Forum Post: The Martin Act & Our Attorney Generals

People who are familiar with Wall Street fraud have come to believe that the Obama Justice Department just doesn’t want to investigate and prosecute bankers. It’s gone to great lengths to avoid prosecuting them.

In fact, that’s become so clear to Steve Linnick, Inspector General of the Federal Housing Finance Agency, that he’s stopped referring potential criminal cases to the Justice Department at all. Instead he’s started sending them to Mr. Schneiderman, who has broad power to bring prosecute financial wrongdoing under a 1927 New York law called the Martin Act.

There is one Attorney General for each of the fifty states. Each of them has the ability to prosecute the crimes committed by banks in their own jurisdictions.

They can also cooperate with Mr. Schneiderman, whose authority under the Martin Act extends across state lines. That power gives state AGs another tool for protecting their state’s residents from fraud and bringing criminal bankers to justice.

And yet, only a handful of brave Attorneys General are willing to enforce the law against bankers. In one way or another, Schneiderman’s battle is also being waged by Martha Coakley in Massachusetts, Kamala Harris of California, Beau Biden of Delaware, Jack Conway of Kentucky, and Catherine Cortez Masto of Nevada.

That leaves forty-two other states whose AGs are refusing to enforce the law.

And the Obama Administration isn’t content to just let bad bankers go free to commit more crimes. It’s also pressuring the AGs to accept a cushy deal with the banks that would leave crimes unpunished, homeowners unsafe, and bank fraud victims uncompensated.

Based on the overwhelming evidence we’ve seen so far, a truly fair resolution will probably involve handcuffs, orange jumpsuits, and perp walks along with a financial deal. Financial restitution will need to include, at a minimum:

1) Substantial principal reductions for underwater homeowners, along with lower interest rates;

2) A breakup or restructuring of the “MERS” shell game so that it no longer enables deceit, tax evasion, and the conversion of home mortgages from a two-party contract to a commodity bankers can trade and sell without regard to property rights;

3) The right to rent a home that has become distressed; and, a loan modification facility that is not administered by the banks themselves.

4)“Fair Settlement” is a good enough umbrella under which to place these demands, as long as it’s clear that prosecutions and real restitution are vital elements of fairness.

The question now is, how strong will this movement become? Will the public back these groups in demanding justice and rejecting any more cushy bank deals? If they don’t, the country will have serious problems in the years to come.

The president is enjoying the fruits of his rhetoric this week, and it’s excellent rhetoric. But he’ll need to match his words to his deeds if he wants the rewards to continue, and that means directing his Justice Department to drop the cushy bank agreement and start prosecuting Wall Street wrongdoers. And voters are likely to be unforgiving of state politicians who won the office of Attorney General by promising to uphold the law and then turn a blind eye to “wrong” acts by the “right” people.

It’s bad enough to watch powerful people break the law with impunity, shatter the economy, get rescued with taxpayer dollars, and then get to scoff at the law as they walk away unpunished. Here’s what’s even worse: If they’re not brought to justice, they’ll do it again. dcosts.com