A Different Set Of Rules For Wall Street

By Yashwanth Manjunath

Back in the 19th century, sending people to prison was considered a great way to deal with unpaid debt. These prisons were appropriately called debtor’s prisons until they were ruled unconstitutional. But today the US government thinks debtor’s prisons are just dandy if they are used for the purpose of punishing people who borrow from Wall Street financial institutions.

Take Jeffrey Stearns for example, a 29-year-old concrete-company owner. Stearns recently spent two nights in jail for not paying $4,024.88 owed to a unit of AIG on a loan for his pickup truck. He was only released after agreeing to pay $1,500 to the loan company. Interestingly enough, $4,024.88 is just about how much money AIG owes to every single American taxpayer for the $122.8 billion dollar bailout they received (and have yet to pay back). I wonder why no one is trying to arrest the top executives at AIG. Of course this isn’t even the most egregious recent example of Wall Street benefiting from a different set of rules.

Angelo Mozillo (pictured) “allegedly” made over $600 million engaging in insider trading and mortgage fraud leading up to the 2008 financial collapse as the CEO of Countrywide. The SEC even had emails and other documents which showed him discussing the company’s lending practices and describing some of its loans as “toxic” and “poison.” Of course, as Mozillo was privately criticizing these loans, publicly the company still sold them to unsuspecting investors. Sounds like a pretty clear case of fraud, doesn’t it?

But despite the overwhelming evidence against him, federal prosecutors in Los Angeles dropped their criminal investigation of him last month. Mozillo’s only punishment was a $67.5 million settlement with the SEC, $45 million of which was paid for by Countrywide and Bank of America (who now owns Countrywide).

The best part was the reaction of Robert Khuzami, the director of the SEC’s Enforcement division:

Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite — a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model.

The man did a victory lap! Can you imagine if a bank robber had stolen $600 million from Bank of America in New York City and the NYPD Chief of Police came out and acted like getting 10% of the money back was a “fitting outcome”!? Charlie Engle, one of Mozillo’s subprime borrowers, was not so lucky.

Charlie Engle is currently serving a 21 month sentence for lying on two “liar loans”, something millions of other Americans did prior to the financial meltdown. The way federal prosecutors nailed Engle was by sending an attractive undercover female agent by the name of Ellen Burrows to seduce him while wearing a wire. Unfortunately for Engle, Burrows managed to persuade him to incriminate himself.

When asked why they went to so much trouble to prosecute arguably the smallest of financial offenders, Neil McBride, the US attorney whose office prosecuted the case issued a statement saying: “The Department of Justice has made prosecuting financial crimes, including mortgage fraud, a high priority.”

No reports yet on whether he was able to say that with a straight face.

But the real kicker is that when Engle is finally released from prison, he’ll have to pay $262,500 in restitution to the owner of his mortgages, Countrywide, now owned by Bank of America.

Whoever said “crime doesn’t pay” clearly never worked as a top executive on Wall Street.

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