Aug. 23 (Bloomberg) — Why didn’t the U.S. Justice Department get someone like Leslie Caldwell years ago when it needed her?
Caldwell, a partner at the New York law firm Morgan Lewis & Bockius LLP, is the former prosecutor who led the Justice Department’s Enron Task Force from 2002 to 2004, which resulted in criminal prosecutions of 36 defendants after the Houston energy-trading company collapsed. She is now the lead candidate to become chief of the department’s criminal division, succeeding the rather passive Lanny Breuer, who left in March to return to the white-shoe law firm Covington & Burling LLP. Caldwell, 55, is in the final stages of the vetting process, Bloomberg News reported this week.
The Enron team’s record under Caldwell wasn’t perfect, of course. Yet when the country needed a seasoned prosecutor to bring tough cases and help restore investor confidence after a wave of accounting scandals, she and her squad performed admirably. Enron’s former chief financial officer, Andrew Fastow, pleaded guilty to fraud charges shortly before Caldwell stepped down as the task force’s director in March 2004. His testimony later helped prosecutors win guilty verdicts against former Enron Chief Executive Officers Jeffrey Skilling and Ken Lay.
In July 2002, after the telecommunications giant WorldCom Inc. imploded, President George W. Bush created a new corporate-fraud task force that went far beyond Enron. It resulted in almost 1,300 convictions, which included about 200 CEOs and corporate presidents and more than 50 CFOs.
That’s the type of response the U.S. needed to the 2007-2009 financial crisis. The country never got it. One of the central features of the crisis was how obvious it was that lots of big financial companies’ balance sheets were a farce. This helped cause the collapse in confidence that could only be restored with taxpayer backing. Yet no senior executive of a major financial institution was prosecuted.
Gretchen Morgenson and Louise Story of the New York Times nailed one of the crucial reasons in a landmark April 2011 article. In 1995, bank regulators made 1,837 criminal referrals to the Justice Department, according to data the Times reporters obtained from the Transactional Records Access Clearinghouse at Syracuse University. From 2007 to 2010, the average number of referrals for criminal prosecution was 72.
The plunge makes it seem like this must have been the result of a policy choice, perhaps motivated in part by a desire to promote financial stability. It’s as if the Justice Department simply forgot how to pursue serious financial-fraud cases — with the exception of Manhattan U.S. Attorney Preet Bharara’s campaign against insider trading at hedge funds. U.S. Attorney General Eric Holder told the Wall Street Journal this week that more cases spawned by the crisis may be unveiled in coming months. Yet some of the best opportunities may have been lost to time. The statute of limitations for many crisis-era fraud cases has passed or soon will.
Lehman Brothers Holdings Inc. wasn’t even under investigation when it filed for bankruptcy in September 2008. Recall that the night before it filed for Chapter 11, television reports showed Lehman employees streaming out of the building carrying boxes of documents — walking proof that the company hadn’t received subpoenas or been told by the government to preserve evidence. It’s no wonder nobody from Lehman was ever charged. The scene was cold by the time investigators arrived.