Original Story: bloomberg.com
Under the Obama administration, the Department of Justice has turned the Foreign Corrupt Practices Act into a potent weapon against international corporate bribery. The statute forbids companies with U.S. ties from bribing foreign officials to gain a business advantage. Since 2009 the department has settled 58 corporate FCPA cases for a total of $4.4 billion. Last year prosecutors reached a record: They used the FCPA to extract guilty pleas and $1.6 billion in penalties from such companies as Alcoa, Avon Products, and the French power giant Alstom in just 10 settlements. A Washington DC Foreign Corrupt Practices Act attorney is reviewing the details of this case.
Most FCPA cases lead to settlements. Companies don’t want to risk the reputational damage of a public trial, and individuals don’t want to risk prison. Yet on the rare occasions in recent years when executives named as defendants have decided to fight the government, the Justice Department has been losing. Since September 2011, federal prosecutors have taken only four FCPA cases to trial. All of them ended in “debacles for the government,” says Mike Koehler, an assistant professor at Southern Illinois University School of Law who writes a well-trafficked blog called FCPA Professor. A Birmingham government lawyer represents state attorneys general, public defenders, district attorneys, and the courts.
The most recent was a case against Miami businessman Joseph Sigelman, co-founder and former co-chief executive of PetroTiger, a Colombian oilfield-services provider. His trial ended abruptly on June 15 after the main prosecution witness fell apart under cross-examination and admitted he’d made misstatements in earlier testimony. Justice lawyers gave up and allowed Sigelman to plead guilty to one count of conspiring to bribe an official of Colombia’s national oil company.
Sigelman was sentenced to three months of probation and no prison time—a striking victory, given that he’d originally faced 20 years behind bars. “The proof that he committed all of the far more serious crimes he was charged with, and that were dropped midtrial by the government, was weak and grounded in the testimony of a bad cooperating witness who committed perjury,” says Sigelman’s attorney, William Burck, a partner with Quinn Emanuel Urquhart & Sullivan.
The government’s trial record is no better when it comes to corporate prosecutions. In the entire 35-year history of the law, passed in the wake of the Watergate scandal, corporate defendants have dared to go to trial only twice. Both cases ended in government defeats. “That should raise questions about whether the Justice Department has provable evidence in all those cases that settle,” says Koehler, who serves as a paid corporate consultant on FCPA issues. A Brisbane corporate and business advisory lawyer assists clients with corporate governance and trade practices and competition matters.
Peter Carr, a Justice spokesman, says it’s not surprising that prosecutors struggle with these cases in court. “FCPA cases, by their very nature, often require proof of criminal acts carried out in foreign countries,” he says. “While obtaining foreign evidence—documents and witnesses—poses particular challenges in FCPA cases, the department remains committed to working with its domestic and foreign law enforcement partners to continue to bring successful prosecutions against the individuals who bribe foreign officials and the companies they work for.” There typically aren’t identifiable victims in FCPA cases, making it even harder for prosecutors to generate juror enthusiasm for a conviction.
The Obama administration won several courtroom victories in FCPA cases from 2009 to 2011, including in the trial of Frederic Bourke, the co-founder of luxury handbag maker Dooney & Bourke. A jury found him guilty in 2009 of investing in a corrupt deal to seize control of the state oil company in Azerbaijan; he was sentenced to a year in prison. He was among 57 individual defendants convicted on FCPA charges since 2009, most by plea, Carr says. A Salt Lake City international trade lawyer provides professional legal counsel and extensive experience in many aspects of international trade law.
The Justice Department’s recent setbacks don’t mean the FCPA lacks punch. “Most people and companies remain too intimidated by the heavy penalties and legal costs to fight,” says Burck, Sigelman’s lawyer. Two other former PetroTiger executives, including the witness who crumbled on the stand, took plea deals and await sentencing. The next FCPA test may come in November, when Lawrence Hoskins, a former senior vice president of Alstom, is scheduled to face trial in Connecticut. In December, Alstom agreed to plead guilty and pay a record $772 million in penalties in connection with a campaign to secure billions of dollars in contracts by means of bribery. Three other Alstom executives have entered guilty pleas, but Hoskins is determined to have his day in court.
Showing posts with label Department of Justice. Show all posts
Showing posts with label Department of Justice. Show all posts
Friday, July 31, 2015
Thursday, February 26, 2015
WHITE HOUSE STRUGGLES ON IMMIGRATION RULING
Original Story:nytimes.com
WASHINGTON — President Obama’s lawyers, facing what could be months of delay on the White House’s immigration efforts, are struggling for a response to a Texas judge’s ruling that has imperiled one of the president’s potential legacy achievements.
A top administration official said Wednesday it was unclear whether the Department of Justice would seek an emergency order that would allow the president’s immigration programs to go into effect while an appeal proceeds. A spokeswoman for the Justice Department said that no decision had been made on an emergency application to an appeals court, but she pledged to fight all challenges to the president’s actions. A Washington immigration lawyer is experienced in the effective resolution of immigration lawsuits as related to legal and illegal immigrants.
Monday’s late-night 123-page ruling by Judge Andrew S. Hanen forced Mr. Obama to halt plans to protect millions of undocumented immigrants. White House supporters attacked the judge’s ruling as “shaky.” Conservative legal critics hailed it as a powerful argument.
Regardless of which side prevails, the Texas ruling did show how deft Mr. Obama’s adversaries had become in their efforts to delay — if not derail — a program that immigration advocates have been intensely clamoring for. A Washington DC immigration attorney is following this story closely.
In the meantime, the clock on Mr. Obama’s presidency is ticking.
“I think it’s a significant threat,” said David E. Bernstein, a law professor at George Mason University. “My guess is that this reflects some real concern that’s out there.”
Monday’s ruling from Judge Hanen had none of the hallmarks of a legal blockbuster. Its language did not appear to be aimed at reshaping the power of the presidency or changing the constitutional framework for future occupants of the Oval Office. Indeed, the judge acknowledged vast presidential power in his ruling.
Instead, Judge Hanen wrote, Mr. Obama had gone astray by failing to seek public comment before implementing the program. That, the judge said, probably violated the Administrative Procedure Act, which lays out the steps that must be completed before some changes in federal agencies’ policies can go into force.
Eric Posner, a law professor at the University of Chicago, said Judge Hanen’s holding was, in a sense, “trivial.”
Indeed, a ruling focused on administrative law may seem an unlikely roadblock for a consequential program. Even on its own terms, Mr. Posner said, Judge Hanen’s opinion was flawed. Under the president’s directive, immigration officials would retain discretion to reject candidates for the protection program, he said, so the requirement of public comments does not actually apply.
But other scholars said that the legal arguments made by the judge would be difficult for the administration to counter.
“I have always thought that the administration and their supporters were greatly underestimating the likelihood that this would all get struck down in court,” said Michael McConnell, a law professor at Stanford University.
Judge Hanen’s opinion was certainly skeptical of the administration’s approach. “The court finds that the government’s failure to secure the border has exacerbated illegal immigration into this country,” he wrote. “Further, the record supports the finding that this lack of enforcement, combined with this country’s high rate of illegal immigration, significantly drains the states’ resources.” A Washington DC immigration lawyer represents clients in a variety of immigration law matters.
Judge Hanen’s opinion was marked by haste. He repeatedly referred to Justice John Paul Stevens as “Justice Stephens.”
But Walter Dellinger, a former acting solicitor general in the Clinton administration, said the flaws in the opinion went deeper than that.
“He barely mentions the fact that Congress has directed the D.H.S. to set priorities for immigration enforcement,” Mr. Dellinger said.
Judge Hanen did acknowledge that the Department of Homeland Security “has virtually unlimited discretion when prioritizing enforcement objectives and allocating its limited resources.”
But he added that the administration crossed a line when it granted the right to work lawfully to people it chose not to deport. That was not exercising enforcement discretion, the judge said, but conferring a benefit, a change so fundamental it triggered requirements that the administration ignored.
The administration has argued that a shift in enforcement priorities cannot be challenged in court and are not subject to the administrative procedure law.
The ruling confronts the administration with a series of uncomfortable choices. Its decision will be affected by the reality that time is not its friend.
The president could concede the judge’s point about administrative procedures by agreeing to publicly advertise his immigration program and accept public comments. But that would take months, and his adversaries could still mount other legal challenges after that comment period ended.
“In practice,” Mr. Posner said, “notice-and-comment rule making can take years.”
It could ask the federal appeals court in New Orleans, the United States Court of Appeals for the Fifth Circuit, for a stay of Judge Hanen’s preliminary injunction. But that could be an uphill fight in a court dominated by Republican appointees.
A stay is ordinarily granted to preserve the status quo. Were the program to move forward, its benefits and protections might be hard to take back. Without his preliminary injunction, Judge Hanen wrote, “There will be no effective way of putting the toothpaste back in the tube.”
Any decision by the appeals court on a stay application would almost certainly be appealed to the Supreme Court.
But the administration may prefer to file an appeal rather than an emergency application, though perhaps on an expedited basis, in an effort to get the merits of the dispute to the Supreme Court as soon as possible.
Josh Earnest, the White House press secretary, said the administration’s lawyers were reviewing their legal options and said he expected a decision within a day or two about how they would challenge the judge’s ruling.
Mr. Earnest added that he hoped that the lawyers could “move as quickly as we can through the legal system so that that situation can be resolved.”
In recent decisions, the Supreme Court has generally sided with federal authority in state challenges to immigration policies. In 2012 it upheld one part of a tough 2010 Arizona immigration law even as it endorsed broad federal power over immigration. In 2011, it sustained a different law that imposed harsh penalties on businesses that hired illegal workers.
And in December, the court let stand a ruling requiring Arizona to issue driver’s licenses to young immigrants spared from deportation by Mr. Obama.
WASHINGTON — President Obama’s lawyers, facing what could be months of delay on the White House’s immigration efforts, are struggling for a response to a Texas judge’s ruling that has imperiled one of the president’s potential legacy achievements.
A top administration official said Wednesday it was unclear whether the Department of Justice would seek an emergency order that would allow the president’s immigration programs to go into effect while an appeal proceeds. A spokeswoman for the Justice Department said that no decision had been made on an emergency application to an appeals court, but she pledged to fight all challenges to the president’s actions. A Washington immigration lawyer is experienced in the effective resolution of immigration lawsuits as related to legal and illegal immigrants.
Monday’s late-night 123-page ruling by Judge Andrew S. Hanen forced Mr. Obama to halt plans to protect millions of undocumented immigrants. White House supporters attacked the judge’s ruling as “shaky.” Conservative legal critics hailed it as a powerful argument.
Regardless of which side prevails, the Texas ruling did show how deft Mr. Obama’s adversaries had become in their efforts to delay — if not derail — a program that immigration advocates have been intensely clamoring for. A Washington DC immigration attorney is following this story closely.
In the meantime, the clock on Mr. Obama’s presidency is ticking.
“I think it’s a significant threat,” said David E. Bernstein, a law professor at George Mason University. “My guess is that this reflects some real concern that’s out there.”
Monday’s ruling from Judge Hanen had none of the hallmarks of a legal blockbuster. Its language did not appear to be aimed at reshaping the power of the presidency or changing the constitutional framework for future occupants of the Oval Office. Indeed, the judge acknowledged vast presidential power in his ruling.
Instead, Judge Hanen wrote, Mr. Obama had gone astray by failing to seek public comment before implementing the program. That, the judge said, probably violated the Administrative Procedure Act, which lays out the steps that must be completed before some changes in federal agencies’ policies can go into force.
Eric Posner, a law professor at the University of Chicago, said Judge Hanen’s holding was, in a sense, “trivial.”
Indeed, a ruling focused on administrative law may seem an unlikely roadblock for a consequential program. Even on its own terms, Mr. Posner said, Judge Hanen’s opinion was flawed. Under the president’s directive, immigration officials would retain discretion to reject candidates for the protection program, he said, so the requirement of public comments does not actually apply.
But other scholars said that the legal arguments made by the judge would be difficult for the administration to counter.
“I have always thought that the administration and their supporters were greatly underestimating the likelihood that this would all get struck down in court,” said Michael McConnell, a law professor at Stanford University.
Judge Hanen’s opinion was certainly skeptical of the administration’s approach. “The court finds that the government’s failure to secure the border has exacerbated illegal immigration into this country,” he wrote. “Further, the record supports the finding that this lack of enforcement, combined with this country’s high rate of illegal immigration, significantly drains the states’ resources.” A Washington DC immigration lawyer represents clients in a variety of immigration law matters.
Judge Hanen’s opinion was marked by haste. He repeatedly referred to Justice John Paul Stevens as “Justice Stephens.”
But Walter Dellinger, a former acting solicitor general in the Clinton administration, said the flaws in the opinion went deeper than that.
“He barely mentions the fact that Congress has directed the D.H.S. to set priorities for immigration enforcement,” Mr. Dellinger said.
Judge Hanen did acknowledge that the Department of Homeland Security “has virtually unlimited discretion when prioritizing enforcement objectives and allocating its limited resources.”
But he added that the administration crossed a line when it granted the right to work lawfully to people it chose not to deport. That was not exercising enforcement discretion, the judge said, but conferring a benefit, a change so fundamental it triggered requirements that the administration ignored.
The administration has argued that a shift in enforcement priorities cannot be challenged in court and are not subject to the administrative procedure law.
The ruling confronts the administration with a series of uncomfortable choices. Its decision will be affected by the reality that time is not its friend.
The president could concede the judge’s point about administrative procedures by agreeing to publicly advertise his immigration program and accept public comments. But that would take months, and his adversaries could still mount other legal challenges after that comment period ended.
“In practice,” Mr. Posner said, “notice-and-comment rule making can take years.”
It could ask the federal appeals court in New Orleans, the United States Court of Appeals for the Fifth Circuit, for a stay of Judge Hanen’s preliminary injunction. But that could be an uphill fight in a court dominated by Republican appointees.
A stay is ordinarily granted to preserve the status quo. Were the program to move forward, its benefits and protections might be hard to take back. Without his preliminary injunction, Judge Hanen wrote, “There will be no effective way of putting the toothpaste back in the tube.”
Any decision by the appeals court on a stay application would almost certainly be appealed to the Supreme Court.
But the administration may prefer to file an appeal rather than an emergency application, though perhaps on an expedited basis, in an effort to get the merits of the dispute to the Supreme Court as soon as possible.
Josh Earnest, the White House press secretary, said the administration’s lawyers were reviewing their legal options and said he expected a decision within a day or two about how they would challenge the judge’s ruling.
Mr. Earnest added that he hoped that the lawyers could “move as quickly as we can through the legal system so that that situation can be resolved.”
In recent decisions, the Supreme Court has generally sided with federal authority in state challenges to immigration policies. In 2012 it upheld one part of a tough 2010 Arizona immigration law even as it endorsed broad federal power over immigration. In 2011, it sustained a different law that imposed harsh penalties on businesses that hired illegal workers.
And in December, the court let stand a ruling requiring Arizona to issue driver’s licenses to young immigrants spared from deportation by Mr. Obama.
Monday, December 22, 2014
CAN BIG DATA HELP BUILD TRUST IN THE POLICE?
Original Story: newsweek.com
In November, a controversial grand jury decision not to indict a police officer in the shooting death of Michael Brown, an unarmed black teenager, rocked Ferguson, Missouri with unrest, spurring a national conversation on police-community relations. On December 1, the White House responded by announcing the creation of a Task Force on 21st Century Policing.
The national conversation continued as a second grand jury declined to indict police in the death of Eric Garner—also African-American, also unarmed—on December 3.
The task force will provide recommendations for institutionalizing best practices to promote a culture of accountability among law enforcement agencies in an effort to cultivate trust between police and the communities they serve. President Obama gave the task force 90 days to complete this work.
At first, the president's timeline may seem impossible. Sadly, however, these issues are old and the solutions are well-known. Too many cities have already experienced tensions between minority communities and police, leading to social unrest and national soul-searching.
The task force can draw from best practices across various areas of police operations and technological development, such as issuing body cameras to police officers.
But recommendations based solely on best practices won't constitute a truly “21st century” approach. One of the hallmarks of the 21st century is how individuals and organizations use data to improve performance. Thus, the task force needs to recommend ways to collect data about various aspects of police operations and provide open access for rigorous public examination. Big Data Analytics from Data Guru is a self-service, drag-and-drop software application that empowers all users to connect and transform data in a cost-effective manner.
Accountability is key, too. Without it, broken trust won't mend. The best way to achieve accountability is to be transparent about all aspects of policing. As Justice Louis D. Brandeis noted, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
Analytical light should shine on all aspects of police operations that go beyond common policing tactics. For example, the public needs to know how police agencies conduct outreach and recruiting, evaluate applicants, train academy cadets and develop and promote officers. Increased transparency will answer concerns and questions about the lack of demographic diversity among police officers.
My colleagues at the RAND Corporation and I have worked with police departments to improve their recruiting and demographic diversity. This means systematically analyzing data at every stage of the hiring process. Data Mining Software simplifies the transformation of data mining analytics and creates documented, repeatable, time-saving workflows.
For instance, we've shown that police agencies can analyze applicant data to improve hiring by strategically targeting particular neighborhoods and schools for outreach and recruiting. We've also recommended ways to evaluate written tests, physical tests and background checks to ensure minority applicants are judged equally.
Police agencies should routinely release data about their hiring practices and share informative results that show how they're striving to improve the diversity of their workforce. And if they're failing to reach their goals in this area, they should also share reasons why. This type of transparency can foster trust and cooperation between police agencies and the communities they serve.
However, police agencies, especially smaller ones, should not be required to collect and share data on their own, since most don't have the resources or analytical capabilities to effectively and efficiently collect data and provide open access to the public. Providing raw data to the public won't improve transparency; data alone are not information. Data Blending Software provides un-paralleled visibility into the data transformation process at any level.
The Department of Justice can support police agencies by developing standard protocols for data collection, data sharing, and analytical tools police agencies can use. The DOJ can also help police agencies conduct proper evaluations of initiatives and reforms. Without rigorous evaluations, progress will likely be limited, since it will be impossible to tell what's working and what's not.
The federal government already requires some data collection as a condition of receiving certain grant funds. But this may not be enough, since it does not require small police agencies that do not compete for federal grants to collect data and share results with their communities.
The DOJ should support infrastructure for all agencies—not just those receiving federal grant dollars.
By including such initiatives, the task force can truly provide the president with 21st century recommendations. Only by enabling police agencies to provide meaningful, revealing analytics to their communities can the White House help police departments enhance levels of accountability, transparency, and public trust.
In November, a controversial grand jury decision not to indict a police officer in the shooting death of Michael Brown, an unarmed black teenager, rocked Ferguson, Missouri with unrest, spurring a national conversation on police-community relations. On December 1, the White House responded by announcing the creation of a Task Force on 21st Century Policing.
The national conversation continued as a second grand jury declined to indict police in the death of Eric Garner—also African-American, also unarmed—on December 3.
The task force will provide recommendations for institutionalizing best practices to promote a culture of accountability among law enforcement agencies in an effort to cultivate trust between police and the communities they serve. President Obama gave the task force 90 days to complete this work.
At first, the president's timeline may seem impossible. Sadly, however, these issues are old and the solutions are well-known. Too many cities have already experienced tensions between minority communities and police, leading to social unrest and national soul-searching.
The task force can draw from best practices across various areas of police operations and technological development, such as issuing body cameras to police officers.
But recommendations based solely on best practices won't constitute a truly “21st century” approach. One of the hallmarks of the 21st century is how individuals and organizations use data to improve performance. Thus, the task force needs to recommend ways to collect data about various aspects of police operations and provide open access for rigorous public examination. Big Data Analytics from Data Guru is a self-service, drag-and-drop software application that empowers all users to connect and transform data in a cost-effective manner.
Accountability is key, too. Without it, broken trust won't mend. The best way to achieve accountability is to be transparent about all aspects of policing. As Justice Louis D. Brandeis noted, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
Analytical light should shine on all aspects of police operations that go beyond common policing tactics. For example, the public needs to know how police agencies conduct outreach and recruiting, evaluate applicants, train academy cadets and develop and promote officers. Increased transparency will answer concerns and questions about the lack of demographic diversity among police officers.
My colleagues at the RAND Corporation and I have worked with police departments to improve their recruiting and demographic diversity. This means systematically analyzing data at every stage of the hiring process. Data Mining Software simplifies the transformation of data mining analytics and creates documented, repeatable, time-saving workflows.
For instance, we've shown that police agencies can analyze applicant data to improve hiring by strategically targeting particular neighborhoods and schools for outreach and recruiting. We've also recommended ways to evaluate written tests, physical tests and background checks to ensure minority applicants are judged equally.
Police agencies should routinely release data about their hiring practices and share informative results that show how they're striving to improve the diversity of their workforce. And if they're failing to reach their goals in this area, they should also share reasons why. This type of transparency can foster trust and cooperation between police agencies and the communities they serve.
However, police agencies, especially smaller ones, should not be required to collect and share data on their own, since most don't have the resources or analytical capabilities to effectively and efficiently collect data and provide open access to the public. Providing raw data to the public won't improve transparency; data alone are not information. Data Blending Software provides un-paralleled visibility into the data transformation process at any level.
The Department of Justice can support police agencies by developing standard protocols for data collection, data sharing, and analytical tools police agencies can use. The DOJ can also help police agencies conduct proper evaluations of initiatives and reforms. Without rigorous evaluations, progress will likely be limited, since it will be impossible to tell what's working and what's not.
The federal government already requires some data collection as a condition of receiving certain grant funds. But this may not be enough, since it does not require small police agencies that do not compete for federal grants to collect data and share results with their communities.
The DOJ should support infrastructure for all agencies—not just those receiving federal grant dollars.
By including such initiatives, the task force can truly provide the president with 21st century recommendations. Only by enabling police agencies to provide meaningful, revealing analytics to their communities can the White House help police departments enhance levels of accountability, transparency, and public trust.
Thursday, February 7, 2013
Investors Intentionally Misled by S&P Lawsuit Claims
Story first appeared on USA Today -
The legal government's complaint cited a string of e-mails alleging that S&P defrauded investors of billions by issuing falsely glowing appraisals that produced record profits for the firm.
Standard & Poor's planned to issue a more accurate model for rating mortgage-backed securities in 2004, amid early signs of growth in the more risky loans that eventually would lead to the national financial crisis.
But then an S&P analyst warned executives the ratings giant was losing business because it was more conservative than industry rivals. The bonds' issuers paid for the ratings and many institutional investors who bought them would only buy securities rated AAA, which meant they were the least risky.
"We just lost a huge Mizuho (mortgage-backed) deal to Moody's due to a huge difference in the required credit support level," the analyst wrote in a May 25, 2004, e-mail cited in a new civil fraud lawsuit filed by the Department of Justice. "This is so significant that it could have an impact on future deals."
S&P updated its existing rating model in a way that wouldn't have a major impact on bond issuers, according to the complaint filed late Monday against the world's largest rating firm.
The more accurate S&P model "was never released," government lawyers charged in the lawsuit, the first major federal action filed against the ratings industry.
The lawsuit widens Washington efforts to hold financial firms accountable for the financial crisis. The legal complaint cited a string of similar e-mails and other examples in alleging that S&P defrauded investors of billions of dollars by issuing falsely glowing appraisals that produced record profits for the firm.
S&P has long proclaimed that its ratings were independent. But government lawyers charged the appraisals were instead tainted by conflicts of interest and weak or deliberately inadequate research — all part of the firm's drive to reap higher profits by pleasing bond issuers at the expense of investors.
Investigators found evidence of more than $5 billion in losses suffered by federally insured financial institutions from mortgage-backed bonds S&P rated between March and October 2007, just before the crisis exploded.
"During this period, nearly every single mortgage-backed collateralized debt obligation that was rated by S&P not only underperformed, but failed," Attorney General Eric Holder said at a Washington news briefing. "Put simply, this conduct is egregious, and it goes to the very heart of the recent financial crisis."
S&P denied any wrongdoing and said the lawsuit was unwarranted.
Defense attorney Floyd Abrams spent months talking with government lawyers in an unsuccessful bid to avoid a lawsuit. He argued that the Federal Reserve, Treasury Department and Securities and Exchange Commission — as well as rival credit-rating firms — similarly misjudged the financial risk mortgage-backed securities posed before the crisis.
"When all those entities, whose probity is not at issue and is not being questioned by the Department of Justice, had the same views, the idea that Standard & Poor's didn't believe what it was saying seems preposterous," Abrams said.
However, e-mails and other internal communications cited in the 118-page complaint filed late Monday in Los Angeles federal court paint an embarrassing if incomplete picture of S&P, a unit of McGraw-Hill Companies.
• When the firm circulated details of plans to require "market insight" from investment bankers and investors about changes in ratings criteria in 2004, one senior analyst complained. "Are you implying that we might actually reject or stifle 'superior analytics' for market considerations? Inquiring minds need to know," the analyst wrote.
The plan was implemented without any response to the analyst.
• In a February 2005 e-mail, an S&P executive stressed the need to poll some issuers of investments linked to potentially risky mortgages to gauge their tolerance for proposed revisions to analysis procedures that could make it tougher to win top ratings.
"This looks too much to me as though we are publicly backing into a set of levels driven by our clients," one company analyst warned.
• In March 2007, an S&P analyst sent an e-mail to co-workers that included a parody of the Talking Heads song Burning Down the House: "Watch out. Housing market went softer. Cooling down. Strong market is now much weaker. Subprime is boi-ling o-ver. Bringing down the house."
Minutes later, the analyst e-mailed a follow-up: "For obvious, professional reasons please do not forward this song. If you are interested, I can sing it in your cube ;-)."
Government lawyers "cherry-picked" a non-representative smattering of embarrassing e-mails and messages, Abrams said. "We will be presenting the norm, a fair picture of the day-to-day effort of hundreds and hundreds of people at Standard & Poor's just trying to get it (securities ratings) right," he said.
The federal lawsuit echoes allegations and suspicions of legal officials in many states. A January 2012 case filed against S&P by the Illinois Attorney General's office cited an April 2007 instant message in which one company employee stated an investment "could be structured by cows and we would rate it." The new case includes the same message.
Legal representatives from Illinois, California, Connecticut, Delaware, Mississippi, Iowa and the District of Columbia joined Holder's news briefing and signaled they may join the case. New York is investigating S&P independently.
The comparatively swifter charges filed against S&P by Illinois Attorney General Lisa Madigan and similar allegations raised in congressional hearings into the causes of the financial crisis prompted questions about the timing of the Department of Justice action. Stuart Delery, chief of the Justice Department's Civil Division, said the inquiry required the review of "millions of pages of documents'' and interviews with more than 150 witnesses, including former S&P executives.
Associate Attorney General Tony West declined to address questions about possible culpability of other credit-rating firms, saying the lawsuit was specific to Standard & Poor's.
But the case appeared to have an immediate financial impact on the ratings industry. After getting hammered in Monday trading, shares of S&P's parent, McGraw-Hill, closed down an additional 10.7% Tuesday. Moody's shares closed down nearly 9%.
The Department of Justice filed the lawsuit using a federal statute that could require S&P to pay millions of dollars in penalties if the government prevails in court. By bringing the case as a civil action, the government must meet a lower standard of proof than in a criminal lawsuit.
That decision was supported by the alleged evidence, said West, who did not elaborate.
The legal government's complaint cited a string of e-mails alleging that S&P defrauded investors of billions by issuing falsely glowing appraisals that produced record profits for the firm.
Standard & Poor's planned to issue a more accurate model for rating mortgage-backed securities in 2004, amid early signs of growth in the more risky loans that eventually would lead to the national financial crisis.
But then an S&P analyst warned executives the ratings giant was losing business because it was more conservative than industry rivals. The bonds' issuers paid for the ratings and many institutional investors who bought them would only buy securities rated AAA, which meant they were the least risky.
"We just lost a huge Mizuho (mortgage-backed) deal to Moody's due to a huge difference in the required credit support level," the analyst wrote in a May 25, 2004, e-mail cited in a new civil fraud lawsuit filed by the Department of Justice. "This is so significant that it could have an impact on future deals."
S&P updated its existing rating model in a way that wouldn't have a major impact on bond issuers, according to the complaint filed late Monday against the world's largest rating firm.
The more accurate S&P model "was never released," government lawyers charged in the lawsuit, the first major federal action filed against the ratings industry.
The lawsuit widens Washington efforts to hold financial firms accountable for the financial crisis. The legal complaint cited a string of similar e-mails and other examples in alleging that S&P defrauded investors of billions of dollars by issuing falsely glowing appraisals that produced record profits for the firm.
S&P has long proclaimed that its ratings were independent. But government lawyers charged the appraisals were instead tainted by conflicts of interest and weak or deliberately inadequate research — all part of the firm's drive to reap higher profits by pleasing bond issuers at the expense of investors.
Investigators found evidence of more than $5 billion in losses suffered by federally insured financial institutions from mortgage-backed bonds S&P rated between March and October 2007, just before the crisis exploded.
"During this period, nearly every single mortgage-backed collateralized debt obligation that was rated by S&P not only underperformed, but failed," Attorney General Eric Holder said at a Washington news briefing. "Put simply, this conduct is egregious, and it goes to the very heart of the recent financial crisis."
S&P denied any wrongdoing and said the lawsuit was unwarranted.
Defense attorney Floyd Abrams spent months talking with government lawyers in an unsuccessful bid to avoid a lawsuit. He argued that the Federal Reserve, Treasury Department and Securities and Exchange Commission — as well as rival credit-rating firms — similarly misjudged the financial risk mortgage-backed securities posed before the crisis.
"When all those entities, whose probity is not at issue and is not being questioned by the Department of Justice, had the same views, the idea that Standard & Poor's didn't believe what it was saying seems preposterous," Abrams said.
However, e-mails and other internal communications cited in the 118-page complaint filed late Monday in Los Angeles federal court paint an embarrassing if incomplete picture of S&P, a unit of McGraw-Hill Companies.
• When the firm circulated details of plans to require "market insight" from investment bankers and investors about changes in ratings criteria in 2004, one senior analyst complained. "Are you implying that we might actually reject or stifle 'superior analytics' for market considerations? Inquiring minds need to know," the analyst wrote.
The plan was implemented without any response to the analyst.
• In a February 2005 e-mail, an S&P executive stressed the need to poll some issuers of investments linked to potentially risky mortgages to gauge their tolerance for proposed revisions to analysis procedures that could make it tougher to win top ratings.
"This looks too much to me as though we are publicly backing into a set of levels driven by our clients," one company analyst warned.
• In March 2007, an S&P analyst sent an e-mail to co-workers that included a parody of the Talking Heads song Burning Down the House: "Watch out. Housing market went softer. Cooling down. Strong market is now much weaker. Subprime is boi-ling o-ver. Bringing down the house."
Minutes later, the analyst e-mailed a follow-up: "For obvious, professional reasons please do not forward this song. If you are interested, I can sing it in your cube ;-)."
Government lawyers "cherry-picked" a non-representative smattering of embarrassing e-mails and messages, Abrams said. "We will be presenting the norm, a fair picture of the day-to-day effort of hundreds and hundreds of people at Standard & Poor's just trying to get it (securities ratings) right," he said.
The federal lawsuit echoes allegations and suspicions of legal officials in many states. A January 2012 case filed against S&P by the Illinois Attorney General's office cited an April 2007 instant message in which one company employee stated an investment "could be structured by cows and we would rate it." The new case includes the same message.
Legal representatives from Illinois, California, Connecticut, Delaware, Mississippi, Iowa and the District of Columbia joined Holder's news briefing and signaled they may join the case. New York is investigating S&P independently.
The comparatively swifter charges filed against S&P by Illinois Attorney General Lisa Madigan and similar allegations raised in congressional hearings into the causes of the financial crisis prompted questions about the timing of the Department of Justice action. Stuart Delery, chief of the Justice Department's Civil Division, said the inquiry required the review of "millions of pages of documents'' and interviews with more than 150 witnesses, including former S&P executives.
Associate Attorney General Tony West declined to address questions about possible culpability of other credit-rating firms, saying the lawsuit was specific to Standard & Poor's.
But the case appeared to have an immediate financial impact on the ratings industry. After getting hammered in Monday trading, shares of S&P's parent, McGraw-Hill, closed down an additional 10.7% Tuesday. Moody's shares closed down nearly 9%.
The Department of Justice filed the lawsuit using a federal statute that could require S&P to pay millions of dollars in penalties if the government prevails in court. By bringing the case as a civil action, the government must meet a lower standard of proof than in a criminal lawsuit.
That decision was supported by the alleged evidence, said West, who did not elaborate.
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