Given the government's failure to bring criminal cases against bankers and other Wall Street figures for collapsing the U.S. economy in 2008, it's been left to the little guy to strike back.
To be precise, one federal jury in Sacramento, which acquitted four allegedly fraudulent mortgage borrowers of criminal charges after hearing testimony that the executives at their banks pulled out all the stops to make fraudulent loans for their personal profit.
We're a bit late to this story--the verdict was handed up at the end of August, Salon's Thomas Frank had a good analysis of the case a few weeks ago. But because of its potential significance for mortgage fraud prosecutions going forward, and because it happened in the federal district known for its aggressiveness in pursuing borrowers for mortgage fraud, the case is worth a closer look.
"The jury understood that these defendants were mice," says William K. Black, a former litigation director at the Federal Home Loan Bank Board who oversaw the prosecutions of numerous savings-and-loan executives after that industry's meltdown.
Black, who is associate professor of law and economics at the University of Missouri-Kansas City, was an expert witness for the defense in the Sacramento case. He may have delivered the key testimony blowing up the government's contention that the defendants were the main fraudsters. His testimony was that executives at the lending institutions deliberately created a system to make fraudulent loans as a recipe for personal enrichment.
That's a key point, because the pattern of government enforcement post-recession has been to pursue corporations while leaving their actual managers alone. In the Department of Justice's "historic" (DOJ's word) $16.5-billion settlement with Bank of America this summer or its "historic" (again, prosecutors' word) $13-billion settlement with JPMorgan last fall, how many executives were made to lose their jobs or face criminal prosecution or even civil lawsuits as a condition of the deal? Not a one.
The notion that bank managements are the victims of mortgage fraud is deeply ingrained in the prosecutor mentality. In 2010, Benjamin Wagner, Sacramento's U.S. attorney, told the Huffington Post, "It doesn't make any sense to me that they (bank executives) would be deliberately defrauding themselves."
Wagner plainly doesn't recognize that a corporation and its top executives are not the same thing, or that a CEO might defraud not himself, but his bank. "Despite what the Supreme Court says," Black told the jury in Sacramento, "corporations aren't really people. The reality is corporations have no soul, they have no mind...they have no ability to protect themselves from their senior officers."
Wagner's office prosecuted and lost the Sacramento case. In its aftermath he told the Sacramento Bee, "We respect the criminal trial process, and accept the jury’s verdict in this case. It will not dissuade us from pressing forward in the many other mortgage fraud cases currently pending in this courthouse."