Evelyn Hockstein/Pool Photo via AP
Attorney General Merrick Garland: “Upholding the rule of law means applying the law evenly without fear or favor.”
In a country with such a yawning gap between the wealth and influence of elites and the comparatively piddling power of everyone else, to catch what’s really happening at the highest levels of power you must consult news sources like the Vineyard Gazette, a paper covering goings-on in Martha’s Vineyard. A recent chronicle of a book event for former Attorney General Eric Holder offered just such a window.
Holder was asked whether, if he were still running the Justice Department, he would charge Donald Trump, specifically for inciting the riot at the Capitol on January 6th. Holder called out to Lanny Breuer, his head of the Criminal Division while at DOJ, who happened to be in the audience.
“So Lanny, would we bring this case?” asked Holder. “We would bring it in a minute,” replied Breuer, to thunderous applause.
If ever there was a moment of elite historical amnesia, it was this. Lanny Breuer and Eric Holder are jointly responsible as the greatest enablers of criminal impunity in American history. They indicted literally nobody of consequence for the destruction of the U.S. economy in the global financial crisis of 2008, and the mountain of demonstrable fraud that triggered it. In fact, Holder literally had a corner office held for him at Covington & Burling, the corporate defense firm that represented many of the top banks whose executives Holder declined to prosecute, while he served as attorney general.
Why anyone would listen to the views of Holder and Breuer on the subject of holding criminal actors responsible is beyond comprehension. These are two charter members of the chickenshit club.
Indeed, the reason to doubt that there’ll be any accountability moment for Trump and his gang is the well-grounded belief that U.S. law enforcement has written such moments out of possibility. Defense attorneys and prosecutors, who come from the same schools and pass freely between the same law firms, share the same hands-off mindset when it comes to corporate crime, creating a near-permanent barrier to justice. Law enforcement has simply lost its nerve, amid a miasma of corruption and career incentives and fear of losing a case, all of which points toward leniency.
But the most hopeful elite accountability moment this week, the one that suggests that maybe the rule of law has a pulse, wasn’t actually conducted with a search warrant at Mar-a-Lago. It was a Justice Department victory in a different case that actually holds top officials of one of the nation’s biggest corporate recidivists accountable.
On Wednesday, a jury in Chicago convicted two traders from JPMorgan Chase, including managing director Michael Nowak, who was the head of the bank’s gold trading desk, for financial fraud in gold markets. The traders were engaging in “spoofing,” a practice of entering fake trades to spur activity and boost the commodity price.
Financial-reform observers believe this case involves the most senior bank officers ever charged in recent history, let alone convicted. The Justice Department actually went for a racketeering charge, depicting the precious metals trading desk as a criminal enterprise within the bank. This is incredibly new stuff for a Justice Department that has long been moribund on corporate crime. “RICO is now clearly a valid charge in white-collar criminal cases like this, and that’s a very, very powerful weapon,” said Dennis Kelleher of the financial reform group Better Markets.
Financial-reform observers believe this case involves the most senior bank officers ever charged in recent history, let alone convicted.
The DOJ’s interest in spoofing cases goes back to the Obama years. Spoofing, a seemingly regular practice of self-enrichment, was made illegal in the Dodd-Frank Act of 2010. With advances in high-frequency and online trading, it became trivially easy to make money by submitting high-bid trades and canceling them moments later, while playing the other side of the bet once competitors reacted to the higher bid.
The department learned that, just as with banks (including JPMorgan Chase) signing up their customers for fake accounts to show increased sales growth, practically everybody involved in commodity trading was spoofing. The difference here is that DOJ decided to do something about it.
The first major conviction for spoofing came in 2015, when Michael Coscia of Panther Energy Trading was found to have made $1 million in a few months by using an algorithm to spoof. The massive trail of canceled orders provided enough proof to get over the historically high hurdle for corporate crime: the requirement that the defendant had the direct intent to violate the law.
That trial was held in Chicago, home to the commodity futures exchange CME. More Chicago cases followed up the chain, against gold and silver traders at Deutsche Bank (2020) and Bank of America (2021). But the JPMorgan Chase case was different, as Better Markets laid out at the outset of the trial in July.
First, the DOJ did not stop at civil penalties for the bank, which have brought in $920 million on this matter. There were also criminal charges for two precious metals traders and for Nowak, the executive who was the head of the trading desk, as well as individual civil enforcement from the Commodity Futures Trading Commission, which sued the traders, including Nowak, directly for monetary penalties and a permanent ban on future trading. Obviously, DOJ could have aimed higher, at Nowak’s bosses, who had to have known about a criminal enterprise to manipulate the gold market that lasted for eight years. Senior management can be held accountable for compliance failures like this. But just charging Nowak was a major step forward.
Second, DOJ charged these traders using the Racketeer Influenced and Corrupt Organizations Act (RICO). This is the law most typically used for the Mafia and other organized-crime syndicates. That set a new standard for financial fraud cases, especially after the RICO charges survived a motion to dismiss, showing that the judge found they had merit.
Third, the two convictions stuck to the most senior officials. The top gold trader, Gregg Smith, was convicted, along with Nowak. Jeffrey Ruffo, a sales associate, was acquitted. Clearly, the jury wanted to go after those with the most responsibility for the actual criminal activity. In addition to using the evidence of the trades themselves, prosecutors also presented former traders at JPMorgan and rival banks who testified to watching Smith and Nowak spoof as a moneymaking scheme.
The jury did not convict on the RICO charge. The deliberation took eight days, a signal of the complexities of the case. The judge had to urge the jury to reach a unanimous result with something called a Silvern charge, and while the jurors could not get there on RICO, they did convict on attempted price manipulation, wire fraud, commodities fraud, and spoofing.
“‘Fraud,’ ‘manipulation,’ and ‘racketeering’ are just fancy words for lying, cheating, and stealing,” Kelleher said in a statement. “Like everyone on Main Street, those who do it on Wall Street should be charged and, if convicted, go to prison even if they wear a suit and tie and work at JPMorgan Chase.”
Adhering to that simple philosophy broke a cycle of impunity for white-collar crime that stretches back decades, one that led to ongoing misconduct, particularly at JPMorgan, whose list of violations of law is impossibly long. At least on spoofing, the Justice Department has shown a proclivity for equal justice under the law. The fact that DOJ lost on the RICO charges, perversely, is a good thing, because it shows prosecutors taking a risk to change the trajectory of the law. Even in losing, that grows the set of options for the next group of fraudsters.
On Thursday, Attorney General Merrick Garland, in a brief statement about the raid on Mar-a-Lago, said, “Upholding the rule of law means applying the law evenly without fear or favor.” That type of sentiment has been a punch line for too long in America. It’s impossible to know if the Justice Department’s newfound vigor in combating spoofing, and its faithfulness to the no-man-above-the-law rule, will hold with respect to Trump. But maybe they’ve realized that the way to make their words ring true is by backing them up with action.
