dangerous,” he said.

The full FT report, TARP Investigator Seeks Evidence of Book Fiddling, is a simple blueprint for building a case against bank executives. However, are certain of these bank executives nothing more than modern day versions of Willie Sutton?

Who is Willie Sutton, you may ask? From the files of the Federal Bureau of Investigation:

Willie Sutton acquired two nicknames, “The Actor” and “Slick Willie,” for his ingenuity in executing robberies in various disguises. Fond of expensive clothes, Sutton was described as being an immaculate dresser. Although he was a bank robber, Sutton had the reputation of a gentleman; in fact, people present at his robberies stated he was quite polite. One victim said witnessing one of Sutton’s robberies was like being at the movies, except the usher had a gun. When asked why he robbed banks, Sutton simply replied, “Because that’s where the money is.”


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