Commentary: Does the Department of Justice understand criminal law?

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Richard Lawless is a former senior banker who has specialized in evaluating and granting debt for over 25 years. He has a Master’s Degree in Finance from the University of San Diego and Bachelor’s Degree from Pepperdine University. He actively writes for many finance publications

By Richard Lawless

It appears that the Department of Justice may not understand criminal statutes, the RICO laws or the antitrust laws.

When Puerto Rico defaulted on its $70 billion in municipal bonds, numerous criminal complaints were filed. After two-and-a-half years, no action has been taken by the DOJ regarding the $34 billion that was lost.

When the Puerto Rico Senate held special committee hearings, the senior auditor for KPMG admitted that some of the municipal agencies were technically bankrupt when much of the municipal debt was issued. Many other municipal employees stated under oath that both the bond ratings agencies (Moody’s, S&P and Fitch) and the major banks (Wells Fargo, Citibank, etc.) knew the municipal agencies to be bankrupt but for the right fees they would issue good bond ratings and sell the bonds to their customers.

The Department of Justice says a confession is not evidence. The Department of Justice told me that sworn testimony given in a Puerto Rico Senate Hearing is not credible because it is Puerto Rico!

When a forensic financial audit confirmed that the municipal agencies did not have the funds to make the municipal bond payments and all three rating agencies and dozens of major Wall Street Banks missed that easily available pubic information dozens of times, the DOJ said that there was no anti-trust violations or collusion between the Wall Street firms. According to the DOJ, no laws were broken.

When newspaper reporters received phone calls from employees of the Central Intelligence Agency claiming that the CIA has been watching billions in wire transfers leave the island over the past decade. The callers claimed that this has been allowed to continue because employees of the Puerto Rico FBI and US Attorneys were being paid to look the other way.

When this was reported to the FBI, the Washington FBI sent the criminal complaints to the Puerto Rico FBI office, so they could investigate themselves.

After the 2008 financial crisis, Congress passed Dodd Frank, legislation that would hold Wall Street executives responsible. The legislation said if you are in charge, you are responsible. No need to prove the executives knew or participated in the fraud.

After all this came to light, letters were sent to the board of directors of the bond rating agencies (Moody’s, Fitch and S&P) but the companies continued to issue unsupported and possibly fraudulent bond ratings on billions in municipal bonds. In fact, within days of the letters being delivered, S&P signed a $350,000 contract with the most troubled municipal agency in Puerto Rico to “help improve their bond ratings”!

The DOJ says this sounds like a civil matter.

Months before any legislation was passed by Congress regarding Puerto Rico’s $70 billion default, all 435 members of Congress and all 100 members of the Senate were sent information claiming much of the Puerto Rico bankruptcy might be due to massive municipal bond fraud.

Treasury Secretary Lew was given the responsibility of dealing with the Puerto Rico bankruptcy mess. This was shocking since Citibank was among the first banks to issue these fraudulent municipal bonds while Secretary Lew was COO of the bank. According to Dodd Frank he should be held liable for this fraud and now he is charge of fixing it?

Treasury Secretary Lew worked with two other treasury employees who also previously worked for a firm that made a fortune selling and reselling these fraudulent bonds.

None of these conflicts of interest were ever disclosed to the various congressional and senate committee hearings Secretary Lew and his associates spoke with.

The DOJ says there is nothing here. No laws were broken. Conflict of interest complaints to the Treasury Department and the Congressional Ethics Committee were ignored.

At first, Secretary Lew and his associates wanted a full taxpayer bailout. When it became apparent that that would not fly with Congress, they proposed a law (PROMESA) that would prevent victims from suing, confiscate the remaining bond proceeds and hand off control of this process to a Fiscal Control Board whose members were very much involved in the initial issue of this $70 billion in fraudulent debt.

Speaker of the House, Paul Ryan, stated publicly that he could not support any legislation that would usurp decades of existing case law, confiscate innocent investor’s money or prevent victims from defending themselves.

After meeting with Secretary Lew, sizable donations from firms directly benefiting from all this municipal bond fraud flowed directly into Speaker Ryan’s re-election fund. Speaker Ryan quickly changed his mind and pushed the PROMESA legislation through Congress.

The DOJ says no laws were broken.

Is the DOJ really this incompetent or are they active criminal co-conspirators in all this on-going Wall Street fraud and political corruption?

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